M/S. PARK INTERNATIONAL,KOLKATA vs. ITO, WARD - 32(3), KOLKATA

The first common issue in these two appeals of assessee is against the order of CIT(A) confirming the disallowance of payment made on account of purchase of hides and skins by the AO by invoking the provisions of section 40A(3) of the Act amounting to Rs.86,01,073/- in AY 2004-05 and Rs.22,43,717/- in AY 2005-06.

Briefly stated facts are that the assessee is in the business of manufacturing and export of leather goods. During the course of assessment proceedings for these two assessment years, the assessee found to have made purchases of raw hides and skins amounting to Rs.4,40,84,954/- in AY 2004-05 and Rs.1,12,18,583/- in AY 2005-06. According to AO, the assessee has contravened the provision of section 40A(3) of the Act by making cash payments to the suppliers of raw hides through otherwise than crossed account payee cheque having amount exceeding Rs.20,000/- in each occasion in these two assessment years and hence, he proposed to disallow the sum equivalent to 20% of this purchase amount. The assessee replied that assessee’s case falls under exception clause as provided in Rule 6DD(f) and hence, the purchases made directly from the producers of hides and skins is not covered under the provisions of section 40A(3) of the Act but the AO made disallowance. Aggrieved, assessee preferred appeal before CIT(A) for both the years and CIT(A) also confirmed the action of AO by stating that the assessee is unable to prove that it has purchased from the producers but it proves otherwise from the purchase bill that the parties from whom purchases were made were 2 & 153/Kol/2009 Park International AY 2004- 05 & 2005-06 traders of hides and skins. Accordingly, he confirmed the disallowance in both the years. Aggrieved, now assessee is in second appeal before Tribunal.

We have heard rival submissions and gone through facts and circumstances of the case. Before us, ld. Counsel for the assessee argued that there is no organized market for raw hides and skins and the sources are only in isolated far flung villages where small butchers collect hides from slaughtered and dead carcasses. According to him, the stock of each individual butcher is too small for independent marketing and they bring their small product to bigger butcher in the rural “haat” and entrust the marketing of their stock to him as their agent. Such leading butcher being resourceful in contacts, procures for assessee the raw hides and skins. These payments are made directly to the butcher who collects the hides and skins. It is a fact that the payments are made then and there at the time of purchase in cash because these small butchers they slaughter animals and collect hides and skins and also from dead carcasses. Ld. Counsel for the assessee stated that in view of these facts it is clear that the purchase is directly made from the producers by the assessee as is evident from the bills and vouchers. Ld. Counsel for the assessee also stated that the issue of assessee’s appeal is squarely covered in favour of the assessee and against the revenue by the decision of Tribunal in assessee’s own case in ITA No. 2099/Kol/2006 for AY 2003-04 dated 04.05.2007, wherein on exactly identical facts Tribunal allowed the claim of the assessee vide para 15 of its order by observing as under: “15. Since in the present case also, the assessee has duly submitted all the evidences and documents in support of its claim that the hides were purchased from the sellers, who were also the producers of the same, therefore, the action of AO in doubting such claim of the assessee without rebutting the same with help of substantial material finding on record is not correct and the Ld. CIT(a) was not justified in upholding such action of AO. While coming to such conclusion, we find support from the recent judgment of this Tribunal in the case of Shri Pyarelal Bajaj vs. ACIT (supra) relied by the assessee, wherein this Tribunal had accepted the claim of the assessee. Since facts of the present case are identical and the Revenue has not disputed or controverted the contention of the assessee as discussed hereinabove, we considering the totality of the facts involved in this case and considering the various decisions of this Tribunal are of the opinion that the cash payment made by the assessee for purchasing of raw hides is well covered under exception clause of Rule 6DD of the Income Tax Rules, 1962. We, therefore, hold that the disallowance of Rs.94,00,412/- made by the AO is not correct and therefore, set aside the order of Ld. CIT(A) and accept the ground raised

5. Ld. Sr. DR also agreed that the issue is covered in favour of the assessee by the Tribunal’s decision in assessee’s own case and he is not aware whether the revenue has filed any appeal before Hon’ble High Court or not on this issue. We find from the above that the issue is covered in favour of assessee by Tribunal’s decision in assessee’s own case and nothing 3 & 153/Kol/2009 Park International AY 2004- 05 & 2005-06 contrary to the same was brought before us and accordingly, we delete the disallowance and allow this common issue of both the appeals of assessee.

One issue remains in AY 2005-06 is as regards to the order of CIT(A) confirming the action of AO in disallowing labour charges at Rs.65,16,215/- and security guard expenses of Rs.77,691/- for non-deduction of TDS u/s. 194C of the Act thereby applying the provisions of section 40(a)(ia) of the Act.

We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has incurred labour charges to the tune of Rs.65,16,215/- paid to labour sardar numbering 78. We find that the AO disallowed these expenses for want of deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. The CIT(A) also confirmed the action of AO. Aggrieved, now assessee is in second appeal before Tribunal. We find that this issue stands covered in favour of revenue and against the assessee by the decision of this tribunal in the case of DCIT Vs. Kamal Mukherjee & Co. (Shipping) (P) Ltd. ITA No. 199/Kol/2010, wherein it is held as under: (From Head notes) …….Undoubtedly, these decisions do indicate that there is a workman employer relationship between the dock workers and the stevedores like assessee when they employ those workers, but be that as it may, the fact remains that the assessee has made payments to the CDLB for supply of labour, even when this labour may be treated as employed by the assessee for all practical purposes, the provisions of section 194C are clearly attracted. In such a situation, i.e. when labour hired by the assessee through CDLB is considered to be in assessee’s employment, the payments made to CDLB cannot be treated as payments for any work, but nevertheless these payments could still be covered by the provisions of section 194C because these are payments made for supply of labour which are specifically covered by section 194C(1). CDLB is an agent of the stevedores like the assessee in the sense that the labour is recruited by the assessee through CDLB, but when this fact does not affect the nature of payment by the assessee to the CDLB which is admittedly in the nature of payment for supply of labour. The reasoning adopted by the Commissioner (Appeals), though somewhat impressive at first glance, is fallacious. There is no cause and effect relationship between workers assigned by the CDLB having employer workman relationship with the assessee, and the payments being made by the assessee to CDLB being not in the nature of ‘payment for supply of labour’”. It means that there is no question of assessee arguing that there is no contract exists between the parties. There exists contract between the parties and assessee cannot escape from the deduction of TDS. However, claim made by assessee before us is that the individual payments are below the prescribed limit as prescribed u/s. 194C of the Act. Moreover, Ld. Counsel for the assessee also argued for setting aside this issue to the file of the AO to apply the retrospective amendment