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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri T.R. Senthil Kumar
Assessee Represented: Shri Hiren Shah, A.R. Revenue Represented: Shri B.D. Gupta, Sr.D.R. Date of hearing : 02-02-2023 Date of pronouncement : 10-02-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Revenue against the Appellate order dated 04.02.2019 passed by the Commissioner of Income Tax (Appeals)-1, Rajkot, as against the order passed under section 201(1) and 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2014- 15.
Page No 2 DCIT vs. M/s. Gopal Snacks Pvt. Ltd.
The brief facts of the case is that the assesse is engaged in the business of manufacturing of snacks and namkeen items in a large scale. There was a survey action u/s. 133A of the Act in the office premises on 02.02.2015 for verification of Tax Deduct at Source (TDS) compliance by the assessee. It was found that the assessee had purchased pre-printed flexible laminated rolls and pre-printed corrugated boxes from five different parties and the payment for these purchases had been made without making TDS. The Assessing Officer was of the view, that these purchases were in the nature of job work contract and therefore they ought to have been subjected to TDS. Further the corrugated boxes are printed materials or as per specification of the assessee, which are supplied after the test report/certificate by the assessee. The above products could not be sold to anybody else, then the assessee because of pre-printed in nature. Therefore why provisions of section 201 be invoked for non-deduction of tax at source.
2.1. The assessee replied that the purchases from five parties were not job works. The materials were directly purchased by the suppliers and pre-printed flexible laminated rolls and pre-printed corrugated boxes were sold to the assessee after being manufactured by the suppliers. As per explanation (iv) to section 194C, work shall not include manufacturing or supplying of a product according to the requirement or specification of customer by using material purchased from the person other than such customer.
Page No 3 DCIT vs. M/s. Gopal Snacks Pvt. Ltd. 2.2. Since the materials purchased by the suppliers by themselves, the assessee relied upon Hon’ble Karnataka High Court judgment in the case of CIT vs. Spice Telecommunication Private Ltd. 369 ITR 72 wherein invoking the explanation held that the provision of Section 194C would not apply to a case, where the assessee did not supply any material to the manufacturer. The assessee also relied upon CBDT Circular No. 13/2006 dated 13.12.2006 which clarified that section 194C would apply only if it was a contract for work and not contract for sale. The assessee also relied upon Jurisdictional High Court in the case of CIT vs. Girnar Foods and Beverages Pvt. Ltd. 306 ITR 23 wherein it has also been held that when the contract is for supply of material, that is sale of material, it could not be termed to be contract for work and it is not amenable to section 194C of the Act. However the Assessing Officer rejected the above submissions and levied a sum of Rs. 1,51,78,485/- for failure to deduct tax u/s. 201(1) r.w.s. 194C of the Act. The A.O. also levied interest of Rs. 54,64,255/- u/s. 201(1A) of the Act.
3. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A). The ld. CIT(A) deleted the additions as follows:
“During appellate proceedings the assessee has reiterated his earlier contentions made during assessment and has contended that the said transactions were in the nature of purchases and not contracts for work. The Assessing Officer was asked to provide the copies of test report/certificate (referred to on page 8 and 9 of the Assessment Order) or another material on the record indicating that material was supplied by the assessee to the said parties.
Page No 4 DCIT vs. M/s. Gopal Snacks Pvt. Ltd.
The Assessing Officer vide his report dated 28/02/2018 reported that no such test report/certificate is available on records. On 17/10/2018 ITO, TDS-1, Rajkot, Shri A.K. Pandey also appeared with case records/survey record on my request and scrutiny of these documents also did not reveal any such test report as is referred to para 8 and 9 of the Assessment order. Having considered facts and circumstances of the case I find it uncontroverted that the material for the good supplied to assessee was not provided by assessee to the suppliers. There is no test report or certificate as is referred to in para 8 and 9 of the Assessment order on record. There is no written agreement between assessee and supplier that there was contract for job work. I also find that circular 13/2006 dated 13/12/2006 has clarified that TDS would be applicable only when it is a contract for work and TDS shall not be applicable on contract for sale. I also find that explanation iv to section 194C also stipulates that the "work" shall not include manufacturing or supplying of product as per requirement or specification of customer by using material purchased from person other than such person. It is also relevant to note that in the case of assessee these materials have been purchased from the same suppliers over the years and no such liability of making TDS has been fixed upon the assessee in any of the other years. In assessment u/s 143(3) also no disallowance has been made u/s 40(a)(la). I also find merit in reliance of assessee on decision of Hon’ble Gujarat High court in case of Girnar Food and beverages (supra), Decision of Hon’ble ITAT Ahmedabad in case of Balsara Home Products Ltd. vs ITO (2005) 94 TTJ 970 and decision of Hon’ble Karnataka Supreme court in case of CIT vs Spice Telecommunication (supra) wherein It has been held that the contract for supply of materials could not be held to be contract for work. In view of the above discussion I am of the considered opinion that the purchase of pre printed material by the assessee from the said suppliers is not amenable to application of section 194C and therefore the impugned demand u/s 201/201(A) is not justified. The same is directed to be deleted. The ground of appeal is allowed.”
4. Aggrieved against the appellate order, the Revenue is in appeal before us and raising the following grounds of appeal:
The Ld. CIT(A) has erred in law and on facts in not holding the assessee deductor to be "deemed to be in default" under Section 201(1) of the Income-tax Act, 1961 of Rs. 15178.485/- and interest thereof Section Page No 5 DCIT vs. M/s. Gopal Snacks Pvt. Ltd.
201(1A) of Rs. 54,64,255/- for non-deduction of tax at source as stipulated under the provisions of Section 194C of the Act w.r.t payments made for jobwork in relation to procuring brand name pre-printed packing material which cannot be sold in the market to any other persons 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.
3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
4. It is, therefore, prayed that the order of the Ld. CITIA) may be cancelled and that of the Assessing Officer may be restored to the above extent 4.1. The Ld. Sr. D.R. Shri B.D. Gupta supported the order passed by the Assessing Officer and thereby pleaded to uphold the disallowance/additions made by the Assessing officer u/s. 201(1) and 201(1A) of the Act.
Per contra, the Ld. A.R. Shri Hiren shah appearing for the Assessee submitted before us a Paper Book which contains the Jurisdictional High Court judgment in the case of Girnar Foods and Beverages Pvt. Ltd. and the invoices raised by the suppliers. Reiterating the same arguments made before the Lower Authorities, the Ld. Counsel pleaded that the findings of the Ld. CIT(A) does not require any interference and therefore pleaded to dismiss the Revenue’s appeal.
We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. It is an undisputed fact that the materials for the goods supplied to the assessee were not provided by the assessee and Page No 6 DCIT vs. M/s. Gopal Snacks Pvt. Ltd. there is no test report/certificate as mentioned by the Assessing Officer in his assessment order at Para 8 & 9 of the assessment order. Further there is no agreement between the assessee and suppliers of the goods as being in the nature of job work.
6.1. The Hon’ble Jurisdictional High Court in the case of Girnar Foods and Beverages Pvt. Ltd. considered various circulars issued by the Board and held as follows:
As can be seen from the impugned order of the Tribunal, the facts are not in dispute. The assessee placed order for supply of printed materials, but the stand of the Revenue is that as the printing was carried out by the supplier as per specifications of the assessee the arrangement would amount to "works contract. The case of the assessee is that it had entered into a contract of purchase/supply simpliciter and the entire product is supplied as such; that the suppliers are not exclusively supplying such goods to the assessee, that the assessee does not give any printing contract and there is outright purchase, either by oral or written orders.
The Tribunal while passing the impugned order has placed reliance on the CBDT Circular No.715, wherein it is stated by the Board that in a case of sale no deduction under s. 194C of the Act is required. 5. On going through all the three circulars it is apparent that where the contract is for supply of materials, viz., sale of materials, it cannot be termed to be a contract for work and labour and is not amenable to the provisions of s. 194C of the Act. 6. In the circumstances, the Tribunal having based its decision on the explanatory circular issued by the CBDT, there is no infirmity in the impugned order of the Tribunal. In the absence of any substantial question of law the appeals are dismissed. Registry to place copy of this order in matter.
6.2. Further the Ld. CIT(A) followed the above Jurisdictional High Court judgment as well as the Co-ordinate Bench judgment in the case of Balsara Home Products Ltd. vs. ITO [2005] 94 TTJ 970. Thus the Ld. CIT(A) deleted the additions made u/s. 201(1) and Page No 7 DCIT vs. M/s. Gopal Snacks Pvt. Ltd. 201(1A) on the ground the purchase of pre-printed materials by the assessee from five suppliers are not amenable to application of section 194C of the Act. Thus the findings made by the Ld. CIT(A) does not require any interference. Therefore the grounds raised by the Revenue has no merits and the same is liable to be rejected. Thus the grounds of appeal filed by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 10-02-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 10/02/2023 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, राजकोट