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Income Tax Appellate Tribunal, PANAJI BENCH : PANAJI
Before: SHRI INTURI RAMA RAO & SHRI PARTHA SARATHI CHAUDHURY
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH : PANAJI (THROUGH VIRTUAL HEARING) BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA.No.62/PAN./2020 Assessment Year 2014-2015 The ACIT (TDS), Circle- M/s. Sadashiva Sugars Panaji, Pundalik Niwas, Ltd., [aka. M/s. EID Parry Ground Floor, Ruo-de- (India) Ltd.], NH-50, vs. Ourem, Panaji-Goa. Nagaral Nainegali, PIN – 403 001 Bagalkot District. Karnataka. PIN-587 207 PAN AAICS8468F (Appellant) (Respondent) For Revenue : Shri N. Shrikanth For Assessee : Shri Vikram Vijayraghavan Date of Hearing : 16.08.2023 Date of Pronouncement : 22.08.2023 ORDER PER INTURI RAMA RAO, A.M. :
This Revenue’s appeal for assessment year 2014-15, arises against the CIT(A), Belagavi, Belagavi’s Order Appeal No. ITA.No.10095/CIT(A)/BGM/2018-19 – A.Y. 2014-15, dated 28.-02.2020, involving proceedings u/s. 271C of the Income Tax Act, 1961 (in short “the Act”).
Briefly the facts of the case are as under :
The respondent-assessee viz., M/s. Sadashiva Sugars Ltd., is a limited company incorporated under the provisions of Companies Act, 2013, engaged in the business of 2 I.T.A.No.62/PAN./2020 production and sale of sugar. The Income Tax Officer, TDS, Ward, Belgaum hereinafter called as “TDS Officer” conducted a survey operation under the provisions of Sec.133A of the Act at the business premises of the respondent-assessee on 17.02.2016 in order to verify the compliance with the TDS/TCS provisions. During the course of survey proceedings, the TDS Officer found that the respondent-assessee made payment of Rs.13,38,49,376 to harvesting contractors without deducting tax at source, even though single payment is more than Rs.30,000/- and aggregate payment to each contractor is more than Rs.75,000/- during the F.Y. 2013-14. When the respondent-assessee was asked to explain the reasons for non- deduction of TDS, it was contended that there was no obligation to deduct tax at source on the harvesting charges for the following reasons : a) The harvesting charges are part and parcel of cost of sugar cane purchase and there is no obligation to deduct tax at source on purchases. b) The harvesting charges are not debited to P & L A/c and not claimed as a deduction to forming part of cost of raw material. c) The harvesting charges are paid by the respondent- assessee [assessee-company] on behalf of farmers who
3 I.T.A.No.62/PAN./2020 supplied sugar cane to the assessee company constitutes agricultural income. d) The harvesting charges are included in the value of closing stock. Therefore, the question of deduction u/sec.40(a)(ia) does not arise.
2.1. The TDS Officer rejecting the above contentions held that assessee is liable to deduct tax at source of Rs.13,38,49,376/- on the harvesting charges and held the assessee as “assessee-in-default” u/secs.201(1) and 201(1A) of the Income Tax Act, 1961 and raised TDS demand of Rs.83,61,409/- and Rs.20,06/712/- u/secs.201(1) and 201(1A) respectively, vide order dated 30.03.2016 and issued demand notice dated 13.07.2018 too. Subsequently, the TDS Officer also initiated the penalty proceedings u/sec.271C of the Act and show cause notice dated 01.02.2018 was issued as the assessee without reasonable cause failed to deduct tax at source under the provisions of Chapter-XVII-B. In response to the show cause notice, the respondent-assessee had filed a letter seeking time for 15 days to offer it’s explanation. However, the TDS Officer has proceeded to levy the penalty of Rs.83,61,409/- u/sec.271C of the Act vide order dated 13.07.2018.
2.2. Being aggrieved by the levy of penalty, the respondent-assessee filed an appeal before the Ld. CIT(A) who
4 I.T.A.No.62/PAN./2020 vide impugned order dated 28.02.2020, deleted the penalty by holding that the respondent-assessee was under bonafide belief that no tax at source is required to be deducted on harvesting charges.
Being aggrieved, the Revenue is in appeal before the Tribunal. The Learned Sr. DR submits that the Ld. CIT(A) ought not to have accepted the arguments of the assessee that it is under bonafide belief that there is no obligation to deduct tax at source on the harvesting charges as it formed part of the sugar cane price as the contract for harvesting sugar cane is also entered into by the assessee-company with the harvesters, which is in the nature of works contract. He further submits that nature of expenditure cannot be decided by nomenclature of the expenditure given in the books of account.
On the other hand, learned Counsel Shri Vikram Vijayaraghavan submits that the harvesting charges forms part and parcel of the sugar cane purchases. He further submitted that there is no obligation to deduct TDS on the purchase of goods as held by Hon’ble Bombay High Court in the case of CIT vs. Glenmark Pharmaceuticals Ltd., [2010] 324 ITR 199 (Bom.) and by Hon’ble Gujarat High Court Khedut Sahakari Khand udyog Mandli Ltd., vs. ITO 2016-TIOL-2269- HC-AHM-IT etc. The learned CIT(A) has rightly deleted the 5 I.T.A.No.62/PAN./2020 penalty as the assessee was under bonafide belief that there was no obligation to deduct TDS on the harvesting charges.
We have heard the rival submissions and perused the material available on record. The issue in the present case relates to levy of penalty u/sec.271C of the Act on harvesting charges paid by the assessee company. No doubt the TDS Officer had held the assessee as the assessee-in-default for non-deduction of tax at source on the payments made to harvesting contractors rejecting the contention of the assessee that the harvesting charges forms part and parcel of the purchase price of the sugar cane payable to the farmer by the assessee-company. In response to the show cause notice for levy of penalty for non-deduction of tax at source, no explanation was filed by the assessee-company. It is only during the course of appellate proceedings before the learned CIT(A), the assessee had filed a detailed explanation as to how it entertained a bonafide belief that there was no obligation on the part of the assessee-company to deduct tax at source on the harvesting payments. The Ld. CIT(A) considering the explanation of the assessee held that the assessee cannot be treated as an “assessee-in-default” for non-deduction of tax at source on harvesting expenses and accordingly, deleted the penalty after referring to the case laws relied on by the assessee. The Revenue is in appeal challenging the findings of 6 I.T.A.No.62/PAN./2020 the Ld. CIT(A). An identical issue had come-up before the Hon’ble Bombay High Court in the case of CIT-1, Nashik vs. Dwarkadheesh Sakhar Karkhana Ltd., [2018-TIOL-118-HC- MUM-IT] wherein it has been held that the “concurrent findings of facts by the CIT(A) and the Tribunal that the harvesting and transportation charges form the part of the purchase price of the sugarcane payable to the farmer by the assessee. It found that only for the sake of convenience that the assessee makes payments to the harvesting and transport contractor and, subsequently took the same in to account while making payments under the agreement to the farmers for delivery of sugarcane at the factory of the respondent. Therefore, no occasion to deduct any TDS on such payment can arise”. Further the Honorable Bombay High Court in the case of CIT Vs Glenmark Pharmaceuticals (supra) held that “there is no TDS on purchase of goods”. Similarly, Hon’ble Gujarat High court in the case of Khedut Sahakari Khand Udyog Mandli Ltd (supra) has held that “there is no liability to deduct the tax at source on payments made to Mukadam and transport contractor for supply of sugarcane to sugarcane factories”. The SLP filed by the Revenue has also been dismissed by Hon’ble Supreme Court of India. In the circumstances and from the legal position above, it is clear that the harvesting charges forms part of the purchase price of sugar cane payable to the farmer by the assessee-company and it is well settled law that there is 7 I.T.A.No.62/PAN./2020 no obligation to deduct tax at source on the purchase of goods. In view of the above settled legal position, we cannot doubt the plea of the assessee-respondent that it had entertained a bonafide belief that no tax is required to be deducted on harvesting charges and, therefore, we are of the considered opinion that the CIT(A) has rightly deleted the penalty as it entertained a bonafide belief that no tax is required to be deducted at source on harvesting charges. We, therefore, find no reason to interfere with the order of the Ld. CIT(A) and accordingly, the appeal filed by the Revenue stand dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on 22.08.2023.