RYATAR SAHAKARI SAKKARE KARKHANE NIYAMIT.,HUBLI vs. INCOME TAX OFFICER, TDS WARD, BELGAUM., BELGAUM

PER BENCH :

The instant batch of ten appeals pertains to a single

assessee viz., Ryatar Sahakari Sakkare Karkhane Niyamit. All

the other relevant particulars already stand tabulated

hereinabove.

Cases called twice. None appeared at assessee’s

behest. It is accordingly proceeded ex-parte.

assessment year 2005-2006’s appeal ITA.No.152/PAN./2015

raise the following substantive grounds :

order of the Learned Commissioner of Income tax (Appeals)

Belgaum [CIT(A)] is opposed to facts and law and

accordingly, liable to be cancelled.

Harvesting / Transportation expenses made u/s 40(a)(ia)

by the Assessing Officer and dismiss the appeal.

agreement (bond) between the Harvester / Transporter

and the Appellant did not constitute a CONTRACT for want

of ‘Certainty’ and ‘Valid Ratification’ by the Farmer / Land

Owner.

3 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka 4. The L’nd CIT(A) also erred in upholding the rule of estoppel

to sustain the impugned 40(a)(ia) disallowance

arguments of Appellant and allowed the appeal.

viz., whether or not the payments as per agreement

between Appellant and Harvester/Transporter was

bonafide and whether or not constituted a

Income tax Act 1961.

of appeal hearing, the Appellant prays that the Appeal be

allowed.”

able assistance coming from the department side that this is

the second round of proceedings between the parties as the

learned coordinate bench’s earlier order dated 04.08.2015 had

restored the assessee’s above stated substantive grounds back

to the Assessing Officer for his afresh verification in following

terms :

“3. As all the appeals relate to the same assessee and

are relating to the same issues the appeals are disposed

off by this common order. Shri Pukale Manoj Devinder

advocate represented on behalf of the assessee and Smt.

4 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka Smriti Bhardwaj ld. DR represented on behalf of the

revenue.

assessee is a co-operative society registered under the

karnataka co-operative societies act 1959 carrying on the

activity of manufacturing sugar and its bye-products. It

was the submission that the assessment came to be

completed u/s 143(3) wherein various additions had been

made by invoking the provisions o f sec.40(a)(ia) of the act

on account of non-deduction of TDS. It was the submission

that one of the main issues was in respect of non-

deduction of TDS u/s 194C in respect of payments made

to the cane harvesters and cane transporters. It was the

submission that consequent to the non- deduction of TDS

the A.O. had also passed orders u/s 201(1) & 201(1A) of

the Act on account of non-deduction of TDS u/s.194C &

194J of the Act. It was the submission that the assessee

has made payment to the transporters and harvesters

consultation charges as also to contractors before the due

date of filing the return. Consequently in view of the

decision of the Hon'ble Allahabad High Court in the case of

Vector Shipping Services Pvt. Ltd. reported in 38

taxmann.com 77 and the consequential dismissal of the

SLP filed before the Hon'ble Supreme Court by the Revenue

5 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka no disallowance u/s 40(a)(ia) of the Act was called for. On

a specific query from the Bench as to show that there was

no amount due as on the year end, it was submitted by

the ld. AR that he was not carrying the details.

orders of the ld. CIT(A). The ld. DR drew our attention to

para 7.2.3 at page 14 of the order of the ld. CIT(A) for the

A.Y. 2005-06 to submit that the payments though now

claimed to be not as a consequence of a contract were in

fact payments on the basis of contracts which were clearly

agreements entered into by the assessee with the various

contractors. It was also the submission that the decision of

the Hon'ble Allahabad High Court not being jurisdictional

High Court decision consequently the same was not

binding on the Tribunal.

Admittedly the decision of the Hon'ble Allahabad High

Court in the case of Vector Shipping Services Pvt. Ltd.

referred to supra was the subject matter of a SLP before

the Hon'ble Supreme Court and the same has also been

dismissed. Though the Hon'ble Allahabad High Court

decision is not a jurisdictional high court decision, still the

said decision of the Hon'ble Allahabad High Court against

which the SLP has been dismissed by the Hon'ble

6 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka Supreme Court has a binding precedence over this

Tribunal insofar as it is the only decision which has been

quoted before us and no contrary decision has been

quoted. Further as it is noticed that the facts in its entirety

being whether the amounts have been paid before the year

end has not been proved before us, in these circumstances

we are of the view that the assessment orders are liable to

be set aside and all the issues are restored to the file of

the A.O. for re-adjudication in respect of the disallowance

made by invoking the provisions of sec.40(a)(ia) of the Act.

The assessee shall prove before the A.O. that there is no

amount left payable as on the year end and that all the

amounts claimed on which the provisions of TDS u/s 194C

and 194J has been invoked have been fully paid by the

year end. If the assessee is able to prove before the A.O.

that there is no outstanding and all the amounts have

been fully paid, then, in view of the decision of the Hon'ble

Allahabad High Court in the case of Vector Shipping

referred to supra, against which the Hon'ble Supreme

Court has dismissed the SLP vide order dt. 2.7.2014, the

A.O. shall not invoke the provisions of sec. 40(a)(ia) on

such amounts. However, if any amount is found to be

payable as on the year end the disallowance made by the

A.O. shall stand confirmed.

7 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka 7. In regard to the levy u/s 201(1) & 201 (1A) of

the Act, the issues are restored to the file of the A.O. for

verification as to whether the recipients have offered the

receipts for tax subject to the condition that they are liable

to Income Tax, the details of which shall be furnished by

the assessee. Failure on the part of the assessee shall

lead to confirmation of the levy made by the A.O. In the

circumstances, the issues in these appeals are restored to

the file of the A.O. for re-adjudication after granting the

Assessee adequate opportunity to substantiate its case.

partly allowed for statistical purposes.”

respective cross-appeals before the hon’ble jurisdictional high

court. Their lordships’ common detailed judgment dated

26.02.2016 upheld the Revenue’s contentions in both the

batches thereby confirming the CIT(A)'s/First Appellate

Authority’s findings upholding the impugned disallowance.

The assessee then filed SLP (C) Nos.14053 to 14062 of 2017

which were converted to Civil Appeal Nos.4515 to 4524 of

2019 in hon’ble apex court. Their lordships’ common judgment

dated 01.05.2019 therein restored the issue(s) in question

back to hon’ble jurisdictional high court. It is in pursuance to

8 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka the said directions that the hon’ble jurisdictional high court’s

common order dated 25.11.2019 in ITA.Nos.100111-

100120/2015 has now remanded the assessees’ cases back to

us in the following terms :

“2. These appeals are admitted on the following

substantial question of law:

“Whether the order passed by the Income Tax

Appellate Tribunal, Panaji Bench, Panaji suffers from

the vice of non-application of mind inasmuch as no

reasons had been assigned for making an order of

remand?”

finally.

validity of the order passed by the Income Tax Appellate

Tribunal dated 04.08.2015 by which, the Tribunal while

placing reliance on the decision of the High Court of

Allahabad in the case of has remanded the matter to

Adjudicating Officer.

stated are that the appellant which is the Co- operative

Society of Sugarcane was carrying on the activity of

manufacturing sugar and bye products. It was engaging

9 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka services of harvesting, cutting and transporting sugarcane

from the farmers with the help of harvesters and

transporters by appointing them by executing bond

agreements on behalf of the farmers. The appellant claim

harvesting/transporting charges in computing income tax

returns as per the CBDT circular. The assessing officer

brought the relevant assessment years and disallowed the

harvesting/ transporting expenses under Section 40(a)(ia)

of the Income Tax Act, 1961 and treated the same as

contract payments. Being aggrieved, the appellant filed an

appeal before the Commissioner of Income Tax

(Appeals). The Commissioner of Income Tax (Appeals) by

an order dated 16.05.2014, held that the bond agreement

between the appellant and the harvesters/transporters

did construe a contract as per the Indian Contract Act,

1972. Therefore, the provisions of tax deduction at source

applied to the facts situation of the case. The Tribunal

heard the appellants and placing reliance on the decision

rendered by the Allahabad High Court in the case of

Vector Shipping Services Pvt. Ltd., remanded the matter to

the respondent assessing officer for re-adjudication. Being

aggrieved by the aforesaid order, the assessee as well as

the revenue are before us.

10 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka 6. Learned counsel for the assessee submitted that the

Income Tax Appellate Tribunal ought to have appreciated

that the farmers were not parties to the contract in

question and therefore, erred in upholding disallowance of

provisions under Section 40(a)(ia) of the Act.

has submitted that the Tribunal grossly erred in deciding

the appeal merely by placing reliance on the decision

rendered by the Allahabad High Court in the case of

Vector Shipping Services Pvt. Ltd. without reference to the

facts of the case on hand. It is further submitted that

Section 40(a)(ia) is applicable to the whole contract amount

and not to the amount payable at the end of the year.

learned counsel for the parties and have perused the

records.

Tribunal reads as under:

“6. We have considered the rival submissions.

Admittedly, the decision of the Hon’ble Allahabad

High Court in the case of Vector Shipping Services

Pvt. Ltd. referred to supra was the subject matter of a

SLP before the Hon’ble Supreme Court and the same

11 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka has also been dismissed. Though the Hon’ble

Allahabad High Court decision is not a jurisdictional

High Court decision, still the said decision of the

Hon’ble Allahabad High Court, against which the SLP

has been dismissed by the Hon’ble Supreme Court,

has a binding precedence over this Tribunal insofar

as it is the only decision which has been quoted

before us and no contrary decision has been quoted.

Further, as it is noticed that the facts, in its entirety,

being whether the amounts have been paid before

the year end has not been proved before us, in these

circumstances we are of the view that the

assessment orders are liable to be set aside and all

the issues are restored to the file of the AO for re-

adjudication in respect of the disallowance made by

invoking the provisions of Sec. 40(a)(ia) of the Act.

The Assessee shall prove before the AO that there is

no amount left payable as on the year end and that

all the amounts claimed, on which the provisions of

TDS u/s 194C and 194J has been invoked, have

been fully paid by the year end. If the Assessee is

able to prove before the AO that there is no

outstanding and all the amounts have been fully

paid, then, in view of the decision of the Hon’ble

12 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka Allahabad High Court in the case of Vector Shipping

referred to supra, against which the Hon’ble Supreme

Court has dismissed the SLP vide order dt. 2.7.2014,

the AO shall not invoke the provisions of Sec. 40(a)(ia)

on such amounts. However, if any amount is found to

be payable as on the year end, the disallowance

made by the AO shall stand confirmed.”

passed by the Income Tax Appellate Tribunal, it is evident

that the Tribunal has merely referred to the decision of the

Vector Shipping Services Pvt. Ltd. and has not adverted to

the facts of the case. The Tribunal has not recorded any

finding on the issue whether the provisions of Section

40(a)(ia) of the Act applies to the fact situation of the case

and whether the tax was required to be deducted at

source under Chapter 17B of the Act with reference to the

facts of the case. The order passed by the Tribunal is

cryptic in nature and suffers from vice of non-application of

mind.

answer the substantial question of law in the affirmative.

In the result, the impugned order dated 04.08.2015

passed by the Income Tax Appellate Tribunal, Panaji

Bench, Panaji is hereby quashed and set aside and the

13 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka matter is remitted to the Tribunal for decision afresh to

decide the issues on the applicability of Section 40(a)(ia) of

the Act referred by us supra with reference to the facts of

the case by a speaking order.

Tribunal within a period of four months from today.

Accordingly, appeals are disposed of.”

It is in this backdrop of facts that we are once again

deciding the assessee’s instant appeal(s) afresh.

sec.40(a)(ia) disallowance regarding the assessee’s payments

made under the head “harvesting and transport charges” in

pursuance to the corresponding written agreements. Mr.

Shrikanth invited our attention to the CIT(A)'s detailed

discussion upholding the Assessing Officer’s action invoking

sec.40(a)(ia) disallowance as under :

14 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka

15 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka

16 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka

17 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka 6. The assessee on the other hand has filed it’s written

note dated 04.07.2023 inter alia pleading therein that both the

learned lower authorities have erred in law and on facts in

treating these payments as contractual in nature inviting TDS

deduction u/sec.194C followed by sec.40(a)(ia) disallowance.

He has relied upon hon’ble Gujarat high court’s twin

judgments dated 01.12.2014 Shree Chalthan Vibhag Khand

vs. ITO [Tax Appeal No.211 & 440 of 2006] as well as in

another batch of Tax Appeals No.1625 of 2008 etc., dated

16.06.2016 reiterating the very legal position in CIT (TDS) vs.

Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd., thereby

holding that such charges form part of the sugar cane

purchase price only not giving rise to TDS deduction as under:

18 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka

19 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka

20 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka

foregoing vehement rival stands and find no reason to express

our agreement with either party(ies)’s stand at this stage. This

is for the precise reason that neither the Assessing Officer’s

21 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka detailed discussion in his assessment dated 26.12.2007 nor

the CIT(A)'s findings have referred to the specific clauses in the

corresponding alleged agreement throwing sufficient light on

the nature of the payments made i.e., whether they are part of

the sugar cane purchase price or not ? These corresponding

agreement(s) also do not form part of records before us so as

to arrive at our independent conclusion. Faced with the

situation and in light of the fact that the hon’ble apex court’s

landmark decision in Palam Gas Services vs. CIT [2017] 394

ITR 300 (SC) has already held that sec.40(a)(ia) disallowance

covers both “paid” as well as “payable” amounts; we are of

the opinion that the learned Assessing Officer needs to

examine and verify the foregoing clinching aspect first as to

whether the impugned payments form part of the sugar cane

purchase price or not ? Whilst doing so, we are indeed mindful

of the fact that much water flown out the stream since the

impugned “lead” assessment year 2005-2006. We therefore,

make it clear that the learned Assessing Officer shall finalise

his consequential verification preferably within three effective

opportunities of hearing as per law. We order accordingly.

PAN./2015 is allowed for statistical purposes in above terms.

22 ITA.Nos.152 to 161/PAN./2015 Ryatar Sahakari Sakkare Karkhane Niyamit, Timmapur Bagalkot Tq Karnataka 9. Same order to follow in all the remaining appeals ITA.No.153/PAN./2015 [A.Y. 2006-2007]; ITA.No.154/PAN./2015 [A.Y. 2008-2009]; ITA.No.155/PAN./2015 [A.Y. 2009-2010]; ITA.No.156/PAN./2015 [A.Y. 2010-2011]; ITA.No.157/PAN./2015 [A.Y. 2011-2012] in sec.143(3) and ITA.No.158/PAN./2015 [A.Y. 2009-2010]; ITA.No.159/PAN./2015 [A.Y. 2010-2011]; ITA.No.160/PAN./2015 [A.Y. 2011-2012]and ITA.No.161/PAN./2015 [A.Y. 2012-2013] in sec.201(1) and 201(1A) proceedings in the foregoing latter three assessment years (supra). Ordered accordingly.

Order pronounced in the open court on 13.07.2023.

Sd/- Sd/- [G.D. PADMAHSHALI] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated 13th July, 2023

VBP/-

Copy to

//By Order//

Assistant Registrar, ITAT, Pune Benches, Pune.