No TDS on payment for goods manufactured as per specification on principal-to-principal basis

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

The captioned three appeals relate to the same assessee and involve certain common issues, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity.

2. First, we may take up the appeals in ITA Nos. 1428 & 1429/Mum/2016, pertaining to the assessment years 2006-07 and 2007-08, which are directed against a common order dated 7-12-2015 passed by the Commissioner (Appeals)–22, Mumbai, which in turn arose from two separate orders dated 28-3-2012 passed by the assessing officer under section 271(1)(c) of the Act for assessment year 2006-07 and 2007-08 respectively.

3. In these appeals, the issue relates to the penalty imposed by the assessing officer under section 271(1)(c) of the Act amounting to Rs. 68,69,241 and Rs. 1,02,28,240 for assessment years 2006-07 and 2007-08 respectively. Notably, in the assessments finalized under section 143(3) of the Act the assessing officer made dis allowances by invoking section 40(a)(ia) of the Act in respect of purchase of goods of Rs. 2,04,07,729 and Rs. 3,03,86,928 for assessment years 2006-07 and 2007-08 respectively by holding that agreements for purchases were in the nature of work contracts, which was liable for deduction of tax at source under section 194C of the Act. The claim of the assessee was that such agreements were purchase and sale contracts simpliciter, which did not require any deduction of tax at source under section 194C of the Act. The assessing officer disagreed with the assessee and in the absence of the requisite deduction of tax at source under section 194C of the Act, the amounts were disallowed in terms of section 40(a)(ia) of the Act. Subsequently, vide orders dated 28-3-2012, the assessing officer levied penalty under section 271(1)(c) of the Act for the assessment years of 2006-07 and 2007-08 of Rs. 68,69,241 and Rs. 2,02,28,240 respectively. The Commissioner (Appeals) has deleted the levy of penalty in both the years by noticing that the Tribunal vide its order in ITA Nos. 8267/Mum/2010 & 8265/mum/2010, date 30-9-2015 upheld assessee’s contention that the agreement for purchases were not work contracts so as to be liable for deduction of tax under section 194C of the Act, and the additions made by the assessing officer by invoking section 40(a)(ia) of the Act were deleted. In view of the aforesaid decision of the Tribunal, the Commissioner (Appeals) noted that the very foundation for levy of penalty does not remain and, therefore, the penalties levied under section 271(1)(c) of the Act were cancelled. Against such a decision of the Commissioner (Appeals), Revenue is in appeal before us.

4. At the time of hearing, it was a common point between the parties that the order of the Tribunal, date 30-9-2015 (supra) continues to hold the field as it has not been altered by any higher authority, therefore, in our considered opinion, the Commissioner (Appeals) made no mistake in deleting the penalty made by the assessing officer under section 271(1)(c) of the Act for the assessment years 2006-07 and 2007-08 respectively. Resultantly, the appeals of the Revenue for assessment years 2006-07 and 2007-08 are dismissed.

5. Now, we may take up the appeal of the Revenue in ITA No. 1430/Mum/2016, which is directed against the order passed by the Commissioner (Appeals)-22, Mumbai dated 7-12-2015, which in turn arose from an order passed by the assessing officer under section 143(3) of the Act for assessment year 2011-12.

6. In this appeal, the Revenue has raised the following Grounds of appeal :–

1. ”Whether on the facts and the circumstances of the case and in law , the Ld. Commissioner (Appeals) erred in deleting the dis allowance under section 40(a)(ia) of the Income Tax Act, 1961 made on account on non-deduction of TDS on a works contract.

2. ”Whether on the facts and circumstances of the case and in law, the Commissioner (Appeals) erred in deleting the dis allowance of unabsorbed depreciation pertaining to if assessment year 1996-97 to 2001-02 disallowed in view of Provision of section 32(2) of the Income Tax Act, 1961.

“3. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.”

7. In so far as the first Ground is concerned, the relevant facts are that assessee is engaged in the business of providing trading in Soaps, talcum powder, baby products and providing services to other group companies of PZ Cussons group. The assessee company purchases these products from various manufacturers who in turn manufacture the same as per the specifications provided by the assessee and such products are sold by the assessee under its own brand name. In this context, the assessing officer noted that assessee had entered into agreements with three such manufacturers namely, VVF Ltd., Suhan Cosmotech (India) and Jewel Pharma. From the said parties assessee had purchased goods worth Rs. 97,21,778, detailed as under :–