CA Kanhaiya Kumar Agarwal
Brief Facts of the Case and Question of Law:
The assessee is a dealer of sarees and AO while framing the assessment disallowed karigar /embroidery charges by invoking the provision of section 40(a)(ia) of the act for non-deduction of TDS u/s 194C of the Act. There was a survey operation on the business premises of the assessee u/s 133A of the Act and during survey operation, certain karigar/embroidery slips were found and impounded. Revenue came to know that assessee has paid embroidery charges amounting to Rs.1,14,59,470/- without deducting TDS u/s 194C of the Act.
Four karigar slips were impounded by the department which were in the name of four different persons. In those slips the no. of sarees and the rates were mentioned. The assessee in the details claimed them as seller of goods and also provided their addresses to the A.O. In the details of creditors the assessee has disclosed against them opening liability, transaction during the year and closing liability. The assessee did not claim any karigar payment/embroidery payment in the course of assessment proceedings. Notices u/s 133(6) were issued to all four parties, all the notices were returned unserved by the postal authorities. The AO applying the provisions of section 40(a)(ia) of the Act disallowed the karigar and embroidery charges.
The CIT(A) stated that after examining these four slip (Annex-E) it is observed that these are rough workings written on company’s letter pad where no of sarees and rates are mentioned. At the top of the slips ‘karigar slip’ is printed. The payments for these transactions have been made by account payee cheques. During survey no evidence has been impounded which establishes that assessee was purchasing saree cloth and delivering these cloth to karigar and who in turn charge the embroidery charges for their works. The assessee has produced detail bills of purchase along with quantity details and payment towards these four parties through account payee cheques to establish the fact that these are purchase transactions and not the embroidery charges. The AO has simply relied upon four rough slips where it is printed of the top ‘karigar slip. Therefore, Sec. 194C is not applicable on these purchase transactions. Hence, the addition of Rs.1,14,59,470/- u/s 40(a)(ia) is deleted.
Question of Fact
Whether total transactions of sarees from four persons on the basis of four slips impounded in the survey operation u/s. 133A of the I.T. Act, 1961 is a purchase transaction or is a contractual payment u/s 194C and thereby liable for TDS u/s 194C.
Contention of the Revenue
The Revenue was not satisfied with the order of CIT(A) deleting the disallowance made by AO by treating the ‘Karigar charges’ as payment to suppliers.
The Revenue raised question whether the Ld. CIT(A) is correct in treating the ‘Karigar charges’ as ‘payment to supplier’ in spite of the fact that the assessee failed to substantiate its claim with supporting documents. Also whether CIT(A) is correct in deleting addition u/s. 40(a)(ia) where the assessee failed to deduct tax at source in terms of section 194C on ‘Karigar Charges’.
Contention of the Assessee
The assessee contended that all the four parties were sellers and assessee had made purchases from these parties. Payments to all such parties were made through account payee cheques.
Held by ITAT
We find that assessee before AO as well as CIT(A) has made mere submission that these alleged karigar/embroidery charges are the sellers and assessee has merely purchased from these persons. We find that assessee before CIT(A) has produced purchase bills along with quantitative details and payments towards these four parties are made through account payee cheques to establish the fact that these are purchase transaction and not embroidery charges. This fact was never before the AO and AO has not gone into details.
In terms of above, Ld. counsel for the assessee stated that the issue can be remitted back to the file of AO for verification, whether these four alleged karigar/embroidery charges are suppliers of sarees or material. In case, these are supplier of material or items, no disallowance can be made. But if they are karigars, the assessee has made payment on account of embroidery charges but failed to deduct TDS, the disallowance will be confirmed.
This issue is set aside to the file of AO and appeal of Revenue is allowed for statistical purpose.