R.K.Panda, Member (A) -
(1.) THIS appeal filed by the Revenue is directed against the order Dt. 7th March, 2012 of the CIT(A) -I, Nashik, relating to asst. yr. 2009 -10. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacture of sugar and allied by products and for the said purposes makes purchases of sugarcane from the farmers. It filed its return of income on 29th Sept., 2009 declaring total income of Rs. 2,68,13,730. During the course of assessment proceedings, the AO noted that the assessee purchased sugarcane from the farmers and has made payments to the harvesting and transport contractors without deduction of TDS even though in many cases the quantum of payments to such contractors and commission paid to such contractors was above the prescribed limit for compulsory deduction of TDS. He, therefore, asked the, assessee to explain the nature of such payments made to the harvesting and transport contractors.
1.1 The assessee submitted that the purchase of sugarcane from the farmers is on ex -gate basis, which is to be delivered by them at the gate of the factory. It was submitted that the farmers are paid a consolidated price for their sugarcane which is to be delivered by them at the gate of their factory and the said price includes amounts paid for harvesting and transport of sugarcane. It was submitted that the harvesting and transport expenditure is incurred by the farmers and not by the assessee sugar factory and therefore the assessee is not liable for deduction of TDS on such contractual payments. It was submitted that payments to harvesting and transport contractors including commission were made to facilitate the farmers and such payments of harvesting and transport charges and harvesting and transport commissions were deducted from the sugarcane purchase payments made to the farmers. It was claimed that the assessee is not responsible for deducting the tax at source as per the provisions of s. 194C or s. 194H of the IT Act and that it was just a facilitator of the payments. It was also submitted later on that it was not a contract but a payment for purchase of goods and hence no liability for TDS deduction arose in the case of the assessee.
(2.) HOWEVER , the AO was not satisfied with the explanation given by the assessee. He noted that the amount of transport contractor commission was @14 per cent of transport payments and the quantum of harvesting contractors commission was @16 per cent of the harvesting contractor payments. The assessee was also paying harvesting contractor Bakshish.
2.1 From the various details furnished by the assessee in his submission Dt. 18th Nov., 2011 the AO noted that the quantum of transport contractor commission for the period from 1st April, 2008 to 6th June, 2008 was Rs. 22,58,735 and the quantum of transport contractor payments was Rs. 1,61,33,819. Similarly, the quantum of harvesting contractor commission for the period 1st April, 2008 to 6th June, 2008 was Rs. 22,06,336 and the quantum of harvesting contractor payment was Rs. 1,37,89,566. He noted that the quantum of transport contractor commission for the period 13th Nov., 2008 to 17th Feb., 2009 was Rs. 29,33,508 and the quantum of transport contractor payments was Rs. 2,02,39,362. Further, the quantum of harvesting contractor commission for the period 13th Nov., 2008 to 17th Feb., 2009 was Rs. 31,46,3 61 and the quantum of harvesting contractor payment was Rs. 1,96,64,719. The assessee claimed that these payments were being recovered from farmers' bills. The AO further noted that the assessee had made payments of Rs. 31,32,713 pertaining to the period financial year 2004 -05 and as per auditor's note such expenditure was being claimed by the assessee as prior period expenses. On being asked to explain regarding the allowability of such prior period expenses, the assessee vide submission Dt. 14th Nov., 2011 submitted as under:
"The amount of Rs. 31,32,713 payment to harvesting and transporter for earlier season is fixed by the State Government. The amount is finalized and paid after 2/3 years after the closure of accounts. It is paid in 2008 -09 as per the meeting of State Government and sugar factory organization and harvesting and transport contractor organisation. As it is decided after 3 years we are not able to recover the same from the farmer. When the liability of expenditure is decided and determined in the year of payment, it cannot be said the prior period item. Hence, the liability is not prior period, and the company is eligible to take in the year under review as expenditure".
2.2 From the above the AO observed that on the one hand the assessee was claiming that the payments to harvesting and transport contractors are not its liability and on the other hand, the assessee was claiming that it is liable to bear the additional payments to be made to the harvesting and transport contractors pertaining to prior period. Besides, the assessee has also made payments to the harvesting contractors amounting to Rs. 20.27 lakhs. Since no tax was deducted from such payments, the AO issued a detailed show -cause notice as per pp. 4 to 9 of the assessment order asking the assessee to explain as to why the provisions of s. 40(a)(ia) of the Act should not be invoked.
2.3 In response to the various points raised by the AO, the assessee made detailed submissions which have been reproduced by the AO at para 5 of the order and which reads as under:
"5. In response to the above show -cause letter, the assessee filed detailed submissions vide letter Dt. 22nd Dec, 2011 which are reproduced hereunder:
"1. Our P&L a/c disclosed cost of sugarcane as follows:
(a) Cane purchase account Rs. 45,48,90,682
(b) Cane purchase tax account Rs. 1,11,38,783
(c) Cane supply allied expenses account Rs. 33,07,364
It may be noted that there are no expenses debited or claimed on cane harvesting and transport in the above accounts.
2. We are a private sector sugar factory and operate differently from the sugar factories working in the co -operative sector. We purchase sugarcane on 'ex -gate' basis. In other words, the obligation and the responsibility of cutting i.e., harvesting the sugarcane and its transport from their fields to our sugar factory is undertaken by respective farmers. We pay the farmers the costs incurred by them on cane harvesting and transport by including the same in the price of sugarcane which is credited to their account. The costs of cane harvesting and transport are negotiated in Maharashtra between the representative of labourers carrying out cane harvesting and transport work and representatives of co -operative sugar factories. Once these rates are agreed, the same rates are required to be paid by all sugar factories as harvesting and transporter labours will not accept any lesser payments from farmers supplying their cane to private factories. Upon supply of sugarcane, from the fortnightly cane payments made to farmers, on instructions of the farmers we recover the amounts payable by them to the respective harvesting and transport contractors and credit the same to cane supplier's harvesting and transporter account. After recovery of their dues, we pay the balances to the respective harvesting and transport contractors.
It may be noted that these harvesting and transport contractors are engaged by respective farmers and we pay them on behalf of the farmers. We are not engaging these harvesting and transport contractors on behalf of the sugar factory. It is our farmers who are engaging them. Whereas in co -operative sector sugar factories, the harvesting and transport contractors are engaged either by the sugar factory or by a Sangh at the instance of the sugar factory. Therefore, we submit that on our facts, the Pune Tribunal decision is not directly applicable to our case. We do not desire to dwell on the decision; because there is a Special Bench Tribunal judgment on the issue at hand in Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. vs. ITO : (2008) 116 TTJ (Ahd)(SB) 425 : (2008) 8 DTR (Ahd)(SB)(Trib) 416 : (2008) 113 ITD 539 (Ahd)(SB). Copy of the same is enclosed.
(3.) THE facts in that case were, the sugar factory paid advances to cane growers which were ultimately adjusted to the cost of sugarcane. In order to ensure proper supply of cane, zone -wise Samiti was formed by cane growers. The Samiti paid to cane growers, labourers, transporters, etc. The sugar factory paid the Samiti the cost of sugarcane. At the end of the season, surplus/deficit was adjusted in cane growers' account. It was held by the Special Bench that sugar factory was not liable to make TDS under s. 194C from payments made to Mukadams and transporters by the Samiti as it was for the cane grower to bring the sugarcane to assessee's factory.;