2017 (8) TMI 604 - AT - Income Tax

Tribunal upholds CIT(A) decisions on tax deductions, penalties deleted based on contract nature

The Tribunal upheld the CIT(A)'s decisions in all three issues. The penalties under section 271(1)(c) for non-deduction of tax at source were deleted ... TDS u/s 194C - addition u/s 40(a)(ia) - purchase from various manufacturers who in turn manufacture the same as per the specifications provided by the assessee - nature of works contract or agreements for purchase of goods simpliciter - obligation on principal-to-principal basis - Held that:- As perused the seminal features of the contract entered into by the assessee with the three concerns for purchase of goods. Such features has been elucidated in the Statement of Facts filed before the CIT(A), and which clearly bring out that the contract for supply of goods is on principal-to-principal basis and is a contract for purchase of goods by the assessee and sale of goods by the respective manufacturers. No doubt, the manufacturers are obliged to manufacture products as per the specifications and standards provided by the assessee but it is a case where the contractual obligations are entered into on a principal-to-principal basis. The manufacturers buy raw material and packing material at their own cost and as per their requirements and it is the obligation of the manufacturers to deliver the products as per specifications provided by the assessee. Considering the factual matrix, we find no reason to depart from the earlier finding of the Tribunal with regard to similar contracts which have been held not to be in the nature of work contracts. Therefore, in this view of the matter, we hereby affirm the findings of the CIT(A) in deleting the disallowance - Decided against revenue. Set-off of the brought forward unabsorbed depreciation - Held that:- As decided in General Motors India Pvt. Ltd. vs. DCIT [2012 (8) TMI 714 - GUJARAT HIGH COURT] any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. Also see case of M/s. Autolite (India) Ltd. [2016 (11) TMI 1424 - RAJASTHAN HIGH COURT] - Decided against revenue Issues:1. Penalty imposed under section 271(1)(c) of the Act for assessment years 2006-07 and 2007-08.2. Disallowance under section 40(a)(ia) of the Act for non-deduction of TDS on works contract.3. Set-off of unabsorbed depreciation pertaining to assessment years 1996-97 to 1999-2000.Issue 1: Penalty under section 271(1)(c) of the Act for assessment years 2006-07 and 2007-08:The Assessing Officer imposed penalties for non-deduction of tax at source under section 194C of the Act in the assessments for the mentioned years. However, the CIT(A) deleted the penalties based on a Tribunal decision that upheld the assessee's contention that the agreements for purchases were not work contracts requiring TDS deduction. The Revenue appealed, but the Tribunal affirmed the CIT(A)'s decision, noting the consistency with the earlier Tribunal ruling.Issue 2: Disallowance under section 40(a)(ia) of the Act for non-deduction of TDS on works contract:The Revenue challenged the CIT(A)'s deletion of disallowance under section 40(a)(ia) for the assessment year 2011-12. The Assessing Officer disallowed expenses due to non-deduction of TDS on works contracts with specific manufacturers. However, the CIT(A) relied on a Tribunal decision from the assessee's previous years to delete the disallowance. The Tribunal upheld the CIT(A)'s decision, emphasizing the principal-to-principal nature of the contracts and the absence of TDS obligations.Issue 3: Set-off of unabsorbed depreciation pertaining to assessment years 1996-97 to 1999-2000:Regarding the set-off of unabsorbed depreciation, the Assessing Officer disallowed the claim based on a time limit under Section 32(2) of the Act. The CIT(A) disagreed, citing an amendment post-2001 that removed the time limit for carry forward. The CIT(A) allowed the set-off, supported by a judgment of the Gujarat High Court. The Revenue appealed, but the Tribunal upheld the CIT(A)'s decision, noting subsequent support from the Rajasthan High Court for the same interpretation.In conclusion, the Tribunal dismissed the Revenue's appeals on all issues, affirming the CIT(A)'s decisions based on consistent legal interpretations and precedents.