ITAT rules in favor of assessee on TDS demand and interest, treats printing supply as sale contract

The ITAT allowed both appeals by the assessee, ruling in their favor on the issues of TDS demand and interest levied. The ITAT disagreed with the CIT(A)'s findings and directed the AO to treat the supply of printing and packing material as a contract for sale, not subject to TDS. Consequently, the interest levied on the failure to deduct TDS on purchases of preprinted packing material was also set aside in favor of the assessee.

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Issues Involved: Appeal against CIT(A) orders regarding demand raised and interest levied for non-deduction of TDS on purchases of preprinted packing material.

Issue 1 - Demand of TDS:
The AO found that the assessee credited amounts to various parties for printing packing materials without deducting tax at source as required by s. 194C of the Act. The assessee argued that the payments were for raw materials supplied under a contract of sale, not a service contract subject to TDS. Despite various contentions, the AO made additions under ss. 201(1) and 201(1A) of the Act, a decision upheld by the first appellate authority. The assessee contended that the tax liability cannot be enforced for the period before June 2003 due to an amendment in s. 191. Citing a Bombay High Court case, the assessee argued that the supply of printing and packing material should be treated as a contract for sale, not a works contract. The ITAT disagreed with the CIT(A)'s findings, referencing the Bombay High Court decision and directed the AO accordingly.

Issue 2 - Interest Levied:
The interest levied on the plea that the company failed to deduct TDS on purchases of preprinted packing material is connected to the first issue. Since the first issue was decided in favor of the assessee, the ITAT directed the AO to act accordingly.

Conclusion:
Both appeals by the assessee were allowed, with the ITAT ruling in favor of the assessee on the grounds of TDS demand and interest levied.

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