AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 370
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....at source under section 194C. 5. Briefly, the facts are assessee a partnership firm is engaged in the business of manufacture and sale of cotton, polyester-viscose yarns. For the assessment year under consideration, assessee filed its return of income on 29.09.2009 declaring total income of Rs. 18,27,350. During the assessment proceedings, on the basis of information submitted by the assessee, it was noticed by the Assessing Officer that assessee firm has entered into an agreement with M/s Aditya Spinners Ltd for production of Polyester yarns. On verification of the ledger account, it was found by the Assessing Officer that assessee firm has paid an amount of Rs. 2,89,98,843 towards conversion charges and Rs. 5,98,13,357 towards conversion expenses. He further noticed that though the assessee has made TDS on conversion charges of Rs. 2,89,98,843 in terms of section 194C of the Act, however, he has not deducted tax at source on conversion expenses Rs. 5,98,13,357 under section 194C. He therefore, called upon the assessee to explain why provisions of section 194C were not applied to the payments made on account of conversion expenses. 6. In response to the show cause notice it was ....
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....g aggrieved of such disallowance, assessee preferred appeal before the learned CIT (A). 7. In course of hearing of appeal before the first appellate authority, it was submitted by the assessee that conversion expenditure was reimbursed by the assessee in terms with the agreement entered into with M/s Aditya Spinners Ltd. It was submitted, as per the terms of the agreement, the assessee undertook to incur various expenditures such as power and fuel, stores and spares, carriage inward and carriage outwards etc. It was submitted, according to the contract M/s. Aditya Spinners Ltd could only receive conversion charges of Rs. 22.45 per kg. However, the expenditure incurred on production will be the liability and responsibility of the assessee. It was submitted, in the process of incurring expenditure, payments were initially made by the Aditya Spinners Ltd and the exact amount of expenditure incurred on behalf of the assessee was reimbursed to the said company by the assessee. It was further submitted, as the payment made is merely reimbursement of the expenditure incurred on behalf of the assessee, and not for carrying out any work, it will not come within the purview of section 194C.....
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.... such job work or for that matter any work given on contract basis, there will be a cost with mark up. While the cost is the actual expenditure incurred by the Contractor for executing the work, the mark up is his profit. Therefore, these two amounts cannot be segregated artificially as has been done by the assessee. 11. The learned Departmental Representative submitted that the entire payment made by the assessee towards conversion charges as well as conversion expenses is to be treated as one as the payment was towards manufacturing/processing activity only. Therefore, when the assessee deducted tax on conversion charges by applying the provisions of sec 194C, the same should also have been done in case of conversion expenses as both the payments are similar in nature. The Departmental Representative submitted, the learned CIT (A) completely misdirected himself while observing that assessee has made payment towards a debt due to the Aditya Spinners Ltd. As far as the alternative contention of the assessee that sec 40(a)(ia) would not be applicable as the entire amount was paid during the relevant previous year, the learned Departmental Representative submitted, as the decision o....
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....ssee has paid the amounts to which TDS provisions are applicable, within the relevant previous year and nothing remained payable on the last date of the relevant previous year, then no disallowance can be made under section 40(a)(ia) of the Act. The Department has preferred appeal before the jurisdictional High Court of Andhra Pradesh against the aforesaid order of the ITAT Visakhapatnam Bench. It is an undisputed fact that the Hon'ble High Court has stayed the operations of the aforesaid decision of ITAT. However, it is worth mentioning here, the Hon'ble jurisdictional High Court while considering the issue whether the effect of the decision in case of Merilyn Shipping & Transports (Supra) has been completely obliterated by operation of the stay order, in case of CIT vs. Jayapriya Engineering (Supra) held as under: "4. We are of the view that until and unless the decision of the Special Bench is upset by this Court, it binds smaller Bench and coordinate Bench of the Tribunal. Under the circumstances, it is not open to the Tribunal, as rightly contended by Mr. Narasimha Sarma, learned Counsel to remand on the ground of pendancy on the same issue before this Court, overlook....
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....t necessary to go into the issue whether or not provisions of section 194C is at all applicable to the payments made by assessee claimed to be in the nature of reimbursements. As in our view, it is of mere academic interest, hence should be left open to be decided in an appropriate case. 17. In the result Departmental appeal is dismissed. C.O.No.29/Vizag/212 18. The grounds raised in the cross objections are merely supporting the order of the learned CIT (A). In view of our decision in ITA No. 287/Vizag/2012, the cross objection having become infructuous is accordingly dismissed. ITA No.450/Vizag/2013 19. The aforesaid appeal of the assessee is against the order dated 15.03.2013 passed by the learned CIT, Guntur under section 263 of the Act. 20. Briefly, the facts are for the assessment year under consideration assessee filed its return of income declaring total income of Rs. 5,79,790. Assessment in case of the assessee was completed under section 143(3) of the Act determining the total income at Rs. 8,32,070 vide assessment order dated 29.12.2010. The assessment records of the assessee for the year under consideration came up for examination by the learned CIT in exercise of....
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....ls within section 194C of the Act. The learned CIT observed that in contracts which are known as "cost plus contract", instead of quoting a lump sum consideration for carrying out the work, the consideration is split into two components i.e. reimbursement of actual expenses incurred for carrying out the work and the profit margin. Therefore, irrespective of the manner in which the consideration for the contract is specified, the entire amount paid in pursuance of contract falls under the scope of section 194C as the said section refers to "any sum paid" in pursuance of the contract for the work done. Therefore, the reimbursement expenses will form part of the consideration for contract and liable for TDS under section 194C. As far as the alternative contention of the assessee that section 40(a)(ia) as the entire amount was paid within the relevant financial year, the learned CIT refused to accept the same on the pretext that the decision of the ITAT Visakhapatnam Special Bench in the case of Merilyn Shipping & Transport vs. ACIT (Supra) has been stayed by the jurisdictional High Court. With the aforesaid observation learned CIT set aside the assessment order and directed the Assess....