Shri R. P. Tolani And Shri T. S. Kapoor,JJ.
For the Petitioner : Shri Gautam Jain, CA.
For the Respondent : Shri Bhim Singh, Sr. DR.
Per T. S. Kapoor, AM:-
This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-IX, New Delhi dated 22.10.2010. The grounds of appeal taken by Revenue are as under:
"1. On the facts and circumstances of the case, the Ld. CIT (A) has erred in law and on the facts in deleting the addition of Rs.29,17,172/- made by the Assessing Officer u/s 40(a)(ia) of the Income Tax Act on account of non deduction of TDS on denting and painting expenses.
2. On the facts and in circumstances of the case, the Ld. CIT (A) has erred in law and on the facts in deleting the addition of Rs.11,31,388/- made by Assessing Officer u/s 40(a)(ia) of the Act under the head free service charges.
3. The appellant craves leaves to add, alter or amend any of the grounds of appeal before or during the course of the hearing of the appeal."
2. The case was earlier heard on 4th July, 2013 but was re-fixed on 22.07.2013 to seek certain clarification and was fixed for hearing on 06.08.2013 on which date the case was heard.
3. The brief facts of the case are that the assessee is a partner ship firm and is an agent of M/s Maruti Udyog Ltd. and its business is sales, servicing and managing a workshop for maintenance of vehicle. The return of income in this case was filed on 31.10.2007 declaring a total income of Rs.16,62,860/-. The case of the assessee was selected for scrutiny. During assessment proceedings, the Assessing Officer observed that assessee had incurred an expenditure of Rs.29,70,172/- and Rs.11,31.388/- under the heads denting and painting expenses and free service charges. Vide questionnaire dated 09.12.2009, the assessee was required to furnish party wise detail of denting and painting expenses and free service charges paid and TDS deducted against such payments. In response to this query the assessee clarified that no TDS was deducted. The assessee was required to justify non deduction of TDS and also was directed to produce complete bills and vouchers pertaining to these expenses. The assessee vide letter dated 30.12.2009 submitted as under:
"The expenses booked under this head relate to daily wages, material purchased for denting and painting expenses like paint, thinner, hardener etc. and it is not the case where the assessee has paid denting and painting expenses to some other dealer/ person and therefore, TDS is neither applicable on material purchased and nor on payment of daily wages and moreover it is the business activity of the assessee and out of which it earns income and pays income tax on it also. In this regard, it would be pertinent to note that during the year, the assessee had earned Rs.74,00,631.21 whereas it spent only Rs.29,70,171.74 under the head 'Denting & Painting'. Without prejudice to the above submission, we would also like to know under which section yourgoodself would like to cover the TDS applicability on the expenses booked under the head 'Denting & Painting Expenses' as the same has not been mentioned in yourgoodself's letter dated 24.12.2009 and this is necessary to know in order to give a complete and comprehensive reply to the same.
1. Ledger account of 'Free Service Charges Paid' were submitted way back in the month of August, 2009 vide point no.1 of our earlier letter dated 07.08.2009. After that yourgoodself had issued a questionnaire dated 09.12.2009 and vide point no.9 in that questionnaire yourgoodself had asked for nature of expenses of Rs.11,88,388/- under the head 'Free Service Charges Paid' for which we had replied vide point no.9 of our letter dated 18.12.2009 and now yourgoodself has asked for the partywise complete detail of payment made under the head 'Free Service Charges Paid' alongwith the explanation and justification for non-deduction of TDS.
As mentioned earlier vide point no.9 of our earlier letter dated 18.12.2009, we would like to once again state that the expenses booked under this head relate to payments made to other Maruti Dealers who service the vehicles sold by the assessee since the buyer of the vehicle has a choice/option to get the Free Service done from any authorized Maruti Dealer. This is a normal practice followed by all Maruti Dealers. There is no provision of any TDS deduction applicable on such payments. The assessee has also received an amount of Rs.6,60,818.04 from other Dealers and on that also no TDS has been deducted.
Without prejudice to the above submission, we would also like to know under which section yourgoodself would like to cover the TDS applicability on the expenses booked under the head 'Free Service Charges Paid' as the same has not been mentioned in yougoodself's letter dated 24.12.2009 and this is necessary to know in order to give a complete and comprehensive reply to the same."
4. The Assessing Officer however was not satisfied with the reply filed by assessee and, therefore, he made a disallowance of Rs.29,70,172/- and Rs,11,31,338/- u/s 40(a) (ia) for non deduction of tax at source.
5. Dissatisfied with the order, the assessee filed appeal before the Ld. Commissioner of Income Tax (appeals) and submitted various submissions. The Ld. CIT (A) after going through the submissions and after going through remand report from Assessing Officer deleted both addition by holding as under:
"10. The Assessing Officer has concluded that denting and painting services have been done by outside parties, which is without any basis, as the Maruti Dealers are required to maintain proper workshop facilities to cater to the repair and maintenance of vehicles sold by them. The assessee has in house denting and painting facilities for which various raw materials have been purchased amounting to Rs.16,61,041/-. Further, payments amounting to Rs.9,88,964/- to the employees of the assessee against the work done, Thus, it becomes abundantly clear to me that the expenditure debited under the head denting and painting amounting to Rs.29,70,172/- is not work contract and provisions to section 194C are not applicable to the facts of the case and, therefore, consequential non-deduction of TDS does not warrant disallowance u/s 40(a) (ia). The addition made by the Assessing Officer in this regard is deleted.
13. I have examined the basis of disallowance made by the Assessing Officer and the argument of the Authorized Representative on the same. I agree with the arguments of the Authorized Representative of the appellant that free service charges paid by the assesssee don't fall under the ambit of provisions of section 194C/ 194 and, therefore, deduction of TDS is not warranted. As such, the addition made by the Assessing Officer u/s 40(a)(ia) is deleted."
6. Aggrieved, the Revenue is in appeal before us. At the outset, Ld. Departmental Representative read from page 4 of assessment order and in view of findings of Assessing Officer argued that assessee did not submit the party wise/ person wise payments made on account of denting and painting and service charges and did not produce any books of accounts except copy of ledger and, therefore, the Assessing Officer was justified in not accepting the claim of assessee that TDS was not applicable and hence he rightly made the disallowance u/s40(a) (ia).
7. Ld. AR on the other hand read from the brief synopsis filed and submitted that amount of denting and painting expenses was comprised of three items of expenditure which included consumption of paints, payment of employees and daily wagers and consumables. In respect of consumption of paints, the Ld. AR invited our attention to paper book page 87 wherein bills of purchases of paint amounting to Rs.16,61,141/- was placed. Our attention was also invited to copies of purchase bills placed at paper book page 88 to 111 of paper book. He further submitted that this purchase added to opening stock of paints made out the consumption of paint at Rs.17,39,489.74. In view of the fact that bulk of expenditure under the head denting and painting consisted of consumption of paints, there was no requirement of TDS.
8. Regarding payment of Rs.988964 relating to payments of daily wagers our attention was invited to paper book page 155 to 161 wherein sample of vouchers pertaining to denting and painting were placed and it was argued that these were not contractual payments and rather payments were made to daily wagers and, therefore, no TDS was attracted. In respect of consumables, it was submitted that these represented small amount of expenditure on various consumables used in denting and painting. In view of the above, it was argued that no TDS was required to be deducted on all these payments.
9. Reliance in this respect was placed in the following case laws:
i) 326 ITR 106 (P&H) CIT vs. Assistant Manager (Account) Food Corporation of India.
ii) 17DTR 337(Del) CIT vs. Dewan Chand.
10. Regarding free service charges, the Ld. AR submitted that there were three types of expenses relating to free services under the head which related to vehicles directly sold by assessee, vehicle sold by other dealers but free services done by assessee and amount deducted by Maruti Udyog Ltd. for non payment of service charges payable by assessee to other dealers.
11. The Ld. AR relied upon the decision in the case of Hero MotoCorp. Ltd. Vs. Addl. CIT in ITA No. 1980/D/2012 wherein it was held that since the cost of vehicle includes free services to be provided to customer during warranty period it cannot be said that the dealer had rendered technical services as contemplated u/s 194J of the Act. Regarding applicability of section 194C Ld. AR argued that no expenditure exceeding Rs.50,000/- was paid at the particular point of time. Therefore, the provisions of section 194C were also not applicable. He further argued that the services rendered by assessee's company did not involve of any technicality as during free servicing washing of the vehicle is carried out by the unskilled labour, engine oil is changed by helper, which is also not technical services. Further reliance was placed on question no.2 of Circular No.715 dated 08.08.1995 wherein it had been clarified by CBDT that payments made to an electrician or to a contractor to provide the service to any electrician will be in the nature of payment made in pursuance of a contract for carrying out any work and accordingly provisions of section 194C will apply in such cases. In view of the above, it was argued that if board has clarified that services of electrician cannot be covered under the provisions of section 194J then how services of unskilled workers and helpers can be called technical services and brought under the provisions of section 194J..
12. As regards the applicability of provisions of section 194C it was submitted that no single payment exceeding Rs.50,000/- was made to any dealer and our attention was also invited to paper book page 112 and to 115. Therefore, it was argued that section 194C was also not applicable, in the present case.
13. We have heard the rival parties and have gone through the material placed on record. The Assessing Officer had made the first addition of Rs.29,70,172/- on account of non production of bills and vouchers and on the basis of the fact that assessee had not furnished the details of payments. The Assessing Officer in his order vide para 5.2 has held as under:
"Vide entry dated 29.12.2009 the assessee specifically asked to produce the complete bills and vouchers pertaining to these expenses but the assessee fail as required. However, one more opportunity was allowed to the assessee to produce on 31.12.2009 but the assessee has neither attended fixed for today nor produce any books of accounts/ copies. In the absence of original bills and vouchers and the nature of expenses would not be asserted and the payment of addition expenses apparently covered under the provisions of section 194C and 194J of the Income Tax Act."
13. Before Ld. CIT (A) the Ld. AR had submitted that question regarding denting and painting was asked for the first time vide questionnaire dated 24.12.2002 and it was sent through speed post and was received by assessee on 29.12.2009 and thus assessee was left with no time to file comprehensive reply and adjournment was sought. It was further submitted that assessee's letter dated 31.12.2009 was not taken on record, wherein the assessee had furnished comprehensive reply to the Assessing Officer and, therefore, the reply was sent through speed post. Further we find that the submissions before CIT (A) were forwarded to the Assessing Officer and a remand report was obtained. The Assessing Officer in his remand report submitted that additional evidence filed by assessee may not be accepted since the books of accounts and bills and vouchers were not produced during assessment proceedings. However he did not comment upon the merits of the documents. We further find that the amount of Rs.29,70,172/- consisted primarily for purchase of denting and painting raw materials and consumables for which bills were available and only small amount of Rs.98,964/- was for payment to employees/ daily wages which also did not attract the provisions of TDS as these were not contractual payments. Therefore, the addition was rightly deleted by Ld. CIT (A). 10 ITA No. 5982/Del/2010
14. With regard to second addition of Rs.11,31,388/- we find that these are service charges incurred by assessee which included payments made to other dealers on account of free services done on vehicles sold by them. These are not technical services requiring tax deduction u/s 194J as most of the work in free services is done by unskilled /semiskilled labour. Moreover, the decision in the case of Hero MotoCorp. Ltd. Vs. Addl. CIT in ITA No. 1980/D/2012 supports the case of the assessee. The relevant findings of the above said cases are reads as under:
"29.33. Whether the assessee sells vehicles to its dealers for the ascertained price, the cost of free service obligation on the part of the assessee is embedded in the concluded sale contract and sale price of the vehicle. The dealer, in turn, makes onward sales to the customers at a price which includes free service obligations. The contract between dealer and customer is independent and separate contract. The customer in terms of the sale contract with the dealer approaches the dealer for these free services. It is the customer who avails the service for the cost paid by him as part of the sale price of the vehicle he purchases from dealer during the warranty period. It is the dealer who renders the service to the customer pursuant to independent contract. The fact that the customer can approach any dealer for obtaining free service does not alter the position as it is a case of convenience and mutual arrangement drawn by the company. The reimbursement is not for services rendered by the dealer to the customer but in discharge of the warranty obligation included in the sale price. It is in term of a independent contract of sale which stipulates that the assessee should reimburse the cost incurred by the dealer if and when it performs free services to the ultimate customer. On this factual matrix, it would be wrong to hold that the dealer has rendered technical services as contemplated u/s 194J to the assessee for which the assessee paid a particular amount to the dealer and non-deduction of tax at sources on such payments attracts disallowance u/s 40(a) (ia)."
In view of the above, we held that the provisions of section 194J were not applicable to the assessee company.
15. Regarding applicability to section 194C, we observe that individual payments were not exceeding Rs.50,000/- and, therefore, provisions of section 194C are also not applicable. In view of the above, we do not see any infirmity in the order of CIT (A).
In the result, the appeal of the Revenue is dismissed.
Order pronounced in open court on 14th /08/ 2013.