Per B.R.BASKARAN, Accountant Member: The appeal filed by the assessee is directed against the order dated 17-12-2012 passed by the Ld. CIT(A), Trivandrum and it relates to the assessment year 2009-10.

2. The disallowance of Rs.93,68,320/- made by the Assessing Officer u/s. 40(a)(ia) of the Act, having been partially confirmed by the Ld. CIT(A), the assessee has filed this appeal before us.

3. The facts relating to the issue under consideration are stated in brief. The assessee is a dealer in aluminium extrusion products. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid a sum of Rs.93,68,320/- as polishing charges and claimed the same as deduction. The Assessing Officer noticed that the process of anodizing and powder coating on aluminium extrusions is booked under Polishing charges. The assessee has sold the products

I.T.A. No. 38/Coch/2013 after carrying out polishing works. The Assessing Officer noticed that the assessee has carried out these works through others. Hence the Assessing Officer took the view that the polishing work given by the assessee to others would fall within the definition of work as given in sec. 194C of the Act. Since the assessee did not deduct tax at source on the above said payments, the Assessing Officer disallowed the same by invoking the provisions of sec. 40(a)(ia) of the Act.

4. Before the Ld. CIT(A), the assessee submitted that the payments made to certain persons were less than Rs. 20,000/- and accordingly contended that the provisions of sec. 194C of the Act were not attracted to those payments. The aggregate of the amounts so paid, on which provisions of sec. 194C were claimed to be not applicable, was Rs. 71,745/-. Accordingly, the Ld CIT(A) directed the Assessing Officer to delete the disallowance to the extent of Rs. 71,745/- and confirmed the balance amount of addition with the following observations: 8.0 Coming to the contention made by the appellant that there was no written contract with parties who did the job work of anodizing etc. it is seen that the AO has given convincing arguments in his assessment order reproduced above to prove existence of such a contract. In view of the above, it is held that oral contract between the appellant and parties who did the job work do exist even if there is no written contract. Further contention of the appellant that cost towards material should have been excluded for the purpose of application of provision of sec. 194C is not justified for the reasons given by the Assessing Officer in assessment order. The case of appellant is not that of sale of goods by the parties who did the job work but that of carrying out of job work of anodizing etc. A job work may involve consumption of some material also. Further, the intention of the appellant as well as the parties who did the job work is not to purchase/sale of material but that of getting job work of anodizing done. Therefore, it is held that provisions of sec. 194C have been correctly applied by the Assessing Officer on composite charges including cost of material consumed in the job work. The reliance placed by the appellant on the case of CIT vs. United Rice Land Ltd. (supra)(217 CTR (P&H) 332) is totally incorrect as facts of the case are entirely different. In that case the CIT(A) gave a finding that there was no oral or written agreement between assessee and transporters for carrying of good nor it was proved that the freight charges were paid to them in pursuance of a contract for specific period, quantity or price. The instant case is not of a transporter. There is no finding of any authority that no contract exists. Further as mentioned by the appellant in argument note, there is per unit rate of job work (mentioned as less than Rs. 20 per sq. lft. in the argument note) which means quantity of job work and price are specified in the case of the appellant.

I.T.A. No. 38/Coch/2013 Aggrieved by the order passed by Ld CIT(A), the assessee has filed this appeal before

5. The Ld. Counsel for the assessee submitted that the aluminium extrusion materials purchased by the assessee from manufacturers come in mill finished form, i.e. in plain aluminium colour. However, most of the customers prefer to get them polished with the colours of their choice. Since the assessee does not have facilities for polishing, he gets the polishing work done through outsiders. On receipt of materials after polishing, the assessee used to raise the bill for cost of material by including the charges for polishing. Accordingly, the Ld. Counsel submitted that the assessee stood in fiduciary capacity only in the matter of polishing and the customers only have got the polishing work done through him. However the assessee, without knowing the tax implications, has included the polishing charges also in the sale value instead of accounting the same as reimbursement of expenses from the customers. The Ld. Counsel further submitted that more than 99.9% of charges paid for polishing were less than Rs. 10,000/- and only in seven cases, it exceeded Rs. 10,000/- and further only in one case the polishing charges exceeded Rs. 20,000/-. He further submitted that the amount pertaining to each of the customer was less than Rs. 10,000/- in the above said eight cases also. 5.1 The Ld. Counsel further submitted that there is no written contract between the assessee and the persons to whom the polishing work was entrusted. Accordingly, by placing reliance on the following case laws, the Ld. AR submitted that there is no requirement of deduction of tax at source in the cases, where there is no written contract: (a) CIT vs. Bhagwathi Steels, 326 ITR 108 (b) CIT vs. United Rice Land Ltd., 217 CTR(P&H) 332. (c) RR Carrying Corporation vs. ACIT, 30 DTR 569 (Cuttack). (d) Kavita Chung vs. ITO, 134 TTJ 103 (Kol). (e) CIT vs. Ambuja Darka Jaskig Mangu Transport Co-op Society (2010) 1 taxman.com 61(HP).

I.T.A. No. 38/Coch/2013 5.2 The Ld. Counsel further submitted that the assessee has got reimbursement of polishing charges from the customers and hence there is not element of profit involved therein. Accordingly, by placing reliance on the following case law, the Ld. Counsel submitted that there is no liability to deduct tax at source: (a) Global E-Business Operations P Ltd Vs. DCIT (2012)(76 DTR (Bang)(Trib) 106) (b) Mitra Logistic P Ltd Vs. ITO (27 taxman.com (ITAT-Kolkatta) (c) Special Bench of ITAT (Mum) in Mahindra & Mahindra Ltd. vs. Dy.CIT (2009)

30 SOT 374. He further submitted that the liability to deduct tax extends even to the composite payments where the tax is deductible only in respect of the income component involved in these payments. In this regard, he placed reliance in the case of GE India Technology Cen. (P) Ltd. vs. CIT, 193 Taxman 234 / 7 taxman.com 18. 5.3 The Ld. Counsel has also placed reliance on the decision of the Special Bench in the case of Merilyn Shipping & Transports (136 ITD 23(SB)) to contend that the disallowance u/s 40(a)(ia) of the Act can be made only in respect of amount, which remain payable at the year end and it does not apply to the amount already paid. He further submitted that the view taken by the Special Bench in the above cited case has been approved by the Honble Allahabad High Court in the case of CIT vs. Vector Shipping Services P Limited (I.T.A. No. 122/2013). 5.4 The Ld. Counsel further submitted that the persons to whom polishing charges were paid have declared the receipts in their respective returns of income. He submitted that the assessee has filed evidences to the tune of Rs.22.68 lakhs before Ld CIT(A). Further, the assessee is in a position to produce evidences for another Rs.50.97 lakhs. By placing reliance on the decision of the Honble Supreme Court in the case of Hindustan Coco Cola Beverages Ltd., 293 ITR 226, the Ld. Counsel submitted that tax cannot be recovered from the payer, if tax has already been paid by the payee.

I.T.A. No. 38/Coch/2013 5.5 He further submitted that the Finance Act, 2010 amended the first proviso to section 40(a)(ia) with effect from 01-04-2010. However, the Ahmedabad bench of ITAT in the case of Kanu Bhai Ramji Bhai Vs. ITO (2011)(135 TTJ 364) and the Honble Calcutta High Court in the case of CIT Vs. Virgin Creations (ITA No.302 of 2011) have held that the above said amendment is retrospective in nature on the reasoning that it is clarificatory in nature, since it was introduced to eliminate unintended consequences. He further submitted the second proviso in sec. 40(a)(ia) was inserted by the Finance Act, 2012 w.e.f. 01-04-2013, wherein it is stated that the disallowance u/s. 40(a)(ia) of the Act need not be made, if the assessee is not deemed to be an assessee in default under the first proviso to sec. 201(1) of the Act. The Ld Counsel submitted that though the second proviso, referred above, was made effective from 1.4.2013, yet it should be applied retrospectively, since it has been introduced to eliminate unintended consequences, which may cause undue hardship to tax payers. Accordingly, the ratio laid down by Honble Calcutta High Court in the case of Virgin Creations (supra) should be applied to the second proviso also. Accordingly, he submitted that the disallowance u/s 40(a)(ia) should not be made if the payees have declared the receipts in their return of income and paid tax thereon, as specified in the proviso to sec. 201(1) of the Act.

6. The Ld D.R submitted that the AO has given a clear finding that the work of anodizing and powder coating entrusted to the parties has got all the essential elements of a contract like offer, acceptance, communication of both, recurrence of transactions. Hence, the assessee was not right in contending that the said work cannot be considered as a Contract in the absence of a written agreement. The Ld D.R further submitted that the Ld CIT(A) has considered the case laws relied upon by the assessee and has given his decision in para 8 of the order confirming the view taken by the AO. He further submitted that the assessee is taking a new argument about absence of profit element in the polishing works before the Tribunal, which was not advanced before the tax authorities.

I.T.A. No. 38/Coch/2013

7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No.433 dated 25-09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not make any difference. In the instant case, the assessee is repeatedly given works to the polishing people and hence the terms and conditions of the work would be clearly understood by both the parties. Accordingly, we reject this contention of the assessee and hold that the provisions of sec. 194C shall apply to the polishing works given by the assessee. 7.1 According to Ld A.R, the assessee has acted as a conduit pipe in connection with the polishing works between the customers and the person doing polishing job. Accordingly, it was submitted that there is no profit element in the said transactions. The Ld A.R further submitted that the assessee has included the cost of polishing works in the sale value of aluminium extrusions, without knowing tax implications. However, we notice that the assessee did not furnish any proof to substantiate the above said claims. The assessee, being a dealer in aluminium extrusions, has only supplied the products after carrying out the polishing works according to the taste and requirement of customers. It is only one of the many business techniques normally adopted by a business man to improve his sales, since it will be very difficult for customers to identify the polishing people and get the work done by themselves. Hence, we are of the view that it may not be correct to argue that the contract existed between the customers and the polishing people. In fact, the customer may not have any contact with the polishing people in this type of transactions. Hence, it is hard to believe the claim of

I.T.A. No. 38/Coch/2013 the assessee that he has acted as mere conduit pipe between the customers and polishing people. Accordingly, the claim that the assessee stands in a fiduciary capacity is also liable to be rejected. In this kind of factual situation, in our view, the existence or absence of profit element in the polishing works does not make any difference. 7.2 The Ld Counsel, by placing reliance on the decision of special bench in the case of Meryline Shipping and transports (supra) contended that the provisions of sec. 40(a)(ia) shall apply only to amount payable and not to the amount paid. However, the Honble Gujarat High Court in the case of CIT Vs. Sikandar Khan N Tunvar (357 ITR 312) and the Honble Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate (ITAT 20 of 2013) have held that the decision rendered by the Special Bench in the case of Meryline Shipping & Transports is not a good law. The Ld A.R, however, placed reliance on the decision of Honble Allahabad High Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Honble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Meryline Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also. 7.3 The assessee placed reliance on the decision of Honble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd (supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the Act. 7.4 The last contention of the assessee is that the second proviso to sec. 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect from 1.4.2013 is clarificatory in nature and hence the benefit of the same should be applied retrospectively. However, the correctness of this contention has not been examined by the tax authorities.

I.T.A. No. 38/Coch/2013 Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer. Accordingly, we modify the order of the Ld CIT(A) and set aside this ground to the file of the assessing officer with the direction to examine the above said contention of the assessee and decide the same in accordance with the law, after affording necessary opportunity of being heard. We make it clear that we have, in effect, rejected all the contentions of the assessee except the ground relating to applicability of the second proviso to sec. 40(a)(ia) of the Act to the year under consideration.

8. In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes. Pronounced accordingly on 29-11-2013. sd/- sd/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 29th November, 2013 Copy to:

1. Shri Antony D. Mundackal, Mundackal Chambers, City Centre, Aryasalai, Trivandrum-695 036.

2. The Assistant Commissioner of Income-tax, Circle-1(2), Trivandrum.

3. The Commissioner of Income-tax(Appeals), Trivandrum.

4. The Commissioner of Income-tax, Trivandrum.

5. D.R., I.T.A.T., Cochin Bench, Cochin.

6. Guard File. By Order (ASSISTANT REGISTRAR)

I.T.A.T, COCHIN