No TDS on Wastage of Gold during Jewellery Creation as 'Making Charges': ITAT deletes Disallowance [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai Bench has recently held in favour of the assessee engaged in manufacture of gold and silver jewellery that, the issue of wastage whether it is 0.5% to 1% as estimated by Revenue or it is 4.5% to 6% as claimed by assessee, it neither involves any payment or credit of such sum by way of cash, issue of cheque or draft or by any other mode and hence does not liable to deduct tax (TDS) under Section 194C of the Income Tax Act, 1961.

According to the Assessing Officer (AO), the wastage in making gold jewellery would be only in the range of 0.5% to 1% and the excess rate of gold from the assessee as wastage was actually gold retained by the goldsmiths in lieu of making charges.

The AO recorded the statement of various goldsmiths wherein many goldsmiths admitted the wastage from 5% to 6% but many goldsmiths admitted contrary estimates i.e., 0.5% to 1%. Accordingly, the AO treated this wastage as payment to goldsmiths without deduction of tax u/s.194C of the Act and accordingly estimated the wastage at 1%, excess wastage was treated as payment and disallowed the wastage claims.

The assessee claimed that in the course of manufacturing of jewellery / ornaments due to various processes involved, there is loss of gold which is actual and real. This loss is on account of cutting, mixing of chemicals and alloys, etc.

On behalf of the assessee, N Arjun Raj and S Sridhar submitted that, the wastage suffered during the manufacture is true and well within the accepted norms and that the normal loss is allowed to pathars (goldsmiths).

On behalf of the Revenue, JCIT Hema Bhupal contended that the wastage was only 0.5% to 1%. Here only the issue is only claim of wastage and not any payment as envisaged in the provision of section 194C of the Act.

The Tribunal bench of Vice President Mahavir Singh and Accountant Member Dipak R Ripote observed that, “In case, no payment is debited or credited to respective parties account, then such payment cannot be considered within the ambit of section 194C or any other TDS provisions. In this case, the assessee has neither debited making charges into profit and loss account nor credit any amount to the respective parties account. Therefore, when no payment is made or amount is credited to respective parties account, then question of application of provisions of Section 194C does not arise at all.” from the decision of the Co-Ordinate Bench in the case of Siva Valli Vilas Jewellers Pvt. Ltd.

Additionally, in the matter of wastage, it was held that, “the issue of wastage whether it is 0.5% to 1% as estimated by Revenue or it is 4.5% to 6% as claimed by assessee, it neither involves any payment or credit of such sum by way of cash, issue of cheque or draft or by any other mode and hence does not liable for TDS under Section 194C of the Income Tax Act.”

Resultantly, the appeals of the assessee were allowed.

To Read the full text of the Order CLICK HERE

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