2014 (8) TMI 1069 - AT - Income Tax

Reopening of assessment - non-deduction of TDS on payment made to the contractors for the labour contract work - Held that - A mere production of the books of account or documents or other evidences is not sufficient for making assessment. If the Assessing officer is unable to examine those documents and to discover the understatement of income by relying on the same documents, the Assessing officer could re-open the assessment on the basis of fresh material which came to the knowledge of the Assessing officer that the income has escaped assessment. Therefore, merely because material lies embedded in the material or evidence produced by the assessee, which the Assessing officer could have uncovered but did not uncover is not a good ground to cancel the re-assessment proceedings. The Assessing officer could have found the truth, but he did not, does not preclude the Assessing officer from exercising the power of re- assessment to bring to tax the escaped income. In the present case, as seen from the reasons recorded, there is prima facie escapement of income. Hence, the Assessing officer after recording the reasons, issued notice to the assessee u/s. 148 of the Act. TDS u/s 194C - non deduction of tds - nature of contract - Held that - Chapter V of the Indian Contract Act treats certain relations resembling those created by a contract as contracts enforceable in law. The Indian Contract Act thus envisages four types of contracts, namely, (1) contracts made in writing, (2) contracts made orally, (3) contracts by implication or implied contracts and (4) quasi contracts. Thus, the contracts envisaged by section 194C are not limited to written contracts alone; they include oral contracts and implied contracts also. All payments made in pursuance of a contract irrespective of whether it is a written contract, oral contract, implied contract and quasi contract are well covered by section 194C of the Income Tax Act. The case of the assessee falls within the aforesaid parameters. Provisions of sub-section (2) of section 194C also apply to an individual whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the relevant financial year. Total sales, gross receipts or turnover from the business or profession carried on by the assessee in the year under appeal exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the relevant financial year. Total sales, gross receipts or turnover from the business or profession carried on by the assessee in the year under appeal exceed the monetary limits specified under clause (a)or clause (b) of section 44AB. It is for this reason that the assessee has filed tax audit report as required by section 44AB. In this view of the matter, the provisions of section 194C(2) apply with equal force to him and the assessee is liable to deduct TDS on the impugned payment - Decided against assessee

Summary

Issues Involved:
1. Re-opening of assessment under sections 147/148 of the Income Tax Act.
2. Disallowance of Rs. 8,34,773/- towards labor contract payments under section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Re-opening of Assessment under Sections 147/148:
The first issue pertains to the re-opening of the assessment under sections 147/148 of the Income Tax Act. The assessee argued that the re-opening was improper as all necessary information had already been disclosed during the original assessment. The Assessing Officer (AO) re-opened the assessment on the grounds that the income had escaped assessment due to non-deduction of TDS on labor contract payments amounting to Rs. 8,34,773/-. The AO had reason to believe that the income had escaped assessment, which justified the re-opening.

The assessee contended that no new information or material was available to the AO to warrant the re-opening and relied on several judgments to support this claim. However, the Tribunal held that if the AO discovers material facts later that indicate income has escaped assessment, the re-opening is valid. The Tribunal cited judgments such as Ess Ess Kay Engg. Co. (P) Ltd. vs. CIT and Honda Seil Power Products Ltd. vs. DCIT to support this view. Hence, the Tribunal found no infirmity in the re-opening of the assessment.

2. Disallowance of Rs. 8,34,773/- towards Labor Contract Payments:
The second issue involves the disallowance of Rs. 8,34,773/- towards labor contract payments under section 40(a)(ia) of the Income Tax Act due to non-deduction of TDS. The assessee argued that the payments were made to employees and not contractors, and thus TDS provisions were not applicable. The assessee also relied on the decision in Teja Constructions vs. ACIT, which stated that section 40(a)(ia) applies only to items covered by sections 30 to 38 and not to section 28.

The Tribunal rejected this argument, stating that section 40(a)(ia) applies to any expenditure on which tax is deductible at source but has not been deducted or paid. The Tribunal emphasized that the nature of the payment (whether to employees or contractors) is irrelevant if the payment is liable for TDS under section 194C. The Tribunal also clarified that the scope of section 40(a)(ia) is not limited to sections 30-38 but covers all specified expenses, including those under section 37.

The Tribunal further explained that the provisions of section 194C apply to all forms of contracts, including oral and implied contracts. Since the assessee's total sales exceeded the limits specified under section 44AB, the provisions of section 194C(2) were applicable, making the assessee liable to deduct TDS on the impugned payment.

The Tribunal dismissed the assessee's reliance on the judgments in Merilyn Shipping & Transports vs. Addl. CIT and Teja Constructions vs. ACIT, as the operation of the former judgment was suspended by the Andhra Pradesh High Court.

In conclusion, the Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the assessee. The appeal was pronounced accordingly on 28-08-2014.