2012 (5) TMI 715 - AT - Income Tax

Summary

Issues involved:
The judgment involves the appeal against the order of Commissioner of Income Tax (Appeals) related to assessment year 2007-08 under section 143(3) of the Income-tax Act.

Issue 1: Contravention of Section 250(6) of the Income Tax Act

The appellant contended that the order passed by the CIT(A) erred in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961.

Issue 2: Addition of Payment to Contractors under Section 40(a)(ia)

The main issue raised in the appeal was against the addition of Rs. 16,70,760/- made by invoking provisions of section 40(a)(ia) of the Act for non-deduction of tax at source under section 194C of the Act.

Details of the Judgment:

The Assessing Officer noted that the assessee had made payments to subcontractors totaling Rs. 44,88,764/-, out of which Rs. 16,70,760/- had no tax deducted at source. The CIT (Appeals) upheld the disallowance of these payments under section 40(a)(ia) of the Act.

The appellant argued that the issue was covered by precedents such as CIT Vs. Virgin Creations and ACIT Vs. Rajamahendri Shipping & Oil Field Services Ltd. The appellant also highlighted that TDS was deducted and deposited before the due date of filing the return of income.

After considering the contentions, the Tribunal found that the provisions of section 40(a)(ia) were not applicable to the amount paid to subcontractors during the year. The Tribunal referred to the Special Bench decision in ACIT Vs. Merilyn Shipping & Transports, stating that non-deposit of TDS does not merit disallowance if the expenditure has been paid.

The Tribunal also discussed the amendment to section 40(a)(ia) by the Finance Act, 2010, and the retrospective nature of the proviso. Citing various decisions, including CIT Vs. Virgin Creations, the Tribunal held that once tax was deducted and deposited before the due date of filing return of income, there was no merit in disallowing the expenditure.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to allow the claim of expenditure of Rs. 16,70,760/-.