2013 (11) TMI 1679 - AT - Income Tax

TDS u/s 194C - Addition u/s. 40(a)(ia) - Held that - The provisions of sec. 194C clearly states that the assessee is liable to deduct tax at source either at the time of credit to the account of the contractor or at the time of payment thereof, whichever is earlier. It is further provided that the said liability would arise even if the amount is credited to any other account whether called Suspense Account or by any other name. Hence, in our view, the assessee would be liable to deduct tax at source u/s 194C on the amount provided under the head provision for expenses . Hence, we reject the contentions of the assessee that the TDS provisions shall not apply to the provision for expenses. A careful reading of the provisions of sec. 194C would show that the said section is contract specific and not related to the income of the assessee. Hence, this argument of the assessee also fails. No submissions would not absolve the assessee from the TDS liability u/s 194C of the Act, since a careful reading of the provisions of sec. 194C would show that the said section is contract specific and not related to the income of the assessee. Hence, this argument of the assessee also fails. It is an admitted fact that the assessee has claimed the impugned amount as deduction in the succeeding assessment year, i.e., assessment year 2008-09. Though the assessee contends that it has claimed the same on protective basis, we do not find any such observation in the assessment order which is placed in the paper book filed by the assessee. The Ld. CIT(A) has rightly pointed out that the assessee has claimed the very same amount twice, i.e., in assessment year 2007-08 and also in assessment year 2008-09.- Decided against assessee. In the preceding paragraphs, we have held that the assessee is liable to deduct tax at source on the provision for expenses created by the assessee. It an admitted fact that the assessee herein did not deduct tax at source from the amount of provision so created. We have already rejected various contentions urged by the Ld A.R. Under these circumstances, in our view, the Ld. CIT(A) was justified in confirming the disallowance made by the Assessing Officer u/s. 40(a)(ia) of the Act. Accordingly, we uphold his order on this issue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Act.
2. Applicability of Percentage Completion Method for recognizing income.
3. Tax Deduction at Source (TDS) liability on provision for expenses.

Analysis:

Issue 1: Disallowance under section 40(a)(ia) of the Act
The appeal was against the addition of a specific amount by the Assessing Officer under section 40(a)(ia) of the Act. The Assessing Officer disallowed the amount as the assessee did not deduct tax at source. The CIT(A) confirmed the disallowance since the same amount was claimed as a deduction in the succeeding year and accepted by the AO. The Tribunal upheld the CIT(A)'s decision, stating that the assessee cannot claim double deduction for the same amount.

Issue 2: Applicability of Percentage Completion Method
The assessee, engaged in construction business, argued against the applicability of the Percentage Completion Method for recognizing income. The AR contended that the provision for expenses made at year-end should not attract TDS liability. However, the Tribunal noted that the provision for expenses, related to construction activity, indicated a present obligation, making the assessee liable for TDS under section 194C.

Issue 3: TDS liability on provision for expenses
The Tribunal analyzed the provisions of section 194C, emphasizing that TDS liability arises when any sum is paid for work under a contract. The Tribunal rejected the contention that the provision for expenses was nullified by work-in-progress, stating that TDS liability is contract-specific. As the assessee did not deduct TDS on the provision for expenses and claimed the same amount in the succeeding year, the disallowance under section 40(a)(ia) was upheld.

In conclusion, the Tribunal dismissed the appeal, affirming the disallowance under section 40(a)(ia) due to the assessee's failure to deduct TDS on the provision for expenses related to construction activity. The decision highlighted the importance of complying with TDS provisions and avoiding double deductions for the same amount in successive assessment years.