2015 (7) TMI 1219 - AT - Income Tax

TDS u/s 194C - non deduction of tds - AO rejected the books of account of the assessee - Held that - Hon ble Allahabad High Court in the case of CIT vs. Banwari Lal Bansidhar ( 1997 (5) TMI 37 - ALLAHABAD High Court ) has taken a view that once the books of account are rejected then no other disallowances can be made which is a fact in this case. Besides, the assessee has demonstrated that taxes on the impugned job work charges were either paid by payees or they were not taxable in their hands. Therefore, there is no loss to the Revenue, this fact has not been disputed. Thus no disallowance is justified u/s 40(a)(ia) of the Act in this case of the assessee. Hence, the ground of the assessee is allowed.

Summary

Issues Involved:
Appeal against disallowance of TDS under section 40(a)(ia) r.w.s. 194C for non-deduction of TDS from payments made to job workers.

Detailed Analysis:

1. Disallowance of TDS under Section 40(a)(ia):
The appeal was filed against the disallowance of Rs. 2,46,478 under section 40(a)(ia) r.w.s. 194C for non-deduction of TDS from payments made to job workers. The AO rejected the books of account and made the disallowance during the assessment proceedings. In the first appeal, the rejection of books of account was upheld, but the disallowance was partly accepted based on certain observations. The counsel for the assessee argued that there was no liability of deducting TDS and referred to an amendment under section 40(a)(ia) of the Act, stating that if taxes on income received by payees are paid, then disallowance cannot be made. The counsel also cited relevant case laws to support the contention that once the books of account are rejected and profits are estimated, no separate addition can be made under section 40A(3).

2. Judicial Interpretation and Precedents:
The counsel for the assessee relied on various judgments, including CIT vs. Banwari Lal Bansidhar, ITAT Hyderabad decision in Teja Construction vs. ACIT, and other similar cases to argue that once the books of account are rejected and income is estimated, no further disallowance under section 40(a)(ia) is warranted. The divergence of judicial opinion on this matter was highlighted, and the legislative amendment in section 40(a)(ia) was discussed to address the conflicting views. The counsel further emphasized the principle that if two views are possible, the one in favor of the assessee should be adopted, citing the case of CIT vs. Vegetable products Ltd. Additionally, a specific case from the Jaipur ITAT Bench was referenced to support the argument that no additional disallowance should be made if books of accounts are rejected.

3. Decision and Conclusion:
After considering the arguments presented by both sides and examining the relevant legal provisions and precedents, the Judicial Member concluded that no disallowance was justified under section 40(a)(ia) in the case of the assessee. The judgment highlighted the fact that the assessee had demonstrated that taxes on the job work charges were either paid by the payees or were not taxable in their hands, resulting in no loss to the Revenue. The decision was supported by the judgments of the Hon'ble Allahabad High Court, the legislative amendment, and the principle of adopting a view favorable to the assessee when interpreting the law. As a result, the appeal of the assessee was allowed, and the disallowance of TDS under section 40(a)(ia) was set aside.

In conclusion, the judgment provided a detailed analysis of the disallowance of TDS under section 40(a)(ia) in the context of non-deduction of TDS from payments made to job workers, citing relevant legal provisions, judicial interpretations, precedents, and the ultimate decision in favor of the assessee.