2011 (2) TMI 78 - AT - Income Tax

Disallowing of a sum of Rs. 42,82,497/- by invoking the provisions of section 40(a)(ia) of the Act,1961.- Assessing Officer held that provisions of section 194C provides that TDS has to be deducted from any sum paid for carrying out any work in pursuance to a contract between the contractor and sub-contractor - Assessee has not complied with the provisions of section 194C of the IT. Act and thus provisions of section 40(a)(ia) of the IT. Act are applicable - Section 40(a)(ia) has undergone an amendment by the Finance Act,2006 w.e.f. 1-4-2006 by virtue of which though the default in deduction of ITDS under section.194-I was not hit by the provisions of section 40(a)(ia) for the assessment year 2005-06 but similar default was hit by the provisions of section 40(a)(ia) for the assessment year 2007-08 - vehicle hire charges of Rs. 42,84,497/- was paid by the assessee to various vehicle owners for carriage of passengers by buses or mini buses and therefore the payments made by the assessee to the vehicle owners in consideration of above services which is deemed as work within the meaning of section 194C of the Act and therefore, the assessee was liable to deduct ITDS therefrom under the provisions of section 194C of the Act - The assessee could not point out that the aforesaid payment of Rs. 42,84,497/- included any amount which was lesser than the limit provided in section 194C of the Act on which tax was not deductible as per the provisions of that section - Appeal of the assessee are dismissed Addition of Rs. 49,000/- under section 69 - Assessing Officer added Rs. 49,000/- to the income of the assessee by invoking provisions of section 68 of the Act on the ground that the assessee could not satisfactorily explained the source of Rs. 49,000/- credited in its books of account - The name and address of the creditors who paid the advance amount of Rs. 49,000/- and the date and mode of payment of the said amount the assessee could not produce any material - In absence of any such material or evidence we do not find any good reason to interfere with the order - Appeal of the assessee is dismissed

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
2. Addition under Section 69 for unexplained credit.

Issue-Wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:

The appellant contended that the disallowance of Rs. 42,82,497/- under Section 40(a)(ia) was erroneous. The appellant argued that since the payees had already paid tax on the amounts received, the appellant was not required to deduct TDS, referencing the CBDT Circular and the Supreme Court decision in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT.

The Assessing Officer observed that the appellant paid higher charges to various parties without deducting TDS and issued a show-cause notice. The appellant argued that their services did not fall under Section 194C for TDS deduction, as they were not in the nature of "work" or "rent" under Section 194-I. However, the Assessing Officer, referencing the Supreme Court decisions and CBDT Circulars, concluded that the appellant was obligated to deduct TDS under Section 194C.

The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, noting that the appellant's contract with the Institute for Plasma Research required the appellant to provide and maintain buses, some of which were hired from other parties. The Commissioner rejected the appellant's argument that the payments were not sub-contracts and did not require TDS deduction, emphasizing that the payments fell under Section 194C.

The Tribunal found that the appellant's payments to vehicle owners were not rent under Section 194-I, as the vehicles were provided with drivers, and possession remained with the owners. However, the Tribunal held that the payments constituted "work" under Section 194C, as they involved the carriage of passengers, and the appellant was liable to deduct TDS. The Tribunal distinguished the case from Mythri Transport Corporation, noting differences in facts and the amendment to Section 40(a)(ia) applicable from the assessment year 2007-08.

2. Addition under Section 69 for Unexplained Credit:

The Assessing Officer added Rs. 49,000/- under Section 69, as the appellant could not satisfactorily explain the source of the credited amount. The appellant claimed the amount was an advance for vehicle hire, later refunded. However, the appellant failed to provide supporting evidence or details of the creditors.

The Commissioner of Income Tax (Appeals) upheld the addition, noting the lack of evidence. The Tribunal also confirmed the addition, as the appellant could not produce any material to substantiate the claim of receiving and refunding the advance.

Conclusion:

The Tribunal dismissed the appeal, confirming the disallowance of Rs. 42,82,497/- under Section 40(a)(ia) for non-deduction of TDS and the addition of Rs. 49,000/- under Section 69 for unexplained credit. The Tribunal emphasized the appellant's obligation to deduct TDS under Section 194C and the lack of evidence for the unexplained credit.