2011 (4) TMI 167 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - TDS u/s. 194C(1) - it is clear that the payments made by individual or Hindu Undivided Family does not come within the ambit of TDS i.e. the expenditure incurred for advertisement as individual and HUF are specifically excluded in the above provisions. The provision of Sub-Section (2) applies only to payments made to Sub-Contractors and not to Contractors - the amended provisions of section 194C(1) of the Act will not apply to the present assessment year of the assessee - Decided in the favour of the assessee - In the result, the appeal of the assessee is partly allowed and all other grounds are dismissed as not pressed

Issues Involved:
1. Applicability of Section 194C(1) of the Income Tax Act, 1961 to an individual for Assessment Year 2007-08.
2. Disallowance under Section 40(a)(ia) for non-deduction of tax at source.
3. Confirmation of addition on account of Gross Profit (G.P.) estimation.

Detailed Analysis:

1. Applicability of Section 194C(1) of the Income Tax Act, 1961 to an individual for Assessment Year 2007-08:
The primary legal issue raised by the assessee was whether an individual was liable to deduct tax under Section 194C(1) of the Income Tax Act before its amendment effective from 01.06.2007. The assessee contended that as an individual, he was not covered by the provisions of Section 194C(1) prior to the amendment, and thus, the disallowance under Section 40(a)(ia) was unwarranted. The Tribunal referenced its earlier decision in the case of ACIT vs. Smt. Keya Seth, which clarified that individuals and Hindu Undivided Families (HUFs) were excluded from the ambit of Section 194C(1) before the amendment. Consequently, the assessee was not liable to deduct tax at source for payments made to contractors during the relevant assessment year, and thus, the disallowance under Section 40(a)(ia) was not applicable.

2. Disallowance under Section 40(a)(ia) for non-deduction of tax at source:
The Tribunal found that the assessee, being an individual, was not required to deduct tax at source under Section 194C(1) as it stood before the amendment effective from 01.06.2007. The Tribunal cited its consistent view in similar cases and the provisions of Section 194C(1) and (2), which excluded individuals and HUFs from the requirement to deduct tax at source. Therefore, the disallowance of transportation charges of Rs. 17,66,309/- by the Assessing Officer under Section 40(a)(ia) was not justified, and the issue was decided in favor of the assessee.

3. Confirmation of addition on account of Gross Profit (G.P.) estimation:
The assessee also challenged the confirmation of an addition of Rs. 1,00,000/- out of a total addition of Rs. 3,41,582/- made by the Assessing Officer on the ground of estimating the Gross Profit (G.P.) at 7% instead of 6.30% disclosed by the assessee. The Tribunal noted that the books of accounts could not be produced as they were reportedly lost in transit, and a copy of the FIR was submitted to the authorities. However, during the hearing, the counsel for the assessee did not press this issue. Accordingly, the Tribunal dismissed ground nos. 4 and 5 as not pressed.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal ruled that the provisions of Section 194C(1) as they existed before the amendment were not applicable to the assessee, an individual, for the relevant assessment year, and thus, the disallowance under Section 40(a)(ia) was not justified. The issue regarding the addition on account of G.P. estimation was dismissed as not pressed by the assessee. The order was pronounced in the open court on 11.04.2011.

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