2010 (12) TMI 791 - AT - Income Tax

Disallowance - Labour payments - Provisions of sec.40a(ia) - Since, the primary evidence in the form of wage registers which indicate payment of wages directly to the labourers by the appellant and which is further corroborated by the sworn statements of the five workers, Held that the labour payments were made directly to the labourers and the said payment was not contractual - Therefore, the provisions of sec.194C are not applicable to the facts of the appellant s case - Consequently, the provisions of sec.40a(ia) are not applicable in the instant case - Decided in favour of assessee. Payment through cross cheques - Provisions of section 40A(3)- Held that before the A.O., assessee could not produce the certificate from the bankers - But when time was given to the assessee for producing the same during the remand proceedings or the appellant proceedings, assessee produced the certificates of bankers of a substantial amount - In the light of these facts, we are of the view that if assessee is allowed one more opportunity, he may produce some more evidence in support of his claim that the entire payment was made through account payee cheques - Accordingly, the order of the CIT(A) in this regard is set aside and the matter is restored to the file of the A.O. with the direction to re-adjudicate the issue in terms indicated above.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Disallowance under Section 40A(3) of the Income Tax Act.

Detailed Analysis:

Disallowance under Section 40(a)(ia) of the Income Tax Act:

Facts and Contentions:
The assessee, engaged in the execution of civil contracts, was disallowed Rs. 3,50,27,780/- under Section 40(a)(ia) by the Assessing Officer (A.O.) for failing to deduct tax at source on labour payments exceeding Rs. 50,000/-. The assessee contended that the payments were made directly to individual workers through a senior worker, and thus, Section 194C was not applicable. The A.O. rejected this contention due to the absence of a wage register.

CIT(A) Findings:
The CIT(A) accepted the assessee's submission after examining the wage register and sworn statements from workers, concluding that payments were made directly to labourers and not under a contractual obligation. The CIT(A) observed that the wage register constituted primary evidence and that the A.O. did not doubt the genuineness of the expenditure but disallowed it due to lack of evidence at the assessment stage.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient evidence during the appellate proceedings to support the claim that payments were made directly to labourers. The Tribunal found no infirmity in the CIT(A)'s order and confirmed the deletion of the disallowance under Section 40(a)(ia).

Disallowance under Section 40A(3) of the Income Tax Act:

Facts and Contentions:
The A.O. disallowed Rs. 1,50,25,500/- under Section 40A(3) for payments made through bearer cheques and cash, which violated the stipulations of the section. The assessee argued that payments were made to individual workers, with each payment being less than Rs. 20,000/-.

CIT(A) Findings:
The CIT(A) examined the evidence and concluded that the payments were made to individual workers through group leaders, thus not attracting Section 40A(3). The CIT(A) also considered additional evidence and remand reports, ultimately reducing the disallowance to Rs. 22,48,918/- for specific payments not adequately substantiated.

Tribunal's Decision:
The Tribunal confirmed the CIT(A)'s order on most points but allowed the assessee an additional opportunity to produce evidence for the remaining disallowed amount of Rs. 30,12,034/-. The Tribunal set aside the CIT(A)'s order on this specific amount and remanded the matter to the A.O. for re-adjudication, allowing the assessee to produce banker certificates or request the A.O. to summon bank records.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal for statistical purposes, providing an opportunity to substantiate the remaining disallowed amount under Section 40A(3). The Tribunal upheld the CIT(A)'s findings on other issues, confirming that the disallowances under Sections 40(a)(ia) and 40A(3) were not justified based on the evidence provided.