2011 (12) TMI 348 - AT - Income Tax

Validity of reopening - Disallowance under section 40(a)(ia) - Assessing Officer was of the view that the asses-see has not complied with the provisions of section 194C of the Act and the deduction of expenses to the extent of Rs.1,04,54,670 was not allowable under section 40(a)(ia) - The contention of the assessee was dismissed initially by the Assessing Officer on the ground .that for reopening of the assessment there is no need for gathering any new material and the case of the assessee has been reopened after re-examining, the records and on detection of the fact that excess deduction had been allowed to the assessee - the arguments were found to be convincing that before the amendment made by the Finance (No. 2) Act, 2004 which has specifically brought the amendment with effect from October 1, 2004 and before that the assessee had made the payments each below Rs.20,000 there was no violation of section 194C - Held that Assessing Officer is not justified in holding the deduction of tax at source for the payments made of Rs.1,04,54,670 and further not justified in making the addition of the said amount - Decided in favor of the assessee

Summary

Issues:
1. Reopening of assessment
2. Disallowance under section 40(a)(ia) of the Act
3. Miscellaneous issues

Reopening of Assessment:
The appeal arose from the order of the Commissioner of Income-tax (Appeals) for the assessment year 2005-06. The Assessing Officer reopened the assessment due to discrepancies in TDS deductions on labor payments. The appellant challenged the reopening, arguing it was a mere change of opinion. The Tribunal concurred with the Commissioner's view that the reopening was justified as TDS had not been deducted on a significant amount. The Tribunal dismissed the appellant's grounds regarding the reopening.

Disallowance under section 40(a)(ia) of the Act:
The appellant contested the disallowance under section 40(a)(ia) concerning payments to contractors. The Assessing Officer disallowed the amount under section 40(a)(ia) read with section 194C. The appellant argued that the amendment to section 194C was not retrospective and did not apply to contracts before October 1, 2004. The Tribunal agreed with the appellant, stating that no violation occurred before the amendment came into effect. Therefore, the disallowance was unjustified, and the Tribunal directed the deletion of the disallowed amount. The Tribunal allowed the appellant's grounds related to the disallowance under section 40(a)(ia).

Miscellaneous:
The appellant also raised issues regarding the deletion of interest under section 234B of the Act. The Tribunal held that charging interest under section 234B is mandatory and consequential. Consequently, the Tribunal partly allowed the appeal of the assessee. The Tribunal reversed the order of the Commissioner of Income-tax (Appeals) regarding the disallowance under section 40(a)(ia) and directed the deletion of the disallowed amount. The judgment was pronounced on December 30, 2011.