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2012 (9) TMI 575 - AT - Income TaxTDS u/s 194C on sub-contractor - Assessee get work contract for Construction of roads & bridges Assessee deduct TDS on subcontract of supply of labour @ 1.2% - AO disallow the same because assessee fail to substantiate that work was sub contract Held that - As per Sec. 194C, sub-contractor would means a person who enters into a contract with the Contractor for carrying out or for supply of labour for carrying out whole or part of work undertaken by the contractor. Therefore it is clear from the above provision that person supplying the labour is a sub-contractor. And assessee applies TDS rates as per Law. Decision in favour of assessee TDS u/s 194C Assessee is engage with person for supplying of Bitumen to hot mix plant assessee s site Assessee consider the same as sub-contractor for the purpose TDS and deduct the TDS @ 1.2% - Held that - As they are not involved in execution of any part of the contract which was taken by the assessee and accordingly the assessee should have deducted full tax @ 2% from this party. However, at the same time it is also required to be verified whether the payments were made to this party or they are still payable because the Special Bench of the Tribunal, in case of Merilyn Shipping & Transport (2012 (4) TMI 290) has already taken a view of Sec. 40(a)(ia) would be applicable only if the amount remains payable. Therefore case remand back to AO. Delay in deposit of Employees Provident Fund AO disallows the amount on account of delay in deposit of EPF on due date as per Sec. 36(1)(va) - Held that - Payment were made with in grace period of 5 days after due date. Therefore, the same would be allowable on the basis of decision given by Punjab & Haryana HC in case of V. Lakhani Rubber Works (2010 (3) TMI 471). Decision in favour of assessee Disallowance u/s 40(a)(ia) Held that - Following the decision of Tribunal in case of Merilyn Shipping & Transport(2012 (4) TMI 290) held that disallowance u/s 40(a)(ia) can be made only in respect of payments which remain payable at the end of the year. However, it is not clear from the record which payments have been made and which are payable, therefore, Case remand back to AO.
Issues Involved:
1. Whether the work contracts with Shri Abdul Sattar and M/s V.R. Enterprises were independent contracts or subcontracts. 2. Whether the addition of Rs. 77,100/- for late payment of employees' share of EPF was justified. 3. Whether various disallowed payments (professional payment, freight payments, interest, and interest payment on car loans) were correctly disallowed under section 40(a)(ia) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Nature of Work Contracts with Shri Abdul Sattar and M/s V.R. Enterprises: The primary issue was whether the contracts with Shri Abdul Sattar and M/s V.R. Enterprises were independent contracts or subcontracts. The Assessing Officer (AO) disallowed Rs. 7.75 lakhs and Rs. 5.08 lakhs, respectively, under section 40(a)(ia) due to insufficient tax deduction at source (TDS). - Shri Abdul Sattar: The AO found the payment of Rs. 15.50 lakhs to Shri Abdul Sattar as a labor contract with insufficient TDS. The assessee argued that it was a subcontract. The CIT(A) agreed, noting that the assessee, being in civil construction, reasonably subcontracted labor supply and other work to Shri Abdul Sattar. Thus, the 1% TDS rate under section 194C was correctly applied, and the addition was deleted. - M/s V.R. Enterprises: The AO found the payment of Rs. 8.41 lakhs to M/s V.R. Enterprises for carriage of bulk Bitumen with insufficient TDS. The CIT(A) also treated this as a subcontract. However, the Tribunal found that M/s V.R. Enterprises only transported Bitumen and did not execute any part of the contract, thus requiring a 2% TDS. The Tribunal remitted this issue back to the AO to verify if the payments were made or payable, referencing the Special Bench decision in Merilyn Shipping & Transport. 2. Addition of Rs. 77,100/- for Late Payment of Employees' Share of EPF: The AO added Rs. 77,100/- for late payment of employees' EPF contributions. The CIT(A) upheld this addition. - The assessee argued that payments were made within the grace period, citing the Punjab & Haryana High Court decision in CIT v. Lakhani Rubber Works. The Tribunal agreed, finding that payments within the grace period are allowable, thus deleting the addition. 3. Disallowed Payments under Section 40(a)(ia): The assessee challenged the disallowance of various payments under section 40(a)(ia), including professional payments, freight payments, interest, and interest on car loans. - Professional Payment: Rs. 2,88,320/- disallowed. - Freight Payments: Rs. 6,57,392/- disallowed. The assessee contended that payments to Shri Cement Ltd and Birla Corp Ltd were for cement purchases, not freight. The Tribunal remanded this issue to the AO for verification. - Interest: Rs. 3,22,776/- disallowed. - Interest on Car Loans: Rs. 35,675/- disallowed. The Tribunal noted the Special Bench decision in Merilyn Shipping & Transport, which held that disallowance under section 40(a)(ia) applies only to amounts payable at the end of the year. The Tribunal remanded the matter to the AO to verify which payments were made and which were payable, and to reassess the disallowances accordingly. Conclusion: The appeal by the revenue was partly allowed, confirming the deletion of the addition for payments to Shri Abdul Sattar but remanding the issue of payments to M/s V.R. Enterprises for further verification. The cross-objections by the assessee were also partly allowed, deleting the addition for late EPF payment and remanding the disallowed payments under section 40(a)(ia) for verification.
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