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2013 (4) TMI 114 - AT - Income TaxDeduction of TDS out of payment made to payee - Disallowance U/s. 40(a)(ia) of the Income-tax Act - TDS was deductible u/s 194C but it was not deducted by the assessee at source out of the payments - Claimed Tax deducted by debiting the running account of M/s J.B. Construction and the same was deposited with the Government before the due date specified in sub-section (1) of section 139 - Held that - The amount claimed by the assessee to have been deducted by debiting the account of the sub-contractor on 31.3.2006 cannot be said to have been deducted at source, as mandated by law, out of the amounts paid without TDS. In order to save a payment from disallowance u/s 40(a)(ia), an assessee must therefore show that the tax is either not deductible at source out of such payments or, if it is deductible, has been deducted at source and also paid to the Government within the specified time limit. In the present case, the assessee claims deduction in respect of payments made to M/s J.B. Construction without deduction of tax at source and therefore its deductibility is squarely hit by section 40(a)(ia). - The assessee has failed to deduct the tax at source out of payments made to the sub-contractors and therefore the judgment of the Hon'ble Calcutta High court in CIT v. Virgin Creations 2011 (11) TMI 348 - CALCUTTA HIGH COURT is not applicable to the case of the assessee. - Decided against the assessee.
Issues Involved:
1. Deletion of addition under Section 40(a)(ia) for non-deduction of tax at source. 2. Applicability of the judgment in CIT v. Virgin Creations regarding retrospective application of amendments to Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 40(a)(ia) for Non-deduction of Tax at Source: The core issue revolves around the deletion of an addition amounting to Rs. 57,48,265/- by the CIT(A), which was initially made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income-tax Act due to the assessee's failure to deduct tax at source on payments made to a sub-contractor, M/s J.B. Construction. Facts and Arguments: - The assessee, a partnership firm engaged in civil construction, paid various sums to M/s J.B. Construction on different dates without deducting tax at source as mandated by Section 194C. - The assessee later claimed that tax amounting to Rs. 75,410/- was deducted on 31.3.2006 by debiting the running account of M/s J.B. Construction and was deposited with the Government before the due date specified in Section 139(1). - The AO rejected this claim, leading to the addition under Section 40(a)(ia). Tribunal's Analysis: - The Tribunal noted that Section 40(a)(ia) disallows deductions for payments to contractors or sub-contractors unless tax is deducted at source and paid to the Government within the specified time. - The Tribunal emphasized that "deduction at source" means tax must be subtracted from the payment at the time it is made. Debiting the payee's account at the end of the year does not fulfill this requirement. - The Tribunal concluded that the assessee's action of debiting the running account on 31.3.2006 did not constitute "deduction at source" as required by law. 2. Applicability of the Judgment in CIT v. Virgin Creations: The CIT(A) had relied on the judgment in CIT v. Virgin Creations, which held that the relaxation introduced by the Finance Act 2010 to Section 40(a)(ia) (allowing tax deducted to be paid by the due date specified in Section 139(1)) applies retrospectively. Tribunal's Analysis: - The Tribunal clarified that the judgment in CIT v. Virgin Creations applies only when tax has been deducted at source and subsequently deposited within the stipulated time. - In the present case, since the tax was not deducted at source at the time of payment, the judgment in Virgin Creations was deemed inapplicable. Conclusion: - The Tribunal held that the assessee failed to comply with the provisions of Section 194C and Section 40(a)(ia) by not deducting tax at source at the time of payment. - Consequently, the appeal filed by the Revenue was allowed, and the order of the CIT(A) deleting the addition was set aside. Final Judgment: The appeal by the Revenue is allowed, reinstating the addition of Rs. 57,48,265/- under Section 40(a)(ia) due to the assessee's failure to deduct tax at source as required by law. The judgment in CIT v. Virgin Creations was found inapplicable to the facts of this case.
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