2014 (4) TMI 111 - AT - Income Tax

Disallowance of labour charges u/s.40(a)(ia) - TDS u/s 194C assessee submitted that most of the amount pertain to purchase of raw material but was wrongly grouped under the head labour charges. - Held that - Assessee s contention before AO as well as CIT(A) was correct as all the invoices reflect that these relate to purchase of material from various persons only - AO had issued summons to various persons asking details of sale made to assessee during financial year 2006-07 - In response, these persons have also confirmed sale made to assessee and also informed about payment received by them on such sale of materials - Once these evidences have not been rebutted, do not find any reason to deviate from elaborate findings recorded by CIT(A) and accordingly, same is hereby confirmed Decided against Revenue. Need to Revised return u/s 139(5) Held that - no requirement for filing of revised return u/s 139(5) for mistake of clubbing of expenses of material purchase under head labour expenses - As it does not result into any change of income or expenditure - Confirm the entire findings of CIT(A) and dismiss grounds raised by department Decided against Revenue.

Summary

Issues:
1. Disallowance of labour charges under Section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the revenue against the order passed by CIT(A)-32 Mumbai regarding the disallowance of labour charges under Section 40(a)(ia) for the assessment year 2007-08. The assessee, engaged in trading and manufacturing, had debited an amount for labour charges, which the AO disallowed entirely for non-deduction of TDS. The CIT(A) partially allowed the claim after considering the evidence provided by the assessee.

During the assessment proceedings, the AO requested details of labour charges paid and TDS deducted. The assessee claimed that most of the amount was for raw material purchases wrongly categorized as labour charges. The AO rejected this explanation, leading to the disallowance. In the appeal, the assessee submitted evidence to support the claim that the payments were for material purchases only.

The CIT(A) observed that crucial evidence was submitted before the AO during remand proceedings or collected under Section 133(6). The AO's objection to admitting additional evidence was overruled, and the CIT(A) allowed the evidence after detailed reasoning. The CIT(A) found that a significant portion of the payment pertained to material purchases, not labour charges, and sustained a disallowance only on the actual labour payments where TDS was not deducted.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the evidence provided by the assessee, including invoices and confirmations from suppliers, supported the claim that the payments were for material purchases. The Tribunal agreed with the CIT(A) that there was no need for a revised return under Section 139(5) for the mistake in categorizing material purchase expenses as labour charges, as it did not impact income or expenditure.

In conclusion, the Tribunal dismissed the revenue's appeal, confirming the findings of the CIT(A) regarding the disallowance of labour charges under Section 40(a)(ia) for the assessment year in question.

(Order pronounced on 18.10.2013.)