2016 (2) TMI 831 - AT - Income Tax

TDS u/s. 194C not paid - Addition u/s. 40(a)(ia) - payment of labour charges - non genuineness of the entire payment - Held that - On perusal of the Ld. CIT(A) s order, the remand report submitted by the AO, further enquiries conducted by the Ld. CIT(A), we do not find any infirmity in the order passed by the Ld. CIT(A) in deleting the disallowance made u/s. 40(a)(ia) of the Act as the payment made by the assessee to karigars is not contractual and therefore, the provisions of Sec. 194C have no application. The Ld. CIT(A), however, sustained the disallowance made by the AO at 20% of the labour charges holding that assessee has not been able to establish the genuineness of the entire payment. As could be seen from the remand report of the AO, the assessee produced the workers to whom he has paid labour charges. They have produced their ID proof, PAN, Driving Licence, Adhar card. They have stated that they are the main karigars during relevant period and confirmed that they have received the payments from the assessee by way of either in cash or in cheque. The workers two of them filed copy of bank books in Development Credit Bank, Kurla and Bank of India. They have also confirmed that the lump sum amounts received from the assessee are distributed among other works as wages. Therefore it cannot be said that the assessee has not proved incurring of expenditure. Taking all these facts into consideration, we are of the view that the lower authorities are not justified in coming to the conclusion that the expenses are not genuine. In the circumstances, we delete the adhoc disallowance made by the AO at 20% of labour charges. - Decided partly in favour of assessee

Summary

Issues:
- Appeal by assessee and Revenue against Ld. CIT(A) order for assessment year 2006-07.
- Revenue's appeal on deletion of addition under Sec. 40(a)(ia) of the Act.
- Nature of work by karigars and contractual provisions.
- Disallowance of labour charges and TDS deduction.
- Assessment proceedings and remand report analysis.
- Confirmation of disallowance @ 20% by Ld. CIT(A).
- Ex-parte order challenge by assessee.
- Genuine nature of expenses and payments.
- Review of remand report and worker verification.
- Justification of adhoc disallowance.

Detailed Analysis:
1. The appeal involved cross appeals by the assessee and the Revenue against the Ld. CIT(A) order for the assessment year 2006-07. The main issue in the Revenue's appeal was the deletion of an addition under Sec. 40(a)(ia) of the Act, concerning non-deduction of TDS on labour charges by the assessee.

2. The Revenue contended that the Ld. CIT(A) erred in deleting the addition of Rs. 81,88,864/- made under Sec. 40(a)(ia) of the Act. The Assessing Officer disallowed this amount due to the failure of the assessee to deduct TDS on labour charges, invoking the provisions of Sec. 40(a)(ia) for non-compliance.

3. The Ld. CIT(A) considered the submissions and remand report, concluding that the work done by the karigars for the assessee was not contractual, thus negating the application of Sec. 40(a)(ia). However, a disallowance of 20% of the labour charges was sustained due to the failure to establish the genuineness of the entire payment.

4. The Ld. CIT(A) upheld the disallowance at 20% based on the remand report findings and the lack of evidence provided by the assessee to substantiate the payments made to the workers. The nature of work by the karigars was crucial in determining the applicability of contractual provisions.

5. The appellate tribunal reviewed the remand report, where the workers confirmed receiving payments from the assessee and distributed them among other workers as wages. The tribunal found that the lower authorities were unjustified in concluding that the expenses were not genuine, leading to the deletion of the adhoc disallowance.

6. Ultimately, the tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, emphasizing the importance of verifying the genuineness of expenses and payments made, especially in the context of TDS deductions and contractual work arrangements.

7. The detailed analysis of the issues involved in the appeals highlighted the significance of proving the genuineness of expenses, the nature of work relationships, and the adherence to TDS provisions in the assessment proceedings for the relevant assessment year.