2017 (10) TMI 1510 - AT - Income Tax

TDS us 194C - addition u/s 40(a)(ia) - Making Payment to the so-called Contract Labour expenses without deducting TDS - only explanation for non-deduction of tax as submitted by the Ld. Counsel for the assessee that no amount was payable - HELD THAT - We find that Ld. CIT(A) given a finding on fact that evidences were produced by the assessee do not inspire confidence. We find that Ld. CIT(A) was not decided the issue whether the tax was deductible and the provision of Section 40(a)(ia) of the Act was applicable. Therefore considering the totality of the fact we deem it proper to restore this issue to the file of the Ld. CIT(A) to decided afresh after considering the submissions of the assessee. This ground of Assessee s appeal is allowed for statistical purpose. Addition of 3% of the contract expenses - HELD THAT - We find that Assessing Officer on the one hand they had stated that the assessee has contravened provision of Section 40A (3) of the Act on the other hand he proceeded to make disallowance of 3% of the total contract expenses. Disallowance is made on adhoc basis without specifying as what were the expenses were that not got verified by the assessee. Under these facts the addition so made cannot be sustained. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition on Contravention of Section 40(a)(ia) for Payment to Contract Labour Expenses
2. Addition of 3% of Contract Expenses on Estimation Basis

Analysis:

Issue 1: Addition on Contravention of Section 40(a)(ia) for Payment to Contract Labour Expenses

The appeal was against the orders of the Ld. CIT(A) confirming the addition on account of non-deduction of tax under Section 40(a)(ia) of the Income Tax Act. The Assessing Officer disallowed the expenditure of labor charges and cash payments made by the assessee. The Ld. CIT(A) upheld the addition made by the Assessing Officer. The assessee contended that the wage payments were not made to contracted labor as per Section 194C and thus, Section 40(a)(ia) was not attracted. The assessee also cited judgments to support their case. The Tribunal found that the Ld. CIT(A) did not decide whether the tax was deductible and if Section 40(a)(ia) was applicable. Hence, the issue was restored to the Ld. CIT(A) for fresh consideration, allowing the appeal for statistical purposes.

Issue 2: Addition of 3% of Contract Expenses on Estimation Basis

The Assessing Officer disallowed 3% of the total contract expenses without rejecting the books of accounts, citing disproportionate expenses. The Ld. CIT(A) upheld the disallowance based on cash payments with doubtful genuineness. The Tribunal noted that the disallowance was made on an adhoc basis without specifying the unverified expenses. Consequently, the Tribunal directed the Assessing Officer to delete the addition of ?8,26,630. Thus, the appeal on this ground was allowed.

In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the deletion of the addition related to the contravention of Section 40(a)(ia) and the estimation-based addition of 3% of contract expenses. The judgment was pronounced on October 26, 2017, by the ITAT Jaipur.