2019 (12) TMI 1371 - AT - Income Tax

TDS u/s 194C - Disallowance u/s.40(a)(ia) - payments made for disbursement of labour charges to labour sardars - As per assessee there was no contract between the assessee and the labour sardars, without which there cannot be any application of tds obligations - HELD THAT - As decided in M/s Kwality Construction 2016 (11) TMI 667 - ITAT KOLKATA Tribunal relying on its various identical decisions, has upheld the action of CIT(A) in deleting the addition made u/s.40(a)(ia) of the Act holding that labour sardars are not labour suppliers and are facilitators for payments -there is nothing on record to suggest that the payment to labourers were paid to the contractors. On the contrary, assessee has made payment to labourers directly and in support of its claim, Ld. AR of assessee has produced the muster roll. In this regard, Ld. DR failed to bring any defect / information from the muster roll which suggested that the labour charges paid by assessee are subject to TDS. - Decided in favour of assessee.

Summary

Issues:
Confirming disallowance made u/s.40(a)(ia) of the Act.

Analysis:
The appeal concerns the disallowance made u/s.40(a)(ia) of the Act. The assessee, a civil contractor, declared total income of &8377; 14,34,552/- for the assessment year 2010-2011. The AO assessed the total income at &8377; 19,21,120/-, adding &8377; 4,78,949/- u/s.40(a)(ia) of the Act. The CIT(A) upheld the addition of &8377; 3,12,949/-, holding that payments to four sardars amounting to this sum were covered by section 194C of the Act. The remaining addition of &8377; 1,66,000/- was deleted. The appeal challenges the addition confirmed by the CIT(A) based on the disallowance made u/s.40(a)(ia) of the Act.

The AR argued that the issue is similar to a Kolkata Tribunal decision in the case of M/s Kwality Construction, where it was held that without a contract between the assessee and labor sardars, section 194C of the Act cannot be applied, making the invocation of section 40(a)(ia) inappropriate. The DR, on the other hand, supported the lower authorities' orders.

Upon review, the Tribunal found that the controversy revolved around payments for labor charges to labor sardars, with no contract between the parties. Relying on the Kolkata Tribunal's decision in M/s Kwality Construction, it was noted that labor sardars are not labor suppliers but facilitators for payments. Various precedents were cited to support the conclusion that in the absence of a contract between the assessee and labor sardars, the provisions of section 194C and 40(a)(ia) of the Act were inapplicable. The Tribunal found no merit in the arguments against the CIT(A)'s decision and upheld the deletion of the disallowance made by the AO.

In conclusion, the Tribunal held that the disallowance of &8377; 3,12,949/- made by the AO under section 40(a)(ia) of the Act was not sustainable. Accordingly, the disallowance was directed to be deleted, and the appeal of the assessee was allowed.