2019 (12) TMI 1618 - AT - Income Tax

Validity of reopening of asst. u/s 148 - Disallowance made u/s 40(a)(ia) - TDS u/s 194C - assessee has not deducted tax at source from transport payments and hence addition u/s 40(a)(ia) is warranted - HELD THAT - There is no dispute with regard to the fact that the assessee is an individual. The provisions of sec.194C shall not apply to individual except in a situation mentioned in sec.194C of the Act. We notice that the provision of sec.194C has undergone change w.e.f 1/10/2009 and it will apply to individual, if he falls under the category of specified invididual . A reading of amended provisions as well as pre-amended provisions would show that the provision of 194C shall apply in respect of an individual in a particular year, only if he is liable to get his accounts audited u/s 44AB of the Act for the financial year immediately preceding that year in question. Assessee shall not be liable for deducting tax at source from transport payment, if his accounts of the immediately preceding financial year i.e FY 2008-09 (A.Y 2009- 10) are not be liable for audit u/s 44AB of the Act. In the letter furnished by the assessee before the AO, the assessee has claimed that he was not liable for getting his accounts audited u/s 44AB of eh Act in the immediately preceding financial year. For the limited purpose of examining the above said claim of the assessee, we restore this issue to the file of the AO. If the assessee has maintained books of account for the immediately preceding year and he was not liable for getting his accounts audited u/s 44AB then the impugned disallowance is not warranted. If the AO was satisfied that the assessee has not maintained books of accounts, then the claim of the assessee needs to be accepted that the provisions of sec.44AB shall not apply in the immediately preceding year. In that case also, the impugned disallowance is not warranted. If the assessee has maintained books of accounts for the immediately preceding year and the same is liable to audit u/s 44AB of the Act, then the impugned disallowance needs to be sustained. Accordingly we direct the AO to examine all these aspects after affording adequate opportunity of being heard. The order passed by the ld CIT(A) on this issue is accordingly set aside. Validity of reopening of assessment, the assessee did not furnish the copy of reasons recorded by the AO. In the absence of the same we are unable to express any view on this issue. In the result, the appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues involved:
1. Validity of reopening of assessment u/s 148 of the Act.
2. Disallowance made u/s 40(a)(ia) of the Act.

Analysis:

Issue 1: Validity of reopening of assessment
The appellant, a transport contractor, challenged the reopening of assessment u/s 148 of the Act for the asst. year 2010-11. The AO reopened the assessment based on internal audit objections regarding non-deduction of tax at source from transport payments, leading to disallowance u/s 40(a)(ia) of the Act. The appellant contended that sec. 194C did not apply to him as he was not liable for audit u/s 44AB in the preceding year. The AO and CIT(A) upheld the disallowance. However, the ITAT observed that sec.194C applies to an individual only if liable for audit u/s 44AB in the preceding financial year. The matter was remanded to the AO to ascertain if the appellant maintained books of account and exceeded the audit limit in the preceding year.

Issue 2: Disallowance u/s 40(a)(ia) of the Act
The appellant argued that he was not liable to deduct tax at source as his accounts were not audited u/s 44AB in the preceding year. Despite the appellant's submission, the AO and CIT(A) upheld the disallowance. The ITAT noted discrepancies in the appellant's claim of not maintaining books of account for the preceding year. The ITAT directed the AO to investigate whether the appellant maintained books of account and exceeded the audit limit in the preceding year to determine the validity of the disallowance.

In conclusion, the ITAT set aside the CIT(A)'s order on both issues, directing the AO to re-examine the appellant's claims regarding the applicability of sec. 194C and the disallowance under sec. 40(a)(ia) after ensuring a fair opportunity for the appellant to present their case. The appeal was allowed for statistical purposes due to lack of reasons recorded by the AO for the reopening of assessment.