2016 (3) TMI 721 - AT - Income Tax

Tds u/s 194C - non deduction of tds on hamali charges paid to daily labourers employed by the assessee - assessee submitted that it has not deducted TDS, because there is no written contract entered into between any individual and the payment is made to individual labouers, therefore, no disallowance can be made by invoking the provisions of 40(a)(ia) - Held that - On verification of the ledger accounts, it was noticed that the assessee has made the payments on weekly basis towards wages payments to the daily workers employed in the factory. The assessee made the payments through the mestri, just because for it is convenient and also this has two advantages i.e. it is the responsibility of the mestri to provide labour to the management on one hand and on the other hand, it is convenient to the assessee instead of dealing the whole lot, the assessee could deal with a single person. This is a recognized system followed everywhere, where there in unskilled work force. Just because the payments are made through the mestri, the A.O. was not correct in coming to the conclusion that there exist written or oral contract for supply of labour which attracts the provisions of section 194C of the Act. There is no contract between the mestri and the assessee, as such these payments are not covered under the provisions of section 194C of the Act, therefore the A.O. was not correct in disallowing the amounts by invoking the provisions of section 40(a)(ia) of the Act. The CIT(A) after considering the relevant details and submissions of the assessee deleted the additions made by the A.O. We do not find any error or infirmity in the order passed by the CIT(A). Hence, we inclined to upheld the order passed by the CIT(A) and direct the A.O. to delete the additions. - Decided in favour of assessee Addition made towards credits in capital account - CIT(A) deleted the addition - Held that - On perusal of the ledger account copies, we find that most of the transactions were done in cash. Though assessee claimed to have furnished the relevant details before the A.O. with regard to the sources for the credits in capital account, the A.O. could not had an occasion to verify the same, because the books of assessee were not available at the time of assessment. It is an admitted fact that the books of assessee were not before the A.O. to verify the sources of the credits in capital account. Unless, the A.O. satisfied himself about the source with reference to assessee books of account, he cannot came to a conclusion that the sources for the credits were satisfactorily explained. Therefore, we are of the opinion that to meet the ends of justice, we deem it proper to remit the issue back to the file of the A.O. and direct the A.O. to verify the details filed by the assessee with regard to the sources for the credits in capital account and pass appropriate orders as per law. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Disallowance of hamali charges and production charges under Section 40(a)(ia) of the Income-Tax Act, 1961.
2. Addition of unexplained credits in the capital account of the partnership firm.

Issue-wise Detailed Analysis:

1. Disallowance of Hamali Charges and Production Charges:
The Assessee, a partnership firm engaged in processing cattle and animal feeds, declared a total income of Rs. 2,98,920 for the assessment year 2008-09. During scrutiny, the Assessing Officer (A.O.) noticed that the Assessee had debited Rs. 16,86,052 towards hamali charges and Rs. 20,82,288 towards production charges. The A.O. disallowed these amounts under Section 40(a)(ia) of the Income-Tax Act, 1961, for failure to deduct TDS under Section 194C.

The Assessee argued that the payments were made to daily laborers through a mestri for convenience and did not constitute a contract of work or supply of labor, hence not attracting Section 194C. The CIT(A) agreed with the Assessee, noting that there was no contract between the mestri and the Assessee, and thus disallowed the application of Section 194C. The CIT(A) deleted the additions, leading to the Revenue's appeal.

The Tribunal upheld the CIT(A)'s decision, stating that the payments were made to daily laborers and routed through the mestri for convenience, which did not amount to a contract under Section 194C. The Tribunal found no error in the CIT(A)'s order and directed the A.O. to delete the additions.

2. Addition of Unexplained Credits in Capital Account:
The A.O. added Rs. 77,04,275 as unexplained credits in the capital account of the partnership firm, questioning the source of the capital introduced by the managing partner, Sri M. Surendra Nath. The Assessee explained that the capital was drawn from other group concerns where the partner was either a partner or proprietor. The CIT(A) deleted the addition, stating that the Assessee had provided sufficient details about the sources, and if there were any doubts, the addition should be made in the hands of the individual partners, not the firm.

The Tribunal remitted the issue back to the A.O. for verification of the sources for the credits in the capital account, noting that the A.O. had not verified the details due to the unavailability of the Assessee's books at the time of assessment. The Tribunal directed the A.O. to verify the details and pass appropriate orders as per law.

Conclusion:
The Tribunal upheld the CIT(A)'s deletion of the disallowance of hamali and production charges under Section 40(a)(ia) and remitted the issue of unexplained credits in the capital account back to the A.O. for further verification. The appeal filed by the Revenue was partly allowed for statistical purposes.