2017 (3) TMI 973 - AT - Income Tax

TDS u/s 194C - disallowance u/s 40(a)(ia) - non deduction of tds - Held that - The assessing officer has assumed that these labourers were supplied by alabour contractors whereas stand of the assessee was that it itself employed all the labourer. It has handed over the labour payments to one or two person on the site who will disburse among the labourer. The assessee has not availed services of any labour contractors therefore, it was not required to deduct TDS. We could have appreciated the case of revenue, if assessing officer has inspected the site or record statement of labourers for establishing the facts that they worked at the site of assessee through some contractors but no such step was taken by the assessing officer,inspite of direction given by theCIT(A). Under these circumstance,the Ld.CIT(A) has deleted the addition and we do not see any reasons to interfere in the order of the CIT(A). - Decided in favour of assessee Addition u/s 68 - Held that - The assessing officer disbelieved existence of contractor/sub-contractor relationship between it and M/s. Hemani Enterprises. However, he has not assigned any reasons why he has disbelieved it. The assessee supplied complete addresses, bank details, PAN and mobile no. of Shri Manoj Bhai Gohil who is the proprietor of M/s. Hemani Enterprises. The Ld. first appellant authority has observed, if assessing officer has any doubt he should have disbelieved the total contract payment made to him, why the outstanding only. The assessee was awarded contract by Canal Division of R&B department under the tender. It has executed the contract through M/s.Hemani Enterprises, if the line of action adopted by the assessing officer is being upheld, than the profit in this contract would be very abnormal because in a contract of having value of ₹ 2,17,02,016/- a some of ₹ 72,88,879/- is being treated as a profit than the ratio of profit would quite high in a Civil Construction work.AO ought to have considered that a contract given by a Govt. agency was completed and payment was made by Canal Division of Govt. department. In such situation the activities cannot be held as bogus. - Decided in favour of assessee

Summary

Issues:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Addition under Section 68 of the Income Tax Act, 1961.

Issue no. 1:
The case involved a dispute where the Assessing Officer (AO) disallowed an amount of &8377; 42,17,418 under Section 40(a)(ia) of the Income Tax Act, alleging non-deduction of TDS on labor payments. The assessee contended that no labor contract was involved, and payments were made directly to casual workers. The CIT(A) accepted the assessee's contention and deleted the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to establish the existence of a contractor-contractee relationship. Despite directions to verify facts, the AO did not take necessary steps, leading to the deletion of the addition by the CIT(A.

Issue no. 2:
Regarding the addition of &8377; 72,88,879 under Section 68 of the Income Tax Act, the AO treated this amount as an unexplained cash credit. The assessee had subcontracted two contracts to a company and retained a percentage as profit. The CIT(A) analyzed the submissions made by the assessee, which included evidence of the subcontractor's existence, bank details, and contract execution. The CIT(A) found the AO's doubts unsubstantiated and deleted the addition. The Tribunal concurred, noting the lack of inquiry by the AO into the legitimacy of the subcontracting arrangement. The Tribunal emphasized that completion of a government-contracted work with payments made by a government department did not support the AO's claim of non-genuineness. Consequently, the Tribunal dismissed the appeal of the revenue.

In conclusion, both issues involved challenges to additions made by the AO under different sections of the Income Tax Act, with the CIT(A) ruling in favor of the assessee in both instances, a decision upheld by the Tribunal based on the lack of substantiated evidence and proper inquiry by the AO.