2017 (4) TMI 292 - AT - Income Tax

Disallowance of labour charges paid by invoking provisions of Sec. 40(a)(ia) - Held that - It is quite clear that Sec. 40(a)(ia) of the Act can be invoked only in the event of non-deduction of tax at source, but not in cases involving short-deduction of tax at source. Therefore the impugned disallowance made by the income-tax authorities is unsustainable and is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Delay in filing appeal before the Tribunal and condonation of delay.
2. Disallowance of labor charges under Sec. 40(a)(ia) of the Income Tax Act.

Delay in filing appeal before the Tribunal and condonation of delay:
The appeal was directed against the order of the CIT(A)-20, Mumbai, pertaining to the Assessment Year 2009-10. The appellant sought condonation of delay in filing the appeal, citing reasons such as delay in receiving the assessment order, lack of communication regarding the order, and genuine oversight. The representative for the appellant emphasized that the delay was unintentional and that the issue in appeal had previously been decided in the appellant's favor by the Tribunal in a previous year. The Tribunal, considering the reasons presented and the absence of challenges to the bona fide nature of the reasons by the Revenue, decided to condone the delay in filing the appeal, citing the judgment of the Hon'ble Supreme Court in a relevant case.

Disallowance of labor charges under Sec. 40(a)(ia) of the Income Tax Act:
The dispute revolved around the disallowance of labor charges amounting to &8377;18,27,675 under Sec. 40(a)(ia) of the Act. The Assessing Officer disallowed the expenditure due to the assessee's failure to deduct tax at source at the appropriate rate. The CIT(A) upheld the disallowance but limited it to the differential amount corresponding to the tax rate discrepancy. The appellant contended that Sec. 40(a)(ia) should apply only in cases of non-deduction of tax at source, not in cases of short-deduction. The appellant referred to previous Tribunal decisions supporting this interpretation. The Tribunal, in line with the precedent, held that Sec. 40(a)(ia) could not be invoked for short-deduction of tax at source, directing the deletion of the disallowance made by the income-tax authorities.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting that Sec. 40(a)(ia) of the Act could only be applied in cases of non-deduction of tax at source, not in instances of short-deduction. The delay in filing the appeal was condoned based on valid reasons presented by the appellant and in line with relevant legal judgments.