2017 (12) TMI 1532 - HC - Income Tax

TDS u/s 194C - Disallowance u/s 40(a)(ia) - failure to deduct tax at source on the payment of labour charges to the alleged headman/ contractors of labour supplier - Held that - Section 194C of the Act is attracted when any payment is made for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person. In the facts of the present case there is no contract between the assessee and any specified person for carrying out any work as contemplated in the section. The assessee had got the work done directly through labourers and had merely paid them through the head labourer. In the absence of any contract to carry out any work with a specified person, the provisions of section 194C of the Act would not be attracted and hence there would be no liability to deduct tax at source so as to attract the provisions section 40(a)(ia) of the Act. The Tribunal, therefore, did not commit any error in confirming the order passed by the Commissioner (Appeals). - Decided in favour of assessee Unexplained cash credit - addition u/s 68 - Held that - The course of action adopted by the Assessing Officer defies logic. If the Assessing Officer had disbelieved that M/s Hemani Enterprises had executed the contract as a sub-contractor, he, at best, could have disbelieved the payment made to it and held that it was the assessee, who had executed the contract and worked out the profit accordingly. But when the entire amount received by the assessee was towards payment for the contract, there was no question of considering any part thereof as unexplained cash credit. In the opinion of this court, the view adopted by the Commissioner (Appeals) as concurred by the Tribunal is just and proper. Consequently, this ground of appeal also does not merit acceptance. - Decided in favour of assessee

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal under section 260A of the Income Tax Act, 1961.
2. Disallowance of direct labour charges under section 40(a)(ia) of the Act.
3. Addition of outstanding sundry creditors as unexplained cash credit under section 68 of the Act.
4. Justification of the Tribunal's decision on the two substantial questions of law proposed by the appellant.

Analysis:

1. The appellant challenged the order of the Income Tax Appellate Tribunal, proposing two substantial questions of law. The first issue pertained to the disallowance of direct labour charges under section 40(a)(ia) of the Act. The Assessing Officer disallowed a substantial amount as the assessee failed to deduct tax at source on payments made to the headman of labourers. However, the Tribunal held that there was no contractor-contractee relationship between the assessee and the labourers' headman, thus no tax deduction was required. The Tribunal's decision was based on the absence of a specified contract as required by section 194C of the Act.

2. The second issue involved the addition of outstanding sundry creditors as unexplained cash credit under section 68 of the Act. The Assessing Officer treated the outstanding amount payable to M/s Hemani Enterprises as unexplained cash credit. However, the Commissioner (Appeals) and the Tribunal disagreed, noting that the Assessing Officer failed to provide substantial evidence to deem the transactions non-genuine. The Tribunal upheld the Commissioner's decision, emphasizing that if the transaction with M/s Hemani Enterprises was disbelieved, the entire contract payment should have been questioned.

3. The Tribunal's decision was further supported by the High Court, which found the Assessing Officer's actions illogical. The court noted that if M/s Hemani Enterprises' role as a sub-contractor was doubted, the payment should have been disbelieved entirely. However, since the payment was for the contract executed, there was no basis to consider it as unexplained cash credit. The court upheld the Tribunal's decision, emphasizing the lack of legal infirmity in the Tribunal's order.

4. In conclusion, the High Court dismissed the appeal, stating that the Tribunal's decision did not raise any substantial question of law. The court found the Tribunal's reasoning just and proper, thereby affirming the decisions of the Commissioner (Appeals) and the Tribunal on both issues raised by the appellant.