2018 (1) TMI 972 - AT - Income Tax

Non deduction tax at source u/s 194C - amount paid to the sub-contractors - Held that - The AO does not dispute the assessee having passed on the amount to the sub-contractor. So, it stands admitted/undisputed by the AO that the assessee did not receive the amount and the addition made by the AO was unsustainable. Section 40(a)(ia) provides for non-deduction of a sum payable, on which, no TDS has been made or, where made, it has not been paid. In the present case, the factum of payment of TDS by the concerned Departments on the payment made, has been taken due note of by the AO. This does not stand disputed by the ld. CIT(A). But CIT(A) has introduced an altogether new aspect, that is, no TDS having allegedly been made by the assessee on payment made to the sub contractor - as the assessee has merely passed on the amount to the sub-contractor and TDS stands duly made thereon. That being so, there is, evidently, no violation of the provisions of section 40(a)(ia)- That being so, the addition made by the ld. CIT(A) is deleted. - Decided in favour of assessee

Summary

Issues:
1. Delay in filing the appeal
2. Disallowance of amount paid to sub-contractors for non-deduction of tax at source u/s 194C of the IT Act

Issue 1: Delay in filing the appeal

The appeal filed by the assessee for assessment year 2010-11 faced a delay of 58 days. The delay was attributed to a personal tragedy involving the main partner of the assessee firm, which led to the delay in filing the appeal. The Tribunal, finding the reason for the delay justified and noting that the assessee did not benefit from the delay, condoned the delay in filing the appeal.

Issue 2: Disallowance of amount paid to sub-contractors

The assessee, a civil contractor firm, subcontracted certain works to sub-contractors due to an inability to carry out the works themselves. The dispute arose when the Assessing Officer (AO) observed that the assessee had not disclosed tax receipts from government departments and disallowed an amount of ?3,06,701. The AO contended that the assessee was solely responsible for completing the projects and should have deducted tax at source under section 194C. The ld. CIT(A) confirmed the addition, citing the failure to deduct tax under section 40(a)(ia) of the IT Act.

In response, the assessee argued that the AO should have first verified whether the subcontractors had paid tax on the income received before disallowing the expenditure under section 40(a)(ia). The Tribunal noted that TDS had been made by the concerned departments on the payments to the assessee, and the assessee had passed on the amount to the subcontractors. Therefore, there was no violation of section 40(a)(ia) as the TDS had been duly made on the payments. The Tribunal found the addition made by the ld. CIT(A) unsustainable and deleted the addition, ultimately allowing the appeal.

In conclusion, the Tribunal addressed the issues of delay in filing the appeal and the disallowance of the amount paid to sub-contractors for non-deduction of tax at source. The delay in filing the appeal was condoned due to a justifiable reason, and the disallowance of the amount was overturned as the TDS had been made on the payments to the assessee, and no violation of the relevant provisions was found.