2018 (6) TMI 601 - AT - Income Tax

TDS u/s 194C - Disallowance u/s 40(a)(ia) - non-deduction of TDS on labour charges - liability of individual assessee with Tax Audit Obligation u/s 44AB - Held that - Assessee submitted Income Tax Return on 29.11.2007 for Financial year 2006-07 and offered Gross total Income of ₹ 3,20,675/- (8.34% of ₹ 38,45,650/-) under Section 44AD and thus assessee offered profit more than the deemed profit of 8 percent. Therefore, Assessee is not liable to Deduct TDS u/s 194(C)(1) for the FY 2007-08 in respect of labour charges paid to the contractor as it was the first year of the assessee where the provisions of section 40(a)(ia) is made applicable to him - therefore, the provision of Section 40(a)(ia) for making disallowance of expenditure for no-deduction of TDS will not apply - Decided in favor of assessee. Taxability of amount on which TDS credit has been claimed - receipt of advances - Held that - Where assessee receives an advance, then it would be liability for him, that is, an obligation for him and he will show this obligation in liability side of the Balance Sheet - in some case out of great caution some companies/assesses deduct TDS on advance payment for safe side, to avoid the future consequences etc, but this does not mean that advance is an income of the assessee, it will be an obligation/liability till the related work/service gets executed as per terms and conditions of the parties - thus we are of the view that as the assessee has claimed TDS on the advance, hence the TDS amount is deemed to be the income received during the year - addition should be restricted to the TDS amount to the extent of 1,37,931/- - hence appeal filed by revenue is dismissed.

Summary

Issues:
1. Addition of ?43,17,719 under section 40(a)(ia) for non-deduction of TDS on labour charges.
2. Addition of ?6,93,039 under section 40(a)(ia) for non-deduction of TDS on advances given.

Issue 1: Addition of ?43,17,719 under section 40(a)(ia) for non-deduction of TDS on labour charges:

The Revenue challenged the deletion of the addition made by the Assessing Officer regarding non-deduction of TDS on labour charges. The Assessing Officer disallowed the amount as TDS was not deducted on payments made to Labour Sardars. However, the Tribunal noted that the assessee was not liable to deduct TDS for the financial year 2007-08 based on turnover and tax audit obligations. As it was the first year the provision of section 40(a)(ia) applied, the Tribunal held that the disallowance did not apply. Additionally, no evidence of a contract between the assessee and Labour Sardars was presented. Consequently, the Tribunal deleted the addition of ?43,17,719.

Issue 2: Addition of ?6,93,039 under section 40(a)(ia) for non-deduction of TDS on advances given:

The Revenue contested the addition made by the Assessing Officer for non-deduction of TDS on advances received from M/s. Dream Bake Pvt. Ltd. The Assessing Officer treated the advance as deemed income due to TDS deduction by the payer. However, the Tribunal noted that advances are liabilities until related services are executed, following commercial principles. The Tribunal held that TDS on advances does not signify income received until services are provided. Therefore, the addition was restricted to the TDS amount of ?1,37,931. The Tribunal upheld the order of the CIT(A) on this issue, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal concerning both issues, upholding the CIT(A)'s decision on the matters of non-deduction of TDS on labour charges and advances given. The judgment was pronounced on 06/06/2018.