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2012 (3) TMI 291 - HC - Income TaxDisallowance - TDS u/s 194C - why the assessee had not deducted TDS from Rs.50 lakhs for work, which was sub-contracted and paid to Rishikesh Properties Pvt. Ltd - that the total contract value assigned made by the M/s. PGF Limited to the respondent assessee amounted to Rs.4,85,00,000/- while a separate contract was made with M/s. Rishikesh Properties by M/s. PGF Limited only amounting to Rs.4,25,00,000/- which was also running almost at the same time and with the same management as directors who are working on behalf of both the companies are common - It is apparent that there is an inherent contradiction between the findings recorded by the Tribunal and the findings recorded by the Assessing Officer with reference to the letter of the assessee dated 5.12.2008, which had not been adverted to by the Tribunal. Letter dated 5.12.2008, which was quoted in the assessment order has not been considered - If there is violation of Section 194C, then Section 40 (a)(ia) may be attracted and the expenditure incurred on which tax has not been deducted is to be disallowed as per the terms of the said section - Decided in favor of the revenue by way of remand to Tribunal
Issues Involved:
1. Deletion of the addition of Rs.50 lakhs made by the Assessing Officer under Section 40(a)(ia) read with Section 194C of the Income Tax Act, 1961. 2. Whether M/s PGF Ltd. had directly given a contract to Rishikesh Properties Pvt. Ltd. Issue-Wise Detailed Analysis: 1. Deletion of the Addition of Rs.50 Lakhs: The primary issue revolves around the deletion of an addition of Rs.50 lakhs by the Income Tax Appellate Tribunal (ITAT). The Assessing Officer (AO) had initially disallowed this amount under Section 40(a)(ia) read with Section 194C due to the assessee's failure to deduct TDS on the payment made to Rishikesh Properties Pvt. Ltd. The AO noted that no documentary evidence was provided to substantiate the agreement between the assessee and Rishikesh Properties Pvt. Ltd. The first appellate authority deleted the disallowance, arguing that the payment of Rs.50 lakhs was not claimed as an expense in the profit and loss account, thus TDS was not required. However, this reasoning was deemed unsustainable by the court, which emphasized that if the amount was not shown as an expense, the assessee could not claim it as such and thus was not required to deduct TDS. The ITAT upheld the deletion, stating that the payment of Rs.50 lakhs was not part of the total contract value of Rs.4.85 crores and was not claimed as an expenditure. The ITAT clarified that the provisions of Section 40(a)(ia) are applicable only to amounts payable to a contractor or sub-contractor for carrying out any work, which was not the case here. However, the High Court found the ITAT's order perverse for failing to consider relevant material and facts, particularly the letter dated 5.12.2008 from the assessee admitting that the payment was made to Rishikesh Properties Pvt. Ltd. as a sub-contractor. The High Court emphasized that the Tribunal must examine the question of TDS deduction independently, considering the assessee's books of accounts and the admission in the letter. 2. Direct Contract to Rishikesh Properties Pvt. Ltd.: The second issue concerns whether M/s PGF Ltd. had directly awarded a contract to Rishikesh Properties Pvt. Ltd. The ITAT concluded that the payment of Rs.50 lakhs was not part of any sub-contractual agreement but was a direct payment for work done by Rishikesh Properties Pvt. Ltd. for PGF Ltd. This contradicted the stand of PGF Ltd., which claimed to have awarded Rs.2.25 crores to Rishikesh Properties Pvt. Ltd. and Rs.5.35 crores to the assessee. The High Court found that the Tribunal's reasoning was contradictory and did not align with the facts presented by PGF Ltd. and the assessee's own admission. The Tribunal's failure to consider the letter dated 5.12.2008 and the books of accounts led to an erroneous conclusion. The High Court directed the Tribunal to re-examine the entire question, taking into account all relevant materials, including the assessee's letter and any further explanations. Conclusion: The High Court answered the substantial questions of law in favor of the Revenue and against the respondent-assessee. The matter was remitted to the Tribunal for a fresh decision, directing the Tribunal to consider the reply dated 5.12.2008 and any further explanations from the assessee. The appeal was disposed of with no order as to costs.
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