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2012 (8) TMI 649 - AT - Income TaxDis-allowance u/s 40(a)(ia) on account of non-deduction of TDS u/s 194C - enhancement of income by Rs 289.65 lacs - assessee, being architect awarded entered into an agreement with NIBM for comprehensive refurbishment of hostel at NIBM Campus, which was sub-contracted by assessee to JR & Co. - received Rs 289.65 lacs towards the work done and Rs 18.10 lacs as architect fees - TDS of Rs 35.57 lacs on entire payment deducted - payment of Rs 289.65 lacs not taken as receipts in the P/L A/c, however TDS deducted has been claimed as credit - amount received however incorporated in books of account wherein receipts from NIBM and the payments made to JR & Company has been shown - AO treated the entire payment as his receipts and income and dis-allowed TDS credit of 6 lacs since the same has not been shown in the instant year on cash basis - on appeal CIT(A) concluded that assessee was liable to deduct TDS on the payment made to the sub- contractor and made addition on account of non-deduction of taxes - assessee contesting jurisdiction assumed by CIT(A) and other grounds Held that - It is settled preposition of law that power of the first appellate authority is co-terminus with that of the AO and is required to look into the issue and examine the same which has not been properly dealt with by the AO. Here in this case, the CIT(A) has not discovered any new source of income which was not before the AO but has examined the issue which was before the AO and grounds before him. It is not a case where the AO has made an addition on X and Y account and the CIT(A) has discovered some new source of addition for taxing the income on Z account. This is more so when the assessee himself has taken contradicting stand, on one hand he is claiming the credit of entire TDS amount and on the other hand, contending that the entire payment received by him is not his receipts. Therefore, the CIT(A) was fully justified in law in acquiring the jurisdiction for making the enhancement of the income. Preview of Section 194C - assessee contended JR & Company to be main contractor and that only the payment routed through the assessee - Held that - It is observed from agreement that assessee was assigned and was solely responsible for carrying out the work as mentioned in the agreement and the assessee has got this work done through the contractor namely, JR & Company under the assessee s supervision and guidance, who in this case can be referred to as a sub-contractor . Risk and responsibility associated with contract lies with the assessee only. Nowhere in the agreement it has been agreed that the JR & Co. is directly responsible for the risk and responsibility for executing the work. Thus, there is a clear cut relationship of a contractor and sub-contractor between the assessee qua the JR & Company. Thus, assessee was responsible for deducting TDS u/s 194C for making the payment to JR &Co. Applicability of Section 40(a)(ia) - Held that - Since TDS has not been deducted while making the payment to JR & Co., such an expenditure cannot be allowed in view of the provisions of Section 40(a)(ia) on the amount payable. Applicability of Section 40(a)(ia) for non-deduction of TDS u/s 194C on bought out items i.e on purchases of material - Held that - Dis-allowance u/s 40(a)(ia) cannot be made on bought out/supply and purchases of materials as there was no liability to deduct TDS u/s 194C and, therefore, such a dis-allowance should be reduced. Issue is decided in favour of the assessee subject to verification by the Assessing Officer. Plea of reasonable cause for non-deduction of tax at source - Held that - Assessee right from the stage of filing of return to the stage of AO and further upto filing of appeal before the CIT(A) was very sure that TDS amount deducted from NIBM is his income. Once it is income, the assessee was obliged to deduct TDS while making the payment to JR & Co. The payment received and payment made are part of one transaction only. Thus, on these facts, we hold that there was no reasonable cause entertained by the assessee. Further, nowhere it has been held that on the grounds of reasonable cause, dis-allowance u/s 40(a)(ia) should not be made Applicability of Section 40(a)(ia) only to amount payable on the last day - Held that - Issue stands covered in favor of assessee by decision in case of Merilyn Shipping and Transporters Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ). Issue is therefore, decided in favour of the assessee, subject to verification by the Assessing Officer. On contention that there was diversion of income at source it is held that nowhere from the reading of the agreement it is borne out that there is any title in favour of JR & Co. by the NIBM. In absence of such clause, it cannot be held that there was a diversion of any income by overriding title. It was assessee s obligation alone to get the work done. The payment received by the assessee was as per terms of agreement only. Issue is, thus, decided against the assessee. Telephone and vehicle expenses - ad hoc dis- allowance of Rs 50,000 assuming it to be personal in nature - Held that - Since assessee has himself shown personal expenditure of Rs.4,02,902/- on account of usage of telephone and vehicle, which has not been claimed as business expenditure, there was no occasion to make any kind of ad hoc disallowance on account of personal usage - Decided in favor of assessee
Issues Involved:
1. Addition of income from partnership firm under Section 10(2A) and disallowance under Section 14A read with Rule 8D. 2. Disallowance on account of telephone and vehicle expenses. 3. Enhancement of income by Rs.289.65 lakhs due to non-deduction of TDS under Section 194C and consequent disallowance under Section 40(a)(ia). Issue-wise Analysis: 1. Addition of income from partnership firm under Section 10(2A) and disallowance under Section 14A read with Rule 8D: - These grounds were not pressed by the appellant and thus treated as dismissed. 2. Disallowance on account of telephone and vehicle expenses: - The Assessing Officer disallowed Rs.1,00,000/- out of telephone and vehicle expenses on an ad hoc basis, assuming it to be personal in nature. - The assessee argued that personal expenditure of Rs.4,02,902/- on telephone and vehicle usage was not claimed as business expenditure. - The CIT(A) restricted the disallowance to Rs.50,000/-. - The Tribunal found no merit in the disallowance since the assessee had already shown personal expenditure separately. Thus, the disallowance of Rs.50,000/- was deleted, and this ground was allowed. 3. Enhancement of income by Rs.289.65 lakhs due to non-deduction of TDS under Section 194C and consequent disallowance under Section 40(a)(ia): - The CIT(A) enhanced the income by Rs.289.65 lakhs, invoking Section 40(a)(ia) due to non-deduction of TDS on payments made to JR & Co. - The assessee contended that the relationship between NIBM and the assessee was that of principal and agent, and the payments to JR & Co. were reimbursements. - The CIT(A) held that the assessee was the contractor and JR & Co. was the sub-contractor, and thus the entire receipts were treated as income due to non-deduction of TDS. Detailed Analysis: 1st Issue - Jurisdiction of CIT(A) for enhancement: - The Tribunal held that the CIT(A) did not discover a new source of income but examined the issue of credit of TDS, which was before the Assessing Officer. The CIT(A) was justified in enhancing the income as the subject matter was already under scrutiny. 2nd Issue - Nature of work and applicability of Section 194C: - The Tribunal analyzed the agreement between NIBM and the assessee, concluding that the assessee was responsible for carrying out the work and JR & Co. acted as a sub-contractor. - The entire payment received by the assessee was treated as receipts, and the assessee was liable to deduct TDS on payments made to JR & Co. 3rd Issue - Disallowance under Section 40(a)(ia): - Since the assessee did not deduct TDS while making payments to JR & Co., the disallowance under Section 40(a)(ia) was upheld. 4th Issue - Applicability of Section 194C on bought out items: - The Tribunal held that disallowance under Section 40(a)(ia) cannot be made on purchases of materials as there was no liability to deduct TDS. The Assessing Officer was directed to verify and segregate such payments. 5th Issue - Reasonable cause for non-deduction of TDS: - The Tribunal found no reasonable cause for non-deduction of TDS as the assessee claimed the entire TDS amount as income. The ratio of the Kotak Securities case was not applicable. 6th Issue - Disallowance confined to amounts payable: - Following the Special Bench decision in Merilyn Shipping, the Tribunal directed the Assessing Officer to restrict disallowance to amounts payable as on the last date of the balance sheet. Last Issue - Diversion of income at source: - The Tribunal held that there was no diversion of income at source as the entire payment received by the assessee was as per the terms of the agreement, and JR & Co. had no overriding title. Conclusion: - The appeal was partly allowed, with specific directions for verification and segregation of bought out items and amounts payable.
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