2013 (5) TMI 502 - AT - Income Tax

Non-deduction of TDS u/s 194C(2) - disallowance u/s 040(a)(ia) - payments made to the labourers through the Sardars/Munshis of each group of daily labourers whose total payments for each of them are below Rs.50000/- - CIT deleted the additions - assessee is a Civil Contractor filed return of income claiming deduction u/s 80P being a cooperative society - Held that - The claim made by the assessee on the total turn over amounting to Rs.35,90,188/- was when the labour charges were paid by the assessee were claimed at Rs.24,57,947/- were considered specifically for the sardars who were to identify the labourers being paid less than Rs.50,000/- each was acceptable to the authorities below. It cannot be considered for disallowance u/s 40(a)(ia) to identify the deduction of tax at source u/s 194C in so far as it cannot be said that the sardars are to be subjected to deduction of tax at source only on part of their payments to the labourers whom they have identified. The authorities below therefore have not been able to establish the issue raised for disallowance u/s 40(a)(ia), in so far as, the provision of section 194C do not apply to the payments/expenditures incurred by the assessee. No hesitation in directing the AO to delete the disallowance - In favour of assessee.

Summary

Issues:
Appeal against order of CIT(A) regarding disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on payments made to labourers through Sardars/Munshis.

Analysis:
The assessee, a Civil Contractor, filed an appeal against the CIT(A)'s order for the Assessment Year 2008-09, challenging the disallowance of expenses amounting to Rs. 8,91,115 under section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on payments made to labourers through Sardars/Munshis. The AO disallowed the total amount claimed as expenditure, bifurcating it into paid and payable amounts. The CIT(A) confirmed the addition against the payable amount but deleted the disallowance on the paid amount. The assessee contended that the entire amount should not be disallowed under section 40(a)(ia) as the payments to Sardars/Munshis were not subject to TDS under section 194C. The assessee argued that the Sardars/Munshis were not contractors but laborers who identified other laborers for the work, and therefore, were not liable for TDS deduction. The assessee cited legal precedents to support this argument, emphasizing that mere reimbursement for executing work does not warrant TDS deduction. The ITAT Kolkata Bench's decision in a similar case was also referenced to support the contention that payments to labor Sardars were not subject to disallowance under section 40(a)(ia) of the IT Act.

The ITAT, after considering the submissions, found merit in the assessee's arguments. It noted that the CIT(A) had not properly identified the amount subject to disallowance under section 40(a)(ia) for invoking section 194C. The ITAT observed that the payments made to Sardars/Munshis were allowable under section 40(a)(ia) without TDS deduction as the amount owed to them was less than the initial balance, indicating no need for TDS deduction. The ITAT emphasized that the provisions of section 194C did not apply to the payments made by the assessee, as the Sardars/Munshis were not contractors but laborers facilitating payments to other laborers. The ITAT directed the AO to delete the disallowance of Rs. 8,91,115, as the CIT(A) had partly allowed the assessee's claim and the revenue did not appeal against the CIT(A)'s decision. Consequently, the ITAT allowed the appeal of the assessee, ruling in favor of the assessee's contentions regarding TDS deduction on payments to laborers through Sardars/Munshis.