2015 (7) TMI 122 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Non deduction of TDS on the labour charges paid - whether payment has been made for centring, tiling and fabrication work amounts to payment to contractor or sub-contractor so as to invoke provisions of section 194C (2) for the purpose of TDS? - Held that - Since the argument that the assessee is not liable to deduct tax u/s.194C(2) is advanced before us for the first time and the lower authorities have no occasion to decide the issue from this angle, therefore, we in the interest of justice, deem it proper to restore the issue back to the file of the Assessing Officer with a direction to decide the issue afresh in the light of the decision of the Tribunal in Mr. Vijay Ramchandra Shirsth (2011 (9) TMI 904 - ITAT PUNE) wherein held that for a contract to qualify as a subcontractor, the subcontractor should spend their time and energy and also undertake the risk attached with the main contract. As the element of risk was missing, the contract could not be held as subcontract. and in accordance with law. Needless to say the Assessing Officer shall give due opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance u/s.40(a)(ia) - non deduction of tax from account writing charges and audit fees - Held that - As nothing was brought to our notice by the Ld. Counsel for the assessee so as to take a contrary view. Therefore, the order of the CIT(A) upholding the disallowance u/s.40(a)(ia) on account of account writing charges and audit fees is upheld. - Decided against assessee

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on labour charges.
2. Nature of job work contracts and applicability of TDS under Section 194C(2).
3. Applicability of Section 40(a)(ia) when no amount is payable at the end of the year.
4. Disallowance under Section 40(a)(ia) for non-deduction of TDS on account writing charges and audit fees.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Labour Charges:
The assessee, a job worker, did not deduct TDS on labour charges amounting to Rs. 69,23,135/- and Rs. 43,05,047/- for the assessment years 2007-08 and 2009-10 respectively. The Assessing Officer disallowed these amounts under Section 40(a)(ia) due to non-compliance with TDS provisions. The CIT(A) upheld the disallowance, referencing decisions from the Hon'ble Gujarat High Court and Calcutta High Court, which held that the provisions of Section 40(a)(ia) apply irrespective of whether the amount is payable at the year-end.

2. Nature of Job Work Contracts and Applicability of TDS under Section 194C(2):
The assessee argued that the job work contracts given to other parties did not involve the transfer of obligations or risks attached to the principal contract, thereby not constituting sub-contracts under Section 194C(2). The Tribunal considered a similar case (Shri Premprakash Vishwakarma) where it was held that if the job work does not transfer risks or obligations of the principal contract to the sub-contractor, it does not qualify as a sub-contract, and hence, no TDS under Section 194C(2) is required. The Tribunal restored this issue to the Assessing Officer for fresh adjudication in light of this precedent.

3. Applicability of Section 40(a)(ia) When No Amount is Payable at the End of the Year:
The assessee contended that disallowance under Section 40(a)(ia) should only apply to amounts payable at the end of the year. However, the Tribunal noted that this issue had been consistently decided against the assessee by the Coordinate Benches of the Tribunal. Consequently, this ground of appeal was dismissed.

4. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Account Writing Charges and Audit Fees:
For the assessment year 2009-10, the Assessing Officer disallowed Rs. 24,000/- for account writing charges and Rs. 45,281/- for audit fees due to non-deduction of TDS. The CIT(A) upheld this disallowance. The Tribunal found no contrary evidence or arguments from the assessee and thus upheld the CIT(A)'s decision on these amounts.

Conclusion:
The appeals were partly allowed for statistical purposes. The Tribunal directed the Assessing Officer to re-examine the nature of job work contracts and the applicability of TDS under Section 194C(2) in light of the Tribunal's decision in the case of Shri Premprakash Vishwakarma. The disallowance under Section 40(a)(ia) for amounts not payable at the year-end and for account writing charges and audit fees was upheld. The Tribunal emphasized the importance of due process and proper adjudication based on established legal precedents.