2016 (3) TMI 542 - AT - Income Tax

Addition on account of cessation of liability u/s 41(l) - CIT(A) deleted the addition - Held that - Assessee has himself agreed for the addition vide note sheet dated 22.12.2009 in the file of ld. Assessing Officer but the same has not been given any cognizance by the ld. CIT(A) in his appellate order. When the assessee himself is agreeing to the addition in the given circumstances, when the sundry creditors of ₹ 62,62,863/- were outstanding for some three years or more then this aspect should have been examined in depth by the ld. CIT(A) by way of passing a speaking order on this ground. We, therefore, are of the view that in the facts and circumstances of the case including the acceptance of assessee for agreeing to the proposed addition, matter needs to be relooked by the ld. CIT(A) by way of passing a speaking order in light of our findings and we accordingly set aside the issue to the file of ld. CIT(A) - Decided in favour of revenue for statistical purposes. Disallowance of labour charges - non deduction of tds u/s 194C - CIT(A) deleted the addition - Held that - As during the course of assessment proceedings proper information and evidences were not supplied before the Assessing Officer for examining the applicability of provisions of section 194C of the Act on the labour contract charges of ₹ 17,79,855/- as to whether the complete amount of ₹ 17,79,855/- is liable for tax deduction at source u/s 194C of the Act or there was any bifurcation of the amount on which there was no liability for TDS u/s 194C of the Act or TDS of 1 % or 2% was applicable and also to the issue about the value of goods separately shown in the bills shown under the head labour contract charges. We are, therefore, of the view that this needs to be set aside to the file of ld. Assessing Officer before whom assessee will provide complete details with bifurcation of labour contract charges of ₹ 17,79,855/- and also classify the respective heads i.e. TDS not required to be deducted/ TDS to be deducted @ 1%/TDS deducted @ 2%/value of goods sold wrongly mentioned under the head labour contract charges.- Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of cessation of liability under Section 41(1) of the Income Tax Act, 1961.
2. Deletion of addition on account of disallowance of labor charges under Section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Cessation of Liability under Section 41(1)
The first issue pertains to the deletion of an addition of Rs. 62,62,863/- made by the Assessing Officer (AO) on account of cessation of liability under Section 41(1) of the Income Tax Act, 1961. The AO observed that the amount was due for more than three years to 31 sundry creditors, and the assessee attributed the non-payment to disputes over the quality of goods supplied. However, the AO was not convinced by this explanation, noting that it was improbable for suppliers to wait so long for payment. The AO also noted that the assessee had agreed to the proposed addition during the assessment proceedings.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the provisions of Section 41(1) apply only when the assessee has obtained a benefit by way of remission or cessation of liability, which was not the case here. The CIT(A) noted that the liabilities were still outstanding and had not been written off in the books of account, and thus, the addition was unwarranted.

The Tribunal found that the assessee had agreed to the addition during the assessment proceedings and had failed to provide sufficient evidence to prove the genuineness of the sundry creditors. The Tribunal observed that the CIT(A) did not adequately address the fact that the assessee had agreed to the addition. Therefore, the Tribunal set aside the issue to the file of the CIT(A) for a re-examination and passing a speaking order, allowing the Revenue's ground for statistical purposes.

Issue 2: Deletion of Addition on Account of Disallowance of Labor Charges under Section 40(a)(ia)
The second issue concerns the deletion of an addition of Rs. 17,79,855/- made by the AO on account of disallowance of labor charges under Section 40(a)(ia) of the Income Tax Act, 1961. The AO noted that the labor charges were deducted without deducting tax at source as required under Section 194C. The assessee contended that the payments were not contractual but were for labor purchases, and thus, no tax deduction was necessary.

The CIT(A) granted partial relief by sustaining the disallowance to Rs. 5,33,965/-, accepting the assessee's contention that the labor component was around 30% of the total payment.

The Tribunal observed that the CIT(A) had estimated the labor component without proper examination. The Tribunal noted that the issue required a detailed examination of the actual figures, the nature of the payments, and whether they were liable for tax deduction at source. The Tribunal set aside the issue to the file of the AO for a re-examination, directing the AO to ensure that the assessee provides complete details and bifurcation of the labor contract charges. The AO was instructed to decide the applicability of Section 40(a)(ia) based on the provided details and whether the deductee had disclosed the amount in its income-tax return. This ground of Revenue was also allowed for statistical purposes.

Conclusion
In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes, setting aside both issues to the respective authorities for re-examination and passing speaking orders based on the findings and provided details. The Tribunal emphasized the need for proper examination and evidence to substantiate the claims and liabilities in question.