2016 (6) TMI 331 - AT - Income Tax

Non-deduction of tax at source on sub-contract payments - applicability of proviso to section 40(a)(ia) - Held that - The assessee has furnished on record the complete particulars in this regard which established the case of assessee. The return of income filed by Mr. Anil Patil relates to assessment year 2012-13 and in the totality of the above said facts and circumstances, where the amount of sub-contract payments made by the assessee though without tax deduction at source, has been included by the recipient in his return of income and the said recipient had paid taxes on the income relatable to such receipts, then there is no merit in holding the assessee to be in default for not deducting tax at source. Accordingly, we hold so. Once the assessee is not in default by non deduction of tax at source, then the said payment on account of sub-contract amounting to ₹ 1.52 crores is to be allowed as deduction in the hands of assessee. We direct the Assessing Officer to allow the claim of assessee after verifying the claim of assessee that the payer has included the sub-contract payments as part of its receipts. The grounds of appeal raised by the assessee are thus, allowed as directed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction of Piece Work Expense under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Applicability of the proviso to Section 40(a)(ia) retrospectively.

Detailed Analysis:

1. Deduction of Piece Work Expense under Section 40(a)(ia):

The primary issue revolves around the addition of ?1,52,95,475/- due to the disallowance for non-deduction of tax at source on sub-contract payments under Section 40(a)(ia) of the Income-tax Act. The assessee, a civil contractor, incurred an expenditure under the head 'Piece Work' amounting to ?1.52 crores, which was similar to a sub-contract. The Assessing Officer (AO) noted that the assessee failed to deduct tax at source on these payments, invoking Section 194C, thereby attracting the provisions of Section 40(a)(ia). The AO added the amount to the assessee's income, asserting that the amendment to Section 40(a)(ia) by the Finance Act, 2012, effective from 01.04.2013, was not applicable for the assessment year 2012-13.

2. Applicability of the Proviso to Section 40(a)(ia) Retrospectively:

The CIT(A) upheld the AO's decision, stating that the proviso to Section 40(a)(ia), inserted by the Finance Act, 2012, was applicable retrospectively. However, the deduction was to be allowed in the year the payee filed the return of income. The assessee contended that the payments were made before the close of the year, and the payee had included the receipts in their income and paid taxes thereon. The Tribunal examined whether the proviso to Section 40(a)(ia) should be applied retrospectively to all pending assessments. It referred to previous Tribunal decisions, including ACIT Vs. Bhavook Chandraprakash Tripathi, which held that the proviso should be applied retrospectively to avoid undue hardship to taxpayers.

Conclusion:

The Tribunal concluded that the proviso to Section 40(a)(ia) should be applied retrospectively. It found that the payee, Mr. Anil Patil, had included the sub-contract receipts in his income and paid taxes thereon. Consequently, the assessee was not in default for non-deduction of tax at source. The Tribunal directed the AO to allow the deduction of ?1.52 crores in the hands of the assessee after verifying the payee's inclusion of the sub-contract payments in his income. The appeal was allowed, and the stay application was dismissed.