2017 (1) TMI 1216 - AT - Income Tax

TDS u/s 194C - Disallowance made u/s 40(a)(ia) - payments to the site in charge / supervisors - Held that - Assertion of the assessee that the assessee remitted payments to the site in charge / supervisors who in turn made payments to the labourers or contractors and payments to individual labourers were below the limit prescribed for tax deduction u/s 194C of the act remains unrebutted. We find that the authorities had wrongly considered the remittances made to the site in charge as the payment to the labour contractors whereas the records of the assessee indicate that the payments were made to the labourers through the medium of site in charge. Hence we are not inclined to accept the arguments of the ld DR. We also find that the ld CITA had made bald statement that the signatures in the sheets were not matching. It is not known from which document he was able to reach such conclusion for comparison of the signatures. Accordingly we hold that there is no violation of provisions of section 194C of the Act warranting disallowance u/s 40(a)(ia) of the Act. The ld AO is directed to delete this disallowance u/s 40(a)(ia) of the Act - Decided in favour of assessee Disallowance made u/s 40A(3) - Held that - It is not in dispute that the supply of materials had happened through out the year at different sites but at each site, the job allotted to the assessee was supposed to be executed within a short duration of 3 to 4 weeks. These facts have not been controverted by the revenue before us. Accordingly the payments were made to the parties in cash by the assessee through his employees who were site in charge / supervisors at various sites and it is not in dispute that the bulk payments were transferred to the employees by the assessee and those employees inturn make payment for purchase of materials as and when needed by making cash payments. It is not in dispute that the individual purchase bill for which payment was made was much below ₹ 20,000/- for which expenditure was incurred. All the purchase bills were also produced by the ld AR in his paper book filed. It is not in dispute that the employees of the assessee who were site in charge / supervisors situated at different site locations had approached these suppliers who do not know each other and hence the suppliers insisting on cash payments thereon has to be accepted and cannot be doubted / faulted with. Considering the totality of the facts and circumstances and going by the intention of introduction of section 40A(3) of the Act together with its amendments we hold that no disallowance u/s 40A(3) of the Act is warranted in the facts and circumstances of the case. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Disallowance under Section 40A(3) of the Income Tax Act.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:

Facts and Arguments:
- The assessee, a contractor engaged in the commissioning of communication towers and manufacturing of transformers, made payments to subcontractors and laborers without deducting tax at source.
- The Assessing Officer (AO) disallowed ?68,49,395/- under Section 40(a)(ia) due to non-maintenance of a labor register.
- The assessee contended that payments to laborers and subcontractors were below the threshold limit prescribed under Section 194C, and provided additional evidence during the appeal which was not accepted by the AO as they were in loose-leaf form.
- The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance, citing discrepancies in labor signatures and addresses, and potential violation of Section 40A(3).

Tribunal's Findings:
- The Tribunal noted that the AO failed to find any infirmity in the labor and subcontractor payment sheets during the remand proceedings.
- It was established that payments were made to laborers and contractors through site in charge/supervisors, and each payment was below the prescribed limit of Section 194C.
- The Tribunal criticized the AO for making unfounded allegations against the assessee’s authorized representative (AR).
- The Tribunal concluded that there was no violation of Section 194C and directed the AO to delete the disallowance of ?68,49,395/-.

Conclusion:
- The Tribunal allowed the appeal on this ground, directing the deletion of the disallowance made under Section 40(a)(ia).

2. Disallowance under Section 40A(3) of the Income Tax Act:

Facts and Arguments:
- The AO disallowed ?54,66,572/- under Section 40A(3) for cash payments exceeding ?20,000/- made to various parties.
- The assessee argued that payments were made in cash due to the nature of their work in remote villages with no banking facilities, and suppliers insisted on cash payments.
- The CIT(A) granted partial relief by deleting ?13,61,208/- related to Shanti Trading Company, but confirmed the remaining disallowance and enhanced it by ?25,39,089/-.

Tribunal's Findings:
- The Tribunal acknowledged the business exigency and the practical difficulties faced by the assessee in remote areas.
- It was noted that the genuineness of transactions was not disputed, and suppliers had acknowledged cash payments.
- The Tribunal referred to several judicial precedents, including the Supreme Court’s decision in Attar Singh Gurmukh Singh vs ITO, which emphasized the intent of Section 40A(3) to curb black money.
- The Tribunal held that the payments were made out of business necessity and were genuine, hence no disallowance under Section 40A(3) was warranted.

Conclusion:
- The Tribunal allowed the appeal on this ground, directing the deletion of the disallowance made under Section 40A(3).

Final Judgment:
- The appeal of the assessee was partly allowed, with disallowances under Sections 40(a)(ia) and 40A(3) being deleted. The Tribunal emphasized the practical business exigencies and the genuineness of transactions in its decision.