2017 (10) TMI 821 - AT - Income Tax

Disallowance of expenses - labor charges - disallowance on the ground that the assessee failed to deduct tax at source - whether filing of Form No.26A namely the certificate of the Chartered Accountant as prescribed under the proviso to section 201(1) of the Act can be taken as a conclusive proof that the recipients of the payment from the assessee has taken into account the sum received from an assessee on which no tax had been deducted at source for computing his income in such return of income? Held that - the stand taken by the AO is quite vague. Form No.26A clearly specifies that the sum of ₹ 1,69,89,200/- is part of the gross contract amount of ₹ 7,87,57,116/- declared by Shri Banimali Koley as his contract receipts in the return of income filed for A.Y.2012-13. It is also clear from the remand report of the AO that it cannot be said that the assessee has not included the sum of ₹ 1,69,89,200/- received from the assessee in his gross receipts. The AO did not examine Shri Banimali Koley, if he had any doubts in this regard. He has however not chosen to do so but has given a remand report which is very vague. The certificate in Form No.26A has to be accepted as correct - disallowance sustained by CIT(A) u/s 40(a)(ia) of the Act should be deleted - appeal allowed - decided in favor of assessee.

Summary

Issues:
- Disallowance under section 40(a)(ia) of the Income Tax Act, 1961
- Interpretation of provisions related to tax deduction at source
- Validity of certificate in Form No.26A as conclusive proof

Analysis:
1. The case involved an appeal by the Assessee against the order of CIT(A)-6, Kolkata regarding disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for AY 2012-13.
2. The Assessing Officer (AO) disallowed a sum paid as labor charges by the Assessee to a contractor for failing to deduct tax at source as required by section 194C of the Act.
3. The Assessee argued before CIT(A) that the second proviso to section 40(a)(ia) read with proviso to section 201(1) allowed exemption if the contractor had filed returns, accounted for the sum received, and paid taxes, supported by Form No.26A.
4. CIT(A) upheld the disallowance, citing the failure of the contractor to provide evidence that the sum was accounted for in his income tax return for AY 2012-13.
5. The Tribunal considered whether the Form No.26A could be conclusive proof of the contractor's compliance with tax obligations.
6. The Tribunal noted discrepancies in the AO's remand report and concluded that the certificate in Form No.26A, despite minor errors, was valid evidence that the sum was included in the contractor's income.
7. Consequently, the Tribunal directed the deletion of the disallowance under section 40(a)(ia) and allowed the Assessee's appeal.

This judgment clarifies the importance of proper documentation and the validity of certificates in tax matters, emphasizing the need for contractors to demonstrate compliance with tax deduction requirements to avoid disallowances.