2017 (12) TMI 136 - AT - Income Tax

Denial of credit of TDS - difference between Form No. 26AS and the business receipts (contractor payments) - include the income declared from contract works in the return of income furnished by the appellant for the instant assessment year - Held that - Additional ground that the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in not directing the learned Assessing officer to include the income from contract work declared by the appellant in the return of income furnished, by the appellant for the instant assessment year is directed to be allowed and TDS is also directed to be allowed. Thus the grounds of the assessee are allowed.

Issues Involved:
1. Inclusion of income from contract work in the return of income.
2. Denial of credit of TDS deducted in the name of the partner.
3. Treatment of the firm as a sub-contractor.
4. Addition of interest received on income tax refund.

Issue-wise Detailed Analysis:

1. Inclusion of Income from Contract Work:
The appellant firm contended that the learned Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to include the income from contract work declared by the appellant in the return of income. The firm argued that the contract was executed by the partnership firm and thus, the income should be assessed in the hands of the firm. The Tribunal agreed with the appellant, stating that once the contract is executed by the partnership firm under the deed of partnership, the income has to be assessed in the hands of the firm. This position is supported by the case of ITO vs. Manikarnika Devi Singh and Circular No. 7/2016 issued by CBDT.

2. Denial of Credit of TDS:
The appellant firm challenged the denial of credit of TDS amounting to ?13,01,041/- on the income declared and assessed in the hands of the firm. The TDS was deducted in the name of one of the partners (Dayanand) and not in the name of the firm. The Tribunal noted that the contracts were transferred to the firm by the partner, and therefore, the TDS credit should also be transferred to the firm. The Tribunal emphasized that the denial of TDS credit is against the principle of consistency, as similar credits were allowed in preceding assessment years in the appellant's own case. The Tribunal cited various judgments, including CIT vs. Bhooratnam and ITA No. 2417/Kol/2013 Mr. Parmanand Tiwari vs. ITO, to support the view that TDS credit should be allowed irrespective of the name in which it was deducted.

3. Treatment of the Firm as a Sub-contractor:
The learned CIT(A) held that the firm should be considered as a sub-contractor, and the contractor giving the contracts must deduct tax again. The Tribunal disagreed with this finding, stating that the appellant firm cannot be considered as a sub-contractor of the partner. The Tribunal referred to the case of Hindustan Ratna JV vs. ITO, where it was held that the relationship created by the partnership deed does not constitute a sub-contract, and the provisions of section 194C cannot be invoked to treat the partners as sub-contractors.

4. Addition of Interest Received on Income Tax Refund:
The Assessing Officer made an addition of ?2,41,563/- as interest received by the appellant on account of income tax refund, which was not disclosed in the return of income. This issue was also part of the appeal, but the detailed analysis and findings on this specific issue were not explicitly discussed in the provided judgment text.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the inclusion of income from contract work in the return of income and allowing the credit of TDS. The Tribunal emphasized the importance of consistency and rejected the treatment of the firm as a sub-contractor. The order was pronounced in the open court on 16.10.2017.

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