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2019 (5) TMI 768 - AT - Income TaxDisallowance u/s 40(a)(ia) - TDS u/s 194C - payments towards the hiring charges of cranes - HELD THAT - We are persuaded to subscribe to the contention advanced by the Ld. A.R that a simpliciter payment towards hiring charges of cranes cannot be brought within the sweep of the definition of the term work as envisaged in Sec. 194C In our considered view, as the assessee was under no obligation to deduct tax at source u/s 194C in respect of the payments made towards hiring charges of cranes, therefore, the lower authorities had erred in disallowing the same for the said reason by invoking the provisions of Sec. 40(a)(ia). We thus not being in agreement with the view taken by the lower authorities that it was obligatory on the part of the assessee to deduct tax at source u/s 194C on the payments made towards simpliciter hiring charges of cranes, set aside the order of the CIT(A) and vacate the disallowance of ₹ 9,50,600/- made by the A.O u/s 40(a)(ia). - Decided in favour of assessee.
Issues:
1. Disallowance under Sec. 40(a)(ia) of the Income Tax Act, 1961 2. Applicability of Sec. 194C to hiring charges of cranes 3. Adhoc disallowance of expenses 4. Legality of orders by CIT(A) and AO Analysis: Issue 1: Disallowance under Sec. 40(a)(ia) of the Income Tax Act, 1961 The appeal was filed against the CIT(A)'s order upholding the disallowance of ?950,600 made by the AO under Sec. 40(a)(ia) of the IT Act. The contention was that the provisions of section 194C were not applicable to the assessee, thus the disallowance was unjustified. However, the AO disallowed the amount for failure to deduct tax at source under Sec. 194C. The CIT(A) upheld the disallowance stating that the assessee was liable to deduct tax at source under Sec. 194C for hiring charges of cranes. The tribunal held that the lower authorities erred as the payments for hiring charges did not fall under the definition of "work" as per Sec. 194C, hence no obligation to deduct tax at source existed. The disallowance was vacated, and the appeal was allowed. Issue 2: Applicability of Sec. 194C to hiring charges of cranes The central question was whether payments towards hiring charges of cranes were subject to deduction of tax at source under Sec. 194C. The tribunal analyzed the definition of "work" under Explanation (iv) of Sec. 194C and concluded that hiring charges did not constitute "work" as defined. Therefore, the assessee was not obligated to deduct tax at source under Sec. 194C for such payments, contrary to the lower authorities' decision. Issue 3: Adhoc disallowance of expenses An adhoc disallowance of ?100,000 out of expenses was made by the AO, which was sustained by the CIT(A). However, the tribunal did not address this issue in the judgment, as the primary focus was on the disallowance under Sec. 40(a)(ia) related to hiring charges of cranes. Issue 4: Legality of orders by CIT(A) and AO The assessee contended that the orders of the CIT(A) and AO were against the law and facts of the case. However, the tribunal's decision primarily revolved around the interpretation of Sec. 194C and the applicability of tax deduction at source to hiring charges of cranes, leading to the allowance of the appeal based on this specific issue. The broader legality of the orders was not extensively discussed in the judgment.
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