2020 (11) TMI 338 - AT - Income Tax

TDS u/s 194C - Disallowance u/s 40a(ia) - assessee did not submit any confirmation from the payee to the effect that returns of income including receipts from the assessee was filed u/s.139(1) by the payee - HELD THAT - CIT(A) has recorded categorical finding to the effect that gold plating done by the supplier M/s.Spectronic Plating Pvt. Ltd., would not come within the mischief of section 194C of the Act, because the payment was in the nature of purchase of materials which attracts central sales tax. In the case of M/s. Hindustan Coco cola Beverage 2007 (8) TMI 12 - SUPREME COURT that when the payee has included the amount received from the assessee in its return of income and also paid taxes on the said receipts, then there was no question of making any addition u/s. 40a(ia) of the Act for failure to deduct TDS u/s.194C. CIT(A) has also taken support from the decision in the case of M/s.Ansal Land Mark Township P.Ltd.. 2015 (9) TMI 79 - DELHI HIGH COURT that as long as the payee filed return of income disclosing payment received from the payer and in which the income earned by it is embedded and also paid tax on such income, the assessee would not be attracted as person in default, consequently no disallowance can be made u/s.40a(ia) of the Act for non-deduction of TDS under section 194C of the Act. There is no error in the findings recorded by the learned CIT(A) to delete the addition made by the AO towards disallowance of expenditure u/s. 40a(ia) of the Act for the failure to deduct TDS u/s.194C of the Act. Hence, we uphold the findings of the learned CIT(A) and dismissed the appeal filed by the Revenue.

Summary

Issues:
1. Disallowance under section 40a(ia) for non-deduction of TDS u/s.194C.
2. Interpretation of job work charges and applicability of TDS provisions.
3. Validity of certificate issued by payee for assessment year 2013-14 in relation to payments for assessment year 2012-13.

Issue 1: Disallowance under section 40a(ia) for non-deduction of TDS u/s.194C:
The Revenue contested the CIT(A)'s decision to delete the disallowance made by the Assessing Officer regarding payments made to M/s. Spectronic Plating Pvt. Ltd. The Assessing Officer disallowed the payments under section 40a(ia) due to non-deduction of TDS u/s.194C. The CIT(A) held that the payments did not fall within the purview of section 194C, and thus, TDS deduction was not required. The CIT(A) also noted that the payee had included the payments in their income tax returns and paid the necessary taxes, thereby negating the need for disallowance under section 40a(ia). The Tribunal upheld the CIT(A)'s findings, emphasizing that once the payee had paid taxes on the amount received, no disallowance could be made under section 40a(ia) for failure to deduct TDS.

Issue 2: Interpretation of job work charges and applicability of TDS provisions:
The Assessing Officer argued that the payments to M/s. Spectronic Plating Pvt. Ltd. constituted job work charges falling under section 194C, necessitating TDS deduction. However, the assessee contended that the payments were for purchase of materials attracting central sales tax, not job work charges. The CIT(A) agreed with the assessee, citing the nature of the payments and the supplier's activities. The Tribunal supported this view, stating that the gold plating done by the supplier did not align with section 194C, as it was akin to a purchase transaction. The Tribunal also referenced legal precedents to emphasize that when the payee included the payments in their income and paid taxes, TDS disallowance was unwarranted.

Issue 3: Validity of certificate issued by payee for assessment year 2013-14:
The Revenue raised concerns about the validity of the certificate issued by the payee for assessment year 2013-14 in relation to payments made for assessment year 2012-13. The Tribunal clarified that the CIT(A) rectified the error in mentioning the assessment year, confirming that the payments were indeed for the correct year. The Tribunal found no fault in the CIT(A)'s reliance on the certificate issued by the payee's Chartered Accountant, certifying the inclusion of payments in the income tax return. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the disallowance under section 40a(ia) for non-deduction of TDS u/s.194C. The Tribunal emphasized the nature of the payments, the payee's tax compliance, and the applicability of TDS provisions in determining the outcome of the case.