9911796707
TMI Blog2012 (10) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, learned CIT(A) erred in confirming the action of Assessing Officer/AO in making disallowance u/s 40(a)(ia) of the Act amounting to Rs. 1,55,47,512/- without appreciating that said amount being cost of material purchased forms part of direct cost u/s 28(i) and hence beyond the purview of section 40(a)(ia) of the Act. 4. That on the facts and in the circumstances of the case and in law, learned CIT(A) erred in confirming the action of Assessing Officer/AO in making disallowance u/s 40(a)(ia) of the Act amounting to Rs. 1,55,47,512/- without appreciating the basic difference between word "payable" and "paid" for purposes of section 40(a)(ia). 5. That on the facts and in the circumstances of the case and in law, learned CIT(A) erred in confirming the action of Assessing Officer/AO in making disallowance u/s 40(a)(ia) of the Act amounting to Rs. 1,55,47,512/- without appreciating that purchases are treat ed as genuine for purposes of section 37 of the Act." 2. Learned counsel for the assessee contends that ground no. 2 amounts to additional ground as it was not raised before ld. CIT (Appeals). It is an admitted fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec. 194 had camouflaged the nature of execution. The AO held that the amount of purchase of material debited by the assessee as purchases from RSGIPL was actually sub contract amount. RSGIPL was given the entire work on subcontract basis and assessee could executed the work on its own. Assessee was liable to deduct TDS u/s 194C.Since the assessee has not deducted TDS while making the payment of subcontract amount of Rs. 1,55,47,512/-, to RSGIPL, the same was disallowed u/s 40(a)(ia) by following observations: "The assessee has not furnished any such statement showing tax deducted at source on various payments. The assessee, however, furnished copies of invoices showing payments made to M/s Radhey Shyam Gupta India (P) Ltd. for purchase of "Bituminous Mix". In the course of discussion the AR stated that tax was not required to be deducted at source on such payments as these were for purchase of materials. This explanation of the assessee is not accepted. It is a fact that the assessee has sub-contracted the entire contract to M/s Radhey Shyam Gupta India (P) Ltd. for purchase of material and supply of labour and to M/s STC Construction for hiring of machinery. This has been ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has got the job done through the said contractor by giving it some other name to circumvent the provision of the tax statute. The present question is essentially a question of fact as well of law. In fact it has been proved beyond any iota of doubt that such job as claimed upon could not be done without spending basic expenditures on the essential items as brought on record by the Ld. AO. On legal question also it has been proved in a number of decision by Apex Court that what is to be looked into such type of cases is the substance and not the façade of form as created by the appellant. 2.9 Judging from any point of view either legal or from factual evidence as brought on record by the Ld. AO, there is no escapement of the fact that the present case is a case where sub-contract work was done by the said contractor for the appellant and the appellant was duly bound as per the provisions of the law to deduct TDS within the meaning of Sec. 194C of the Act. This is a case where the AO has rightly established the fact that a contract/sub-contract work has been through the aid party and the appellant has violated the provisions of the law and hence the grounds of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluded. On this exclusion, the balance amount comes to 'nil'. Consequently, there will be no TDS liability. According to ld. counsel, even going by sec. 194C, there is no liability as the amounts were already paid at the end of year. Reliance is placed on ITAT Hyderabad Bench judgment in the case of K. Srinivas Naidu v. Asstt. CIT [2010] 131 TTJ 17 (UO), holding as under: "In the absence of evidence on record to prove that the assessee individual had made payment of freight charges to the owners of the truck in pursuance of any contract as a contractor and not as a sub-contractor, it cannot be held that the assessee was a contractor and the provisions of s. 194C(1) applied to such payment and not s. 194C(2); however, amount having been paid and not payable, s. 40(1)(ia) could not be invoked to disallow the claim." 6.2 Section 40(a)(ia) reads as under: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee - ** ** ** (ia) any interest, commission or brokerage, rent, royalty, fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly." 6.4 Alternatively it is pleaded that the action of the lower authorities has resulted into an illogical conclusion by treating the entire contract receipt as the income of the assessee. Authorities by assumptions and technical considerations have framed a very high pitch assessment on applying the real income theory also the entire receipts of the assessee cannot be taxed as income in any circumstance. The AO and ld. CIT (Appeals) both have accepted the fact that the assessee has executed the contract and roads have been constructed, it is arbitrary to assume that the entire contract receipts of the assessee are its income. 7. Ld. DR, on the other hand, vehemently argues that: (i) Provisions of Sec. 201(1) and 40(a)(ia) are independent of each other and the department has liberty to apply any of these provisions. It is the power to hold the assessee as deemed in default and/or disallow the expenditure u/s 40(a)(ia) if the TDS has not been deducted and paid. Merely because the assessee has been saved from the rigor of sec. 201(1)(a), which is independent section, assessee cannot capitalize this saving from a trouble to claim exemption from the operation of statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates are not technically applicable to assessee as its turn over exceeds Rs. 40 lacs, nevertheless these provisions can throw some light on the estimate to be made in this eventuality. 8.2 It is also a fact admitted by both the authorities that RSGIPL was given sub contract work. In our view, ends of justice will be met if a fair and reasonable estimate is made in place of technicalities of applicability of sec. 40(a)(ia); the debate about words 'paid and payable' and the debate about revenue having not proceeded against the assessee u/s 201(1). To put rest to these technical debates, it will be in the interest of justice to make a reasonable estimate of assessee's income, when its work execution has not been questioned. In view of all these observation we do not go into technical argument, which in our view, would lead to arbitrary results and illogical conclusions. Therefore, we hold that the assessee's books have been rightly rejected. Income is estimated at the rate prescribed by presumptive taxation 8% less profit attributable to the help of subletting, if any, by RSGIPL @ 2%= 6% to the turn over is applied. In our view ends of justice will be met if net profit of 6% is appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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