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TMI Blog2012 (10) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts of ₹ 5,76,23,108/- have been shown on which gross profit and net profit of ₹ 31,54,276/- and ₹ 19,52,991/- respectively have been declared. The AO made addition of ₹ 38,65,490/- on account of disallowance of hire charges. According to the assessment order, the assessee has paid the said amount to Shri Girraj Sharma, on which no TDS has been deducted. The assessee's submission that payment has been made to 39 parties for lifting of earth (MITTI) by tractors has not been accepted by the AO on the basis of labour account produced by the assessee. Therefore, disallowance was made as per section 40(a)(ia) of the IT Act. The assessee reiterated the same submissions before the ld. CIT(A) and also submitted that each payment in each case was below ₹ 1,20,000/-. Therefore, no TDS was required to be deducted from such parties. The assessee also submitted copy of the order u/s. 143(1) of Shri Girraj Sharma for assessment year 2008-09 and 2009-10 along with copy of return for the assessment year 2009-10 and 2010-11. The ld. CIT(A) considering the explanation of the assessee confirmed the addition. His findings in para 3.2 of the appellate order are reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fact that there is no written contract with Shri Girraj Sharma and the transactions have been done in pursuance of oral agreement does not absolve the appellant of the statutory requirement of deducting TDS at prescribed percentage in relation to payments made for hire charges incurred for transportation of earth. Thus, the provisions of sec. 40(a)(ia) are found clearly applicable in case of the appellant in respect of payments made to Sh. Girraj Sharma on which no TDS has been deducted. Accordingly, addition of ₹ 38,65,490/- made u/s. 40(a)(ia) is, hereby, confirmed." 3.1 The assessee also raised additional ground, in which the assessee has raised the issue that the provisions of section 40(a)(ia) of the IT Act can be invoked in respect of the expenditure, which is shown as payable as on the date. The balance sheet shows that in the case of assessee, the expenditure disallowed at ₹ 38,65,490/- was not payable and was actually paid during the year. Therefore, the above provisions are not applicable. Therefore, no disallowance can be made. The assessee submitted that the additional ground is legal in nature and may be admitted for hearing, which is connected with g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. 2. Because the Ld. CIT(A) while confirming the addition of ₹ 14,93,965/- has erred in ignoring the legal position that section 40(a)(ia) is applicable only in the case where the amount is payable on the last day of previous year. All the payments as reimbursement of expenses has been made time to time during the year and n amount is payable on the last day of previous year. The addition on this ground is totally unwarranted and deserves to be deleted. 3. Because the Ld. CIT(A) has erred in not adjudicating ground no.5 taken before him." 10. The finding of I.T.A.T., Agra Bench in the said case pointed out by the ld. Authorised Representative from the said order at paragraph nos.5, 6 & 7 which are reproduced as under:- "5. We have heard the ld. Representatives of the parties and records perused. The effective ground raised in the appeal relate to disallowance under section 40(a)(ia) of the Act, therefore, all supporting grounds of appeal are decided together. The Ld. Authorised Representative submitted that the issue is covered by the decision of I.T.A.T., Special Bench Visakhapatnam wherein it has been held that section 40a(ia) of the Act is applicable in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are decided accordingly with identical directions. The A.O. is directed accordingly." The ITAT, Vishakhapatnam Special Bench in the case of Merilyn Shipping & Transports vs. Addl. CIT (supra) held as under : "The provisions of section 40a(ia) cannot be invoked with respect to the aforesaid payments which were actually paid during the financial year but it can be invoked with respect to the amount which remained payable as on 31.3.2005 and no TDS was deducted therefrom." 5.1 Since in the case of the assessee, the payment in question is alleged to have been made during the curse of assessment year under appeal itself, therefore, the provisions of section 40(a)(ia) may not be applicable. No disallowance can be made under the above provision with respect to the payments which are actually paid during the financial year. The issue is, therefore, covered in favour of the assessee by the above decision of the Tribunal referred to above. We accordingly set aside the orders of the authorities below and restore the issue to the file of the AO for doing the needful in the matter after verifying the payments made in question during the course of assessment year under appeal. The AO shall pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 2 of appeal of the assessee and ground No. 3 of Revenue's appeal are, accordingly, dismissed. 7.1 There is no other effective ground of appeal in the appeal of the assessee. In the result, the appeal of the assessee is partly allowed for statistical purposes. Issue No.3 : 8. The Revenue on ground No.1 of its appeal challenged the deletion of addition of ₹ 42,70,290/- made u/s. 40(a)(ia) of the IT Act. The AO made above addition on account of disallowance of labour expenses. The assessee has shown payment of ₹ 40,45,290/- to M/s. Ravi Construction Co. and of ₹ 2,25,000/- to Mr. Uttam Singh as labour charges, on which no TDS has been deducted. The assessee submitted before the O that number of labourers including casual labour employed was approximately 200 for execution of work and payments to Shri Uttam Singh is made for supply of Gitti including handling and transportation charges. Therefore, the provisions of section 194C on these two payments are not applicable. The AO rejected the contention of the assessee as the payment is made to M/s. Ravi Construction and not to individual labourers. Similar was the view in the case of Shri Uttam Singh because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to M/s. Ravi Construction for ₹ 40,45,290/-, it is seen that the appellant has entered into an agreement on 11.02.2006 with M/s. Ravi Construction Co., a partnership firm having registered office at Morena and administrative office at Gwalior making the appellant sub-contractor of M/s. Ravi Construction Co. who has been awarded contract works worth ₹ 3.94 crores by MPRRDA vide agreement dtd. 10.02.2006. The appellant has executed this work as sub-contractor @ 2% below than the rates quoted by M/s. Ravi Construction Co. Required TDS on this agreement for execution of works has also been deducted and deposited accordingly as per TDS certificates. Copy of account statement of the appellant as appearing in books of accounts of M/s. Ravi Construction Co. has also been submitted showing various payments made for execution of contract which includes salary paid to site staff, impugned labour charges, cost of gitti and other materials etc. AO is not found justified in making the addition solely on the ground that amount of ₹ 40,45,290/- has been made as per labour expense account. Accordingly, after perusal of records and submissions of the appellant, addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of ₹ 2,25,000/-. In the case of M/s. Ravi Construction Co. also, the AO found that the assessee has made payment to M/s. Ravi Construction Co. and not to the individual labourers. But before the ld. CIT(A), the assessee claimed that payments have been made to large of labourers which is below the prescribed limit. The copy of the account of Ravi Construction Co. also supports the case of the AO that in fact payment has been made to M/s. Ravi Construction Co. and not to the individual labourers. Therefore, the ld. CIT(A) was not justified in deleting the addition of ₹ 40,45,290/-. It was not the payment made to petty labourers. The assessee took contrary plea on this issue also before the ld. CIT(A). The ld. CIT(A) instead of verifying the facts in proper perspective, wrongly deleted the addition. We, therefore, set aside the order of the ld. CIT(A) and restore the order of the AO. Ground No. 1 of the departmental appeal is allowed. Issue No. 4 : 11. On ground No.2 of the departmental appeal, the Revenue challenged the deletion of addition of ₹ 5,11,632/- u/s. 40A(3) of the IT Act. The AO made the above addition because the assessee has incurred said exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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