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TMI Blog2016 (4) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee - ITA No. 498/Coch/2015, ITA No. 307/Coch/2015 - - - Dated:- 13-1-2016 - B P Jain, AM And George George K, JM For the Appellant : Shri Iype Mathew, CA For the Respondent : Shri Shantam Bose, CIT(DR) ORDER Per B. P. Jain, Accountant Member This appeal of the assessee in I.T.A. No. 498/Coch/2015 arises from the order of the Ld. CIT, Trivandrum passed u/s. 263 of the Income Tax Act dated 19-03-2013. The Revenue has also filed an appeal in I.T.A. No. 307/Coch/2015 arising from the order of the Ld. CIT(A), Trivandrum dated 26/03/2015 each for the assessment year 2008-09. 2. Since the facts in the present case are identical, therefore, both the appeals are being taken up by this consolidated order. 3. First of all, we shall take up the appeal of the assessee in I.T.A. No. 498/Coch/2015 where the grounds of appeal raised by the assessee are reproduced hereinbelow: 1) The Order Under Section 263 passed by the CIT is illegal, arbitrary, uncold for, and against the facts on record. 2) The CIT is not justified in law in restoring the assessment order to the AO for re-examination which was already examined by the A.O. 3) The CIT should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He filed a return of income for the Asst. Year 2008-09 declaring a total income of ₹ 3,17,220. Assessment u/s. 143(3) was completed on 23.12.2010 on a total income of ₹ 6,07,220 after disallowing certain expenditure on account of non production of vouchers. 2. However, the following discrepancies were noticed from the records. The assessee had debited an amount of ₹ 80,89,565 in the Profit and Loss account being labour charges under the head 'Direct Expenses' and shown an amount of ₹ 30,26,315 being labour charges payable as liability in the Balance Sheet. The ledger account filed also shows that an amount of ₹ 30,26,315 being labor charges payable from 11.3.2008 to 31.3.2008. 3. The order u/s. 143(3) was therefore regarded as erroneous and prejudicial to the interest of revenue. Hence, a notice for revision of assessment u/s. 263 dated 14.2.2013 was sent to the assessee. 4. Shri C.A. James Varghese, FCA, appeared on behalf of the assessee. He made a written submission dated 19.3.2013 offering explanation for the discrepancies as mentioned above. The assessee claims that During the financial year cited above, I have received a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of the TDS deductibility on the aforesaid amount of ₹ 80,89,568/- paid as labour charges. To this, it was submitted before the Ld. CIT that the work was executed by the assessee directly and he has engaged the labours directly by him. It is a fact that these workers are engaged by him regularly for the last several years and the payments are given directly as and when payments are received from the contractor. During the impugned year, the assessee has received ₹ 1,31,89,428/- as contract receipts and has paid ₹ 80,89,568/- as labour charges directly to the labours for which vouchers have been produced. 8. The Assessing officer had asked for complete books of account with bills and vouchers which were produced and no defect in the said vouchers has been pointed out. The said vouchers includes the payments made to labours individually 9. The Ld. Counsel for the assessee invited our attention to the notice u/s. 142(1) at pages 2 and 3 of the Paper Book where the details of the labour charges were specifically asked for by the ITO, Ward-1(3), Trivandrum. and the assessee has submitted the same and no defect in the same has been pointed out. He further i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger account available on record at PB pgs. 5 and 6, no payment is exceeding ₹ 13,583/- per month paid to any of the labour which is much below the limit as provided u/s. 194C of the Act where TDS provisions are not applicable. At the outset, the provisions of section 194C cannot be made applicable on the labour payments especially when the assessee has submitted the explanation that the assessee makes direct payments to the labours and this practice is being followed for the past several years and no defect in the past has been pointed out. The Assessing officer has examined the books of account and all the vouchers/bills and has conducted adequate enquiries and according to him, no TDS is deductible and therefore, in our view, there is no error in the order of the Assessing officer which is prejudicial to the interest of the Revenue. 14. When there is no error in the order of the Assessing officer, even if it is prejudicial to the interest of the Revenue, still the provisions of section 263 cannot be made applicable for the reasons that the Commissioner has to be satisfied of twin conditions, (i) the order of the Assessing officer sought to be revised is erroneous; and (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal of the assessee in I.T.A. No.498/Coch/2015 is allowed. 16. We shall take up the Revenue's appeal in 307/Coch/2015 wherein the following grounds of appeal have been taken by the Revenue: 1. The order of the learned Commissioner of Income tax, Trivandrum is so far as on the points mentioned below are concerned is opposed to law on the facts and circumstances of the case. 2. The learned Commissioner of Income tax(Appeals) opined that the appellant was not obligated to deduct tax u/s. 194C of the Income tax Act and there by the Assessing Officer has not justified the invocation of the provisions of section 40(a)(ia) of the Income tax Act. 3. The learned Commissioner of Income tax (Appeals) ought to have noted that the assessee has failed to produce any documentary evidence to substantiate his claim that the assessee has made the payments directly to the labourers. 4. For these and other grounds that may be advanced at the time of hearing, the order of the learned Commissioner of appeals, Trivandrum on the above points may be set aside and that of the Assessing Officer restored. 17. The brief facts of the case are that the Assessing Officer has inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order, the grounds of appeal and the written submission filed by the representative during the appeal proceedings. 5.1 By virtue of the provisions of section 40(a)(ia), tax is to be deducted at source if amount is payable in pursuance to a contract to a contractor or subcontractor. If the tax was not deducted then the whole of the amount shall be disallowed. Therefore it is obligatory on the part of an assessee not only under the above mentioned section but also u/s. 194C to deduct tax and if for any reason such tax was not deducted then the assessee would face disallowance u/s. 40(a)(ia). In the background of foregoing, the crux of the issue to be decided is whether the appellant is obligated to deduct tax or not and in the absence of tax not been deducted whether the invocation of section 40(a)(ia) has been justified or not. 5.2 The appellant is engaged in the business of executing electrical work to the Electrical Division of Public Works Department, Government of Kerala and during the year under consideration he claimed to have earned a sum of ₹ 1,31,89,428/- for the electrical work such as digging, removing, laying of cables, etc. carried out to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and the payment of wages to workers cannot be considered as payment made to any contractor. In the circumstances narrated above, I am of the considered opinion that the appellant was not obligated to deduct tax u/s. 194C of the Act and thereby the Assessing Officer has not justified the invocation of the provisions of section 40(a)(ia) of the Act. Thus, the disallowance is deleted and accordingly the appeal is allowed . 19. We have heard the rival contentions and perused the facts of the case. In the present case, after passing the order u/s. 263 of the Act, the Assessing officer has confirmed the addition of the labour charges/wages paid to the extent of ₹ 80,89,568/- which has been deleted by the Ld. CIT(A) by giving the findings which have been reproduced hereinabove. Since the assessee has been found to have made the payments to the workers as labour charges/wages where each of the payment is less than ₹ 20,000/- cannot be the subject matter of section 194C of the Act. Therefore, the provisions of section 194C/40(a)(ia) cannot be made applicable and we find no infirmity in the order of the Ld. CIT(A) and since we have decided the issue u/s. 263 of the Act in f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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