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TMI Blog2011 (11) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... in upholding that the provisions of Section 40(a)(ia) were applicable in respect of payments to 3 parties aggregating to ₹ 15,39,867 and 5 parties aggregating to ₹ 12,18,061. 3.2. That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought to have held that the provisions of Section 40(a)(ia) were not applicable to the aforesaid payments. 4.1. The Ld. CIT(A) has grievously erred in upholding ad-hoc disallowance @ 5% out of labour expenses without appreciating the nature and volume of business, the system of maintaining record etc. as well as evidence produced before her. 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) dated 21/11/2008 were that the assessee-firm is a civil contractor. It was noticed that certain expenditure ( transport expenses) was incurred without deduction of tax at source. In some of the cases of expenditure the tax deducted but not deposited within the stipulated time. It was alleged by the AO that the assessee has not complied with the provisions of section 194C of the IT Act and as a result expenditure was disallowed by invoking the provisions of section 40(a)(ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the above, you are asked to the show cause as to why expense of ₹ 12,18,061/- claimed by you in respect of labour payment should not be disallowed u/s.40(a)(ia) of the Act. 3. As per the copies of account submitted by you in respect of M/s.Sujit Construction, a party to whom you have made payment towards pushing labour expenses it is seen that during the year under consideration, you have credited this party s account to the tune of ₹ 2,08,800/-. It is seen that you have not deducted tax at source from payments made to this party as per the provisions of section 194(C) of the I.T. Act. You are therefore, asked to show cause as to why pushing labour expenses of ₹ 2,08,800/- paid to M/s.Sujit Construction should not be disallowed u/s.40(a)(ia) of the I.T.Act. 2.1. Accordingly, a total addition of ₹ 29,66,728/- was made. The matter was carried before the first appellate authority. 3. Ld.CIT(A) has discussed the facts of the case and in respect of disallowance of ₹ 15,39,867/- it was held that though the TDS was deducted but deposited late in the Government account. It was held that the tax deducted should have been deposited by M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... background of above undisputed facts, tribunal was of the opinion that by virtue of amended provisions of Section 40(a)(ia) of the Income Tax Act, 1961, assessee has not breached the requirement of deduction and depositing of TDS. Section 40(a)(ia) of the Act as amended with effect from 1.4.2005 read as under: (ia) any interest, commission, or brokerage, (rent, royalty) fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139. Plainly speaking, assessee had to make deduction before 31st March of the year in question and as long as such amounts were deposited before last date of filing of the return, requirements of law would be fulfille4d. It was on this basis that tribunal was of the opinion that the assessee committed no wrong and was therefore, entitled to seek deduction of ₹ 32,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Chirag Transport 73,507 Total 12,18,061 In this regard, the argument of the assessee is that the payments were made towards purchase of material like, sand, bricks, etc. The said material was directly supplied to the site of CNG Pump Station. It has also been informed that the payments were made to the vendors by cheque and there was no requirement of deduction of tax u/s.194C of I.T.Act. In this regard, an alternate submission has also been made that there was no relationship of contractor and sub-contractor and therefore there was no requirement of TDS. The argument raised by the assessee is that there was no contractual responsibility with the said transporters, therefore there was no requirement of deduction of tax at source. This issue has already been decided by Respected Co-ordinate Bench D ITAT Ahmedabad in the case of Shri Prashant H.Shah vs. ACIT in ITA No.17/Ahd/2011 for A.Y. 2007-08 vide order dated 8.7.11, wherein it was held as under:- 7. We have heard both the sides at some length. We have also perused the material placed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warded to M/s.Petronet LNG Ltd. New Delhi for construction work of peripheral and approach roads at LNG terminal Dahej. Thereafter, the said contractor had entered into a sub-contract with M/s.A.N.S. Construction Ltd., who in turn, had entered into an another sub- contract with the assessee. The work to be carried out by the assessee, therefore pertained to construction of peripheral approach roads. To carry out the above work, the assessee had to purchase construction material, viz. Sand, gravels, etc. In order to bring the construction material at the construction site at Dahej, the assessee has availed the services of several transporters. The assessee had made payment under the head transport charges . The view of the AO was that on payment of transport charges , the assessee being a subcontractor was required to deduct the tax at source as prescribed under sub-section (2) of Section 194C of the Act. On the other hand, the assessee s contention is that although the assessee could be a subcontractor M/s.A.N.S. Construction Ltd., but vis- -vis transporters the assessee has not acted as a sub-contractor but only as a contractor. As per assessee s contention it was a principal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven transportation charges have not been fastened with any of the above liabilities, meaning thereby the transporters were not the part of the said agreement and the assessee had an independent arrangement with them. In other words, peculiarity of this case is that the sub-contract which was assigned to this assessee was not further sub-contracted to the lorry owners. In a sub-contract, a prudent contractor generally include the clauses of liability which were undertaken by him while accepting the execution of the work from the main contractor. We may like to clarify that a condition of passing of the liability can not exhaustive and can not be said to be the only criteria to decide whether there was an existence of contract or sub-contract. The catalog of criterion must include certain other clauses as well, yet in this case this criteria can be determinative considering the nature of work assigned by the assessee to transporters. It is not the case of the A.O. that he happened to be in possession of some material to allege that there existed a specific contract between the assessee and the transporters. Whether the goods were transported in pursuance of any sub-contract so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing through rival submissions, it is seen that the appellant has incurred cash expenses at various sites like Akoka, Chiloda, Umergaon etc. The sample copies of vouchers show that the vouchers are self prepared vouchers not indicating any name and address of the persons to whom the cash payment of small amounts were made. Clearly the labour expenses claimed are not fully verifiable, still in the interest of justice the adhoc disallowance is limited to 5% of ₹ 66,06,095 [₹ 69,65,795 3,59,700 (₹ 1,50,900 + ₹ 2,08,800)] which comes to ₹ 3,30,304. Balance addition is deleted. 8. Even before us the assessee has not improved his case particularly when the evidences in respect of labour expenses were doubted by the Revenue Department. The first appellate authority had given a finding on fact that the copies of the vouchers in respect of labour expenses have depicted that those vouchers were firstly self-prepared vouchers and secondly the names and addresses of the persons to whom the cash payment was made was also missing. Since the said factual finding has not been rebutted by placing cogent evidence on record therefore we find no fallacy in the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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