2012 (9) TMI 575 - AT - Income Tax

Appeal partly allowed, cross-objections partly allowed, issues remanded for further verification.

Income Tax Officer Ward 1(3), Chandigarh Versus M/s DS. Pannu & Associates P. Ltd,

Income Tax Officer Ward 1(3), Chandigarh Versus M/s DS. Pannu & Associates P. Ltd, - TMI Issues Involved:1. Whether the work contracts with Shri Abdul Sattar and M/s V.R. Enterprises were independent contracts or subcontracts.2. Whether the addition of Rs. 77,100/- for late payment of employees' share of EPF was justified.3. Whether various disallowed payments (professional payment, freight payments, interest, and interest payment on car loans) were correctly disallowed under section 40(a)(ia) of the Income-tax Act.Issue-wise Detailed Analysis:1. Nature of Work Contracts with Shri Abdul Sattar and M/s V.R. Enterprises:The primary issue was whether the contracts with Shri Abdul Sattar and M/s V.R. Enterprises were independent contracts or subcontracts. The Assessing Officer (AO) disallowed Rs. 7.75 lakhs and Rs. 5.08 lakhs, respectively, under section 40(a)(ia) due to insufficient tax deduction at source (TDS).- Shri Abdul Sattar: The AO found the payment of Rs. 15.50 lakhs to Shri Abdul Sattar as a labor contract with insufficient TDS. The assessee argued that it was a subcontract. The CIT(A) agreed, noting that the assessee, being in civil construction, reasonably subcontracted labor supply and other work to Shri Abdul Sattar. Thus, the 1% TDS rate under section 194C was correctly applied, and the addition was deleted.- M/s V.R. Enterprises: The AO found the payment of Rs. 8.41 lakhs to M/s V.R. Enterprises for carriage of bulk Bitumen with insufficient TDS. The CIT(A) also treated this as a subcontract. However, the Tribunal found that M/s V.R. Enterprises only transported Bitumen and did not execute any part of the contract, thus requiring a 2% TDS. The Tribunal remitted this issue back to the AO to verify if the payments were made or payable, referencing the Special Bench decision in Merilyn Shipping & Transport.2. Addition of Rs. 77,100/- for Late Payment of Employees' Share of EPF:The AO added Rs. 77,100/- for late payment of employees' EPF contributions. The CIT(A) upheld this addition.- The assessee argued that payments were made within the grace period, citing the Punjab & Haryana High Court decision in CIT v. Lakhani Rubber Works. The Tribunal agreed, finding that payments within the grace period are allowable, thus deleting the addition.3. Disallowed Payments under Section 40(a)(ia):The assessee challenged the disallowance of various payments under section 40(a)(ia), including professional payments, freight payments, interest, and interest on car loans.- Professional Payment: Rs. 2,88,320/- disallowed.- Freight Payments: Rs. 6,57,392/- disallowed. The assessee contended that payments to Shri Cement Ltd and Birla Corp Ltd were for cement purchases, not freight. The Tribunal remanded this issue to the AO for verification.- Interest: Rs. 3,22,776/- disallowed.- Interest on Car Loans: Rs. 35,675/- disallowed.The Tribunal noted the Special Bench decision in Merilyn Shipping & Transport, which held that disallowance under section 40(a)(ia) applies only to amounts payable at the end of the year. The Tribunal remanded the matter to the AO to verify which payments were made and which were payable, and to reassess the disallowances accordingly.Conclusion:The appeal by the revenue was partly allowed, confirming the deletion of the addition for payments to Shri Abdul Sattar but remanding the issue of payments to M/s V.R. Enterprises for further verification. The cross-objections by the assessee were also partly allowed, deleting the addition for late EPF payment and remanding the disallowed payments under section 40(a)(ia) for verification.