2013 (12) TMI 296 - AT - Income Tax

ITAT Cuttack: Labor charges disallowance overturned, assessee entitled to prepaid tax credit.

SHIVA JYOTI CONSTRUCTION Versus ASSTT COMMISSIONER OF INCOME TAX

The Appellate Tribunal ITAT CUTTACK ruled in favor of the assessee, overturning the disallowance under section 40(a)(ia) for labor charges and directing ... Disallowance u/s 40(a)(ia) – The assessee has made a payment of Rs. 4.61 crores as labour charges without deucting tax at source - Held that:- The labour charges were paid to sub contractors for the labour procured by them and to individual labourors amount paid was less than Rs.50,000 cannot be held as a payment to sub-contractor and thus payment to them reached the benchmark of Rs.50,000 – The provisions of Section 194C could not be invoked because the labourors were not the same at the different sites – Decided in favour of assessee. Credit of prepaid taxes – Held that:- The payments have been received by the firm so the tax deduction would not be in the hands of partners – The claim can be verified from the information submitted by the deductors – When income is accepted in the hands of firm then the claim of advance ta should also be given to the firm and not to the partners – Decided in favour of assessee. Issues:1. Disallowance under section 40(a)(ia) for labor charges.2. Refusal to give credit for prepaid taxes (TDS).Issue 1: Disallowance under Section 40(a)(ia) for labor charges:The assessee, a firm engaged in works contracts, filed an appeal against the Commissioner of Income-tax (Appeals) for the Assessment Year 2009-10. The Assessing Officer disallowed payments of Rs.30,45,890 under section 40(a)(ia) as tax had not been deducted from payments exceeding Rs.50,000 to labor suppliers. The firm argued that these payments were to Sardars who supplied laborers, not direct contracts with laborers. The Tribunal held that the disallowance was unjustified as the payments were not under a contract with laborers, and Section 194C did not apply. Therefore, the disallowance under section 40(a)(ia) was deleted.Issue 2: Refusal to give credit for prepaid taxes (TDS):The firm also contested the refusal to give credit for prepaid taxes of Rs.32,07,689. The CIT(A) upheld the Assessing Officer's decision not to give credit based on Form 26-AS information. However, the Tribunal found that the credit should be allowed based on the tax deducted and specified in Form 26-AS, irrespective of the name specified in the form. It directed the Assessing Officer to verify the TDS claimed by the firm against gross receipts and give credit accordingly. The Tribunal allowed the appeal, directing the Assessing Officer to grant the firm the credit for TDS as per the Income-tax Act.In conclusion, the Appellate Tribunal ITAT CUTTACK ruled in favor of the assessee, overturning the disallowance under section 40(a)(ia) for labor charges and directing the Assessing Officer to provide credit for prepaid taxes as per the Income-tax Act.