2015 (6) TMI 453 - AT - Income Tax

Tribunal rules in favor of sub-contractor, no TDS required on sub-subcontractor payments

The Income Tax Officer Ward-8 (4) Surat Versus Shri Yogesh M. Patel

The Income Tax Officer Ward-8 (4) Surat Versus Shri Yogesh M. Patel - TMI Issues:1. Deletion of addition made by AO for non-deduction of TDS on payments to sub-subcontractor.2. Applicability of provisions of section 40(a)(ia) on expenses claimed under section 28.3. Application of section 28 over sections 30-38 for disallowance of labor payments.Analysis:Issue 1:The appeal dealt with the deletion of an addition by the AO for not deducting TDS on payments to a sub-subcontractor. The Revenue contended that the ld.CIT(A) erred in deleting the addition, arguing that the provisions of section 194C(2) should apply. However, the ld.Counsel for the assessee supported the deletion, citing relevant case law. The tribunal found that the appellant, being a sub-contractor, was not required to deduct TDS on payments to sub-subcontractors. The AO's order lacked reasoning on this aspect, and the tribunal upheld the deletion of the addition based on the provisions of the law.Issue 2:Another ground of appeal was the applicability of section 40(a)(ia) on expenses claimed under section 28. The ld.CIT(A) held that section 28 covered direct expenses like labor charges, not section 40(a)(ia). This view was supported by a precedent, and the tribunal agreed with this interpretation. The tribunal noted that the AO failed to provide evidence of payments exceeding the prescribed limit for tax deduction, further supporting the deletion of the addition.Issue 3:The final issue involved the application of section 28 over sections 30-38 for disallowance of labor payments. The tribunal observed that the appellant, as a sub-contractor, was not required to deduct tax at source on labor payments. The tribunal emphasized the absence of a contractor-subcontractor relationship between the appellant and the transporters, as required by section 194C(2) for TDS deduction. The tribunal upheld the ld.CIT(A)'s decision to delete the addition, as the appellant's payments were made as a sub-contractor, not a contractor.In conclusion, the tribunal dismissed the Revenue's appeal, affirming the deletion of the addition made by the AO. The judgment highlighted the importance of correctly applying tax deduction provisions based on the nature of the contractual relationships involved in the payments made by the appellant.