2016 (7) TMI 611 - AT - Income Tax

Challenges to Income Tax Re-assessment and TDS Obligation Rulings Upheld

I.T.O., Ward-49 (2), Kolkata Versus Piyush Agarwal

The case involved challenges to re-assessment proceedings under Section 147 of the Income Tax Act, 1961, the obligation to deduct tax at source on ... Reopening of assessment - whether there was an obligation on the part of the assessee to deduct tax at source in terms of seciton 194C? - Held that:- As already seen while concluding the original assessment proceedings the issue of TDS on dyeing and printing charges was raised by the assessee and in the order passed u/s 143(3) of the Act dated 28.12.2007 no addition whatsoever was made u/s 40(a)(ia) of the Act for non deduction of tax at source. Thus it is clear that the question as to whether dyeing and printing charges paid by the assessee had to suffer TDS in the hands of the assessee, who is an individual is deemed to have been considered by the AO and order of assessment was already passed accepting the claim of the assessee that such TDS obligation had not extended to the assessee, who is an individual. From the reasons recorded by the AO u/s 148 of the Act it is clear that without any new material coming to the possession of the AO had merely a change of opinion, reassessment proceedings have been initiated by the AO. Such a course is not permissible as held by the Hon’ble Supreme Court in the case of CIT vs M/s. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ). We are of the view that the provision of section 194C (2) of the Act apply to a contractor and not to a person such as the assessee who was a trader in art silk fabricss. When the provision of section 194C(2) of the Act are not attracted the question of invoking the proviso to section 194C(2) does not arise. As rightly contended by the ld. Counsel for the assessee individuals whose total sales, gross receipts or turn over from the business if it exceeds the monetary limit specified u/s 44AB of the Act during the financial year immediately preceding the financial year in which a sum is credited or paid the account of the contractor is covered u/s 194C (1)(k) of the Act which admittedly came into effect only from 01.06.2007 - Decided in favour of assessee Issues:1. Validity of re-assessment proceedings under Section 147 of the Income Tax Act, 1961.2. Obligation to deduct tax at source on payments made to contractors.3. Application of Section 194C of the Act to individuals and Hindu Undivided Families (HUFs).Issue 1: Validity of re-assessment proceedings under Section 147:The case involved an appeal by the Revenue against the order of CIT(A)-XXXII, Kolkata relating to AY 2005-06. The AO had issued a notice u/s 148 of the Act for income escaping assessment, specifically questioning the deduction of tax at source on payments made. The Assessee argued against the re-assessment, citing that the original assessment had duly considered the TDS issue, and no addition was made under section 40(a)(ia) of the Act. The CIT(A) allowed the appeal, stating that the re-assessment was based on a mere change of opinion, relying on relevant case laws. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's initiation of re-assessment without new material was impermissible, as established by legal precedents.Issue 2: Obligation to deduct tax at source on payments to contractors:The core question was whether the Assessee, an individual trader of art silk fabrics, was obligated to deduct tax at source on payments to contractors. The AO disallowed a substantial amount for non-deduction of TDS, which was challenged by the Assessee. The CIT(A) ruled in favor of the Assessee, highlighting that the provisions of Section 194C as applicable during AY 2005-06 did not cover individuals and HUFs. The Tribunal concurred, noting that the relevant amendment came into effect only from 01.06.2007, and the Assessee's payments were to contractors, not sub-contractors. Various legal references were cited to support this conclusion, leading to the dismissal of the Revenue's appeal.Issue 3: Application of Section 194C of the Act to individuals and HUFs:The Tribunal clarified that Section 194C(2) of the Act applies to contractors and not to individuals like the Assessee. As the provision did not apply to the Assessee, the question of invoking the proviso to Section 194C(2) did not arise. It was established that individuals falling under a specific monetary limit were covered under Section 194C(1)(k) of the Act, effective from 01.06.2007. This interpretation, coupled with the factual circumstances, led to the dismissal of the Revenue's appeal, as the Tribunal found no merit in challenging the application of Section 194C to the Assessee.In conclusion, the judgment addressed the validity of re-assessment proceedings, the obligation to deduct tax at source on payments to contractors, and the application of Section 194C of the Income Tax Act to individuals and HUFs. The Tribunal's detailed analysis and reliance on legal principles resulted in the dismissal of the Revenue's appeal, affirming the decisions of the CIT(A) and providing clarity on the tax implications for the Assessee in the given context.