ITAT Chennai remits issue on non-deduction of TDS for verification

The ITAT Chennai remitted the issue back to the AO to verify if the impugned amount was outstanding at the end of the assessment years, following the appeal involving the addition of Rs. 15,24,800 under section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on labour charges paid towards embroidery work. The ITAT allowed the ground for statistical purposes and partly allowed the appeal, with the order pronounced on 30th June 2016 in Chennai.

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Issues:
1. Addition of Rs. 15,24,800 under section 40(a)(ia) for non-deduction of TDS on labour charges.

Analysis:
The appeal before the ITAT Chennai involved the addition of Rs. 15,24,800 by invoking section 40(a)(ia) of the Income Tax Act due to non-deduction of TDS on payments made towards labour charges. The assessee, engaged in embroidery work, initially filed a return admitting a total income of Rs. 14,256 for the assessment year 2007-08. The AO, following a scrutiny assessment, made disallowances under section 40(a)(ia) and for lack of supporting bills/vouchers, resulting in a total income of Rs. 19,11,545. The CIT(A) upheld the disallowance of labour charges paid towards embroidery work, leading to the appeal before the ITAT.

The CIT(A) observed that TDS was attracted on the labour charges paid to agencies for embroidery work, even though the charges were named as 'Labour Charges' but were actually paid to agencies. The ITAT considered the arguments of both parties, where the assessee's representative cited the Merilyn Shipping and Transports case and argued that the impugned amount was already paid with nothing outstanding at the end of the assessment year. The ITAT referred to the case of Shri N.Palanivelu Vs. ITO, which emphasized the importance of outstanding balance at the end of the relevant year for applicability of section 40(a)(ia).

In light of the above, the ITAT decided to remit the issue back to the AO to verify if the impugned amount was outstanding at the end of the assessment years under consideration. The ITAT allowed the ground for statistical purposes and did not consider other grounds pressed by the assessee's representative. The appeal was partly allowed for statistical purposes, with the order pronounced on 30th June 2016 in Chennai.

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