TDS disallowance on routed payments to a sub-contractor was unsustainable where the assessee did not retain the amount.

Payments received from contractee departments and passed on to a sub-contractor were treated as routed funds rather than retained income, so the factual basis for treating the amount as taxable income was not established. On those facts, the alleged failure to deduct tax at source under Section 194C did not justify disallowance, and the attempted invocation of Section 40(a)(ia) also could not sustain the addition. The stated result was deletion of the disallowance in favour of the assessee, with the appeal succeeding.

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Issues: Whether the addition/disallowance made on account of payments passed on to a sub-contractor without deduction of tax at source was sustainable under Section 194C and Section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The amount in dispute was found to have been received from the contractee departments and passed on to the sub-contractor. The record showed that the assessee did not retain the amount and the addition was made on the premise that tax was not deducted on the payment to the sub-contractor. The authority below also introduced Section 40(a)(ia), but the material facts remained that the amount was merely routed onward and the factual basis for treating the assessee's receipt as taxable income was not established. On these facts, the alleged violation of the TDS provisions was not made out.

Conclusion: The addition/disallowance was unsustainable and was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded, and the impugned disallowance was set aside.

Ratio Decidendi: Where the disputed amount is not retained by the assessee and is only passed on to a sub-contractor, a disallowance for alleged non-deduction of tax at source cannot be sustained in the absence of a proven statutory violation on the actual transaction.

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