2020 (2) TMI 251 - AT - Income Tax

Appeal Allowed: Excessive Labor Expense Addition Deleted

M/s PMS Construction Company Versus A.C.I.T., Jhunjhunu.

M/s PMS Construction Company Versus A.C.I.T., Jhunjhunu. - TMI Issues Involved:1. Legality of the addition of 20% on labor expenses by the CIT(A).2. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961, concerning TDS on labor expenses.3. Consideration of the history of the case by the CIT(A) in making the addition.Detailed Analysis:1. Legality of the Addition of 20% on Labor Expenses by the CIT(A):The appellant contended that the CIT(A) erred legally and factually by adding 20% to labor expenses, ignoring the ITAT’s previous order which had deleted the disallowance of contract expenses, including labor expenses. The Tribunal noted that the CIT(A) had overstepped the scope of the set-aside proceedings by making this additional disallowance. The Tribunal emphasized that once the CIT(A) concluded that the payments in question were not liable for TDS under Section 194C, any further disallowance of 20% of labor expenses was beyond the jurisdiction and scope of the set-aside proceedings. Consequently, the Tribunal found the disallowance of 20% labor expenses to be unjustified and arbitrary, and thus deleted it.2. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961, Concerning TDS on Labor Expenses:The primary issue set aside by the Tribunal to the CIT(A) was the applicability of Section 40(a)(ia) concerning TDS on labor expenses. The CIT(A) had to determine if the wages paid by the assessee were subject to TDS under Section 194C. The CIT(A) concluded that the payments made to laborers were wages and not contractual payments, thus not liable for TDS under Section 194C. The Tribunal upheld this finding, noting that the CIT(A) had correctly determined that the payments were wages, not subject to TDS, aligning with various judicial precedents cited, including cases like 'ITO vs. Tulsi Ram Modi' and 'CIT vs. Dewan Chand.'3. Consideration of the History of the Case by the CIT(A) in Making the Addition:The Tribunal observed that the CIT(A) did not adequately consider the history of the case while making the addition of 20% labor expenses. In the first round of appeal, the CIT(A) had confirmed the disallowance based on the view that the payments were contractual and subject to TDS. However, the Tribunal had set aside this issue for fresh consideration, focusing solely on the applicability of Section 40(a)(ia). The Tribunal highlighted that the CIT(A) in the set-aside proceedings should have confined the scope to the applicability of TDS provisions and not ventured into questioning the correctness of the labor expense claims. Thus, the Tribunal found that the CIT(A) had erred by not adhering to the specific directions given in the set-aside order.Conclusion:The Tribunal allowed the appeal, concluding that the CIT(A) had overstepped the scope of the set-aside proceedings by making an additional disallowance of 20% on labor expenses. The Tribunal deleted the disallowance, affirming that the payments in question were wages not liable for TDS under Section 194C, and thus, the provisions of Section 40(a)(ia) were not applicable. The appeal was allowed in favor of the assessee, and the order was pronounced in the open court on January 27, 2020.