2020 (2) TMI 617 - AT - Income Tax

Labor Contract Cooperative Society eligible for tax deduction under Income Tax Act; Tribunal rules in favor.

Jyothi Waddera Labour Contract Co-Operative Society Ltd. Versus ITO, Ward 15 (3), Hyderabad

The Tribunal allowed the appeal of a Labor Contract Cooperative Society, holding it eligible for deduction under section 80P of the Income Tax Act. The ... Eligible deduction u/s 80P(2)(vi) - HELD THAT:- Circumstances in the instant case are similar to the case of M/s Sai Krishna WLCCS [2017 (3) TMI 1802 - ITAT HYDERABAD] we deem it fit and proper to follow the same and direct the AO to allow the deduction u/s. 80P(2)(a)(vi) of the Act. Further with regard to the estimation of income on the difference of amount as reflected in Form 26AS and the turnover declared by the assessee in its return of income, find that the same is also eligible for deduction u/s. 80P(2)(a)(vi) of the Act. Accordingly, assessee’s appeal is allowed. Issues:1. Eligibility for deduction u/s 80P of the Income Tax Act.2. Estimation of income based on difference in gross receipts.3. Interpretation of nature of contracts as labor contracts or works contracts.Eligibility for deduction u/s 80P:The case involved an appeal by the assessee against the order of the CIT(A) regarding the eligibility for deduction u/s 80P of the Income Tax Act. The assessee, a Labor Contract Cooperative Society, filed its return of income for A.Y. 2014-15 claiming deduction u/s 80P. The AO observed that the assessee was not eligible for the deduction as it was carrying out works contracts, not labor contracts. The CIT(A) confirmed the order but reduced the estimated income on the difference in gross receipts. The Tribunal considered the contentions and relied on a previous decision by the Hon'ble Kerala High Court to hold that the assessee, engaged in civil contracts with labor activities, was eligible for the deduction u/s 80P(2)(vi) of the Act. The Tribunal directed the AO to allow the deduction, following the principles laid down in the referenced judgment.Estimation of income based on difference in gross receipts:The AO estimated the income based on the difference in gross receipts as per the return of income and Form 26AS, bringing it to tax. The CIT(A) restricted the estimation to 8% instead of the initial 12.5%. However, the Tribunal, considering the nature of the contracts and the eligibility for deduction u/s 80P, held that the income on the difference in receipts was also eligible for deduction u/s 80P(2)(vi) of the Act. As the case was similar to a previous decision, the Tribunal directed the AO to allow the deduction on the difference in receipts as well.Interpretation of nature of contracts:The main contention revolved around whether the contracts undertaken by the assessee were labor contracts or works contracts. The assessee claimed that it was engaged in labor contracts, while the authorities contended that it was involved in works contracts due to dealing with materials besides labor. The Tribunal, based on the judgment of the Hon'ble Kerala High Court and the nature of activities carried out by the assessee, concluded that the contracts were labor contracts and not works contracts. This interpretation influenced the decision on the eligibility for deduction u/s 80P of the Act and the estimation of income on the difference in gross receipts.In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to allow the deduction u/s 80P(2)(vi) of the Act and considering the income on the difference in receipts as eligible for the deduction. The judgment highlighted the importance of the nature of contracts in determining eligibility for tax deductions and emphasized the relevance of previous legal precedents in such cases.