2021 (3) TMI 77 - AT - Income Tax

Tribunal partially allows Assessee's appeal on expense disallowance, emphasizes accuracy in tax determination

The Tribunal partially allowed the Assessee's appeal challenging the disallowance of expenses totaling Rs. 49,88,608 under section 40(a)(ia) of the Income ... TDS u/s 194C - Addition u/s 40(a)(ia) - assessee failed to deduct tax at source - payment made for purchase of contract material - HELD THAT:- AO did not make any inquiry into the break-up of expenses and unknown to the assessee, the assessee’s authorized representative did not volunteer further information. Also, though these submissions have been mentioned in the impugned order of Ld. CIT(A); we find that the Ld. CIT(A) has not commented on it. We also find that vide letter dated 14/07/2014 the assessee made application for admission of additional evidence during appellate proceedings before Ld. CIT(A). On perusal of order of Ld. CIT(A), we find that she has not made any recording under Rule 46(2) of Income Tax Rules, 1962. In view of the foregoing, there is lack of clarity about facts. As submissions made before us on assessee’s behalf by the Ld. Counsel for the assessee are factual in nature; and require detailed factual verification. As we do not have the benefit of such detailed factual verification in the orders passed by either the AO or the Ld. CIT(A); we are inclined to remand the matter to AO for detailed verification of facts of the case; under the facts and circumstances of the present appeal before us. Issues involved: Disallowance of expenses for failure to deduct tax at source under section 40(a)(ia) of the Income Tax Act, 1961 for Assessment Year 2007-08.Analysis:(A) The appeal by the Assessee challenges the order of the Learned Commissioner of Income Tax (Appeals) regarding the disallowance of expenses totaling Rs. 49,88,608 due to alleged failure to deduct tax on payments made to sub-contractors and for jobwork. The grounds of appeal highlight discrepancies in the application of tax deduction rules by the Assessee.(B) The dispute revolves around the disallowance of expenses by the Assessing Officer under section 40(a)(ia) of the IT Act for failure to deduct tax at source. The audit report flagged the Assessee's failure to deduct tax on payments to sub-contractors and for jobwork. The assessment order detailed the expenses and the corresponding disallowance under section 40(a)(ia), indicating potential penalty proceedings for concealing taxable income.(C) The disallowance was upheld by the Commissioner of Income Tax (Appeals) based on the Assessee's failure to deduct tax on payments to sub-contractors and for jobwork. The Commissioner's decision emphasized the responsibility of the Assessee to deduct tax at source on such payments, leading to the confirmation of the disallowance.(D) During the hearing, the Assessee argued that certain payments were made directly by the contractee to sub-contractors, relieving the Assessee from the obligation to deduct tax at source. Additionally, the Assessee claimed that certain expenses did not require tax deduction based on specific circumstances. The Assessee sought the deletion of the disallowances based on these arguments, while the Senior Departmental Representative supported the previous orders.(E) The Tribunal noted discrepancies in the factual verification and lack of clarity in the orders passed by the Assessing Officer and the Commissioner. Due to the absence of detailed factual verification, the Tribunal remanded the matter back to the Assessing Officer for a fresh order on the specific issues with proper verification. The Tribunal partly allowed the appeal, emphasizing the need for factual accuracy in determining the tax deduction obligations and subsequent disallowances.This comprehensive analysis highlights the key legal and procedural aspects of the judgment, focusing on the issues related to tax deduction at source and the subsequent disallowance of expenses under the Income Tax Act.