2023 (5) TMI 1035 - AT - Income Tax

Tribunal decision on TDS deductions and expense disallowance in subcontractor case

The Tribunal partly allowed the appeal by upholding the deletion of additions for 8 sub-contractors under Section 40(a)(ia) for failure to deduct TDS on ... Addition u/s. 40(a)(ia) - assessee's failure to deduct TDS on Labour Contract Expenses - assessee had not adhered to all the conditions of first proviso of Section 201 - CIT(A) granted relief to the assessee merely by accepting the submission of assessee that the recipient has included the income in their return of income and has shown in their taxable income - HELD THAT:- We find that neither the AO narrated the name and details of sub-contract in assessment order nor the CIT(A) recorded in his order bifurcation of impugned expenses paid to various sub-contractors. CIT(A) called the remand report from the Assessing Officer during the pendency of first appeal. AO again in his remand report has not specified the name and bifurcation of different payments made to such sub-contractors. Thus, after hearing the submissions of both the parties, we directed the assessee to furnish the list of such persons alongwith their PAN number, details of sub-contract payment and the return of income if any shown by such sub-contractor. As noted before the CIT(A), the assessee contended that the recipients of contract payments have included the contract payment in their return of income and has paid the due tax. CIT(A) on such submission, obtained remand report from the AO. AO except sub-contractor No. 4,5 and 6, accepted that recipients of contract payments, have included the contract payment in their return of income. Thus, we affirm the order of ld CIT(A) to that extent. Sub-contractor No. 4 & 5 have not filed their return of income, so there is no occasion to include such contract receipt in their income. Before us, assessee made his alternative submissions that the disallowance on their payments may be restricted to 30% of sub contract payment in view of amendment to second Proviso to Section 40(a)(ia) by the Finance Act, 2014 which has been held as retrospective by various courts and Tribunal and relied upon the decision of Rajkot Tribunal in Punabhai G. Pardava [2022 (6) TMI 1338 - ITAT RAJKOT] On considering such plea of assessee, we direct AO to restrict the disallowance to the extent of 30% of payments made to sub-contractor No. 4 & 5, thereby, the order of ld CIT(A) is modified to that extent. Discrepancy in the computation of income of Mahendrabhai Radadiya, wherein he has shown gross receipt that too from Diamond labour income and not from the contract of construction, whereas the assessee have claimed to have paid it - Before us, assessee has filed copy of return of income of Mahendrabhai Radadiya for AY 2013-14, with computation of income wherein he has shown construction labour income of Rs. 29,17,000/-, which is contrary to the remand report of assessing officer dated 03.10.2018, therefore, this part of disallowance is restored back to the file of assessing officer to examine the fact, if the assessee has included construction contact receipt in his computation of income or the assessee has filed this false and fabricated evidence before Tribunal. If the assessee has included construction contract receipt in his computation of income, then disallowance be restricted to 30% of such receipt, if not included entire alleged contract payment be disallowed and action may be initiated against the assessee as per law. In the result, this part of issue is allowed for statistical purpose. Disallowance of expenses as are not fully supported with bills and vouchers - CIT-A restricting the various expenses to 10% in place of 20% disallowed by AO - HELD THAT:- We find that the assessing officer made disallowance without specifying the specific defect. In our view the ld CIT(A) reasonable restricted the disallowance to the extent of 10%, which we affirm. In the result, this ground of appeal is dismissed. Issues Involved:1. Deletion of addition under Section 40(a)(ia) for failure to deduct TDS on Labour Contract Expenses.2. Deletion of addition for Sub Contractor Shri Jayantkumar Hirani due to non-filing of ROI.3. Deletion of addition for Sub Contractor Shri Laljibhai Narola due to death.4. Restriction of disallowance of various expenses from 20% to 10%.Summary of Judgment:Issue 1: Deletion of addition under Section 40(a)(ia) for failure to deduct TDS on Labour Contract ExpensesThe Tribunal examined whether the CIT(A) was justified in deleting the addition of Rs. 3,28,67,900/- made by the AO under Section 40(a)(ia) of the Income Tax Act, 1961, due to the assessee's failure to deduct TDS on Labour Contract Expenses. The CIT(A) accepted the assessee's submission that the sub-contractors had included the receipts in their ROI and paid taxes. The Tribunal affirmed the CIT(A)'s decision for 8 out of 11 sub-contractors as they had filed their returns. However, for two sub-contractors who did not file ROIs, the Tribunal directed the AO to restrict the disallowance to 30% of the payments. For Mahendrabhai Radadiya, the case was remanded to the AO to verify the inclusion of the contract receipt in the income.Issue 2: Deletion of addition for Sub Contractor Shri Jayantkumar Hirani due to non-filing of ROIThe CIT(A) deleted the addition for Shri Jayantkumar Hirani, observing that his income was below the taxable limit, and hence, no ROI was filed. The Tribunal upheld the CIT(A)'s decision but directed a 30% disallowance as the ROI was not filed.Issue 3: Deletion of addition for Sub Contractor Shri Laljibhai Narola due to deathThe CIT(A) deleted the addition for Shri Laljibhai Narola, who had expired, and thus, no ROI was filed. The Tribunal upheld the CIT(A)'s decision but directed a 30% disallowance due to the non-filing of the ROI.Issue 4: Restriction of disallowance of various expenses from 20% to 10%The Tribunal reviewed the CIT(A)'s decision to restrict the disallowance of various expenses to 10% instead of the 20% disallowed by the AO. The AO had disallowed 20% of expenses due to a lack of supporting evidence. The Tribunal found the CIT(A)'s restriction to 10% reasonable and affirmed the decision.Conclusion:The appeal was partly allowed. The Tribunal upheld the deletion of additions for 8 sub-contractors, directed a 30% disallowance for two sub-contractors who did not file ROIs, and remanded the case for Mahendrabhai Radadiya to the AO for verification. The restriction of disallowance of various expenses to 10% was affirmed.