2012 (8) TMI 585

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....egular assessment completed under section 143(3) of the Income Tax Act, 1961. The relevant Assessment Year is 2007-08. 2. The assessee is a firm engaged in the business of manufacturing 'Aluminium Ingots'. The assessee has returned a total income of Rs. 42,82,140/-. In the course of assessment proceedings, the assessing authority made certain disallowance and addition total of Rs. 3,35,87,052/-. Thus, the A.O. has determined the total income of Rs.3,78,70,092/- as against returned income of Rs.42,82,140/-. 3. The assessee had purchased certain machineries from Singapore. It had claimed depreciation on these machineries. The A.O. found that the machineries used by assessee in its business for a period of less than 180 days. Therefor....

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..../- towards conversion charges due to M/s.Bangalore Casting and recycling and M/s.IMAC alloy castings. The A.O. noticed that the assessee had deducted Tax at Source for an amount of Rs. 2,14,12,800/- and no TDS was deducted in respect of the balance of Rs. 2,89,54,645/-. Therefore, this claim was disallowed under section.40(a)(ia). 7. This is how the A.O. has made a total addition of Rs.3,35,87,952/-. 8. These disallowances were taken in appeal before CIT(A). The CIT(A) confirmed 50% disallowance of depreciation of Rs.9,30,039/-. 9. In respect of disallowance under section.40(a)(ia), the CIT(A) observed that disallowance would be applicable only in respect of amount 'payable' by the assessee as on close of the previous year and disa....

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....uld also have been allowed as provided in the statute. It is the case of the assessee that the entire conversion charges should have been allowed as Sec.194 does not apply to the facts of the case. 14. In the Revenue's cross appeal, the only issue raised is against the disallowance made by Assessing Officer under section 40(a)(ia). It is the case of the Revenue that CIT(A) has erred in restricting the disallowance only to the amount 'payable' by the assessee on the close of year. 15. We have heard Shri K E Rengarajan, learned standing Counsel appearing for Revenue and Shri L.C. Nahata, learned C.A., for assessee. 16. First we will consider the question of disallowance made under section.40(a)(ia). The Special Bench of ITAT Visakapa....

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....not come under TDS regime, which apply only to labours' payments. We find that this aspect was not considered by CIT()A as well. So also, necessary details are not available from the record placed before us. 20. Therefore, the question of deciding the nature of payments is remitted back to Assessing Officer for afresh consideration after giving assessee adequate opportunity of being heard. The A.O. is directed to segregate payments relating to 'supply of material' and such payments shall be excluded from applying Sec 40(a)(ia). No disallowance can be made as payments as payment for supply of material. The Assessing Officer shall apply provisions of Sec.40(a)(ia) in respect of 'labour' payments. In that case also, he shall follow the d....