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TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 222
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....he Act. 3] The learned CIT(A) failed to appreciate that the disallowance u/s 40(a)(ia) was not justified for the following reasons - a. The job work contracts given by the assessee to other parties did not involve the transfer of any obligations or risks attached to the principal contract received by the assessee and hence, the said contracts were not in the nature of 'sub contracts'. b. The assessee had entered into separate contracts with the other parties for job work which were independent from the principal contract received by the assessee and hence, the said contracts were not in the nature of 'sub contracts'. c. Since the assessee had not entered into any sub contracts, he was not required to deduct TDS u/s 194C(2) of the Act and hence, the disallowance u/s 40(a)(ia) is not justified on the facts of the case. Without prejudice to the above grounds, the assessee submits the following grounds - 4] The learned CIT(A) ought to have appreciated that the disallowance u/s 40(a)(ia) can be made only in respect of the amount payable as at the year end and hence, even if, any disallowance is to be made, the same may be restricted to Rs. 20,52,720/- i....
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....e assessee and hence, the said contracts were not in the nature of 'sub contracts'. Since the assessee had not entered into any sub contracts, he was not required to deduct TDS u/s 194C(2) of the Act and hence, the disallowance u/s 40(a)(ia) is not justified on the facts of the case. Accordingly, the assessee should be granted relief. The learned Authorized Representative has relied on the following decisions of ITAT, Pune Bench i) ITO vs. M/s. Gaurimal Mahajan & Sons in ITA No.1852/PN/2012 ii) Mr. Vijay Ramchandra Shirsth vs. ACIT in ITA No.1241/PN/2009 & another On the other hand, the learned Departmental Representative has supported the order of CIT(A) and submitted that the CIT(A) was justified in confirming the disallowance of 1,46,95,052/- u/s.40(a)(ia) of the Act made by the Assessing Officer on the ground that the assessee ought to have deducted TDS on the labour charges paid of 1,46,95,052/-. He further submitted that the CIT(A) was justified in holding that the payment of labour charges by the assessee were in the nature of sub contract payments and hence, the assessee ought to have deducted TDS on the said payments under the provisions of sec....
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....mer provides the raw material to the assessee for carrying out certain job work. Since the assessee do not have certain machines and hence, the assessee in turn, gives the contract to other labour contractors to carry out part of the job. Ultimately the assessee is liable for the work carried out by them. This is evident from the purchase order from Jinabakul Forge Pvt. Ltd. for whom the assessee do the job work, wherein it is clearly mentioned that rejection upto 1% is allowed and rejection more than 1% would be to the assessee's account. When the assessee gives the contract to the other labour contractor, it is a contract between the assessee and the labour contractor and the original customer is not at all involved in the same. In case, the labour contractor does not carry out the job or does a faulty job, the assessee is liable to the ultimate customer and not the labour contractor. Accordingly, that the labour contract given by the assessee is in the nature of separate contract of work and therefore, assessee was not liable to deduct TDS under the provisions of section 194C. 3.4 The assessee is fully responsible for executing the main contract and the labour contractor ....
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.... contract to qualify as a subcontractor, the subcontractor should spend their time and energy and also undertake the risk attached with the main contract. As the element of risk taking was missing, the contract could not be held as subcontract. Accordingly, the payments made to the labour contractors are not in the nature of sub-contracts and hence, there was no obligation on the assessee to deduct TDS on the said payments and consequently, no disallowance could be made u/s. 40(a)(ia) of the Act. 3.7 We find that ITAT, Pune Bench in the case of Mr. Vijay Ramchandra Shirsth (supra) had occasion to decide the same issue which was dealt as under: "5. Having heard the rival contentions and having perused the material on record, we find that the assessee was awarded the contract on the basis of participation in various tenders. For executing the contract, the assessee had to engage the services of outside parties in various works. To be precise, the assessee engaged the services of outside parties for centring, tiling and fabrication work and tiling works, for which payments exceeded Rs. 50,000 in each case. The assessee is carrying on civil work in individual capacity. 5.1. Th....
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....re executing the work as per requirement of tender under full control and supervision of assessee. This view is fortified by the decision in the case of Myhtri Transport Corporation vs. ACIT, 124 ITD 40(Vishakhapatnam), wherein the Tribunal has held that for a contract to qualify as a subcontractor, the subcontractor should spend their time and energy and also undertake the risk attached with the main contract. As the element of risk taking was missing, the contract could not be held as subcontract. While passing the above said order, the Tribunal has taken into consideration the decision reported in 163 ITR 702 (Himachal). Similarly, in the case of R.R. Carrying Corporation vs. ACIT, 126 TTJ 2240(/CTK), it has been held by the Tribunal that the AO has to establish that relationship was that of a contractor and subcontractor. There was no written nor real agreement to substantiate the view taken by the AO and therefore, it cannot be held to be a contract. We are aware of the fact that the agreement can be oral but the essence of contract lies on the fact whether assessee had the control of the work i.e. the manner in which the work has to be done. In case it lies with the assessee ....