TaxTMI 
TaxTMI 
2014 (8) TMI 1069
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....The first ground in this appeal is with regard to re-opening of assessment u/s. 147/148 of the Act. According to the Ld. Counsel for the assessee, the re- opening of the assessment is not proper. The assessee filed the return o income for 2006-07 on 31-10-2006, declaring a total income of Rs. 1,72,000/-. This was processed u/s. 143(1) of the Act on 08-08-2007. Subsequently, the assessment was completed u/s. 143(3) on 09-01-2008 determining a total income of Rs. 2,97,000/-. Later, the Assessing officer verified the TDS certificate dated 24- 07-2006 filed by the assessee and found that the total receipt of job work charges from The Alleppey Co. Ltd. was Rs. 14,68,3981/- and the assessee claimed the entire TDS of Rs. 30,836/- in its return of income. However, the above receipt of Rs. 14,68,381 was not taken by the assessee for arriving at the total income. The tax was not deducted from the labour contract payment of Rs. 8,34,773/-. Being so, according to the Assessing officer, the provisions of sec. 40(a)(ia) was applicable to the assessee's case. Accordingly, the Assessing officer had reason to believe that the income has escaped assessment. The Ld. AR submitted that the assessee has....
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....iled to disclose truly and fully all material facts necessary for the assessment and it would not be a case of mere change of opinion. A mere production of the books of account or documents or other evidences is not sufficient for making assessment. If the Assessing officer is unable to examine those documents and to discover the understatement of income by relying on the same documents, the Assessing officer could re-open the assessment on the basis of fresh material which came to the knowledge of the Assessing officer that the income has escaped assessment. Therefore, merely because material lies embedded in the material or evidence produced by the assessee, which the Assessing officer could have uncovered but did not uncover is not a good ground to cancel the re-assessment proceedings. The Assessing officer could have found the truth, but he did not, does not preclude the Assessing officer from exercising the power of re- assessment to bring to tax the escaped income. In the present case, as seen from the reasons recorded, there is prima facie escapement of income. Hence, the Assessing officer after recording the reasons, issued notice to the assessee u/s. 148 of the Act. We do ....
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....hat the amount is not payable at the end of the year and it was already paid, and so, the provisions of sec. 40(a)(ia) cannot be invoked. 7. On the other hand, the Ld. DR submitted that the assessee made the payments without deduction of TDS and so, the provisions of sec. 40(a)(ia) was rightly invoked on this count and upheld the same. 8. We have heard both the parties and perused the record. In the present case, there is no dispute regarding payment towards labour contract work. The plea of the assessee is that the payments have been paid to the four employees of the assessee-company though the assessee is engaged in labour contract work. Now the question is whether the provisions of sec. is applicable or not to the assessee's case. Section 40(a)(ia) provides that in case of any interest, commission or brokerage, rent royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor for carrying out any work including supply of labour for carrying out any work, on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid on or before the due date, su....
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....ively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In the statutory framework of section 37,we are unable to accept the submission of the assessee that the impugned expenses in respect of which deduction has been claimed do not fall under section 37 and therefore they are outside the scope of disallowance contemplated by section 40(a)(ia) for the following reasons: 11.2 In Indian Molasses Co.(P) Ltd. vs. CIT, 37 ITR 66 (SC), it has been held that expenditure is what is paid out or away and is something which is gone irretrievably. To be a payment which is made irretrievably there should be no possibility of the money forming, once again, a part of the funds of the assessee. The impugned expenditure incurred by the assessee fully answers the aforesaid features of expenditure and hence is fully covered by the term "any expenditure" used in section 37. 11.3 The use of phrase "any expenditure" in section 37 is wide and comprehensive enough to include all forms of expenditure irrespective of whether they are direct or indirect expenditure. The term "Expenditure" has been....
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....ure is covered by section 37 and hence its deductibility has to be seen under section 37 read with section 40 and not under section 28. 12. The submission of the assessee is that the disallowance of expenses contemplated by section 40(a)(ia) is limited to only those expenses which fall under sections 30 to 38. There are three principal reasons for us to hold that the scope of disallowance of expenses contemplated by section 40(a)(ia) is not limited to those expenses alone which fall under section 30-38 but covers all those expenses which are specifically enumerated in section 40. They are as under: (i) The subject matter of disallowance under sub-clause (ia) of clause (a) of section 40 is, inter-alia, the amounts payable to a contractor or a sub-contractor for carrying out any work out of which tax is deductible at source and such tax has either not been deducted or after deduction has not been paid before the specified date. Therefore, the amounts payable to a contractor or sub-contractor cannot be allowed as deduction unless tax has been deducted out of such amounts payable to a contractor or sub-contractor. The language of sub clause (ia) of clause (a) is unambiguous and uneq....
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....d scope of special provisions contained in clause (a) (ia) of section 40 of the Income Tax Act. It is equivalent to saying that in spite of the provisions in the non-obstante clause contained in section 40, the special provisions contained in clause (a) (ia) of section 40 will still have its full operation or that the provision indicated in the non-obstante clause will not be an impediment for the operation of the aforesaid clause. 13. In view of the aforesaid, we are unable to accept the submission of the assessee that the impugned payments are not in the nature of "expenditure" within the meaning of section 37 or that the scope of disallowance contemplated by section 40(a)(ia) is restricted to those expenses which fall u/s. 30 to 38. In our view, the scope of disallowance contemplated by section 40 covers all those expenses which are specifically enumerated therein. The impugned expenses claimed by the assessee as deduction are specified in section 40(a)(ia) and therefore they are well within the scope of disallowance contemplated by section 40(a)(ia) irrespective of their eligibility for deduction u/s. 30 to 38. 14. Thus, Sub-section (1) of section 194C requires a person respo....