TaxTMI 
TaxTMI 
2011 (11) TMI 839
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.... respect of payments to 3 parties aggregating to Rs. 15,39,867 and 5 parties aggregating to Rs. 12,18,061. 3.2. That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought to have held that the provisions of Section 40(a)(ia) were not applicable to the aforesaid payments. 4.1. The Ld. CIT(A) has grievously erred in upholding ad-hoc disallowance @ 5% out of labour expenses without appreciating the nature and volume of business, the system of maintaining record etc. as well as evidence produced before her. 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) dated 21/11/2008 were that the assessee-firm is a civil contractor. It was noticed that certain expenditure ( transport expenses) was incurred without deduction of tax at source. In some of the cases of expenditure the tax deducted but not deposited within the stipulated time. It was alleged by the AO that the assessee has not complied with the provisions of section 194C of the IT Act and as a result expenditure was disallowed by invoking the provisions of section 40(a)(ia) of the Act. A show-cause notice was issued and the relevant portion is repr....
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.....T.Act." 2.1. Accordingly, a total addition of Rs. 29,66,728/- was made. The matter was carried before the first appellate authority. 3. Ld.CIT(A) has discussed the facts of the case and in respect of disallowance of Rs. 15,39,867/- it was held that though the TDS was deducted but deposited late in the Government account. It was held that the tax deducted should have been deposited by March-2006, however, it was deposited in the Government account in May-2006, therefore, due to delayed deposit not an allowable expenditure. In respect of the disallowance of Rs. 12,18,061/- ld.CIT(A) has noticed that it was related to the transport charges and since no TDS was deducted therefore within the rigours of the provisions of section 40(ia). Lastly, in respect of disallowance of Rs. 2,08,800/- in respect of payment to M/s.Sujit Construction, it was informed that TDS of Rs. 2,130/- was deposited on 05/05/2005 therefore after considering the facts of the case that the TDS was deposited within the prescribed time, it was held that no disallowance was warranted. Now the assessee is further in appeal in respect of the confirmation of the aforementioned two disallowances. 4. Having heard ....
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....ch amount the assessee had deducted from payments of contractors and had also deposited with Revenue before the last date of filing of the return. We do not find any illegality in order of tribunal. Tax Appeal is therefore, dismissed." 5.1. During the course of assessment proceedings the AO did not have the benefit this judgement of the Jurisdictional High Court through which the provisions of section 40(a)(ia) have now been streamlined. As far as the decision of the respected Special Bench Mumbai in the case of M/s Bharati Shipyard Ltd. ( ITA No. 2404/Mum./2009 A.Y. 2005-06 dt.9.9.2011) is concerned, the same is in respect of the amendment brought by Finance Act 2010 to Sec. 40(a)(ia) through which the T.D.S. is required to be deposited by the date prescribed U/s 139 of the Act in such case where the TDS is deducted in the month of March of the financial year. But in respect of TDS " in any other case, on or before the last day of the previous year" required to be deposited. After careful reading of both the judgments the A.O. is now required to first examine the dates of deduction and then the date of deposit in the Govt. The old provision shall apply because the Special Bench....
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....nts made to contractors and subcontractors in certain cases. Income tax is deductible at source from income comprised in payments made by the persons specified in this section. As per the original section 194C(1) any person responsible for paying any sum to any contractor for carrying out any work in pursuance of a contract is required to deduct 2% TDS. However, as per section 194C(2), any person being a contractor responsible for paying any sum to any sub-contractor in pursuance of a contract with the subcontractor for carrying out any work is required to deduct tax @ 1% at the time of payment. Sub section (2) has later on made a provision according to which an individual or HUF, whose total sales exceeds the monitory limit prescribes u/s.44AB shall be liable to deduct income tax at the time of payment to a sub-contractor. It is further important to mention that vide an amendment with effect from 1/6/2007 an individual or HUF have also been inducted vide sub-clause (k) in section 194C(1) of the IT Act. At this juncture, it is worth to hold that as far as the AY in hand is concerned, i.e. AY 2007-08, this latest amendment of section 194C(1)(k) of the Act being introduced with effec....
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....n one of the questions was about the payment to transports and the clarification was as under:- "Question 9: In case of payments to transports, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill? Answer : Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period of quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS." 8. In the context of above clarification issued by the CBDT, if we examine the issue in hand, then in terms of the provisions of section 194C(2) of the Act conditions to be satisfied are (i) that the assessee should be a contractor, (ii) that the assessee should enter into a contract with a sub-contractor,(iii) that the sub-contractor should carry out any part of the work undertaken by the contractor and (iv) that the payment should be made for the work done. In a case, when a "contract" is assigned, generally the clauses are stringent that the contractor is to ....
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....sponsibility to transporters as a sub-contractor, the assessee being an individual was not responsible for the deduction of tax at source as prescribed u/s.194C(2) of the IT Act. Consequence thereupon the provisions of Sec. 40(a)(ia) of the Act were incorrectly invoked, hence the view taken by the authorities below are hereby reversed. Ground is allowed." 6.1. Since during the course of assessment proceedings, the AO did not have the benefit of this judgement of the Tribunal through which the amended provisions of section 194C(2) have been elaborately discussed therefore we deem it proper to restore this part of the ground back to the AO to adjudicate afresh after ascertaining the facts of the case, particularly the nature of agreement with the said parties. In the result, the grounds raised in respect of the disallowances made u/s.40(a)(ia) are hereby allowed but for statistical purposes. 7. The next addition is in respect of labour expenses @ 5%, we have noticed that a part relief was granted by ld.CIT(A) vide following observations:- "f) Addition of Rs. 6,96,579 out of labour expenses This addition has been made as per narration given in Para 8 of the ass....