2010 (7) TMI 1062 - AT - Income Tax

TDS u/s 194C - disallowed subcontracts - disallowance u/s 40(a)(ia) - HELD THAT - the disallowance sustained by the CIT (A) is not correct. Accordingly we direct the AO to delete the same. In our considered view the department should not take the advantage of the ignorance of the assessee while claiming some relief which the assessee is legally entitled. In Instant case the assessee is legally entitled to claim the said deduction as per the proviso (A) to section 40 a (ia). Therefore the ground raised by the assessee on this issue is allowed. With regard to the disallowance of expenditure amounting to Rs. 4 lakhs made by the AO - HELD THAT - We find that the lower authorities have made only a token disallowance out of the expenditure claimed by the assessee looking into the reasonableness of the expenditure. Even before us the learned counsel for the assessee could not state any good reason why the assessee could not produce bills vouchers etc. before the authorities below in support of his claim. Hence we find no reason to interfere with the order of the lower authorities. In view of the above we confirm the findings of the CIT (A) and reject the grounds raised by the assessee on this issue.

Summary

Issues:
1. Disallowance of subcontract amount under section 40(a)(ia) of the IT Act.
2. Disallowance of expenditure amounting to Rs. 4 lakhs.

Analysis:

Issue 1: Disallowance of subcontract amount under section 40(a)(ia) of the IT Act
The appellant contested the disallowance of subcontract amount of Rs. 2,92,35,561 and an additional disallowance of Rs. 4 lakhs under section 40(a)(ia) of the IT Act. The appellant argued that the disallowance should not apply if TDS was deducted during the last month of the previous year and paid to the government before the due date of filing the return, citing relevant case laws. The Departmental Representative, however, contended that the appellant failed to provide proof of timely TDS payment. The Tribunal analyzed the legislative intent behind section 40(a)(ia) and the Finance Act, 2008 amendment, emphasizing the importance of TDS payment over outstanding amounts. The Tribunal found that the appellant had deducted TDS in March and paid it before the return filing due date, aligning with the retrospective proviso of the Finance Act, 2008. Consequently, the disallowance was deemed incorrect, and the assessing officer was directed to delete the disallowance.

Issue 2: Disallowance of expenditure amounting to Rs. 4 lakhs
The assessing officer disallowed Rs. 4 lakhs of claimed expenditure due to lack of supporting documentation. The appellant argued for a reduction in this disallowance, citing ignorance and requesting a liberal interpretation of the law. The Tribunal noted that the lower authorities had only made a token disallowance based on the lack of evidence provided by the appellant. Despite the appellant's plea, no substantial reasons were presented for the absence of proper documentation. Thus, the Tribunal upheld the lower authorities' decision to disallow the expenditure amounting to Rs. 4 lakhs. The appellant's appeal on this issue was rejected.

In conclusion, the Tribunal partially allowed the appeal by directing the deletion of the disallowance related to the subcontract amount under section 40(a)(ia) but upheld the disallowance of expenditure amounting to Rs. 4 lakhs. The judgment was pronounced on 16-7-2010.