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2016 (2) TMI 748 - AT - Income TaxDisallowance u/s 40(a)(ia) - TDS u/s 194C OR 192 - payment to individual workers - Held that:- This is an accepted fact by the assessee that individual workers to whom payment has been made by the assessee are not on the payroll of the employees meaning thereby that the workers were not employees of the company. These individual workers were working for the assessee company on behalf of labour contractor M/s Surgi Pharm Industries. Going through the Tax Audit report we find that assessee has not claimed the payment to labour contractor as salary payment and the Tax Auditor has certified that the payments made to individual workers were actually the payment on behalf of the labour contractor M/s Surgi Pharm Industries and such payment was duly covered within the ambit of the provisions of section 194C of the Act and TDS was required to be deducted by the assessee. It seems that at a later stage (during the course of assessment proceedings) assessee has taken plea that the payment was actually made to individual workers but the actual position at the time of finalization of books of accounts as well as upto the completion of Tax Audit u/s 44AB of the Act was that the payment was made to individual workers was a payment on behalf of labour contractor to whom assessee has been paying the labour contract charges in preceding years and, therefore, the submission of the assessee that the payment to individual workers is covered u/s 192 of the Act cannot be accepted - Decided against assessee Disallowance of interest expenditure - Held that:- CIT(A) has duly accepted the submissions of the assessee and has, therefore, reduced the addition of disallowance of interest expenditure by restricting it to 3.5% being average interest cost of total fund given as interest free funds. We are, therefore, of the view that as a total fund of the assessee comprising of own capital, interest free unsecured loans as well as interest bearing funds are all moving through a common bank account and the application of this fund is for business as well as at sometimes interest free loan & advance use and ld. CIT(A) has rightly applied 3.5% rate of interest on the average balance of interest free loans and advances. We, therefore, uphold the order of CIT(A) and dismiss this ground of assessee.
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