2017 (10) TMI 1342 - HC - Income Tax

Non deduction of TDS u/s.194C(2) - freight payments to the subcontractors above Rs. 50, 000/- was to be disallowed as per Section 40(a)(ia) - Held that - AO s action for disallowance u/s 40(a)(ia) totally unlawful and unjustified as the assessee not liable to deduct TDS u/s 194C(2) of the income tax act as (I) First year of tax audit u/s 44AB of the income tax act (Previous year assessee was not liable to tax audit because of permissible limit of gross receipts Rs. 40 Lacs) (ii) Discharging of liability for obtaining form no. 151 before making the payment to sub contractor against freight to 50 parties in compliance of provision of section 194C(2) for non deduction of TDS. The delay in submission of form no. 15J to the competent authority is a procedural formality (iii) Not bringing any material oral or written agreement between the assessee in the recipients of goods for transportation on record during the assessment proceeding to prove the relation of sub contract and (iv) The payment to the subcontractor has not been doubted by the AO. There was no contract between the assessee and the recipients of goods for transportation 2.If the assessee has obtained form no. 15-I then it is substantial compliance of the provision of section 194C. Hence hereby delete the total disallowance made u/s 40(a) (ia) of the income tax act for non compliance of provision of section 194C (2) of the income tax act. Hereby delete the total disallowance made u/s 40(a) (ia) of the income tax act for non compliance of provision of section 194C (2) of the income tax act. - Decided in favour of the assessee and against the department.

Summary

Issues:
Challenge to Tribunal's order confirming CIT(A)'s decision on TDS deduction under Section 194C(2) and disallowance under Section 40(a)(ia).

Detailed Analysis:

Issue 1: Tribunal's Decision Confirmation
The appellant challenged the Tribunal's order confirming the CIT(A)'s decision on TDS deduction under Section 194C(2) and disallowance under Section 40(a)(ia). The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 80,71,910, emphasizing the lack of TDS liability under Section 194C(2) due to compliance with Form No. 15-I by obtaining it from 50 parties. The Tribunal found the assessing officer's disallowance unjustified, considering factors like the first year of tax audit, timely submission of Form No. 15-I, absence of any doubts on payments to subcontractors, and the procedural nature of Form No. 15J submission.

Issue 2: AO's Observations and CIT(A)'s Decision
The assessing officer (AO) observed discrepancies in TDS deductions and alleged concealment of income, initiating penalty proceedings under Section 271(1)(c). However, the CIT(A) emphasized that the appellant obtained Form No. 15-I from subcontractors, fulfilling the requirements of Section 194C(2) and negating the need for TDS deduction. The CIT(A) deemed the AO's disallowance under Section 40(a)(ia) unlawful and unjustified, citing precedents and emphasizing substantial compliance with tax provisions through Form No. 15-I submission.

Issue 3: Appellant's Arguments and Tribunal's Ruling
The appellant's counsel highlighted the Tribunal's observations, supporting the deletion of the disallowance under Section 40(a)(ia) based on the compliance with Form No. 15-I and lack of TDS liability under Section 194C(2). The Tribunal concurred with the CIT(A)'s decision, rejecting the AO's disallowance and upholding the deletion of the addition. The Tribunal cited the permissible tax audit limit, proper Form No. 15-I submission, absence of doubts on payments, and lack of contractual evidence as reasons for ruling in favor of the appellant.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decision in favor of the appellant. The Court concurred with the Tribunal's reasoning, emphasizing compliance with Form No. 15-I and the absence of TDS liability under Section 194C(2) as grounds for upholding the deletion of the disallowance under Section 40(a)(ia). The Court rejected the appellant's contention regarding Rule 29-D, as it was not raised before the Tribunal.