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2015 (7) TMI 122 - ITAT PUNE

2015 (7) TMI 122 - ITAT PUNE - [2015] 42 ITR (Trib) 496 (ITAT [Pune]) - Disallowance u/s 40(a)(ia) - Non deduction of TDS on the labour charges paid - whether payment has been made for centring, tiling and fabrication work amounts to payment to contractor or sub-contractor so as to invoke provisions of section 194C (2) for the purpose of TDS? - Held that:- Since the argument that the assessee is not liable to deduct tax u/s.194C(2) is advanced before us for the first time and the lower authoriti .....

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tract. As the element of risk was missing, the contract could not be held as subcontract. and in accordance with law. Needless to say the Assessing Officer shall give due opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Disallowance u/s.40(a)(ia) - non deduction of tax from account writing charges and audit fees - Held that:- As nothing was brought to our notice by the Ld. Counsel for the assessee so as to take a contrary view. Ther .....

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Assessment Years 2007-08 and 2009-10 respectively. For the sake of convenience, these were heard together and are being disposed of by this common order. 2. First we take up ITA No.1654/PN/2013 for A.Y. 2007-08 as the lead case. Facts of the case, in brief, are that the assessee is a job worker carrying out processing of material on behalf of customers. He filed his return of income on 26-09-2007 declaring total income of ₹ 12,01,558/-. During the course of assessment proceedings the Asses .....

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harges and also the said labour charges were not disallowed at the time of filing of return. The Assessing Officer, therefore, disallowed an amount of ₹ 69,23,135/- to the total income of the assessee u/s.40(a)(ia) of the I.T. Act. (similar disallowance has been made by the Assessing Officer amounting to ₹ 43,05,047/- in A.Y. 2009- 10). 3. Before CIT(A) it was submitted that provisions of section 40(a)(ia) are not applicable as no amount was outstanding at the end of the year. For th .....

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h is not the correct law. He accordingly upheld the disallowance made by the Assessing Officer u/s.40(a)(ia). 4. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : The following grounds are taken without prejudice to each other - On facts and in law, 1. The learned CIT(A) erred in confirming the disallowance of ₹ 69,23,135/- u/s 40(a)(ia) made by the learned A.O. on the ground that the assessee ought to have deducted TDS on the labour c .....

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ified for the following reasons - a. The job work contracts given by the assessee to other parties did not involve the transfer of any obligations or risks attached to the principal contract received by the assessee and hence, the said contracts were not in the nature of 'subcontracts'. b. The assessee had entered into separate contracts with the other parties for job work which were independent from the principal contract received by the assessee and hence, the said contracts were not i .....

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any disallowance is to be made, the same may be restricted to the amount payable as on 31-03-2007. 5. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 5. The Ld. Counsel for the assessee at the outset submitted that the issue regarding the disallowance u/s.40(a)(ia) when no amount is payable at the end of the year is decided against the assessee by the decisions of the Coordinate Benches of the Tribunal. However, referring to Ground of appeal No.3 he .....

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dentical circumstances, the Tribunal has deleted the disallowance made by the Assessing Officer u/s.40(a)(ia) and upheld by the CIT(A). He submitted that although this argument was not raised before the lower authorities, however, since this is a legal ground and assessee denies its liability for deduction of tax u/s.194C(2), therefore, the matter may be set aside to the file of the Assessing Officer with a direction to decide the issue afresh in the light of the decision of the Tribunal in the .....

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alf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed an amount of ₹ 69,23,135/- u/s.40(a)(ia) since the assessee has not deducted TDS on the labour charges paid of the equal amount. We find the CIT(A) upheld the action of the Assessing Officer on account of such default in deducting TDS from the labour charges paid. It is the submission of the Ld. Counsel for the assessee that the job work contracts .....

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es is as to whether the labour charges paid by the assessee are in the nature of contract awarded by the assessee or sub contract awarded. The customer provides the raw material to the assessee for carrying out certain job work. Since the assessee do not have certain machines and hence, the assessee in turn, gives the contract to other labour contractors to carry out part of the job. Ultimately the assessee is liable for the work carried out by them. This is evident from the purchase order from .....

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he ultimate customer and not the labour contractor. Accordingly, that the labour contract given by the assessee is in the nature of separate contract of work and therefore, assessee was not liable to deduct TDS under the provisions of section 194C. 3.4 The assessee is fully responsible for executing the main contract and the labour contractor has no relation with the principal Jinabakul Forge Pvt. Ltd. One of the main features for a contract to qualify as a subcontract is that the subcontractor .....

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to any resident for carrying out any work in pursuance of a contract between the contractor and specified person shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct tax at source as stipulated under the provisions of section 194(2) of the Act. 3.5 The provisions of section 40(a)(ia) of the Act deals with the deductibility of amount deductible and rel .....

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tor, being resident, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or after deduction (has not been paid on or before the due date specified in sub-section (1) of section 139." 3.6 The assessee has in fact, engaged various labour contractors as discussed above for which, the assessee himself was responsible for executing the contract and the labour contractors had .....

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. Accordingly, the payments made to the labour contractors are not in the nature of sub-contracts and hence, there was no obligation on the assessee to deduct TDS on the said payments and consequently, no disallowance could be made u/s. 40(a)(ia) of the Act. 3.7 We find that ITAT, Pune Bench in the case of Mr. Vijay Ramchandra Shirsth (supra) had occasion to decide the same issue which was dealt as under: 5. Having heard the rival contentions and having perused the material on record, we find th .....

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nts to contractors . Accordingly, in case any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and specified person shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct tax at source as stipulated under the provisions of section 194(2) of the Act. The provisions of section .....

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n one of the condition between the principal and the assessee in respect of the contract to be executed is that the assessee was prohibited to subcontract any part of his work without written permission of architect/company. There is nothing on record to suggest that any such written permission or other work was claimed by the assessee. Even the remand report in this regard was called for in A.Y. 2006-07, However, the CIT(A) concluded by stating that the assessee could not take shelter of this c .....

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ipal. No risk factor was associated with the alleged subcontract. The whole control of the work was in the hands of the assessee and alleged subcontract work was executed i.e. centring, tiling and fabrication work under the full control of the assessee itself. There are no such discretion with alleged subcontractor for executing the above works. They were executing the work as per requirement of tender under full control and supervision of assessee. This view is fortified by the decision in the .....

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the case of R.R. Carrying Corporation vs. ACIT, 126 TTJ 2240(/CTK), it has been held by the Tribunal that the AO has to establish that relationship was that of a contractor and subcontractor. There was no written nor real agreement to substantiate the view taken by the AO and therefore, it cannot be held to be a contract. We are aware of the fact that the agreement can be oral but the essence of contract lies on the fact whether assessee had the control of the work i.e. the manner in which the .....

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used by parties as subcontract does not change the real spirit of contract. Under facts and circumstances, revenue authorities were not justified in making disallowance by invoking provisions of section 40(a)(ia) of the Act. Same is directed to be deleted. Similar disallowance has been made in the year 2006-07. Facts being similar so following same reasoning, disallowance in question are directed to be deleted. In view of above discussion, we find that in the case of Vijay Ramchandra Shirsth (s .....

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ntract. As the element of risk was missing, the contract could not be held as subcontract. 4. In the case before us, there is no written or real agreement to substantiate the view taken by the Assessing Officer and therefore, it could not be held to be a contract. We are aware of the fact that the agreement can be oral but the essence of contract lies on the fact whether assessee had the control of the work i.e. the manner in which the work has to be done. In case it lies with the assessee then .....

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demic. So, we are not addressing the same. However, the assessee is at liberty to raise the same as and when need arises. 7.1 Since the argument that the assessee is not liable to deduct tax u/s.194C(2) is advanced before us for the first time and the lower authorities have no occasion to decide the issue from this angle, therefore, we in the interest of justice, deem it proper to restore the issue back to the file of the Assessing Officer with a direction to decide the issue afresh in the light .....

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the assessee is dismissed. 9. Grounds of appeal No. 1, 2 & 5 being general in nature are dismissed. ITA No.1655/PN/2013 (A.Y. 2009-10) : 10 The grounds raised by the assessee are as under : The following grounds are taken without prejudice to each other - On facts and in law, 1. The learned CIT(A) erred in confirming the disallowance of ₹ 43,05,047/- u/s 40(a)(ia) made by the learned A.O. on the ground that the assessee ought to have deducted TDS on the labour charges paid of ₹ .....

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