TMI Blog2014 (8) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Hence, the Assessing officer after recording the reasons, issued notice to the assessee u/s. 148 of the Act. TDS u/s 194C - non deduction of tds - nature of contract - Held that:- Chapter V of the Indian Contract Act treats certain relations resembling those created by a contract as contracts enforceable in law. The Indian Contract Act thus envisages four types of contracts, namely, (1) contracts made in writing, (2) contracts made orally, (3) contracts by implication or implied contracts and (4) quasi contracts. Thus, the contracts envisaged by section 194C are not limited to written contracts alone; they include oral contracts and implied contracts also. All payments made in pursuance of a contract irrespective of whether it is a written contract, oral contract, implied contract and quasi contract are well covered by section 194C of the Income Tax Act. The case of the assessee falls within the aforesaid parameters. Provisions of sub-section (2) of section 194C also apply to an individual whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and found that the total receipt of job work charges from The Alleppey Co. Ltd. was ₹ 14,68,3981/- and the assessee claimed the entire TDS of ₹ 30,836/- in its return of income. However, the above receipt of ₹ 14,68,381 was not taken by the assessee for arriving at the total income. The tax was not deducted from the labour contract payment of ₹ 8,34,773/-. Being so, according to the Assessing officer, the provisions of sec. 40(a)(ia) was applicable to the assessee s case. Accordingly, the Assessing officer had reason to believe that the income has escaped assessment. The Ld. AR submitted that the assessee has already disclosed all information required for the purpose of assessment. If the Assessing officer failed to locate any error or lapse on the part of the assessee at the time of framing assessment, it cannot be said to be attributable to the assessee so as to re-open the assessment. According to the Ld. AR, there are no new information or material received to re- open the assessment and there is no excess relief granted to the assessee while framing the assessment. There should be some material or new information, which were not available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income has escaped assessment. Therefore, merely because material lies embedded in the material or evidence produced by the assessee, which the Assessing officer could have uncovered but did not uncover is not a good ground to cancel the re-assessment proceedings. The Assessing officer could have found the truth, but he did not, does not preclude the Assessing officer from exercising the power of re- assessment to bring to tax the escaped income. In the present case, as seen from the reasons recorded, there is prima facie escapement of income. Hence, the Assessing officer after recording the reasons, issued notice to the assessee u/s. 148 of the Act. We do not find any infirmity in the order of the lower authorities to re-open the assessment. This view of ours is fortified by the following judgments: i) Ess Ess Kay Engg. Co. (P) Ltd. vs. CIT (247 Taxman 818 (SC). ii) Honda Seil Power Products Ltd. vs. DCIT (340 ITR 64) (SC). iii) Consolidated Photo Finvest Ltd. vs. CIT (281 ITR 394) (Del). Accordingly, this ground is rejected. 6. Coming to the addition of ₹ 8,34,773/- towards labour contract payments, the Ld. AR submitted that the Assessing officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the payments have been paid to the four employees of the assessee-company though the assessee is engaged in labour contract work. Now the question is whether the provisions of sec. is applicable or not to the assessee s case. Section 40(a)(ia) provides that in case of any interest, commission or brokerage, rent royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor for carrying out any work including supply of labour for carrying out any work, on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid on or before the due date, such amount shall be allowed as deduction in computing the income chargeable under the head profits and gains of business or profession notwithstanding anything to the contrary contained in the provisions of sections 30 to 38 of the Act. The proposition emerged from the aforesaid provisions show that the disallowance u/s. 40(a)(ia) is attracted in respect of amounts on which tax is deductible at source and such tax is either not deducted or after deduction if tax is not paid within the specified date, disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses Co.(P) Ltd. vs. CIT, 37 ITR 66 (SC), it has been held that expenditure is what is paid out or away and is something which is gone irretrievably. To be a payment which is made irretrievably there should be no possibility of the money forming, once again, a part of the funds of the assessee. The impugned expenditure incurred by the assessee fully answers the aforesaid features of expenditure and hence is fully covered by the term any expenditure used in section 37. 11.3 The use of phrase any expenditure in section 37 is wide and comprehensive enough to include all forms of expenditure irrespective of whether they are direct or indirect expenditure. The term Expenditure has been defined in page 577 of Black s Law Dictionary 6th Edition as Spending or payment of money, the act of spending, disbursing, or laying out of money; payment . The term Expense is also defined at the same page of the Dictionary as That which is expended, laid out or consumed. An outlay; charge; cost; price. The expenditure of money, time, labour, resources, and thought. That which is expended in order to secure benefit or bring about a result. Business expense is also defined at the same pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 30-38 but covers all those expenses which are specifically enumerated in section 40. They are as under: (i) The subject matter of disallowance under sub-clause (ia) of clause (a) of section 40 is, inter-alia, the amounts payable to a contractor or a sub-contractor for carrying out any work out of which tax is deductible at source and such tax has either not been deducted or after deduction has not been paid before the specified date. Therefore, the amounts payable to a contractor or sub-contractor cannot be allowed as deduction unless tax has been deducted out of such amounts payable to a contractor or sub-contractor. The language of sub clause (ia) of clause (a) is unambiguous and unequivocal in that the payments made to a contractor or a sub-contractor cannot be allowed as deduction unless tax out of such payments is deducted at source, and after deduction, paid to the Government within the specified time limit. If such payments were intended to be kept outside the scope of disallowance contemplated by section 40, then there was no reason for specifically subjecting them to disallowance under section 40(a)(ia). (ii) As apparent from the opening words of section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission of the assessee that the impugned payments are not in the nature of expenditure within the meaning of section 37 or that the scope of disallowance contemplated by section 40(a)(ia) is restricted to those expenses which fall u/s. 30 to 38. In our view, the scope of disallowance contemplated by section 40 covers all those expenses which are specifically enumerated therein. The impugned expenses claimed by the assessee as deduction are specified in section 40(a)(ia) and therefore they are well within the scope of disallowance contemplated by section 40(a)(ia) irrespective of their eligibility for deduction u/s. 30 to 38. 14. Thus, Sub-section (1) of section 194C requires a person responsible for paying any sum to any resident (referred to as the contractor in section 194C) for carrying out any work including supply of labour for carrying out any work) in pursuance of a contract between the contractor and specified person to deduct tax at source, while sub-section (2) of section 194C lays down that when a contractor makes payment of any sum to a resident sub-contractor in pursuance of a contract made with him for carrying out the whole or any part of the work undertaken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total sales, gross receipts or turnover from the business or profession carried on by the assessee in the year under appeal exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the relevant financial year. Total sales, gross receipts or turnover from the business or profession carried on by the assessee in the year under appeal exceed the monetary limits specified under clause (a)or clause (b) of section 44AB. It is for this reason that the assessee has filed tax audit report as required by section 44AB. In this view of the matter, the provisions of section 194C(2) apply with equal force to him and the assessee is liable to deduct TDS on the impugned payment of ₹ 8,34,773/-. 17. The assessee has relied on the judgment of Special Bench of Tribunal, Visakhapatnam in the case of Merilyn Shipping Transports vs. Addl. CIT (136 ITD 23) (Visakhapatnam-Trib.) (SB) and also relied on the judgment of Hyderabad Bench of the Tribunal in the case of Teja Constructions vs. ACIT (129 TTJ 57) (Hyd) (UO). These judgments are no more applicable as the operation of the order of the Special Bench in the case of Merilyn Shipping Transports vs. Addl. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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