M/s. Shakti Builders, Ahmedabad V. The Income tax Officer,Ward-9(1), Ahmedabad

ITA 3145/AHD/2009

• Counselvise Citation: 314520514 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K VOHRA SRDR
• Assessee Lawyers: S N DIVATIA
• Section: 194C; 6; 139

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., !'# $ $ $ $ %% % &, ' ( # BEFORE SHRI G.D.AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER $./ I.T.A. NO.3145/AHD/2009 ( * * * * / / / / ASSESSMENT YEAR : 2006-07) M/S.SHAKTI BUILDERS B-6, VISHWAKARMA SOCIETY JODHPUR CHAR RASTA AHMEDABAD / VS. THE INCOME TAX OFFICER WARD-9(1) AHMEDABAD '+ (, $./- $./ PAN/GIR NO. : AAGFS 9613 M ( +. / // / APPELLANT ) .. ( /0+. / RESPONDENT ) +. 1 ( / APPELLANT BY : SHRI S.N.DIVATIA, A.R. /0+. 2 1 ( / RESPONDENT BY : SHRI R.K.VOHRA, SR.D.R. % 3 2 &, / / / / DATE OF HEARING : 16/09/2011 45* 2 &, / DATE OF PRONOUNCEMENT : 11-11-2011 (6 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF THE CIT(A)-XV, AHMEDABAD DATED 01/10/2009 PASSED FO R A.Y. 2006-07. THE SUBSTANTIVE GROUND RAISED BY THE ASSESSEE IS RE PRODUCED BELOW:- 2.1. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN UPHOLDING THE FOLLOWING ADDITIONS/DISALLOWANCES: (A) DISALLOWANCE U/S.40(A)(IA) : RS.15,39,867 (B) DISALLOWANCE U/S.40(A)(IA) : RS.12,18,061 ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 2 - (C) OUT OF LABOUR EXPENSES @ 5% : RS. 3,30,304 2.2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) OUGHT NOT TO HAVE CONFIRMED THE ABOVE SAI D DISALLOWANCES/ADDITIONS. 3.1. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDI NG THAT THE PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE IN RESPECT OF PAYMENTS TO 3 PARTIES AGGREGATING TO RS.15,39,867 A ND 5 PARTIES AGGREGATING TO RS.12,18,061. 3.2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE PRO VISIONS OF SECTION 40(A)(IA) WERE NOT APPLICABLE TO THE AFORES AID PAYMENTS. 4.1. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDI NG AD-HOC DISALLOWANCE @ 5% OUT OF LABOUR EXPENSES WITHOUT APPRECIATING THE NATURE AND VOLUME OF BUSINESS, THE SYSTEM OF MAINTAINING RECORD ETC. AS WELL AS EVIDENCE PROD UCED BEFORE HER. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 21/11/2008 WERE THAT THE ASSESSEE-FIRM IS A CIVIL CONTRACTOR . IT WAS NOTICED THAT CERTAIN EXPENDITURE ( TRANS PORT EXPENSES) WAS INCURRED WITHOUT DEDUCTION OF TAX AT SOURCE. I N SOME OF THE CASES OF EXPENDITURE THE TAX DEDUCTED BUT NOT DEPOSITED WITH IN THE STIPULATED TIME. IT WAS ALLEGED BY THE AO THAT THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF SECTION 194C OF THE IT ACT AND AS A R ESULT EXPENDITURE WAS DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. A SHOW-CAUSE NOTICE WAS ISSUED AND THE RELEVANT PORTI ON IS REPRODUCED BELOW:- ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 3 - 1. AS PER THE COPIES OF ACCOUNT SUBMITTED BY YOU IN RESPECT OF PARTIES TO WHOM WORK WAS GIVEN ON SUB CONTRACT, IT IS FOUND THAT TAX DEDUCTED AT SOURCE FROM PAYMENTS MADE TO THESE PARTIES HAS NOT BEEN DEPOSITED INTO THE GOVERNMENT ACCOUNT WITH IN THE STIPULATED TIME AS PER THE PROVISION OF SECTION 194 (C) OF THE I.T. ACT. DEFAULT IN THIS RESPECT IS DETECTED IN THE FO LLOWING CASES:- SR.NO. NAME OF THE PARTY AMOUNT CREDITED AMOUNT DISALLOWABLE U/S.40(A)(IA) 1 MINAR PREFAB (P) LTD. 11,76,576/- 11,76,576/- 2 VARUN CONSTRUCTION CO. 70,000/- 70,000/- 3 URVI CONSTRUCTION 2,93,291/- 2,93,291/- TOTAL 15,39,867/- 15,39,867/- IN VIEW OF THE ABOVE, YOU ARE ASKED TO THE SHOW CAU SE AS TO WHY EXPENSE OF RS.15,39,867/- CLAIMED BY YOU IN RESPECT OF LABOUR PAYMENT SHOULD NOT BE DISALLOWED U/S.40(A)(IA) OF T HE ACT. 2. APART FROM DEFAULT POINTED OUT ABOVE, IT IS SEE N THAT OUT OF THE PAYMENTS MADE TOWARDS TRANSPORT EXPENSES, YOU HAVE NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISIONS OF SEC TION 194(C) OF THE ACT IN RESPECT OF PAYMENTS MADE TO THE FOLLOWING PARTI ES:- SR.NO. NAME OF THE PARTY AMOUNT CREDITED ON WHICH TAX NOT DEDUCTED AT SOURCE AMOUNT DISALLOWABLE U/S.40(A)(IA) 1 NIDHI TRANSPORT 1,22,874/- 1,22,874/- 2 SHAILESH A THAKUR 8,31,000/- 8,31,000/- 3 SITARAM TRANSPORT 1,25,880/- 1,25,880/- 4 KAILASH TRANSPORT 64,800/- 64,800/- 5 CHIRAG TRANSPORT 73,507/- 73,507/- TOTAL 12,18,061/- 12,18,061/- ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 4 - IN VIEW OF THE ABOVE, YOU ARE ASKED TO THE SHOW CAU SE AS TO WHY EXPENSE OF RS.12,18,061/- CLAIMED BY YOU IN RESPECT OF LABOUR PAYMENT SHOULD NOT BE DISALLOWED U/S.40(A)(IA) OF T HE ACT. 3. AS PER THE COPIES OF ACCOUNT SUBMITTED BY YOU I N RESPECT OF M/S.SUJIT CONSTRUCTION, A PARTY TO WHOM YOU HAVE MA DE PAYMENT TOWARDS PUSHING LABOUR EXPENSES IT IS SEEN THAT DUR ING THE YEAR UNDER CONSIDERATION, YOU HAVE CREDITED THIS PARTYS ACCOUNT TO THE TUNE OF RS.2,08,800/-. IT IS SEEN THAT YOU HAVE NO T DEDUCTED TAX AT SOURCE FROM PAYMENTS MADE TO THIS PARTY AS PER THE PROVISIONS OF SECTION 194(C) OF THE I.T. ACT. YOU ARE THEREFORE, ASKED TO SHOW CAUSE AS TO WHY PUSHING LABOUR EXPENSES OF RS.2,08,800/- PAID TO M/S.SUJIT CONSTRUCTION SHOULD NOT BE DISALLOWED U/S .40(A)(IA) OF THE I.T.ACT. 2.1. ACCORDINGLY, A TOTAL ADDITION OF RS.29,66,728/- WAS MADE. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHO RITY. 3. LD.CIT(A) HAS DISCUSSED THE FACTS OF THE CASE AND IN RESPECT OF DISALLOWANCE OF RS.15,39,867/- IT WAS HELD THAT THOUGH THE TDS WAS DEDUCTED BUT DEPOSITED LATE IN THE GOVERNMENT ACCOU NT. IT WAS HELD THAT THE TAX DEDUCTED SHOULD HAVE BEEN DEPOSITED BY MARCH-2006, HOWEVER, IT WAS DEPOSITED IN THE GOVERNMENT ACCOUNT IN MAY-2006, THEREFORE, DUE TO DELAYED DEPOSIT NOT AN ALLOWABLE EXPENDITURE. IN RESPECT OF THE DISALLOWANCE OF RS.12,18,061/- LD.CIT(A) HAS NOTICED THAT IT WAS RELATED TO THE TRANSPORT CHARGES AND SINCE NO TDS WAS DEDUCTED THEREFORE WITHIN THE RIGOURS OF THE PROVISIONS OF S ECTION 40(IA). LASTLY, IN RESPECT OF DISALLOWANCE OF RS.2,08,800/- IN RESPECT OF PAYMENT TO M/S.SUJIT CONSTRUCTION, IT WAS INFORMED THAT TDS OF RS.2,130/- WAS DEPOSITED ON 05/05/2005 THEREFORE AFTER CONSIDERING THE FACTS OF THE CASE THAT THE TDS WAS DEPOSITED WITHIN THE PRESCRIBED TI ME, IT WAS HELD THAT ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 5 - NO DISALLOWANCE WAS WARRANTED. NOW THE ASSESSEE I S FURTHER IN APPEAL IN RESPECT OF THE CONFIRMATION OF THE AFOREMENTIONED T WO DISALLOWANCES. 4. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES A S FAR AS THE DETAILS OF THE TDS DEDUCTED AND TDS PAID THE FACTUAL POSITI ON IS AS UNDER:- SR.NO. NAME OF PARTY AMOUNT DT.OF CREDIT AMOUNT OF TDS DT.OF TDS PAID 1. URVI CONSTRUCTION 293291 26.04.2005 3291 12.05.2006 2. MINAR PREFAB (P) LTD. 1176576 12.12.2006 13201 12.05.2006 3. VARUN CONSTRUCTION CO. 7000 14.2.2006 783 18.5.2006 TOTAL 15,39,867 17,25 5. IN RESPECT OF THE APPLICABILITY OF THE PROVISION S OF SECTION 40(A)(IA) THE HONBLE JURISDICTIONAL HIGH COURT IN A LATEST DECIS ION DATED 18/07/2011 IN TAX APPEAL NO.706 OF 2010 IN THE CASE OF CIT VS. J.K. CONSTRUCTION CO. HAS HELD AS UNDER:- FROM THE RECORD, IT EMERGES THAT FOR PAYMENT TO CO NTRACTOR, THE ASSESSEE HAD MADE DEDUCTION AS REQUIRED UNDER LAW F ROM TIME TO TIME AND IN PARTICULAR LATEST BY 31.3.2005. THIS I S CLEAR FROM CHART SUPPLIED BY THE ASSESSEE BEFORE CIT (APPEALS) WHICH WOULD ESTABLISH THAT DEDUCTION IN CASE SEVERAL CONTRACTOR S WERE MADE ON 31.3.2005. ALL SUCH AMOUNTS WERE DEPOSITED WITH TH E GOVERNMENT ON OR AROUND 28.5.2005. IN BACKGROUND OF ABOVE U NDISPUTED FACTS, TRIBUNAL WAS OF THE OPINION THAT BY VIRTUE O F AMENDED PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX A CT, 1961, ASSESSEE HAS NOT BREACHED THE REQUIREMENT OF DEDUCT ION AND DEPOSITING OF TDS. ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 6 - SECTION 40(A)(IA) OF THE ACT AS AMENDED WITH EFFECT FROM 1.4.2005 READ AS UNDER: (IA) ANY INTEREST, COMMISSION, OR BROKERAGE, (RENT, ROYALTY) FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICA L SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT AN Y WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SU B-SECTION (1) OF SECTION 139. PLAINLY SPEAKING, ASSESSEE HAD TO MAKE DEDUCTION BE FORE 31 ST MARCH OF THE YEAR IN QUESTION AND AS LONG AS SUCH A MOUNTS WERE DEPOSITED BEFORE LAST DATE OF FILING OF THE RETURN, REQUIREMENTS OF LAW WOULD BE FULFILLE4D. IT WAS ON THIS BASIS THAT TRIBUNAL WAS OF THE OPINION THAT THE ASSESSEE COMMITTED NO WRONG AN D WAS THEREFORE, ENTITLED TO SEEK DEDUCTION OF RS.32,94,1 49/- FROM THE INCOME WHICH AMOUNT THE ASSESSEE HAD DEDUCTED FROM PAYMENTS OF CONTRACTORS AND HAD ALSO DEPOSITED WITH REVENUE BEF ORE THE LAST DATE OF FILING OF THE RETURN. WE DO NOT FIND ANY I LLEGALITY IN ORDER OF TRIBUNAL. TAX APPEAL IS THEREFORE, DISMISSED. 5.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E AO DID NOT HAVE THE BENEFIT THIS JUDGEMENT OF THE JURISDICTIONAL HI GH COURT THROUGH WHICH THE PROVISIONS OF SECTION 40(A)(IA) HAVE NOW BEEN S TREAMLINED. AS FAR AS THE DECISION OF THE RESPECTED SPECIAL BENCH MUMBAI IN THE CASE OF M/S BHARATI SHIPYARD LTD. ( ITA NO. 2404/MUM./2009 A.Y. 2005-06 DT.9.9.2011) IS CONCERNED, THE SAME IS IN RESPECT OF THE AMENDME NT BROUGHT BY FINANCE ACT 2010 TO SEC. 40(A)(IA) THROU GH WHICH THE T.D.S. IS REQUIRED TO BE DEPOSITED BY THE DATE PRESCRIBED U/S 139 OF THE ACT IN SUCH CASE WHERE THE TDS IS DEDUCTED IN THE MONTH OF MARCH OF THE ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 7 - FINANCIAL YEAR. BUT IN RESPECT OF TDS IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR REQUIRED TO BE DEPOSITED. AFTER CAREFUL READING OF BOTH THE JUDGMENTS THE A.O. IS NOW REQU IRED TO FIRST EXAMINE THE DATES OF DEDUCTION AND THEN THE DATE OF DEPOSI T IN THE GOVT. THE OLD PROVISION SHALL APPLY BECAUSE THE SPECIAL BENCH HAS HELD THAT THE AMENDMENT IS NOT RETROSPECTIVE. NONETHELESS, THE HO NBLE H.C.( SUPRA ) HAS GIVEN A VERDICT ON THE ADMITTED FACT THAT THE T DS WAS DEDUCTED IN THE MONTH OF MARCH AND DEPOSITED IN THE MONTH OF MAY . DUE TO THIS REASON, WE HEREBY RESTORE THIS PART OF THE GROUND BACK TO T HE STAGE OF THE ASSESSMENT SO THAT AFTER VERIFYING THE PRESCRIBED D UE DATES OF DEPOSIT AND THE DATES ON WHICH THE TDS HAD ACTUALLY BEEN DEPOSI TED IN THE GOVERNMENT ACCOUNT BY THE ASSESSEE, THE AO SHALL GR ANT THE RELIEF AS PER LAW. ASSESSEES THIS PART OF THE GROUND IS THEREF ORE ALLOWED BUT FOR STATISTICAL PURPOSES. 6. IN RESPECT OF DISALLOWANCE OF NON-DEDUCTION OF TDS, THE DETAILS OF THE PARTIES ARE AS UNDER:- SR.NO. NAME OF THE PARTY AMOUNT CREDITED ON WHICH TAX NOT DEDUCTED AT SOURCE 1. NIDHI TRANSPORT 1,22,874 2. SHAILESH A.THAKUR 8,31,000 3. SITARAM TRANSPORT 1,25,880 4. KAILASH TRANSPORT 64,800 5. CHIRAG TRANSPORT 73,507 TOTAL 12,18,061 ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 8 - IN THIS REGARD, THE ARGUMENT OF THE ASSESSEE IS TH AT THE PAYMENTS WERE MADE TOWARDS PURCHASE OF MATERIAL LIKE, SAND, BRICK S, ETC. THE SAID MATERIAL WAS DIRECTLY SUPPLIED TO THE SITE OF CNG PUMP STATION. IT HAS ALSO BEEN INFORMED THAT THE PAYMENTS WERE MADE TO THE VENDORS BY CHEQUE AND THERE WAS NO REQUIREMENT OF DEDUCTION OF TAX U/S.194C OF I.T.ACT. IN THIS REGARD, AN ALTERNATE SUBMISSION HAS ALSO BEEN MADE THAT THERE WAS NO RELATIONSHIP OF CONTRACTOR AND SUB-CONTRACTOR AND THEREFORE THERE WAS NO REQUIREMENT OF TDS. THE ARG UMENT RAISED BY THE ASSESSEE IS THAT THERE WAS NO CONTRACTUAL RESPONSIB ILITY WITH THE SAID TRANSPORTERS, THEREFORE THERE WAS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE. THIS ISSUE HAS ALREADY BEEN DECIDED BY RESPECTED CO-ORDINATE BENCH D ITAT AHMEDABAD IN THE CASE OF SHRI PRASHA NT H.SHAH VS. ACIT IN ITA NO.17/AHD/2011 FOR A.Y. 2007-08 V IDE ORDER DATED 8.7.11, WHEREIN IT WAS HELD AS UNDER:- 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. W E HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE PROVISIONS OF THE ACT AS ALSO THE CASE LAW CITED. BEFORE WE PROC EED FURTHER, WE MAY LIKE TO POINT OUT THAT THE PROVISIONS OF SECTION 19 4C OF THE ACT HAD UNDERGONE CERTAIN VITAL CHANGES IN THE RECENT PAST. THE MAIN PURPOSE OF INTRODUCTION OF THIS SECTION IN THE ACT IS TO MA KE PROVISIONS FOR DEDUCTION OF TAX AT SOURCE FROM PAYMENTS MADE TO CO NTRACTORS AND SUB- CONTRACTORS IN CERTAIN CASES. INCOME TAX IS DEDU CTIBLE AT SOURCE FROM INCOME COMPRISED IN PAYMENTS MADE BY THE PERSONS SP ECIFIED IN THIS SECTION. AS PER THE ORIGINAL SECTION 194C(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY CONTRACTOR FOR CARRYING O UT ANY WORK IN PURSUANCE OF A CONTRACT IS REQUIRED TO DEDUCT 2% TD S. HOWEVER, AS PER SECTION 194C(2), ANY PERSON BEING A CONTRACTOR RE SPONSIBLE FOR PAYING ANY SUM TO ANY SUB-CONTRACTOR IN PURSUANCE OF A CON TRACT WITH THE SUB- CONTRACTOR FOR CARRYING OUT ANY WORK IS REQUIRED TO DEDUCT TAX @ 1% AT THE TIME OF PAYMENT. SUB SECTION (2) HAS LATER ON MADE A PROVISION ACCORDING TO WHICH AN INDIVIDUAL OR HUF, WHOSE TOTA L SALES EXCEEDS THE MONITORY LIMIT PRESCRIBES U/S.44AB SHALL BE LIABLE TO DEDUCT INCOME TAX AT THE TIME OF PAYMENT TO A SUB-CONTRACTOR. IT I S FURTHER IMPORTANT TO MENTION THAT VIDE AN AMENDMENT WITH EFFECT FROM 1/6 /2007 AN INDIVIDUAL ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 9 - OR HUF HAVE ALSO BEEN INDUCTED VIDE SUB-CLAUSE (K) IN SECTION 194C(1) OF THE IT ACT. AT THIS JUNCTURE, IT IS WORTH TO HO LD THAT AS FAR AS THE AY IN HAND IS CONCERNED, I.E. AY 2007-08, THIS LATEST AM ENDMENT OF SECTION 194C(1)(K) OF THE ACT BEING INTRODUCED WITH EFFECT FROM 01/06/2007 HAS NO APPLICABILITY. WE THEREFORE HOLD THAT IF THE REVENUE DEPARTMENT HAD MADE AN ENDEAVOUR TO INVOKE THE PROVISIONS OF S ECTION 40(A)(IA) FOR THE INFRINGEMENT OF THE PROVISIONS OF SECTION 194C OF THE ACT BY HOLDING THAT THE ASSESSEE BEING AN INDIVIDUAL GOT COVERED B Y SUB-SECTION(1), THEN ACCORDING TO US, IT WAS AN INCORRECT APPLICATION OF LAW. WE THEREFORE HOLD THAT FOR THE ASSTT.YEAR UNDER CONSIDERATION 20 07-08 THE PROVISIONS OF SUB-CLAUSE(K) OF 194C(1) ARE NOT APPLICABLE BEIN G INTRODUCED W.E.F. 1.6.2007 AND THE ASSESSEE BEING AN INDIVIDUAL IS CO NSEQUENTLY OUT OF THE CLUTCHES OF THIS CLAUSE. 7.1. ON ACCOUNT OF THE ABOVE DISCUSSION, THE ISSUE CONFINES TO THE RESIDUAL SUB-SECTION I.E. THE APPLICABILITY OF PROV ISIONS OF SUB-SECTION(2) OF SECTION 194C OF THE ACT. THE PECULIARITY OF THI S CASE IS THAT A CONTRACT WAS AWARDED TO M/S.PETRONET LNG LTD. NEW DELHI FOR CONSTRUCTION WORK OF PERIPHERAL AND APPROACH ROADS AT LNG TERMIN AL DAHEJ. THEREAFTER, THE SAID CONTRACTOR HAD ENTERED INTO A SUB-CONTRACT WITH M/S.A.N.S. CONSTRUCTION LTD., WHO IN TURN, HAD ENTE RED INTO AN ANOTHER SUB- CONTRACT WITH THE ASSESSEE. THE WORK TO BE CA RRIED OUT BY THE ASSESSEE, THEREFORE PERTAINED TO CONSTRUCTION OF PE RIPHERAL APPROACH ROADS. TO CARRY OUT THE ABOVE WORK, THE ASSESSEE H AD TO PURCHASE CONSTRUCTION MATERIAL, VIZ. SAND, GRAVELS, ETC. IN ORDER TO BRING THE CONSTRUCTION MATERIAL AT THE CONSTRUCTION SITE AT D AHEJ, THE ASSESSEE HAS AVAILED THE SERVICES OF SEVERAL TRANSPORTERS. THE ASSESSEE HAD MADE PAYMENT UNDER THE HEAD TRANSPORT CHARGES. THE VIEW OF THE AO WAS THAT ON PAYMENT OF TRANSPORT CHARGES, THE ASSESSE E BEING A SUB- CONTRACTOR WAS REQUIRED TO DEDUCT THE TAX AT SOURCE AS PRESCRIBED UNDER SUB-SECTION (2) OF SECTION 194C OF THE ACT. ON THE OTHER HAND, THE ASSESSEES CONTENTION IS THAT ALTHOUGH THE ASSESSEE COULD BE A SUB- CONTRACTOR M/S.A.N.S. CONSTRUCTION LTD., BUT VIS-- VIS TRANSPORTERS THE ASSESSEE HAS NOT ACTED AS A SUB-CONTRACTOR BUT ONLY AS A CONTRACTOR. AS PER ASSESSEES CONTENTION IT WAS A PRINCIPAL TO PRI NCIPAL ARRANGEMENT OF TRANSPORTATION OF GOODS, SO NOT COVERED BY ANY OF THE SAID CONTRACTS. IN SUPPORT OF THIS SUBMISSION, THE ASSESSEE HAS PLACED RELIANCE ON A BOARDS CIRCULAR NO.715 DATED 8/08/1995 [215 ITR ( STATUTE 12)] WHEREIN THE CHANGES INTRODUCED IN THE PROVISIONS RE GARDING TAX DEDUCTION AT SOURCE HAVE BEEN CLARIFIED AND THEREIN ONE OF THE QUESTIONS WAS ABOUT THE PAYMENT TO TRANSPORTS AND THE CLARIFI CATION WAS AS UNDER:- ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 10 - QUESTION 9: IN CASE OF PAYMENTS TO TRANSPORTS, CA N EACH GR BE SAID TO BE A SEPARATE CONTRACT, EVEN THOUGH PAYMENT S FOR SEVERAL GRS ARE MADE UNDER ONE BILL? ANSWER : NORMALLY, EACH GR CAN BE SAID TO BE A SEPARATE CONTRACT, IF THE GOODS ARE TRANSPORTED AT ONE TIME. BUT IF THE GOODS ARE TRANSPORTED CONTINUOUSLY IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD OF QUANTITY, EACH GR WILL NOT BE A SEPARATE CONTRACT AND ALL GRS RELATING TO THAT PERIOD OR QUA NTITY WILL BE AGGREGATED FOR THE PURPOSE OF THE TDS. 8. IN THE CONTEXT OF ABOVE CLARIFICATION ISSUED BY THE CBDT, IF WE EXAMINE THE ISSUE IN HAND, THEN IN TERMS OF THE PRO VISIONS OF SECTION 194C(2) OF THE ACT CONDITIONS TO BE SATISFIED ARE (I) THAT THE ASSESSEE SHOULD BE A CONTRACTOR, (II) THAT THE ASSESSEE SHOULD ENTER INTO A CONTRACT WITH A SUB-CONTRACTOR, (III) THAT THE SUB-CONTRACTOR SHOULD CARRY OUT ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACT OR AND (IV) THAT THE PAYMENT SHOULD BE MADE FOR THE WORK DONE. IN A CA SE, WHEN A CONTRACT IS ASSIGNED, GENERALLY THE CLAUSES ARE S TRINGENT THAT THE CONTRACTOR IS TO BE RESPONSIBLE FOR ALL THE ACTS AN D DEFAULTS COMMITTED. IN THE PRESENT CASE AS WELL, WHEN THE M/S.A.N.S. CO NSTRUCTION LTD. HAD GRANTED SUB-CONTRACT DATED 30/1/2006 TO M/S.SAKHI C ONSTRUCTION,( PROP. APPELLANT) THEN VIDE CLAUSE (1) THE ASSESSEE WAS TO DEPLOY HIS OWN RESOURCES IN TERMS OF MANPOWER & MACHINERY. FURTHER VIDE CLAUSE (2) ASSESSEE HAD UNDERTAKEN THE RESPONSIBILITY OF ANY L EGAL OR FINANCIAL LIABILITY. THE ASSESSEE HAS INDEMNIFIED THE FIRST PARTY, I.E. M/S.A.N.S. CONSTRUCTION LTD. AGAINST ANY LEGAL OR FINANCIAL LI ABILITY IF ARISE IN FUTURE PERTAINING TO THE SAID CONTRACT. ASSESSEE WAS MADE SOLELY RESPONSIBLE FOR THE EXECUTION OF THE JOB. THESE C LAUSES, THEREFORE, SUGGESTED THAT THE ASSESSEE WAS WHOLLY AND EXCLUSI VELY RESPONSIBLE FOR THE ACTS AS ALSO FOR THE DEFAULTS, IF COMMITTED. O N THE OTHER HAND, THE LORRY OWNERS OR THE TRANSPORTERS WHO HAD BEEN GIVEN TRANSPORTATION CHARGES HAVE NOT BEEN FASTENED WITH ANY OF THE AB OVE LIABILITIES, MEANING THEREBY THE TRANSPORTERS WERE NOT THE PART OF THE SAID AGREEMENT AND THE ASSESSEE HAD AN INDEPENDENT ARRAN GEMENT WITH THEM. IN OTHER WORDS, PECULIARITY OF THIS CASE IS THAT TH E SUB-CONTRACT WHICH WAS ASSIGNED TO THIS ASSESSEE WAS NOT FURTHER SUB-CONTRACTED TO THE LORRY OWNERS. IN A SUB-CONTRACT, A PRUDENT CONTRACTOR GENERAL LY INCLUDE THE CLAUSES OF LIABILITY WHICH WERE UNDERTA KEN BY HIM WHILE ACCEPTING THE EXECUTION OF THE WORK FROM THE MAIN C ONTRACTOR. WE MAY LIKE TO CLARIFY THAT A CONDITION OF PASSING OF THE LIABILITY CAN NOT EXHAUSTIVE AND CAN NOT BE SAID TO BE THE ONLY CRI TERIA TO DECIDE WHETHER THERE WAS AN EXISTENCE OF CONTRACT OR SUB-C ONTRACT. THE ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 11 - CATALOG OF CRITERION MUST INCLUDE CERTAIN OTHER CL AUSES AS WELL, YET IN THIS CASE THIS CRITERIA CAN BE DETERMINATIVE CONSI DERING THE NATURE OF WORK ASSIGNED BY THE ASSESSEE TO TRANSPORTERS. IT I S NOT THE CASE OF THE A.O. THAT HE HAPPENED TO BE IN POSSESSION OF SOME M ATERIAL TO ALLEGE THAT THERE EXISTED A SPECIFIC CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTERS. WHETHER THE GOODS WERE TRANSPORTED IN PURSUANCE OF ANY SUB-CONTRACT SO AS TO APPLY THE PROVISIONS OF SEC.1 94C(2)? NOTHING HAS BEEN BROUGHT ON RECORD. SO IT WAS NOT ESTABLISHED T HAT THE LORRY OWNERS HAVE UNDERTAKEN ANY PART OF THE IMPUGNED SUB-CONTRA CT WHICH WAS FOUND TO BE RISK ASSOCIATED VIDELICET THIS ASSESSEE . WE, THEREFORE, CONCLUDE THAT IN THE ABSENCE OF TRANSFER OR PASS-OV ER OF ANY CONTRACTUAL RESPONSIBILITY TO TRANSPORTERS AS A SUB-CONTRACTOR, THE ASSESSEE BEING AN INDIVIDUAL WAS NOT RESPONSIBLE FOR THE DEDUCTION OF TAX AT SOURCE AS PRESCRIBED U/S.194C(2) OF THE IT ACT. CONSEQUENCE THEREUPON THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT WERE INCORR ECTLY INVOKED, HENCE THE VIEW TAKEN BY THE AUTHORITIES BELOW ARE HEREBY REVERSED. GROUND IS ALLOWED. 6.1. SINCE DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE AO DID NOT HAVE THE BENEFIT OF THIS JUDGEMENT OF THE TRIBUNAL THROUGH WHICH THE AMENDED PROVISIONS OF SECTION 194C(2) HAVE BEEN ELA BORATELY DISCUSSED THEREFORE WE DEEM IT PROPER TO RESTORE THIS PART OF THE GROUND BACK TO THE AO TO ADJUDICATE AFRESH AFTER ASCERTAINING THE FACT S OF THE CASE, PARTICULARLY THE NATURE OF AGREEMENT WITH THE SAID PARTIES. IN THE RESULT, THE GROUNDS RAISED IN RESPECT OF THE DISALLOWANCES MADE U/S.40(A)(IA) ARE HEREBY ALLOWED BUT FOR STATISTICAL PURPOSES. 7. THE NEXT ADDITION IS IN RESPECT OF LABOUR EXPEN SES @ 5%, WE HAVE NOTICED THAT A PART RELIEF WAS GRANTED BY LD.CIT(A) VIDE FOLLOWING OBSERVATIONS:- F) ADDITION OF RS.6,96,579 OUT OF LABOUR EXPENSES THIS ADDITION HAS BEEN MADE AS PER NARRATION GIVEN IN PARA 8 OF THE ASSESSMENT ORDER. THE AO MADE THE ADDITION BE CAUSE TO JUSTIFY LABOUR EXPENSES CLAIMED OF RS.69,65,791 WHI CH WERE ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 12 - PRIMARILY PAID IN CASH THE APPELLANT COULD NOT PROD UCE THE RELEVANT BILLS AND VOUCHERS, DESPITE OPPORTUNITIES GIVEN BY THE AO VIDE ORDER SHEET ENTRIES DATED 18.7.2008, 7.11.2008 AND 10.10.2008 AND AGAIN ON 14.11.2008, BUT NO COMPLIANCE WAS MADE . VIDE WRITTEN SUBMISSION DATED 8.9.2009 IT HAS BEEN STATED THAT BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO, SAMP LE COPIES OF LEDGER VOUCHERS AND LABOUR LEDGER ACCOUNT WERE ALSO PRODUCED. IT HAS FURTHER BEEN STATED IN THE WRITTEN REPLY THAT L ABOUR EXPENSES AGGREGATING TO 69,65,795 INCLUDE PAYMENTS OF RS.1,5 0,900 TO SKILL LABOUR MADE BY SURAT BRANCH AND OF RS.2,08,800 MADE TO PUSHING LABOUR BY SURAT BRANCH WHICH SHOULD NOT BE CONSIDER ED FOR THE PURPOSE OF ADHOC DISALLOWANCE. AFTER GOING THROUGH RIVAL SUBMISSIONS, IT IS SEEN T HAT THE APPELLANT HAS INCURRED CASH EXPENSES AT VARIOUS SITES LIKE AK OKA, CHILODA, UMERGAON ETC. THE SAMPLE COPIES OF VOUCHERS SHOW THAT THE VOUCHERS ARE SELF PREPARED VOUCHERS NOT INDICATING ANY NAME AND ADDRESS OF THE PERSONS TO WHOM THE CASH PAYMENT OF SMALL AMOUNTS WERE MADE. CLEARLY THE LABOUR EXPENSES CLAIMED ARE NOT FULLY VERIFIABLE, STILL IN THE INTEREST OF JUSTICE THE AD HOC DISALLOWANCE IS LIMITED TO 5% OF RS.66,06,095 [RS.69,65,795 3,59, 700 (RS.1,50,900 + RS.2,08,800)] WHICH COMES TO RS.3,30 ,304. BALANCE ADDITION IS DELETED. 8. EVEN BEFORE US THE ASSESSEE HAS NOT IMPROVED HIS CASE PARTICULARLY WHEN THE EVIDENCES IN RESPECT OF LABOUR EXPENSES WE RE DOUBTED BY THE REVENUE DEPARTMENT. THE FIRST APPELLATE AUTHORITY HAD GIVEN A FINDING ON FACT THAT THE COPIES OF THE VOUCHERS IN RESPECT OF LABOUR EXPENSES HAVE DEPICTED THAT THOSE VOUCHERS WERE FIRSTLY SELF-PREPARED VOUCHERS AND SECONDLY THE NAMES AND ADDRESSES OF THE PERSONS TO WHOM THE CASH PAYMENT WAS MADE WAS ALSO MISSING. SINCE THE SAID FACTUAL FINDING HAS ITA NO. 3145/AHD/2009 M/S. SHAKTI BUILDERS VS. ITO ASST.YEAR - 2006-07 - 13 - NOT BEEN REBUTTED BY PLACING COGENT EVIDENCE ON REC ORD THEREFORE WE FIND NO FALLACY IN THE ORDER OF THE LD.CIT(A) AND AFFIRM THE SAME. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED THAT TOO FOR STATISTICAL PURPOSE ONLY. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 11/ 11 /2011 ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- AKG MKG (AM) (JM) 11.11.1 1 7.. , . ../ T.C. NAIR, SR. PS (6 2 /&8 (6 2 /&8 (6 2 /&8 (6 2 /&8 (8*& (8*& (8*& (8*&/ COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. $$ & %9 / CONCERNED CIT 4. %9() / THE CIT(A)-SV, AHMEDABAD 5. 8<= /& , , / DR, ITAT, AHMEDABAD 6. = >3 / GUARD FILE. (6 % (6 % (6 % (6 % / BY ORDER, 08& /& //TRUE COPY// ! !! !/ // / $ $ $ $ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION.. 20.10.2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.10.2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 11.11.11. 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11.11.11. 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER