Shri Premprakash Vishwakarma, Pune V. ACIT, Circle-9, Pune

ITA 325/PUN/2013

• Counselvise Citation: 32524514 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANTO SH KUMAR
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.325/PN/2013 (A.Y: 2007-08) SHRI PREMPRAKASH VISHWAKARMA GAT NO.784, KUDALWADI, NEAR SAIBABA MANDIR, MORE VASTI, CHIKHALI, PUNE. PAN: AAKPV1798A APPELLANT VS. ACIT, CIRCLE-9, PUNE RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : DR. SANTO SH KUMAR DATE OF HEARING: 25.06.2014 DATE OF ORDER : 30.06.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-V, [IN SHORT CIT(A)] PUNE, DATED 05.12.2012 FOR A.Y. 2007-08 ON THE FOLLOWING GROUNDS. 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.1,46,95,052/- U/S 40(A)(IA) MADE BY THE LEARN ED A.O. ON THE GROUND THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON THE LABOUR CHARGES PAID OF RS.1,46,95,052/-. 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT - A. THE PAYMENT OF LABOUR CHARGES BY THE ASSESSEE WE RE IN THE NATURE OF SUB CONTRACT PAYMENTS AND HENCE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON THE SAID PAYMENTS. B. THE ASSESSEE HAD ALLOTTED SUB CONTRACTS TO OTHER PARTIES AND HENCE, THE ASSESSEE WAS LIABLE TO DEDUC T TDS UNDER THE PROVISIONS OF SECTION 194C(2) OF THE ACT. 2 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E DISALLOWANCE U/S 40(A)(IA) WAS NOT JUSTIFIED FOR TH E FOLLOWING REASONS - A. THE JOB WORK CONTRACTS GIVEN BY THE ASSESSEE TO OTHER PARTIES DID NOT INVOLVE THE TRANSFER OF ANY OBLIGAT IONS OR RISKS ATTACHED TO THE PRINCIPAL CONTRACT RECEIVED B Y THE ASSESSEE AND HENCE, THE SAID CONTRACTS WERE NOT IN THE NATURE OF 'SUB CONTRACTS'. B. THE ASSESSEE HAD ENTERED INTO SEPARATE CONTRACTS WITH THE OTHER PARTIES FOR JOB WORK WHICH WERE INDEPENDE NT FROM THE PRINCIPAL CONTRACT RECEIVED BY THE ASSESSE E AND HENCE, THE SAID CONTRACTS WERE NOT IN THE NATURE OF 'SUB CONTRACTS'. C. SINCE THE ASSESSEE HAD NOT ENTERED INTO ANY SUB CONTRACTS, HE WAS NOT REQUIRED TO DEDUCT TDS U/S 194C(2) OF THE ACT AND HENCE, THE DISALLOWANCE U/S 40(A)(IA) IS NOT JUSTIFIED ON THE FACTS OF THE CASE . WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSESSE E SUBMITS THE FOLLOWING GROUNDS - 4] THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T THE DISALLOWANCE U/S 40(A)(IA) CAN BE MADE ONLY IN RESP ECT OF THE AMOUNT PAYABLE AS AT THE YEAR END AND HENCE, EV EN IF, ANY DISALLOWANCE IS TO BE MADE, THE SAME MAY BE RESTRICTED TO RS. 20,52,720/- I.E. THE AMOUNT PAYAB LE AS ON 31.03.2007. 5] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MACHI NING OF AUTOMOBILE PARTS, WHEREIN HE CARRIED OUT THE WORK O F ROUGHING AND FINISHING OF RAW MATERIAL ON CNC MACHINES PART OF WHICH IS DONE THROUGH JOB WORK. 3. THE FIRST ISSUES PERTAINS TO DISALLOWANCE OF 1,46,95,052/- U/S.40(A)(IA) OF THE ACT. THE ASSESSING OFFICER HA S NOTICED THAT IN THE AUDIT REPORT THERE WAS MENTION OF NON-DEDUCTION OF TDS ON PAYMENT OF 1,46,95,052/- BEING LABOUR CHARGES. ACCORDINGLY, THE ASSESSING OFFICER CONFRONTED THE ASSESSEE ON TH IS ISSUE. 3 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA HOWEVER, NO REPLY WAS FILED BY THE ASSESSEE. ACCOR DINGLY, THE ASSESSING OFFICER HAS DISALLOWED THE SAME U/S.40(A) (IA) OF THE ACT. 3.1 THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAS UPHE LD THE ORDER OF ASSESSING OFFICER. BEFORE US, THE LEARNED AUTHO RIZED REPRESENTATIVE HAS REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND RELIED ON SOME CASE LAWS TO S UPPORT HIS CONTENTION. IN SUM AND SUBSTANCE, THE LEARNED AUTH ORIZED REPRESENTATIVE HAS SUBMITTED THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF 1,46,95,052/- U/S.40(A)(IA) OF THE ACT MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASS ESSEE OUGHT TO HAVE DEDUCTED TDS ON THE LABOUR CHARGES PAID OF RS.1,46,95,052/-. THE CIT(A) ERRED IN HOLDING THAT THE PAYMENT OF LABOUR CHARGES BY THE ASSESSEE WERE IN THE NATUR E OF SUB CONTRACT PAYMENTS AND HENCE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON THE SAID PAYMENTS. THE CIT(A) ERRE D IN HOLDING THAT THE ASSESSEE HAD ALLOTTED SUB CONTRACTS TO OTH ER PARTIES AND HENCE, THE ASSESSEE WAS LIABLE TO DEDUCT TDS UNDER THE PROVISIONS OF SECTION 194C(2) OF THE ACT. THE CIT( A) ALSO FAILED TO APPRECIATE THAT THE DISALLOWANCE U/S 40(A)(IA) WAS NOT JUSTIFIED BECAUSE THE JOB WORK CONTRACTS GIVEN BY THE ASSESSE E TO OTHER PARTIES DID NOT INVOLVE THE TRANSFER OF ANY OBLIGAT IONS OR RISKS ATTACHED TO THE PRINCIPAL CONTRACT RECEIVED BY THE ASSESSEE AND HENCE, THE SAID CONTRACTS WERE NOT IN THE NATURE OF 'SUB CONTRACTS'. THE ASSESSEE HAD ENTERED INTO SEPARATE CONTRACTS WITH THE OTHER PARTIES FOR JOB WORK WHICH WERE INDE PENDENT FROM THE PRINCIPAL CONTRACT RECEIVED BY THE ASSESSEE AND HENCE, THE SAID CONTRACTS WERE NOT IN THE NATURE OF 'SUB CONTR ACTS'. SINCE THE ASSESSEE HAD NOT ENTERED INTO ANY SUB CONTRACTS , HE WAS NOT 4 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA REQUIRED TO DEDUCT TDS U/S 194C(2) OF THE ACT AND H ENCE, THE DISALLOWANCE U/S 40(A)(IA) IS NOT JUSTIFIED ON THE FACTS OF THE CASE. ACCORDINGLY, THE ASSESSEE SHOULD BE GRANTED RELIEF. THE LEARNED AUTHORIZED REPRESENTATIVE HAS RELIED ON THE FOLLOWI NG DECISIONS OF ITAT, PUNE BENCH I) ITO VS. M/S. GAURIMAL MAHAJAN & SONS IN ITA NO.1852/PN/2012 II) MR. VIJAY RAMCHANDRA SHIRSTH VS. ACIT IN ITA NO.1241/PN/2009 & ANOTHER ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A) AN D SUBMITTED THAT THE CIT(A) WAS JUSTIFIED IN CONFIRMING THE DIS ALLOWANCE OF 1,46,95,052/- U/S.40(A)(IA) OF THE ACT MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE OUGHT TO HA VE DEDUCTED TDS ON THE LABOUR CHARGES PAID OF 1,46,95,052/-. HE FURTHER SUBMITTED THAT THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE PAYMENT OF LABOUR CHARGES BY THE ASSESSEE WERE IN T HE NATURE OF SUB CONTRACT PAYMENTS AND HENCE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON THE SAID PAYMENTS UNDER THE PROVISI ONS OF SECTION 194C(2) OF THE ACT. 3.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING OUT JOB WORK BUSINESS. REGARDING THE DISALLOWANCE OF 1,46,95,052/- U/S. 40(A)(IA) OF THE ACT, THE STAND OF THE ASSESSE E HAS BEEN THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD P AID LABOUR CHARGES. THE ASSESSING OFFICER HAS NOTED THAT IN T HE TAX AUDIT REPORT, THE AUDITOR HAD MENTIONED THAT AN AMOUNT OF L,46,95,052/- IS NOT ADMISSIBLE U/S 40(A)(IA) OF TH E ACT. THE ASSESSING OFFICER HAS RELIED UPON THE SAID REMARK O F THE AUDITOR WHILE MAKING THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT. IN THIS REGARD, THE STAND OF THE ASSESSEE HAS BEEN THAT THE DISALLOWANCE 5 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA MADE U/S.40(A)(IA) OF THE ACT IS NOT JUSTIFIED. TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF MACHINING OF AUTOMOBILE PARTS WITH RESPECT TO JOB WORK ON CNC MACHINES. THE ASSESSEE RECEIVES THE ORDERS FROM VARIOUS COMPANIES FOR ROUGHING AND FINI SHING OF THE RAW MATERIAL PROVIDED BY THE CUSTOMER. THE RAW MAT ERIAL IS SUPPLIED BY THE CUSTOMER AND THE ASSESSEE DOES THE MACHINING WORK THROUGH USE OF CNC MACHINES. SOMETIMES, THE R AW MATERIAL PROVIDED BY THE CUSTOMER IS REQUIRED TO BE ROUGHENED AND THE ROUGHING CANNOT BE DONE AT THE ASSESSEE'S P REMISES SINCE THE ASSESSEE DOES NOT HAVE THE REQUISITE PLAN T AND MACHINERY. FOR THAT PURPOSE, THE ASSESSEE ASSIGNS THE JOB TO OTHER PARTIES FOR ROUGHING THE RAW MATERIAL AND LAT ER ON, THE FINISHING IS DONE BY THE ASSESSEE BY USING ITS CNC MACHINES. THE PROVISIONS OF SECTION 194C WAS AMENDED FROM 01. 06.2007 AND THE OBLIGATION TO DEDUCT TDS WAS INTRODUCED IN RESPECT OF CONTRACTS AWARDED BY INDIVIDUALS AND HUFS WHO WERE LIABLE FOR GETTING THE BOOKS AUDITED U/S.44AB. TILL 31.05.200 7, THE INDIVIDUALS WERE NOT REQUIRED TO DEDUCT TDS IN RESP ECT OF THE CONTRACTS AWARDED BY THEM. THE OBLIGATION TO DEDUC T TDS WAS ONLY IN RESPECT OF SUB CONTRACTS AWARDED BY THE IND IVIDUALS. THE YEAR UNDER THE APPEAL IS A.Y. 2007-08 I.E. RELEVANT TO F.Y. 2006- 07. AS CLARIFIED ABOVE, IN F.Y. 2006-07, THE ASSES SEE BEING AN INDIVIDUAL WAS NOT LIABLE TO DEDUCT TDS ON THE PAYM ENTS TO CONTRACTORS AND HE WAS LIABLE TO DEDUCT TAX ONLY ON THE PAYMENTS MADE TO SUB CONTRACTORS. 3.3 NOW, THE ISSUE ARISES IS AS TO WHETHER THE LABO UR CHARGES PAID BY THE ASSESSEE ARE IN THE NATURE OF CONTRACT AWARDED BY THE ASSESSEE OR SUB CONTRACT AWARDED. THE CUSTOMER PRO VIDES THE RAW MATERIAL TO THE ASSESSEE FOR CARRYING OUT CERTA IN JOB WORK. SINCE THE ASSESSEE DO NOT HAVE CERTAIN MACHINES AND HENCE, THE ASSESSEE IN TURN, GIVES THE CONTRACT TO OTHER LABOU R CONTRACTORS TO 6 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA 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 JINABAKUL FORGE PVT. LTD. FOR WHOM THE A SSESSEE DO THE JOB WORK, WHEREIN IT IS CLEARLY MENTIONED THAT REJECTION UPTO 1% IS ALLOWED AND REJECTION MORE THAN 1% WOULD BE T O THE ASSESSEE'S ACCOUNT. WHEN THE ASSESSEE GIVES THE CO NTRACT TO THE OTHER LABOUR CONTRACTOR, IT IS A CONTRACT BETWEEN T HE ASSESSEE AND THE LABOUR CONTRACTOR AND THE ORIGINAL CUSTOMER IS NOT AT ALL INVOLVED IN THE SAME. IN CASE, THE LABOUR CONTRACT OR DOES NOT CARRY OUT THE JOB OR DOES A FAULTY JOB, THE ASSESSE E IS LIABLE TO THE ULTIMATE CUSTOMER AND NOT THE LABOUR CONTRACTOR. A CCORDINGLY, THAT THE LABOUR CONTRACT GIVEN BY THE ASSESSEE IS I N THE NATURE OF SEPARATE CONTRACT OF WORK AND THEREFORE, ASSESSEE W AS NOT LIABLE TO DEDUCT TDS UNDER THE PROVISIONS OF SECTION 194C. 3.4 THE ASSESSEE IS FULLY RESPONSIBLE FOR EXECUTIN G THE MAIN CONTRACT AND THE LABOUR CONTRACTOR HAS NO RELATION WITH THE PRINCIPAL JINABAKUL FORGE PVT. LTD. ONE OF THE MAI N FEATURES FOR A CONTRACT TO QUALIFY AS A SUBCONTRACT IS THAT THE SUBCONTRACTOR SHOULD BE ELIGIBLE NOT JUST FOR THE REWARDS BUT ALS O RISK ASSOCIATED WITH THE EXECUTION OF THE MAIN CONTRACT OF THE PRINCIPAL. THE MAIN ELEMENT OF RISK OF THE ALLEGED SUBCONTRACT IS MISSING IN ASSESSEE'S CASE AND THEREFORE, THE PAYME NTS MADE BY THE ASSESSEE TO VARIOUS LABOUR CONTRACTORS FOR ABOV E MENTIONED WORKS COULD NOT SAID TO BE AS PAYMENT TO SUBCONTRAC TOR. THE PROVISIONS OF SECTION 194C(2) DEALS WITH PAYMENTS T O CONTRACTORS. ACCORDINGLY, IN CASE ANY PERSON RESPONSIBLE FOR PAY ING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK IN PURSUA NCE OF A CONTRACT BETWEEN THE CONTRACTOR AND SPECIFIED PERSO N SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CO NTRACTOR 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, D EDUCT TAX AT 7 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA SOURCE AS STIPULATED UNDER THE PROVISIONS OF SECTIO N 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 RELEVANT CLA USE READS AS UNDER: 'NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION'. (A). IN THE CASE OF ANY ASSESSEE ... (I). (IA) ANY INTEREST, COMMISSION OR BROKERAGE [RENT, R OYALTY], FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICA L SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUBCONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY 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.' 3.6 THE ASSESSEE HAS IN FACT, ENGAGED VARIOUS LABOU R CONTRACTORS AS DISCUSSED ABOVE FOR WHICH, THE ASSES SEE HIMSELF WAS RESPONSIBLE FOR EXECUTING THE CONTRACT AND THE LABOUR CONTRACTORS HAD NO PRIVACY OF CONTRACT WITH PRINCIP AL CUSTOMER. NO RISK FACTOR WAS ASSOCIATED WITH THE ALLEGED SUBC ONTRACT. THE WHOLE CONTROL OF THE WORK WAS IN THE HANDS OF THE A SSESSEE AND LABOUR CONTRACT WAS EXECUTED UNDER THE FULL CONTROL OF THE ASSESSEE HIMSELF. FOR A CONTRACT TO QUALIFY AS A S UBCONTRACTOR, THE SUBCONTRACTOR SHOULD SPEND THEIR TIME AND ENERG Y AND ALSO UNDERTAKE THE RISK ATTACHED WITH THE MAIN CONTRACT. AS THE ELEMENT OF RISK TAKING WAS MISSING, THE CONTRACT CO ULD NOT BE HELD AS SUBCONTRACT. ACCORDINGLY, THE PAYMENTS MAD E TO THE 8 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA LABOUR CONTRACTORS ARE NOT IN THE NATURE OF SUB-CON TRACTS AND HENCE, THERE WAS NO OBLIGATION ON THE ASSESSEE TO D EDUCT 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 T HE SAME ISSUE WHICH WAS DEALT AS UNDER: 5. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE W AS AWARDED THE CONTRACT ON THE BASIS OF PARTICIPATION IN VARIOUS TENDERS. FOR EXECUTING THE CONTRACT, THE ASSESSEE HAD TO ENGAGE THE SERVICES OF OUTSIDE PARTIES IN VARIOUS W ORKS. TO BE PRECISE, THE ASSESSEE ENGAGED THE SERVICES OF OU TSIDE PARTIES FOR CENTRING, TILING AND FABRICATION WORK A ND TILING WORKS, FOR WHICH PAYMENTS EXCEEDED RS.50,000 IN EAC H CASE. THE ASSESSEE IS CARRYING ON CIVIL WORK IN IN DIVIDUAL CAPACITY. 5.1. THE PROVISIONS OF SECTION 194C(2), DEALS WITH PAYMENTS TO CONTRACTORS . ACCORDINGLY, IN CASE ANY PERSON R ESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRAC TOR AND SPECIFIED PERSON SHALL AT THE TIME OF CREDIT OF SUC H SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAY MENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT TAX AT SOU RCE AS STIPULATED UNDER THE PROVISIONS OF SECTION 194(2) O F THE ACT. THE PROVISIONS OF SECTION 40(A)(IA) DEALS WITH THE DEDUCTIBILITY OF AMOUNT DEDUCTIBLE AND RELEVANT CLA USE READS AS UNDER: NOTWITHSTANDING 5.2. THE ISSUE BEFORE US IS WHETHER PAYMENT HAS BEE N MADE FOR CENTRING, TILING AND FABRICATION WORK AMOU NTS TO PAYMENT TO CONTRACTOR OR SUB-CONTRACTOR SO AS TO IN VOKE PROVISIONS OF SECTION 194C (2) FOR THE PURPOSE OF T DS AND ALLOWABILITY OF SAME AS PER PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT. WE FIND FROM THE SAMPLE COPY OF TENDER DO CUMENT OF SAGUNA WHERE IN ONE OF THE CONDITION BETWEEN THE 9 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA PRINCIPAL AND THE ASSESSEE IN RESPECT OF THE CONTRA CT TO BE EXECUTED IS THAT THE ASSESSEE WAS PROHIBITED TO SUB CONTRACT ANY PART OF HIS WORK WITHOUT WRITTEN PERMISSION OF ARCHITECT/COMPANY. THERE IS NOTHING ON RECORD TO S UGGEST THAT ANY SUCH WRITTEN PERMISSION OR OTHER WORK WA S CLAIMED BY THE ASSESSEE. EVEN THE REMAND REPORT IN THIS REGARD WAS CALLED FOR IN A.Y. 2006-07, HOWEVER, TH E CIT(A) CONCLUDED BY STATING THAT THE ASSESSEE COULD NOT TA KE SHELTER OF THIS CLAUSE AND THE PAYMENTS MADE WERE PAYMENTS TOWARDS SUBCONTRACTING. THIS APPROACH OF THE REVENUE IS NOT JUSTIFIED BECAUSE THE BURDEN IS ON T HE REVENUE TO ESTABLISH THAT THE ASSESSEE, IN FACT, HA S VIOLATED THE TERMS OF CONDITIONS OF SUBCONTRACTING THE CONTR ACT GRANTED BY THE PRINCIPAL. THE ASSESSEE HAS IN FACT ENGAGED VARIOUS AGENCIES AS DISCUSSED ABOVE FOR WHICH, THE ASSESSEE ITSELF WAS RESPONSIBLE FOR EXECUTING THE CONTRACT A ND ALLEGED AGENCIES OF SUBCONTRACT HAD NO PRIVACY OF CONTRACT WITH PRINCIPAL. NO RISK FACTOR WAS ASSOCIATED WITH THE A LLEGED 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 S UCH DISCRETION WITH ALLEGED SUBCONTRACTOR FOR EXECUTING THE ABOVE WORKS. THEY WERE EXECUTING THE WORK AS PER REQUIREMENT OF TENDER UNDER FULL CONTROL AND SUPERV ISION OF ASSESSEE. THIS VIEW IS FORTIFIED BY THE DECISION I N THE CASE OF MYHTRI TRANSPORT CORPORATION VS. ACIT, 124 ITD 40(VISHAKHAPATNAM), WHEREIN THE TRIBUNAL HAS HELD T HAT FOR A CONTRACT TO QUALIFY AS A SUBCONTRACTOR, THE SUBCO NTRACTOR SHOULD SPEND THEIR TIME AND ENERGY AND ALSO UNDERTA KE THE RISK ATTACHED WITH THE MAIN CONTRACT. AS THE ELEME NT OF RISK TAKING WAS MISSING, THE CONTRACT COULD NOT BE HELD AS SUBCONTRACT. WHILE PASSING THE ABOVE SAID ORDER, TH E TRIBUNAL HAS TAKEN INTO CONSIDERATION THE DECISION REPORTED IN 163 ITR 702 (HIMACHAL). SIMILARLY, IN THE CASE O F R.R. CARRYING CORPORATION VS. ACIT, 126 TTJ 2240(/CTK), IT HAS BEEN HELD BY THE TRIBUNAL THAT THE AO HAS TO ESTABL ISH THAT RELATIONSHIP WAS THAT OF A CONTRACTOR AND SUBCONTR ACTOR. THERE WAS NO WRITTEN NOR REAL AGREEMENT TO SUBSTANT IATE THE VIEW TAKEN BY THE AO AND THEREFORE, IT CANNOT BE HE LD TO BE A CONTRACT. WE ARE AWARE OF THE FACT THAT THE AGREE MENT CAN BE ORAL BUT THE ESSENCE OF CONTRACT LIES ON THE FA CT WHETHER ASSESSEE HAD THE CONTROL OF THE WORK I.E. THE MANN ER IN WHICH THE WORK HAS TO BE DONE. IN CASE IT LIES WIT H THE ASSESSEE THEN IT IS NOT THE SUBCONTRACT SO AS TO AT TRACT THE PROVISIONS OF SECTION 194C(2) OF THE ACT AND SUBSEQ UENTLY THE RIGOUR OF SECTION 40(A)(IA) WOULD NOT COME INTO PLAY FOR EXECUTING CENTRING, TILING AND FABRICATION THROUGH DIFFERENT 10 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA PERSONS. IN INSTANT CASE, THE CONTROL LIES WITH THE ASSESSEE AND THE ALLEGED SUBCONTRACTOR ARE MERELY EXECUTING THE WORK OF CENTRING AND FABRICATION UNDER THE FULL CON TROL OF THE ASSESSEE ITSELF. EVEN NOMENCLATURE USED BY PARTIES AS SUBCONTRACT DOES NOT CHANGE THE REAL SPIRIT OF CONT RACT. UNDER FACTS AND CIRCUMSTANCES, REVENUE AUTHORITIES WERE NOT JUSTIFIED IN MAKING DISALLOWANCE BY INVOKING PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT. SAME IS DIRECTED T O 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 C ASE OF VIJAY RAMCHANDRA SHIRSTH (SUPRA), THE TRIBUNAL HAS DECIDE D THE ISSUE IN FAVOUR OF ASSESSEE BY FOLLOWING THE DECISION OF CUTTACK BENCH IN THE CASE OF R.R. CARRYING CORPORATION VS. ACIT, 126 TTJ 2240(/CTK) AND IN TURN, THE SAME GOT STRENGTH FROM THE DECISION IN THE CASE OF MYHTRI TRANSPORT CORPORATION VS. ACI T, 124 ITD 40 (VISHAKHAPATNAM), WHEREIN THE TRIBUNAL HAS HELD THA T FOR A CONTRACT TO QUALIFY AS A SUBCONTRACTOR, THE SUBCONT RACTOR SHOULD SPEND THEIR TIME AND ENERGY AND ALSO UNDERTAKE THE RISK ATTACHED WITH THE MAIN CONTRACT. 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 RE AL AGREEMENT TO SUBSTANTIATE THE VIEW TAKEN BY THE ASSESSING OFF ICER 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 ESS ENCE 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 DO NE. IN CASE IT LIES WITH THE ASSESSEE THEN IT IS NOT THE SUBCONTRA CT SO AS TO ATTRACT THE PROVISIONS OF SECTION 194C(2) OF THE AC T AND SUBSEQUENTLY THE RIGOUR OF SECTION 40(A)(IA) WOULD NOT COME INTO PLAY FOR EXECUTING WORK OF ROUGHING AND FINISHING O F JOB WORK. UNDER THE FACTS AND CIRCUMSTANCES, THE AUTHORITIES BELOW WERE 11 ITA NO.325 OF 13 SHRI PREMPRAKASH VISHWAKARMA NOT JUSTIFIED IN MAKING DISALLOWANCE U/S.40(A)(IA). THE SAME IS DIRECTED TO BE DELETED. BEFORE PARTING WITH THIS D ECISION WE WANT TO MAKE IT CLEAR THAT THE ALTERNATIVE PLEA TAKEN BY THE ASSESSEE ON LEGAL ISSUE GOES ACADEMIC. SO, WE ARE NOT ADDRESSI NG THE SAME. HOWEVER, THE ASSESSEE IS AT LIBERTY TO RAISE THE SA ME AS AND WHEN NEED ARISES. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 30 TH OF JUNE, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH JUNE, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-V, PUNE 4) THE CIT-V, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE