The Asstt. Commr. Income Tax, Cir.-3(1), RAJKOT-GUJARAT V. Shri Jagdishbhai K. Bharadia, RAJKOT-GUJARAT

ITA 696/RJT/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2233 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 04-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S ANJARIA
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER [CONDUCTED THROUGH E COURT AT ITAT, AHMEDABAD] ./ ITA.NO.696/RJT/2014 / ASSTT. YEAR: 2007-2008 A C IT, CIR.3(1) RAJKOT. VS SHRI JAGDISHBHAI K. BHARADIA, C/O. SAURASHTRA IRON FABRICATORS 16B, ANKUR COMMERCIAL COMPLEX, GONDAL ROAD RAJKOT. / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI C.S. ANJARIA, DR ASSESSEE BY : NONE / DATE OF HEARING : 10/02/2016 / DATE OF PRONOUNCEMENT: 16/03/2016 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF THE LD.CIT(A)-IV, RAJKOT DATED 24.9.2014 PASSED FOR THE ASSTT.YEAR 2007- 08. 2. THOUGH THE REVENUE HAS TAKEN FOUR GROUNDS OF APP EAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE, WHEREBY I T HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.67,10,356/- WHICH WAS ADDED BY THE AO WITH THE AID OF SECTION 4 0(A)(IA) OF THE INCOME TAX ACT, 1961. ITA NO.696/RJT/2014 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ON 22.2.2009 DECLARING TOTAL INCOME AT RS.16 ,63,920/-. ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) ON 30.11.2009 ASSESSING THE INCOME OF THE ASSESSEE AT RS.18,05,13 0/-. THE AO, THEREAFTER, REOPENED THE ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECITON148 OF THE INCOME TAX ACT. THE CASE OF THE AO WAS THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM CONT RACT WORK OF MAINTENANCE. HE HAS CARRIED OUT THE JOB WORK AND I NCURRED EXPENDITURE ON LABOUR AND FABRICATION WORK. ACCORDING TO THE AO, THE ASSESSEE HAS MADE PAYMENT OF RS.67,10,356/- TO THIS ALLEGED SUB- CONTRACTOR AND FAIL TO DEDUCT THE TDS. THEREFORE, THIS AMOUNT DESERVES TO BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT. ACC ORDINGLY, THE LD.AO HAS MADE ADDITION OF RS.67,10,356/-. HE WORKED OUT THE TOTAL INCOME OF RS.85,15,490/-. 4. ON APPEAL, THE LD.CIT(A) HAS DELETED THE ADDITIO N BY OBSERVING AS UNDER: 7. I HAVE CONSIDERED CAREFULLY, THE SUBMISSIONS MA DE BY THE APPELLANT AND THE ASSESSMENT ORDER PASSED BY THE AS SESSING OFFICER AND ALSO THE AVAILABLE CASE LAW ON THE ISSUE UNDER APPEAL. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS SOME FORCE IN THE ARGUMENTS MADE BY THE AUTHORIZED REPRE SENTATIVE IN SAYING THAT THE ASSESSING OFFICER DID NOT BRING OUT ANY MATERIAL ON RECORD TO COME TO A CONCLUSION OR ALLEGE THAT THEIR EXISTED A SPECIFIC CONTRACT BETWEEN THE APPELLANT AND THE PER SONS WHO CARRIED OUT JOB WORKS AND FABRICATION WORK TO WHOM THE IMPUGNED PAYMENTS ARE MADE. AS SEEN FROM THE ASSESSMENT ORDE R, NO SUCH ANALYSIS HAS BEEN MADE BY THE ASSESSING OFFICER WIT H REFERENCE TO FUNCTIONS PERFORMED, ASSETS DEPLOYED AND RISKS TAKE N BY THE ITA NO.696/RJT/2014 3 PERSONS WHO HAVE CARRIED OUT THE JOB WORK / FABRICA TION WORK FOR THE APPELLANT SO AS TO CATEGORIZE THEM AS SUB-CONTR ACTORS. IT IS NOT CORRECT TO SAY THAT EVERY PERSON WHO UNDERTAKES SOM E WORK FOR SOME OTHER PERSON CANNOT BECOME AUTOMATICALLY A SUB -CONTRACTOR AS UNDERSTOOD IN THE PARLANCE OF COMMERCIAL SENSE. IN ORDER TO CATEGORIZE A PERSON AS A SUBCONTRACTOR, IT IS NECES SARY TO EXAMINE THE FUNCTIONS AND RISKS ASSUMED BY SUCH PERSON. THE AUTHORIZED REPRESENTATIVE IN THE SUBMISSIONS MADE SUPRA HAS ST ATED THAT THE APPELLANT IS RESPONSIBLE FOR ALL THE ACTS AND DEFAU LTS COMMITTED IN THE MAINTENANCE CONTRACTS UNDERTAKEN FOR THE CEMENT PLANTS. HE FURTHER STATED THAT THE APPELLANT HAS DEPLOYED HIS OWN RESOURCES IN TERMS OF MANPOWER, MATERIAL ETC. AND ALSO ASSUMED T HE LEGAL AND FINANCIAL LIABILITIES ASSOCIATED WITH THE CONTRACTS UNDERTAKEN. THE AUTHORIZED REPRESENTATIVE ALSO SUBMITS THAT NO SUCH LIABILITIES HAVE BEEN FASTENED TO THE PERSONS WHO DID JOB WORK AND F ABRICATION WORK FOR THE APPELLANT, SO AS TO CATEGORIZE THEM AS SUB- CONTRACTORS, THEREFORE, PROVISIONS OF SECTION 194C( 2) OF THE IT ACT, 1961 ARE NOT APPLICABLE TO THE APPELLANT. SINCE, TH ERE IS NO TRANSFER OR PASS-OVER OF ANY CONTRACTUAL RESPONSIBI LITY TO THE JOB WORK AND FABRICATION WORK DONE BY OUTSIDE PERSONS A S A SUB- CONTRACTOR, THE APPELLANT BEING AN INDIVIDUAL WAS N OT RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE U/S. 194C (2) OF THE IT ACT, 1961. 8. THAT SAID, IN VIEW OF THE ABOVE DISCUSSION WITH REFERENCE TO THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CA SE OF SHRI PRASHANT H. SHAH, THE ISSUE UNDER APPEAL STANDS COV ERED IN FAVOUR OF THE APPELLANT. SINCE THE ASSESSMENT YEAR UNDER C ONSIDERATION IS 2007-08 IN THE APPELLANT'S CASE ALSO, THE PAYMENTS MADE ON ACCOUNT OF JOB WORK AND FABRICATION, THE SAME ARE N OT LIABLE FOR TDS U/S. 194C OF THE IT ACT, 1961, AS THE CLAUSE (K ) WAS INTRODUCED IN SUBSECTION (1) OF SECTION 194C OF THE IT ACT, 1961 WITH EFFECT FROM 1-6-2007. ALSO, THE PERSONS WHO UN DERTAKEN JOB WORK AND FABRICATION FOR THE APPELLANT CANNOT BE TA KEN AS SUB- CONTRACTORS IN THE ABSENCE OF ANY EVIDENCE TO THAT EFFECT IN TERMS OF PROVISIONS CONTAINED IN SECTION 194C (2) OF THE IT ACT, 1961, NO DISALLOWANCE U/S. 40(A)(IA) OF THE IT ACT, 1961 CAN BE MADE IN RESPECT OF THE IMPUGNED PAYMENTS. HENCE, THE ADDITI ON MADE AT RS. 67,10,356/- ON ACCOUNT OF DISALLOWANCE U/S. 40( A)(IA) OF THE IT ACT, 1961 STANDS DELETED. THIS GROUND OF APPEAL IS ALLOWED. ITA NO.696/RJT/2014 4 5. IN RESPONSE TO THE NOTICE OF HEARING, NO-ONE HAS COME PRESENT ON BEHALF OF THE ASSESSEE. 6. WITH THE ASSISTANCE OF THE LD.DR, WE HAVE GONE T HROUGH THE RECORD CAREFULLY. A PERUSAL OF THE CIT(A)S ORDER WOULD R EVEAL THAT THE LD.CIT(A) HAS DELETED THE DISALLOWANCE FOR TWO REAS ONS, VIZ. (A) THE OBLIGATION TO DEDUCT TDS BY AN INDIVIDUAL AND HUF F OR THE WORKS CARRIED OUT THROUGH SUB-CONTRACTOR TO WHOM THE PAYM ENTS HAVE BEEN MADE, HAS BEEN PUT THERE W.E.F. 1.6.2007. BEFORE T HAT AN INDIVIDUAL AND HUF WERE NOT UNDER ANY OBLIGATION TO DEDUCT TDS UND ER SECTION 194C WHILE MAKING PAYMENTS TO SUB-CONTRACTOR FOR CARRYIN G OUT CONTRACT WORK. ACCORDING TO THE LD.CIT(A), THIS PAYMENT WAS MADE P RIOR TO THIS ACT, AND THEREFORE, THE ASSESSEE WAS NOT SUPPOSED TO DED UCT TDS, AND (B) THE AO FAILED TO BRING ANY MATERIAL ON RECORD WHICH SUG GEST THAT RELATIONSHIP OF CONTRACTOR AND SUB-CONTRACTOR WERE IN EXISTENCE. THE ASSESSEE HAS JUST GOT ITS WORKS DONE ON LABOUR PAYM ENTS. HE HAS NOT PART WITH THE RISK AND PROFITS ASSOCIATED WITH THE CONTR ACT. THUS, HE WAS NOT SUPPOSED TO DEDUCT TDS. AS FAR AS FIRST REASON ASS IGNED BY THE CIT(A) IS CONCERNED, WE DEEM IT APPROPRIATE TO TAKE NOTE O F SECTION 194C AS APPLICABLE W.E.F. 1.6.2008. IT READS AS UNDER: 194C. ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREINAFTER IN THIS SECTION REFERRED TO AS THE CON TRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND (A) THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT; OR (B) ANY LOCAL AUTHORITY; OR ITA NO.696/RJT/2014 5 (C) ANY CORPORATION ESTABLISHED BY OR UNDER A CENTR AL, STATE OR PROVINCIAL ACT; OR (D) ANY COMPANY; OR (E) ANY CO-OPERATIVE SOCIETY; OR (F) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UNDER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNING, DEVEL OPMENT OR IMPROVEMENT OF CITIES, TOWNS AND VILLAGES, OR FOR BOTH; OR (G) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGI STRATION ACT, 1860 (21 OF 1860) OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA; OR (H) ANY TRUST; OR (I) ANY UNIVERSITY ESTABLISHED OR INCORPORATED BY O R UNDER A CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO BE A UNIVERSITY UNDER SECTION 3 OF THE UNIVERSITY GRANTS COMMISSION ACT, 1956 (3 OF 1956); OR (J) ANY FIRM; OR (K) ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY 1736 [OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS, WHETHER INCORPORA TED OR NOT, OTHER THAN THOSE FALLING UNDER ANY OF THE PRECEDING CLAUSES], WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE ( A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDIN G THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT O F THE CONTRACTOR, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT 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 AN AMOUNT EQUAL TO (I) ONE PER CENT IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT, OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN: PROVIDED THAT NO INDIVIDUAL OR A HINDU UNDIVIDED FA MILY SHALL BE LIABLE TO DEDUCT INCOME-TAX ON THE SUM CREDITED OR PAID TO TH E ACCOUNT OF THE CONTRACTOR WHERE SUCH SUM IS CREDITED OR PAID EXCLU SIVELY FOR PERSONAL PURPOSES OF SUCH INDIVIDUAL OR ANY MEMBER OF HINDU UNDIVIDED FAMILY.] 7. CLAUSE 1(K) IN THE ABOVE SECTION HAS BEEN BROUGH T ON STATUTE BOOK BY FINANCE ACT, 2007 W.E.F. 1.6.2007. THUS, THE LD .CIT(A) HAS RIGHTLY OBSERVED THAT THIS YEAR, THE ASSESSEE WAS NOT LIABL E TO DEDUCT TDS UNDER SECTION 194C OF THE INCOME TAX ACT BEING AN INDIVID UAL. AS FAR AS SECOND REASON ASSIGNED BY THE CIT(A) IS CONCERNED, WE HAVE GONE THROUGH THE RE-ASSESSMENT ORDER DATED 13.3.2013. T HE LD.AO HAS ITA NO.696/RJT/2014 6 NOWHERE CONSIDERED WHETHER THE ASSESSEE HAS ASSIGNE D HIS WORK TO THE ALLEGED SUB-CONTRACTOR BY WAY OF A WRITTEN CONTRACT OR THERE EXISTS THE TERMS ON AN ORAL UNDERSTANDING EQUIVALENT TO A WRIT TEN CONTRACTOR DEMONSTRATING THE ASSIGNMENT OF CONTRACT WITH PROFI T AND RISK. NO SUCH FACTORS HAVE BEEN CONSIDERED BY THE AO. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 16 TH MARCH, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER