ITO, Chitradurga V. M/s Associated Engg. & Contractors, Chitradurga

ITA 758/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8572 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-01-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI; JASON P BOAZ
• Assessee Lawyers: RAMASUBRAMANIYAN
• Keywords: TDS
• Section: 142(1); 40(a)(ia); 194C; 143(1)

Judgement Text

PAGE 1 OF 5 ITA NO.758/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A' BEFORE SHRI K P T THANGAL, VICE PRESIDENT AND SHRI N L KALRA, A.M. ITA NO.758/BANG/2009 (ASST. YEAR 2006-07) THE INCOME TAX OFFICER, WARD-1, CHITRADURGA. - APPELLANT VS M/S ASSOCIATED ENGG. & CONTRACTORS, APMC YARD, CHITRADURGA. - RESPONDENT APPELLANT BY : SMT. JACINTA ZIMIK VASHAI & SHRI JASON P BOAZ RESPONDENT BY : SHRI RAMASUBRAMANIYAN O R D E R PER K P T THANGAL, VICE PRESIDENT : THE REVENUE HAS FILED AN APPEAL FOR THE ASST. YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND OF OBJECTION BY THE REVENUE IS AGAINST THE ORDER OF LEARNED CIT(A), IN DELETING THE ADDITIONS OF RS.9,37,000/- BEING ADDITIONS MADE U/S 40(A)(IA) OF THE I T ACT AS SECTION 194C IS NOT APPLICABLE FOR T HE REASONS THAT PAYMENTS ARE MADE DIRECTLY TO LABOURERS THROUGH THREE GROUP LEADERS BY CASH. THE REVENUE'S OBJECTION IS T HAT THE FACTS SUGGEST OTHERWISE. PAGE 2 OF 5 ITA NO.758/BANG/2009 2 3. THE ASSESSEE FIRM, ENGAGED IN CONTRACT BUSINESS , FILED RETURN OF INCOME ON 31.10.2006 DECLARING A TO TAL INCOME OF RS.1,79,120/-. THE RETURN WAS PROCESSED U/S 143(1) AND RS.1.93,420/- WAS REFUNDED. CASE WAS SUBSEQUENTLY S ELECTED FOR SCRUTINY. NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED. ON VERIFICATION OF THE BOOKS OF ACCOUNT, I T WAS NOTICED THAT THE ASSESSEE FIRM HAS PAID LABOUR CHARGES OF R S.3,16,500/- TO SRI JAGADISH, RS.2,90,700/- TO SRI B POLIREDDY AN D RS.3,29,800/- TO SRI B CHANDRA WITHOUT MAKING TDS D EDUCTION U/S 194C. AS NO TDS WERE DEDUCTED, PAYMENT AMOUNTIN G TO RS.9,37,000/- WAS DISALLOWED AS PER SECTION 40(A)(I A). AGGRIEVED BY THE ABOVE ORDER, THE ASSESSEE APPROACHE D THE FIRST APPELLATE AUTHORITY. 4. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE VIDE PARA 7.2 OF HIS ORDER, OBSERVING AS U NDER:- 'IN RESPECT OF LABOUR CHARGES PAID TO 3 PERSONS, IT IS STATED BY AR THAT SAME HAS BEEN WRONGLY INTERPRETED CONSIDERING THAT ACTUAL PAYMENT IS MADE TO 3 PERSONS ONLY BUT AFTER PERUSAL OF DETAILED LEDGER ACCOUNTS, IT IS CLEAR THAT LABOUR PAYMENTS ARE MADE THROUGH THESE 3 PERSONS FOR SAKE OF CONVENIENCE LIKE SHRI JAGADISH, SHRI POLIREDDY AND SRI CHANDRA, BUT THEY ARE NOT SUB CONTRACTORS BUT GROUP LEADERS AMONG LABOURERS THROUGH WHOM LABOUR CHARGES ARE PAID. I HAVE PERUSED LABOUR PAYMENT LEDGER ACCOUNT AND SEEN THAT ON ANY DAY PAYMENTS PAGE 3 OF 5 ITA NO.758/BANG/2009 3 MADE BY THESE 3 PERSONS DOES NOT EXCEED RS.20,000/- TO ANY LABOURERS. IT IS ALSO STATED BY AR THAT THESE MATERIALS ARE PLACED BEFORE AO BUT SAME ARE NOT CONSIDERED. HOWEVER, IN VIEW OF PAYMENT BELOW RS.20,000/- TO ANY LABOUR AND DOES NOT EXCEED RS.50,000/- TO ANY LABOUR IN A FINANCIAL YEAR, THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE. THEREFORE, AO IS DIRECTED TO DELETE ADDITION.' AGGRIEVED BY THE ABOVE ORDER, REVENUE IS IN APPEAL B EFORE US. 5. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED AR SUBMITTED THAT THE PERSONS CONCERNED, WHOM THE ASSESSING OFFICER TREAT ED AS SUB CONTRACTORS, WERE IN FACT NOT SUB-CONRACTORS BUT ON LY LABOURERS AND THERY ARE LEADER OF THE LABOURERS. IN VIEW OF THE ABOVE, THE LEARNED AR SUBMITTED THAT SECTION 194C IS NOT A PPLICABLE. THE LEARNED AR SUBMITTED THAT THE DECISION RELIED B Y LEARNED DR IN THE CASE OF ASSOCIATED CEMENT COMPANY LTD. VG CIT 201 ITR 435 IS DISTINGUISHABLE ON FACTS. HE SUBMITTED THAT, THAT WAS THE PAYMENTS MADE TO CONTRACTOR WHEREAS IN THE I NSTANT CASE, THE PAYMENT IS TO INDIVIDUAL LABOURERS AND THE AMOUNT DOES NOT EXCEED RS.20,000/- TO RS50,000/- MAXIMUM. THE PAYMENTS WERE NOT MADE TO SUB-CONTRACTORS. THE LEA RNED AR PRODUCED A PAPER BOOK CONTAINING 12 PAGES. PAGES 4 TO 8 ARE THE PAYMENT DETAILS. PAGES 1 TO 3 ARE THE WRITTEN S UBMISSIONS MADE BEFORE THE LEARNED FIRST APPELLATE AUTHORITY. PARA 2.3 OF PAGE 4 OF 5 ITA NO.758/BANG/2009 4 THE WRITTEN SUBMISSION, READS AS UNDER, WAS ALSO PR ESSED BEFORE US:- '2.3 WHILE ON THIS POINT, IT MAY BE MENTIONED HERE THAT THE LEARNED AO HAS REPRODUCED THE PROVISIONS OF SECTION 194C(2) OF THE ACT REQUIRING DEDUCTION OF TAX ON PAYMENTS MADE TO SUB-CONTRACTORS POSSIBLY WITH A VIEW TO CONSIDER THE PAYMENTS MADE AS LABOUR CHARGES AS PAYMENTS TO SUB-CONTRACTOR IS A PERSON, WHO UNDERTAKE AND EXECUTES THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE MAIN CONTRACTOR. THE SUB-CONTRACTORS THEREFORE, STEPS INTO THE SHOES OF THE CONTRACTORS AND CARRIES OUT THE WORK BY ENGAGING RESOURCES BELONGING TO HIM. THUS, A SUB-CONTRACTOR IS A PERSON WHO ASSUMES THE RISKS ASSOCIATED WITH THE BUSINESS OF THE CONTRACTOR AND IS RESPONSIBLE TO THE CONTRACTOR FOR THE WORKS UNDERTAKEN. CONSIDERING THAT THE NATURE OF PAYMENTS MADE BY THE APPELLANT IS LABOUR CHARGES AND THERE IS ALSO NO DISPUTE ON THIS SCORE, THE PERSONS RECEIVING THE PAYMENTS TOWARDS LABOUR CHARGES CANNOT BE CONSIDERED AS SUB-CONTRACTOR IN AS MUCH AS, NO PART OF THE WORK UNDERTAKEN BY THE APPELLANT HAS BEEN ENTRUSTED TO HIM FOR EXECUTION AND HE IS ONLY EMPLOYED BY THE CONTRACTOR FOR DOING THE WORK. ALL THAT THE PAYMENTS MADE REPRESENT ARE THE WEEKLY WAGES PAID AND LABELED AS LABOUR CHARGES BY THE APPELLANT, WHO IS THE CONTRACTOR, AND THEREFORE, THE PROVISIONS OF SECTION 194C(2) OF THE ACT ARE ALSO INAPPLICABLE AND THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT CANNOT BE SUSTAINED ON THIS SCORE. THUS, THE DISALLOWANCE MADE BY THE LEARNED AO IS PAGE 5 OF 5 ITA NO.758/BANG/2009 5 OPPOSED TO LAW AND FACTS OF THE APPELLANT'S CASE AND REQUIRES TO BE DELETED'. 6. CONSIDERING THE RIVAL SUBMISSION AND ON GOING THROUGH THE ORDER OF THE REVENUE AUTHORITIES, WE AR E OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THE MATTER HA S TO GO TO THE ASSESSING OFFICER TO REDO THE ISSUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 16TH FEBRUARY, 2010. SD/- SD/- (N L KALRA) (K P T THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DTD.16/2/2010 COPY TO : 1. THE ASSESSEE 2.THE REVENUE 3. THE CIT( A) CONCERNED.4. THE CIT CONCERNED. 5. THE DR 6. GUAR D FILE. 7. GF, ITAT, NEW DELHI. MSP/3.2. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. PRONOUNCED IN THE OPEN COURT ON THIS 16TH DAY OF FEBRUARY, 2010. SD/- SD/- (MOHAN A ALANKAMONY) (K P T THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT