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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

Income-tax Officer, Wd-1(1), Hooghly. Vs. M/s. Blue Heaven Construction Co.
May, 08th 2014
                  , Û ­ "A" ,
      IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
     (¢)Before ^  , Û  /and ^                     ,   )
              [Before Shri Mahavir Singh, JM & Shri Shamim Yahya, AM]

                             É / I.T.A No.1761/Kol/2013
                              /Assessment Year: 2007-08

Income-tax Officer, Wd-1(1), Hooghly.          Vs.      M/s. Blue Heaven Construction Co.
                                                        PAN: AAFFB5595G)
(/Appellant)                                            (×/Respondent)

                       Date of hearing: 05.05.2014
                       Date of pronouncement: 05.05.2014

                       For the Appellant: Shri D. J. Mehta, JCIT, Sr. DR
                       For the Respondent: Shri Somnath Ghosh, Advocate

                                        /ORDER
Per Shri Mahavir Singh, JM :

       This appeal by revenue is arising out of order of CIT(A)-XXXVI, Kolkata in Appeal
No. 758/CIT(A)-XXXVI/Kol/2009-10/Set aside dated 13.02.2013. Assessment was framed by
ITO, Ward-1(1), Hooghly u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as
"the Act") for Assessment Year 2007-08 vide his order dated 30.11.2009.

2.     At the outset, it is noticed that this appeal by revenue is time barred by 47 days and
revenue has filed condonation petition supported by affidavit. As the reasons stated in the
condonation petition was confronted to Ld. counsel for the assessee and in view of the same he
fairly conceded that the delay can be condoned, accordingly, we condone the delay and appeal
is admitted for hearing.

3.     The only issue in this appeal of revenue is against the order of CIT(A) deleting the
disallowance made by AO for non-deduction of TDS u/s. 194C(1) of the Act by applying the
provisions of section 40(a)(ia) of the Act. For this, revenue has raised following two grounds:
       "1. On the facts and in the circumstances of the case, Ld. CIT(A) was not justified ibn
       allowing the relief of Rs.15,07,810/- by not applying sec. 40(a)(ia) r/w sec. 194C(1).

       2. On the facts and in the circumstances of the case, Ld. CIT(A) ought to have disbelieved
       the contention of the assessee that there were two completely different sets of labour
       force in the two halves o the F.Y. 2006-07."
                                                  2                                     ITA Nos. 1761/K/2013
                                                                 M/s. Blue Heaven Construction Co. AY 2007-08


4.       Briefly stated facts are that the assessee firm carries on the business of civil

construction. In pursuance of its business assessee firm paid labour charges to the extent of
Rs.15,07,810/-. During the course of assessment proceedings assessee filed cash book, party-
wise ledger and bank book along with other details. For this, AO had recorded the following
facts:

         "The assessee made due compliance to the aforesaid notices from time to time and had
         submitted the books of accounts, more specifically Cash Book, Party wise ledger and bank
         book. In course of proceedings the assessee also furnished the details of purchase,
         statement of labour charges paid (party wise), statement of gross amount (net receipt)
         from flat owners for my satisfaction. The assessee had also produced various other
         details which were examined in relation to books of accounts."

The AO on perusal of details filed by assessee during the course of assessment proceedings i.e.
party wise ledger and party wise labour charges paid noted that the assessee has not deducted
TDS on behalf of labour payments under the provisions of section 194C(1) of the Act.
Accordingly, he disallowed entire labour charges at Rs.15,07,810/- by invoking the provisions
of section 40(a)(ia) of the Act.

5.       Aggrieved, assessee preferred appeal before CIT(A), who after noting the fact that the
assessee has made payment per day i.e. at every instance below Rs.20,000/- to each of the
labourers and aggregating in a year less than Rs.50,000/- for each of the labourer. He deleted
by observing in para 5 as under:
          "5. I have heard the A/R and perused the assessment order as well as materìals adduced
          on record. It is evident from the assessment order that the AO on going through the
          details of payrnent made to the labourers alleged that they were made to labour
          contractors wìthout deducting tax at source therefrom in violation of provìsions of sec.
          194C(1) of the I.T. Act, 1961 which prompted him to invoke the provisions of sec.
          40(a)(ia) of the I.T. Act, 1961 and to disallow the entire payment of labour charges and
          make addition thereof to the total income of the appellant. Before coming to this
          conclusion that the individual labourers were labour contractors, the AO was unable to
          adduce any material on record in support of his justification that there was actually any
          contractual obligation behind payment of labour charges and as such there was failure
          on the part of the appellant to comply with the requirements of sec. 194C( 1) of the Act,
          although full details as per his satisfaction were made available to him during the
          course of assessment proceedings. Be that as it may, it is observed from the materials
          adduced on record that the appellant had made payment of less than Rs. 20,000/- at
          every instance and aggregatìng to less than Rs. 50,000/- to each of these partìes
          throughout the year. It is ìn this context that the provìsìons of sub-sec. 3(i) to sec. 194C
          of the I T. Act, 1961 along with the first proviso thereof are reproduced herein below
          for reference:

                 "(3) No deduciion shall be made under sub--section (1) or sub-seetion (2)
                 from -
                                                3                                     ITA Nos. 1761/K/2013
                                                               M/s. Blue Heaven Construction Co. AY 2007-08


               (i)     the amount of any sum credited or paid or likely to be crediied or
                       paid to the account of, or to, the contractor, if such sum does not
                       exceed twenty thousand rupees:

               Províded that where the aggregate of the amounts of such sums credited or
               paid or líkely to be credited or paid during the financial year exceeds fifty
               thousand rupees, the person responsible for paying such sums referred to
               in sub-section (1) or, as the case may be, sub- section (2) shall be liable to
               deduct income-tax under this section:"

        In other words, as per clause (i) of sec,. 194C(3) of the Act, no deduction shall be made
        under sub-sections (1) or (2) of sec. 194C from the amount of any sum credited or paid
        or likely to be credìted or paid to the account of, or to, the contractor or sub-contractor,
        if such sum does not exceed Rs.20,000/-; whereas, as per the first proviso to sec.194C(3)
        of the Act, where the aggregate of the amounts of such sums credited or paid or credited
        or likely to be credited during the relevant previous year exceeds Rs. 50,000/-, the
        person responsible for paying such sums referred to in sec. 194C(1) or 194C(2) of the
        Act shall be liable to deduct income-tax under this section. The object of the proviso is
        to carve out from the main section a class or category to which the main section does
        not apply. Accordíngly, it is construed that payment over and above Rs. 20,000/- is
        enough to trigger the provisions of s. 194C of the I.T. Act, 1961; however, the
        application thereof will depend on the aggregate payments, if the same is above Rs.
        50,000/-. However, on perusal of the summary of labour charges and the individual
        statement of labour charges, which are not disputed by the AO and have been found to
        be in order as verified, it is found that not a sìngle payment to the said labourers
        exceeded the sum of Rs. 20,000/- at one time or Rs. 50,000/- annually. Thereíore, the
        appellant was not under any liability in law to deduct any tax under sec. 194C(1) of the
        Act, as conceived by the AO, from the labour charges ìncurred during the assessment
        year under appeal. In view of such clear exposition in law and on the facts and in the
        circumstances of the case, it is observed that the AO was wholly in error in not
        appreciating that the provisions of s. 40(a)(ia) of the Act are not applicable to the facts
        and circumstances of the instant case as on a conjoint reading of s. 194C(1) along with
        s. 194C(3) of the Act, the appellant did not have legal liability to deduct tax at source in
        makjng payments of labour charges and as consequence thereof, the applicability of s.
        40(a)(ia) ofthe Act becomes redundant and as such the entire amount of Rs. 15,07,810/-
        is therefore dìrected to be deleted. Appellant gets relief of Rs.15,07,810/-."

Aggrieved, revenue came in appeal before us.

6.     We have heard rival submissions and gone through facts and circumstances of the case.
At the outset, Ld. counsel for the assessee Shri Somnath Ghosh, Advocate filed a copy of
judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Hatish Ramanlal Patel (2013)
35 Taxmann 16 (Guj), wherein it is held that "where no individual payment made to any sub-
contractor exceeded Rs.20,000 at a time nor total payments to an individual exceeded
Rs.50,000 in a year, no TDS liability would arise under section 194C" Before us, Ld. counsel
for the assessee filed complete paper book wherein the computation of labour charges
individually to each labour is filed which clearly demonstrates that no individual payment
exceeds Rs.20,000/- on each occasion or individual payment does not exceed Rs.50,000/- in a
                                             4                                    ITA Nos. 1761/K/2013
                                                           M/s. Blue Heaven Construction Co. AY 2007-08


year to each of the labourer. Once this is the position, we feel that the issue is squarely covered
in favour of assessee and against the revenue by the decision of Hon'ble Gujarat High Court in
the case of Hatish Ramanlal Patel (supra), wherein it is held as under:
       "10. From the above, it can be seen that the assessee had produced copy of the accounts
       of carting paid of Rs.1,09,68,236/- during the year under consideration. On the basis of
       such document, he had from the outset contended with the Assessing Officer that no
       individual payment exceeded Rs.20,000/- at a time nor the total to an individual pay
       exceeded Rs.50,000/- in a year. The Assessing Officer, without discarding such stand of
       the assessee, proceeded to make disallowance under section 40(a)(ia) of the Act on the
       premise that tax was not deducted at source. CIT(A) and Tribunal came to the conclusion
       that such disallowance was made without ascertaining the liability of deducting tax at
       source. No question of law therefore arises."

7.     As the issue is squarely covered in favour of assessee and assessee is not liable to
deduct TDS u/s. 194C(1) of the Act and as the facts clearly revealed such a situation,
invocation of provision of section 40(a)(ia) of the Act is against the provisions of law. We
confirm the order of CIT(A) in deleting the addition. Appeal of revenue is dismissed.

8.     In the result, appeal of revenue is dismissed.

9.     Order is pronounced in the open court.

      Sd/-                                                    Sd/-
 ,                                                             , Û 
(Shamim Yahya )                                                (Mahavir Singh)
Accountant Member                                             Judicial Member

                              Dated : 5th May, 2014

   Jd.(Sr.P.S.)

    - Copy of the order forwarded to:
 1.     /APPELLANT ­ ITO, Ward-1(1), Hooghly

 2      ×/ Respondent ­M/s. Blue Heaven Construction Co., Daziary Complex,
        S. C. Rakshit Road, Chandannagare, Hooghly.
 3.       ()/ The CIT(A),                           Kolkata
 4.      / CIT                          Kolkata

 5.       / DR, Kolkata Benches, Kolkata
                  × /True Copy,                                / By order,

                                                         /Asstt. Registrar.

 
 
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