JYOTI PRASAD ROUT,DHENKANAL vs. ITO, WARD-1, DHENKANAL

आयकर अपीऱीय अधिकरण, “एस.एम.सी”, न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, CUTTACK श्री चन्द्र मोहन गगग, न्द्याययक सदस्य के समऺ । BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER आयकर अऩीऱ सं./ITA No.431/CTK/2016 (नििाारण वषा / Assessment Year :2010-2011) Jyoti Prasad Rout, Vs. ITO, Dhenkanal Ward, At/PO: Kharag Prasad, Dhenkanal Via-Meramandali, Dist: Dhenkanal-759121 स्थायी ऱेखा सं./ जीआइआर सं./ PAN/GIR No. : AFQPR 8109 A (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. यनधागररती की ओर से /Assessee by : Shri P.K.Mishra, Advocate राजस्व की ओर से /Revenue by : Shri Subhendu Datta, DR सुनवाई की तारीख / Date of Hearing : 11/12/2019 घोषणा की तारीख/Date of Pronouncement 12/12/2019 आदेश / O R D E R This is an appeal filed by the assessee against the order of CIT(A)- 2, Bhubaneswar, dated 01.09.2016 for the assessment year 2010-2011. 2. The sole issue involved in the appeal of the assessee is with regard to confirming the disallowance made u/s.40(a)(ia) of the Act. 3. Brief facts of the case are that the assessee is a civil contractor and filed his return of income on 14.10.2014 declaring total income of Rs.14,34,552/-. Thereafter the AO completed the assessment assessing the total income of the assessee at Rs.19,21,120/- making addition u/s.40(a)(ia) of the Act at Rs.4,78,949/- along with other additions. Against which the assessee has preferred appeal before the CIT(A) and the CIT(A) after considering the submissions of the assessee and findings of

2 ITA No.431/CTK/2016 AO has upheld the addition of Rs.3,12,949/- out of total addition made by the AO at Rs.4,78,949/- holding that the payments made to the four sardars amounting to Rs.3,12,949/- are covered by section 194C of the Act and deleted the balance addition of Rs.1,66,000/-. Now, the assessee is in further appeal against the addition confirmed by the CIT(A). 4. Ld. AR (Assessee’s Representative) submitted that the issue involved in this appeal is squarely covered by the decision of the Kolkata Bench of the Tribunal in the case of M/s Kwality Construction passed in ITA No.18/Kol/2014, vide order dated 14.10.2016, wherein the Tribunal dismiss the appeal filed by the Revenue holding that without any contract between the assessee and labour sardars, provisions of Section 194C of the Act cannot be applied and, therefore, invocation of provision of Section 40(a)(ia) of the Act is outside the scope and ambit of the such enactment. Accordingly, ld AR submitted that disallowance made u/s.40(a)(ia) of the Act deserves to be deleted. 5. On the other hand, ld. DR(Departmental Representative) relied on the orders of authorities below. 6. On careful consideration of the submissions of both the parties and perusing the material available on the record of the Tribunal as well as the decision relied on by the ld. AR of the assessee, I am of the considered opinion that in the instant case, the controversy is regarding the payments made for disbursement of labour charges to labour sardars. The assessee had specifically stated before the lower authorities that there was no contract between the assessee and the labour sardars, without which

3 ITA No.431/CTK/2016 there cannot be any application of section 194C of the Act and as such the invocation of provision of sec. 40(a)(ia) is outside the scope and ambit of the such enactment. Similar issue has been dealt by the Kolkata Bench of the Tribunal in the case of M/s Kwality Construction passed in ITA No.18/Kol/2014, vide order dated 14.10.2016, wherein the Tribunal relying on its various identical decisions, has upheld the action of CIT(A) in deleting the addition made u/s.40(a)(ia) of the Act holding that labour sardars are not labour suppliers and are facilitators for payments. The relevant observations of the Tribunal are as under :- “8. Heard ld.DR and perused material available on record. We find that the Coordinate Bench of Kolkata Tribunal in the case of M/s. Kwality Construction by an order date 14.10.2016 I.T.A No. 18/Kol/2014 Assessment Year: 2009- 10. Relevant portion of findings are reproduced herein below for better realisation:- 7.1. We find that the ld CITA had deleted the dis allowance on the ground that there is no contract entered into by the assessee and the labour sardars. We find that the impugned issue is covered by the decision of the Honourable Calcutta High Court in the case of CIT Vs Stumm India in ITA No. 127 of 2009 dated 16.8.2010 , wherein it was held that :- “The court: This appeal is sought to be preferred against the judgement and order of the Ld. Tribunal in relation to the assessment year 2005-06, dated October 24, 2008, being aggrieved by a portion of the same. It is urged before us that the learned Tribunal ought not to have accepted the judgement and order of the CIT (Appeal) who has quashed the dis allowance of deduction of Rs. 41,33,710/- and on account of tax deduction at source. The learned Tribunal has recorded the fact that the department has not been able to bring any material on record to show that the assessee has made the payment to the transporters in pursuance of contract for carriage of goods of the assessee and the question of deduction at source under section 194C does not and cannot arise. In the absence of evidence of payment made by the assessee to the transporters, the assessee cannot be saddled with the liability of deducting tax at source. Before us no other point has been urged not it is said that the aforesaid fact finding is truthful without any basis whatsoever.”

4 ITA No.431/CTK/2016 7.2. We find that the decision of this tribunal in the case of Samanwaya vs ACIT reported in 34 SOT 332 in ITA No. 484 (Kol) of 2008 dated 23.4.2009 directly supports the case of the assessee wherein it was held that :- “We find that in this case, admittedly, the labour sardars in the present case has no locus standi as labour contractor as a labour sardar and a labour contractor are as different as chalk and cheese. We find that there was no contract between the assessee and the labour sardars for supply of labourers and without which there cannot be any application of section 194C and as such the invocation of provision of section 40(a)(ia)is outside the scope and ambit of such enactment. In view of the matter, we are of the considered opinion that section 194C(2) being not applicable in this case, the dis allowance of Rs. 74,33,210/- made by the Assessing Officer by invoking section 40(a)(ia) of the Income Tax Act, 1961 and sustained by the ld CIT(A) is hereby deleted. This ground of the assessee is allowed.” 7.3. We also find that the decision of this tribunal in the case of ACIT vs Supreme Construction in ITA No. 1252/Kol/2013 dated 7.9.2016 had held as under:- “9. We have heard rival contentions of both the parties and perused the materials available on record. At the outset, we find that AO has called the labour contractors by issuing summons u/s. 131 of the Act and their statements were duly recorded. The AO failed to bring anything on record that the labour charges were paid in pursuance of contract either in writing or the oral with the labour sardar. The AO has held that the assessee has not complied the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act on the presumption and surmise. There is no evidence that the payments have been made to the contractors. We do not find any merit in the arguments placed by Ld. DR in this connection. The AO has given the clear finding in his order which is as follows : “In my opinion, all these labourers who are treated as Labour Sardars are enjoying some privileged position in the eyes of assessee because the assessee collects other labourers through them, make payments to the other labourers in their presence, though there is no written contract. In the absence of any documentary evidence, I can’t call them as Labour Sardars but they are enjoying some special status before the assessee. All the payments were made through them as per Books of Accounts whereas the assessee produced the Muster Roll establishing through it that payments were made to the other co-labourers in their presence for the sake of convenience and the amounts were debited in their names only because the assessee can not keep track of all the labourers without the help of these labourers. Though the assessee claims them to be it’s labour and these persons have deposed that they are the labourers, yet, I am not fully convinced with their plea that these

5 ITA No.431/CTK/2016 persons are simply labourers and nothing more than that. From their appearance, dress, behavior and confidence, I am confident that they are the labour sardars, though they are denying this fact. Whether you admit or not but it can not be denied that these persons enjoy some privileged positions in comparison to other labourers.” From the above it is amply clear that the AO himself is not sure and forming the opinion on his own surmise and conjecture. In our considered view the ld. DR has not brought anything contrary to the findings of ld. CIT(A). In this connection we rely on the decision of ACIT Vs. Kalindi Agro Biotech Ltd. (2012) 20 taxmann.com 339 where it was held that the provisions of Sec. 194C of the Act are applicable if the payment has been made to a contractor for the year exceeding Rs.20,000/-. Similarly the jurisdictional ITAT, Kolkata in the case of Samanwaya Vs. ACIT 34 SOT 332 has held as under : “Business expenditure- Dis allowance under s. 40(a)(ia)–Need for TDS under s. 194Crelating to payments made for disbursement of labour charges to labour Sardars–Assessee had specifically stated before the lower authorities that there is no contract between the assessee and the labour Sardars– Revenue authorities could not controvert the submission of the assessee in this respect– Even before the Tribunal, the Department could not bring out any evidence by producing cogent material in respect of any contract between the assessee and the labour Sardars to contradict the submission of the assessee that there was no contract between the assessee and the labour Sardar–A contractor or a sub-contractor is engaged on the basis of a contract which is the most important essence of a contract job and is a primary requirement for the application of s. 194C– Labour Sardars in the present case has no locus standi as labour contractor as a labour Sardar and a labour contractor are as different as chalk and cheese–There was no contract between the assessee and the labour Sardars for supply of labourers and without which there cannot be any application of s. 194C and as such the invocation of provision of s. 40(a)(ia) is outside the scope and ambit of such enactment” Relying in the aforesaid decisions we find that there is nothing on record to suggest that the payment to labourers were paid to the contractors. On the contrary, assessee has made payment to labourers directly and in support of its claim, Ld. AR of assessee has produced the muster roll. In this regard, Ld. DR failed to bring any defect / information from the muster roll which suggested that the labour charges paid by assessee are subject to TDS. Since no cogent material has been brought on record, in our considered opinion, AO was not justified in invoking the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act. In the background of the above discussions and precedent we do not find any infirmity in the order of Ld. CIT(A) and accordingly we

6 ITA No.431/CTK/2016 uphold the same. In the circumstances, this issue of Revenue’s appeal is dismissed.” 7.4. Respectfully following the judicial precedents relied upon herein above, we do not find any reason to interfere with the order of the ld CITA and accordingly dismiss the ground of the revenue. 9. Respectfully following the above, we are of the opinion that the CIT-A was justified in accepting the plea of assessee being the labour sardars are not suppliers of labours and as such he rightly deleted the impugned addition made u/s. 40(a)(ia) of the Act. We uphold the impugned order of the CIT-A. Therefore, the grounds raised by the revenue are liable to be dismissed.” 7. In view of the facts and circumstances of the case and respectfully following the observations of the Tribunal in the case cited supra, I am of the considered opinion that the disallowance of Rs.3,12,949/- made by the AO by invoking section 40(a)(ia) of the I.T. Act, 1961 is not sustainable and accordingly I direct to delete the same. Thus, the sole ground of appeal of the assessee is allowed. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 12/12/2019. Sd/- (CHANDRA MOHAN GARG) न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 12/12/2019 प्र.कु.मम/PKM, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- . Jyoti Prasad Rout, At/PO: Kharag Prasad, Via-Meramandali, Dist: Dhenkanal-759121 प्रत्यथी / The Respondent- 2. ITO, Dhenkanal Ward, Dhenkanal आदेशािुसार/ BY ORDER, 3. आयकर आयुक्त(अऩीऱ) / The CIT(A), आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 5. (Senior Private गार्ग पाईऱ / Guard file. 6. Secretary) सत्यावऩत प्रयत //True Copy// आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack