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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI A. MOHAN ALANKAMONY
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” : HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
I.T.A. No. 442/HYD/2012 Assessment Year: 2007-08 Shankar Engineering Income Tax Officer, Fabricators, Vs Ward-11(1), HYDERABAD HYDERABAD [PAN: AAOFS8563N] (Appellant) (Respondent)
For Assessee : Shri S. Rama Rao, AR For Revenue : Shri Mookambikeyan S. DR Date of Hearing : 01-10-2019 Date of Pronouncement : 23-12-2019
O R D E R PER Smt. P. MADHAVI DEVI, J.M. : This is assessee’s appeal for the AY.2007-08, directed against the order of the Commissioner of Income Tax (Appeals)-VI, Hyderabad, dated 28-12-2011.
The assessee has raised the following Grounds of Appeal:
“1. The Order of the Learned Commissioner of Income-tax (Appeals) is erroneous both on facts and in law. 2. The learned Commissioner of Income-tax (Appeals) erred in holding that the payment made aggregating to Rs.56,26,265/ - are covered by the provision of Sec.194C of the I.T Act and that tax has to be deducted at source in respect of such payments. The Learned CIT(A) ought to have seen that the payments do not fall within the provision of Sec. 194C of the I.T Act
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The Learned Commissioner of Income-tax (Appeals) erred in holding that the provisions of Sec.40(a)(ia) are applicable to the payments made of Rs.56,26,265/- without considering the fact that the amounts were actually paid and the provisions of Sec.40(a)(ia) have no application to the payments actually made and would apply only to the amounts payable.
The learned commissioner of Income-Tax (Appeals) erred in confirming the disallowance made of Rs.56,26,265/- without considering the above explanations of the appellant herein.
The learned commissioner of Income-Tax (Appeals) erred in applying the provisions of Sec.40(A)(3) to the amounts paid of Rs. 3,16,636/- and further erred in arriving at the disallowance of Rs. 63,327/- .
The learned Commissioner of Income-Tax (Appeals) erred in confirming the charging of Interest u/s.234B and u/s.234C of the I.T Act.
Any other ground that may be urged at the time of hearing”.
2.1. At the time of hearing, the Ld.Counsel for the assessee submitted that the assessee does not wish to press Ground No.3 in view of the decision of the Hon'ble Supreme Court in the case of Palam Gas Service Vs. CIT [394 ITR 300] (SC) [Civil Appeal No. 5512 of 2017 dt. 03-05-2017]. Accordingly, the said Ground is rejected, as not pressed.
2.2. As regards the other Grounds of Appeal, the brief facts are that the assessee-company, engaged in the business of fabrication, filed its return of income for the AY.2007-08 on 24-10-2007, admitting total income of Rs.3,45,550/-.
During the course of assessment proceedings u/s.143(3) of the Income Tax Act [Act], the assessee furnished the
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information called-for. After perusal of the same, the Assessing Officer (AO) observed that the assessee has paid job work charges of Rs.21,41,526/- and labour charges of Rs.41,02,804/- totaling to Rs.62,44,330/-. The assessee was required to furnish party-wise details of amounts paid under the above mentioned heads which were furnished as under:
S.No. Name of the party Amount (Rs) 1 Krishna Dish Ends 2,01,725 2 Vamsi Krishna Metal Fabs 55,760 3 Sai Durga Dish Ends 72,571 4 Nagarjuna Enterprises 4,26,242 5 Satyam Engg. Entp. 4,05,003 6 RS Engineers 1,54,572 7 Shanker Fabricators 7,50,000 8 Ambica Engg. & Fabricators 1,08,792 9 Priya Engg. Works 16,03,484 10 SS Kalani Engineering 2,56,511 11 VST Engineering 3,21,505 12 NV Fabricators 4,47,730 13 Laxmi Fabricators 2,43,575 14 Metal Engineers 55,070 15 S. Eswara Rao 1,58,000 16 PB Sivanarayana 1,00,000 17 R Srinivasa Rao 1,00,000 18 Jhon Flow Fabs 59,325 19 P. Kumar 1,06,400 Total: 56,26,265
3.1. The assessee also filed a letter dt.04-12-2009 submitting that expenditure incurred under the heads ‘job work charges’ and ‘labour charges’, included amounts paid to various parties for purchase of material, transport charges and labour charges. Accordingly, the assessee bifurcated the expenditure relating to material, transport charges and labour charges and submitted that the actual amounts paid towards labour
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charges to various parties were less than Rs.50,000/-, except in three cases and therefore, there was no requirement to deduct tax at source and the provisions of Section 40(a)(ia) of the Act have no applicability. The AO, however, was not satisfied with the assessee’s explanation. He held that the bifurcation of expenditure under different heads was not shown in the books of account maintained by the assessee and there was no evidence produced by the assessee in support of such claim. He also observed from the Ledger extracts and bank statements that the assessee has made huge payments towards job work and labour charges to different parties, but, nowhere it was mentioned that the said payments were made under different sub-heads of expenditure, as claimed during the assessment proceedings. He also observed that no evidence in the form of bills or vouchers were maintained by the assessee in support of such claim.
3.2 With regard to three parties, to whom admittedly the payments were made in excess of Rs.50,000/-, the AO held that the provisions of Section 194C of the Act were applicable but the assessee had claimed that disallowance of expenditure u/s.40(a)(ia) of the Act would not apply when the amount was actually paid. (However, this issue is not pressed by the assessee in this appeal). The AO accordingly made the disallowance u/s.40(a)(ia) of the Act of the entire expenditure of Rs.56,26,265/- on which no TDS was made, according to him, the provisions of Section 194C of the Act were applicable to all the payments.
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Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A), reiterating the submissions made before the AO and also filed a chart showing bifurcation of payment to each of the parties, to whom payment of more than Rs.50,000/- has been made under the heads i.e., ‘material purchased’, ‘transportation charges’ and ‘labour charges’, and also accepted that there was no evidence or documents filed in support of such claim. Not convinced with the contentions of assessee, the Ld.CIT(A) has confirmed the disallowance u/s. 40(a)(ia) of the Act made by the AO. Against the said order of CIT(A), the assessee is in second appeal before us.
The Ld.Counsel for the assessee reiterated the submissions made before the authorities below and has drawn our attention to the bills and vouchers produced by the assessee-company in support of various payments and further submitted that the provisions of Section 40(a)(ia) of the Act are not attracted since the recipients also had income less than the taxable limit.
The Ld.DR supported the orders of the authorities below.
Having regard to the rival contentions and material on record, we find that the assessee is a firm, which is doing the fabrication work. The parties to whom the payments are made have allegedly procured the material, transported the same to the premises of the assessee-company and fixed the material there. If the contention of the assessee that the payments made to the parties, include the payment made for the
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material as well as its transportation cost which is reimbursed by the assessee along with the job work charges, is to be accepted, then the purchase cost of the material and transportation charges which are reimbursed by the assessee would not attract the TDS provisions, as the provisions of Section 194C of the Act would apply only to the works contract, i.e. only the job work performed by the respective parties. Thus, the transportation charges and the material cost if it is the reimbursement of charges by the assessee cannot be considered as part of the contract and the provisions of Section 40(a)(ia) of the Act would not apply to the component of cost of the material and transportation charges. However, the findings of AO and the CIT(A) are that the total of the payment is for works contract, and that the assessee has neither deducted tax at source from such charges nor has furnished any certificate to the effect that these recipients have no taxable income or that they have offered the income to tax.
The Ld.Counsel for the assessee had also taken a legal plea during the course of his argument that since the assessee has not been treated as an ‘assessee-in-default’ u/s.201(1) of the Act, in view of the Second proviso to Section 40(a)(ia) of the Act, the disallowance u/s.40(a)(ia) of the Act cannot be made.
Ld.DR, submitted that only in cases where the proviso to Section 201(1) of the Act would apply, the second proviso to Section 40(a)(ia) of the Act would be attracted. He submitted that the assessee was an “assessee-in-default” in respect of the
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payments made exceeding Rs.50,000/-, without making any TDS. 10. As far as the legal argument is concerned, we find that the assessee has not furnished any evidence before the AO or the CIT(A) that the recipients had no taxable income or that they had income which is less than taxable income or that the recipients have made the payment of tax on their receipts from the assessee. In view of the same, the proviso to Section 201(1) of the Act would not be applicable to the assessee and in the absence of such applicability, the second proviso to Section 40(a)(ia) of the Act also would not be attracted. Therefore, the TDS provisions are applicable in respect of the labour charges paid by the assessee. The AO is therefore, directed to examine whether the labour charges paid by the assessee included reimbursement of the material and transportation cost and if it is found to be so, then after excluding such payment if the payment towards labour charges is less than Rs.50,000/- to each of such persons, then TDS provisions would not be attracted. However, if the assessee is not able to produce the evidence in support of reimbursements, then the AO shall apply the provisions of section 40(a)(ia) to make the disallowance in respect of such payments.
In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced in the open court on 23rd December, 2019 Sd/- Sd/- ( A. MOHAN ALANKAMONY ) ( P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 23-12-2019 TNMM /PVV
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Copy to :
Shankar Engineering Fabricators, Plot No.D-38, Phase-I, Jeedimetla, Hyderabad.
The Income Tax Officer, Ward-11(1), Hyderabad.
CIT(Appeals)-VI, Hyderabad.
The CIT-V, Hyderabad.
D.R. ITAT, Hyderabad.
Guard File.