AIRCON INDIA INCORPORATED,KOLKATA vs. DCIT, CIRCLE 29,, KOLKATA

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ITA 347/KOL/2026Status: DisposedITAT Kolkata20 May 2026AY 2010-20115 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that TDS was not applicable on material purchases as the assessee was the purchaser. For labor charges, it found that TDS was correctly deducted on most payments, with only a small portion requiring TDS. The disallowance was restricted to 30% of the remaining amount.

What were the facts?

The assessee, engaged in the business of installing air conditioners, incurred expenses on materials and labor. The AO disallowed the entire contract value for failure to deduct TDS, which was upheld by the CIT(A). The assessee argued that TDS was not applicable on material purchases and certain labor payments were below threshold limits.

What were the issues?

Whether TDS was deductible on material purchases and certain labor payments, and if disallowance under Section 40(a)(ia) was correctly applied to the entire contract value.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

For Appellant: Shri S.K. Tulsiyan, AR
For Respondent: Shri Ruchika Sharma, DR
Hearing: 27.04.2026Pronounced: 20.05.2026

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 29.12.2025 for the AY 2010-11.

2.

The only issue raised by the assessee in the ground no.1 is against the order of ld. CIT (A) upholding the order of the ld. AO, wherein the disallowances of ₹4,81,79,887/-, was confirmed as made by the ld. AO u/s 40(a)(ia) of the Act for failure to deduct TDS on the entire contract value u/s 194C of the Act.

3.

The facts in brief are that the assessee is a partnership concern and is engaged in the business of sales and services of Air Conditioners. The assessee filed the return of income during the year declaring income of ₹81,06,497/-. The case of the assessee was selected for

4.

In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee by observing and holding as under:-

“4.6. Disallowance of Installation &Labour Charges u/s 40(a)(ia) (Rs. 4,81,79,887): The appellant claims the expense is bifurcated into Material Cost (Rs. 2.97 Cr) and Service Charges (Rs. 1.84 Cr). They argue that no TDS is liable on material purchases. Further, they rely on the Tribunal decision in Jitendra Mansukhlal Shah vs DCIT to argue that Section 40(a)(ia) applies only to amounts "payable" at year-end and not amounts already "paid". The AO observed that the work is a composite contract for installation. The appellant failed to produce invoices before the AO to prove the independent sale of materials. Segregating a composite contract into material and labour artificially to avoid TDS provisions is not permissible under the law. The appellant's reliance on the argument that section 40(a)(ia) applies only to amounts "payable" (and not "paid") is legally untenable. The Hon'ble Supreme Court in the case of Palam Gas Service vs. CIT has settled this issue, holding that the provisions of Section 40(a)(ia) apply to both amounts which remain payable andamounts already paid. Since the appellant failed to deduct TDS on the entire contract value as required u/s 1940, the disallowance was correctly invoked. The disallowance of Rs. 4,81,79,887/- is upheld and the Ground related to issue is hereby dismissed.”

6.

With respect to service charges incurred on the installation amounting to ₹1,84,43,781/-, we note that the assessee has fully accounted for the expenses. We note that the assessee has deducted

S. Particulars Amount amount NO. 1. Amount on which TDS deductible u/s 194C of the Act as 1,84,43,781 per Books of accounts 2. I. Amount on which tax deducted at source as perform 27A 1,21,73,900 II. Total Individual amount upto ₹20,000/- on which no tax is applicable u/s 194C(5) 2,28,555 III. Total aggregate amount upto ₹50,000/- in the financial year on which no tax is appliable under 3,68,605 1,27,71,060 proviso to Section 194C (5) 3. Balance Amount 56,72,721 7. At the most the ld. AO should have disallowed the payment at the rate of 30% of the balance amount as calculated above which is 56,72,721/- whuich comes to ₹ 17, 01,816/-. The disallowance at the rate of 30% is by virtue of the decision of the co-ordinate bench decision in the case of Dipak Arui in ITA No. 767/KOL/2016 for A.Y. 2011-12, wherein the co-ordinate bench has held as under:-

“5. Latter issue before us is that of correctness of section 40 (a)(ia) disallowance of Rs.1.79,800/- out of assessee’s total claim of Rs.,3,05,364/-. His only argument before us is that section 40(a)(ia) as amended by Finance Act 2014 w.e.f. 01.04.2015 prescribing such disallowance to be restricted to 30% only than the entire amount of

9.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 20.05.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 20.05.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

Asst. Registrar Income Tax Appellate Tribunal, Kolkata

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