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Facts
The assessee, engaged in civil construction, filed a return for AY 2012-13 declaring an income of Rs. 49,99,810. The assessment u/s 143(3) resulted in a higher total income. The PCIT invoked Section 263, noting that the assessee paid labour charges exceeding Rs. 75,000 without deducting TDS u/s 194C, and set aside the assessment order. Subsequently, the AO disallowed labour charges of Rs. 3,76,90,036 u/s 40A(ia) and added them to the total income.
Held
The Tribunal noted that the payments were made to individual labourers who were under the direct supervision of the assessee, indicating an employer-employee relationship rather than a contractual one. The Assessing Officer failed to identify a contractor or establish the existence of a contract for carrying out specified work. Relying on case law, the Tribunal found that Section 194C and consequently Section 40(a)(ia) were not applicable.
Key Issues
Whether the disallowance of labour charges under Section 40A(ia) for non-deduction of TDS under Section 194C is justified when the labourers are considered employees and not contractual labourers.
Sections Cited
143(3), 194C, 263, 40A(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the revenue against the order of Commissioner of Income Tax (Appeals)- NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 09.08.2023 for AY 2012-13.
Assessment Year: 2012-13 Mala Banerjee 2. It appears from the report of the registry that the appeal has been filed after a delay of 107 days for this the assessee has filed condonation petition., which are as follows- On perusal of the condonation petition, the reason for delay in filing the appeal seems to be genuine and bonafide. The Ld. A.R did not raise any objection in condoning the delay. Keeping in view, the condonation petition as well as judicial pronouncement that the case should be decided on merit not on technical issue, the delay is hereby condoned.
Assessment Year: 2012-13 Mala Banerjee 3. Brief facts of the case of the assessee are that the assessee being an individual engaged in the business under the name and style of M/s Banerjee Enterprises that of civil construction of dwelling houses, industrial sheds, cutting and construction of drains. The assessee filed her return of income for Ay 2012-13 declaring total income of Rs. 49,99,810/-. The case was selected for scrutiny and the reasons for selecting the case for scrutiny was large interest expenses relatable to exempt investment. An assessment u/s 143(3) of the Act was made and total income was computed at Rs. 52,06,670/- against the returned income of Rs. 49,99,810/-. The record of the assessee was examined by Ld. PCIT as it came into his notice that the assessee is engaged in contract works and paid labour charges during the year that exceed Rs 75,000/- except in two cases and as per the provision of section 194C the assessee was required to deduct tax out of payment of labour charges total of which comes to Rs. 3,76,45,936/- but the assessee did not make any TDS out of labour charges and in this way, the order passed u/s 143(3) has been found to be erroneous and prejudicial to the interest of the revenue. Accordingly, the Ld. PCIT passed an order u/s 263, set aside the assessment order passed u/s 143(3) and restored the matter to the file of AO for examining the genuineness of labour charges payment of Rs. 3,77,90.936/-. Consequent to the order passed u/s 263, the AO issued notices to the assessee with a request to produce books of account and documentary evidences, the assessee did not furnish any books of account or any details in regard to any contract, as a result of which, payment of labour charges an amount of Rs. 3,76,90,036/- disallowed u/s 40A(ia) of the Act and added to the total income of the assessee.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed thereby deleting the addition made against the labour charges.
Being aggrieved and dissatisfied the revenue preferred an appeal before us.
The Ld. D.R challenges the very impugned order thereby submitting that the Ld. CIT(A) has erred in deleting the addition towards payment of labour charges disallowed u/s 40A(ia) of the Act by the AO. The ld. D.R further submits that the Ld. CIT(A) erred Assessment Year: 2012-13 Mala Banerjee in deciding the case in favour of the assessee without appreciating the fact that the amount of payment to a party per day and huge sundry creditors out of outstanding labour charges prove that the parties are labour contaractors hence disallowed u/s 40(a)(i) for non-deduction of TDS u/s 194C was justified.
Contrary to that, the Ld. A.R supports the impugned order thereby submitting that the assessee carries a business of civil construction of dwelling houses industrial sheds, cutting and construction of drains, roads and such other civil work for which the assessee obtains work order from the municipal authorities. The Ld. A.R further submitted that the work so allotted by the authorities to the assessee is executed by the assessee by employing various persons who have full experience in carrying out such work as well as team of workers working as a one group. The Ld. Counsel by filing the statement of labour charges payable for the year ended on 31.03.2012, tax audit report, audited accounts including balance sheet and profit and loss account submitted that all the labourers are the employees of assessee and none of case payment in exceeding limit to attract the provision of TDS.
Upon hearing the submission of counsel for the respective parties and on perusal of assessment order ,we find that PCIT u/s 263 has remitted that matter to the file of AO to examine the genuineness of the labour charges payment and to ascertain whether payment was made to individual labourers by maintaining necessary record by the assessee or it was paid to person for arranging labourers and such payment of labour charges were contractual labourers provided by Section 194C of the Act. The assessee in support of his claim filed the statement of labour charges payable for the year ended 31.03.2012 that runs from page 31 to 43. Now the issue before us whether the labourers are the employees of the assessee or they are working as contractual capacity attracting the provision of TDS.
Going over the statement of labour charges we find that the payment was made to individual labours and not to the labour contractor. Therefore, the labourers can be treated as employee of the assessee. The employer is a person who controls and directs services or works under the express or employed contract of the employer. The employer Assessment Year: 2012-13 Mala Banerjee accordingly under obligation to pay him the salary or wages in compensation. An individual who works per time or full time under the contract of employment whether earlier or written expression or implied and is liable to perform the duty as assigned that person is called for employee. In the present case, we find that the labourers are working under the direct supervision of the assessee. There is nothing in the assessment order that they have any other separate business organization. We have gone through the order passed by the Ld. CIT(A) and find that the Ld. CIT(A) has held in its operative portion thus:
“The assessing officer, when he doubts the genuineness of labour payment, he should have carried out further inquiries and investigation before coming to a conclusion. The Assessing Officer has not done anything in this regard and he has framed his assessment order exclusively on his probable judgment/ assumptions. Section 40(a)(ia) cannot be read in isolation excluding section 194C of the Act and for invoking provisions of section 194C there must be a contract between the person responsible for making payment to the contractor and the contract must be for carrying out some specified work and there must be evidences to state that the contractor has executed the work and payment has been made for the same. In this case under consideration the Assessing officer has not identified the contractor and even the existence of the contract agreement (either oral or written) was not established when there is no evidence for having a contract between the assessee and the labour contractor without any finding through his investigation the Assessing Officer cannot invoke the provision of Section 40(a)(ia), when there is no scope to invoke the provision of Section 194C question of invoking Section 40(a)(ia) does not arise, following case laws support the claim of the assessee: i) Jiaudin Maulah vs. CIT 385 ITR 394 (Cal) ii) Tapa Paul vs. ACIT [2017] 81 Taxmann.com 332 (Kolkata Tribunal) iii) PCIT vs. Swastick Construction [2018] 91 Taxmann.com 10 (Guj) 8. We have also gone through the judgment passed in Co-ordinate Bench of Kolkata in the case of Tapa Paul vs. ACIT [2017] 81 Taxmann.com 332 (Kol-Trib) wherein also the Co-ordinate Bench has held that the assessee is not liable for TDS as the labourers are working under the direct supervision of the assessee, they are repaying the organization of the assessee and their existence as an employer and employee relationship to the assessee and the labours. The present case is squarely covered to the above cited decision. Accordingly, we do not find any infirmity in the impugned order of the Ld. CIT(A).
Order is pronounced in the open court on 24th April, 2025