PMS CONSTRUCTION COMPANY,JHUNJHUNU vs. ACIT, JHUNJHUNU

PER SHRI KUL BHARAT, JM.

This appeal by the assessee is directed against the orders of the Ld. CIT(A)- 3, Jaipur dated 07.01.2016 pertaining to A.Y. 2011-12.

The assessee has raised the following grounds of appeal:- “1. Under the facts and circumstances, the Hon’ble CIT(A) has legally and factually erred by confirming the addition on Contravention of the Section 40(a)(ia) of the Act for Making Payment to the so-called Contract Labour expenses without appreciating facts of the case in right perspective. 2. Under the facts & circumstances, the Hon’ble CIT(A) has confirmed the addition of 3% of the Contract Expenses i.e. a sum of Rs. 8,26,630.00 on estimation basis without giving any justification and reasonableness of the case.

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scrutiny assessment and the assessment u/s 143(3) (hereinafter referred to as the

Act) Income Tax Act, 1961 was framed vide order dated 21.03.2014. While framing

the assessment, the Assessing Officer observed that the assessee had made

payment of labour charges to various persons amounting to Rs. 81,45,754/-.

Therefore, the Assessing Officer proceeded to disallow this expenditure and made

addition of Rs. 81,45,754/-. Further, the Assessing Officer observed that the

assessee made payment of Rs. 78,89,109/- in cash in contravention to Section

40A(3) of the Income Tax Act. The Assessing Officer observed that the contract

proportion of the contract expenses of the total receipts is considered to be

disproportionately excessive, hence, made addition of Rs. 8,26,630/-.

Against this, the assessee preferred an appeal before Ld. CIT(A), who after

considering the submissions, dismissed the appeal. Thereby, the Ld. CIT(A)

confirmed the addition, as made by the Assessing Officer. Against this, the assessee

is in further appeal before this Tribunal.

of tax by invoking the provision of Section 40(a)(ia) of the Act.

3.1 Ld. Counsel for the assessee reiterated the submissions as made in the

written brief. The submissions of the assessee are reproduced as under:-

“(i) Without prejudice to the factual and legal objections as made in our earlier submissions dated 19.9.2016, wherein it had been contended that in the present case, the wage payments were not made to the `contracted labor' as envisaged u/s 194C of the Act. In the circumstances, the provisions of section 40(a)(ia) are not attracted. This fact stood proved with the help of the supporting vouchers and Attendance Register etc. as

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submitted before the Id. CIT (A) which could not be negated by the Authorities Below. Despite of such factual position, even other-wise also, these payments are not hit by the provisions of section 194C read with section 40(a)(ia) of the Act as held by the honorable ITAT, Jaipur Bench, Jaipur in the case of ITO v Tulsi Ram Modi (Appeal No.960(JP) of 2011(Copy of judgment is placed in the PB at page No.3 to 7 for your kind perusal and record) . Having considered such facts of the above case, no disallowance whatsoever is called for u/s 40(a)(ia) of the Act even if the payments made to the labor are taken as contracted labor by any stretch of imagination.

(ii) Of-late, the provisions of section of section 40(a)(ia) of the Act have come up for detailed and greater discussions and interpretation before the various judicial authorities. Finally the controversy regarding these provisions have been put to rest by the honorable Supreme Court in the SLP filed against the ruling of honorable Allahabad High Court in the case CIT vs Vector Shipping Services Ltd. The honorable Courts have pointedly and specifically opined that these provisions would come into play in respect of the amounts 'payable' at the end of the financial year and not to the amounts already 'paid' during the year. The honorable territorial Bench of Jaipur have also been taking the same view consistently in number of cases; two instances are given for ready reference (i) Jaipur Vidhut Vitran Ltd. vs. DCIT 123 TTJ 888 . (ii) Laxmi Narayan Agarwal, Jaipur vs. DCIT Circle-6, Jaipur ITA No.395/JP/2014. Of late, the Commissioners (Appeals) are taking the same view. For the purpose, reliance is also placed on the findings of the honorable courts in the cases of (i) ACIT vs. Kalindi Agro Biotech Ltd & (ii) DCIT v Veera Associates which have direct bearing on the facts of the present case. (Copies of above judgments (placed in the PB at pages No.8 to 28) and commentary thereon (placed in the PB at pages No. 1 & 2) for ready

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reference and record).These judgments and commentary elaborately deals with the point at issue regarding disallowance u/s 40(a)(ia) of the Act at length and have pointedly observed that the provisions of section 40(a)(ia) would not come into play in respect of the amounts already 'paid'. In the present case, all the wages stood already paid and not a single penny is 'payable' at the end of the year. In the circumstances, disallowance of the wages within the meaning of section 40(a)(ia) of the Act for the alleged default u/s 194C is totally uncalled for and deserves to be deleted summarily.”

On the appeal, it is evident that the tax was not deductable as no amount was

payable by the assessee.

3.2 On the contrary, Ld. D/R opposed the submissions and submitted that this

issue has been decided in favour of the Revenue by the Hon’ble Supreme Court

rendered in the case of Palam Gas Service vs. CIT [2017] 394 ITR 300(SC).

The only explanation for non-deduction of tax as submitted by the Ld. Counsel for

the assessee, that no amount was payable. It is further submitted by the Ld.

Counsel that wages were paid directly to the labour, therefore, in view of the

decision of the Hon’ble Delhi High Court rendered in the case of CIT vs. Dewan

Chand (2009) 173 Taxman.

3.3 We have heard the rival contentions. We find that Ld. CIT(A) given a finding

on fact that evidences were produced by the assessee do not inspire confidence.

We find that Ld. CIT(A) was not decided the issue whether the tax was deductible

and the provision of Section 40(a)(ia) of the Act was applicable. Therefore,

considering the totality of the fact, we deem it proper to restore this issue to the file

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of the Ld. CIT(A) to decided afresh, after considering the submissions of the

assessee. This ground of Assessee’s appeal is allowed for statistical purpose.

expenses.

4.1 Ld. Counsel for the assessee submitted that the Assessing Officer as well as

the Ld. CIT(A) have not rejected books of accounts. Therefore, there was no basis

to make disallowance out of contract expenses merely because in the opinion of the

AO the expenses so claimed being disproportionately excessive, without any

corroborative evidence.

4.2 Per contra Ld. D/R opposed the submissions and supported the finding of the

authorities below.

4.3 We have heard the rival contentions, perused the material available on

record. We find that Assessing Officer on the one hand they had stated that the

assessee has contravened provision of Section 40A (3) of the Act on the other hand

he proceeded to make disallowance of 3% of the total contract expenses. Ld.

CIT(A) confirmed the same by observing as under:-

“5.3 I have carefully considered the findings of the AO as also arguments of the Ld. AR of the appellant. Regarding the disallowance of 3% of expenses by the AO, the appellant claimed Rs. 2,75,54,326/- under the head contract expenses out of which disallowance of Rs. 8,26,630/- was made on account of diesel, bajari, cement & grit by AO. These are cash payments, made by self made vouchers, genuineness of which is doubtful and despite of repeated request and opportunities given assessee has failed to get verified these expenses. Even in appellant proceedings Ld. AR reiterated the same arguments and no details/ evidence were furnished. The AO has taken most reasonable approach and has disallowance only 3% of the expense looking to

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the fact that expenses of Rs. 78,89,109/- was made in cash for which a table is also appended with assessment order. Looking to these facts the action of the AO is justified and disallowance of Rs. 8,26,630/- made out of total contract expenses at Rs. 2,75,54,326/- is herby upheld.”

From the finding of the authorities below, it is evident that disallowance is made on

adhoc basis without specifying as what were the expenses were that not got verified

by the assessee. Under these facts, the addition so made cannot be sustained.

Therefore, we direct the Assessing Officer to delete the addition of Rs. 8,26,630/-.

This ground of the assessee’s appeal is allowed.

Order is pronounced in the open court on Thursday, the 26th day of October 2017.

Sd/- Sd/- ( HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 26/10/2017 Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

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