ITO 21 (1) (5), MUMBAI vs. JANSEVA MAJOOR SAHAKARI SANSTHA MARYADIT, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI PAWAN SINGH (JM) & SHRI S RIFAUR RAHMAN (AM) ITA No. 5881/Mum/2016(A.Y.: 2009-10)

ITO 21(1)(5), Room No. Vs M/s Janseva Majoor Sahakari 120, 1stFloor, Piramal Sanstha Maryadit, Chambers, Parel, 1, Dev Darshan, Ground Floor, Mumbai-400016 In front of Wakade House T.H. Kataria Marg, Mahim, Mumbai-400 016 PAN : AADFJ0626J APPELLANT RESPONDEDNT

ITA No. 6135/Mum/2016(Assessment year : 2009-10) M/s Janseva Majoor Sahakari Vs ITO 21(1)(5), Room No. 120, 1stFloor, Piramal Sanstha Maryadit, 1, Dev Darshan, Ground Floor, Chambers, Parel, In front of Wakade House Mumbai-400016 T.H. Kataria Marg, Mahim, Mumbai-400 016 PAN : AADFJ0626J APPELLANT RESPONDEDNT

Assessee by Shri Piyush Chhajed AR Respondent by Mrs. Samatha Mullamudi Sr DR Date of hearing 19-02-2020 Date of pronouncement 18-03-2020 O R D E R PER PAWAN SINGH, JM : 1. These Cross Appeals filed by the revenue and the assessee are directed against the learned Commissioner of Income-tax-33[CIIT(A)], Mumbai dated 05-07-2016 for assessment year 2009-10. 2. Facts as taken from the orders of lower authorities are that the assessee, a registered Co-operative Society consisting of individual labourers,

2 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit filed its return of income on 14-02-2011 declaring total income at

Rs.1,02,277/- for assessment year 2009-10. The assessment was

completed on 30-12-2011 determining total income at Rs.10,61,69,963/-.

The assessing officer while passing the assessment order besides the

other additions, made addition under section 40(a)(ia) of Rs.

10,51,52,466/-, for the want of deduction of TDS on labour charges. On

appeal, the Ld. CIT(A) partly restricted the disallowance u/s 40(a)(ia) for

non deduction of TDS on labour. The additional ground raised by

assessee regarding claim for deduction u/s 80P was not admitted on the

ground that no deduction u/s 80P was claimed by the assessee in the

return of income and no new claim can be made by the assessee without filing revised return of income as held by the Hon’ble Supreme Court

in the case of Goetze Ltd 284 ITR 323 (SC). On further appeal Tribunal

the case was restored back to the file of the Assessing Officer to decide

afresh, vide order dated 23-07-2014 in ITA No.2300/Mum/2013, by

holding as under:-

" The A.O. has disallowed Labour charges of which no tax was deducted at source in summary manner without giving any specific finding or pointing out how the provisions of Section 194C apply on this payment which also include purchase of material. In our considered view, this issue needs re- verification. We therefore restore this issue to the file of A.O. The A.O. is directed to decide this issue afresh in light of Provision of Section 194C of the Act considering 'he details furnished by the Assessee after giving

3 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit reasonable and sufficient opportunity of being heard. The Assessee is directed to provide all the necessary details to the A.O. " 3. Accordingly, in view of the order of Tribunal the assessing officer

passed fresh assessment order u/s 143(3) r.w.s. 254 on 30-03-2015

determining total income at Rs.10,61,69,963/- wherein he repeated the

addition on account of non deduction of TDS on labour charges; and

denied the claim u/s 80P(2)(vi). Aggrieved, assessee carried the matter

before CIT(A). The Ld.CIT(A) partially allowed the ground of appeal

pertaining to deduction u/s 194C, as has been done in his original order

thereby granted relief of Rs.4,81,59,057/-. However, with regard to

deduction u/s 80P(2)(vi), the Ld.CIT(A) dismissed the ground.

According to the Ld.CIT(A), deduction u/s 80P(2)(vi) is available to an

assessee, only if the co-operative society is engaged in the collective

disposal of the labour of its members and that in the instant case, the

assessee has extensively outsourced its contract work to outside parties.

The Ld. CIT (A) held that there was no collective disposal of the labour

of its members of the society; hence, the claim was denied. Aggrieved,

both, the revenue and the assessee have filed their respective appeal. The

revenue in its appeal in ITA No. 5881/Mum/2016 has raised the following grounds of appeal”:-

4 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit 1. "On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 4,81,59,057/- made on account of disallowances u/s 40(a) (ia) of the Income tax Act, 1961." 2. "On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred to appreciate the fact that the labour charges paid to all the parties exceeds the threshold limit of Rs. 20,000/- and when the assessee has separately debited the purchases of Rs. 3,23,16,515/- in the Profit and Loss Account, the question of reducing the cost of material from the labour charges does not arise." 3. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not adjudicating the issue whether the amount on which the relief was allowed consisted of any material cost or was below the threshold limit of Rs. 20,000/-" 4. The Assessee in its appeal in ITA No.6135/Mum/2016 has raised

following grounds of appeal:-

“The grounds mentioned hereunder are without prejudice to one another. 1. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in treating charges paid for carrying out the work covered U/s. 194C, specifically when there was no contract for sub- contract between appellant and the payees. 2. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in disallowing the total amount on which no TDS was deducted instead of amounts payable as at 31-3-2009 amounting to Rs.2,13,28,310/- as required by Section 40a(ia). 3. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in disallowing the claim of appellant U/s. 80P(2)(vi) of the Income Tax Act.” 5. We have heard the submissions of the learned representative of the

parties and have gone through the orders of the lower authorities. The

Ld. authorised representative (Ld AR) of the assessee submits that

5 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit assessee is a registered co-operative society registered under the

provisions of Maharashtra Co-operative Societies Act. The assessee was

formed with the object of serving its members, who are basically

labourer community and engaged in labour work such as mason, helper,

painter, etc. The basic object of assessee is to unite individual labourers

at one place so that the bidding for the construction contract would be

done and obtained contract from Municipal Corporation, and other

governmental agencies. During the impugned assessment year, the

assessee was awarded various contracts for construction of public toilet,

public bathroom from Municipal Corporation. The assessee received

Rs.28.25 crores for execution of awarded contract. For execution of

work contract awarded to the assessee, the assessee procured various

materials from the market and utilised services of individual labourers,

wherever required. As per the contract awarded by various municipal

corporations to assessee, the assessee was responsible for proper

execution and to handover the completed work to the concerned agency.

The risk and responsibility for execution of contract remained with the

assessee. Generally, as per the terms of contract, the contractor /

assessee cannot sub-contract or sublet the execution of contract to sub-

contractors. The risk and the responsibility are always on the assessee.

For smooth execution of contract, the assessee procured material from

6 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit various sources and utilised service of individual labourers as and when

required. At no point of time, any portion of contract was sub-

contracted. Thus, the complete risk and responsibility remains with the

assessee. During the course of assessment, the details of expenses

incurred and debited to labour charges paid in the P&L Account were

furnished. The assessee furnished the name of parties, total amount paid

to these parties. In case the amount paid to the individuals are less than

Rs.20,000/-, the list of those persons were given in separate column.

Break up of total payment of material and labour was also provided.

The total payment made on which TDS was made and deposited before

due date of filing return. The total amount paid on which TDS has been

deducted but not deposited before due date of filing of return and

outstanding amount payable to the parties as on 31-03-2009. Out of the

total expenses debited by the assessee of Rs.24.36 crores, the TDS has

been deducted on the aggregate amount of Rs.17.88 crores u/s 194C of

Rs.20,27,583/-. The AO in original assessment order as well as in

restoration proceedings disallowed Rs.10.51 crores u/s 40(a)(ia) for non

deduction of TDS u/s 194C. Despite the direction of Tribunal, the AO

made disallowance on estimated basis without application of mind and

legal position. The AO did not consider the correct figure of TDS

deposit and disallowed the balance figure without appreciating the

7 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit details furnished. The AO failed to appreciate that section 194C does

not apply to the payments incurred by assessee on its own account. As

there was no contract either oral or written between the assessee and any

of the parties. The expenses have been incurred by assessee on its own

account and not incurred towards sub contracting parties. Therefore, the

provisions of section 194C are not applicable. The Ld.AR for the

assessee submits that careful perusal of section 194C makes it clear that

it applies to any payment made to a contractor for carrying out any work

in pursuance of a contract between the director and the specified

persons. The contract also include, sub contract. The AO has not

brought any material on record to remotely suggest that there was any

kind of oral or written contract or sub-contract with the outside parties. 6. In support of his submission, the Ld.AR of the assessee has relied upon

the decisions of Hon’ble Gujarat High Court in Swastik Construction

(2018) 91 taxmann.com10(Gujarat); Vishnudutt Sharma (2013) 33

taxmann.com 284 (Gujarat High Court); and Prashant H Shah (2013) 29

taxmann.com 296 (Gujarat High Court) and decision of Tribunal in

Datta Digamber Sahakari Kamgar Sanstha Ltd (2002) 83 ITD 148

(ITAT Pune Bench). 7. In the alternative and without prejudice submission, the Ld.AR submits

that the AO disallowed Rs.10.51 crores u/s 40(a)(ia) on account of non

8 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit deduction of TDS u/s 194C. The perusal of statement provided by

assessee shows maximum disallowance of Rs.3.52 crores on account of

labour operation on which no TDS has been deducted, presuming that

section 194C is applicable. Further disallowance of Rs.1.42 crores on

which TDS of Rs.1.61 lakhs was deducted, but not deposited before due

date of filing of return could be disallowed u/s 40(a)(ia) presuming

section 194 is applicable and Rs.74.50 lakhs on which TDS was paid

but paid after due date of filing return. Thus, the total amounts of

Rs.5.69 crores for labour charges on which TDS has not been deducted /

deducted but paid before due date. It was further submitted that the

amount which could be disallowed only to the extent the amount not

paid on 31-03-2009 to the parties from which TDS has to be deducted is

only Rs.2.13 crores. 8. The Ld.AR finally submits that his primary and basic submission is that

provisions of section 194C is not applicable on the assessee and there

cannot be any disallowance and he had argued in without prejudice and

in alternative submission that maximum disallowance can be to the

extent on outstanding labour payment on which no TDS has been

deducted which is only Rs.2.13 crores. In support of his second

alternative and without prejudice submission, the Ld.AR relied upon the

9 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit decision of Allahabad High Court in Vector Shipping Services Pvt Ltd

38 taxman.com 77 (All). 9. On the other hand, the learned departmental representative (Ld. DR) in

the appeal of revenue supported the order of AO. On the ground of

appeal in assessee’s appeal the Ld. DR supported the order of Ld.

CIT(A). The Ld. DR further relied upon the decision of Palam Gas

Services v/s CIT [2017] 81 taxman.com 43 (SC). The Ld. DR further

submits that section 40(a)(ia) not only covers cases where amount is yet

to be paid but also those cases where amount has actually been paid. 10. We have considered the rival submissions of both the parties and have

gone through the orders of authorities below. Grounds 1 of appeal of

assessee and Ground No.1 in revenues appeal are taken together for

adjudication. The AO in original assessment as well as in restoration

proceedings had made disallowance of Rs.10.51 crores for non

adjudication of TDS on labour charges. The AO made disallowance by

taking view that nature of work assigned to the parties, who has

constructed the public toilet and the nature of work is squarely a sub-

contractual and is covered by section 194C. Before the Ld. CIT(A), the

assessee furnished detailed submission explaining the fact that there was

no assignment of work to the labourers, risk and reward was always with

the assessee. The assessee also provided the name of parties, amount

10 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit paid during the relevant period, amount on which TDS was made and

deposited before due date of filing return of income, the amount paid to

individuals less than Rs.20,000 in a separate column and the amount

outstanding payable on the last day of financial year. The detailed

submission of the assessee is recorded by the Ld. CIT(A) at para 14 of

the impugned order. The Ld. CIT(A) also repeated the same addition as

affirmed in first round of appeal. The Ld. CIT(A), while affirming the

earlier order of his predecessor held that plain reading of the provisions

(section 194C), it can be seen that any amount paid for supplying labour

for carrying out any work is covered. The assessee has paid to different

parties for supply of labour for construction of public toilet. The

assessee has not paid small amounts to the individual labourers, the

amount paid is running into lakhs of rupees paid to 113 different parties

and in some cases, the amounts are running into crores. Most of these

parties are firms. The very nature of work assigned to these parties is to

contract public toilet for the assessee, and therefore, in the nature of sub

contract and upheld the action of AO. On bifurcation of different

disallowance u/s 40(a)(ia), the Ld.CIT(A) in first round of appeal noted

that labour charges of Rs.3.52 crores on which no TDS was deducted.

Further, on the amount of Rs.1.42 crores, TDS was deducted, but not

deposited before due date of filing of return of income. There are other

11 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit labour charges of Rs.74,50,000/- on which TDS was deducted and paid

after due date of filing of return. The total of these figures comes to

Rs.5.69 crores on which either TDS was not deducted or deducted and

paid after due date of filing of return. The Ld.CIT(A) in second round of

appeal affirmed the action of his predecessor by holding that no new

facts has been submitted and he has no reason in differing with his

predecessor. 11. We have noted that the assessee has made exhaustive submission as

recorded by Ld.CIT(A) at para 14 on pages 5 to 10 of his order.

However, the Ld. CIT(A) repeated the addition by referring the order of

his predecessor dated 08-01-2013. The Ld. CIT(A) concluded his

finding in two sentences only. We have noted that the action of AO as

well as the Ld. CIT(A) is based on their own assumptions and

presumptions. Neither the AO nor the Ld. CIT(A) made any

investigation from any of the parties, which, according to the lower

authorities, were assigned / stipulate the execution of work. Though no

material to show that there was an element of assignment of work to

those parties is brought on record. 12. The Hon’ble Gujarat High Court in Prashant S Shah (supra) held that

where a relationship between the assessee and transporter was not that of

contractor and sub-contractor, section 194C was not attracted. Further in

12 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit Swastik Construction (supra), the Hon’ble Gujarat High Court held that

in absence of any contract entered by assessee with a specific person to

get the work done by such person, the provisions of section 194C would

not be attracted and the assessee would have no liability to deduct TDS. 13. The co-ordinate bench of Pune Tribunal in Dutta Digamber Sahakari

Kamgar Sanstha Ltd v/s DCIT (supra) held that when there was no sub

contract between the assessee society and its member to whom it was

paying transport charges for using their tanker for executing a transport

contract undertaken by society (assessee) and there was no sub-contract

between the assessee society and its member ( owner of tanker) and

therefore, provisions of section 194C(2) were not applicable and the

assessee society was not required to deduct any tax at source. 14. In view of the aforesaid discussion, we are of the view that the AO

wrongly disallowed the payment of labour charges by assessee to

various persons without bringing any material or evidence establishing

that there was any contract or sub-contract or assignment of work to

them. In the result, ground 1 of assessee’s appeal is allowed and

grounds 1 & 2 of revenue’s appeal are dismissed. 15. Ground 2 of assessee’s appeal is alternative ground. Considering the

fact that we have allowed full relief to the assessee on ground 1,

therefore, discussion on ground 2 becomes academic.

13 ITA No. 5881 & 6135 /Mum/2016 Janseva Majoor Sahakari Sanstha Maryadit 16. Ground 3 in assessee’s appeal relates to disallowance u/s 80P(2)(vi).

The Ld.AR during the course of submission made statement that he was

not pressing this ground of appeal. Therefore, this ground of appeal is

dismissed, as not pressed. 17. In the result, appeal of the revenue is dismissed and the appeal of the

assessee is partly allowed. Order pronounced in the open court on 18-03-2020.

Sd/- Sd/-

(S. Rifaur Rahman) (Pawan Singh) ACCOUNTANT MEMBER JUDICIALMEMBER Mumbai, Dt : 18th March, 2020 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai