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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI PAWAN SINGH (JM) & SHRI S RIFAUR RAHMAN (AM)
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. 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, 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 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 & 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 has raised the following grounds of appeal”:-
4 & 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/-"
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.
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.
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).
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.”
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 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 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 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.
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).
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 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.
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 38 taxman.com 77 (All).
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 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 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.
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.
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 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.
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.
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.
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.
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.