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Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2008-09. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-42, Mumbai [ in short ‘CIT(A)’]and arises out of the assessment completed u/s 143(3) r.w.s. 263 of the Income Tax Act 1961, (the ‘Act’).
The ground raised by the assessee/appellant in this appeal is against the order of the Ld. CIT(A) confirming the disallowance of labour expenses of Rs.18,57,722/- made by the Assessing Officer (AO) u/s 40(a)(ia) of the Act.
Briefly stated, the facts of the case are that the AO found that the labour charges debited to the profit and loss account were paid in cash. However, the assessee had not made tax deduction at source (TDS) on the above payment of labour charges of Rs.18,57,722/- as per the provisions of the Act. Therefore, the AO made a disallowance of Rs.18,57,722/- u/s 40(a)(ia).
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). During the appellate proceedings, the appellant submitted before the Ld. CIT(A) a ledger account of labour charges wherein cash payments on various dates have been mentioned. This ledger account also includes expenses of Rs.3,97,873/- on design punching charges and the total declared expenses at Rs.18,57,722/-. Subsequently, the appellant filed a second submission before the Ld. CIT(A) filing another break-up of the following labour charges: Labour charges/Daily Wages paid employee wise Rs.11,53,130/- Design Punching Charges Rs.2,02,410/- Designing Charges Rs.49,160/- Labour Welfare Expenses Rs.1,46,303/- Total Rs.15,51,003/- During the course of appellate proceedings, the Ld. CIT(A) asked the assessee to produce the evidence of employment of such people through employment letter, labour register, PF/ESI records. But the assessee could not produce any such evidence. Moreover, the assessee submitted before the Ld. CIT(A) that the attendance register for the financial year 2007-08 was also not traceable. The assessee also failed to provide the address of the so called labour employees. The Ld.
Abha J. Kariwal CIT(A) found that the assessee had no registration under the EPF and MP Act, 1952 even though the number of employees and the number of labour far exceed the threshold limit of 20 employees. From the details filed before him, the Ld. CIT(A) found that the design punching charges of Rs.2,02,410/- claimed include names of recipients like ‘Mr. Kumar’ to whom a sum of Rs.1,20,000/- is declared paid. This amount was definitely eligible for TDS deductions. Similarly, the Ld. CIT(A) held that the expense of Rs.59,990/- mentioned as paid to one Bharat Chauhan in the design punching group was also liable for TDS. As the details filed by the assessee were incomplete and unreliable, the Ld. CIT(A) confirmed the disallowance of Rs.18,57,722/- made by the AO.
Before us, the Ld. counsel of the assessee submits that considering the nature of business, casualness of workers, number of workers working at point of time being less than 20, unwillingness of the workers to get deduction of PF and ESIC i.e. employee’s contribution, which effect their take home salary, the medical and refreshment benefits provided by the assessee as incentives to workers, the assessee has not registered herself with the PF Act and ESIC Act. It is stated that the workers were casual employees of the assessee and not the contractor/sub-contractor or agent. Reliance was placed on the decision in Pr. CIT v. Shri Tulsi Ram Modi stating that a labour hired by the assessee employed as casual labours could not be considered to be sub-contractor. Also relying on the decision in CIT v. Dewan Chand (2009) 178 Taxman 173 (Del.), it is submitted that where payments were made to employees employed by the assessee on daily wages, such payments could not be said to be contractual payments so as to attract TDS u/s 194C. Thus it is stated that their exists employer-employee relation between the assessee and the Abha J. Kariwal TDS u/s 192 or u/s 194C vis-à-vis the applicability of section 40(a)(ia). Further, without prejudice to the above, it is stated that since each payment to employee is less than Rs.20,000/- per day and the total payment to each employee is less than Rs.50,000/- per annum, the assessee is not required to make TDS on payments made to workers u/s 194C and the labour expenses are not disallowable u/s 40(a)(ia).
On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A) and submits that the documents produced by the assessee before the Ld. CIT(A) were either incomplete or unreliable.
We have heard the rival submissions and perused the relevant materials on record. The reasons for decisions are given below. From the written submission dated 18.01.2016 filed by the assessee before the Ld. CIT(A) it has been submitted at page 5-6 that the following persons who worked in FY 2007-08 were still working with the assessee in FY 2009-10: 1. Mahesh Mishra 2. Santosh Yadav 3. Deepak Dubey 4. Hadish Khane 5. Shakil Ansari 6. Rambhara Mishra 7. Jaykishan Yadav 8. Ramesh Ray Yadav 9. Samir Khan At least the assessee should be in a position to file before the AO their complete address, so that the nature of payment and applicability of the provisions of TDS could be ascertained. The assessee also failed to file before the Ld. CIT(A) the attendance register for the financial year 2007-08.