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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Per Shri A.T.Varkey, JM
This appeal preferred by the revenue is against the order of the Ld. CIT(A), Burdwan dated 30.08.2016 for AY 2008-09.
The sole grievance of the revenue is against the action of Ld. CIT(A) in deleting the disallowance of Rs.45,76,900/- towards labour charges and Rs.22,90,000/- towards job work charges done u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
Briefly stated facts are that the assessee is a proprietor of M/s. S. G. Constructions. During the year, the assessee had income from construction work which he undertook on a sub-contract basis from M/s. GEC International Ltd. and M/s. L&T Ltd. The original assessment order was passed u/s. 143(3) of the Act by the AO dated 31.12.2010 wherein the total income assessed by the AO at Rs.9,12,980/- in place of assessee’s returned income of Rs.6,88,754/-. Thereafter, the Ld. CIT, Burdwan vide order dated 1`8.12.2012 passed u/s.
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263 of the Act dated 26.12.2012 directed reassessment for examining the disallowability of labour charges of Rs.45,76,900/- and job work charges of Rs.23,27,800/- as there was delay in payment of TDS amount of Rs.77,802/-. The AO pursuant to the order of the Ld. CIT completed the re-assessment vide order dated 31.01.2014 and was pleased to disallow labour charges of Rs.45,76,900/- and job work charges at Rs.22,90,000/- on the ground that TDS was not deducted. So the AO invoked section 40(a)(ia) of the Act for violation of the provisions of section 194C of the Act and made the disallowance. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved, the revenue is before us.
We have heard both the parties and perused the material available on record. We note that the AO has made the disallowance of the expenditure claimed by the assessee on the ground of non-deduction of TDS. According to the assessee, since the assessee was a sub-contractor, the expenditure incurred was on account of labour payment made to individual labours. According to the assessee, the payments were disbursed through labour sardars to the individual labour. It was explained by the assessee that lump-sum amounts were handed over to the labour sardar who in turn disbursed the individual payment/wages to the labourers who had insisted on cash payment because they did not had any bank account to deposit the wages. We note that the Ld. CIT(A) has taken note of the decisions of the Hon’ble Apex Court in the case of Birla Cement Works Ltd. Vs. CBDT 248 ITR 216 (SC) wherein it has been held that there must be a contract between the persons responsible for making payment and the sub-contractor in order to attract section 194C of the Act and that the provision of sec. 40(a)(ia) of the Act cannot be read in isolation without making out a case that the payment made by the assessee was in contravention of sec. 194C of the Act. The Ld. CIT(A) has taken note that in order to attract sec. 194C of the Act there must be contract between the assessee and the labour sardars for supply of labours, without which (contract) there cannot be any application of sec. 194C of the Act. Since there is no contract between assessee and labour sardars there is no violation of sec. 194C of the Act, and therefore, the invocation of sec. 40(a)(ia) of the Act to disallow the expenditure was not warranted. The Ld. CIT(A) has taken note of the fact that the number of persons involved
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in the work executed by the assessee was not just 20 and 6 for labour and job work respectively, but actually 148 and 60 respectively. The Ld. CIT(A) has taken note of the fact that 148 labours participated in the construction work carried out by the assessee as a sub-contractor for different contractors which fact as found by Ld. CIT(A) has not been disputed before us. We note that the Ld. CIT(A) has gone through the register of payments made to the labourers and upon examination of the same, the Ld. CIT(A) has made a factual finding that the money has been distributed to the 148 labourers through 20 labour sardars and likewise payment for job work execution has been disbursed to 60 skilled labours through 6 labour sardars. We note that the Ld. CIT(A) has called for remand report and has taken note that the AO has not been able to show that there was any contract existed between the assessee and the labour sardars for supply of labours and likewise in respect to job work execution. Without bringing out any evidence on record that the assessee had any contract with the labour sardars/job work supervisors, the invocation of sec. 194C of the Act was not warranted and, therefore, the Ld. CIT(A) has rightly deleted the addition.
Coming next to the grievance of the revenue that the assessee has himself deducted TDS on payments made to the labour sardars. We note that the Ld. CIT(A) has taken note of the fact that the assessee had created provision for depositing of the TDS and there was no deduction of TDS actually happened. The Ld. AR brought to our notice that due to the incorrect advice of the Accountant, after one year in November 2009 some payments were deposited in the Govt. treasury as an abundant precaution on the apprehension that the entire expenses incurred would be disallowed. It should be kept in mind that there is no estoppel against law. If the assessee had mistakenly deposited certain amount on account of TDS in Govt. Treasury, the nature and character of transaction for which deposit was made cannot change. We note that in the present case, the case of the AO is that the assessee had contractual relationship with 20 sub contractors for supply of labour and payments made without deduction of tax attracted sec. 194C of the Act and since TDS was not deducted by assessee at source at the time of payment, in turn warranted disallowance of such expenditure u/s. 40(a)(ia) of the Act. Since the Ld. CIT(A) has clearly made a finding that there was no contract between the assessee and the labour sardars and the job work
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supervisors through which the disbursements were made to the individual labour/job workers, the question of deducting TDS does not arise, therefore, no disallowance was warranted by invoking sec. 40(a)(ia) of the Act and therefore, we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue.
We also note that similar disallowance made by the AO which was deleted by the Ld. CIT(A) has been upheld by the Tribunal in the case of DCIT Vs. M/s Balaji Infrastructures & Projects in ITA No. 1107/Kol/2011 for AY 2007-08 vide order dated 27.06.2014 wherein vide para 8 of its order the Tribunal held as under:
“8. In respect of the merits of the case, it is noticed that the AO has recorded the statements of the Labour Sardars and in their depositions the Labour Sardars have specifically admitted having received the payments from the assessee for payment to other labourers and that Labour Sardars themselves were also working for the assessee. Further, a perusal of the order of the learned Commissioner of Income-tax (Appeals) clearly shows that the learned Commissioner of Income-tax (Appeals) has taken into consideration the fact that the Labour Register produced by the assessee clearly shows that the payments have been made to the labourers individually. Just because the payments were made through Labour Sardars to the labourers individually, it cannot be held that the Labour Sardars are contractors or sub- contractors. Further, a perusal of the copy of the Labour Register clearly shows that no payment in excess of the prescribed limit has also been made, which entails the requirement of the deduction of TDS u/s. 194C of the I. T. Act, 1961. In the circumstances, we are of the view that the finding of the learned Commissioner of Income-tax (Appeals) on this issue is on a right footing and does not call for any interference. We uphold the same. Consequently, the ground no.2 of the revenue's appeal stands dismissed.”
The aforesaid order of the Tribunal has been upheld by the Hon’ble Calcutta High Court in ITAT 178 of 2014, GA No. 3514 of 2014 dated 18.06.2014 wherein the Hon’ble High court has held as under:
“There is no dispute that in course of the building and construction work engaged in by the assessee labourers are required to be appointed on a regular basis. For such purpose Sardars are appointed and such Sardars make the payments on behalf of the assessee to the labourers. Judicial notice has also to be taken of the fact that the labourers often do not have any bank accounts and insist on payment only in cash. Both the Commissioner (Appeals) and the Appellate Tribunal, relying on the labour register, found that matching payments had been made to individual labourers upon the Sardars obtaining lumpsum amounts on their account from the assessee. Further, the Appellate Tribunal found that the Commissioner (Appeals) had considered the facts, particularly the additional evidence and had given adequate reasons both in receiving the additional evidence and in deciding the matter on the basis thereof. The Tribunal found that the conditions required under Rule 46A of the Income Tax Rules, 1962 had also been complied with.
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Since the question is essentially one of facts as to whether the amounts shown to have been made over to Sardars were, in fact, paid to the labourers by such Sardars, the matter does not require any reconsideration. In view of the concurrent findings of the Commissioner (Appeals) and the Appellate Tribunal, ITAT 178 of 2014 and GA 3514 of 2014 are dismissed.”
Therefore, on similar reasoning in the facts and circumstances of the case, the Ld. CIT(A) has allowed the appeal of the assessee and we confirm the impugned order and therefore, dismiss the appeal of the Revenue.
In the result, the appeal of revenue is dismissed.
Order is pronounced in the open court on 08/08/2018
Sd/- Sd/- (J. Sudhakar Reddy) (A. T. Varkey) Accountant Member Judicial Member
Dated: 8th August, 2018
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1 Appellant – ITO, Ward-1(4), Burdwan 2 Respondent – Shri Bishnu Ghosh, 72, G. T. Road, Chotoniplur More, Sripally, dist. Burdwan-713103. 3 CIT(A), Burdwan (sent through e-mail) CIT , Kolkata 4 DR, Kolkata Benches, Kolkata (sent through e-mail) 5
/True Copy, By order,
Sr. Pvt. Secretary