M/S. WORTH ENGINEERING,,PUNE vs. INCOME TAX OFFICER,, PUNE

The assessee has raised the following grounds of appeal:- 1. The learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding disallowance in respect of labour charges of Rs.19,53,489/- u/s 40(a)(ia) of the Act.

The learned Authorized Representative for the assessee pointed out that the issue raised in grounds of appeal No.1 and 3 is against disallowance made under section 40(a)(ia) of the Act. He placed reliance on the ratio laid down by the Pune Bench of Tribunal in Vivek Dattatraya Gupte – HUF Vs. ITO in ITA Nos.406 & 407/PUN/2014, relating to assessment years 2008-09 and 2009-10, order dated 16.12.2015. The learned Authorized Representative for the assessee pointed out that the matter be set aside to the file of Assessing Officer for verification of taxes paid by the payee in order to decide the issue of disallowance, if any, under section 40(a)(ia) of the Act. The learned Authorized Representative for the assessee did not press the ground of appeal No.2.

Briefly, in the facts of the case, the assessee had furnished the return of income declaring total income of ₹ 5,58,527/-. The case of assessee was picked up for scrutiny. The Assessing Officer during the course of assessment proceedings noted that the assessee had paid labour charges. However, it was noted that in respect of labour contract payments made to different parties, TDS was not deducted. The list of parties and the amount of expenses totaling ₹ 19,53,489/- is enlisted at page 2 of the assessment order. The assessee was show caused with regard to provisions of section 40(a)(ia) of the Act. Since the assessee had failed to deduct tax at source, the assessee was held to be in

The CIT(A) has upheld the said addition made by the Assessing Officer, against which the assessee is in appeal.

The limited issue which is raised before the Tribunal is whether the provisions of section 40(a)(ia) of the Act are attracted. The said provisions are applicable to the cases of expenditure which are debited by the assessee, whether paid or payable at the end of the year, against which the assessee had liability to deduct tax at source, but the same has not been deducted. Such an expenditure is liable to be disallowed in the hands of assessee, in view of provisions of section 40(a)(ia) of the Act. However, the second proviso to section 40(a)(ia) of the Act has been inserted by the Finance Act, 2012. Under the proviso, it is provided that in case the payee has paid taxes on the amounts paid to it, then the payer cannot be held to have defaulted in non deduction of tax at source. Such was the proposition laid down by the Pune Bench of Tribunal in Vivek Dattatraya Gupte – HUF Vs. ITO (supra), wherein it was held as under:- “10. Now, coming to the second aspect of the issue i.e. new legal plea raised by the assessee in view of second proviso to section 40(a)(ia) of the Act, which was inserted by the Finance Act, 2012. The Tribunal in ACIT Vs. Bhavook Chandraprakash Tripathi (supra) while adjudicating similar issue had observed as under:- “4. Following the aforesaid precedent, we hereby reverse the decision of the CIT(A). However, at the time of hearing, the Ld. Representative for the respondent-assessee made a new legal argument that second proviso to section 40(a)(ia) of the Act was inserted by Finance Act, 2012 w.e.f. 01.04.2013, whereby it is provided that the disallowance u/s 40(a)(ia) of the Act would not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the Act. The stand of the assessee is that the said proviso should be understood as retrospective in nature as it has been introduced to

The issue which arises in the present appeal is identical to the issue before the Tribunal and following the same parity of reasoning, the matter is restored back to the file of Assessing Officer to carry out necessary verification and adjudicate the issue in line with the directions of the Tribunal and in accordance with law after affording reasonable opportunity of hearing to the assessee. The assessee is directed to file the requisite details of taxes paid by the payee in this regard and the Assessing Officer shall decide the issue. In view of amended provisions, no disallowance is to be made in the hands of

In the result, appeal of assessee is partly allowed as indicated above.