TULSI ENTERPRISES,MUMBAI vs. ITO WD 29(3)(2), MUMBAI
What did the Tribunal hold?
The Tribunal held that disallowance under Section 40(a)(ia) was not warranted as recipients had offered income and paid taxes, especially considering the retrospective effect of the second proviso. For Section 40A(3), the AO was directed to examine if individual payments to labourers were below Rs. 20,000.
What were the facts?
The assessee's appeal concerned additions made by the AO for labour charges. One addition was for non-deduction of TDS under Section 40(a)(ia), and another was for payments exceeding Rs. 20,000 in cash under Section 40A(3).
What were the issues?
Whether disallowance under Section 40(a)(ia) is permissible when recipients have offered income and paid taxes, and whether disallowance under Section 40A(3) is valid if payments to individual labourers are below the threshold.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA
O R D E R This is an appeal filed by the assessee against the order of CIT(A) for assessment year 2010-2011. 2. In ground No.1, assessee is aggrieved for confirming the addition of labour charges of Rs.3,40,210/- u/s.40A(3). 3. Next grievance of the assessee relates to confirming the addition of labor charges u/s.40(a)(ia). 4. The AO disallowed following payment made to the parties on account of labour charges on the plea that no tax has been deducted at source u/s.40(a)(ia):-
1. 1. Prakash Enterprises Rs.2,80,596/- 2. Reddy Enterprises Rs. 42,956/- 3. KVS Enterprises Rs. 93,778/- Total Rs.4,17,330/- 5. Ld. AR drew our attention to the certificates filed before the CIT(A) to the effect that recipient of labour charges have already offered the 2 same in their return of income and these are placed on record at page 87 of the paper book.
6. I found that assessee has filed declaration in Form 26A as well as certificate by CA of the respective recipients of income indicating the amount received and the tax paid thereon. The certificate so issued by the CA duly indicates that the return of income filed by respective recipients, wherein amount received by the assessee was included and due taxes were paid thereon. Similar certificates have been filed with respect to all the three parties. We found that in view of the insertion of second proviso to Section 40(a)(ia) by the Finance Act 2012, and in view of the fact that the recipients of the income have already included the income embedded in these payments in their tax returns filed under section 139, disallowance under section 40(a)(ia) could not be made. Even though this proviso is stated to be effective from 1st April 2013, since the amendment is “declaratory and curative in nature, and, therefore, it should be given retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004”.
7. In view of the above, I restore the issue back to the file of AO for considering the above evidences filed before the CIT(A) and for deciding the issue afresh in terms of my above observation.
8. The assessee is also aggrieved for disallowance of Rs.3,40,210/- out of total payment of Rs.8,98,875/- to following four parties :-
3 Sl. Payee Total Expenditure Disallowed No u/s.40A(3) 1. Lalji Jaisawar 3,30,240 1,88,905 2. Rupesh Patil 49,330 49,330 3. Dattatray Vishnu 45,545 45,545 Pawar 4. Alam Raja 56,430 56,430 8,98,875 3,40,210 9. The contention of ld. AR was that the payment was made to the group leader whereas amount paid to each labourers was less than Rs.20,000/-. In the interest of justice and fair-play, we restore this ground also back to the file of AO for examining actual amount paid to the group leader in respect of each labourers. If the AO finds that amount pertaining to each labourer is less than Rs.20,000/-, no disallowance u/s.40A(3) should be made. We direct accordingly.
Ground No.3 was not pressed by ld. AR, the same is therefore, dismissed in limine as not pressed.
In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this 11/08/2016.
More judgments on Section 40(a)(ia)
- Rekha Agarwal, Jaipur vs ITO WD 4(1), JaipurITA 844/JPR/2025[2021-22]Status: Disposed21 Oct 2026AY 2021-22
- Cdg Petchem Limited, Hyderabad vs ITO, Ward - 1(1), HyderabadITA 1900/HYD/2025[2018-2019]Status: Disposed16 Oct 2026AY 2018-2019
- M/S. Shree Laminators Ltd., Kolkata vs DCIT, Circle 4(4), KolkataITA 1534/KOL/2026[2011-2012]Status: Disposed15 Oct 2026AY 2011-2012
- J.D. Marketing, Kolkata vs ITO, Ward 37(1), KolkataITA 1493/KOL/2026[2015-2016]Status: Disposed15 Oct 2026AY 2015-2016
- J.D. Marketing, Kolkata vs ITO, Ward 37(1), KolkataITA 1492/KOL/2026[2013-2014]Status: Disposed15 Oct 2026AY 2013-2014
Recent GST High Court judgments
Search GST case law →- Modern Engineers And Contractors vs. The Deputy Assistant Commissioner (St)Andhra Pradesh · 28 Oct 2026
- K Madhusudan Reddy vs. The State Of Andhra PradeshAndhra Pradesh · 28 Oct 2026
- Sandeep Ranjan Rout vs. The Commissioner Of CT And GST, Odisha, KatakOrissa · 28 Oct 2026
- Gagan Bihari Rout@Gagan Rout vs. State Of OdishaOrissa · 28 Oct 2026
- Biswanath Rana vs. The Commissioner, CT And GST, Odisha, CuttackOrissa · 28 Oct 2026