ITO, WARD - 1(3), MIDNAPORE, MIDNAPORE vs. M/S. MIDNAPORE HOUSE DEVELOPERS, PASCHIM MEDINIPUR

The Assessee is a partnership firm. It is engaged in the business of construction. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act), AO found that the assessee had paid a sum of Rs.4,00,000/- to one Amritendu Maity and others to vacate the land and ensure it free from disturbance/encumbrance. He was of the view that this was a payment made to a contractor for carrying out work and therefore the assessee ought to have deducted tax at source while making such payment u/s 194C of the Act. Since the tax was not deducted at source, the AO invoking the provision of section 40(a)(ia) of the Act added a sum of Rs.4,00,000/- to the total income of the assessee.

On appeal by the assessee CIT(A) deleted both the additions made by AO by observing as follows :- “4.1. I have carefully considered the submission of the appellant and examined the labour charges register and ledger book. It is seen that the labourers were paid wages directly through labour charges register and therefore, the same cannot be equated with contractual payments, Moreover, individual payments made were in the range of Rs,2,800/. to Rs.4,500/· per month and in no case aggregate payment was more than Rs.50,000/-. in the year so as to attract the provisions of section 194C of the Act. The slipshod addition of Rs.33,81,818/. made by the AO is devoid of merit hence, deleted. 5. Ground No. 3 of the appeal relates to addition of Rs.4,00,000/-· u/s, 40(a)(ia) of-the Act, for non deduction of tax at source for the payments made to Shri Amritendu Maity (should be Amrirendu Nayak) to vacate the land from encroachment. The AO held the said payments as contractual payment in terms of provisions of section 194C of the Act. The ARs reiterated the said decision of the AO and submitted that the appellant bud to make such payments to vacate the encroacher Shri Amritendu Nayak from land and therefore, same were 110t contractual payments. I have duly considered the submission of the appellant and inclined to accept appellant's version, Payments made for vacating land from encroachments cannot be said as contractual payments in terms of section 194C of the Act. This addition of Rs.4,00,000/- is therefore deleted.

Aggrieved by the order of CIT(A) revenue is in appeal before the Tribunal.

We have heard the submissions of the learned counsel for the assessee and the learned DR. Along with the grounds of appeal raised by the revenue a list of labour charges paid to Shri Jaydeb Saha during the previous year has also been furnished by the revenue which shows the total payment of Rs.13,35,000/- made to Jaydeb Saha. The learned DR filed before us photo copies of the vouchers evidencing the payment of labour charges. He submitted that from a cursory glance of the vouchers it can be seen that more than a sum of the Rs.50,000/- had been paid by the assessee to one person during the previous year and therefore the provision of section 194C of the Act are attracted. He pointed out that CIT(A)’s findings to the contrary are not correct. His prayer was that the labour charges register, ledger book and vouchers are to be M/s. Midnapore Housing Developers. A.Yr.2007-08 examined afresh by the AO and wherever there is violation of provision of section 194C of the Act, disallowance u/s 40(a)(ia) of the Act should be directed to be made.

In the result the appeal of the revenue is partly allowed for statistical purposes. Order pronounced in the court on 02.03.2016.