Yogesh M.Patel, Surat vs Department Of Income Tax

आयकर अपील सं./I.T.A. No.1447/Ahd/2011 ( नधा रण वष / Assessment Year : 2007-08) The Income Tax Officer बनाम/ Shri Yogesh M.Patel Ward-8(4) Vs. 7, Dharti Society Surat Katargam Surat थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AIHPP 1747 Q (अपीलाथ# /Appellant) .. ($%यथ# / Respondent)

अपीलाथ# ओर से / Appellant by : Shri Nimesh Yadav, Sr.DR $%यथ# क' ओर से/Respondent by : Shri Tushar Hemani, AR

ु वाई क' तार*ख / सन Date of Hearing 15/04/2015 घोषणा क' तार*ख /Date of Pronounce ment 02/06/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-V, Surat. ('CIT(A)' in short) dated 28/01/2011 pertaining to Assessment Year (AY) 2007-08. The Revenue has raised the following grounds of appeal:-

1. On the facts and in the circumstances and in law, the ld.CIT(A) has erred in deleting the addition made by the A.O. at Rs.1,44,16,556/-

ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -2-

after accepting the assessee's plea that sub contractor is not required to deduct TDS u/s.194C on payments made to Sub- Sub Contractor despite the fact that the word Sub - Sub Contractor is merely a graphic indicator and nothing contained in the Act prevents the assessee to deduct TDS on such payments.

2. On the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition made by the A.O. at Rs.1,44,165,556/- after accepting the assessee's plea that provisions of section 40(a) (ia) are not applicable in his case because the provisions of section 40(a)(ia) are applicable on the exp. Claimed u/s.30-38 of the Act only whereas the assessee has claimed the exp.u/s.28.

3. On the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition made by the AO at Rs.1,44,16,556/- after holding that the provisions of section 28 are applicable in assessee's case instead of section 30-38 after placing reliance upon the non Jurisdictional ITAT Hyderabad decision delivered in the case of K.Srinivas Naidu Vs. ACIT 131 TTJ 17 Hyd. Further the facts of the instant case are totally different from the facts of this case.

4. It is therefore prayed that the order of ld.CIT(A) be set aside and the AO's order be restored.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 30/12/2009, thereby the Assessing Officer (AO in short) made addition of Rs.1,68,07,463/- by invoking the provisions of section 40(a)(ia) of the Act for non-deduction of TDS on the labour payments. Against the said assessment order, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, allowed the appeal; thereby the addition made on account of ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -3-

disallowance of labour payments by invoking the provisions of section 40(a)(ia) of the Act was deleted. Aggrieved by the order of the ld.CIT(A), now the Revenue is in appeal before us.

3. The only effective ground in this appeal is against the deletion of addition of Rs.1,44,16,556/- made on account of disallowance of the labour payments by invoking the provisions of section 194C of the Act, r.w.s.40(a)(ia) of the Act. Ld.Sr.DR Shri Nimesh Yadav vehemently argued that the ld.CIT(A) was not justified in deleting the addition. He submitted that the addition has been deleted by the ld.CIT(A) holding that the provisions of section 194C(2) of the Act is not applicable on the assessee. Therefore, the assessee was not required to deduct the tax on such payments. He submitted that this finding of the ld.CIT(A) is not justified and against the provisions of law.

3.1. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that there is no infirmity in the order of the ld.CIT(A). He placed reliance on the judgment of Hon'ble Gujarat High Court rendered in the case of CIT vs. Prashant H. Shah reported at (2013) 29 taxmann.com 296 (Gujarat). Reliance has also been placed on the decision of the Coordinate Bench (ITAT Hyderabad Bench 'A') rendered in the case of K.Srinivas Naidu vs. Asst.CIT reported at (2010) 131 TTJ ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -4-

17 (HYD)(UO) :: in IT Appeal No.719 (HYD) of 2009, dated 18/12/2009.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided this issue by holding as under:-

"Decision:

I have considered the assessment order and the submissions of the appellant. The A.O. action of disallowing the labour payment cannot be approved due to the following reasons:

i. For the AY in consideration the provisions of sec. 194C(2) of the Act casted the responsibility on the contractor to deduct the TDS on any payment made to any sub-contractor. There are no provisions in the relevant section which cast responsibility on the sub-contractor to deduct TDS on any payment made to any person to whom the sub-contractor has subcontracted his work.

In this case, the appellant is a sub-contractor and it was not required to deduct TDS on payments to sub-contractor. The order passed by the A.O. cannot be held to be a speaking order because he has not commented anything upon the submissions made by the appellant during the assessment proceedings especially about the applicability of provisions of section 194C(2).

So far as own labour payment is concerned, the provisions of sec.194C cannot be invoked at all because such payment ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -5-

can never be imagined as payment out of contractual obligations. Even otherwise also none of the payments is in excess of the prescribed limit for deduction of tax.

ii. There is a force in submissions of the appellant that direct expenses like labour charges are covered by provision of sec. 28(i) not by provisions of sec.40(a)(ia). This view has been confirmed in the case of K. Shrinivas Naidu vs. ACIT 131 TTJ 17 Hy.Bench.

In view of the above position of law and facts the addition on account of disallowance of labour payment is hereby deleted and the ground of appeal is allowed."

4.1. We find that the AO in para-5.3 of his order has observed that the assessee was awarded the contract form various companies and the assessee debited labour charges of Rs.1,68,07,463/-. As per the provisions of section 194C(2) of the I.T.Act, the assessee had to deduct tax at source equal to @1% of such sum as paid to the labour contractors for carrying out the work. The assessee as per order-sheet entry dated 03/12/2009, submitted that he did not file the TDS return and thereby inferring that he had failed to deduct the tax at source on the labour payments of Rs.1,68,07,463/-. However, the contention of the assessee was that assessee being not a contractor, therefore the provisions of section 194C(2) of the Act was not applicable. The assessee also placed reliance on the judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Prashant H.Shah. The Hon'ble Gujarat High Court in the ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -6-

said case held that for application of section 194C(2) of the Act what was necessary was a relationship between the contractor and sub-contractor and not merely be hiring of an agency by the contractor during the course of execution of the work. In the present case, such vital requirement of relationship of a contractor and sub-contractor between the assessee and the transporters was missing. The Hon'ble High Court further held that therefore the Tribunal was perfectly justified in holding that liability to deduct tax at source in the present case do not arise. In the case in hand, the undisputed fact is that the case of the assessee is not a 'contractor' but a 'sub-contractor'. Before the AO, the assessee demonstrated by submitting that Grasim Industries Ltd. was the contractee and Simplex Infrastructure Ltd. was a contractor. The assessee was a sub-contractor of Simplex Infrastructure Ltd. Similarly, Torrent Power Generation Ltd. was a contractee and Shapoorji Paloji & Co.Ltd. was a contractor and the Yogesh Enterprises was a sub-contractor. The submission of the assessee is that he made payments as sub-contractor towards labour expenses, therefore he was not required to deduct the tax at source. The ld.CIT(A) has recorded the fact that out of payment of Rs.1,68,07,463/-, the assessee had made payment to outside parties a sum of Rs.1,44,16,556/- and labour charges to its own labourers a sum of Rs.23,93,907/-. Therefore, the dispute is with regard to the payments made towards labour charges whether the assessee was required to deduct the tax at source or not. As per section 194-C(2) of the Act, the contractor is ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -7-

required to deduct the tax on the payment made to the sub-contractor. In the case in hand, the undisputed fact is that the assessee has made the payments towards labour charges as a sub-contractor. Moreover, the Revenue has not brought any material on record suggesting that payments debited as labour expenses were made as per subsisting contract between the assessee and labour contractors. In the absence of such material, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, ground raised in the Revenue's appeal is rejected.

5. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the Court on Tuesday, the 2nd day of June, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सद य या यक सद य ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad; Dated 02/ 06 /2015 ट*.सी.नायर, व. न.स./T.C. NAIR, Sr. PS ITA No.1447/Ahd/2011 ITO vs. Shri Yogesh M.Patel Asst.Year - 2007-08 -8-

आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :

1. अपीलाथ# / The Appellant

2. $%यथ# / The Respondent.

3. संबं4धत आयकर आयु6त / Concerned CIT

4. आयकर आयु6त(अपील) / The CIT(A)-V, Surat

5. 7वभागीय $ त न4ध, आयकर अपील*य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स%या7पत $ त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation ..6.5.15 (dictation-pad 10+ pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ..18.5.2015

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......02.06.15

7. Date on which the file goes to the Bench Clerk.....................02.06.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................