Aircon India Incorporated Vs DCIT (ITAT Kolkata)
The appeal before the Income Tax Appellate Tribunal (ITAT), Kolkata, concerned the disallowance of ₹4,81,79,887 under Section 40(a)(ia) of the Income Tax Act for alleged failure to deduct tax at source (TDS) under Section 194C for Assessment Year 2010-11.
The assessee, a partnership firm engaged in the sale and servicing of air conditioners, filed its return declaring income of ₹81,06,497. During scrutiny assessment, the Assessing Officer (AO) observed that the assessee had incurred installation and labour-related expenses aggregating to ₹4,81,79,887. This amount consisted of labour charges of ₹1,84,43,781.61 and installation service costs including VAT of ₹2,97,36,105.58.
The AO sought details of the installation and labour charges. After examining the records, the AO held that the purchase of materials used for installation could not be verified because the assessee had allegedly not produced its books of account. The AO further treated the installation and labour payments as contractual payments covered under Section 194C and concluded that TDS should have been deducted on the entire contract value of ₹4,81,79,887. Consequently, the entire amount was disallowed under Section 40(a)(ia).
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance. The CIT(A) rejected the assessee’s contention that the expenditure consisted of separate material and service components and held that the contract was a composite installation contract. The CIT(A) also rejected the argument that Section 40(a)(ia) applied only to amounts payable at year-end and not to amounts already paid, relying on the Supreme Court’s decision in Palam Gas Service. Accordingly, the disallowance of ₹4,81,79,887 was confirmed.
