BRIEF FACTS OF THE CASE AND QUESTION OF LAW
Brief Facts and Question of Law:
1. The assessee firm filed its return of income on 30.09.2009 and assessment was framed u/s. 143(3) of the act vide order dated 07.06.2011. The assessment was completed with lump sum disallowance under various heads i.e. site expenses, transport cost and travelling, conveyance and repair maintenance expenses.
2. Subsequently, the CIT examined the records and noticed that the assessee has debited a sum of Rs.82,40,116/- under the head labour charges. As per the list of creditors submitted by the assessee the TDS was required to be deducted u/s.194C(1) of the Act on the amount paid/credited under the head labour charges @ 2% on Rs.82,40,116/-. According to CIT, the TDS worked out at Rs.1,69,746/-. He noticed that as per column 27 of the Tax Audit Report, the total TDS deducted is at Rs.87,490/- which is 1% of the total labour payments.
3. As there was short deduction of TDS on labour charges, show cause notice was issued u/s. 263 of the act for revising the assessment for the reason that the assessee’s labour expenses are to be disallowed by invoking the provisions of section 40(a)(ia) of the Act.
4. Hence this appeal by assessee is arising out of revision order of CIT, Kol-XX vide No.CIT-XX/Kol/Rev.u/s263/2013-14/5991dated 31.03.2014. Assessment was framed by ITO, Ward-1(4), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 07.06.2011. The only issue in this appeal of assessee is against the revision order of CIT, Kol-XX passed u/s. 263 of the Act whereby revision was ordered for short deduction of TDS. For this, assessee has raised following ground nos. 1 to 3:
“1. For that the Revision Order under Section 263 dated 30/03/2014 is bad in law relying on misconceived in facts as well as in law.
2. For that the Ld. C.I.T-XX/KOL erred in initiating proceedings u/s. 263 when the assessment was completed after due enquiry and in accordance with law.
3. For that the Ld. C.I.T-XX/KOL erred in invoking provisions of sec. 263 with the direction to Ld. AO for further enquiry and investigation of labour charges when all supporting documents against labour charges including confirmation of accounts, evidence regarding TDS deduction against the same, compliance of notices under Section 133(6) in course of assessment under Section 143(3) duly submitted before the Ld. AO and also before the CIT for further verification. Even otherwise the same was duly certified by the Auditor to have been incurred for business purposes and there was no evidence on record that the claim was not genuine.”
CONTENTION OF THE REVENUE
The Revenue supported the orders of the authorities and contended that CIT was not convinced with the reply of assessee and invoked the provisions of section 263 of the Act and directed the AO to revise the assessment and accordingly made disallowance u/s. 40(a) (ia) of the Act qua the labour charges for short deduction of TDS u/s. 194C (1) of the act.
CONTENTION OF THE ASSESSEE
The contention of the assessee was that there was a short deduction of TDS and the case of assessee falls under sub-contractor. Hence, the provisions of section 194C (2) of the Act applies and the rate for TDS is 1%. Further submitted that there is no error in the order of AO and hence, there is no prejudice to the revenue.
HELD BY ITAT, KOLKATA
After hearing the rival contentions, ITAT held that this is merely a case of short deduction of TDS. Admittedly, the assessee has made labour payment or debited labour payment in the P&L Account at Rs.82,40,116/- and deducted TDS at Rs.87,490/- i.e. @ 1%. At best this can be a case for short deduction. In the case of short deduction no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. ITAT stated that this view is fortified by the decision of Hon’ble Calcutta High Court in the case of CIT Vs. M/s. S. K. Tekriwal (2014) 361 ITR 432 (Cal), wherein Hon’ble High Court has confirmed the findings of Tribunal by observing as under:
“S. 40(a)(ia) can be invoked only when the two conditions, namely, that tax is deductible at source and such tax has not been deducted is satisfied. Where tax is deducted by the assessee under a wrong provision of TDS and there is a shortfall, s.40 (a) (ia) disallowance cannot be made.”
ITAT further held that as the issue of short deduction is settled by Hon’ble jurisdictional High court in the above cited case, the revision proceedings initiated by CIT u/s. 263 of the Act are invalid and hence, quashed and upheld the contentions of appeal of assessee.