No Disallowance for non-deduction of TDS if payee includes the same amount in his ITR and paid taxes on the same

Brief of the case:

The assessee had made payment to the labour contractors without deducting TDS on the same and claimed the same as an expense in his profit & Loss account. AO disallowed the same as per sec 40(a)(ia) for non-deduction of TDS. Assessee relied on second proviso to sec 40(a)(ia) which confirm that the expense will not be disallowed even if TDS had not been deducted on the expense debited to the profit & loss account provided assessee proves that the amount on which TDS had not been deducted has been taken by deductee assessee in his respective ITR and taxes on the same also been paid by them.

Facts of the case:

The assessee had made payment of Rs 41,98,736/- to the labour contractors but the TDS was not deducted on the same. So when the case was selected for scrutiny the AO disallowed the expense and made addition of RS 41,98,736/- on the ground that if expenses on which TDS provisions are applicable but on which TDS was not deducted will be disallowed Under Section 40(a)(ia). Aggrieved Assessee filed an appeal with CIT(A) who also confirmed the order of AO, So assessee files appeal with ITAT.

Contention of the assessee/Appellant:

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