Case Law Details

Case Name : M/s Debdutta Construction Vs ITO (ITAT Kolkata)
Appeal Number : ITA 422& 423/Kol/2009
Date of Judgement/Order : 17/06/2015
Related Assessment Year : 2005-06 & 2006-07
Courts : All ITAT (5937) ITAT Kolkata (479)

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:

Assessee contended that as per second proviso to sec 40(a)(ia),no recovery of any tax can be made from the person who had failed to deduct the TDS from such amount, if the payee had included the same amount in his ITR and paid the tax because if the department forces to deduct the TDS then there would be double taxation on the same amount of income as the amount of tax has already been paid by the payee directly, there cannot be question of further realization of the tax on the same income. CBDT has also issued a circular no 275/201/95-IT(B) dated 29-01-1997 accepting the above legal position .

Reference was also made in the judgment of Hon’ble supreme court in Hindustan Coca Cola Beverage P Ltd v CIT ,(2007) 293 ITR 226 (SC) where in Supreme court was of the view that department cannot realize tax twice on the same income and if the payee has paid tax on the income by including in his ITR then that expense cannot be disallowed if assessee has not deducted TDS on the expense.

Contention of the Revenue/Respondent:

Revenue contended that the assessee has not deducted the TDS under the provisions of section 194C on the payment made to labour contractor @ 1% or 2% as the case may be so such expenditure will be disallowed under the provisions of Section 40(a)(ia).

Held by respective court:

ITAT held that the insertion of second proviso to sec. 40(a)(ia) of the Act is curative and it has retrospective effect w.e.f. 1st April, 2005, being a date from which Sec. 40(a)(ia) of the Act was inserted by the Finance (No. 2) Act, 2004.So if the assessee fails to deduct the TDS and prove that the deductee had taken the same amount in his ITR and paid taxes on the same then that amount could not be disallowed as per second proviso to sec 40(a)(ia) as it will result in double taxation on the same amount.

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