Merely nomenclature of expense does not conclusively determine character and nature of expense

SK. Sajjad Ali Vs ITO (ITAT Kolkata)

Labour Wages, Money given for Purchasing Material, Travel Reimbursement etc not subject to TDS without Contract: ITAT

According to Ld. AR, no TDS was deductible because the amount disbursed to nine labourers included cost of material, travel reimbursement and wages to individual labourers which cannot attract sec. 194C of the Act. The main grievance of the assessee is that no proper opportunity was given to the assessee to bring the aforesaid facts to the notice of AO. We note that the assessee had debited a sum of Rs.1,11,22,120/- under the head “Labour charges paid” and since the AO noted that against the aforesaid nine persons the payment made in the year exceeded Rs.50,000/- and because TDS was not deducted u/s. 194C of the Act, AO disallowed the entire expenditure made to these parties.

Though the assessee pleaded before the Ld. CIT(A) and brought to his notice the break-up of the expenditure, the Ld. CIT(A) gave a deaf ear to the same. Before us it was pleaded by the assessee that if an opportunity is given to the assessee, he would be able to substantiate with the support of material the break-up given supra. We agree with the Ld. AR that wages given to labourers without contract will not attract sec. 194C of the Act and the money given for purchasing material, travel reimbursement also does not per se attract section 194C of the Act.

However, it has to be kept in mind that the onus is on the assessee to discharge the facts which has been given in the break-up (supra) because these facts are exclusively in his knowledge and he is only privy to it and how the AO will be knowing these things and therefore the assessee has to bring material to substantiate what he claims.

Moreover, it has to be kept in mind by the AO that merely because nomenclature of expense is given as ‘Labour Charges Paid’ does not conclusively determine the character and nature of the expense claimed. The AO has to decide the issue based on evidence/materials brought before him in accordance to law. So, with these observations, we are inclined to set aside the order of Ld. CIT(A) and remand this issue back to AO for de novo examination in the light of facts and law in accordance to law, after giving opportunity to assessee.

FULL TEXT OF THE ITAT JUDGMENT

This appeal filed by the assessee is against the order of Ld. CIT(A)-14, Kolkata dated 19.11.2015 for AY 2010-11.

2. The sole issue as per revised ground of appeal of assessee is as under:

“2. For that the Ld. LD. CIT(A)/14/Kol erred in passing appeal order without considering the addition made by the AO of Rs. 4,53,100/- against the individual labour charges during the statutory limit of execution for individual one.”

3. The assessee who is a contractor is aggrieved by the action of the Ld. CIT(A) in confirming the disallowance of Rs.4,53,100/- made by AO for non-deduction of taxes u/s. 194C of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

4. Brief facts of the case are that the AO noted that assessee was engaged as a contractor of “Jori Works” and has declared turnover of Rs. 2 cr. on which GP rate of 5.66% was shown by the assessee as his income. During scrutiny, the AO noted that the assessee had claimed and debited a sum of Rs.1,11,22,120/- under the head “Labour charges paid.”

The AO asked the assessee to produce the list of labourers to whom payment was made and after perusal of the same, AO noted that some payments were made above the specified limit of Rs.50,000/- during the year and, therefore, since the assessee was liable to deduct tax at source u/s. 194C of the Act and since he did not do so, the AO disallowed the said sum and added it to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the action of AO. Aggrieved the assessee is before us.

5. We have heard rival submissions and gone through the facts and circumstances of the case. Our attention was drawn to page 6 of the impugned order of Ld. CIT(A) wherein the break-up of the amount in dispute is given which is as under:

6. In addition to this the following break-up was also brought to the notice of

7. According to Ld. AR, no TDS was deductible because the amount disbursed to nine labourers included cost of material, travel reimbursement and wages to individual labourers which cannot attract sec. 194C of the Act. The main grievance of the assessee is that no proper opportunity was given to the assessee to bring the aforesaid facts to the notice of AO. We note that the assessee had debited a sum of Rs.1,11,22,120/- under the head “Labour charges paid” and since the AO noted that against the aforesaid nine persons the payment made in the year exceeded Rs.50,000/- and because TDS was not deducted u/s. 194C of the Act, AO disallowed the entire expenditure made to these parties. Though the assessee pleaded before the Ld. CIT(A) and brought to his notice the break-up of the expenditure, the Ld. CIT(A) gave a deaf ear to the same. Before us it was pleaded by the assessee that if an opportunity is given to the assessee, he would be able to substantiate with the support of material the break-up given supra. We agree with the Ld. AR that wages given to labourers without contract will not attract sec. 194C of the Act and the money given for purchasing material, travel reimbursement also does not per se attract section 194C of the Act. However, it has to be kept in mind that the onus is on the assessee to discharge the facts which has been given in the break-up (supra) because these facts are exclusively in his knowledge and he is only privy to it and how the AO will be knowing these things and therefore the assessee has to bring material to substantiate what he claims. Moreover, it has to be kept in mind by the AO that merely because nomenclature of expense is given as ‘Labour Charges Paid’ does not conclusively determine the character and nature of the expense claimed. The AO has to decide the issue based on evidence/materials brought before him in accordance to law. So, with these observations, we are inclined to set aside the order of Ld. CIT(A) and remand this issue back to AO for de novo examination in the light of facts and law in accordance to law, after giving opportunity to assessee.

8. In the result, the appeal of assessee is allowed for statistical purposes.

Order is pronounced in the open court on 25.05.2018