Case Law Details
Shubh Infra JV Vs DCIT (ITAT Ahmedabad)
Introduction: The Income Tax Appellate Tribunal (ITAT) in Ahmedabad recently addressed a significant issue related to Tax Deducted at Source (TDS) under Section 194C of the Income Tax Act. The case revolves around whether TDS applies to purchase expenses categorized under contract expenses. Shubh Infra JV had filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) concerning the assessment for the year 2018-2019.
1. Background: Shubh Infra JV is an Association of Persons (AOP) engaged in the construction business. During the assessment, the Assessing Officer (AO) noted that the company claimed expenses of Rs. 15,50,74,744 under the category of contract expenses. Upon closer examination, it was discovered that Rs. 12,22,13,475 of these expenses fell under the sub-head “labour sub-contract.” Importantly, TDS had not been deducted on these expenses.
2. Assessee’s Defense: The company contended that the amount of Rs. 12,22,13,475 was related to the purchase of materials, exempting it from TDS requirements. Shubh Infra JV provided ledger copies of all parties involved in the contract expenses, along with bank statements and sample purchase bills totaling Rs. 2,82,52,953.
3. AO’s Decision: The AO disagreed with the company’s explanation and insisted that the expenses were related to the supply of labor, which required TDS. Despite requesting the bills, vouchers, and additional documentation to prove the expenses’ nature, the company failed to provide the necessary evidence. The AO invoked Section 40(a)(ia) of the Income Tax Act and disallowed 30% of the expenses, amounting to Rs. 3,66,64,042, which was added to the company’s total income.
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