IN THE ITAT KOLKATA BENCH ‘B’
Deputy Commissioner of Income-tax, Circle-51, Kolkata
IT APPEAL NO. 1071 (KOL.) OF 2010
[ASSESSMENT YEAR 2006-07]
JULY 3, 2012
George Mathan, Judicial Member – This is an appeal filed by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-XXXII, Kolkata in Appeal No. 126/CIT(A)-XXXII/Cir-51/08-09/Kol.dated 22.01.2010, for the assessment year 2006-07.
2. In Revenue’s appeal, the revenue has raised the following grounds:-
“(1) In the facts and circumstances of the case, ld. CIT(A) was not justified in directing to delete the addition of Rs. 1,99,95,180/- as labour charges when the assessee failed to produce all the labour supervisors or furnish their addresses.
(2) In the facts and circumstances of the case, ld. CIT(A) was not justified in directing to delete out of labour charges of Rs. 31,01,255/- which was admitted by the assessee before ld. CIT(A) as not payments to the supervisors but to the contractors.
(3) In the facts and circumstances of the case, ld. CIT(A) was not justified in directing to delete amount of Rs. 8,15,000/- added u/s. 40(a)(ia) as the assessee failed to make any TDS u/s. 194-I of the I.T. Act on payment hire charges.
(4) In the facts and circumstances of the case, ld. CIT(A) was not justified in confirming only Rs. 88,900/- out of disallowances of expenditure of Rs. 10,37,500/- on slurry removal expenses though the assessee has failed to file any evidence.
(5) In the facts and circumstances of the case, ld. CIT(A) was not justified in confirming only Rs. 76,500/- out of Rs. 12,90,370/- disallowed by the AO as no TDS was made on payment of repairing charges and maintenance.”
3. Shri L.K.S. Dehiya, ld. D.R. represented on behalf of the Revenue and Shri S.K. Tulsiyan, ld. counsel appeared on behalf of the assessee.
4. It was submitted by the ld. D.R. on behalf of the Revenue that the assessee is a civil contractor doing the business of construction. It was the submission that the assessee has construction activities at various projects at various sites. It was also the submission that in the course of assessment, it was noticed that the assessee has claimed labour payments to various persons on which the assessee had not deducted TDS. It was the submission that as the assessee had not deducted TDS, the provisions of section 40(a)(ia) of the Income Tax Act had been invoked and the labour charges had been disallowed. It was the submission that on appeal, the assessee had produced certain registers under the guise of labour register, wages register, which had been accepted by the ld. CIT(Appeals) and the additions had been deleted. It was the submission that the Assessing Officer has categorically given a finding in his remand report that the assessee had not produced the wages register. It was the submission that the so-called register, which had been produced by the assessee, was not wage register in so far as there was no seal and signature verifying the same by the labour authorities. It was the further submission that the Assessing Officer had also examined one Shri Anant Ray, who had been produced by the assessee, who was claimed to be the supervisor of the assessee, who had made the payments to the labourers. It was the submission that the said Anant Ray was, in fact, a sub-contractor and not an employee of the assessee. It was the submission that the said Anant Ray had acquired a house property having a value of more than Rs. 5 lakh during the period and was also maintained family of three members and paying house rent of Rs. 1,000/- per month. It was the further submission that the assessee has not deducted PF or ESI contribution in respect of labourers. It was the submission that in the audit report, which was found in the paper book of the assessee at page 6, column 16(b) of the audit report, against the column showing that any sum received from employee towards contributions to any provident fund superannuating fund, etc., the same has shown as NIL. It was the submission that as the assessee had not deducted PF in respect of the employees and as the number of employees during the year exceeded 110 as per the statement of the assessee itself, there was clear violation of the provisions of the Provident Fund Act. It was the further submission that even if we consider the registers as were produced by the assessee for the payment of the alleged labour charges, there was no revenue stamp against the payments made to the labourers. It was the submission that all these categorically prove that the assessee was not employing labourers directly and the payments had been made to the sub-contractors, who had provided the assessee with the labourers. It was the submission that as the assessee had not deducted TDS on the payments to the sub-contractors, who had supplied the labourers, as per the provisions of section 194C of the Act, the Assessing Officer was right in invoking the provisions of section 40(a)(ia) of the Act and disallowing the said labour charges. It was the submission that the ld. CIT (Appeals) erred in deleting the said addition. It was, however, fairly agreed that no amount was due to the labourers as on the end of the financial year and the issue in the appeal is squarely covered by the decision of the Special Bench of this Tribunal in the case of Merilyn Shipping & Transports v. Addl. CIT  136 ITD 23.
5. In reply, ld. A.R. submitted that violation of the provisions of the Provident Fund Act does not affect the proceedings under the Income Tax Act. It was the submission that if there was any violation of the provisions of the P.F. Act, it was for the P.F. authority to take action against the assessee, it would not lead to disallowance of an expenditure or finding that the payments made by the assessee were not to the labourers directly and that the payments were through sub-contractors. It was the submission that the said Anant Ray was the labour supervisor of the assessee, who was paid a salary of Rs. 3,000/- per month and he categorically admitted that he was distributing the labour charges to the labourers at the sites, where he was in-charge. It was the submission that this statement of Shri Anant Ray had not been dislodged. It was the submission that there was no evidence available to show that Anant Ray was not an employee of the assessee and that Shri Anant Ray was a sub-contractor on his own terms. It was the submission that the assessee has no permanent labourer. It was the submission that as and when the project is started by the assessee, the assessee employed the labourers through the sardars, who are also the employees of the assessee in respect of the sites, where the assessee has undertaken the projects. It was the further submission that no action has been taken against the assessee for non-deduction of TDS under the provisions of section 201 & 201(1A) of the Act. It was the submission that nowhere a finding has been given that the assessee was liable to deduct tax, which has not been deducted. It was the submission that as no proceedings has been initiated against the assessee u/s. 201 & 201(1A) and it could not be held that the assessee was liable for deduction of TDS. It was further submitted that the assessee had produced wages register maintained by the various supervisors of the assessee in respect of the projects. It was the submission that the veracity of the said wage sheets has not been proved as non genuine. It was the submission that the only issue was that the said wage sheets did not contain the signature and seal of the labourer department. It was the submission that it would not make the wage sheets maintained by the assessee is non-reliable.
6. In reply, ld. D.R. submitted that order u/s. 201 & 201(1A) had no bearing to the case in so far as that was an action which was to be initiated and proceedings done by an another wing of the Department. It was the submission that the assessing authority was not the person concerned with the initiation of the proceedings under section 201 & 201(1A). It was also the submission that even though the assessee has claimed that he had multiple supervisors at various sites, only one person allegedly to be supervisor had been produced for examination. It was the submission that no evidence had been produced before the Assessing Officer and even in the remand proceedings, all evidences have not been produced. It was the submission that the order of the ld. CIT (Appeals) was liable to be reversed. On a specific query by the Bench as to why the decision of the Hon’ble jurisdictional High Court in the case of CIT v. Stumm India [IT Appeal No. 127 of 2009 dated 16.08.2010], wherein it had been held that when the payments are made to the individual labourer through supervisor, who was also employed by the assessee is not liable for TDS under section 194C and consequential disallowance under section 40(a)(ia) could not be made was put to the D.R, it was submitted that the unreported decision of the Hon’ble High Court cannot be held to be having binding value over reported decision. It was also submitted that the facts in relation to the said decision of the Hon’ble jurisdictional High Court had not been given to the ld. DR for his rebuttal, therefore, the same should not be followed. As this decision has not been given to the ld. DR it was fairly agreed that this decision would not be relied upon for deciding the issue.
7. We have considered the rival submissions. Admittedly the issue in regard to applicability of the provisions of section 40(a)(ia) and consequential disallowance of the labour payments on account of non-deduction of TDS in respect of labour charges, now stands squarely covered by the decision of the Special Bench of this Tribunal in the case of Merilyn Shipping & Transports (supra) referred to supra especially in view of the fact that the balance-sheet of the assessee categorically shows no payment is outstanding . Thus on the basis of the said decision the finding of the ld. CIT (Appeals) is upheld. However, as it has been specifically prayed for by the Revenue that a decision on the facts of the case would also be required, in these circumstances, though we have already decided the issue in favour of the assessee by following the decision of the Hon’ble Special Bench of this Tribunal in the case of Merilyn Shipping & Transport (supra), conceding to the submission of the ld. DR that the finding on facts is also required, we proceed to decide the issue on facts.
8. Admittedly, assessee has produced a register, which contained payments to various labourers. Admittedly, this register does not contain the addresses of the labourers nor it contains revenue stamp, nor is it signed by the Labour Department, no PF has also been deducted. Does all these wrongs in its entirety or individuality make the expenses incurred by the assessee deniable? Can this defect be held to be changing the mode of payment of the assessee from one mode to another? Here we would answer ‘no’. The names of the persons are available, the project is available. No businessman, who is having multiple projects, can be expected to know the name and address of each of the workers. More so, when such workers are not permanent employees and who are working in the project only during the duration of such project. A violation of the provisions of Provident Fund Act could have best lead to initiation of proceedings under the P.F. Act. Not maintaining the labour register as per the required Laws of the Labour Laws is a violation of the Labour Laws and not of the Income Tax Act. In short, violation of any law as long as the payment does not become illegal on account of such violation; the same cannot be hit under the Income Tax Act. This is just the reason why the Explanation 1 to section 37 has been brought in. Assuming, the supervisor Anant Ray, who appeared, was not a supervisor. Such witness has not been dislodged as the statement has not been shown to be wrong. That he has built a house worth Rs. 5 lakhs does not go against the said Anant Ray as if this is to be expected, no labour in the country can own a house. The assessee has produced the evidences. Such evidences might not be to the satisfaction of the Assessing Officer, but what is to be kept in mind is that such evidence has not been found to be false. It has only been presumed to be wrong. It might also be found incomplete still this submission of the assessee that the payments were made directly by the assessee to the employees/labourers through the supervisor, does not stand dislodged. In these circumstances, we are of the view that the finding of the ld. CIT (Appeals) on this issue on merits is on a right footing and does not call for any interference.
9. In Regard to Ground No. 2, at the time of hearing, ld. D.R. vehemently supported the order of Assessing Officer.
In reply, ld. AR submitted that this ground is misconceived and does not arise on the order of the lower authorities. A perusal of the ground clearly shows that the issue raised in Ground No. 2 does not arise out of the order of the lower authorities. Consequently, Ground No. 2 of the Revenue’s appeal stands dismissed.
10. In regard to Ground No. 3, ld. DR vehemently supported the order of Assessing Officer and in reply, ld. AR submitted that the provisions of section 194-I was amended to include the rental payment/hire charges in respect of plant and machinery w.e.f. July, 2006 and consequently the finding of the ld. CIT (Appeals) that the said provision does not apply for the assessment year under appeal being the assessment year 2006-07 was liable to be upheld.
11. We have considered the rival submissions. As it is noticed that the provisions of section 194I has been amended to encompass within its provision, the hire charges in respect of plant and machinery w.e.f. July, 2006, we are of the view that the finding of the ld. CIT (Appeals) in deleting the disallowance made by the Assessing Officer is on a right footing and does not call for any interference.
12. In regard to Grounds No. 4 & 5, it was the submission by the ld. DR that the said disallowance was in respect of slurry removal expenses, which the assessee had claimed to be reimbursement of expenses. It was the submission that a perusal of the chart produced by the assessee, which was shown at pages 112 to 114 of the paper book clearly shows that the assessee has shown a break-up in respect of the reimbursement of cost of consumables, etc. and repairing charges. It was the submission that normally the bill in respect of the transporting charges does not contain such break-up and the break-up was only an after thought. It was replied by the ld. AR that as the bills had been produced and the payments were specifically shown to be reimbursed of the expenses, the disallowance of the slurry removal expenses was uncalled for. He vehemently supported the order of ld. CIT (Appeals)
13. We have considered the rival submissions. As it is noticed that the slurry removal expenses has been categorically shown in respect of tankers and lorries on which the assessee has reimbursed the expenses and this break-up has not been disproved nor shown to be wrongly claimed by the assessee. We are of the view that the finding of the ld. CIT (Appeals) on this issue is on a right footing and does not call for any interference. In these circumstances, Grounds No. 4 & 5 of revenue’s appeal stand dismissed.
14. In the result, the appeal of the revenue is dismissed.
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