Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source

2011-TIOL-06-ITAT-KOL

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'B' KOLKATA

ITA Nos.991/Kol/2010
Assessment Year: 2006-2007

INCOME TAX OFFICER WARD-29(1), KOLKATA Vs NISHA SARAF
PAN NO:ACJPA0430Q
B R Mittal, JM and C D Rao, AM
Dated: December 10, 2010
Appellant Rep by: Shri P C Nayak, Sr.DR
Respondent Rep by: Shri Manish Tiwari

Income Tax - Section 194C(2) - Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source - Whether payment-wise reconciliation of TDS is necessary for proving that the provisions of TDS has been
properly complied with.

Appellant was contractor and made payments to subcontractors. Assessee deducted TDS at the rate of 2.24 percent in relation to job charges paid to the subcontractors - During the course of proceedings the AO observed that the assessee had not deducted any TDS on balance job charges and accordingly, disallowed the same - CIT(A) while observing that the assessee has deducted TDS @2.24% instead of 1% as prescribed under section 194C(2) took the view that extra deduction is sufficient to cover the balance job charges - On appeal of the revenue the DR
pointed out that the CIT(A) has allowed the appeal without matching the payments of balance job charges.

After hearing the parties the ITAT held that,

++ keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recoveryof TDS from the balance amount. As regarding the submissions of the Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which isamounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence ofthe details of the balance job charges of Rs.13,78,542/-, the CIT(A)is not justified to delete the entire disallowance by observing thatthe assessee has recovered excess TDS on Rs.1,49,69,028/-;

++ therefore, the issue is restored to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs.13,78,542/- to substantiatewhether the TDS is required to be deducted or not, before the AO.

Case remanded

ORDER

Per: C D Rao:

This appeal is preferred by the Revenue against the order of the C.I.T. (A)-XVI, Kolkata dated 18.11.2009 for the assessment year 2006-07.

2. The only issue taken by the Revenue in this appeal, is relating to deletion of Rs.13,38,542/- disallowed by the AO by applying provision of section 40(a)(ia) read with section 194C of the Income Tax Act.

3. Brief facts of this issue are that, while doing the scrutiny assessment, the AO has observed that the assessee debited job charges to the tune of Rs.1,63,47,570/- in the P&L a/c. and perusal of the details of job charges submitted revealed that the same was paid to 22 parties. The AO also observed that the assessee deducted TDS on job charges of Rs.1,49,69,028/- only @2.24% which is Rs.3,35,905/- and deposited the same to the govt. a/c. The assessee was asked to explain vide a show cause letter dated 11.11.2008 as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS and why the said amount should not be disallowed under section 40(a)(ia) of the Act for failure to deduct TDS, as per law. After considering the
submission of the assessee, the AO disallowed the same by observing as under:

"It appeared that the assessee is a job contractor within the purview of compulsory tax audit during AY 2005-06 and AY 2006-07, and thus falls within the purview of section 194C(2) of the Income Tax Act.
Hence, the assessee is liable to deduct tax at source from the payments/ credits made to parties in respect of job working expenses.

Hence, the explanation given by the A/R of the assessee is not tenable. Since the assessee has made default in deducting TDS on Rs. 1338542/-, the same is disallowed u/s 40(a)(ia) of the Act, and added back as income of the assessee."

Though the AO has pointed out that the assessee has not deducted TDS amounting to Rs.13,78,542/-, but he disallowed only Rs.13,38,542/-.

4. On appeal, the Ld. CIT(A) has disallowed the same by observing as under:

"6. During the course of appellate proceedings, it was submitted by the appellant that as per tax audit report appellant has deducted tax of Rs.3,35,905/- u/s. 194C of the I. T. Act which consist of T.D.S. of Rs.3,33,366/- on the payment of Rs.1,63,47,570/- as labour charges to 22 different parties. The tax of Rs.2,542/- was deducted on the payment of Rs.1,24,550/- to one party for Saree Dying Charges. It is an admitted fact that the appellant was a contractor and made payment to subcontractors amounting to Rs.1,63,47,570/- on account of job charges. Therefore, the appellant was required to deduct the tax @ 1% u/s. 194C(2) of the I. T. Act. Out of the total payment of Rs. 1,63,47,570/- the payment of Rs.1,37,59,392/- was paid to four parties exceeding Rs.1O,00,000/- and hence as per the provisions of section 194C(2) the tax @ 1.12% on this payment comes to Rs.1,54,380/-. The balance amount of Rs.25,88,178/- was paid to 18 different parties and u/s. 194C(2) the tax © 1.02% on this amount comes to Rs.26,399/-. Therefore, as per the provisions of section 194C(2) of the Act the appellant was required to deduct total tax u/s 194C(2) at Rs. 1,80,779/- (Rs.1,54,380 + Rs.26,399) on total payment of Rs. 1,63,47,570/- on account of labour charges. In fact, the appellant has deducted and paid much more amount than required as per the provisions u/s.194C(2) of 'the Act i.e. the appellant has deducted and paid T.D.S. of Rs.3,33,366/- in place of T.D.S. of Rs.1,80,779/- required to be deducted and payable to the Govt. Treasury. It was contended by the appellant that the A.O. was not justified to invoke the provisions of section 40(a)(ia) on the payment of Rs.13,38,542/- without appreciating the facts of the case. On careful consideration of facts of the case, I am of the opinion that though A.O. has correctly held that in the case of appellant provisions of section 194C(2) were attracted on the payment of labour charges, however, he was not justified in making the disallowance of Rs.13,38,542/- u/s. 40(a)(ia) by calculating the tax u/s. 194C(2) @ 2.24%. I find force in the submission of the appellant that she has deducted and paid more amount of tax than as required under the law. Under the circumstances, no

disallowance could be made by invoking the provisions of section 40(a) (ia). The A.O. is directed to delete the disallowance of Rs. 13,38,542/-. The ground nos. 1 & 2 are allowed."

5. Aggrieved by this, the Revenue is in appeal before us.

6. At the time of hearing, the Ld. D.R., appearing on behalf of the Revenue, has pointed out that the AO has mentioned in the assessment order categorically that the assessee was asked to explain as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS, the assessee has not mentioned anything against that. The contention of the assessee is only that she has deducted the TDS on an amount of Rs.1,49,69,028/- at 2.24% i.e. Rs.3,35,905/- and deposited the same to the government a/c. However, the Ld. CIT(A), without contradicting this finding, has given relief, simply by accepting the submissions of the assessee that the assessee deducted and paid more amount to the tax authorities, than as required under the law. Therefore, he requested to reverse the order of the Ld. CIT(A)1 and restore that of the AO.

7. On the other hand, the Ld. Counsel, appearing on behalf of the Assessee, has reiterated the submissions made before the revenue authorities and further contended that since the assessee has already recovered more amount than required under section 194C, therefore, he requested to uphold the order of the Ld. CIT(A). On query from the Bench, whether the TDS has been recovered on the balance amount of Rs. 13,78,542/-, the Ld. Counsel for the Assessee has submitted that this

amount is not subjected to TDS. However, he has not furnished details in support of this submission.

8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recovery of TDS from the balance amount. As regarding the submissions of the Ld. Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, we observe that in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which is amounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence of the details of the balance job charges of Rs.13,78,542/-, we are of the view that the Ld. CIT(A) is not justified to delete the entire disallowance by observing that the assessee has recovered excess TDS on Rs. 1,49,69,028/-. Therefore, we set aside the same and restore this issue to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs. 13,78,542/- to substantiate whether the TDS is required to be deducted or not, before the AO.

9. In the result, the appeal of the Revenue is allowed for statistical purposes.

(Order pronounced in the court on 10.12.2010.)