ITO v. Satyam Enterprise (2023) 103 ITR 56 (SN) (Surat)(Trib)

S. 40(a)(ia): Amounts not deductible-Deduction at source-CIT(A)’s deletion of additions made by Assessing Officer for non-deduction of TDS on Labour Contract Expenses, accepting that subcontractors had declared and paid taxes on the income stands ratified.

The appeal is against the order of the CIT(A) by the revenue. The primary issue is the deletion of addition made by the Assessing Officer under section 40(a)(ia) of the I.T. Act due to the assessee’s failure to deduct TDS on Labour Contract Expenses and secondly, the restriction of the adhoc disallowance of expenses to 10% from the proposed 20% by the Assessing Officer.The assessee is a firm engaged in construction. They filed a return for A.Y. 2013-14. The Assessing Officer noted discrepancies in the assessee’s expenses and income declarations, especially regarding contract expenses. The CIT(A) accepted the assessee’s contention that the sub-contractors had declared the income in their returns and paid taxes on it. The CIT(A)observed that return of income had been filed by 9 out of 11 subcontractors and the CIT(A) deleted the additions made in these cases. As regards two subcontractors, they hadn’t filed returns due to income being below the taxable limit and the death of one of them. Without prejudice, the assessee proposed that the addition on their payments (two cases) be restricted to 30% of sub-contract payment in view of amendment to first proviso to Section 40(a)(ia) by the Finance Act, 2014 which has been held as retrospective. The CIT(A) directed the deletion of the addition for these two subcontractors as well. Upon appeal by the revenue, The Hon’ble Tribunal observed that the Assessing Officer based on adverse remark in audit report by the auditor that no TDS was made on such subcontract payment, disallowed the entire expenses. However, considering the decision of the CIT(A) which was based on  the remand report furnished by the Assessing officer, the Hon’ble Tribunal affirmed the decision of the CIT(A) as far as cases where returns of income were filed and the income was declared and taxed paid.  Further as regards the two cases where returns of income weren’t filed, assessee’s alternate plea to restrict the addition to 30% was found acceptable bringing about modification to CIT(A)’s order to this extent. (AY .2013-14)