The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, held that Tax Deduction at Source under Section 194C of the Income Tax Act, 1961, should not be applicable to purchase expenses claimed under the head “contract expenses”.
The assessee, Shubh Infra JV, is an AOP and is engaged in the construction business. The case of the assessee has been selected for complete scrutiny under CASS. During the assessment proceedings, the AO found that the assessee, in the profit & loss account, has claimed expenses amounting to Rs. 15,50,74,744/- under the head “contract expenses”.
Therefore, the AO concluded that these are subject to TDS, but tax at source was not deducted on the payment of such expenses.
Accordingly, the assessee was asked to furnish the bills/vouchers, ledger account, and bank statements showing payment in relation to expenses. However, the assessee failed to furnish the relevant corroborative details.
Thus, the AO, in the absence of corroborative materials, held that the expenses claimed are in relation to the supply of labor on which tax at source was required to be deducted. Then, the AO invoked the provisions of Section 40(a)(ia) of the Income Tax Act and disallowed 30% of contract expenses.
Aggrieved by the order, the assessee filed an appeal before the CIT(A) who confirmed the disallowance. Thus, the assessee filed a second appeal before the tribunal.
During the proceedings, Bandish Soparkar, Counsel for the assessee, argued that the expenses claimed under the head “contract expenses” are incurred for the purchase of material, which was not subject to the provisions of Tax Deducted at source under section 194 of the Income Tax Act.
Ashok Kumar, Counsel for Revenue, supporting the order of the authorities below, submitted that the assessee failed to furnish the relevant details in respect of the contract expense.
The Tribunal, while considering the appeal, observed that purchases cannot be made subject to the provisions of TDS under Section 194C of the Income Tax Act. However, the onus lies upon the assessee to establish that it has classified material purchase expenses under the head “labor expenses” inadvertently.
So, it was concluded that the assessee failed to discharge the onus before the CIT-A based on the documentary evidence.
After reviewing the facts and records, the two-member bench of Waseem Ahmed (Accountant Member) and Siddhartha Nautiya (Judicial Member) directed to re-adjudicate the purchase expenses claimed under the head of “contract expenses”.
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