S. 194C is not applicable in the first year of operation. Consequently, notice issued u/s 148 to disallow expenditure for non-compliance of S.194C is liable to be quashed:

A notice u/s 148 was issued within a period of four years from the end of relevant Asst. Year so as to disallow an amount of Rs.3,07,59,872/- in respect of labour charges on the pretext that the assessee failed to deduct tax at source u/s 194C at the time of making the said payment. Asst. was framed earlier u/s 143(3) without making disallowance in respect of the same. According to Proviso to Section 194C(2), an individual or HUF is supposed to deduct tax at source only if its total sales, gross receipts or turnover from its business or profession exceeds monetary limits specified under clauses (a) or (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid. This being the first year of operation, the said condition is not fulfilled and hence the assessee is not supposed to deduct tax u/s 194C. Hence, AO’s reason to believe that income chargeable to tax in case of assessee has escaped assessment is without foundation and lacks validity. Accordingly, the impugned notice issued u/s 148 is quashed.

[HARSHADBHAI NARANBHAI BAGADIA - SCA 12243 of 2009 - GHC]