2015 (8) TMI 1155 - AT - Income Tax

Tribunal directs Assessing Officer to determine income under section 44AD, overriding section 40(a)(ia)

The Tribunal allowed the appeal, directing the Assessing Officer to determine the income under section 44AD. It held that section 40(a)(ia) cannot be ... Disallowance u/s 40(a)(ia) - applicability of provision of section 44AD - whether the provision of section 40(a)(ia) of the Act can be made applicable for the assessee when his income is determined in accordance with the presumptive scheme u/s 44AD of the Act? - Held that:- CIT(A) had called for the copies of the bills and had given a categorical finding that the material portion cannot be bifurcated from the total bill so as to get out of the ambit of the provision of section 194C of the Act. Admittedly, this finding was not refuted by the ld. DR during the course of hearing. - Decided against assessee. The legal provision of section 44AD of the Act shows an overriding effect over other provisions contained in section 28 to 43C of the Act, to hold that the provisions of section 40(a)(ia) of the Act cannot be invoked in the instant case as the income is directed to be determined on presumptive basis u/s 44AD of the Act. Decided in favour of the assessee. Whether section 40(a)(ia) of the Act, in fact and circumstances of the instant case, are applicable in respect of amounts payable on the date of balance sheet and not on the amounts paid before the end of the previous year does not warrant any deliberation as held in the facts and circumstances of the case, the provisions of section 40(a)(ia) per se are not applicable as the income of the assessee is directed to be determined u/s 44AD on presumptive basis. Accordingly, this ground becomes infactuous. Issues Involved:1. Whether the CIT(A) is right in rejecting the claim of the assessee that the income is to be determined in accordance with the provision of section 44AD of the Act.2. Whether the CIT(A) is right in invoking the provisions of section 40(a)(ia) of the Act when the taxable income is determined in accordance with the presumptive scheme tax contemplated u/s 44AD of the Act.3. Whether the provision of section 40(a)(ia) is to be made applicable in respect of amounts paid in the previous year or is applicable only in respect of the amounts payable at the end of the previous year.Detailed Analysis:Issue 1: Determination of Income under Section 44ADThe assessee, a proprietor engaged in job contract and manufacturing of electrical goods spare parts, claimed that the net profit declared was more than 10% of the turnover, thus qualifying for the presumptive taxation scheme under section 44AD. The CIT(A) rejected this claim, stating that the assessee had not filed its return of income under section 44AD and had maintained books of accounts. The Tribunal, however, held that the assessee's claim was valid as the net profit of 10.56% of the turnover met the criteria under section 44AD. The Tribunal directed the AO to accept the taxable income reported by the assessee under the presumptive scheme of section 44AD.Issue 2: Applicability of Section 40(a)(ia) under Presumptive TaxationThe CIT(A) invoked section 40(a)(ia) for disallowing expenses due to non-deduction of TDS. The Tribunal analyzed the non obstante clause in section 44AD, which overrides other provisions from sections 28 to 43C, including section 40(a)(ia). The Tribunal concluded that when income is determined under the presumptive scheme of section 44AD, the provisions of section 40(a)(ia) cannot be invoked. The Tribunal emphasized that the purpose of section 44AD is to provide a hassle-free assessment process, and any further business income adjustments would get telescoped with the presumptive income. Therefore, the Tribunal held that section 40(a)(ia) does not apply when income is assessed under section 44AD.Issue 3: Applicability of Section 40(a)(ia) to Paid vs. Payable AmountsThe CIT(A) applied section 40(a)(ia) to disallow expenses, including amounts paid before the end of the previous year, based on the decision in CIT vs Crescent Export Syndicate. However, the Tribunal held that this issue became moot since it had already determined that section 40(a)(ia) does not apply when income is assessed under section 44AD. Consequently, this ground was considered infructuous.ConclusionThe Tribunal partly allowed the appeal, directing the AO to determine the income under section 44AD and holding that section 40(a)(ia) cannot be invoked in such cases. The Tribunal emphasized the overriding effect of the non obstante clause in section 44AD, which excludes the applicability of sections 28 to 43C, including section 40(a)(ia), when income is assessed on a presumptive basis.