2021 (5) TMI 890 - AT - Income Tax

Assessee eligible for Section 44AD benefits, expenses disallowed under Section 40(a)(ia) deleted

Shri Bipinchandra Hiralal Thakkar Versus Income Tax Officer, Ward-1 (2) 6, Surat.

The Tribunal held that the assessee was eligible for the benefits of presumptive taxation under Section 44AD for the assessment year 2013-14, overriding ... Disallowance u/s 40(a)(ia) - return of income on presumptive basis u/s.44AD - whether the assessee can take the advantage provided in section 44AD of the Act? - HELD THAT:- Since the assessee’s turnover for the Assessment Year 2013-14 is to the tune of ₹ 92,33,844/- and the assessee had filed the return of income on presumptive basis u/s.44AD of the Act, therefore assessee is entitled to take the benefit of the provisions of section 44AD of the Act, and hence assessee is not liable to deduct TDS under section 40(a)(ia). Whole of the process of taxation must follow the procedures which are valid under the law and must adhere to law i.e. substantive one as well as procedural one too. Therefore,as provided in the Constitution of India that every step should be taken to ensure that levy and collection of the taxes is strictly in accordance with law – not only substantive one but the procedural law, as well. Therefore, we do not agree with the statement of the assessing officer to the effect that “the dues to the crown has no limitation and has precedence over all other allowance and claims. The assessee’s turnover for the Assessment Year 2013-14 which is below one crore rupees, the threshold limit prescribed u/s 44AD of the Act and the assessee had filed the return of income on presumptive basis u/s.44AD of the Act therefore assessee is entitled to take the benefit of the provisions of section 44AD of the Act. In view of the reasons set out above, as also bearing in mind entirety of the case, we are of the considered view that the assessee is entitled to take the benefit of the provisions of section 44AD of the Act. Based on the above factual position narrated above and precedents applicable to the facts, it is abundantly clear that assessee is not liable to deduct TDS under section 40(a)(ia) of the Act, therefore we delete the addition. - Decided in favour of assessee. Issues Involved:1. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961.2. Eligibility for presumptive taxation under Section 44AD of the Income Tax Act, 1961.3. Requirement to deduct TDS on interest and job work expenses.Issue-Wise Detailed Analysis:1. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961:The primary grievance of the assessee was that the Assessing Officer (AO) wrongly applied the provisions of Section 40(a)(ia) of the Act, which led to the disallowance of interest expense amounting to Rs. 10,12,346 and job work expenses of Rs. 1,46,718, totaling Rs. 11,59,064. The AO contended that the assessee failed to deduct TDS on these payments, which is a statutory requirement under Sections 194A and 194C of the Act. The AO argued that the turnover of the assessee exceeded the monetary limits specified under Section 44AB in the preceding financial year, making the assessee liable to deduct TDS. The AO's stance was that the provisions of Section 40(a)(ia) act as a 'restriction' on the allowance of certain expenditures unless statutory liabilities, like TDS, are fulfilled.2. Eligibility for Presumptive Taxation under Section 44AD of the Income Tax Act, 1961:The assessee filed the return of income under Section 44AD, which allows for presumptive taxation based on a profit rate of 8% of the total turnover. The assessee argued that since the turnover for the assessment year 2013-14 was Rs. 92,33,844, which is below the threshold limit of one crore rupees, the provisions of Section 44AD should apply. The assessee contended that Section 44AD begins with a non-obstante clause, overriding Sections 28 to 43C, including Section 40(a)(ia). Therefore, the disallowance made by the AO under Section 40(a)(ia) was not applicable.3. Requirement to Deduct TDS on Interest and Job Work Expenses:The AO issued a show-cause notice to the assessee for non-deduction of TDS on interest payments to Reliance Capital and various unsecured loan parties, as well as job work payments. The assessee responded that since the income was declared under Section 44AD, the requirement to deduct TDS did not apply. The AO rejected this contention, stating that the statutory liabilities, including TDS, remain in force even under presumptive taxation.Tribunal's Findings:On Section 40(a)(ia) and Presumptive Taxation:The Tribunal examined the provisions of Section 44AD and noted that it begins with a non-obstante clause, overriding Sections 28 to 43C. Citing the case of Jaharlal Mukherjee v. ITO, the Tribunal emphasized that Section 44AD's non-obstante clause implies that it overrides other provisions, including Section 40(a)(ia). The Tribunal observed that the legislative intent behind Section 44AD is to provide a simplified taxation regime for small businesses, exempting them from maintaining detailed books of accounts and auditing requirements, thereby saving costs.On Turnover and TDS Requirement:The Tribunal noted that the turnover for the assessment year 2013-14 was Rs. 92,33,844, which is below the one crore rupee threshold. Therefore, the assessee was eligible for the benefits under Section 44AD. The Tribunal disagreed with the AO's reliance on the turnover of the preceding year (Rs. 1,17,61,829 for AY 2012-13) to impose TDS requirements for the current year. Each assessment year is a separate unit, and the turnover of the previous year should not affect the current year's eligibility for Section 44AD benefits.Conclusion:The Tribunal concluded that the assessee was entitled to the benefits of Section 44AD for the assessment year 2013-14. As a result, the provisions of Section 40(a)(ia) were not applicable, and the disallowance of Rs. 11,59,064 was deleted. The Tribunal emphasized that the legislative intent and the non-obstante clause in Section 44AD provide overriding benefits, exempting the assessee from TDS requirements under the specified conditions.Order:The appeal filed by the assessee was allowed, and the addition of Rs. 11,59,064 made by the AO was deleted. The Tribunal's decision was pronounced on 16/10/2020.