TaxTMI 
TaxTMI 
In case of one of my client income for the A Y 2006-07 has been estimated @ 8% although his turnover exceeded Rs. 40 Lacs. Moreover for the A Y 2005-06 labour expenditure was disallowed u/s. 40(a)(ia). Since tax deducted on the said labour expenditure was paid during the F Y 2005-06, so can i setoff such disallowed laobur expenditure for the A Y 2005-06 against the income estimated for the A Y 2006-07.
INCOME ESTIMATION AND ALLOWABILITY OF EXPENDITURE
09 Mar 2011 
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Estimation of income: officer must reject audited books with recorded reasons before estimating; earlier disallowed expenditure may be allowed.
An assessing officer may not lawfully estimate income by applying a turnover percentage where audited books exist unless the books have been rejected with recorded reasons and evidence; absent such rejection an estimate is improper. Separately, labour expenditure earlier disallowed for failure to deduct tax at source should be allowed as a deduction where the tax was paid in the relevant fiscal year, and this entitlement is independent of a subsequent turnover-based estimation. (AI Summary)
An assessing officer may not lawfully estimate income by applying a turnover percentage where audited books exist unless the books have been rejected with recorded reasons and evidence; absent such rejection an estimate is improper. Separately, labour expenditure earlier disallowed for failure to deduct tax at source should be allowed as a deduction where the tax was paid in the relevant fiscal year, and this entitlement is independent of a subsequent turnover-based estimation. (AI Summary)