TaxTMI 
TaxTMI 
2009 (10) TMI 593
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....t the provisions of s. 40(a)(ia) are applicable in the circumstances. 6. The AO erred disallowing Rs. 8,33,28,307 by applying provisions of s. 40(a)(ia) particularly. when the books. of account arc rejected and estimation of income is resorted to. 7. The AO erred in charging interest under s. 234B of Rs. 1,22,64, 66." 4. 3.Brief facts of the case arc that the assessee, a partnership firm, filed its return of income for the asst. yr. 2005-06 on-1st Nov., 2005 admitting an income of Rs. 71,16,656. The assessment was completed under s.143(1) of the IT Act, determining the income at Rs. 10,88.55,722. The AO while completing the assessment rejected the book of accounts and estimated the total income at 10 per cent of the gross receipts. Therefore, he disallowed the payment made by the sub-contractors without deducting, the TDS by invoking provisions under s.:40(a)(ia) of the IT Act. 4. On appeal, the CIT(A) confirmed the order of the AO. Aggrieved by this, the assessee is in appeal before us. 5. The learned Authorised Representative submitted that the assessee carried out the contract work in three ways. Firstly, executed contracts taken by the firm itself. Secondly, cont....
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.... the cost of the materials received for being used, fixed or incorporated in the works." 6. On the other hand, the learned Departmental Representative) submitted that the books of account of the assessee are not reliable. The assessee has not produced the proper vouchers and bills in support of the claim of the assessee, hence the AO having no option other than, making an estimation of income as such, he estimated the income of the assessee. The AO after rejecting the books of account made a reasonable estimate of the income at a reasonable percentage of gross receipts at 10 per cent. However the CIT(A) reduced the same to the tune of 9 per cent and he supported the order of the CIT(A). 7.We have heard both the parties and perused the material on record. In the present case, the AO rejected the books of account on the reason that, the assessee has not maintained proper books of account and also failed to produced vouchers for verification and the expenditure claimed by the assessee are not substantiated. The assessee in earlier years also has not maintained the proper books of account. The assessee's past track records show that the assessee has neglected the presenting ....
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....s can be relied for other purpose for invoking other provisions of the Act? 9. Further, he submitted, that for the assessment year under consideration; the AO resorted to rejection of books of account and estimation of income. In such circumstances, no separate additions can be made based on the books of account. If it seen from the assessment order that the AO estimated income on the gross receipts at 10 per cent including the amount paid to the sub-contractor after rejecting the books of account. The Authorised Representative submitted that the Hon'ble jurisdiction of High Court of Andhra Pradesh had an occasion to consider a similar issue in the case of Indwell Constructions vs. CJT (1999) 151 Cm (AP) 207 : (1998) 232ITR 776 (AP), wherein it is held that no separate addition under s. 40 of the Act can be made by the AO. when he rejected the books of account. A similar view is taken by the Allahabad High Court in the case of CIT vs. Banwarilal Banshidhar (1998) 148 CTR (All) 533 : (1998) 229 ITR 229 (All), wherein it is held that no separate addition under s. 40A(3) of the Act can be made when the gross profit is estimated by rejecting the books of account. (b)'The Authoris....
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....it is clear from the provisions bf the said section that the disallowance can be made only when the TDS was not made in accordance with the provisions of the IT Act in respect of the amounts payable. The AO rejected the claim on the ground that according to s. 194C stipulates that the person making payment to a contractor or at the time of credit to the account has to deduct tax at source. According to the AO. once the TDS is required to be made. s. 40(a)(ia) comes into picture. This observation of the AO is not correct. The provisions of s. 194C mention two different situations, for deducting tax .at source..... (a) at the time of credit of such sum to the account of the contractor and (b) at the time of making payment to the contractor. Explanation 2 to s. 194C further elaborates what is the meaning of credit to the account. Scc.l94C itself bifurcates the amount paid and the amount payable which is credited to the account. Therefore, for deduction of tax at source, there is a specific mention in the section itself that tax is to be deducted at source even at the time of crediting the amount to the account. But s.40a(ia) mentions only the word 'payable'. The said section does not ....
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....onfirmed by the CIT(A) as well as by us. Now. based on the reliance on the same books, for the purpose of invoking the provisions of s. 40(a)(ia) is improper. The estimation of income takes care of the irregularities committed by the assessee. Further addition by invoking s. 40(a)(ia) amounts to punishing the assessee for a same offence on double occasions, which is not permitted by law. There is a connection between expenditure claimed by the assessee and making non-deduction of TDS. Since the books of account not verifiable, for which the assessee books were rejected and income was determined. It was held in the case of CAT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) where a particular business income of the assessee has been estimated and determined and in such a case, the AO precluded from adding any unexplained cash credit as undisclosed income of the, business. 12. Further, the argument of the learned counsel for the assessee is that, strict interpretation of statute to be made. He relied on the judgment of. Asstt. CIT vs. Velliappo. Textiles Ltd. (supra) wherein it was held: "(iii) A Court cannot breach a casus omissus and no canon of construction pe....
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....e. Sec. 40(a)(ia) otherwise being a legal fiction needs to be construed strictly in view of the decision of Supreme Court in CIT vs. Mother India Refrigeration Industries. (P) Ltd. (1985) 48 CTR (SC) 176: (1985) 155 ITR 711 (SC). The CBDT Circular No. 5 of 2005, dt. 15th July, 2005 [(2005) augment compliance of TDS provision in the case of residents and curb bogus payments to them. In the present case the payment is not in dispute and on the issue whether tax is to be deducted at source on such payments is not free from doubt. In any case, if the assessee has paid the impugned amount and (the amount is ) not payable at the end of the year on the date of balance sheet then the provisions of s. 40(a)(ia) are not applicable. It is only applicable in respect of "payable amount" shown in the balance sheet as outstanding expenses on which TDS has not been made. Further, tax is deductible under ss. 193, 194A, 194C, 194H and 194J either, at the time of payment or at the time of giving credit to the recipient. However, s. 40(a)(ia) is applicable only in respect of TDS capital defaults amount is "payable". If amount is actually paid and tax is not deducted under the above section, s. 4....
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....he income as a reasonable percentage of turnover instead of preferringto start with the returned income and makes substantial item-wise, statutory/otherwise additions/ disallowances. Faced with substantially, exorbitant additions to the returned income of Rs. 24, 92,428. which resulted in the determination of assessee's income by- the AO at an abnormal rate, of 64 per cent of the gross receipts, in the course of appellate proceedings, the assessee filed an affidavit, proposing before the CIT(A) to reject the books of account for the defects and discrepancies noticed and estimate the net income from contracts @ 13 per cent of the gross receipts. Even though the AO has not rejected the books and estimated the income, since the powers of CIT(A) are coterminous with those of the AO, the CIT(A) in our considered view I was competent and justified in rejecting the books maintained by the assessee for the deficiencies therein, noticed even by the AO, and proceeding to determine the income at the rate proposed by the assessee. After carefully examining the affidavit of the assessee. which has also been extracted by the C....
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....laims any expenditure as necessary to earn the business income and as such the same is allowable under s. 28; and not under s. 37, because s. 28 taxes profits of the business which can be worked out only after allowing expenditure, such expenditure goes out of the clutches of the disallowances in terms of the provisions of s. 40. In this view of the matter, an assessee may claim all his expenditure, except for those which are clearly covered by some other sections e.g.. s.30 covering rent, rates, taxes, insurance, etc.. As allowable under s. 28. It may further be observed that all the expenditure, just as labour charges in the instant case, which represents direct costs and therefore-adjustable against revenue for the purpose of determining the profit under s. 28(i) of the Act. Do not come within the provisions under s. 40(a)(ia). As such, it may be observed that it is only the deduction referred to in ss, 30 to 38 which would definitely fall for consideration of disallowance under s. 40 and they cannot be claimed as deduction under s. 28. This reasoning applies with equal force to the analogous provision. of s. 43. s. 44AD. s. 44AE. s. 44AF. s. 44B. s. 44BB. s. 44ABA. s. 44BBB. s.....