2016 (4) TMI 1198 - AT - Income Tax

Disallowance u/s 40(a)(ia) - payment on which TDS has been made and paid into Government Account before the due date for furnishing the return of income - Held that - There is no denying that the tax was deposited by the assessee in the month of April, 2007. It is also an admitted fact that the Hon ble Jurisdictional High Court in the case of Checkmate Services P. Ltd. 2014 (11) TMI 641 - GUJARAT HIGH COURT has held that the amendments to Section 40(a)(ia) allowing deduction for the payment, on which TDS has been made and paid into Government Account before the due date for furnishing the return of income is to take effect retrospectively. - Decided in favour of assessee Estimation of profits @ 8% - Held that - Since the audited books of accounts with supporting evidences were produced before the ld. CIT(A), the First Appellate Authority should have examined the books of accounts as his powers are co-terminus to that of the A.O. We find that the First Appellate Authority has not verified the details himself and again depended upon the A.O. We further find that in the immediately preceding assessment year on a turnover of ₹ 1.49 crores, the assessee has shown net profit @ 2.49%, whereas for the year under consideration on a turnover of ₹ 2.49 crores, the assessee has shown net profit @ 2.02%. On an increase of the turnover by ₹ 1 crore, there is marginal fall in the net profit rate which is 0.47%. We, therefore, do not find any justification in estimating the net profit at 8%. We, therefore, set aside the findings of the ld. CIT(A) and direct the A.O to accept the net profit shown by the assessee - Decided in favour of assessee

Summary

Issues Involved:
1. Addition u/s. 68 for unexplained cash credit.
2. Addition u/s. 40(a)(ia) for non-deduction of TDS.
3. Estimation of profits @ 8%.

Issue 1: Addition u/s. 68 for unexplained cash credit:
The Assessing Officer (A.O) found unsecured loans in the balance sheet of the assessee totaling to ?6,10,500. The A.O treated this amount as unexplained cash credit u/s. 68 of the Act as the assessee failed to provide a satisfactory explanation. The ld. CIT(A) upheld this addition as the initial burden on the assessee under Section 68 was not discharged. The Tribunal declined to interfere with this finding as the genuineness of the transaction and the capacity of the loan creditors were not proven.

Issue 2: Addition u/s. 40(a)(ia) for non-deduction of TDS:
The A.O disallowed ?75,63,523 u/s. 40(a)(ia) as the assessee had not deducted tax at source on various expenses. The ld. CIT(A) confirmed this disallowance as the tax was deposited after the close of the accounting year. However, the Tribunal, following a High Court decision, directed the A.O to delete this addition as the tax was deposited before the due date for filing the return of income, giving the provision retrospective effect.

Issue 3: Estimation of profits @ 8%:
The A.O estimated the net profit at 10% due to the assessee's failure to produce books of accounts and supporting evidence. The ld. CIT(A) restricted the addition to 8% considering the business nature and Section 44AD provisions. The Tribunal set aside the ld. CIT(A)'s decision as the net profit rate in the preceding year was higher, indicating no justification for estimating it at 8%. The Tribunal directed the A.O to accept the net profit shown by the assessee, allowing this ground of appeal.

In conclusion, the Tribunal partly allowed the appeal, deleting the additions made u/s. 40(a)(ia) and rejecting the estimation of profits at 8% in favor of the assessee.