2010 (1) TMI 882 - AT - Income Tax

Disallowance u/s 40(a)(ia) - AO concluded that the assessee was having sub-contract and therefore, the assessee was required to deduct tax at source in respect of payments made to the subcontractors. - Form No.15I has been submitted subsequently and has not been given to the assessee during the financial year relevant to the asst. year under consideration for not deducting the tax at source - Held that - Once an income has been determined u/s 44AE, then provisions of section 40(a)(ia) will not be applicable. - income of the assessee in respect of transport business is to be determined as per section 44AE(2) as against the income shown by the assessee. Addition u/s 40A(3) - cash payment in excess of Rs. 20,000/- held that - income has to be ascertained u/s 44AE and therefore, provisions of section 40A(3) will not be applicable. Hence, no disallowance is required to be made u/s 40A(3). Addition on account of low drawings - Assessing Officer has held that the drawings made by the assessee in his books of account were low and accordingly estimated the household expenses of the assessee. After considering the withdrawals made in the books of account, the AO estimated a sum of Rs.76,286/- as undisclosed income utilized for household purposes Held that - quantum of expenses towards school fees and considering the fact that the AO has also disallowed part of the car expenses, it will be fair and reasonable if the addition towards low withdrawal is estimated to Rs.40,000/-, appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance under section 40(a)(ia)
2. Disallowance under section 40A(3)
3. Addition on account of low drawings

Issue 1: Disallowance under section 40(a)(ia):
The appellant contested the disallowance of Rs.11,26,500 under section 40(a)(ia) by the Assessing Officer. The AO considered the transport business as a contract with Indian Oil Corporation Ltd. and sub-contract with truck owners, thus requiring TDS to be deducted. The appellant argued that the payments to truck owners were not sub-contract payments and should not be disallowed. The CIT(A) upheld the disallowance, stating that the payments to truck owners were part of the expenditure for the transport business. The ITAT analyzed the agreements and concluded that the appellant's income should be determined under section 44AE(2), making section 40(a)(ia) inapplicable.

Issue 2: Disallowance under section 40A(3):
The appellant challenged the disallowance of Rs.2,25,300 under section 40A(3) by the AO. The ITAT found that disallowance under section 40A(3) should be restricted to payments exceeding Rs.20,000, except for two payments. Since the income was to be determined under section 44AE, the ITAT ruled that no disallowance was required under section 40A(3).

Issue 3: Addition on account of low drawings:
The AO estimated household expenses of Rs.76,286 due to low drawings by the appellant, which the CIT(A) upheld as a reasonable estimate. The ITAT considered school fees debited and car expenses disallowed, estimating the addition for low withdrawals at Rs.40,000. Consequently, the ITAT partly allowed the appellant's appeal.

In conclusion, the ITAT's judgment addressed the disallowances under sections 40(a)(ia) and 40A(3), along with the addition on account of low drawings, providing detailed analysis and reasoning for each issue, ultimately partially allowing the appellant's appeal on 29.1.2010.