2011 (7) TMI 796 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Non deposit of TDS amount before filing of return - Penalty u/s 271(1)(c) - Held that we do not find any merit in these contentions of the assessee that since the payments made to sub-contractors has not been debited to the P & L account of the assessee, Section 40(a)(ia) is not applicable with regard to such payments to sub-contractors although the assessee itself is deducting TDS @1% from those payments made to sub-contractors. Regarding penalty - In assessment year 2003-04 and 2004-05 also, penalty was imposed by the A.O. in respect of the addition made by the A.O. on account of low G.P - Held that addition on account of low G.P. was made by the A.O. only on estimate basis and for such addition without bringing on record any specific adverse material, penalty is not justified - Decided in favor of the assessee

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for the assessment years 2005-06, 2006-07, and 2007-08.
2. Validity of reassessment proceedings for the assessment year 2005-06.
3. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act for the assessment year 2005-06.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia):
The primary issue was the disallowance made by the Assessing Officer (A.O.) under Section 40(a)(ia) for the assessment years 2005-06, 2006-07, and 2007-08. The A.O. disallowed amounts of Rs. 37,89,063/-, Rs. 6,63,177/-, and Rs. 18,87,229/- respectively, due to non-compliance with TDS provisions. The assessee argued that the TDS was deducted and paid, albeit some payments were delayed. The A.O. maintained that the delayed TDS payments warranted disallowance under Section 40(a)(ia).

The CIT(A) upheld the A.O.'s disallowance, noting that the assessee admitted to late TDS payments. The Tribunal found that the assessee did not debit the payments made to subcontractors in the P&L account but deducted these amounts from gross income, showing only commission income. The Tribunal concluded that the method of accounting used by the assessee did not negate the applicability of Section 40(a)(ia) as the assessee effectively claimed deductions for payments made to subcontractors. The Tribunal upheld the CIT(A)'s order, rejecting the assessee's appeal.

2. Validity of Reassessment Proceedings for AY 2005-06:
The assessee raised a ground regarding the validity of reassessment proceedings for the assessment year 2005-06. However, no arguments were advanced on this issue by the assessee's representative, leading to the rejection of this ground as not pressed.

3. Deletion of Penalty under Section 271(1)(c):
The Revenue appealed against the CIT(A)'s order deleting the penalty of Rs. 3,22,257/- imposed by the A.O. under Section 271(1)(c) for the assessment year 2005-06. The penalty was initially imposed due to additions made for low gross profit, excess depreciation claim, and charity and donation not added back in the computation of income.

The CIT(A) upheld the penalty for excess depreciation and charity/donation but deleted it for the gross profit addition, stating it was based on estimates without specific adverse material. The Tribunal supported the CIT(A)'s decision, noting similar penalties for low gross profit were deleted in previous years (2003-04 and 2004-05) and upheld by the Tribunal. The Tribunal dismissed the Revenue's appeal, affirming that penalties based on estimated additions without concrete evidence were unjustified.

Conclusion:
In conclusion, the Tribunal dismissed all three appeals of the assessee regarding disallowance under Section 40(a)(ia) and upheld the CIT(A)'s orders for the assessment years 2005-06, 2006-07, and 2007-08. The Tribunal also dismissed the Revenue's appeal against the deletion of penalty under Section 271(1)(c) for the assessment year 2005-06, affirming the CIT(A)'s decision.

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