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2013 (10) TMI 424 - AT - Income TaxEstimation of income - Whether can be applied Net Profit rate of 10% in view of the decision of the ITAT, Amritsar Bench in the case of Assessing Officer vs. Pooja Construction Co 1998 (8) TMI 111 - ITAT AMRITSAR Held that - CIT(A) has not brought on record any comparable case and the fact of sub-contract has not been rebutted with the A.O. and therefore, the ld. CIT(A) is not justified to decide the issue at the back of the A.O. without affording opportunity of being heard to the A.O. - CIT(A) is not justified to reduce the net profit rate of 10% to 8%. Thus, the order of the A.O. is restored and the decision of the ld. CIT(A) is reversed. Decided against the Assessee. Additions on account of violation of provisions of section 40A(3) of the Act - Non deduction of TDS at source under sections 194C & 194J with regard to hire charges of machinery and legal expenses and with regard to the disallowance u/s 40(a)(ia) Held that - Additions discernible from the books of accounts should not have been made because the books were rejected by the A.O - Profit has been estimated after rejection of books of accounts, other provisions of the Act have become redundant - Certain disallowances like 40A(3) and 40(a)(ia) have been incorporated in the Act to curb the menace of bogus expenditure through the instrument of banking transactions and TDS provisions respectively. The addition for violation of these provisions are treated as deemed income which is by fiction of law are not ordinarily the real income. When it has come to notice that the appellant has not complied with the provisions of section 40A(3) and 40(a)(ia) then it is liable for additional income irrespective of the fact that what is total quantum of receipt and what should have been the reasonable profit out of it. - Decided against the assessee.
Issues Involved:
1. Addition of Rs. 13,30,500/- for non-deduction of TDS. 2. Addition of Rs. 4,77,187/- for payment in violation of section 40A(3). 3. Application of Net Profit rate of 8% instead of 10%. 4. Deletion of addition of Rs. 3,00,000/- and Rs. 5,00,000/- made on account of cash credit under section 68. Detailed Analysis: 1. Addition of Rs. 13,30,500/- for Non-Deduction of TDS: The assessee was found to have not deducted TDS on hire charges of machinery and legal expenses amounting to Rs. 13,30,500/-. The AO invoked the provisions of section 40(a)(ia) of the Income Tax Act, 1961, and disallowed the amount. The CIT(A) confirmed the AO's action, stating that the provisions of section 40(a)(ia) must be fulfilled and are not affected by sections 30 to 38 of the Act. The Tribunal concurred with the CIT(A)'s view, emphasizing that section 40 starts with a non-obstante clause, making it mandatory to comply with TDS provisions. Therefore, the addition of Rs. 13,30,500/- was upheld. 2. Addition of Rs. 4,77,187/- for Payment in Violation of Section 40A(3): The AO disallowed Rs. 4,77,187/- for payments exceeding Rs. 20,000/- made in cash, violating section 40A(3). The assessee argued that these payments were made to local suppliers who insisted on cash payments. However, the CIT(A) and subsequently the Tribunal rejected this contention, emphasizing that section 40A(3) aims to curb bogus expenditures through banking transactions. The Tribunal upheld the CIT(A)'s decision, confirming the addition of Rs. 4,77,187/-. 3. Application of Net Profit Rate of 8% Instead of 10%: The AO applied a Net Profit (N.P.) rate of 10% due to various irregularities in the assessee's books of account, relying on a precedent set by the ITAT, Amritsar Bench in the case of Assessing Officer vs. Pooja Construction Co. The CIT(A) reduced the N.P. rate to 8%, considering the assessee's sub-contracting arrangement. However, the Tribunal found that the CIT(A) did not provide a comparable case or sufficient reasoning for this reduction and decided at the back of the AO without affording an opportunity of being heard. Consequently, the Tribunal restored the AO's decision, reinstating the 10% N.P. rate. 4. Deletion of Addition of Rs. 3,00,000/- and Rs. 5,00,000/- Made on Account of Cash Credit Under Section 68: The AO added Rs. 8,00,000/- as unexplained cash credit under section 68, citing the absence of documentary evidence. The CIT(A) deleted this addition, accepting the assessee's explanation that the amounts were loans from Sh. Anil Dhar and Sh. Shashi Bhushan Sharma, confirmed by Mr. P.K. Zalpuri. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the Revenue's grounds, thereby upholding the deletion of the Rs. 8,00,000/- addition. Conclusion: The Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal. It upheld the additions for non-deduction of TDS and payments violating section 40A(3), reinstated the 10% N.P. rate, and confirmed the deletion of the cash credit additions. The judgment emphasizes the importance of compliance with statutory provisions and proper maintenance of books of account.
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