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2015 (1) TMI 479 - HC - Income TaxAdoption of income on the basis of T.D.S. Certificate - Held that - AO shall not make an adjustment of the nature, which would require an examination of the evidence or a hearing to be given to the assessee. The assessee had carried out certain work on behalf of M/s. Ravi Organizers as sub-contractor and had received ₹ 16,30,000/- from the M/s. Ravi Organizers, who had deducted 2 per cent T.D.S. from the aforesaid amount. The assessee had rightly shown the income to the extent of ₹ 13,70,000/-, whereas, T.D.S. was deducted on ₹ 16,30,000/-. Since, the actual work carried out by the assessee during the relevant year was to the extent of ₹ 13,70,000/- and as the bill was also raised for the same amount, the assessee was justified in not showing his income to be ₹ 16,30,000/-. Even otherwise, it is not the case of the Revenue that the amount, which was carried forward by the assessee, does not reflect in the Balance Sheet. Therefore Tribunal was not right in holding that the AO was right under Section 143(1)(a) in adopting the income of ₹ 16,30,000/- on the basis of T.D.S. Certificate in place of ₹ 13,70,000/- which the assessee had shown as work in progress and billed Ravi Organizers. Decided in favour of assessee.
Issues involved:
Challenge to ITAT order dismissing appellant's appeal for A.Y. 1996-97 based on incorrect adjustment of income under Section 143(1)(a) of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Incorrect Adjustment of Income The appellant contested the ITAT's decision to dismiss their appeal, challenging the AO's adjustment of income under Section 143(1)(a) of the Income Tax Act, 1961. The appellant argued that the AO wrongly considered the amount mentioned in the account of Ravi Organizers as prima facie adjustment, which was an error. The appellant contended that the tax was deductible under Section 194C of the Act even on advance payment, which did not constitute the payee's income. The appellant relied on legal precedents such as "KHATAU JUNKAR LTD. VS. PATHANIA (K.S.)" and "GEORGE WILLIMSON (A) LTD. VS. CIT & ANR." to support their case. On the other hand, the Revenue supported the CIT(A) and Tribunal's orders, arguing that the appeal lacked merit due to the concurrent findings of the lower authorities. Issue 2: Judicial Interpretation The High Court referred to the decision in "KHATAU JUNKAR LTD. VS. PATHANIA (K.S.)" by the Bombay High Court, emphasizing that an AO can disallow a deduction claim only if satisfied, based on available material, that the assessee is not entitled to the deduction. The Court highlighted that adjustments under Section 143(1)(a) should not require extensive evidence examination or a hearing for the assessee. Similarly, the decision in "GEORGE WILLIMSON (A) LTD. VS. CIT & ANR." by the Gauhati High Court supported this interpretation. The Court reiterated that the AO should not make adjustments necessitating evidence examination or a hearing for the assessee. Issue 3: Conclusion and Decision After reviewing the facts, the High Court found that the appellant had correctly shown income as work in progress and billed Ravi Organizers for Rs. 13,70,000, while T.D.S. was deducted on Rs. 16,30,000. The Court noted that the appellant's balance sheet reflected the excess amount carried forward, justifying the income reported. The Court held that the AO's prima facie adjustment was unjustified, aligning with the legal principles established by the Bombay and Gauhati High Courts. Consequently, the Court allowed the appeal, ruling in favor of the appellant and against the Revenue, based on the incorrect adoption of income by the AO under Section 143(1)(a). In conclusion, the High Court allowed the appeal, stating that the Tribunal erred in adopting the income of Rs. 16,30,000 based on the T.D.S. Certificate instead of the correct amount of Rs. 13,70,000 shown by the assessee as work in progress and billed to Ravi Organizers.
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