2014 (7) TMI 1306 - HC - Income Tax

Rejection of books of accounts - estimation of profits - disallowance u/s 40(a)(ia) on labour payments - learned counsel for the appellant submits that even then, the provisions of Section 40(a)(ia) will have to be considered as it was amended subsequently - HELD THAT - It appears from the records that there has been no production of books of accounts. Naturally, all the authorities below estimated profit at 8%. We are of the view that amendment or no amendment, if the profit is estimated on any ground, whether ignoring books of accounts or rejection thereof, then there is no scope for allowability/disallowability of any deduction. In our considered view, the above provision mentions how to consider the same when the books of accounts are available and the same shall be accepted on fact by the authorities below. In the circumstances, the appeal is dismissed.

Summary

Issues:
1. Interpretation of Section 40(a)(ia) of the Income Tax Act, 1961 in the absence of production of books of accounts.

Analysis:
The judgment by the High Court of Andhra Pradesh involved an appeal against a Tribunal's decision related to the assessment year 2007-2008. The main question of law raised was whether the Income Tax Appellate Tribunal was correct in holding that once the income of the assessee was estimated by rejecting the books of account, the Assessing Officer cannot make any disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for labor payments claimed by the assessee. The records indicated a lack of production of books of accounts, leading to authorities estimating profit at 8%.

The appellant's counsel argued that Section 40(a)(ia) should still be considered, despite the profit estimation and subsequent amendments to the Act. The High Court, however, emphasized that regardless of amendments, if profit is estimated for any reason, including the absence or rejection of books of accounts, there is no scope for deduction allowance or disallowance. The Court clarified that the provision dictates how to consider deductions when books of accounts are available and should be accepted as fact by the authorities.

Ultimately, the High Court dismissed the appeal, stating that in cases where profit is estimated without reference to books of accounts, the provisions of Section 40(a)(ia) do not apply. Consequently, any related pending applications were also closed, and no costs were awarded in the matter.