2021 (11) TMI 672 - AT - Income Tax

Disallowance u/s 40(a)(ia) - as per the submissions furnished by the assessee it is clear that the appellant has not deducted tax at source even though the payments made to the sub-contractor were in excess of 50, 000/- thereby attracting provisions u/s 40(a)(ia) - HELD THAT - As per CIT-A AO should have taken recourse of the provisions u/s 40(a)(ia) on the amount where no TDS was made. It was held that during the appellate proceeding this issue was discussed with assessee who was in agreement that sec. 40(a)(ia) is overriding provision and the payment made to sub-contractors attracts this provisions of the Act and that he that the assessee had not deducted tax at source for the payment made to the subcontractors. The expenditure claimed by the assessee towards the payment made to the sub-contractors to the extent of the amount where tax was not deducted at source is confirmed. CIT(A) directed the AO to work out the actual amount to be disallowed by invoking sec. 40(a)(ia) of the Act and partly allowed the appeal of the assessee - CIT(A) has passed the order after considering the overall facts of the case in granting partial relief to the assessee which we affirm. No contrary facts were brought to our notice to take other view. In the result the ground No 1 of the appeal is dismissed. Estimation of income on bogus purchases - CIT-A Confirmed addition to the extent of 3% - HELD THAT - AO failed to appreciate that no sale is possible in absence of purchases. The AO made additions of the entire purchases without appreciating the facts that the assessee has shown sales which is not disputed by the AO. The ld CIT(A) restricted the addition to the extent of 3% by following the decision in case of Atul Kumar ( assessee in connected appeal) wherein the ld. CIT(A) relied on the order of Anil Amritlal Chahawala. In our view the disallowances restricted by ld CIT(A) is sufficient to prevent the possibility of the revenue leakage which we affirms.- Decided against revenue.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Estimation of Gross Profit (GP) and disallowance of purchases.

Detailed Analysis:

1. Disallowance under section 40(a)(ia):

The Revenue appealed against the decision of the Learned Commissioner of Income Tax (Appeals), Valsad [CIT(A)], which directed the Assessing Officer (AO) to apply the provisions of section 40(a)(ia) of the Income Tax Act, 1961, instead of confirming the entire addition of ?3,32,86,165/- made on account of disallowance of diamond labour expenses. The AO had made this addition because the assessee did not produce the required details during the assessment proceedings. The CIT(A) observed that the assessee had undertaken a labour contract job and subcontracted it to various parties. The payments made to these subcontractors were in excess of ?50,000/- without deducting tax at source, thus attracting the provisions of section 40(a)(ia). The CIT(A) directed the AO to disallow only the amount where tax was not deducted at source and to work out the actual disallowable amount. The Tribunal affirmed the CIT(A)'s decision, noting that the CIT(A) had considered the overall facts of the case and granted partial relief appropriately. The Tribunal dismissed the Revenue's ground on this issue.

2. Estimation of Gross Profit (GP) and disallowance of purchases:

The second issue involved the CIT(A)'s direction to the AO to adopt a 3% GP and compute the taxable income instead of confirming the entire addition of ?22,68,512/- made on account of disallowance of purchases. The AO had made this addition without appreciating that no sale is possible in the absence of purchases. The CIT(A) noted that the assessee had shown sales, which the AO did not dispute. The CIT(A) relied on a similar case of Atul Nandalal Daftary and directed the AO to adopt a 3% GP. The Tribunal found that the CIT(A)'s restriction of the disallowance to 3% was sufficient to prevent revenue leakage and affirmed the CIT(A)'s decision. The Tribunal dismissed the Revenue's ground on this issue as well.

Conclusion:

The Tribunal dismissed both appeals filed by the Revenue, affirming the CIT(A)'s decisions on both issues. The Tribunal found that the CIT(A) had appropriately considered the facts and circumstances of the case and granted partial relief to the assessee in a just manner. The Tribunal's decision was announced in court on 11.10.2021.