2012 (8) TMI 10 - AT - Income Tax

Addition on account of low gross profit - rejection of the book results by invoking section 145(3) - Held that - The primary reason weighing with the Assessing Officer to hold the book results as unreliable is on account of incurrence of site expenses of Rs 51, 13, 893/- which was unverifiable as it was entirely based on self-made vouchers. Secondly the labour payments of Rs 62, 62, 166/- was also found abnormally increased to 28.97% in comparison to 14.92% and 20.23% incurred in assessment year 2003-04 and 2004-05 respectively -no credible and convincing explanation has been rendered by the assessee. Section 145(3) of the Act has been correctly invoked by the Revenue authorities in this case. Quantum of income determined by the Assessing Officer after rejection of the book results - Held that - The estimation is quite excessive and unjustified considering past history wherein level of profits declared by the assessee are not so huge we deem it fit and proper that an addition of Rs 5, 00, 000/- would suffice to plug the leak of revenue if any on this account. Disallowance invoking section 40(a)(ia) - non deduction of tax a source - held that - Find fit and proper to remit the matter back to the file of AO for a decision afresh as the remand is necessitated in view of the decision of the Special Bench in the case of Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) whereby it has been laid down that the disallowance under section 40(a)(ia) shall be limited to only such expenditure which is found payable as on 31st March of the year and not to expenditure which has otherwise been actually paid during the year itself - appeal of assessee partly allowed.

Summary

Issues:
1. Addition of Rs 10,80,758/- under section 145(3) for rejecting book results.
2. Disallowance of Rs 9,05,772/- under section 40(a)(ia) for non-deduction of tax at source.

Analysis:

Issue 1: Addition under section 145(3)
The appellant, a partnership firm, challenged the addition of Rs 10,80,758/- under section 145(3) for rejecting book results. The Assessing Officer rejected the book results due to low gross profit and unverifiable expenses. The Commissioner of Income-tax (Appeals) upheld this decision, citing various qualifications in the audit report. The appellant argued that the rejection was unjust and the addition was excessive. The tribunal found that the site expenses and labour payments lacked proper substantiation. Despite explanations provided by the appellant, deficiencies in the accounts were evident. The tribunal agreed that section 145(3) was correctly invoked. However, it deemed the income estimation excessive and reduced the addition to Rs 5,00,000/-, directing the deletion of the balance. Thus, the appellant partly succeeded on this issue.

Issue 2: Disallowance under section 40(a)(ia)
The second issue involved the disallowance of Rs 9,05,772/- under section 40(a)(ia) for non-deduction of tax at source. The appellant contended that the entire expenditure was paid, making the provisions inapplicable. Additionally, it argued that certain payments were not subject to tax deduction. The tribunal decided to remit the matter back to the Assessing Officer for a fresh decision, considering a recent Special Bench decision. The remand was necessary to evaluate the correct tax liability and allow the appellant to substantiate its claims. Consequently, the tribunal partly allowed the appeal on this issue.

In conclusion, the tribunal partly allowed the appeal, reducing the addition under section 145(3) and remitting the disallowance under section 40(a)(ia) for reconsideration.