2012 (12) TMI 623 - AT - Income Tax

Estimation of profit of manufacturing division - Held that - Action of the CIT(A) in enhancing percentage of profit from civil contract works at 8% as against 5% estimated by the assessing officer and accepted by the assessee without giving any opportunity to the assessee is against the provisions of law and has to be rectified - store the matter to his file for readjudicating on this issue. Disallowance of expenditure - Non deduction of TDS - Held that - Issue restored to file of CIT(A) to re-examine in accordance with law and after giving reasonable opportunity of hearing to the assessee whether expenditure is payable as on 31st March of every year have already been paid during the previous year without deducting tax at source and accordingly redetermine the amount of expenditure - appeal decided in favour of assessee by way of remand.

Summary

Issues:
1. Estimation of profit of manufacturing division.
2. Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act.

Estimation of Profit of Manufacturing Division:
The case involved appeals against CIT(A) orders for assessment years 2006-07 and 2008-09, concerning the estimation of profit of manufacturing division for tax relief purposes under Section 80IB of the Act. The assessing officer estimated profit from HDPE pipes manufacturing, excluding profit from civil contracts and bank interest. The CIT(A) enhanced the profit estimation for non-manufacturing activity at 8% and reduced the relief granted by the AO. However, the ITAT found that the CIT(A) did not follow the prescribed procedure under Section 251(2) by enhancing the profit without giving a reasonable opportunity of hearing to the assessee. Consequently, the ITAT set aside the CIT(A) order and directed a reevaluation after providing a fair hearing to the assessee.

Disallowance of Expenditure under Section 40(a)(ia):
The appeals also addressed the disallowance of expenditure under Section 40(a)(ia) of the Act for assessment years 2006-07, 2007-08, and 2008-09. The ITAT referred to a Special Bench decision which clarified that the section applies only to expenditure payable as of March 31 and not to amounts already paid during the previous year without TDS deduction. In line with this decision, the ITAT set aside the CIT(A) orders and directed a reassessment to determine the disallowable expenditure under Section 40(a)(ia) for the respective years, considering the payable status as of March 31. The ITAT restored the issue to the CIT(A) for reevaluation with a reasonable opportunity for both parties.

In conclusion, the ITAT partially allowed the appeal for the assessment year 2006-07 and allowed the appeals for 2007-08 and 2008-09 for statistical purposes. The judgments emphasized adherence to procedural fairness and correct interpretation of statutory provisions in estimating profits and disallowing expenditures under the Income Tax Act.