2014 (4) TMI 342 - AT - Income Tax

Estimation of income at 7% of turnover Held that - The assessee had not produced supporting documentary evidences during the assessment proceedings the AO had to estimate the taxable income - after issuing a show-cause notice and considering the submissions of the assessee, he estimated the income @ 7% of the turnover - during the year, assessee had received Rs. 14. 18 lakhs on settlement of earlier years claims - AO has estimated the profit @ 7% on turnover - the order do not suffer from any infirmity considering the peculiar facts of the case under appeal - the assessee had not produced the supporting evidence, the AO had to adopt some estimate - his estimation was reasonable Decided against Assessee. Enhancement of income vis-a-vis disallowance u/s 40(a)(ia) of the Act Held that - The decision in Teja Constructions Versus ACIT 2009 (10) TMI 593 - ITAT HYDERABAD followed - 40(a)(ia) is applicable only in respect of TDS defaults when amount is payable There is difference between the word paid or payable the legislature used the word very carefully in section 40(a)(ia) - Sec. 40(a)( a) has to be subjected to strict interpretation - Going by the rule of strict interpretation the default with reference to actual payment of expenditure would not entail disallowance - Decided in favour of Assessee.

Summary

Issues:
1. Estimation of income at 7% of turnover
2. Enhancement of income vis-a-vis disallowance under Section 40(a)(ia) Rs. 13,95,442

Estimation of Income at 7% of Turnover:
The appellant challenged the order confirming the estimation of income at 7% of turnover, citing the loss of supporting documents during floods in 2005 as a reason for non-production. The appellant argued that past results and history should be considered in estimating income. The Assessing Officer (AO) rejected the books of account under Section 145(3) due to incomplete records and estimated income at 7% of turnover. The First Appellate Authority (FAA) upheld this decision, stating that without supporting documents, estimation was necessary. The Appellate Tribunal found the estimation reasonable given the lack of evidence and upheld the FAA's decision, rejecting the appellant's appeal on this ground.

Enhancement of Income vis-a-vis Disallowance under Section 40(a)(ia) Rs. 13,95,442:
The appellant contested the enhancement of income due to non-deduction of TDS under Section 40(a)(ia). The FAA directed an addition of Rs. 13,95,442 to the income, as the appellant failed to deduct TDS on certain payments. The appellant argued that no further disallowance could be made if income was already estimated. The Tribunal referred to a precedent stating that invoking Section 40(a)(ia) after estimating income was improper and amounted to punishing the assessee twice for the same offense. Following this interpretation, the Tribunal ruled in favor of the appellant, deciding the ground in favor of the assessee and partially allowing the appeal.

In conclusion, the Appellate Tribunal upheld the estimation of income at 7% of turnover but ruled in favor of the appellant regarding the enhancement of income due to non-deduction of TDS, citing a precedent to support their decision. The appeal was therefore partly allowed, with the Tribunal's order pronounced on 3rd April 2014.