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2018 (1) TMI 512 - AT - Income TaxDisallowance made U/s 40(a)(ia) - AO has rejected the books of account of the assessee and estimated the income of the assessee by applying N.P. rate - Held that - Once the n.p. rate is estimated, the AO cannot based this disallowance on the same books of accounts for the purpose of disallowance by invoking provisions of section 40(a)(ia) of the Act or general disallowance u/s 37 of the Act. The estimation made by the AO of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made. See M/s Rakesh Construction co. Versus The ACIT, Circle-7, Jaipur 2016 (9) TMI 1404 - ITAT JAIPUR Addition on account of service tax U/s 43B - Held that - As the respondent assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income. In the above view, there can be no occasion to invoke Section 43B of the Act. See CIT Vs Knight Frank (India) Pvt. Ltd. 2016 (8) TMI 1096 - BOMBAY HIGH COURT
Issues:
1. Rejection of books of accounts under section 145(3) of the Income Tax Act, 1961. 2. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961. 3. Disallowance of service tax under section 43B of the Income Tax Act, 1961. Issue 1: Rejection of Books of Accounts under Section 145(3) of the Income Tax Act, 1961: The appeal challenged the rejection of books of accounts by the Assessing Officer. The Assessing Officer estimated the income after rejecting the books of account and applied an N.P. rate. The contention was that once the income is estimated post rejection of books, no further disallowance under section 40(a)(ia) is warranted. The appellant relied on a Tribunal decision that supported this argument. The Coordinate Bench held that once the net profit rate is estimated, no further disallowance can be made under section 40(a)(ia) or section 37 of the Act. Following this precedent, the addition made by the Assessing Officer was deleted. Issue 2: Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961: The appeal contested the disallowance made under section 40(a)(ia) of the Act. The appellant argued that after the rejection of books and estimation of income, no further disallowance should be applicable. Additionally, the appellant claimed that a retrospective amendment to section 40(a)(ia) should limit the disallowance to 30% of the sum payable. The Tribunal referred to relevant case law and directed the Assessing Officer to verify the facts and allow the claim of the assessee, ultimately partly allowing the appeal. Issue 3: Disallowance of Service Tax under Section 43B of the Income Tax Act, 1961: The appeal addressed the disallowance made under section 43B of the Act concerning service tax. The appellant contended that since no deduction was claimed for service tax payable, section 43B should not be invoked. Citing a Bombay High Court decision, the Tribunal ruled that if the assessee did not claim a deduction for service tax payable, the provisions of section 43B could not be applied. The disallowance made by the Assessing Officer was deemed unsustainable, subject to verification by the Assessing Officer regarding the claim made by the assessee. In conclusion, the Tribunal partly allowed the appeal, addressing the issues of rejection of books of accounts, disallowance under section 40(a)(ia), and disallowance of service tax under section 43B of the Income Tax Act, 1961. The judgment provided detailed analysis, referencing relevant legal provisions and case law to support its decisions.
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