2024 (2) TMI 689 - AT - Income Tax

Profit estimation - addition @ 12.5% of the turnover of the assessee by rejecting the books of accounts due to nonproduction of vouchers of expense - HELD THAT - CIT(A) has only taken cue from the provisions of Section 44AD but not applied said section. CIT(A) estimated based on the entirety of the business. Having gone through the record, in the absence of any other details, we hold that the interest of justice would be well served by directing the revenue authorities to estimate profit @ 5%. The appeal of the assessee on this ground is partly allowed. Disallowance u/s 43B - PF ESI payable - as submitted that the amount payable to PF ESI does not belong to relevant year rather it belongs to earlier years - HELD THAT - As we hold that the revenue authorities erred in making addition on account of PF ESI because assessee did not claim this as a deduction in the year under consideration. Non-payment of TDS u/s 43B - As we hold that there is a separate section 40(ia) of Act which provides that if an assessee fail to deduct any tax at source or after deduction fails to deposit the said TDS to the Govt, account before due date of filing of return of income u/s 139(1) of the Act then the AO may made addition equivalent to 30% of the amount on which such tax deducted. Section 43B mainly covers expenses that are allowed to be claimed as deduction only in case of actual payment. TDS is not an expense but a tax which is deducted on the behalf of the deductee and deposited to the government's treasury. In the Instant case the Assessing Officer made addition u/s 43B of the Act which do not support the action of the Assessing Officer. Hence, the same is directed to be deleted.

Summary

Issues involved:
The issues involved in the judgment are estimation of net profit, addition under section 43B, and charging of interest under sections 244A, 234B, and 234C.

Estimation of Net Profit:
The assessee, engaged in event management services, filed a return of income declaring total income. The Assessing Officer made an addition based on turnover, which was later reduced by the CIT(A) to 8% of the turnover. The assessee argued for a lower estimation based on past history, citing a net profit ratio of 2.18% over the last three years. The Tribunal decided to estimate the profit at 5% in the absence of supporting details, partially allowing the appeal.

Addition under Section 43B:
The Assessing Officer made an addition under section 43B for expenses payable as of a specific date. The Tribunal found that the amount payable to PF & ESI did not pertain to the relevant year and should not have been added. Regarding TDS, it was clarified that TDS is not an expense but a tax, and the addition made by the Assessing Officer under section 43B was not supported. Therefore, the addition was directed to be deleted, resulting in the partial allowance of the appeal.

Charging of Interest under Sections 244A, 234B, and 234C:
The Tribunal held that interest should not have been charged under sections 244A, 234B, and 234C, as the calculations were deemed erroneous and excessive. The appeal of the assessee was partly allowed on this ground.

Conclusion:
The Tribunal's judgment addressed the issues of estimation of net profit, addition under section 43B, and charging of interest under sections 244A, 234B, and 234C. The Tribunal adjusted the profit estimation, deleted the addition made under section 43B for certain expenses, and found the charging of interest to be erroneous. The appeal of the assessee was partly allowed on these grounds.