Re: Disallowance u/s 40 for non-reduction of TDS
A Private Limited Company filed return within time for A.Y. 2012-13 declaring NIL income. The assessee is a civil contractor. The company did not deduct TDS on payment made to sub-contractor, rent on machinery, interest on loan and salary to director. The books could not be produced as there was fire. The AO disallowed the total payments made to sub-contractor, rent on machinery, interest on loan and salary to directors.
The AO also disallowed 10% of the amount of total receipt by the company less the above four payments i.e. payment to sub-contractor, rent on machinery, , interest on loan and salary to directors. The CIT (Appeal) dismissed the appeal of the assessee and confirmed the addition made by the AO. It is an auditable case u/s 44AB. W.E.F. 01.04.2015, u/s 40(a)(ia) only 30% of the amount is disallowable in the TDS has not been deducted or after deduction not deposited. Please let us know whether the benefit of 30% disallowable u/s 40(a)(ia) can be taken in A.Y. 2012-13 i.e. retrospectively. Whether the assessment can be made at the rate of 8% on total turnover or should the assessee go for VSVS. The amount disallowed is approximately Rs. 2.00 Crs. Rs. 1.45 Crs due to TDS and Rs. 55.00 Lacs 10% of total turnover minus amount on which TDS not deducted. Please advise whether the assessee should go for VSVS or should fight appeal in ITAT.
In Kachwala Gems v. Jt. CIT (2006) 206 CTR 585 / (2007) 288 ITR 10 / 158 Taxman 71 / 196 Taxation 738 / AIR 2007 SC 487 (SC) the Apex Court held that even though there is always a certain degree of guess work in a best judgment assessment, the authority should try to make an honest and fair estimate of the income and should not act totally arbitrarily.
In Malpani House of Stones v. CIT (2017) 395 ITR 385 (Raj.) (HC) the Court held that , when income is estimated other additions cannot be made on the basis of entries in the books of account. Also refer , CIT v. Modern Rubber Industries (2013) 218 Taxman 70 (Mag.)(All.)(HC)
CIT v. Hind Agro Industries (Chd.)(Trib.); www.itatonline.org ,if books are rejected and Gross Profit rate is estimated, separate disallowance of expenses cannot be made such as 40(a)(ia) of the Act
Also refer ,Circular No 21 of 2020 dt 4-12-2020 , No Q. no 83.If appeal involving issue of disallowance under section 40(a)(i)/(ia) of the Act is settled under the Scheme, whether consequential reli~f will be available in proceedings under section 201 of the Act initiated qua the same payment! deduction. Ans .No. ?
It may be desirable to contest in appeal .
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