TMI Blog2009 (10) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... se for invoking other provisions of the Act - The AO rejected the claim on the ground that according to s. 194C stipulates that the person making payment to a contractor or at the time of credit to the account has to deduct tax at source - If amount is actually paid and tax is not deducted under the above section, s. 40(a)(ia) is not applicable - in the case of Indwell Construction vs. CIT(1999) 151 CTR (AP) 207 : (1998 -TMI - 17056 - ANDHRA PRADESH High Court) it has been clearly held that where the books of account have been rejected, the Revenue cannot rely on the same books of account for addition of an exact amount of expenditure in the P&L a/c – Decided in the favour of the assessee - ITA NO. 308/HYD/2009 - - - Dated:- 23-10-2009 - ORDER HANDRA POOJARI. A.M. : This appeal is directed against the order passed by the learned CIT(A)-VI, Hyderabad, dt. 16th Dec.. 2008 and it pertains to asst. yr. 2005-06. 2. Asscsscc raised the following grounds : "1. The order of the AO is erroneous, unjust and contrary to the facts of the case. 2. The AO erred in rejecting the books of account and in restoring to estimation of income. 3. Tin AO erred in estimating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit. He submitted that in the earlier year 2004-05. the assessment was completed by applying the above rates. He relied on the judgment of Hon'ble Supreme Court in the case of Brij Bhushan Lal Parduman Kumar vs. CIT 1978 CTR (SC) 134 : (1978) 115 ITR 524 (SC) where it was held : "reversing the decision of the High Court, that since in substance and in: reality the materials supplied by the Government always remained the property of the Government and the assessee merely had custody and fixed or incorporated them into the works, there was not even a theoretical possibility of any element of profit being involved in the turnover represented by the cost o! such materials. Though, ordinarily, when a works contract was put through or completed by a contractor, profit from the contract was determined on the value of the contract as a whole and not by considering the several items that would go to form such value of the contract where, as in this case, materials were supplied at fixed rates by the Government to the contractor solely for being used, fixed or incorporated in the works on the terms that they would remain the property of the Government and any surplus should be retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts. The assessee had a higher rate of profit on the contracts executed by the assessee itself. In these contracts, the assessee agreed that his income is at 9 per cent of the gross receipts. Thus, accordingly the AO is directed to estimate the income on the contracts executed by the assessees own at 9 per cent. In case of contracts taken by assessee on sub-contract, the income to be estimated at 8 per cent of the gross receipts. In case of contracts given by the assessee to the 3rd party on sub-contract, income to be estimated at 4 per cent. This Is, because, when the assessee gives contract to the other parties on sub-contract, the assessee cannot keep the same percentage of profit at 9 per cent, it has to forgo certain portion of profit i.e.. around :5 per cent to the sub-contractors. Similar position in the case of contracts taken by assessee on sub-contract from other parties. Further, the assessee is entitled for depreciation and remuneration, and interests, to partners on the, profit estimated by AO at applicable rates, because the income estimated as above of the assessee is before the depreciation and interest and remuneration of the partners. Accordingly. we dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er centby the person who enters into an agreement for carrying out any work. He submitted that in the instant case, the Government of Andhra Pradesh entered into an agreement with Harvins Constructions (P) Ltd.. and therefore, the said company is a contractor. Thereafter, the said company entered into an agreement with the assessee herein. This contract is covered by the provisions of sub-s. (2) of the s. 194C of the Act. Therefore, the said company, in compliance with the said provisions deducted tax at source at 1 per cent on the payments made by it to the assessee herein. He submitted that the next question is whether the provisions of s. 194C cover 'the payments made by the assessee here in (being a sub contractor) to another subcontractor. There is no such provision in s.194C providing for deduction of tax at source. Therefore the assessee is not under obligation to deduct tax at source. Further, he submitted that insofar as deduction of tax at source concerned, the assessee merely acts as a n agent in collecting the tax from the. payee and making payment to the Government: When the provisions if the Act do not delegate :such power deduction from the payments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o scope for the AO to interpret the provisions of s.194C when they are very plain and unambiguous. The AO cannot read anything into statutory provision, the Hon ble Supreme Court had an occasion to consider the question of interpretation of the provisions of the Act in the case of Padmasundrara Rao (Decd.) Ors. Vs. State of Tamil Nadu Ors. (2002) 176 CTR (SC) 104: (2002) 255 ITR 147 (SC) wherein it was held that the Court cannot interpret the provisions when they are palin. The Supreme Court in the case, of Asstt. CIT v. Velliappa Textiles Ltd. (2003) 184 CTR (SC) 193 : (2003) 263 ITR 550(SC) held that the words in the statute are to be strictly interpreted and plugging loppholes is only for legislature and not for the Court. 10. On the other hand, the Departmental Representative submitted that, the rejection of books of account and estimate of the income is different form invoking provisions of s.40(a)(ia), and these two are entirely, mutually exclusive and he submitted that there is no bar in invoking the provisions under s. 40(a)(ia) after estimating the income of the assessee. He submitted that there is a failure by the assessee to deduct TDS under s. 194C of the IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession (a) in the case of any assessee (i) (ia) any interest, commission or brokerage; rent, royalty, fees: professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or. after deduction has not been paid. (A) in the case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified m sub-s. (1) of s. 139 or (B) in any other case, on or before the last . The bare provision of s. 40(a)(ia) provides for non-deduction of amount which remains payable to a-resident in respect of fees fro technical services etc. It is not applicable where expenditure is paid. It is applicable only in cases where the payments are due and outstanding. The word payable is not defined thought the word paid is defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her provisions of the Act can be pressed into service if there is some ambiguity about the meaning of the section. But the same was not the case in the instant case. Even the principles of liberal interpretation cannot be applied where the language is clear, simple, and the meaning of the word is apparent. As such, the provisions of s. 40(a)(ia) are not applicable in the present facts of the case. The disallowance if any required to be made shall be restricted to the extent of payable shown in the balance sheet at the end of the year. However, this is not the case in the present case because once the estimation of income is made, further disallowances are unwarranted. 13. Further in the case of N. Ramachandra Reddy ITA No. 1372 of 2007 the Tribunal order dt. 6th March. 2009 held as follows on the similar circumstances. "We have considered the rival submissions and perused the material available on record. Undisputedly, there are defects and discrepancies in the hooks of account noted by the AO as well as the CFT(A). The AO on that ground has not rejected the books of account, but proceeding on the basis of returned income of Rs. 24.92,423. made substantial additions incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with such a higher rate for estimation of profit, it is because he is faced with several other statutory / otherwise additions made by the AO, which if sustained by the CIT(A). would result in determination of its income at a very substantially higher rate of 64 per cent or even more than 100 per cent if separate disallowance under s. 40A(3) is also considered. The fact that the assessee has made this offer for estimation of income at a higher rate of 13 per cent, is also evident from the rider he put in the concluding sentence of the penultimate para of his affidavit, which reads as follows: This statement; and affirmation are made subject to the point that no other adverse inferences are drawn and no other proceedings under the IT Act for the said assessment consequent to the statement and affirmation are invoked. On a close reading of the above provisions, it is observed that though the above provisions stipulate a statutory disallowance leaving no scope for any discretion or lenient view considering the peculiar circumstances under which payments caught by the scheme of s. 40(a)(ia) have been made, the non obstante clause. "Notwithstanding anything to the contrary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that where the books of account have been rejected, the Revenue cannot rely on the same books of account for addition of an exact amount of expenditure in the P L a/c. It was also held in that case that when an estimate is made, it is In substitution of the income that is to be computed under s. 29 and in other words, all the deductions which are referred to under s. 29 are deemed to have been taken into account, while making such an estimate. This will also mean, the High Court observed, the embargo placed in s. 40 is also taken into account. It has been held in the concluding paras 4 and 5 of that decision as follows 4. The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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