Estimation of income and additions u/s 40(a)(ia)
N SURYANARAYANA
(Querist) 20 October 2013
This query is : Resolved
The AO intend to make additions for TDS violations vis-a-vis 40(a)(ia) even in cases where estimation of income is resorted to. I think the provisions of section 40(a)(ia) are independent and therefore such action need to be upheld. If this is not the case, the assessees' would say that there are no books of account and therefore estimation can be resorted to, which appear to be a safer zone to evade tax legally. In such a scanario the purpose of TDS provisions are defeated. Hence, the AO has to decide the taxation of income independently and can also make separate additions on account of TDS violations. Please offer your valuable comments.
C. P. CHUGH
(Expert) 22 October 2013
On being dis-satisfied with the books of accounts of an assessee, Section 145(3) of the Act empowers an Assessing Officer to reject such results
and proceed to assess u/s 144 of the Act by making a best judgement assessment. Such best judgement could be resorting to estimation of income and/or estimation of gross profit. Estimation of income leave Assessing Officer with little choice to make issue based additions and dis-allowance for voilation of provisions of chapter XVII B, however an intelligent officer would always estimate gross profit based on average gp rate of previous years and gp rate prevalent in similar trade and try to make his case by making issue based additions out of expenses debited to Profit & Loss Accounts. Option of disallowing certain expenditures where tax at source was required to be deducted and deposited but has not been, remains with the AO and so remains dis-allowance u/s 40 for making payments in cash in excess of Rs. 20000.00.
More over by estimating income the AO looses the right to initiate and levy penalty where as after issue based addition he has a very good case for levy of penalty u/s 271(1)(C).
R.V.RAO
(Expert) 22 February 2014
yes.sri chughji is right.
if AO is not convinced of assessee's books of accounts,he prefers to go for best judged assessment U/S 144. of ITAct.
