Bipinchandra Hiralal Thakkar v. ITO [ITA No.
2126/Ahd/2016, dt. 16-10-2020] : 2020 TaxPub(DT) 4246 (Surat-Trib.)
Section 40(a)(ia) disallowances in the case of presumptive
income under section 44AD
Facts:
Assessee offered his income under section 44AD on presumptive
basis @ 8% of gross receipts. It was the case of the assessing officer that
since the assessee was subjected to tax audit under section 44AB in the prior
assessment year he ought to have done TDS on certain payments on which assessee
was in default and thus disallowances were made under section 40(a)(ia) for
non-deduction on TDS and additions were sustained by Commissioner (Appeals). It
was the case of the assessee that once presumptive provisions are applied then
the non-obstante clause in it should exonerate the liability on applicability
sections from 28 to 43C thereby no disallowance under section 40(a)(ia) could
be made. The revenue's case was that if assessee knew and was subject to Tax
audit in the prior asst. year then he ought to have deducted TDS and he cannot
plead ignorance or turn blind eye to TDS provisions simply because he is
offering presumptive income under section 44AD. The non-obstante clause is only
for a limited purpose and cannot be read to dilute section 40(a)(ia) which exists
to ensure strict TDS deduction. Dues to the crown has no limitation and has
precedence over all other allowance and claims. This went in higher appeal by
the assessee.
Held in favour of the assessee that once the non-obstante
clause covers section 28 to 43C in its non-applicability no disallowance under
section 40(a)(ia) can be sustained.
Applied: SMC Bench,
Kolkata in the case of Jaharlal Mukherjee v. ITO (in ITA No. 73/Kol/2014)
(Kolkata-Trib), Assessment Year 2008-09, Order, dated 5-8-2015
"11. The next issue is to be decided in this appeal
is as to whether the provision of section 40(a)(ia) of the Act can be made
applicable for the assessee when his income is determined in accordance with
the presumptive scheme under section 44AD of the Act. From the bare reading of
section 44AD of the Act, it can be seen that it starts with an "non
obstante clause". "Notwithstanding anything to the contrary contained
in section 28 to 43C". This goes to prove that the provisions of section
44AD of the Act overrides all other provisions contained in section 28 to 43C.
Admittedly, the provisions of section 40(a)(ia) of the Act falls within this
range of sections 28 to 43C of Chapter-XVII B of the Income Tax Act.
When an income is presumptively taxed under section 44AD
of the Act any further business income by applying the provisions of sections
28 to 43C (including section 40(a)(ia) of the Act) would get telescoped with
the presumptive income determined. For this reason, the legislature had
provided section 44AD of the Act with a non-obstante clause having an over
riding effect over other provisions of sections 28 to 43C of the Act. It is
pertinent to dwell upon the impact of non obstante clause at this stage. It is
well known that the non obstante clause is a legislative device which is
usually employed to give over riding effect to certain provisions over sum
contrary provision that may be either in the same enactment or some other
enactment to say "to avoid the operation and effect of all contrary
provisions".
The assessment of income under presumptive basis under
section 44AD is similar to the income determined on an estimated basis by the
assessing officer after rejecting the books of account of the assessee. Once
the books are rejected the doors of the assessing officer are closed for
looking after other provisions of the Act which are relevant for determining
the business income of the assessee, unless or otherwise specifically provided
in the provisions of section 44AD of the Act itself such as allowance of
interest and remuneration to partners in the case of a partnership firm.
Reliance is placed in this regard on the decision of Hon'ble Andhra Pradesh
High Court in the case of Indwell Constructions v. CIT (1998) 232 ITR 776 (AP) : 1998 TaxPub(DT) 1253 (AP-HC), wherein
Lordships had held as under :--
"The pattern of
assessment under the Income Tax Act, 1961, is given by section 29 which states
that the income from profits and gains of business shall be computed in
accordance with the provisions contained in sections 30 to 43D of the Act.
Section 40 provides for certain disallowances in certain cases notwithstanding
that those amounts are allowed generally under other sections. The computation
under section 29 is to be made under section 145 on the basis of the books regularly
maintained by the assessee. If those books are not correct or complete, the
Income Tax Officer may reject those books and estimate the income to the best
of his judgment. When such an estimate is made, it is in substitution of the
income that is to be computed under section 29. In other words all the
deductions which are referred to under section 29 are deemed to have been taken
into account while making such an estimate. This will also mean that the
embargo placed in section 40 is also taken into account."
This decision supports the view that when the assessee
cannot claim any expenses after applying the net profit rate, then the
assessing officer too cannot make addition after applying the net profit rate.
Even if the assessee commits any default under Chapter XVIIB of the Act with
regard to the TDS provision, it is only for the TDS officer to take suitable
action on the assessee, the doors of the assessing officer are absolutely shut
when the income is determined on presumptive basis under section 44AD of the
Act. In view of the aforesaid facts and circumstances, the legal provision of
section 44AD of the Act shows an overriding effect over other provisions
contained in section 28 to 43C of the Act, I hold that the provisions of
section 40(a)(ia) of the Act cannot be invoked in the instant case as the
income is directed to be determined on presumptive basis under section 44AD of
the Act. Accordingly, ground Nos. 3, 5, 6 and 7 are allowed in favour of the
assessee. The next issue to be decided in this appeal is as to whether section
40(a)(ia) of the Act, in fact and circumstances of the instant case, are
applicable in respect of amounts payable on the date of balance sheet and not
on the amounts paid before the end of the previous year. This issue does not
warrant any deliberation as I have held in the facts and circumstances of the
case, the provisions of section 40(a)(ia) per se are not applicable as the
income of the assessee is directed to be determined under section 44AD on
presumptive basis. Accordingly, this ground becomes infructuous.
ITO v. Mark Construction (2012) 23 taxmann.com 398
(Kol.) : 2013 TaxPub(DT) 1520 (Kol-Trib)
"6. After hearing the rival submissions and on
careful perusal of materials available on record, it is observed that the observations
made by learned Commissioner (Appeals) in the impugned order which are
incorporated in the preceding paragraphs, in our opinion, is in accordance with
law. In the case of CIT v. Surendra Paul (2010)
242 CTR 61 (P&H) : 2010 TaxPub(DT) 2054 (P&H-HC) the Hon'ble Punjab and Haryana High Court has held that once
under the special provision of section 44AD of the IT Act exemption from
maintenance of books of accounts have been provided and the presumptive tax at
8% of the gross receipts itself is the basis for determining the taxable
income, the assessee was not under obligation to explain individual entry of
cash deposits in the bank unless such entries had no nexus with the gross
receipts. In the present case though from the details filed by assessee the
learned assessing officer observed that no TDS has been recovered, in our
opinion, since assessee has disclosed the profits more than 8% of the gross
receipts and there is no dispute in receipt of the gross receipts the addition
made by learned Commissioner (Appeals) under section 40(a)(ia) of the Income
Tax Act is not sustainable. Therefore we confirm the action of learned
Commissioner (Appeals) and dismiss the appeal of the revenue". "The
dues to the crown has no limitation and has precedence over all other allowance
and claims". We note that provisions of section 44AD have been enacted by
the Legislature/Crown to provide benefit to small businessmen in terms of cost
savings. small businessmen having turnover below the specified limit, say, in
assessee's case the turnover/sales is below one crore rupees, therefore he need
not to maintain books of accounts and need not to get the books of accounts
audited from a Chartered Accountant, under section 44AB of the Act, this way,
there is a cost saving in the hands of the assessee (small businessmen). This
benefit (cost saving) has been provided by the Legislature/Crown to the small
businessmen in India by enacting the provisions of section 44AD of the Act.
Therefore, at the cost of repetition we state that the Legislature/Crown has
enacted the provisions of section 44AD of the Act with a "non obstante
clause". "Notwithstanding anything to the contrary contained in
section 28 to 43C". This goes to prove that the provisions of section 44AD
of the Act overrides all other provisions contained in section 28 to 43C of the
Act. At this juncture it is also important to note that Article 265 of the
Constitution of India lays down that, "No tax shall be levied or collected
except by authority of law". The Hon'ble Supreme Court of India has held
that the provision under Article 265 of the Constitution of India is applicable
not only for levy but also for the collection of taxes and the expression
"assessment" within its compass covers both the aspects carried out
by the executive functionary [Chottabhai v. Union of India 1962 SCR Supl.2
1006]. Therefore, it is required that whole of the process of taxation must
follow the procedures which are valid under the law and must adhere to law,
i.e., substantive one as well as procedural one too. Therefore, in other words
it is provided in the Constitution of India that every step should be taken to
ensure that levy and collection of the taxes is strictly in accordance with law
-- not only substantive one but the procedural law, as well. Therefore, we do
not agree with the statement of the assessing officer to the effect that
"the dues to the crown has no limitation and has precedence over all other
allowance and claims".