Sri K Venkataraju, V. The Ad CIT, Range-,

ITA 312/VIZ/2008

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67371 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-04-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Rejection of books of accounts; Business income; Depreciation; Business expenditure
• Section: 44AD; 194C; 56

Judgement Text

ITA. NO.312/VIZ/2008 K VENKATARAJU,, VEMAGIRI IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.312/VIZAG/2008 ASSESSMENT YEAR : 2005-06 K. VENKATARAJU VEMAGIRI ADDL. CIT, RANGE RAJAHMUNDRY RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO.AABFK 4007A APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 29.04.2013 DATE OF PRONOUNCEMENT : 03.05.2013 ORDER PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER:- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 18.03.2008 PASSED BY THE LD. CIT(A), RAJAHMUNDRY AN D IT RELATES TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS IN APPEAL BEFORE US IN RESPECT OF THE FOLLOWING THREE ISSUES: 1. ESTIMATION OF INCOME FROM CONTRACT BUSINESS. 2. ASSESSMENT OF INTEREST RECEIVED FROM BANKS ON FIXED DEPOSITS. 3. THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. 2. THE FACT RELATING TO THE CASE IS STATED IN BRIEF . THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF UNDERTAKING AND EXECUTION OF CIVIL CONTRACT WORKS. IT FILED ITS RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF ` .82,40,970/-, WHICH WAS SELECTED FOR SCRUTINY. HOWEVER, DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE ASSESSEE COULD NOT PRODUCE FULL SET OF BOOKS OF ACC OUNTS, BILLS & VOUCHERS. HENCE THE ASSESSING OFFICER REJECTED THE BOOK RESUL TS AND ESTIMATED INCOME AT 8% OF NET CONTRACT RECEIPTS. BESIDES THE ABOVE, THE ASSESSING OFFICER ASSESSED THE INTEREST RECEIVED ON FIXED DEPOSIT REC EIPTS SEPARATELY UNDER THE ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 2 HEAD INCOME FROM OTHER SOURCES. THE ASSESSING OF FICER ALSO NOTICED THAT THE ASSESSEE HAD PAID FREIGHT CHARGES TO THE TUNE O F ` .54,88,106/- WITHOUT DEDUCTING TAX AT SOURCE U/S 194C OF THE ACT. HENCE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF FREIGHT CHARGES BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AGGRIEVED, THE ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE LD. CIT(A). 3. THE FIRST APPELLATE AUTHORITY, ON CONSIDERING TH E FACT THAT THE ASSESSEE HAS ALSO EXECUTED WORKS ON SUB-CONTRACT BASIS, ESTI MATED INCOME FROM SUB- CONTRACT WORKS @ 6% OF SUB-CONTRACT RECEIPTS. THE LD. CIT(A), HOWEVER, CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON INC OME ESTIMATED ON MAIN CONTRACT WORKS, I.E., 8%; ASSESSMENT OF INTEREST O N FDRS UNDER INCOME FROM OTHER SOURCES AND ALSO THE DISALLOWANCE OF FREIGHT CHARGES MADE U/S 40(A)(IA) OF THE ACT. STILL AGGRIEVED, THE ASSESSEE HAS FILE D THIS APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE FINANCIAL STATEMENTS FILED ALONG WITH THE RETURN OF INCOME AN D SUBMITTED THAT THE PROFIT DECLARED BY THE ASSESSEE AFTER DEPRECIATION WORKS O UT TO MORE THAN 5% OF THE CONTRACT RECEIPTS. HE SUBMITTED THAT THE DEPRE CIATION CLAIMED BY THE ASSESSEE ITSELF WORKS OUT TO MORE THAN 8% OF THE CO NTRACT RECEIPTS. ACCORDINGLY HE SUBMITTED THAT THE PROFIT OF 8% AND 6% ESTIMATED BY THE LEARNED CIT(A) ON THE MAIN CONTRACT WORKS AND SUBCO NTRACT WORKS RESPECTIVELY ARE ON THE HIGHER SIDE IN THE FACTS AN D CIRCUMSTANCES OF THE CASE STATED ABOVE. HE FURTHER SUBMITTED THAT THE RATE O F PROFIT DERIVED FROM SUB- CONTRACT RECEIPTS SHALL ALWAYS BE LESSER THAN THE P ROFIT DERIVED FROM MAIN CONTRACT RECEIPTS, AS THE MAIN CONTRACTOR SHALL ALW AYS RETAIN A PORTION OF PROFITS WHILE GIVING WORK ON SUB-CONTRACT BASIS. T HE LD. COUNSEL SUBMITTED THAT THE LD. CIT(A) HAS RECOGNIZED THIS FACT AND AC CORDINGLY REDUCED THE INCOME FROM SUB-CONTRACT WORKS BY 2%. ACCORDINGLY, HE PRAYED FOR FURTHER REDUCTION OF INCOME ESTIMATED FROM BOTH TYPES OF CO NTRACT WORKS. 5. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) HAS CONFIRMED THE ESTIMATE OF 8% MADE ON MAIN CONTRACT WORKS TAKING CUE PROVISIONS OF SECTION 44AD OF THE ACT. HE FURTHER SUBMITTED THAT THE PERSONS ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 3 WHO EXECUTE HUGE CONTRACT WORKS HAVE TO EMPLOY A LA RGE NUMBER OF CAPITAL EQUIPMENTS AND HENCE THE AMOUNT OF ELIGIBLE DEPRECI ATION IS NORMALLY ON THE HIGHER SIDE. HE SUBMITTED THAT THE INCOME IS ESTIM ATED NORMALLY IN THE RANGE OF 8% TO 12% FOR SUCH KIND OF PEOPLE ALSO. ACCORDI NGLY, THE LD. D.R. SUBMITTED THAT THE ESTIMATE MADE BY THE LD. CIT(A) IS JUSTIFIABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E AND CAREFULLY PERUSED THE RECORD. FROM THE STATEMENT OF TOTAL IN COME FILED BY THE ASSESSEE, WE NOTICE THAT THE ASSESSEE HAS CLAIMED D EPRECIATION TO THE TUNE OF ` .1.40 CRORES. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFICER HAS DETERMINED THE CONTRACT RECEIPTS (BOTH MAIN & SUB-CONTRACT), AFTER EXCLUDING SEINORAGE AMOUNT AT RS.15.74 CRORES. THU S, THE DEPRECIATION CLAIMED BY THE ASSESSEE WORKS OUT TO APPROXIMATELY 8.9% OF THE CONTRACT RECEIPTS. WE ALSO NOTICE THAT THE LD. CIT(A) HAS A CCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE PROFIT FROM SUB-CONTRACT WORK S WILL BE LOWER THAN THE MAIN CONTRACT WORKS AND ACCORDINGLY MAINTAINED A DI FFERENCE OF 2% IN THE RATE OF PROFIT ESTIMATED FOR MAIN CONTRACT WORKS AN D SUB-CONTRACT WORKS. THERE SHOULD NOT BE ANY DISPUTE THAT THE INCOME EST IMATED FOR A PARTICULAR ASSESSEE WOULD DEPEND UPON THE FACTS AND CIRCUMSTAN CES PREVAILING IN THAT CASE AND SUCH KIND OF ESTIMATES CANNOT BE GENERALIZ ED OR STANDARDISED. 7. IN THE INSTANT CASE, IT HAS BEEN BROUGHT TO OUR NOTICE THAT ASSESSEE HIMSELF HAS DECLARED A PROFIT OF 5.20% AFTER DEPREC IATION ON THE COMBINED GROSS RECEIPTS. IN OUR OPINION, THE ASSESSEE DESER VES FURTHER REDUCTION IN THE ESTIMATE MADE BY THE LD. CIT(A) IN VIEW OF THE HUGE DEPRECIATION BENEFIT AVAILABLE TO THE ASSESSEE. HENCE, ON A CONSPECTUS OF MATTER, IN OUR VIEW, THE MATTER WOULD MEET THE ENDS OF JUSTICE IF THE PROFIT FROM MAIN CONTRACT WORKS IS ESTIMATED @ 6.5% OF THE RELEVANT NET CONTRACT RE CEIPTS. SINCE THE LEARNED CIT(A) HAS MAINTAINED A DIFFERENCE OF 2% BETWEEN TH E INCOME ESTIMATED FOR MAIN CONTRACT WORKS AND SUB-CONTRACT WORKS, WE ALSO DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME SUB-CONTRACT WORKS @ 4.5% OF THE RELEVANT NET CONTRACT RECEIPTS. WE ORDER ACCORDINGLY AND THE ORD ER OF LEARNED CIT(A) ON THIS ISSUE STANDS MODIFIED ACCORDINGLY. ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 4 8. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF INTE REST ON FIXED DEPOSIT RECEIPTS UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. ACCORDING TO T HE ASSESSEE, THE INTEREST IS RECEIVED ON FIXED DEPOSITS MADE WITH BANKS, WHIC H WERE GIVEN AS SECURITY TO UNDERTAKE CONTRACT WORKS AND HENCE THE INTEREST EARNED THEREFROM PARTAKES THE CHARACTER OF BUSINESS INCOME. SINCE T HE BUSINESS INCOME IS ESTIMATED BY THE ASSESSING OFFICER, ACCORDING TO TH E ASSESSEE, THE SAID ESTIMATE SO MADE TAKES CARE OF ALL KINDS OF RECEIPT S, INCLUDING THE INTEREST FROM BANK DEPOSITS, AND HENCE THE LD. CIT(A) WAS NO T JUSTIFIED IN CONFIRMING THE ASSESSMENT OF INTEREST RECEIPTS UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, ACCORDING TO THE LD. D.R., THE INTEREST IS EARNED ON THE DEPOSITS MADE WITH BANKS AND HENCE THERE IS NO DIRE CT NEXUS BETWEEN INTEREST INCOME AND THE CONTRACT RECEIPTS. ACCORDI NGLY, THE LD. D.R. SUBMITTED THAT THE LEARNED CIT(A) WAS JUSTIFIED IN UPHOLDING THE ASSESSMENT OF INTEREST INCOME FROM BANK DEPOSITS UNDER THE HEA D INCOME FROM OTHER SOURCES. HE FURTHER SUBMITTED THAT THE LD. CIT(A) HAS TAKEN SUPPORT FROM THE DECISIONS RENDERED BY HONBLE SUPREME COURT IN THIS REGARD. 9. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E AND PERUSED THE RECORD. WE NOTICE THAT THE LD. CIT(A) HAS DEALT WI TH THIS ISSUE IN A DETAILED MANNER AND HENCE FOR THE SAKE OF CONVENIENCE, WE EX TRACT BELOW THE RELEVANT OBSERVATIONS MADE BY LD. CIT(A) ON THIS ISSUE:- THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THA T IN ORDER TO SECURE CONTRACT WORK, THE APPELLANT HAD TO PROVIDE BANK DEPOSITS AS SECURITY, THE INTEREST INCOME FROM WHIC H PARTOOK OF THE NATURE OF BUSINESS INCOME. THE ASSESSING OFFICER O UGHT TO HAVE APPRECIATED THE FACT THAT THE FDRS WERE MADE NOT ON ACCOUNT OF AN INTENTIONAL INVESTMENTS OF SURPLUS FUNDS, BUT OUT O F COMPULSIONS OF BUSINESS. HENCE, THE SAID INTEREST INCOME OUGHT TO HAVE BEEN TREATED AS BUSINESS INCOME, AND INCLUDED IN THE TOT AL CONTRACT RECEIPTS FOR THE PURPOSE OF ESTIMATION OF INCOME, A ND NOT SEPARATELY ASSESSED, OVER AND ABOVE THE ESTIMATED B USINESS INCOME, AS INCOME FROM OTHER SOURCES. THE APPELLAN T RELIES ON THE RATIOS OF THE FOLLOWING CASE-LAWS:- A) CIT VS. GOVINDA CHOUDHARY AND SONS (203 ITR 881) (SUPREME COURT), AND (B) CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 5 (297 ITR 70) (KARNATAKA HIGH COURT). AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIV E AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, IT MAY, AT THE OUTSET, BE STATED, WITH DUE RESPECT TO THE DECI SION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS (SUPRA), THAT EVEN IF IT I S ACCEPTED THAT THE APPELLANT HAD MADE THE SAID FDRS IN ORDER TO SE CURE CONTRACT WORKS, YET THE EARNING OF INTEREST INCOME THEREFROM CANNOT BE SAID TO HAVE A DIRECT NEXUS WITH THE INCOME EMANATING FR OM THE UNDERTAKING OF CONTRACT WORKS, IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS & FERTILIZERS LTD. VS. CIT (227 ITR 172) WHICH HELD T HAT INTEREST EARNED ON DEPOSITS PLACED FOR THE PURPOSE OF OBTAIN ING LOANS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME, BUT ONLY AS INCOME FROM OTHER SOURCES. THE SAID DECISION WHICH WAS RE NDERED IN THE CONTEXT OF SECTIONS 56 AND 57 OF THE ACT, HAS BEEN FOLLOWED IN THE CASE OF CIT VS. AUTOKAST LTD., (248 ITR 110) (SUPRE ME COURT). LIKEWISE, IN THE CASE OF CIT VS. DR. V. GOPINATHAN (248 ITR 449) (SUPREME COURT) INTEREST ON FDRS WAS HELD NOT TO QU ALIFY FOR SETTING OFF AGAINST INTEREST ON BORROWED LOANS ON T HE RATIONALE THAT SUCH INTEREST ON FDRS PARTOOK OF THE CHARACTER OF N ON-BUSINESS INCOME. THE OTHER DECISIONS OF THE HONBLE SUPREME COURT ARE CIT VS. STERLING FOODS (237 ITR 579) AND PANDIAN CHEMIC ALS LTD. VS. CIT (262 ITR 278). IN THESE DECISIONS, THE HONBLE SUPREME COURT REITERATED THE NEXUS THEORY AND DECLINED TO TREAT S UCH INTEREST EARNED AS BUSINESS INCOME. THE RELIANCE PLACED BY THE APPELLANT ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. GOVINDA CHOUDHARY AND SONS (SUPRA) CAN BE SAID TO B E MISPLACED, IN AS MUCH AS, IN THE SAID CASE, THE FACTS WERE THA T ON ACCOUNT OF DELAY IN PAYMENT OF CONTRACT RECEIPTS, INTEREST WAS PAID ADDITIONALLY WITH REFERENCE TO SUCH DELAYED RECEIPTS, AND, THERE FORE, THE HONBLE COURT HELD THAT SUCH INTEREST WAS ONLY ACCRETION TO THE ASSESSEES RECEIPTS FROM THE CONTRACT WORKS AND WAS ATTRIBUTAB LE TO AND INCIDENTAL TO THE BUSINESS CARRIED ON BY IT. THERE BEING A DIRECT NEXUS BETWEEN THE CONTRACT RECEIPTS AND INTEREST TH EREON IN THE SAID CASE, THE INTEREST INCOME WAS HELD AS BUSINESS INCOME, WHEREAS IN THE APPELLANTS CASE, THE INTEREST INCOM E DID NOT FLOW DIRECTLY FROM THE CONTRACT RECEIPTS, AND, THEREFORE , IT CANNOT BE SAID THAT THE INTEREST INCOME HAD A DIRECT NEXUS WITH SU CH RECEIPTS, AND, ACCORDINGLY, IT CANNOT BE TREATED AS BUSINESS INCOM E OF THE APPELLANT. IN VIEW OF THE FOREGOING DISCUSSION, TH E APPELLANTS CASE FAILS AND, ACCORDINGLY, THE DECISION RENDERED AGAIN ST THE APPELLANT ON THIS ISSUE. ON A CAREFUL CONSIDERATION OF THE ORDER OF THE LD. CIT(A) ON THIS ISSUE, WE ARE OF THE VIEW THAT THE FIRST APPELLATE AUTHORITY HAS TAKEN A CONSCIOUS DECISION ON THIS ISSUE AFTER DULY ANALYZING THE VARIOUS DECI SIONS RENDERED BY HONBLE SUPREME COURT. ACCORDINGLY, WE ARE IN AGREEMENT WI TH HIS VIEW THAT THE ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 6 INTEREST EARNED ON BANK DEPOSITS HAS TO BE ASSESSED SEPARATELY, EVEN IF THE INCOME FROM CONTRACT WORKS IS ESTIMATED. ACCORDING LY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION RENDERED BY L EARNED CIT(A) ON THIS ISSUE. 10. THE NEXT ISSUE RELATES TO DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. AS STATED EARLIER, THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE ON FREIGHT CHARGES AND HENCE THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. THE LEARN ED CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE WITH THE FOLLOWING OBSERVATIO NS:- 5.1. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTE D THAT SINCE THE PAYMENTS TO INDIVIDUAL TRUCK OWNERS DID N OT EXCEED RS.20,000, THE PROVISIONS OF SECTION 194C OF THE AC T COULD NOT HAVE BEEN INVOKED, AND THAT, IN THE ALTERNATIVE, SI NCE THE INCOME FROM BUSINESS HAS BEEN ESTIMATED AFTER REJECTION OF BOOKS OF ACCOUNTS, NO SEPARATE ADDITION WAS CALLED FOR ON TH E BASIS OF THE SAME BOOKS OF ACCOUNTS, IN THE LIGHT OF THE DECISIO N OF THE HON'BLE ITAT., IN THE FOLLOWING CASES :- (A) JAGDISH LAL VS. INCOME-TAX OFFICER (94 TT J 1119) (JODHPUR BENCH) AND (B) DCIT VS. KRISHAN LAL (ITA NO.135 (CHD) OF 2003 (CHANDIGARH BENCH 'B'). 5.2. AFTER HEARING THE LEARNED AUTHORIZED REPRESENT ATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, THE FOLLOWING OBSERVATIONS MADE AND DECISIONS TAKEN :- (I) DESPITE THE ASSESSING OFFICER HAVING GIVEN A FI NDING AFTER VERIFICATION OF THE BOOKS OF ACCOUNTS TO THE EFFECT THAT FREIGHT PAYMENTS MADE TO SEVERAL PARTIES ON VARIOUS DATES W ITH EACH PAYMENT EXCEEDING RS.20,000 AND THE AGGREGATE OF EA CH PAYMENT EXCEEDING RS.50,000 DURING THE RELEVANT ACC OUNTING YEAR, THE APPELLANT HAS CONTINUED TO HARP ON A PATENTLY FALSE AVERMENT THAT THE PAYMENTS TO EACH INDIVIDUAL PARTY NEVER EXCEEDED RS.20,000. SUCH CONDUCT GIVES A POOR IMP RESSION OF THE APPELLANT BEFORE THE APPELLATE AUTHORITY IN THE FACE OF HARD AND IRREFUTABLE DOCUMENTARY EVIDENCES. THEREFORE, SUCH FALSE AND BASELESS CONTENTION IS, HEREBY, DISMISSED. (II) THE APPELLANT CAN BE SAID TO HAVE INAPPROPRIAT ELY RELIED ON THE RATIOS OF THE CITED DECISIONS, INASMUCH AS, AT THE TIME WHEN ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 7 THE SAID DECISIONS WERE RENDERED, THE PROVISIONS OF SECTION 40A(IA) WERE NOT IN EXISTENCE IN THE IT. STATUTE, A ND IT CAME INTO EXISTENCE AT A LATER DATE WITH EFFECT FROM 01-04-20 05. HENCE, THE HON'BLE BENCHES OF ITAT., HAVING HAD NO SCOPE TO CO NSIDER A PROVISION OF LAW THAT DID NOT EXIST AT THE RESPECTI VE TIMES OF RENDERING SUCH DECISIONS, THE RATIOS OF THE DECISIO NS RELIED UPON BY THE APPELLANT HAVE NO APPLICABILITY, WHATSOEVER, TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE. IT IS NO T THE CASE OF THE APPELLANT THAT THE ASSESSING OFFICER HAS EXAMIN ED THE FACTS RELATING TO THE ACCOUNTS OF THE APPELLANT AND HAS C OME UP WITH ANY DISALLOWANCE BASED ON THE FACTS OF THE CASE. TH ERE IS A PURPOSE OF PROVIDING COMPENSATION TO THE GOVERNMENT BEHIND THE ENACTMENT OF THE PROVISIONS OF SECTION 40A(IA), SO AS TO MAKE AN ASSESSEE LIABLE FOR NOT DISCHARGING ITS STA TUTORY OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF TH E PAYMENTS COVERED U/S.194C OF THE ACT. THEREFORE, IT IS THE M ANDATE OF SUCH PROVISION THAT NOTWITHSTANDING THE NORMAL COMP UTATION OF INCOME OF AN ASSESSEE IN ACCORDANCE WITH THE SPECIF IC FACTS AND APPLICABLE PROVISIONS OF LAW THEREON, THE WHOLE OF THE EXPENDITURE (IN RESPECT OF WHICH TAX IS DEDUCTIBLE U/S.L94C OF THE ACT) CLAIMED HAS TO BE DISALLOWED, IF SUCH PAYM ENT HAD NOT BEEN SUBJECTED TO TDS DURING THE RELEVANT ACCOUNTIN G YEAR. IT ALSO PROVIDES THAT, CORRESPONDINGLY, THE APPELLANT WOULD BE ENTITLED TO DEDUCTION OF SUCH DISALLOWED EXPENDITUR E, OVER AND ABOVE THE NORMAL BUSINESS EXPENDITURE OF THE ACCOUN TING YEAR, IN WHICH TAX THEREOF IS DEDUCTED AND PAID TO THE GO VERNMENT. SUCH BEING THE CLEAR AND UNAMBIGUOUS PROVISIONS OF SECTION 40A(IA) OF THE ACT, LEAVING NO SCOPE FOR ANY FURTHE R INTENDMENT, THE ASSESSING OFFICER CAN BE SAID TO HAVE CORRECTLY DISCHARGED HIS STATUTORY DUTY BY DISALLOWING AN AMOUNT OF RS.5 4,88,106 U/S.40A(IA) OF THE ACT. AS SUCH, THE DECISION ON TH IS ISSUE IS ALSO RENDERED AGAINST THE APPELLANT. 11. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS RENDERED BY THE TRIBUNALS TO CONTEND THAT THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT CANNOT BE INVOKED TO MAKE DISA LLOWANCE, IF THE INCOME OF THE ASSESSEE IS ESTIMATED AFTER REJECTION OF BOOK R ESULTS. (A) TEJA CONSTRUCTIONS VS. ACIT (2010)(129 TTJ (H YD)(UO) 57) (B) I.T.O. VS. SAHADEV PRADHAN (2012)( 18 ITR (TR IB) 180 (CUTTACK) ON THE CONTRARY, THE LEARNED D.R STRONGLY SUPPORTED THE VIEW EXPRESSED BY LEARNED CIT(A) ON THIS ISSUE. ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 8 12. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND CAREFULLY PERUSED THE RECORD AND THE DECISIONS RELIED UPON BY LEARNED A.R. WE NOTICE THAT THE DECISION RENDERED BY THE HYDERABAD BENCH OF THE TRI BUNAL HAS BEEN FOLLOWED BY THE CUTTACK BENCH OF THE TRIBUNAL. THE HYDERABA D BENCH OF THE TRIBUNAL, IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA) HAS TAKEN THE VIEW THAT THE REJECTION OF BOOKS OF ACCOUNTS AND THE BOOK RESULTS AND CONSEQUENT ESTIMATION OF INCOME TAKES CARE OF THE IRREGULARITI ES COMMITTED BY THE ASSESSEE. 13. HOWEVER, WE FIND THAT THE DISALLOWANCE PRES CRIBED UNDER SECTION 40(A)(IA) IS A TECHNICAL DISALLOWANCE, WHICH SHALL BE ATTRACTED ONLY IF THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT AND P AY THE TDS AMOUNTS AS PER THE RELEVANT PROVISIONS OF THE ACT. IT IS ALSO FUR THER SEEN THAT THE EXPENSES SO DISALLOWED CAN BE CLAIMED AS EXPENDITURE IN THE YEA R IN WHICH SUCH FAILURE IS MADE GOOD. THE MODALITIES PRESCRIBED IN SEC. 40(A) (IA) WOULD SHOW THAT THE DISALLOWANCE PRESCRIBED IN THAT SECTION IS NOT AN A BSOLUTE DISALLOWANCE TO BE MADE ONCE FOR ALL, BUT IT IS ONLY DEFERMENT OF ALLO WANCE OF EXPENDITURE FOR NON-COMPLIANCE OF TDS PROVISIONS. WHERE AS, IN THE CASE OF DISALLOWANCES PRESCRIBED IN OTHER PROVISIONS LIKE SEC. 40A(1), 40 A(3) ETC., THEY ARE ABSOLUTE DISALLOWANCES, WHICH ARE NOT ALLOWED AS EXPENSES AT ALL IN COMPUTING THE BUSINESS INCOME. FURTHER SUCH DISALLOWANCES SHALL APPLY UNIFORMLY TO ALL ASSESSEES. FOR EXAMPLE, IF INCOME TAX EXPENSE IS D EBITED TO THE PROFIT AND LOSS ACCOUNT, IT IS NOT ALLOWABLE IN THE HANDS OF A LL ASSESSEES. HOWEVER, IN THE CASE OF EXPENSES, WHICH ATTRACT THE PROVISIONS OF SECTION 40A(A)(IA) OF THE ACT, THEY ARE OTHERWISE ALLOWABLE AS DEDUCTION IN T HE HANDS OF ALL THE ASSESSEES AND THEY SHALL BE LIABLE TO DISALLOWED ON LY IN THE CASE OF THOSE ASSESSEE, WHO HAVE FAILED TO COMPLY WITH THE TDS PR OVISIONS. AS STATED EARLIER, THE EXPENSES SO DISALLOWED SHALL BE ALLOWA BLE AS DEDUCTION IN THE SUBSEQUENT YEAR IN WHICH THE ASSESSEE COMPLIES WITH TDS PROVISIONS. THUS, THE DISALLOWANCES PRESCRIBED UNDER SECTION 40(A)(IA ) OF THE ACT IS LINKED TO COMPLIANCE OF TDS PROVISIONS, MEANING THEREBY, THE PURPOSE OF DISALLOWANCE IS TO ENFORCE THE ASSESSEE TO COMPLY WITH THE TDS P ROVISIONS. IN SUCH A SCENARIO, IN OUR VIEW, THE DISALLOWANCE PRESCRIBED UNDER SECTION 40(A)(IA) CANNOT BE EQUATED WITH OTHER DISALLOWANCES PRESCRIB ED UNDER SECTION 40, 40A ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 9 ETC., OF THE ACT. ACCORDINGLY, IN OUR VIEW, NON-CO MPLIANCE OF TDS PROVISIONS CANNOT BE CONSIDERED AS AN IRREGULARITY COMMITTED I N THE PROCESS OF EARNING THE BUSINESS INCOME SO THAT SUCH KIND OF IRREGULARI TIES ARE AUTOMATICALLY TAKEN CARE OF, IF THE BUSINESS INCOME OF THE ASSESSEE IS ESTIMATED AFTER REJECTING BOOK RESULTS. 14. WE NOTICE THAT THE PURPOSE OF DISALLOWANCE PRESCRIBED UNDER SECTION 40(A)(IA) OF THE ACT HAS ESCAPED THE ATTENTION OF T HE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA). IN THE PRECEDING PARAGRAPH, WE HAVE DEALT IN DETAIL THIS ASPECT AND ACCORDINGLY, IN OUR VIEW, THE DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA ) OF THE ACT INDEPENDENTLY, EVEN IF THE BUSINESS INCOME IS ESTIM ATED AFTER REJECTING THE BOOK RESULTS. THE DECISION RENDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (232 ITR 776) MAY ALSO NOT BE APPLICABLE TO THE DISALLOWANCE TO BE MADE UNDER SECTION 40(A)( IA) OF THE ACT, SINCE THE SAID DISALLOWANCE IS A TECHNICAL DISALLOWANCE OR MO RE PRECISELY DEFERMENT OF ALLOWANCE, WHICH IS LINKED WITH THE COMPLIANCE OF T DS PROVISIONS. 15. WE NOTICE THAT THE LEARNED CIT(A) HAS ALSO CORRECTLY BROUGHT OUT THE SUBTLE TECHNICAL DIFFERENCE WHILE CONFIRMING THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE AC T. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 03.05.2013 SD/- SD/- (D. MANMOHAN) (B.R. BASKARAN) VICE PRESIDENT ACCOUNTANT MEMBER VISAKHAPATNAM, DATED 3 RD MAY, 2013 VG/SPS ITA. NO.312/VIZ/2008 K. VENKATARAJU, VEMAGIRI 10 COPY TO 1 M/S. K. VENKATARAJU, CONTRACTORS, 4-140, VEMAGIRI , KADIYAM MANDALAM, EAST GODAVARI DISTRICT. 2 ADDL. CIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY 3 THE CIT, RAJAHMUNDRY 4 THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM