The Jodhpur Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax(Appeals) [CIT(A)]’s deletion of the addition of ₹13.87 crore under section 40(a)(ia) for delayed Tax Deducted at Source ( TDS ) payment based on the net profit rate estimation, noting that no separate addition could be made once the books were rejected and income was estimated using this method.
The Revenue-Appellant appealed against the order passed by CIT(A) dated 18-01-2024, for assessment year 2017-18. In this case, Vardha Infra Ltd.,respondent-assessee,e-filed its return for AY 2017-18 with NIL income and carried forward losses of Rs. 5.52 crore.
The case was selected for scrutiny, and notices under sections 143(2) and 142(1) were issued. The Assessing Officer ( AO ) found a significant drop in contract receipts and gross loss of Rs. 103.37 crore, with the company attributing the decline to intense competition and rising construction costs.
The AO also questioned Rs. 1.73 crore shown as “Claims” in the financials, which was later clarified as part of a legal dispute. Despite this, the AO treated it as contract receipts for tax purposes. Further issues were raised regarding incomplete details on trade payables, stock valuations, and expenses, with the company failing to substantiate labor and material costs.
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In light of discrepancies observed in the books, the AO rejected the accounts under section 145(3) and applied a net profit rate of 10.32%, adding Rs. 52.02 crore to the income. Additionally, a disallowance of Rs. 13.87 crore under section 40(a)(ia) was included. The final assessment was based on the rejected books and the revised profit rate.
The issue raised by the revenue was that the CIT(A) was not justified in deleting the addition of ₹13,87,72,365, which the appellant had already disallowed in the ITR under Section 40(a)(ia) due to delayed TDS deposit. The CIT(A) noted that since the amount was already included in the income during computation, no further addition was necessary.
The two member bench comprising Dr.S.Seethalakshmi ( Judicial Member ) and Rathod Kamlesh Jayanbhai ( Accountant Member ) observed that once the books of accounts were rejected and income was estimated using a net profit rate, no separate addition could be made based on the same books. This approach had been followed consistently in earlier years, including AY 2016–17, where no separate additions were made for similar disallowances.
The CIT(A) had also referred to the tribunal’s decision for AY 2016–17, where no additional disallowance was made for delayed TDS payments.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
Relying on these judicial pronouncements, the CIT(A) directed the deletion of the addition. The revenue failed to present any binding precedent to counter these findings, and the ITAT dismissed the revenue’s appeal as without merit.
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