Webinar on issues in assessment and re-assessment. Speaker : CA SANJEEV LALAN 2nd December, 2017

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1 Webinar on issues in assessment and re-assessment Speaker : CA SANJEEV LALAN 2nd December, 2017

2 CONTENTS What is Assessment? Summary Assessment u/s 143(1) Scrutiny Assessment u/s 143(3) Best Judgement Assessment u/s 144 Re-assessment u/s 147 Assessment on Search cases u/s 153A and 153C Recent Circulars and Instructions Issues faced in assessment and Re-assessment 2

3 What is Assessment? Section 2(8): Assessment includes reassessment Section 2(40): Regular Assessment means the assessment made u/s 143(3) or 144 3

4 Summary Assessment u/s 143(1)- Intimation 4

5 Summary Assessment u/s 143(1)- Intimation No adjustment shall be made unless an intimation is given to the assessee of such proposed adjustments either in writing or in electronic mode. Further, the response received from the assessee, if any, shall be considered before making any adjustment. In case, where no response is received within 30 days of the issue of such intimation, such adjustments shall be made. TIME LIMIT- Intimation shall be sent within a period of one year from the end of financial year in which the return of income is made. The acknowledgement of the return of income shall be deemed to be the intimation in a case where no sum is payable by or refundable to the assessee or where no adjustment is made to the returned income. 5

6 Summary Assessment u/s 143(1)- Intimation Intimation under section 143(1) is issued without prejudice to the provisions of section 143(2) and therefore, the regular assessment, including reassessment is not affected whatsoever by the issue of intimation under section 143(1). - ACIT v Rajesh Jhaveri Stock Brokers Pvt. Ltd [291 ITR 500 (SC)] Intimation under section 143(1) is not completion of assessment, hence the assessee is entitled to file revised return u/s 139(5). - CIT v Tata Metaliks Ltd. [368 ITR 643 (Calcutta HC)] 6

7 Scrutiny Assessment u/s 143(3) NOTICE u/s 143(2) Where a return has been furnished u/s 139, or in response to a notice u/s 142(1), the AO or the prescribed ITA, if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or not under-paid the tax in any manner shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the AO or to produce, or cause to be produced before the AO any evidence on which the assessee may rely in support of the return TIME LIMIT: No notice shall be served on the assessee after the expiry of six months from the end of the FY in which the return is furnished. 7

8 Scrutiny Assessment u/s 143(3) NOTICE u/s 143(2) A notice u/s 143(2) served beyond the prescribed time is without jurisdiction and is held as invalid and hence the consequent assessment order u/s 143(3) will also be invalid. - CIT vs. D.S. Screens P. Ltd. [248 ITR 633 (Bombay HC)] Failure by the AO to issue a notice to the assessee u/s 143(2) subsequent to letter by assessee to treat the original return as a return pursuant to notice u/s. 148, is fatal to the order of re-assessment - PCIT vs. Shri Jai Shiv Shankar Traders Pvt Ltd [383 ITR 448 (Delhi HC)] 8

9 Scrutiny Assessment u/s 143(3) SECTION 292BB: Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment. 9

10 Scrutiny Assessment u/s 143(3) SECTION 292BB: Section 292BB cannot validate the issue of notice which is mandatory - Mukesh Kumar Agrawal [345 ITR 29 (Allahabad HC)] Section 292BB would apply insofar as failure of service of notice was concerned and not with regard to failure to issue notice - PCIT vs. Shri Jai Shiv Shankar Traders Pvt Ltd [383 ITR 448 (Delhi HC)] Principle of estoppel incorporated in Sec. 292BB would not apply, if the assessee has raised any objection regarding issuance of notice u/s 143(2) pursuant to passing of draft assessment order u/s 144C but before passing of final assessment order u/s 143(3) - Alpine Electronics Asia PTE Ltd vs. DGIT [341 ITR 247 (Delhi HC)] 10

11 Scrutiny Assessment u/s 143(3) SECTION 142(1): For the purpose of making assessment under this Act, the AO may serve on any person who has made a return, a notice requiring him, on a date to be therein specified(i) To furnish the return of income (ii) To produce, such accounts or documents as the AO may require (iii)to furnish in writing and verified the prescribed information as the AO many require Prior permission of JCIT needed for asking assessee to furnish a statement of assets and liabilities which are not included in the accounts; The AO shall not require the production of any accounts relating to a period of 3 years prior to the PY. 11

12 Scrutiny Assessment u/s 143(3) Selection of case for Assessment The cases for assessment are selected by Computer Assisted Scrutiny Selection (CASS) or picked up manually. Types of scrutinyi. Complete Scrutiny ii. Limited Scrutiny 12

13 Scrutiny Assessment u/s 143(3) SECTION 143(3): On the date specified u/s 143(2), or as soon afterwards, after hearing all the evidence that the assessee may produce and taking into account all material information the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. 13

14 Scrutiny Assessment u/s 143(3) If the assessment has the effect of increasing the tax liability, then the assessment order must be accompanied with a notice of demand u/s 156, or else the assessment is not complete - ITO vs. Purushotamdas T. Patel [209 ITR 52 (Gujurat HC)] The law in force in the assessment year is applicable - Reliance Jute & industries Ltd vs CIT [120 ITR 0921 (SC)] Individual must be a living person, no assessment on dead person - CIT vs. Amarchand N Shroff [48 ITR 59 (SC)] Only one order can be passed for a given year - CIT vs Dhampur sugar Mills Ltd [220 ITR 671 (Allahabad HC)] 14

15 Best Judgement Assessment u/s 144 If any persona) fails to make the return required u/s 139(1),(4),(5) b) fails to comply with all the terms of notice u/s 142(1) or directions u/s 142(2A) c) fails to comply with the notice u/s 143(2), The AO after taking into account all the material information gathered, shall make an assessment of the total income or loss to the best of his judgement, and determine the sum payable by him. Provided, such an order shall be passed after giving an opportunity of being heard, by serving a notice to show cause, on date and time specified in the notice, why the assessment should not be made by the best of his judgement (except in case where notice u/s 142(1) is issued prior to making best judgement assessment) 15

16 Best Judgement Assessment u/s 144 Estimate must be honest and fair. - Kachwala Gems vs. JCIT [288 ITR 10 (SC)] Assessment under this section can be made even where return is not signed or verified. - Behari lal Chatterji vs. CIT [2 ITR 377 (Allahabad HC)] Refusal by the chartered accountant for audit u/s 142(2A) cannot lead to Best judgment Assessment. - Swadeshi Polytex Ltd. Vs ITO [144 ITR 171 (SC)] 16

17 TIME LIMIT FOR Assessment u/s 143(3) and 144 SECTION 153(1): TIME LIMIT FOR PASSING ORDER u/s 143(3) and 144 No order of assessment shall be made under section 143 or section 144 at any time after the expiry of twenty-one months from the end of the assessment year in which the income was first assessable. For assessments of AY and onwards: Eighteen months For assessments of AY and onwards: Twelve months * Reference made to TPO, period to be extended by twelve months. 17

18 TIME LIMIT FOR Assessment u/s 143(3) and 144 Assessment Year Time limit A.Y A.Y A.Y A.Y A.Y and onwards

19 Re-assessment u/s 147 SECTION 147: Empowers the Assessing officer to reopen the assessment for any assessment year if he has REASON TO BELIEVE that any income which is chargeable to tax has escaped assessment. Reason to believe - It suggests that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. Scope of reassessment Can assess or reassess any income which has escaped assessment Can recompute the loss or depreciation allowance Can assess or reassess any other income (which is not the subject matter of any appeal or revision) which has escaped assessment Cannot reduce the income below what has already been assessed in the original assessment. 19

20 Re-assessment u/s 147 INSTANCES OF ESCAPEMENT OF INCOME No return of income has been filed No assessment has been done Under statement of income or excessive allowance/loss/depreciation claimed Non filing of report u/s 92E Assessment done but 1. Under assessment of income 2. Assessed at a lower rate 3. Excess allowance given An assessee is found to have income > taxable limit or claimed excessive allowance - On the basis of information received u/s 133C A person is found to have any asset (including financial interest in an entity) located outside India 20

21 Re-assessment u/s 147 SECTION 148: For making assessment u/s 147 Service of notice is a pre- requisite, wherein the assesse is required to furnish return of income with in such period as may be specified therein. AO before issuing any notice under this section shall record his reasons in writing. Notice can be given only by the AO having proper jurisdiction over the assesse. Notice u/s 148 should be properly served. Service on wrong person and at wrong address vitiates section

22 Re-assessment u/s 147 SECTION 149: TIME LIMIT FOR ISSUE OF NOTICE u/s 148 Normal limit 4 years from the end of relevant assessment year. If income escaped assessment is Rs. One lakh or more- 4 years but not more than six years from the end of relevant assessment year. If income is to be assessed u/s 163 (agent of non-resident) - 6 years from the end of relevant assessment year. If income escaped is from foreign asset- 4 years but not more then 16 years from the end of relevant assessment year. 22

23 Re-assessment u/s 147 SECTION 151: SANCTION FOR ISSUE OF NOTICE After the expiry of four years Satisfaction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is required that it is a fit case for the issue of such notice. In any other case No notice can be issued by AO, who is below the rank of a Joint Commissioner, unless the joint commissioner is satisfied. 23

24 Re-assessment u/s 147 Once an assessment has been reopened, any other income which has escaped assessment and which comes to the notice of the assessing officer subsequently in the course of the proceeding u/s 147 can be included in the assessment. Methodology: GKN Driveshafts (India) Limited Vs. ITO [259 ITR 19 (SC)] Where notice u/s 148 has been issued, the assessee is duty bound to file the return of income. After filing the ROI the assessee can seek reasons for the notice of reassessment. The AO is then obliged to supply the reasons recorded within a reasonable time. On receipt of these reasons the assessee can file his objections to the notice issued. The AO is bound to dispose of the objections raised by a speaking order before proceeding with the re-assessment. 24

25 Re-assessment u/s 147 An assessee may raise objection on the same reasons formed by the A.O. The A.O. is to take note of these objections and has to dispense of the same before commencing reassessment by passing a Speaking Order. - GKN Driveshafts (India) Limited Vs. ITO [259 ITR 19 (SC)] AO to wait for 4 weeks to begin assessment after disposing of the objections. - Asian Paints Ltd. Vs. DCIT [296 ITR 90 (Bombay HC)] Non issue of notice u/s 143(2) renders the block assessment void. - ACIT vs. Hotel Blue Moon [321 ITR 362 (SC)] 25

26 TIME LIMIT FOR Assessment u/s 143(3) r.w.s 147 SECTION 153(2): TIME LIMIT FOR PASSING ORDER u/s 143(3) r.w.s 147 Within 9 months from the end of relevant A.Y. in which notice us. 148 was served * Reference made to TPO, period to be extended by twelve months. 26

27 Search u/s 153A SECTION 153A : Assessment in case of Search or requisition In the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. 27

28 Section 153C Where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person] and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A. 28

29 Recent Circulars and Instructions Instruction No. 7/2014 dated In the cases selected under CASS for scrutiny during the Financial Year , on the basis of either AIR data or CIB information or for non re-conciliation with 26AS data, the scope of enquiry should be limited to verification of these particular aspects only. AO shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny. 29

30 Recent Circulars and Instructions Instruction No. 20/2015 dated Reason/issue shall be forthwith communicated Cases selected under CASS for scrutiny during the FY , for verification of AIR or CIB information or 26AS data, AO shall confine the questionnaire and subsequent enquiry or verification only to the specific points, based on which the return has been selected for scrutiny Limited number of hearings Issue of Show-cause notice- Fair opportunity to the assessee to explain his position on additions/ disallowances proposed by the AO (Uma Nath Pandey V/s State of OP AIR 2009 SC 2375) 30

31 Recent Circulars and Instructions Instruction No. 20/2015 dated Detailed procedure for conversion If the AO is of the opinion that there iso potential escapement of income > Rs. 5,00,000 (Metro charges: Rs. 10,00,000) o Requirement of substantial verification on any other issues Then the case may be taken up for Complete Scrutiny Subject to Approval of the Pr. CIT / CIT in writing 31

32 Recent Circulars and Instructions Instruction No. 5/2016 dated Revised procedure for conversion Motive: Maximum objectivity AO to form a reasonable view possibility of under-assessment of income Monetary limit and approval of Pr.CIT/ CIT/ Pr.DIT/ DIT as in CBDT s Instruction No.20/2015 dated Disposal: in the manner of normal assessment proceedings 32

33 Recent Circulars and Instructions Instruction No. 5/2016 dated Reasonable View View of the AO should be based on the following: Credible material or information available on records Should not be based on mere suspicion, conjecture or unreliable source Direct nexus- material available and formation of such View 33

34 Recent Circulars and Instructions Instruction No. 5/2016 dated To follow procedure for Limited Scrutiny initially; only then can the additional issues be examined upon conversion. Intimation to the taxpayer. AO can deal with any emerging issue even if it is not mentioned in the reasons for scrutiny given along with notice u/s. 143(2). In favour of the assessee: Invoking Sec 144A: Power of Jt. CIT to issue directions in certain cases. 34

35 Recent Circulars and Instructions Circular dated Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dt , , These instances have been viewed very seriously by the CBDT and a officer has been placed under suspension in this regards. 35

36 Recent Circulars and Instructions Instruction No. 8/2017 dt Assessment proceedings in the following time-barring scrutiny cases, pending as on 1st October,2017 where hearing have not been completed, would be carried out through the e-proceeding facility. In time-barring scrutiny assessments under e-proceeding, the concerned assessee can voluntarily opt out from e-proceeding at a subsequent stage under intimation to the Assessing Officer. 36

37 Recent Circulars and Instructions Circular 225/391/2017/ITA.II dated Post-demonetisation, it was found that some of the assessees tried to build an explanation for cash deposits in their bank accounts by manipulating their books-of-accounts and filing revised/belated tax returns. The release further stated that any instance of a revised/belated return of income coming to the notice of income-tax department which reflected any manipulation of books-of-accounts, cash in hand, profits etc. to justify the cash deposit being made in bank-accounts might lead to taking necessary actions under the relevant provisions of the Act by Income-tax Department. Under the Act, revision of income-tax return is allowed only if any omission or wrong statement is discovered therein by the concerned assessee. Such omission or wrong statement should have occurred due to a bonafide inadvertent error or a mistake on part of the assessee. 37

38 Recent Circulars and Instructions Circular 225/391/2017/ITA.II dated Some instances which might indicate that assessee had filed revised or belated return merely as a cover up to explain the cash deposits in bank accounts are: o Unsubstantiated reduction in closing stock in the revised return vis-a-vis the figures in original return. o Reporting of higher sales in the revised return. o Cash-in-hand as on or was enhanced in the revised return. o Additional cash inflow claimed to be out of earlier year savings, receipt of loans/advances /gifts/repayments/sale of capital assets. o In some cases, cash outflow might have been reduced by paying some of the liabilities in cash. o Significantly lower closing stock as on or as compared to the earlier years in a belated return. o Significantly higher cash-in-hand as on or compared to the preceding year in a belated return. 38

39 Recent Circulars and Instructions Circular 225/391/2017/ITA.II dated In such scenarios, following issues may be kept in consideration during verification and framing of assessments by the AO: o The claim of enhanced sales may be compared with the Central Excise/VAT returns. o Whether the parties to whom additional sales were disclosed have identity, creditworthiness and transaction was genuine or not. o Where the accounts are subjected to tax-audit, whether omission or wrong statement in the original return was pointed out by the audit or not. o The source of cash-in-hands of the person who had made payments to the assessee has to be verified carefully. o The past profile of the concerned assessee should be thoroughly analysed. o Where as a result of enquiries/investigations it emerges that figures in the revised/belated return are fudged, the figure of manipulated receipts/sales/stock etc. is liable to be taxed as a cash credit under section 68 and not merely on net profit basis. 39

40 Recent Circulars and Instructions Circular 225/391/2017/ITA.II dated o Any undisclosed expenditure detected after reduction of cash-in-hand by the assessee may be verified carefully. o Unaccounted income so assessed in scrutiny assessment is liable to be taxed at a higher rate without any set off of losses, expenses etc. under section 115BBE of the Act. o In the scenario pertaining to Wealth tax returns of earlier years, it should be examined whether there is an attempt to build cash-in-hand or any other asset so as to justify deposit of cash, post-demonetisation. 40

41 Issues in Assessment and Re-assessment Some of the common issues faced by the assessee in assessment and reassessment are: o Few reasons for selection of cases for scrutiny o Disallowance u/s 14A o Section 68: Cash Credit o Section 40(a)(ia) 41

42 Few reasons for selection of cases for scrutiny: Mismatch in amount paid to related parties u/s 40A(2)(b) reported in Audit Report and ITR Mismatch in sales turnover as per Return of Income and Tax Audit Report. Mismatch of custom duty paid as shown in ITR with the duty paid as per Export Import Data. 42

43 Disallowance u/s 14A For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. 43

44 Disallowance u/s 14A Assessing Officer without rendering any opinion on correctness of assessee's claim of not spending any amount for earning exempt income, cannot propose to make disallowance by applying rule 8D of the Rules read with section 14A of the Act. Auchtel Products Ltd. vs. Asstt. CIT [ ITA No. 2649,3183 and 3185/2012/Mum Bench A ] The Assessing Oficer cannot apply Rule 8D without pointing out any inaccuracy in the method of apportionment or allocation of expenses as adopted by the assessee. Dy. CIT vs. Jindal Photo Ltd [234 ITR 170 (Delhi HC)] 44

45 Disallowance u/s 14A Where the assessee has given detailed workings regarding the expenditure incurred for earning exempt income, the Assessing Officer, without pointing out any mistake in the said workings, is precluded from altering or re-working/re computing the amount of disallowance by invoking section 14A, read with Rule 8D of the Rules. C ] AIA Engineering Ltd. vs. Addl. CIT [ ITA No. 889 & 922/2012/Ahm Bench Where entire amount of investments, yielding tax-free dividend income to assessee, had been acquired by assessee from its owned funds and no part of borrowed capital had been used for purpose of acquisition of investments at any time during previous year, no disallowance on account of interest expenditure could be made by invoking Rule 8D. Balarampur Chini Mills Ltd vs. Dy. CIT [ ITA No. 504/2012/Kolkata Bench B ] 45

46 Disallowance u/s 14A The disallowance under section 14A (1) read with rule 8D could not exceed the actual expenditure incurred and debited in relation to exempt income. Gillette Group India (P.) Ltd. vs. Asstt. CIT [ 16 ITR (T) 57 ] Where the investment made by the assessee are found to be capable of earning exempt income which was actually not earned by the assessee in the relevant period no disallowance invoking the provisions of section 14A of the Act could be made. Avshesh Mercantile P. Ltd. vs. Dy. CIT [ ITA No. 5779, 5780, 6032/2012/Mum Bench F ] 46

47 Disallowance u/s 14A No disallowance with respect to exempt income can be made if the securities are held as stock-in-trade. CIT vs. G K K Capital Markets (P) Limited [ 392 ITR 196 (Calcutta HC)] However, there is a contrary judgement wherein it is held that section 14A has application even in the case where the exempt dividend income is received from the shares held as stock-in-trade and the disallowance on account of expenditure incurred in relation to such exempt income can be made by applying the said provision. DCIT vs. Teenlok Advisory Services (P.) Ltd [ ITA No.1351/2016/Kolkata Bench A ] 47

48 Section 68: Cash Credit Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory 48

49 Section 68: Cash Credit Companies which invest share capital cannot be treated as bogus if they are registered and have been assessed. Once the assessee has produced documentary evidence to establish the existence of such companies, the burden shifts to the Revenue to establish their case. Pr CIT vs. Paradise Inland Shipping Pvt. Ltd [ ITA No. 66/2016/ Bombay HC] In the absence of any direct evidence demonstrating that the assessee received cash payment, no addition can be made merely on presumption and surmises and on estimate basis. For making the addition on account of cash component, it is the duty of the AO to bring on record corroborative evidence to establish the fact that the entries made in the seized document were correct. ACIT vs. Katrina (Kaif) Rosemary Turcotte Bench G ] 49 [ ITA No. 3092/2015/Mum

50 Section 68: Cash Credit Mere fact that parties to whom the share certificates were issued and who had paid the share capital money were not traceable and did not appear before the AO in response to summons does not mean that the transaction can be treated as bogus if the documentation shows the genuineness of the transaction. CIT vs. Orchid Industries Pvt. Ltd [ ITA No.1433/2014/Bombay HC] A transaction cannot be treated as fraudulent if the assessee has furnished documentary proof and proved the identity of the purchasers and no discrepancy is found. The AO has to exercise his powers u/s 131 & 133(6) to verify the genuineness of the claim and cannot proceed on surmises. Pr. CIT vs. Jatin Investment Pvt. Ltd [ ITA No.43 & 44/2016/Delhi HC] 50

51 Section 40(a)(ia) Thirty per cent of any sum payable to a resident, 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 on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid : Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. 51

52 Section 40(a)(ia) Word 'payable' occurring in section 40(a)(ia) not only covers cases where amount is yet to be paid but also those cases where amount has actually been paid. CIT vs. Palam Gas Service [ 394 ITR 300 (SC)] Where assessee having deducted tax at source while making payments of various expenses, deposited same beyond period specified under section 200(1), yet before due date of filing of return of income under section 139(1), said payments could not be disallowed by invoking provisions of section 40(a)(ia). ITO vs. Aarson Engg. Construction (I) (P.) Ltd. [ITA No. 5835/2017/Mum Bench A ] 52

53 Section 40(a)(ia) Where income was not computed under head of business income, provision of section 40(a)(ia) could not be invoked. ITO vs. Haryana State Counseling Society [ITA No.170 & 227/2016/Chandigarh Bench] Only an amount outstanding at end of close of assessment year can be disallowed under section 40(a)(ia). ACIT vs. DCS BPO (P.) Ltd. [ITA No.3114/2015/Chennai Bench D ] 53

54 Section 40(a)(ia) If there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee can be declared to be an assessee in default under section 201 but no disallowance can be made by invoking provisions of section 40(a)(ia) CIT vs. S.K. Tekriwal [361 ITR 432 (Calcutta HC)] 54

55 Address: Benefice Business House, 3rd Level, 126, Mathuradas Mills Compound, N. M. Joshi Marg, Lower Parel (W), Mumbai , India. Contact Details: : : : reachus@gbcaindia.com GBCA & Associates, Chartered Accountants Privileged Use Only