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When the assessee fails to explain the doubtful circumstances, AO is entitled to draw inferences from the circumstances of the case

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Court :
Kerala High Court

Brief :
The assessee is engaged in the business of manufacture and sale of coir mats and mattings. For the assessment year 2007-08, the return filed by the assessee was accepted and a refund was also granted. The assessee was called upon to produce the balance sheet and the profit and loss account for the assessment year 2007-08.  After finding that the assessee failed to furnish the books of account fearing detection of escapement of income, the assessee was re-assessed on the basis of the audited accounts furnished before the bank.

Citation :
ITA No. 70 of 2017

When the assessee fails to explain the doubtful circumstances, the assessing officer is entitled to draw inferences from the circumstances arising in the case

Sudarsanan P. S. Vs CIT (Kerala High Court)

  • ITA No. 70 of 2017
  • Date of Judgement/Order: 06/07/2021
  • Related Assessment Year: 2007-08

The fact of the case

  • The assessee is engaged in the business of manufacture and sale of coir mats and mattings. For the assessment year 2007-08, the return filed by the assessee was accepted and a refund was also granted. The assessee was called upon to produce the balance sheet and the profit and loss account for the assessment year 2007-08.  After finding that the assessee failed to furnish the books of account fearing detection of escapement of income, the assessee was re-assessed on the basis of the audited accounts furnished before the bank.
  • The total income was fixed at Rs.46,82,920/-. The figure was arrived at by disallowing an amount of Rs.32,18,677/- from deduction under freight charges as per Section 40(a)(ia) of the Income Tax Act, 1961 for failure to deduct TDS under Section 194C of the Act. A further sum of Rs.8,86,790/- was also disallowed under Section 40(a)(ia) of the Act for failure to deduct TDS under Section 194H. Another sum of Rs.3,26,380/- was added to gross total income under Section 69C of the Act, since the assessee failed to furnish any details to prove the source.
  • Commissioner Appeals directed deletion of the disallowance of a total of Rs.41,05,467/- under Section 40(a)(ia) of the Act as well as the addition of Rs.3,26,380/- under Section 69C of the Act.
  • Appellate Tribunal held that once the assessing officer accepted the estimated income, the provisions of Section 40(a)(ia) cannot have an application is not a correct proposition of law, the Tribunal restored the order of the assessing officer.

This appeal is thus preferred under Section 260A of the Act

  • The Tribunal as well as the assessing authority had failed to consider the inapplicability of Section 194C (k) to the assessee for the relevant assessment year. The liability for deducting tax at source for payments made to individual contractors above the monetary limits arose only with effect from 01.06.2007 it cannot be assumed that for failure to deduct such a tax at source for the previous year 2006-07, (i.e.01.04.2006 to 31.03.2007). The assessee was entitled to deduct the aforesaid sum even though tax had not been deducted at source.
  • When the books of accounts were not produced before the assessing officer, When the assessee fails to explain the doubtful circumstances, the assessing officer is entitled to draw assumptions from the circumstances arising in the case. In the absence of any details furnished by the assessee, the conclusion of the assessing officer that the above-referred amount was incurred out of undisclosed sources cannot be faulted. Then affirm the finding of the Tribunal as related to the claim under Section 69C & Section 194H.
 

ANJANA MURALEEDHARAN
on 16 August 2021
Published in Income Tax
Views : 23
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