The Hindu Business Line : Assessing officer duty bound to issue summons to parties concerned

WE ARE civil engineering contractors carrying on operations in several States. We employ labour contractors and sub-contractors at the work site and our association with them is only for a short duration. Our turnover is quite high and we offer to tax our net income, which is probably higher in percentage terms than most people in a similar business. The Assessing Officer at the time of assessment insists that we produce these contractors and sub-contractors, who for their part invariably refuse to our request. We have requested the department to issue summons to these persons, but they have refused to do. What is remedy in such cases?

V. S. Iyer

Reply

It has been held in several cases that it is the duty of the Assessing Officer to issue summons to parties whose personal appearance he requires when the request for issue of summons is made by the assessee. Reference in this connection may be made to the following cases:

Sadaram Puranchand v CIT [1937] 5 ITC 459 (Cal)

Munnalal Murlidhar v CIT [1971] 79 ITR 540 (All)

S.Velu Palandar v DCIT [1972] 83 ITR 683 (Mad)

Addl. CIT v Radhey Sham Jagdish Prasad [1979] 117 ITR 186 (All). It is surprising to note that some Assessing Officers, despite such categorical decisions of the Court refuse to exercise their powers to assist the assessee in assessment proceedings.

The Board would do well to issue instructions to all officers to issue such summons when required and asked for by the assessee during the course of assessment or other proceedings. At any rate your remedy will lie only in an appeal against the order of the Assessing Officer if he has added the payments made to the contractors and sub- contractors on the ground that the said payments are not proved.

Query

Section 40(a) presently makes a disallowance in respect of certain expenditure unless tax is deducted at source and remitted within the previous year.

In a case where tax has been deducted in March since the credit or payment is in this month, the remittance would be required to be made only in April that follows. In such a case would it not be unjustified to make a disallowance of the expenditure?

M. S. Srinivas

Reply

Section 40(a) provides for a disallowance on payments made to residents where the payment is in the nature of interest as contemplated by Section 194A, commission or brokerage as contemplated by Section 194H, fees for professional or technical services as contemplated by Section 194J, or payment towards any work as contemplated by Section 194C. Section 40(a) in effect provides that where tax is required to be deducted under the above referred sections, the deduction in respect of such expenditure will not be allowed unless the tax is deducted at source and remitted into the Government account before the end of the previous year or where it is beyond the previous year within the time allowed for remittance of the same. In your case so long as the tax deducted in March is remitted within the time allowed by Rule 30, the expenditure will not be disallowed. Only if it is remitted beyond the time allowed by Rule 30, and also beyond the previous year, the disallowance will operate. You may also note that the expenditure so disallowed will be allowed in the year in which the tax that is deducted is remitted into the Government account.

Query

I am a civil contractor. I have filed the return of income showing income from the said business at more than 8 per cent of the gross receipts. For the assessment year 2003-04, the Assessing Officer has issued a notice under Section 143(2) seeking to make an assessment under Section 143(3). In this particular year, the income offered from the business is 12 per cent of the gross receipts. Is the action of the AO in issuing a notice under Section 143(2) valid?

J. T. Chinoy

Reply

Section 44AD provides that in case of an assessee engaged as a civil contractor, the profit from such business shall be taken at 8 per cent of the gross receipts paid or payable or such higher sum as may be offered by the assessee.

This Section permits a lower sum being shown as income provided the assessee maintains books of account as required under Section 44AA and furnishes a tax audit report as required under Section 44AB. The Section applies only if the gross receipts paid or payable does not exceed Rs 40 lakh. You have not indicated whether your gross receipts have exceeded Rs 40 lakh. If it were so the Assessing Officer would be fully justified in completing a scrutiny assessment after issuing a notice under Section 143(2). Even if your gross receipts from the said business have not exceeded Rs 40 lakh, the issue of the notice cannot be said to be invalid. The Assessing Officer in such a case will have to restrict the scrutiny to seeing if you have shown the correct gross receipts and further to checking the other incomes earned by you.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.)

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