S. 40(a)(ia) — After applying a net profit rate on gross receipts, there is no further scope for making any other addition in view of S. 44AD of the Act.

The assessee was engaged in
the business of construction of highways and rural roads. The assessee had
declared gross receipts of
Rs. 1.81 crores, but could not produce books of accounts for scrutiny. He
submitted before the Assessing Officer (AO) that his income may be estimated @
8% of the total contract receipts received by him. Accordingly, the AO
determined the business income at Rs. 14,48,480. The AO noticed that the
assessee had made payments to sub-contractors on which tax was not deducted at
source u/s.194C. He rejected the contention of the assessee that the provisions
were brought on the statute book w.e.f. 1-6-2007. He disallowed a sum of Rs.
52.22 lakhs u/s.40(a)(ia). Aggrieved the assessee preferred an appeal to the
CIT(A).

The CIT(A) granted relief
only to the extent of payment made for supply of labourers, but sustained the
major part of addition made by the AO.

Aggrieved the assessee
preferred an appeal to the Tribunal.

The provisions of tax
deduction at source in respect of payments made by individuals to
sub-contractors were brought on the statute book w.e.f. 1-6-2007 and were not
applicable for the assessment year under consideration. Moreover, after applying
a net profit rate on gross receipts, there is no further scope for making any
other addition in view of S. 44AD of the Act. The Tribunal held the disallowance
to be not as per law.

The appeal filed by the
assessee was allowed.