Facts of the Case

The assessee, a partnership firm engaged in providing distance education services in collaboration with a deemed university, was assessed under Section 143(3).

Two principal issues arose during assessment:

  1. Alleged suppression of income from sale of prospectus
  2. Disallowance of expenditure under Section 40(a)(ia) due to delayed deposit of TDS

The assessee incurred substantial expenditure on printing prospectuses but disclosed comparatively low income from their sale. The Assessing Officer assumed that prospectuses were sold at their printed price and treated the difference as undisclosed income.

Separately, although the assessee deducted TDS on certain payments, the tax was deposited after the prescribed time under Section 200(1), but before the due date of filing return under Section 139(1).

Issues Involved

  1. Whether addition for alleged underreported income from prospectus sales was justified
  2. Whether expenditure is disallowable under Section 40(a)(ia) when TDS is deposited late but before the due date of filing return

Petitioner’s Arguments (Assessee)

Regarding Prospectus Sales

  • Purchase of prospectus was not mandatory for all students
  • Not every enrolled student necessarily purchased a prospectus
  • Some prospectuses might remain unsold or used internally
  • Therefore, presumed sales at printed price were incorrect

Regarding TDS Disallowance

  • TDS was duly deducted during the year
  • Entire TDS amount was deposited before the due date of filing return
  • Hence disallowance under Section 40(a)(ia) was unwarranted

Respondent’s Arguments (Revenue)

Regarding Prospectus Sales

  • Prospectuses constituted stock meant for sale
  • Large expenditure with low disclosed sales indicated suppression
  • In absence of stock records, reasonable presumption of sale was justified

Regarding TDS Disallowance

  • TDS was not deposited within the prescribed statutory time
  • Therefore, expenditure should be disallowed under Section 40(a)(ia)

Court Order / Findings (ITAT)

  • Prospectuses were saleable items forming part of business stock
  • The assessee failed to produce evidence of unsold stock or non-sale
  • On principles of human probability, it was reasonable to assume sale at printed price
  • Burden to prove otherwise rested on the assessee

Important Clarification

1. Retrospective Relief for TDS Compliance
Delayed deposit of TDS does not attract disallowance under Section 40(a)(ia) if payment is made before the return filing due date.

2. Burden of Proof in Business Income Matters
Where goods capable of sale are involved, the assessee must substantiate stock position and actual sales; failure may justify additions based on reasonable estimation.

 Link to download the order - https://itat.gov.in/public/files/upload/1633003602-138%20Millenium.pdf

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