one of my clients received an advance amount in FY 18-19 for goods supply from the party and he deducted TDS 5% showing that commission expenses..now the income tax department wants to add this income under section 147. when he filed an income tax return he did not claim this tds while filing income tax..
Kindly suggest a reply and provide me with reference case any
06 July 2024
In response to the situation where your client received an advance amount in FY 18-19, deducted TDS, and now faces scrutiny from the income tax department under section 147, here's a suggested approach and possible references:
### 1. **Response Strategy:** - **Clarify Nature of Advance:** Clearly state that the advance received was for goods supply, not for commission expenses. Provide documentary evidence such as agreements, correspondence, or any other supporting documents that prove the nature of the transaction.
- **TDS Deduction Clarification:** Explain that the TDS deduction was erroneously classified as commission expenses. Acknowledge that there was a misunderstanding or misclassification but clarify that the TDS was deducted in good faith based on the available information at that time.
- **Revised Income Tax Return:** If applicable, prepare to file a revised income tax return (if permissible under the law) to correct any inaccuracies or omissions in the original filing.
### 2. **Legal and Case References:** - Provide references to relevant legal provisions and case law, if available, that support your client's position: - **Section 147 of Income Tax Act:** This section pertains to income escaping assessment. You can reference provisions related to the period of limitation, grounds for re-opening assessment, and the requirement for tangible reasons to believe income has escaped assessment.
- **Judicial Precedents:** Look for cases where the nature of advances and TDS deductions have been litigated, especially those involving misclassification of income.
### 3. **Consultation with Tax Expert:** - Recommend seeking advice from a tax expert or consultant who specializes in income tax matters. They can provide specific guidance tailored to the circumstances of your client's case and ensure compliance with legal requirements.
### Example Response: Dear [Income Tax Officer],
Subject: Response to Notice under Section 147
I acknowledge receipt of your notice dated [Date] regarding the assessment of advance received in FY 18-19 and TDS deducted thereon. Please find attached supporting documents that clarify the nature of the advance, which was received for goods supply and not commission expenses as inadvertently classified.
The TDS deduction at the rate of 5% was applied based on the understanding at that time. We acknowledge the inadvertent misclassification and assure you of our cooperation in rectifying any discrepancies. We are prepared to file a revised income tax return to correct the classification of TDS and ensure compliance with the applicable provisions.
We request your understanding and consideration of the documents provided, demonstrating the factual nature of the transaction. We also seek guidance on the appropriate steps to rectify this issue in compliance with the Income Tax Act.
Looking forward to your guidance and further instructions.
Yours sincerely,
[Your Name]
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This response template outlines a proactive approach to addressing the issue, clarifying misunderstandings, and seeking resolution under the provisions of the Income Tax Act. Adjust the details as per the specific facts and circumstances of your client's case and seek legal advice if necessary for further clarification and guidance.
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