2011 (11) TMI 722 - AT - Income Tax

Summary

Issues involved: Appeal by Revenue against CIT(A) order for assessment years 2002-03 to 2004-05 regarding deletion of additions u/s 145 of the Income-tax Act.

Issue 1 - Deletion of additions u/s 145 of the Income-tax Act:
The Revenue contended that 2% of payments to individual members assessed in the hands of AOP should be treated as estimated income u/s 145 of the Act. The CIT-DR argued that the provisions of S.145 were correctly invoked as the assessee did not maintain books of account. The counsel for the assessee argued that there was no basis for estimating the net income at 2% and cited a Supreme Court decision in support. The Tribunal found that the assessing officer did not provide a basis for the estimate and made the addition without comparing payments to fair market value. It was noted that the rate of tax applicable to the foreign concerns (members of the Joint Venture) was higher, indicating no tax evasion by the assessee. The CIT(A) had found that the assessee maintained proper books of account, and the assessing officer's objections were not substantial. The Tribunal upheld the CIT(A)'s decision, stating that no case for disallowance/addition u/s 40A(2) was made out by the Revenue.

Issue 2 - Commission received on sub-contract by Joint Venture:
The Revenue argued that the Joint Venture received commission on sub-contract without executing the contract work, implying an error in deleting the additions. The Tribunal found that the assessing officer did not provide evidence for the excessive and unreasonable payments made by the assessee-AOP. The CIT(A) had observed that the assessee did not derive any income during the year in question, and the additions made by the assessing officer were not sustainable. The Tribunal concluded that no case for disallowance/addition could be made under S.40A(2) by the Revenue, leading to the dismissal of all three appeals by the Revenue.

Conclusion:
The Tribunal dismissed all three appeals by the Revenue, upholding the CIT(A)'s decision to delete the additions made u/s 145 of the Income-tax Act for the assessment years 2002-03 to 2004-05.