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TMI Blog2012 (11) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... n and determine the nature of payment the clauses of the agreement and the surrounding circumstances of the case are required to be examined by ld.CIT(A) in the light of the facts narrated by the AO - appeal of the Assessee is allowed but for statistical purposes - I.T.A. No.4046/Ahd/2008 - - - Dated:- 20-1-2012 - SHRI MUKUL Kr.SHRAWAT AND SHRI B.P. JAIN, JJ. Appellant by : Shri S.N. Soparkar, A.R. Respondent by : Shri Awijit Rakshit Sr.D.R. ORDER PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-Valsad dated 25/08/2008. Grounds raised are reproduced below:- 1. The learned Commissioner of Income tax (Appeals) has erred in law and on facts in upholding estimating profit of the appellant at Rs.2,76,238/- by the learned Assessing Officer by invoking provisions of section 40A(2)(b) of the Income Tax Act, 1961. 2. That the learned CIT(Appeal) erred in law and on facts in upholding rejection of book results by the learned Assessing Officer u/s.145 of the Act. 3. That the learned CIT (Appeal) erred in law and on facts in approving the invocation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f IT Act. The AOP had passed on the entire amount to its member without retaining any profit, therefore clearly hit by the provisions of section 40A(2)(b) of IT Act. AO has also opined that due to the said unreasonable payment to members, the books of accounts were not properly maintained by the assessee. Therefore, by invoking the provisions of section 145 the book result was rejected. Thereafter, AO has referred section 44AD of IT Act so as to apply a net profit rate on the receipts of the assessee since undisputedly the assessee happened to be a civil contractor. As per AO, though section 44AD envisages that in case of an assessee having turnover of less than Rs.40 lacs, a net profit @ 8% on the turnover could be taken, but the assessee s turnover has exceeded the said limit of turnover. Hence the AO had held that it would be fair and reasonable to estimate the profit @ 5% on the total turnover which was calculated at Rs.2,76,238/-. It is worth to mention at this juncture that this profit was not finally taxed in the hands of the assessee because alternatively the A.O. had applied the provisions of an another sec.40(a)(ia) and that disallowance was taxed, relevant discussion fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und the contentions raised by the AR of the app is more of a convenience than legal interpretation. Since, the law is amended in respect of the provisions of section 40a(ia) of the Act, he has conveniently shifted his arguments in respect of the applicability of the provisions of section 40a(ia) of the Act and taken a plea that invocation of the provisions of section 40a(ia) and estimation of income made by the AO is not in accordance with the law. Though he has referred to the accounting standard (AS 7), I found no force in the said arguments. It is surprising to note that in the additional grounds of appeal, he has confirmed that the payment was made to the subcontractors. I found AO has rightly picked up the issue of payment to sub-contractors and invoked the provisions of section 40a(ia), so that he could estimate the income of the app. Since, the AOP app is a joint venture, the phrase of word itself suggests that it is an association of two or more persons to carry out a single business enterprise for profit. Even in the case of general joint venture, the same rules of partnership are applicable and as per definition of joint venture, the necessary elements are (i) express/i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast. The AO has to ascertain the correct provision of law as applicable for the year under consideration so as to justify the invocation of this section. It is necessary to place on record that the Hon ble Jurisdictional High Court Ahmedabad in Tax Appeal No.706 of 2011 vide an order dated 18/07/2011 in the case of CIT vs. M/s.J.K.Construction Co. has held as under: From the record, it emerges that for payment to contractor, the assessee had made deduction as required under law from time to time and in particular latest by 31.3.2005. This is clear from chart supplied by the assessee before CIT (Appeals) which would establish that deduction in case of several contractors were made on 31.3.2005. All such amounts were deposited with the Government on or around 28.5.2005. In background of above undisputed facts, tribunal was of the opinion that by virtue of amended provisions of Section40(a)(ia) of the Income Tax Act, 1961, assessee has not breached the requirement of deduction and depositing of TDS. Section 40(a)(ia) of the Act as amended with effect from 1.4.2005 read as under: (ia) any interest, commission, or brokerage, (rent, royalty) fees for professional services or fe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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