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TMI Blog2013 (11) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee vide a show cause notice was asked to show as to why the book results should not be rejected u/s 145 of the Act and the gross profit not be estimated at 5% of the receipts. The assessee, inter-alia, submitted that it was not having any infrastructure to carry out the contract of such high magnitude and the member company was taxable at flat rate of 33%. He further submitted that the contract receipts include material supplied by the Government valued at Rs.1,62,87,262/- which does not carry any profit element. The assessee further submitted that since no discrepancies have been noticed in any transactions, there was no reason for rejection of books of accounts u/s 145. The submissions of the assessee were not found acceptable by the A.O. The A.O. was of the view that assessee had formed the joint venture A.O.P. without element of profit. The assessee A.O.P. by forming the joint venture has diversified its profit to its members which is in the nature of colourable device to divert profit. He further observed that the assessee A.O.P. has not offered any income since its formation. He, accordingly, rejected the books of accounts u/s 145 of the Act and thereafter, after giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue that the appellant carried out a joint venture is supposed to offer an income irrespective of appropriation of income against the members or otherwise. The appellant did not offer any income, the estimation of income made by the AO @5% of the total turnover and considering the nature of business of the appellant, I found AO is justified in making this addition. The addition is, therefore, upheld. The appellant's Ground No.1 is Dismissed." 3.5 In view of the above and also in view of the fact that the facts remain the same for this year too i.e. A.Y. 2006-07, I am in agreement with the observation and finding of my predecessor in the appellant's own case for A.Y.2005-06 and I do not find any reason differ from the said decision. The action of the A.O. in estimating the profit of the appellant at 5% of the receipts is upheld and the grounds of appeal on this issue dismissed." Against the aforesaid order of CIT(A) assessee is now in appeal before us. 4. The grounds raised are as under:- "1. The ld. CIT(A) erred in law and on facts in invoking provisions of Section 145(3) of the I.T. Act, 1961, even though the appellant regularly followed the method of accounting provided in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Tribunal vide its order dated 20.01.2012 in ITA No.4046/Ahd/2008 for A.Y. 2005-06 has held as under:- "6. Having heard the submissions of both the sides, we are of the considered view that the issues raised by this appellant in the grounds of appeal require readjudication at the end of the ld.CIT(A). Before us, a joint venture agreement dated 30th day of January-2004 is placed on record. There is a supplementary agreement; (i) signed on 8th day of February-2005. There is one more agreement in respect of the said contract signed by a contractor on one hand and on another hand signed by Chairman of Kandla Port Trust. These agreements and the terms and conditions laid down therein are important so as to examine the justification of transfer of profit by the appellant-AOP to its member. The authorities below have not examined the terms and conditions under which the AOP had transferred the amount of Rs.55,24,769/- in the account of one of its member. From the orders of the Revenue Authorities, it is not evident that whether they have examined the correct nature of the payment and that whether the nature of payment was from a contractor to a sub- contractor. First of all, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling of the return, requirements of law would be fulfilled. It was on this basis that tribunal was of the opinion that the assessee committed no wrong and was therefore, entitled to seek deduction of Rs.32,94,149/- from the income which amount the assessee had deducted from payments of contractors and had also deposited with Revenue before the last date of filing of the return. We do not find any illegality in order of tribunal. Tax Appeal is therefore, dismissed." 6.2. Next is the question of the invocation of section 40A(2)(b) by the AO and thereafter applying the estimated profit at 5% on the said amount. For the purpose of invocation of this section one of the essential ingredient is that where an assessee incurs any expenditure and the AO is the opinion that such an expenditure is excessive, then the unreasonable amount is not to be allowed as a deduction. But in the present case, whether the impugned payment to its member was in the nature of an expenditure; has not been clearly established. To ascertain 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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