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TMI Blog2006 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of profit, therefore, cannot be sustained and are liable to be set aside, and the matter deserves to be remanded to the assessing authority for re-determination thereof. It was the specific case that these partners were working partners and they were entitled to salary and interest, as per terms of the deed in accordance with section 40(b) of the Act. In the absence of any material having brought by the revenue in rebuttal and more so when no such plea was ever taken or raised in the appeal, as also no substantial question of law has been framed in this regard, the aforesaid plea is bound to fail. Even before the Tribunal, it appears that no such question was raised. We have been informed by the learned counsel for the parties that for the last two assessment years, the Assessing Officer himself has granted deductions treating the firm to be entitled for the same. Thus, we allow the appeals in part and remit the matter to the Assessing Officer for only recording findings on question (1) referred to above, namely, to determine the rate of profit on the basis of the evidence/material on record, after affording opportunity of hearing and also giving opportunity to the parties to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is bound to be shared by the sub-contractor. In appeal before the ITAT, the rate of profit has been further reduced to 4 per cent on the ground that the assessee was doing the work for PWD. Normally the net profit rate was much less for the work of PWD, as the contract work has to be done under certain specifications and under the supervision of the PWD authorities . 3. A bare perusal of the findings recorded by the Assessing Officer would indicate that he has applied the principles determining the profit, vide section 44AD, whereas the aforesaid provision was not at all applicable in the case of assessee in the relevant assessment years. This factual position is not being disputed by either of the parties before us. That being so, the question arises as to what should be the profit rate for the purposes of determining the profit occurred or gained by the assessee. Since the Assessing Officer has not dealt with this question, independent of section 44AD, we cannot uphold the rate of profit applied by him. 4. So far as the determination of profit of 5 per cent by the Commissioner of Income-tax (Appeals) and 3.5 per cent for sub-contracts is concerned, the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. So far as the second question is concerned, lot of arguments have been advanced by Sri D.D. Chopra that in a matter of best judgment assessment, namely, where the books of account have been rejected, the provisions of section 40(b)(iv ) and (v) would not be available to the assessee and he would not be entitled for the benefit of deduction of salary and interest paid to the partners. His further submission is that even if such a deduction can be made, the same cannot be given in the instant case, as the assessee has not said anywhere that the partners were entitled for remuneration or salary in terms of the partnership deed and, therefore, the matter in any case has to be remanded for this purpose. 8. The aforesaid argument consists of two aspects, one, legal aspect and the other, factual aspect. In regard to the legal aspect, whether in a case where the best judgment assessment is made on rejection of books of account, deduction as permissible under the provisions of the Act otherwise would not be available to such assessee, has to be seen in the light of the provisions of the Income-tax Act and the scheme laid down therein. 9. Sri Rajan Roy, appearing for the assessee, has dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partnership deed and relates to any period falling after the date of such partnership deed inso-far as such amount exceeds the amount calculated at the rate of twelve per cent simple interest per annum; or (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed insofar as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder. 14. Sri D.D. Chopra does not dispute that these statutory deductions would be permissible to all assessees whose return have been submitted under section 139(1) and even if they are not accepted and regular assessment proceedings are taken, but he argues that if the assessment has been made by best judgment assessment of the Assessing Officer, then these deductions would not be available to such assessee. 15. Learned counsel, however, has not been able to substantiate from any provision of the Act or the Rules framed under the Income-tax Act which makes any such distinction between the assessee, who has been asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act itself. The flat rate principle, which is being put into service by the revenue does not mean that the statutory deduction which is otherwise available to the assessee firm and which has not been excluded in any manner under the provisions of the Act and rather the same having been allowed under the provision aforesaid, the plea of non-availability of the said deduction to an assessee firm, who has been assessed under the best judgment assessment, cannot be supported by any provision of the Act. 19. This argument can be tested by another angle, namely, in other words, if the interpretation given by the revenue is accepted, it would mean that in a case where the assessee s books of account have been rejected or, for any other reason, whatsoever, best judgment assessment has been made, that would entail penalty or adverse civil consequences of depriving the assessee from having the statutory deductions, which would have been otherwise available to him, in case his voluntary return filed under section 139(1) has been accepted or regular proceedings under section 143(3) of the Act were taken. This interpretation would lead to an anomalous situation, besides the same does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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