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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 ..... come-tax (Appeals) as against the flat rate of 8 per cent, as given by the Assessing Officer, and further reducing the same to 4 per cent by the ITAT was at all warranted under the facts and circumstances of the case; (ii) whether the assessee was entitled to the benefit of section 40(b)( iv) and (v), namely, on the salary and interest paid to the partners. 2. In regard to the first question, suffice would be to mention that the Assessing Officer, on the analogy of section 44AD, after rejecting the books of account, made assessment determining 8 per cent profit at flat rate. This finding became the subject-matter of challenge in appeal and the Commissioner, Income-tax (Appeals), on consideration that since the assessee was performing the work of civil construction as a contractor of the Public Works Department, reduced the aforesaid rate of profit from 8 per cent to 5 per cent, mainly on the ground that since the turnover of the assessee exceeds Rs. 40 lakhs, therefore, it is bound to incur more expenses and rate of profit would be less. On sub-contracts, he has applied the rate of 3.5 per cent on the reasoning that in the sub-contracts, the income is bound to be shared by the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght before him or even on making such enquiry, which may be necessary, which may include the requirement of having any information from the assessee also during the course of determination of such rate of profit, namely, during the assessment proceedings. In no case, simply because the turnover is more than Rs. 40 lakhs or the assessee is performing civil construction work for Public Works Department, neither the rate of profit could be determined nor it could be taken to be less nor it could be reduced nor could be arrived at on presumptions. 6. Since the Assessing Officer as well as the Commissioner, Income-tax (Appeals) as also the ITAT has not recorded any finding based on any material, and the findings recorded are merely on surmises and conjectures or, so to say, on purely guess work and imagination of the authorities, as it has not been brought to our notice that any such rate of profit can be assessed under the rules or any law in this manner, the findings of 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. 7. So far as the second question is conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manner provided in section 144." 11. The aforesaid provision gives power to the Assessing Officer, if he is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee to make an assessment in the manner provided in section 144. The provision in sub-section (1) with regard to the income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" has been made subject to the provisions of sub-section (2). This has to be computed with either cash or mercantile system of accounting regularly. 12. Section 144 provides the manner in which the best judgment assessment is to be made, which require opportunity to be afforded to the assessee to show cause as to why the assessment be not completed to the best of his judgment. 13. Sections 28 to 43 deal with the statutory deductions, which are available to an assessee. Section 40(b)( iv) and (v), which is the provision applicable in the instant case, reads as under : "(iv) any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ductions which are otherwise available to the assessee, would not be available to the assessee who has been assessed under best judgment assessment by the Assessing Officer, unless, of course, any rule or provision of the Act expressly excludes the benefit of statutory deductions to such an assessee, the plea taken by the revenue cannot be accepted. 17. Taking a queue from section 44AD, Sri Rajan Roy has submitted that the aforesaid provision, which prescribes flat rate of 8 per cent profit, itself provides for deduction, as may be available to an assessee, which is a firm. 18. Relying upon the proviso to sub-section (2) of section 44AD, he has submitted that the salary and interest paid to its partners by the assessee firm shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40. The argument, therefore, is that the revenue's contention that in a matter where best judgment assessment has been made and flat rate of profit has been levied, statutory deduction would not be available in respect of salary and interest paid to the partners of the firm stands negatived by the aforesaid provision under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be excluded in the matter of best judgment assessment in respect of an assessee firm. 21. The next argument is regarding the fact as to whether the assessee had put forward the case before the Assessing Officer that the assessee was a registered partnership firm, which was working under the registered partnership deed and that in the partnership deed there was any clause for payment of salary and that the partners were the working partners. 22. Though this plea was never raised by the revenue, either before the Assessing Officer or before the Commissioner in appeal or the ITAT nor in this memo of appeal but even then we have been taken though the record by Sri Rajan Roy to negate the plea of the revenue, that the matter need be remanded to the Assessing Officer and to indicate that it was the specific case of the assessee before the assessing authority that they were registered partnership firm and were having registered partnership deed. It was also 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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