TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 277
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....e net profit rate of 7.20% applied by him. 2.1 The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in holding that Joint Venture Charges of Rs. 65,04,574/- paid to Maruti Nandan Colonizer Private Limited being towards share of profit as per Joint Venture agreement cannot be debited to the profit and loss account and therefore disallowable. She has further erred in holding that income of joint venture be taxed as an AOP and at the same time assessing the same in the hands of the assessee." Grounds of ITA No.776/JP/2011 "1. On the facts and in the circumstances of the case and in view of section 44AD the learned CIT(A) after withholding the rejection of books is not justified in reducing the profit rate to below 8% i.e. rate prescribed as per 44AD when the books of account of the assessee were found defective in the year under consideration and in earlier years hence rejected. 2. On the facts and in the circumstances of the case, the learned CIT(A) was not justified in deleting the disallowance made by the A.O. of interest payment of Rs. 41,01,334/- from the income estimated by applying N.P. rate when the interest income shown has been assessed under th....
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.... by the Assessing Officer on page Nos.5 to 7. After considering the assessee's reply, the learned Assessing Officer concluded that the assessee had himself admitted in his submission that complete bills/vouchers could not be produced, as the same were lying at worksite. It is not possible for him to maintain each and every record. The assessee had not maintained proper record and the expenses were not vouched. Under these circumstances, the correctness or completeness of the books of account of the assessee is totally ruled out and correct profit of the assessee cannot be deduced from there. Therefore, it is a fit case for invoking provisions of Section 145(3) of the Income Tax Act, 1961 (in short the Act). Accordingly, he rejected the books of account. It is further clarified that in similar situation, the books of assessee had been rejected in the earlier year in A.Ys. 2001-02 to 2007-08 and the same had been upheld by the learned CIT(A). The Hon'ble ITAT, Jaipur Bench, Jaipur in assessee's own case had also confirmed the N.P. rate @ 8% in vide order dated 13/7/2005 for A.Y. 1994-95 and 1995-96 respectively by holding that past record of the assessee suggested to appl....
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....essment year i.e. AY 2007-08, net profit sustained by the Hon'bk ITAT before allowing depreciation and interest was 7.20% on total turn over of Rs. 93,96,06,963/- against net profit shown at 6.97% by the assessee. During the year the net profit rate shown by the assessee is 6.06%. It is held that net profit rate before allowing depreciation and interest be estimated at 7.20% given the past history of the case as per the Hon'ble ITAT's order dt.28/05/09 in ITA No.l436/JP/2008. The AO is directed to apply net profit rate of 7.20% on the total turnover of Rs. 96,53,57,927/-. First two grounds of appeal are decided partly in favour of the appellant." 4. Now the assessee as well as the Revenue are in appeal before us. 5. The learned A.R. for the assessee submitted that Section 145(3) provides that where the AO is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting prescribed in sub section (1) or accounting standard as notified under sub section (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in section 144. Section 144 provides for making the best ....
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....concerned, Hon'ble ITAT after considering the decision of CIT Vs. Bhawan Path Nirman (Bohra) & Co. 258 ITR 431 & 440 (Raj) has held that interest paid to third parties is to be allowed after application of N.P. rate. Therefore, Ground No.2 of the department be dismissed. The CIT(A) has applied N.P. rate of 7.2% as against 6.06% declared by the assessee. The N.P. rate has declined during the year as compared to 6.97% in the last year due to following reasons:- (i) Payment of Joint Venture Expenses:- During the year, assessee has claimed joint venture expenses of Rs. 65,04,574/- paid to M/s Maruti Nandan Colonizers (P) Limited. Up to last year this company was financing the assessee and interest was paid on the amount borrowed from it which was allowed as deduction. During the year assessee entered into a joint venture agreement with this company according to which it was paid joint venture charges of 10% of the profit. As a result Rs. 65,04,574/- was paid. This has resulted in decrease in net profit rate before depreciation and interest by 0.67%. (ii) Rate of Bitumin:- During the year rate of bitumen increased rapidly to Rs. 24,350/- per ton from Rs. 16720/- per ton in last y....
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....profit rate has been provided U/s 44AD for the Act for the smaller contract, the appellant also relied in case of CIT Vs. Shree Ram Jhanwar Lal Vs. ITO (supra), wherein it has been held that in case of gross receipts are more than 40 lacs thus 8% net profit rate cannot be applied on the cases where the gross receipts are more than the prescribed limit of Section 144AD of the Act. The best method of estimating the income on the contractual receipts would be past history of the assessee himself as held by the Hon'ble Rajasthan High Court in the case of Kansara Bearings P. Ltd. v. Assistant Commissioner of Income-tax (2004) 270 ITR 235. The Coordinate Bench has decided 7.2% net profit in preceding year on gross receipts of 93.96 crores but being a peculiar circumstances of the case during the year as mentioned above, we are of the considered view that 7% net profit rate is reasonable in this case subject to depreciation and interest to third party. The Assessing Officer is directed to calculate income as per the above observation. The defects pointed out by the Assessing Officer in case of assessee are sufficient to reject the book result U/s 145(3) of the Act. In past also, on th....
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.... which interest of Rs. 22 lacs was received in F.Y. 2006-07 and the same was converted as deposit of joint venture in F.Y. 2007- 08. No separate books of account of joint venture were kept. Whatever, payment was made by the assessee to M/s Maruti Nandan Colonizers Pvt. Ltd. was actually interest on the money lent by it to the assessee. Since it was actually interest payment, which was liable to TDS U/s 194 of the Act. Thus he disallowed these expenses U/s 40a(ia) of the Act and giving telescopic benefit against the N.P. addition was given to the extent of joint venture expenses of Rs. 65,04,574/- and no separate additions were made by the Assessing Officer. 9. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who has decided this issue by observing as under:- "6.3 I have carefully perused the order of the AO and submissions alongwith paper book filed by the A.R. The AO gave a finding that Joint Venture Agreement is only on paper and did not exist in reality. He has based his finding on the Statement of Shri Anil Patodia, Director of M/s Maruti Nandan Colonizers Pvt. Ltd. In his statement u/s 131 Mr. Patodia a....
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....ars. 6.6 So the First Party needed funds to undertake bigger contracts and the Second Party was desirous of gaining experience in the field of infrastructural contracts. Moreover, it did not have necessary certification as a contractor necessary for undertaking infrastructure related activities in Rajasthan. 6.7 Though both the parties were to be jointly responsible for execution of work the main work, responsibilities for liabilities negotiations etc. were the task of the assessee & that is why it was called the lead party firm who was entitled to 90% of the profit & Loss. 6.8 This was a mutually beneficial Joint Venture agreement as is seen from the submission of the AR that as a result of this Joint Venture the interest receipt increased from Rs. 1.48 crores last year to Rs. 2.82 crores in this year. This was on account of availability of funds with the assessee of Rs. 15.96 crores of the second party. This interest receipt has been included in the income of the assessee for taxation purposes. Till last year the assessee was paying interest of 6% on funds taken from second party. This year these accumulated funds have been shown to be the contribution of the M/s MarutNandan C....
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....s in the joint venture as security deposit on which no interest is payable. It is further appointed Chief Operating Officer, who shall have the overall control for the purpose of execution of the contract awarded to M/s Brahm Prakash Modi and supervisors to supervise the project site. It has a sharing in profit as well as loss thus, this is a joint venture agreement and not a simple finance transaction. The learned Assessing Officer wrongly treated these charges as finance charges. It is further submitted that a sum of Rs. 15.96 crores remained with the assessee. The simple interest @ 12% on this amount works out to Rs. 1,91,60,155/- as against the assessee was paid Rs. 65,04,574/- only as joint venture charges as per the terms of the agreement. If this is in the nature of interest then why the second party would agree to receive venture charges of Rs. 65,04,574/- only as against the simple interest of Rs. 1,91,60,155/- rather the assessee saved expenditure to the extent of Rs. 1,26,55,581/-. Further there is increase in the interest income from Rs. 1,48,67,335/- in last year to Rs. 2,82,98,920/-. Therefore, it is incorrect to hold by the Assessing Officer as the same is financial ....