TaxTMI 
TaxTMI 
2021 (8) TMI 865
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....5 on 29.11.2014 declaring income of Rs. 30,02,517/-. The case was selected for scrutiny and assessment was completed under section 143(3) on 24.11.2016. The assessing officer (AO) while passing the assessment order estimated the income of assessee @4% of gross receipt of Rs. 62,39,85,858/-. The assessing officer during the assessment noted that the assessee diverted the work contract to leading partner i.e. M/s. KEC International Limited. The work was carried out by leading partner M/s. KEC International Limited. The AO issued show cause notice vide order sheet entry dated 12th August, 2016 as to why net profit (NP) should not be taken @4% of gross receipt as the work is executed by related party, as per section 40(A) of the Income Tax Act. The assessee filed its reply dated 7.11.2016. In the reply the assessee has stated that bid for availing contract was made through lead partner M/s. KEC International Limited. The entire coordination was done by M/s. KEC International Limited right from the time of submission by bid and till the time of award of contract. The cost of bid management etc. was entirely borne by M/s. KEC International Limited without any additional cost of joint ven....
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....owing the order of Tribunal deleted the entire addition. Aggrieved by the order of Ld. CIT(A) the revenue has filed this appeal before Tribunal. 4. We have heard the submissions of Ld. Departmental representative (DR) for the revenue and Ld. Authorised Representative (AR) of the assessee and have gone through the orders of lower authorities. The Ld. DR for the revenue relied upon the order of the AO. 5. On the other hand Ld. AR for the assessee submits the grounds of appeal raised by the revenue is squarely covered by the decision of Tribunal in assessee's group cases in ITA No.ITA No. 7044/Del/2017 in the case of M/s KEC Sidharth JV and ITA No. 7045/Del/2017, ITA No. 7046/Del/2017 in the case of M/s KEC PLR KPIPL JV. The ld. AR further submitted that Ld. CIT(A) while granting the relief to the assessee followed the order of the Tribunal in assessee's group case. Thus, the grounds of appeal raised by the revenue has no merit. 6. We have heard the rival submissions of both the parties and deliberated on the decision of Tribunal in assessee's group case supra. We find that on almost similar set of facts, similar additions were made in assessee's group case in ITA No.ITA No. 7044/D....
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....ed by assessee (JV) 11,38, 17,920 Expenses incurred by JV ob account of sub contract 11,37,06,154 Deemed Profit of JV 1,23,316 On a contract receipts of Rs. 11,38,17,920/- net profit is only Rs. 1,23,316/- which is 0.1%. It is, therefore, clear that the motive of the assessee was to shift the profit from JV to M/s KEC International Limited. The payments made are excessive and unreasonable. In true terms the JV has only awarded the contract and all the transactions were passed through the accounts of JV(assessee) to M/s KEC International Limited and the assessee has charged only 0.1% which is very marginal as the work contract has been further given to associated party in view of section 40A(2)(b) of the Act. From the above discussion, it is clear that the assessee JV has to be taxed asAOP in respect of excessive payment made to persons specified u/s 40A(2)(b) of the I.T. Act. On careful consideration, I assess the net income at Rs. 45,52,717/- being 4% of gross receipt of Rs. 11,38,17,920/- against returned income of Rs. 1,23,316/-. I am satisfied that assessee has concealed and furnished inaccurate particulars of his income to this extent & accordingly penalty proceeding....
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....ctively vide respective order dated 21.11.2016 and 28.02.2017 (copies are placed at page nos. 37 to 47 of the assessee's paper book). 8. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted position that the AO made the addition by invoking the provisions of Section 40A(2)(b) of the Act which are applicable to the expenses considered to be excessive or unreasonable having regard to the fair market value of the goods/services or facilities for which the payment is made. However, in the instant case, the AO estimated the profit of the assessee and determined the income, nowhere he doubted the expenses incurred by the assessee. Therefore, I am of the confirmed view that the AO was not justified in making the addition by invoking the provisions of Section 40A(2)(b) of the Act which are applicable to the expenditure and not to the receipts and the ld. CIT(A) rightly deleted the same. A similar issue having identical facts has already been adjudicated by the ITAT Delhi Bench "SMC", New Delhi vide order dated 21.11.2016 in ITA No. 2326/Del/2016 for the assessment year 2011-12 in the ....
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....fore the Bench today. The ld. AR insisted that the appeal be disposed of. I am agreeable with the contention of the ld.AR and, accordingly, proceeding to dispose of the instant appeal ex parte qua the Revenue. 5. It is noticed that the AO made disallowance u/s 40A(2)(b) of the Act by opining that the assessee should have earned income from sub-contracting. At this stage, it is relevant to note the prescriptionof the relevant part of Section 40A(2), which is as under:- '40A(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referredto in clause (b) of this ub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.' 6. On going through the mandate of the above provision, it is clear that the disallowance under this section....