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2023 (10) TMI 843 - AT - Income TaxEstimation of Profit/Section 40A(2)(b) - JV entered - AO had made disallowance by opining that the assessee JV should have earned income from sub-contracting - AO had formed a view that the assessee JV had suppressed its profit by making excessive payment to TPPL - to work out the amount to be disallowed u/s 40A(2)(b), the AO had applied the net profit rate of 8% on the Sub-Contract Expenses (net) - CIT(A) had observed that the net profit in the case of TPPL was 3.78% and formed a view that profit in the hands of the assessee JV should also be calculated by applying such rate of 3.78% - HELD THAT:- We find that the section 40A(2)(b) has no application to income aspect of the assessee JV in the facts of the instant case. The AO has not brought any comparable figures to disallow the expenditure, moreover with the structuring of the JV provisions of Section 40A(2)(b) are not attracted in the given facts and circumstances of the instant case. Reliance as placed on the judgment of Oriental Structural Engineers [2015 (3) TMI 102 - DELHI HIGH COURT] wherein it was held – “dismissing the appeals, that the concurrent findings were that the joint venture was formed only to secure the contract, in terms of which the scope of each joint venture partner's task was distinctly outlined. Further, the entire work was split between the two joint venture partners, they completed the task through sub-contracts and were responsible for the satisfaction of the National Highways Authority of India. Therefore, the Tribunal did not fall into error of law, in holding that the joint venture was not an association of persons liable to be taxed on that basis.” Hence, we hold that the AO has fallen into error in determining the profit @ 8% and also invoking the provisions of Section 40A(2)(b) and the ld. CIT(A) has also erred in determining the profit of the assessee @ 3.78% equal to the profit of one of the parties to the JV. Penalty u/s 271G - AO held that the assessee has failed to maintain the required documents as per the provisions of Section 92B with Rule 10 of the I.T. Rules, 1962 - HELD THAT:- Since neither the AO (during the course of assessment proceedings) nor the ld. CIT (A) during the course of appellate proceedings had required the assessee to furnish any specific information or document in terms of section 92D(3), there was reasonable cause for the said failure, if at all any, inadvertently occurred on the part of the assessee. Hence keeping into consideration, the provisions of section 273B and the judgments of Leroy Somer and Controls (India) Pvt. Ltd [2013 (9) TMI 761 - DELHI HIGH COURT] and Hindustan Steel Ltd. Vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] we hold that the penalty imposed u/s 271G be deleted. Appeals of the assessee are allowed.
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