TMI Blog2012 (8) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... see’s final accounts were qualified by a report of an Auditor which raises a doubt regarding correctness of the accounts. Hence, AO was justified in rejecting the books of account. Estimation of profit at 10% of the gross receipts without allowing any further deduction towards depreciation and interest is directed. Status of the joint venture held as an AOP charging tax at the maximum marginal rate - Held that:- Assessee has failed to produce any evidence to show the existence of partnership between the members of the joint venture. Therefore, treating the joint venture as AOP cannot be faulted. However, it is seen from the Article25(4) of DTAA between India and Korea that the foreign company should not be subjected to tax which is more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,92,286/-. During the scrutiny assessment proceedings, the AO after examining the books of accounts and also final accounts as submitted with the return of income found the expenses to be abnormally high. From the terms of sub-contract agreement, it was found that the assessee has deducted 10% of the gross value of the contract awarded to it by NHAI and passed on remaining to the sub-contractor. Sub-contract is inclusive of statutory obligations like liquidity damages, statutory levies, insurance, and deduction of sales tax and works contract tax, payment of royalty and establishment of field labs and other statutory compliances etc. As per the terms of the sub-contract agreement, the sub-contractor was responsible to incur all such expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIPL assessee s receipt from NHAI is Rs.37.87 crores and for Rs.15.20 crores raised by AKP, assessee s receipt from NHAI amount to Rs.19 crores . 10% and 20% on the aforesaid amounts totalling to Rs.3.84 crores and Rs.3.8o crores respectively are direct receipts of the assessee before making payments to sub-contractor. Therefore, actual work executed by the assessee during the financial year was at Rs.67.27 crores. Against the actual work executed by the joint venture of Rs.67.27 crores, and proportionate expenses of Rs.72.68 crores has been claimed by the assessee and a further amount of Rs.7.05 crores was claimed as depreciation. As a result of which the net profit shown by the assessee come to Rs.4.68% only. The AO found that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e materials on record, the assessee Joint Venture has executed a major portion of work awarded by it by NHAI through sub-contractor. The assessee Joint Venture was deducting 10 to 20% from the gross value of work and paying the remaining amount to the sub-contractor at the stage of awarding work to the sub-contractors. Therefore, the joint venture is making profit without executing any work. Therefore considering such modus operendi of the assessee, the profit disclosed at 4.68% is abnormally low compared to the actual profit derived from such type of work. The AO has also found that the assessee has inflated expenditure on account of expenses incurred towards repairs and maintenance of plant and machinery and payment of salaries. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the constituents of the Joint Venture. The AO therefore held the status of the joint venture as AOP and charge tax at the maximum marginal rate so far as one of the constituents of the Joint Venture is concerned, Daelim Industrial Company by treating it as a foreign company. The assessee being aggrieved of the order so passed by the AO filed an appeal before the CIT (A). The CIT (A) also upheld the action of the AO. 9. The learned AR contended before us that even assuming that the status of the joint venture as AOP, the AO could not have imposed tax at maximum marginal rate of 40% in view of Article-25 (4) of DTAA between India and Korea. The assessee in this regard referred to Article 25(4) of the DTAA with Korea which is extract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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