2012 (4) TMI 657 - AT - Income Tax

Court rules no income tax on JV contract receipts for 2005-06

The DCIT, Circle 16 (3), Versus M/s PCL Suncon Joint & M/s PLL STICCO Joint Venture

The Court held that no income from contract receipts is assessable in the hands of the Joint Venture for the assessment year 2005-06. The addition made by ... - Issues Involved:1. Whether the income from the contract receipts is assessable in the hands of the Joint Venture (JV).2. Whether the provisions of section 40A(2) and section 145 of the Income Tax Act are applicable to the payments made by the JV to its members.3. Whether the assessment of income in the hands of the JV is justified.Summary:Issue 1: Assessability of Income in the Hands of the Joint VentureThe CIT(A) held that no income on the said contract receipts is assessable in the hands of the Joint Venture for the assessment year 2005-06. Therefore, the addition made by the AO assessing the income at Rs. 5,41,60,960/- cannot be sustained and hence, the same was deleted by him.Issue 2: Applicability of Section 40A(2) and Section 145The AO viewed that the work was executed by each member and considered them as sub-contractors of the JV by the SJVA. He held that the contract receipts received from NHAI and subsequently passed on to individual members amounted to expenditure incurred by the assessee in the execution of the contract work and such expenditure appears to be excessive and unreasonable and hit by the provisions of section 40A(2). He further held that alternatively 2% of the receipts should be estimated as net income clear of all expenses of the assessee by invoking the provisions of section 145 of the Act.The Tribunal, following its earlier decision in the case of M/s Limak Soma Joint Venture, Hyderabad, held that no case for disallowance/addition could be made u/s 40A(2) by the Revenue. The assessing officer has not placed on record any basis for such observation made by him. The CIT(A) found that the assessee maintained regular books of account, which were audited, and the AO did not record any finding that the books of account were not correct and complete. The Tribunal upheld the CIT(A)'s decision that the question of estimating profit does not arise and deleted the addition made in the hands of the assessee.Issue 3: Justification of Income Assessment in the Hands of the JVIn ITA No.150/Hyd/2008, the AO estimated the profit at 2% of the contract receipts passed on to PCL and disallowed the amount claimed to have been paid to STICCO. The CIT(A) held that an amount of Rs. 9,94,877 only is assessable in the hands of the assessee for the assessment year 2005-06. The Tribunal upheld the CIT(A)'s decision but sustained the addition of Rs. 9,94,877 as the assessee could not produce evidence of the filing of the return by STICCO admitting the receipts from the Joint Venture.Conclusion:In ITA No.149/Hyd/2008, the appeal of Revenue is dismissed. In ITA No.150/Hyd/2008, the appeal is partly allowed, sustaining the addition of Rs. 9,94,877.Order pronounced in the Court on: 11.4.2012