Consortium member's dual appeals against assessment order held maintainable despite zero profit share claim

ITAT Delhi held that both appeals filed by a consortium member against the same assessment order were maintainable. The appellant, despite claiming zero profit share, was validly assessed as a member of the AOP consortium. The tribunal found that revenue sharing arrangements, unified control over tax matters, and joint liability in project execution established sufficient commonality of interest to form an AOP. The consortium arrangement fell outside the exemptions in Circular 7/2016. The appellant's right to appeal was upheld based on its tax liability arising from the assessment order.

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Issues Involved:
1. Whether the two appeals are maintainable against one assessment order.
2. Whether the appellant No.1 is a member of the Association of Persons (AOP) i.e. Pico Deepali Overlays Consortium and whether the consortium has been rightly assessed as an Association of Persons.

Summary:

Issue 1: Maintainability of Two Appeals Against One Assessment Order

The Tribunal addressed the question of whether two appeals are maintainable against one assessment order. It was observed that both appellants, Deepali Design (Appellant No.1) and Pico Deepali Overlays Consortium (Appellant No.2), have the right to file appeals as they are aggrieved by the assessment order. The Tribunal cited various judgments supporting the rights of persons affected by an adverse order to file appeals. It was concluded that both appeals are maintainable as each appellant has a distinct grievance and liability under the Income Tax Act.

Issue 2: Membership of Deepali Designs in the AOP

The Tribunal examined whether Deepali Designs is a member of the AOP, Pico Deepali Overlays Consortium, and whether the consortium is correctly assessed as an AOP. The Tribunal considered various agreements and addendums between the consortium members, particularly focusing on the addendum dated 01.06.2010.

Key points considered include:

- Statutory Tax Obligations: The addendum stipulated that PHK and PEMI would handle all statutory tax obligations for the JV, indicating a unified approach to tax liabilities, contrary to the conditions in Circular No. 07/2016 which requires independent responsibility for tax obligations.

- Revenue Sharing: Deepali Designs agreed to forego 23% of its gross revenue to PHK, indicating revenue sharing within the consortium, which does not align with the independent profit/loss condition in Circular No. 07/2016.

- Unified Control and Management: The Tribunal found that the consortium had a unified control and management structure, particularly in financial and tax matters, which is against the criteria set out in Circular No. 07/2016 for not being treated as an AOP.

- Board Representation: Deepali Designs had a representative on the Board of the JV, which had supervisory powers over the entire project, further indicating unified control.

The Tribunal concluded that the consortium fails to meet the conditions of Circular No. 07/2016 and upheld the assessment of the consortium as an AOP with Deepali Designs as a member. The issue was decided against Deepali Designs (Appellant No.1).

Conclusion:

The Tribunal ruled that both appeals are maintainable and that Deepali Designs is a member of the AOP, Pico Deepali Overlays Consortium. Consequently, the consortium is rightly assessed as an AOP. The grounds taken in appeal ITA No.518/Del/2022 by Deepali Designs were disallowed, and both appeals were directed to be fixed for final hearing on merits of the grounds raised.

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