TaxTMI 
TaxTMI 
2012 (10) TMI 563
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....Hyderabad (Principal Contractor) with sharing participation of 65%, 20% and 15% respectively in the project value of the work. This JV came into existence by virtue of a Joint Venture Agreement (JVA) dated 02-06-2007 for the purpose of participating in tenders called by Irrigation & CAD Department, Government of Andhra Pradesh (Principal Employer) for the purpose of bidding contract works of "Investigation, Design, Manufacture, Supply of Pumps, Motors-and Pressure main at site of work including erection, commissioning and testing of 8 Nos. at each pumping station of Hydro- Mechanical, Electro-Mechanical and other accessories etc, complete equipment required and maintenance of 12 pumps and the system for 15 years at Km. (-) 2.050, Km 9.217, Km 56.917, Km 66.132, Km 78.785, Km. 88.690, Km. 95:735 and 173.837 of Phase I under H.N.S.S Division No. 11, Ananthapur, State of Andhra Pradesh. IVRCL Infrastructures and Projects Ltd., was the Lead Contractor amongst the constituents of the JV who was delegated all the powers to represent the JV before the Principal Employer and monitor the project work on behalf of the JV vide a Power of Attorney, dated 2.6.2007. 3. The JV was awarded work....
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....e view that (i) Irrigation & CAD Department of AP Government deals with joint ventures and not with the constituents of the JV members; (ii) JV undertakes liability from Irrigation & CAD Department of AP Government but only for internal purposes, the JV has divided the liabilities amongst its members; (iii) JV is regularly receiving the payments from Irrigation & CAD Department of AP Government; (iv) It is the JV which is entitled for participating in the bid and not its members. Stating so, the Assessing Officer was of the opinion that two issues are to be examined by observing at Page No. 2 of the Assessment Order as under: a. Determination of taxable income in the hands of JV assessee itself based on its entire activities and performance as it has filed the tender on its eligibility got the award from Irrigation & CAD Department of AP Government entered into contractual agreement with Irrigation & CAD Department of AP Government for the successful completion of the project as against NIL income offered by the assessee in complete disregard to risk and responsibility undertaken by it; and b. Examining the claim of expenditure on sub-contract payment of Rs. 208,8....
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.... if the Board advised its officers to follow the said Supreme Court decision by choosing an option to assess either an AOP or its members. The Delhi Special Bench of ITAT in Pradeep Agencies v. ITO (supra) while dealing with the appeal of an AOP who did an agency business for commission held that AOP alone is liable to tax on its business income as it alone did the business and incurred the expenditure. While doing so, the Special Bench followed the decision of the Supreme Court in ITO v. Ch. Atchaiah (supra). As a consequence thereof, the Delhi Bench of ITAT in Pradeep Agencies Joint Venture (cited supra) confirmed the assessment made by the assessing officer in the hands of the AOP. The ratio laid down in both the aforesaid cases is that when an AOP earns income in its hands, the same is liable to charge only in its hands since the assessing officer has no option under the provisions of Income-tax Act, 1961 to opt for assessing a member of an AOP by bringing to charge his share or apportioned income. Thus, the law laid down by the Supreme Court in the case of Ch. Atchaiah (cited supra) cannot be disputed nor can be distinguished in the light of the provisions of Section 4 of Inco....
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....ncome belonging to "A" has been offered as income in the hands of "B", then the assessing officer while assessing the income in compliance with provisions of income-tax has to correctly assess the true income in the hands of "A" only. Thus, the Assessing Officer proceeded to assess the income in the hands of the JV for its alleged share of income from the gross receipt and he viewed that his action is not amounting to double taxation as the income of the 'JV is considered exempt in the hands of' its members. He was of the view that the pooling of joint technical and financial strength is inherent towards a mission/project i.e., completion of project for which joint venture per se must be rewarded in terms of taxable income. Even after admitting the fact that it is true that the claim of expenditure has been made in the name of subcontractor payment but entire gross receipt has thus been diverted to constituent members, the Assessing Officer stated that the JV has legal obligation and commitment for the completion of the project with financial liability. Holding so, the Assessing Officer observed that notwithstanding the entire work has been transferred to constituent member....
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....ands of its members by way of a sub-contract. Being a FIRM is very much liable to be taxed on the income earned by it". 11. The main allegation of the Assessing Officer was that the work would have been executed by them in any case as per the terms and conditions of JV agreement, even if there was no subcontract, to say that the joint venture has not earned any income because it has neither executed the work nor deployed any resources in execution of the work is not acceptable as the work has been executed for I & CAD Department of AP as per the contract signed by the JV. As per the joint venture contract all the resources mentioned above, are to be pooled in by the constituent members of the JV to enhance the capabilities of the assessee JV to carry out the work awarded to it by I & CAD Department of AP. Stating so, the Assessing Officer held that the JV is to be necessarily and compulsorily be rewarded, compensated, and attributed for its share of work and performance which has not been done in the case of the JV. 12. In conclusion, the Assessing Officer having come to an inference that the assessee has inextricable linkage and rights, out of total proceeds of the pr....
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....t for framing the Assessment Order, dated 31-12-2010 which in no way help the case of the Assessing Officer since the ratio laid down therein has no application to the facts of the assessee JV's case; (iii). The assessee by the Agreement, dated 13-10-2007 clearly divested the work in favour of the Lead Contractor, viz., IVRCL Infrastructure and Projects Ltd., which fact was not disputed by the Assessing Officer and this resulted in diversion of income by overriding title u/s 60 of the Incometax Act, 1961 which makes the assessee JV not liable to tax on the gross receipts; (iv). The Lead Contractor, viz., IVRCL Infrastructure and Projects Ltd., having declared a profit of Rs. 10.44 vrores on the total project work of Rs. 208,85,35,883/- divested to it by the JV, it is clearly a case of double taxation which is not permissible under the Income Tax Act, 1961; and (v). The Assessing Officer framed the assessment u/s 143(3) of the Act. Therefore, without finding fault with the books of the assessee or without invoking the provisions of Section 144 and or 145 of the Act, he should not have made any estimation of addition. Therefore, the action of the Assess....
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....ons held by the assessee. 5. The CIT(A) erred in appreciating the facts and circumstances in invoking the provisions u/s. 43B of Income-tax Act, 1961. The CIT(A) has not appreciated the provisions of this section has not given any exception to the submission made by the assessee. 6. The CIT(A) erred in appreciating the law and technicality involved in disallowance of expenditure as per the provisions under section 40(a)(ia) of Income Tax Act, 1961. The CIT (A) has not appreciated the facts mentioned and telescoping made by the A.O. in the assessment order and failed in holding the TDS provisions which has not appreciated the transactions done by the assessee. The provision cannot give any scope to the assessee not to make TDS which ought to have been suffered to tax. 17. Facts in ITA No. 1198/Hyd/2011 are similar more or less to that of ITA No. 1197/Hyd/2011. The Assessing Officer made the following additions: (i) The Assessing Officer herein made addition by estimating income at Rs. 15,61,89,392 being 9% of the total turnover of Rs. 173,54,37,697. (ii) Addition towards difference in Balance Sheet at Rs. 38,62,05,043. (iii) Disallowan....
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....Venture, Hyderabad in ITA Nos. 498 to 500/Hyd/2006, dated 04-11-2011. Copies of the aforesaid orders are placed on record. Further, he submitted that Visakhapatnam Bench of this Tribunal in the case of ITO Vs. UAN Raju Constructions, in ITA No. 344/Vizag/2009 & ITA No. 77/Vizag/2010, by order dated 13-05- 2011 took a similar view and held in Para No. 12 that when the object for the formation of the JV is only to procure. contracts, and as per the agreement, both the constituent members of the JV are responsible for their work separately, the amount of profit allocated is only taxable in the hands of the member constituents of the JV and not in the hands of the JV and consequently held that no disallowance can be made u/s 40(a)(ia) in the hands of the JV. Copy of the order is placed on record. Thus, the order of the learned CIT (Appeals) on the issue of non-accrual of income in the hands of the assessee JV is well supported by the successive decisions of this Tribunal. 22. The learned AR pointed to the clauses in JV Agreement and contented that it was never the intention nor the understanding of the constituents of the JV that the JV has to execute the works and share the profits....
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.... with the ordinary rules of construction'. 24. The learned AR relied on a decision of Supreme Court in CIT v. B. M. Kharwar [1969] 72 ITR 603, where the court again reiterated that the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction". It was further held in this case that the taxing authorities are bound to determine the true legal relation resulting from a transaction, where the legal relation is recorded in a formal document or it has to be gathered from evidence and the conduct of the parties to the transaction. 25. He quoted another decision of Supreme Court in CIT v. Calcutta Discount Co. Ltd. (91 ITR 8) wherein it was held that though the shares were transferred by the holding company to a subsidiary below the market price, since the transaction was bona fide, no income could be brought to tax in the hands of the holding company unless it is proved that the holding company had made some secret profits. 26. In reading commercial agreements between the parties and to give effect to the legal consequence thereof, the learned AR cited a decision of the Delhi High Court in the case of D.S. Bist & Sons v. CIT (....
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....ed to the provisions of Section 145 of the Act while estimating the income. Thus, the learned AR of the appellant contended that the action of the Assessing Officer in framing the Assessment Order is vitiated in law and illegal. 28. Proceeding further, the learned AR objected to the action of the Assessing Officer arguing that the same is blatantly incorrect and illegal on the face of the provisions of Section 5 of the Income Tax Act, 1961. Elaborating his case, he submitted that the assessee had by Agreement dated 27-11-2006 sub-contracted the entire work of Rs. 557.80 Crores to the Lead Contractor which is nothing but divesting its income producing asset. Execution of such work for earning income is coupled with discharging and fulfillment of various conditions / obligations / responsibilities for which the parties have adequately provided for and safeguarded the interests of the Principal Employer and the Principal Contractor. When such income producing asset which is otherwise known as turnover or gross receipts for execution of the project work is divested by an Agreement and the same was executed and profits thereon were declared by the constituent in its return ....
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....entire gross receipts as expenditure in its Profit & Loss Account is a true reflection of its activity. The learned AR thus argued that the Assessing Officer therefore, could not have said that the JV did not book any expenditure or claimed depreciation on any assets for the sole reason that when the entire work was sub-contracted on back-to-back basis to its constituent, the JV had to account for it only as expenditure and there would not be any possibility of claiming depreciation as it had not admittedly executed the work nor deployed any plant & machinery which would be reflected in the books of accounts of the constituents. 29. To illustrate the meaning of commercial profits and its accrual vis- a-vis theoretical profits, the learned AR quoted a decision of Allahabad High Court in CIT v. UBS Publishers & Distributors (1984) (147 ITR 114) wherein the court considered allowability of devaluation loss determined on account of foreign exchange rate announced by the Government of India six days after the end of the previous year by holding that there was nothing wrong in taking into account the devaluation of the Indian currency announced by the Government of India six da....
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.... and the entire gross receipts were divested or passed on to the Lead Contractor and the same was debited in its Profit & LossO account and the only reasoning of the Assessing Officer was that there was no profit retained by it while divesting the entire gross receipts which according to him was not acceptable and found to be unreasonable. Therefore, he determined a theoretical income at an estimate of 9% of the gross receipts in the hands of the JV which otherwise had not accrued as contemplated u/s 5 of the Act. No income accrued to the appellant u/s 5 of the Act as admittedly the JV had not executed any work. Income, in fact and in law had accrued only in the hands of the constituent of the JV who executed the work. The learned AR cited the judgment of the Supreme Court in E.D, Sassoon & Co Ltd. v CIT (26 ITR 27) on accrual of profit/income wherein the court held that - "The word "profits" has a well-defined legal meaning as was observed by Lord Justice Fletcher Moulton at page 98 in The Spanish Prospecting Company Limited [1911]1 Ch. 92- "The word 'profits' has in my opinion a well-defined legal meaning, and this meaning coincides with the fundamental ....
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....p; ITC 363: "Now what is income? The term is nowhere defined in the Act.. ..In the absence of a statutory definition we must take its ordinary dictionary meaning- 'that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation (Oxford Dictionary). The word clearly implies the idea of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. 'Accrues', 'arises' and 'is received' are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning plainer than the word 'receiving' itself. The words 'accrue' and 'arise' also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense of s....
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....ts which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom. I think, therefore, that the words 'arising or accruing' are general words descriptive of a right to receive profits ." To the same effect are the observations of Satyanarayana Rao, J., in Commissioner of Income-tax, Madras v. Anamallais Timber Trust Ltd. [1950]18 ITR. 333, and Mukherjea, J., in Ahmedbhai Umarbhai & Co.'s case (supra), where this passage from the judgment of Mukerji, J., in Rogers Pyatt Shellac of Co. v. Secretary of State for India [1925] 1 ITC. 365 is approved and adopted. It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [1946]1 AII E....
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....imself in bringing to charge the total turnover or gross receipts or income producing asset by making a wild estimate thereon in the hands of the appellant when on the facts of the case, the income producing asset itself is diverted at source in law. He submitted that the Assessing Officer could have brought to charge any income, if at all accrued in the hands of the JV, only when there is no transfer of income producing asset. In other words, the learned AR submitted that the Assessing Officer in law can bring to charge any income in the hands of a person only when there is mere diversion of income to another but not the transfer of income producing asset. He contended that this fundamental principle of law is otherwise known as 'charge is created only when there is application of income, but no charge is created when there is diversion of income by overriding title'. Thus, the learned AR argued that the action of the Assessing Officer is illegal in the case on hand as he had not adhered to the provisions of Income Tax Law, particularly the provisions of Section 60 of the Income Tax Act, 1961. 33. The learned AR submitted that the substance of the provisions of Section ....
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....Section 60 of the Act. 34. In support of his submission, the learned AR, relied upon the decision of Supreme Court in Dalmia Cements Ltd. v. CIT (237 ITR 617) wherein the court elaborated this principle in the following words: "9. The concept of diversion of income by an overriding title has been very lucidly explained by this Court in CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 in the following manner: " ... In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not....
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....he business, in reality the business was that of the person who owned it and under section 10 of the Act such owner of the business would be the assessee. it was observed in the case that (at page 206) : "It a business carried on by A is transferred to B as from a certain point of time, B alone can be assessed to tax in respect of the period subsequent to the change of the ownership. A and B may agree that any profits or loss of the business as from a date anterior to that of the change of ownership will be on B's account. In such a case, A will have to account to B for the income and profits of the business covered by the period of the agreement and A may be held to have carried on the business as B's agent from the agreed date.' " (p. 301) 12. Similar is the view expressed by the Bombay High Court in the case of CIT v. M.D. Kanoria [1982] 1371TR 137. The law, thus, seems to be well-settled by a long catena of cases to the effect that in the event of there being a diversion of income byoverriding title, question of the income being assessed in the hands of the assessee does not and cannot arise. 35. Contending so, the learned AR argu....
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....vance, etc. The provisions of Section 43B contemplate disallowance only if the amount was received and outstanding for payment at the end of the year in the books of account of an assessee. In the instant case, the work was given on back-to-back sub-contract basis and the amount of VAT was not received by the JV as the same was withheld by the Department and therefore, the JV had to withhold an equal amount from the payments to be made to the subcontractor. 37. Regarding the issue of addition u/s. 40(a)(ia), he submitted that the Assessing Officer disallowed Rs. 25,41,76,000 being the mobilization advance received from the I & CAD Department of AP by the assessee and transferred to two of its constituents, viz., KBL and MEIL by alleging that since no TDS was deducted from the said amount while transferring to the aforesaid constituents, section 40(a)(ia) is attracted resulting in the disallowance. The Assessing Officer in the course of assessment proceedings required the JV by his Letter Dated 01-09-2010 for explanation of the same. In response thereto, a reply Letter Dated 23-10-2010 was filed before the Assessing Officer. The Assessing Officer by another Letter Dated 16-12-201....
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.... further, the Assessing Officer was under the wrong notion that since no TDS was deducted by the assessee, he was of the mistaken view that the same is disallowable u/s 40(a)(ia) of the Act. 39. The AR submitted firstly that the findings of the Assessing Officer are self-contradictory on the face of it. In Para No.(b) at Page No. 16 of the Assessment Order, the Assessing Officer categorically admitted as follows: "In the instant case, the assessee has deducted TDS on the Mobilization Advance, however, the assessee while making payments to the contract receipts erred in deducting the TDS". Having admitted the fact of deducting TDS, the Assessing Officer blatantly erred in making the disallowance. Further, the Assessing Officer failed to comprehend the provisions of section 40(a)(ia) of the Act when in fact the same is applicable only when there is expenditure or deduction claimed by an assessee and if no TDS is deducted there from, such expenditure or deduction is not allowable, whereas the assessee had not claimed any expenditure or deduction on account of "Mobilization Advance". This is for the simple reason that the Mobilization Advance stands as Liability in the books of a....
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....order which is not permissible under the Act. 42. Similar order was passed in the case of IVRCL-JL (JV) and in the case of IVRCL-KBL(JV). The above orders show that the Department exhausted the alternative remedy also. 43. Coming to the issue or estimation of income on contract, it is an admitted fact that the assessee carried on the business through JVs. The first assessee before us, M/s. IVRCL-KBL-MEIL a Joint Venture between M/s. IVRCL Infrastructure & Projects Limited, M-22/3RT, Vijaynagar colony, Hyderabad, M/s. Kirloskar Brothers Limited, Udyog Bhavan, Tilak Road, Pune and Megha Eng & Infrastructures Ltd., S-2 TIE, Techno Industrial Estate, Balanagar, Hyderabad with share of 65%, 20% and 15% respectively. It came into existence by a Joint Venture agreement among these three parties w.e.f. 02.06.2007. The objective of the Joint Venture is execution of contract works of investigation, design, supply, delivery of pumps, motors and pressure main at site work including erection, commissioning and testing of 8 Nos. at each pumping station of hydro-mechanical, electro-mechanical and other accessories etc, of AVR-HNSS project main canal for stage II of Phase I . It was awarded ....
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..../3RT, Vijaynagar colony, Hyderabad and M/s. Kirloskar Brothers Limited, Udyog Bhavan, Tilak Road, Pune. It came into existence through a Joint Venture agreement between these two parties w.e.f. 15.03.2007. The contract works of investigation, design, supply and erection of components to lift 16.40 TMC from Gandikota reservoir to storage reservoir I and II awarded to the assessee JV with total contract value of Rs. 551 crores by the Govt of Andhra Pradesh Irrigation & Cad Department. During the course of assessment proceedings it was noticed that in the profit & Loss account, the assessee has shown gross turnover of Rs. 149,81,40,236 and the entire amount has thereafter debited as expenditure under the head "sub contract expenses". It is also seen that project work has been sub-contracted to JV members on back to back basis. It was further seen that the said sub contract is between the assessee and its constituents i.e. M/s IVRCL & M/s KBL. In other words, the entire income has been diverted in the hands of its members by way of a subcontract. The assessee joint venture has declared 'NIL' income in the return of income for A.Y. 2007-08. Irrigation and CAD department of AP Go....
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....aid sub contract is between the assessee and its members i.e. M/s IVRCL & M/s JL. In other words, the entire income has been diverted in the hands of the members by way of a subcontract. The assessee joint venture has declared "NIL" income in the return of income for A.Y. 2007-08. Irrigation and CAD department of AP Govt deals with joint ventures and not with its members. JV undertakes liability from Irrigation and CAD department of AP Govt. but only for internal purposes. The JV has divided the liabilities amongst its members. JV is regularly receiving the payments from Irrigation and CAD department of AP Govt. It is the JV which is entitled for participating in the bid and not its members. The following two issues are examined in the case of assessee: a. Determination of taxable income in the hands of JV assessee itself based on its entire activities and performance as it has filed the tender on its eligibility got the award from Irrigation and CAD department of AP Govt. entered into contractual agreement for the successful completion of the project and the assessee in complete disregard to risk and responsibility undertaken by it. b. Examining the claim of expe....
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....-TIOL-147-SC-MISC). The relevant observations are extracted below: "17. This Court had occasion to consider the nature of "joint venture' in New Horizons Ltd vs. Union of India [1995) (1) SCC 478). This Court held: "The expression "joint venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black's Law Dictionary; Sixth Edition, p. 839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P. 117, Vol. 23}. "[Emphasis supplied] The following definition of 'joint venture' occurring in American Jurisprudence [2nd Edition, Vol. 46 pages ....
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....th joint adventure', or co-venture, has been defined as a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit or a special combination of persons undertaking jointly some specific adventure for profit, for which purpose they combine their property, money, effects, skill, and knowledge Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement." (emphasis supplied) Black's Law Dictionary (7th Edition, page 843) defines 'joint venture' thus "Joint Venture: A business undertaking by two or mor....
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....hat each party will bear its own loss and retain the profits separately. There was also specific declaration that it was not the intention to create a joint venture to carry on business in common. The parties therein had undertaken separate scope of works according to their respective technical skills. There was no control and connection between the work done by each of the parties. Thus it was noticed that there was no intention to carry out any business in common. Under these factual circumstances, the AAR held that the consortium cannot be treated as Association of Persons under the Income Tax Act. It is pertinent to note that this decision was rendered prior to 1.4.2002, i.e. prior to the insertion of of the Explanation to section 2(31). b) Geo Consult ZT GMBH (304 ITR 283): In this case, though the work was allotted to each of the members and each member has to bear its own costs and expenses, yet it was noticed that the agreement stated that the members will collaborate for all the work associated with the project which is to be managed on a joint basis by all the members. Further the agreement provided that the members are jointly and severally responsible ....
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....lete design and construction of pipeline, Specials, Civil, Mechanical, Electrical Works and Erection & Commissioning 90% value of physical works 2. Jyoti Ltd. Pumps & Motors 10% Value of physical works. 7. Each member of the Joint Venture shall be responsible to mobilise his part of infrastructure project e.g., Engineers, Technicians, Manpower, Plant, Machinery, Vehicles, Lab & Survey Equipment and full financial resources required to complete the performance of the contract in time as per accepted time schedule." 50. As seen from the terms of JV as narrated above, in the instant case the JV has been formed between the parties only to procure contract works. The JV agreement between the parties only regulates the relationship with respect to their responsibility that exists in relation to the principal who award the contract. It appears that the contracts awarded and received by the JV i.e., the present assessee, have been passed in their entirety to the constituent members to carry out the contracts and they have booked the contract receipt in their books of account and offered the same for taxation. If each member of the JV offered the income derived fr....
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.... expenditure incurred by the assessee was excessive or unreasonable, having regard to the fair market value of the goods/services or facilities for which the payment was made. No such case was made out by the Revenue in this case of the assessee. We find force in the argument of the learned counsel for the assessee that it could not be a case of tax evasion as the rate of taxation of the members of the Joint Venture was higher than the rate of taxation applicable to the assessee, as the members of the Joint Venture are foreign concerns. There is no material brought on record to doubt the genuineness of the relevant agreement, copy of which is filed in the compilation filed before us. We find that the CIT(A) has given a finding that the assessee has maintained regular books of account, which were audited and it has filed audited Balance Sheet and Receipts and Payments Account before the authorities, copy of which has been filed in the compilation before us. The CIT(A) has further mentioned that the assessing officer has not recorded any finding that the books of account were not correct and complete. The CIT(A) has observed that the only objection of the assessing officer appears to....
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....ng and or the agreement amongst the constituents of the Joint Venture is only diversion of income by overriding title which principle shall not enable the Assessing Officer to estimate any theoretical income for the purpose of levying tax on it. In view of the above discussion, we are of the opinion that the CIT(A) is justified in holding that income is to be assessed not in the hands of the assessee. 54. The facts in all the cases herein are similar on this issue. Accordingly, we also reject the assessability of income in the hands of the assessees in appeal in ITA No.1198 & 1199/Hyd/2011. 55. Coming to the second ground relating to disallowance of expenditure u/s. 40(a)(ia) on mobilisation advance in ITA No. 1197/Hyd/2011, as we have held already in earlier paras of this order that the assessment of income in the hands of the assessees is not possible as the JV is only for facilitating the business among the constituent members. The Assessing Officer made the disallowance of Rs. 25,41,76,000 u/s 40(a)(ia) of the Act holding that no TDS was deducted from the mobilization advance while transferring to the constituents. He was of the view that since TDS was not deducted....
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....lars of RA Bill details, Recoveries & Net Bill Paid to JV" placed on record. The assessee has to, as a matter of fact, withhold the same amount from the RA Bills disbursed to the Lead Contractor and show it as both "Assets" and "Liabilities" in its Balance Sheet which was done accordingly. There is no complication involved in this issue and the Assessing Officer has totally disregarded the fundamental principles of income tax law while making the addition u/s 43B of the Act which is unwarranted on the face of it. Therefore, we confirm the deletion of the addition of made u/s. 43B of the Act. This ground is rejected in all these appeals. 57. The next ground in ITA No. 1198/Hyd/2011 and 1199/Hyd/2011 is with regard addition made towards difference in Balance Sheet. We have heard both the parties on this issue. We have carefully gone through the orders of the lower authorities. The facts in ITA No. 1198/Hyd/2011 on this issue are that an addition of Rs. 31,75,00,000 made by the Assessing Officer holding that there is a difference in the figures of the Balance Sheet. The Assessing Officer has initially required the assessee by his letter dated 16-12-2010 by seeking e....
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....sp; 46.79 103.02 Less: Amounts received from Department against R.A bills (net) as per Receipts & payments of Bank accounts 76.86 Sundry Debtors in the Balance sheet. 26.16 59. He drew our attention to workings of Mobilisation Advance received and recovered along with other recoveries and net amounts payable of both the packages PADA-I and PADA-II and the statements of R.A. Bills. He drew our attention to a detailed statement showing details of gross turnover, recoveries made on various accounts, recovery of mobilization advance, etc. 60. We have gone through the facts of the case on this issue and orders of the lower authorities. At the outset, we are fully agreement with the findings of the CIT(A) on this issue. Further, we are of the considered opinion that the assessee JV is not at all liable to charge on the gross receipts for various reasons and findings given by us in the foregoing paragraphs, the Assessing Officer should not have made any disallowance. This reasoning is similarly applicable for any addition. This is for the reason that when the assessee is not at....
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....tement above Rs. 29.36 crores was towards Mobilization Advance, which has to be reduced from the total Mobilisation Advance received from the Department of Rs. 33.46 crores, thereby having a balance of Rs. 4.10 crores liable to be paid towards Mobilisation Advance to the Department. Apparently, the Assessing Officer has not followed the principle of double entry book keeping, due to which, he had taken the Receipts and Payments Account of the JV and the Balance sheet individually or separately, due to which the "difference of Balance sheet" as per his order had arisen. The JV had followed the principles of accounting and book keeping in the correct sense and had recorded the entries in the books of accounts following the principles of double entry book keeping. The Assessing Officer while passing the Assessment Order was not clear in applying the basic principle of accounting and made an addition of Rs. 31.75 Crores by wild guesswork to the 'NIL' income declared by the assessee JV. In all probability, the Assessing Officer might not be conversant with the accounting principles in arriving at this addition of Rs. 31,75,00,000. On considering the facts and the figures in the ....
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....th other recoveries and the balances due from the Department. The Gross Turnover of the Joint Venture declared by it in its Profit & loss account for the financial year 2007-08 was Rs. 173.54 crore which was also accepted by the Assessing Officer during the assessment proceedings. However, it was contended that the Assessing Officer erred in taking the figures of "Net receivables from the Department" as Rs. 162.58 crores instead of "Net Receipts received from the Department" at Rs. 99.77 crore, resulting in balance receivable as Rs. 62.81 crores, which is not correct on the face of it. The learned AR submitted that the Assessing Officer lacked the basic concepts of the accounting principles while looking into the figures in the Balance Sheet. 66. He drew our attention to the summary of the Gross turnover, recoveries by receivable (Sundry Debtors) from the Department (Principal Employer)" is shown herein below: Gross turnover as declared in Profit and Loss A/c. 173.54 Less: Recoveries made by Department Security deposit 5.07 Deposit with PWD 0.60 Recovery of Mobilisation Advance 3....
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....to the merits of the addition, we have gone through the workings furnished by the assessee and it is very clear from the figures appearing in the Balance Sheet that the Assessing Officer committed grave mistakes in adopting the amounts receivable from Department (Principal Employer). The Assessing Officer committed a gross mistake in taking only Rs. 10.96 crores as recoveries made by the Department from the gross RA bills submitted by the JV and ended up with a higher figure of Rs. 162.58 crores as receivable from the Department. The actual amount receivable from the Department was Rs. 16.84 crores only, which was RA Bill No. 15 submitted by the JV at the end of March 2008, which is also verifiable from the detailed summary statement of RA Bills & Recoveries with net amounts paid/receivable from the Department. The Assessing Officer mentioned in the order that the amount receivable from the Department was Rs. 162.58 crores and since only a sum of Rs. 99.77 crores was received from the Department as shown in the Receipts & Payments account of the Bank, he was under the mistaken impression that the difference of Rs. 62.81 crores was supposed to be receivable from the Department and t....