TaxTMI 
TaxTMI 
2018 (12) TMI 1215
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....essee instead of entire contract expenses of Rs. 33,05,43,749/- without appreciating the fact that the same was unvouched for, though no separate addition was made by the AO on this account. 3. The CIT(A) has erred in holding that the issue of deduction of Rs. 26,10,57,290/- by GAIL was referred to arbitration, therefore, the assessee could not be said to have received the rights to receive the above income and the same cannot constitute the income of assessee for relevant assessment income, without appreciating the fact that in the mercantile system of accounting the assessee was liable to include this income in his gross receipt once the bill has been raised by the assessee." 3. Brief facts of the case is that the assessee is a consortium of association of person formed with four other members for laying of pipeline and associated facilities from Jagoti to Vijaipur pipeline project floated by GAIL vide agreement dated 19.12.2003. The assessee filed its return of income declaring loss of Rs. 7145551/-. The return was accompanied with tax audit report u/s 44AB of the Act. During the course of assessment proceedings the books of account and contentions of the assessee we....
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....to the assessee. 6. The ld DR stated that the ld CIT(A) has not considered the issue in proper respective. He submitted that the books of account were not produced before the ld AO and therefore, same were rejected and profit was determined. He further stated that the deduction from customers of Rs. 361057290/- was also wrongly excluded from the total income. 7. The ld AR vehemently referred to various paragraph of the order of the ld CIT(A) and held that the assessee is an AOP. He further stated that books of account were produced before the ld AO and same were rejected wrongly by the ld AO. He referred to paragraph No. 41 and 42 of the order of the ld CIT(A). He further stated that now the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in case of Linde AG and Circular No. 7/2016 dated 07.03.2016. He therefore, submitted that there is no infirmity in the order of the ld CIT(A). With respect to ground No. 3 of the revenue he referred to para No. 40 of the order of the ld CIT(A) and stated that the assessee raised bills of Rs. 59.21 crores and GAIL passed the bills only Rs. 33.11 crores and there was uncertainty with res....
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....ble in the hands of person in whose favour it is vested: CIT vs. Travancore Sugar & Chemicals Ltd.: 88 ITR 1 (SC), CIT vs. Jhanzie Tea Association: 179 ITR 295 (Cal.), CIT vs. M.D. Kanoria: 137 ITR 137 (Bom.), Dalmia Cement Ltd. vs. CIT: 237 ITR 619 (SC), CIT vs. Canara Bank: 293 ITR 115 (Del. and CIT vs. Jayantilal D. Patel: 295 ITR 386 (Guj.) 15. The appellant submitted that no association of persons (AOP) was formed by coming together of consortium members, in relation to the pipeline project work to be carried out and the remuneration receivable therefore from GAIL, for the following reasons:- a) The intention of the members was not to carry on the business in common. b) The scope of work to be carried on independently by each member and the amount payable as per schedule was also predetermined. c) The members were to bear their own cost for the work specified in their respective agreements, retain its profits or bear losses if any and were assessable an independent entities for the scope of work assigned to them. It is submitted that the assessing officer has not appreciated the facts of the case in proper perspective and has not ap....
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....onship of the parties as "the relationship of the parties shall be that of an unincorporated association formed for the purposes of collaborating in respect of the contract. Each of the parties expressly agreed that it is not their intention through the joint venture to carry on business in common with the other party-' with a view-' to earn profit and that it is their intention to utilise the joint venture for the better co-operation of their relationships with the employer and the division of the works and gross income arising under the contract. Each party shall bear its own losses and retain all profits arising from the performance of its requisite works package. Nothing in this agreement shall be deemed to give rise to a partnership between the parties or to any contract for services between the parties and each of the parties undertakes to use all reasonable endeavours not to do any act or thing which would cause such a relationship to arise. On the above facts and circumstances the applicant approached the Authority for an advance ruling on the following question, besides some other questions: "1. Whether, on the facts and in the circumstances of th....
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....y associate with a plumber and an electrician to execute a building project. All these persons are driven by profit-making motive. But that by itself will not make the three persons liable to be taxed as an association of persons if each one has a designated and independent role to play in the building project. In the instant case, the applicant has stated that-the applicant has made its own arrangement for execution of work independent from that of the HCC. There is no control or connection between the work done by the applicant and the HCCT (emphasis supplied) 18. Relying on the above decision, the appellant has argued that the assessment of the appellant, in the status of an AOP, it was submitted, could only be made in respect of 0.1% of the gross receipts receivable from GAIL, retained by the appellant and that 99.9% of the gross amount received from GAIL was assessable in the hands of respective members. 19. Alternatively, the ARs- of the appellant submitted that even if the amount received from GAIL constituted income of the appellant for the assessment year under consideration, the assessing officer should have allowed the deduction for the payment amounting to Rs. ....
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....uch agreements. 22. The appellant reiterated that the consortium was, only acting as a conduit between GAIL and the members and that it had no control over the financial records of the members or the manner in which the actual work was to be carried out by the members, who were separate legal entities distinct from the appellant. It is stated that the assessing officer, thus, erred in holding that the appellant should have kept the record of bills/vouchers in respect of the expenses incurred in relation to the project. 23. As regards the allegation of the assessing officer in the assessment order that the appellant has not been able to produce the details of expenses amounting to Rs. 12.88 crores incurred by Expotec International Ltd., my attention was drawn to the relevant pages of the paper-book wherein the appellant had annexed copy of notices dated, 7.12.06 issued under sections 131/ 133(6) of the Act summoning one of the consortium members, viz., M/s Expotec International Ltd. (Expotec) to produce details regarding the said expenditure incurred in relation to the said project. The said member vide reply dated 11.12.2006, had submitted complete details of the ....
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....ing officer was affirmed by the CIT(A) and by the Tribunal. 26. It was pointed out by the appellant that the aforementioned decision relied upon by the assessing officer is not applicable to the facts of their case as in that case there were specific allegations to the effect that books of accounts were not complete, the' purchase/ sales were not verifiable and no invoices, bills/ vouchers were being maintained by the appellant. It was submitted that in the present case, the appellant had filed complete details of expenses, the copies of ledger accounts, copies of relevant agreements and the bills/ vouchers relating to administrative expenses were produced during the assessment proceedings for verification. It was stated that the assessing officer without appreciating that the accounts of the appellant are audited and without pointing out any discrepancy in the bills, vouchers and ledger accounts produced before him during the assessment proceedings, rejected the books of accounts on the sole ground that the appellant has not been able to substantiate the amount paid to the consortium members for the work done by them in relation to the pipeline project and is not main....
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....in the case of Emran Ahmed [1982] Tax LR (NOC) 111 (All.) it was held, "that on account of mere absence of vouchers to substantiate entries for accounts, the account in total cannot be rejected.". 29. As regards the allegation of the assessing officer that the appellant consortium ought to have shown the gross amount receivable as per contract with GAIL, i.e. Rs. 59,21,93.232. as income for the year as against the net amount of Rs. 33,1 1,35,942 credited to the profit and loss account for the year ended 31.3.2004, computed .after reducing therefrom a sum of Rs. 26,10,57,290 withheld by GAIL due to certain discrepancies/ shortcomings regarding the completion of pipeline project, it was submitted that since GAIL and the appellant had referred the matter for arbitration there was uncertainty as to ultimate collection of the-abov.e amount of Rs. 26,10,57,290 and the said income did not statedly accrue to the appellant during the relevant previous year as GAIL did not acknowledge the debt in respect of the above amount. It is seen that the assessing officer has though not denied that there was a dispute between the parties, which was also confirmed by GAIL. However, the AO held....
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....be said that he has acquired a right to receive the income or that income has accrued to him." 33. The appellant has further "relied upon the case of CIT vs. Hindustan' Housing & Land Development Trust: 161 ITR 524 (SC), wherein the assessee, was a limited company dealing in land and was maintaining its accounts on the mercantile system. By an order dated June 21, 1946, under rule 75A(1) of the Defence of India Rules read with section 19 of the Defence of India Act, 1939, certain plots of land measuring about 19.17 acres in village Kankulia in the District of 24 Parganas and belonging to the assessee, were requisitioned by the Government of West Bengal. Subsequently, the land was acquired permanently by the State Government. The Land Acquisition Officer awarded a sum of Rs. 24.97,249 as compensation to the assessee. The assessee was not satisfied with the amount of compensation and preferred an appeal before the Arbitrator. The arbitrator made an award, whereby the compensation was fixed at Rs/30.10,873 on account of the permanent acquisition of the land, thus enhancing the original amount of compensation by Rs. 5,1 J,624 on which directions were also issued for paymen....
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.... on the date when the original compensation became payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the court accepts the claim. As has been stated earlier, a mere claim by the assessee. after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation1? We do not think there can be any justification for such a propositi....
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....nce from January 1, 1946, and a deed of partnership dated August 14, 1946, has been made in respect of the said partnership and according to the said deed there is a share of five annas in a rupee of sixteen annas in the profit and loss of the said firm in the name of Seth Ashokbhai Chimanbhai. Seth Ashokbhai Chimanbhai has become the full owner of the said share henceforth and all the rights under the said deed of partnership are to be enjoyed by Seth Asbokbhai. Chimanbhai party of the First Part himself. Similarly, any liability under the said deed is to be borne and discharged by Seth Ashokbhai Chimanbhai part of the First Part." In the proceedings for assessment for 1955-56, the assessee contended that the share in the profits of M/s Amrit Chemicals for the calendar year which accrued on or after December 31, 1955, belonged to Ashokbhai in his individual capacity and was not liable to be included in the taxable income of the assessee, because it had been declared under the partition deed to belong exclusively to Ashokbhai as from January 1, 1955, and that in any event since the firm made up its accounts at the end of the calendar year, the assessee had no inte....
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....enses actually incurred by that assessee, in relation to the pipeline project work carried out by it, while computing the taxable income of the assessee. On that basis it was submitted, that the assessing officer in the case of the appellant Consortium may be directed to allow deduction of the amount paid by it to the members as per the ratio specified in the consortium agreement, which constitutes income in the hands of the members. Otherwise it will lead to double taxation. ' 38. The Ld. ARs further pointed out that in the case of another member of the Consortium, viz., Expotec International Ltd, the assessing officer while completing the assessment of that company for the assessment year 2004-05. has disallowed the loss arising to that company on account of execution of the above contract holding that the loss is to be allowed in the hands of the appellant (RNGS Consortium). It was submitted that the expenses incurred by that member (Expotec), which' have been verified with reference to bills/vouchers, etc. in the assessment of that assessee, to the extent of the amount paid by the appellant to Expotec as per the sub-contract agreement with Expotec has to be all....
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....sible for executing its part of work through its own resources and also bears the risk of its scope of work i.e. there is a clear demarcation in the work and costs between the consortium members and each member incurs expenditure only in its specified area of work; b. each member earns profit or incurs losses, based on performance of the contract falling strictly within its scope of work. However, consortium members may share contract price at gross level only to facilitate convenience in billing; c. the men and materials used for any area of work are under the risk and control of respective consortium members' d. the control and management of the consortium is not unified and common management is only for the inter-se coordination between the consortium members for administrative convenience; 4. There may be other additional factors also which may justify that consortium is not an AOP and the same shall depend upon the specific facts and circumstances of a particular case, which need to be taken into consideration while taking a view in the matter 5. It is further clarified that this Circular shall not be applicable in cases where a....
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....e amount withheld by GAIL is subjudice and both the appellant and GAIL have referred the matter for arbitration. Even though the invoices were raised on GAIL of the gross amount of Rs. 59.21.93.232. GAIL passed on an amount of Rs. 33.1 1.35.942/- only to the appellant. As there was an uncertainty with respect to the receipt of the amount withheld by GAIL the same could not have been assessed during the relevant assessment year as per the accepted accounting principles. Even otherwise, it is settled position that the assessing officer while framing the best judgment assessment as per the provisions of section 144 of the Act has to consider all the relevant material before him and has to compute the total income of the assessee judiciously and not arbitrarily, i.e. by taxing the correct receipts and allowing the entitled expenditure incurred. As GAIL had not accepted the entire claim of the appellant for Rs. 59,21,93,232 and had disputed the same, the appellant could be said be not to have received the right to receive the above amount and the same cannot constitute income of Ae appellant for the relevant assessment year. Only the amount of Rs. 33,1 1.35,942 being the amount of claim....
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....nd any merit in ground No. 3 of appeal of the revenue. Hence same is dismissed. 13. Accordingly, appeal of the revenue is dismissed. 14. Now we come to the appeal of revenue in ITA No. 153/Del/2009 for the Assessment Year 2004-05, wherein, The revenue has raised the following grounds of appeal:- "1. On the facts and circumstances of the case and in law, the CIT(A) has erred in allowing the set off of loss of AOP amounting to Rs. 5,74,98,232/-." 15. The brief facts shows that assessee is deriving income from processing of rice and export. The above business was discontinued. The assessee has claimed project expenses of Rs. 29.92 crores against the income of Rs. 24.17 crores and claimed loss of Rs. 5.74 crores. The assessee is the consortium member of RNGS Consortium, New Delhi. It filed its return of income on 01.11.2004 declaring loss of Rs. 5929379/-. The total income of assessee is assessed at Rs. 46167749/- vide order dated 06.12.2006, wherein, the loss of Rs. 57498232/- incurred by the assessee in the contract work was disallowed by the ld AO. The ld AO was of the view that an AOP is a separate entity and the income and expenditure pertaining to that cannot be....