Income Tax Appellate Tribunal - Delhi
Ito, Ward- 2(3), Gurgaon vs Kec Plr Kpipl Jv, Gurgaon on 13 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'SMC', NEW DELHI
Before Sh. N. K. Saini, Accountant Member
ITA No. 7044/Del/2017 : Asstt. Year : 2013-14
Income Tax Officer, Vs M/s KEC Sidharth JV,
Ward-2(3), 8th Floor, Building No. 9A, DLF
Gurgaon Cyber City, Phase-III,
Gurgaon
(APPELLANT) (RESPONDENT)
PAN No. AABAK1448C
ITA No. 7045/Del/2017 : Asstt. Year : 2013-14
ITA No. 7046/Del/2017 : Asstt. Year : 2014-15
Income Tax Officer, Vs M/s KEC PLR KPIPL JV,
Ward-2(3), 8th Floor, Building No. 9A, DLF
Gurgaon Cyber City, Phase-III,
Gurgaon
(APPELLANT) (RESPONDENT)
PAN No. AABAK1939J
Assessee by : Sh. Prakash Sinha, CA &
Sh. Sachin Sinha, CA
Revenue by : Smt. Ashima Neb, Sr. DR
Date of Hearing : 09.04.2018 Date of Pronouncement : 13.04.2018
ORDER
These three appeal by the department are directed against the common order dated 18.09.2017 of ld. CIT(A)-I, Gurgaon.
2. Since, the issue involved is commo n and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.
2 ITA Nos. 7044 to 7046/Del/2017KEC Sidharth JV & KEC PLR KPIPL
3. At the first instance, I will deal with the appeal in ITA No. 7044/Del/2017. Following grounds have been raised in this appeal:
"1. Whether the Ld. CIT(A) was right on facts and in law in deleting the addition of Rs.44,29,401/- made by the Assessing Officer by computing the profit of the Joint Venture @4% of the gross receipts as the assessee had given the payment to the persons specified u/s 40A(2)(b) of the Income Tax Act, 1961.
2. That the appellant craves for the permission to add, delete or amend grounds of appeal before or at the time of hearing of appeal."
4. Facts of the case in brief are that the assessee filed the return of income on 27.11.2013 declaring an income of Rs.1,23,320/- which was processed as such on 28.03.2015 u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Later on, the case was selected for scrutiny. The AO during the course of assessment proceedings observed that a joint venture agreement was executed on 26.10.2010 between M/s KEC International Ltd. and M/s Sidharth Construction and Trading Pvt. Ltd. with certain conditions to carry out work allocated to joint venture through Tender No. 1 of 10-11 by Eastern Railway, Construction Division, Kolkata for Patuli-Katwa in the state of West Bengal vide letter dated 02.09.2010. Another joint venture agreement was also executed on 09.12.2010 between aforesaid parties. The leading partner M/s KEC International Ltd. was having 80% share and the remaining 20% share was with the other party. He further observed that the work contract was awarded to the assessee by the Railway Authority and the assessee further diverted its 99% contract work by simple letter dated 09.09.2010 for Champa-Jharsuguda stating therein back to back agreement to the aforesaid lead partner i.e. M/s KEC International Ltd. The AO was of the view that the assessee had shifted its real profit by making sub-contract and that the assessee was covered within the meaning of Section 40A(2)(b) of the Act. The AO made the addition of Rs.44,29,401/- by observing as under:
3 ITA Nos. 7044 to 7046/Del/2017KEC Sidharth JV & KEC PLR KPIPL "7. Further, the analysis made below shows that the JV (assessee) has shifted the real profit by making Sub Contact.
Revenue earned by assessee (JV) 11,38, 17,920 Expenses incurred by JV ob account of 11,37,06,154 sub contract Deemed Profit of JV 1,23,316 On a contract receipts of Rs. 11,38,17,920/- net profit is only Rs.1,23,316/- which is 0.1%. It is, therefore, clear that the motive of the assessee was to shift the profit from JV to M/s KEC International Limited. The payments made are excessive and unreasonable. In true terms the JV has only awarded the contract and all the transactions were passed through the accounts of JV(assessee) to M/s KEC International Limited and the assessee has charged only 0.1% which is very marginal as the work contract has been further given to associated party in view of section 40A(2)(b) of the Act. From the above discussion, it is clear that the assessee JV has to be taxed as AOP in respect of excessive payment made to persons specified u/s 40A(2)(b) of the I.T. Act. On careful consideration, I assess the net income at Rs.45,52,717/- being 4% of gross receipt of Rs.
11,38,17,920/- against returned income of Rs. 1,23,316/-. I am satisfied that assessee has concealed and furnished inaccurate particulars of his income to this extent & accordingly penalty proceedings u/s 271(1)(c) are to be initiated separately."
5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the addition by observing in paras 4.5 to 4.7 of the impugned order as under:
"4.5 I have carefully considered the appellant's submissions. I have also perused the facts of the case as also the order of the Hon'ble ITAT referred to above. In the order dated 21.11.2016 in the case of ITO Vs KEC ASIA (Supra), the Hon'ble ITAT held as under:
On going through the mandate of the above provision, it is clear that the disallowance under this section is made in respect of the expenses incurred or payments made which are not deductible. This section has no application to income aspect of the assessee.4 ITA Nos. 7044 to 7046/Del/2017
KEC Sidharth JV & KEC PLR KPIPL As the Assessing Officer has made disallowance u/s 40A(2)(b) in respect of income which the assessee in his opinion ought to have earned rather than certain expenses incurred, I am of the considered opinion that the provisions of this section are not attracted. I, therefore, uphold the impugned order on this score deleting the disallowance.
4.6 In the case of KEC Sidhartha Vs ITO in order dated 28.02.2017 the Hobble ITAT followed the order dated 21.11.2016(supra), In this case of KEC Sidhartha for A.Y. 2012-13 the addition made by the AO on the same issue was confirmed by me vide order dated 15.09.2016 in I.T Appeal No. 215/15-16. The order was reversed by the Hon'ble ITAT vide its order dated 28.02.2017.
4.7 The issue involved in the appellant's case is squarely covered by the aforesaid two decisions of the Hon'ble Jurisdictional ITAT.
Respectfully following the decision of the Hon'ble Jurisdictional ITAT in appellant's group cases, the addition made by the Assessing Officer is deleted. These grounds of appeal are allowed."
6. Now the department is in appeal. The ld. Sr. DR submitted that the AO rightly invoked the provisions of Section 40A(2)(b) of the Act as the expenses incurred by the assessee were excessive. She supported the assessment order passed by the AO.
7. In his rival submissions, the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the issue under consideration is squarely covered by the earlier orders of the ITAT in assessee's own case for the assessment years 2011-12 and 2012-13 in ITA Nos. 2326 & 5943/Del/2016 respectively vide respective order dated 21.11.2016 and 28.02.2017 (copies are placed at page nos. 37 to 47 of the assessee's paper book).
8. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted 5 ITA Nos. 7044 to 7046/Del/2017 KEC Sidharth JV & KEC PLR KPIPL position that the AO made the addition by invoking the provisions of Section 40A(2)(b) of the Act which are applicable to the expenses considered to be excessive or unreasonable having regard to the fair market value of the goods/services or facilities for which the payment is made. However, in the instant case, the AO estimated the profit of the assessee and determined the income, nowhere he doubted the expenses incurred by the assessee. Therefore, I am of the confirmed view that the AO was not justified in making the addition by invoking the provisions of Section 40A(2)(b) of the Act which are applicable to the expenditure and not to the receipts and the ld. CIT(A) rightly deleted the same. A similar issue having identical facts has already been adjudicated by the ITAT Delhi Bench "SMC", New Delhi vide order dated 21.11.2016 in ITA No. 2326/Del/2016 for the assessment year 2011-12 in the case of ITO, Ward-2(2), Gurgaon Vs KEC- Asiakom UB (JV), Gurgaon wherein the relevant findings are given in paras 5 & 6 of the order dated 21.11.2016 which read as under:
"5. It is noticed that the AO made disallowance u/s 40A(2)(b) of the Act by opining that the assessee should have earned income from subcontracting. At this stage, it is relevant to note the prescription of the relevant part of Section 40A(2), which is as under :-
'40A(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.'
6. On going through the mandate of the above provision, it is clear that the disallowance under this section is made in respect of the expenses incurred or payments made which are not deductible. This section has no application to income aspect of the assessee. As the AO has made disallowance u/s 40A(2)(b) in respect of income which the 6 ITA Nos. 7044 to 7046/Del/2017 KEC Sidharth JV & KEC PLR KPIPL assessee in his opinion ought to have earned rather than certain expenses incurred, I am of the considered opinion that the provisions of this section are not attracted. I, therefore, uphold the impugned order on this score deleting the disallowance."
9. The aforesaid order was followed in the assessee's own case in ITA No. 5943/Del/2016 for the assessment year 2012-13 vide order dated 28.02.2017 wherein it has been held as under:
"4. I have considered the submissions of both the parties and perused the record of the case. Admittedly, the Assessing Officer has invoked the provisions of section 40A(2)(b) as the contract had been given to associated party. I find that under identical circumstances the Tribunal in the case of Kec-Asiakom UB (JV) (supra) has observed as under:-
"4. I have heard the ld. AR and perused the relevant material on record. None is present on behalf of the Revenue. In fact, there is no one to attend the proceedings from the side of the Revenue in all the cases fixed before the Bench today. The ld. AR insisted that the appeal be disposed of. I am agreeable with the contention of the ld. AR and, accordingly, proceeding to dispose of the instant appeal ex parte qua the Revenue.
5. It is noticed that the AO made disallowance u/s 40A(2)(b) of the Act by opining that the assessee should have earned income from sub-contracting. At this stage, it is relevant to note the prescription of the relevant part of Section 40A(2), which is as under:-
'40A(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.' 7 ITA Nos. 7044 to 7046/Del/2017 KEC Sidharth JV & KEC PLR KPIPL
6. On going through the mandate of the above provision, it is clear that the disallowance under this section is made in respect of the expenses incurred or payments made which are not deductible. This section has no application to income aspect of the assessee. As the AO has made disallowance u/s 40A(2)(b) in respect of income which the assessee in his opinion ought to have earned rather than certain expenses incurred, I am of the considered opinion that the provisions of this section are not attracted. I, therefore, uphold the impugned order on this score deleting the disallowance."
5. Respectfully following the decision of the Tribunal in the case of Kec-Asiakom UB (JV) (supra), I allow the claim of assessee."
10. So, respectfully following the aforesaid referred to order, I do not see any merit in this appeal of the department.
11. In ITA Nos. 7045 & 7046/Del/2017, identical issue having similar facts is involved, therefore, the findings given in the former part of this order shall apply mutatis mutandis.
12. In the result, the appeals of the department are dismissed. (Order Pronounced in the Court on 13/04/2018) Sd/-
(N. K. Saini) ACCOUNTANT MEMBER Dated: 13/04/2018 *Subodh* Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT ASSISTANT REGISTRAR