Income Tax Appellate Tribunal - Cuttack
Acit, Bhubaneswar vs Hcil-Adhikarya-Arss(Jv), ... on 31 May, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL,
CUTTACK BENCH, CUTTACK
BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER
AND PAVAN KUMAR GADALE, JUDICIAL MEMBER
IT(ss)A No. 13/CTK /2014: Asse ssment Year :2009-2010
IT(ss)A No. 14/CTK /2014: Asse ssment Year :2010-2011
IT(ss)A No. 15/CTK /2014: Asse ssment Year :2011-2012
ACIT, Circle 2(1), Vs. M/s. HCIL Adhikarya-ARSS
Bhubaneswar. (JV) Plot No.512, Maruti
Residence, Raghunathpur,
Patia, Bhubaneswar.
PAN/GIR No. AAEFH 3757 J
(Appellant) .. ( Respondent)
IT(ss)A No. 22/CTK /2014: Asse ssment Year :2007-2008
IT(ss)A No. 23/CTK /2014: Asse ssment Year :2009-2010
IT(ss)A No. 24/CTK /2014: Asse ssment Year :2010-2011
IT(ss)A No. 25/CTK /2014: Asse ssment Year :2011-2012
M/s. HCIL Adhikarya-ARSS Vs. ACIT, Circle 2(1),
(JV) Plot No.512, Maruti Bhubaneswar.
Residence, Raghunathpur,
Patia, Bhubaneswar..
PAN/GIR No. AAEFH 3757 J
(Appellant) .. ( Respondent)
Assessee by : Shri S.K.Mishra, AR
Revenue by : Shri Kunal Singh CIT, DR
Date of Hearing : 29/05/ 2017
Date of Pronouncement : 31 /05/ 2017
ORDER
2
M/s. HCIL Adhikarya-ARSS (JV
Per Pavan Kumar Gadale, JM
These are cross appeals filed by the revenue and assessee against a order of CIT(A)-II, Bhubaneswar, dated 17.2.2014, for the assessment years 2009-10, 2010-2011 and 2011-12. The assessee has also filed appeal for the assessment year 2007-08 against the order dated 17.2.2014 of the CIT(A)-II, Bhubaneswar.
2. Since common issues are involved in all these appeals, they were heard together and are being disposed of by this consolidated order, for the sake of convenience.
3. First, we take up the revenue's appeals in IT(ss) A No.13/Ctk/2014 for the assessment year 2009-2010 and the decision will apply mutatis- mutandis to other appeals of the revenue.
4. The common ground raised in the appeals filed by the revenue(except the amount in dispute) are as under:
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of Rs. 106,47,93,901 /- made by the AO u/s.40(a)(ia) of the Act .
2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in holding that provisions of Sec.40(a)(ia) were not attracted to the impugned payments.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in holding that the 2nd proviso to Sec.40(a)(ia) was applicable retrospectively.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in holding that the assessee was not deemed to be an assessee in default under Sec.201(1) without allowing the AO an opportunity in the matter as per Rule 46A.3
M/s. HCIL Adhikarya-ARSS (JV
5. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of Rs.4,86,271/- made by the AO on account of employees' contribution to Provident Fund u/s.36(1)(va) of the Act, when the same was not deposited within the due date as stipulated under the relevant Act."
5. Brief facts of the case are that the assessee is a civil contractor and filed return of income for the assessment year 2009-10 disclosing total income of Rs.2,82,450/-. Subsequently, notice was issued. In response to notice, ld A.R. appeared from time to time and furnished details and case was discussed.
5.1 The Assessing Officer, on perusal of financial statements, found that the assessee had deposited the employees contribution of Rs.4,86,271/- of Provident Fund for the financial year 2008-09 beyond the period prescribed in the relevant statute but before the due date of filing the return of income u/s.139(1) of the Act. Hence, the Assessing Officer applying the provisions of section 36(1)(va) made disallowance of Rs.4,86,271/-. 5.2 Similarly, The Assessing Officer found that the assessee has paid to M/s. Satya Builders of Rs.,2,41,920/- for supply of bricks for construction of Bhubaneswar Station Building and no TDS was deducted from the payment, therefore, the Assessing Officer made addition of Rs.2,41,920/- u/s.40(a)(ia) of the Act.
5.3 Similarly, the assessee is a joint venture and was assessed as AOP consisting of three parties and an agreement was executed on 22.12.2005 4 M/s. HCIL Adhikarya-ARSS (JV to bid and execute the work of road, major bridges and construction of track linking involving OHE and S&T. In this connection, an agreement was entered into between the parties and bills are raised. The Assessing Officer is of the opinion that the members acted as sub-contractors for the assessee and treated the transaction between the assessee and its members as the transaction between the contractor and contractee where provisions of section 194C is applicable, therefore, opined that the payments made are subjected to TDS. The Assessing Officer considered the submissions of the assessee at pages 4 to 13 of the order on the provisions and judicial decisions. But the Assessing Officer is of the opinion that there is contractual relationship and, therefore, applying the provisions has dealt exhaustively at pages 13 to 19 of the assessment order and gave a finding that provisions of section 194C are applicable and made assessment u/s.153A/143(3) dated 31.3.2013 with total income at Rs.106,58,04,540/-.
6. Aggrieved by the order of the Assessing Officer, the assessee has filed an appeal with the CIT(A). In the appellate proceedings, ld A.R. argued the grounds and reiterated the submissions made before the Assessing Officer on the disputed issue u/s.36(1)(va). The CIT(A) found that the assessee has deposited the employees contribution of Provident Fund within the time allowed u/s.139(1) of the Act and relied on judicial decisions including the decision of Hon'ble Apex Court in the case of CIT vs 5 M/s. HCIL Adhikarya-ARSS (JV Alom Extrusions Limited ,319 ITR 306(SC) and directed the Assessing Officer to delete the addition.
6.1 On the issue of non-deduction of TDS that the assessee has paid Rs. 2,41,920/- to Satya Builders in respect of supply of bricks for construction of building and whereas the supplier has taken payment against delivery of each trip of bricks through challan but the assessee could not substantiate the payments and the CIT(A) confirmed the action of the Assessing Officer. 6.2 In respect of ground raised by the assessee with regard to applicability of provisions of section 40(a)(ia) of the Act, the CIT (A) was of the view that there are certain transactions entered into by the assessee and joint venture partners. The contention of the Assessing Officer based on the perusal of copy of contract agreement with other joint ventures, that provisions of section 194C are applicable and treated the transaction between the assessee and its members as contract and contractee relationship and provisions of section 194C are applicable. Whereas the assessee has not deducted TDS in respect of payment to M/s. HCIL for an amount of Rs.106,47,93,901.
6.3 Ld A.R. of the assessee argued that there is no existing contract and contractee relationship and the provisions of section 194C are not applicable and each member of the joint ventures is paying tax on the 6 M/s. HCIL Adhikarya-ARSS (JV amounts transferred to them, therefore, provisions of section 40(a)(ia) cannot be applied.
6.4 The CIT(A) considered the written submission filed by the assessee at pages 5 to 14 of the order and also CBDT Circular No.275/201/95-IT(B) dated 29.1.1997 and judicial decisions including the decision of Hon'ble Supreme Court in the case of Hindustan Cocacola Beverage Pvt Ltd vs CIT, 293 ITR 226 (SC) on the provisions of section 201(1) of the Act, further the CIT(A)-1 Bhubaneswar has declared the assessee not an assessee in default with regard to TDS on payment to the members of joint ventures and also relied on the amended proviso inserted by the Finance Act, 2012 w.e.f. 1.7.2012, which is applicable retrospectively as per the decision of Hon'ble Apex Court in the case of Hindustan Coca Cola Beverage Pvt Ltd., (supra). The CIT(A) based on the submissions and amended provisions dealt on the provisions of section 194C and also explanation of the assessee in respect of transactions of contract and sub-contract and perused the joint venture agreement. The order of the CIT(A)-1, Bhubaneswar was on the applicability of provisions of section 194C and regarding charging of interest u/s.201(1A) referred at pages 16 to 19 of the order. In the present case, the CIT(A) is of the opinion that the assessee was already treated not deemed to be an assessee in default as per first proviso to section 201(1) of the Act and the second proviso of section 40(a)(ia) of the Act. Accordingly, the CIT(A) has directed the Assessing officer to allow the expenses claimed by the assessee and deleted the addition u/s.40(a)(ia) of 7 M/s. HCIL Adhikarya-ARSS (JV Rs.106,47,93,901/- and confirmed the contention of contractor-sub contractor relationship and partly allowed the appeal.
7. Aggrieved by the order, the Revenue has filed an appeal with the Tribunal. Ld D.R. argued that the assessee is an AOP with joint ventures of three members engaged in contract works. The contention of ld D.R. is that on the transfer of amounts, the assessee has not deducted TDS and also there exists a contractor and contractee relationship , the CIT(A) is not justified in deleting the addition and TDS provisions are applicable. Further, the CIT(A) is not justified in law in treating the assessee not in default and the amendment provisions are prospective and not retrospective and also Rule 46A of I.T.Rules were violated. The CIT(A) also erred in directing the Assessing Officer to delete the addition in respect of payments made towards employees contribution of PF beyond the due date specified under the Respective Act and prayed for restoring the order of the Assessing officer.
8. Contra, ld A.R. on the disputed issue of employees contribution of PF relied on the order of the CIT(A) and on the decision of Hon'ble Delhi High Court in the case of CIT Vs. AIMIL Limited [2010] 321 ITR 508 (DEL).
9. We heard the rival submissions and perused the orders of lower authorities, materials available on record and judicial decisions. 9.1 On the issue of deposit of employees contribution to PF beyond the due date, we find that the Hon'ble Delhi High Court in the case of CIT Vs. 8 M/s. HCIL Adhikarya-ARSS (JV AIMIL Limited [2010] 321 ITR 508 (DEL) has held that the employees' contribution towards EPF and ESI etc. deposited after the due date but before the time allowed for filing the return u/s.139(1) will not call for any disallowance u/s.36(1)(va). Similar view has been rendered by Hon'ble Karnataka High Court in the case of Essae Teraoka (P) Ltd.vs DCIT, (2014) 366 ITR 408 , the Hon'ble Rajasthan High Court in the case of CIT Vs. State Bank of Bikaner and jaipur (2014) 363 ITR 70 (Raj) (HC) and Jaipur Vidyut Vitaran Nigam Ltd., (2014) 363 ITR 307 (Raj), Hon'ble Uttarakhand High Court in the case of CIT vs.Kichha Sugar Company Ltd . (2013) 356 ITR 351 (Uttarakhand-HC), Hon'ble Rajasthan High court in the case of CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd (2013) 35 taxmann.com 616 (Raj). We find that the CIT(A) has relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Limited (supra). Hon'ble Madras High Court in the case of CIT v M/s Industrial Security & Intelligence India Pvt Ltd, 2015 (7) TMI 1063 has taken similar view. In the instant case, it is not in dispute that the employees contribution to PF was deposited by the assessee before due date of filing the return of income u/s.139(1) of the Act. Accordingly, we are inclined to uphold the order of the CIT(A) and dismiss this ground of the revenue.
9.2 The next disputed issue argued by ld D.R. is that the CIT(A) is not justified in deleting the addition made by the Assessing Officer under the provisions of section 40(a)(ia) of the Act and the findings that the provisions are not attracted to the impugned payments. Ld D.R. further 9 M/s. HCIL Adhikarya-ARSS (JV emphasized that there is a contract ant contractee relationship and the provisions of section 194C are applicable irrespective of the fact that the amounts transferred between the members and joint venture is subject to TDS and requires to be disallowed u/s.40(a)(ia) and prayed for setting aside the order of the CIT(A) and allowing the appeal of the revenue. Contra, ld A.R. relied on the order of the CIT(A), provisions of law and judicial decisions.
10. We heard the rival submissions and perused the orders of lower authorities, materials available on record and judicial decisions. The sole crux of the issue is that the assessee is an Association of Persons and joint venture. As per the agreement entered into between the parties and the assessee, the amounts were transferred and the recipients have paid their income tax, which is not in dispute. The contention of the Assessing officer that there exist a contract and contratee relationship, therefore, TDS provisions u/s.194C of the Act have come into existence. We find the CIT(A) has dealt exhaustively on the provisions on legal issue, the amendments and provisions of section 201(1) of the Act. Prima facie, we find that the transactions made by the assessee with joint venture are purely in the nature of business necessity and there is no contract and contractee relationship as CIT(A) observed in his order considering the amended provisions in Finance Act, 2012, recipient has disclosed this fact and offered the income in their independent assessment and the CIT(A) dealt on the findings of the Assessing Officer, written submission of the 10 M/s. HCIL Adhikarya-ARSS (JV assessee, judicial decisions and interpretation of amendment and after thorough discussion concluded that the provisions of section 40(a)(ia) are not applicable. We find that the CIT(A) has examined and dealt exhaustively on the provisions vis-à-vis explanation of the assessee in the order. We are of the opinion that the revenue could not establish the contractual relationship as they alleged in the assessment proceedings whereas the CIT(A) considered the findings, submissions and judicial decision and partly allowed the appeal. We are of the opinion that the provisions of section 40(a)(ia) and section 201(1) have been dealt and we support our view on the decision of Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., . 377 ITR 635 (Delhi), wherein, the amended provisions have been considered as under:
"It is seen that the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, "it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso".
11. Considering the apparent facts and materials on record, and the ratio of judicial decision, we are not inclined to interfere with the order of the CIT(A), which is hereby confirmed and dismiss the ground of appeal of the revenue.
11
M/s. HCIL Adhikarya-ARSS (JV
12. Similarly, for the assessment years 2010-11 and 2011-12, the issues are identical to assessment year 2009-2010 and following the decision made by us in the preceding paragraphs, we dismiss the grounds of appeal raised by the revenue for the assessment years 2010-11 and 2011-12. Now we take up the assessee's appeals for the assessment years 2009-10 to 2011-12 and assessment year 2007-08.
13. The appeals filed by the assessee are barred by 106 days. The assessee has filed condonation petitions supported by affidavits for condoning the delay in filing the appeals. After going through the condonation petitions, we find that the assessee had reasonable cause for not filing the appeals within the stipulated time. Ld D.R. did not have any objection for condoning the delay. We, therefore, condone the delay of 106 days in filing the appeals before the Tribunal and admit the appeals for hearing.
14. For the sake of convenience, we take up the appeal for our adjudication for the assessment year 2009-2010 in ITA No.23/CTK/2014.
14. The issue raised in Ground Nos.1 to 4 is against the findings of the CIT(A) that there is contractor and sub-contractor relationship. Whereas Ld A.R. submitted that there is no existence of contractor and sub- contractor relationship between the assessee and its members and only joint venture agreement. Similar issue was considered by the co-ordinate Bench of this Tribunal in assessee's own case in ITA Nos.496/CTK/2012 for the assessment year 2009-2010 and others order dated 21.5.2015 in 12 M/s. HCIL Adhikarya-ARSS (JV respect of provisions of section 201(1) of the Act and there is no change in the status of the assessee in the present case. Ld D.R. vehemently objected to the grounds of appeal of the assessee.
15. We heard the rival submissions, perused the orders of lower authorities, materials available on record and judicial decision. The dispute for our adjudication is against the findings of the CIT(A) that there is contract and sub-contractor relationship between the assessee and its members. Ld A.R. argued that there is no existence of such relationship and each party is assessed to tax separately and supported the arguments with the assessee's own case. We find this issue has been dealt by the co- ordinate Bench of this Tribunal in assessee's own case (supra), wherein, at para 7, it has been held as under:
"7. Having gone through the orders of the lower authorities and the judgments referred to by the parties in the light of the rival submissions, we find that undisputedly the assessee was a Joint Venture, formed by HCIL and P.T.Adhikarya Persero in the ratio of 60% and 40% respectively, in order to obtain the contract from RVNL, New Delhi for construction of Road Bed, facilities and general electrification for doubling of railway lines, construction of major bridge in connection with New BG railway lines between Hariashpur-Paradeep, East Coast Railway in the State of Orissa. It is also undisputed fact that after obtaining the contract from the RVNL it was assigned to its constituents for its execution. On the execution of the contract by the constituents the payments were made to the assessee, the Joint Venture, by the RVNL on deduction of TDS. The payments received by the assessee were accordingly given to its constituents as per the ratio determined in the Joint Venture Agreement. It is also an undisputed fact that the constituents of the assessee JV have claimed the credit of TDS deducted against the payment made to JV. Therefore, now the issue arises as to whether the assessee JV was required to deduct the TDS on payments made to its constituents. The identical issue was examined by the Visakhapatnam Bench of the Tribunal in the case of UAN Raju Constructions (supra) (in which the undersigned was one of the Member to the order) and the Tribunal has held that there was no subletting of contract to the constituents by the Joint Venture. The relevant observations of the Tribunal are extracted hereunder :-13
M/s. HCIL Adhikarya-ARSS (JV "6. We have heard the parties and carefully perused the record. We have also gone through the "Joint venture partners Agreement"
entered by the parties on 20-10-2003 and also the codicil entered between them. The main dispute is with regard to the assessability of income, if any, in the hands of the assessee-AOP. The case of the AO is that the "Joint Venture" and its members should be treated as separate persons and hence the contract allocated to the members should be treated as "Sub-contracting". However, the case of the assessee is that the Joint Venture has come into existence only to procure and win the contracts and since the contracts were allocated between the members and further they were executed separately by each of the members, no income can be said to have arisen in the hands of the assessee-AOP.
7. In our country, the implementation of infrastructure projects is taking place in a massive scale. In this connection, global tenders are invited. Hence two or more business enterprises are joining hands by forming a consortium of Joint Venture in order to get qualified for participating in tender process. They regulate themselves, by entering into an agreement, the methodology to be adopted for executing the contract obtained. Before going into the main issues, we feel that it is imperative to discuss about the status and legal position of "Joint Venture" vis-a-vis Income tax Act. The Joint Ventures are not be governed by the provisions of the "Indian Partnership Act, 1932. It is also a known fact that there is no statute which governs a Joint Venture. Hence the issue regarding the relationship between the members and also between the members and the Joint venture has to be decided on the basis of the terms of agreement entered between the parties. Though the "Joint Venture Agreements" generally fall in the category of "Association of Persons"
(AOP) under the Income tax Act, yet their assessability in the status of "AOP" was not free from doubt and we notice that the authorities have decided this issue on the basis of facts and circumstances of each case.
8. The Hon'ble Supreme Court has made a detailed discussion on the concept of "Joint Venture" in the case of Fazir Chand Gulati Vs. Uppal Agencies Private Ltd. (2008) 10 SCC 345. 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 14 M/s. HCIL Adhikarya-ARSS (JV 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 19, 22 and 23] is relevant:
"A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships."
"A joint venture is to be distinguished from a relationship of independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation." (Emphasis supplied) To the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages 314-315):
"Joint venture," a term used interchangeably and synonymous with joint adventure', or coventure, 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 15 M/s. HCIL Adhikarya-ARSS (JV 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 more persons engaged in a single defined project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member's equal voice in controlling the project."
9. On a careful reading of the order of the Hon'ble Supreme Court, we notice the following essential ingredients for a "Joint Venture". a) It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. (or)
b) it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership. (or) c) 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. d) that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. e) 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."
10. As stated earlier, in order to participate in the global tender process, some of the foreign companies have established joint ventures with the Indian Companies. With regard to the issue of the assessability of Joint ventures, the foreign companies have approached the Authority for Advance Ruling (AAR). We discuss below the decision rendered by AAR in brief.
a) Van Oord ACZ BV (248 ITR 399): In this case the parties therein had specifically provided in the agreement that 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 16 M/s. HCIL Adhikarya-ARSS (JV 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 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 for execution of project. The AAR has expressed opinion, by placing reliance on the decision of Hon'ble Supreme Court in the case of N.V.Shanmugam and Co. V CIT (1971) 81 ITR 301, that the ultimate division of profits amongst members of the joint enterprise is not a relevant criterion. Finally it was held that the Joint venture is assessable as "AOP".
c) M/s Hyundau Rotem Co., Korea and M/s Mitsubishi Co., Japan (AAR Nos. 798-799 of 2008 dt. 23-03-2010. In this case, the AAR has held that the Consortium formed by four members is not assessable as AOP, since the AAR has felt that the facts of the case are similar to the facts relating to Van Oord ACZ BV, supra. Section 2(31) of the Act defines the term "Person", which interalia, includes "an association of persons or a body of individuals, whether incorporated or not. Since the term "Association of Persons" (AOP) was not defined in the Act, the Courts have interpreted to mean that it is an association established to produce income. Hence the Finance Act 2002 has inserted an "Explanation" to section 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute with regard to the assessability of the "Joint Venture" per se. Both the assessee and the department have taken the stand that the "Joint Venture" is assessable in the status of "Association of Person". However, the issue is whether the AO is right in treating the Joint Venture-AOP as the main contractor and its members as the sub- contractors, thereby estimating the income which was not earned by the Joint Venture.
11. On the basis of the understanding of the concept of "Joint Venture", let us consider the facts in the present case. The amended clause 3 reads as under:
"a) The joint venturers shall subject to the provisions hereinafter contained, be entitled to share the work as mutually agreed on item wise, depending on the work schedule. Sharing of the work and 17 M/s. HCIL Adhikarya-ARSS (JV execution of the work can be altered at any given time with mutual consent of both the J.V. Partner's". As per the original clause 3(a), the members of Joint Venture would share in a prescribed percentage in all profits arising out of joint venture. However, the said clause was in contradiction to the preamble of the agreement; wherein it had been stated that the members are desirous of sharing the contract amount. In view of the above, it appears that the Clause 3(a) was amended in accordance with the original intention of the members. However in clause 12 dealing with Final Accounts, we find a mention about sharing of profit or loss, but there is no mention about the proportion. However, in reality, the members have shared the work only and hence there was no profit or loss for the Joint Venture.
11.1 Further, clause 9 of the agreement which deals with the "Resources" specifically states that each joint venturer shall provide plant and equipment required for the execution of their portion of contract and such plant and machinery shall not become asset of the joint venture. Thus there is no clear provision in the Joint Venture which provide for joint execution of the project and joint realization of profit.
11.2 Clause-4 deals with the relationship between the members of the joint ventures. Sub-clauses (c) and (d) are relevant. "c. This Agreement shall not be construed by either Joint Venturer hereto as constituting each of them the agent of the other nor the Joint Venture as the agent for either of them. "e. The Joint Venturers agree that this Agreement shall not constitute a partnership and any liabilities of any sort whatsoever which one Joint Venturer may incur towards or on behalf of the other Joint Venturers shall be in accordance with this Agreement and be thereto limited" As per the concept of the Joint Venture, each joint venturer shall stand in the relation of a principal as well as an agent of the other. However clause 4(c) of the agreement specifically states that the members do not constitute the agent of each other. The said clause also states that the "Joint venture" should not be taken as the agent of the members also. Thus, according to the agreement, each member stands in its own right and no specific relationship is created between the Joint Venture and its members.
12. Thus, on an understanding of the concept of the "Joint Venture"
and the terms of agreement between the members of the present case, we are of the view that in the instant case, the consortium of Joint Venture has been formed only to procure the contract works. By way of the agreement, the parties have only regulated the relationship inter se with respect to their joint responsibility that existed in relation to the Principal, viz., M/s Konkan Railway. In reality, both the parties have divided the contract works between themselves and they have executed their share of work on their own risks. It is pertinent to note here that the AO has not given any finding on the issues like that each member had authority to interfere with or control the work executed by the other member; that both 18 M/s. HCIL Adhikarya-ARSS (JV the members have jointly executed the project and thus produced the income jointly. In our opinion, the finding on the lines stated above is crucial to determine the issue of availability of income in the hands of Joint Venture- AOP. On the contrary, the AO is on record that the each of the members has declared the income derived from their respective share of contract works in their hands. In this kind of situation, we do not find any merit in the presumption made by the AO that the Joint Venture is the "Main Contractor" and the members are the "Sub-contractors". Once this presumption has been found to be wrong, then the question of estimation of income by way of Sub-contract commission does not arise. So also the question of deduction of tax u/s 194C(2) of the Act and the disallowance u/s 40(a)(ia) does not arise. In view of the fore going discussions, we do not find any infirmity in the decision reached by the Ld CIT(A) ."
16. Following the judicial precedent and the ratio laid down by the Co- ordinate Bench of this Tribunal in assessee's own case (supra), we allow these grounds of appeal of the assessee.
17. The last ground raised by the assessee against the disallowance of expenses of Rs.2,41,920/- u/s.40(a)(ia) of the Act.
18. We find that the CIT(A) has not made any finding except relying on the order of the Assessing Officer and prima facie, the payments are towards the cost of bricks. Therefore, we are of the opinion that provisions of section 40(a)(ia) cannot be applied and direct the Assessing Officer to delete the addition of Rs.2,41,920/- and allow this ground of appeal.
19. Similar issues have been raised by the assessment for the assessment year 2010-11 and 2011-12. Following our decision in the preceding paragraphs while adjudicating the similar issue for the assessment year 2009-2010, we allow the grounds of appeal of the assessee.
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M/s. HCIL Adhikarya-ARSS (JV
20. Now, we take up the appeal of the assessee in ITA No.22/CTK/2014 for the assessment year 2007-08.
21. The assessee has raised the following grounds of appeal:
"1. For that, the order of assessment U/s 153A/143(3) of the Income Tax Act as well as the order of Learned CIT(Appeals) are illegal, arbitrary, perfunctory, and based on incorrect appreciation facts as well as law, as such are not sustainable in the eye of law deserving to be quashed in it's entirety.
2. For that the disallowance of Rs.43,58,822/- on account of travelling expenses of PT Adhikarya, Rs. 15,50,204/- U/s.40(a)(ia) and Rs.10,51,687/-, U/s.40A(3) of the Act and Rs.1,12,860/- U/s.36(1)(va) of the Act by the learned Assessing officer for raising an obnoxious demand of tax and interest of Rs.56,95,440/- lacs authority and sanction of Income Tax Act 1961 because of the fact that as per the settled position of Law, the completed assessment cannot be abated on the reason of search as the Learned Assessing officer has already completed the assessment U/s 143(3) of the Act by making all the additions and the order U/s 143(3) has been challenged and pending for adjudication before this Hon'ble Tribunal. As such this addition amount to double taxation on the same source of assessment which is a bar to the statute.
3. For that the disallowance of expenses of equipment hire charges u/s.40(a)(ia) amounting to Rs.,8,22,575/- is without any evidence being gathered from the search operation that the said payment are made in violation of provision of income tax Act the rule and settled position of law considering the nature and inevitability of the expenditure. The said addition being made with all except introspection and imagination, the same per se is not maintainable in eye of law. As such the same reserves to be deleted."
22. Before adjudicating the grounds on merits, the AR of the assessee in course of hearing of the appeal has contended that, since no incriminating materials were found/seized in course of search operation, the subsequent assessment U/s 153A of the Act is bad in Law and not sustainable.
23. Facts in brief are that the assessee filed the return of income for the assessment year 2007-08 on 31.10.2007 disclosing total income of 20 M/s. HCIL Adhikarya-ARSS (JV Rs.16,58,623/-. Notice u/s.153A(a) of the Act was issued and the assessee filed the return of income in compliance and the ld A.R. of the assessee appeared from time to time and the case was discussed. Whereas the Assessing Officer while framing the original assessment u/s.143(3) of the Act had made disallowances and the Assessing Officer in 153A assessment made the similar additions with other disallowance and Assessed income at Rs.99,83,750/- and passed order on 31.3.2013 under section 153A r.w.s. 143(3) of the Act.
24. Aggrieved by the order of the Assessing Officer, the assessee has filed appeal with the CIT(A). The CIT(A) found that the main contention of the assesse as the additions are made u/s.143(3) and, therefore, same additions cannot be made u/s.153A of the Act. The assessee filed written submissions referred at pages 2 to 4 of the order whereas the CIT(A) has dealt on the provisions of section 153A and assessment order passed u/s.143(3) of the Act and dealt on the facts of undisclosed income. Since the assessee has only argued on the applicability of provisions and not on merits, the CIT(A) dealt independently on each addition and granted partial relief and partly allowed the assessee's appeal.
25. Aggrieved by the order of the CIT(A), the assessee has filed appeal with the Tribunal. Before us, ld A.R. of the assessee argued that the order u/s.153A r.w.s. 143(3) of the Act of the Assessing Officer as confirmed by the CIT(A) is bad in law and the additions were made in 143(3) assessment and also in 153A assessment. The contention of ld A.R. that no addition 21 M/s. HCIL Adhikarya-ARSS (JV was made in respect of any seized material /incriminating document and supported his view with judicial decision and prayed for allowing the appeal. Contra, ld D.R. relied on the order of the CIT(A).
26. We heard the rival submissions, perused the materials available on record, orders of lower authorities and judicial decisions. The sole argument of ld A.R. is that there is no addition in respect of any incriminating documents seized as undisclosed income and the regular assessment was completed u/s.143(3) and the Assessing Officer also made assessment u/s.153A r.w.s. 143(3) making additions, which are already suffered taxation. We find where the order has already been passed u/s 143(3) and if no material is found suggesting escapement of income during search then no addition can be made in Section 153 A of the Act. We also observe that the additions made by the Assessing Officer are beyond the scope of section 153A of the Act because as there is no addition of undisclosed income from incriminating material or evidence found during the course of search so as to doubt the transactions. Further, in the assessment order the Assessing Officer has not referred any seized material or other materials for the year under consideration. We find strength in the arguments of ld A.R. that the additions cannot be made twice and we rely on the Special Bench of the Rajkot Bench of the Tribunal in the case of ALL CARGO GLOBAL LOGISTICS LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX, 137 ITD 287 (Raj) wherein, it has been held as under:
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M/s. HCIL Adhikarya-ARSS (JV "In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and
(ii) undisclosed income or property discovered in the course of search"
27. We also rely on the decision of Hon'ble Delhi High Court in the case of Pr. Commissioner of Income Tax vs Smt Amita Rani, (2017) 392 ITR 501 (Del), wherein, it has been, inter alia, held that in absence of any material seized during the search proceedings could not have justified afresh examination of the valuation issues.
28. Respectfully following the judicial decisions cited above, we quash the assessment made u/s.153A r.w.s. 143 of the Act made by the Assessing Officer and decide the legal issue in favour of the assessee and allow the grievance of the assessee. Since, we have quashed the assessment order u/s.153A/143(3), grounds raised by the assessee on merit do not require any adjudication.
29. In the result, appeals filed by the revenue are dismissed and appeals filed by the assessee are allowed.
Order pronounced on 31 /05/2017
Sd/- sd/-
(N.S Saini) (Pavan Kumar Gadale)
ACCOUNTANT MEMBER JUDICIALMEMBER
Cuttack; Dated 31 /05/2017
B.K.Parida, SPS
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M/s. HCIL Adhikarya-ARSS (JV
Copy of the Order forwarded to :
1. The Appellant : /revenue : ACIT, Circle
2(1), Bhubaneswar.
2. The Respondent. /Assessee : M/s. HCIL
Adhikarya-ARSS (JV) Plot No.512, Maruti
Residence, Raghunathpur, Patia,
Bhubaneswar
3. The CIT(A)-II, Bhubaneswar
4. Pr.CITII, Bhubaneswar,
5. DR, ITAT, Cuttack BY ORDER,
6. Guard file.
//True Copy//
SR.PRIVATE SECRETARY
ITAT, Cuttack