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ITO & Others Versus M/s KBL PIL Consortium & Others

2015 (5) TMI 605 - ITAT MUMBAI

G.P. addition - rejection of books of accounts - Held that:- Here in this case when existence of Consortium is not doubted the only issue remains if letting out the entire job to one of the party of the Consortium was a fact or not in the case and consequent payments made were excessive or not. For the same the appellant has placed heavy reliance upon the decision in the case of CIT vs. M/s.Ray Bel Consortium given by Hon'ble Bombay High Court [2012 (7) TMI 372 - BOMBAY HIGH COURT]. As gone thro .....

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ion of receivable on account of work contract tax refund - CIT(A) deleted the addition made by the AO by estimating profit at 10 of the gross receipts by observing that assessee is only special purpose vehicle in the form of joint venture - Held that:- Respectfully following the decision of the jurisdictional High Court in case of M/s Ray Bel Consortium (supra), we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of profit estimation as well as disallowa .....

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the assessee to the two members of AOP. Accordingly, we direct the AO to verify the same and decide the issue afresh. - Decided in favour of assessee for statistical purposes. - ITA No.6024/Mum/2012, ITA No.6264/Mum/2012 - Dated:- 27-3-2015 - Shri R.C.Sharma And Shri Sanjay Garg JJ. For the Appellant : Shri Asghar Zain For the Respondent : Shri Harshvardhan Datar ORDER PER R.C.SHARMA (A.M): These are the cross appeals filed by the Revenue and assessee against the order of CIT(A) dated 20-7-2012, .....

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ut following the Arms-length price". 2. "On the facts in the circumstances of the case and in law, the Ld.CIT(A) erred in allowing the expenses of water charges and sewerage charges amounting to ₹ 1,13,24,339/- in the hands of the assessee even though the entire work has been sub-contracted". 3. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the expenses of water charges and sewerage charges in the hands of the assessee AO .....

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is liable to be quashed. 2. On given facts, circumstances, and judicial pronouncements Hon. CIT(Appeals) erred in confirming in making addition made by Ld. AO on account of work contract tax refund which has already been duly offered for taxation by assessee which is bad in law and liable to be deleted. 4. Rival contentions have been heard and record perused. The assessee is a special purpose vehicle in the form of joint venture, filed its return of income in the status of AOP. The special purp .....

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d complete books of account, profit and loss account and balance sheet duly audited before the AO, however, the AO did not accept the books of account and made addition by estimating profit at 10% on gross receipts. The AO also disallowed expenses on account of water and sewerage charges. 5. By the impugned order the CIT(A) deleted the addition made by estimating profit at 10% on gross receipts after having the following observation :- 3.3. I have gone through the facts of the case and considere .....

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tails of any capital contribution profit sharing and terms and conditions regarding executing the contract work has been mentioned separately and hence all of these have to be taken as 50%. It is admitted fact that the Consortium has got the work contract by quoting price of ₹ 48.91.57,832/-in its hid. It is also undisputed that the work and conditions of the said contract is applicable. to the Consortium i.e. the appellant. However,' the appellant has shown total sales/ Income from op .....

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not complied with and in view of this the A.O. has rejected the books of account and estimated the profit at 10% of the P&L Account. The basis and reasoning for estimating the profit at 10% have been discussed in para 3 of the order which is reproduced above. The A.O has further supported his action of rejection of books of accounts and estimating profit at 10% of turnover by making observation that appellant has not deducted TDS from water and sewerage charges paid of Rs.l,13,24.339/- and t .....

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ue, The bills raised by Consortium to MCGM represent gross receipts of business. As pet the appellant; since they are showing profit on actual basis of part of the completed project which is certified by contractee authorities themselves, i.e. MCGM, there is no reason for A.O to reject books of accounts, 3.5. Further, during the appellate proceedings, A.O vide his letter dated 15.06.2012 has submitted further which is reproduced as under.- Kindly refer to the above. In the above referred case, t .....

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s of the assessee AOP and income earned from the project will be considered in the hands of the members of the AOP separately In their hands and there is no need to show income In the hands of the assessee AOP. The above contention of the assessee was rejected because the assessee being an AOP was liable to be taxed as such and whatever income/loss the assessee earns from the project, should have been taxed in the hands of assessee only. Further, in a case where, one of the members of any such A .....

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KBL PIL Consortium that the income of the assessee should have been determined by treating the assessee as AOP on the entire composite project and not splitting Income in the hands of its member before arriving the income of the AOP. Some of such judgments have been pronounced vide AAR NO.958 of 2010 in the case of Alstom Transport SA vs, DIT and Vide A.A.R. No.962 of 2010 in the case of Consortium of Linde AG, Germany, and Samsung Engineering Company Ltd., Korea and vide AAR NO.977 of 2010 in .....

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iew of this the figure reflected by the appellant on the basis of bills raised and. certified so by the MCGM have to be taken as revenue recognized. Now coming to .the issue if profit can be estimated on the sales or revenue shown by the appellant in the case I find that the accounting method does allow the estimation of profit by adopting a particular percentage or on actual basis. The case of appellant is a case where profit has been reflected on actual basis by taking into account expenses an .....

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ould have been made in their case. 3.7 As regards sub-contracting, the appellant has also relied upon decision given in the case of CIT Vs. M/s Ray Bel Consortium of Bombay High Court.The head notes of which are reproduced as under :- "Genuineness of assessee firm- held to be Association of persons u/5.2(31)-the revenue generated by the respondent was passed on to the partners such that no profit accrued to the respondents-Held that-Assessee had not contrived a devise to evade or even avoid .....

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of Consortium is not doubted the only issue remains if letting out the entire job to .one of the party of the Consortium was a fact or not in the case and consequent payments made were excessive or not. For the same the appellant has placed heavy reliance upon the decision in . the case of CIT vs. M/s.Ray Bel Consortium given by Horr'ble Bombay High Court. I have gone through the same which deals with sec.40A(2) and supports the case of the appellant and hence I am of the considered opinion .....

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nder.- "7.3. Contentions of Ld.AO is countered as hereunder:- a. Ld. AO has contended that water and sewerage charges are indirect expenses of subcontractors. hence. TDS should be deducted. But the contention of Ld.AO is not tenable as the said expenses are charged by MCGM on the assessee and such expenses are deducted by MCGM from the Gross Reciept. Receipts which are credited in the P&L account are net receipts i.e. the amount paid by the MCGM is after deducting water and sewerage cha .....

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o liability to deduct TDS u/s 194C of Income Tax Act, 1961 and Reliance is also placed on judicia pronouncements of: 1. CIT vs. Glenmark Pharrnaceuricals Ltd (Bom HC) (191 TAXMAN 455) 2. BOA Ltd. vs.ITO(TOS} (Born HC) (153 TAXMAN 386) Hence. the question of deduction of TDS docs not arise and hence. Ld. AO's contention of disallowing the expenses u/s40{a)(ia) of Income Tax Act. 1961 is not tenable." 4.2. Without prejudice to that, appellant has also relied upon Merliyn Shipping case Mer .....

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eflected at net basis already. The appellant has stated that it was a typing mistake. In view of this 1 have seen the ledger account for sales and found that appellant version is correct as same is supported by entries in the books where sales are credited for Rs, 15.14.55,058, subcontract at ₹ 14,01,30,719 and water and sewerage at ₹ 1,13,24,339. Then it is also noted that they all are shown as paid which is understandable being already deducted by MCGM from the bill. Following Merl .....

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o be taken as income of the appellant. In view of this I am in agreement with the AO that the work contract tax refund has to be taken as income of the appellant in the year when the same is reflected so and hence the amount of ₹ 25,79,162/- on account of work contract tax refund has to be taxed in the hands of the appellant. Ground No.7 is dismissed. Against the above order of CIT(A), both the Revenue and assessee are in appeals before us. 6. We have considered rival contentions, carefull .....

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n agreed ratio. Vide order sheet noting dated 05.12.2011, assessing officer asked assessee to explain whether there was any intention to earn profit at the time of taking contract by invoking section 44AD claiming that a contractor has to show income under Income Tax Act. Further, assessee is also required to justify as to why revenue has not been recognized as stated in notes to account and architect certificate for completion of work. In response to above notice, assessee replied that assessee .....

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10% of the gross receipt by rejecting books of account. The AO also disallowed water and sewerage charges treating that loss as reimbursement of expenses to sub-contractor. The AO also made addition of receivable on account of work contract tax refund. By the impugned order, the CIT(A) deleted the addition made by the AO by estimating profit at 10 of the gross receipts by observing that assessee is only special purpose vehicle in the form of joint venture. Whatever contracts was allotted to it, .....

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