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2016 (9) TMI 302 - ITAT PUNE

2016 (9) TMI 302 - ITAT PUNE - TMI - Disallowance u/s 040(a)(ia) - assessee in default - the amount paid by the AOP (Joint-venture) to its member without deduction of tax - works contract - it contended that, joint venture does not execute any contract but was a conduit for obtaining work, receiving payments against work done by the individual constituents and distribution of amounts in their individual shares as per the agreed ratio. - Held that:- Respectfully following the decision of the Co-o .....

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disclosing the impugned receipts and income earned by it embedded in the receipt has been duly offered for taxation. In this view of the matter, the assessee Joint Venture cannot be treated as assessee in default in view of the decision of the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P.) Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT ) and the decision of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Shri Chandrakant J. Mandale (supra). Thus, seen from any angl .....

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12 passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. Since both the appeals relate to the same assessee and involve a common issue, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. The assessee has raised common grounds of appeal in both years. The grounds of appeal in ITA No.1957/PN/2014 read as under :- 1) The learned Commissioner of Income-tax (Appeals) erred in holding that in absence .....

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not appreciating that the assessee Joint Venture was in full control of the contract, responsible for its completion, submitting bills, receiving payments and making those payments to its members towards sub contract on which tax was deductible u/s.194C. 3) The learned Commissioner of Income-tax (Appeals) erred in not considering that if the share of profit is determined in the Joint Venture Agreement, then it cannot be anything but AOP and where the charge is on the income of the AOP, in such s .....

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y and Infraprojects Pvt. Ltd. and Prasad & Company Pvt. Ltd. and the returns of income have been filed in the status of AOP at Rs.Nil for the assessment years 2010-11 and 2011-12 under consideration and the same has been assessed by the Assessing Officer determining the income at ₹ 28,32,00,000/- for assessment year 2010-11 and ₹ 37,27,62,082/- for the assessment year 2011-12. As stated, the assessee-AOP came into existence vide agreement executed on 29.01.1999. It is the case of .....

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gainst work done by the individual constituents and distribution of amounts in their individual shares as per agreed ratio. Once, the work is allotted to the Joint Venture by the contractee namely Tapi Irrigation Development Corporation Ltd. (Govt. of Maharashtra undertaking), entire work is executed by Shraddha Energy and Infraprojects Pvt. Ltd. alone. No work has been executed by Prasad & Company Pvt. Ltd.. Hence, Prasad & Company Pvt. Ltd. is not entitled for any profit or responsible .....

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and Infraprojects Pvt. Ltd. who has executed the entire project. As noted, other member of the Joint Venture is not entitled for profit or responsible for loss. 5. The plea of the assessee before the Assessing Officer was that the joint venture does not execute any contract but was a conduit for obtaining work, receiving payments against work done by the individual constituents and distribution of amounts in their individual shares as per the agreed ratio. The Assessing Officer opined that whil .....

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he reason that the assessee was an AOP which was awarded the contract of executing the work and the said work has been carried out by a different entity. The Assessing Officer held that the execution of contract work was primarily the responsibility of AOP which had received the contract. When the work had been executed by a different entity, it was nothing but a sub-contract and just because it was given to one of the members of AOP, it could not be called as a revenue sharing agreement. The As .....

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sessing Officer under section 40(a)(ia) of the Act. Aggrieved by the order so passed by the CIT(A), the Revenue is in appeal before us. 7. Before us, the Departmental Representative, fairly admitted that the facts in the present case were identical to the facts in ITO v/s Swapnali RDS Joint Venture, ITA no.771/PN./2011, order dated 26th September 2012 which has been taken cognizance of by the Assessing Officer in assessment order passed in the case. However, the Ld. Departmental Representative ( .....

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ssessee, on the other hand, drew support for his claim by the decision of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Shraddha & Mahalaxmi Joint Venture and Others in ITA No.942/PN/2013 and Others, order dated 28.11.2014, wherein the Tribunal in identical facts after considering several decisions on the issue has decided points in issue in favour of the assessee. 8.1 The Ld. AR also relied upon the decision of the Hon ble Bombay High Court in the case of CIT vs. SMSL-UANRCL .....

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n 361 ITR 1 (Delhi) to further support of its case. 8.3 The Ld. AR next relied upon the recent CBDT Circular No.07/2016 dated 07th March, 2016 which has clarified that consortium arrangement of similar type shall not be treated as an AOP. He submitted that in view of the express Circular, the claim of the assessee that taxability of income generated from the contract requires to be taxed in the hands of the respective members. 9. As an alternate contention, the Ld. AR contended that as per secon .....

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) 377 ITR 635 (Delhi) for the proposition that since the payee has filed return of income and offered sum received from deductor to tax, the disallowance made under section 40(a)(ia) deserves to be deleted. He submitted that second proviso to section 40(a)(ia) inserted by the Finance Act, 2012 w.e.f. 01.04.2013 requires to be applied retrospectively. 10. We have heard the rival submissions and perused the records. In the facts of the present case, the issue arising before us is in relation to ap .....

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ssignments of the work to the members as per the Memorandum of Understanding agreed upon is not equivalent to subcontract per se and thus the assessee AOP was not liable to deduct tax at source out of the amount distributed amongst the members of the AOP in the agreed ratio of respective share. The Assessing Officer, while deciding the chargeability of income in the hands of the assessee did observe that in the case of M/s Swapnali RDS Joint Venture (supra), similar addition under section 40(a)( .....

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ha & Mahalaxmi Joint Venture and Others (supra) after making reference to several judicial precedents including M/s Swapnali RDS Joint Venture (supra) has affirmed the view taken by the CIT(A) and decided against the Revenue. 10.1 The relevant findings of the order of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Shraddha & Mahalaxmi Joint Venture and Others (supra) is reproduced hereunder for ready reference :- 10. We have heard the rival and perused the records. In the f .....

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for carrying out the work. Such assignments of the work to the members as per the Memorandum of Understanding agreed upon is not equivalent to sub-contract and as such the assessee AOP was not liable to deduct tax at source out of the amount distributed amongst the members of the AOP in the agreed ratio of share. The Assessing Officer, while deciding the issue in the hands of the assessee, had given an office note to the effect that in the case of M/s. Swapnali RDS Joint Venture (supra), simila .....

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e (supra), wherein it was held as under:- 2. At the outset of hearing, Ld. Authorised Representative pointed out that this case is covered in favour of the assessee by ITAT, Pune Bench, in ITA.No.65/PN/2011 for A.Y. 2006-07 in the case of ITO Vs. Gammon Progressive-JV, wherein vide paras 5 to 9 the Tribunal deciding similar issue in favour of the assessee by dismissing the appeal of the Revenue, has held as under: 5. After going through the above submissions and material on record, we find that .....

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he status appeared as firm on the ITR acknowledgement, whereas in the computation of total income, it was correctly mentioned as AOP. It was explained that I.T.Return Form No.5 was actually applicable for firms, AOPs and BOIs. Therefore, this error might have occurred. The assessee has also filed computation of total income alongwith acknowledgements from A.Y. 2002-03 to A.Y. 2006-07 in which the status was regularly shown as AOP and even in the application form for allotment of PAN it was shown .....

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ntract work and for receiving the payment, which was immediately distributed in the ratio of the share of the work done. The actual share in the joint venture of the total work allocated was 60% for M/s.Gammon India Ltd. and 40% for M/s.Progressive Contraction Ltd. In this background it was explained that the contract account and the Balance Sheet of the joint venture reveals nothing but apportionment of contract receipts, assets and liabilities between the members. There was no expenditure book .....

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between the joint venture and its two members. Therefore, there was no question of applicability of TDS provisions u/s.194C of the Act. The assessee also explained why a returns were filed by the joint venture as AOP. It was explained that it was done to pass on the credit of TDS to the members on the basis of tax apportionment certificates who have accounted for the corresponding contract revenue in their respective returns. It was also submitted that Nil income arising in the hands of the AOP .....

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tion of revenue sharing, it was on a principal to principal basis. Further, in sub-contracting, the contractor retains his share of profit alongwith the TDS and only the balance is passed on to subcontractor. But in joint venture, assessees did not retain any share in the revenue with it and has passed the entire gross revenue alongwith TDS apportioned for them. It was submitted that the Department has also issued tax apportionment certificates every year during the past eight years to enable th .....

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of the two companies or to both the companies in the earlier years also by the Assessing Officer for enabling them to claim TDS in respective cases. The assessee, vide its submission dated 22.04.2010, furnished the details which revealed that gross revenue from this contract receipts by joint venture was accounted for in case of either or both of the two companies who were members of the joint venture in all assessment years 2001-02 to 2008-09. It was further explained by the assessee that reve .....

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fficer, it was stated on behalf of the assessee that the Assessing Officer has marked copy of this certificate to the members of the joint venture as well as to their respective Assessing Officers, which shows that the Assessing Officer has applied his mind and consciously accepted the fact that the joint venture AOP was for the distribution of receipts amongst its constituents in proportion of their work sharing. Therefore, there was no applicability of provisions of TDS u/s.40(a)(ia) of the Ac .....

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he two corporate entities being joint venture members, alongwith acknowledgements of their I.T. returns, which revealed that both of them had huge positive returned incomes every year. For this payment the stand of the assessee was that the method of apportionment of revenue to the members was not to take any undue benefit of losses incurred by them. Therefore, it was stated that there was no loss to the revenue as a result of this method adopted by the assessee of sharing the gross revenue by i .....

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istency, the Ld. Authorised Representative relied on the decision of Hon'ble Bombay High Court in the case of Gopal Purohit (2010) 228 CTR 582 (Bom.) and assessee also relied on the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) wherein it was observed that strictly speaking the principle of res judicata does not apply to income tax proceedings since each assessment year was a separate unit in itself and what is decided in one year .....

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ITR 321 (Kar.) observed that method adopted by the Assessing Officer would result in double taxation of the same income since gross receipts distributed amongst the two joint venture partners was included as receipts in their respective cases and the joint venture partners had also utilised the TDS credits on the basis of apportionment certificate issued by the Assessing Officer. In view of the above discussion, CIT(A) was justified in holding that in absence of any contract or sub-contract work .....

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assessee s case and there was no claim of any expenditure. Therefore, there was no question of any disallowance under the provisions of section 40(a)(ia) of the Act. Moreover, disallowance u/s. 40(a)(ia) made by the Assessing Officer cannot be sustained. In effect, the method adopted by the Assessing Officer will also result in double taxation of the same contract revenue which is in violation of the Karnataka High Court decision reported in 197 ITR 321 (Kar.). This view is fortified by the deci .....

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e noted that Hon'ble Authority of Advance Rulings was in seisin of a materially identical situation in the case of Van Oord ACZ BV In Re(248 ITR 399) in which two contractors joined hands for carrying out neatly identified separate work which was a part of composite contract awarded to the AOP, but the taxability of income from such contract was held to be taxable in the hands of the respective contractors. While holding so Hon'ble Authority for Advance Ruling observed as follows: " .....

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AOP. In order to constitute an AOP there will have to be common purpose or common action and the object of the association must be to produce income jointly. It is not enough that the persons receive the income jointly. In the instant case, each of the two parties has agreed to bear its own loss or retain its own profit separately. Both have agreed to execute the job together for better co-operation in their relationship with the Chennai Port Trust. The intention was not to carry out any busine .....

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work and income arising therefrom was quite separate and independent of the applicant's work and income. If the cost incurred by the HCC or the applicant was more than their income, each party will have to bear its loss without any adjustment from the other party. The association of the petitioner company with HCC was undoubtedly for mutual benefit but such association will not make them a single assessable unit and liable to tax as an AOP. For example, a building contractor may associate w .....

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d HCC." 8. On the facts hereinabove, the applicant and HCC cannot be treated as an AOOP for the purpose of levy of income-tax. The applicant will be liable to be taxed as a separate and independent entity. The question No.1 is answered accordingly." 7. We are in considered agreement with the views so expressed by the Hon'ble Authority for Advance Ruling. We adopt the reasoning of the Hon'ble AAR and, respectfully following the same, approve the conclusion arrived at by the CIT( .....

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ere is no question of disallowance made u/s. 40(a)(ia) of the Act. Same is upheld. 11. Since the facts are, mutatis mutandis, identical to the facts and issue decided by the Tribunal in M/s. Swapnali RDS Joint Venture (supra), therefore, following the parity of reasoning, we uphold the order of the CIT(A). Consequently, the grounds of appeal raised by the Revenue are dismissed. 10.2 Respectfully following the decision of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Shraddha & .....

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