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Income Tax Officer, Ward 2 (3) , Gurgaon Versus M/s Kalindee Karthik JV

2018 (2) TMI 593 - ITAT DELHI

Estimation of income of JV - Addition u/s. 40A(2)(b) - addition by computing the profit of the joint venture @4% of the gross receipts as the assessee - Held that:- In CIT vs. Oriental Structure Engineers Pvt. Ltd. [2015 (3) TMI 102 - DELHI HIGH COURT] has observed that in the case of JV of such kind Section 40A(2) is not applicable. There are other judicial findings in this regard arriving at the same conclusion which are reported as CIT vs. SMSL UANRCL (JV) [2015 (3) TMI 279 - BOMBAY HIGH COUR .....

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herein he has followed the precedents of the Hon’ble High Court and Tribunal and Ld. DR also could not place any contrary decision before us. - Decided against revenue. - I.T.A. No. 7041/DEL/2017 - Dated:- 5-2-2018 - Shri H. S. Sidhu, Judicial Member Department by : Sh. Sampoorananand, Sr. DR Assessee by : Sh. KVS Krishnan, Adv ORDER This appeal by the Revenue is directed against the Order of the Ld. Commissioner of Income Tax (Appeals)-2, Gurgaon dated 01.9.2017 pertaining to assessment year 20 .....

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as AOP. 3. That the appellant craves for the permission to add, delete or amend grounds of appeal before or at the time of hearing of appeal. 2. The brief facts of the case are the assessee has filed the return of income declaring NIL income on 24.9.2013. Later on , the case of the assessee was selected for scrutiny as per CASS cycle and a notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act) was issued on 05.9.2014. Subsequently, notice u/s. 142(1) of the Act alongwi .....

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nstituted to take a contract from railways which consisted different kinds of works of civil, electrical, signaling and telecommunication engineering. The work was awarded to this JV and it has taken a PAN in the status of an AOP. For the AY 2013-14 assessee filed a NIL return on 24.9.2013 and the assessment u/s. 143(3) of the Act was passed on 28.3.2016 wherein, the AO invoked section 40A(2)(b) of the Act held that the assessee has paid excessive charges to its constituent namely Kalindee and K .....

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ue is in appeal before the Tribunal. 5. At the time of hearing, Ld. DR relied upon the order passed by the AO and reiterated the contentions raised by the Revenue in the grounds of appeal. 6. On the other hand, Ld. Counsel of the Assessee relied upon the order of the Ld. CIT(A) and reiterated the contentions made before the Ld. CIT(A). He further stated that since the Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part. Hence, the appeal of the Revenue ma .....

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gaon vide order dated 16.12.2015 in appeal no. 95/14-15. The CIT(A) has noted the facts in the appellant's case as under which are same for the year under consideration:- "The appellant is a joint venture in the name of Kalindee Kartik JV. It has come into existence by a MOU signed on 09.11.2010 (copy enclosed) and subsequent agreement dated 11.03.2011 and registered on 14th March 2011 (copy enclosed). The JV participants are two entities namely, Kalindee Rail Nigam (Engineers Ltd)-80% .....

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passing on 100% of the receipts. The AO has made a working based on his own assumption and presumptions that 4% of the gross earning of the JV as deemed profit and makes an assessment of income of ₹ 7,24,460/-. In the assessment order, the AO came to an erroneous conclusion that the JV is a separate entity and that it should have declared some income. The appellant is highly aggrieved by the above order and has filed this appeal before your goodself. All the grounds are pertaining to the c .....

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o bag a contract and execute jointly based on defined allocation of work. As a result of the above consortium, in the previous year relevant to the assessment year 2011-12, the JV was awarded a contract by South Eastern Railway [construction 'organization} vide Contract Agreement i.e. LOA NO.CE/CON/GRC/ER/3106/PT-II/ 6108 dated 11.10.2010 (copy enclosed) for the construction of 3rd line between Rajkharswan-Sini section-composite work of civil, electrical, signaling and telecommunication engi .....

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ed the same. There is also a separate agreement dated 14.03.2011 (Copy enclosed) clearly defining the work which has to be done by each JV partner. The JV was formed to apply for the tender raised by South Eastern Railways. The work of both the JV partners is well defined in point no. 3 at page 3 of the JV agreement which is reproduced as under:- "3. The 'Parties' have resolved that the distribution of share, responsibilities, profits, losses and remuneration shall be as under:- a) .....

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ite Management (Technical, Financial & Other Obligations) Therefore from the above it is clear that the scope of each joint venture's task was distinctly outlined right from the inception of the contract. No member of the JV can rather assign or transfer the interest, right or liabilities of the contract and had to perform its work on its own and the respective partners are having all resources of an power, machines and technology to execute their part of the contract. The assessee JV is .....

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s has been clarified. Each of the work done by JV participants is duly certified by the Indian Railways and then only it is billed to the JV which is further billed to the Indian Railways on exactly the same basis i. e. there is a back to back arrangement for the work done by each JV participant. Copies of both the invoices are enclosed for your ready reference. The AO is his assessment order has made adhoc disallowance by applying 4% as deemed profit on total sales which is only on assumptions .....

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expenditure. Whereas in the appellant's case, as explained above, the complete work is done by the JV partner's independently and they only have incurred all the expenditure. The role of the JV is only to route payments received from railways i. e. client to JV participants. The JV does not have any workforce, funds of its own nor any fixed assets as can be seen from the balance sheet for the year ended 31. 03.2011. 4.2 Based on the above facts, the CIT(A)-l has allowed the appeal of th .....

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roved decision of Hon'ble ITAT (Delhi) which had recorded a finding that the joint ventures which have been formed only to secure the contract cannot be subjected to tax as Association of Person (AOP). The Hon'ble High Court elaborately discussed the case of Linde AG. Linde Engineering Division vs. DDIT [2014] 365 ITR 1 (Delhi) to come to this conclusion. 4.4 Further Hon'ble High Court (Delhi) in Income Tax Act no. 146/2010 decided on 11.02.2010 in this case of CIT vs. Oriental Struc .....

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tity JV as AOP. No net profit on % bases can be taxed as has been done in this case. 4.5 In consideration of the settled position of the law and the precedence being in favour of appellant, the grounds of appeal of the appellant are allowed. 8. After perusing the aforesaid finding, I find that the issues in dispute are squarely covered by assessee s own case for the AY 2011-12 as the facts are similar and therefore, the Ld. CIT(A) has followed the same precedence and rightly allowed the appeal o .....

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