TMI Blog2018 (9) TMI 1885X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee. - ITA No.2327/Del/2016 - - - Dated:- 18-9-2018 - SH. R.K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. Anoop Singh, Sr. DR For The Respondent : Sh. Prakash Sinha, CA Sh. Sachin Sinha, CA Ms. Kavita Arora, CA ORDER PER R.K. PANDA, AM: This appeal filed by the revenue is directed against the order dated 16.02.2016 of the CIT (A)-1, Gurgaon relating to A. Y. 2011-12. 2. Facts of the case, in brief, are that the assessee is an AOP having 3 members namely M/s. KEC International Ltd M/s. Delco Infrastructure Project Ltd. and M/s Varaha Infra Ltd and profit sharing ratio among the members is 60:20:20 respectively. During the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above construction contracts were sub-contracted to KEC on a back to back basis for a value of INR 67,54,34,990/- and ₹ 18,54,65,977/- respectively i.e. @ 99.86% of the gross receipts. 4. During the assessment proceedings, the Assessing Officer noticed that as per the Tax Audit Report Column No.18 for particulars of the payments made to persons specified u/s 40(A)(2) (b) it was mentioned as nil. However, perusal of the submissions made by the assessee JV, it was noticed that it has given subcontract to KEC on back to back basis. The KEC is also lead partner in the JV having 60% share of the total shares as per the JV agreement dated 20.04.2010. He, therefore, asked the assessee to explain as to why the payments made to the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) is not applicable. There are other judicial findings in this regard arriving at the same conclusion which are reported as CIT vs. OSE Pvt. Ltd. 374 ITR 35 (Delhi) High Court and CIT vs. SMSL UANRCL (JV) (2015) 372 ITR 425 Bombay. In all the above cases, it has been held that where the constituent participants make a JV to secure a contract, which is merely a pass through entity with minimal expenses, no tax liability can be attributed by holding the subject entity as AOP. (iii) No net profit on % basis can be taxed as has been down in this case. In consideration of settled position of law the ground of appeal is allowed. 7. Aggrieved with such order of CIT (A), the revenue is in appeal before the Tribunal by raising the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties and carefully gone through the material available on the record. In the present case, it is an admitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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) (su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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