TMI Blog2022 (8) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is apparent that the AO has issued this questionnaire without application of mind. In response to the said notice, the assessee though filed a reply dated 13.11.2013 and explained that the assessee is not a society or trust registered under section 12A and therefore, all these queries raised by the AO are irrelevant. This itself shows that the AO has not applied his mind while issuing notice u/s 142(1) dated 17.10.2013 therefore, mere filing of the document by the assessee in response to the notice u/s 142(1) does not lead to the conclusion or inference that the AO has applied his mind and conducted a proper enquiry on the various issues which were taken up by the CIT while invoking the provisions of section 263 of the Income Tax Act. Commissioner has raised various points / issues which were not taken up by the Assessing Officer in the scrutiny assessment. Most of these issues are factual in nature and can be considered only by examination and verification of the relevant record including the various contract / agreements. Apart from the issue of taxability of the contract receipts in the hand of the assessee Joint Venture, the Pr. Commissioner has pointed out various oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties to bring into existence a multilayer and structure and arrangements under which the status of being assessee intermediatery or a pass through entity not liable to assessed to tax to be ascertained. Therefore, we modify the finding and decision of the Pr. CIT on this issue and direct the AO to properly verify the facts emanates from the various contracts, the sub contracts, MOU, Joint Venture agreement as well as the arrangements made between the parties so as to ascertain the risk and rewards owned by which party. AO is free to examine this issue and adjudicate the same on the basis of the enquiry conducted on the facts as well as terms and conditions of the various contracts, sub contracts, agreements as well as arrangements made between the parties. Needless to say the legal precedents relied upon by the parties are also required to be considered on the specific facts arrived as a result of the enquiry. Further, the income if any assessable to tax in the hand of the assessee shall be by considering the actual receipt during the year and not on the total value of the project. Difference between contract receipts declared by the assessee and the receipts reflected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from the payment made to M/s R.K. Infra Engineering (India) Private Limited M/s Rithwik Projects Private Limited giving challan numbers - Therefore, prima facie it appears that the assessee has duly deducted the tax at source (TDS) and paid the same to the account of the Government however, the AO is directed to verify these details of payment of TDS and if the same are found to be correct then there will be no question of violation of provision of section 40(a)(ia) or deduction of TDS. - ITA No.107/ALLD/2016 And ITA No.99/ALLD/2017 - - - Dated:- 26-7-2022 - Shri.Vijay Pal Rao, Judicial Member And Shri Ramit Kochar, Accountant Member For the Appellant : Sh. Pawan Chakrapani, C.A. For the Respondent : Sh. Ramendra Kumar Vishwakarma, CIT DR ORDER SHRI VIJAY PAL RAO, JUDICIAL MEMBER: These two appeals by the assessee are directed against the two separate orders of Pr. CIT dated 18.03.2016 and 09.03.2017 passed under section 263 of Income Tax Act for the assessment years 2011-12 and 2012-13, respectively. 2. For the assessment year 2011-12, the assessee has raised the following grounds:- 1. The order of the learned Principal Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer without appreciating that there is not error, much less prejudicial to the interest to the Revenue to warrant a revision and therefore the order passed by the ld. Pr. CIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant s case. 11. The Ld. Pr. CIT failed to appreciate that the Ld. Assessing officer had passed the order after verifying the books, records and other documents produced and more specifically all the agreements as is evident from the order sheet nothing and submissions and hence section 263 cannot be invoked under the facts and circumstances of the case. 12. Without prejudice to the above the learned Pr. CIT ought to have appreciated that the aforesaid issue on which the learned Pr. CIT Had sought to revise the assessment order is a conscious view adopted by the learned assessing officer, which is not shown to be erroneous and consequently, the jurisdiction under section 263 of the Act stands ousted and accordingly the impugned order passed deserves to be cancelled. 13. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The profit from the activity undertaken by the Joint Venture is to be assessed in the hand the Joint Venture only and not in the hands of the members. He also noted that the there is a violation of provisions of section 40(a)(ia) on account of payment of Rs. 20,33,34,166/- to the members of the Joint Venture and hence it should have not been treated as allowable expenditure in the hand of the Joint Venture and should have been added to the income of the Joint Venture. He has also observed that the agreement between M/s Ratna Infrastructure Project Private Limited and the Joint Venture show that the Joint Venture shall provide a bank guarantee of Rs. 10 Crore but the same does not find place in the balance-sheet or in the Audit Report. Further, the mobilization advance of 2% of the contract value and addition mobilization of advance of Rs. 3 Crore does not find place anywhere in the balance-sheet or in the qualification in the Audit Report. Accordingly, the Pr. Commissioner was of the view that there were certain infirmities in the assessment order passed by the Assessing Officer in respect of the above mentioned discrepancies and violation of provisions of section 40(a)(ia) as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer is erroneous and prejudicial to the interest of the Revenue. The Assessing Officer has applied due application of law and mind while passing the assessment order therefore, the order passed by the Assessing Officer cannot be said to be erroneous and prejudicial to the interest of the Revenue. Once the Assessing Officer has examined the relevant record and was satisfied with the claim of the assessee that the income is not assessable in the hand of the Joint Venture but the same is assessable in the hand of the partners of the Joint Venture then the same does not suffer with lack of enquiry or inadequate enquiry. It is only on presumption of the learned Pr. CIT. The order passed by the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the Revenue. For the purpose of section 263, the Commissioner has to assume jurisdiction only when twin conditions are satisfied together being the order passed by the Assessing Officer is erroneous and the same is prejudicial to the interest of the Revenue. The Assessing Officer has taken one of the possible view while passing the assessment order then the provisions of section 263 cannot be invoked merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of his contention, he has relied upon the decision in the case of Commissioner of Income Tax vs. Amit Corporation 213 taxman 19 and submitted that the Hon'ble High Court has held that when during the course of framing the assessment, the Assessing Officer had access to all the record of the assessee. After pursuing such record the Assessing Officer framed the assessment, such assessment could not have been reopened in exercising revision power under section 263 of the Act for making further enquiry. He has then referred to the judgment of Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. Sun Beam Auto Limited 332 ITR 167 and submitted that the Hon'ble High Court has analyzed the scope of the exercising of the power of the CIT under section 263 of the Income Tax Act and held that if there was any enquiry even inadequate that would not by itself give occasion to the CIT to pass order under section 263 of the Act merely because he has different opinion in the matter. It is only in the cases of lack of enquiry that such a course of action would be open. Once the Assessing Officer has called for explanation on a particular item from the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue due to lack of enquiry. He has submitted that the Pr. CIT has given the details of the disclosed receipts by the assessee at Rs. 20,33,34,166/- in the profit and loss account whereas on perusal of the bank account, it has been noted that total of Rs. 13,84,42,383/- was credited during the year under consideration and a sum of Rs. 7,59,45,359/- has been disclosed in the financial accounts as receivable. Thus the total gross receipts comes at Rs. 21,43,87,742/- as against the receipts disclosed by the assessee at Rs. 20,33,34,166/-. Therefore, there is a difference of Rs. 1,10,43,576/- which was neither considered by the Assessing Officer nor verified or examined during the assessment. The assessee has simply taken the stand that the receipts have been transferred to the members of the Joint Venture who are independent entities assessed separately without disclosing the quantum of profits transferred to the individual member. The assessee has also not brought any material on record to show that the individual member has offered the income received from the Joint Venture to tax. Since the assessee has not reported the quantum of profit derived by the members independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 263 merely because the Commissioner was having a different opinion in the matter. The ld. CIT DR has contended that when the Assessing Officer has not taken any view and there is a complete lack of enquiry in the case of the assessee then the decisions relied upon by the ld. AR are not applicable to the present case. He has pointed out that in the case in hand, there are multiple issues which were noticed by the Pr. CIT on which the Assessing Officer has not conducted any enquiry or taken any view then the order passed by the Assessing Officer is certainly erroneous and prejudicial to the interest of the Revenue. Hence, the learned DR has submitted that the Pr. CIT has rightly invoked the provisions of section 263 when the order of the Assessing Officer was found to be erroneous and prejudicial to the interest of the Revenue. The AOP is an independent assessable entity different and distinct from its members and hence the profit or loss is required to be assessed in the hand of the AOP. The learned DR has relied upon the following decisions as under:- C.I.T. Vs. Smt. Indira Balakrishanan, (1960) 39 ITR 546,551 (S.C.) C.I.T. Vs. Buldana District Main Cloth Importers Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submitted requisite documents/proof/explanations which are placed on record. The case was discussed at length. RITHWIK RK JOINT VENTURE is joint venture constituted by RITHWIK and RK INFRA by entering into joint Venture Agreement for execution of work site Leveling Infrastructure works Package for Meja Thermal Power Project for Meja Urja Nigam Pvt. Ltd. on 100% back to back basis with 50% share to each of the JV Partner on 28.08.2010. RITHWIK - RK JOINT VENTURE approached RATNA for work. Ratna agreed to sub-contract the total scope of work to RITHWIK RK JOINT VENTURE on 100% back to back basis. After considering all the material on record and discussion made with the authorized representative, the assessment is made on total income of Rs. NIL as returned by the assessee. Allow TDS as per a database. Issue notice of demand. Copy of ITNS 150 is enclosed. 8. Thus, it is clear that the Assessing Officer had not discussed anything in the assessment order and therefore, it does not exhibit any thought process of the Assessing Officer with regard to the issue of taxability of income in the hands of the assessee Joint Venture. The Assessing Officer has just repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following format. S. No. Name address of the Creditors/Debtors PAN Amount Whether assessed to tax Relationship with the assessee 12. Furnish copy of 24Q and 26Q. Also furnish copies of Farm 16 and 16A TDS. Also state the headwise payments and amount of TDS where TDS has been deducted from payments made. 13. Please give a brief description of all the charitable activities carried out by your trust/society during the period under consideration. 9. From this questionnaire, it is clear that all the queries raised by the Assessing Officer are totally irrelevant and not relating to the assessee or the assessment of the assessee. Thus, it is apparent that the Assessing Officer has issued this questionnaire without application of mind. In response to the said notice, the assessee though filed a reply dated 13.11.2013 and explained that the assessee is not a society or trust registered under section 12A of the Act and therefore, all these queries raised by the Assessing Officer are irrelevant. This itself shows that the Assessing Officer has not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit derived from the business affairs and activities undertaken by the joint venture is to be assessed in the hands of the joint venture only and not in the hands of the members as such, therefore, you are hereby required to report the quantum of profits derived from the execution of the sub-contract by the members independently. You are also required to explain why the same be not assessed in the hands of the joint venture as its income. It is observed that all the receipts have been directly passed on in equal shares to both the members of the joint venture. As both the members are independent entities assessed separately, therefore, while the sub-contracts were being passed on to these members for execution, tax should have been deducted at source as the receipts were against a contract in the hands of the joint venture and in the hands of the members as well. Accordingly, there is violation of provisions of Section 40(a)(ia) on account of the payment of Rs. 20,33,34,166/- to the members of the joint venture and hence it should had not been treated as allowable expenditure in the hands of the joint venture and should have been added to the income. You are hereby required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Report. The learned AR of the assessee has pointed out that the bank guarantee was not provided by the assessee Joint Venture but it was furnished by M/s Ratna Infrastructure Projects Private Limited and therefore, the question of showing the same in the balance-sheet does not arise. This contention of the learned AR cannot be accepted without verifying the relevant record and the arrangements between the party by going through the various agreements entered into right from the awarding of work contract by Meja Urja Nigam Private Limited a Joint Venture of NTPC and U.P. Rajya Vidyut Utpadan Nigam Ltd., in favour of the M/s Ratna Infrastructure Projects Private Limited. Prior to that, M/s Ratna Infrastructure Projects Private Limited entered into MOU dated 18.11.2009 with M/s Rithwik Projects Private Limited having a pre understanding that in the event work being awarded to M/s Ratna Infrastructure Projects Private Limited it shall in turn sub contract the whole of the work on 100% back to back basis to M/s Rithwik Projects Private Limited who shall mobilize material and machinery to execute the work within time and as per the ensure quality. Thereafter, M/s Rithwik Projects Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reference to the sub contract of work on 100% back to back basis. 12. The decisions relied upon by the learned AR of the assessee laid down the basic principle on the point that where there are two possible views on an issue and the Assessing Officer has taken one of the possible views then the Commissioner is not allowed to invoke the provisions of section 263 merely because he does not agree with the view taken by the Assessing Officer. However, when the order of the Assessing Officer suffers from a complete lack of enquiry, then the above said principle has no application due to the obvious reason that the Assessing Officer has not taken a view by conducting a proper enquiry and further the acceptance of claim by the Assessing Officer without conducting an enquiry would not be regarded as a possible view on the issue. When the Assessing Officer has not even taken up many of the issues raised by the Pr. CIT in the show cause notice, then the case of the assessee does not fall in the category of taking a possible view by the Assessing Officer. Therefore, to the extent of invoking the provisions of section 263 of the Act, we do not find any error or illegality because there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that a Joint Venture was formed only to secure contract in turn of which the scope of each Joint Venture partner s task was distinctly outlying the entire work was split between the two Joint Venture partners and they completed the task through sub contract and were responsible for the satisfaction of the principle. Therefore, it was held that the Joint Venture was not an association of a persons and liable to be taxed on that basis. He has relied upon the judgment of Hyderabad Benches of the Tribunal dated 29.11.2017 in the cases of KCL AMRCL Joint Venture vs. Income Tax Officer, PSR-AMRCL Joint Venture vs. Income Tax Officer, CCPL-AMRCL Joint Venture vs. Income Tax Officer, Income Tax Officer vs. KCL AMRCL Joint Venture and Income Tax Officer vs. PSR-AMRCL Joint Venture. Thus, the learned AR has submitted that the assessee is not a separate taxable entity when all the risk and rewards for execution of the work were that of two Joint Ventures partners. 15. On the other hand, learned DR has submitted that when the assessee has issued the bills / running bills to M/s Ratna Infrastructure Project Private Limited and receiving the contract amount in its own name then the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 50-50% as per the Joint Venture agreement and therefore, the assessee is not liable to be assessed to tax on such receipts which is passed on to the Joint Venture partners under the sub contract agreement 100% back to back basis however, the assessee has not produced any material to show that the Joint Venture partners have offered the income from the contract receipts to tax in their return of income. Since the Joint Venture partners are assessable to tax at a different places of jurisdiction therefore, without production of the relevant record and particularly the return of income filed by the Joint Venture partners, it was not possible for the Assessing Officer to ascertain this fact though the Assessing Officer has not made any attempt to verify this. The Pr. CIT has taken a view that the income derived from the execution of the contract is liable to be assessed in the hands of the assessee and this view is taken by the Commissioner without analyzing the terms and conditions of the various contracts, sub contracts, Joint Venture agreements, memorandum of understanding between the parties to bring into existence a multilayer and structure and arrangements under which the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction and TDS comes to Rs. 1,48,00,276/-. After deducting this amount as well as the amount already received from the debtor from the total value of bills the balance receivable comes to Rs. 7,59,20,359/-. Since there was a cash deposit of Rs. 25,000/- at the time opening of escrow account, the total amount of debtor as shown in the books of accounts on 31st March, 2011 is Rs. 7,59,45,359/-. Hence, the learned AR has submitted that if all these details are taken into consideration, there is no discrepancy or difference in the total contract receipts shown by the assessee. The difference as per the calculation of the Pr. CIT comes only due to taking the entire deposits in the bank account which includes the mobilization advance and deposit made at the time of opening of escrow account without considering the fact that the mobilization advance is being adjusted against the running bills and therefore, the entire mobilization advance cannot be considered as contract receipt for the year under consideration. He has further contended that when the assessee has prepared and maintained the books of accounts which were duly audited. Then there was no reason for calculating the contract re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us deductions as mentioned by it. The AO never asked for these details and obviously did not cross check and verify them thus rendering the order passed by him as erroneous and prejudicial to the interests of revenue especially in the light of sub-clause (a) of explanation 2 to clause (10 of Section 263. The assessee made its submission at page no. 6 at point no. 21(b) of its paper book to the second issue raised in the notice u/s 263 filed on 09.12.2015. The assessee simply tried to evade the issue by stating that the profits were passed on to the two members of the joint ventures in equal proportion and they must have disclosed these profits in their individual capacity in their returns of income which were filed at different stations other than Allahabad. In this connection, the assessee had not reported the quantum of profits derived by the members independently and had not explained why the assessment of the same be not made in the hands of the joint venture as its income. As per note sheet entry to register the hearing held on 09/10th December, 2015 it has been categorically recorded by me that the assessee has not reported the quantum of profits derived by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and receivable shown by the assessee. Prima facie, we find that the difference as pointed out by the Pr. CIT of Rs. 1,10,43,576/- on account of the contract receipt is due to the reason that he has considered the entire deposit made in the bank account which includes the mobilization advance received against the contract but only part of the said amount would be treated as contract receipts for the year under consideration being adjusted against the running bills value. However, since the Assessing Officer has not conducted any enquiry therefore, we do not find any reason to interfere with the order of the Pr. CIT directing the Assessing Officer to examine this issue. We clarify that the Assessing Officer is free to examine and verify the details to be produced by the assessee on this issue without having any influence of the observation as the receipts of the Pr. CIT in the impugned order. 22. Ground no. 6 is regarding the bank guarantee not reflected in the balance-sheet of the assessee. The learned AR of the assessee has submitted that the bank guarantee of Rs. 10 Crore and additional guarantee of Rs. 3 Crore were given by M/s Rithwik Projects Private Limited in its indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k guarantees were issued by Punjab National Bank in favour of Meja Urja Nigam Private Limited on behalf of M/s Ratna Infrastructure Project Private Limited. From these documents and records of bank guarantee, it is clear that these were not issued on behalf of the assessee Joint Venture and the amount was not blocked from the bank account of the assessee therefore, when the assessee has not made any payment towards these bank guarantee issued for performance security deposit as well as additional performance security deposits, then the question of the same being recorded in the balance-sheet of the assessee does not arise. The Commissioner has not even considered the bare fact as to who has arranged these bank guarantees or paid any sum towards the bank guarantee issued in favour of the Meja Urja Nigam Private Limited. Accordingly, the Assessing Officer is directed to verify the fact whether assessee was under obligation to furnish any bank guarantee or any amount was paid by the assessee towards bank guarantee in question and then decide this issue. 26. Ground no. 7 is regarding the directions to the Assessing Officer for verification of the violation of the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material in support thereof and consequently the impugned order passed is bad in law is liable to be cancelled. 4. The Ld. Pr. CIT is not justified to conclude that there is difference in the closing debtors, without appreciating the documents produced before the Ld. Pr. Commissioner of Income Tax under the facts and circumstances of the Appellant s case. 5. Without prejudice to the above, the learned Pr. Commissioner of Income Tax is not justified in comparing the sub-contract income of an amount of Rs. 36,78,20,764/- with the amount credited into the bank accounts and arriving at the so called difference in the debtors an amount being Rs. 8,63,86,084/-, under the facts and circumstances of the Appellant s case. 6. Further without prejudice to the above, the Learned Pr. Commissioner of Income Tax is not justified in following mixed accounting system, when the law permit following either mercantile accounting system or cash accounting system, under the facts and circumstances of the Appellant s case. 7. The Ld. Pr. Commissioner of Income Tax is not justified in asking the Appellant to submit the profit earned by the Sub contractors from the subcontract given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o revise the assessment order is a conscious view adopted by the learned assessing officer, which is not shown to be erroneous and consequently, the jurisdiction under section 263 of the Act stands ousted and accordingly the impugned order passed deserves to be cancelled. 16. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 17. In the view to the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity. 31. It is clear from the grounds of appeal for the assessment year 2012-13 that all the grounds are identical to the grounds raised for the assessment year 2011-12 except the alleged difference in the quantum of contract receipts. Since the issues are identical to the appeal for the assessment year 2011-12 therefore, our finding on these issues for the assessment year 2011-12 is applicable for the assessment year 2012-13 and accordingly, the impugned order of the Pr. Commissioner stands modified in terms of finding of assessment year 2011-12. 32. In the result, both the appeals of the assessee are partly al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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