KBL PIL CONSORTIUM, MUMBAI V. ITO 27(2)(1), MUMBAI

CO 164/MUM/2016

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2649 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 29-09-2016
• Court: TRIBUNAL
• Assessee Lawyers: A K DHONDIAL
• Keywords: Rejection of books of accounts; Advance ruling
• Section: 44AD; 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ./ ITA NO. 130 4 / MUM/201 5 ( / ASSESSMENT YEAR : 2010 - 20 11 ) ITO 27(2)( 1), MUMBAI VS. M/S. KBL PIL CONSORTIUM, C/O. JAYESH SANGHRAJKA & CO., CHARTERED ACCOUNTANTS LLP UNIT NO.405 - 408, HIND RAJASTHAN CENTRE, D.S.PHALKE ROAD, DADAR (E), MUMBAI 400 014 ./ ./ PAN/GIR NO. : AAAAK7818F ( / APPELLAN T ) .. ( / RESPONDENT ) AND CROSS OBJECTION NO. 16 4 /MUM/201 6 ( ARISING OUT OF ITA NO. 1 304 /MUM/201 5 ) ( / ASSESSMENT YEAR : 2010 - 20 11 ) M/S. KBL PIL CONSORTIUM, C/O. JAYESH SANGHRAJKA & CO., CHARTERED ACCOUNTANTS LLP UNIT NO.405 - 408, HI ND RAJASTHAN CENTRE, D.S.PHALKE ROAD, DADAR (E), MUMBAI 400 014 VS. ITO 27(2)(1), MUMBAI (FORMERLY KNOWN AS ITO 22(2)(1), MUMBAI ./ ./ PAN/GIR NO. : AAAAK7818F ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : SHRI A.K.DHONDIAL /REVENUE BY : SHRI MARGAV SHUKLA / DATE OF HEARING : 24/10 /2016 / DATE OF PRONOUNCEMENT 05 / 12 / 201 6 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPE AL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), FOR THE ASSESSMENT YEAR 20 1 0 - 20 11 . 2. IN THE APPEAL SO FILED, REVENUE HAS TAKEN FOLLOWING GROUNDS: - ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 2 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT LIABLE FOR REJECTION AND THERE WAS NO REQUIREMENT FOR ESTIMATING THE PROFIT EVEN THOUGH THE ASSESSEE HAS SUB - CONTRACTED THE ENTIRE AMOUNT TO THE PARTICIPANT MEMBERS OF THE AOP WITHOUT FOLLOWING THE ACCOUNTING STANDARED - 7, APPLICABLE TO CONTRACTOR'. 2. '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 AMOUNTING TO RS.1,23,04,324/ - IN THE HANDS OF THE ASSESSEE EVEN T HOUGH 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 AOP EVEN THOUGH NO TDS U/ S 40(A)(IA) OF THE I.T. ACT, 1961 HAS BEEN DONE ON THE PAYMENT OF EXPENSES'. 4. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED'. 5. 'THE APPELLANT CRAVES LEAVE TO AMEND OR AL TER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY'. 3. IN THE CROSS OBJECTION ASSESSEE IS AGGRIEVED BY THE ACTION OF CIT(A) FOR CONFIRMING THE ADDITION MADE BY AO ON ACCOUNT OF WORK CONTRACT TAX RECEIVABLE WHICH HAVE ALREADY BEEN OFFERED TO TAX BY THE ASSESSEE. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 5. AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, F OR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2009 - 10, ORDER DATED 27/03/2015, WHEREIN E XACTLY SIMILAR ISSUE WAS DEALT BY THE TRIBUNAL AND HELD AS UNDER: - THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 20 - 7 - 2012, FOR THE A.Y.2009 - 10 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT. 2. TH E REVENUE IN ITS APPEAL (I.E. ITA NO.6024/M/2012 ) HAS TAKEN FOLLOWING GROUNDS : - ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 3 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT LIABLE FOR REJECTION AND THERE WAS NO REQUIREMENT FOR ESTIMATING THE PROFIT EVEN THOUGH THE ASSESSEE HAS SUB - CONTRACTED THE ENTIRE AMOUNT TO THE PARTICIPANT MEMBERS OF THE AOP WITHOUT 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 RS. 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 AN D IN LAW, THE LD CIT(A) ERRED IN ALLOWING THE EXPENSES OF WATER CHARGES AND SEWERAGE CHARGES IN THE HANDS OF THE ASSESSEE AOP EVEN THOUGH NO TDS HAS BEEN DONE ON THE PAYMENT OF EXPENSES'. 4. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED'. 3. THE ASSESSEE IN ITS APPEAL (I.E. ITA NO.6264/M/2012) HAS TAKEN FOLLOWING GROUNDS : - 1. ON GIVEN FACTS, CIRCUMSTANCES, AND JUDICIAL PRONOUNCEMENTS HON. CIT(APPEALS) ERRED IN FRAMING T HE APPELLATE ORDER WITHOUT CONSIDERING THE SUBMISSION OF THE APPELLANT AND ORDER OF HON. CIT (APPEALS) 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 I N THE FORM OF JOINT VENTURE, FILED ITS RETURN OF INCOME IN THE STATUS OF AOP. THE SPECIAL PURPOSE VEHICLE WAS MEANT FOR EXECUTING WORK OF MUNICIPAL CORPORATION OF BRIHAN MUMBAI. WHATEVER WORK WAS ALLOTTED TO ASSESSEE WAS SUB - CONTRACTED TO ITS TWO MEMBERS, NAMELY, KIRLOSKAR BROTHERS LIMITED AND PRATIBHA INDUSTRIES LIMITED. IN THE RETURN OF INCOME, ASSESSEE HAS SHOWN NIL INCOME ON THE PLEA THAT WHATEVER CONTRACT RECEIPTS FROM ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 4 MUNICIPAL CORPORATION OF BRIHAN MUMBAI, IT HAS PAID THE CORRESPONDING AMOUNT TO ITS TWO MEMBERS TO WHOM THE ENTIRE WORK HAS BEEN SUB - CONTRACTED. THE ASSESSEE SUBMITTED 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 E STIMATING 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 OBSE RVATION : - 3.3. I HAVE GONE THROUGH THE FACTS OF THE CASE AND CONSIDERED THE SAME AND TO MY UNDERSTANDING THE UNDISPUTED FACTS IN THE CASE IS THAT THE APPELLANT IS A CONSORTIUM OF M/S.KIRLOSKAR BROTHERS LTD. AND M/S.PRATIBHA INDUSTRIES LTD. AND IS WORKIN G UNDER THE NAME AND STYLE OF M/S.KBL PIL CONSORTIUM. THE A.O. HAS GONE THROUGH THE CONSORTIUM AGREEMENT AS REPRODUCED IN THE ASSESSMENT ORDER ,ABOVE AND AS PER THIS THE PARTICIPATION OF M/S,KIRLOSKAR BROTHERS LTD. IN CONSORTIUM IS 50% AND THAT OF M/S.PRAT IBHA INDUSTRIES LTD. IS ALSO 50%. IT IS NOTEWORTHY THAT NO DETAILS 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 RS.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 APPELLA NT HAS SHOWN TOTAL SALES/ INCOME FROM OPERATIONS AT RS.15,14,55,058/ - AND DEBITED SUB - CONTRACT AT RS.14,01,30,719/ - BESIDES DEBITING SEWERAGE CHARGES OF RS.37,74,780/ - AND WATER CHARGES OF RS.75,49,559/ - AND SHOWN NET PROFIT/LOSS AT NIL. THE A.O, HAS SAID THAT AS AND WHEN THE WORK IS PERFORMED, BILLS ARE RAISED BY CONSORTIUM TO THE CONTRACTEE AUTHORITY; MCGM. HOWEVER AS. PER A.O BEING A CONTRACTOR THE APPELLANT WAS UNDER OBLIGATION TO FOLLOW PERCENTAGE COMPLETION METHOD AS PER ACCOUNTING STANDARD - 7 WHICH TH EY HAVE 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 REPROD UCED 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 THEN REFU ND RECEIVABLE ON ACCOUNT OF WORK CONTRACT ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 5 TAX REFUND OF RS.25,79,162/ - HAS NOT BEEN INCLUDED IN THE INCOME. THE OBSERVATIONS OF A.O. ARE GIVEN IN PARA 3.3 AND 3.4. OF THE ASSESSMENT ORDER REPRODUCED ABOVE. 3.4. ON THE OTHER HAND. THE APPELLANT HAS SUBMITT ED THAT THE REVENUE HAVE BEEN REFLECTED ON THE BASIS OF COMPLETION OF WORK AS APPELLANT IS FOLLOWING ACCOUNTING STANDARD - 7 AND ACCORDING TO WHICH THEY ARE SHOWING PERCENTAGE COMPLETION METHOD OF ACCOUNTING AND RECOGNIZING 'REVENUE, THE BILLS RAISED BY CONS ORTIUM 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 REJE CT 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, THE BOOKS OF ACCOUNTS THE ABOVE ASSES SEE WERE REJECTED AND INCOME WAS ESTIMATED @ 10% OF GROSS SALES SHOWN BY THE ASSESSEE. THE BOOKS AND RESULTANT PROFIT & LOSS ACCOUNTS WERE REJECTED BECAUSE THEY WERE NOT SHOWING THE INCOME OR LOSS ARISE OUT OF THE COMPOSITE PROJECT UNDERTAKEN BY THE ASSESS EE FROM BMS TO EXECUTE. THE CONTENTION OF THE ASSESSEE WAS THAT THE PROJECT WAS DISSECTED IN TWO PARTS BETWEEN MIS KRILOSKAR BROTHERS LTD .AND M/S PRATHIBHA INDUSTRIES LTD, WHO ARE INCIDENTALLY THE MEMBERS OF THE ASSESSEE AOP AND INCOME EARNED FROM THE PRO JECT 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 AOP IS NON - RESIDENT COMPANY NOT ASSESSED TO TAX IN INDIA AND THE CONTENTION OF THE ASSESSEE REGARDING TAXABILITY OF INCOME EARNED FROM COMPOSITE PROJECT SEPARATELY IN THE HAND OF EACH MEMBERS OF THE AOP IS ACCEPTED. IN SUCH SITUATION, THE INCOME EARNED BY SUCH NON - RESIDENT COMPANY ON THE COMPOSITE PROJECT WILL REMAIN TO BE TAXED. RECENT JUDGMENTS PRONOUNCED BY THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI HAVE SUPPORTED THE VIEW TAKEN BY THE ASSESSING OFFICER IN THE ABOVE CASE OF M/S, KBL PIL CONSORTIUM THAT THE INCOME OF THE ASSESSEE SHOULD HAVE BEEN DETER MINED BY TREATING THE ASSESSEE AS AOP ON THE ENTIRE COMPOSITE ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 6 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 TRANS PORT 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 THE CASE OF ROXER MAXIMUM RESERVOIR PERFORMANCE WLL VS. DIT. IN VIEW OF ABOVE JUDGME NTS, YOUR HONOUR IS KINDLY REQUESTED TO DECIDE THE CASE IN FAVOUR OF REVENUE.' 3.6. I HAVE GONE THROUGH THE SUBMISSIONS AND I AM IN AGREEMENT WITH THIS PART OF THE A.O'S OBSERVATION THAT IN THE CASE OF CONTRACTOR WORKING OF PROFIT. HAS TO BE TAKEN AS PER PERCENTAGE COMPLETION METHOD FOR THE REASON THAT THERE IS CERTAINTY OF REVENUE WHICH IS CERTIFIED BY THE GOVERNMENT AUTHORITIES FROM TIME TO TIME. IN VIEW 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 PERCE NTAGE OR ON ACTUAL BASIS. THE CASE OF APPELLANT IS A CASE WHERE PROFIT HAS BEEN REFLECTED ON ACTUAL BASIS BY TAKING INTO ACCOUNT EXPENSES AND REVENUE ON ACTUAL BASIS. SAME IS SUPPORTED BY BOOKS OF ACCOUNTS .AD AUDIT REPORT IT CANNOT BE BRUSHED AWAY IN ORDE R TO ESTIMATE PROFIT WITHOUT FINDING THE DEFECT IN THE BOOKS OF ACCOUNT. THAT BEING NOT THE CASE THE PROFIT/ LOSS AS THE CASE MAY BE HAS TO BE TAKEN FOR FURTHER DISALLOWANCES AS PER PROVISIONS OF THE ACT. HENCE I FIND FORCE IN THE ARGUMENT TAKEN BY THE APP ELLANT THAT IF THE EXPENSES AND RECEIPTS ARE NOT DOUBTED THE BOOKS SHOULD NOT HAVE BEEN REJECTED AND NO ESTIMATION OF PROFIT SHOULD HAVE BEEN MADE IN THEIR CASE. 3.7 AS REGARDS SUB - CONTRACTING, THE APPELLANT HAS ALSO RELIED UPON DECISION GIVEN IN THE CAS E 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 S UCH THAT NO PROFIT ACCRUED TO THE RESPONDENTS - HELD THAT - ASSESSEE HAD NOT CONTRIVED A DEVISE TO EVADE OR EVEN AVOID TAX. THE ORIGINAL INTENTION ITSELF WAS FOR THE CONSORTIUM MEMBERS TO BID FOR AND PERFORM THE CONTRACT AND ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 7 TO DIVIDE THE PROFITS ARISING THERE FROM AMONG THEMSELVES IN ACCORDANCE WITH THE CONSORTIUM AGREEMENT. THE MEMBERS OF THE CONSORTIUM CONSTITUTED THE FIRM. NOT AS A DEVISE TO EVADE OR EVEN AVOID TAX, BUT UPON THE INSISTENCE OF THE MIDC THE RESPONDENT SATISFIES THE REQUISITE TESTS OF A PARTNE RSHIP FIRM CONSTITUTED IN ACCORDANCE WITH LAW - AGAINST REVENUE.' 3.8. 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 HORR'BLE BOMBAY HIGH COURT. I HAVE GONE THROUGH THE SAME WHICH DEALS WITH S EC.40A(2) AND SUPPORTS THE CASE OF THE APPELLANT AND HENCE I AM OF THE CONSIDERED OPINION THAT BOOKS OF ACCOUNT WERE NOT LIABLE FOR REJECTION AND THERE WAS NO REQUIREMENT FOR ESTIMATING PROFIT WHEN THE SAME HAS BEEN REFLECTED ON THE ACTUAL BASIS. IN VIEW O F THIS GROUND NOS.1 & 2 BOTH ARE ALLOWED. 4. GROUND NOS.3, 4, 5 & 6 DEALS WITH DISALLOWANCE OF WATER CHARGES AND SEWERAGE CHARGES. I HAVE GONE THROUGH THE ASSESSMENT ORDER WHEREIN A.O. HAS DISCUSSED THE ISSUE IN PARA 3 WHICH IS ALREADY REPRODUCED ABOVE. 4.1 DURING THE APPELLATE PROCEEDINGS, TILE APPELLANT HAS SUBMITTED AS UNDER. - '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 RECEIPT. RECEIPTS WHICH ARE CREDITED IN THE P&L ACCOUNT ARE NET RECEIPTS I.E. THE AMOUNT PA ID BY THE MCGM IS AFTER DEDUCTING WATER AND SEWERAGE CHARGES. THEREFORE, WATER AND SEWERAGE CHARGES ARE SHOWIN G IN P&L ACCOUNT OF THE ASSESSEE BECAUSE SUCH EXPENDITURE RELATES TO BUSINESS OF ASSESSEE AND ALLOWABLE U/S.37 OF INCOME TAX ACT, 1961. B. WATER AND SEWERAGE CHARGES ARE PAID BY ASSESSEE TO MCGM ON PRINCIPAL TO PRINCIPAL BASIS AS ASSESSEE AND MCGM ARE INDEPENDENT PARTIES AND THERE IS NO PRINCIPAL - AGENCY RELATIONSHIP SUBSISTING BETWEEN THE PARTIES TO ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 8 CONSTITUTE A WORK CONTRACT. DUE TO ABSENCE OF CO NTRACTOR- CONTRACTEE RELATIONSHIP. THERE IS NO LIABILITY TO DEDUCT TDS U/S 194C OF INCOME TAX ACT, 1961 AND RELIANCE IS ALSO PLACED ON JUDICIA L 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 RELIE D UPON MERLIYN SHIPPING CASE MERILYN SHIPPING & TRANSPORT V.ACIT ITAT SPECIAL BENCH, VISAKHAPATNARN BEFORE D. MAN MOHAN (VP) S.V.MEHROTRA (AM) AND MAHAVIR SINGH (JM) ITA NO 477/V12/2008 ASSESSMENT YEAR 2005 - 2006 DECIDED ON 29.3.2012 SECTION 40(A)(IA) PER M AJORITY SECTION 40(A)(IA) CAN APPLY ONLY TO EXPENDITURE WHICH IS OUTSTANDING AS ON 31ST MARCH AND DOES NOT APPLY TO EXPENDITURE WHICH IS PAID DURING THE PREVIOUS YEAR 4.3 IN VIEW OF THIS, APPELLANT WAS ASKED HOW WATER AND SEWERAGE CAN AGAIN BE DEDUCTED W HEN RECEIPTS ARE REFLECTED 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 RS.14,01,30,719 AND WATER AND SEWERAGE AT RS. 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 MERLIYN SHIPPING CASE MERILYN SHIPPING & TRANSPORT V.ACIT ITAT SPECIAL BENCH, VISAKHAPATNAM ALSO THESE AMOUNT ARE TO BE ALLOWED. IN VIEW OF THIS, GROUND NO.3,4,5& 6 ARE ALLOWED. 5.1 HAVING DECIDED IN GROUND NOS.3,4, 5 & 6 THAT EXPENSES INCURRED UNDER THE HEAD WA TER CHARGES AND SEWERAGE CHARGES ARE THE EXPENSES OF APPELLANT AND HENCE HAVE TO BE ALLOWED. WITH THE SAME LOGIC WAS FOR WORK CONTRACT TAX BEING PAID AND CREDIT CLAIMED BY THE APPELLANT, NOW ANY REFUND COMING OUT OF THE SAME HAS TO BE TAKEN AS INCOME OF TH E 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 RS.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. ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 9 AGAINST THE ABOVE ORDER OF CIT(A), BOTH THE REVENUE AND ASSESSEE ARE IN APPEALS BEFORE US. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORI TIES BELOW AND FOUND FROM THE RECORD THAT KBL PIL CONSORTIUM IS ASSOCIATION OF PERSON OF PRATIBHA INDUSTRIES LIMITED AND KIRLOSKAR BROTHERS LIMITED. KBL PIL CONSORTIUM IS AWARDED CONTRACT FOR CONSTRUCTION OF 900 MLD CAPACITY WATER PUMPING STATION AT BHANDU P COMPLEX BY MUNICIPAL CORPORATION OF BRIHANMUMBAI. THE ABOVE CONTRACT AWARDED WAS FURTHER SUB CONTRACTED BY ASSESSEE TO MEMBERS OF AOP I.E. PRATIBHA INDUSTRIES LIMITED AND KIRLOSKAR BROTHERS LIMITED IN AN 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; BEING A SPECIAL PURPOSE VEHICLE IN FORM OF JOINT VENTURE OF W HICH LEGAL STATUS BEING ASSOCIATION OF PERSONS, HAS NO RESOURCE TO EXECUTE THE PROJECT ON ITS OWN AND THUS THE SAME HAS BEEN SUB CONTRACTED TO THE CAPABLE MEMBERS AND RUNNING BILLS OF WORK COMPLETION IS CERTIFIED BY ENGINEERS OF MCGM. WITHOUT SHOWING ANY R EASON THE AO STATED THAT BOOKS OF ACCOUNT AND AUDITED FINANCIALS ARE NOT RELIABLE AND HENCE, HE REJECTED THE BOOKS OF ACCOUNTS AND MADE ADDITION BASED ON ESTIMATION OF NET PROFIT @ 10% OF THE GROSS RECEIPT BY REJECTING BOOKS OF ACCOUNT. THE AO ALSO DISALLO WED 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 ESTIM ATING 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, THE SAME WERE DISTRIBUTED AMONG TWO MEMBERS, WHO HAVE EXECUTED THE WORK CONTRACT. THUS, THERE IS NO INCOME IN THE HANDS OF THE ASSESSEE BEING A SPECIAL PURPOSE VEHICLE IN THE FORM OF JOINT VENTURE. THE CIT(A) HAS RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF M/S RAY BEL CONSORTIUM, ITA NO.639 OF 2009, DATED 25 - 06 - 2012, W HICH IS HAVING EXACTLY SIMILAR FACTS. WE HAD GONE THROUGH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WHEREIN UNDER THE SIMILAR FACTS IT WAS HELD THAT WHERE EXISTENCE OF CONSORTIUM IS NOT DOUBTED, INCOME ACCRUES IN THE HANDS OF ITS MEMBERS WHO A CTUALLY EXECUTE THE WORKS. IN THE INSTANT CASE WORK CONTRACTS HAVE BEEN EXECUTED BY ITS TWO MEMBERS AND SINCE CONTRACT ALLOTTED BY MUNICIPAL CORPORATION OF BRIHAN MUMBAI WAS SUBLET TO ITS TWO MEMBERS, ANY INCOME ACCRUES IN THE HANDS OF THE TWO MEMBERS ONLY AND NOT IN THE HANDS OF THE CONSORTIUM WHICH IS SPECIAL PURPOSE VEHICLE FOR ALLOTMENT OF WORK. SIMILARLY, THE ASSESSEE HAS NOT PAID ANY AMOUNT ON ACCOUNT OF WATER AND SEWERAGE CHARGES TO THE MUNICIPAL CORPORATION BUT IT WAS ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 10 DEDUCTED OUT OF ITS PAYMENT, TH EREFORE, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE SAME ON THE PLEA OF 40(A)(IA). 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 DELE TING THE ADDITION MADE ON ACCOUNT OF PROFIT ESTIMATION AS WELL AS DISALLOWANCE OF AMOUNT DEDUCTED BY MUNICIPAL CORPORATION ON ACCOUNT OF WATER AND SEWERAGE CHARGES. FURTHER THE CIT(A) HAS UPHELD THE ADDITION ON ACCOUNT OF TAX REFUND WHICH WAS DEDUCTED BY MUNICIPAL CORPORATION OF BRIHAN MUMBAI. AS PER OUR CONSIDERED VIEW, THE AMOUNT OF INCOME TAX REFUND IS NOT IN THE NATURE OF INCOME BUT WAS ON ACCOUNT OF REFUND OF TAX DEDUCTED BY MUNICIPAL CORPORATION AS NO INCOME ACCRUED IN RESPECT OF THESE CONTRACTS IN A SSESSEES HAND. THIS REFUND IS ALSO REQUIRED TO BE PASSED ON BY THE ASSESSEE TO THE TWO MEMBERS OF AOP. ACCORDINGLY, WE DIRECT THE AO TO VERIFY THE SAME AND DECIDE THE ISSUE AFRESH. 6. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE EXACTLY PARI - METERIA AND WHILE DECIDING THE APPEAL, CIT(A) HAS ALSO FOLLOWED THE ORDER OF THE PREDECESSOR. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10, WE DISMISS THE APPEAL FILED BY THE REVENUE. 7. SO FAR AS CROSS OBJECTION RAISED BY THE ASSESSEE IS CONCERNED, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO TO FIND OUT IF TH E ASSESSEE HAD ALREADY OFFERED WORK CONTRACT TAX RECEIVABLE BY THE ASSESSEE. AO HAS TO DECIDE THE MATTER AFRESH AFTER GIV ING DUE OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED, WHEREAS CROSS OBJECTION FILED BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 05 / 12 / 201 6 . RAVISH SOOD R.C.SHARMA JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 05 / 12 / 201 6 ITA NO.164/MUM/2016 & CO 1304/MUM/2015 KBL PIL CONSORTIUM 11 . . /PKM , . / PS / KARUNA, SR.P.S. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), M UMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//