M/s. MCML ECI Joint Venture, Bangalore V. Commissioner of Income Tax, Bangalore

ITA 2287/BANG/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5510 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 22-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Opportunity of being heard
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.2287 /BANG/2016 (ASST. YEAR 2012-13) M/S MCML ECI JOINT VENTURE, C-9, INDUSTRIAL ESTATE, YELAHANKA, BENGALURU. . APPELLANT VS. THE COMMISSIONER OF INCOME-TAX (APPEALS), BENGALURU . RESPONDENT APPELLANT BY : SHRI K.R VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI C.H SUNDAR RAO, CIT DATE OF HEARING : 21-2-2018 DATE OF PRONOUNCEMENT : 28-2-2018 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) -6, BANGALORE DATED 9/9/2016 FOR ASST. YEAR 2012-13. 2. BRIEFLY STATED, THE FACTS OF THE CASE, RELEVANT FOR DISPOSAL OF THIS APPEAL, ARE AS UNDER:- ITA NO.2287/B/16 2 2.1 THE ASSESSEE, A JOINT VENTURE FORMED BY MCML SY STEM PVT. LTD., AND ECI ENGINEERING & CONSTRUCTION CO. LTD., ENGAGED IN BUSINESS AS CONTRACTORS, FILED ITS RETURN OF INCOME FOR ASST. YEAR 2012- 13 ON 27/9/2012 FOR ASST. YEAR 2012-13 DECLARING NI L INCOME. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX A CT, 1961 (IN SHORT THE ACT) AND THE CASE WAS SUBSEQUENTLY TAKEN UP F OR SCRUTINY. THE ASSESSMENT WAS CONCLUDED U/S 143(3) OF THE ACT VIDE ORDER DATED 25/3/2015 WHEREIN THE ASSESSEES INCOME WAS DETERMI NED AT RS.11,06,46,881/-, IN VIEW OF DISALLOWANCE U/S 40(A )(IA) OF THE ACT OF A LIKE AMOUNT BY THE ASSESSING OFFICER (AO) FOR FAI LURE ON THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE A S WARRANTED BY THE PROVISIONS OF SEC. 194C OF THE ACT. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 25/3 /2015, FOR ASST. YEAR 2012-13, THE ASSESSEE FILED AN APPEAL BEFORE T HE CIT(A)-6, BANGALORE, WHICH WAS DISMISSED. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A)-6, BANGAL ORE DATED 9/9/2016, THE ASSESSEE HAS PREFERRED THIS APPEAL BE FORE THE TRIBUNAL WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS:- 1. FOR THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CIT[A] IS CONTRARY TO LAW, FAC TS AND CIRCUMSTANCES OF THE CASE TO THE EXTENT PREJUDI CIAL TO THE INTEREST OF THE APPELLANT AND AT ANY RATE IS OP POSED TO THE PRINCIPLES OF EQUITY. 2. THE LEARNED CIT (A)AS WELL AS THE ASSESSING OFFI CER OUGHT TO HAVE CONSIDERED THAT THE PROVISIONS OF SEC 194 C ITA NO.2287/B/16 3 CANNOT BE APPLIED IN CASE OF ASSESSE, AS THERE IS N O CONTRACTUAL OBLIGATION BETWEEN THE ASSESSE (JOINT VENTURE) AND ITS CONSTITUENTS, IGNORING THE JOINT V ENTURE AGREEMENT BETWEEN THEM AND HENCE SEC 194C IS NOT APPLICABLE. 3. THE ASSESSE WAS ONLY A SPECIAL PURPOSE VEHICLE ( SPV) FORMED FOR EXECUTION OF WORKS CONTRACT WITH RVNL. T HE JV PARTNERS IN TURN SUB-DIVIDED THE WORKS TO BE EXE CUTED, TO MCML SYSTEMS PVT LTD (MCML) & ECI CONSTRUCTIONS, FOR THEIR PART OF WORKS AS PER THE SUPPLEMENTARY JV AGREEMENT FOR SUPPLY AND EXECUTION OF CONTRACT BEARING ON SAME TERMS AND CONDITIONS WHICH RVNL IMPOSED ON JV. SO JV WILL BE PASSING ON ALL INCOME AND EXPENSES TO MCML WITHOUT ANY ADDING ANY PROFIT ELEMENT IN ITS TRANSACTIONS AS WELL AS TO EC I. EVERY BILL RAISED BY MCML OR ECI ON JV WILL BE IN TURN BE RAISED ON R VNL WIT/TOUT PROFIT ELEMENT IS ADDED AN D ACTUAL PROCEEDS FROM R VNL ON EACH BILL WILL BE PAS SED ON TO RESPECTIVE IV PARTNERS, TO MCML OR ECI BY THE ASSESSE. SINCE THE JV IS ACTING AS SPY, IT IS ONLY AN ENTITY WHICH PASSES ON THE ALL PROCEEDS TO THE MCML OR ECI AND EVENTUALLY, THERE IS NO CONTRACT INVOLVED, BEIN G A BACK TO BACK DIVISION OF WORKS.THE LEARNED CIT (A) HAVE NOT CONSIDERED/ TOTALLY IGNORED THE WHOLE MODU S- OPERANDI OF THE ASSESSE EXPLAINED DURING APPELLATE ITA NO.2287/B/16 4 PROCEEDINGS AND ABOUT NON- APPLICATION OF PROVISION S OF SEC 194C BUT CONFIRMED THE ADDITION OF RS 11,06,46, 881/- MADE BY THE ASSESSING OFFICER BY APPLYING THE PROVI SION OF SEC 40(A)(IA) OF THE ACT. 4. CIT (A) AS WELL AS ASSESSING OFFICER JUST RELIED ON THE WORDING OF 'SUB CONTRACTING CHARGES' UNDER THE SCHEDULE TO P&L ACCOUNT, NOT CONSIDERING THE SUBSTA NCE OF RELATIONSHIP AS WELL AS THE AGREEMENT BETWEEN TH E JV AND ITS CONSTITUENTS. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE AMOUNTS WERE PAID DURING THE PREVIOUS YEAR UNDER CONSIDERATION A ND, THEREFORE, THE PROVISIONS OF SEC.40(A)(IA) OF THE L T. ACT ARE NOT APPLICABLE. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 3.2 AT THE OUTSET, THE LD AR FOR THE ASSESSEE SUBMI TTED THAT BEFORE THE LD CIT(A), THE ASSESSEE HAD RAISED 4 GROUNDS OF APPEAL AND ONE ADDITIONAL GROUND WHICH ARE EXTRACTED AT PAGES 2 AN D 3 OF THE IMPUGNED ORDER. ACCORDING TO THE LD AR A READING O F THE IMPUGNED ORDER CLEARLY EVIDENCES THAT AFTER EXTRACTING THE G ROUNDS AND ADDITIONAL GROUNDS RAISED, THE LD CIT(A) PROCEEDED TO DISMISS THE ASSESSEES APPEAL IN TERMS OF THE ADDITIONAL GROUND S RAISED, WITHOUT ITA NO.2287/B/16 5 ADJUDICATING THE GROUNDS OF APPEAL AT S.NOS. 1 TO 4 RAISED BY THE ASSESSEE. IT WAS PRAYED THAT ON THIS SHORT POINT A LONE, THE MATTER BE RESTORED TO THE FILE OF THE LD CIT(A) FOR ADJUDICAT ING THE GROUNDS 1 TO 4 RAISED BY THE ASSESSEE. 3.3 THE LD DR FOR REVENUE, ON HIS PART, ALSO FAIRLY CONCEDED THAT THE GROUNDS S.NO. 1 TO 4 OF ASSESSEES APPEAL HAVI NG NOT BEEN ADJUDICATED BY THE LD CIT(A), THE SAME MAY BE RESTO RED TO HER FILE FOR ADJUDICATION. 3.4 WE HAVE HEARD THE PARTIES AND PERUSED AND CAREF ULLY CONSIDERED THE MATERIAL ON RECORD. AS SUBMITTED BY THE COUNSE LS ON BOTH SIDES IT IS CLEARLY EVIDENT FROM A READING OF THE IMPUGNED O RDER THAT THE LD CIT(A) HAS DISPOSED OFF THE ASSESSEES APPEAL AFTER ADJUDICATING ONLY THE ADDITIONAL GROUND RAISED AND WITHOUT ADDRESSING /ADJUDICATING THE GROUNDS AT S.NOS. 1 TO 4 LISTED OUT AT PAGE 2-3 OF THE IMPUGNED ORDER AND WHICH WE NOW EXTRACT HEREUNDER:- 1. THE ORDER PASSED BY THE LEARNED ASSESSING OFFIC ER IS NOT ACCEPTABLE AS IT IS AGAINST THE FACTS OF THE CASE AND PROVISIONS OF THE INCOME TAX ACT, 1961. 2. THE ID, ASSESSING OFFICER ERRED IN FACTS AS WELL AS IN LAW TO CONCLUDE THAT PROVISIONS OF SEC. 194 C AS ALSO SEC. 40(A)(IA) ARE APPLICABLE, WITHOUT APPRECIATING THE FACT THAT THERE IS NO CONTRACTUAL OBLIGATION BETWEEN JV AND JV PARTNERS. ITA NO.2287/B/16 6 3. THE ID. ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THE FACT THAT THE APPELLANT IS ONLY AND SPECIAL PURPOSE VEHICLE (SPV) FORMED BY JV PARTNERS TO ENABLE THEM TO OBTAIN THE CONTRACT AND THAT THE WORK IS ALSO DIVIDED IN BETWEEN THEM IN TE RMS OF THE JV AGREEMENT AND IN THE PROCESS OF ALLOTMENT OF WORK IN BETWEEN JV PARTNERS, NO ELEMENT OF SUB- CONTRACT WAS INVOLVED. 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ID. ASSESSING OFFICER IGNORED OUR SUBMISSIONS WITH REGA RD TO SECOND PROVISO TO SECTION 40(A)(IA) OF THE IT AC T 1961 THAT THE PAYEES (JV PARTNERS) HAVE PAID TAX ON THE THEIR RESPECTIVE INCOMES AND HENCE DISALLOWANCE U/S. 40(A)(IA) IS CONTRARY TO THE PROVISIONS.' IN VIEW OF THE FACT THAT THE AFORESAID GROUNDS (SU PRA) HAVE NOT BEEN ADJUDICATED BY THE LD CIT(A) IN THE IMPUGNED O RDER, WE RESTORE THESE GROUNDS TO THE FILE OF THE LD CIT(A) FOR CONS IDERATION AND ADJUDICATION AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS/SUBMI SSIONS WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY . 4. SINCE WE HAVE RESTORED THE GROUNDS RAISED BY ASS ESSEE BEFORE THE LD CIT(A) BACK TO HER FILE FOR ADJUDICATION, WE DO NOT DEEM IT ITA NO.2287/B/16 7 PROPER TO ADJUDICATE ON THE MERITS OF THE GROUNDS N OS. 1 TO 6 RAISED BEFORE US (SUPRA) AT THIS JUNCTURE. 5. IN THE RESULT, THE ASSESSEES APPEAL FOR ASST. Y EAR 2012-13 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH FEBRUARY, 2018 . SD/- SD/- (SUNIL KUMAR YADAV) (JAS ON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED : 28/2/2018 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVA TE SECRETARY, ITAT, BANGALORE.