Joint Venture of MCL & MMCL (AOP), Baroda V. The ACITCircle-2, Baroda

ITA 2414/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0387 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 12-08-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Notional interest; Set aside
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 24.11.09 DRAFTED ON: 25.11.09 ITA NO.2414/AHD/2004 ASSESSMENT YEAR : 2001-02 JOINT VENTURE OF MCL & MMCL (AOP) CREATIVE CASTLE, 70, SAMPATRAO COLONY, PRODUCTIVITY ROAD, BARODA, 390 005 VS. ACIT, CIR. 2, AYKAR BHAVAN, BARODA. PAN/GIR NO. : AAAAJ0288L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.N.SOPARKAR A.R. RESPONDENT BY: SHRI C.K. MISHRA SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD.CIT(APPEALS)-II, BARODA, DATED 07.07.2004 IN APP EAL NO.CAB- II/427/2003-2004. 2. THE GROUND NO.1 OF APPEAL OF THE ASSESSEE REA DS AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW ON FACTS OF THE CASE IN UPHOLDING THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER WHO HAS TAKEN THE STATUS OF THE ASSESSEE AS AOP ON PROT ECTIVE BASIS BY RELYING ON THE ORDER FOR 1995-96, 96-97 & 97-98. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN LA W AND ON FACTS OF THE CASE IN NOT FOLLOWING THE ORDER FOR TH E EARLIER YEAR WHERE THE SAID ISSUE HAS BEEN HELD IN FAVOUR OF THE ASSESSEE BY PREVIOUS LEARNED COMMISSIONER OF INCOME TAX(APPEALS ). 3. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER DATED 23.05.2009 OF ITA NO .2414/AHD/2004 M/S. JOINT VENTURE OF MCL & MMCL (AOP) ASST.YEAR -2001-02 - 2 - THE TRIBUNAL FOR ASSESSMENT YEAR 1995-96 IN ITA NO. 1953/AHD/2001 AND FOLLOWING THE SAME, THE GROUND OF APPEAL SHOULD BE ALLOWED. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED W ITH THE ABOVE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE HAD DECLARED THE INCOME IN T HE STATUS OF AOP. THE LEARNED ASSESSING OFFICER HAS NOT ACCEPTED THE STAT US OF ASSESSEE AS THAT OF AN AOP AND OPINED THAT INCOME AND LOSSES BELONGS TO TH E INDIVIDUAL MEMBER COMPANIES AND ACCORDINGLY INCOME AND LOSSES ARE ASS ESSABLE IN THE HANDS OF THE INDIVIDUAL MEMBER COMPANIES IS CHARGEABLE IN TH E HANDS OF THE MEMBER COMPANIES. HOWEVER, AS THE ASSESSEE HAS FILED THE R ETURN OF INCOME AND TO PROTECT THE INTEREST OF THE REVENUE, HE HAS ASSESSE D THE ASSESSEE IN THE STATUS OF AN AOP ONLY ON PROTECTIVE BASIS. IN APPEAL, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT THE ASSESSEE COULD NOT HAVE ANY GRIEVANCE AGAINST THE ABOVE PROTECTIVE ASSESSMENT AND THE ISSUE OF PROTEC TIVE AND SUBSTANTIVE ASSESSMENT IS TO BE DECIDED IN THE HANDS OF THE MEM BER COMPANIES OF THE AOP. IN THIS VIEW OF THE MATTER, THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) HAS NOT DECIDED THE APPEAL OF THE ASSE SSEE ON MERITS AND DISMISSED THE APPEAL. BEING AGGRIEVED BY THIS ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE I S IN APPEAL BEFORE US. WE FIND THAT WHEN INCOME RETURNED BY A PERSON IS NO T ACCEPTED BY THE REVENUE AS HIS INCOME AND THE INCOME IS ASSESSED ONLY ON PR OTECTIVE BASIS THEN THE ASSESSEES RIGHT OVER THE INCOME IS NOT RECOGNIZED BY THE REVENUE AND THE ASSESSEE HAS VALID REASONS TO BE AGGRIEVED BY SUCH AN ORDER. HENCE, THE ASSESSEE CAN VALIDLY FILE APPEAL AGAINST SUCH ORDER WHICH SHOULD BE DECIDED BY THE APPELLATE AUTHORITY ON MERITS. IN THE INSTANT C ASE, IN OUR CONSIDERED VIEW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN NOT ITA NO .2414/AHD/2004 M/S. JOINT VENTURE OF MCL & MMCL (AOP) ASST.YEAR -2001-02 - 3 - ADJUDICATING THE ISSUE ON MERITS AND DISMISSING THE APPEAL OF THE ASSESSEE. WE THEREFORE, SET ASIDE THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) AND RESTORE THE MATTER BACK TO THE FIL E OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR ADJUDICATIO N AFRESH ON MERITS AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES IN ACCORDANCE WITH THE LAW. THUS, THIS GROUND OF APPEA L OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND NO FACT S OF THE CASE IN CONFIRMING THE ORDER PASSED BY THE LEARNED ASSESSIN G OFFICER WHO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND OF DEPRECIATION OF RS.10,44,586/-. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT FOLLOWING THE ORDER OF THE EARLIER YEAR WHERE THE CLAIM OF DEPRECIATION HAS BEEN ALLOWED AF TER DETAILED DISCUSSION IN A.Y. 96-97 & 97-98. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE INSTANT CASE HELD AS UNDER:- 3. THE FOURTH TO EIGHTH GROUNDS OF APPEAL ARE AGAI NST THE DISALLOWANCE OF DEPRECIATION CLAIMED AT RS.10,44,58 6/- ON THE ASSETS OF THE COMPANY, M/S. MARKET CREATORS LTD., WHICH IS CL AIMED TO BE ONE OF THE TWO MEMBERS OF THE APPELLANT AOP. THE LEARNED A SSESSING OFFICER HAS OBSERVED THAT THE APPELLANT FAILED TO FURNISH A NY EVIDENCE TO ESTABLISH THE TRANSFER OF OWNERSHIP OF THESE ASSETS TO THE APPELLANT AOP. THE APPELLANTS CONTENTION IS THAT, AS PER JOINT VE NTURE AGREEMENT DATED 25.10.1994, THE PROFIT /LOSS OF BOTH THE MEMBERS AR E TRANSFERRED TO JOINT VENTURE ; HENCE THE QUESTION OF TRANSFER OF OWNERSH IP OF ASSETS TO JOINT VENTURE DOES NOT ARISE. I HAVE CAREFULLY GONE THROU GH THE AFORESAID JOINT VENTURE AGREEMENT. THE AGREEMENT STIPULATES THE FOL LOWING:- (I) MCL & MMCL WILL DO THEIR BUSINESS INDIVIDUALLY BUT FOR ITS BUSINESS, MCL WOULD REQUIRE SUBSTANTIAL AMOUNT OF F UNDS WHICH WILL BE PROVIDED BY MMCL. (II) MMCL WILL PROVIDE FUNDS AMOUNTING TO RS.5 CRORES TO MCL WHICH WILL CARRY NOTATIONAL INTEREST @ OF 15% P ER ANNUM. ANY MUTUAL TRANSACTION OF FINANCE BETWEEN MC L & MMCL WILL BE CHARGED AT NOTIONAL INTEREST @ OF 18 % . ITA NO .2414/AHD/2004 M/S. JOINT VENTURE OF MCL & MMCL (AOP) ASST.YEAR -2001-02 - 4 - ALL THE SERVICES PROVIDED BY MCL TO MMCL WOULD BE B ILLED AT NOTIONAL MARKET RATE. (III) MCL & MMCL BOTH AGREED TO SHARE THEIR PROFITS EQUA LLY IN THIS JOINT VENTURE. (IV) THE BOOKS OF ACCOUNT SHALL BE CLOSED ON 31 ST MARCH OF EVERY YEAR AND THE PROFITS SHALL BE ASCERTAINED AS ON 31 ST MARCH OF EVERY YEAR. (V) MCL WILL DO THE BUSINESS OF MERCHANT BANKING AND WI LL ACT AS A MEMBER OF NATIONAL STOCK EXCHANGE AND OTC INDEPENDENTLY; AND MMCL WILL TO THE BUSINESS OF FIN ANCE AND LEASING, HIRE PURCHASE ETC. INDEPENDENTLY BUT T HE PROFIT OR LOSS OF BOTH WILL BE ASCERTAINED JOINTLY AND WILL BE SHARED EQUALLY IRRESPECTIVE OF VOLUME OF TURNOVER, PROFIT OR LOSS. I WOULD BE SEEN THAT BOTH THE COMPANIES PURPORTED T O BE THE MEMBERS OF THE APPELLANT AOP ARE ENVISAGED TO CARRY ON THEI R BUSINESS INDIVIDUALLY AND THE AGREEMENT IS ONLY FOR POOLING OF THE PROFIT S/LOSSES TO BE SHARED EQUALLY. HENCE, THERE IS NO TRANSFER OF BUSINESS AS SUCH. THAT COULD NOT BE BECAUSE IT IS MCL ALONE AND NOT THE PURPORTED AO P WHICH IS AUTHORISED TO CARRY ON THE BUSINESS AS MEMBER OF NA TIONAL STOCK EXCHANGE. THAT BEING THE CASE, THERE IS NO QUESTION OF TRANSFERRING THE OWNERSHIP OVER THE ASSETS TO THE PURPORTED AOP. THE RE IS NO CLAUSE IN THE AGREEMENT STIPULATING SUCH TRANSFER. 3.1 THE APPELLANTS PLEA THAT, SINCE PROFIT/LOSS OF BOTH THE MEMBERS ARE TRANSFERRED TO JOINT VENTURE, THE QUESTION OF T RANSFER OF OWNERSHIP OF ASSETS TO JOINT VENTURE DOES NOT ARISE, IS APPARENT LY UNTENABLE. OWNERSHIP OF THE ASSET BY THE ASSESSEE WHO CLAIMS D EPRECIATION IS SINE QUA NON FOR ALLOWANCE OF DEPRECIATION. THE AOP AND ITS MEMBERS ARE TWO SEPARATE AND INDEPENDENT ENTITIES UNDER THE INC OME TAX ACT. THE JOINT VENTURE AGREEMENT IN THE PRESENT CASE DOES NO T MERGE THE ENTITY OF COMPANIES INTO THE ENTITY OF THE AOP. THE AGREEM ENT JUST TO POOL PROFIT AND LOSS DOES NOT IN ANY MANNER FULFILL THE BASIC CONDITION OF OWNERSHIP OF ASSETS FOR ELIGIBILITY TO DEPRECIATION . SECTION 32 USES THE EXPRESSION OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. UNLESS BOT H THESE CONDITIONS OF OWNERSHIP BY THE ASSESSEE AND USER IN THE BUSINESS ARE SATISFIED, NO DEDUCTION UNDER SECTION 32 CAN BE ALLOWED. SINCE, T HE OWNERSHIP OVER THE ASSETS DOES NOT VEST WHOLLY OR PARTLY IN THE AP PELLANT AOP, IT IS NOT ENTITLED TO DEPRECIATION . AS HELD IN THE CASE OF T AMILNADU CIVIL SUPPLIES CORPORATION LTD. VS. CIT 249 ITR 214 (SC), WHERE A RICE MILL WAS VESTED IN THE ASSESSEE BY GOVERNMENT ORDERS BUT THE SALE DEED WAS NOT EXECUTED IN THE ASSESSEES FAVOUR, IT WAS NOT LEGALLY OWNED BY THE ASSESSEE SO AS TO MAKE IT ELIGIBLE FOR DEPRECATION UNDER SECTION 3 2. IN THE PRESENT CASE, EVEN THE CONSTRUCTIVE OWNERSHIP, LET ALONE LEGAL OW NERSHIP, DOES NOT ITA NO .2414/AHD/2004 M/S. JOINT VENTURE OF MCL & MMCL (AOP) ASST.YEAR -2001-02 - 5 - VEST IN THE APPELLANT. THE DEPRECATION WAS THEREFOR E, RIGHTLY DISALLOWED IN THE HANDS OF THE APPELLANT. 3.2 THE DEPRECIATION ALLOWED IN EARLIER YEARS BY TH E A.O./CIT(A) DOES NOT ESTOPP FROM THE CORRECT FACTUAL AND LEGAL POSIT ION IN THIS REGARD IN THIS YEAR, AS EACH YEARS PROCEEDINGS UNDER THE INC OME-TAX ACT ARE INDEPENDENT. SINCE THE BASIC TENOR OF THE JOINT VEN TURE AGREEMENT PROVIDING ONLY FOR POOLING OF PROFITS AND LOSSES WI THOUT TRANSFERRING THE BUSINESS OF EACH OF THE TWO MEMBERS TO THE AOP AND THE FACT THAT IT DOES NOT CONTAIN A CLAUSE FOR TRANSFER OF OWNERSHIP OVER THE ASSETS OF THE MEMBER COMPANIES TO THE AOP WERE NOT CONSIDERED BY THE AO/CIT(A) IN THE PRECEDING YEARS, THEIR ORDERS DO NOT CONSTITUTE PRECEDENT IN THIS YEAR. MOREOVER, NON CONSIDERATION OF THE DECISION OF THE APEX COURT IN THE CASE OF TAMILNADU CIVIL SUPPL IES CORPORATION LTD.(SUPRA) IN THE EARLIER YEARS ALSO MILITATES AGA INST RES JUDICATA AND COMPELS TO CONSIDER THE MATTER IN THE PERSPECTIVE O F CORRECT FACTUAL AND LEGAL POSITION AS DELINEATED ABOVE. THIS GROUND TH EREFORE FAILS. 8. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS GROUND OF APPEAL IS CONS EQUENTIAL TO THE DECISION OF THE TRIBUNAL IN RESPECT OF GROUND NO.1 OF THE APPEA L. HOWEVER, WE FIND THAT THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE COULD NOT EXPLAIN HOW THE ISSUE INVOLVED IN THIS GROUND OF APPEAL IS CONS EQUENTIAL TO THE DECISION IN RESPECT OF GROUND NO.1 OF THE APPEAL. WE FIND THAT IN THIS GROUND OF APPEAL, THE ISSUE IS ALLOWANCE OF DEPRECIATION IN RESPECT OF AS SETS OF WHICH THE JOINT VENTURE IS NOT THE OWNER OF THE ASSETS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT JOINT VENTURE, EVEN IF TREAT ED AS AN AOP IS NOT ENTITLED FOR DEPRECIATION AS ASSETS WERE OWNED BY MEMBER COM PANIES AND NOT THE ALLEGED JOINT VENTURE. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BEFORE US, TO CONTROVERT THE ABOVE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). WE THEREFORE, DO NOT FIND ANY GOOD RE ASON TO INTERFERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) IN RESPECT OF THIS ISSUE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9 THE GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATIN G THE FACTS OF THE CASE AND THE SUBMISSIONS MADE AND FILED AT THE TIME OF ITA NO .2414/AHD/2004 M/S. JOINT VENTURE OF MCL & MMCL (AOP) ASST.YEAR -2001-02 - 6 - HEARING OF THE APPEAL AND ALSO NOT FOLLOWING THE OR DER OF THE EARLIER YEARS. IT IS THEREFORE, PRAYED THAT THE ORD ER OF THE CIT(A) BE QUASHED AND SET ASIDE TO THE ABOVE EXTENT . 10. THIS GROUND OF APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO SEPARATE ADJUDICATION BY US. 11 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED AT THE CLOSE OF THE HEARING IN THE PRESENCE OF THE PARTIES IN THE COURT ON 24/11/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 24/11/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD