ACIT 19(2), MUMBAI V. ITD ITD CEM JV, MUMBAI

ITA 2990/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79484 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 18-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.2874/MUM/2013 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 M/S ITD ITD CEM JV ANAR CHAMBERS 5 B N SARKAR SARANI (ERSTWHILE 5 CHOWRINGHEE APRROACH) KOLKATA 700072 VS. ADDITIONAL COMMISSIONER OF INCOME TAX,- 19(2), MUMBAI. 3 RD FLOOR, PIRAMAL CHAMBERS MUMBAI 400 012. AAAJI0262Q APPELLANT RESPONDENT VK;DJ VIHY LA[;K / ITA NO.2990/MUM/2013 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX,- 19(2), MUMBAI. ROOM NO. 315, 3 RD FLOOR, PIRAMAL CHAMBERS MUMBAI 400 012. VS. M/S ITD ITD CEM JV 158, 1 ST FLOOR, DANI WOOLTEX COMPOUND VIDYANAGARI MARG, KALINA, SANTACRUZ (E) MUMBAI 400 098. AAAJI0262Q APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 1.02.2003 OF CIT(A) FOR THE A.Y. 2008-09. THE ASSESSEE HAS RAISED THE SOLIT ARY GROUND AS UNDER:- ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI SHRI VIJAY MEHTA REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI AMRITA SINGH DATE OF HEARING 23.07.2014 DATE OF PRONOUNCEMENT 30.07.2014 M/S ITD ITD CEM JV 2 | P A G E ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS)-30 HAS ERRED I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING MAIN TENANCE PROVISION OF RS. 50,19,826/- AS CONTINGENT LIABILITY . 2. THE ASSESSEE IS AN AOP HAVING A JOINT VENTRE AGR EEMENT WITH ITD CEMENTATION INDIA LTD., AND ITALIAN-THAI DEVELOPMENT PUBLIC COM PANY LTD., A FOREIGN ENTERPRISE. THE ENTERPRISE INVOLVED IN EXECUTION OF CONSTRUCTION OF VIADUCT AND STRUCTURAL WORK OF 5 ELEVATED STATION ON QUTUBMINAR-GURGAON STATION OF D ELH, MRTL. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN AN AMOUNT OF RS. 50,19,826/- AS MAINTENANCE PROVISION. THE ASSESSING OFFICER DISALLOWED THE SAI D PROVISION ON THE GROUND THAT CONTINGENT LIABILITY NOT ARISING IN PRASENTI. 3. ON APPEAL, THE ASSESSEE HAS CONTENDED THAT THE CON TRACTS UNDERTAKEN BY THE ASSESSEE ARE WITH THE WARRANTY LIABILITY WHICH IS I N ACCORDANCE WITH THE NORMAL INDUSTRY PRACTICE. THE CONSIDERATION AGREED IN THE CONTRACT INCLUDES CONSIDERATION FOR FUTURE LIABILITY WHICH MAY ARISE DUE TO ANY DEFECT THAT M IGHT CROP UP DURING THE WARRANTY PERIOD. IN ORDER TO MEET SUCH COST LIKELY TO ARISE IN FUTURE, THE ASSESSEE CREATED PROVISIONS IN THE BOOKS OF ACCOUNTS KNOWN AS MAINTE NANCE PROVISIONS. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE DELHI HIGH COUR T IN THE CASE OF CIT. VS. ERICSSION COMMUNICATIONS PRIVATE LIMITED ( 318 ITR 340). CIT( A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE B Y ASSESSING OFFICER. 4. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, THE LD. AUTHORIZ ED REPRESENTATIVE OF THE ASSESSEE HAS POINTED OUT THAT AN IDENTICAL ISSUE CAME BEFORE THIS TRIBUNAL IN THE CASE OF JOINT VENTURE PARTNER OF THE ASSESSEE NAMELY ITD CEMENTAT ION INDIA IN ITA NO. M/S ITD ITD CEM JV 3 | P A G E 4225/MUM/2012, WHEREIN THE TRIBUNAL HAS CONSIDERED AND DECIDED THE ISSUE IN PARA 65 TO 67 VIDE ORDER DATED 9.4.2014 AS UNDER:- 65. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED T HE MATERIAL PLACED BEFORE US. THE BUSINESS OF THE ASSESSEES JV IS ROAD CONSTRUCT ION, AND THAT AS PER THE NORMS, A CERTAIN PORTION HAS TO BE SET APART TO REC TIFY THE DEFECTS, TILL THE PERIOD OF CONTRACT AND TILL THE DEFECT PERIOD IS NOT LAPSED. 66. THESE ASPECTS, WE FIND DOES NOT EMERGE FROM THE ORDERS OF THE REVENUE AUTHORITIES AND WHICH FORMS THE BASIC ARGUMENT OF T HE ASSESSEE. THIS ASPECT, SINCE NOT GONE INTO AND NOT CONSIDERED, IN OUR VIEW IS ESSENTIAL. 67. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO RECONSIDER THE ARGUMENTS AFRESH IN THE LIGHT OF PARTICULAR TYP E OF BUSINESS AND ITS MODUS. 5. SINCE THE ISSUE IS COMMON IN BOTH THE CASES OF T HE JOINT VENTURE AND IN THE CASE OF OTHER PARTNER OF THE JOINT VENTURE, THE TRIBUNAL SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO CONSIDER THE SAME AFRESH IN TH E LIGHT OF THE NATURE OF THE BUSINESS AND ITS MODUS. THEREFORE, FOLLOWING THE EARLIER ORD ER OF THIS TRIBUNAL, THIS ISSUE IS SET ASIDE TO THE RECORD OF ASSESSING OFFICER TO CONSIDE R AND DECIDE IT AFRESH IN THE SAME TERMS. 6. THE REVENUE HAS RAISED FOLLOWING GROUNDS ;- (1) ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1 ,44,77,0 181 - U/S. 40(A)(IA) OF THE I.T. ACT BY HOLDING THAT THERE IS NO CONTRACT AT ALL BETWEEN AS SESSEE &. JV PARTNERS, THEREFORE, THERE IS NO REQUIREMENT OF DEDUCTION OF TAX AT SOUR CE ON REIMBURSEMENT OF EXPENDITURE INCURRED BY JV PARTNERS; UNLESS TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE BY VIRTUE OF THE NATURE OF RECEIPT IN THE HANDS OF THE ULTIMATE RECIPIENT, AND SUCH TAX HAS NOT BEEN DEDUCTED BY THE ASSESSEE WITHOUT APPRECIATING THE F ACTS: (A) THE PAYMENT MADE TO THE JOINT VENTURE PARTNER O N ACCOUNT OF REIMBURSEMENT OF THE ADMINISTRATIVE EXPENSE ALREADY INCURRED CAN VERY WE LL BE CONSTRUED AS CONTRACTUAL PAYMENT EVEN IN ABSENCE OF FORMAL WRITTEN CONTRACT AND TDS PROVISION OF THE IT ACT IS APPLICABLE ON THE SAME. (B) ONLY ON THE BASE OF ABSENCE OF A WRITTEN AGREEM ENT BETWEEN THE SAID PARTIES THE SAID PAYMENTS CANNOT BE TERMED AS NON CONTRACTUAL P AYMENT AND ESCAPE THE PROVISIONS OF SECTION 40(A)(IA) OF I.T. ACT. M/S ITD ITD CEM JV 4 | P A G E (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF RS. 7, 18,0351 - BEING DIFFERENCE -IN OPENING WORK-IN-PROGRESS SOLELY RELYING ON THE SUBMISSION O F THE ASSESSEE MADE DURING THE APPELLATE PROCEEDINGS THAT THE FIGURE OF WORK-IN PR OGRESS SHOWN IN P&L A/C FOR F.Y. 2006-07 HAS BEEN BROKEN UP INTO TWO PARTS IN THE BA LANCE SHEET AS ON 31 ST MARCH, 2007 WITHOUT APPRECIATING THE FACT THAT THERE WAS N O NECESSITY FOR THE ASSESSEE TO SEGREGATE THE AMOUNT AS SUCH AND IT IS BASIC AND ES TABLISHED FACT THAT CLOSING WIP OF ANY PREVIOUS YEAR WOULD BECOME OPENING OF WIP FOR T HE NEXT YEAR. 7. GROUND NO. 1 IS REGARDING DISALLOWANCE OF REIMBU RSEMENT OF EXPENDITURE U/S 40(A)(IA). 8. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF JOINT VENTURE PARTNER (SUPRA) OF THE ASSESSEE VIDE ORDER DATED 9.4.2014 IN PARA 18 TO 23 AS UNDER:- 18. WE HAVE HEARD THE DETAILED ARGUMENTS, PERUSED THE EVIDENCES PLACED IN APB AND THE WRITTEN SUBMISSIONS, PLACED BEFORE US. 19. IN SO FAR AS PROVISION OF SECTION 40(A)(IA) IS CONCERNED, IT IS VIRTUALLY ACCEPTED BY THE AO IN REMAND PROCEEDINGS, WHEREIN, THE AO SUBMI TTED, THE DEBIT NOTES RAISED BY THE ITD CEMENTATION INDIA LTD WERE TEST C HECKED AND THE AMOUNT OF EXPENDITURE CLAIMED BY THE ASSESSEE WAS VERIFIED AN D GENUINENESS OF THE SAME HAS BEEN PROVED BY THE ASSESSEE. IN SUCH CIRCUMSTA NCE, WE DO NOT FIND ANY REASON TO SUSTAIN THE DISALLOWANCE U/S 40(A)(IA) FO R NON DEDUCTION OF TAS, AS THE PAYMENTS MADE BY THE ASSESSEE TO ITD CEMENTATION WA S ONLY ON ACCOUNT OF SALARIES AND RELATED EXPENSES INCURRED BY THE COMPA NY. 20. NOW WE DIVERT OUR ATTENTION TO THE PROVISION OF SECTION 40(BA) 21. THE PROVISION IS VERY SPECIFIC, BECAUSE IT CALL S FOR DISALLOWANCE OF PAYMENT OF ANY KIND BY THE AOP TO ITS MEMBER. WE WOULD HAVE ACCEPT ED THE ARGUMENTS OF THE DR/AO/CIT(A), HAD THE MEMBER OF THE ASSESSEE WERE A N INDIVIDUAL, BECAUSE, THE PROVISION HAS THE ENRICHMENT OF MEMBERS THROUGH BACK DOOR. BUT HERE IS THE CASE OF A COMPANY, WHICH IS A SEPARATE JURIDICAL PE RSON, DISTINCT FROM ITS SHAREHOLDERS/DIRECTORS. IN THE INSTANT CASE, THE PA YMENT HAS BEEN MADE ON M/S ITD ITD CEM JV 5 | P A G E ACCOUNT OF REIMBURSEMENT OF AN EXPENSE MADE BY THE COMPANY. HERE THE QUESTION OF ENRICHMENT OF A MEMBER DOES NOT ARISE, AS HAS BEEN HELD EARLIER THAT THERE IS NO PROFIT ELEMENT. 22. IN SUCH A CIRCUMSTANCE, PROVISION OF SECTION 40 (BA) DOES NOT GET ATTRACTED. 23. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AND DELETE THE DISALLOWANCE O F RS. 4,99,19,593/-, AS RAISED IN GROUND NO. 2. 9. THE CIT(A) DELETED THE DISALLOWANCE MADE BY ASSE SSING OFFICER ON THE GROUND THAT THERE IS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE ON REIMBURSEMENT OF EXPENDITURE INCURRED BY THE JOINT VENTURE PARTNER. THERE IS NO DISPUTE THAT THE AMOUNT INVOLVED IS THE REIMBURSEMENT OF EXPENSES INCURRED BY THE JOINT VENTURE PARTNER, THEREFORE, FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF JOINT VENTURE PARTNER, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CI T(A) IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA). 10. GROUND NO. 2 IS REGARDING ADDITION ON ACCOUNT O F DIFFERENCE IN THE OPENING STOCK OF WORK IN PROGRESS. 11. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE J OINT VENTURE HAS SHOWN ITS WORK IN PROGRESS AS ON 31 ST MARCH 2007 AT RS. 7,47,90,212/- IN THE P&L ACCOUNT WHEREAS THE WORK IN PROGRESS SHOWN IN THE BALANCE SHEET IS RS. 7,40,41,177/-. ACCORDINGLY THE ASSESSING OFFICER MADE AN ADDITION OF RS. 7,18,035/ - BEING DIFFERENCE BETWEEN THE AMOUNT OF WORK IN PROGRESS SHOWN IN THE P&L ACCOUNT AND BALANCE SHEET. 12. ON APPEAL, CIT(A) DELETED THE SAID ADDITION BY CONSIDERING THE DETAILS AND THE REASON OF DISCREPANCY OF THIS AMOUNT. M/S ITD ITD CEM JV 6 | P A G E 13. BEFORE US, THE LD. DR HAS RELIED UPON THE ORDER OF ASSESSING OFFICER, WHEREAS THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE H AS REFERRED THE DETAILS OF THE DISCREPANCY IN THE AMOUNT OF WORK IN PROGRESS SHOWN IN P&L ACCOUNT AND BALANCE- SHEET BEING THE TDS RECEIVABLE AND WCT RECEIVABLE. HE HAS FURTHER SUBMITTED THAT CIT(A) HAS EXAMINED ALL THE DETAILS AND FOUND THAT SAME ARE FACTUALLY CORRECT AND, THEREFORE, THERE IS NO DISCREPANCY AND ERROR BECAUS E THE DIFFERENTIAL AMOUNT HAS BEEN SHOWN BY THE ASSESSEE IN THE CREDIT SIDE OF THE P&L ACCOUNT FOR A.Y. 2006-07 14. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFUL PERUSAL OF THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSING OFF ICER HAS MADE THE ADDITION OF THE DIFFERENCE OF RS. 7,18,035/- IN THE AMOUNT OF WORK IN PROGRESS SHOWN IN THE P&L ACCOUNT AND IN THE BALANCE SHEET. THE CIT(A) HAS N OTED THE FACT THAT THE AMOUNT SHOWN IN THE P&L ACCOUNT ALSO INCLUDES A SUM OF RS. 7,18,035/- ON ACCOUNT OF TDS RECEIVABLE AND WCT RECEIVABLE WHICH HAS BEEN SEPARA TELY SHOWN BY THE ASSESSEE ON THE CREDIT SIDE OF THE P&L ACCOUNT. AFTER CONSIDERI NG THESE FACT, THE CIT(A) HAS CONCLUDED IN PARA 7.4 AS UNDER :- 7.4 I HAVE PERUSED THE FACTS OF THE CASE AND ALSO ANALYSED THE BALANCE SHEET' FOR F.Y.2006-07. I FIND THAT THE ARGUMENTS GIVEN BY COU NSEL OF THE APPELLANT ARE FACTUALLY CORRECT. THE FIGURE OF WORK-IN-PROGRESS SHOWN IN P& L AI C FOR F.Y. 2006-07 HAS BEEN BROKEN UP INTO TWO PARTS IN THE BALANCE SHEET AS ON 31 ST MARCH, 2007. THERE IS NO DISCREPANCY AND THERE IS NO ERROR. ALSO, THE FIGURE OF WIP SHOWN IN THE P&L AI C FOR F.Y.2006-07 INCLUDES THE AMOUNT OF RS.7,15,035/- CO NSIDERED BY THE A.O. FOR ADDITION. THEREFORE, THE ADDITION BY THE ASSESSING OFFICER AM OUNTS TO DOUBLE TAXATION. THE ADDITION MADE BY THE A.O. IS THEREFORE, DELETED. 15. THIS FACTS HAS NOT BEEN DISPUTED BEFORE US THAT THE DIFFERENTIAL AMOUNT OF RS. 7,18,035/- HAS ALREADY BEEN OFFERED BY THE ASSESSEE TO TAX BY SHOWING THE SAME ON THE CREDIT SIDE OF THE P&L ACCOUNT FOR THE F.Y. 200 6-07. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) IN DELET ING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE IN WORK IN PROGRES S. M/S ITD ITD CEM JV 7 | P A G E 16. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THAT BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 3 0-7-2014 SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 30-7 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI