DCIT, Circle-16(3), Hyderabad V. M/s. PCL-MVR JOINT VENTURE, Hyderabad

ITA 338/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77967 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V RAGHAVENDRA RAO
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.337 & 338/HYD/2014 ASSESSMENT YEAR 2008-09 & 2009-10 DCIT HYDERABAD VS. M/S. PCL-MVR JOINT VENTURE, HYDERABAD PAN AAAAP-5541-J (APPELLANT) (RESPONDENT) FOR REVENUE MR. SOLGY JOSE T. KOTTARAM FOR ASSESSEE MR. V. RAGHAVENDRA RAO DATE OF HEARING 19.06.2014 DATE OF PRONOUNCEMENT 27.06.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE TWO APPEALS ARE BY REVENUE AGAINST THE ORDER OF THE LD. CIT(A)-V, HYDERABAD DATED 21.10.20 13. REVENUE IS AGGRIEVED THAT LD. CIT(A) IGNORED THE FA CT THAT THE MARKET VALUE WAS ADOPTED ON THE SERVICES RENDERED A T ARMS LENGTH BASIS AND CIT(A) SHOULD HAVE SET ASIDE THE I SSUE INSTEAD OF DIRECTING THE A.O. TO DELETE THE ADDITION. 2. BRIEF FACTS OF THE CASE ARE THAT PROGRESSIVE CONSTRUCTION LIMITED, HYDERABAD (PCL) AND M VENKAT RAO INFRA PROJECTS PRIVATE LIMITED (MVR) HAVE JOINED TO GETHER AND FORMED JOINT VENTURES TO UNDERTAKE CONTRACT WORK FR OM NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI). THIS IS EVIDENCED BY TWO JOINT VENTURE AGREEMENTS EXECUTED ON 14-05-2 005 AND 2 ITA.NO.337 & 338/HYD/2014 M/S. PCL-MVR JOINT VENTURE, HYDERABAD. 23-07-2005. THE JVS WERE SUCCESSFUL IN GETTING FROM NHAI TWO CONTRACT WORKS. BOTH THE PROJECTS ARE IN THE STATE OF BIHAR. PCL WAS THE LEAD PARTNER IN BOTH THE JVS. 2.1. AFTER GETTING THE CONTRACTS ALLOTTED, THE JO INT VENTURE DISTRIBUTED THE WORK AMONG THE TWO MEMBERS VIZ., PCL AND MVR IN THE RATIO OF 98.75% AS THE SHARE OF PCL AND 1.25% AS THAT OF MVR IN BOTH THE JVS, IN PLACE OF T HE RATIOS IN THE RESPECTIVE JVS. THESE ARE EVIDENCED BY SUPPLEME NTARY JOINT VENTURE AGREEMENTS (SJVA'S) EXECUTED ON 26-10 -2005 IN RESPECT OF BOTH THE PROJECTS WB-10 AND WB-12. THE F IRST JOINT VENTURE WAS AWARDED BY THE NHAI IN THE PACKAGE NO. WB-12 FOR A CONTRACT PRICE OF RS.311,13,26,068/- . THE SECOND JOINT VENTURE WAS AWARDED BY NHAI THE PACKAGE NO. WB-10 F OR A CONTRACT PRICE OF RS.268,97,29,718/-. 2.2. IN THE PREVIOUS YEAR, RELEVANT TO THE ASSESSM ENT YEAR 2008-09 THE CONTRACT RECEIPTS SHOWN IN BOTH TH E CONTRACT WORKS WB-10 & WB-12 WERE RS.53,77,53,162/- WHICH HA VE BEEN SHARED BY PCL AND MVR IN THE RATIO OF 98.75% ( RS.53,1 0,31,248) AND 1.25% (RS.67,21,914) RESPECTIVELY. SI MILARLY, ALL THE ADVANCES, DEPOSITS, TDS, SALES-TAX, SUNDRY DEBT ORS AND BANK BALANCES IN THE BALANCE SHEET WERE SHOWN TO HA VE BEEN SHARED BY THE RESPECTIVE MEMBERS IN THE SAME PROPOR TION AS IN THE SJVAS I.E. 98.75% : 1.25%. 2.3 THE ASSESSING OFFICER (AO) OBSERVED THAT THOU GH THE TWO PARTIES TO THE JOINT VENTURES WERE EXECUTIN G THEIR RESPECTIVE PART OF THE WORK SEPARATELY, THE PAYMENT S BY NHAI FROM WHOM THE CONTRACT WAS OBTAINED WAS RECEIVED IN THE NAME OF PCL-MVR JOINT VENTURE AND THAT THE JOINT VE NTURE OPENED A BANK ACCOUNT WHEREIN THE CONTRACT RECEIPTS FROM 3 ITA.NO.337 & 338/HYD/2014 M/S. PCL-MVR JOINT VENTURE, HYDERABAD. NHAI WERE DEPOSITED AND DISTRIBUTED TO THE RESPECTI VE MEMBERS IN THE RATIO OF 98.75% : 1.25%. THE AO OPIN ED THAT THE JOINT VENTURE ALSO WAS REQUIRED TO RECOGNIZE IN COME OR LOSS FROM THE SAID CONTRACT WORKS, ALTHOUGH IT WAS GOT E XECUTED THROUGH ITS MEMBERS. THE AO WAS NOT SATISFIED WITH THE RETURN SHOWING NIL INCOME IN THE HANDS OF THE JOINT VENTUR E. ACCORDINGLY THE AO CALLED FOR THE EXPLANATION OF TH E JOINT VENTURE IN THIS REGARD AND AFTER ANALYZING ITS REPL Y COMPLETED THE ASSESSMENT BY REJECTING THE RETURN OF NIL INCOM E. THE AO COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.1,07,55,063/- BY APPLYING THE RATE OF ESTIMATE O F 2% ON THE CONTRACT RECEIPTS OF RS.53,77,53,162/-. HIS REASONI NG FOR THE ESTIMATION AT 2% OF THE TOTAL CONTRACT RECEIPTS DUR ING THE YEAR IS AS UNDER: 'WHETHER OR NOT, THE ASSESSEE DRAWS A P & L A/C, ITS RECEIPTS FROM NHAI AS PER BILLS SUBMITTED BY IT FOR WORK DONE CONSTITUTE ITS REVENUE RECEIPTS AND THE AMOUNT S DISBURSED BY IT TOWARDS GETTING SUCH WORK DONE ARE TO BE TREATED AS ITS EXPENSES. FOR THE SERVICES RENDERED BY THE JV NO INCOME WAS DECLARED BY THE ASSESSEE. IF AN UNRELATED HIRED PAR TY WAS TO TAKE UP THIS JOB OF CARRYING OUT THE WORK AS LAID DOWN IN SCHEDULE A AND B AND SUCH THIRD PARTY HAD BEEN A PERSON AT 'ARMS LENGTH', THE ASSESSEE WOULD CERTAIN LY HAVE DERIVED INCOME FOR THE SERVICES RENDERED TO SU CH OUTSIDER. THE ASSESSEE STILL RETAINED THE RISK AND RESPONSIBILITY IN PURSUANCE OF THE CONTRACT WITH NHAI. IN THE CIRCUMSTANCES, KEEPING IN VIEW THE MARKET VALUE OF SERVICES RENDERED, INCOME OF THE ASSESSEE IS ESTIMATED AT 2% ON THE GROSS RECEIPTS OF RS.53,77,53,162/- WHICH COMES TO 1,07,55,063/- FOR THE SERVICES RENDERED BY IT. VIEWED ALTERNATIVELY, 2% OF THE RECEIPTS ATTRIBUTABLE TO WORK IS ESTIMATED AS NET INCOME OF THE ASSESSEE FROM THAT PORTION OF THE WORK RECEIPTS, BY INVOKING THE PROVISIONS OF SEC 145 OF THE ACT. 4 ITA.NO.337 & 338/HYD/2014 M/S. PCL-MVR JOINT VENTURE, HYDERABAD. 2.4. A.O. WHILE ACCEPTING THAT THE CONTRACT WORK W AS DONE UNDER JOINT VENTURE (IN SHORT JV), ESTIMATE D THE INCOME APPLYING RATE OF 2% ON THE GROSS CONTRACT RE CEIPTS BY JV IN RESPECT OF SERVICES RENDERED TO THE INDIVIDUA L MEMBERS BY THE JV. IT WAS THE CONTENTION OF THE ASSESSEE TH AT JV HAS NOT RENDERED ANY SERVICES TO THE INDIVIDUAL MEMBERS EXCEPT FILING THE TENDER ON BEHALF OF JV AND SO NO INCOME NEED BE ESTIMATED. LD. CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AS WELL AS THE ORDER OF THE ITAT IN EARLIE R A.Y. 2007- 08 ASKED THE A.O. TO EXAMINE WHETHER THE INDIVIDUAL MEMBERS OF THE JV OFFERED THE INCOMES IN RESPECTIVE HANDS. DETAILS IN THE ORDER IN A.Y. 2009-10 INDICATES THAT ONE OF THE ASSESSEE PARTNER AT HYDERABAD ALSO OFFERED THE INCOME AND TH E OTHER MEMBER FROM VISAKHAPATNAM ALSO OFFERED THE RESPECTI VE SHARES IN THEIR RETURNS. FOLLOWING THE DIRECTIONS O F THE ITAT GIVEN IN A.Y. 2007-08, LD. CIT(A) MADE ENQUIRIES AN D CAME TO THE CONCLUSION THAT THE INCOMES AS PER THE ALLOTMEN T OF JV AGREEMENTS HAVE BEEN OFFERED IN INDIVIDUAL HANDS OF THE MEMBERS AND THE SAME CANNOT BE TAXED IN THE HANDS O F THE JV I.E., ASSESSEE. ACCORDINGLY, AO WAS DIRECTED TO DEL ETE THE ADDITION. REVENUE IS AGGRIEVED ON THE ABOVE. FACTS IN AY 2009- 10 ARE ALSO SIMILAR EXCEPT THE AMOUNT OF INCOME EST IMATED. 3. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. IN FACT, THIS ISSUE WAS ALREADY DECIDED BY THE ITAT IN ASSESSEES OWN CASE IN ITA.NO.1517/HYD/2011 DATED 21.09.2012 WHEREIN ITAT OPINED THAT A.O. SHOULD VER IFY WHETHER THE CORRESPONDING INCOMES AS PER THE ALLOTM ENT OF JV AGREEMENTS HAS BEEN OFFERED IN INDIVIDUAL HANDS AND IF SO, IT CANNOT BE TAXED IN THE HANDS OF THE JV I.E., ASSESS EE. FOLLOWING THIS DIRECTION OF THE ITAT IN EARLIER A.Y. LD. CIT( A) HIMSELF UNDERTOOK THE EXERCISE OF VERIFYING THE FACTS AND A FTER OBTAINING 5 ITA.NO.337 & 338/HYD/2014 M/S. PCL-MVR JOINT VENTURE, HYDERABAD. REMAND REPORT FROM THE RESPECTIVE A.OS. ALLOWED THE ASSESSEES CONTENTIONS. WE WERE ALSO INFORMED IN THE COURSE OF PRESENT PROCEEDINGS THAT A.O. IN A.Y. 2007-08 HAS PASSED CONSEQUENTIAL ORDER DELETING THE INCOMES AND DETERM INING THE TOTAL INCOME AS NIL VIDE HIS ORDER DATED 25.11.2013 . IN VIEW OF THIS, SINCE THE ORDER OF THE LD. CIT(A) IS IN CONFO RMITY WITH THE DIRECTIONS OF THE ITAT IN EARLIER YEAR, WE SEE NO R EASON TO INTERFERE WITH THE SAME. 4. ONE OF THE CONTENTIONS RAISED BY THE REVENUE IN THE APPEAL IS THAT 2% INCOME WAS ESTIMATED FOR THE SERVICES AT ARMS LENGTH BASIS. WE ARE UNABLE TO UNDERSTAND HOW THE A.O. COULD ARRIVE AT 2% PRICE ON ARMS LENGTH BASIS, WHEN THE JV INFORMS THAT NO SERVICES WERE RENDERED TO MEMBERS E XCEPT FILING THE TENDER JOINTLY AND ALLOCATING THE CONTRA CT WORK ACCORDING TO THE TERMS OF THE AGREEMENT. THERE SHOU LD BE SOME BASIS FOR DETERMINING THE SERVICES RENDERED AND THE N ESTIMATING THE INCOME. SINCE NOTHING WAS BROUGHT ON RECORD BY THE A.O. AND THE ADDITIONS MADE PURELY ON ASSUMP TIONS AND PRESUMPTIONS, THE SAME CANNOT BE SUSTAINED OTHE RWISE ALSO. HOWEVER, THIS ISSUE WAS NOT RAISED BEFORE THE LD. CIT(A) BUT SINCE THE GROUND WAS RAISED BEFORE US IT IS ADJ UDICATED ACCORDINGLY. 5. REVENUE ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO VS. ATCHAIAH 218 I TR 239 (SC) WHEREIN IT WAS HELD THAT IF IN THE LAW INCOME HAS TO BE TAXED IN THE HANDS OF THE AOP, IT HAS TO BE TAXED A SUCH AND MERE FACT THAT THE INCOME IS TAXED IN THE HANDS OF INDIVIDUAL MEMBERS OF AOP, IT DOES NOT BAR A.O. FROM TAXING AO P. WE ARE UNABLE TO UNDERSTAND HOW THE PRINCIPLES LAID DOWN I N THIS CASE BY THE HONBLE SUPREME COURT IS APPLICABLE TO THE F ACTS OF THE 6 ITA.NO.337 & 338/HYD/2014 M/S. PCL-MVR JOINT VENTURE, HYDERABAD. CASE. AS CAN BE SEEN FROM THE ORDER OF THE A.O. THE A.O. HAS NOT TAXED THE ENTIRE INCOME OF THE CONTRACTS IN THE HANDS OF AOP. AS ADMITTED THE CONTRACT WAS DIVIDED BETWEEN T WO PARTIES AND THE RESPECTIVE INCOMES WERE OFFERED IN THE INDI VIDUAL HANDS. THIS POSITION WAS ACCEPTED BY THE A.O. WHAT THE A.O. TAXED WAS THE SO-CALLED MARKET VALUE OF SERVICES RE NDERED BY THE JV TO THE MEMBERS AT 2% OF THE TOTAL CONTRACT. SINCE THE A.O. HAS NOT TAXED THE ENTIRE INCOME OF THE AOP, TH E PRINCIPLES LAID DOWN BY THE SUPREME COURT CANNOT BE APPLIED AT ALL. MORE OVER, THERE IS NOTHING ON RECORD TO INDICATE THAT T HE INCOME BELONGS TO THE JV. WHEN INDIVIDUAL MEMBERS EXECUTE D THEIR RESPECTIVE PORTION OF THE CONTRACTS AND OFFERED INC OMES ACCORDINGLY, WE ARE OF THE OPINION THAT REVENUE HAS WRONGLY RELIED ON THE PRINCIPLES LAID DOWN BY THE HONBLE S UPREME COURT IN THE GROUNDS RAISED BEFORE US. SINCE THE PR INCIPLES ARE NOT APPLICABLE TO THE FACTS OF THE CASE, WE REJECT THIS GROUND. CONSEQUENTLY, ALL GROUNDS RAISED BY THE REVENUE ARE REJECTED. 6. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.06.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 27 TH JUNE, 2014 VBP/- COPY TO 1. DCIT, HYDERABAD 2. M/S. PCL-MVR JOINT VENTURE, 65A GROUND FLOOR, RA GHAVA RATNA TOWERS, CHIRAG-ALI-LANES, HYDERABAD. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD 5. D.R. B BENCH, ITAT, HYDERABAD.