ITO, Dehradun V. M/s. Goel Associates, Dehradun

ITA 3800/DEL/2011

• Counselvise Citation: 380020114 RSA 2011
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 09-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Section: 194C; 147; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C: NEW DELHI) BEFORE SHRI S.V.MEHROTRA,ACCOUNTANT MEMBER VS. SHRI I.C. SUDHIR, JUDICIAL MEMBER ITA NO.3800 /DEL/ 2011 (ASSESSMENT YEAR :2006-07) ITO VS. GOEL ASSOCIATES WARD-2(1), 95, NEHRU COLONY 13-A, SUBHASH ROAD DEHRADUN DEHRADUN AAHFG1738G (APPELLANT) (RESPONDENT) C.O NO. 214/DEL/2012 GOEL ASSOCIATES VS. ITO 95, NEHRU COLONY WARD-2(1), DEHRADUN 13-A, SUBHASH ROAD AAHFG1738G DEHRADUN ASSESSEE BY :NONE, WRITTEN OBJECTION FILED REVENUE BY : SHRI SATPAL SINGH, SR. D.R ORDER PER I. C. SUDHIR, JUDICIAL MEMBER: ITA NO. 3800/DEL/2011 THE REVENUE HAS QUESTIONED FIRST APPE LLATE ORDER ON THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN ANNULLING THE ASSESSMENT ORDER UNDER CONSTRUCTION W HILE SOLE ISSUE FOR CONSIDERING WAS WHETHER THE AO WAS CORREC T IN DISALLOWING THE DEDUCTION OF RS.13,57,000/- BY APPL YING THE PROVISIONS OF SECTION 40 (A) (IA) OF THE I.T ACT 1 961. ITA NO. 3800.DEL.2011 2 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ANNULL ING THE ASSESSMENT ORDER UNDER CONSIDERATION BY AGREEING TH AT THE AGREEMENT BETWEEN THE PARTIES (ASSESSEE FIRM AND SH RI R.N. GUPTA(HUF) WAS NOT DRAFTED PROPERLY, WITHOUT APPRE CIATING THAT THIS ASPECT HAS NO BEARING ON THE BASIC FACT T HAT THERE WAS A VALID CONSTR4ACT IN WRITING BETWEEN THE PARTIES, WH ICH COULD HAVE BEEN EVEN ORAL AND IN WHICH SITUATION, QUESTIO N OF THE ERROR IN DRAFTING OF THE CONTRACT WOULD NOT HAVE AR ISEN. 3. THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN MAKIN G A CONTRADICTORY OBSERVATION THAT A CONTRACTOR WORKS F OR AN AGREED CONSIDERATION WHICH IS DECIDED BEFORE HAND AND, THE REFORE, LD. CIT(A) HAS MISSED THE VERY FACT THAT THERE WAS INDE ED SUCH AN AGREEMENT FOR AN AGREED CONSIDERATION. 4. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE SECOND PARTY WAS NOT A CONTRACTOR EVEN WHILE THE ASSESSEE HIMSELF ADMITTED THT THERE WAS A WRITTEN CONTRACT/AGREEMENT WHICH IS EVEN CLAIMED TO HAVE CONTAINED A DRAFTING ERROR. 5. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE BUILDERS AGREEMENT WAS A JOINT VENTURE IN AS MUCH AS SHRI R.N. GUPTA(HUF) WAS PAID RS.13,57,000/- AS PAYMENT TO TH E CONTRACTOR. 6. THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN HOLDIN G THAT THE PROFIT OF THE ENTIRE PROJECT SHOULD BE CONSIDERED IN THE H ANDS OF AOP CONSISTING OF THE PAYEE CONTRACTOR I.E SHRI R.N. GU PTA(HUF) AND M/S GOEL ASSOCIATES I.E THE ASSESSEE IN AS MUCH AS BOTH THE PARTIES ARE INDEPENDENT OF EACH OTHER WHICH IS REFL ECTED FROM THE AGREEMENT BETWEEN THE PARTIES WHICH CLEARLY SHO WED THAT THE HUF WAS ENGAGED FOR CONSTRUCTION ON THE BASIS O F ITS LINE OF BUSINESS OF BEING ENGAGED IN THE CONSTRUCTION WORK. 7. THE DIRECTION OF LD. CIT(A) THAT ACTION U/S 147 OF THE I.T ACT, READ WITH SECTION 150(1) OF THE I.T ACT TO ASSESS S UCH INCOME IN THE HANDS OF THE AOP IS ALSO NOT CORRECT IN FACT AN D IN LAW AS THE PRAYER AND PAYEE IN THE INSTANT CASE CANNOT BE TAKE N TO BE AN AOP AS BETWEEN THE TWO PARTIES THERE IS A BUSINESS TRANSACTION I.E ONE WORKING AS A CONTRACTEE AND THE OTHER A CON TRACTOR AND IF ITA NO. 3800.DEL.2011 3 THE VIEW OF LD. CIT(A) IS ACCEPTED, IN ALL SUCH OR SIMILAR CASES THE CONTRACTEE AND THE BUILDERS WOULD HAVE TO BE AS SESSED AS AOP AN IDEA WHICH WOULD TOUCH THE LEVEL ABSURDITY. 2. THE SOLE ISSUE INVOLVED IN THE ABOVE G ROUNDS IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F RS.13,57,000/-MADE BY THE A.O U/S 40 (A) (IA) OF THE I.T ACT 1961. 3. NONE APPEARED ON BEHALF OF THE ASSESS EE ON EARLIER OCCASIONS ALSO, HOWEVER, IN RESPONSE TO THE NOTICES ISSUED TO THE A SSESSEE ON ITS ADDRESS GIVEN, IT HAS FILED WRITTEN OBJECTIONS VIDE LETTER DATED 15/7 /2013 WITH REQUEST TO CONSIDER THE SAME. WE THUS HEARD AND CONSIDERED THE ARGUMEN TS ADVANCED BY THE LD. DR IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW AND THE WRITTEN REPLY FILED BY THE ASSESSEE. 4. THE RELEVANT FACTS ARE THAT AN AGREEME NT BETWEEN MR. RAJENDRA GOEL & MR. PRAVEEN GOEL OF GOEL ASSOCIATES ON ONE PART AND SHRI R.N. GUPTA(HUF) ON THE OTHER PART WAS ENTERED INTO FOR CONSTRUCTION ON THE LAND OWNED BY MR. RAJENDRA GOEL & MR. PRAVEEN GOEL. THE FATHER-SON M R. RAJENDRA GOEL & MR. PRAVEEN GOEL WERE SHOWN AS OWNERS OF PLOT OF LAND M EASURING 392.2 SQUARE METERS SITUATED AT 6, CROSS ROAD, DEHRADUN. AS PER THE AGREEMENT THE FATHER-SON HAD NO EXPERIENCE IN CONSTRUCTION OF BUILDING AND S ECOND PARTY WAS BUILDER ENGAGED IN THE BUSINESS OF CONSTRUCTION. IT UNDERT OOK CONSTRUCTION OF 9,000 SQUARE FTS APPROXIMATELY ON THE AFORESAID LAND. AS PER THE AGREEMENT THE FIRST ITA NO. 3800.DEL.2011 4 PARTY WOULD GET A PLAN SANCTIONED AT ITS OWN COST A ND WOULD PAY RS.400 PER SQUARE FT TO THE SECOND PARTY FOR ITS WORK. BOTH T HE PARTIES WOULD SHARE THE SALE PROCEEDS EQUALLY BETWEEN THEMSELVES. CONSTRUCTIVE POSSESSION OF THE LAND WAS HANDED OVER TO THE SECOND PARTY FOR PURPOSE OF THE CONSTRUCTION. THE AO AFTER PERUSING THE AGREEMENT CAME TO THE CONCLUSION THAT SHRI R.N. GUPTA(HUF) SITUATED IN THE CAPACITY OF A CONTRACTOR AND HENCE TAX WAS DEDUCTIBLE AT SOURCE ON THE PAYMENT MADE TO HIM. SINCE SHRI R.N. GUPTA(HUF ) HAD FAILED TO DEDUCT TDS AT SOURCE ON THE SAID PAYMENT. THE AO DISALLOW ED THE DEDUCTION FOR RS.13,57,000/- BY INVOKING THE PROVISIONS OF U/S 40 (A) (IA) OF THE I.T ACT. THE LD. CIT(A) HAS, HOWEVER, DELETED THE DISALLOWANCE W ITH DIRECTION TO THE AO TO TREAT THE PROFIT OF THE ENTIRE PROJECT IN THE HANDS OF THE GROUP IN THE STATUS OF AOP AND TO MAKE ASSESSMENT ACCORDINGLY BY INITIATING AC TION U/S 147 OF THE ACT READ WITH SECTION 150(1). THE LD. CIT(A) DIRECTED FURTH ER THAT THE TAX ACTUALLY PAID BY THE TWO PARTIES AGAINST INCOME FROM THE PROJECT SHOWN BY THEM INDEPENDENTLY BE ALLOWED AS REMISSION FROM THE TAX LIABILITY OF T HE AOP AND ONLY THE NET ADDITIONAL TAX LIABILITY, IF ANY, IS IMPOSED ON THE AOP. HE CLARIFIED FURTHER THAT IF THE INCOME FROM PROJECT ACCRUED OVER A PERIOD EXTEN DING MORE THAN A SINGLE PREVIOUS YEAR, THE PROFIT SHALL HAVE TO BE DETERMIN ED AND BROUGHT TO TAX FOR THE RELEVANT PREVIOUS YEAR. THIS ACTION OF THE LD. CIT (A) HAS BEEN QUESTIONED BY THE REVENUE. ITA NO. 3800.DEL.2011 5 5. IN SUPPORT OF THE GROUNDS THE LD. DR HA S BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER, WHICH WE HAVE DISCUSSED HEREINABO VE. THE ASSESSEE IN ITS WRITTEN REPLY HAS TRIED TO JUSTIFY THE FIRST APPELL ATE ORDER AND HAS REITERATED ITS SUBMISSION MADE BEFORE THE AUTHORITIES BELOW. RELI ANCE HAS ALSO BEEN PLACED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. S. RAJAMANNA, (2010) 329 ITR 626 (KAR) ON THE COMPLETI ON OF SALE. 6. THE GRIEVANCES OF THE REVENUE ARE THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT AGREEMENT BETWEEN THE PARTIES I.E A SSESSEE FIRM AND SHRI R.N. GUPTA(HUF) WAS NOT PROPERLY DRAFTED; THERE WAS AN A GREEMENT BETWEEN THE PARTIES FOR AN AGREED CONSTRUCTION WORK; IN HOLDING THAT SECOND PARTY WAS NOT A CONTRACTOR, BUILDERS AGREEMENT WAS A JOINT VENTURE AND THAT THE ENTIRE PROJECT SHOULD BE CONSIDERED IN THE HANDS OF THE AOP. THE DIRECTION OF THE LD. CIT (A) THAT ACTION U/S 147 OF THE ACT READ WITH SECTION 15 0(1) TO ASSESS INCOME IN THE HANDS OF THE AOP HAS ALSO BEEN QUESTIONED BY THE RE VENUE. 7. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND WRITTEN REPLY OF THE ASSESSEE, WE FIND THAT THE LD. CIT(A) HAS EXAMINED THE TERMS AND CONDITIONS OF THE AGREEMENT BETWEEN GOEL ASSOCIATES AND SHRI R.N. GUPTA(HUF) TO ASCERTAIN THE VERY NATURE OF THE AGREEMENT TO VE RIFY THE EXACT RELATION BETWEEN GOEL ASSOCIATES AND SHRI R.N. GUPTA(HUF) FOR THE AP PLICATION OF U/S 40 (A) (IA) OF THE I.T ACT. IT IS AN ESTABLISHED PROPOSITION O F LAW THAT IT IS ALWAYS THE VERY ITA NO. 3800.DEL.2011 6 NATURE OF THE AGREEMENT AND NOT MERELY ITS WORDINGS WHICH IS TO BE ASCERTAINED FOR PROPER APPLICATION OF THE PROVISIONS OF THE LAW . WE HAVE DISCUSSED HEREINABOVE WHILE NARRATING THE FACTS OF THE CASE T HAT M/S GOEL ASSOCIATES CONSISTING OF FATHER & SON MR. RAJENDRA GOEL AND MR . PRAVEEN GOEL AS ONE PART AND SHRI R.N. GUPTA(HUF) AS SECOND PART HAD ENTERE D INTO AN AGREEMENT FOR CONSTRUCTION ON THE LAND OWNED BY FATHER AND SON. AS PER THE AGREEMENT THE FIRST PARTY AGREED TO GET THE PLAN SANCTIONED AT ITS OWN COST AND THEY ALSO AGREED TO PAY RS.400 PER SQUARE FT TO THE SECOND PARTY FOR ITS CO NSTRUCTION WORK. IT WAS FURTHER AGREED UPON THAT BOTH THE PARTIES WOULD SHARE THE S ALE PROCEEDS EQUALLY BETWEEN THEMSELVES. THE ASSESSING OFFICER DISALLOWED THE E NTIRE EXPENDITURE U/S 40(A)(IA) ON THE GROUND THAT THE PAYMENT OF RS.13,5 7,000/- WAS PAYMENT OF CONSTRUCTION OF FLAT AND COMES UNDER THE PURVIEW OF SECTION 194C OF THE ACT. THE LD. CIT (A), HOWEVER, AFTER EXAMINING THE TERMS AND CONDITIONS OF THE SAID AGREEMENT CAME TO THE CONCLUSION THAT IT WAS A JOIN T VENTURE BETWEEN THE TWO PARTIES OF THE AGREEMENT. HE OBSERVED THAT AS PER THE AGREEMENT, THE FIRM HAD NO EXPERIENCE IN CONSTRUCTION, HENCE ITS ROLE IN THE P ROJECT WAS APPARENTLY PASSIVE. AS PER THEIR ACCOUNTS IT INCURRED VARIOUS EXPENSES ON MAP APPROVAL CHARGES, COMPUTING CHARGES, LAND DEVELOPMENT AND CONSTRUCTIO N OF BOUNDARY WALLS, SALARY TO SUPERVISOR, CHARGES OF TEMPORARY CONNECTIONS OF WATER AND ELECTRICITY, BROKERAGE CHARGES ETC. THE LD. CIT(A) ON THE BASIS OF THESE OBSERVATIONS CAME ITA NO. 3800.DEL.2011 7 TO THE CONCLUSION THAT THE AGREEMENT SUGGEST THAT W HILE CONSTRUCTION WAS DONE BY SHRI R.N. GUPTA(HUF), THE ASSESSEE PARTICIPATED IN THE BUSINESS IN OTHER AREAS. 8. KEEPING ALL THESE RELEVANT ASPECTS OF TH E AGREEMENT, WE ARE OF THE VIEW THAT THE AGREEMENT INDEED WAS NOT ONLY FOR CONSTRUC TION BUT IN TOTALITY A JOINT VENTURE SHARE THE SALE PROCEEDS OUT OF THE PROJECT WITH EFFORTS OF THE SECOND PARTY AND THUS LD. CIT(A) HAS RIGHTLY COME TO THE CONCLU SION THAT THE AGREEMENT WAS NOTHING BUT A JOINT VENTURE. WE THUS DO NOT FIND I NFIRMITY IN SUCH ACTION OF THE LD. CIT (A). ON THE BASIS OF THIS FINDING THAT PRO JECT WAS A JOINT VENTURE, THE LD. CIT (A) IN OUR VIEW HAS RIGHTLY DIRECTED THE AO TO ASSESS THE INCOME TREATING THE INCOME AS OF AOP. FURTHER DIRECTION HAS BEEN GIVEN BY THE LD. CIT(A ) TO THE AO FOR A JUST AND PROPER ASSESSMENT. THE RELEVANT PARA NO.1.6 OF THE FIRST APPELLATE ORDER IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE:- THE CORRECT TAX TREATMENT IN THIS SITUATION W OULD BE TO CONSIDER THE PROFIT OF THE ENTIRE PROJECT AT THE AO P LEVEL. THAT WOULD REQUIRE RECASTING OF THE ACCOUNTS AND DETERMI NATION OF PROFIT AT THE LEVEL OF THE AOP. THE SALE PROCEEDS OF THE PROJECT AND MISCELLANEOUS INCOME, IF ANY, WOULD CONSTITUTE THE RECEIPT OF THE BUSINESS. ON THE OTHER HAND, THE EXPENDITUR E INCURRED BY THE ASSESSEE(EXCEPT THE AMOUNT PAID TO THE OTHER PA RTY) AND THE EXPENDITURE INCURRED BY THE OTHER PARTY TOWARDS CON STRUCTION AND RELATED MATTERS WOULD CONSTITUTE THE EXPENDITUR E OF THE PROJECT. THE SURPLUS WOULD BE TAXABLE AS THE INCOM E OF THE AOP. THE AO IS DIRECTED TO INITIATE ACTION U/S 147 OF THE I.T ACT READ WITH SECTION 150(1) OF THE I.T ACT TO ASSE SS SUCH INCOME IN THE HANDS OF THE AOP. FOR SAKE OF FAIRNE SS, IT WOULD BE APPROPRIATE THAT THE TAX ACTUALLY PAID BY THE TW O PARTIES AGAINST INCOMES FROM THE PROJECT SHOWN BY THEM INDE PENDENTLY IS ALLOWED AS REMISSION FROM THE TAX LIABILITY OF T HE AOP AND ITA NO. 3800.DEL.2011 8 ONLY THE NET ADDITIONAL TAX LIABILITY, IF ANY, IS I MPOSED ON THE AOP. IT MAY BY CLARIFIED THAT, IF THE INCOME FROM THE PROJECT ACCRUED OVER A PERIOD EXTENDING MORE THAN A SINGLE PREVIOUS YEAR, THE PROFIT WOULD HAVE TO BE DETERMINED AND BR OUGHT TO TAX FOR THE RELEVANT PREVIOUS YEARS. WITH THIS DIRECTI ON, THE ASSESSMENT UNDER CONSIDERATION IS ANNULLED. 9. WE FIND THAT FIRST APPELLATE ORDER A S DISCUSSED ABOVE IS REASONED ONE, HENCE WE ARE NOT INCLINED TO INTERFERE THEREWITH. THE SAME IS UPHELD. THE ISSUE IS THUS DECIDED IN FAVOUR OF THE ASSESSEE AND RELAT ED GROUND NOS. 1 TO 7 ARE REJECTED. 10. IN RESULT APPEAL IS DISMISSED. C.O NO. 214/DEL/2012 11. CROSS OBJECTION HAS BEEN PREFERRED BY TH E ASSESSEE IN SUPPORT OF THE FIRST APPELLATE ORDER GIVING RELIEF TO THE ASSESSEE, WHIC H WE HAVE UPHELD IN THE ABOVE APPEAL PREFERRED BY THE REVENUE. THE CROSS OBJECTI ON IS THUS DISMISSED AS HAVING BECOME INFRUCTUOUS. 12. CONSEQUENTLY, THE APPEAL AND CROSS-OBJECTI ON BOTH ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30/09/2013. SD/- SD/- (S.V.MEHROTRA) (I.C. SUDHIR) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) DATED THE 30 TH DAY OF SEPTEMBER , 2013 R. NAHEED COPY FORWARDED TO ITA NO. 3800.DEL.2011 9 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DE LHI.