ACIT CIR 21(1), MUMBAI V. RELIANCE MICHIGAN JV -MITHI RIVER, MUMBAI

ITA 6690/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0849 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B PRUSETH
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

1 RELIANCE MICHIGAN JV IN THE INCOME TAX APPELLATE TRIBUNNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) ITA NO. 6690/MUM/2012 - AY 2009-10 ITA NO. 6706/MUM/2014 - AY 2010-11 ACI, CIR.2(1),MUMBAI V/S M/S RELIANCE MICHIGAN JV MITHI RIVER, 105/C, SHYAM KAMAL AGARWAL MARKET VILE PARLE (E), MUMBAI-57 PAN : AAJFR7731A APPELLANT RESPONDENT APPELLANT BY SHRI B PRUSETH, CIT-DR REVENUE BY SMT. AARTI VISSANJI DATE OF HEARING 18.04.2017 DATE OF ORDER .04.2017 O R D E R PER ASHWANI TANEJA, AM:- THESE APPEALS FILED BY THE REVENUE PERTAIN TO SAME ASSESSEE, BUT INVOLVE IDENTICAL ISSUES THEREFORE, THESE WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. FIRST, WE SHALL TAKE UP APPEAL FOR A.Y. 2009-10 FIL ED BY THE REVENUE ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT 2 RELIANCE MICHIGAN JV OF ALLEGED DIVERSION OF PROFIT TO M/S. RELCON & M/S MICHIGAN OF RS.2,92,15,369/- IGNORING THAT THE WORK HAS BEEN SU BCONTRACTED BETWEEN THE CONSTITUENTS ON PAPER ONLY AND THE PROF IT OF THE JV HAS BEEN DIVERTED IN THE HANDS OF ITS CONSTITUENTS BY CREATING LAYERS AND CLAIMING EXPENDITURE AT EACH LAYER TO RE DUCE THE PROFIT' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES BY M/S RELCON OF RS. 3,86,50,665/- IGNORING THAT THE COMPANY HAD OBTAINE D BOGUS BILLS FROM FIVE PARTIES AND THAT IF BOGUS EXPENDITURE HAS BEEN CLAIMED BY SUB-CONTRACTOR THEN THE CONTRACTOR IS ALSO RESPO NSIBLE BECAUSE THE CONTRACTOR HAS DIVERTED HIS PROFITS TO THE SUBC ONTRACTOR BY ALLOWING HIM TO CLAIM BOGUS EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE DISALLOWANC E MADE ON ACCOUNT OF ALLEGED BOGUS TRANSPORT EXPENSES OF RS. 2,36,12, 150/- CLAIMED BY M/S RELCON IGNORING THAT THE GENUINENESS OF THE EXPENSES CANNOT BE ESTABLISHED IN VIEW OF THE FACT THAT NEIT HER ANY RESPONSE WAS RECEIVED FROM THE CONCERNED TWO PARTIES IN REPL Y TO SUMMONS ISSUED NOT COULD THE ASSESSEE PRODUCE THE S AID PARTIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF RS. 3 CRS MADE ON ACCOUNTS OF ALLEGED BOGUS EXPENSES IN CAPTI VE CONSUMPTION CLAIMED BY M/S RELCON IGNORING THAT THE ASSESSEE FAILED TO JUSTIFY THE EXPENSES CLAIMED UNDER VARIOU S HEADS BY M/S. RELCON. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE MADE ON ACCOUNT OF ALLEGED BOGUS PROFESSIONAL FEES CLAIMED BY M/S MICHIGAN AMOUNTING TO RS. 20 LACS IGNORING THAT THE EXPENDITURE COULD NOT BE PROVED BY THE ASSESSEE DUR ING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND NO RECOURS E WAS TAKEN BY THE LD. CIT(A) UNDER RULE 46A OF THE INCOM E TAX RULES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE MADE ON ACCOUNT OF EXPENSES CLAIMED BY M/S MICHIGAN AMOUNTI NG TO RS. 1.09 CRS IGNORING THAT THE EXPENDITURE COULD NO T BE PROVED BY THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS AND 3 RELIANCE MICHIGAN JV NO RECOURSE WAS TAKEN BY THE LD. CIT(A) UNDER RULE 46A OF THE INCOME TAX RULES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADHOC DISA LLOWANCE OF RS. 1 CRORE MADE ON ACCOUNT OF ALLEGED BOGUS EXPENSES OUT OF DIVERSION CHARGESCLAIMED BY M/S MICHIGAN IGNORING THAT THE A SSESSEE FAILED TO PROVE THE GENUINENESS OF THE EXPENSES CLAIMED . 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE BOGUS EXPENSES CLAIMED BY THE SUB CONTRACTOR WHO IS HIMSE LF LEAD PARTNER OF THE JOINT VENTURE, HAS ULTIMATELY BEEN TRANSPORT ED UPTO THE WORK EXPENSES OF THE JOINT VENTURE I.E THE ASSESSEE . 9. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT SUBCONTRACTING THE WORK BETWEEN THE CONSTITUENTS ON PAPER DOES NOT MAKE THE ENTITY GENUINE AND IF IT IS PROVE D FROM FACTS THAT THE AWARDING OF SUBCONTRACT IS AN EYEWASH AND EXPEN SES CLAIMED BY THE SUBCONTRACTORS ARE NOT GENUINE, THEN PROFIT HAS TO BE TAXED IN THE HANDS OF THE JOINT VENTURE TO WHOM ORIGINAL CON TRACT WAS AWARDED. THE LD. CIT(A) HAS ALSO IGNORED THAT THE F ILING OF AUDITED ACCOUNTS DOES MAKE THE EXPENSES GENUINE. 10 THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER RESTORED.' 3. DURING THE COURSE OF HEARING IT WAS JOINTLY STATED BY LEARNED COUNSELS OF BOTH THE SIDES THAT THOUGH VARIOUS GROUNDS HAVE BEE N RAISED BY THE REVENUE, BUT THE ISSUE INVOLVED IS ONLY ONE, VIZ. THE TAXABI LITY OF PROFIT ARISING FROM THE CONTRACT RECEIPT SHOULD BE DONE IN THE HANDS OF ASS ESSEE FIRM OR IN THE HANDS OF ITS PARTNERS. 4. DURING THE COURSE OF HEARING, LD. CIT(DR) VEHEMENTL Y SUPPORTED THE ORDER PASSED BY AO AND IT WAS SUBMITTED BY HIM THAT ASSESSMENT OF INCOME SHOULD BE DONE IN THE CORRECT HANDS. THE ASSESSEE MADE AN ATTEMPT TO MAKE DIVERSION OF PROFIT THEREFORE, AO HAS RIGHTLY ASSES SED THE INCOME ARISING FROM 4 RELIANCE MICHIGAN JV CONTRACT IN THE HANDS OF ASSESSEE. HE PLACED RELIA NCE UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NAYANTARA VS CIT 207 ITR 639 (BOM) AND ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ITO VS CH. ACHAIAH 218 ITR 239 (SC) IN SUPPORT OF HIS PROPOSIT ION. 5. PER CONTRA, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT(A). IT WAS SUBMITTED THAT THE ORDER PAS SED BY LD. CIT(A) IS SPEAKING AND WELL REASONED AND BASED UPON FACTS OF THE CASE. IT WAS SUBMITTED THAT ASSESSEE IS A PARTNERSHIP FIRM. ALL OF THE THREE EN TITIES I.E ASSESSEE FIRM AND ITS TWO PARTNERS HAVE RETURNED INCOME CORRECTLY, IN ACC ORDANCE WITH LAW AND FACTS AND SHOULD BE ASSESSED AS SUCH. IT WAS FURTHER SUB MITTED THAT SUB-CONTRACT INCOME PASSED ON BY THE ASSESSEE TO ITS PARTNERS HA VE BEEN ACCEPTED BY THE DEPARTMENT WHILE MAKING ASSESSMENT IN THE HANDS OF ITS PARTNERS, VIZ. RELCON INFRA PROJECTS PVT LTD (RELCON, IN SHORT) AND M/S M ICHIGAN ENGINEERS PVT LTD (MICHIGAN, IN SHORT). OUR ATTENTION WAS DRAWN UPON THE ASSESSMENT ORDERS PASSED U/S 143(3) IN THE HANDS OF THESE PARTNERS. IT WAS ALSO SUBMITTED THAT AO HAD MISUNDERSTOOD THE FACTS OF THE CASE WHILE MAKIN G AN ALLEGATION THAT THERE WAS AN ATTEMPT TO EVADE TAX WHEREAS LD. CIT(A) HAS CORRECTLY ANALYSED ALL THE FACTS OF THE CASE AND GAVE CATEGORICAL FINDING THAT IF THE AMOUNT PROFIT REFLECTED BY THE ASSESSEE FIRM AND ITS PARTNERS FROM THE CONT RACT RECEIPTS IS AGGREGATED, THEN IT COMES TO 13% OF THE TOTAL CONTRACT RECEIPTS , WHICH, BY ANY STANDARD IS FAR ABOVE THAN THE INDUSTRIAL AVERAGE. FURTHER, IN ANY CASE, NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO SHOW IF THERE WAS AN Y KIND OF SUPPRESSION OF INCOME OR PROFIT OR EVASION OF TAX, IF INCOME SHOWN BY ALL THE ENTITIES IS TAKEN INTO ACCOUNT COLLECTIVELY. THUS, THE ORDER PASSED BY THE AO IS NOT ONLY ILLEGAL IN THE EYES OF LAW BUT ALSO FACTUALLY INCORRECT AND IS BASED ON THE ERRONEOUS ASSUMPTION OF FACTS. THUS, LD. CIT(A) HAS RIGHTLY CORRECTED IT BY DELETING THE 5 RELIANCE MICHIGAN JV ADDITIONS MADE BY THE AO. SINCE NOTHING INCORRECT HAS BEEN SHOWN BY THE LD. CIT(DR) IN THE FACTUAL FINDINGS RECORDED BY LD. CIT (A), THE SAME SHOULD BE UPHELD. FURTHER, THE CASES RELIED UPON BY LD. CIT( DR) ARE NOT APPLICABLE ON THE FACTS OF THE CASE. SINCE THE INCOME HAS BEEN RETUR NED AND ASSESSED IN THE CORRECT HANDS, THEREFORE, IT IS NOT A CASE OF EVASI ON OF TAX IF INCOME IS COMPUTED ON COLLECTIVE BASIS. FINALLY SHE REQUESTED FOR UPH OLDING THE ORDER OF LD. CIT(A). 6. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US. 7. THE BRIEF FACTS ARE THAT ASSESSEE IS A PARTNERSHIP FIRM COMPRISING OF TWO PARTNERS, VIZ. (1) M/S RELCON INFRA PROJECTS PVT LT D AND (2) M/S MICHIGAN ENGINEERS PVT LTD. THE ASSESSEE FIRM WAS FORMED AS A JOINT VENTURE FOR THE SOLE PURPOSE OF BIDDING AND EXECUTING THE PROJECT OF MIT HI RIVER (WIDENING AND DEEPENING, RCC RETAINING WALL, SERVICE ROAD, ETC) F ROM AIRPORT NEW BRIDGE TO MARVE FOOTOVER BRIDGE FALLING IN L-WARD OF MUNICIPA L CORPORATION OF GREATER MUMBAI (I.E. MCGM). THE AGREEMENT WAS SIGNED BETWE EN TWO PARTNERS ON 29- 06-2007 WEF 01-04-2007. IN THE JOINT VENTURE, THE FIRST PARTNER IS LEAD PARTNER WITH 51% AND THE SECOND PARTNER WITH 49% SHARE OF P ROFIT / LOSS. THE CONTRACT WAS AWARDED TO THE ASSESSEE FIRM BY MCGM ON 29-03-3 007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE AO T HAT THE JOINT VENTURER (I.E. ASSESSEE FIRM) DID NOT CARRY OUT THE WORK BY ITSELF BUT SUB CONTRACTED TO ONE OF ITS CONSTITUENTS (I.E. PARTNER), VIZ. MICHIGAN. IT WAS FURTHER NOTED THAT THE SAID PARTNER, IN TURN, SUB CONTRACTED SUBSTANTIAL WORK T O ANOTHER PARTNER, VIZ. RELCON. IT WAS NOTED BY THE AO THAT OUT OF AGGREGA TE AMOUNT OF CONTRACT RECEIPTS RECEIVED BY THE ASSESSEE FIRM FOR RS.41,30 ,42,740, SUBSTANTIAL AMOUNT WAS PASSED ON TO MICHIGAN TOWARDS COST FOR THE WORK SUB CONTRACTED TO THE SAID PARTNER AND AN AGGREGATE AMOUNT OF RS.38,78,99 ,859 WAS PAID ON THIS