ITO, Ward- 2(3), Gurgaon V. Kalindee Kapoor Railcon JV, Gurgaon

ITA 7040/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3776 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 23-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMPOORANANAND
• Assessee Lawyers: KVS KRISHNAN
• Section: 143(3); 142(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 704 0 /DEL/201 7 A.Y. : 20 1 3 - 1 4 INCOME TAX OFFICER, WARD 2(3), GURGAON VS. M/S KALINDEE KAPOOR RAILCON JV, 2 ND FLOOR, BUILDING NO. 9A, DLF CYBER CITY, PHASE-III, GURGAON (PAN: AABAK8558M) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) DEPARTMENT BY : SH. S AMPOORANANAND, SR. DR ASSESSEE BY : SH. KVS KRISHNAN, ADV. ORDER ORDER ORDER ORDER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, GURGAON DAT ED 01.9.2017 PERTAINING TO ASSESSMENT YEAR 2013-14 ON THE FOLLOW ING GROUNDS:- 1. WHETHER THE LD. CIT(A) WAS RIGHT ON FACTS AND IN LA W IN DELETING THE ADDITION OF RS. 49,04,646/- MADE BY T HE AO BY COMPUTING THE PROFIT OF THE JOINT VENTURE @4% O F THE GROSS RECEIPTS AS THE ASSESSEE HAD GIVEN THE PAYMEN T TO 2 THE PERSONS SPECIFIED U/S. 40A(2)(B) OF THE INCOME TAX ACT, 1961. 2. WHETHER THE LD. CIT(A) WAS RIGHT ON FACTS AND IN LA W IN STATING THAT JV IS MERELY A PASS THROUGH ENTITY WIT H MINIMAL EXPENSES, NO TAX LIABILITY CAN BE ATTRIBUT ED TO JV AS AOP. 3. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD , DELETE OR AMEND GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THE ASSESSEE HA S FILED THE RETURN OF INCOME DECLARING NIL INCOME ON 23.9.2013. THE RET URN OF THE ASSESSEE WAS PROCESSED. LATER ON, THE CASE OF THE ASSESSE E WAS SELECTED FOR SCRUTINY AS PER CASS CYCLE AND A NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) WAS IS SUED ON 05.9.2014. SUBSEQUENTLY, NOTICE U/S. 142(1) OF THE ACT ALONGW ITH A QUESTIONNAIRE WAS ISSUED ON 10.7.2015. IN RESPONSE TO THE NOTICES , THE A.R. OF THE ASSESSEE APPEARED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND FILED THE DETAILS INCLUDING COPY OF RETURN, COMPUT ATION OF INCOME, TAX AUDIT REPORT IN FORM 3CB AND CD AND ITS ANNEXURE WI TH BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IN THIS CASE, THE ASS ESSEE IS A JOINT VENTURE CONSTITUTED BETWEEN KALINDEE RAIL NIRMAN (71%) AND M/S RC KAPOOR INFRASTRUCTURE PVT. LTD. (29%) VIDE AN AGREEMENT RE GISTERED ON 18.4.2012. THIS JV WAS CONSTITUTED TO TAKE A CONTR ACT FROM RAILWAYS WHICH CONSISTED DIFFERENT KINDS OF WORKS OF CIVIL, ELECTRICAL, SIGNALING AND 3 TELECOMMUNICATION ENGINEERING. THE WORK WAS AWARDE D TO THIS JV AND IT HAS TAKEN A PAN IN THE STATUS OF AN AOP. FOR THE AY 2013-14 ASSESSEE FILED A NIL RETURN ON 23.9.2013 AND THE ASSESSMENT U/S. 143(3) OF THE ACT WAS PASSED ON 28.3.2016 WHEREIN, THE AO INVOKED SEC TION 40A(2)(B) OF THE ACT HELD THAT THE ASSESSEE HAS PAID EXCESSIVE C HARGES TO ITS CONSTITUENT NAMELY KALINDEE AND KARTHIK, THEREFORE, A CONCLUSION WAS DRAWN THAT THE ASSESSEE SHOULD HAVE EARNED 4% OF PR OFIT I.E. RS.49,04,646/- ON THE TOTAL REVENUE OF THE YEAR AMO UNTING TO RS.12,26,16,161/- AND ASSESSED THE INCOME AT RS. 49 ,04,646/-. 3. AGAINST THE AFORESAID ASSESSMENT ORDER, THE ASSE SSEE APPEALED BEFORE THE LD. CIT(A)-2, GURGAON, WHO VIDE HIS IMP UGNED ORDER DATED 01.9.2017 HAS ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION IN DISPUTE. 4. AGGRIEVED WITH THE IMPUGNED ORDER, THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. DR RELIED UPON THE O RDER PASSED BY THE AO AND REITERATED THE CONTENTIONS RAISED BY THE RE VENUE IN THE GROUNDS OF APPEAL. 6. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) AND REITERATED THE CONTENTI ONS MADE BEFORE THE LD. CIT(A). HE FURTHER STATED THAT SINCE THE LD. C IT(A) HAS PASSED A WELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART. HENCE, THE APPEAL OF THE REVENUE MAY BE DISMISSED. 4 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE LEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS OF THE REV ENUE AUTHORITIES. I FIND THAT LD. CIT(A) HAS DISCUSSED THE ISSUE IN DISPUTE ELABORATELY AT PAGE NO. 7 TO 8 VIDE PARA NO. 4.1 TO 4.5. FOR THE SAKE OF CONVENIENCE, I AM REPRODUCING HEREWITH THE RELEVANT FINDINGS OF THE L D. CIT(A) AS UNDER:- 4.1 I HAVE GIVEN CAREFUL CONSIDERATION TO THE ARGU MENTS ADVANCED IN THIS REGARD AND FIND THAT THE JOINT VEN TURE AGREEMENT DATED 18.04.2012 HAS CLEARLY MENTIONED TH E DISTRIBUTION OF SHARE OF WORK AND THE RESPONSIBILIT IES AS UNDER: - (A) LEAD PARTNER (KALINDEE) SHARE 71%: - RESPONSIBILITIES - ENTIRE SCOPE EXCEPT BRIDGE WORK (2A, 2B, 2C) & SUPPLY OF CEMENT (SCHEDULE 8) (B) JOINT VENTURE PARTNER (KAPOOR) SHARE 29%: - RESPONSIBILITIES - ENTIRE BRIDGE WORK (SCHEDULE 2A, 2B, 2C) & SUPPLY OF CEMENT (SCHEDULE 8) THUS THERE IS A CLEAR BIFURCATION OF THE SCOPE OF WORK, ROLES & RESPONSIBILITIES OF THE JOINT VENTURE PARTNERS. THE JOINT VENTURE HAS COME INTO EXISTENCE FOR SPECIFIC PURPOSE TO EXECUTE THE CONTRACT AWARDED BY RAIL VIKAS NIGAM LIMITED. THE FACTS IS THIS CASE ARE SIM ILAR TO THE CASE OF KALINDEE KARTHIK JV FOR THE A.Y. 2011-1 2 WHICH IS IN THE SAME TAX JURISDICTION I.E. GURGAON. THE LD. CIT (A)-I ON SIMILAR SET OF FACTS HAS CLEARLY H ELD IN 5 FAVOUR OF THE ASSESSEE AND ACCEPTING THE FACTUAL POSITION THAT THE JV CAME INTO EXISTENCE ONLY FOR EXECUTION OF THE CONTRACT WHEREIN EACH OF THE JV MEMBERS HAVE INDEPENDENT AND IDENTIFIED ROLES IN TH E EXECUTION OF THE CONTRACT. THE JV DOES NOT HAVE ANY EXISTENCE OF ITS OWN AS IT IS NOT HAVING ANY FINANC E, MANPOWER NOR ANY FIXED ASSETS OF ITS OWN. THE LD. F OR THE A.Y. 2013-14, FOLLOWING THE SAID ORDER OF CIT ( A), I HAVE TAKEN THE SAME VIEW AND ALLOWED THE APPELLANT' S APPEAL BY DELETING THE AD-HOC ADDITION. 4.2 IN PRINCIPLE, I FIND THE FACTS OF THE PRESENT C ASE ARE IDENTICAL. THEREFORE IN THIS CASE ALSO, NO NET PROF IT ON % BASIS CAN BE TAXED AS HAS BEEN DONE BY THE AO. THE JV IS ONLY A PASS THROUGH ENTITY WITH MINIMAL EXPENSES ; NO TAX LIABILITY CAN BE ATTRIBUTED BY HOLDING THE SAID JV AS AOP. 4.3 FURTHER THE CASE OF THE APPELLANT IS ALSO COVER ED BY DECISION IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD. AND KMS CONSTRUCTIONS P. LTD. [20 15] 374 ITR 35 (DEL). IN THIS CASE HON'BLE HIGH COURT H AS APPROVED DECISION OF HON'BLE ITAT (DELHI WHICH HAD RECORDED A FINDING THAT THE JOINT VENTURES WHICH HA VE BEEN FORMED ONLY TO SECURE THE CONTRACT CANNOT BE SUBJECTED TO TAX AS ASSOCIATION OF . PERSON (AOP). THE HON'BLE HIGH COURT ELABORATELY DISCUSSED THE CASE O F LINDE AG. LINDE ENGINEERING DIVISION VS. DDIT [2014 ] 365 ITR I (DELHI) TO COME TO THIS CONCLUSION. 4.4 FURTHER HON'BLE HIGH COURT (DELHI) IN INCOME TA X ACT NO. 146/2010 DECIDED ON 11.02.2010 IN THIS CASE OF CIT VS. ORIENTAL STRUCTURE ENGINEERS PVT. LTD. HAS ALSO 6 OBSERVED THAT IN THE CASE OF JV OF SUCH KIND SECTIO N 40A(2) IS NOT APPLICABLE. THERE ARE OTHER JUDICIAL FINDINGS IN THIS REGARD ARRIVING AT THE SAME CONCLU SION WHICH ARE REPORTED AS CIT VS. SMSL UANRCL (JV) [2015] 372 ITR 425 (BOM). IN ALL THE ABOVE CASES, I T HAS BEEN HELD THAT WHERE THE CONSTITUENT PARTICIPAN TS MAKE A JV TO SECURE A CONTRACT, WHICH IS MERELY A P ASS THROUGH ENTITY WITH MINIMAL EXPENSES, NO TAX LIABIL ITY CAB BE ATTRIBUTED BY HOLDING THE SUBJECT ENTITY JV AS AOP. NO NET PROFIT ON % BASES CAN BE TAXED AS HAS B EEN DONE IN THIS CASE. 4.5 IN CONSIDERATION OF THE SETTLED POSITION OF THE LAW, THE GROUNDS OF APPEAL OF THE APPELLANT ARE ALLOWED. 8. AFTER PERUSING THE AFORESAID FINDING, I FIND THA T THE ISSUES IN DISPUTE ARE SQUARELY COVERED BY THE CASE OF KALINDEE KARTH IK JV FOR THE AY 2011- 12 WHICH IS IN THE SAME TAX JURISDICTION I.E. GURGA ON AND THEREFORE, THE LD. CIT(A) HAS FOLLOWED THE SAME PRECEDENCE AND RIG HTLY ALLOWED THE APPEAL OF THE ASSESSEE. I FURTHER FIND THAT LD. CI T(A) HAS ALSO RESPECTFULLY FOLLOWED THE DECISION IN THE CASE OF C IT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD. AND KMS CONSTRUCTIONS P. LTD. [20 15] 374 ITR 35 (DEL) OF THE HON'BLE HIGH COURT OF DELHI WHEREIN THE HON BLE COURT HAS APPROVED DECISION OF ITAT (DELHI) WHICH HAD RECORDE D A FINDING THAT THE JOINT VENTURES WHICH HAVE BEEN FORMED ONLY TO SECUR E THE CONTRACT CANNOT BE SUBJECTED TO TAX AS ASSOCIATION OF PERSON (AOP). THE HON'BLE HIGH COURT ELABORATELY DISCUSSED THE CASE OF LINDE AG. L INDE ENGINEERING DIVISION VS. DDIT [2014] 365 ITR 1 (DELHI) TO COME TO THIS CONCLUSION. WE ALSO FIND THAT LD. CIT(A) ALSO RELIED UPON THE DEC ISION OF THE HON'BLE HIGH COURT (DELHI) IN INCOME TAX ACT NO. 146/2010 DECIDE D ON 11.02.2010 IN THIS CASE OF CIT VS. ORIENTAL STRUCTURE ENGINEERS P VT. LTD. HAS ALSO OBSERVED THAT IN THE CASE OF JV OF SUCH KIND SECTIO N 40A(2) IS NOT APPLICABLE. THERE ARE OTHER JUDICIAL FINDINGS IN TH IS REGARD ARRIVING AT THE 7 SAME CONCLUSION WHICH ARE REPORTED AS CIT VS. SMSL UANRCL (JV) [2015] 372 ITR 425 (BOM). IN ALL THE ABOVE CASES, IT HAS BEEN HELD THAT WHERE THE CONSTITUENT PARTICIPANTS MAKE A JV TO SECURE A CONTRACT, WHICH IS MERELY A PASS THROUGH ENTITY WITH MINIMAL EXPENSES, NO TAX LIABILITY CAB BE ATTRIBUTED BY HOLDING THE SUBJECT ENTITY JV AS A OP. NO NET PROFIT ON % BASES CAN BE TAXED AS HAS BEEN DONE IN THIS CASE. I NOTE THAT AR OF THE ASSESSEE IN THIS CASE RELIED UPON THE ORDER OF THE LD. CIT(A) AND LD. DR RELIED UPON THE ORDER OF THE AO. BUT THE LD. DR COU LD NOT CONTROVERT THE FINDING OF THE LD. CIT(A) WHEREIN HE HAS FOLLOWED T HE PRECEDENTS OF THE HONBLE HIGH COURT AND TRIBUNAL AND LD. DR COULD N OT PLACE ANY CONTRARY DECISION BEFORE US. IN VIEW OF THE ABOVE, I AM O F CONSIDERED VIEW THAT THE LD. CIT(A) HAS PASSED A WELL REASONED ORDER WHI CH DOES NOT NEED ANY INTERFERENCE ON MY PART, HENCE, I UPHOLD THE SAME A ND REJECT THE GROUNDS RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED ON 05/02/2018. SD SDSD SD/ // /- -- - [ [[ [H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU] ]] ] JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER DATE 05/02/2018 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES