HCC SAMSUNG JOINT VENTURE, MUMBAI V. ASST CIT 29 (1), MUMBAI

ITA 7365/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2555 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: H
• Assessment Year: 2015-2016
• Appeal Filed On: 01-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Non-deduction of tax; Set aside
• Section: 234B; 40(a)(ia); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 7372/MUM/2019 Assessment Year: 2014-15 & ITA No. 7365/MUM/2019 Assessment Year: 2015-16 HCC Samsung Joint Venture, Hincon House, LBS Marg, Vikhroli (W), Mumbai-400083. Vs. Asst. CIT-29(2), 4 th floor, Kautilya Bhavan, C-41 to C-43, G-Block, BKC, Bandra East, Mumbai-400051. PAN No. AAAAH 8586 P Appellant Respondent Assessee by : Mr. H.P. Mahajani, AR Revenue by : Mr. Kailash Kanojia, CIT-DR Date of Hearing : 09/06/2022 & 17/06/2022 Date of pronouncement : 27/07/2022 ORDER PER OM PRAKASH KANT, AM These two appeals by the assessee are directed against two separate orders, each dated 27.08.2019, passed by the Ld. Commissioner of Income Tax (Appeals)-40, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014 common ground involved these appeals were h consolidated order for convenience and avoid repetition of facts. ITA No. 7372/MUM/2019 Assessment Year: 2014 2. First, we take up appeal of the asses 2014-15. The relevant ground reproduced as under: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in brining to tax closing construction WIP of In the alternative, the same be directed to be allowed as a deduction in AY 2015-16 as cost of opening construction WIP. Amount of tax and interest u/s 234A and 234B be directly to be consequently recomputed. 2. On the facts and circumstances of CIT(A) erred in confirming the disallowance of 40(a)(ia) on reimbursement of salary of deputed staff paid to a sister concern, Alphine Samsung HCC Joint Venture. HCC Samsung Joint Venture Ld. CIT(A)’] for assessment year 2014-15 and 2015 common ground involved, permitting from same set of facts, these appeals were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. ITA No. 7372/MUM/2019 2014-15 First, we take up appeal of the assessee for assessment year relevant grounds raised by the assessee are as under: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in brining to tax closing construction WIP of ₹32,29,26,445/-. The addition be In the alternative, the same be directed to be allowed as a deduction in 16 as cost of opening construction WIP. Amount of tax and interest u/s 234A and 234B be directly to be consequently recomputed. On the facts and circumstances of the case and in lad, the Ld. CIT(A) erred in confirming the disallowance of ₹5,65,933/ 40(a)(ia) on reimbursement of salary of deputed staff paid to a sister concern, Alphine Samsung HCC Joint Venture. HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 2 15 and 2015-16. Being from same set of facts, both eard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. see for assessment year raised by the assessee are On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in brining to tax . The addition be deleted. In the alternative, the same be directed to be allowed as a deduction in Amount of tax and interest u/s 234A and 234B be directly to be the case and in lad, the Ld. ₹5,65,933/- u/s 40(a)(ia) on reimbursement of salary of deputed staff paid to a sister 3. The fact in brief of (Association of persons for the purpose of Tax Act, 1961) formed between M/s Hindustan Construction Company Ltd. (HCC) (Samsung) for the purpose of of tunnels as part of Delhi MRTS Project of Delhi Metro Rail Corporation. The assessee filed its return of income on 24.11.2014 claiming loss of ₹24,31,31,346/ assessee was selected for scrutiny under the Act were complied 143(3) of the Act on 30.12.2016, additions to the returned income and assessed the total income at ₹9,45,17,862/-. On further appeal, the Ld. CIT(A) allowed part relief to the assessee. 4. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. HCC Samsung Joint Venture The fact in brief of the case are that assessee is a joint venture (Association of persons for the purpose of status under the Income formed between M/s Hindustan Construction (HCC) and Samsung C & T Corporation, Korea for the purpose of execution of design and c of tunnels as part of Delhi MRTS Project of Delhi Metro Rail Corporation. The assessee filed its return of income on 24.11.2014 24,31,31,346/-. The return of income filed by the assessee was selected for scrutiny and statutory under the Act were complied. In the assessment completed u/s 143(3) of the Act on 30.12.2016, the Assessing Officer made various additions to the returned income and assessed the total income at . On further appeal, the Ld. CIT(A) allowed part relief Aggrieved, the assessee is in appeal before the Tribunal raising grounds as reproduced above. HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 3 ee is a joint venture status under the Income formed between M/s Hindustan Construction and Samsung C & T Corporation, Korea execution of design and construction of tunnels as part of Delhi MRTS Project of Delhi Metro Rail Corporation. The assessee filed its return of income on 24.11.2014 . The return of income filed by the notices issued the assessment completed u/s Assessing Officer made various additions to the returned income and assessed the total income at . On further appeal, the Ld. CIT(A) allowed part relief Aggrieved, the assessee is in appeal before the Tribunal raising 4.1 Before us, the assessee filed a Paper book containing page 108 including copy of cases relied upon. 5. The Ground No. 1 of the appeal relates to addition of ₹32,29,26,445/- in respect of closing construction work (WIP). The facts qua, the assessee issue return of income was fi audited financial statement i.e. balance sheet, profit and loss account, computation of income year consideration loss of the scrutiny proceeding before the Ld. Assessing Officer of audited financial statement was filed was reflected. Before the Assessing Officer vide letter dated 23.12.2016, the assessee explained that second set of financial statement was prepared for the purpose of Management Information System (MIS) explained that the MIS accounts have only one difference of HCC Samsung Joint Venture he assessee filed a Paper book containing page 108 including copy of cases relied upon. The Ground No. 1 of the appeal relates to addition of in respect of closing construction work (WIP). The facts qua, the assessee issue-in-dispute are that the return of income was filed by the assessee on the basis of one set of audited financial statement i.e. balance sheet, profit and loss account, computation of income, wherein during the assessment year consideration loss of ₹22.30 crores was reported. But during eeding before the Ld. Assessing Officer of audited financial statement was filed, where profit of was reflected. Before the Assessing Officer vide letter dated 23.12.2016, the assessee explained that second set of financial ent was prepared for the purpose of Management Information System (MIS) accounting purpose. The assessee explained that the MIS accounts have only one difference of HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 4 he assessee filed a Paper book containing pages 1 to The Ground No. 1 of the appeal relates to addition of in respect of closing construction work-in-progress dispute are that the led by the assessee on the basis of one set of audited financial statement i.e. balance sheet, profit and loss wherein during the assessment 22.30 crores was reported. But during eeding before the Ld. Assessing Officer, another set where profit of ₹9.99 crores was reflected. Before the Assessing Officer vide letter dated 23.12.2016, the assessee explained that second set of financial ent was prepared for the purpose of Management accounting purpose. The assessee explained that the MIS accounts have only one difference of valuation of construction WIP of Officer observed that in seco assessee has credited construction WIP of was also reflected in inventories shown of balance sheet as on 31.03.2014. The Ld. AO further observed that first set of audited financi of income has been filed, the construction WIP of been excluded from credit in profit and loss account and thus the assessee has accordingly computed loss of Assessing Officer is of the view that if said WIP is treated as revenue in nature and included in the current year expenses same has been correctly closing stock in second financial statement 5.1 In view of the concluded that (i) the assessee has not furnished any reasons as to why second set of financial statement was prepared and that too HCC Samsung Joint Venture valuation of construction WIP of ₹32.29 crores. The Assessing Officer observed that in second set of financial statement the assessee has credited construction WIP of ₹3229.26 lakhs, which was also reflected in inventories shown of ₹1154.49 lakhs in the balance sheet as on 31.03.2014. The Ld. AO further observed that first set of audited financial statement on the basis of which return of income has been filed, the construction WIP of ₹3229.26 lakhs has been excluded from credit in profit and loss account and thus the assessee has accordingly computed loss of ₹2230.14 lakh is of the view that if said WIP is treated as revenue in nature and included in the current year expenses correctly credited to the profit and loss account and second financial statement. In view of the above observation, the Assessing Officer concluded that (i) the assessee has not furnished any reasons as to why second set of financial statement was prepared and that too HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 5 32.29 crores. The Assessing nd set of financial statement the 3229.26 lakhs, which 1154.49 lakhs in the balance sheet as on 31.03.2014. The Ld. AO further observed that al statement on the basis of which return 3229.26 lakhs has been excluded from credit in profit and loss account and thus the 2230.14 lakhs. The is of the view that if said WIP is treated as revenue in nature and included in the current year expenses, then naturally to the profit and loss account and above observation, the Assessing Officer concluded that (i) the assessee has not furnished any reasons as to why second set of financial statement was prepared and that too was duly audited by the said auditor statement, (ii) the assessee has not furnished details of construction WIP of ₹3229.26 lakhs. 5.2 Finally, the Assessing Officer made addition for ₹3229.26 lakhs to the return WIP reported in second set of audited financial statement. It may be noted here that the Assessing Officer did not account of the assessee in terms of section 145(3) of the Act. 6. Before the Ld. CIT(A), the assessee relied on the decision of Hon’ble Madras High Court in the case of CIT v. Shriram Transport Finance (ITA No. 621 of 2013) wherein the Hon’ble High Court has held that maintenance of two separate books of account for the purpose of Company Act and Income Tax Act was perfectly in ord In the set, for the purpose of Companies Act provision for doubtful debt was made whereas in the set for the purpose of Income the same doubtful debt was written off. It was also submitted by the HCC Samsung Joint Venture was duly audited by the said auditor who signed the first financial statement, (ii) the assessee has not furnished details of construction 3229.26 lakhs. Finally, the Assessing Officer made addition for 3229.26 lakhs to the returned income, relevant to the construction rted in second set of audited financial statement. It may be noted here that the Assessing Officer did not reject account of the assessee in terms of section 145(3) of the Act. Before the Ld. CIT(A), the assessee relied on the decision of Hon’ble Madras High Court in the case of CIT v. Shriram Transport Finance (ITA No. 621 of 2013) wherein the Hon’ble High Court has held that maintenance of two separate books of account for the purpose of Company Act and Income Tax Act was perfectly in ord for the purpose of Companies Act provision for doubtful debt was made whereas in the set for the purpose of Income the same doubtful debt was written off. It was also submitted by the HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 6 the first financial statement, (ii) the assessee has not furnished details of construction Finally, the Assessing Officer made addition for the sum of relevant to the construction rted in second set of audited financial statement. It may be reject the books of account of the assessee in terms of section 145(3) of the Act. Before the Ld. CIT(A), the assessee relied on the decision of Hon’ble Madras High Court in the case of CIT v. Shriram Transport Finance (ITA No. 621 of 2013) wherein the Hon’ble High Court has held that maintenance of two separate books of account for the purpose of Company Act and Income Tax Act was perfectly in order. for the purpose of Companies Act provision for doubtful debt was made whereas in the set for the purpose of Income-tax Act, the same doubtful debt was written off. It was also submitted by the assessee that the Assessing Officer has duly ve account of the assessee however additional expenditure claimed by the assessee ₹3229.26 lakhs nor any fault in the accounting in terms of section 145 of the Act. The Ld. CIT(A) however upheld the a that the return of income accounts filed during the assessment. 7. Before us, the Ld. Counsel of the assessee has submitted that the said audited MIS financial statement was drawn up only to provide audited financial statements to Hindustan Construction Company Ltd. (HCC), o submitted that HCC had disclosed in its mandatory consolidated financial statement basis of audited MIS financial statement. It was submitted that MIS financial statement had been drawn up so as to reflect various elements such as contract WIP HCC Samsung Joint Venture assessee that the Assessing Officer has duly verified the books of account of the assessee however the AO neither found any expenditure claimed by the assessee any fault in the accounting in terms of section 145 of the Act. The Ld. CIT(A) however upheld the a income filed was not in line with the second set of accounts filed during the assessment. Before us, the Ld. Counsel of the assessee has submitted that the said audited MIS financial statement was drawn up only to ide audited financial statements to Hindustan Construction Company Ltd. (HCC), one of the joint venture partner. submitted that HCC had disclosed in its mandatory consolidated financial statement, interest in the joint venture on the of audited MIS financial statement. It was submitted that MIS financial statement had been drawn up so as to reflect various elements such as contract WIP, construction cost HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 7 rified the books of the AO neither found any expenditure claimed by the assessee as per WIP of any fault in the accounting in terms of section 145 of the Act. The Ld. CIT(A) however upheld the addition holding the second set of Before us, the Ld. Counsel of the assessee has submitted that the said audited MIS financial statement was drawn up only to ide audited financial statements to Hindustan Construction ne of the joint venture partner. It was submitted that HCC had disclosed in its mandatory published interest in the joint venture on the of audited MIS financial statement. It was submitted that MIS financial statement had been drawn up so as to reflect various carried over as WIP as also pure construction inventory as on 31.03.2014. It was submitted that the disputed amount of ₹32.24 crores the audited MIS financial statement consolidating MIS financial stat audited published financial statement of HCC. According to the assessee, the difference between the two statements was that whereas financial statement of the assessee recognized at cost but the HCC, even the budgeted profit was added to the inventory and therefore, the amount of budgeted profit, which were never earned in the year under assessment. During the hearing date the assessee was asked to furnish a reconciliation of two sets of financial statement from the auditor audited statements. The Ld. Counsel of the assessee submitted the HCC Samsung Joint Venture construction material carried over as part of inventory as on 31.03.2014. It was submitted that the disputed 32.24 crores of construction WIP was recor MIS financial statement for the limited purpose of MIS financial statement of the assessee audited published financial statement of HCC. According to the assessee, the difference between the two statements was that whereas financial statement of the assessee JV but for consolidation in the financial statement of HCC, even the budgeted profit was added to the inventory and therefore, the amount of ₹32.29 crores represents notional or which were never earned in the year under assessment. During the hearing dated 09.06.2022, the Ld. Counsel of the assessee was asked to furnish a reconciliation of two sets of financial statement from the auditor who has signed . The Ld. Counsel of the assessee submitted the HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 8 material carried over as part of inventory as on 31.03.2014. It was submitted that the disputed WIP was recorded only in for the limited purpose of ement of the assessee JV into the audited published financial statement of HCC. According to the assessee, the difference between the two statements was that JV were correctly tion in the financial statement of HCC, even the budgeted profit was added to the inventory and 32.29 crores represents notional or which were never earned in the year under d 09.06.2022, the Ld. Counsel of the assessee was asked to furnish a reconciliation of two sets of has signed both the . The Ld. Counsel of the assessee submitted the said reconciliation duly signe the said reconciliation “7. As represented to me, as per HCC's accounting policy, budgeted profit from the project was required to be recognized and loaded on to the inventory of Construction W actual % of profit/loss from the project at the year regard to the representation that the said project was finally budgeted to have a profit of 6.75% of the Contract value, a sum of Rs. 999.13 lacs, being 6.75% of value viz. Rs. 14801.90 lacs, was required to be reflected in the MIS Financial Statements as profit for the year, thereby requiring Closing Construction WIP to be additionally valued at Rs. 3239.36 lacs being budgeted profit on i certificate reconciles the two sets of accounts which shows that the only difference is the addition of Construction WIP of Rs.3229.26 Lakhs under the head Inventories both in the Management Balance Sheet and in the resulted in the loss of Rs. 2230.14 Lakhs in the regular Account being converted into a profit of R$. 999.13 Lakhs, requiring provision for taxation of Rs. 372.02 Lakhs in the profit & loss account, which is duly reflected in the Management Balance Sheet under the head Loans and Advances recorded only in the Management Financial Construction WIP A/c (Asset)... To Construction WIP A/c (P&L) HCC Samsung Joint Venture said reconciliation duly signed by the auditor. The relevant part of the said reconciliation is reproduced as under: As represented to me, as per HCC's accounting policy, budgeted profit from the project was required to be recognized and loaded on to the inventory of Construction WIP irrespective of the actual % of profit/loss from the project at the year-end. Having regard to the representation that the said project was finally budgeted to have a profit of 6.75% of the Contract value, a sum of Rs. 999.13 lacs, being 6.75% of value of work done till 31 March 2014 viz. Rs. 14801.90 lacs, was required to be reflected in the MIS Financial Statements as profit for the year, thereby requiring Closing Construction WIP to be additionally valued at Rs. 3239.36 lacs being budgeted profit on inventory. The Annexure attached to this certificate reconciles the two sets of accounts which shows that the only difference is the addition of Construction WIP of Rs.3229.26 Lakhs under the head Inventories both in the Management Balance Sheet and in the Management Profit & Loss Account. This has resulted in the loss of Rs. 2230.14 Lakhs in the regular Profit & Loss Account being converted into a profit of R$. 999.13 Lakhs, requiring provision for taxation of Rs. 372.02 Lakhs in the profit & loss account, reflected in the Management Balance Sheet under the head Loans and Advances Schedule VI. The relevant entry was recorded only in the Management Financial Statements being Construction WIP A/c (Asset)..................Dr Rs 3229.26 Lakhs nstruction WIP A/c (P&L)... ........Rs. 3229.26 Lakhs HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 9 The relevant part of As represented to me, as per HCC's accounting policy, budgeted profit from the project was required to be recognized and IP irrespective of the end. Having regard to the representation that the said project was finally budgeted to have a profit of 6.75% of the Contract value, a sum of Rs. of work done till 31 March 2014 viz. Rs. 14801.90 lacs, was required to be reflected in the MIS Financial Statements as profit for the year, thereby requiring Closing Construction WIP to be additionally valued at Rs. 3239.36 lacs being nventory. The Annexure attached to this certificate reconciles the two sets of accounts which shows that the only difference is the addition of Construction WIP of Rs.3229.26 Lakhs under the head Inventories both in the Management Balance Management Profit & Loss Account. This has Profit & Loss Account being converted into a profit of R$. 999.13 Lakhs, requiring provision for taxation of Rs. 372.02 Lakhs in the profit & loss account, reflected in the Management Balance Sheet under the Schedule VI. The relevant entry was Statements being Dr Rs 3229.26 Lakhs 8. As explained by the Management, that though the financial statements show a loss of account of period costs such as employee expenses, financial expenses and depreciation together to Rs. 28.56 crores. Furthermore, the project has in fact ended in a loss to the joint venture. 9. I reiterate that, the audited Financial Statements of the JV have been correctly drawn it and that Management financial representation by the Management, for the limited consolidation of the joint venture's interest into the books of Hindustan Construction Company policies in line with method of 10. I confirm that there is no other difference between the two sets of financial statements 7.1 A comperative balance sheet and profit loss account of both set of financial statement submitted by the auditor is also reproduced for ready reference : Annexure to Reconciliation Certificate Sources of Fund Current Account of Members Profit and loss Account [Cr. Balance] Total Application of Fund Fixed Assets HCC Samsung Joint Venture As explained by the Management, that though the financial statements show a loss of Rs.22.30 crores, the same is primarily on account of period costs such as employee costs, Office and site inancial expenses and depreciation together aggregating to Rs. 28.56 crores. Furthermore, the project has in fact ended in a the joint venture. 9. I reiterate that, the audited Financial Statements of the JV have been correctly drawn consistent with accounting policies followed by it and that Management financial statements were prepared, on the representation by the Management, for the limited consolidation of the joint venture's interest into the books of Construction Company (HCC) in order to align accounting policies in line with method of accounting followed by HCC. 10. I confirm that there is no other difference between the two sets of financial statements.” A comperative balance sheet and profit loss account of both set of financial statement submitted by the auditor is also reproduced for ready reference : Annexure to Reconciliation Certificate-Reconciling MIS Accounts and Non-MIS Accounts forming Basis for Tax Returns HCC-Samsung Joint Venture CC34 Balance Sheet as at 31 st March 2014 Schedule Basis for Tax Return 31-March-2014 MIS Accounts 31 March-2014 ₹ ‘In Lacs’ ₹ ‘In Lacs’ I 295.01 295.01 - 295.01 HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 10 As explained by the Management, that though the financial Rs.22.30 crores, the same is primarily on costs, Office and site aggregating to Rs. 28.56 crores. Furthermore, the project has in fact ended in a 9. I reiterate that, the audited Financial Statements of the JV have h accounting policies followed by statements were prepared, on the purpose of consolidation of the joint venture's interest into the books of (HCC) in order to align accounting accounting followed by HCC. 10. I confirm that there is no other difference between the two sets of A comperative balance sheet and profit loss account of both the set of financial statement submitted by the auditor is also MIS Accounts forming Basis for Tax Returns MIS Accounts 31- Difference ₹ ‘In Lacs’ 295.01 295.01 0.00 627.11 627.11 922.12 627.11 Gross Block Less: Depreciation Add : Items awaiting Capitalization Current Assets Inventories Cash and Bank Balances Other Current Assets Loans & Advances Less: Current Liabilities & Provisions Net Current Assets Profit and Loss Account [Dr. Balance] Total HCC Samsung Joint Venture II 4,206.83 405.52 3,801.31 6,681.42 10,482.73 10,482.73 III 8,318.23 11,5437.49 IV 2,079.73 V 47.71 VI 2,051.66 12,497.33 15,354.57 Less: Current Liabilities & Provisions Net VII -24,915.18 -24,915.18 -12,417.85 2,230.13 2,230.13 295.01 HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 11 4,206.83 0.00 405.52 0.00 3801.31 -0.00 6,681.42 -0.00 10,482.73 0.00 11,5437.49 -3,229.26 2,079.73 47.71 -0.00 1,679.64 372.02 15,354.57 -2,857.24 24,915.18 -9,560.61 2,857.24 - -2,230.13 - 922.12 627.11 8. On the contrary, the Ld. DR relied on the order of the lower authorities and submitted that the amount of construction WIP not reported in the first set of financial statement appearing in second set of the financial statement. According the amount of construction of WIP considered while filing the return of income and therefore, addition by the Assessing Officer is justified. 9. We have heard rival submissions of the parties on the issue dispute and perused the relevant material on record. The assessee has filed return of income on the basis of one set of audited financial statement reporting a loss of scrutiny proceedings, the assessee filed another set of financial statement wherein additional amount of construction WIP of crores was reported. The contention of the assessee before us the additional amount of WIP is merely valua According to assessee, it has valued the construction WIP for the HCC Samsung Joint Venture On the contrary, the Ld. DR relied on the order of the lower authorities and submitted that the amount of construction WIP not reported in the first set of financial statement in second set of the financial statement. According the amount of construction of WIP ₹32.29 crores has not been considered while filing the return of income and therefore, addition by the Assessing Officer is justified. We have heard rival submissions of the parties on the issue dispute and perused the relevant material on record. The assessee has filed return of income on the basis of one set of audited financial statement reporting a loss of ₹22.30 crores. However, d scrutiny proceedings, the assessee filed another set of financial statement wherein additional amount of construction WIP of crores was reported. The contention of the assessee before us additional amount of WIP is merely valuation difference. According to assessee, it has valued the construction WIP for the HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 12 On the contrary, the Ld. DR relied on the order of the lower authorities and submitted that the amount of construction WIP was not reported in the first set of financial statement, which is in second set of the financial statement. According to him, 32.29 crores has not been considered while filing the return of income and therefore, addition We have heard rival submissions of the parties on the issue-in- dispute and perused the relevant material on record. The assessee has filed return of income on the basis of one set of audited financial 22.30 crores. However, during the scrutiny proceedings, the assessee filed another set of financial statement wherein additional amount of construction WIP of ₹32.29 crores was reported. The contention of the assessee before us is that tion difference. According to assessee, it has valued the construction WIP for the purpose of MIS financial statement at a higher value for the purpose of consolidation with the financial statement of joint venture partner i.e. M/s HCC Ltd. the fact of examination of books of accounts by the Assessing Officer In our opinion, if in books of account any expenditure corresponding to the additional amount debited, then the amount is which has been carried out by the joint venture partner purpose of consolidating in its books of account and which cannot be made a basis for addition in the hands of the assessee. 9.1 Further, we are of the number of items of inventory of construction WIP as shown in the first set of financial statement as well as second set (MIS account) of financial statement, construction WIP has been valued higher by the amount of crores only, for the purpose of consolidated account of the venture HCC Samsung Joint Venture purpose of MIS financial statement at a higher value for the purpose of consolidation with the financial statement of joint venture partner i.e. M/s HCC Ltd. We find that the Revenue has not disputed examination of books of accounts by the Assessing Officer In our opinion, if in books of account any expenditure corresponding the additional amount of construction of WIP is not then the amount is only in the nature of notional valuation which has been carried out by the joint venture partner consolidating in its books of account and which cannot be made a basis for addition in the hands of the assessee. Further, we are of the view that when there is no change in number of items of inventory of construction WIP as shown in the first set of financial statement as well as second set (MIS account) of then only difference is that in MIS account has been valued higher by the amount of for the purpose of consolidated account of the venture HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 13 purpose of MIS financial statement at a higher value for the purpose of consolidation with the financial statement of joint venture e Revenue has not disputed examination of books of accounts by the Assessing Officer. In our opinion, if in books of account any expenditure corresponding construction of WIP is not found only in the nature of notional valuation which has been carried out by the joint venture partner for the consolidating in its books of account and which cannot be made a basis for addition in the hands of the assessee. view that when there is no change in number of items of inventory of construction WIP as shown in the first set of financial statement as well as second set (MIS account) of then only difference is that in MIS account has been valued higher by the amount of ₹32.29 for the purpose of consolidated account of the venture partner. We note that the Hon’ble Rajasthan High Court in the case of CIT v. Laxmi Engineer Industries in order dated 18.03.2008 held that no addition could be made for higher valuation of the stock hypothecated to Bank if the AO had not been able to point out any discrepancy in the quantity of stock hypothecated to the Bank and the quantity of stock as per books of account. In this case also is no observation of the AO that quantity of progress is more than the quantity valued as statement. In view of the above, we set aside the order of the Ld. CIT(A) on the issue-in Assessing Officer. 10. The ground No. 2 of the appeal relates to disallowance of ₹5,65,933/- u/s 40(a)(ia) of the Act. The facts qua, the issue in dispute are that the Assessing Officer disallowed the amount u/s 40(a)(ia) of the Act for non HCC Samsung Joint Venture partner. We note that the Hon’ble Rajasthan High Court in the case of CIT v. Laxmi Engineer Industries in order dated 18.03.2008 held o addition could be made for higher valuation of the stock hypothecated to Bank if the AO had not been able to point out any in the quantity of stock hypothecated to the Bank and the quantity of stock as per books of account. In this case also is no observation of the AO that quantity of construction work is more than the quantity valued as per first set of financial In view of the above, we set aside the order of the Ld. in-dispute and delete the addition made by the The ground No. 2 of the appeal relates to disallowance of u/s 40(a)(ia) of the Act. The facts qua, the issue in dispute are that the Assessing Officer disallowed the amount u/s 40(a)(ia) of the Act for non-deduction of tax at source on HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 14 partner. We note that the Hon’ble Rajasthan High Court in the case of CIT v. Laxmi Engineer Industries in order dated 18.03.2008 held o addition could be made for higher valuation of the stock hypothecated to Bank if the AO had not been able to point out any in the quantity of stock hypothecated to the Bank and the quantity of stock as per books of account. In this case also there construction work-in- first set of financial In view of the above, we set aside the order of the Ld. addition made by the The ground No. 2 of the appeal relates to disallowance of u/s 40(a)(ia) of the Act. The facts qua, the issue in dispute are that the Assessing Officer disallowed the amount u/s deduction of tax at source on reimbursement of employee cost/ Alphine Samsung HCC Joint Venture i.e. related party. 11. On further appeal, the assessee submitted before the Ld. CIT(A) that there was no employer employee relationship between employee and assessee basis. It was further submitted that 192 of the Act by the employer M/s Alphine Samsung and the hand of salaried ground of the assessee. 12. We have heard rival submission of the parties on dispute and perused the relevant material on record. The issue is disallowance u/s 40(a)(ia) of the Act source, amount which reimbursement of the salary to the Ld. CIT(A) has sustained the disallowance in view of no evidence submitted by the assessee that same was taxed in the hands of the HCC Samsung Joint Venture reimbursement of employee cost/salary by the assessee e Samsung HCC Joint Venture i.e. related party. On further appeal, the assessee submitted before the Ld. CIT(A) that there was no employer employee relationship between loyee and assessee and the assessee reimbursed on rther submitted that tax was deducted at source u/s by the employer M/s Alphine Samsung and hand of salaried employees. The Ld. CIT(A) dismissed the ground of the assessee. We have heard rival submission of the parties on dispute and perused the relevant material on record. The issue is disallowance u/s 40(a)(ia) of the Act for non-deduction of tax at amount which has been claimed by the assessee reimbursement of the salary to seconded employee the Ld. CIT(A) has sustained the disallowance in view of no evidence submitted by the assessee that same was taxed in the hands of the HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 15 the assessee to M/s e Samsung HCC Joint Venture i.e. related party. On further appeal, the assessee submitted before the Ld. CIT(A) that there was no employer employee relationship between reimbursed on cost to cost deducted at source u/s by the employer M/s Alphine Samsung and taxable in Ld. CIT(A) dismissed the We have heard rival submission of the parties on the issue-in- dispute and perused the relevant material on record. The issue is of deduction of tax at been claimed by the assessee as employees. We find that the Ld. CIT(A) has sustained the disallowance in view of no evidence submitted by the assessee that same was taxed in the hands of the employees either on the payment made The relevant finding of the Ld. CIT(A) “The appellant has submitted the Debit Memos for the salary being debited and also a signed certificate by the related party to the effect that the invoices do not contain any mark reimbursement of costs. salary of an employee belonging to the related party and include his Salary, Provident Fund and Super Annuation Fund Contributions as well as some components such as leave travel assistance etc. It may be noted that these are taxable in the hands of the employee however, the appellant has not produced any evidence that the same are taxed in the hands of the employee either on payment made by it or by the related party. Hence based on this the disallowance is Ground of appeal is dismissed. 12.1 Though before us, the Ld. Counsel of the assessee has relied on the various decisions of the Tribunal willingness to file necessary evidence to support that tax was duly deducted on salary paid to the view of submission of the assessee, the matter the file of the Ld. Assessing Officer for verification, whether tax has been deducted by the employer M/s Alphine Samsung HCC JV in HCC Samsung Joint Venture employees either on the payment made by it or by the related party. The relevant finding of the Ld. CIT(A) is reproduced as under: The appellant has submitted the Debit Memos for the salary being debited and also a signed certificate by the related party to the effect that the invoices do not contain any mark-up or profit and is purely reimbursement of costs. It is observed that the invoices are towards the salary of an employee belonging to the related party and include his Salary, Provident Fund and Super Annuation Fund Contributions as well as some components such as leave travel assistance etc. It may be ted that these are taxable in the hands of the employee however, the appellant has not produced any evidence that the same are taxed in the hands of the employee either on payment made by it or by the related party. Hence based on this the disallowance is upheld and the Ground of appeal is dismissed.” Though before us, the Ld. Counsel of the assessee has relied on the various decisions of the Tribunal, however willingness to file necessary evidence to support that tax was duly salary paid to the seconded employee Mr. Srivastav. In view of submission of the assessee, the matter is restored the file of the Ld. Assessing Officer for verification, whether tax has been deducted by the employer M/s Alphine Samsung HCC JV in HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 16 or by the related party. is reproduced as under: The appellant has submitted the Debit Memos for the salary being debited and also a signed certificate by the related party to the effect up or profit and is purely It is observed that the invoices are towards the salary of an employee belonging to the related party and include his Salary, Provident Fund and Super Annuation Fund Contributions as well as some components such as leave travel assistance etc. It may be ted that these are taxable in the hands of the employee however, the appellant has not produced any evidence that the same are taxed in the hands of the employee either on payment made by it or by the upheld and the Though before us, the Ld. Counsel of the assessee has relied on however he expressed willingness to file necessary evidence to support that tax was duly employee Mr. Srivastav. In restored back to the file of the Ld. Assessing Officer for verification, whether tax has been deducted by the employer M/s Alphine Samsung HCC JV in respect of salary amount reimbursed by the assessee in relation to employee Mr. Srivastav seconded employee on reimbursement amount by the assessee is accordingly ITA No. 7365/MUM/2019 Assessment Year: 2015 13. The ground raised by the assessee in assessment year 2015 is reproduced as under: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not entertaining the appellant’s cla of ₹32,29,26,445/ brought to tax by the AO while passing the assessment order of AY 2014 15, which automatically forms the opening WIP of the year under consideration. In any event, deductio in AY 2014-15 is sustained in the year. Amount of tax and interest u/s 234B be directed to be consequently recomputed. 14. The ground No. 1 of the appeal is connected with the Ground No. 1 of the assessee HCC Samsung Joint Venture respect of salary amount reimbursed by the assessee in relation to employee Mr. Srivastav or tax has already been paid seconded employee on reimbursement amount. The ground raised accordingly allowed for statistical purpose o. 7365/MUM/2019 2015-16 The ground raised by the assessee in assessment year 2015 is reproduced as under: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not entertaining the appellant’s claim for deduction ₹32,29,26,445/- being closing WIP as on March 31, 2014 wrongly brought to tax by the AO while passing the assessment order of AY 2014 15, which automatically forms the opening WIP of the year under consideration. In any event, deduction for ₹32,29,445/- be allowed if the addition made 15 is sustained in the year. Amount of tax and interest u/s 234B be directed to be consequently he ground No. 1 of the appeal is connected with the Ground No. 1 of the assessee in assessment year 2014-15. In this year only HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 17 respect of salary amount reimbursed by the assessee in relation to or tax has already been paid by the . The ground raised ed for statistical purpose. The ground raised by the assessee in assessment year 2015-16 On the facts and in the circumstances of the case and in law, the im for deduction being closing WIP as on March 31, 2014 wrongly brought to tax by the AO while passing the assessment order of AY 2014- 15, which automatically forms the opening WIP of the year under be allowed if the addition made Amount of tax and interest u/s 234B be directed to be consequently he ground No. 1 of the appeal is connected with the Ground 15. In this year only an alternative prayer construction of WIP ₹ year 2014-15 then claim of deduction for the same might be allowed in the year under consideration for deducti allowed relief to the assessee on ground No. 1 of the appeal for assessment year 2014 the assessment year 2015 infructuous. 15. In the result, the appeals & 2015-16 are allowed for statistical purposes. Order pronounced in the Court on Sd/- (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 27/07/2022 Rahul Sharma, Sr. P.S. HCC Samsung Joint Venture an alternative prayer has been made that if said amount of ₹3229.26 lakhs is not allowed in the assessment 15 then claim of deduction for the same might be allowed under consideration for deduction. Since we have to the assessee on ground No. 1 of the appeal for assessment year 2014-15, therefore, this ground do not survive in the assessment year 2015-16. Accordingly, same is dismissed as In the result, the appeals filed by the assessee allowed for statistical purposes. ounced in the Court on 27/07/2022. Sd/- ABY T VARKEY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 18 made that if said amount of 3229.26 lakhs is not allowed in the assessment 15 then claim of deduction for the same might be allowed on. Since we have to the assessee on ground No. 1 of the appeal for 15, therefore, this ground do not survive in 16. Accordingly, same is dismissed as for AY 2014-15 OM PRAKASH KANT) MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// HCC Samsung Joint Venture Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, Mumbai HCC Samsung Joint Venture ITA Nos. 7372 & 7365/M/2019 19 Sr. Private Secretary) ITAT, Mumbai