MADHUCON SINO HYDRA JV ,HYDERABAD V. DY. COMMISSIONER OF INCOME TAX , CIRCLE-2(1), HYDERABAD

ITA 1344/HYD/2018

AI Insights

The case involves a series of appeals by M/s. Madhucon Sino Hydro JV and the revenue concerning the assessment years 2012-13, 2013-14, and 2014-15. The primary issue was whether the payments made by the JV to its constituents were in the nature of sub-contracts, which would require TDS under section 194C of the Income Tax Act, 1961. The Assessing Officer had treated these payments as sub-contracts and disallowed them under section 40(a)(ia) due to non-deduction of TDS. However, the CIT(A) reversed this decision, leading to the revenue's appeal. The Tribunal, referencing its earlier decisions in the assessee's own case, upheld the CIT(A)'s decision, emphasizing that the JV's constituents were de facto contractors and the payments made were not sub-contracts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472718 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2012-2013
• Other Referred Cases: ITA Nos.713 to 716/Hyd/2013, ITA Nos.646 & 701/Hyd/2010
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P. MURALI MOHAN RAO
• Keywords: Set aside; TDS
• Section: 201(1); 194C

Judgement Text

" आआआआ आआआआआआ आआआआआआ, आआआआआआआआ आआआ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA Nos.1344, 1311 & 1312/Hyd/2018 (निर्धारण वर्ा/Assessment Years:2012-13, 2013-14 & 2014-15) M/s. Madhucon Sino Hydro JV, Hyderabad. ….Appellant. PAN:AANFM1451G Vs. 1. Dy. Commissioner of Income Tax, Circle-2(1), Hyderabad. 2. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad. 3. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad. ….Respondents. आ.अपी.सं ITA Nos.1004 & 1005/Hyd/2018 (निर्धारण वर्ा/Assessment Years:2012-13 & 2013-14) Income Tax Officer, Ward-14(1), Hyderabad. ….Appellant. Vs. M/s. Madhucon Sino Hydro JV, Hyderabad. ….Respondent. निर्धाररती द्वधरध/Assessee by: Shri P. Murali Mohan Rao, C.A. रधजस् व द्वधरध/Revenue by:: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 23/01/2025 घोर्णध की तधरीख/Pronouncement: 24/02/2025 आदेश/ORDER PER BENCH : These cross appeals are filed by M/s. Madhucon Sino Hydro JV (“the assessee”)and by revenue, feeling aggrieved by the separate ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 2 orders passed by the Learned Commissioner of Income Tax (Appeals)-6, Hyderabad (“Ld. CIT(A)”), all dated 22.02.2018 for the A.Ys. 2012-13 to 2014-15. Since these appeals are inter-related, therefore, for the sake of convenience and brevity, they are heard together and are being disposed off by this one consolidated order. ITA No.1004/Hyd/2018 for A.Y. 2012-13 (Revenue’s appeal) 2. The revenue has raised the following grounds : “ 1. The CIT(A) erred in holding that the assessee is not under any obligation to deduct tax at source since there was no contractor and sub-contractor relationship between the assessee and its constituent members. 2. The CIT(A) ought to have seen that the contract was awarded in favour of the assessee, the assessee in turn got the work executed through its constituents. In the light of admitted facts, it cannotbe said that there was no contractor and sub-contractor relationship between the assessee and its constituent. 3. The CIT(A) ought to have seen that the assessee JV was formed for the purpose of executing the contract works, whereas the finding of the Tribunal that there was no contractor and sub-contractor relationship between the assessee and its partners is based on no evidence. 4. Any other ground that may be urged at the time of hearing. “ 3. The brief facts of the case are that the assessee is a Joint Venture (“JV”) engaged in the business of executing civil contract works of construction of roads and other projects. The JV was formed by consortium of two constituents i.e. M/s. Madhucon Projects Limited and M/s. Sino Hydro Corporation. The assessee filed its Return of Income (“ROI”) for A.Y. 2012-13 on 29.09.2012 declaring total loss of Rs.1,00,729/-. Subsequently, the assessee filed revised ROI on 27.11.2013 declaring total loss of Rs.1,00,892/-. The ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 3 case of the assessee was selected for scrutiny under CASS. During the assessment proceedings, the Learned Assessing Officer (“Ld. AO”) found that, the total contract receipts of the assessee was Rs.70,69,90,560/- and the said total contract receipts have been paid by the JV, to both the constituents of JV i.e. Rs.69,86,08,057/- were paid to M/s. Madhucon Projects Pvt. Ltd. and balance was paid to M/s. Sino Hydro Corporation. The Ld. AO treated the said payments by JV to its constituents as sub-contracts and found that no TDS in accordance with section 194C of the Income Tax Act, 1961 ('the Act') has been made by the JV on such payments. Therefore, he disallowed the total payments of Rs.70,69,90,560/- made by the JV to its constituents u/s.40(a)(ia) of the Act due to no TDS and added the same as income in the hands of the assessee. Accordingly, the Ld. AO completed the assessment u/s.143(3) on 26.03.2015 assessing the total income of the assessee at Rs.70,68,89,668/-. 4. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) relying on the decision of ITAT in assessee's own case for A.Y. 2006-07, deleted the addition made by the Ld. AO, as per his observation under para nos.6.5 and 6.6 of his order, which are to the following effect : ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 4 4.1 Further, the Ld. CIT(A) also directed the Ld. AO to give credit for TDS deducted in the name of JV, to the constituents of JV, as per his observation at para no.7 of his order, which is to the following effect : ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 5 5. Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us. The Learned Department Representative (“Ld. DR”) submitted that, if the total contract receipts have been paid to the two constituents, there must have been some basis for transfer of the contract receipts to the constituents. It may be a written contract or may be an oral contract. Hence, it could not be said that there is no contract between the JV and its constituents and there is no application of section 194C of the Act. Hence, the payments made by ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 6 the JV to its constituents are in the nature of sub contracts and liable for TDS u/s.194C of the Act. As the JV has not made any TDS on the payments made to its constituents, the Ld. AO has rightly added the total payments of Rs.70,69,90,560/- u/s.40(a)(ia) of the Act to the total income of the assessee. Hence, the Ld. DR prayed before the bench to set aside the order of Ld. CIT(A). 6. Per contra, the Learned Authorised Representative (“Ld. AR”) relied on the order or Ld. CIT(A). The Ld. AR submitted that, the JV has passed on the total contract receipts to its constituents. He further submitted that, the JV has paid the entire contract receipts received from the contractee to its constituents without retaining any portion of the profit. Hence, the payments made by the JV to its constituents cannot be treated as sub-contracts. To justify their submission, the Ld. AR brought our attention to para no.6 of the order of ITAT in assessee's own case for A.Ys. 2005-06 to 2007-08 and 2009-2010 in ITA Nos.713 to 716/Hyd/2013 dated 14.08.2013 and submitted that the JV was only a dejur contractor, in fact the constituents were the de facto contractor in respect of the respective portion of the works. Therefore, the provisions of section 194C of the Act is not applicable to the assessee. Hence, the Ld. AR prayed before the bench to uphold the order of Ld. CIT(A). 7. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As per the submission of the Ld. AR, the JV has paid the entire contract ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 7 receipts received from the contractee to its constituents without retaining any portion of the profit. Hence, it is the contention of the Ld. AR that the payment made by JV to its constituents is not in the nature of sub-contract and the provisions of section 194C is not applicable to the assessee. We found that, the same issue has been decided by this Tribunal at para no.6 in assessee's own case for A.Ys. 2005-06 to 2007-08 and 2009-10, in ITA Nos.713 to 716/Hyd/2013 dated 14.08.2013, which is to the following effect : “6. From the aforecited extracted portion, it is very much clear that the Tribunal has held that where Joint Venture is formed only for the purpose of obtaining contracts and specific portions of the contract are to be completed by individual constituents independently, then it cannot be a case of the Joint Venture giving works contract to the constituents. The Tribunal has further held the profit of the project in such a case should be assessed in the hands of the individual constituents and not in the hands of the consortium AOP. There cannot be two opinion about the aforecited ratio laid down by the Coordinate Bench in assessee’s own case and we respectfully agree with the same. However, the assessee has also to prove that the Joint Venture has not executed the work and also not retained any profit. The entire work was executed by the constituents and the Joint Venture has paid the entire contract receipts received by it from the contractee to the constituents without retaining any portion of the profit by whatever name it may be called. Since the assessee has not submitted before us relevant bank accounts to show the details of payment received from the contractee and the payments made by the assessee Joint Venture to its constituents, we are not in a position to give any conclusive finding. It appears from the order of the CIT(A) that she has also not examined the bank accounts to find-out as to whether the assessee has made over the entire contract amount received from the contractee to the constituents of the Joint Venture who have executed the work. We, therefore, direct the Assessing Officer to verify the entire case as observed above and if it is established on verification of the bank account that the entire contract receipt received by the assessee Joint Venture was passed-on to the constituents of the Joint Venture without retaining any ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 8 portion of profit out of the contract receipt, then the assessee cannot be treated to be a assessee in default for not deducting tax at source and therefore, the provisions of section 201(1) and 201(1A) will not be made applicable to the assessee. Accordingly, the appeal of the Revenue is allowed for statistical purposes.” On perusal of above, it is found that, this Tribunal has given the findings that, the payments made by the JV to its constituents are not in the nature of sub-contract and is not covered under the provisions of section 194C of the Act. 8. Respectfully following the decision of this ITAT in assessee's own case for A.Ys. 2005-06 to 2007-08 and 2009-2010 in ITA Nos.713 to 716/Hyd/2013 dated 14.08.2013, we hold that, if the entire receipts received by the JV has been passed on to the constituents without retaining any portion of the profit out of the contract receipts, then the payments made by the JV to its constituents will not fall under the provisions of section 194C of the Act and no disallowance can be made u/s.40(a)(ia) of the Act in the hands of the assessee. However, whether the assessee had retained any profit out of the contract receipts or not is the subject matter of verification from the records of the assessee. Therefore, the Ld. AO is directed to verify the same and if after verification, the Ld. AO found that, the entire contract receipts received by the assessee was passed on to its constituents without retaining any portion of profit out of the contract receipts, then to delete the entire addition of Rs.70,69,90,560/- made u/s.40(a)(ia) of the Act. Accordingly, the contention of the revenue is rejected. ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 9 9. In the result, the appeal of the revenue is dismissed. ITA No.1005/Hyd/2018 for A.Y. 2013-14 (Revenue’s appeal) 10. The facts and issues involved in this appeal is similar to facts and issues involved in ITA No.1004/Hyd/2018. Hence, our findings in ITA No.1004/Hyd/2018 applies mutatis muntandis to this appeal also. Accordingly, this appeal of the revenue is also dismissed. ITA No1344/Hyd/2018 (Assessee's appeal for A.Y. 2012-13) 11. The assessee has raised the following grounds : “ 1. The order of Commissioner of Income Tax (Appeals) is erroneous both on facts and law. 2. The Ld. CIT(A) erred in rectifying the claim of TDS credit in the hands of assessee of Rs.1,84,02,365/-. 3. The Ld. CIT(A) erred in not appreciating the entire receipt are shown as income in the hands of assessee JV. 4. The Ld. CIT(A) erred in not appreciating the fact that assessee is eligible for credit of TDS as per provisions of section 199 of the Act. 5. The appellant may add or alter or mend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.” 12. The Ld. AR submitted that, the solitary issue in the appeal of the assessee is against the direction of Ld. CIT(A) given under para no.7.2 of his order, which is to the following effect : ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 10 13. The Ld. AR also submitted that, the Ld. CIT(A) has erred in making direction to the Ld. AO to give credit of the TDS on the contract receipts to the constituents. However, actually the assessee is eligible for credit of the TDS. Therefore, the Ld. AR prayed before the bench to set aside the order of Ld. CIT(A). 14. The Ld. DR relied on the order of Ld.CIT(A). 15. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. On identical issue, we found that this ITAT in assessee's own case in ITA Nos.646 & 701/Hyd/2010 dated 27.11.2017 for A.Y. 2006-07, at para no.9 of its order has given the finding that, the credit for the TDS made by the deductor will be available to the respective constituents who has offered income on which such TDS has been made, even ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 11 though the certificate is issued by the deductor in the name of the Consortium, which is to the following effect : “9. In the circumstances we hold that the Assessing officer erred in recasting the P&L of the AOP to bring in the works directly taken up by the constituents. Further the constituents have offered the income from their portion of the project as their income and offered the same for tax. This has been accepted by the Department. From the ratio of the decisions cited above, in the case of a JV/ Consortium formed specifically for the sole purpose of obtaining the contracts and specific portions of the projects are carried out by mutual agreement by specific constituents, the profits from the portion of the projects derived from the individual constituent can be offered by them for tax in their return. Once such income is assessed in their individual hands the Assessing officer cannot again bring to tax the entirety of the receipts in the hands of the Consortium. Consequently there cannot be any disallowance in the hands of the consortium any amounts receivable by the constituents towards their share of work on the ground that consortium has not deducted tax at source from such payment. The credit for the TDS made by the client will be available to the respective constituents who has offered income on which such TDS has been made, even though the certificate issued by the client is in the name of the Consortium.” 15.1 We also found that, the Ld. CIT(A) also following the aforesaid decision of this Tribunal has held that, the constituents are liable for credit of TDS and accordingly, he made the direction to the Ld. AO. Therefore, we do not find any merit in the argument of the Ld. AR. Accordingly, we uphold the order of Ld. CIT(A) and hereby make a direction to the Ld. AO to give the credit for the TDS to the constituents of JV although the TDS Certificate has been issued by the diductor in the name of the JV. Accordingly, the appeal of the assessee is dismissed. 16. In the result, the appeal of the assessee is dismissed. ITA Nos.1311, 1312, 1344, 1004 & 1005/Hyd/2018 12 ITA No1311 & 1312 /Hyd/2018 (Assessee's appeals for A.Y. 2013-14 & 2014-15) 17. The facts and issues involved in these appeals are similar to the facts and issues involved in ITA No.1344/Hyd/2018. Hence, our findings in ITA No.1344/Hyd/2018 applies mutatis muntandis to these appeals also. Accordingly, these appeals of the assessee are also dismissed. 18. To sum up, all the appeals of revenue and assessee are dismissed. Order pronounced in the open Court on 24th Feb., 2025. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad. Dated: 24.02.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. Madhucon Sino Hydro JV, C/o P. Murali & Co., C.As, 6-3-655/2/3, Somajiguda, Hyderabad-500082 2. DCIT, Circle-2(1) / ACIT, Circle 14(1) / ITO, Ward 14(1), Hyderabad. 3. Pr. CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard File. BY ORDER, "