MI PKS (JV),VADODARA V. THE ITO, WARD-1, MEHSANA

ITA 1360/AHD/2025

AI Insights

The case involves MI PKS (JV), a joint venture, appealing against the order of the National Faceless Appeal Centre (NFAC), which had upheld the disallowance of certain expenses claimed by the assessee during the assessment year 2018-19. The assessee had claimed deductions for transportation and sub-contract expenses related to a contract with Western Railways, which were disallowed by the Assessing Officer (AO) and upheld by the CIT(A). The Tribunal examined the validity of these claims in light of the agreements and the legal existence of the assessee at the relevant times.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789105 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 26-06-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: NAMAN DESAI
• Keywords: Business income
• Section: 143(3); 37

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER ITA No.1360/Ahd/2025 Assessment Year: 2018-19 M/s. MI PKS (JV), S-09, Second Floor, Indiabulls Mega Mall, Jetalpur, Vadodara – 390 020. (Gujarat). [PAN – AAFAM 3947 A] Vs. Income Tax Officer, Ward – 1, Mehsana, 2nd Floor, Apollo Enclave, Opp. Jain Derasar, Mehsana – 384 002, (Gujarat). (Appellant) (Respondent) Assessee by Shri Naman Desai, AR Revenue by Shri Abhijit, Sr. DR Date of Hearing 06.10.2025 Date of Pronouncement 25.11.2025 O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 29.04.2025 for the Assessment Year (A.Y.) 2018-19 in the proceeding under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2018-19 on 08.08.2018 declaring total income of Rs.18,00,440/-. The case was selected for complete scrutiny under CASS. The assessee is a Joint Venture AOP and came into existence Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 2 of 11 vide Joint Venture Agreement dated 17.04.2017 executed between M/s. Miral Infrastructure (a Partnership Firm) and M/s. PK and Sons (a Proprietary-ship Concern). The assessee was awarded an earthwork relating contract by Western Railways which was sub-contracted by the assessee to M/s. PKS Technobuild Pvt. Ltd. vide sub-contract agreement dated 18.04.2017. In the course of assessment, it transpired that the assessee had received an amount of Rs.13,02,06,937/- from Western Railways towards the contract work completed, out of which the assessee had passed on an amount of Rs.12,36,73,470/- to the sub-contractor. The Assessing Officer noticed that apart from the deduction for the sub-let work, the assessee had also claimed separate deduction for of sub-let expense of Rs.5,19,692/- and for transportation expenses of Rs.41,48,000/-. The Assessing Officer examined the claim for these two expenses and found that these expenses were not admissible to the assessee considering the terms and conditions of sub-contract agreement with M/s. PKS Technobuild Pvt. Ltd. Accordingly, the sublet expenses of Rs.5,19,612/- and transportation expenses of Rs.41,48,000/- was disallowed by the assessee. The assessment was completed under Section 143(3) of the Act on 20.03.2021 at a total income of Rs.64,68,130/-. 3. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. 4. Now, the assessee is in second appeal before us. The following grounds have been taken in this appeal: - Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 3 of 11 “1.1 Ld. AO & Ld. CIT (A) has grossly erred in disallowance of transportation expense of Rs.41,48,000 actually incurred by the Appellant. 1.2 Ld. AO and Ld. CIT (A) ought to have taken into cognizance the oral as well as subsequent written MOU between the Appellant and the subcontractor specifically clarifying that the transportation expense would be borne by the Appellant as the same has been incurred by it before the transfer of the contract to the subcontractor. 1.3 Ld. AO and Ld. CIT(A) ought to have appreciated that this subcontract agreement has been modified orally which is reflected in lesser cost of Rs.27,72,544 being passed on to the Appellant by the subcontractor in comparison its entitlement as per the original subcontract agreement. 1.4 Ld. AO and Ld. CIT (A) ought to have allowed the expense as the same was incurred and paid for the purpose of business by the Appellant. Appellant therefore pleads that the disallowance of transportation expense of Rs 41,48,000 be deleted. 2.1 Ld. AO and Ld. CIT (A) has grossly erred in disallowing the subletting expense of Rs.5,19,692 where the recovery thereof were made by railways directly from the payments received by the Appellant. 2.2 Ld. AO and Ld. CIT (A) ought to have allowed this expenditure which was incurred for the purpose of business. 2.3 Ld. AO and Ld. CIT (A) have grossly erred by holding that this expenditure though deducted directly from the payments received by the Appellant, should have been borne by the subcontractor. 2.4 Ld. AO and Ld. CIT (A) ought to have appreciated that the agreement with a subcontractor is a mutual agreement which has been altered subsequently with the oral consent of both the parties. Appellant therefore pleads that the disallowance of sublet expense of Rs.5,19,692 be deleted. Appellant craves leave to add, alter, amend or rescind any of the above ground of appeal.” 5. Shri Naman Desai, Ld. AR of the assessee submitted that the transportation expense of Rs.41,48,000/- was incurred by the assessee as per MOU dated 10.04.2017, made with the sub-contractor before Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 4 of 11 execution of the sub-contract agreement dated 18.04.2017. Therefore, the contention of the Revenue that the MOU dated 18.04.2017 superseded the earlier specific MOU dated 10.04.2017, was not correct. The Ld. AR submitted that the assessee had already incurred transportation expense of Rs.41,48,000/- at its own cost before transferring the balance work to the sub-contractor M/s. PKS Technobuild Pvt. Ltd. vide sub-contract agreement dated 18.04.2017. He submitted that the genuineness of the expenses was not disputed by the AO. Therefore, the disallowance made by the Assessing Officer was not correct. 5.1 On the issue of sub-contract expense of Rs.5,19,692/-, the Ld. AR submitted that 1% labour cess and copy charges of Rs.50/- was directly deducted by Railways while releasing the payment to the assessee and these deductions made by the Railways were not part of sub-contract agreement dated 18.04.2017. Therefore, the assessee had rightly claimed deduction for sub-contract expense of Rs.5,19,692/- 6. Per contra, Shri Abhijit, Ld. Sr. DR submitted that in the sub-contract agreement dated 18.04.2017 entered into by the assessee with M/s. PKS Technobuild Pvt. Ltd., there was no mention of any work in relation to the contract work being already done by the assessee or for any transportation expenses already incurred by the assessee. He further submitted that no reference of the MOU dated 10.04.2017 was appearing in the sub-contract agreement dated 18.04.2017. According to the Ld. Sr. DR, the MOU dated 10.04.2017 was only a ploy and afterthought to justify the claim of transportation expenses. He further submitted that as per the finding given by the Assessing Officer, the assessee was created by Joint Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 5 of 11 Venture agreement dated 17.04.2017 executed between M/s. Miral Infrastructure and M/s. PK & Sons. Under the circumstances, no MOU could have been signed by the assessee on 10.04.2017 which was prior to creation of the assessee itself. As regarding sub-contract expense, the Ld. Sr. DR submitted that as per Clause-11 of sub-contract agreement dated 18.04.2017, all expenses in the nature of cess, tax or any other deduction made by the authorities applicable to the contract was to be borne by the second party only. In view of this specific clause in the sub- contract agreement, there was no rationale for claiming sub-contract expense by the assessee. He, therefore, strongly supported the orders of the lower authorities. 7. We have carefully considered the rival submissions. The first grievance of the assessee is against the disallowance of transportation expenses of Rs.41,48,000/-. It is stated that the assessee was awarded earth work contract by Western Railway which was sub-contracted to M/s. PKS Technobuild Pvt. Ltd. vide sub-contract agreement dated 18.04.2017. The assessee has brought on record copy of the sub-contract agreement dated 18.04.2017. There is no dispute to the fact that the assessee had disclosed contract receipt of Rs.13,02,06,937/- from Western Railway during the year, out of which the assessee had claimed deduction for sub-let work of Rs12,36,73,470/-. In addition to payment for sub-letting of contract, the assessee had claimed separate deduction of Rs.41,48,000/- on account of transportation expense and Rs.5,19,692/- on account of sublet expenses. In this regard, it will be relevant to examine the explanation of the assessee given before the Ld. CIT(A) vide written submission dated 13.08.2021, a copy of which has been brought on record. The relevant portion of the said explanation is as under :- Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 6 of 11 “3. Regarding addition under section 37 of the Act for Rs.46,67,692/- (Ground No. 3 & 4): 3.1 The appellant is a Joint Venture AOP entered into existence vide Joint Venture Agreement dated 17.04.2017 executed between M/s. Miral Infrastructure partnership firm and M/s. P.K. and Sons a proprietary concern in order to jointly execute the contract. Copy of Joint Venture Agreement is enclosed in paper book on page no. 7-25. The scope of work of each party is set forth as 53% and 47% respectively. It is engaged in the business of Government/Railway department or semi Government construction work. For its business, the appellant has maintained regular books of accounts as prescribed under section 44AA of the Act which are subject to audit under section 44AB. During the year under consideration the appellant has shown total sales of Rs.13,02,07,237/- being earthwork income from work order received from Western Railway as Tender-75 & Tender -76 on the basis of work completed during the year. 3.2 The appellant is working under joint venture agreement and in this it has taken work from Government/railway and the same work was assigned or pass on to Sub-contractor with all responsibility by keeping very low rate of margin. The appellant entered into a sub contract agreement with PKS Technobuild Pvt. Ltd. on 18.04.2017 (Copy of such agreement is enclosed in paper book on page no. 26-31). The sub-contractor agreed to work on the terms and conditions mentioned in the said Agreement. The Ld. Assessing Officer at para 4.2 on page 3 of Assessment Order mentioned some of the important terms of the agreement. During the course of assessment proceedings, appellant has also submitted copy of Memorandum of Understanding/agreement made and entered into 10.04.2017 between assessee-JV and PKS Technobuild P. Ltd. (copy of such memorandum is enclosed in paper book on page no.32-33) wherein it was mentioned that appellant has given work for transportation for 0.5 km which was not part of sub contract agreement and accordingly appellant has made expenditure of Rs.41,48,000/- However, explanation provided by appellant was not accepted by AO on the ground that such expenditure are in the name of four persons and same are incurred subsequent to date of sub contract agreement. The AO has not accepted memorandum of understanding submitted by appellant on the ground that it is on 100 Rs stamp paper, no date is mentioned and such agreement was not part of main agreement. On this basis, AO made disallowance of transportation expenses of Rs.41,48,000. The AO has also made disallowance of sub-letting expenses of Rs.5,19,692/- on the ground that same is not required to be incurred by appellant JV as per sub contract agreement executed by it. Thus, AO has made addition of Rs.46,67,692/- u/s 37 of the Act. Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 7 of 11 3.3 In this connection, appellant would like to submit that though main sub contract agreement was executed on 18.04.2017, appellant JV has also entered into Memorandum of understanding dated 10.04.2017 wherein it was explicitly agreed between both the parties that certain expenditure would be incurred by appellant. The relevant terms & conditions of the agreement as submitted before AO are as under: The said parties, for the considerations hereinafter mentioned, hereby agree to the following: 1. First party has allotted LOA No: Dy. CE/C/I/BRC/CTD- DHAR/75 on 17.03.2017, after getting LOA, immediately party started the work like site cleaning. leveling, for approach road and transporting earth of 0.5km. 2. Party of First part had given Work for transportation for this 0.5 km which was not part of sub contract agreement. This understanding taken as part of clarification of work given as Sub-contract agreement. Party of 15 part will pay all the expenses for which work already started. Party of Second part will not pay additional amount for this work done by party 1st part. 3. Party of 1st Part will hand over the site, after completion of leveling and work for approach road, and for that the transportation expenses incurred, which will borne by Party of 1st Part. 4. Party of 2nd Part agree to Pay margin as per Sub-contract which was decided by both parties considering work already undertaken by Party of 1st Part 5. This agreement shall be interpreted under laws of the State of Gujarat 6. Attorney's fees and court costs shall be paid by the defendant in the event that judgment must be, and is, obtained to enforce this agreement or any breach thereof. IN WITNESS WHEREOF, the parties hereto set their hands and seals the day and year written above. It is submitted that during the course of assessment proceedings, the appellant provided copy of memorandum of understanding (same is also attached in paper book) in which it is clearly mentioned that transportation expenses for 0.5 Kms will be borne by party of first part i.e MI-PKS JV, appellant. Once such memorandum of Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 8 of 11 understanding was already executed by both the parties, same are on notarized paper, it cannot be held that appellant is not entitled to claim such expenditure merely on the ground that such details are not mentioned in main agreement executed on 18.04.2017. The AO has failed to appreciate following facts: (a) AO has not doubted the payment made by appellant JV or there is nothing on record that such expenditure is not incurred by appellant. No evidences are brought on record by AO that expenditure was not required for carry out work allotted to appellant. (b) The payments are made to third parties and genuineness of payment is not in doubt. (c) There is nothing on record that such expenditure is also claimed by other party. (d) The AO has not made any inquiries with other party to sub- contract agreement from which AO can prove that MOU was not in existence or expenditure was not born by appellant. Once expenditure is incurred by appellant, payment has been made by it from its own sources, expenditure cannot be disallowed merely on presumption. 7.1 The contention of the assessee is that it has already started the site clearing, levelling for approach road and transportation of earth for initial 0.5 kms, prior to entering into sub-contract agreement, and the transportation expenses of Rs.41,48,000/- was incurred in this connection. As explained, the assessee came into existence vide Joint Venture agreement dated 17.04.2017 executed between M/s. Miral Infrastructure and M/s. PK & Sons. Under the circumstances, no contract could have been assigned to the assessee prior to the date when it came into existence. Therefore, the contention of the assessee that it was awarded earth work contract by Western Railway on 17.03.2017, is itself under serious doubt as the assessee was not in existence on 17.03.2017. This aspect was not examined by the AO and the submission of the assessee was accepted on its face value. Be that as it may, the fact Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 9 of 11 remains that no work could have been executed by the assessee prior to the date it came into existence i.e. on 17.04.2017. The sub- contract agreement with M/s. PKS Technobuild Pvt. Ltd. was entered into on 18.04.2017 i.e. one day after the assessee came into existence. Naturally, there is no reference of the earlier MOU dated 10.04.2017 in the sub-contract agreement dated 18.04.2017 for the reason that no such MOU could have been signed by the assessee on 10.04.2017 when the assessee itself came into existence on 17.04.2017. Merely because the Revenue did not examine the evidences brought on record in support of the transportation expenses, it does not make the expense and claim of the assessee genuine. The precise question as to how the MOU dated 10.04.2017 was entered into when the assessee itself was not in existence on that day, has not been answered. The contention of the Revenue that the MOU dated 10.04.2017 was manufactured by the assessee to give a colour of genuineness to the transportation expenses of Rs.41,48,000/-, which was never incurred, appears to be correct considering the above discrepancy. There was no reference of the MOU dated 10.04.2017 or any transportation expenses being incurred by the assessee for initial 0.5 km of the contract length, in the sub-contract agreement dated 18.04.2017. Considering these facts, the Assessing Officer had rightly disallowed the transportation expenses of Rs.41,48,000/-. The disallowance as made by the Assessing Officer is upheld and the ground taken by the assessee in this regard, is dismissed. 8. As regarding the sub-contract expense of Rs.5,19,692/-, the contention of the assessee is that this amount represented 1% labour cess and copy charge of Rs.50/- deducted by the Railways while releasing the payment of the assessee. According to the revenue, such deductions Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 10 of 11 was to be borne by the sub-contractor M/s. PKS Technobuild Pvt. Ltd. and not by the assessee. The Clause-11 of sub-contract agreement dated 18.04.2017 is found to be as under:- 11) All royalties, Central Excise, Sales Tax/VAT, Income Tax, Works Contract Tax, Octroi, Labour License, Insurance (WC Policy), Cess or any other statutory taxes levied by central and or state governments and or local departments/authorities applicable to the contract or after completion of the work will be arranged, discharged and borne by the party of the second part only. Arrangements for all formalities for Sales Tax, Octroi, Labour Licenses, Insurance (WC Policy), Works Tax, PF etc. and its payments whatsoever will be arranged and borne by the party of the second part. If any new taxation imposed by Central/or State Govt., then it will be directly effective to second part as actual.” 8.1 As per the above referred clause, all the tax, cess, or any other tax or deduction made by the Government or Local Department or Authorities applicable to the contract, was to be borne by the party of the second part only. As explained by the assessee, the deduction for cess and copy charges was made by the Railway which was the “Authority applicable to the contract”. In terms of clause-11 of sub-contract agreement, these deductions were liable to be borne by the sub-contractor and not by the assessee. Accordingly, the Assessing Officer had rightly disallowed the sub-contract expenses of Rs.5,19,692/-. Accordingly, the addition as made by the Assessing Officer is upheld and the ground of the assessee is dismissed. 9. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on this 25th November, 2025. Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Ahmedabad, the 25th November, 2025 Printed from counselvise.com ITA No.1360/Ahd/2025 (Assessment Year: 2018-19) MI PKS (JV) vs. ITO Page 11 of 11 PBN/* Copies to: (1) The appellant (2) The respondent (3) The PCIT (4) The CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPYE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad Printed from counselvise.com "