2012 (9) TMI 1018 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made by the AO.
2. Invocation of provisions of section 145 of the IT Act.

Summary:

Issue 1: Deletion of Addition Made by the AO

Grounds of Appeal by Revenue: The revenue contended that the CIT(A) erred in deleting the addition made by the AO, arguing that the contract was awarded to the assessee, who then distributed the work to its members without retaining a commission, violating market principles. The AO estimated the total income of the assessee at 2% of the total contract receipts.

Facts of the Case: The assessee, a joint venture (JV) between M/s Progressive Constructions Ltd. (PCL) and M/s Saudi A1-Terais Trading Industrial Construction Company Ltd. (STICCO), was awarded a contract by the National Highways Authority of India (NHAI). The JV distributed the work among its members in a specified ratio, and the AO treated the members as sub-contractors, estimating the income of the assessee at 2% of the total contract receipts.

CIT(A) Decision: The CIT(A) held that no income is assessable in the hands of the JV, following the decision in the assessee's own case for previous assessment years.

ITAT Decision: The ITAT restored the issue to the AO to verify if the corresponding incomes as per the JV agreements were offered in the individual members' hands. If so, it cannot be taxed in the hands of the JV. The appeal of the revenue was allowed for statistical purposes.

Issue 2: Invocation of Provisions of Section 145 of the IT Act

Grounds of Appeal by Assessee: The assessee argued that the lower authorities erred in assessing the income at 2% of the contract receipts and in applying the provisions of section 145(3) of the Act, as the accounts were correct and complete.

Facts of the Case: The assessee, another JV named 'PCL-MVR Joint Venture,' filed its return of income declaring 'NIL' income, showing contract receipts distributed between its members. The AO estimated the income at 2% of the contract receipts, invoking section 145 of the Act.

CIT(A) Decision: The CIT(A) confirmed the AO's action, following the decision in a similar case for AY 2005-06.

ITAT Decision: The ITAT found that the issue was covered by the decision in the case of DCIT Vs. M/s PCL Sticco JV, where it was held that no income is assessable in the hands of the JV. The ITAT set aside the CIT(A)'s order and deleted the addition made by the AO. The appeal of the assessee was allowed for statistical purposes.

Conclusion:

Both the revenue's and the assessee's appeals were allowed for statistical purposes, with the ITAT directing the AO to verify the corresponding incomes in the individual members' hands.

Pronounced in the open court on 21st September, 2012.