9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (10) TMI 563 - AT - Income TaxCommercial profits and its accrual - allegation of diversion of income - Joint venture - sub contractors - Estimation of income being 9% of the turnover - Disallowance under S.40A(2) - excessive and unreasonable payments - The dispute herein is regarding assessability of income in the hands of the assessee as an Association of Persons (AOP). The case of the Assessing Officer is that the JV and its members should be treated as separate persons and hence the contracts allocated to the members should be treated as sub contracting receipts . On the other hand, the assessee made a case that the JV has come into existence only to procure and win the contracts and the contracts were allocated between the members and the members executed the contracts and offered income for taxation in their respective hands. Held that - If each member of the JV offered the income derived from respective share of contract works in their hands it is not possible to tax the same contract receipt in the hands of the consortium of JV. There is no merit in the argument of the DR that the JV is the main contractor and members are the sub-contractors. Further there is no meaning in estimating the income in the hands of the assessee. - The question of estimating the profit does not arise and the assessing officer has contradicted himself by applying the provisions of S.40A(2) of the Act and also invoking the provisions of S.145(3) - the appellant AOP did not execute any contract work in question and therefore, did not derive any income during the year and the additions made by the assessing officer could not be sustained. In the facts of the case, we hold that there is no mistake in the order of the CIT(A) in holding that the question of estimating profit does not arises and in deleting the addition made in the hands of the assessee. Addition u/s. 43B - the balance amount of VAT at 1.2% which was withheld by the Irrigation Department of the State Government of Andhra Pradesh subject to certain clarifications to be received by them from the Commercial Taxes Department - The assessee JV withheld the same in turn from the amounts paid to the Lead Contractor/Sub-Contractor - Assessing Officer was of the mistaken view that the assessee JV debited the same to Profit & Loss Account and did not pay the same to the Department before the due date for filing the return of income which in fact is not correct. - As work was given on back-to-back sub-contract basis and the amount of VAT was not received by the JV as the same was withheld by the Department and therefore, the JV had to withhold an equal amount from the payments to be made to the subcontractor - appeal by revenue dismissed. Addition u/s. 40(a)(ia) - mobilization advance - Held that - Mobilization Advance stands as Liability in the books of accounts of the Lead Contractor/Sub- Contractor as it is only on capital account and the JV is not liable - having admitted that assesee has deducted TDS on mobilisation advance in para No. (b) at Page No. 16/18 of the Assessment Order, that, what inspired him to make such a disallowance is really incomprehensible. - against revenue. Differences in Balance sheet - Assessing Officer had not followed the principle of double entry book keeping, as he had taken the Receipts and Payments Account of the assessee and the Balance sheet independently or separately, due to which the difference of Balance sheet arises. The Assessing Officer while passing his order was not clear in applying the principles of accounting and made an unwarranted and unjustified addition of Rs. 38,62,05,043. Held that - No Difference in Balance Sheet or Unexplained Investment as there was no asset found. Therefore, the addition of Rs. 38,62,05,043 made by the Assessing Officer cannot be sustained in law and deletion by the CIT(A) is justified - ground of the Revenue is rejected.
Issues Involved:
1. Estimation of income in the hands of the Joint Venture (JV). 2. Disallowance of alleged expenditure under Section 40(a)(ia) of the Income Tax Act. 3. Disallowance of expenditure under Section 43B of the Income Tax Act. 4. Addition towards the difference in the Balance Sheet. Detailed Analysis: 1. Estimation of Income in the Hands of the JV: The primary issue was whether the JV itself should be taxed on the gross receipts or if the income should be taxed in the hands of the constituent members who executed the work. The Assessing Officer (AO) argued that the JV should be taxed on the gross receipts, estimating income at 9% of the turnover, as the JV was the entity that secured the contract and had the legal obligation to complete the project. However, the CIT(A) and the Tribunal both held that the income should be taxed in the hands of the constituent members who actually executed the work and not in the hands of the JV. The Tribunal referenced past decisions, including the case of M/s Limak Soma Joint Venture, to support this stance, emphasizing that the JV acted merely as a facilitator and did not execute any work itself. 2. Disallowance of Alleged Expenditure under Section 40(a)(ia): The AO disallowed Rs. 25,41,76,000, alleging non-deduction of TDS on mobilization advances transferred to the constituents. However, it was clarified that the mobilization advance was not claimed as an expenditure by the JV and was purely a capital account transaction. The CIT(A) and the Tribunal found the AO's disallowance baseless, noting that TDS was indeed deducted by the JV, and the provisions of Section 40(a)(ia) were not applicable as no expenditure was claimed. 3. Disallowance of Expenditure under Section 43B: The AO disallowed Rs. 2,50,62,432, stating that the differential amount of VAT was not paid to the Department. The Tribunal noted that the VAT amount was withheld by the Department and not received by the JV, which in turn withheld an equivalent amount from the payments to the sub-contractor. Since the amount was not received, the provisions of Section 43B were not applicable. The Tribunal upheld the deletion of this disallowance by the CIT(A). 4. Addition Towards Difference in the Balance Sheet: In ITA Nos. 1198/Hyd/2011 and 1199/Hyd/2011, the AO made additions of Rs. 31,75,00,000 and Rs. 38,62,05,043 respectively, citing differences in the Balance Sheet figures. The Tribunal found that the AO's calculations were erroneous and based on a misunderstanding of accounting principles. The Tribunal upheld the CIT(A)'s deletion of these additions, noting that the JV had followed correct accounting practices and the AO had not properly comprehended the reconciliation provided by the JV. Conclusion: The Tribunal dismissed all the appeals filed by the Revenue, confirming that the income should be taxed in the hands of the constituent members who executed the work, and not in the hands of the JV. It also upheld the deletion of disallowances and additions made by the AO under Sections 40(a)(ia), 43B, and the alleged differences in the Balance Sheet. The Tribunal's decision was based on the principles of correct accounting practices, the specific terms of the JV agreements, and consistent past rulings on similar issues.
|
