2022 (8) TMI 125 - AT - Income Tax

Revision u/s 263 - discrepancies and violation of provisions of section 40(a)(ia) as well as the income assessable in the hand of the Joint Venture on which the AO has not conducted any enquiry - assessee Joint Venture was formed by its two partners - assessee filed its return of income declaring nil income by claiming that Joint Venture was created to enter into sub contract with M/s Ratna Infrastructure Projects Private Limited on 100% back to back basis - HELD THAT - AO had not discussed anything in the assessment order and therefore, it does not exhibit any thought process of the Assessing Officer with regard to the issue of taxability of income in the hands of the assessee Joint Venture - AO has just reproduced the submissions of the assessee summarily - assessee has argued before the Tribunal that during the course of assessment proceedings, the Assessing Officer issued notice u/s 142(1) alongwith the questionnaire. As all the queries raised by the AO are totally irrelevant and not relating to the assessee or the assessment of the assessee. Thus, it is apparent that the AO has issued this questionnaire without application of mind. In response to the said notice, the assessee though filed a reply dated 13.11.2013 and explained that the assessee is not a society or trust registered under section 12A and therefore, all these queries raised by the AO are irrelevant. This itself shows that the AO has not applied his mind while issuing notice u/s 142(1) dated 17.10.2013 therefore, mere filing of the document by the assessee in response to the notice u/s 142(1) does not lead to the conclusion or inference that the AO has applied his mind and conducted a proper enquiry on the various issues which were taken up by the CIT while invoking the provisions of section 263 of the Income Tax Act. Commissioner has raised various points / issues which were not taken up by the Assessing Officer in the scrutiny assessment. Most of these issues are factual in nature and can be considered only by examination and verification of the relevant record including the various contract / agreements. Apart from the issue of taxability of the contract receipts in the hand of the assessee Joint Venture, the Pr. Commissioner has pointed out various other issues of discrepancies in the receipts declared by the assessee in comparison to the figures appearing in the bank account of the assessee and the amount shown by the assessee as receivable. Secondly, the Pr. Commissioner has also raised the issue of violation of provisions of section 40(a)(ia) which was not even taken up by the Assessing Officer in the assessment proceedings. Though the assessee has submitted that all the contract receipts and payments are subjected to TDS however, this fact is also required to be verified from the record. Pr. Commissioner has raised various other issues and discrepancies with respect to the total contract receipts compliance of provisions of section 40(a)(ia) and non disclosure of bank guarantee and mobilization advances in the books of the assessee which were not taken up by the AO clearly manifest that there is a complete lack of enquiry on the part of the AO on these issues, much less an appropriate enquiry. Once the AO has not conducted a proper enquiry and the case falls in the category of complete lack of enquiry then it would render the order passed by the AO as erroneous so far as prejudicial to the interest of Revenue When the order of the AO suffers from a complete lack of enquiry, then the above said principle has no application due to the obvious reason that the AO has not taken a view by conducting a proper enquiry and further the acceptance of claim by the AO without conducting an enquiry would not be regarded as a possible view on the issue. When the AO has not even taken up many of the issues raised by the Pr. CIT in the show cause notice, then the case of the assessee does not fall in the category of taking a possible view by the AO - Therefore, to the extent of invoking the provisions of section 263 of the Act, we do not find any error or illegality because there is a complete lack of enquiry on the part of the AO. Directions given by the Pr. CIT to compute the income derived from execution of the project - whether the assessee is a taxable entity or not? - HELD THAT - CIT has taken a view that the income derived from the execution of the contract is liable to be assessed in the hands of the assessee and this view is taken by the Commissioner without analyzing the terms and conditions of the various contracts, sub contracts, Joint Venture agreements, memorandum of understanding between the parties to bring into existence a multilayer and structure and arrangements under which the status of being assessee intermediatery or a pass through entity not liable to assessed to tax to be ascertained. Therefore, we modify the finding and decision of the Pr. CIT on this issue and direct the AO to properly verify the facts emanates from the various contracts, the sub contracts, MOU, Joint Venture agreement as well as the arrangements made between the parties so as to ascertain the risk and rewards owned by which party. AO is free to examine this issue and adjudicate the same on the basis of the enquiry conducted on the facts as well as terms and conditions of the various contracts, sub contracts, agreements as well as arrangements made between the parties. Needless to say the legal precedents relied upon by the parties are also required to be considered on the specific facts arrived as a result of the enquiry. Further, the income if any assessable to tax in the hand of the assessee shall be by considering the actual receipt during the year and not on the total value of the project. Difference between contract receipts declared by the assessee and the receipts reflected in the bank account as well as outstanding - HELD THAT - Prima facie, we find that the difference as pointed out by the Pr. CIT on account of the contract receipt is due to the reason that he has considered the entire deposit made in the bank account which includes the mobilization advance received against the contract but only part of the said amount would be treated as contract receipts for the year under consideration being adjusted against the running bills value - since the AO has not conducted any enquiry therefore, we do not find any reason to interfere with the order of the CIT directing the AO to examine this issue. We clarify that the AO is free to examine and verify the details to be produced by the assessee on this issue without having any influence of the observation as the receipts of the Pr. CIT in the impugned order. Bank guarantee not reflected in the balance-sheet of the assessee - HELD THAT - When bank guarantees were issued by Punjab National Bank in favour of Meja Urja Nigam Private Limited on behalf of M/s Ratna Infrastructure Project Private Limited. From these documents and records of bank guarantee, it is clear that these were not issued on behalf of the assessee Joint Venture and the amount was not blocked from the bank account of the assessee therefore, when the assessee has not made any payment towards these bank guarantee issued for performance security deposit as well as additional performance security deposits, then the question of the same being recorded in the balance-sheet of the assessee does not arise. The Commissioner has not even considered the bare fact as to who has arranged these bank guarantees or paid any sum towards the bank guarantee issued in favour of the Meja Urja Nigam Private Limited. Accordingly, AO is directed to verify the fact whether assessee was under obligation to furnish any bank guarantee or any amount was paid by the assessee towards bank guarantee in question and then decide this issue. Violation of the provisions of section 40(a)(ia) for want of TDS - We note that neither the Assessing Officer has considered this issue and nor the Pr. CIT has verified it from the details available on the data of the Department itself that the assessee has filed the statement of TDS submitted under section 200(3) in Form No. 26Q placed at page nos. 104 and 105 and the summary of the TDS as deducted by the assessee from the payment made to M/s R.K. Infra Engineering (India) Private Limited M/s Rithwik Projects Private Limited giving challan numbers - Therefore, prima facie it appears that the assessee has duly deducted the tax at source (TDS) and paid the same to the account of the Government however, the AO is directed to verify these details of payment of TDS and if the same are found to be correct then there will be no question of violation of provision of section 40(a)(ia) or deduction of TDS.

Summary

Issues Involved:
1. Validity of invoking Section 263 of the Income Tax Act.
2. Direction to compute income derived from the execution of a project.
3. Examination of the difference in contract receipts.
4. Non-reflection of bank guarantee in the balance sheet.
5. Violation of Section 40(a)(ia) for non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Validity of Invoking Section 263 of the Income Tax Act:
The assessee argued that the Principal Commissioner of Income Tax (Pr. CIT) erred in invoking Section 263 as the original assessment was neither erroneous nor prejudicial to the interest of the Revenue. The assessee contended that the Assessing Officer (AO) had verified all relevant documents and records before accepting the return of income at nil. However, the Tribunal noted that the AO had not conducted a proper inquiry into several key issues, including discrepancies in contract receipts and compliance with Section 40(a)(ia). The Tribunal concluded that the lack of inquiry rendered the assessment order erroneous and prejudicial to the Revenue, justifying the invocation of Section 263.

2. Direction to Compute Income Derived from the Execution of a Project:
The Pr. CIT directed the AO to compute the income derived from the execution of a project worth Rs. 1,37,21,75,327/-. The assessee argued that the contract receipts were passed on to the Joint Venture partners on a 100% back-to-back basis and thus should not be taxed in the hands of the Joint Venture. The Tribunal held that the AO should examine the complex structure of agreements and the flow of work to determine the taxability of income. The AO was directed to verify the facts and agreements to ascertain the correct taxable entity.

3. Examination of the Difference in Contract Receipts:
The Pr. CIT noted a discrepancy of Rs. 1,10,53,573/- between the contract receipts declared by the assessee and those reflected in the bank account. The assessee explained that the difference was due to mobilization advances, which were adjusted against running bills. The Tribunal directed the AO to verify the details and reconcile the difference, emphasizing that the AO had not conducted any inquiry on this issue.

4. Non-reflection of Bank Guarantee in the Balance Sheet:
The Pr. CIT raised concerns about a bank guarantee of Rs. 10 Crore and additional mobilization advances not being reflected in the balance sheet. The assessee contended that the bank guarantee was provided by M/s Rithwik Projects Private Limited and not the Joint Venture. The Tribunal directed the AO to verify whether the assessee was under any obligation to furnish the bank guarantee and if any amount was paid towards it.

5. Violation of Section 40(a)(ia) for Non-deduction of TDS:
The Pr. CIT pointed out that the assessee had not deducted TDS on payments made to Joint Venture partners, violating Section 40(a)(ia). The assessee claimed that TDS was duly deducted and paid. The Tribunal directed the AO to verify the TDS details and ensure compliance with Section 40(a)(ia).

Conclusion:
The Tribunal upheld the invocation of Section 263 by the Pr. CIT due to the lack of proper inquiry by the AO. The AO was directed to conduct a thorough examination of the issues raised, including the computation of income, reconciliation of contract receipts, verification of bank guarantees, and compliance with TDS provisions. The Tribunal's decision emphasizes the necessity of detailed inquiries and verifications in tax assessments to ensure accuracy and compliance with legal provisions.