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2019 (7) TMI 736 - AT - Income TaxEstimating the income of the JV - formed to secure the work, and after that, there was no involvement in the execution of the work which was done by member - rejection of account of JV - taxable in hands of JV even if offered by the members - whether the assessee is liable to tax on the income of members of the joint-venture in their capacity? - CBDT circular No. 07/20016 - HELD THAT - We note that the assessee as JV has prepared its financial statements, got it accounts audited and filed audit report under form 3CD, and produced the books of accounts during the assessment proceedings. As such the assessee has shown gross income and claimed the expenses of the equal amount against such gross income, leaving the income at NIL. Thus it is transpired that the assessee has offered its income to tax as evident from the financial statements, income tax return filed by it. AO feels dissatisfied with the income disclosed by the assessee as JV in its books of accounts; then he was supposed to disallow the expenses or disturb the income as per the provisions of law. As such it cannot be alleged that the assessee as AOP has not offered the income to tax in the given facts and circumstances. There was no resource available with the JV such as money, material, human resources, and machinery, etc. As all these resources were available with the members of the JV which were also used for the execution of the project. In other words, the assessee was acting merely as the trustee of its members in order to secure the work contracts. A plain reading of the aforesaid clause reveals that both the members of the joint-venture originally agreed to incorporate the JV only to obtain the contracts. It was also agreed that whatever will be the income of the JV will be allocated to the members. In such circumstances, the Hon ble Delhi High Court has not even treated such arrangement, i.e. forming JV to secure the work as JV as AOP in the case of CIT Vs. Oriental Structural Engineers Pvt. Ltd. reported in 2015 (3) TMI 102 - DELHI HIGH COURT wherein it was held the JV was not an association of persons and liable to be taxed on that basis. In present case also AOP was formed only to secure the work, and after that, there was no involvement of such AOP in the execution of the work. As such the entire work was executed by the members of the JV as agreed between them. Accordingly, the fees from the execution of the project work were shared between the members as per their understanding. Thus the Hon ble Delhi High Court (supra) held that the income from such joint venture would not be subject to tax in the hands of AOP. It is also important to note that members of the joint-venture have disclosed the entire income which was originally received by the assessee in their books of accounts and income tax returns. The returns of income of all these members have been subject to the assessment framed u/s 143(3). Thus it can be inferred that there was no loss to the Revenue on account of the income disclosed by the members of the JV even it is assumed that it belongs to the JV. Furthermore, both the JV and the members are chargeable to tax at the maximum marginal rate. We further note that the CBDT in its circular has clarified that there will not be any tax liability on the income of the JV if the same income has been offered to tax by the members of the JV subject to certain conditions. - It is revealed that the assessee has complied with all the conditions as specified by the CBDT circular No. 07/20016. Therefore, in our considered view no addition can be made in the hands of the assessee in the given facts and circumstances on the ground that income was offered to tax by its members and not by the JV. After considering the facts in totality as discussed above, we are of the view that there cannot be any addition in the hands of the assessee for the income as discussed above in the given facts and circumstances. Thus the ground of appeal of the assessee is allowed.
Issues Involved:
1. Taxability of income in the hands of the Joint Venture (JV) or its members. 2. Rejection of books of accounts under Section 145 of the Income Tax Act. 3. Estimation of net profit rate at 11.59%. 4. Adjustment of taxes paid by JV members against the demand of the JV. 5. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act. Detailed Analysis: 1. Taxability of Income in the Hands of the JV or its Members: The primary issue was whether the income generated from the projects should be taxed in the hands of the JV or its individual members. The assessee argued that the income had already been taxed in the hands of its members, and taxing it again in the hands of the JV would result in double taxation. The Tribunal referred to the agreement between the JV members, which stated that the JV was formed solely to secure contracts and that the income would be allocated to the members. The Tribunal also cited the Delhi High Court's decision in CIT Vs. Oriental Structural Engineers Pvt. Ltd., which held that a JV formed solely to secure contracts, with the work executed by its members, should not be taxed as an Association of Persons (AOP). Consequently, the Tribunal concluded that the income should not be taxed in the hands of the JV. 2. Rejection of Books of Accounts under Section 145: The Assessing Officer (AO) rejected the books of accounts under Section 145(3) of the Income Tax Act, alleging that the assessee failed to produce necessary books of accounts and justify the correctness and completeness of the expenses and income. However, the Tribunal noted that the assessee had produced its books of accounts during the assessment proceedings, which were verified by the AO on a test-check basis. The Tribunal found that the AO's rejection of the books of accounts without pointing out specific defects was incorrect. 3. Estimation of Net Profit Rate at 11.59%: The AO estimated the net profit rate at 11.59% of the gross receipts, resulting in an addition of ?10,17,87,325 to the total income of the assessee. The Tribunal disagreed with this estimation, noting that the members of the JV had already declared the profit in their individual capacity at a rate of 8.61% of the gross receipts. The Tribunal found that the AO's estimation was arbitrary and not based on any concrete evidence. 4. Adjustment of Taxes Paid by JV Members Against the Demand of the JV: The assessee argued that the taxes paid by the members of the JV should be adjusted against the demand of the JV. The Tribunal agreed with this contention, noting that the income had already been taxed in the hands of the members, and any tax liability on the JV would result in double taxation. Therefore, the Tribunal directed that the taxes paid by the members should be adjusted against the demand of the JV. 5. Charging of Interest Under Sections 234A, 234B, and 234C: The assessee contended that the charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act was consequential and should be deleted. The Tribunal found that since the primary issue of taxability had been decided in favor of the assessee, the consequential interest should also be deleted. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the income should not be taxed in the hands of the JV but in the hands of its members. The rejection of books of accounts and the estimation of net profit by the AO were found to be incorrect. The Tribunal also directed that the taxes paid by the members should be adjusted against the demand of the JV, and the consequential interest charges should be deleted. The appeals filed by the Revenue were dismissed.
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