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TMI Blog2012 (10) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of IVRCL-KBL-MEIL(JV) are that the assessee is a Joint Venture (JV) formed by (i) IVRCL Infrastructure and Projects Ltd., Hyderabad; (ii) Kirloskar Brothers Limited (KBL), Pune; and (iii) Megha Engg. Infrastructures Ltd. (MEIL), Hyderabad (Principal Contractor) with sharing participation of 65%, 20% and 15% respectively in the project value of the work. This JV came into existence by virtue of a Joint Venture Agreement (JVA) dated 02-06-2007 for the purpose of participating in tenders called by Irrigation CAD Department, Government of Andhra Pradesh (Principal Employer) for the purpose of bidding contract works of "Investigation, Design, Manufacture, Supply of Pumps, Motors-and Pressure main at site of work including erection, commissioning and testing of 8 Nos. at each pumping station of Hydro- Mechanical, Electro-Mechanical and other accessories etc, complete equipment required and maintenance of 12 pumps and the system for 15 years at Km. (-) 2.050, Km 9.217, Km 56.917, Km 66.132, Km 78.785, Km. 88.690, Km. 95:735 and 173.837 of Phase I under H.N.S.S Division No. 11, Ananthapur, State of Andhra Pradesh. IVRCL Infrastructures and Projects Ltd., was the Lead Contractor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CAD Department of AP Government but only for internal purposes, the JV has divided the liabilities amongst its members; (iii) JV is regularly receiving the payments from Irrigation CAD Department of AP Government; (iv) It is the JV which is entitled for participating in the bid and not its members. Stating so, the Assessing Officer was of the opinion that two issues are to be examined by observing at Page No. 2 of the Assessment Order as under: a. Determination of taxable income in the hands of JV assessee itself based on its entire activities and performance as it has filed the tender on its eligibility got the award from Irrigation CAD Department of AP Government entered into contractual agreement with Irrigation CAD Department of AP Government for the successful completion of the project as against NIL income offered by the assessee in complete disregard to risk and responsibility undertaken by it; and b. Examining the claim of expenditure on sub-contract payment of Rs. 208,85,35,883 from the perspective of excessive and unreasonableness of such payment u/s 40(A)(2)(b) of the Act because entire gross contractual receipts being passed on its members fully by way of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while dealing with the appeal of an AOP who did an agency business for commission held that AOP alone is liable to tax on its business income as it alone did the business and incurred the expenditure. While doing so, the Special Bench followed the decision of the Supreme Court in ITO v. Ch. Atchaiah (supra). As a consequence thereof, the Delhi Bench of ITAT in Pradeep Agencies Joint Venture (cited supra) confirmed the assessment made by the assessing officer in the hands of the AOP. The ratio laid down in both the aforesaid cases is that when an AOP earns income in its hands, the same is liable to charge only in its hands since the assessing officer has no option under the provisions of Income-tax Act, 1961 to opt for assessing a member of an AOP by bringing to charge his share or apportioned income. Thus, the law laid down by the Supreme Court in the case of Ch. Atchaiah (cited supra) cannot be disputed nor can be distinguished in the light of the provisions of Section 4 of Incometax Act, 1961. 7. In the course of completion of the assessment, the Assessing Officer issued notice u/s 142, dated 01-09-2010 along with letter dated 01-09-2010 requiring the assessee to furnish certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of "A" only. Thus, the Assessing Officer proceeded to assess the income in the hands of the JV for its alleged share of income from the gross receipt and he viewed that his action is not amounting to double taxation as the income of the 'JV is considered exempt in the hands of' its members. He was of the view that the pooling of joint technical and financial strength is inherent towards a mission/project i.e., completion of project for which joint venture per se must be rewarded in terms of taxable income. Even after admitting the fact that it is true that the claim of expenditure has been made in the name of subcontractor payment but entire gross receipt has thus been diverted to constituent members, the Assessing Officer stated that the JV has legal obligation and commitment for the completion of the project with financial liability. Holding so, the Assessing Officer observed that notwithstanding the entire work has been transferred to constituent members through sub contract, the entire income from the project is not being assessed in the hands of JV but only a due share linked to JVs contribution is being assessed in the hands of JV. The Assessing Officer views th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem in any case as per the terms and conditions of JV agreement, even if there was no subcontract, to say that the joint venture has not earned any income because it has neither executed the work nor deployed any resources in execution of the work is not acceptable as the work has been executed for I CAD Department of AP as per the contract signed by the JV. As per the joint venture contract all the resources mentioned above, are to be pooled in by the constituent members of the JV to enhance the capabilities of the assessee JV to carry out the work awarded to it by I CAD Department of AP. Stating so, the Assessing Officer held that the JV is to be necessarily and compulsorily be rewarded, compensated, and attributed for its share of work and performance which has not been done in the case of the JV. 12. In conclusion, the Assessing Officer having come to an inference that the assessee has inextricable linkage and rights, out of total proceeds of the project or total income of the project, observed that the JV has not offered any income in its hands. According to him, when the assessee has undertaken the project and undertakes the responsibility for the completion of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 13-10-2007 clearly divested the work in favour of the Lead Contractor, viz., IVRCL Infrastructure and Projects Ltd., which fact was not disputed by the Assessing Officer and this resulted in diversion of income by overriding title u/s 60 of the Incometax Act, 1961 which makes the assessee JV not liable to tax on the gross receipts; (iv). The Lead Contractor, viz., IVRCL Infrastructure and Projects Ltd., having declared a profit of Rs. 10.44 vrores on the total project work of Rs. 208,85,35,883/- divested to it by the JV, it is clearly a case of double taxation which is not permissible under the Income Tax Act, 1961; and (v). The Assessing Officer framed the assessment u/s 143(3) of the Act. Therefore, without finding fault with the books of the assessee or without invoking the provisions of Section 144 and or 145 of the Act, he should not have made any estimation of addition. Therefore, the action of the Assessing Officer is unwarranted and not valid in law. 14. Holding so, the learned CIT (Appeals) deleted the addition of Rs. 18,79,68,229. 15. Aggrieved by the order of the CIT (Appeals), the Department filed the present appeal in Appeal No. 1197/Hyd/2011. Thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the law and technicality involved in disallowance of expenditure as per the provisions under section 40(a)(ia) of Income Tax Act, 1961. The CIT (A) has not appreciated the facts mentioned and telescoping made by the A.O. in the assessment order and failed in holding the TDS provisions which has not appreciated the transactions done by the assessee. The provision cannot give any scope to the assessee not to make TDS which ought to have been suffered to tax. 17. Facts in ITA No. 1198/Hyd/2011 are similar more or less to that of ITA No. 1197/Hyd/2011. The Assessing Officer made the following additions: (i) The Assessing Officer herein made addition by estimating income at Rs. 15,61,89,392 being 9% of the total turnover of Rs. 173,54,37,697. (ii) Addition towards difference in Balance Sheet at Rs. 38,62,05,043. (iii) Disallowance of expenditure of Rs. 2,14,93,271 u/s. 43B of the Act stating that the differential amount of VAT was not paid to the Department. The above additions were deleted by CIT(A) on further appeal. Against this, the Revenue is in appeal before us. 18. In ITA No. 1199/Hyd/2011 the facts are similar to the above cases. The Assessing Officer made the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the JV is only to procure. contracts, and as per the agreement, both the constituent members of the JV are responsible for their work separately, the amount of profit allocated is only taxable in the hands of the member constituents of the JV and not in the hands of the JV and consequently held that no disallowance can be made u/s 40(a)(ia) in the hands of the JV. Copy of the order is placed on record. Thus, the order of the learned CIT (Appeals) on the issue of non-accrual of income in the hands of the assessee JV is well supported by the successive decisions of this Tribunal. 22. The learned AR pointed to the clauses in JV Agreement and contented that it was never the intention nor the understanding of the constituents of the JV that the JV has to execute the works and share the profits amongst themselves. It was clear understanding amongst the parties that they joined the joint venture only for the purpose of securing the contract by pooling their expertise and do the works independently. The JV in fact acted only as a facilitator in securing the contract as the work awarded by the Principal Employer was a composite project of laying pipeline, erection and commissionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n resulting from a transaction, where the legal relation is recorded in a formal document or it has to be gathered from evidence and the conduct of the parties to the transaction. 25. He quoted another decision of Supreme Court in CIT v. Calcutta Discount Co. Ltd. (91 ITR 8) wherein it was held that though the shares were transferred by the holding company to a subsidiary below the market price, since the transaction was bona fide, no income could be brought to tax in the hands of the holding company unless it is proved that the holding company had made some secret profits. 26. In reading commercial agreements between the parties and to give effect to the legal consequence thereof, the learned AR cited a decision of the Delhi High Court in the case of D.S. Bist Sons v. CIT (149 ITR 276). In this case, it was held that the income-tax authorities have to interpret commercial agreements on its own terms as contained in the documents and furthermore that it is only if and when there is a solid material to hold a taint of collusion or of shamness that the income-tax authorities may disregard the terms of agreement. Thus, the learned AR argued that the Assessing Officer therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5 of the Income Tax Act, 1961. Elaborating his case, he submitted that the assessee had by Agreement dated 27-11-2006 sub-contracted the entire work of Rs. 557.80 Crores to the Lead Contractor which is nothing but divesting its income producing asset. Execution of such work for earning income is coupled with discharging and fulfillment of various conditions / obligations / responsibilities for which the parties have adequately provided for and safeguarded the interests of the Principal Employer and the Principal Contractor. When such income producing asset which is otherwise known as turnover or gross receipts for execution of the project work is divested by an Agreement and the same was executed and profits thereon were declared by the constituent in its return of income, the Assessing Officer cannot say that income had accrued in the hands of the appellant or to say that there was no double taxation by any stretch of imagination. The Assessing Officer grossly ignored the fundamental principles of income tax law that when there is transfer of an income producing asset from which income arises, no income shall be chargeable to tax as chargeable income in the hands of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there would not be any possibility of claiming depreciation as it had not admittedly executed the work nor deployed any plant machinery which would be reflected in the books of accounts of the constituents. 29. To illustrate the meaning of commercial profits and its accrual vis- a-vis theoretical profits, the learned AR quoted a decision of Allahabad High Court in CIT v. UBS Publishers Distributors (1984) (147 ITR 114) wherein the court considered allowability of devaluation loss determined on account of foreign exchange rate announced by the Government of India six days after the end of the previous year by holding that there was nothing wrong in taking into account the devaluation of the Indian currency announced by the Government of India six days after the end of the previous year. In holding so, the High Court elaborated the concept of commercial profit and its accrual vis-a-vis theoretical profits in the following words at Page 118 that- "7. Income-tax is a levy on income. It is well settled that what is assessed to tax in a business are not profits considered from a theoretical, academic or legalistic sense, but commercial profits, i.e., profits which are made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accrued as contemplated u/s 5 of the Act. No income accrued to the appellant u/s 5 of the Act as admittedly the JV had not executed any work. Income, in fact and in law had accrued only in the hands of the constituent of the JV who executed the work. The learned AR cited the judgment of the Supreme Court in E.D, Sassoon Co Ltd. v CIT (26 ITR 27) on accrual of profit/income wherein the court held that - "The word "profits" has a well-defined legal meaning as was observed by Lord Justice Fletcher Moulton at page 98 in The Spanish Prospecting Company Limited [1911]1 Ch. 92- "The word 'profits' has in my opinion a well-defined legal meaning, and this meaning coincides with the fundamental conception of profits in general parlance, although in mercantile phraseology the word may at times bear meanings indicated by the special context which deviate in some respects from this fundamental signification. 'Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is paid or received either actually or constructively. 'Accrues', 'arises' and 'is received' are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning plainer than the word 'receiving' itself. The words 'accrue' and 'arise' also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense of springing as a natural growth or result. The three expressions 'accrues', 'arises' and 'is received' having been used in the section, strictly speaking accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [1946]1 AII ER 532 at 539 and Webb v. Stenton and Others, Garnishees 11 Q.B.D. 518 at 522, 52. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him. "'The word "earned" even though it does not appear in Section 4 of the Act has beet) very often used in the course of the judgments by learned Judges both in the High Courts as well as the Supreme Court. (Vide Ahmedbhai Umarbhai Co. 's case (supra), and Commissioner of income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty Co. [1953] 24 ITR 525 at 533). It has also been used by the. Judicial Committee of the Privy Council in Commissioners of Taxation v. Kirk [1900] A.C. 588 at 592. The concept however cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created when there is diversion of income by overriding title'. Thus, the learned AR argued that the action of the Assessing Officer is illegal in the case on hand as he had not adhered to the provisions of Income Tax Law, particularly the provisions of Section 60 of the Income Tax Act, 1961. 33. The learned AR submitted that the substance of the provisions of Section 60 makes it abundantly clear that all income arising to any person where there is no transfer of the asset from which the income arises, be chargeable to income tax as income of the transferor and shall be included in his total income. In other words, when there is transfer of the asset from which income arises, income arising from such income producing asset shall be chargeable to income tax as the income of the transferee/Lead Contractor or Sub-contractor alone. In the instant case, a part of the income producing asset being the project works valued at Rs. 173,54,37,697/- executed for this year having already been transferred by the appellant in favour of the Lead Contractor by the Agreements, Dated 27-11-2006, no income accrued in the hands of the JV nor it shall be liable to tax on any income out of the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable .... " (p. 374) 10. In CIT v. Travancore Sugar Chemicals Ltd. (1973) 88 ITR 1, this Court reiterated the same test and observed: " ... It is, thus, clear that where by the obligation income is diverted before it reaches the assessee, it is deductible. But, where the income is required to be applied to discharge an obligation after such income reaches the assessee it is merely a case of application of income to satisfy an obligation of payment and is, therefore, not deductible." (p. 13) In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seems to be well-settled by a long catena of cases to the effect that in the event of there being a diversion of income byoverriding title, question of the income being assessed in the hands of the assessee does not and cannot arise. 35. Contending so, the learned AR argued on this ground that in view of the aforesaid provisions of Section 60 of the Act and the law settled down by the Supreme Court in plethora of cases which is applicable on all fours to the facts of the appellant's case, the action of the Assessing Officer has no legs to stand. He contended that the case law relied upon by the Assessing Officer though in principle are correct to the facts and circumstances of those cases, but they have no application to the facts of the appellant's case in any manner whatsoever. Thus, the learned AR argued that no income accrued in the hands of the JV as the entire project value of the work in the form of gross receipts being an income producing asset was divested and or transferred by the appellant to its constituent. According to him, the understanding and or the agreement amongst the constituents of the JV is only diversion of income by overriding title which principle sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the course of assessment proceedings required the JV by his Letter Dated 01-09-2010 for explanation of the same. In response thereto, a reply Letter Dated 23-10-2010 was filed before the Assessing Officer. The Assessing Officer by another Letter Dated 16-12-2010 sought for explanation from the JV and in response to which the assessee filed another letter dated 24-12- 2010. In these letters, the assessee furnished the information required by the Assessing Officer and also explained that firstly that the JV had not debited any expenditure in its profit loss account on account of mobilization advance nor claimed any deduction of the same in its return of income and as such the provisions of Section 40(a)(ia) are not attracted. It was also explained to the Assessing Officer that TDS was deducted by the JV at 1.133%. However, the Assessing Officer brushed aside the explanation of the assessee JV and resorted to disallow Rs. 25,41,76,000 by simply stating that the JV has violated the TDS provisions. 38. The AR submitted that it is the common practice in the line of construction contracts that principal employer on awarding a contract for construction or development of any infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here from, such expenditure or deduction is not allowable, whereas the assessee had not claimed any expenditure or deduction on account of "Mobilization Advance". This is for the simple reason that the 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 could not have claimed any expenditure on this account. Therefore, the Assessing Officer unwarrantedly invoked the provisions of Section 40(a)(ia) of the Act to the facts of the assessee's case as the same is inapplicable by any stretch of imagination. 40. The AR submitted that the CIT (Appeals) dealt with this issue and cancelled the disallowance as the same is baseless and unwarranted on the basis of the self contradictory findings of the Assessing Officer and also that the provisions of Section 40(a)(ia) are not applicable to the facts of the assessee's case. In view of the aforesaid, the AR submitted that the order of the CIT(A), Hyderabad, dated 06-04-2011 which gave rise to the Departmental Appeal in ITA No. 1197/Hyd/2011 is well reasoned and is in accordance with the provisions of Income Tax Act, 1961 and as such the Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain at site work including erection, commissioning and testing of 8 Nos. at each pumping station of hydro-mechanical, electro-mechanical and other accessories etc, of AVR-HNSS project main canal for stage II of Phase I . It was awarded to the assessee JV with total contract value being Rs. 761,24,00,000 crore from Govt of Andhra Pradesh Irrigation Cad Department. 44. As seen from the Profit Loss account, the assessee's gross turnover is of Rs. 208,85,35,883 for the year ending 31-3-2008. The entire amount has thereafter been debited as expenditure under the head "sub contract expenses". It is also seen that project works have been sub-contracted to JV members on back to back basis. It was further seen that the said sub contract is among the JV constituents i.e. M/s IVRCL, M/s KBL M/s MEIL. In other words, the entire income has been diverted in the hands of the members by way of a subcontract. The assessee has declared 'NIL' income in the return of income for A.Y. 2008-09. Irrigation and CAD department of AP Govt deals with joint ventures and not with the constituents of the JV members. JV undertakes liability from Irrigation and CAD department of AP Govt but only for inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has been diverted in the hands of its members by way of a subcontract. The assessee joint venture has declared 'NIL' income in the return of income for A.Y. 2007-08. Irrigation and CAD department of AP Govt deals with joint ventures and not with its members. JV undertakes liability from Irrigation and CAD department of AP Govt but only for internal purposes, the JV has divided the liabilities amongst its members. JV is regularly receiving the payments from Irrigation and CAD department of AP Govt. It is the JV which is entitled for participating in the bid and not its members. The Assessing Officer examined the two issues in the case of assessee: a. Determination of taxable income in the hands of JV itself based on its entire activities and performance as it has filed the tender on its eligibility got the award from Irrigation and CAD department of AP Govt, entered into contractual agreement with Irrigation and CAD Department of AP Govt for the successful completion of the project as against 'NIL' income offered by the assessee in complete disregard to risk and responsibility undertaken by it. b. Examining the claim of expenditure on sub-contract payment of Rs. 149,81,40,236 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the successful completion of the project and the assessee in complete disregard to risk and responsibility undertaken by it. b. Examining the claim of expenditure on sub-contract payment of Rs. 173,54,37,697/- from the perspective of excessive and unreasonableness of such payment u/s 40 (A) (2) (b) of LT. Act, 1961 because entire gross contractual receipts of Rs. 173.54 crores, being passed on its members fully by way of sub-contract payment. The joint venture instead of retaining the suitable contribution for its performance, has passed on the entire receipt to its members who are also covered by section u/s 40 (A) (2)(b) of LT. Act, 1961 48. 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 off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of 'joint venture' occurring in American Jurisprudence [2nd Edition, Vol. 46 pages 19, 22 and 23} is relevant: "A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other covertures within the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss undertaking by two or more persons engaged in a single defined project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out,' (3) shared profits and losses; and (4) each member's equal voice in controlling the project." 9. On a careful reading of the order of the Hon'ble Supreme Court, we notice the following essential ingredients for a "Joint Venture". a) It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit. (or) b) it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership. (or) c) a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit. d) that each joint venture must stand in the relation of princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon'ble Supreme Court in the case of N.V. Shanmugam and Co. V CIT (1971) 81 ITR 301 that the ultimate division of profits amongst members of the joint enterprise is not a relevant criterion. Finally it was held that the Joint venture is assessable as "AOP". c) M/s Hyundau Rotem Co., Korea and M/s Mitsubishi Co., Japan (AAR Nos. 798-799 of 2008 dt. 23-03-2010). In this case, the AAR has held that the Consortium formed by four members is not assessable as AOP, since the AAR has felt that the facts of the case are similar to the facts relating to Van Oord ACZ BV, supra. Section 2(31) of the Act defines the term "Person", which inter aliaa, include "an association of persons or a body of individuals, whether incorporated or not. Since the term "Association of Persons" (AOP) was not defined in the Act, the Courts have interpreted to mean that it is an association established to produce income. Hence the Finance Act 2002 has inserted an "Explanation" to section 2(31), according to which, an AOP shall be deemed to be a person, whether or not such AOP was formed or established with the object of deriving income, profits or gains. However, in the instant case, there is no dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium 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. This view of ours is supported by various orders of the tribunal viz., ITO vs. UAN Raju Constructions (2011-TIOL-542-ITAT-VIZAG) wherein held that when the object for the formation of the JV is only to procure contract, and as per the agreement both the constituent members of the JV are responsible for their work separately, the amount of profit allocated is only taxable in the hands of the assessee not in the hand of the JV AOP . 51. Further we find that similar issues came up for consideration before this Tribunal in the case of M/s Limak Soma Joint Venture, Hyderabad in ITA Nos. 498 to 500/Hyd/2006 for the assessment years 2002-03 to 2004-05 vide its order dated 4.11.2011 the Tribunal in Para No.6 has held as follows: 6...........We have considered the rival submissions carefully and have perused the orders of the assessing officer and the CIT(A) and the contents of the compilation filed by the assessee before us. We find that the income in the hands of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipts and payments only. The CIT(A) has further observed that 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) of the Act. We find that these findings of the CIT(A) could not be controverted on behalf of the Revenue before us. In reply to a specific query from the bench, the learned counsel for the assessee submitted that no deduction of 2% of the receipts treated as income of the assessee AOP was allowed by the Department in the hands of the members of the AOP. We find that the CIT(A) has given a finding that 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. We hold that no case for disallowance/addition could be made under S.40A(2) by the Revenue and accordingly, there being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laiming it as revenue expenditure doesn't arise. The provisions of section 40(a)(ia) of the Act are attracted only when any sum is claimed as expenditure and if no TDS is deducted therefrom, such expenditure or deduction is not allowable. The assessee had not claimed any expenditure or deduction on account of "Mobilization Advance" and it is really incomprehensible as to how the Assessing Officer could invoke section 40(a)(ia) of the Act to the mobilization advance of Rs. 25,41,76,000 which is nothing but a conjecture having no valid reason. Besides, the findings of the Assessing Officer are self contradictory in the sense that he himself admitted the fact of deduction of TDS by the assessee and 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. Therefore, we hold that the disallowance of Rs. 25,41,76,000 made by the Assessing Officer u/s 40(a)(ia) is totally unwarranted and baseless and the same is cancelled. This ground is rejected. 56. The next ground with regard to disallowance of expenditure u/s. 43B stating that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts letter dated 27- 12-2010 and furnished the statement of reconciliation. The learned AR of the assessee contended that the Assessing Officer could not properly comprehend the reconciliation and he made his own workings with a misconceived notion that the Sundry Debtors should have been only at Rs. 63.76 crores. The learned AR of the assessee argued that Assessing Officer had worked out the impugned difference of Rs. 31,75,00,000 in a hastened manner without application of mind. 58. The learned AR of the assessee submitted that he filed a letter dated 27-12-2010 in a detailed manner and had shown as to how the Sundry Debtors of Rs. 26.16 was arrived at in the Balance Sheet. He alleged that however, the Assessing Officer in utter disregard of the explanation offered by the assessee had arrived at his own figure of the impugned difference of Rs. 32,75,00,000 which was based on mere guess work, surmise and conjecture and without any valid reason. The learned AR of the assessee explained the workings of the turnovers of the JV, Mobilization Advances recovered by the Department (Principal Employer) along with other recoveries and the balances due from the Department in Project L1-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t empowered to make any disallowance or addition unless otherwise provided for in the Income Tax Act, 1961 for violating any provision thereof. 61. Coming to the merits of the addition, we have gone through the workings furnished by the assessee and it is very clear from the figures appearing in the Balance Sheet that the Assessing Officer committed grave mistakes in adopting the amounts receivable from Department as Rs. 63.76 crores instead of the actual receivables of Rs. 26.16 crores, as he had taken the Departmental recoveries at Rs. 9.37 crores, whereas from the table above, it can be clearly seen that the total recoveries made by the Department was Rs. 46.79 crores including Rs. 29.36 crores towards recovery of mobilization advance. We further find that the Assessing Officer was clearly mistaken in mentioning that the Mobilisation Advance received from the Department as Rs. 33.35 crores, when in fact the Mobilisation Advance received by the JV in both the packages as mentioned in the Enclosures was Rs. 33,46 crores. The recovery of Mobilisation advance also was wrongly taken by him as Rs. 16.74 crores, which was the recovery from PADA - Pkg II (L1-02) only and he wrongly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and he is directed to delete the same in ITA No.1198/Hyd/2011. 63. In ITA No. 1199/HYD/11 there is an addition of Rs. 38,62,05,043 made by the Assessing Officer holding that there is a difference in the figures of the Balance Sheet and he made the addition under the caption of "Unexplained Investment". The Assessing Officer has initially required the assessee by his letter dated 16-12-2010 seeking explanation for the Sundry Debtors of Rs. 18.99 Crores as according to him the Sundry Debtors should have been at Rs. 62.81 Crores against Rs. 18.99 crore. In response thereto, the assessee filed its letter dated 22-12-2010 and furnished the statement of reconciliation. The learned AR of the assessee contended that the Assessing Officer could not properly comprehend the reconciliation and he made his own workings with a misconceived notion that the Sundry Debtors should have been only at Rs. 62.81 crores. The learned AR of the assessee argued that Assessing Officer had worked out the impugned difference of Rs. 38,62,05,043 in a hastened manner without application of mind. 64. The learned AR of the assessee submitted that he filed a letter dated 22-12-2010 in a detailed manner bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vable from Department at the year end, shown as Sundry Debtors in Balance Sheet excluding Rs. 2.14 crores of VAT withheld by the Department at 1.2% as shown above. 16.84 67. It was contended by the learned AR that from the above summary, it could be clearly seen that the Assessing Officer grossly erred in not taking all the recoveries made by the Department (Principal Employer) such as Mobilisation Advance and other recoveries available in the Balance sheet like Security Deposit, Deposit with PWD, VAT withheld at 1.20% and Operation Maintenance Cost receivable from the Gross RA bills and only the net amount would be paid to the JV which was deposited in the JV's bank account as shown above. 67.1 The ld DR relied on the order of the assessing officer. 68. We have gone through the facts of the case on this issue. At the outset, we are of the considered opinion that when the assessee JV is not at all liable to charge on the gross receipts for various reasons and findings given by us in the foregoing paras, the Assessing Officer should not have made any disallowance. This reasoning is similarly applicable for any addition. This is for the reason that when the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department, before releasing the net payment to the assessee, the amount received by it would definitely be less after recoveries and hence the amount of Rs. 99.77 crores received from the Department is correct, which is available in the Bank statement furnished during the assessment proceedings. It is apparent that the 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" as per his order had arisen. 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. Considering the facts and circumstance of the case and the figures in the Balance Sheet of the assessee, we find that there is no justification for such an addition under the caption of "Difference in Balance Sheet" or "Unexplained Investment". We are really not able to understand as to how an addition could have been made under the head "Unexplained Investment" when there was no asset found. We do not find any such differen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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