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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 ..... g 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 amongst the constituents of the JV who was delegated all the powers to represent the JV before the Principal Employer and monitor the project work on behalf of the JV vide a Power of Attorney, dated 2.6.2007. 3. The JV was awarded works of a total contract value of Rs. 761.24 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entures and not with the constituents of the JV members; (ii) JV undertakes liability from Irrigation & 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)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to assess either an AOP or its members. The Delhi Special Bench of ITAT in Pradeep Agencies v. ITO (supra) 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 issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assessing the income in compliance with provisions of income-tax has to correctly assess the true income 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by it". 11. The main allegation of the Assessing Officer was that the work would have been executed by them 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down therein has no application to the facts of the assessee JV's case; (iii). The assessee by the Agreement, dated 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. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of this section has not given any exception to the submission made by the assessee. 6. The CIT(A) erred in appreciating 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 Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2009 & ITA No. 77/Vizag/2010, by order dated 13-05- 2011 took a similar view and held in Para No. 12 that when the object for the formation 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the "substance of the transaction". It was further held in this case that the taxing authorities are bound to determine the true legal relation 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned AR objected to the action of the Assessing Officer arguing that the same is blatantly incorrect and illegal on the face of the provisions of Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sole reason that when the entire work was sub-contracted on back-to-back basis to its constituent, the JV had to account for it only as expenditure and 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not acceptable and found to be unreasonable. Therefore, he determined a theoretical income at an estimate of 9% of the gross receipts in the hands of the JV which otherwise had 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 usu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual or periodical receipts accruing to a person or corporation (Oxford Dictionary). The word clearly implies the idea of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it 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 ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amallais Timber Trust Ltd. [1950]18 ITR. 333, and Mukherjea, J., in Ahmedbhai Umarbhai & Co.'s case (supra), where this passage from the judgment of Mukerji, J., in Rogers Pyatt Shellac of Co. v. Secretary of State for India [1925] 1 ITC. 365 is approved and adopted. It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e producing asset. In other words, the learned AR submitted that the Assessing Officer in law can bring to charge any income in the hands of a person only when there is mere diversion of income to another but not the transfer of income producing asset. He contended that this fundamental principle of law is otherwise known as 'charge is created only when there is application of income, but no charge is 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erior to that of the change of ownership will be on B's account. In such a case, A will have to account to B for the income and profits of the business covered by the period of the agreement and A may be held to have carried on the business as B's agent from the agreed date.' " (p. 301) 12. Similar is the view expressed by the Bombay High Court in the case of CIT v. M.D. Kanoria [1982] 1371TR 137. The law, thus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition u/s. 40(a)(ia), he submitted that the Assessing Officer disallowed Rs. 25,41,76,000 being the mobilization advance received from the I & CAD Department of AP by the assessee and transferred to two of its constituents, viz., KBL and MEIL by alleging that since no TDS was deducted from the said amount while transferring to the aforesaid constituents, section 40(a)(ia) is attracted resulting in the disallowance. The Assessing Officer 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 explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, however, the assessee while making payments to the contract receipts erred in deducting the TDS". Having admitted the fact of deducting TDS, the Assessing Officer blatantly erred in making the disallowance. Further, the Assessing Officer failed to comprehend the provisions of section 40(a)(ia) of the Act when in fact the same is applicable only when there is expenditure or deduction claimed by an assessee and if no TDS is deducted there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erabad, M/s. Kirloskar Brothers Limited, Udyog Bhavan, Tilak Road, Pune and Megha Eng & Infrastructures Ltd., S-2 TIE, Techno Industrial Estate, Balanagar, Hyderabad with share of 65%, 20% and 15% respectively. It came into existence by a Joint Venture agreement among these three parties w.e.f. 02.06.2007. The objective of the Joint Venture is execution of contract works of investigation, design, supply, delivery of pumps, motors and pressure main 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings it was noticed that in the profit & Loss account, the assessee has shown gross turnover of Rs. 149,81,40,236 and the entire amount has thereafter debited as expenditure under the head "sub contract expenses". It is also seen that project work has been sub-contracted to JV members on back to back basis. It was further seen that the said sub contract is between the assessee and its constituents i.e. M/s IVRCL & M/s KBL. In other words, the entire income 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 following two issues are examined in the case of assessee: 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 and CAD department of AP Govt. entered into contractual agreement for 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black's Law Dictionary; Sixth Edition, p. 839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P. 117, Vol. 23}. "[Emphasis supplied] The following 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement." (emphasis supplied) Black's Law Dictionary (7th Edition, page 843) defines 'joint venture' thus "Joint Venture: A business 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 impli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(31). b) Geo Consult ZT GMBH (304 ITR 283): In this case, though the work was allotted to each of the members and each member has to bear its own costs and expenses, yet it was noticed that the agreement stated that the members will collaborate for all the work associated with the project which is to be managed on a joint basis by all the members. Further the agreement provided that the members are jointly and severally responsible for execution of project. The AAR has expressed opinion, by placing reliance on the decision 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, inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in relation to the principal who award the contract. It appears that the contracts awarded and received by the JV i.e., the present assessee, have been passed in their entirety to the constituent members to carry out the contracts and they have booked the contract receipt in their books of account and offered the same for taxation. 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. 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 sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed audited Balance Sheet and Receipts and Payments Account before the authorities, copy of which has been filed in the compilation before us. The CIT(A) has further mentioned that the assessing officer has not recorded any finding that the books of account were not correct and complete. The CIT(A) has observed that the only objection of the assessing officer appears to be nonstriking of Profit & Loss Account, but the same could not insisted in situations where income and expenditure do not exist and what exist are 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essees is not possible as the JV is only for facilitating the business among the constituent members. The Assessing Officer made the disallowance of Rs. 25,41,76,000 u/s 40(a)(ia) of the Act holding that no TDS was deducted from the mobilization advance while transferring to the constituents. He was of the view that since TDS was not deducted, section 40(a)(ia) is attracted resulting the disallowance. We agree with the submissions of the learned AR that mobilization advance is not on revenue account and question of claiming 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 deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the lower authorities. The facts in ITA No. 1198/Hyd/2011 on this issue are that an addition of Rs. 31,75,00,000 made by the Assessing Officer holding that there is a difference in the figures of the Balance Sheet. The Assessing Officer has initially required the assessee by his letter dated 16-12-2010 by seeking explanation for the Sundry Debtors of Rs. 26.16 crores as according to him the Sundry Debtors should have been at Rs. 63.76 crores against Rs. 26.16 crores. In response thereto, the assessee filed its 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not have made any disallowance. This reasoning is similarly applicable for any addition. This is for the reason that when the assessee is not at all liable to tax on the gross receipts since it did not execute any work as the same was divested to one of its constituents, viz., IVRCL Infrastructure and Projects Ltd., there shall be no question of any disallowance or addition. In other words, when the assessee has diverted or transferred its commercial asset of the project value at source itself no income accrued to it. In such an event, the Assessing Officer is not 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conversant with the accounting principles in arriving at this addition of Rs. 31,75,00,000. On considering the facts 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". We do not find any such difference and the accounting treatment and or the entries made by the assessee are in accordance with accounting principles which are well recognized under Income Tax law. Therefore, the addition of Rs. 31,75,00,000 made by the Assessing Officer can not be sustained in law 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit 5.07 Deposit with PWD 0.60 Recovery of Mobilisation Advance 33.63 Interest on Mobilisation Advance 2.23 Operations & maintenance 3.58 Miscellaneous recoveries 0.02 TDS on RA Bills & Mob. Advance 3.88 VAT at 2.8% 4.80 VAT withheld at 1.2% 2.14 Labour welfare cess 1.79 NAC 0.43 Seigniorage charges 0.05 58.22 115.32 Less: Amounts received from the Department for current year and deposited in Bank Account of JV 98.48 Balance receivable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown as Sundry Debtors in the Balance sheet. Notwithstanding the detailed clarification and explanation furnished by the JV in its Letter Dated 22-12-2010, he overlooked the fact of the recoveries of Rs. 43.86 crores, which is exactly the difference of Rs. 62.81 crores as assumed by him to be the sundry debtors and Rs. 16.84 crores being the actual Sundry Debtors available in the Balance sheet filed by the JV excluding Rs. 2.14 crores of VAT withheld by the Department at 1.2% as shown in the above summary. 70. We further found that as the recoveries amounting to Rs. 43.86 crores had been deducted 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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