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TMI Blog2022 (8) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ueries 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not error, much less prejudicial to the interest to the Revenue to warrant a revision and therefore the order passed by the ld. Pr. CIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case. 11. The Ld. Pr. CIT failed to appreciate that the Ld. Assessing officer had passed the order after verifying the books, records and other documents produced and more specifically all the agreements as is evident from the order sheet nothing and submissions and hence section 263 cannot be invoked under the facts and circumstances of the case. 12. Without prejudice to the above the learned Pr. CIT ought to have appreciated that the aforesaid issue on which the learned Pr. CIT Had sought to revise the assessment order is a conscious view adopted by the learned assessing officer, which is not shown to be erroneous and consequently, the jurisdiction under section 263 of the Act stands ousted and accordingly the impugned order passed deserves to be cancelled. 13. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above." 14. In the view of the above and other grounds that may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is to be assessed in the hand the Joint Venture only and not in the hands of the members. He also noted that the there is a violation of provisions of section 40(a)(ia) on account of payment of Rs. 20,33,34,166/- to the members of the Joint Venture and hence it should have not been treated as allowable expenditure in the hand of the Joint Venture and should have been added to the income of the Joint Venture. He has also observed that the agreement between M/s Ratna Infrastructure Project Private Limited and the Joint Venture show that the Joint Venture shall provide a bank guarantee of Rs. 10 Crore but the same does not find place in the balance-sheet or in the Audit Report. Further, the mobilization advance of 2% of the contract value and addition mobilization of advance of Rs. 3 Crore does not find place anywhere in the balance-sheet or in the qualification in the Audit Report. Accordingly, the Pr. Commissioner was of the view that there were certain infirmities in the assessment order passed by the Assessing Officer in respect of the above mentioned discrepancies and violation of provisions of section 40(a)(ia) as well as the income assessable in the hand of the Joint Venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. The Assessing Officer has applied due application of law and mind while passing the assessment order therefore, the order passed by the Assessing Officer cannot be said to be erroneous and prejudicial to the interest of the Revenue. Once the Assessing Officer has examined the relevant record and was satisfied with the claim of the assessee that the income is not assessable in the hand of the Joint Venture but the same is assessable in the hand of the partners of the Joint Venture then the same does not suffer with lack of enquiry or inadequate enquiry. It is only on presumption of the learned Pr. CIT. The order passed by the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the Revenue. For the purpose of section 263, the Commissioner has to assume jurisdiction only when twin conditions are satisfied together being the order passed by the Assessing Officer is erroneous and the same is prejudicial to the interest of the Revenue. The Assessing Officer has taken one of the possible view while passing the assessment order then the provisions of section 263 cannot be invoked merely because the Commissioner does not agree with the view taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Commissioner of Income Tax vs. Amit Corporation 213 taxman 19 and submitted that the Hon'ble High Court has held that when during the course of framing the assessment, the Assessing Officer had access to all the record of the assessee. After pursuing such record the Assessing Officer framed the assessment, such assessment could not have been reopened in exercising revision power under section 263 of the Act for making further enquiry. He has then referred to the judgment of Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. Sun Beam Auto Limited 332 ITR 167 and submitted that the Hon'ble High Court has analyzed the scope of the exercising of the power of the CIT under section 263 of the Income Tax Act and held that if there was any enquiry even inadequate that would not by itself give occasion to the CIT to pass order under section 263 of the Act merely because he has different opinion in the matter. It is only in the cases of lack of enquiry that such a course of action would be open. Once the Assessing Officer has called for explanation on a particular item from the assessee and the assessee furnished his explanation which was consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disclosed receipts by the assessee at Rs. 20,33,34,166/- in the profit and loss account whereas on perusal of the bank account, it has been noted that total of Rs. 13,84,42,383/- was credited during the year under consideration and a sum of Rs. 7,59,45,359/- has been disclosed in the financial accounts as receivable. Thus the total gross receipts comes at Rs. 21,43,87,742/- as against the receipts disclosed by the assessee at Rs. 20,33,34,166/-. Therefore, there is a difference of Rs. 1,10,43,576/- which was neither considered by the Assessing Officer nor verified or examined during the assessment. The assessee has simply taken the stand that the receipts have been transferred to the members of the Joint Venture who are independent entities assessed separately without disclosing the quantum of profits transferred to the individual member. The assessee has also not brought any material on record to show that the individual member has offered the income received from the Joint Venture to tax. Since the assessee has not reported the quantum of profit derived by the members independently and had not explained why the assessment of the same be not made in the hand of the Joint Venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended that when the Assessing Officer has not taken any view and there is a complete lack of enquiry in the case of the assessee then the decisions relied upon by the ld. AR are not applicable to the present case. He has pointed out that in the case in hand, there are multiple issues which were noticed by the Pr. CIT on which the Assessing Officer has not conducted any enquiry or taken any view then the order passed by the Assessing Officer is certainly erroneous and prejudicial to the interest of the Revenue. Hence, the learned DR has submitted that the Pr. CIT has rightly invoked the provisions of section 263 when the order of the Assessing Officer was found to be erroneous and prejudicial to the interest of the Revenue. The AOP is an independent assessable entity different and distinct from its members and hence the profit or loss is required to be assessed in the hand of the AOP. The learned DR has relied upon the following decisions as under:- "C.I.T. Vs. Smt. Indira Balakrishanan, (1960) 39 ITR 546,551 (S.C.) C.I.T. Vs. Buldana District Main Cloth Importers Group, (1961) 42 ITR 172 (S.C.). Murugesan & Brothers Vs. C.I.T. (1973) 88 ITR 432 (S.C.). V. Shanmugam & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RK JOINT VENTURE is joint venture constituted by RITHWIK and RK INFRA by entering into joint Venture Agreement for execution of work "site Leveling & Infrastructure works Package for Meja Thermal Power Project for Meja Urja Nigam Pvt. Ltd." on 100% back to back basis with 50% share to each of the JV Partner on 28.08.2010. RITHWIK - RK JOINT VENTURE approached RATNA for work. Ratna agreed to sub-contract the total scope of work to RITHWIK - RK JOINT VENTURE on 100% back to back basis. After considering all the material on record and discussion made with the authorized representative, the assessment is made on total income of Rs. NIL as returned by the assessee. Allow TDS as per a database. Issue notice of demand. Copy of ITNS 150 is enclosed." 8. Thus, it is clear that the Assessing Officer 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. The Assessing Officer has just reproduced the submissions of the assessee summarily. The learned AR of the assessee has argued before the Tribunal that during the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een deducted from payments made. 13. Please give a brief description of all the charitable activities carried out by your trust/society during the period under consideration. 9. From this questionnaire, it is clear that all the queries raised by the Assessing Officer are totally irrelevant and not relating to the assessee or the assessment of the assessee. Thus, it is apparent that the Assessing Officer 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 of the Act and therefore, all these queries raised by the Assessing Officer are irrelevant. This itself shows that the Assessing Officer has not applied his mind while issuing notice under section 142(1) dated 17.10.2013 therefore, mere filing of the document by the assessee in response to the notice under section 142(1) does not lead to the conclusion or inference that the Assessing Officer has applied his mind and conducted a proper enquiry on the various issues which were taken up by the Pr. CIT while invoking the provisions of section 263 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, tax should have been deducted at source as the receipts were against a contract in the hands of the joint venture and in the hands of the members as well. Accordingly, there is violation of provisions of Section 40(a)(ia) on account of the payment of Rs. 20,33,34,166/- to the members of the joint venture and hence it should had not been treated as allowable expenditure in the hands of the joint venture and should have been added to the income. You are hereby required to explain why this amount be not added to your income of this year. Further, it is noticed that the agreement entered into by Ratna and the joint venture indicates that the joint venture shall be providing with a bank guarantee of Rs. 10 crores. The same does not find place in the balance sheet anywhere or in the audit report. Further the securities to be offered, the mobilization advance of Rs. 3.0 crore by RK infra to be offered by Rithwik does not find place anywhere in the balance sheet or in the qualifications in the audit report. You are hereby required to give your comments with regard to how these amounts have been handled in your account. In view of the above observations you are hereby required to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited entered into MOU dated 18.11.2009 with M/s Rithwik Projects Private Limited having a pre understanding that in the event work being awarded to M/s Ratna Infrastructure Projects Private Limited it shall in turn sub contract the whole of the work on 100% back to back basis to M/s Rithwik Projects Private Limited who shall mobilize material and machinery to execute the work within time and as per the ensure quality. Thereafter, M/s Rithwik Projects Private Limited constituted a Joint Venture with M/s R.K. Infra & Engineering (India) Private Limited (in short "R.K. Infra") vide joint venture agreement dated 28.7.2010 to undertake the execution of total scope of work from M/s Ratna Infrastructure Projects Private Limited on alleged 100% back to back basis. Therefore, there is a complexed structure of arrangements between these parties right from the awarding of contract by the Meja Urja Nigam Private Limited to M/s Ratna Infrastructure Projects Private Limited and also having a Mamorandum of Understanding (MoU) between M/s Ratna Infrastructure Projects Private Limited and M/s Rithwik Projects Private Limited and further forming a Joint Venture between M/s Rithwik Projects Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer without conducting an enquiry would not be regarded as a possible view on the issue. When the Assessing Officer 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 Assessing Officer. 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 Assessing Officer. 13. Ground no. 3 is dependent on the outcome of the other grounds raised by the assessee on the merits of the various issues therefore, this ground will be taken at the end after the adjudication of the other grounds raised by the assessee. 14. Ground no. 4 is regarding directions given by the Pr. CIT to compute the income derived from execution of the project worth Rs. 1,37,21,75,327/-. The learned AR of the assessee has submitted that the assessee has received the contract receipts of Rs. 20,33,34,166/- which is net of mobilization charges which were already received as mobilization advance by the assessee and adjusted against the running bills @ of 2% of bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Officer vs. PSR-AMRCL Joint Venture. Thus, the learned AR has submitted that the assessee is not a separate taxable entity when all the risk and rewards for execution of the work were that of two Joint Ventures partners. 15. On the other hand, learned DR has submitted that when the assessee has issued the bills / running bills to M/s Ratna Infrastructure Project Private Limited and receiving the contract amount in its own name then the income derived from the execution of work through its two partners is liable to be assessed to tax in the hand of the assessee. He has further contended that the Joint Venture is a separate tax entity as covered under section 2(31) of the Income Tax Act, as an association of person. He has relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Smt. Indira Balakrishnan, [1960] 39 ITR 546, 551 (S.C.) and Birla Tyres vs. JCIT [2003] 80 TTJ 915 (Cal.-T)(T.M.). Thus, the learned CIT DR has contended that a Joint Venture is a person defined under Income Tax Act being association of persons and a separate taxable entity and hence is liable to be assessed for the income arising from execution of the project. The assessee has d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attempt to verify this. The Pr. 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 Assessing Officer 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. Therefore, the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made at the time of opening of escrow account without considering the fact that the mobilization advance is being adjusted against the running bills and therefore, the entire mobilization advance cannot be considered as contract receipt for the year under consideration. He has further contended that when the assessee has prepared and maintained the books of accounts which were duly audited. Then there was no reason for calculating the contract receipt by taking the deposit in the bank account and comparing with the closing debtor. The matter of calculation and the difference arrived at by the Pr. CIT is against the principle of accounting. Hence, he has submitted that the Pr. CIT is not justified in holding the assessment order as erroneous and prejudicial to the interest of the Revenue to the extent of this issue. 18. On the other hand, the learned DR has submitted that though the assessee has explained the difference in contract receipts by giving these details however, the Assessing Officer has neither considered nor examined these details. Therefore, in the absence of any enquiry, the order of the Assessing Officer is erroneous and the correctness of the details can be accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Allahabad. In this connection, the assessee had not reported the quantum of profits derived by the members independently and had not explained why the assessment of the same be not made in the hands of the joint venture as its income. As per note sheet entry to register the hearing held on 09/10th December, 2015 it has been categorically recorded by me that the assessee has not reported the quantum of profits derived by the members independently and has not explained why the assessment may not be made in the hands of the joint venture in its income. Further, in response to the query raised vide notice u/s 263, the assessee submitted that Rithwik in its individual capacity had given bank guarantee of Rs. 10 crores to Meja Urja Private Limited on behalf of Ratna and in lieu of this R.K. Infra had given collateral security of its machinery to Rithwik in its individual capacity. Thea assessee failed to give any satisfactory explanation on this account. Vide order sheet entry dated 09/10th December, 2015, the assessee was required to furnish evidences in support of its submission. On both the above issue, the assessment order passed by the AO was squarely hit by the mischief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue without having any influence of the observation as the receipts of the Pr. CIT in the impugned order. 22. Ground no. 6 is regarding the bank guarantee not reflected in the balance-sheet of the assessee. The learned AR of the assessee has submitted that the bank guarantee of Rs. 10 Crore and additional guarantee of Rs. 3 Crore were given by M/s Rithwik Projects Private Limited in its individual capacity directly to M/s Meja Urja Nigam Private Limited as per the memorandum of understanding between M/s Ratna Infrastructure Project Private Limited and M/s Rithwik Projects Private Limited. This bank guarantee of Rs. 10 Crores and Rs. 3 Crores were given by M/s Rithwik Projects Private Limited on behalf of M/s Ratna Infrastructure Project Private Limited. These facts have been considered by the Assessing Officer at the time of passing the assessment order that the assessee has not paid the bank guarantee then the question of showing the same in the balance-sheet does not arise. The Pr. CIT cannot pick up such an issue for revising the order of the Assessing Officer and directing the Assessing Officer to examine without giving specific directions. 23. On the other hand, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Nigam Private Limited. Accordingly, the Assessing Officer 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. 26. Ground no. 7 is regarding the directions to the Assessing Officer for verification of the violation of the provisions of section 40(a)(ia) for want of TDS. 27. We have heard the learned AR as well as learned DR and considered the relevant material on record. The assessee claimed to have deducted the TDS on the amounts which were paid to the partners of the Joint Venture. Hence, prima facie it is evident from the record of the Department that the assessee has deducted the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified in following mixed accounting system, when the law permit following either mercantile accounting system or cash accounting system, under the facts and circumstances of the Appellant's case. 7. The Ld. Pr. Commissioner of Income Tax is not justified in asking the Appellant to submit the profit earned by the Sub contractors from the subcontract given by the Appellant, under the facts and circumstances of the Appellant's case. 8. Without prejudice to the above, the ld. Pr. Commissioner of Income tax, has failed to appreciate the fact that the Appellant is a separate entity as per the provisions of section 2(31) of the Act, under the facts and circumstances of the case. 9. The Ld. Pr. Commissioner of Income Tax ought to have considered the fact that there was no amounts which have been transferred by the Appellant as bank guarantee nor any collateral security given by the Appellant, under the facts and circumstances of the case. 10. The Ld. Pr. Commissioner of Income tax ought to have considered the facts that, the amount of bank guarantee an amount being Rs. 10crores, and additional mobilization advances an amount being Rs. 3crores, were not related to the impugned ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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