INCOME TAX OFFICER, WARD-8(1), HYDERABAD vs. MVVS ALIENS (JV), HYDERABAD

We notice at the outset with the able assistance of both the parties that the Revenue’s sole substantive grievance herein seeks to reverse the CIT(A)’s action reversing Section 40(a)(ia) disallowance of Rs.7,12,81,805/- made in the course of assessment on account of assessee’s failure in not deducting TDS qua its payments made to the JV partners, M/s.Alliens Developers Pvt. Ltd. The CIT(A)’s detailed discussion deleting the impugned disallowance reads as under: “3. Brief facts of the case are that the assessee a Joint Venture, filed its Return of Income for A.Y. 2012-13 on 27.09.2012 admitting total income of Rs.1,09,260/-. During the assessment proceedings it is observed that the JV entrusted the entire work received on contract to one of its constituents viz., Aliens Developers Pvt Ltd., and paid Rs. 7,12,81,705/- towards sub-contract. Assessing Officer held that the relation between the assessee JV and M/s.Aliens Developers Pvt Ltd., (ADPL) is that of a contractor and sub-contractor. As the assessee did not deduct any TDS u/s 194C, Assessing Officer disallowed the entire payment made amounting to Rs.7,12,81,705/- invoking the provisions of section 40(a)(ia). It is against this order that the present appeal is filed contesting the disallowance made . 4.During the appellate proceedings it is submitted by the assessee that the constituents of JV agreed to execute the contract. As per the understanding of JV partners the entire work was entrusted to M/s. ADPL. It is argued that the agreement between the JV and its constituents cannot be termed as a subcontract agreement. Assessee in this regard relied on the following decisions: "a. Madhucon Sino Hydro (JV) in ITA No, 646 & 701/ Hyd/2010; b. Tansstory (India) Ltd. Vs. ITO in 134 ITD 269, ITAT Hyd; c. Hyundai Rotemco., Korea / Mitsubishi Co., Japan 323 ITR 277; d. Soma Enterprises Ltd., in ITAT No. 1117 & 1117/H/2010 (ITAT, Hyd)" 4.1 Without prejudice to the above argument it is also argued by the assessee that in view of special bench decision in case of Merlyn Shipping and Transport provisions of section 40(a)(ia) are applicable only to the amounts payable. Alternately it is also argued that in view of amendment to section 40(a)(ia) the provisions are not applicable if the recipient admitted the amount I paid as income. As ADPL admitted the amount paid as its income it is argued that no disallowance can be made in the hands of the assessee JV. On consideration of the facts of the case, in view of the jurisdictional tribunal decisions that the agreement to entrust the work to JV constituents is not in the nature of sub-contract agreement, I am of the considered opinion that no disallowance can be made in this case u/s. 40(a)(ia). Therefore, the Assessing Officer is directed to delete the disallowance made. 5. In the result, the appeal is allowed”.

Learned CIT-DR invited our attention to the assessee’s detailed paper book in general and pages 82 to 88 inter alia containing the assessee’s sub-contract agreement dt.29-03- 2010 as well as the corresponding stipulations regarding TDS deduction at pg.87 in Clause No.13. His case is that this taxpayer’s impugned payments indeed attract application of Chapter-XVII TDS mechanism. He next quoted hon'ble apex court’s recent decision (2012) [118 taxmann.com 47] (SC) Shree Choudhary Transport Company Vs. ITO that Section 194C includes both the contracts as well as sub-contracts without providing for any exclusion thereof in an instance of a joint venture and its partner. He therefore urged before us that the Assessing Officer’s impugned disallowance be restored.

Learned counsel on the other hand has quoted this tribunal’s co-ordinate bench decision in ITO Vs. Shraddha & Prasad Joint Venture dt.17-05-2021 that the impugned disallowance does not apply in an instance of JV; its partner as are the facts before us. Mr.Rama Rao, next invited our attention to the tribunal’s co-ordinate bench’s order in assessee’s case itself, ITA No.696/Hyd/2016, dt.17- 03-2017 (AY.2011-12) restoring identical issue back to the Assessing Officer.

We have given our thoughtful consideration to rival submissions against and in support of the CIT(A)’s foregoing detailed discussions deleting section 40(a) disallowance. Suffice to say, there is hardly any dispute that Section 40(a)(ia) ‘payable’ expenditures disallowance issue is no more res integra in light of hon'ble apex court’s yet another recent decisions of Palam Gas Service Vs. CIT 394 ITR 300 (SC) deciding the issue in Revenue’s favour. We thus reverse the CIT(A)’s findings deleting the impugned disallowance to this effect.

Coming to other remaining aspects, it has come on record that learned co-ordinate bench’s directions in AY.2011- 12 are yet to attain finality in Assessing Officer’s consequential assessment. We therefore adopt judicial consistency and restore the instant issue as well back to the Assessing Officer to be decided afresh in view of the relevant facts on record.

This Revenue’s appeal is allowed for statistical purposes in foregoing terms.