INCOME-TAX OFFICER, WARD -6 (3), PUNE vs. SUBHASH AND B.T. PATIL & SONS AND N.V. KHAROTE CONSTRUCTION PVT. LTD,, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

Assessee is a Joint Venture consisting of Subhash Projects & Marketing Ltd., B.T. Patil & Sons Belgaum Construction Pvt. Ltd., Belgaum and N.V. Kharote Construction Pvt. Ltd. It is stated to have

been formed solely for the purpose of working of construction of Jihe

Kathapur Lift Irrigation Scheme. Assessee electronically filed its

return of income for A.Y. 2013-14 on 30.09.2013 declaring total

income at Rs. Nil. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dated

18.03.2016 and the total income was determined at Rs.28,61,50,770/-

. Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A) who vide order dated 06.02.2017 (in appeal No.PN/CIT(A)-

4/82/2016-17) allowed the appeal of the assessee. Aggrieved by the

order of Ld.CIT(A), Revenue is now in appeal before us and has raised

the following grounds :

“1. Whether on the facts and the circumstances of the case and in law the Ld.CIT(A) was correct in deleting the addition of Rs.28,61,50,769/- made u/s 40(a)(ia) of the Income Tax Act, 1961 on account of payments made towards subcontract, when the assessee has failed to deduct TDS from such payments u/s 194C of the Income Tax Act, 1961.

assessee had received contract receipts at Rs.28,61,50,769/- and the

amount was distributed among the members as per the details on

Page 2 at Para 5 of the order. AO noticed that on the amount that ws

paid to the member companies, no TDS was deducted by the assessee.

AO was of the view that assessee is required to deduct TDS as the

agreement between the entities was nothing but a contract and it was

liable for deduction of tax u/s 194C of the Act. The assessee was

asked to show cause as to why the amount paid to the member

companies on the account of sub-contract charges not be disallowed

u/s 40(a)(ia) of the Act, to which the assessee made submission which

were not found acceptable to the AO. AO therefore held that the

payments made by the assessee to its members was clearly towards of

contract charges and the assessee should have deducted TDS u/s

194C of the Act. Since the assessee had failed to deduct tax from such

payments u/s 194C of the Act, provisions of Sec.40(a)(ia) of the Act are

applicable. He accordingly held that on the failure of deduction of tax,

the payment made of Rs.28,61,50,769/- was required to be disallowed

u/s 40(a)(ia) of the Act and he accordingly disallowed the same.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A). Ld.CIT(A) following the order of his predecessor for A.Y.

2014-15 decided the issue in favour of the assessee.

Aggrieved by the order Ld.CIT(A), Revenue is now before us.

other hand, at the outset, submitted that against the order of

Ld.CIT(A), Revenue had preferred appeal for A.Y. 2012-13. The Co-

ordinate Bench of the Tribunal vide order dated 15.11.2017 (in ITA

No.148/PUN/2016) has dismissed the appeal of Revenue. He

submitted that since the facts of the case for the year under

consideration are identical to that of A.Y. 2012-13 in ITA

No.148/PUN/2016 (supra) and following the order of Tribunal in A.Y.

2012-13, no interference to the order of Ld.CIT(A) is called for. He also

placed on record the copy of the decision of Pune Bench of the

Tribunal in ITA No.148/PUN/2016 (supra).

on record. The issue in the present case is with respect to

disallowance of payments made by the assessee to the member

companies of Joint Venture u/s 40(a)(ia) of the Act. We find that

identical issue arose in assessee’s own case for A.Y. 2012-13 wherein

the Co-ordinate Bench of the Tribunal following the order of the

Tribunal in assessee’s own case for A.Ys. 2010-11 and 2011-12 (in ITA

Nos.113 and 114/PUN/2015 order dated 09.08.2017) decided the

issue in favour of the assessee by observing as under :

“6. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to disallowance u/s 40(a)(ia) of the Act. We find that identical issue arose in assessee’s own case for A.Y. 2010-11 and 2011-12. The Co-ordinate Bench of the Tribunal vide order dt.09.08.2017 has dismissed the appeals of Revenue by observing as under :

“7. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to application of provisions of Sec.40(a)(ia) of the Act. We find that the Co-ordinate Bench of the Tribunal in the case of Shraddha & Mahalaxmi Joint Venture (supra) on identical facts and after relying on the decision in the case of Swapnali RDS Joint Venture (supra) has decided the issue in favour of the assessee by holding as under:

“10. We have heard the rival and perused the records. In the facts of the present case, the issue arising before us is in relation to the application of provisions of section 40a(ia) of the Act. The assessee AOP had received contracts from third party which, in turn, was executed by the two members of AOP. The plea of the assessee AOP was that it was constituted for obtaining work and receiving payments against the said work done by the constituents of the AOP and the said payment was to be distributed in the agreed ratio between the two members of the AOP for carrying out the work. Such assignments of the work to the members as per the Memorandum of Understanding agreed upon is not equivalent to sub-contract and as such the assessee AOP was not liable to deduct tax at source out of the amount distributed amongst the members of the AOP in the agreed ratio of share. The Assessing Officer, while deciding the issue in the hands of the assessee, had given an office note to the effect that in the case of M/s. Swapnali RDS Joint Venture (supra), similar addition under section 40(a)(ia) of the Act has been made for the assessment year 2008-09 which has been deleted by the CIT(A)- II, Pune. Department has filed appeal against this order to ITAT and the matter is pending before ITAT. To keep the issue alive in other cases also, the similar addition is being made in this case also. The facts and circumstances arising in the present appeal are identical to the facts and circumstances of the case before the Tribunal in M/s. Swapnali RDS Joint Venture (supra), wherein it was held as under:-

"2. At the outset of hearing, Ld. Authorised Representative pointed out that this case is covered in favour of the assessee by ITAT, Pune Bench, in ITA.No.65/PN/2011 for A.Y. 2006-07 in the case of ITO Vs. Gammon Progressive-JV, wherein vide paras 5 to 9 the Tribunal deciding similar issue in favour of the assessee by dismissing the appeal of the Revenue, has held as under:

"5. After going through the above submissions and material on record, we find that the first issue is regarding status of the assessee. The Assessing Officer has mentioned the status as firm. However, in the explanation given, the assessee has made it clear that the status in which the returns was filed was that of an AOP. It was explained that in the returns of income since beginning till the A.Y. 2006- 07, the status was mentioned as AOP only, i.e., when the returns were filed manually. However, from A.Y. 2007-08, when electronic filing had to be done, due to computer error the status appeared as 'firm' on the ITR acknowledgement, whereas in the computation of total income, it was correctly mentioned as AOP. It was explained that I.T.Return Form No.5 was actually applicable for firms, AOPs and BOIs. Therefore, this error might have occurred. The assessee has also filed computation of total income alongwith acknowledgements from A.Y. 2002-03 to A.Y. 2006-07 in which the status was regularly shown as AOP and even in the application form for allotment of PAN it was shown as AOP. The CIT(A) noticed from the record that status was shown as AOP. However, it was not very much relevant for the purpose of applicability of provisions of section 194C since TDS provisions are applicable to all entities except individuals and HUF having gross receipts or turnover from business or profession below the prescribed limit.

sharing arrangement entered into by the joint venture vis- a-vis sub- contract. It was explained on behalf of the assessee that in the case of sub-contract, there was a relationship of principal and agent whereas in the situation of revenue sharing, it was on a principal to principal basis. Further, in sub-contracting, the contractor retains his share of profit alongwith the TDS and only the balance is passed on to sub- contractor. But in joint venture, assessees did not retain any share in the revenue with it and has passed the entire gross revenue alongwith TDS apportioned for them. It was submitted that the Department has also issued tax apportionment certificates every year during the past eight years to enable the two members to claim the TDS credits in their respective cases. Even in the current assessment year, it was noticed that tax apportionment certificate was issued by the Department vide letter No.Pn/Wd.3(4)/TC/07-08 dated 26.11.2008 of the Assessing Officer in which the Assessing Officer has allowed apportionment of entire TDS of Rs.9,26,588/- during the year to M/s.Gammon India Ltd., since entire work during the year was carried out by it. Similarly, there has been apportionment to either of the two companies or to both the companies in the earlier years also by the Assessing Officer for enabling them to claim TDS in respective cases. The assessee, vide its submission dated 22.04.2010, furnished the details which revealed that gross revenue from this contract receipts by joint venture was accounted for in case of either or both of the two companies who were members of the joint venture in all assessment years 2001-02 to 2008-09. It was further explained by the assessee that revenue sharing was not exactly 60:40 in each year since it depends on the relative work done in the particular year. Having explained the difference between cases of contract/sub- contract, in the background of clauses of the agreement, the assessee relied on the decision of Hon'ble Himachal Pradesh High Court in the case of CIT vs. Ambuja Darla Kashlog Mangu Transport Cooperative Society (2009) 227 CTR 299 (HP).

alongwith acknowledgements of their I.T. returns, which revealed that both of them had huge positive returned incomes every year. For this payment the stand of the assessee was that the method of apportionment of revenue to the members was not to take any undue benefit of losses incurred by them. Therefore, it was stated that there was no loss to the revenue as a result of this method adopted by the assessee of sharing the gross revenue by its members, which was taxed in their hands. However, this explanation of the assessee did not find favour from the Assessing Officer. The assessee has also raised the issue of consistency stating that the same method was being accepted by the Department in the past 8 to 10 years including A.Y. 2007-08 in which tax apportionment certificate was also being issued. It was contended that this aspect has not been considered in the assessment order u/s.143(3) for A.Y. 2007-08. On the principle of consistency, the Ld. Authorised Representative relied on the decision of Hon'ble Bombay High Court in the case of Gopal Purohit (2010) 228 CTR 582 (Bom.) and assessee also relied on the decision of the Hon'ble Supreme Court in the case ofRadhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) wherein it was observed that strictly speaking the principle of res judicata does not apply to income tax proceedings since each assessment year was a separate unit in itself and what is decided in one year may not apply in the following year. It was further contended that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. It was also contended that Hon'ble Kerala High Court in the case of Manjunath Motor Service and Canara Public Conveyances, 197 ITR 321 (Kar.) observed that method adopted by the Assessing Officer would result in double taxation of the same income since gross receipts distributed amongst the two joint venture partners was included as receipts in their respective cases and the joint venture partners had also utilised the TDS credits on the basis of apportionment certificate issued by the Assessing Officer. In view of the above discussion, CIT(A) was justified in holding that in absence of any contract or sub- contract work by joint venture to its member companies, provisions of section 194C were not applicable for the purpose of TDS. The two corporate entities forming joint venture were already being assessed since A.Y. 2000-01 onwards on their respective shares and TDS apportionment certificates were also issued by the Assessing Officer every year for these eight years including the current assessment year to enable them to claim the same in their own cases. Moreover, there was no Profit and Loss Account in the assessee's case and there was no claim of any expenditure. Therefore, there was no question of any disallowance under the provisions of section 40(a)(ia)of the Act. Moreover, disallowance u/s. 40(a)(ia) made by the Assessing Officer cannot be sustained. In effect, the method adopted by the Assessing Officer will also result in double taxation of the same contract revenue which is in violation of the Karnataka High Court decision reported in 197 ITR 321 (Kar.). This

view is fortified by the decision of the ITAT Pune Bench in ITO vs. Rajdeep & PMCC Infrastructure, wherein the Tribunal has observed as under:

"6. We have noted that it is an admitted position that no work is carried out by the AOP, it has acted as a conduit between the MSRDC and the two persons constituting this AOP so far as their separate, and neatly identified, work areas are concerned. A mere existence of an AOP cannot lead to taxability in the hands of the AOP unless the AOP receives monies in its own right. We have noted that Hon'ble Authority of Advance Rulings was in seisin of a materially identical situation in the case of Van Oord ACZ BV In Re(248 ITR 399) in which two contractors joined hands for carrying out neatly identified separate work which was a part of composite contract awarded to the AOP, but the taxability of income from such contract was held to be taxable in the hands of the respective contractors. While holding so Hon'ble Authority for Advance Ruling observed as follows:

"7. So far as question Nos. 1 and 2 are concerned the parties have specifically ruled out constitution of any partnership between them. There is no sharing of profits or loss. They have specifically provided in the agreement that each party will bear its own loss and retain its profits as and when such profits or loss arise. Having regard to the agreement we are of the view that the applicant cannot be treated as a partnership which can only be created by an agreement. Nor can it be treated as an AOP. In order to constitute an AOP there will have to be common purpose or common action and the object of the association must be to produce income jointly. It is not enough that the persons receive the income jointly.

In the instant case, each of the two parties has agreed to bear its own loss or retain its own profit separately. Both have agreed to execute the job together for better co- operation in their relationship with the Chennai Port Trust. The intention was not to carry out any business in common, only a part of the job will be done by VOACZ according to its technical skill and capability. The other part of the contract will be executed by HCC. The total value of the contract was Rs. 2,62,01,03,120. the applicant's share of work was valued at Rs. 44,52,78,920 (17 per cent of total value). The association with the HCC was not with the object of earning this income but for co ordination in executing the contract so that HCC could also make its own profit. HHC's work and income arising therefrom was quite separate and independent of the applicant's work and income. If the cost incurred by the HCC or the applicant was more than their income, each party will have to bear its loss without any adjustment from the other party. The association of the petitioner company with HCC was undoubtedly for mutual benefit but such association will not make them a single assessable unit and liable to tax as an AOP. For example, a building contractor may associate with a plumber and an electrician to execute a building project. All these persons are driven by profit-making motive. But that by itself will not make the three persons liable to be taxed as an AOP if each one has a designed and independent role

to play in the building project. In the instant case, the applicant has stated that the applicant has made its own arrangement for execution of work independent from that of HCC. There is no control or connection between the work done by the applicant and HCC."

In view of the above discussion, we are not inclined to interfere in the finding of the CIT(A) who has directed the Assessing Officer to delete the addition. The same is upheld.

Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the present case and that of Swapnali RDS Joint Venture (supra). In view of the aforesaid facts, we find no reason to interfere with the order of Ld.CIT(A). Thus the grounds of Revenue are dismissed.

assessment year 2010-11 are identical to the facts of the case for A.Y. 2011-12, we, therefore, for similar reasons stated herein while disposing of the appeal for A.Y. 2010-11 and for similar reasons, dismiss the appeal of Revenue for A.Y. 2011-12 also. 10. In the result, the appeal of the Revenue for A.Y. 2011-12 is dismissed. 11. In the result, both the appeals of Revenue are dismissed.”

point out any distinguishing feature in the facts of the present case

and that of the earlier years i.e., A.Ys. 2010-11 and 2011-12 in ITA

Nos.113 and 114/PUN/2015 order dated 09.08.2017 (supra) or has

placed any contrary binding decision in its support. Revenue has also

not placed any material to demonstrate that the order of Tribunal in

assessee’s own case for A.Ys. 2010-11 and 2011-12 (supra) has been

set aside / stayed by higher Judicial Forum. In view of the aforesaid

facts and relying on the decision of the Tribunal in assessee’s own

case in A.Ys. 2010-11 and 2011-12 (supra) and for similar reasons, we

find no reason to interfere with the order of Ld.CIT(A). Thus, the

grounds of Revenue are dismissed.

Order pronounced on 21st day of January, 2020.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER पुणे Pune; �दनांक Dated : 21st January, 2020. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A) – 4, Pune. . 4. Pr.CIT-3, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER,स / / TRUE COPY / / व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.