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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI ABY T VARKEY & SHRI OM PRAKASH KANT
Ld. CIT(A)’] for assessment year 2014 Ld. CIT(A)’] for assessment year 2014-15 and 2015 15 and 2015-16. Being common ground involved common ground involved, permitting from same set of facts, from same set of facts, both these appeals were h these appeals were heard together and disposed off by way of this eard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. consolidated order for convenience and avoid repetition of facts. consolidated order for convenience and avoid repetition of facts. Assessment Year: 2014 2014-15 2. First, we take up appeal of the asses First, we take up appeal of the assessee for assessment year see for assessment year 2014-15. The relevant ground relevant grounds raised by the assessee are raised by the assessee are reproduced as under: as under:
On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in brining to tax Ld. CIT(A) erred in upholding the action of the Ld. AO in brining to tax Ld. CIT(A) erred in upholding the action of the Ld. AO in brining to tax closing construction WIP of closing construction WIP of ₹32,29,26,445/-. The addition be . The addition be deleted. In the alternative, the same be directed to be allowed as a deduction in In the alternative, the same be directed to be allowed as a deduction in In the alternative, the same be directed to be allowed as a deduction in AY 2015-16 as cost of opening construction WIP. 16 as cost of opening construction WIP. Amount of tax and interest u/s 234A and 234B be directly to be Amount of tax and interest u/s 234A and 234B be directly to be Amount of tax and interest u/s 234A and 234B be directly to be consequently recomputed. consequently recomputed.
On the facts and circumstances of On the facts and circumstances of the case and in lad, the Ld. the case and in lad, the Ld. CIT(A) erred in confirming the disallowance of CIT(A) erred in confirming the disallowance of ₹5,65,933/ ₹5,65,933/- u/s 40(a)(ia) on reimbursement of salary of deputed staff paid to a sister 40(a)(ia) on reimbursement of salary of deputed staff paid to a sister 40(a)(ia) on reimbursement of salary of deputed staff paid to a sister concern, Alphine Samsung HCC Joint Venture. concern, Alphine Samsung HCC Joint Venture.
HCC Samsung Joint Venture HCC Samsung Joint Venture 3 & 7365/M/2019
The fact in brief of The fact in brief of the case are that assessee is a joint venture ee is a joint venture (Association of persons for the purpose of (Association of persons for the purpose of status under the Income status under the Income Tax Act, 1961) formed between M/s Hindustan Construction formed between M/s Hindustan Construction formed between M/s Hindustan Construction Company Ltd. (HCC) (HCC) and Samsung C & T Corporation, Korea and Samsung C & T Corporation, Korea (Samsung) for the purpose of for the purpose of execution of design and c execution of design and construction of tunnels as part of Delhi MRTS Project of Delhi Metro Rail of tunnels as part of Delhi MRTS Project of Delhi Metro Rail of tunnels as part of Delhi MRTS Project of Delhi Metro Rail Corporation. The assessee filed its return of income on 24.11.2014 Corporation. The assessee filed its return of income on 24.11.2014 Corporation. The assessee filed its return of income on 24.11.2014 claiming loss of ₹24,31,31,346/ 24,31,31,346/-. The return of income filed by the . The return of income filed by the assessee was selected for scrutiny assessee was selected for scrutiny and statutory notices issued under the Act were complied under the Act were complied. In the assessment completed u/s the assessment completed u/s 143(3) of the Act on 30.12.2016, 143(3) of the Act on 30.12.2016, the Assessing Officer made various Assessing Officer made various additions to the returned income and assessed the total income at additions to the returned income and assessed the total income at additions to the returned income and assessed the total income at ₹9,45,17,862/-. On further appeal, the Ld. CIT(A) allowed part relief . On further appeal, the Ld. CIT(A) allowed part relief . On further appeal, the Ld. CIT(A) allowed part relief to the assessee.
Aggrieved, the assessee is in appeal before the Tribunal raising Aggrieved, the assessee is in appeal before the Tribunal raising Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. grounds as reproduced above.
HCC Samsung Joint Venture HCC Samsung Joint Venture 4 & 7365/M/2019 4.1 Before us, the assessee filed a Paper book containing page he assessee filed a Paper book containing page he assessee filed a Paper book containing pages 1 to 108 including copy of cases relied upon. 108 including copy of cases relied upon.
The Ground No. 1 of the appeal relates to addition of The Ground No. 1 of the appeal relates to addition of The Ground No. 1 of the appeal relates to addition of ₹32,29,26,445/- in respect of closing construction work in respect of closing construction work in respect of closing construction work-in-progress (WIP). The facts qua, the assessee issue (WIP). The facts qua, the assessee issue-in-dispute are that the dispute are that the return of income was fi return of income was filed by the assessee on the basis of one set of led by the assessee on the basis of one set of audited financial statement i.e. balance sheet, profit and loss audited financial statement i.e. balance sheet, profit and loss audited financial statement i.e. balance sheet, profit and loss account, computation of income account, computation of income, wherein during the assessment wherein during the assessment year consideration loss of year consideration loss of ₹22.30 crores was reported. But during 22.30 crores was reported. But during the scrutiny proceeding before the Ld. Assessing Officer eeding before the Ld. Assessing Officer, another set eeding before the Ld. Assessing Officer of audited financial statement was filed of audited financial statement was filed, where profit of where profit of ₹9.99 crores was reflected. Before the Assessing Officer vide letter dated was reflected. Before the Assessing Officer vide letter dated was reflected. Before the Assessing Officer vide letter dated 23.12.2016, the assessee explained that second set of financial 23.12.2016, the assessee explained that second set of financial 23.12.2016, the assessee explained that second set of financial statement was prepared for the purpose of Management ent was prepared for the purpose of Management ent was prepared for the purpose of Management Information System (MIS) Information System (MIS) accounting purpose. The assessee accounting purpose. The assessee explained that the MIS accounts have only one difference of explained that the MIS accounts have only one difference of explained that the MIS accounts have only one difference of HCC Samsung Joint Venture HCC Samsung Joint Venture 5 & 7365/M/2019 valuation of construction WIP of valuation of construction WIP of ₹32.29 crores. The Assessing 32.29 crores. The Assessing Officer observed that in seco Officer observed that in second set of financial statement the nd set of financial statement the assessee has credited construction WIP of assessee has credited construction WIP of ₹3229.26 lakhs, which 3229.26 lakhs, which was also reflected in inventories shown of was also reflected in inventories shown of ₹1154.49 lakhs in the 1154.49 lakhs in the balance sheet as on 31.03.2014. The Ld. AO further observed that balance sheet as on 31.03.2014. The Ld. AO further observed that balance sheet as on 31.03.2014. The Ld. AO further observed that first set of audited financi first set of audited financial statement on the basis of which return al statement on the basis of which return of income has been filed, the construction WIP of of income has been filed, the construction WIP of ₹3229.26 lakhs has 3229.26 lakhs has been excluded from credit in profit and loss account and thus the been excluded from credit in profit and loss account and thus the been excluded from credit in profit and loss account and thus the assessee has accordingly computed loss of assessee has accordingly computed loss of ₹2230.14 lakh 2230.14 lakhs. The Assessing Officer is of the view that if said WIP is treated as revenue is of the view that if said WIP is treated as revenue is of the view that if said WIP is treated as revenue in nature and included in the current year expenses in nature and included in the current year expenses in nature and included in the current year expenses, then naturally same has been correctly correctly credited to the profit and loss account and to the profit and loss account and closing stock in second financial statement second financial statement.
5.1 In view of the In view of the above observation, the Assessing Officer above observation, the Assessing Officer concluded that (i) the assessee has not furnished any reasons as to concluded that (i) the assessee has not furnished any reasons as to concluded that (i) the assessee has not furnished any reasons as to why second set of financial statement was prepared and that too why second set of financial statement was prepared and that too why second set of financial statement was prepared and that too
HCC Samsung Joint Venture HCC Samsung Joint Venture 6 & 7365/M/2019 was duly audited by the said auditor was duly audited by the said auditor who signed the first financial the first financial statement, (ii) the assessee has not furnished details of construction statement, (ii) the assessee has not furnished details of construction statement, (ii) the assessee has not furnished details of construction WIP of ₹3229.26 lakhs. 3229.26 lakhs.
5.2 Finally, the Assessing Officer made addition for Finally, the Assessing Officer made addition for the sum of Finally, the Assessing Officer made addition for ₹3229.26 lakhs to the return 3229.26 lakhs to the returned income, relevant to the construction relevant to the construction WIP reported in second set of audited financial statement. It may be rted in second set of audited financial statement. It may be rted in second set of audited financial statement. It may be noted here that the Assessing Officer did not noted here that the Assessing Officer did not reject reject the books of account of the assessee in terms of section 145(3) of the Act. account of the assessee in terms of section 145(3) of the Act. account of the assessee in terms of section 145(3) of the Act.
Before the Ld. CIT(A), the assessee relied on the decision of Before the Ld. CIT(A), the assessee relied on the decision of Before the Ld. CIT(A), the assessee relied on the decision of Hon’ble Madras High Court in the case of CIT v. Shriram Transport Hon’ble Madras High Court in the case of CIT v. Shriram Transport Hon’ble Madras High Court in the case of CIT v. Shriram Transport Finance (ITA No. 621 of 2013) wherein the Hon’ble High Court has Finance (ITA No. 621 of 2013) wherein the Hon’ble High Court has Finance (ITA No. 621 of 2013) wherein the Hon’ble High Court has held that maintenance of two separate books of account for the held that maintenance of two separate books of account for the held that maintenance of two separate books of account for the purpose of Company Act and Income Tax Act was perfectly in ord purpose of Company Act and Income Tax Act was perfectly in ord purpose of Company Act and Income Tax Act was perfectly in order. In the set, for the purpose of Companies Act provision for doubtful for the purpose of Companies Act provision for doubtful for the purpose of Companies Act provision for doubtful debt was made whereas in the set for the purpose of Income debt was made whereas in the set for the purpose of Income debt was made whereas in the set for the purpose of Income-tax Act, the same doubtful debt was written off. It was also submitted by the the same doubtful debt was written off. It was also submitted by the the same doubtful debt was written off. It was also submitted by the HCC Samsung Joint Venture HCC Samsung Joint Venture 7 & 7365/M/2019 assessee that the Assessing Officer has duly ve assessee that the Assessing Officer has duly verified the books of rified the books of account of the assessee however account of the assessee however the AO neither found any the AO neither found any additional expenditure claimed by the assessee expenditure claimed by the assessee expenditure claimed by the assessee as per WIP of ₹3229.26 lakhs nor any fault in the accounting in terms of section any fault in the accounting in terms of section any fault in the accounting in terms of section 145 of the Act. The Ld. CIT(A) however upheld the a 145 of the Act. The Ld. CIT(A) however upheld the a 145 of the Act. The Ld. CIT(A) however upheld the addition holding that the return of income income filed was not in line with the second set of the second set of accounts filed during the assessment. accounts filed during the assessment.
Before us, the Ld. Counsel of the assessee has submitted that Before us, the Ld. Counsel of the assessee has submitted that Before us, the Ld. Counsel of the assessee has submitted that the said audited MIS financial statement was drawn up only to the said audited MIS financial statement was drawn up only to the said audited MIS financial statement was drawn up only to provide audited financial statements to Hindustan Construction ide audited financial statements to Hindustan Construction ide audited financial statements to Hindustan Construction Company Ltd. (HCC), o Company Ltd. (HCC), one of the joint venture partner. ne of the joint venture partner. It was submitted that HCC had disclosed in its mandatory submitted that HCC had disclosed in its mandatory submitted that HCC had disclosed in its mandatory published consolidated financial statement consolidated financial statement, interest in the joint venture on the interest in the joint venture on the basis of audited MIS financial statement. It was submitted that MIS of audited MIS financial statement. It was submitted that MIS of audited MIS financial statement. It was submitted that MIS financial statement had been drawn up so as to reflect various financial statement had been drawn up so as to reflect various financial statement had been drawn up so as to reflect various elements such as contract WIP elements such as contract WIP, construction cost carried over as HCC Samsung Joint Venture HCC Samsung Joint Venture 8 & 7365/M/2019 WIP as also pure construction construction material carried over as part of material carried over as part of inventory as on 31.03.2014. It was submitted that the disputed inventory as on 31.03.2014. It was submitted that the disputed inventory as on 31.03.2014. It was submitted that the disputed amount of ₹32.24 crores 32.24 crores of construction WIP was recor WIP was recorded only in the audited MIS financial statement MIS financial statement for the limited purpose of for the limited purpose of consolidating MIS financial stat MIS financial statement of the assessee ement of the assessee JV into the audited published financial statement of HCC. According to the audited published financial statement of HCC. According to the audited published financial statement of HCC. According to the assessee, the difference between the two statements was that assessee, the difference between the two statements was that assessee, the difference between the two statements was that whereas financial statement of the assessee whereas financial statement of the assessee JV JV were correctly recognized at cost but but for consolidation in the financial statement of tion in the financial statement of the HCC, even the budgeted profit was added to the inventory and HCC, even the budgeted profit was added to the inventory and HCC, even the budgeted profit was added to the inventory and therefore, the amount of therefore, the amount of ₹32.29 crores represents notional or 32.29 crores represents notional or budgeted profit, which were never earned in the year under which were never earned in the year under which were never earned in the year under assessment. During the hearing date assessment. During the hearing dated 09.06.2022, the Ld. Counsel of d 09.06.2022, the Ld. Counsel of the assessee was asked to furnish a reconciliation of two sets of the assessee was asked to furnish a reconciliation of two sets of the assessee was asked to furnish a reconciliation of two sets of financial statement from the auditor financial statement from the auditor who has signed has signed both the audited statements. The Ld. Counsel of the assessee submitted the . The Ld. Counsel of the assessee submitted the . The Ld. Counsel of the assessee submitted the HCC Samsung Joint Venture HCC Samsung Joint Venture 9 & 7365/M/2019 said reconciliation duly signe said reconciliation duly signed by the auditor. The relevant part of The relevant part of the said reconciliation the said reconciliation is reproduced as under:
“7. As represented to me, as per HCC's accounting policy, As represented to me, as per HCC's accounting policy, As represented to me, as per HCC's accounting policy, budgeted profit from the project was required to be recognized and budgeted profit from the project was required to be recognized and budgeted profit from the project was required to be recognized and loaded on to the inventory of Construction W loaded on to the inventory of Construction WIP irrespective of the IP irrespective of the actual % of profit/loss from the project at the year actual % of profit/loss from the project at the year-end. Having end. Having regard to the representation that the said project was finally regard to the representation that the said project was finally regard to the representation that the said project was finally budgeted to have a profit of 6.75% of the Contract value, a sum of Rs. budgeted to have a profit of 6.75% of the Contract value, a sum of Rs. budgeted to have a profit of 6.75% of the Contract value, a sum of Rs. 999.13 lacs, being 6.75% of value 999.13 lacs, being 6.75% of value of work done till 31 March 2014 of work done till 31 March 2014 viz. Rs. 14801.90 lacs, was required to be reflected in the MIS viz. Rs. 14801.90 lacs, was required to be reflected in the MIS viz. Rs. 14801.90 lacs, was required to be reflected in the MIS Financial Statements as profit for the year, thereby requiring Closing Financial Statements as profit for the year, thereby requiring Closing Financial Statements as profit for the year, thereby requiring Closing Construction WIP to be additionally valued at Rs. 3239.36 lacs being Construction WIP to be additionally valued at Rs. 3239.36 lacs being Construction WIP to be additionally valued at Rs. 3239.36 lacs being budgeted profit on i budgeted profit on inventory. The Annexure attached to this nventory. The Annexure attached to this certificate reconciles the two sets of accounts which shows that the certificate reconciles the two sets of accounts which shows that the certificate reconciles the two sets of accounts which shows that the only difference is the addition of Construction WIP of Rs.3229.26 only difference is the addition of Construction WIP of Rs.3229.26 only difference is the addition of Construction WIP of Rs.3229.26 Lakhs under the head Inventories both in the Management Balance Lakhs under the head Inventories both in the Management Balance Lakhs under the head Inventories both in the Management Balance Sheet and in the Sheet and in the Management Profit & Loss Account. This has Management Profit & Loss Account. This has resulted in the loss of Rs. 2230.14 Lakhs in the regular resulted in the loss of Rs. 2230.14 Lakhs in the regular Profit & Loss Profit & Loss Account being converted into a profit of R$. 999.13 Lakhs, requiring Account being converted into a profit of R$. 999.13 Lakhs, requiring Account being converted into a profit of R$. 999.13 Lakhs, requiring provision for taxation of Rs. 372.02 Lakhs in the profit & loss account, provision for taxation of Rs. 372.02 Lakhs in the profit & loss account, provision for taxation of Rs. 372.02 Lakhs in the profit & loss account, which is duly reflected in the Management Balance Sheet under the reflected in the Management Balance Sheet under the reflected in the Management Balance Sheet under the head Loans and Advances head Loans and Advances Schedule VI. The relevant entry was Schedule VI. The relevant entry was recorded only in the Management Financial recorded only in the Management Financial Statements being Statements being
Construction WIP A/c (Asset)... Construction WIP A/c (Asset)..................Dr Rs 3229.26 Lakhs Dr Rs 3229.26 Lakhs
To Construction WIP A/c (P&L) nstruction WIP A/c (P&L)... .....…Rs. 3229.26 Lakhs
HCC Samsung Joint Venture HCC Samsung Joint Venture 10 & 7365/M/2019
8. As explained by the Management, that though the financial As explained by the Management, that though the financial As explained by the Management, that though the financial statements show a loss of statements show a loss of Rs.22.30 crores, the same is primarily on Rs.22.30 crores, the same is primarily on account of period costs such as employee account of period costs such as employee costs, Office and site costs, Office and site expenses, financial expenses and depreciation together inancial expenses and depreciation together aggregating aggregating to Rs. 28.56 crores. Furthermore, the project has in fact ended in a to Rs. 28.56 crores. Furthermore, the project has in fact ended in a to Rs. 28.56 crores. Furthermore, the project has in fact ended in a loss to the joint venture. the joint venture.
9. I reiterate that, the audited Financial Statements of the JV have 9. I reiterate that, the audited Financial Statements of the JV have 9. I reiterate that, the audited Financial Statements of the JV have been correctly drawn been correctly drawn consistent with accounting policies followed by h accounting policies followed by it and that Management financial it and that Management financial statements were prepared, on the statements were prepared, on the representation by the Management, for the limited representation by the Management, for the limited purpose of consolidation of the joint venture's interest into the books of consolidation of the joint venture's interest into the books of consolidation of the joint venture's interest into the books of Hindustan Construction Company Construction Company (HCC) in order to align accounting (HCC) in order to align accounting policies in line with method of policies in line with method of accounting followed by HCC. accounting followed by HCC.
I confirm that there is no other difference between the two sets of 10. I confirm that there is no other difference between the two sets of 10. I confirm that there is no other difference between the two sets of financial statements financial statements.”
7.1 A comperative balance sheet and profit loss account of both A comperative balance sheet and profit loss account of both the A comperative balance sheet and profit loss account of both set of financial statement submitted by the auditor is also set of financial statement submitted by the auditor is also set of financial statement submitted by the auditor is also reproduced for ready reference : reproduced for ready reference :
Annexure to Reconciliation Certificate-Reconciling MIS Accounts and Non-MIS Accounts forming Basis for Tax Returns Annexure to Reconciliation Certificate MIS Accounts forming Basis for Tax Returns HCC-Samsung Joint Venture CC34 Balance Sheet as at 31st March 2014 Schedule Basis for Tax Return MIS MIS Accounts Accounts 31 31- Difference 31-March-2014 March-2014 ₹ ‘In Lacs’ ₹ ‘In Lacs’ ₹ ‘In Lacs’ Sources of Fund Current Account of Members I 295.01 295.01 295.01 295.01 0.00 Profit and loss Account [Cr. Balance] - 627.11 627.11 Total 295.01 922.12 627.11 Application of Fund Fixed Assets
HCC Samsung Joint Venture HCC Samsung Joint Venture 11 & 7365/M/2019 Gross Block II 4,206.83 4,206.83 0.00 Less: Depreciation 405.52 405.52 0.00 3,801.31 3801.31 -0.00 Add : Items awaiting Capitalization 6,681.42 6,681.42 -0.00 10,482.73 10,482.73 10,482.73 0.00 Current Assets Inventories III 8,318.23 11,5437.49 11,5437.49 -3,229.26 Cash and Bank Balances IV 2,079.73 2,079.73 Other Current Assets V 47.71 47.71 -0.00 Loans & Advances VI 2,051.66 1,679.64 372.02 12,497.33 15,354.57 15,354.57 -2,857.24 Less: Current Liabilities & Provisions Net Less: Current Liabilities & Provisions Net VII -24,915.18 -24,915.18 24,915.18 Current Assets -12,417.85 -9,560.61 2,857.24 Profit and Loss Account [Dr. Balance] 2,230.13 - -2,230.13 2,230.13 - Total 295.01 922.12 627.11
HCC Samsung Joint Venture HCC Samsung Joint Venture 12 & 7365/M/2019
On the contrary, the Ld. DR relied on the order of the lower On the contrary, the Ld. DR relied on the order of the lower On the contrary, the Ld. DR relied on the order of the lower authorities and submitted that the amount of construction WIP authorities and submitted that the amount of construction WIP authorities and submitted that the amount of construction WIP was not reported in the first set of financial statement not reported in the first set of financial statement not reported in the first set of financial statement, which is appearing in second set of the financial statement. According in second set of the financial statement. According in second set of the financial statement. According to him, the amount of construction of WIP the amount of construction of WIP ₹32.29 crores has not been 32.29 crores has not been considered while filing the return of income and therefore, addition considered while filing the return of income and therefore, addition considered while filing the return of income and therefore, addition by the Assessing Officer is justified. by the Assessing Officer is justified.
We have heard rival submissions of the parties on the issue-in- We have heard rival submissions of the parties on the issue We have heard rival submissions of the parties on the issue dispute and perused the relevant material on record. The assessee dispute and perused the relevant material on record. The assessee dispute and perused the relevant material on record. The assessee has filed return of income on the basis of one set of audited financial has filed return of income on the basis of one set of audited financial has filed return of income on the basis of one set of audited financial statement reporting a loss of statement reporting a loss of ₹22.30 crores. However, d 22.30 crores. However, during the scrutiny proceedings, the assessee filed another set of financial scrutiny proceedings, the assessee filed another set of financial scrutiny proceedings, the assessee filed another set of financial statement wherein additional amount of construction WIP of statement wherein additional amount of construction WIP of statement wherein additional amount of construction WIP of ₹32.29 crores was reported. The contention of the assessee before us crores was reported. The contention of the assessee before us crores was reported. The contention of the assessee before us is that the additional amount of WIP is merely valua additional amount of WIP is merely valuation difference. tion difference. According to assessee, it has valued the construction WIP for the According to assessee, it has valued the construction WIP for the According to assessee, it has valued the construction WIP for the HCC Samsung Joint Venture HCC Samsung Joint Venture 13 & 7365/M/2019 purpose of MIS financial statement at a higher value for the purpose purpose of MIS financial statement at a higher value for the purpose purpose of MIS financial statement at a higher value for the purpose of consolidation with the financial statement of joint venture of consolidation with the financial statement of joint venture of consolidation with the financial statement of joint venture partner i.e. M/s HCC Ltd. partner i.e. M/s HCC Ltd. We find that the Revenue has not disputed e Revenue has not disputed the fact of examination of books of accounts by the Assessing Officer examination of books of accounts by the Assessing Officer. examination of books of accounts by the Assessing Officer In our opinion, if in books of account any expenditure corresponding In our opinion, if in books of account any expenditure corresponding In our opinion, if in books of account any expenditure corresponding to the additional amount the additional amount of construction of WIP is not construction of WIP is not found debited, then the amount is then the amount is only in the nature of notional valuation only in the nature of notional valuation which has been carried out by the joint venture partner which has been carried out by the joint venture partner which has been carried out by the joint venture partner for the purpose of consolidating in its books of account and which cannot consolidating in its books of account and which cannot consolidating in its books of account and which cannot be made a basis for addition in the hands of the assessee. be made a basis for addition in the hands of the assessee. be made a basis for addition in the hands of the assessee.
9.1 Further, we are of the Further, we are of the view that when there is no change in view that when there is no change in number of items of inventory of construction WIP as shown in the number of items of inventory of construction WIP as shown in the number of items of inventory of construction WIP as shown in the first set of financial statement as well as second set (MIS account) of first set of financial statement as well as second set (MIS account) of first set of financial statement as well as second set (MIS account) of financial statement, then only difference is that in MIS account then only difference is that in MIS account construction WIP has been valued higher by the amount of has been valued higher by the amount of has been valued higher by the amount of ₹32.29 crores only, for the purpose of consolidated account of the venture for the purpose of consolidated account of the venture for the purpose of consolidated account of the venture
HCC Samsung Joint Venture HCC Samsung Joint Venture 14 & 7365/M/2019 partner. We note that the Hon’ble Rajasthan High Court in the case partner. We note that the Hon’ble Rajasthan High Court in the case partner. We note that the Hon’ble Rajasthan High Court in the case of CIT v. Laxmi Engineer Industries in order dated 18.03.2008 held of CIT v. Laxmi Engineer Industries in order dated 18.03.2008 held of CIT v. Laxmi Engineer Industries in order dated 18.03.2008 held that no addition could be made for higher valuation of the stock o addition could be made for higher valuation of the stock o addition could be made for higher valuation of the stock hypothecated to Bank if the AO had not been able to point out any hypothecated to Bank if the AO had not been able to point out any hypothecated to Bank if the AO had not been able to point out any discrepancy in the quantity of stock hypothecated to the Bank and in the quantity of stock hypothecated to the Bank and in the quantity of stock hypothecated to the Bank and the quantity of stock as per books of account. In this case also the quantity of stock as per books of account. In this case also the quantity of stock as per books of account. In this case also there is no observation of the AO that quantity of is no observation of the AO that quantity of construction work construction work-in- progress is more than the quantity valued as is more than the quantity valued as per first set of financial first set of financial statement. In view of the above, we set aside the order of the Ld. In view of the above, we set aside the order of the Ld. In view of the above, we set aside the order of the Ld. CIT(A) on the issue-in in-dispute and delete the addition made by the addition made by the Assessing Officer.
10. The ground No. 2 of the appeal relates to disallowance of The ground No. 2 of the appeal relates to disallowance of The ground No. 2 of the appeal relates to disallowance of ₹5,65,933/- u/s 40(a)(ia) of the Act. The facts qua, the issue in u/s 40(a)(ia) of the Act. The facts qua, the issue in u/s 40(a)(ia) of the Act. The facts qua, the issue in dispute are that the Assessing Officer disallowed the amount u/s dispute are that the Assessing Officer disallowed the amount u/s dispute are that the Assessing Officer disallowed the amount u/s 40(a)(ia) of the Act for non 40(a)(ia) of the Act for non-deduction of tax at source on deduction of tax at source on HCC Samsung Joint Venture HCC Samsung Joint Venture 15 & 7365/M/2019 reimbursement of employee cost/ reimbursement of employee cost/salary by the assessee the assessee to M/s Alphine Samsung HCC Joint Venture i.e. related party. e Samsung HCC Joint Venture i.e. related party. e Samsung HCC Joint Venture i.e. related party.
On further appeal, the assessee submitted before the Ld. On further appeal, the assessee submitted before the Ld. On further appeal, the assessee submitted before the Ld. CIT(A) that there was no employer employee relationship between CIT(A) that there was no employer employee relationship between CIT(A) that there was no employer employee relationship between employee and assessee loyee and assessee and the assessee reimbursed on reimbursed on cost to cost basis. It was further submitted that rther submitted that tax was deducted at source u/s deducted at source u/s 192 of the Act by the employer M/s Alphine Samsung and by the employer M/s Alphine Samsung and taxable in by the employer M/s Alphine Samsung and the hand of salaried hand of salaried employees. The Ld. CIT(A) dismissed the Ld. CIT(A) dismissed the ground of the assessee. ground of the assessee.
We have heard rival submission of the parties on We have heard rival submission of the parties on the issue-in- We have heard rival submission of the parties on dispute and perused the relevant material on record. The issue is dispute and perused the relevant material on record. The issue is dispute and perused the relevant material on record. The issue is of disallowance u/s 40(a)(ia) of the Act disallowance u/s 40(a)(ia) of the Act for non-deduction of tax at deduction of tax at source, amount which amount which has been claimed by the assessee been claimed by the assessee as reimbursement of the salary to reimbursement of the salary to seconded employee employees. We find that the Ld. CIT(A) has sustained the disallowance in view of no evidence the Ld. CIT(A) has sustained the disallowance in view of no evidence the Ld. CIT(A) has sustained the disallowance in view of no evidence submitted by the assessee that same was taxed in the hands of the submitted by the assessee that same was taxed in the hands of the submitted by the assessee that same was taxed in the hands of the HCC Samsung Joint Venture HCC Samsung Joint Venture 16 & 7365/M/2019 employees either on the payment made employees either on the payment made by it or by the related party. or by the related party. The relevant finding of the Ld. CIT(A) The relevant finding of the Ld. CIT(A) is reproduced as under: is reproduced as under:
“The appellant has submitted the Debit Memos for the salary being The appellant has submitted the Debit Memos for the salary being The appellant has submitted the Debit Memos for the salary being debited and also a signed certificate by the related party to the effect debited and also a signed certificate by the related party to the effect debited and also a signed certificate by the related party to the effect that the invoices do not contain any mark that the invoices do not contain any mark-up or profit and is purely up or profit and is purely reimbursement of costs. reimbursement of costs. It is observed that the invoices are towards the It is observed that the invoices are towards the salary of an employee belonging to the related party and include his salary of an employee belonging to the related party and include his salary of an employee belonging to the related party and include his Salary, Provident Fund and Super Annuation Fund Contributions as Salary, Provident Fund and Super Annuation Fund Contributions as Salary, Provident Fund and Super Annuation Fund Contributions as well as some components such as leave travel assistance etc. It may be well as some components such as leave travel assistance etc. It may be well as some components such as leave travel assistance etc. It may be noted that these are taxable in the hands of the employee however, the ted that these are taxable in the hands of the employee however, the ted that these are taxable in the hands of the employee however, the appellant has not produced any evidence that the same are taxed in appellant has not produced any evidence that the same are taxed in appellant has not produced any evidence that the same are taxed in the hands of the employee either on payment made by it or by the the hands of the employee either on payment made by it or by the the hands of the employee either on payment made by it or by the related party. Hence based on this the disallowance is related party. Hence based on this the disallowance is upheld and the upheld and the Ground of appeal is dismissed. Ground of appeal is dismissed.” 12.1 Though before us, the Ld. Counsel of the assessee has relied on Though before us, the Ld. Counsel of the assessee has relied on Though before us, the Ld. Counsel of the assessee has relied on the various decisions of the Tribunal the various decisions of the Tribunal, however however he expressed willingness to file necessary evidence to support that tax was duly willingness to file necessary evidence to support that tax was duly willingness to file necessary evidence to support that tax was duly deducted on salary paid to the salary paid to the seconded employee Mr. Srivastav. In employee Mr. Srivastav. In view of submission of the assessee, the matter view of submission of the assessee, the matter is restored restored back to the file of the Ld. Assessing Officer for verification, whether tax has the file of the Ld. Assessing Officer for verification, whether tax has the file of the Ld. Assessing Officer for verification, whether tax has been deducted by the employer M/s Alphine Samsung HCC JV in been deducted by the employer M/s Alphine Samsung HCC JV in been deducted by the employer M/s Alphine Samsung HCC JV in HCC Samsung Joint Venture HCC Samsung Joint Venture 17 & 7365/M/2019 respect of salary amount reimbursed by the assessee in relation to respect of salary amount reimbursed by the assessee in relation to respect of salary amount reimbursed by the assessee in relation to employee Mr. Srivastav employee Mr. Srivastav or tax has already been paid or tax has already been paid by the seconded employee on reimbursement amount seconded employee on reimbursement amount. The ground raised
. The ground raised by the assessee is accordingly accordingly allowed for statistical purpose ed for statistical purpose. o. 7365/MUM/2019 Assessment Year: 2015 2015-16
13. The ground raised by the assessee in assessment year 2015 The ground raised by the assessee in assessment year 2015-16 The ground raised by the assessee in assessment year 2015 is reproduced as under: is reproduced as under:
1. On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not entertaining the appellant’s cla Ld. CIT(A) erred in not entertaining the appellant’s claim for deduction im for deduction of ₹32,29,26,445/ ₹32,29,26,445/- being closing WIP as on March 31, 2014 wrongly being closing WIP as on March 31, 2014 wrongly brought to tax by the AO while passing the assessment order of AY 2014 brought to tax by the AO while passing the assessment order of AY 2014 brought to tax by the AO while passing the assessment order of AY 2014- 15, which automatically forms the opening WIP of the year under 15, which automatically forms the opening WIP of the year under 15, which automatically forms the opening WIP of the year under consideration. consideration. In any event, deductio In any event, deduction for ₹32,29,445/- be allowed if the addition made be allowed if the addition made in AY 2014-15 is sustained in the year. 15 is sustained in the year. Amount of tax and interest u/s 234B be directed to be consequently Amount of tax and interest u/s 234B be directed to be consequently Amount of tax and interest u/s 234B be directed to be consequently recomputed. 14. The ground No. 1 of the appeal is connected with the Ground he ground No. 1 of the appeal is connected with the Ground he ground No. 1 of the appeal is connected with the Ground No. 1 of the assessee No. 1 of the assessee in assessment year 2014-15. In this year only 15. In this year only
HCC Samsung Joint Venture HCC Samsung Joint Venture 18 & 7365/M/2019 an alternative prayer an alternative prayer has been made that if said amount of made that if said amount of construction of WIP ₹ ₹3229.26 lakhs is not allowed in the assessment 3229.26 lakhs is not allowed in the assessment year 2014-15 then claim of deduction for the same might be allowed 15 then claim of deduction for the same might be allowed 15 then claim of deduction for the same might be allowed in the year under consideration for deducti under consideration for deduction. Since we have on. Since we have allowed relief to the assessee on ground No. 1 of the appeal for to the assessee on ground No. 1 of the appeal for to the assessee on ground No. 1 of the appeal for assessment year 2014 assessment year 2014-15, therefore, this ground do not survive in 15, therefore, this ground do not survive in the assessment year 2015 the assessment year 2015-16. Accordingly, same is dismissed as 16. Accordingly, same is dismissed as infructuous.
In the result, the appeals In the result, the appeals filed by the assessee for AY 2014-15 & 2015-16 are allowed for statistical purposes. allowed for statistical purposes.