ACIT 25(3), MUMBAI vs. RELIANCE MICHIGAN JV MITHI RIVER, MUMBAI

The only common issue in these two appeals of Revenue is as regards to the taxability of profit arising from the contract receipts in the hands of the assessee firm or in the hands of its partners. The Revenue has raised the identically worded grounds in both the years and issue is exactly identical except the quantum. Hence, we will take up the facts from AY 2011-12. The revenue has raised following four grounds: - “1. On the facts and in the circumstances of the case and in law, the Id. CIT (A) has erred in deleting the addition made on account of alleged diversion of profit to MIs Michigan & M/s Relcon of Rs. 2,90,57,828/- ignoring that the work has been subcontracted between the constituents on paper only and the profits of the JV has been diverted in the hands of its constituents by creating layer at each layer to reduce the profit."

At the outset, the learned Counsel for the assessee filed copy of Tribunal orders for AYs 2009-10 and 2010-11 respectively in and 6706/Mum/2014 vide order dated 26.04.2017, ITAs No. 6059&6060/Mum/2017 wherein the issue of addition on account of alleged diversion of profits to M/s Relcon & M/s Michigan, Disallowance of Bogus expenses in captive consumption by M/s Relcon, Deletion of Disallowance of alleged bogus purchase by M/s Relcon and if awarding of contract to eyewash profit has to be taxed in hands of Joint Venture to whom original contract awarded are considered and adjudicated upon exactly on same facts and the Tribunal vide Para 9 to 10 adjudicate this issue as under: - “9. We have carefully gone through the well reasoned and detailed findings recorded by Ld. CIT(A). The primary fact noted by us is that AO has himself noted in the assessment order that if the profit shown by all the three entities on the impugned contract receipts aggregating to ₹ 41.30 crores is aggregated, then it comes roughly to a sum of ₹ 5,43 crores which comes to 13.14% of the total contract receipts. Thus, apparently and prima facie, it cannot be said that there was any suppression of income. In addition to that, it is further noted that the returns filed by the partners, M/s Relcon & M/s Michigan have been accepted under section 143(3) wherein the income shown by these companies have been assessed in their respective hands. Thus, by making addition of the same income in the hands of the assessee also, the revenue has created a situation of double taxation which his not permitted under the law. It is further noted by us with the assistance of the parties that the tender document whereby contract was awarded to the assessee firm expressly permits the awardee ITAs No. 6059&6060/Mum/2017 (assessee firm) to sub contract the work to the partners, who are specialized to do the job. This fact is on record that assessee firm was formed to bring together two persons having requisite skill and infrastructure in two different areas. This fact is also on record that assessee firm does not have any infrastructure, facilities or wherewithal of its own. Thus, it was dependent upon its partners for execution of the contract. Further, much debate is not required on this aspect since the factum of execution of entire contract by these partners companies has not been disputed by the Assessing Officer. Rather, the same has been accepted expressly in the assessment order passed under section 143(3) in the hands of these companies. The only apprehension or doubt in the mind of the AO was with regard to the method and manner adopted by the assessee firm whereby the contract was first taken in the name of the assessee firm and then it was sub contracted to its partners. In our opinion, the doubts expressed by the AO were misplaced and without any basis. The entire tendering process and the terms for the contract were structured in such a manner that two persons having skills and infrastructure in different areas were required to join hands to execute the project which, in turn, required highly specialized skills. Thus, the aforesaid companies, viz. Relcon & Michigan joined hands to execute these projects ITAs No. 6059&6060/Mum/2017 jointly. The terms of the contract also expressly permit this arrangement. Nothing wrong or malafide could be noted in such an arrangement. The need of the business was such that MCGM wanted to handover the responsibility of the entire project to one entity, which in turn, could get it executed through its different constituents. Further, it is well settled that how the business is to be carried out is the sole prerogative and responsibility of the businessman. The revenue cannot sit in the armchair of the businessman to dictate terms as to how to do the business so long as evasion of tax is not detected or the arrangement is done in such a manner to evade tax. As mentioned by us earlier also, the AO has himself noted this fact that if profit shown by all the three entities from this project is aggregated, then it comes to more than 13% of the total contract receipts. Therefore, in our considered opinion, the AO could not have rewritten the terms of the agreement that too by disregarding the assessment order passed under section 143(3) in the hands of M/s Relcon and M/s Michigan. Thus, the Ld. CIT(A) has rightly deleted the addition made by the AO in this regard. Further, with regard to the disallowance of expenses claimed by these partner companies in their returns, we find that the AO of the assessee firm had not jurisdiction to examine the same in the h ands of assessee firm. Whether the expenses 7 ITAs No. 6059&6060/Mum/2017 claimed by the partners are genuine or otherwise can be the subject matter of examination and assessment in the hands of these partner companies only. Thus, Ld. CIT(A) has rightly reversed the action of the AO in this regard also.

Thus, taking into account the totality of the facts and circumstances of the case we find that nothing wrong could be shown to us in the detailed and well-reasoned findings recorded by Ld. CIT(A). Thus, we endorse the findings recorded by Ld. CIT(A) and uphold the same. The judgements relied upon by the Ld. CIT(DR) are not applicable on the facts of the case before us. Thus, all the grounds raised by the revenue are hereby dismissed.”

The learned Departmental Representative now before us has not pointed out any distinction or could not controvert the Tribunal’s order for AY 2009-10 and 2010-11. As the facts are exactly identical in both the years, what was in AY 2009-10 and 2020-11 respectfully following the same we dismiss both the appeals of Revenue.

In the result, both the appeals of Revenue are dismissed.