ACIT CIR 21(1), MUMBAI vs. RELIANCE MICHIGAN JV -MITHI RIVER, MUMBAI

First, we shall take up appeal for A.Y. 2009-10 filed by the revenue on the following grounds:-

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the bogus expenses claimed by the sub contractor who is himself lead partner of the Joint Venture, has ultimately been transported upto the work expenses of the Joint Venture i.e the assessee.

On the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that subcontracting the work between the constituents on paper does not make the entity genuine and if it is proved from facts that the awarding of subcontract is an eyewash and expenses claimed by the subcontractors are not genuine, then profit has to be taxed in the hands of the Joint Venture to whom original contract was awarded. The Ld. CIT(A) has also ignored that the filing of audited accounts does make the expenses genuine.

During the course of hearing it was jointly stated by learned Counsels of both the sides that though various grounds have been raised by the revenue, but the issue involved is only one, viz. the taxability of profit arising from the contract receipt should be done in the hands of assessee firm or in the hands of its partners.

During the course of hearing, Ld. CIT(DR) vehemently supported the order passed by AO and it was submitted by him that assessment of income should be done in the correct hands. The assessee made an attempt to make diversion of profit therefore, AO has rightly assessed the income arising from 4 Reliance Michigan JV contract in the hands of assessee. He placed reliance upon the judgment of Hon’ble Bombay High Court in the case of Nayantara vs CIT 207 ITR 639 (Bom) and on the judgment of Hon’ble Supreme Court in the case of ITO vs Ch. Achaiah 218 ITR 239 (SC) in support of his proposition.

Per contra, Ld. Counsel of the assessee vehemently supported the order of Ld. CIT(A). It was submitted that the order passed by Ld. CIT(A) is speaking and well reasoned and based upon facts of the case. It was submitted that assessee is a partnership firm. All of the three entities i.e assessee firm and its two partners have returned income correctly, in accordance with law and facts and should be assessed as such. It was further submitted that sub-contract income passed on by the assessee to its partners have been accepted by the department while making assessment in the hands of its partners, viz. Relcon Infra Projects Pvt Ltd (Relcon, in short) and M/s Michigan Engineers Pvt Ltd (Michigan, in short). Our attention was drawn upon the assessment orders passed u/s 143(3) in the hands of these partners. It was also submitted that AO had misunderstood the facts of the case while making an allegation that there was an attempt to evade tax whereas Ld. CIT(A) has correctly analysed all the facts of the case and gave categorical finding that if the amount profit reflected by the assessee firm and its partners from the contract receipts is aggregated, then it comes to 13% of the total contract receipts, which, by any standard is far above than the industrial average. Further, in any case, nothing has been brought on record by the AO to show if there was any kind of suppression of income or profit or evasion of tax, if income shown by all the entities is taken into account collectively. Thus, the order passed by the AO is not only illegal in the eyes of law but also factually incorrect and is based on the erroneous assumption of facts. Thus, Ld. CIT(A) has rightly corrected it by deleting the 5 Reliance Michigan JV additions made by the AO. Since nothing incorrect has been shown by the Ld. CIT(DR) in the factual findings recorded by Ld. CIT(A), the same should be upheld. Further, the cases relied upon by Ld. CIT(DR) are not applicable on the facts of the case. Since the income has been returned and assessed in the correct hands, therefore, it is not a case of evasion of tax if income is computed on collective basis. Finally she requested for upholding the order of Ld. CIT(A).

We have gone through the orders passed by the lower authorities and submissions made by both the sides before us.

The brief facts are that assessee is a partnership firm comprising of two partners, viz. (1) M/s Relcon Infra Projects Pvt Ltd and (2) M/s Michigan Engineers Pvt Ltd. The assessee firm was formed as a joint venture for the sole purpose of bidding and executing the project of Mithi River (widening and deepening, RCC retaining wall, service road, etc) from airport new bridge to Marve Footover Bridge falling in L-Ward of Municipal Corporation of Greater Mumbai (i.e. MCGM). The agreement was signed between two partners on 29- 06-2007 wef 01-04-2007. In the joint venture, the first partner is lead partner with 51% and the second partner with 49% share of profit / loss. The contract was awarded to the assessee firm by MCGM on 29-03-3007. During the course of assessment proceedings, it was noted by the AO that the joint venturer (i.e. assessee firm) did not carry out the work by itself but sub contracted to one of its constituents (i.e. partner), viz. Michigan. It was further noted that the said partner, in turn, sub contracted substantial work to another partner, viz. Relcon. It was noted by the AO that out of aggregate amount of contract receipts received by the assessee firm for Rs.41,30,42,740, substantial amount was passed on to Michigan towards cost for the work sub contracted to the said partner and an aggregate amount of Rs.38,78,99,859 was paid on this