KEC Delco Dutsan (JV) Vs ITO (ITAT Delhi)
The issue under consideration is whether the addition made u/s 40A(2)(b) in case of estimation of income without doubting expenses incurred by assessee is justified in law?
ITAT states that, on going through the mandate of section 40A(2)(b), it is clear that the disallowance under this section is made in respect of the expenses incurred or payments made which are not deductible. This section has no application to income aspect of the assessee. As the AO has made disallowance u/s 40A(2)(b) in respect of income which the assessee in his opinion ought to have earned rather than certain expenses incurred, hence ITAT is of the considered opinion that the provisions of this section are not attracted. Therefore, ITAT uphold the impugned order on this score deleting the disallowance. In the result, the appeals filed by the Assessee are allowed.
FULL TEXT OF THE ITAT JUDGEMENT
These 04 appeals filed by the different Assessees are directed against the common order dated 29.6.2018 passed by the Ld. CIT(I), Gurgaon in relation to assessments year 2015-16. Since the issues involved in these appeals are common and identical, hence, I am reproducing hereunder the common grounds raised in ITA No. 5842/Del/2018 (AY 2015-16) and dealing the same by passing a common order for the sake of convenience.
1. That the Ld. AO erred in understanding the fact that the status of the assessee is joint venture and not AOP. The assessment completed by the Ld. AO by considering the fact that the assessee is an AOP. The term AOP is a much wider term where there should be association between more than one person. Here all the partners of JV are independent, responsible for their own work and there exists no association between them. Merely participation in the tender jointly does not mean that there is an AOP. Similarly, merely preparing of accounts and having surplus of some account also that there was an AOP. The Delhi High Court has an occasion to discuss the AOP issue in the similar circumstances in the case of Linde AG Linde Engineering Division reported in 365 ITR 1 (Copy of order enclosed). The CSDT vide circular No. 7/2016. Dated 07/03/2016 has issued the detailed guidelines in this regard. Later, the department withdrew the SLP filed in this case before the Supreme Court by its order dated 26.08.2016 reported in 73 taxmann.com 212 on the basis of above said circular.
2. That the JV itself is not an AOP and any payment made by JV to the JV partner does not fall under the purview of section 40A (2). The payment made by the JV to the JV partner is not expenditure but it is a diverted income. The High Court of Delhi in the case of Oriental structure Engineering Private Limited as reported in 58 taxmann 77 (copy enclosed) and the High Court of the Jammu and Kashmir in the case of Soma TRG joint venture as reported in 86 taxmann 83 (copy enclosed) has elaborately discussed this point and concluded that 40A (2) does not apply in this situation.
3. That the JV agreement and the contents therein including the ration of work allocation were for fulfilling the bid requirement to get the work awarded. Once the work is awarded to JV all the work has been executed by one of the partners namely KEG International the lead partner. Post award allocation to KEG International cannot conclude that the JV was an AOP unless all the parameters as elaborated in the above-mentioned circular are met. In a view of the above submission we reiterate that JV was mere a pass-through entity.
4. The appellant craves the leave of the Honorable to submit any other documents and raise any other grounds of appeal at the time of hearing.
Prayer –
Under the circumstances it is more respectfully prayed that this Hon’ble may be please to-
(a) Set aside the order passed by the Ld. GIT(A) to the extent disallowing the deduction ujs 40A(2)(b) for the interest of justice and fairness, and
(b) Pass any other order as this Hon’ble Gourt may deem fit under the circumstances.
2. Facts narrated by the revenue authorities are not disputed by both the parties, hence, the same are not repeated here for the sake of convenience.
3. At the time of hearing, Ld. Counsel for the Assessee stated that the issue in dispute has already been adjudicated and decided in favour of the assessee by the various orders of the ITAT, Delhi Benches and enclosed the copies thereof with the Paper Book from pages 1-35. He requested that respectfully following the said decisions, the addition in dispute may be deleted by allowing the appeal filed by the Assessee.
4. On the contrary, Ld. DR has not raised any objection on the request of the Ld. Counsel for the assessee.
5. I have heard both the parties and perused the orders of the revenue authorities, grounds of appeals raised in all these appeals alongwith the orders passed by the Tribunal in assessee’s own case and copies thereof are attached with the Paper Book at pages 1-35 in assessee’s case i.e. ITAT orders in the cases of KEC PLR KPIL-JV vs. ITO & KEC Asiakom UB JV vs. ITO for 2015-16; ITO vs. KEC Sidharth JV for AY 2013-14 and ITO vs. KEC PLR KPIPL JV for AY 2013-14 & 2014-15; ITO vs. KEC Delco Vraha (JV) for AY 2011-12; KEC Sidhartha JV vs. ITO for AY 2012-13 and order of ITO vs. KEC Asiakom UB (JV) for AY 2011-12. For the sake of convenience, the relevant findings of the ITAT, SMC Bench in the case of KEC PLR KPIPL-JV vs. ITO and KEC AsiaKom UB JV vs. ITO decided in ITA No. 7763/Del/2018 (AY 2015-16) and 7764/Del/2018 (AY 2015-16) vide order dated 09.5.2019 are reproduced as under:-
“13. I have considered the rival arguments made by both the sides and perused the relevant material on record. The assessee is a joint venture of KEG International Limited and M/s Asia Gommunication & Electronics SDN BHD and M/s Unique Builders who are engaged in the business of civil construction and all the parties entered into JV agreement dated 13.07.2010 for the execution of the contract awarded by Eastern Railways Kolkata. KEG International Limited was appointed as the lead partner of the JV. I find the assessee filed return of income declaring a total loss of Rs.29,295/- by giving the following financial details:-
