ITO, Hyderabad v. M/s Limak Soma Joint Venture, Hyderabad

ITA 498/HYD/2006 | 2003-2004
Pronouncement Date: 04-11-2011 | Result: Dismissed

Appeal Details

RSA Number 49822514 RSA 2006
Assessee PAN AATPY7983K
Bench Hyderabad
Appeal Number ITA 498/HYD/2006
Duration Of Justice 5 year(s) 5 month(s) 24 day(s)
Appellant ITO, Hyderabad
Respondent M/s Limak Soma Joint Venture, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 04-11-2011
Date Of Final Hearing 25-05-2011
Next Hearing Date 25-05-2011
Assessment Year 2003-2004
Appeal Filed On 11-05-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI G.C.GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.498/HYD/06 : ASSTT. YEAR 2002-03 ITA NO.499/HYD/06 : ASSTT. YEAR 2003-04 ITA NO.500/HYD/06 : ASSTT. YEAR 2004-05 INCOME-TAX OFFICER WARD-7(1) HYDERABAD V/S. M/S. LIMAK SOMA JOINT VENTURE HYDERABAD ( PAN AATPY 7983 K ) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. K.MYTHILI RANI RESPONDENT BY : SHRI V.RAGHAVENDRA RAO DATE OF HEARING 11.10.2011 DATE OF PRONOUNCEMENT 4.11.2011 O R D E R PER G.C.GUPTA VICE PRESIDENT: THESE APPEALS BY THE REVENUE FOR THE ASSESSMENT Y EARS 2002-03 TO 2004-05 ARE DIRECTED AGAINST A COMMON ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS). SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS PREFERRED BY THE REVENUE THESE ARE BEING DISPOSED OFF WITH T HIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IDENTICAL GROUNDS OF THE REVENUE IN THESE TH REE APPEALS ARE AS UNDER- 1. THE LEARNED CIT(A) ORDER HAS ERRED IN FACTS AND IN LAW IN DELETING THE ADDITION OF RS.66 56 910/- RS.3 30 72 610/- AN D RS.2 04 22 560/- RESPECTIVELY FOR THE ASSESSMENT YE ARS 2002-03 2003-04 AND 2004-05 AGAINST THE ASSESSING OFFICERS VIEW THAT 2% OF PAYMENTS TO INDIVIDUAL MEMBERS ASSESSED IN THE HANDS OF AOP MAY BE TREATED AS ITS ESTIMATED INCOME U/S. 145 OF THE I.T. ACT 1961. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACTS THAT THE JOINT VENTURE HAS RECEIVED COMMISSION ON SUB-CONTRA CT EVEN THOUGH THE JOINT VENTURE HAS NOT EXECUTED THE CONTRACT WOR K ON ITS OWN. ITA NO.498 TO 500/HYD/06 M/S. LIMAK SOMA JOINT VENTURE HYDERABAD 2 3. THE LEARNED CIT-DR SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT AND HAS NOT PREPARED PROFIT & LOSS ACCOUNT AND BALANCE SHEET ETC. AND THEREFORE THE PROVISIONS OF S.145 O F THE ACT WERE CORRECTLY INVOKED IN THESE CASES. SHE SUBMITTED THAT 2% OF TH E PAYMENTS TO INDIVIDUAL MEMBERS ASSESSED IN THE HANDS OF THE ASSESSEE-AOP S HOULD BE TREATED AS ITS ESTIMATED INCOME UNDER S.145 OF THE INCOME-TAX ACT. SHE SUBMITTED THAT THE JOINT VENTURE HAS RECEIVED COMMISSION ON SUB-CONTRA CT ALTHOUGH THE JOINT VENTURE HAS NOT EXECUTED ANY CONTRACT WORKS ON ITS OWN. SHE SUBMITTED THAT NO FOREIGN CONCERN WILL TAKE ANY INTEREST IN THE BUSIN ESS ACTIVITY WITHOUT ANY MATERIAL BENEFIT TO IT AND THEREFORE THE CIT(A) H AS ERRED IN DELETING THE ENTIRE ADDITIONS MADE BY THE ASSESSING OFFICER. SHE SUBMI TTED THAT IF AN UNRELATED THIRD PARTY WAS TO TAKE UP THIS JOB OF CARRYING OU T THE WORKS ASSESSEE WOULD NOT HAVE PASSED ON THE 100% OF THE RECEIPT TO SUCH OUT SIDER PARTY. SHE REFERRED TO THE RELEVANT PORTIONS OF THE ASSESSMENT ORDERS IN SUPPORT OF HER SUBMISSIONS AND RELIED ON THE ORDERS OF THE ASSESSING OFFICER. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO BASIS FOR ESTIMATING THE NET INCOME OF THE ASSESSEE AT 2% OF THE RECEIPTS ATTRIBUTABLE TO WORKS DONE BY THE MEMBERS OF THE JOINT VENTURE BY INVOKING THE PROVISIONS OF S.145 OF THE ACT HE SUBMITTED THAT HE MEMBERS OF THE JOINT VENTURE BEING FOREIGN CONCERNS RATE OF TAX APPLICABLE TO THEM WA S HIGHER THAN THE RATE OF TAXATION APPLICABLE TO THE ASSESSEE JOINT VENTURE AND ACCORDINGLY THIS IS NOT A CASE OF TAX EVASION ON THE PART OF THE ASSESSEE. HE SUBMITTED THAT NO REBATE TO THE EXTENT OF THE INCOME ASSESSED IN THE HANDS O F THE ASSESSEE WAS ALLOWED IN THE HANDS OF THE MEMBERS OF THE JOINT VENTURE. H E RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN CIT V/S GLAXO SMITHKLI NE (P) LTD IN CIVIL APPEAL NO. 18121/2007 DATED 26.10.2010 IN SUPPORT OF HIS A RGUMENTS. HE REFERRED TO PARAS 14 TO 16 OF THE APPELLATE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE ASSESSEE AND RELIED ON THE ORDER OF THE CIT(A). 5. THE LEARNED CIT-DR IN HER REJOINDER SUBMITTED THAT THE RELEVANT AGREEMENT COULD NOT BE PROVED BY THE ASSESSEE AND T HE ESTIMATION MADE BY THE ITA NO.498 TO 500/HYD/06 M/S. LIMAK SOMA JOINT VENTURE HYDERABAD 3 ASSESSING OFFICER AT 2% OF THE RECEIPTS ATTRIBUTABL E TO THE WORK DONE BY THE MEMBERS OF THE JOINT VENTURE BY INVOCATION OF THE P ROVISIONS OF S.145 OF THE ACT WAS MOST REASONABLE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND HAVE PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE CONTENTS OF THE COMPILATION FILED BY THE ASSESSEE BEFORE US. WE FIN D THAT THE INCOME IN THE HANDS OF THE ASSESSEE-AOP HAS BEEN ESTIMATED AT 2% OF THE PAYMENT TO INDIVIDUAL MEMBERS BY INVOKING THE PROVISIONS OF S.145 OF THE ACT. WE FIND THAT THE ASSESSING OFFICER HAS MADE THE ADDITION ON ESTIMATE BASIS BY OBSERVING THAT THE PAYMENT MADE BY THE ASSESSEE-AOP TO ITS MEMBERS AP PEARS TO BE EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERVICES. THE ASSESSING OFFICER HAS NOT PLACED ON RECORD ANY BASI S FOR SUCH OBSERVATION MADE BY HIM. WHAT IS THE FAIR MARKET VALUE OF SUCH SERV ICES RENDERED BY THE MEMBERS OF THE ASSESSEE-AOP TO THE JOINT VENTURE HAS NOT BE EN DETAILED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS MADE THE DISAL LOWANCE UNDER S.40A(2) OF THE ACT HOLDING THAT THE PAYMENT MADE FOR WORK ENTR USTED TO THE MEMBERS OF THE JOINT VENTURE IS EXCESSIVE AND UNREASONABLE WITHOU T COMPARING THE PAYMENT MADE TO THE FAIR MARKET VALUE OF SUCH SERVICES. DIS ALLOWANCE UNDER S.40A(2) OF THE ACT COULD BE MADE ONLY WHEN THE ASSESSING OFFIC ER ON THE BASIS OF SOME MATERIAL BROUGHT ON RECORD COULD COME TO THE CONC LUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS EXCESSIVE OR UNREASONA BLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS/SERVICES OR FACILIT IES FOR WHICH THE PAYMENT WAS MADE. NO SUCH CASE WAS MADE OUT BY THE REVENUE IN THIS CASE OF THE ASSESSEE. WE FIND FORCE IN THE ARGUMENT OF THE LEARNED COUNSE L FOR THE ASSESSEE THAT IT COULD NOT BE A CASE OF TAX EVASION AS THE RATE OF T AXATION OF THE MEMBERS OF THE JOINT VENTURE WAS HIGHER THAN THE RATE OF TAXATION APPLICABLE TO THE ASSESSEE AS THE MEMBERS OF THE JOINT VENTURE ARE FOREIGN CONCER NS. THERE IS NO MATERIAL BROUGHT ON RECORD TO DOUBT THE GENUINENESS OF THE R ELEVANT AGREEMENT COPY OF WHICH IS FILED IN THE COMPILATION FILED BEFORE US. WE FIND THAT THE CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT WHICH WERE AUDITED AND IT HAS FILED AUDITED BALANCE SHEET AND RECEIPTS AND PAYMENTS ITA NO.498 TO 500/HYD/06 M/S. LIMAK SOMA JOINT VENTURE HYDERABAD 4 ACCOUNT BEFORE THE AUTHORITIES COPY OF WHICH HAS BEEN FILED IN THE COMPILATION BEFORE US. THE CIT(A) HAS FURTHER MENTIONED THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY FINDING THAT THE BOOKS OF ACCOUNT WERE NOT CORRECT AND COMPLETE. THE CIT(A) HAS OBSERVED THAT THE ONLY OBJECTION OF THE ASSESSING OFFICER APPEARS TO BE NON-STRIKING OF PROFIT & LOSS ACCOUNT BUT THE SAME COULD NOT INSISTED IN SITUATIONS WHERE INCOME AND EXPENDITURE DO NOT EXIS T AND WHAT EXIST ARE RECEIPTS AND PAYMENTS ONLY. THE CIT(A) HAS FURTHER OBSERVED THAT THE QUESTION OF ESTIMATING THE PROFIT DOES NOT ARISE AND THE ASSES SING OFFICER HAS CONTRADICTED HIMSELF BY APPLYING THE PROVISIONS OF S.40A(2) OF T HE ACT AND ALSO INVOKING THE PROVISIONS OF S.145(3) OF THE ACT. WE FIND THAT TH ESE FINDINGS OF THE CIT(A) COULD NOT BE CONTROVERTED ON BEHALF OF THE REVENUE BEFORE US. IN REPLY TO A SPECIFIC QUERY FROM THE BENCH THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT NO DEDUCTION OF 2% OF THE RECEIPTS TREATED AS INCOME O F THE ASSESSEE AOP WAS ALLOWED BY THE DEPARTMENT IN THE HANDS OF THE MEMBE RS OF THE AOP. WE FIND THAT THE CIT(A) HAS GIVEN A FINDING THAT THE APPELL ANT AOP DID NOT EXECUTE ANY CONTRACT WORK IN QUESTION AND THEREFORE DID NOT DE RIVE ANY INCOME DURING THE YEAR AND THE ADDITIONS MADE BY THE ASSESSING OFFICE R COULD NOT BE SUSTAINED. IN THE FACTS OF THE CASE WE HOLD THAT THERE IS NO MIS TAKE IN THE ORDER OF THE CIT(A) IN HOLDING THAT THE QUESTION OF ESTIMATING PROFIT DOES NOT ARISES AND IN DELETING THE ADDITION MADE IN THE HANDS OF THE ASSESSEE. WE HOLD THAT NO CASE FOR DISALLOWANCE/ADDITION COULD BE MADE UNDER S.40A(2) BY THE REVENUE AND ACCORDINGLY THERE BEING NO MERIT IN THE GROUNDS OF APPEAL OF THE REVENUE THE SAME ARE REJECTED FOR ALL THE THREE ASSESSMENT YEA RS IN APPEAL BEFORE US. 7. IN THE RESULT ALL THE THREE APPEALS PREFERRED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 4.11.2011 SD/- SD /- (CHANDRA POOJARI) (G.C.GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT DT/- 4.11.2011 ITA NO.498 TO 500/HYD/06 M/S. LIMAK SOMA JOINT VENTURE HYDERABAD 5 COPY FORWARDED TO: 1. M/S. LIMAK SOMA JOINT VENTURE 11 - 4 - 623/13/501 ASIANA APARTMENTS AC GUARDS HYDERABAD 2. INCOME - TAX OFFICER WARD - 7(1) HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) - VI HYDERABAD 4. COMMISSIONER OF INCOME - TAX - V HYDERABAD 5. THE DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD. B.V.S.