DCIT, Central Circle-19, Delhi vs Megha Engineering Infrastructures Ltd

“4.4

I have carefully considered the submissions filed by the appellant and the Assessment order passed by the Ld. Assessing Officer (Ld. AO). In the present appeal, the Ld. AO has disallowed the deduction claimed by the appellant under section 801A(4) of the Act in respect of five infrastructure projects executed as a constituent member of Joint Venture (JV) consortiums. Further, with regard to ground no. 2 to 5, these grounds also relate to the disallowance of deduction under section 801A(4) in respect of infrastructure projects executed by the appellant as a constituent of JV consortiums.

4.5

In this matter, the appellant states that the following facts are not in dispute in this caser

(1)

The JV is merely a pass-through entity formed to secure the contract, as per tender conditions requiring consortium participation..

(ii)

The work is actually executed by the constituent members Independently.

(iii)

The appellant deployed its own funds, manpower and materials, born the entire risk and reward, and maintained separate books of account.

(iv)

The JV neither offered income nor claimed deduction under section 801A(4) of the Act.

(v)

The arrangement is fully covered by CBDT Circular No. 7/2016 dated 07.03.2016, which clarifies that a JV consortium formed for securing a contract, where members execute work independently and bear risk individually, is not to be treated as an AOP for taxation in such circumstances.

(vi)

The claim has been consistently allowed from AY 2012-13 onwards.

(vii)

The Hon'ble ITAT in appellant's own case for AY 2010-11 to 2015-16 vide order dated 15.02.2019 allowed similar claim.

(viii)

The Hon'ble ITAT in appellant's own case for AY 2016-17 vide order dated 25.09.2024 allowed similar claim.

4.6

The appellant has contended that the aforesaid issue had been specifically raised before the Assessing Officer and was reiterated during the course of appellate proceedings. In this regard, reference is invited to CBDT Circular No. 7/2016 dated 07.03.2016, wherein the Board has categorically clarified that where the members of a consortium independently execute their respective portions of work and assume the corresponding risks and responsibilities, such a Joint Venture cannot be assessed as an Association of Persons (AOP) merely because the contract has been awarded in the name of the Joint Venture. In the present case, the factual position clearly demonstrates that the Joint Venture is merely a facilitative arrangement formed for the limited purpose of securing the contract, while the execution of work has been carried out independently by the respective members in their individual capacities. The risks, responsibilities, and revenues relating to the execution of the work have also been borne and accounted for by the respective members. The Joint Venture Itself has neither undertaken any activity relating to the execution of the contract nor has it derived any Independent Income there from. Thus, the Joint Venture operates only as a pass-through entity without any operational role in the execution of the project. or Bar

4.7

Further, I find force in the appellant's contention that it is a settled principle of law that circulars issued by the CBDT under section 119 of the Income-tax Act are binding on the departmental authorities, and the lower authorities are duty bound to follow the same while framing the assessment. I don't find any infirmity in the case of the appellant vis a vis the Circular issued by CBDT and there is no dispute as to the fact that a circular issued by the CBDT is binding on the lower authorities. In support of its contention, the appellant has relied upon various case law, as under:

1.

K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 (SC)

11.

NavnítLal C. Javeri v. K.K. Sen Appellate Asstt. CIT [1965] 56 ITR 198 (SC)

Keshavji Ravji and Co. v. CIT [1990] 49 Taxman 87/183 ITR 1 (SC)

IV. Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC)

4.8

Further, the appellant has relied upon the order of the Hon'ble ITAT Hyderabad in appellant's own case for AY-2016-17 ITA No.1499/Hyd./2019 vide order dated 25-09-2024, relevant part of judgement are reproduce as under:

Para 11. The appellant has relied upon the decision of Income Tax Appellate Tribunal, Hyderabad in assessee's own case for assessment years 2010-11 to 2015-16, in ITA No.607 to 601/Hyd/2016 dt.15.02.2019. We find that the co-ordinate bench of ITAT for earlier years has considered very similar issues and by following the decision of Income Tax Appellate Tribunal, Visakhapatnam in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra) has held that the assessee is entitled for deduction under/saction 801A(4) of the Act on the profits earned from the execution of the projects awarded to JV/Consortium. The relevant findings of the Tribunal are as under:

9.2

With regard to other issue, Le. contracts awarded to JVs and whether the assessee can claim the same as a constituent of the above Vs. the coordinate bench of ITAT, Visakhapatnam in the case of Transitory (India) Ltd. (supra) held that the constituents of Vs are eligible to claim deduction u/s B01A. For the sake of clarity, we reproduce the findings of the Bench in the said ease, as under:

"Undisputedly the joint venture or the consortium was formed only to obtain the construct from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of contract without limitation on resources required for the purpose of fulfilment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. From a careful perusal of this joint venture ogreement and the consortium agreement, it is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. In the instant case in case of a joint venture agreement, the assessee was entitled to execute the 40 per cent of total work awarded by the Andhra Pradesh Government to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction under s. 80-1A(4). These facts clearly indicates that the joint venture was only a de jure contractor but in fact the assessee was a de facto contractor.

There is no dispute with regard to the fulfilment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction, Joint venture and the consortium was formed anly to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a joint venture agreement or a consortium agreement, It was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was Megha Engg. & Infrastructure Ltd. awarded by the Andhra Pradesh Government and the KSHIP, a body of the State Government of Karnataka to the JV and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40 per cent works were executed by the assessee and in case of consortium, the 100 per cent work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions under s. 80-IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of s. 80-1A(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions under s. 80-1A(4) on the profit earned from the execution of the work awarded to JV and consortium."

Respectfully following the above decision, we dismiss the ground raised by the revenue in this regard."

Para 12. A similar view has been taken by ITAT, Lucknow Bench in the case of PMC Constructions Co. P. Ltd Vs. DCIT (supra), wherein it has been held that appellant is eligible for deduction under Section B01A in respect of the profits derived from the projects awarded to IV/ Consortium but executed by the appellant. The decision of the ITAT Lucknow Bench has been upheld by the Hon'ble Allahabad High Court. The sum and substance of the ratios laid down by the various benches of the Tribunal is that when the appellant has satisfied all the conditions prescribed under Section B01A(4) of the Act, but merely for the reason that the agreement is entered fato by IV/Consortium, the deduction under Section 801A(4) cannot be denied.

Para 14. In this view of the matter and considering the facts and circumstances of the case, and also by following the case laws discussed herein above, we are of the considered view that the assessee is eligible for deduction under Section 801A(4) of the Act towards profits derived from infrastructure project awarded to IV/Consortium, but executed by the appellant, The Id.CIT(A) ofter considering relevant facts, has rightly allowed the deduction under Section B01A(4) of the Act. Thus, we are inclined to uphold the findings of Id.CIT(A) and reject the grounds taken by the Revenue.

4.9

On careful perusal of facts of the case and judgement of the Hon'ble ITAT Hyderabad in appellant's own case for AY-2016-17, it is observed that the Hon'ble ITAT, after examining the nature of the Joint Venture (JV) arrangement and the role of the appellant therein, held that the appellant, being the constituent member who had actually executed the contract work, was entitled to claim deduction under section 801A(4) of the Act. Hence, the appellant, being the constituent member of Joint Venture (JV), having executed the contract, was clearly held to justified in claiming the deduction u/s 801A(4) of the Act. Thus, the appellant is considered eligible for deduction u/s 801A(4) on profit attributable to the projects executed as a constituent as well.

4.10

Therefore, after careful consideration of the above narrated facts, circumstances of the case and the submissions of the Appellant and Assessment Order, respectfully following the aforesaid decision of the Hon'ble ITAT in the appellant's own case, and in the absence of any material change/deviation in the facts or in law for the year under consideration, it is held that the appellant is eligible for deduction under section 801A(4) of the Act in respect of the profits attributable to the infrastructure projects executed by it as a constituent member of the Joint Venture. Accordingly, the claim of deduction of Rs.364,01,39,277/- under section 801A(4) is allowed. Hence, additional ground and ground no. 1 to 6 are allowed.

5 As a result, the appeal is allowed.”