TaxTMI 
TaxTMI 
TaxTMI 
2012 (5) TMI 643
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....nd Rs. 1,52,73,164 on plant and machinery and tippers respectively without appreciating that the appellant was engaged in manufacture or production, inter alia, of mixed concrete. 3. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding the jurisdiction of the assessing officer to make additions/ disallowances on various issues on the basis of roving and fishing enquiries conducted during reassessment proceedings de hors the basis and the issues on which reassessment proceedings were initiated under section 147/148 of the Act. 4. That on facts and circumstances of the case and in law, the CIT(A) erred in not admitting additional evidence filed by the appellant under Rule 46A of the Income-tax Rules, 1962 merely on the ground that the same was in the nature of unsigned photocopies. 5. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the assessing officer in rejecting the books of account and assessing the income of the appellant from Indian Projects at Rs. 81,28,034 (@ 4% of gross receipts) on ad hoc and arbitrary basis, as against loss of Rs. 5,51,20,396 declared by the appellant. 5.1. Th....
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....dition of Rs. 87,15,926/- made on account of excess depreciation claimed on the ground that the same is debited in misc. expenses of P&L account. 2. On the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 54,594/- made on account of wrong depreciation claimed on office equipment on the ground that the same is debited in misc. expenses of P&L account. 3. The appellant craves to add, amend or modify the grounds of appeal at any time. 2. Assessee has filed an application for additional evidence, same shall be dealt along with the relevant issue. 2.1 Brief facts are: The assessee is an AOP, formed by way of a joint venture of two company's viz. M/s B. Seenaiah & Co. Projects Ltd.; and M/s C&C Constructions Pvt. Ltd. The assessee is engaged in the business of road construction in India and Afghanistan. For A.Y. 2004-05 original return was filed on 1-11-2004 declaring income of Rs. 13,46,14,926/- which was assessed u/s 143(3) on 28-12-2006 at Rs. 13,51,99,283/-. 2.2. Subsequently, AO noticed that assessee had claimed excess depreciation in audit report at Rs. 17,89,98,964/- as against depreciation shown in P&L A/c at Rs. 18,77,14,890/-. ....
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....) 204 ITR 307 (SC) has held that construction activity do not fall in the category of manufacture or production of any article or thing. Since the assessee do not qualify the basic condition, the additional depreciation claimed at Rs. 4,05,12,853/- is not allowable. 2. On scrutiny of the record, it has been further observed that assessee has claimed depreciation and additional depreciation on "Tippers" @ 25% and 15% respectively at Rs. 4,07,28,435/- as per annexure II of the audit report. Since, the assessee is not engaged in the business of manufacture or production of any article or thing, as discussed in para 1 above, additional depreciation claimed is not allowable to it. The depreciation allowable on this asset is Rs. 2,54,55,271/-. Thus the assessee has claimed excess depreciation of Rs. 1,52,73,164/-. 3. It has also been observed that assessee has debited to the profit and loss account, an amount of Rs. 18,77,14,890/- on account depreciation instead correct figure of Rs. 17,89,98,764/-. The mistake resulted in excess claim of depreciation at Rs. 87,15,926/-. In response to show cause notice the assessee has stated that difference is on account of Exchange Fluctuation A....
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....decision of Apex Court in N.C. Budhiraja's case is inapplicable." Reliance was placed on following case laws: - Dy. CST Vs. PIO Food Packers (1980) 46 STC 63 (SC); - CIT v. Tata Locomotive & Engineering Co. Ltd. (1968) 68 ITR 325 (Bom.); - Union of India Vs. Delhi Cloth & General Mills CO. Ltd. AIR 1963 SC 791 (SC); - Narne Tulaman Manufacturers Pvt. Ltd. V. Collector of Central Excise (1990) 183 ITR 577 (SC). - Sterling Foods Vs. State of Karnataka AIR 1986 SC 1809 (SC). 2.7. Excess depreciation on a/c deference in Computation and P & L a/c 2.7.1. In respect of excess depreciation of Rs. 87,15,926/- it was contended that there was no mistake and the difference in cost of asset was occasioned by exchange rate fluctuation as the assets were purchased in US $ terms and the said difference was to exchange fluctuation account. Assessee furnished a chart in this behalf. The detailed submissions are on record. 3. Apart from issues of additional and excess depreciation, during the course of reassessment proceedings AO further observed that assessee though had shown profits from construction contract; however in respect of Indian projects net loss of 28.40% on gross rec....
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....ted to the contractee departments/ parties in respect of projects executed in India. Project wise agreed tender values viz-viz projected cost file with the evidence. Reasons for loss in each and every project. Separate working of expenses and receipts with regard to each project. Furnish the detail consumption with regard to quantitative consumption of various items in comparison to tender file as well as tender granted. Stock register of all the items maintained separately of together with regard to verification of issue as well as consumption of material. Copy of ledger account of major items purchased above Rs. 10 lacs along with complete address of the party with two sample copy of the bills. Books of account including stock register." 3.1. In response to these letters, assessee in respect of losses from Indian projects replied as under: "For the losses incurred on India projects, we have to submit as follows: a. With regard to loss on Indian projects, we have to state that the loss has been incurred due to delay in completion of projects, which has resulted in extra cost on account, idle manpower, increase in hire cost of machinery, increase in the cos....
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.... that the assessee has actually suffered a loss of Rs. 5.50 crores on Indian Projects, due to delay in execution of projects, which has resulted in increase in both, Indirect and Direct cost to the assessee." 3.2. The assessee has also filed the written submission on 21-12- 2009 which are reproduced as under:- "1. Copies of completion certificates of Indian Projects are attached herewith for your kind perusal. Your honour would observe from the completion certificate that all the projects were delayed. Further in some cases, contract value at the time of completion of project was also reduced, which has also resulted into losses on Indian projects. 2. Projects-wise agreed tender value and final amount received from the projects is also mentioned in the completion certificate submitted as above. 3. Copies of tenders of all the Indian projects are attached herewith for your kind perusal. These are very voluminous tenders and are being submitted in separate box files. 4. No profit percentage is quoted in the tenders. We only give consolidated price chargeable from the contractee. 5. Escalation clause varies from tender to tender. In some tenders escalation clause is ag....
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....to: (A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the Ist day of April, 2012; or (B) Any industrial undertaking existing before the Ist day of April, 2002, during any previous year in which in achieves the substantial expansion by way of increase in installed capacity by not less than per cent;" Since the assessee is not engaged in the business of manufacture or production of any article or thing, hence the additional depreciation is not allowable to it. The Hon'ble Supreme Court in the case of CIT Vs. N.C. Budhiraja & Co. (1993) 204 ITR 307 (SC) has held that construction activity do not fall in the category of manufacture or production of any article or thing. The relevant part of the judgment is reproduced as under: "Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity ....
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....ay High Court in CIT v. N. U. C. Pvt. Ltd. I and in CIT v. Shah Construction Co. Ltd.2 relied upon by Shri Murti are no doubt not decisions rendered under Section 80-HH or under Section 84 they arose under the relevant Finance Acts, the question being whether the assessees were industrial companies they do contain observations which tend to support the stand of the Revenue. 9.It may be that the petitioner is himself manufacturing some of the articles like gates, windows and doors which go into the construction of a dam but that makes little difference to the principle. The petitioner is not claiming the deduction provided by Section 80-HH on the value of the said manufactured articles but on the total value of the dam as such. In such a situation, it is immaterial whether the manufactured articles which go into the construction of a dam are manufactured by him or purchased by him from another person. We need not express any opinion on the question what would be the position, if the petitioner had claimed the benefit of Section 80-HH on the value of the articles manufactured or produced by him which articles have gone into/consumed in the construction of the dam. 10.In the Jud....
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....ed. (ii) The assessee failed to file complete copy of account of the parties and gave only two sample purchase bills. (iii) The other assessees engaged in similar line of road construction business have declared net profit rate of 3 to 4%. (iv) Assessee failed to file details of purchase/ creditors in the following proforma, asked for: S. No. Name and address of the party Opening Balance as on 01-04-03 Purchases During the Year Payments During The year Balance as On 31-03-04. (v) Assessee failed to file details in respect of purchases above Rs. 5 lacs in the proforma and only the names and addresses of the persons were supplied. (vi) From the details of material consumed, it is not known how much was the value of opening stock of material, how much purchases have been made during the year and what was the closing stock of material at the end of the year. Further, it is not on record the quantitative details of various such items which are consumed in road building with regard to opening stock, purchases, Material issued for consumption, material sold in the market or closing stock of material which a....
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....f WIP was not given. This does not suggest at what rate and how WIP has been valued. The assessee has also not submitted any detailed basis pertaining to opening WIP. It is not known whether while valuing the WIP the assessee has included relatable direct cost or not. In the absence of such information, the correct method of valuation and basis thereof has not been furnished. 5.1. AO further observed that in the immediately preceding year the assessee had shown profit of 1.21% in comparison to current year stunning losses which worked out to 28.40% on receipts. Thus on historical comparison also the assessee's books were not acceptable. AO issued notice u/s 133(6) on some of the parties mentioned in the accounts. Some of them did not appear and those who complied there statements and balances could not be reconciled with the assessee's books. AO held that in view of these discrepancies the assessee's books were not verifiable. AO thus proposed to reject the books of accounts, assessee filed explanation in this behalf. AO however was not convinced the reply and rejected the books of accounts u/s 145 by following observations: "With the present defects as detected in the books of....
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....ared at 1.2%. d) Since the assessee has received contract receipts at Rs. 203200856/- the income of the assessee from contract business is assessed @ 4% of gross receipts which comes to Rs. 81,28,034/-. e) On account of differences in the accounts of the profits as mentioned in the para 8.8 above, no separate addition is made in the total income of the assessee on account of above non verification as well as other discrepancies as the income of the assessee was estimated u/s 145(3) of the I.T. Act. f) The assessee has not deposited the PF contributed by the employees amounting to Rs. 1,23,096/- within the specified date. The same is not allowable u/s 2(24)(x) read with section 36(va) of the I.T. Act. However, no separate addition is made in the total income of the assessee under this head as the income of the assessee is estimated u/s 145(3) of the I.T. Act. g) The assessee has claimed prior period expenses amounting to Rs. 240586/-. However the same are not admissible because the claim of these expenses relate to earlier year and not to the current financial year. However no separate addition is made in the total income as it is covered under the estimation of income. ....
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....able. The amended provisions of section 147 enable the AO to reopen the assessment in such cases where the reopening is within four years. It is only when the reopening is beyond four years that additional requirements are required to be fulfilled. (ii) It is significant that in the assessment order u/s 143(3) dated 28-12-06, the AO has not given any finding regarding whether additional depreciation is allowable or not. The appellant has stated that in the questionnaire dated 13-06-06, the AO did raise a query on this issue. However, this query does not find any mention in the assessment order. In fact, the asstt. Order does not have any discussion on the issue of additional depreciation. The issues on which asstt. Has been reopened have not been discussed in the asstt. Order dated 28-12-06. This shows that these issues had not been considered at all by the AO and he had not taken any conscious decision on these issues. In view of these facts, this is not a case of change of opinion because the AO had in fact, nor opined on these issues. Therefore, there is no question of his opinion being changed. (iii) The appellant has also argued that there was no formation of reasonable ....
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....no. 3AA submitted under section 32(1)(iia) of the Act. The manufacture/ production activity of the mixture, it is submitted, involved use of crusher to crush brick stone into aggregates. The aggregates to obtained are mixed with bitumen. The new product so obtained is neither aggregate nor bitumen, but an altogether new and distinct commercial article or product. The mixture so produced is entirely different and distinct from the raw material in terms of its chemical composition and use. Furthermore, bitumen concrete is independently marketable and has a separate, distinct commercial identity. On a perusal of the aforesaid processes undertaken by the appellant in order to manufacture/ produce bitumen concrete mixture, it will kindly be appreciated that it would be totally incorrect to hold that the same does not tantamount to manufacture/ production of an article or thing. The final product so obtained as a result of series of processes applied by the appellant, in our respectfully opinion, clearly satisfies the test of manufacture/ production of an article or thing" 5.3. The appellant has stated that they are in the business of construction of roads, highways, bridges etc.....
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....gular depreciation was allowed as per computation. 8.3. Aggrieved both parties by raising various grounds are before us - assessee is in appeal on issues i to iii and revenue is in appeal on issue iv. Both the parties have filed written submissions which are appropriately dealt hereunder: 9. Ld counsel for the assessee Shri Ajay Vohra vehemently contends that the reopening of assessment is bad in law being based on mere change of opinion of AO in respect of claim of depreciation and additional depreciation. During the course of original assessment AO raised necessary querries and assessee by filing necessary explanation discharged its burden by making full disclosure of all primary and material facts and by supporting the claim in the return with prescribed CA certificate in Form 3AA in terms of Section 32(1)(iia) of the Act 9.1. Insofar as alleged excessive claim of depreciation on account of exchange fluctuation, there was, in fact, no such excess claim, considering that the difference in the claim of depreciation on account of foreign exchange was credited to miscellaneous expenses account which is given in Schedule 4 of the Audited Financial Accounts. 9.2. The issues which....
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....epreciation including additional depreciation were duly disclosed by the assessee. 9.8. Assuming that the claim was not examined at all, since the assessment was framed under Section 143(3), there is presumption of application of mind and reassessment on change of opinion is impermissible - to hold otherwise would amount to giving premium to an authority for its own wrong: - CIT v. Kelvinator of India Ltd: 256 ITR 1 @ pg. 19 (Del HC) (FB) Affirmed in CIT v. Kelvinator of India Ltd: 320 ITR 561 (SC) 9.9. Reassessment based on audit objection, which makes a suggestion as to the legal treatment of an issue/ item, as opposed to adverting attention to a point of fact, is bad and unsustainable: - Indian & Eastern Newspaper Society v. CIT: 119 ITR 997 (SC) - CIT v. Lucas TVS Ltd: 249 ITR 306 (SC) - Affirming: CIT v. Lucas TVS Ltd: 234 ITR 296 (Mad) - CIT v. PVS Beedies P Ltd.: 237 ITR 13 (SC) - Carlton Overseas v. ITO: 318 ITR 294 (Del) - Transworld International Inc. v. JCIT: 273 ITR 242 (Del) 9.10. It is, therefore, submitted that the very assumption of jurisdiction to reassess the income of the assessee was invalid, bad in law and void ab initio. 9.11. Apropos ....
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....ls with oxides on titanium metal electrode/anode bringing about a change in its character and use for making it fit for use in the production of chlorine and caustic soda in an electrolytic process constituted manufacture or production of article or thing within the meaning of Section 80IA of the Act. - DJ Stone Crusher v. CIT: 229 CTR 195 (HP HC) - Process of crushing stone into stone concrete/grit in stone crusher is a manufacturing activity - Midas Polymer Compounds v. ACIT: 237 CTR 401 (Ker) (FB) - held, mixing rubber with chemicals, process oil, etc for making "compound rubber" constituted manufacture. Further held that the eligibility of the same is unaffected by the fact whether such compound rubber was intermediate or final product. d. Merely because the article or thing manufactured or produced by an assessee is captively consumed, tax incentives, inter alia, under Sections 10A/ 10AA 10B/ 80I/ 80HH, 80IA, 80IB/ 80IC etc, cannot be denied - Textile Machinery Corporation Limited v. CIT: 107 ITR 195 (SC) - DCM Shriram Consolidated Ltd v. CIT: 322 ITR 486 (Del.) - CIT v. Orissa Cement Ltd.: 254 ITR 412 (Del) - CIT v. Dalmia Dadri Cement Ltd.: 263 ITR 364 (....
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....ial undertaking producing intermediate products. 9.13. It is pleaded that assessee is eligible for additional depreciation allowance. Additional depreciation on plant and machinery and tippers has been wrongly denied. 9.14. Apropos the ground about validity of jurisdiction of the assessing officer in reassessing the income of the assessee relating to loss in Indian projects, ld. counsel sought to challenge the validity of proposing to reject the losses earlier allowed by following grounds: (a) the reasons recorded by the AO under Section 147 of the Act did not propose reassessment in respect of the above item and was totally unconnected with reasons recorded; and, (b) reassessment of Indian losses is result of roving and fishing enquiries conducted by the AO during the reassessment proceedings. 9.15. In the reasons recorded under Section 147 of the Act, the AO alleged escapement of income of the assessee only in respect of: (a) claim of additional depreciation; and, (b) excess depreciation. 9.16. According to ld. Counsel the reassessment should have been confined to these issues, however AO exceeded the reasons and proceeded to make fresh roving and fishing enqui....
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....mere reappraisal of existing material on record and, on that basis, coming to a "changed" opinion that the claim and/or quantum of loss from Indian operations was not admissible 10. Ground of appeal No. 4: Admissibility of additional evidence filed before the CIT(A) under Rule 46A of the Income-tax Rules, 1962. 10.1. In order to rebut the AOs allegation that the assessee did not maintain stock register before the CIT(A), application for admission of additional evidence under Rule 46A of the Income-tax Rules, 1962 was filed. The additional evidence was filed to bring on record the copy of management representation letter certifying taking of physical verification of inventory, raw materials, etc along with requisite verifications sheets. 10.2. The CIT(A), without appreciating that the additional evidence extremely crucial to rebut the allegations levelled by the AO and for judicial disposal of the appeal, as also without appreciating the fact that the assessee had been prevented by good and sufficient cause from producing the same earlier, rejected the additional evidence. 10.3. It is trite law that application for additional evidence must be dealt with in order to advance th....
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....ecuted, consumption of raw material, purchases made, direct expenses, indirect expenses and taxes in relation to each of the project site. (d) The said extra cost included both fixed and variable costs and was mainly on account of idle manpower, increase in hire cost of machinery and increase in the cost of raw material. As an illustration of the substantial increase in purchase price of bitumen, which is a raw material consumed in substantial quantity in the business of the assessee, the assessee furnished the following details Particulars Purchase price at start of Project (PMT) Purchase price at completion of project (PMT) Total difference Bitumen Rs.9772 Rs.13280 Rs. 3508 (36% of the Anticipated cost) (e) It is pleaded that all the contracts in respect of which the loss in question had arisen had been entered into with the public authorities. Consequently there can not be any question of receipts, delay in contracts and resultant cast overruns. ii. Profits in the immediately preceding and succeeding years in such contracts are incomparable - For the immediately preceding year, the assessee only had Indian operations and in the succeeding year, t....
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....or raw material/consumables required at any particular site are directly placed on the vendors in case of the main raw material, i.e. bitumen, oil and lubricants, diesel, etc. The suppliers are primarily PSU Oil companies like HPCL, BPCL, IOL, etc Thereafter, based on the requirements, the raw material is issued for construction of road and related activities under the overall supervision of the Site In-charge/ Supervisor. - At regular intervals, the stock of raw material and consumables is physically verified at every site under the supervision of the Site Incharge/ Supervisor and such physical verification is also carried out at the year end at all the sites, in the presence of the representatives of the auditor at certain locations. - Each and every purchase of raw material and consumables is duly recorded in the books of account in separate ledgers maintained for every site on the basis of the bills/vouchers received from the vendors and also the confirmation/ bills of receipt of material from the respective sites. Closing stocks are recorded in the books of account on the basis of physical verification as carried out at various sites referred above. vi. Before the CIT....
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....al accounts, the assessee had declared gross receipt at Rs. 19,40,54,608. 11.6. However, during the course of reassessment proceedings, the assessing officer recomputed the gross receipts of the assessee from the Indian project at Rs. 20,32,00,856 on the basis of the income/ receipts shown in the TDS certificates filed by the assessee. The assessing officer, accordingly, adopted the aforesaid figure of Rs. 20.32 crores as the gross receipts on the basis of which taxable profits @ 4% was computed, which was calculated at Rs. 81,28,034. 11.7. It is submitted that the assessing officer erred in adopting gross receipt at Rs. 20.32 crores merely on the basis of the TDS certificate, instead of gross receipt of Rs. 19.40 crores declared by the assessee. The assessing officer failed to appreciate that the receipts to the tune of Rs. 91,46,248, being the difference between the aforesaid receipts of Rs. 20.32 crores as per TDS certificate and the receipt of Rs. 19.40 crores declared during the year, had already been offered for tax in the immediately preceding assessment year by the assessee on accrual basis. The addition and taxation of Rs. 81.28 lacs by the assessing officer has, in fact....
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.... prejudice and in the alternative, it is further submitted that the CIT(A)/assessing officer failed to appreciate that the assessee had claimed deduction under Section 80HHB of the Act in respect of profits of the profits derived from the eligible projects in Afghanistan, inasmuch as the said deduction is computed as a percentage (10% in the relevant year) of the assessable profits and gains derived from eligible projects. 13.2. AO erred in not re-computing deduction under that section after making the additions/disallowances which had the effect of increasing the business income of the assessee from eligible projects, on the basis of which deduction is computed under section 80HHB of the Act. 13.3. In appeal, the CIT(A) declined to direct recomputation of deduction under the said section on the ground that the assessee maintained separate "Foreign Projects Reserve Account". 13.4. It is submitted that that all the relevant details are in the accounts, assessee should be allowed opportunity of creating such reserve the assessable profits and gains stand inflated due to the disallowance of addl. Depreciation which were not foreseen. A direction may be issued 14. Ground of appeal ....
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....nd loss account as thereby eliminating the difference arising on account of exchange fluctuation. 15.3. This treatment was to the knowledge of the assessing officer, who, however, failed to appreciate the effect of the aforesaid treatment of exchange fluctuation on depreciation as appearing in the Profit & Loss Account, on the one hand, and the amount of depreciation reflected in the tax audit report, on the other. Add would amount to double addition. 16. Ld CIT(DR) Ms Gitmala Mohnaney vehemently argues that: 16.1. After original assessment AO observed that claim of the additional depreciation is not admissible as assessee is not engaged in the business of manufacture or production of any article or thing. Thus the assessee has claimed excess depreciation of Rs. 4,05,12,853/- on Plant & Machinery . Similarly, the assessee has claimed excess depreciation of Rs. 1,52,73,164/- on Tippers. 16.2. It was further observed by the Assessing officer that the assessee has debited an amount of Rs. 18,77,14,890/- on account of depreciation instead of correct figure of Rs. 17,89,98,764/-. The mistake resulted in excess claim of Rs. 87,15,926/-. Since income had escaped assessment on account ....
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.... of Rs. 87, 15,926/- and Rs. 53,594/- . Both the items i.e. additional depreciation and differential depreciation resulted in grant of excess depreciation. In such cases the statutory deeming provision i.e. Sec 147 expln. 2 clause iv) comes in to play. The action of reopening of assessment is totally in conformity of the statutory provisions. Grant of excessive depreciation is deemed to be escapement of income in that case source of information of excess claim is not material for such deeming provisions. 16.8. In the accounts or return or during the original assessment proceedings, the assessee did not make any submissions as to how the conditions laid down in section 32(1) (iia) were satisfied when it was not manufacturing an article or thing. The original assessment proceedings are silent on this aspects of eligibility of additional depreciation. During the appeal proceedings, it has been submitted by the appellant that Form 3AA was filed alongwith the return as a procedural requirement which is to be verified on the touchstone of allowability conditions which remain unanswered. 16.9. A claim cannot be allowed contrary to Hon'ble supreme Court judgment in the case of N C Budhar....
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....use material lies embedded in material or evidence, which the Assessing Officer could have uncovered but did not uncover is not a good ground to deny or strike down a notice for reassessment. Whether the Assessing Officer could have found the truth but he did not, does not preclude the Assessing Officer from exercising the power of reassessment to bring to tax the escaped income. The Hon'ble Supreme Court has dismissed the SLP in this case which is reported in 2011-TIOL-72-SC-IT. b) Ankita Deposits & Advances (P.) Ltd.193 TAXMAN 36(AP) The powers of the Assessing Officer to reopen assessment are very wide. True it is that the term 'reason to believe' does not mean a mere change in opinion. If the Assessing Officer has at any time expressed an opinion or come to a finding on the facts before him and decided the matter in a particular way, then just because a different interpretation is possible, the Assessing Officer may not have the power to issue a notice under section 148. However, in case, no opinion has been expressed, then whatever be the reason, as long as they prima facie satisfy the conscience of the Court, the Court would not interfere with the issuance of a notic....
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....order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too farfetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer...." e) Kantamani Venkata Narayana v. First Addl. ITO( 63 ITR 638(SC) - the apex court held that in proceedings under article 226 of the Constitution of India challenging the jurisdiction of the Income-tax Officer to issue a notice for reopening the assessment, the High Court was only concerned with examining whether the conditions which invested the Incometax Officer with the powers to reopen the assessment existed. It is not, observed the court, within the province of the High Court to record a final decision about the failure to disclose fully and truly all material facts bearing on the assessment and consequent e....
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....sed by the revenue on s. 147(b) of the Act may be considered at, this stage. It is urged that the expression "information" in s. 147(b) refers to the realisation by the ITO that he has committed an error when making the original assessment. It is said that, when upon receipt of the audit note the ITO discovers or realizes that a mistake has been committed in the original assessment, the discovery of the mistake would be "information" within the meaning of s. 147(b). The submission appears to us inconsistent with the terms of s. 147(b). Plainly, the statutory provision envisages that the ITO must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words "reason to believe", and it follows from the "information" received by the ITO. The information is not the realisation, the information gives birth to the realisation." In this case, the Supreme Court had primarily concerned with the expression "information" as stipulated in Section 147(b) of the Act as it existed and it was held that information of an internal au....
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....existence which is used in construction of roads. It has been pleaded that the aspect of road construction may be ignored and assessee be treated as manufacturer/producer of concrete mix. Therefore additional depreciation is allowable on the ground that assessee should be deemed to be engaged in manufacturing of intermediate products. 17.1. These submissions made by the assessee are without merit and additional depreciation is not allowable assumptions. Section 32 (i)(iia) of the Act lays down obligatory conditions which are to be fulfilled for claiming the additional depreciation. 17.2. In the present case the assessee is engaged in the business of road construction, bridges & highways etc. The nature of the assessee's business by no stretch of imagination can be termed as manufacturing or production of any article or thing, which has been held in the case of N C Budharaja & Co. supra, by the Hon'ble supreme Court. The words 'manufacture' and 'production' have received extensive judicial attention both under the Income-tax Act as well as Central Excise Act and the various sales tax laws. The word production' has a wider connotation than the word 'manufact....
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....the Legislature. Therefore, the activity of construction of a dam could not be characterised as manufacture or producing of article or articles, as the case may be, within the meaning of section 80HH(2)(i ). 17.3. Apropos plea about the intermediary product being a new commodity Hon'ble Supreme Court in N C Budharaja, has rejected such plea. Assessee as declared is engaged road construction and not the intermediary products as end product. What cannot be claimed directly cannot be claimed indirectly. Issue whether the crushing of stones and mixing it up with the Bitumen for the purpose of constructing roads can be called an activity of production is answered Hon'ble Bombay High Court in the case of CIT vs N. U. C. Ltd. 126 ITR 377. Here assessee was carrying on the business of building, constructing, erecting, planting, executing etc., building, structures, factories etc. In the process and for the purpose of the said construction and repairs of buildings, it manufactured windows, doors, frames, concrete beams and slabs. Hon'ble High Court held that : 1. The assessee manufactured windows, door frames, concrete slabs and beams for the purpose of particular building under constru....
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.... High Court observed as under: "The Supreme Court in the case of CIT v. N.C. Budharaja & Co. [1997] 204 ITR 412/ 70 Taxman 312 held that the expressions 'manufactured' and 'produced' are normally associated with the moveables - articles and goods big and small-but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter, a bridge, a road or a building. In the instant case, the assessee might be extracting minerals such as stones by carrying out mining operations but the product of such mining operations was not the article or thing in which the assessee was dealing. The minerals produced by the assessee were consumed by him in the process of civil engineering works which was the business activity of the assessee. It could not, therefore, be said that the assessee was an industrial undertaking for the purpose of producing a article or thing for which the machinery or plant was wholly used. The main business of the assessee would have to be determined. Whether it was a construction business and any step involved in that construction business was only ancillary to the construction activity of the assesse....
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.... or production of any article or thing. Other activities of mixing up of various products in the process of road construction business are neither the end product nor can they be called as manufacturing/production of any article or thing. In the case of CIT Vs Ansal Prop. & Indus. Overseas Projects, 9 taxmann.com 294, Hon'ble Delhi High Court has held that: 'An assessee who is engaged in building construction activity would not be treated as industrial undertaking." 17.7. Assessee's additional depreciation u/s32(1)(iia) has rightly been rejected in reassessment, therefore, the appeal deserves to be rejected. Ground No. 3 to 5 18. By these grounds assessee has raised issues about: (a) additions/disallowances on various issues on the basis of the enquires conducted during re- assessment proceedings. (b) Rejection of books of accounts, disallowance of loss and estimation of profits from the Indian Projects @ 4% of the gross receipts. (c) Non admission of the additional evidences by the CIT(A). 18.1. Secs 147/148 specifically provide that in re-assessment proceedings entire assessment stands reopened and AO can also examine any new issue. Assessing Officer found that ass....
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....vides a statutory exercise of rejection of books and estimation of profits, which is carried out by AO. 18.5. Further, assessee has shown opening WIP of Rs. 7,50,07,877/- and closing WIP of Rs. 4,28,52,479/- During the course of assessment proceedings, the assessee was asked to furnish details along with reasons for the valuations for each work/project separately. The assessee also did not submit any detailed basis pertaining to opening WIP thus whether while valuing the WIP the assessee has included relatable direct cost or not also remained unverified. 18.6. Contention that the prices/rates of construction materials increased during the year, is a factor which will be true for other assessees in similar line of civil constructions who have shown net profit in the range of 3 to 4 %. 18.7. The assessee did not furnish any proof of payment of labour charges either. 18.8. To verify the claim of expenses under the head purchases of material, the Assessing Officer issued enquiry letters u/s 133 (6) in six cases,no reply was received in four cases, in two of the cases discrepancies were noticed. 18.9. Apropos ground about refusal of additional evidence, objections raised by the AO ....
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....orded while initiating proceedings under section 147 of the Act. In view of this, the argument raised by the learned counsel for the assessee does not carry any weight. 19.2. Assessee's reliance on Ranbaxy Laboratories Ltd., supra, is misplaced as the basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which was held to be not permissible. In the present case the AO made disallowances on the issues for which case was re-opened. Hence his action for making disallowances for issues which came to his notice subsequently during the re-assessment proceedings is justified. Alternate Grounds: Ground No. 6: 20. Deduction for employees' contribution towards provident fund, amounting to Rs. 1,23,096/-. Order of AO is relied. Ground No. 7 & 8 :: 21. The Assessing Officer noticed that Prior period expenses of Rs. 2,40,586/- are not admissible because these expenses relate to earlier year. However, no separate addition is made by the Assessing Off....
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....g power upon the assessing officer, which is not otherwise conferred under the main provisions of Section 147 (to which Explanation 2 is appended). 24.1. Reliance, in this regard, is placed on the following decisions: a) IPCA Laboratories v. DCIT: 251 ITR 416 (Bom HC) b) Bhor Industries Ltd v. ACIT: 267 ITR 161 (Bom HC) c) ICICI Prudential Life Insurance v. ACIT: WP(C) 2471 of 2009 (Bom HC) d) General Insurance Corporation of India v. DCIT: WP(C) 2560 of 2011 (Bom HC) e) International Global Networks v. DCIT: ITA 6314/Mum/2010 (Mum ITAT) 24.2. Following cases relied on by the revenue are distinguished: a) Honda Siel Power Products: 197 Taxman 415 (Del.): 24.3. The said decision has been rendered in the context of the failure of the assessee in making full and true disclosure, despite retrospective amendment in law. In that case, after the filing of the return of income for the assessment year 2001-02, the provisions of section 14A of the Act were retrospectively amended. During the course of original assessment, even though the said provisions were in force, the assessee did not declare any facts relating to disallowance under section 14A of the Act, thereby f....
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.... the Act, as opposed to scrutiny assessment having been framed in the case of the present assessee. The decision, therefore, has no bearing on the present case. d) New Light Trading Co. v. CIT: 256 ITR 391 (Del) In that case, the audit party had adverted the attention of the assessing officer to the fact that interest had been paid by the assessee therein to one Mr Gulzari Lal in his capacity as an individual and not as Karta of an HUF. Since a point of fact was pointed out by the audit party (and not opinion on any legal issue), the Court upheld reassessment proceedings based on such audit observation. e) Oriental Insurance Co Ltd. v. ACIT: ITA 3910/Del/2007 The basis for initiation of reassessment was information that came to light during the assessment proceedings for a succeeding year, which the Tribunal upheld as permissible. There was thus, fresh information (in the form of assessment order for subsequent year), which came to the possession of the assessing officer and hence the reassessment proceedings were held to be validly initiated. 24.6. Apropos issue of manufacture or production of intermediary articles or things, reliance on the following provisions/ de....
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....n the present case, the issue is regarding eligibility of the assessee to claim "additional depreciation" in respect of new plant and machinery installed in an industrial undertaking, which is used in manufacture/ production of goods. 24.8. The aforesaid decision has also been distinguished by the Delhi High Court in the cases of: (i) Hydel Constructions (supra). (ii) CIT v. Vaish Brother's and Co : 247 ITR 385 (All HC) (iii) Bhagat Construction Co. Vs CIT : 232 ITR 722 (Del) 24.9. In view of the above case laws, the assessee satisfies the condition for grant of additional depreciation in as much as new plant and machinery was installed for manufacture and production of bitumen concrete mixture and the installed capacity had been increased by more than 25%. 24.10. Reliance on the following provisions/ decisions by the Revenue is misplaced: 24.11. Ranbaxy Laboratories Ltd.: 336 ITR 136 (Del): As the appellant is not disputing the position that in terms of Explanation 3 to section 147 new issues may also be gone into by the assessing officer. The caveat, however, is that the assessing officer is not permitted to make roving and fishing enquiries and then make addition/ d....
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....e dam, is an article is to be unfaithful to the normal connotation of the word. A dam is constructed; it is not manufactured or produced. "The expressions "manufacture" and "produce" are normally associated with moveable articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building."... 26.2. These observation clearly lay down that it is not the intermediate product, but only the end product, which will be decisive test whether the end product amounts to production of article or thing. Since the road is not an article or thing it will not entitle the assessee for claim of additional depreciation u/s 32(i)(iia). 26.3. In our considered view: (i) at the time of passing original assessment order, AO was bound to follow the law of land as declared by Hon'ble Suprme court in the case of N.C. Budhiraja (supra). This itself indicates not forming of a valid opinion by AO in original assessment proceedings. Whether judgment is distinguishable or not will fall in the realm of examining sufficiency of reasons which is not required at the level of recor....
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.... 147 and Hon'ble Delhi High Court judgment in the case of New Light Trading Co. (supra). This demonstrates that the action of reopening of assessment by AO is fully justified. The AOs opinion while granting additional depreciation in original proceedings being contrary to law together with reading of expln.2 to sec 147 does not make out a case that the reassessment is based only on change of AO's opinion. In our view the assessee's reliance on the cases of Kelvinator of India Ltd.; Eicher Ltd.; Goetze Ltd.; Carlton Overseas (P) Ltd.; & Northern Strips Ltd. (supra) and other cases is of no avail to the assessee's case in the given facts and circumstances. We have no hesitation to uphold the order of AO and ld. CIT(Appeals) upholding the validity of reassessment. The assessee's grounds in this behalf are dismissed. 27. Additional Depreciation U/s 32(1)(iia): Coming to merits of the disallowance of additional depreciation on plant & machinery, detailed facts have been narrated above. The assessee is engaged only in road construction, as held by Hon'ble Supreme Court in the case of N.C. Budhiraja (supra). the laying of road does not constitute manufacture or production of any article ....
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.... Ltd (Bom) (supra); Delhi High Court judgment in Minocha Bros. which has subsequently been upheld by Supreme Court; Delhi High Court judgment in the case of Bhagat Construction Co. etc. (supra). All the case laws lay down a proposition that when assessee is in construction of buildings it will not be held to be manufacture because of any intermediate product. Respectfully following Hon'ble Supreme court judgment in the case of N C Budhraja and other citations relied on by ld CIT(DR), assessee's arguments and grounds in this behalf are rejected. 28. Thus as the assessee cannot be held to be a producer of any article or thing, we are unable to accept the plea that to the extent of manufacturing of intermediate Bitumen mix, it may be treated as eligible for additional depreciation. In view of foregoings, on merits also the assessee's grounds are rejected. 29. A. Challenge to jurisdiction of AO in reassessing the Indian losses: 29.1. Learned counsel for the assessee has relied on Ranbaxy Laboratories case (supra) and claimed that the AO cannot make fishing and roving inquiries during the course of reassessment proceedings about Indian losses. Explanation 3 to Sec. 147 has been repro....
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....onal evidence has made averments that sufficient opportunity to produce them was not given by AO. In our view, assessee's averments are not correct. In the memo of first appeal, it has not been alleged that sufficient opportunity was not given by AO. Thus the assessee's application for additional evidence suffers from lapses of inordinate delay and contradictions. In view of these facts and circumstances, we do not find any infirmity in the order of ld. CIT(Appeals), refusing to admit the additional evidence. This plea of the assessee is also dismissed. 31. C. Merit of rejection of books and Estimate of profits from Indian projects @ 4%: 31.1. Assessee claimed whopping 28.4% losses on Indian Projects at Rs. 5,51,20,396/- on gross receipts of Rs. 19,40,54,608/-. This loss was found to be abnormal compared to assessee's earlier +1.21% and subsequent years +10.34% profits and other business entities of similar nature. Despite repeated requests stock registers, quantity tally and format information were not filed before AO. 31.2. AO called for details of material consumed at Rs. 13,79,68,931/-; stores, spares and consumables are claimed at Rs. 4,07,78,007/-, which is significant cost....
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....aterial were not filed. (c) Details of quantitative consumption and comparison between tenders filed/ tenders granted could not be given. (d) Proper details in respect of work in progress could not be given. 31.7. Because of all these deficiencies assessee's claim of huge losses could not be verified by the AO, in view of these unanswered deficiencies, AO rightly rejected the books of accounts. There was much more to the Indian project loss than what meets the eye. In these circumstances, AO had no choice but to reject the books of account and estimate the income. In these facts and circumstances, we see no infirmity in the order of AO rejecting the books of the assessee and making an estimate of profits. 32. D. Reasonableness of estimate at 4% of gross receipts: 32.1 The average of assesses preceding 1.21% and succeeding years 10.34% of profits comes to 5.77%. AO looking at the profits shown by similar type of road contractors has estimated it at 4%, which is lesser than assesses own average profits for two years. 32.2. If assessee was aggrieved on the estimate of 4% profits by AO, it could have dislodged it before CIT(A), by giving comparison with other road contractor....
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....e under Section 234D of the Act on the assessee. The CIT(A), however, has not adjudicated this ground in the impugned order. 34.2. Reliance is placed on Vishakhapatnam Bench of the Tribunal in Dredging Corporation of India v. ACIT: ITA 6/Vizag/2011, dated 25.07.2011. 34.3. We find that a plain reading of provisions of sec. 234D makes it clear that they are applicable to regular assessments only. In our considered view this issue stands squarely decided by the coordinate Vishakhapatnam bench. Hon'ble Bombay high Court also has taken a similar view in the case of M/s Delta Airlines vide order dated 5-9-2011. Respectfully following these authorities, this ground of the assessee is allowed. Revenue's Appeal: 35. As the facts emerge, plant and machinery and office equipment installed at the Afghanistan site were acquired by the assessee on $ term loans. As a matter of accounting policy the fixed assets of the Afghanistan and Indian sites are consolidated in the balance sheet in rupee terms applying the exchange rate of Rs. 43.39 for conversion of US $ into Indian Rupees at the purchase value. 35.1. At the time of closing of accounts $ loans were revalued at 31-3-04 prevailing exchan....