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2012 (5) TMI 643
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....nce of additional depreciation to the tune of Rs. 4,05,12,853 and 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 arbitrar....
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....on 234D of the Act." II: Revenue grounds are as under: 1. On the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition 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.....
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....ged 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. 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 corr....
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.... different entitles/ work sites of the assessee are entirely different and different and distinct, in terms of its chemical composition and use, from the raw material used to manufacture such mixtures and since the mixtures are movable objects, the 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 submis....
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....y be furnished for the A.Y. 2004-05, 2005-06 and 2006-07. Copy of assessment order passed by the I.T. authorities in the cases of JV members, if any, for the A.Y. 2004-05, 2005-06 and 2006-07 may also be furnished." The assessee was also asked to furnish some more information vide this office letter no. 1306 dt. 08-12-2009:- Copies of tender forms submitted 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 re....
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....n some of the sites final contract value at the time of completion of the projects were reduced. In the Behram Site final contract value was reduced by a sum of Rs. 1.00 crore and in the Nakodar site the same was reduced by a sum of Rs. 0.98 crore. This has also impacted the profitability of the Indian project. h. Further the accounts of the assessee have been duly audited for which proper bills and vouchers are available with the assessee. In view of the above, it is submitted 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 agree....
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....The additional depreciation claimed is not allowable as the assessee do not fulfill the requisite conditions as laid down in sub section (iia) of section 32 of the act which reads as under:- "In the case of any new machinery or plant (other than ships and aircraft) which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii).; Provided that such further deduction of fifteen per cent shall be allowed 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 th....
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.... process of manufacture or a process of production. It is true that a dam is composed of several articles; it is composed of stones, concrete, cement, steel and other manufactured articles like gates, sluices etc. But to say that the end product, the 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 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. The decisions of the Bombay 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 i....
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....k to the income of the assessee. Since the assessee has also taken the plea in respect of depreciation claimed on office equipment at Rs. 53,594/-, the same is also disallowed in view of above discussion and added to the income of the assessee." 5. In respect of losses in Indian projects, AO was of the view that books of accounts and records maintained by the assessee were not proper so as to reflect true profits and to compute the taxable income properly. A/c books were consequently rejected by AO with following observations: (i) Assessee has not maintained stock register and failed to furnish the detail regarding quantitative consumption of various items in comparison to tenders filed and tender granted. (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 Pa....
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....after taking into account all the materials including the non-maintenance of a stock register, it is found that from the method of accounting the correct profits of the business are not detectible, the operation of the proviso to section 145(3) of the Income tax Act becomes inherent in the case of this assessee. (ix) From the perusal of the P&L A/c it is seen that 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 proceeding, the assessee was requested vide letter no. 26-11-2009 to furnish the detailed basis along with reasons with evidences for the above valuations for each work/ project separately." (x) The counsel vide his letter dt. 16-12-2009 only mentioned the amount of WIP. The basis for valuation of 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 furthe....
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....onsidered: a) Section 44AD of Income tax Act provides for determination of income @ 8% on gross receipts in case of contract business were not required who are maintain the accounts and not required to gets its account audited u/s 44AB of the I.T. Act. However, this section is not applicable in the case of assessee but it provides a basis and sets the direction for estimation of income. b) Similar assessee's who are in the similar line of business activity which is identically comparable with assessee's line of contract business do invariably offer income in the range of 3% to 5% of gross receipts when their books of accounts are audited u/s 44AB of I.T. Act. c) On comparison it is found that the assessee has declared huge loss in this year as compared to earlier years in which the net profit rate was declared 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 tot....
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....se, the impugned order was bad in law being based on mere change of opinion and there was no formation of reasonable belief regarding escapement of income, which is a sine qua non for valid assumption of jurisdiction under section 147/148 of the Act. 7.1. CIT(A) considered the submissions and rejected the ground of reopening of assessment by following observations: "3.3. The submissions of the appellant and the facts have been carefully considered. The arguments of the appellant are not acceptable for the following reasons: (i) In this case, assessment u/s 143(3) has been completed on 28-12-06 and notice u/s 148 has been issued on 30-10-08 which is within the period of 4 years. The proviso below section 147 saying that no action shall be taken after four years unless there is failure on the part of the assessee to disclose fully and truly all material facts, is therefore, not applicable. 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 tha....
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..... Vs. ACIT (2010) 126 ITD 263 (Chennai) - A.L.A. Firm Vs. CIT (1991) 189 ITR 285 (SC) 73.3. Thus CIT(A) rejected assessees grounds about reopening based on issued about - proper disclosure, audit party information as not constituting proper information, change of opinion by AO, absence of reasonable belief for escapement of income. 8. Additional depreciation: After considering assesses submissions and case laws, CIT(A) disallowed the claim of additional depreciation by following observations: "The appellant was engaged in manufacturing/ production of Aggregate/ GSB/ WMM/ bituminous concrete, which was used in construction of roads. The expansion undertaken by the appellant was based on the increased production capacity of the Crusher, solid mix plant, WMM plant and Batching plant, which are used in manufacture/ production of the said concrete mixture. All these facts are clearly mentioned in the report of the Chartered Accountant in Form 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 a....
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....material, used for construction of roads. Therefore, the claim that the appellant is engaged in manufacture or production is not justified. In N.C. Budharaja's case, the Hon'ble Supreme Court has held that such activity does not amount to manufacture/ production. The ratio of this case is squarely applicable to the case of the appellant. 8.1. Reliance was placed by CIT(A) on following case laws: - Builders Associations of India Vs. Union of India (1994) 209 ITR 877. - CIT v. Vaish Bros. & co. (2001) 247 ITR 385 (All.); - CIT v. Minocha Bros P. Ltd. (1986) 160 ITR 134 (Del.) affirmed by the Hon'ble Supreme Court in (1993) 204 ITR 628. - Bhagat Construction Co. (P) Ltd. (1998) 232 ITR 722 (Del.) 8.2. CIT(A) thus partly allowed the appeal of the assessee deciding the issue as under: i. Reopening of assessment was upheld. ii Claim of additional depreciation was dismissed. iii. Rejection of books of Indian Projects and estimation of income was upheld. iv Regular depreciation was allowed as per computation. 8.3. Aggrieved both parties by raising various grounds are before us - assessee is in appeal on issues....
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....ion have been specifically examined by the assessing officer in the original assessment. Initiation of reassessment proceedings is thus caused by a mere change of opinion and therefore the reopening is bad in law and liable to be quashed. Reliance, is placed on the following decisions: - CIT v. Kelvinator of India Ltd.: 320 ITR 561 (SC) approving CIT v. Kelvinator India Ltd: 256 ITR 1 (Del.)(FB) - CIT v. Eicher Ltd.: 294 ITR 310 (Del) - CIT v. Goetze Ltd: 321 ITR 431 (Del) - Carlton Overseas (P) Ltd v. ITO 318 ITR 295 (Del.) - Northern Strips Ltd v. ITO WP 8265 of 2008 (Del.) 9.6. Once the claim of depreciation was examined by the assessing officer in the course of the assessment proceedings, even assuming that there is no discussion in the assessment order in relation thereto, it cannot be said that no opinion had been formed at the time of original assessment. - CIT v. Eicher Ltd.: 294 ITR 310 (Del) Affirmed in CIT v. Kelvinator of India Ltd: 320 ITR 561 (SC). 9.7. All the primary and material facts in relation to the claim of depreciation including additional depreciation were duly disclosed by the assessee. ....
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....Mix which is a separate, distinct and independently marketable commodity based on following propositions: a. Where a change or a series of changes results in emergence of a new and different article as understood in commercial circles, the same amounts to "manufacture or production": - DCST v. PIO Food Packers [1980] 46 STC 63 (SC) - Kores India Ltd V. CCE: 174 ELT 7 (SC) - Ujagar Prints v. UOI: 179 ITR 317, 341 (SC) - CIT vs. Oracle Software India: 320 ITR 546 (SC) - Orient Longman Ltd V. ITO: 130 ITR 477 (Del.) b. Mixing of various raw materials in specified quantities so as to result in "bitumen concrete mixture" which is a commercially different article having a different chemical formula and different physical and chemical properties as well as independently marketable, amounts to manufacture or production of article or thing and the assessee is entitled to additional depreciation YFC Projects Pvt. Ltd v. DCIT in (2010) 134 TTJ 167 (Del ITAT) c. Similar activities held to amount to manufacture or production of article or thing: - Titanor Components Ltd v. CIT : 241 CTR 255 (Del HC) - held....
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....ent of increase in production capacity of the article or thing being manufactured or produced - NRB Bearings Ltd v. DCIT: 133 ITD 306 (Mum ITAT) f. Where there is manufacture or production of intermediary article or thing, which is captively consumed in an activity which does not amount to manufacture or production of an article or thing, additional depreciation in respect of plant and machinery used for the manufacture or production of intermediary article or thing would be allowable - CIT v. Hydle Constructions: 259 ITR 344 (Del HC) - In this case, the assessee claimed investment allowance under section 32A of the Act since it was engaged in manufacture/ production of intermediary article used in construction activity. The CIT(A) allowed the claim of the assessee. The Tribunal, however, remanded the case to the assessing officer to ascertain facts and consider the claim of the assessee. In further appeal, the jurisdictional Delhi High Court considered at length various decisions, including the decision of the Supreme Court in the case of N.C. Budhiraja (supra) and impliedly held that merely because the final product is not eligible to investment allowan....
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....ieve as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under Section 148." c. It is pleaded that in any case, no reassessment is permissible for the purpose of "verification" by AO, reliance is placed on - Chhugamal Rajpal v. S.P. Chaliha: 79 ITR 603 (SC) - CIT v. Batra Bhatta Co: 321 ITR 526 (Del) - Maniben Galji Shah: 283 ITR 453/ 204 CTR 249 (Bom.) - Chunnilal Surajmal V. CIT: 160 ITR 141 (Pat) @ 148, 151 9.18. Having accepted the books of account as....
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....ctee. 11.2. The assessing officer rejected the books related to Indian projects, alleging that: - In the immediately preceding and succeeding years, the assessee had profit of 1.28% and 10.34% respectively. - Non-maintenance of stock registers at respective sites. - Some of the parties had not responded to summons issued by the assessing officer for confirmation of transactions with the assessee 11.3. AO proceeded to make an estimated addition of Rs. 81,28,034 in place of loss of Rs. 5.51 crores which was otherwise accepted during the original assessment proceedings under section 143(3) of the Act. 11.4. Ld counsel for the assessee contends that rejection of books and estimation are not justified as: i. In the assessment proceedings, the assessee had properly explained that the loss from Indian operations, had resulted on account of delay in completion of certain projects which lead to: (a) substantial extra costs over and above the costs originally anticipated by the assessee at the time of making the tender bid; and, (b) reduction in final contract value/ consideration payable by the counter parties to the assessee. ....
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.... (c) Details of start and completion of the Indian project; (d) Completion Certificate of the project; (e) Copy of Award Letters; (f) Details of raw material purchases along with Ledger accounts of purchase of raw materials; (g) Copies of bills for purchase of raw material on sample basis; (h) Details of spares and consumables; (i) Details of closing working progress of Indian sites; iv. Non-maintenance of stock register of consumption of raw material was not practicable: - As far as raw materials are concerned, the same, being bulky in nature, are normally packed in bags/ barrels. Raw materials like steel, aggregates, stone, dust, boulder, etc., are normally stocked in measured lots/ heaps. Consumables like oils and lubricants, diesel, etc, are stored in barrels/tanks. - Considering the nature of materials, it was not practically feasible for the assessee to maintain stock register containing quantitative tally of the aforesaid items. In such circumstances, mere non-maintenance of stock register cannot, it is respectfully submitted, be the sole basis for rejecting the book results and estimating ....
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....oduce details of quantitative consumption, without more, cannot be the sole basis for recourse to Section 144/145 of the Act. - CIT v. Jas Jack Elegance Exports: 324 ITR 95 (Del HC) - CIT v. Jacksons House (ITA No. 651/2010 rendered on 26.04.2010) - CIT v. Shere Punjab Silk Stores 1981 Tax 63(1) (Del HC) - Asoke Refractories (P) Limited: 279 ITR 457 (Cal.) - Pandit Bros v. CIT 26 ITR 159 (P&H) - Veeriah Reddiar V. CIT: 38 ITR 152 (Ker.) - M. Durai Raj v. CIT, Ernakulam 83 ITR 484 (Ker.) - Jhandu Mal Tara Chand v. CIT : 73 ITR 192 (P&H) - Bhagwati Emporium: (1995) 80 Taxman 227 (Ahd.) - ITO v. Oswal Emporium (1989) 30 ITD 241 (Del) - Kabir Leathers V. Addl. CIT: [2009] 27 SOT 498 (Delhi ITAT) - Axia Engg. Co. v. ITO: 56 ITD 335 (Chd) - Ganesh Foundry v. ITO (2000) 67 TTJ (Jd) 434. ix. It is not the case of the assessing officer that there is inflation of purchases or suppression of contract receipts. There is no allegation of pilferage or sale of material outside books of accounts. In such circumstances, it has been held by the Courts that estimation of profi....
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....provident fund of Rs. 1,23,096, which was not deposited on or before the due date as stipulated in the relevant statute. However, the aforesaid employees' contribution was duly deposited before the date of furnishing of return of income. No separate disallowance in respect thereof was however made in view of the fact that the AO had estimated the income of the assessee on ad hoc basis. The same is allowable deduction, in light of the decision of the jurisdictional High Court of Delhi in the case of CIT v. AIMIL Ltd: 321 ITR 508. ii) Ground of appeal no. 7 & 8: Disallowance of prior period expenses: 12.2. During the year, the assessee company incurred the following prior period expenses. Travelling Expenses 89115 Mess Expenses 53396 Taxi Expenses 7105 Petrol Expenses 970 Salary 90000 TOTAL 240586 12.3. During the course of the reassessment proceedings, the assessing officer held that no deduction was admissible in respect of prior period expenses of Rs. 2,40,586 on the ground that the same related to earlier year and not the assessment year in question. The said conclusion was arrived at without considering the nature and charac....
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....time". Accordingly, no interest was leviable under Section 234D of the Act. Reliance is placed on Vishakhapatnam Bench of the Tribunal in Dredging Corporation of India v. ACIT: ITA 6/Vizag/2011, rendered on 25.07.2011. 14.2. The CIT(A), however, has not adjudicated this ground in the impugned order. REVENUE'S APPEAL (ITA 1752/Del/2011): 15. Ground nos. 1 & 2: For the relevant assessment year, the assessee debited depreciation of Rs. 18,77,14,890 on plant and machinery and Rs. 6,38,713 on office equipment in the profit and loss account. The said depreciation was claimed in respect of plant and machinery and office equipment installed at the Afghanistan site of the assessee. The fixed assets of the Afghanistan site are merged with those of the Indian site and consolidated in the balance sheet of the assessee in India. For the said purpose, the assessee applies the exchange rate applicable at the relevant time. 15.1. For the purpose of computing depreciation in the Tax Audit Report, the assessee adopted Rs. 43.39 as the rate of conversion of US Dollars into Indian Rupees, being the rate of conversion prevailing on the closing date. Accordingly, depreciation was worked at R....
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....uring original assessment proceedings; b. that the assessee had filed statutory audit report in Form No. 3AA; c. that the Assessing Officer was aware of the claim of additional depreciation and action taken u/s 147 is a change of opinion; d. that the Assessing Officer has taken action u/s 147 due to audit objection. e. It has also been submitted that why the provisions of section 263 or 154 were not invoked instead of section 147. 16.4. A careful perusal of the facts of the present case clearly reveal that the objections raised by the assessee are without merit. The assessment year involved is 2004-05 and the notice u/s 148 was issued on 30.10.2008. The present case is covered under the main provisions of section 147 of the Act. The case has been re-opened under clause (c) (iv) of Explanation 2 to section 147 of the Act which reads as under : Explanation 2- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- ------------ (c) Where an assessment has been made, but - ---------- (iv) excessive loss or deprecia....
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....led given during the assessment proceedings a perusal of paper book reveals that these details mentioned are enclosed with a letter dt. 24.8.2009 during the re-assessment proceedings. Thus assessee had not filed details along with documents during the original proceedings. This is indicative of the fact that during the course of original proceedings selective papers were filed for the reasons best known to assessee. This again justifies the reopening and belies the assesses claim about true and full disclosure. Therefore, it cannot be said that the Assessing Officer formed a valid opinion of the issue of additional depreciation which was changed in reassessment. 16.11. The assessee has also raised the objection that the reassessment proceedings have been initiated because of an audit objection. This aspect has been dealt with by the CIT(A) in his order on page 7 mentioning that there is no discussion about any information from the audit. Besides Assessing Officer duly applied his mind to information available on record taking support from this audit intimation. The entire material was analyzed vis a vis the issues involved and the applicability of ratio laid down in the case of ....
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....nd details of services rendered. An addition of Rs. 19,86,551/- was made for failure to furnish confirmation and explain what services were rendered by the creditors. There is no discussion, ground or reason why addition of Rs. 32,97,507/- was not made inspite of the failure of the assessee to furnish conformation and details. It will be appropriate in this regard to refer to Explanation 1 to Section 147 of the Act, which reads:- "Explanation 1. - Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." d) Referring to the said explanation in Consolidated Photo and Finvest Ltd. (supra) it has been held:- "8. It is clear from the above that the two critical aspects which need to be addressed in any action under section 147 are whether the Assessing Officer has "reason to believe" that any income chargeable to tax has escaped assessment and whether the proposed reassessment is within the period of limitation prescribed under the proviso to section 147. Ex....
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.... disclose fully and truly all material facts would stand discharged when he produces the books of account or evidence which has a material bearing on the assessment. The court observed (page 644) : "It is the duty of the assessee to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessment." f) Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466(SC) It is true that if the Income-tax Officer had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realised by the assessee. It can be said that the Income-tax Officer if he had been diligent could have got all the necessary information from his....
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....ssment. In the case of New Light Trading Co. vs. Commissioner of Income Tax, (2002) 256 ITR 391 (Del), referring to the decision of Supreme Court in CIT vs. P.V.S. Beedies Pvt. Ltd. (1999) 237 ITR 13 (SC), has held as under (at page 393) : "In the case of P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13, the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee." 16.13. In the light of these arguments and case laws ld CIT....
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....not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. Further, the word 'article' is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation - the sense in which it is understood in commercial world. The word 'articles' in section 80HH is preceded by words 'it has begun or begins to manufacture or produce'. The word 'articles' occurring in section 80HH(2)(i) does not comprehend and take within its ambit a dam, a bridge and so on. If a dam is an article, so would be a bridge, a road, an underground canal and a multi-storeyed building. To say that all of them fall within the meaning of word 'articles' is to overstrain the language beyond its normal and ordinary meaning. It is equally difficult to say that the process of constructing a dam is a process of manufacture or a process of production. It is true that a dam is composed of several articles, viz., stones, concrete, cement, etc. But to say that the endproduct, the dam, is an article is to be unfaithful to the normal connotation of the word. A da....
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....indow and door frames, etc., and the other of construction and repairs of buildings for which the said manufacture was done. The Tribunal was, therefore, wrong in treating the window and other door frames, concrete slabs and beams as goods like any other goods which were independently manufactured and sold in the market. 2. The Tribunal failed to consider whether the assessee fell within the special definition of "industrial company" as per section 2(7)(d) of the Finance Act, 1966 relevant in the instant case. According to this definition "industrial company" is one which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. The words "construction", "manufacture" and "processing" have all been used but "construction" has been used only in the case of ships indicating thereby that any other type of construction would not fall within this definition. The assessee, carrying on business of construction and/or repair of buildings, was, therefore, not an "industrial company". 3. There was nothing on record to show separately the....
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....duct of such manufacturing activity would not result in the production of goods but the product of such activity would be consumed by the assessee in its building work. In that case, the assessee would not be a producer but a consumer, for at the end of its business activity, it would be producing not any goods or articles but only constructing a building. The statement of law in the case of CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134/ 26 Taxman 648 which was binding, is that inasmuch as the assessee is a manufacturer of buildings or constructor of buildings, an intermediary stage should not be taken to convert the assessee into a manufacturer of goods. A transitory or evanescent product like an R.C.C. block or a door is only a step towards making the whole building. 17.5. Similar issue came up in the case of CIT Vs Minocha Bros. (P) Ltd. 160 ITR 134. The assessee company was engaged in the business of construction of building and it claimed that various manufacturing processes were involved in the construction of buildings and hence it was an industrial company. Hon'ble Delhi High Court has held in this case as under: "In the instant case, the assessee-company di....
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....ts and other business entities of similar nature. In immediately preceding year the assessee has shown the profit of 1.21% and in succeeding year, profit is shown at 10.34%. This abnormality called was dutifully verified by Assessing officer who called for various details, which are elaborately discussed in the assessment order at pages 12 to 25. Assessing officer demonstrated that the stock registers, quantity tally and format information were not filed before him despite opportunities. 18.2. Assessee claimed material consumed at Rs. 13,79,68,931/-; stores, spares and consumables are claimed at Rs. 4,07,78,007/-, as the material consumed formed significant cost towards contracts, the A O called for specific details which were not filed. Consequently value of opening stock of material, purchases made during the year and the closing stock of material could not be ascertained. Thus quantitative details of various items rodi, bitumen, sand, stones, dust, diesel, petrol etc on diverse site could not be ascertained. 18.3. The Assessing officer also asked the assessee to furnish the details of quantitative consumption of various items in comparison to tenders filed and tender, asse....
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....d up by additional evidence. There was no hitch for assessee to explain his own accounts in two rounds for which burden lies squarely on it. No justification is given as to how it was prevented from filing in earlier proceedings. Management certificates for site stocks are prepared at the end of the accounting period which in case is 31-3-2004, filing these after 6 years in 2010 by way of additional evidence itself is a reason enough for refusal by CIT(A). 18.10. Apropos discrepancies in the receipts shown by the assessee vis-à-vis TDS certificates for which no reconciliation is filed by the assessee. Besides discrepancies with regard to claim u/s 2(24)(x)) read with section 36(va) of the Act & prior period expenses etc. were reasons for rejection of accounts resulting in estimation of net income @ 4% of gross receipts. 19. Apropos allegation that the Assessing Officer could not make roving and fishing enquires during the re-assessment proceedings, and reliance on the decision of Hon'ble Delhi High Court in the case of Ranbaxy Laboratory Ltd. 12 Taxman.com 74. Neither such plea was taken by assessee at ld. CIT (A) stage nor there is any application for additional groun....
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....idence is filed by the appellant to substantiate the claim that these expenses have crystallized during the year. Neither any details of these expenses were given nor were any supporting evidences filed. Looking into the facts of the case, this ground of appeal deserves to be dismissed. Ground No. 9 22. Apropos deduction u/s 80HHB CIT(A) has held that the appellant has not filed any particulars regarding his fulfillment of the conditions for claiming deduction u/s 80HHB, in respect of the additions to income made in the assessment order. The CIT(A) has further elaborated by saying that the appellant has not pleaded anything regarding whether the requirements in section 80HHB(3)(ii) & (iii) are fulfilled or not. The CIT(A) also observed that the appellant has stated that his application u/s 154 on this issue is under consideration by the Assessing officer. In view of the specific findings given by the CIT(A), this ground of appeal deserves to be dismissed. Ground No. 10 23. Apropos issue of interest u/s 234D of the Act, the Assessing officer has charged interest u/s 234D as the assessee has not paid advance tax as per the provisions of the Act. In such circumstances, there ....
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....t of the assessee in complying with such statutory obligation of disclosing amount disallowable under section 14A, the reassessment proceedings were upheld by the High Court. The aforesaid decision was thus rendered in the context of failure to comply with a categorical statutory obligation, and thus has no application to the present controversy. 24.4. In the present case, the controversy is with regard to claim of additional depreciation in respect of which the assessee has made full and complete disclosure about the preliminary and material facts and has further complied with the requirement of filing certificate of a chartered accountant in Form 3AA. There is no further obligation on the assessee to suggest legal inferences that may be drawn by the assessing officer from the stated facts. In that view of the matter, the decision in the case of Honda Siel does not advance the case of the Revenue. b) Dalmia Brothers Private Limited v. CIT: 2011-TIOL-628-HCDEL- IT (Del HC) In that case, in the original assessment proceedings, the assessing officer disallowed only a portion out of the total creditors in respect of which confirmation had not been received. The ba....
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....others Pvt Ltd v. CIT : 204 ITR 628 (SC) Affirming, CIT v. Minocha Brothers Pvt Ltd: 160 ITR 134 (Del HC). In that case, the issue for consideration was whether the assessee could be regarded as an 'industrial company as per the definition given in Finance Acts of 1971 and 1972 so as to be eligible for concessional rate of taxation. The said Finance Acts defined the expression 'industrial company' to mean a company engaged, inter alia, in the business of manufacture. Explanation given below the definition of the expression 'industrial company' explained that if 51% or more of the total income of the company is derived from any one or more of the specified activities, then the company shall be treated as industrial company. The assessee was engaged in the business of construction of building. The assessee claimed that construction of building involves manufacturing of various items and hence the assessee should be treated as `industrial company'. The Courts held that since 51% or more of the income of the company was not from manufacturing process, the assessee could not be treated as `industrial company'. The aforesaid case, thus, dealt with an altogether differen....
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....ce of any unconnected issue. Further, as held by the High Court, fresh notice would be required to be issued in such cases. 24.12. In case of Balbir Chand Mani v. CIT: 12 taxmann.com 276 (P&H) cited by revenue, P&H High Court held that "in view of Explanation 3 to Section 147 of the Act, it was open for the assessing officer to reassess income in respect of issues other than those referred to in the reasons recorded." This decision is however not applicable to the facts of the appellant's case since in that case, there were no roving or fishing enquiries by the assessing officer, leading to reassessment of unconnected issues. 25. We have heard the rival contention perused the case laws and material placed on the record. We proceed to decide the issues in following order: REOPENING OF ASSESSMENT: 26. Apropos challenge to reopening, ld counsel shri Ajay Vohra in fine has pleaded that (i) Reopening is by change of opinion as issues of additional depreciation and depreciation were specifically considered in original assessment as the claims were allowed after due application of mind reconsideration thereof amounts to change of opinion which is impermissible, hence ....
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....hich is not required at the level of recording of reasons. In these facts reopening in this case does not amount to change of opinion. (ii) From the reading of the reasons it clearly emerges from the record that the AO did not act merely on the audit information alone and he applied his independent mind also to come to a satisfaction for escapement of income and recording reasons. From this angle also, the AO's action in referring to audit objection, cannot be found fault with as held by Hon'ble Delhi High Court in the case of New Light Trading Co. (supra), cited by ld. DR. (iii) We may also add that notwithstanding N.C. Budhiraja judgment; section 147 was specifically amended thereby creating a deeming provision u/s 147 expln. 2 clause iv, providing that if the excess depreciation is allowed to any assessee, it will constitute deemed escapement of income. Provisions of law are to be given plain and ordinary meaning. In case of ambiguity also they are to be interpreted in logical and harmonious manner so as not to make them redundant or defeat the legislative intent. Therefore, on the count of clause (iv) to Explanation 2 of Section 147 also, reopening is fully va....
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....d does not constitute manufacture or production of any article or thing, Learned counsel for the assessee has emphatically pleaded that N.C. Budhiraja's is not applicable as: (a) The judgment was rendered in peculiar facts and circumstances; (b) For road construction, the main ingredients of cost of laying road are Bitumen mix and labour charges. The alternate plea is to the effect that the Looking at the whole process Bitumen mix manufactured as an intermediary product constitutes a separate commercial commodity and is marketable independently. Therefore to the extent of Bitumen mix production, the assessee may be treated as a manufacturer, producing a new article i.e. Bitumen mix. It is thus argued that the assessee being engaged in the manufacturing of a new intermediate product i.e. Bitumen mix therefore this may be considered as new product. Since the expansion capacity has gone up by 10%, of the manufacture, therefore, the assessee is eligible for additional depreciation. Reliance is placed on YFC Projects P Ltd, Titanor components Ltd. D J Stone crusher(Supra). Besides further reliance is placed on Textile Machinery Corporation Limited v. CIT: 107 ITR 195 (....
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....quiries during the course of reassessment proceedings about Indian losses. Explanation 3 to Sec. 147 has been reproduced above, which provides that while making the reassessment, AO can proceed in respect of other issues though not mentioned in reasons and come to his knowledge subsequently in the course of reassessment proceedings. The explanation clearly lays down that reassessment of new issues is permissible even though the reasons for new issue are not recorded in the original reasons. With this statutory provision on record, we are unable to accept the assessee's plea that AO initiated roving and fishing inquiries in respect of Indian losses. 29.2. During the course of reassessment proceedings, AO found that as compared to preceding and subsequent years, assessee has suffered huge losses only in respect of Indian projects. To verify the same, AO proceeded to examine the issues of losses, which he is empowered to do. Reliance of ld. counsel in the case of Ranbaxy Laboratories Ltd. (supra), is on different facts in respect of club fees, gifts, presents etc. In our vie, ld. DR has rightly cited Punjab & Haryana High Court judgment in the case of Balkram Chand Maini (supraw). ....
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....rial consumed at Rs. 13,79,68,931/-; stores, spares and consumables are claimed at Rs. 4,07,78,007/-, which is significant costs towards contracts; they were not filed. Consequently value of opening stock of material, purchases, quantitative details of various items rodi, bitumen, sand, stones, dust, diesel, petrol etc on diverse site could not be ascertained by AO 31.3. The details of quantitative consumption of various items in comparison to tenders filed and tenders granted also were not filed on the lame excuse that maintenance of stock records of raw material was not feasible and possible. Maintenance of relevant stock registers is a very important aspect for ascertainment of correct profits. An organization like assessee cannot perform such mammoth activities year after year without effective checks and control over quantities and stocks. 31.4. Assessee thus failed to produce important details for ascertainment of cost and quantities. Legislature has enacted sec 145 which specifically provides a statutory exercise of rejection of books and estimation of profits, if proper income cannot be ascertained. 31.5. A general contention has been raised by assessee that the pr....
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....ears. 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 contractors who may have earned lesser profits. In the absence of any such exercise carried out by assessee we are unable to hold that AOs estimates should be interfered. If assessee chooses to be silent on material aspects of ascertainment of computation of correct profits and dislodge the estimate by specific details , the same is at its risk. Consequently AOs estimate cannot be held to be arbitrary, unreasonable or capricious. Thus assessee's grounds about rejection of books and estimation of profits fail. 32.3. Since we have upheld the estimation of profits on the basis of gross receipts, assesses ground 6,7 and 8 becomes infructious and are dismissed. 33. Apropos ground no. 9 relating to claim u/s 80HHB, we are of the view that due to denial of additional depreciation assesses business profits from eligible Afghan projects will go up. In our view assessee will be eligible for proper deduction u/s 80HHB in respect of assessed eligible profits. In case of disputed eligible business profits, it is a recognized practice ....