TaxTMI 
TaxTMI 
2023 (7) TMI 1081
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....n appeal by the Revenue pertaining to the AY 2008-09. 2. The Revenue has raised the following grounds of appeal: 1. The Ld.CIT(A), has erred in law and on facts in holding that the assessee is not a contractor, but developer of infrastructure facilities and is eligible for deduction u/s.80IA(4) of the I.T Act, 1961. 2. The Ld.CIT(A), has erred in law and on facts in deleting the disallowance of Rs.6,20,01,678/- made u/s.80IA(4) of the I.T Act, 1961. 3. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 3. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in allowing the deduction to the assessee u/s 80IA (4) of the Act. 4. The assessee, a private limited company, is engaged in the business of construction activity and development of infrastructure and other projects i.e., irrigation canal, road construction. The assessee has filed its return of income on 20-08-2009 and declared total income of Rs. 25,15,950/- after claiming the deduction u/s 80IA(4) of the Act for an amount of Rs. 6,20,01,678/- only. The assessee has claimed the deduction u/s 80IA(4)....
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....INFRAPROJECTS LTD in ITA No.722 & 723/JP/2008 (v) DCIT/ACIT Circle -2, Jamnagar v/s M/S TACON INFRASTRUCTURE PVT. LTD Nos 153/RJT/2007, 365/ RJT /2007, 366/ RJT/2007, 341/ RJT/ 2008 & 342/ RJT/2008. (vi) Assistant Commissioner of Income Tax v/s Bharat Udyog Ltd. reported in (2008) 24 SOT 412. 4.4 However, the AO rejected the contention of the assessee by observing that the assessee company entered into agreement with Sardar Sorovarnarmada Nigam limited, Madhya Pradesh Road development corporation limited and Rani Avantibai Sagar Canal Division No. 2 Gotegaon, which are registered under the companies Act. Therefore, these companies are the developers, and the assessee company is only a sub-contractor. Further, these companies cannot be construed as central Govt or state Govt or local Authority, or any statutory body. The case laws on which the assessee company has placed its reliance are factually different from the facts of the present case. The AO, further on perusal of the work awarded letter issued by the party and contract agreement with them, observed that assessee company has to complete the project within a stipulated time like 21 months and 24 months as....
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.... 8) The Assessee company has not claimed the similar deduction in the FY 2002-03 despite of same contract with similar facts and circumstances. 4.5 In view of the above, the AO denied the deduction claimed by the assessee under section 80IA of the Act and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and submitted that it is a company incorporated under the companies Act 1956. The business activity of it, is governed by the object clause of memorandum of association where it is mentioned that the assessee is engaged in construction of irrigation, canal and road development being infrastructure facility. It met all the conditions prescribed under section 80-IA(4) of the Act i.e. it is an enterprise carrying on business of development of infrastructure facility, irrigation project, the enterprise owned by an Indian company, has entered into an agreement with State Government/Statutory body for development of new infrastructure and handed over the projects to such authority after development. It started maintaining the infrastructure facility on or after 01/04/1995. 5.1 The assessee further submitted that as p....
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.... subsequently amended by Finance Act 2009 was introduced with a view to prevent the benefit of section 80IA(4) of the Act to the person who merely executes the work contract for which the agreement was entered with industrial undertaking or enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. The provisions of explanation below section 80IA(13) of the Act cannot be made applicable to the assessee who made investment and carried out development work by itself. There were several cases where different Tribunals even after introduction of explanation below section 80IA(13) of the Act have held that the assessee who carried out the work of development of infrastructure facility are eligible for deduction under section 80IA(4) of the Act. 5.4 The assessee also contented that it has made substantial investment in Plant & machinery, man & material, thought and concepts, design, planning etc. for the development of the infrastructure projects. The assessee has invested in fixed assets of Rs. 1222.30 lacs and further during the year it has invested the sum of Rs. 232.50 lacs in fixed assets. ....
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....ng the execution of the project indicate that the appellant cannot be considered as a contractor. It may be clarified that a contractor is a person who does only civil construction and once the job of civil construction is over, his contract is over and the agreement ends. The contractor works as per the design and specification given and he does not involve much of his own money but raises the bill for his civil construction work time to time to collect the expenditure incurred. On the other hand, a developer is a person who takes full responsibility to develop the project by involving his managerial as well as financial responsibilities. Essentially, a developer has to design the project as per the specifications given to whom and thereafter has to execute the construction work in the capacity of a contractor. During the period of execution of project, the developer temporarily become the owner of the site on which the project is executed. In real terms, the ownership always remains with the Government. On the other hand, from the perusal of various clauses of agreement that the appellant cannot be merely termed as a contractor in the facts of this case. I am also of the view tha....
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....concepts were introduced such as BOOT (Built own operate and transfer), BOLT (Built own lease and transfer) BOT (Built operate and transfer). It was also submitted by the learned DR that there was no initial investment made by the assessee in the project as the projects were funded by the employer. It was also pointed out that the assessee has made investments which are in the nature of earnest money, performance guarantee and mobilization advance but the same concepts are also applicable in case of the works contract. Thus, based on the investment made by the assessee as discussed above cannot be concluded that the assessee is a developer. In all the contract undertaken by the assessee, there was no investment risk, rather the element of profit embedded in the projects was very much apparent. As such the assessee has not undertaken any entrepreneurial risk. The liability of the assessee was limited to the extent of the forfeiture of earnest money deposit and performance guarantee which in any way is also attached with the very nature of works contract. Furthermore, the assessee was not significantly involved in the planning and designing of the project. 9. On the contrary, the ....
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....of explanation to below section 80IA(13) of the Act. Further, the AO alleged that ownership of the project does not lie with the assessee and the assessee was not engaged in developing, operating, or operating or maintaining the infrastructure facility. Assessee has entered into a contract with the company incorporated under the Company Act and not with the Central Govt, State Govt, Local Authority or Statutory Body as mandated under the provisions of the Act. 11.1 Before we dwell upon the issue involved in the case on hand, it is pertinent to refer to the history of the provisions of section 80IA(4) of the Act. Section 80-IA was first introduced by the Finance Act 1991 for providing a deduction from tax to the industrial undertaking. The purpose of providing such deduction was for the modernization and expansion of industrial undertaking. 11.2 However, the provision of this section was amended by the Finance Act 1995 because the legislature realized that the modernization of industrial undertaking requires development of infrastructure facilities. This fact can be verified from the memorandum explaining the amendment in the section as reproduced below: Industrial mo....
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....of the Act reads as under: (4) This section applies to- (i ) any enterprise carrying on the business 91[of (i) developing or ( ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :- 11.5 A plain reading of the above provision reveals that under the amended provisions of section 80-IA(4) of the Act, the assessee is entitled to such benefit, even if it is engaged only in developing the infrastructure facilities. 11.6 Subsequently, an Explanation to section 80-IA of the Act was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but the same was made applicable with retrospective effect i.e. 1-4-2000. This explanation denies the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. At this juncture, it is pertinent to refer the provisions of the Explanation attached below section 80-IA(13) of the Act as reproduced below: "For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a b....
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....se for the developer is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the developer shall facilitate the people to use the available existing facility even while the process of development is in progress. (c) That a developer has to discharge managerial responsibility by engaging the requisite qualified/ skilled/ semi-skilled staff and the labourers including the other supporting staff. As such, the developer undertakes the complete responsibility of the manpower to be used in developing the infrastructure facility. (d) The assessee has to utilize its expertise, experience including its technical knowhow in the development of the project. (e) That a developer has to undertake financial responsibility. A developer is therefore expected to arrange finance either by private placement or from financial institution for the proper development of the project at its own risk. Thus, the developer is the one who undertakes entrepreneurial and investment risk besides the business risk. (f) That a developer is required to bring the qualitative materials. The Government does not p....
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....r section 80-IA(4) of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer. 11.13 Now, the controversy arises that how to find out whether the assessee is acting as a developer or works contractor in the light of the provisions of explanation to section 80IA(13) of the Act. To our mind, it is possible to ascertain by finding out whether a civil construction/ infrastructure work is assigned on development basis or works contract basis within the parameters as discussed above. Further, these parameters can be analyzed only based on the terms and conditions of the agreement. 11.14 In the backdrop of the above stated discussion, we proceed to analyze the facts of the present case to find out whether the assessee is acting as a developer or works contractor. The assessee in the year under consideration has undertaken certain projects and claimed a deduction under section 80IA of the Act. The details of all the projects whether eligible for deduction or not under section 80IA(4) of the Act along with the amount of deduction under section 80IA(4) of the Act stand as under: S. No NAME OF THE PROJECT AMOUNT ELIG....
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....he extent specified in the contract), execute and complete the work in accordance with the contract and with the engineer's instructions, and shall provide remedy any defects in the works. As per Clause No. 4.1 on page No. 433, it was mentioned that contractor shall be responsible for the detailed design of major/ medium bridges or shall get proof checked from the competent authority. (C) Performance Security clause 4.2 page No. 353 i) The contractor shall deliver the Performance security within 28 days after receiving the letter of acceptance which is valid and enforceable until the contractor has executed and completed the work and remedied any defects. (D) Setting Out, clause 4.2 Page No. 355 i) Contractor shall set out the works in relation to original points, lines and levels of reference specified in the contract or notified engineer. The contractor shall be responsible for the correct positioning of all parts of the work and shall rectify any error in the positions, levels, dimensions, or alignment of the work. (E) Safety Procedures clause 4.8 Page No. 355 Contractor Shall: i) Comply with all safety regulations. ii) Take care o....
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....ecute all the work required to remedy defects or damage, as may be notified by the employer at the risk and cost to the contractor. (N) Advance Payment clause no 14.2 page no 388 The employer shall make an advance payment as an interest free loan from the mobilization and cash flow support when the contractor submits a guarantee. (O) Issue of Interim Payment Certificate clause no. 14.2 page no. 391 No amount will be certified or paid until the employer has received and approved the performance security. Thereafter the engineer shall, within 28 days after receiving a statement and supporting documents, deliver to the employer and to the contractor interim payment certificate after determining the fair amount dues. (P) Payment of retention money clause no 14.9 page no 392 When the Taking-Over Certificate has been issued for the Works, the first half of the Retention Money shall be certified by the Engineer for payment to the Contractor. If a Taking-Over Certificate is issued for a Section or part of the Works, a proportion of the Retention Money shall be certified and paid. This proportion shall be half (50%) of the proportion calculated by dividin....
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....various risks undertaken by it. The assessee was to furnish a security deposit to the employer and indemnify at the same time for any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose, the MPRDCL retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of a defect, if any. Thus, it cannot be said that the assessee had not taken any risk in the given facts and circumstances especially when the assessee has undertaken the project as a whole for the development of the road right from the beginning till the end. Thus, on perusal of the terms and conditions in the tender documents furnished by the assessee, it is clear that the assessee was not a works contractor simply but a developer and hence, the explanation to section 80- IA(13) does not apply to the assessee. 11.18 Going forward, we find in this context, the Hon'ble Pune Tribunal in the case of B.T. Patil& Sons Belgaum Constructions (P.) Ltd. [2013] 34 taxmann.com 97/59 SOT 61 (URO) after referring to ....
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....elevant portions of which are reproduced supra, the assessee has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources. Hence, undoubtedly entering into lawful agreements and thereby becoming a contractor should, in no way, be a bar to the one being a developer since the role of a developer is larger than that of a contractor. As such it follows from the above that the assessee, who is engaged in developing the infrastructural facility, is rightfully entitled to the benefits of deduction u/s.80IA(4) of the Act" 11.22 In view of the above, it can safely be concluded that the assessee has undertaken projects which are in the nature of infrastructure facilities in the capacity of the developer as admitted by the ld. CIT-A. Accordingly, we concur with the findings of the Ld. CIT(A) that the assessee has undertaken the projects of infrastructure facility as envisaged under the provisions of section 80 IA(4A) of the Act in the capacity of the developer. 11.23 Moving further, we note that there is no ambiguity to the fact that the word developer and the works contract has nowhere been defined un....
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....ture has not shown any income. It also appears that MPRDCL is not claiming any deduction under section 80IA(4) of the Act. At the time of hearing, a question was raised to the learned DR but he failed to provide any information with respect to the deduction claimed by MADC u/s 80IA(4) of the Act. Thus, the question arises who will claim the deduction under section 80IA(4) of the Act. As such, we are of the view that the provisions of section 80IA(4) should not be read in a way to make it redundant or irrelevant. Accordingly, we are inclined to grant the benefit to the assessee under the provisions of section 80IA(4) of the Act. 11.26 Moving forward, there is no dispute to the fact that the benefit of deduction under section 80IA(4) of the Act was denied to the assessee based on the explanation brought under the statute below sub-section (13) of section 80 (IA) of the Act which has been elaborated in the preceding paragraph. At this juncture, let us understand the role of the explanation explaining the provisions of the Act. In our considered opinion ordinarily, an explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may be possible ....
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....ion (4) of section 80IA even after the amendment in the year 2002 envisaged deduction in case of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Even without the aid of the explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. Particularly, bearing in mind the observations made by this Court in the case of Radhe Developers (supra), there would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility." 11.29 Regarding the contention of the learned DR that the assessee for claiming the deduction under section 80IA(4) of the Act must derive income from the use of such infrastructure facility, the argument of the learned DR to our mind is totally misplaced. It is for the reason that the role of the assessee in the given case is limited to the extent of developing the infrastructure facility. Under the old provisions of the Act, it contained the concept of built, operate, maintained, transfer, wherein the assessee after developing the road used to operate those roads an....
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....he development of the road and therefore the assessee is not eligible for deduction under section 80IA(4) of the Act is again misplaced in our considered opinion. The Hon'ble Delhi High Court in the case of CIT Vs. VRM India Ltd reported in 57 taxmann.com 325 has held as under: "Since the assessee developed an infrastructure facility/project and was not required to maintain or operate, it was entitled to cost, plus the margin of income or profit; not to expect this treatment would render one who develops an infrastructure facility project, unable to realise its cost. If the infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, the mere circumstance that the Indian Railways or DDA paid for development of a housing project carried out by the assessee, did not mean that the assessee did not develop the residential complex. If the revenue's interpretation is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IB (10). The conclusions of the ITAT in this context were rendered after a detailed....
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....f the case in holding that the assessee is entitled to deduction u/s 801A. The Ld. CIT(A) has failed to appreciate that the assessee has only done contract work and is not a developer of infrastructure facility. Further, the Ld. CIT(A) has failed to appreciate that the assessee has done contract work for the Sardar Sarovar Narmada Nigam Ltd., which is a company incorporated under the Companies Act, 1956 and which cannot be held to be a Statutory Body. 2. The Ld. CIT(A) has erred in law and on the facts of the case in directing to exclude only net interest income from the eligible profit for calculation of deduction u/s 801A. 3. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of employees contribution to the Provident Fund at Rs. 1,01,354/- u/s 36(1)(va). 4. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld.CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above effect. 13. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) ....
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....ld as under: 'So far as the issue with regard to netting of interest is concerned, the same will be now governed by the decision of the Apex Court in the case of ACG Associated Capsules (P.) Ltd. (supra), wherein it is observed as under:- 'Before we deal with the contentions of learned counsel for the parties, we may extract Explanation (baa) to Section 80HHC of the Act. "Explanation:- For the purposes of this section,- (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by- (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India". 9. Explanation (baa) extracted above states that "profits of the business" means the profits of the business as computed under the head "Profits and Gains of Business or Profession" as reduced by the ....
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....) to Section 80HHC of the Act, we rely on the judgment of the Constitution Bench of this Court in Distributors (Baroda) P. Ltd. v. Union of India and Others (supra). Section 80M of the Act provided for deduction in respect of certain inter corporate dividends and it provided in sub-section (1) of Section 80M that "where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to" a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words "such income by way of dividends" in sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be....
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....ay High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra). We must, thus, examine whether reasons given by the High Court in its judgment in Commissioner of Income- Tax v. Asian Star Co. Ltd. (supra) were correct in law. 14. On a perusal of the judgment of the High Court in Commissioner of Income- Tax v. Asian Star Co. Ltd. (supra), we find that the reason which weighed with the High Court for taking a different view, is that rent, commission, interest and brokerage do not possess any nexus with export turnover and, therefore, the inclusion of such items in the profits of the business would result in a distortion of the figure of export profits. The High Court has relied on a decision of this Court in Commissioner of Income-Tax v. K. Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which the issue raised before this Court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing....
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....t, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an assessee could be deducted under clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee. 16. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs. CIVIL APPEAL No. 4534 OF 2008 This is an appeal against the order dated 19.01.2007 of the Delhi High Court in I.T.A. No. 541 of 2006. 2. The facts of this case very briefly are that Bharat Rasayan Limited (for short 'the assessee') filed a return of income tax claiming a deduction of Rs. 72,76,405/-under Section 80HHC of the Act. In the assessment order, the Assessing Officer held that ninety per cent of the gross interest has to be excluded from the profits of the business of the assessee under Explanation (baa) to Section 80HHC of the Act and....
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....come Tax reported in [2012] 343 ITR 89 (SC) such issue in the context of deduction under Section 80HHC of the Act has been settled. It is held that it would only be the net of the interest excluding the expenditure incurred in earning such interest income which should be excluded for the purpose of under Section 80 HHC of the Act. To our mind, same would apply even when the revenue desirous to exclude certain interest income from the deduction available under Section 80IA of the Act. In our view, the Tribunal committed no error." 3. In the result, Tax Appeal is dismissed. 17.2 Likewise, the ITAT Ahmedabad Bench in the recent case of M/s Vijay M. Mistry Construction Pvt. Ltd. in ITA Nos. 2938/Ahd/2011 & 8 Ors. for A.Ys. 2007- 08 to 2013-14 & 2016-17 has held as under: 36. So far as the bank interest on bank guarantee is concerned, the same is found to be covered in favour of the assessee by the judgment passed in case of Rajkamal Builders Infrastructure P. Ltd. vs. DCIT in ITA Nos. 118/Ahd/2019 & Ors. While granting relief to the assessee, the Co-ordinate bench has been pleased to observe as follows: "46. Before us, the counsel for the assessee reiterat....
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....oney placed for business purpose cannot be treated as income from other sources and is, therefore, eligible for deduction under section 80IA of the Act. Further, various higher judicial authorities have held that profits of the business of the undertaking include other incidental incomes derived from the business of the undertaking. This being the position of law, we have no hesitation in accepting the claim of the assessee that the income earned from the deposits is business income is eligible for deduction under section 80IA of the Act. Accordingly, this common ground raised in the appeals under consideration is allowed in favour of the assessee and against the Revenue." We do not find any reason to deviate from the stand taken by the Co-ordinate Bench in identical facts and circumstances of the case. We, therefore, respectfully relying on the same, allow this bank interest on bank guarantee to the tune of Rs.11,46,733/- for the deduction made under Section 80IA of the Act. This ground of appeal will apply mutatis mutandis in the appeal preferred by the assessee for A.Ys. 2008-09 & 2009-10. ITA Nos. 2938/Ahd/2011 & 8 Ors. (Vijay M. Mistry Construction Pvt. Ltd.) A.Ys.- 2....
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....d before the due date of filing the return of Income as specified under section 139 of the Act. 22. The Ld. CIT-A accepted the contention of the assessee by observing that the assessee paid the sum of employee's contribution towards ESIC on/before the due date in accordance with the provisions of section 43B of the Act. 23. Being aggrieved by the order of the Ld. CIT-A, the Revenue is an appeal before us. 24. The Ld. DR before us vehemently supported the order of the AO. On the other hand, The Ld. AR for the assessee before us filed a paper running from pages 1 to 98 and agreed that the judgment of Hon'ble Gujarat High Court in the case CIT v/s Gujarat State Road Transport Corporation reported in 366 ITR 170 is squarely applicable if the payment of employee contribution towards ESI/PF is paid after the due date of the relevant Act then the sum which has been paid after due date should be disallowed as per the provisions of section 36(1)(va) of the Act. 25. We have heard the rival contentions of both the parties and perused the materials available on record. The issue arises before us whether the payment of employee's contribution made by the assessee is eligible for ded....
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....ssessee in its ground of appeal for the AY 2006-07 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment year 2006-07. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 13 of this order in favour of the assessee and against revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2006-07. Hence, the ground of appeal filed by the assessee is hereby allowed. 29. The ground No. 2 of assessee's appeal is consequential in nature and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 29.1 In the result, the appeal of assessee is partly allowed. Coming to ITA No. 2144/AHD/2010, an appeal by the assessee for the AY 2007-08 30. The assessee has raised the following grounds of appeal: 1. That on facts and in law the learned Commissioner of Income-tax (Appeals) has grievously erred in confirming the disallowance of claim of deduction under section....
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.... not justified in again estimating the GP rate at 19.5% merely reducing the percentage of GP as estimate by the AO in utter disregard to the fact that the GP disclosed by the appellant in the audit books of account is just and fair and represented the true profits of the Business. 3. The order passed by the learned CIT(A) is against law and facts of the appellant's case in estimating the GP rate at 19.5% and retaining addition on account of enhanced Gross Profit on the basis of pure guess & without reference to any evidence or materials at all including industry comparable. 4. The order passed by the learned CIT(A) is against law and facts on the file in estimating the GP rate at 19.5% by arbitrarily adopting a highest GP rate of one comparable Company and failing to notice the lower GP rate of the other industry comparable as cited by the Appellant. is therefore that the GP addition confirmed by be deleted. 5. The Id. has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. 6. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings....
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....t site of assessee company and other persons have been recorded. Such statements indicate that the assessee company was not allotted any work on sub- contract basis. 8) To verify the claim of the assessee that it has made payment to Kolkata based companies in respect of subcontract work awarded to them, a survey u/s 133A of Income tax act has been carried out at three premises. During the survey proceedings, it was ascertained that M/s STUP consultant Pvt ltd was appointed as independent inspection agency by the Jharkhand road project implementation company limited who in turn report to JRPICPL. Statements were recorded u/s 131 of the I.T. Act from the team leader and deputy team leader of STUP Consultant Private ltd. They stated that contract work has been done by the assessee company and no subcontract work was done by them. Statement of various employees were also recorded who also stated that earthwork was being done by the assessee itself. 9) Further, the AO was issued a letter vide dated 28-10-2010 to inquire about the engagement of alleged subcontractors in respect of project awarded by the JRPICL to the assessee. In response to such letter JRPICL has denie....
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....2 Average Ratio as per the Book Results shown by the Appellant G.P % 17.43 18.95 19.20 18.53 N.P% 5.44 4.86 7.73 6.01 38.3 The assessee before the Ld. CIT(A) further submitted that assessee is being regularly assessed to tax since past 7 assessment years and even more. All these assessments have been subject matter of scrutiny assessments and some of the cases are yet pending before the ITAT. However, in all the cases, the books of accounts of the assessee were accepted without any rejection u/s 145(3) of the Act. The details of GP ration declared by the assessee during the AYs 2004-05 to 2011-12 is detailed as under and up to AY 2008-09 no addition was made by the AO on account of GP addition. Following is the summary of the Gross Profit earned by the Assessee is the Seven Assessment Years i.e AY 2005-06 to AY 2011-12 to which the Assessee was subject to the Assessment u/s.143(3) r.w.s 153 pursuant to Search u/s.132 of the Act. Assessment year Gross Profit percentage declared by the Assessee in Books Gross Profit percentage as Assessee by the AO Variation made by the AO in GP 200....
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....mently supported the order of the authorities below to extent favourable to them. 42. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO rejected the books of accounts after invoking the provisions of section 145(3) of the Act and estimated the net profit at 21% gross receipt which was scaled down by the learned CIT(A) to 19.5% of the gross turnover. Before us, the assessee has not challenged the action of the authorities below with respect to the rejection of the books of accounts made by them under the provisions of section 145(3) of the Act. In simple words the decision of the authorities below for rejecting the books of accounts has reached to the finality and no interference to this effect is required to be made. . 42.1 It is the trite law that once the books of accounts have been rejected, the only resort available to the revenue is to determine the income of the assessee in the manner provided under section 144 the Act to the best of the judgment. The Hon'ble Supreme Court in Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 Taxman 71 held that rejection of books of ....
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....thout any cogent material. His ad hoc estimate of expenses divorced from the relevant facts cannot be upheld. 42.6 Now coming to the facts of the present case, first, we note that the foundation of rejecting the books of accounts and estimating the gross profit of the assessee was based on the fact that the assessee has made purchases from the shell companies. However, we note that there was no purchase made by the assessee from the so-called alleged shell companies and therefore we are of the view that no addition is warranted in the year under consideration. As such the gross profit declared by the assessee in the books of accounts should be accepted as it is. Thus, the ground of appeal of the assessee for the AY 2009-10 is allowed and ground of appeal of the Revenue is dismissed. 42.7 For the assessment year 2010-11, we note that the AO has estimated the Gross Profit @ 21% of gross receipt on ad-hoc basis. The assessee before the learned CIT(A) furnished the list of comparable companies along its GP ratio for the relevant assessment year. The learned CIT(A) observed that the comparable companies furnished by the assessee are public companies whereas the assessee company is....
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....nal Gross profit of A.Y. 2010-11 is declared at 18.95% of the gross turnover. On perusal of the order of the authorities below, nothing was found out whether there was any change in the facts and circumstances of the year under consideration viz a viz in the earlier years. There was no change in the business activity of the assessee. Accordingly, we workout the differential amount of gross profit at .35% (average gross profit of last 3 years @ 19.35% - current year GP @ 18.95) of the turnover and direct the AO to make an addition of Rs. 68,36,22056.00 being .35% of Rs. 201,06,53,107.00 only. Thus, the ground of appeal of the assessee for the AY 2010-11 is partly allowed and ground of appeal of the Revenue is dismissed. 42.9 Likewise, for the AY 2011-12 we note that the average gross profit of the assessee in the last three years i.e. A.Y. 2008-09 to A.Y. 2010-11 stands at 18.52% (18.82 + 17.43 + 19.30) whereas the original Gross profit of A.Y. 2011-12 is declared at 18.95% of the gross turnover. Thus, it is seen that the assessee has declared greater gross profit than of the earlier years. Accordingly, we are of the view that no addition is warranted in the given facts and circu....
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....n in ITA No. 1892/AHD/2013 shall also be applicable for the assessment year 2009-10. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the revenue is hereby dismissed. 50. In the result, the appeal of revenue is dismissed. Coming to ITA No. 367/AHD/2013, an appeal by the assessee for the AY 2010-11. 51. The assessee has raised the following grounds of appeal: 1. The Learned CIT(A) erred in law and on the facts of the case in confirming action of the AO in rejecting the books of accounts by neither assigning any defect in the accounts of the Assessee nor issuing specific show cause notice for the same and arbitrarily rejecting the book results with capricious observation that books of accounts of the Assessee does not reflect true and reliable affairs of the company. 2. The order passed by the learned CIT(A) is against law and facts of the appellant's case, in as much as CIT(A)....
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....sue raised by assessee is premature at this stage and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 56. In the result, the appeal of assessee is hereby partly allowed. Coming to ITA No. 387/AHD/2013, an appeal by the revenue for the AY 2010-11. 57. The revenue has raised the following grounds of appeal. (1) The Ld. CIT(A) has erred in law and in facts in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of the turn over by the Assessing Officer. (2) The Ld. CIT(a) has erred in law on it facts in deleting the disallowance of deduction of Rs. 141615019/- u/s. 801A (4) of the IT Act. (3) On the facts and in the circumstances of the case and in law the CIT(A) has ought to have upheld the order of the AO. (4) It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent. 58. The first issue raised by revenue is that the learned CIT(A) has erred in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of turnover adopted by AO. 59. At the outset, we note....
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.... appellant's case in estimating the GP rate at 19.5% and retaining addition on account of enhanced Gross Profit on the basis of pure guess & without reference to any evidence or materials at all including industry comparable. 4. The order passed by the learned CIT(A) is against law and facts on the file in estimating the GP rate at 19.5% by arbitrarily adopting a highest GP rate of one comparable Company and failing to notice the lower GP rate of the other industry comparable as cited by the Appellant. It is therefore prayed that the GP addition confirmed by the CIT(A) please be deleted. 5. The has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. 6. The ld. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(1)(c) of the Act. 7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 63. The interconnected ground raised by the assessee is that the Ld. CIT(A) erred in estimating the GP at 19.5% without a....