TaxTMI 
TaxTMI 
2023 (7) TMI 1081
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.... 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) of the Act during the year on the following projects. S.NO PROJE....
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....T /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 per the agreement. The assessee company has agreed to render the services mentioned in the tender and provide its services as required for the project. The as....
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.... 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 per the amended provisions of section 80IA(4) of the Act, an enterprise which is engaged in carrying out only the work of development is eligible for deduction. The word developer has not been defined under this Act. Howev....
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.... 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. 5.5 The assessee further submitted that it had not claimed the deduction u/s 80IA(4) of the Act in earlier year, solely for the reason that the chartered accountant who was attending to the income tax matters, either out of ign....
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....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 that merely the fact that the appellant is termed as 'contractor' in the various agreements and also the fact that TDS is made u/s. 194C, one cannot infer that the appellant as contractor. the issue of ownership as pointed out by the AO ....
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.... 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 learned AR before us filed a paper book running from pages 1 to 483 and synopsis of arguments and contended that the assessee was the project in charge for the entire infrastructure facility. It cannot be said that the assessee was only performing part of the....
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....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 moderanisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the....
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....amely :- 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 business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). " 11.7 The explanation reproduced above denies the benefit of deduction under ....
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....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 provide any material to the assessee. (g) That a developer is required to bring plant and machineries to be utilized in the project. (h) Any loss caused to the public or the Government in the process of developing the project, it would be the responsibility of the developer. The Government shall not take any responsibility for any such kind of loss....
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....her 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 ELIGIBLE U/S 80IA 1 CONSTRUCTION OF CHINDWARA-AMARWARNARSINGHPUR ROAD 4,96,50,980/- 2 CONSTRUCTION OF CANAL SERVICE ROAD TO KUTCHCHH BRANCH CANAL CH. 112.500 TO 122.219. 31,20,355/- 3 UPGRADATION REHABILIATION AND STENGTHENING OF PACKAGE-14, LAKHNADAN-,MANDIA-DINDORI (SH-10) ROAD PROJECT. 80,35,352/- 4 CONSTRUCTION OF SAURASHTRA BRANCH CANAL CH 50.00 TO 59.700 KM 20,155/- 5 CONSTRUCTION OF EARTH WO....
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....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 of the safety of all people entitled to be on the site. iii) Use reasonable efforts to keep the site and work clear of unnecessary obstruction to avoid danger to these persons. iv) Provide fencing, lighting, guarding, and watching of the work until the completion and taking over the project by the employer. v) Provide the temporary works (including roadways, footways, guard, and fences) which may be necessary, because of the execution of the works for the use and protection of the public and of owners and occupiers of adj....
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....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 dividing the estimated contract value of the Section or part, by the estimated final Contract Price. Promptly after the latest of the expiry dates of the Defects Notification Periods, the outstanding balance of the Retention Money shall be certified by the Engineer for payment to the Contractor. If a Taking-Over Certificate was issued for a Section, proportion of the second half of the Retention Money shall be certified and paid Promptly after the expiry date of the Defects Notification Period for the Section. This proportion shall be half (50%) of the proportion calculated by dividing the estimated 2000tract value of the Section by the ....
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....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 decision of the Hon'ble Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54 has laid down certain parameters for contractors to be eligible for deduction. The said parameters for a contractor to be eligible for deduction are as follows:- (a) Undertaking financial risk by making investment. (b) Shouldering technical risk. (c) Liable for liquidated damages. (d) Employment of technical and administrative qualified team. 11.19 If the above parameters are satisfied, the contractors would be held eligible for the deduction under section 80-IA of the Act. Thus, the above parameters may act as....
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....jects 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 under the provisions of the Act. For this purpose, the rules as applicable to the interpretation of the statute should be applied. One of the rules of interpretation is to analyze the provision in the light of the object for which it was brought under the statute. In holding so we rely on the judgement of Hon'ble High Supreme Court in the case of New India Assurance Company Ltd vs Nusli Neville Wadia And Another in civil appeal no 5879 of 2007 vide order dated 31-12-2007 wherein it was held as under: "With a view to read the provisions of the Act in a proper and effective manner, we are of the opinion that literal interpretation, if given, may give rise to an anomaly or absurdity which must be....
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....eduction 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 from the existing provisions. Normally, therefore, an explanation would not expand the scope of the main provision and the purpose of the explanation would be to fill a gap left in the statute, to suppress a mischief, to clear a doubt or as is often said to make explicit what was implicit. Further, the object of an explanation to a statutory provision is - (a) To explain the meaning and intendment of the Act itself, (b) Where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to sub-serve, (c) To provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,....
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....ive 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 and used to collect tax from the vehicles using the infrastructure facility to compensate its investment. But all these requirements have been done away by the revenue as elaborated above. In holding so, we draw support and guidance from the judgment of the Hon'ble Bombay High Court in case of CITVs. GB Heavy Industries Ltd. reported in 322 ITR 323 wherein it was held as under: "Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1-4-1995. After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infr....
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....ays 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 analysis of the facts and the contracts entered into by the assessee with IRWO and DDA. The narrow ground on which the AO concluded that the projects were "owned" by IRWO or DDA and that the assessee was only a works contracts, was unwarranted." 11.32 We, therefore, do not have any doubt regarding the admissibility of the claim made by the assessee and entertain the same by giving relief to that effect. 11.33 Further the Ld. DR vehemently argued on the judgment of jurisdictional High Court in the case of Katira Construction Vs Union of India reported in 352 ITR 513 wherein the said matter was decided against the assessee. In our considered view, the matter before the Jurisdiction High court was that of constitutional validity of the insertion of explanation as men....
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.... 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) erred in holding that the assessee is entitled to deduction u/s 80IA (4) of the Act. 14. At the outset, we note that the issue raised by the revenue in its ground of appeal for the AY 2005-06 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 2005-06. The appeal of the revenue for the AY 2008-09 has been decided by us vide paragraph No.11 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 2005-06. Hence, the grounds of appeals filed by the revenue is hereby dismissed. 15. The next issue raised b....
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.... 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 receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head "Profits and Gains of Business or Profession" in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head "Profits and Gains of Business or Profession" from which deductions are to made under clauses (1) and (2) of....
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....e 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 construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 12.If we now apply Explanation (baa) as interpreted by us in th....
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.... 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 charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC (3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clauses (1) of the Explanation (baa) to Section 80HHC. This Court held that the processing charges was included in the gross total income from cashew business and hence in terms of Explanation (baa), ninety per cent of the gross total income arising from processing charges had to be deducted under Explanation (baa) to arrive at the profits of the business. In this case, this Court held that the processing charges received by the assessee were part of the b....
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....n 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 deducted ninety per cent of the gross interest of Rs. 50,26,284/- from the profits of the business of the assessee. The assessee preferred an appeal contending that only ninety per cent of the net nterestshould have been deducted from the profits of the business of the assessee under Explanation (baa) to Section 80HHC, but the Commissioner of Income Tax (Appeals) rejected this contention of the assessee. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short 'the Tribunal') and the Tribunal allowed the appeal of the assessee and held that the assessee was entitled to deduct the expenses from the interest received and only ninety per cent of the net amount of interest could be excluded under Explanation (baa) to Section 80HHC and remitted the matter to the Assessing Officer to examine whether there is factually an excess between the interest paid and interest received and take a fresh decision. The Reven....
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.... 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 reiterated submissions as were made before the lower authorities. The counsel further submitted that the interest income is earned only on fixed deposits for obtaining bank guarantee and security deposit to be placed mandatorily as per the tender when work was awarded. Hence, such interest income is business income and eligible for deduction under section 80IA(4) of the Act. In support of his contentions, the counsel relied upon the following decisions: i) AVM Cine Products Vs. DCIT, (2021) 123 taxamnn.com 41 (Mad); ii) CIT Vs. Alloys Ltd. (2017) 84 taxmann.com 256 (Guj) iii) Empire Pumps P. Ltd. Vs. ACIT, (2015) 54 taxmann.com 317 (Guj) 47. For countering the above submissions of the assessee, the DR supported orders of the Revenue authorities, which was based on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. 48. We have considered submissions of both the parties; perused relevant orders and case laws cited by the parties. We have already ho....
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....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.- 2007-08 to 2013-14 & 2016-17. 17.3 In view of the above and respectfully following the ratio laid down by the Hon'ble Courts, we hold that only net interest income should be excluded while computing the eligible income u/s 80IA(4) of the Act. Hence, the ground of appeal of the Revenue is hereby dismissed. 18. The next issue raised by the Revenue in ground no. 3 is that the Ld. CIT-A erred in deleting the disallowance of employee contribution to the provident fund at Rs. 1,01,354/- under section 36(1)(va) r.w.s. 2(24)(x) of the Act. 19. On perusal of the Form 3CD report, the AO observed that the assessee has made late payments to ESI on behalf of the employee contribution amounting to Rs. 1,01,354/- as prescribed under the relevant Act. The details of the late payments made are as under: SNO MONTH DUE DATE DATE OF PAYMENT AMOUNT 1 AUGUST 20-09-2004 21-09-2004 16,373/- 2 JANUARY 20-02-2005 21-02-2005 42,679/- 3 FEBRUARY 20-03-2005 24-03-2005 42,302/- 1,01,354/- 19....
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....efore us whether the payment of employee's contribution made by the assessee is eligible for deduction towards ESI if paid after the due date as specified under the relevant Act. In this regard, we note that the assessee has made the payment of the employee's contribution beyond the due date as specified under the relevant Act. Therefore, the same cannot be allowed as deduction. We also note that the identical issue has been decided vide order dated 15th Oct, 2018 by the Hon'ble Gujarat High Court in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. v/s DCIT in Tax Appeal No. 1256 of 2018 against the assessee. The head note reads as under: "Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) Held that:- Provision requires an employer before paying the employee his wages to deduct the employee's contribution along with the employer's own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. If not so paid then no deduction 36(1)(va)" 25.1 From the above, it is very clear that the deduction for the payment made under section 36....
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....isallowance of claim of deduction under section 801A (4) Rs. 58,82, 937/-. 2. That on facts and in law the learned CIT (Appeals) has grievously erred in holding that the assessee is a "work contractor" and not a "developer" of infrastructure facility within the meaning of section 801A (4) of the Act. 3. That on facts and in law the learned CIT (Appeals) has grievously erred in giving only consequential relief in respect interest under section 234D of the Act of Rs.30,367/- instead of deleting the same as prayed for. 4. The appellant craves leave to add, alter, amend any ground of appeal. 31. The issue raised by the assessee vide ground No. 1 and 2 is that the learned CIT(A) erred in confirming the disallowance of deduction claimed u/s 80IA(4) of the Act. 32. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2007-08 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 2007-08. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 13 of t....
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....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. 35. The interconnected issue raised by the assessee is that the Ld. CIT(A) erred in estimating the GP at 19.5% without appreciating the fact that GP declared by the assessee in its audited books of accounts represent the true and fair profit of the business. 36. A search operation was carried out u/s 132 of the Act in the case of Sadbhav Group cases as well as in the case of assessee on 05-10-2010. During the search, the AO gathered that the assessee company has booked bogus expenses through the various Kolkata based shell companies. The details of the Kolkata based companies along with the amount paid by assessee to them are contained on page 3 of the assessment order. 36.1 Simultaneously, a survey proceeding was also carried out on all the alleged shell companies. In such proceeding various information were also gathered detailed as under: 1) The assessee has deducted TDS on the payment made to these Kolkata based shell companies @ 0.01% to 0.05% in the name of the expense incurred in their nam....
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....iced that the profit earned by the assessee from the project where the assessee has done work through the alleged contractor is higher than the profit earned by assessee from the other project. However, it should be vise- versa. It means that the books of account of the assessee company are not correct and complete. Therefore, based on defective accounts, it is not possible to assess the correct income of the assessee. 36.2 Thus, the AO in view of the above rejected the books of accounts of the assessee and further observed that on verification of the comparable cases furnished during the assessment proceedings that the average GP of comparable is 13.55%. However, the comparable furnished by the assessee having higher turnover in comparison of the assessee, were rejected. 36.3 Further, the assessee has shown average GP @18.53% for the three assessment years i.e 2009-10, 2010-11, 2011-12. However, such GP declared by the assessee company is after taking into consideration of the suspicious expenses booked by it as discussed above. Therefore, the actual GP must be more than the average GP offered by the assessee company. Thus, the AO estimated the GP @21% of the turnover and added ....
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.... 2.05% 2011-12 19.20% 21.00% 1.80% 38.4 The assessee also submitted that the same AO has accepted the books of accounts for the same assessment year in the case of M/s Sadbhav Engineering who was also subject to search and engaged in the same line of business. The GP declared by M/s Sadbhav engineering during the AYs 2006-07 to AY 2011-12 as detailed under: Gross Profit Ratio of Sadbhav Engineering Limited Sr.No Assessment Year % of Gross Proift 1 2006-07 20.00% 2 2007-08 18.43% 3 2008-09 15.35% 4 2009-10 17.17% 5 2010-11 20.38% 6 2011-12 19.76% 38.5 On comparison of average GP declared by M/s Sadbhav engineer and average GP declared by the assessee, it is evident that the assessee company has declared higher GP ratio. The assessee further submitted that once the books of accounts were rejected then the profit has to be estimated on the basis of proper materials available on record. The assessee further submits the comparable GP ratio of the certain companies for the AYs 2009-10 to AY 2011-12 which is recorded on page 40-41 of the ld. CIT-A order. 38.6 The Ld. CIT(A) after considering the submission of the assessee partially allowed the appeal of the a....
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....ssessment under section 144 needed. 42.3 The next controversy arises how to make the best judgement in the manner provided under section 144 of the Act after rejecting the accounts under the provisions of section 145(3) of the Act. When the books are rejected, a lump sum addition is made to the original return of income. Such addition may be based on estimate of turnover and profit rate or disallowance of claims, expenditure, etc. as held by the Hon'ble Supreme court in case of CIT v. Pilliah & Sons [1967] 63 ITR 411(SC). 42.4 Further in the case of Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, the Supreme Court had this to say : " . . .the authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case......."(p. 530) 42.5 From the above discussion, it can be opined that best judgment assessments cannot be based on wild guess, rather it should be based on some materials available on hand relating to the assessee which should be tak....
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....vehemently contended that the profit declared by the assessee over the period and accepted by the revenue should be taken for estimating the profit for the year under consideration. We find force in the argument of the learned AR for the assessee, as in our considered view, the estimation made by the lower authorities was not based in scientific manner. The learned CIT(A) while estimating the profit has only considered one year rate of profit and one comparable ignoring the profit accepted in the own case of the assessee in earlier years and other comparable provided by the assessee. In our considered the view, the average profit declared by the assessee in the last immediate three preceding year can be adopted as the parameter for determining the income of the assessee after rejecting the books of accounts. In holding so, we draw support and guidance from the judgment of Hon'ble Gujarat High Court in case of Kiran industries Pvt Ltd (supra) Tax Aappeal No. 449 of 2011 where it was held as under: Having perused the documents on record with the assistance of the learned counsel for the revenue, we notice that the Tribunal had though confirmed the view of the revenue authorities wi....
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....e is premature in nature and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 44.1 In result the appeal of assessee is hereby partly allowed. Coming to ITA No. 386/AHD/2013, an appeal by the Revenue for the AY 2009-10. 45. 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 adopted by the Assessing Officer. (2) The Ld. CIT(A) has erred in law on in facts in deleting the disallowance of deduction of Rs. 9,44,90.563/- u/s. 80IA(4) of the IT Act. (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 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. 46. 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. 47. At the outset, we note that the ground raised by the Revenue has been adjudicated ....
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....n 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 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 ld. CIT(A) 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 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. 52. The interconnected ground raised by the assessee is that the Ld. CIT(A) erred in estimating the GP at 19.5% without ....
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.... No. 2 is that the learned CIT(A) erred in holding that the assessee is entitled to deduction u/s 80IA (4) of the Act. 61. At the outset, we note that the issue raised by the revenue in its ground of appeal for the AY 2010-11 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 years 2010-11. 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 2010-11. Hence, the ground of appeal filed by the revenue is hereby dismissed. 61.1 In the result, the appeal of revenue is dismissed. Coming to IT(SS)A No. 368/AHD/2013, an appeal by the assessee for the AY 2011-12. 62. 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 ....
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....l filed by the assessee for the AY 2011-12 is hereby allowed. 65. The next issue raised by assessee is that the learned CIT(A) has erred in confirming the action of AO in initiating penalty proceedings u/s 271(1)(c) of the Act. 66. The issue raised by assessee is premature at this stage and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 67. In the result, the appeal of assessee is hereby partly allowed. Coming to IT(SS)A No. 388/AHD/2013, an appeal by the revenue for the AY 2011-12. 68. 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. 69. The first is....