Case Law Details
Brief of the Case
ITAT Hyderabad held In the case of M/s. KNR Constructions Ltd. vs. DCIT that no such adverse inference however was drawn by the A.O. in the case of the concerned two sub-contractors and in the assessments completed under section 143(3) in their cases, the amount claimed to be paid by the assessee on account of sub-contract work was accepted by the A.O. It is, thus, clear that a contrary stand is taken by the A.O. on this issue and while accepting the contract receipts in the hands of the concerned two subcontractors in whose cases the defects and deficiencies were found by him, the A.O. did not accept the payment of the same amount made by the assessee in its case. Moreover, there was no evidence brought on record by the A.O. to show that the amount of subcontract expenses allegedly inflated by the assessee had come back to it from the sub-contractors.
Facts of the Case
The assessee is a company which is engaged in the construction business. Prior to the search and seizure action taken in its case on 08.12.2011, the assessee had filed its returns of income for six out of the seven years under consideration i.e., A.Ys. 2006-07 to 2011-12 and assessments under section 143(3) were also completed for the first three years i.e., A.Ys. 2006-07, 2007-08 and 2008-09. Consequent to the conclusion of the search and seizure action on 03.02.2012, notices under section 153A were issued by the A.O. on 09.10.2012.
In response to the said notices, the returns of income for the relevant six years were filed by the assessee claiming therein deduction under section 80IA. Meanwhile, the return of income for A.Y. 2012-13 was also filed by the assessee on 29.09.2012 claiming deduction under section 80IA. Thereafter notices under section 143(2) were issued by the A.O. to the assessee on 07.08.2013 for all the seven years under consideration. During the course of assessment, the claim of the assessee for deduction under section 80IA was examined by the A.O. On such examination, he found that the deduction under section 80IA was not claimed by the assessee either in its returns originally filed for the relevant six years i.e., A.Ys. 2006-07 to 2011-12 or even during the course of assessment proceedings for the said years and the same was made for the first time in the returns filed in response to notices under section 153A for the said years.
Relying on the decision of Hon’ble Supreme Court in the case of CIT vs. Sun Engineering Pvt. Ltd., 198 ITR 297 and that of Hon’ble Rajasthan High Court in the case of Jai Steel (India) vs. ACIT (2013) 259 CTR 281 (Raj.), he held that the assessee was not entitled to claim such a new relief for deduction under section 80IA in the returns filed in response to the notices issued under section 153A. Accordingly, the claim made by the assessee for deduction under section 80IA not allowed by the A.O.
AO also held that infrastructure facility developed by the assessee was not owned by it, the basic condition stipulated in sub-clause (a) of clause (1) sub-section (4) of section 80IA was not satisfied and the assessee therefore, was not entitled for deduction under section 80IA on merit also.
Exemption on account of agricultural income
In its return of income filed for A.Ys. 2009-10 to 2012-13, the lease rent received from the agricultural land owned by it was declared by the assessee as agricultural income and the same was claimed to be exempt from tax. During the course of assessment proceedings, the copies of relevant deed evidencing purchase of agricultural land as well as declaration of the concerned farmers who had taken the said land on lease were filed by the assessee.
On the basis of the findings i.e lease agreements were not produced as well as it was found that agricultural operations is not one of the objectives of the assessee, the AO held that the claim of the assessee for agricultural income could not be accepted and the lease rent received by it for all the relevant four years under consideration was added to the total income of the assessee as unexplained cash credits.
Inflation of subcontract expenses
In its returns of income for A.Ys. 2011-12 and 2012-13, substantial sub-contract expenses were claimed by the assessee. On verification of the said expenses the A.O. found many discrepancies which were listed by the A.O. in the show cause notice issued to the assessee calling for its explanation. A detailed explanation in this regard was furnished by the assessee which was summarized by the A.O. in his assessment order. He however, did not find the same to be acceptable and on the basis of adverse findings recorded by him in relation to the case of the sub-contractor M/s. GTC, the A.O. came to the conclusion that there was no evidence to establish that the work was carried out by the said sub-contractor as claimed by the assessee. He however, agreed that such work as per the scope of work and contract given to the assessee by NHAI was actually executed.
By applying the theory of preponderance of probability, the A.O. inferred that M/s. GTC was used by the assessee as conduit for inflating the expenditure under the Head “Sub-contract Expenses”. He therefore, proceeded to make an estimation of actual expenditure which might have been incurred by the assessee on execution of the sub-contract purportedly given to GTC. Finally an amount of Rs. 6 crores as the sub-contract expenses claimed by the assessee were disallowed by him to that extent in A.Y. 2011-12 and the on same grounds an amount of Rs. 3 crores was disallowed by the AO in AY 2012-13.
Contention of the Assessee
The ld counsel of the assessee relied on the decision of the Mumbai Bench of this Tribunal in the case of DCIT vs. Eversmile Construction Co. P. Ltd., ITA No.423/Mum/2010, wherein while dealing with a similar issue, the main features of the relevant provisions were noticed by the Tribunal and it was held that any deduction claimed by the assessee in the proceedings under section 153A could not be rejected simply on the ground that it was not claimed in the original assessment.
Contention of the Revenue
The ld counsel of the revenue submitted that the assessee is a contractor and not developer and the assessee does not develop any infrastructure facility by investing own funds. Rather it executed the work contracts awarded by the clients involved in construction of infrastructure related projects. Merely by executing the contracts relating to infrastructure projects assessee cannot be treated as ‘’developer’’ of infrastructure.
Further according to the ld. Departmental Representative the provisions of 80IA (4) applies to any enterprise which is ‘’owned by a company registered in India or by a consortium or a corporation or any other body established or constituted under any Central or State Act’’. In this case, the assessee is an individual having proprietary concern engaged in the business of civil contract work in the relevant financial year and hence it is also hit by the above condition laid down in Sec.80IA (4) (i) (a).
Held by CIT (A)
CIT (A) held that the ownership of the infrastructure facility was not the condition for claiming deduction under section 80IA. He held that what is contemplated by sub-clause (a) of clause (1) of sub-section (4) of section 80IA is the ownership of the enterprise and not the ownership of the infrastructure facility. For this conclusion, he relied on the various case laws cited by the assessee wherein a similar proposition was propounded. He therefore, did not agree with the view of the A.O. that the assessee was not entitled for deduction under section 80IA on merit.
As regards the decision of the A.O. that assessee was not entitled to claim deduction under section 80IA for the first time in the returns of income filed in response to the notice issued under section 153A for A.Ys. 2006-07 to 2011-12, the CIT (A) held that As regards the A.Ys. 2006-07 to 2008-09, he held that the original assessments having been already completed before the date of search, the assessments that were made by the A.O. under section 143(3) read with section 153A were “re-assessments” during the course of which, assessee was not entitled to make a new claim for deduction under section 80IA which had not been made in the original assessment. Accordingly, relying on the decision of Hon’ble Rajasthan High Court in the case of Jai Steel (India) vs. ACIT (2013) 259 CTR 281 (Raj.), he upheld the disallowance made by the A.O. on account of assessee’s claim for deduction under section 80IA for A.Ys. 2006-07 to 2008-09.
As regards A.Ys. 2009-10 to 2011-12, he held that the original assessment proceedings having got abated, the proceedings under section 153A constituted original proceedings and the assessee therefore, was entitled to make the claim for deduction under section 80IA. For this conclusion, he again relied on the decision of Rajasthan High Court in the case of Jai Steel (India) vs. ACIT (2013) 259 CTR 281 (Raj.). Accordingly CIT (A) allowed the deduction u/s 80IA for A.Ys. 2009-10 to 2012-13 whereas, the action of the A.O. in disallowing such claim for A.Ys. 2006-07 to 2008-09 was upheld.
Exemption on account of agricultural income
The CIT (A) found merit in the submissions made by the assessee and accepted the claim of the assessee on account of agricultural income in all the relevant four years. It was held that merely because the pattadar books are yet to be issued to the appellant, the ownership of the land as testified by the title deeds and the giving of lands for lease as testified by the declaration of the farmers cannot be denied. I also find that an appellant declares 82.37 crores as total income but disguises Rs.2,00,000/- income as agricultural income to avoid tax payment on that portion.
Inflation of subcontract expenses
CIT (A) held that the disallowance made by the A.O. on account of alleged inflated sub-contract expenses was not justified and the same was deleted by him in both the relevant years i.e., A.Ys. 2011-12 and 2012-13.
Held by ITAT
After going through the Judgment of Hon’ble Rajasthan High Court in the case of Jai Steel (India) vs. ACIT 2013) 259 CTR 281 (Raj.) , we find that the facts involved therein were materially different from the facts involved in the present case as rightly pointed out by the Ld. Counsel for the assessee. First of all, the claim made by the assessee in the said case in the return filed in response to the notice under section 153A for the first time was that the Sales Tax incentive received by it was a capital receipt and the same being a subject matter of claim and not a regular allowable deduction as per the provisions of the Act, it was considered that the same required the initiation of claim and conclusion on the basis of facts and other judicial pronouncements. Moreover, no incriminating material was found in the said case before the Hon’ble Rajasthan High Court during the course of search and in the absence of such incriminating material, it was held that the assessment or re-assessment under section 153A would not result in any addition and the assessment passed earlier may have to be reiterated.
The decision of Mumbai Bench of this Tribunal in the case of Eversmile Construction Co. P. Ltd. ITA No.423/Mum/2010 as well as the Chennai Bench in the case of V.N. Devodoss 157 TTJ 165 is based on the relevant provisions of law including especially that of section 153A(1)(a). In the case of Hyderabad Chemicals Supplies Ltd., (ITA.No.352/Hyd/2005 dated 21.01.2011) it was held that when the decision of the Tribunal is based on the relevant provisions of law, the same is to be followed over the decision of the non-jurisdictional High Court that has been rendered without considering such statutory provisions that are directly relevant. We, therefore, follow the decision of the Chennai Bench of this Tribunal in the case of ACIT vs. VN Devodoss 157 TTJ 165 as well as the decision of Mumbai Bench in the case of DCIT vs. Eversmile Construction Co. P. Ltd. to hold that the assessee is entitled to claim deduction under section
80IA in the returns filed in response to the notices issued under section 153A for the relevant six years i.e., A.Ys. 2006-07 to 2011-12 including A.Ys. 2009-10 to 2011-12 where the assessments had been originally completed under section 143(3) prior to the date of search.
On merit basis, Hon’ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., 322 ITR 323 wherein it was held that after section 80IA was amended by the Finance Act, 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 infrastructure facility which fulfills certain conditions and one of those conditions are that the ownership of the enterprise is by a company registered in India or by a consortium. Following this decision of Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd., it was held by the Coordinate Bench of this Tribunal in the case of Sushi Hitech (ITA.No.269 & 1165/Hyd/2009 and ITA.No.1171/Hyd/2010 dated 16.03.2012) that by reading of sub-clause (a) of sub-clause (i) of sub-section (4) of section 80IA, it is clear that the enterprise carrying on development of infrastructure facility should be owned by the company and not that the infrastructure facility should be owned by a company.
It was held that the provisions are made applicable to the person to whom such enterprise belongs to, as explained in sub-clause (a) and the word “Ownership” used therein is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other person like individual, HUF, firm etc. This issue thus is squarely covered in favour of the assessee inter alia, by the decision of Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd. 322 ITR 323, which has been followed by the Coordinate Bench of this Tribunal in various cases and respectfully following the same, we uphold the impugned order of the CIT (A) holding that the assessee is entitled for deduction under section 80IA on merit in all the seven years under consideration.
Exemption on account of agricultural income
It is observed that the claim of the assessee for exemption on account of agricultural income was accepted by the CIT (A) after having found that the ownership of agricultural land by the assessee was duly evidenced by the sale deed. He also found that the claim of the assessee of having given the said land to the farmers on lease was duly supported by the declaration filed by the said farmers. On the basis of these findings recorded by him in the light of documentary evidence available on record, the CIT (A) held that the pattadar passbook relied upon by the A.O. to deny the claim of the assessee of ownership of agricultural land was irrelevant as the purpose of the same was only to facilitate taking a loan from bank and it was never a document to establish the ownership of agricultural land. He also noted that it was common practice adopted in giving agricultural lands on oral agreements and the claim of the assessee of having given its agricultural land to farmers which was duly supported by the declarations filed by the concerned farmers could not be denied merely for want of written agreement as done by the A.O. Having regard to all these finding of facts recorded by the CIT (A) based on the relevant documentary evidence, which have not been controverted or rebutted by the learned D.R. at the time of hearing before us, as well as other findings given by him in the impugned order, we find no justifiable reason to interfere with the impugned order of the CIT (A).
Inflation of subcontract expenses
The AO observation that concerned two contractors were used by the assessee as conduit to inflate the sub-contract expenses, the A.O. mainly relied on the various defects noticed by him in the maintenance of books of account and other record by the concerned contractors. In the detailed submissions filed before the A.O., attempt was made by the assessee to explain the defects pointed out by the A.O. in the case of sub-contractors. The A.O. however, brushed aside this explanation of the assessee and proceeded to draw an adverse inference against the assessee by alleging the inflation of expenditure relying on the defects or deficiencies in the books of account and other record maintained by the concerned two sub-contractors, which are third parties not related to the assessee. It is pertinent to note here that no such adverse inference however was drawn by the A.O. in the case of the concerned two sub-contractors and in the assessments completed under section 143(3) in their cases, the amount claimed to be paid by the assessee on account of sub-contract work was accepted by the A.O. It is, thus, clear that a contrary stand is taken by the A.O. on this issue and while accepting the contract receipts in the hands of the concerned two subcontractors in whose cases the defects and deficiencies were found by him, the A.O. did not accept the payment of the same amount made by the assessee in its case.
Moreover, there was no evidence brought on record by the A.O. to show that the amount of subcontract expenses allegedly inflated by the assessee had come back to it from the sub-contractors. Furthermore, as rightly pointed out by the Ld. Counsel for the assessee at the time of hearing before us, both the concerned subcontractors are not related to the assessee and once it is established that the concerned sub-contract work was actually done or executed and this fact was accepted even by the A.O. by allowing partly the sub-contract expenses, no disallowance on account of sub-contract expenses can be made on the ground that the expenses so incurred by the assessee are excessive or unreasonable.
Accordingly all appeals of the assessee allowed and all appeal of the revenue dismissed.
