To revise claim made in Original Return filing of revised return is must

IN THE ITAT CHENNAI BENCH ‘C’

Assistant Director of Income-tax (International Taxation)

versus

Litostroj

IT APPEAL NOs. 1241, 1429 & 2132 TO 2135 (mad.) of 2010

[ASSESSMENT YEARS 2004-05, 2006-07 & 2007-08]

MARCH 30, 2012

ORDER

1. Of the above appeals, the first two appeals are of the Department for assessment year 2006-07, whereas, other appeals are of assessees for assessment years 2004-05 and 2007-08.

2. Notice for hearing was served on both the assessees by registered post and acknolwedgements dated 28.12.2011 are on record for both the assessees. Despite such notice, nobody entered appearance for the assessees.

3. Appeals of the Revenue for assessment year 2006-07 are taken up first for disposal. Effective Ground taken by the Revenue are similar in both these appeals and is reproduced hereunder:-

 2.  The Learned CIT(A) has erred in directing the assessing officer to compute the total income of the assessee at 10% of the gross receipts.

2.1  The Learned CIT(A) has erred in holding that the total income of the assessee is to be computed on the basis of section 44BBB of the IT Act.

2.2   The learned CIT(A) has erred in ignoring the findings of the assessing officer as to why the provision of section 44BBB is not applicable for the assessee since it was mentioned clearly in the assessment order that a correspondence between the Central Electricity Authority and the TNEB stating that the . project may be treated at par with the power projects approved by the Government of India cannot be construed to be the requisite approval by the Central Government for the purpose of section 44BBB.

2.3  The learned CIT(A) has erred in not appreciating that the relaxation of the condition of international financing cannot be taken to be applicable for contracts signed prior to the date of amendment of the statute.

2.4  The learned CIT(A) has also erred in holding that a portion of the consideration cannot be taxed as fees for Technical Services on the ground that the consideration is for mining or like project. It is submitted that mandate of the company was different from that of a company carrying out only assembly or construction work.

2.5  It is submitted that section 44BBB is applicable for assessees who do not maintain books of account and in the instant case, the assessee kept and maintained books of accounts and got the same audited by an accountant u/s.288 of the Income-tax Act. In fact, for the A. Y 2006-07 the assessee declared profit higher than 10% in the return of income. Having declared a higher profit the assessee cannot go back and prefer to be governed under the presumptive tax reign just because it is convenient to. The learned C!T(A) has erred in law in entertaining such claim of the assessee.

2.6  It is submitted that there is certain other infirmity in the order of the learned CIT(A) in the matter of issuance of direction to the assessing officer to compute total income of the assessee at 10% of the gross receipts under section 44BBB of the IT Act. Actually, what is determined u/s.44BBB is deemed profit under the head profits and gains from business.

In the facts of the case, the determination of the profit is subject to further adjustment u/s,44C of the IT Act. This is because of the overriding effect of Section 44C in respect of allowance of all deductions, whether or not profit is estimated on a presumptive basis or 110t. Therefore the direction of the learned CIT(A) to estimate total income @ 10% of gross receipts is not in order.

(3)  For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (appeals) be set aside and that of the Assessing Officer be restored.

4. Short facts apropos are that both the assessees together formed a consortium and entered into an agreement on 30.7.2001 with Tamil Nadu Electricity Board (TNEB) for setting up 2×15 MW Hydro Electric Power Plant Project at Bhavani Kattalai Barriage-I in Erode District in Tamil Nadu. Two assessees mentioned are the only parties in the consortium which had entered into the agreement with TNEB. Returns for the impugned assessment year were filed by both the assessees on 14.11.2006. M/s Litostroj returned an income of Rs. 14,37,100/- after setting off earlier loss, whereas M/s Koncar Inzenjering returned a loss of Rs. 3,91,890/-. During the course of assessment proceedings, it seems both the assessees furnished revised computation of income. In such revised computation, assessees recomputed their income applying Section 44BBB of Income-tax Act, 1961 (in short ‘the Act’). Accordingly, they considered 10% of gross erection income as their total income and thereafter set off the brought forward losses thereby reducing the effective income to NIL. As per the assessees, Section 44BBB of the Act was applicable to them, since the contract was a Central Government approved one and satisfied the conditions specified in Section 44BBB of the Act. However, A.O. was not impressed. According to him, when the contract was entered on 30.7.2001, there was no financing under any international aid programme, nor was the turnkey project approved by Central Government. Though the expression “financed under international aid programme” was omitted by Finance Act, 2003 with effect from 1.4.2004, the A.O. was of the opinion that the contract having been signed on 30.7.2001, the omission by Finance Act, 2003 of the said terms did not obviate the necessity to comply with such conditions. Further, as per the A.O., the approval letter placed by the assessees did not satisfy the conditions spelt out under Section 44BBB of the Act. As per the A.O., the approval letter simply mentioned that the project had to be treated at par with power projects approved by Government of India, with applicable provisions of tax deduction at the same rate as specified under Section 44BBB of the Act. He, therefore, rejected the revised computation filed by the assessees for applying Section 44BBB of the Act. The A.O. also noted that the assessees had debited certain sums in their Profit & Loss account under the head “Expenses for Design Engineering, and Technical and Supervisory Services”. Such sums came to Rs. 1,52,75,174/- in the case of M/s Litostroj and Rs. 59,94,738/- in the case of M/s Koncar Inzenjering. As per the A.O., a portion of the amount was incurred for purely technical and design services and consideration received by the assessees from TNEB, which was repatriated by the assessees to their Head Office, included fees for such technical and design services rendered by them. In this view of the matter, he was of the opinion that Section 9(i)(vii) was attracted. As per the A.O., the amounts did not fall under any of the exemptions specified in Explanation 2 to Section 9(i)(vii) of the Act and hence, a sum of Rs. 1,18,51,384/- in the case of M/s Litostroj and Rs. 45,83,516/- in the case of M/s Koncar Inzenjering had to be excluded both from income and expenditure and considered as fee for technical services. A.O. was of the opinion that such receipts on account of technical services called for application of provisions of Section 44D read with Section 115A of the Act. Thus, effectively he denied the assessees their claim for computation of income under Section 44BBB of the Act and in respect of design engineering and technical services expenses made a further addition applying Section 44D read with Section 115A of the Act.

5. Assessees in their appeal before ld. CIT(Appeals), argued that the projects involved three categories of income. As per the assessees, first stream was for supply of machinery offshore, second stream was for the designing, detailing and offshore testing work and third stream was for erection and commissioning done in India. As per the assessees, for the last stream, they received payment in Indian rupee and this work was subcontracted to M/s Thirumagal Engineering. Argument of the assessees was that it was executing a turnkey power project approved by competent authority, and therefore, were eligible for computing income as per Section 44BBB of the Act. Assessees further argued that all the conditions laid down under Section 44BBB were satisfied and the A.O. had erroneously concluded that omission of the words ‘financed under international aid programme’ had to be reckoned as of the date of entering into agreement. As per the assessees, the omission was with effect from 1.4.2004, and had to be prospectively applied. Therefore, the question to be considered, as per the assessees, was whether in the impugned assessment year, the section had to be applied with or without such words. On a reasonable interpretation, it was argued, the condition regarding financing by an international aid programme could not be fastened on the assessees for impugned assessment year. Insofar as the consideration of technical services on which Section 44D was applied, argument of the assessees was that these were not stand alone technical services but a part and parcel of erection and commissioning work. As per the assessees, Section 9(i)(vii) of the Act covered only stand alone technical services and not services which were part and parcel of turnkey power projects. Ld. CIT(Appeals) was appreciative of these contentions. According to him, the turnkey power project was approved by Central Government by letter dated 8.11.2006 and for impugned assessment year, the requirement regarding ‘financed by international aid programme’ was not there. Insofar as applicability of Section 44D to technical service was concerned, ld. CIT(Appeals) was of the opinion that technical service rendered by the assessees to TNEB was inextricably connected to the turnkey project and not a stand alone service. Therefore, as per ld. CIT(Appeals), Explanation 2 to Section 9(1)(vii) read with Circular No.202 dated 5.7.1976 was in favour of assessees. In any case, as per ld. CIT(Appeals), proportion of receipts which were attributable to the expenditure debited for technical service was not ascertainable since services were being offered by both the assessees as well as by the subcontractor M/s Thirumagal Engineering . Hence, according to him, A.O. was not justified in taxing such expenditure considering it as fee for technical services. In the result, ld. CIT(Appeals) directed the A.O. to consider the assessees’ income under Section 44BBB of the Act and deleted the addition made relying on Section 44D read with Section 115A of the Act.

6. Now before us, learned D.R., strongly assailing the orders of ld. CIT(Appeals), submitted that the approval given by Central Electricity Authority could not be equated with approval required under Section 44BBB of the Act. Placing a copy of letter dated 8th November, 2006 of Chief Engineer (HPM) of Central Electricity Authority, Ministry of Power, Government of India, learned D.R. submitted that this certificate clearly mentioned that the projects had to be treated at par with power projects approved by Government of India with applicable provisions of tax deducted at source, under Section 44BBB of the Act. According to him, “treatment at par with power project” mentioned in the said certificate could not be considered as an approval given under Section 44BBB of the Act. Further according to him, as on the date when assessees entered into the agreement with TNEB, the project was not financed under any international aid programme and therefore, one other essential condition laid down under Section 44BBB was also not satisfied. Again as per the learned D.R., assessees had initially returned their income based on books of accounts maintained, which were audited as prescribed under the Act and later on, it could not go back and prefer to be governed under the presumptive tax just because it was convenient for them. As per learned D.R., ld. CIT(Appeals) fell in gross error in entertaining the revised computation. In any case, according to him, Section 44D had an overriding effect over Section 44BBB of the Act and further adjustment as mentioned in Section 44D of the Act could be made, whether or not profit was estimated on presumptive basis.

7. As already mentioned by us, nobody appeared on behalf of assessees.

8. We have perused the orders and heard the submissions of learned D.R. We find from the assessment orders and other records that both the assessees are part of consortium. Learned D.R. has also placed on record the agreement entered by both the assessees as a consortium with TNEB on 30th July, 2001. The relevant part of said agreement is reproduced as under:-

“This agreement made this day of 30th July, 2001 (two thousand and one) between Tamil Nadu Electricity Board (TNEB) registered in India, under the Companies Act 1956, having its registered office at 144, Anna Salai, Chennai – 600 002, India (herein after referred to as “Purchaser” or “TNEB” which expression shall include its administrators, executors, assigns) of the one part and

Consortium of M/s Litostroj E.I.,d.o.o., Podjetje za izdelave energetske in industrijske opreme, d.o.o. (M/s Litostroj E.O., d.o.o. Production of Power Generation and Industrial Equipment) and M/s Koncar – Inzenjering Za Energetiku I Transport d.d. (M/s Koncar, Power Plant and Electric Traction Engineering In the case of.,) having their registration offices at:

  1.  M/s Litostroj E.I., d.o.o. Production of Power Generation and Industrial Equipment, Litostrojska 40, SI 1000 Ljubljana, Slovenia

&

  2.  M/s Koncar Power plant and Electric Traction Engineering In the case of., Fallerovo setaliste 22, HR – 10 000 Zagreb, Coatia

(Hereinafter referred to as the “Contractor” or “Consortium of Litostroj E.I. and Koncar”, which expression shall include its administrators, successors, executors and permitted assigns) of the other part.

WHEREAS TNEB has proposed to set up 2 x 15 MW. Hydro Electric Power Project at Bhavani Kattalai Barrage-1, Periyar Agraharam, BHAVANI – 638 602, Erode District, Tamil Nadu (hereinafter called the “Project”) and invited competitive bids for Design, Manufacture, Supply, Erection, Testing and Commissioning of 2 x 15 MW Hydro Electric Project on Turnkey Basis (excluding civil works) as per its Bid Specification No. HE 2045.

AND WHEREAS Litostroj E.I. and Koncar had participated in the above referred Bidding as “Consortium Bid” vide their proposal dt. 29.4.1999 and TNEB awarded the Contract to the Conortium of M/s Litostroj E.I. and M/s Koncar on terms and conditions contained in the Letter of Intent (LOI) No.SE/GTS/EM/A4/HY-Proj/F-BKB1/D.753/2001 dt. 3.4.2001 and Amendment No.1 vide Lr.No. SE/GTS/EM/A4/F.HY-Proj/F-BKB1/D.98/2001 dt. 08.06.2001 and Amendment No.2 vide Lr. No. SE/GTS/EM/A4/F.HY-Proj/F.BKB1/D.166/2001 dt. 18.07.2001 issued to LOI, therein which have been accepted by M/s Litostroj E.I. and M/s Koncar resulting into a “Contract”.

1.0 AWARD OF CONTRACT

1.1 TNEB has awarded the contract to the CONSORTIUM for the above project on the terms and conditions contained in its Letter of Intent No. SE/GTS/EM/A4/Hy.Proj/F.BKB1/D753/2001 dated 3.4.2001 and Amendments No.1 dt. 08.06.2001 and No.2 dt. 18.07.2001 issued to LOI, and the documents referred to therein. The award has been taken effect from the date of signing of this Contract Agreement. The terms and expressions used in this agreement shall have the same meaning as are assigned to them in the “Contract Documents” referred to in the succeeding article.”

9. It is clear from the above that the contract was allotted to a consortium consisting of two parties, namely, M/s Litostroj E.I. and M/s Koncar Inzenjering. In such a situation, first question to be answered, in our opinion, is whether the assessment has to be done considering the consortium as an Association of Persons or separately for each party. If we look at the consideration agreed which is given in clause 3.9 of the agreement, it runs as under:-

“The lump sum price for entire scope of supply, erection, including insurance, testing and commissioning, excluding civil work on turn key basis shall be the sum of DEM 2,93,26,748 + Rs. 20,24,70,858 (DEM two crores ninety three lacs twenty six thousand seven hundred and forty eight and Rupees twenty crores twenty four lacs seventy thousand eight hundred and fifty eight only) (F.O.R. site including all taxes and duties) and the said price shall remain firm for the entire contract period. The following are the Break-up prices allotted to the consortium members (excluding Customs duty, Excise duty and Sales tax)

Customs duty of Rs.12,14,70,858/- (Rupees twelve crores fourteen lacs seventy thousand eight hundred and fifty eight only) at 22.38% on the C.I.F. value of DEM 2,42,58,748 (DEM two crores forty two lacs fifty eight thousand seven hundred and forty eight only) for the imported components (at the exchange rate of 1 DEM = Rs.22.374 as on 22.01.2001) has been included in the Contract price. The customs duty will be paid directly by TNEB to the Govt. of India or concerned authorities for each shipment within 15 days of receipt of bill of entry/relevant documents from the contractors. The variation in customs duty will be allowed as per Clause 4.0 (v) of L.O.I. dated 3.4.2001.

Excise duty of Rs.40,00,000/- (Rupees forty lacs only) at 16% on the ex-works price of locally manufactured items of value of Rs.2,50,00,000/- (Rupees two crores fifty lacs only) and CST at 4% against form C/D as applicable, on the locally manufactured items of value of Rs. 3,50,00,000/- (Rupees three crores fifty lacs only) have been included in the contract price.

Statutory variation in Customs duty, Excise duty and Sales tax will be regulated as per Clause 4.0(vi) of L.O.I. dated 3.4.2001. Exchange rate variation will be allowed for the imported components only on the C.I.F. value of DEM 2,42,58,748 (DEM two crores forty two lacs fifty eight thousand seven hundred and forty eight only) and shall be limited to a maximum of 5% of C.I.F. value of imported components as per Clause 4.0 (iv) of L.O.I. dated 3.4.2001.”

It is clear that the agreement was for a lump sum. No doubt, there was a break-up allotted between the two parties for such sum. But, in our opinion, this cannot lead to a conclusion that effectively there were separate agreements entered by TNEB with the assessees. The work was to be done together. The liability was undertaken together. We also find that both the assessees had filed revised computation during the course of assessment proceedings, applying Section 44BBB for computing their respective income, whereas initially they had returned their income based on the audited books of accounts. Application of Section 44BBB of the Act for computing the income was first made through such revised computation. Hon’ble jurisdictional High Court in the case of CIT v. Shriram Investments (TCA 344 of 2005 dated 16.6.2012) relying on the decision of Hon’ble Apex Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 has clearly held that for making a claim other than what was originally made in return of income, filing of a revised return is mandatory. Neither the A.O. nor the CIT(Appeals) have considered these fundamental aspects regarding status and validity of a claim made other than through revised return. Further, assessees had also not placed before A.O. various details regarding erection charges received and break-up of the work done by them to M/s TNEB for verifying whether their billings included any fee for technic service. We are, therefore, of the opinion that the matter requires a re-visit by the A.O. for considering the issues de novo. We, therefore, set aside the orders of authorities below and remit it back to the file of the A.O. for consideration afresh in accordance with law.

10. Appeals of the Revenue in I.T.A. No.1429/Mds/2010 and I.T.A. No. 1241/Mds/2010 are allowed for statistical purposes.

11. Insofar as appeals of the assessees are concerned, since the assessees had not entered appearance, we are of the opinion that they are not serious in prosecuting their appeals. Following the decision of the Delhi Bench of the Tribunal in the case of CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320, we dismiss the appeals filed by the assessees for non-prosecution.

12. In the result, appeals filed by the assessee are dismissed.

13. To summarise the result, appeals of the Revenue are allowed for statistical purposes, whereas, appeals of the assessees are dismissed.

The order was pronounced in the Court on 30th March, 2012