Income Tax Appellate Tribunal - Hyderabad
Dcit, Circle-2(2), Hyderabad, ... vs Gvpr Engineers Limited, Hyderabad, ... on 5 December, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER
AND
SHRI V.DURGA RAO, JUDICIAL MEMBER
ITA No. A.Y. Appellant Respondent
Asst. Commissioner of
Income Tax, CC-5,
1017/Hyd/16 2011-12
GVPR Engineers [Now ACIT-2(2)]
Limited, HYDERABAD
HYDERABAD Asst. Commissioner
1018/Hyd/16 2012-13 [PAN: AAACG7614F]
of Income Tax,
Circle-2(2),
HYDERABAD
521/Hyd/17 2011-12 The Deputy M/s.GVPR Engineers
Commissioner of Limited,
Income Tax, HYDERABAD
Circle-2(2), [PAN: AAACG7614F]
20/Hyd/17 2012-13
HYDERABAD
For Assessee : Shri M.V.Anil Kumar, AR
For Revenue : Shri Y.V.S.T.Sai, CIT-DR
Date of Hearing : 02-12-2019
Date of Pronouncement : 05-12-2019
ORDER
PER D.KARUNAKARA RAO, A.M. :
These appeals are filed by both the Assessee and the Revenue, against the orders of the Commissioner of Income Tax (Appeals)-2, Hyderabad, for the AYs.2011-12 & 2012-13 respectively. Since the issue involved in these appeals is common and identical, except the amounts mentioned therein, these appeals were heard together and are being disposed-of by way of this common order.
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GVPR Engineers Limited (Group case) Condonation of delay:
2. Revenue filed both the appeals with a delay of 254 days for the AY.2011-12 and 179 days for the AY.2012-13 (178 days as per the affidavit). For that, Revenue has filed separate affidavits, seeking condonation of delay in filing the appeals.
2.1. Considering the petitions for condonation of delay in respect of Revenue and being satisfied with the reasonable cause for the delay, we hereby condone the delay in filing the appeals, which are admitted and being heard on merits.
3. First, we shall take up the appeals of assessee. For the sake of convenience, the appeal of assessee for the AY.2011-12 is discussed here under in detail:
4. Brief facts of the case are that, assessee-company carrying on business of development of infrastructure projects (Irrigation Projects and Electric Projects), filed its return of income for the AY.2011-12 on 30-09-2011, admitting taxable income of Rs.11,72,01,883/-, after claiming deduction u/s.80-IA of the Income Tax Act [Act] of Rs.15,83,50,255/-. Subsequently, a revised return was filed on 02-12-2011, admitting taxable income of Rs.7,77,09,635/- and another revised return on 30-03-2012, admitting an income of Rs.1,89,50,255/- wherein the deduction u/s.80-IA was claimed at Rs.21,71,10,351/-. The return was processed u/s.143(1) of the Act. The Assessing Officer (AO) issued a notice u/s.148 of the Act on 18-03-2013 and the assessee filed a letter dt.25-03-2013 requesting to accept the return filed on 30-03- :- 3 -:
GVPR Engineers Limited (Group case) 2012 be treated as return filed in response to notice u/s.148 of the Act. After that, assessment was completed by the AO. In the re-assessment order, the AO quantified the income at Rs.24.34 Crores (rounded-off). AO disallowed deductions claimed u/s.80-IA of the Act.
4.1. Aggrieved, the assessee is in appeal before the CIT(A).
5. CIT(A) partly allowed the appeal of assessee. Aggrieved with the same, the assessee filed an appeal before the Tribunal with the following Grounds:
"1. The CIT(A) erred in law and facts of the case in not allowing deduction under section 80IA(4)(iv)(b) of the Income Tax Act, 1961.
2. Your Appellant submits that setting up of new transmission or distribution lines is also development of infrastructure and is eligible for deduction under section 80IA of the Income Tax Act, 1961.
3. Your Appellant submits that setting up of new transmission or distribution lines on turnkey basis is not mere works contract, therefore the Explanation to sub-section 13 of section 80IA are not applicable and is eligible for deduction under section 80IA(4)(iv)(b) of the Income Tax Act, 1961.
4. The CIT(A) and the Assessing officer ignored the provision to section 80IA(4)(iv)(b), by virtue of which the profit derived from laying of such network of new lines for transmission or distribution and not profit derived from transmission or distribution lines, therefore your Appel1ant is eligible for deduction under section 80IA(4)(iv)(b) explanation in respect of profit derived from laying of such network of new lines for transmission or distribution.
5. The CIT(A) erred in confirming the disallowance under section 14A, the disallowance may be deleted".
5.1. Summarizing the Grounds, Ld.Counsel for the assessee submitted that Ground Nos.1 to 4 relates to allowability of :- 4 -:
GVPR Engineers Limited (Group case) deduction u/s.80IA(4)(iv)(b) of the Act and Ground No.5 pertains to disallowance made u/s.14A of the Act.
6. Regarding Ground Nos.1 to 4 for the AY.2011-12, covering the issues raised in the Grounds of both the appeals for both the years, Ld.Counsel for the assessee made the following written submissions, and the same are extracted as under:
"Issues involved in these appeals are:
Deduction under section 80IA(4)(i)(c) in respect of civil works including irrigation Projects and 80IA(4)(iv)(b) in respect of Electrical Projects
1. Assessee Appeal are in relation to disallowance of deduction under section 80IA in respect of Electrical projects u/s 80IA(4)(iv)(b) :
The CIT(A) based on the appeal order of the CIT(A) & ITAT for the Assessment year 2010-11 in ITA No. 765/Hyd/2014, 740/Hyd/2014 & CO No. 47/Hyd/2014 dated 29-02-2016, differing from the earlier ITAT order in Assessee's own case for Assessment year 2004-05 to 2009-16 ITA No. 347/Hyd/200S & 13 others dated 29-02-2012. The Hon'ble ITAT in its order in ITA No 347/Hyd/2005, at pages 16 to 21 the projects are extracted and the direction of the ITAT is at 44 8th line reads as under:
"Therefore, in our considered view, the assessee should not be denied the deduction under section 811A of the Act if the contracts involves design, development, operating & maintenance, financial involvement and defect correction and liability period then such contracts cannot be called a simple works contracts to deny the deduction u/s 80IA of Act. in our opinion the contracts which contain above features to be segregated on this deduction u/s 80IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those works are not entitle for deduction u/s 80IA of the Act. The Profit from the contracts which involves design, development, operating & maintenance, financial involvement and defect correction and liability period is to be computed by assessing Officer on pro-rata basis of turnover. The assessing officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above. .........."
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GVPR Engineers Limited (Group case) In view of the above directions of the ITAT both irrigation projects as well as Electrical projects are eligible for deduction under section 80IA(4)(i)(c) and 80IA(4)(iv) of the Income Tax Act, 1961.
For the Assessment year 2010-11 the CIT(A) as well as the ITAT have denied deduction under section 80IA (4) (vi) (b) the relevant para are:
CIT(A) Order pages 9 para 6.5 reads as under:
Thus, as far as these two electrical works are concerned, the appellant is not eligible for deduction u/s 80IA(4)(iv)(b), since the appellant is not a power transmission or distribution undertaking. The deduction claimed to the tune of Rs. 3,63,21,718/- is therefore erroneous and is not admissible. Accordingly, the disallowance made to this extent is therefore upheld.
and ITAT order at page 9 & 10 para 8.1 towards end gave a finding:
"we find that though the projects therein included electricity projects as well, ITAT has not brought out the distinction between section 80IA(4)(iv)(b) and therefore, it cannot be said that this issue is covered by those orders. From the above observations and the detailed observations made by the CIT(A) to come to a conclusion that the assessee is not eligible to claim deduction u/s 80IA(4)(iv)(b). Accordingly, we uphold the order of the CIT(A) on this issue and dismiss the ground of appeal of assessee."
We submit that the undertaking referred to in section 80IA(4)(iv) and undertaking referred to in the proviso to section 80IA(4)(iv)(b) are different and cannot be the same. The Undertaking referred to in section 80IA(4)(iv) can be confined to the power transmission or distribution undertaking whereas the undertaking referred to the proviso to this section is different. The proviso reads as under:
"Provided the deduction under this section to an undertaking under sub-clause
(b) shall be allowed only in relation to the profits derived from laying of such 'network of new lines for transmission or distribution."
In case the undertaking involved in transmission and distribution undertakes laying of the such network of new lines will be capital and nature and cannot earn profit for such laying of new lines, therefore, there has to be another undertaking. Hence your appellant is eligible for deduction on profits from electrical projects. It is prayed that deduction under section 80IA(4)(iv)(b) may be allowed.
2. The Department appeal are in respect of deduction allowed by CIT(A) under section 80IA(4)(i)(c) -
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GVPR Engineers Limited (Group case) The CIT(A) has followed the ITAT order for AY 2004-05 to 2009-10, in ITA NO 347/H/2008 & others, Order of the CIT(A) as well ITAT order for AY 2010-11, the relevant para are:
The Hon'ble ITAT in its order in ITA No 347/Hyd/2008, at pages 16 to 21 the projects are extracted and the direction of the ITAT is at 44 8th line reads as under:
"Therefore, in our considered view, the assessee should not be denied the deduction under section 811A of the Act if the contracts involves design, development, operating & maintenance, financial involvement and defect correction and liability period then such contracts cannot be called a simple works contracts to deny the deduction u/s 80IA of Act. in our opinion the contracts which contain above features to be segregated on this deduction u/s 80IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those works are not entitle for deduction u/s 80IA of the Act. The Profit from the contracts which involves design, development, operating & maintenance, financial involvement and defect correction and liability period is to be computed by assessing Officer on pro-rata basis of turnover. The assessing officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above.
................"
For the Assessment year 2010-11 the CIT(A) as well as the ITAT have allowed deduction under section 80lA (4) (1) (c) the relevant para are:
CIT(A) Order pages 6 para 6.2 reads as under:
"The issue in the earlier order before the Hon'ble Tribunal was whether the appellant is a work contractor or not. The tribunal had given a finding that the appellant is not a mere work contractor and is therefore intitled for deduction u/s 80IA. Thus, once an appellant is eligible for the deduction under section 80IA, then, this claim is to be allowed in terms of the order of the Hon'ble ITA T in appellant's own case for earlier years. This finding can therefore be applied to the first three projects namely the claim of deduction u/s 80IA (4)(1)(c). Accordingly, the claim of the deduction u/s 80IA(4)(i)(c) to the tune of Rs. 5,15,54,567/- is therefore allowed."
and ITAT order at page 11 para 10.1 reads as under:
"The revenue has filed an appeal u/s 260A of the Act challenging the above order of ITAT before the Hon'ble High Court. In the said order, it was held that these contracts are not in the nature of works contracts and thereby Explanation to the provisions of section 80IA(13) are not attracted. Hence, just to maintain consistency with the stand of the revenue and to keep the issue alive, AO has disallowed the deduction u/s 80IA(4)(i)(c). Apart from that there is no merit in such disallowance. However, the Id. CIT(A) has :- 7 -:
GVPR Engineers Limited (Group case) allowed assessee's claim u/s 80IA(4)(i)(c) relying on the order of the coordinate bench of this tribunal (supra), hence, we are inclined to uphold the order of CIT (A). in this regard as the order of the CIT(A) is in line with the order of ITAT."
in view of the above, the Department appeals may be dismissed".
6.1. Further, relying on the decision of Hon'ble ITAT vide its order dt.29-02-2012 in ITA No.347/Hyd/2008 and others, Ld.Counsel for the assessee submitted that all these issues have to be remanded to the file of CIT(A) for passing an order in compliance with the said order of the Tribunal. Referring to above note, Ld.Counsel for the assessee submitted that the assessee is entitled to deduction u/s.80IA(4) of the Act in respect of both the types of the Projects. The said order of the Tribunal helps the assessee if an effect is given and the said decision is honoured by the AO.
Further, referring to the allowability of deduction u/s.80IA(4)(i)(c) of the Act, Ld.Counsel for the assessee submitted that the ITAT already taken a view in this regard and consequently, the appeals of the Revenue are dismissed.
7. After hearing both the sides and also considering the decision of the Co-ordinate Bench of the Tribunal in assessee's own case cited supra, we are of the opinion that the directions should be given to the CIT(A) to go by the said order of the Tribunal. AO shall grant an opportunity of being heard. Accordingly, Ground Nos. 1 to 4 are allowed for statistical purposes.
8. Ground No.5 relates to disallowance u/s.14A of the Act. The relevant facts includes that the assessee earned dividend income of Rs.4.5 Lakhs, which is claimed as exempt. During the re-
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GVPR Engineers Limited (Group case) assessment proceedings, AO noted the claim of interest debit and invoked the provisions of Section 14A of the Act. The assessee relied on the decision of Hon'ble High Court of Gujarat in the case of CIT Vs. Gujarat Industrial Development Corporation Ltd., [128 Taxmann 142] (Guj). Rejecting the same, AO mentioned that assessee claimed the financial charges of Rs.12.63 Crores and therefore, applied the said provisions of Section 14A r.w. Rule 8D of Income Tax Rules. Accordingly, the disallowance is quantified at Rs.2,57,955/- under the Clause (ii) and (iii) of Rule 8D(2) of the Income Tax Rules.
8.1. Aggrieved with the same, the assessee is in appeal before the CIT(A). The CIT(A) dismissed the appeal of assessee on this issue, stating as under:
"8.2. I have gone through the above and I find that the action of the AO is justified in making a disallowance of Rs.2,35,455/- u/s.14A r.w.r.8D(2)(ii) of the Act, as the assessee failed to rebut the AO's conclusions that the interest bearing borrowed funds are not utilized for earning exempt income of Rs.45,00,000/-.
8.3. Further, the AO made a disallowance of Rs.22,500/- u/s.14A r.w.r.8D(2)(iii) of the Act. This action of the AO is also justified, as it is very common to make use of the administrative manpower for earning exempt income also and which is not ruled out and therefore, the said action of the AO is confirmed. Therefore, the disallowance of Rs.2,57,955/- made u/s.14A r.w.r.8D is hereby confirmed. As a result, the grounds raised are dismissed".
8.2. Before us, Ld.Counsel for the assessee submitted that the order of the CIT(A) on this issue requires reversal.
8.3. On the other hand Ld.DR for the Revenue relied heavily on the orders of the AO as well as the CIT(A).
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GVPR Engineers Limited (Group case) 8.4. On bearing both the sides on this limited issue, we find that there is no dispute about the earning of the dividend income of Rs.4.5 Lakhs. It is also a fact that the finance charges were incurred by the assessee as seen from the Profit & Loss A/c.
Considering the exempt nature of the dividend income, the onus of the assessee is to demonstrate that none of the finance charges were incurred for investments, which yielded the dividend income to the assessee in the year under consideration. The orders of the AO and CIT(A) are not clear about the extent of investments made by the assessee out of the interest bearing borrowed funds. It is also not emanating from the orders about the facts on the sufficiency of non-interest free funds for explaining the dividend yielding investments. Therefore, in all fairness, we are of the opinion that this issue should also be remanded to the file of AO for fresh consideration. Hence, this ground of assessee is treated as allowed for statistical purposes.
8.5. In the result, the appeal of assessee for the AY.2011-12 is treated as allowed for statistical purposes.
Appeal of assessee for the AY.2012-13:
9. Since the facts of the present case are identical to one as decided by us in ITA No.1017/Hyd/2016, AY.2011-12 (supra) and therefore our findings in the said appeal, mutatis mutandis, would apply to this appeal as well. Hence, this appeal of assessee is also treated as allowed for statistical purposes.
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GVPR Engineers Limited (Group case) Appeals of Revenue for the AYs.2011-12 & 2012-13:
10. At the time of hearing, both the counsels mentioned that the issue raised in Ground No.2 in both the appeals of Revenue are covered by the common written note given by the assessee in connection with the Ground Nos.1 to 4, raised in assessee's appeals. While dealing with the issues raised in assessee's appeals, we remitted the entire issue to the file of AO only to comply with the existing order of the Co-ordinate Bench of the Tribunal dt.29-02-2012 in ITA No.347/Hyd/2008 and others (supra) and pass a speaking order. AO is directed to pass an order strictly in compliance of the said order of the Tribunal, after examining the facts. Considering the same and for the sake of consistency, these appeals of Revenue are also treated as allowed for statistical purposes.
11. To sum-up, both the appeals of Assessee and the appeals of Revenue are treated as allowed for statistical purposes.
Order pronounced in the open court on 5th December, 2019 Sd/- Sd/-
(V. DURGA RAO) (D. KARUNAKARA RAO)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 5th December, 2019
TNMM
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GVPR Engineers Limited
(Group case)
Copy to :
1. GVPR Engineers Limited, C/o.M.Anandam & Co., Chartered Accountants, 7A, Surya Towers, S.D.Road, Secunderabad.
2. The Deputy Commissioner of Income Tax, Circle-2(2), Hyderabad.
3. The Asst.Commissioner of Income Tax, Circle-2(2), Hyderabad.
4. CIT(Appeals)-2, Hyderabad.
5. Pr.CIT-2, Hyderabad.
6. D.R. ITAT, Hyderabad.
7. Guard File.