Income Tax Appellate Tribunal - Hyderabad
Vijaya Bhavani Constructions ... vs Dcit, Circle 3(3), Hyderabad, ... on 12 May, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. Asst. Year Appellant Respondent
1313/Hyd/15 2010-11 M/s. Vijaya Bhavani Deputy Commissioner
Constructions Pvt. of Income Tax,
Ltd., Circle-3(3),
129/Hyd/16 2011-12 HYDERABAD HYDERABAD
[PAN: AABCV6770A]
Deputy Commissioner M/s. Vijaya Bhavani
863/Hyd/15 2011-12 of Income Tax, Constructions Pvt.
Circle-17(2), Ltd.,
HYDERABAD HYDERABAD
[PAN: AABCV6770A]
For Assessee : Shri P. Murali Mohan Rao, AR
For Revenue : Shri A. Sitarama Rao, DR
Date of Hearing : 11-04-2017
Date of Pronouncement : 12-05-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
These are appeals by Assessee for the AYs. 2010-11 and 2011-12 and cross-appeal by Revenue for AY. 2011-12 against the respective orders of the Commissioner of Income Tax (Appeals)-5, Hyderabad. Since common issues are involved, these appeals are heard together and decided by this common order.
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M/s. Vijaya Bhavani Constructions Pvt. Ltd.,
2. We have heard the Ld. Counsel for assessee and Ld.DR and perused the Paper Books placed on record and the case law relied on.
ITA No. 1313/Hyd/2015 - AY. 2010-11:3. Briefly stated facts of the case are that assessee is engaged in the business of civil contract works. It filed return of income on 29-09-2010 admitting loss of Rs. 79,43,830/-. While completing the assessment u/s. 143(3) of the Income Tax Act [Act], the Assessing Officer (AO) admitted the following disallowances/ additions:
a. Addition to turnover shown Rs. 1,53,536/-; b. Disallowance of depreciation on assets Rs. 1,47,843/-; c. Disallowance of expenditure of Rs. 4,73,63,748/-
3.1. In addition to that, credit for the TDS was also not given on the TDS made on mobilisation advances. Ld. CIT(A) gave relief on the first issue by deleting the same and reduced the disallowance of expenditure to 15% as against 100% made by AO.
Revenue is not in appeal on the relief granted by the CIT(A). Three issues are contested in this appeal.
4. Ground Nos. 1 & 8 are general in nature. Assessee in the course of present appeal has raised additional grounds of appeal on the issue of giving credit to the TDS, which are nothing but submissions by assessee on the main grounds raised in the appeal itself. Hence, these additional grounds are admitted as no further facts are required to be examined.
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M/s. Vijaya Bhavani Constructions Pvt. Ltd.,
5. Ground Nos. 2 & 3 pertain to the issue of disallowance of expenditure. While finalising the assessment order, AO noticed that assessee-company had withdrawn huge cash from the banks at Hyderabad, Vijayawada on the expenditures supposed to have been spent at Orissa, Nirmal, Wanaparthy and Hyderabad. As per the AO, assessee did not furnish any details except stating that the provisions of section 40(a)(ia) and Section 40A(3) of the Act are not applicable. AO was of the view that assessee has increased the expenditure by drawing cash and there is no correlation between the amounts drawn and the purpose of spending and has quoted certain instances of cash withdrawn from Punjab National Bank, Vijayawada without having any work contracts there. Accordingly, he has disallowed the cash withdrawals from the three bank accounts totalling to Rs. 4,73,63,748/-.
5.1. Before the Ld. CIT(A), assessee submitted that it has actually undertaken various sub-contract works and the expenditures are pertaining to the payments to labour, provisions and living expenses and also travelling and all payments have been made in the normal course of business and properly recorded in the Books of Account. It was submitted that the work has been executed in time as per the agreed schedule and the main contractor was charged with various works. Accordingly, the same could not have been achieved without incurring expenditure. It was also further submitted by disallowing this much amount, assessee's profits on sub-contract could not be at 60% of the turnover. Ld. CIT(A) having considered that the Books of Account have not been rejected by the AO, was of the opinion that the entire expenditure claim could not have been disallowed. By giving :- 4 -:
M/s. Vijaya Bhavani Constructions Pvt. Ltd., various reasons, he has restricted the disallowance to 15% of the amount. Assessee is aggrieved on that, but Revenue has not come in appeal on the order of the CIT(A).
6. It was the submission of Ld. Counsel that the CIT(A) should not have confirmed any amount and at best he could have restricted the 5% of the amount towards non-verifiable nature of the expenditure. It was the submission that the disallowance confirmed by the CIT(A) at 15% would be excessive and unreasonable and relied on various case law, including the orders in earlier years to submit that assessee would be willing to suffer 5% of the amount for disallowance in view of the difficulty in verifying the expenditure.
7. Ld.DR, however, relied on the orders of the AO and CIT(A) to submit that 15% expenditure disallowance is reasonable.
8. We have considered the rival contentions and perused the details placed on record. The Revenue has not come in appeal on the order where the AO has disallowed 100% of the expenditure on the reason that the said expenditure is bogus. Ld. CIT(A), however, held that that expenditure is allowable, subject to disallowance of expenditure upto 15%. Considering the past record of assessee, nature of expenditure and un-verifiable nature of the same, we are of the opinion that disallowance of expenditure at 10% of the said amount would meet the ends of justice. Accordingly, we restrict the disallowance to 10% of the cash expenditure disallowed by the AO i.e., 10% of Rs. 4,73,63,748/-.
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M/s. Vijaya Bhavani Constructions Pvt. Ltd., AO is directed to re-compute the disallowance accordingly. Grounds are partly allowed.
9. Ground Nos. 4 & 5 and additional grounds are on the issue of disallowing the claim of credit for the entire amount of TDS deducted out of mobilisation advance received during the year. As already stated, assessee has raised various submissions in the form of additional grounds but more or less the issue is similar that the TDS deducted and paid during the year should have been given credit as per the provisions of Section 199. While finalising the assessment proceedings, AO observed that as per 26AS statement, the company reflected receipt of Rs. 6,61,57,762/- as an advance from M/s. KNR Constructions Ltd., on which TDS was made. An amount of Rs. 11,52,289/- relatable to advance amount of the above was restricted and not given credit on the reason that the said amount was not offered as income as per the provisions of Section 199. Assessee relied on the decision of the ITAT, Visakhapatnam in the case of ACIT Vs. Peddu Srinivasa Rao in ITA No.324/Vizag/2009 dt. 03-03-2011 for the purpose of interpretation of amended provisions of Section 199 and submitted that assessee is eligible for credit of TDS. Ld. CIT(A), however, did not agree with assessee's contentions and relied on view supported by ITAT in the case of ACIT Vs. CSCHK-Soma in ITA No. 1357/Hyd/2010 dt. 29-09-2011. He upheld the order of the AO and denied the credit of TDS of the above amount. It was the submission of assessee that the provisions of Section 199 have been amended and now the TDS is being allowed credit in the year of deduction so as to avoid problems in reconciliation. He relied on the following case law and the proposition:
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M/s. Vijaya Bhavani Constructions Pvt. Ltd., S.No. Name of the case Court Citation Gist
1. M/s. Toyo Engg. Mumbai ITAT 3275/M/2002 There is no India Ltd., immediate nexus between the income and the TDS made out of a particular payment
2. Bhoomratnam & Co AP High 29 taxmann.com TDS credit Court 275 has to be granted to the assessee based on TDS certificate.
3. M/s. CSCHK-SOMA Hyderabad 1357/H/2010 TDS credit Joint Venture ITAT has to be given on receipts including mobilization advances.
4. M/s. Ahlcon India Delhi ITAT 1924/Del/2011 If Pvt. Ltd., mobilization advances will be ultimately offered for tax, then TDS credit have to be given on such advances.
5. M/s. SVEV Hyderabad 1172/H/2010 TDS credit Constructions Ltd ITAT has to be given on mobilisation advances
6. M/s. Selan Projects Hyderabad 1361/H/2013 Even if Pvt. Ltd., ITAT assessee does not offers some income to tax, the TDS which had been duly deposited with government has to be given credit.
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M/s. Vijaya Bhavani Constructions Pvt. Ltd.,
10. Ld.DR, however, submitted that the credit will be given in the year in which the relevant income is offered to tax.
11. In reply, Ld. Counsel submitted that there is no problem in any of the earlier years on getting credit on the mobilisation advances and a consistent view can be taken in giving credit for the TDS in the year of deduction and payment.
12. We have considered the rival contention and perused the case law placed on record. The Co-ordinate Bench in the case of ACIT Vs. Peddu Srinivasa Rao in ITA No. 324/Vizag/2009 dt. 03-03-2011 have analysed the present provisions of Section 199 and held as under:
"We have carefully perused the provisions of Section 199 of the Act and according to the pre-amended provisions of Section 199, the credit of deduction made in accordance with the relevant provisions of this chapter and paid to the Central Government, shall be given for the amount so deducted on the production of the certificate furnished u/s 203 for the assessment made under this Act for the assessment year for which such income is assessable. But in the amended provisions the words "for the assessment year for which such income is assessable" has been omitted. Meaning thereby, that the legislature was quite conscious about the facts and hardships faced by some assesses, while making the amendments in section 199 and in amended provisions nothing has been stated about the year in which the credit of TDS is to be claimed. As per amended provisions of section 199, in sub-section 1, it has been stated that any deductions made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. Therefore, as per the amended provisions, once the TDS was deducted, a credit of the same to be given to the assessee, irrespective of the year to which it relates."
12.1. Similar view was also taken by Ahmedabad Bench in the case of Sadbhav Engineering Ltd., Vs. DCIT. Relying on the principles laid down by the Co-ordinate Benches in the above cases :- 8 -:
M/s. Vijaya Bhavani Constructions Pvt. Ltd., and past record of assessee, we have no hesitation in directing the AO to give credit to the amount deducted from mobilisation advances. Grounds are accordingly allowed.
13. Ground Nos. 6 & 7 pertain to the issue of disallowance of depreciation on a sum of Rs. 1,47,830/-. While finalising the assessment proceedings, AO noticed that Plant & Machinery worth Rs. 19,71,057/- were found to be in the name of M/s. KNR Constructions Ltd., on which depreciation at 7.5% was claimed. AO disallowed the depreciation as the said invoices are not in the name of assessee-company and assessee failed to explain the ownership of assets. Before the Ld. CIT(A), assessee submitted that the orders were placed by M/s. KNR Constructions Ltd., for supply of machinery on credit and as assessee was a sub- contractor, assessee took the machinery and payments were made by assessee-company, though bills are still in the name of the principal company i.e., M/s. KNR Constructions Ltd. It was submitted that ownership lies with company and is eligible for depreciation. Ld. CIT(A), however, did not allow the claim as no further information was furnished during the appellate proceedings to indicate such ownership. Ld. Counsel, however, submitted that assessee has indeed paid the amounts and owned the assets even though the bills are in the name of the principal company, he has no objection for providing the necessary details if the matter is sent back to the AO.
14. After considering the rival contentions, we are of the opinion that this issue requires re-examination by the AO. Just because the bills are in the name of the principal contractor, it :- 9 -:
M/s. Vijaya Bhavani Constructions Pvt. Ltd., does not mean that ownership lies with such company. What is to be required to be examined is the source of payments made for acquiring the assets and use thereof. AO has not disputed that such assets are not used by the company. The only issue is about the ownership of the assets. Assessee is directed to furnish necessary payments of the amounts towards purchase of above said machinery and on furnishing necessary details, AO is directed to examine the same and allow if assessee-company paid the amounts for purchase of machinery, even though the bills are in the name of principal contractor. With these directions, the Ground Nos. 6 & 7 are restored to the file of the AO.
15. In the result, appeal in ITA No. 1313/Hyd/2015 is partly allowed for statistical purposes.
ITA No. 129/Hyd/2016 - AY. 2011-12:16. In this assessment year, assessee has filed return of income admitting loss of Rs. 72,87,729/-. AO completed the assessment u/s. 143(3) making the following disallowances/ additions:
a. Disallowance of expenditure out of cash withdrawals Rs. 1,27,48,000/-;
b. Disallowance of depreciation Rs. 2,95,660/-; c. Unexplained investment Rs. 41,40,000/-
AO has also not given credit of TDS of Rs. 10,33,440/- made on mobilisation advances.
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M/s. Vijaya Bhavani Constructions Pvt. Ltd.,
17. Ground Nos. 1 & 8 are general in nature and as in earlier year, assessee has raised additional grounds on the issue of TDS not given credit, contested in Ground No.7. The additional grounds are nothing but legal submissions, hence they are admitted.
18. Ground Nos. 2, 3 & 4 pertain to the disallowance of expenditure to the tune of 15% by the CIT(A). As in earlier year, AO disallowed 100% of the expenditure stated to have been spent out of cash withdrawals from bank accounts to the tune of Rs. 1,27,48,000/-. Ld. CIT(A) after considering the submissions of assessee, restricted the disallowance to 15%.
19. This issue is similar to the issue contested in Ground Nos. 2 & 3 in the above appeal for AY. 2010-11. The submissions are one and the same. Considering the decision taken in para 8 above, we direct the AO to restrict the disallowance to 10% of the amount which was disallowed by the AO i.e., 10% of Rs. 1,27,48,000/-. Grounds are partly allowed.
20. Ground Nos. 5 & 6 pertain to disallowance of depreciation on the assets on which bills are in the name of M/s. KNR Constructions Ltd. This issue is similar to the grounds raised in AY. 2010-11 at Ground Nos. 6 & 7. For the reasons stated therein in para 14 above, we direct the AO to examine the payment of amounts towards ownership of the assets and allow the depreciation, even if the bills are in the name of the principal contractor, if the amounts are paid/borne by assessee. Assessee is :- 11 -:
M/s. Vijaya Bhavani Constructions Pvt. Ltd., directed to submit the relevant evidence in support of the claim to the AO. Grounds are considered allowed for statistical purposes.
21. Ground No. 7 pertains to the credit of TDS on the mobilisation advances. This issue is also similar to the issue contested in earlier year in Ground Nos. 4 & 5 and additional grounds. Consistent with the view taken in earlier year vide para12, AO is directed to give credit for the TDS amount after due examinatiom. Grounds are considered allowed.
22. In the result appeal in ITA No. 129/Hyd/2016 is considered partly allowed for statistical purposes.
ITA No. 863/Hyd/2015 - AY. 2011-12:23. This is a Revenue appeal on the issue of deletion of an amount of Rs. 41,40,000/- on account of unexplained investment. AO while completing the assessment has noticed that assessee has made certain deposits between May to December of 2010 totalling to Rs. 41,40,000/- in Punjab National Bank, Surya Pet, the information of which was received from the CIB/AIR by the AO. AO issued a letter dt. 18-06-2013 providing the above information and asking assessee to show cause whether such deposits are reflected in P&L A/c and Balance Sheet. Since no information was received, AO treated the above investments in the form of deposits as 'unexplained investments' and brought to tax. Ld.CIT(A) after considering assessee's submissions that those investments are reflected in the Books of Account, however, deleted the same stating that It is not clear what was the information that have been :- 12 -:
M/s. Vijaya Bhavani Constructions Pvt. Ltd., required and what has been furnished and the addition appears to have been made in casual manner. Further, on the lines of discussion in the earlier paragraph while rejection of Books of Account was upheld and expenses were disallowed on estimation basis where the estimation was made to ascertain the profits of the basis by not relying on the books, I am of the considered opinion that there would not be any scope for making further specific additions, unless it is proved, the investments made are not originated out of the estimated profits. Thus stating Ld. CIT(A) deleted the addition. Revenue is aggrieved on such deletion.
24. Ld.DR referring to the order of the CIT(A) submitted that there is no rejection of Books of Account and there is only disallowance of certain expenditure at 15% of non-verifiable nature, which is a disallowance u/s. 37(1) and not on estimation of profit. Since no information was furnished on record to submit that the said deposits arise out of assessee's Books of Account, the order of the CIT(A) cannot be upheld.
25. Ld. Counsel for assessee submitted that assessee had indeed furnished the necessary details but has no objection for fresh verification by the AO.
26. Having considered the rival contentions, we are of the opinion that this issue require re-examination by the AO. Ld. CIT(A) is not correct in deleting the amount stating as quoted above, as there is no rejection of Books of Account nor estimation of profits. Disallowance of expenditure for non-verifiable nature cannot be considered as estimation of profits on the total turnover :- 13 -:
M/s. Vijaya Bhavani Constructions Pvt. Ltd., of assessee. Thus, the deletion by CIT(A) on the reasons stated is not proper. Considering that assessee has submitted that the sources are from the Books of Account, we direct the assessee to furnish necessary sources for the above amounts and explain whether the same were accounted for in the Books of Account. AO is directed to examine the issue afresh and take necessary decision after due examination of the facts and according to law. Ground is considered allowed for statistical purposes.
27. In the result, Revenue appeal in ITA No. 863/Hyd/2015 is allowed for statistical purposes.
28. To sum up, appeals in ITA Nos. 1313/Hyd/2015 & ITA No. 129/Hyd/2016 are partly allowed for statistical purposes and Revenue appeal in ITA No. 863/Hyd/2015 is allowed for statistical purposes.
Order pronounced in the open court on 12th May, 2017 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated 12th May, 2017
TNMM
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M/s. Vijaya Bhavani Constructions Pvt. Ltd., Copy to :
1. M/s. Vijaya Bhavani Constructions Pvt. Ltd., Hyderabad. C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
2. The Deputy Commissioner of Income Tax, Circle-3(3), Hyderabad.
3. The Deputy Commissioner of Income Tax, Circle-17(2), Hyderabad.
4. CIT (Appeals)-5, Hyderabad.
5. CIT-5, Hyderabad.
6. D.R. ITAT, Hyderabad.
7. Guard File.