Income Tax Appellate Tribunal - Hyderabad
Il & Fs Engineering & Construction ... vs Dcit, Central Circle-3(2), Hyd, ... on 12 July, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA Nos.749 & 750/Hyd/2016
Assessment Year: 2010-11 & 2011-12
M/s. IL & FS Engineering Vs. Dy. Commissioner of
& Construction Co. Ltd., Income Tax,
(formerly M/s. Mytas Infra Central Circle-3(2),
Pvt. Ltd) Hyderabad.
8-2-120/113/3, 4 th Floor,
Sanali Info Park, Road
No.2, Banjara Hills,
Hyderabad.
PAN: AABCM 3722 F
(Appellant) (Respondent)
Assessee by: Sri K.C. Devdas
Revenue by: Sri Dr. Rajendra Kumar, CIT-
DR
Date of hearing: 26/06/2019
Date of pronouncement: 12/07/2019
ORDER
PER A. MOHAN ALANKAMONY, AM.:
These two appeals are filed by the assessee against the orders of the Ld. Pr. Commissioner of Income Tax (Central), Hyderabad both dated 29/03/2016, and Numbered - Pr. CIT(C)/HYD/263/22/2015-16 passed U/s. 263 of the Act for the AYs: 2010-11 & 2011-12. 2
2. The assessee has raised several identical grounds in both the appeals and for the sake of convenience the concise grounds are stated hereinbelow for adjudication:-
(i) Ld. CIT (A) has erred in invoking his powers U/s. 263 of the Act.
(ii) Ld. CIT (A) has erred in holding that the assessee is not eligible for deduction U/s. 35D of the Act as the expenses were incurred during the assessment year 2008-09.
(iii) The Ld. CIT (A) has erred in holding that the share of profits earned from the Joint Ventures projects viz., Mytas KBL-JV, Mytax KCC PL FLOW MORE JV, Mytas - Ritvik JV, Mytas Shankaranarayana JV, are assessable in the hands of the assessee while on the contrary they were separately assessed to tax.
(iv) The Ld. CIT (A) has erred in holding that the assessee is not entitled for depreciation on Plant & Machinery @ 15%.
(v) The Ld. CIT (A) has erred by holding that the notional gain on capital items (Forex) was wrongly excluded by the assessee.
3. Brief facts of the case are that the assessee is a Public Limited Company engaged in the business of Civil Construction filed its e-return 3 of income for the AY: 2010-11 on 30/09/2010 and for the AY: 2011-12 the e-return was filed on 29/09/2011 declaring loss of Rs. 218,58,33,251/- and Rs. 124,62,42,466/- respectively. Thereafter, both the cases were taken up for scrutiny and assessment was completed U/s. 143(3) of the Act on 3/1/2014 and 21/2/2014 respectively. Subsequently, the Ld. CIT on verification of the assessment records held that the Ld. AO had framed the assessment in the case of the assessee for both the AYs mechanically and without application of mind which is prejudicial to the interest of Revenue and set aside the Order of the Ld.AO with directions to reframe the assessments afresh by examining the issues discussed in his Order U/s. 263 of the Act for both the assessment years.
4. Ground No.2: Deduction U/s. 35D of the Act
5. The assessee had claimed deduction U/s. 35(2)(c)(iv) of the Act amounting to Rs. 5,74,12,264/- for both the AYs which was allowed by the Ld. AO being the fourth and fifth year of the initial claim. The assessee had initially incurred the expenditure during the Financial Year 2007-08 relevant to the AY 2008-09. The Ld. CIT was of the view that the assessee is not entitled for the claim of deduction U/s. 35D of the Act because the deduction is available only to "Industrial Undertaking" and the assessee was a Civil Contractor and not an 'industrial undertaking'. The Ld. AR pointed out before us that the word 4 'industrial undertaking' was omitted from the section 35D by the Finance Act, 2008 w.e.f. 01/04/2009. It was therefore argued that for the relevant AY 2010-11 and 2011-12 the assessee is entitled for the benefit of section 35D of the Act. The Ld. AR further submitted before us that the provisions of section 35D of the Act entitles an Indian Resident company for the benefit of amortization of certain expenditure incurred after 31st day of March 1970. It was therefore argued that since the assessee had incurred the relevant expenditure during the FY 2007-08 relevant to the AY 2008-09 the assessee is entitled for the benefit of section 35D of the Act for the residual period viz., AY 2010- 11, 2011-12 and 2012-13 as the period of five years covers from AY 2008-09 to AY 2012-13 wherein for the AY 2008-09 and 2009-10 the assessee is not entitled to claim the benefit of section 35D of the Act since it was allowable only for "Industrial Undertaking" as the Act stood during that period while as subsequently the Act had omitted the word "industrial" in the Finance Act 2008 w.e.f. 01/04/2009. It was therefore argued that the Ld. AO had judicially granted deduction u/s 35D of the Act for the AY 2010-11 and 2011-12 and there is no error in the order of the Ld. AO which is prejudicial to the interest of the Revenue. The Ld. DR on the other hand relied on the order of the Ld. CIT and reiterated the arguments and reasons stated therein. The Ld. DR further vehemently argued stating that the assessee had incurred expenditure during the AY 2008-09 and therefore the assessee is not 5 entitled for the benefit of deduction u/s 35D of the Act because as on that period the assessee was not an 'industrial undertaking' but Civil Contractor.
6. We have heard the rival submissions and carefully perused the materials on record. Though the assessee has incurred the expenditure during the AY 2008-09 wherein the assessee was not entitled for the claim of deduction U/s. 35D of the Act as the assessee was not an 'industrial undertaking', however the Act was amended and the word 'industrial' was omitted by the Finance Act, 2008 w.e.f 1/04/2009. Moreover, the expenditure incurred by the assessee was subsequent to the 31st Day of March, 1970. In this situation, the assessee has fulfilled all the conditions stipulated under the Act for the residual period viz., AY 2010-11, 2011-12 and 2012-13. Therefore, there is no reason why the benefit of section 35D of the Act should not be allowed to the assessee for the AY 2010-11 to 2012-13. Hence, we do not find any error in the order of the Ld. AO for having granted the benefit of deduction U/s. 35.D of the Act for the AY 2010-11 and 2011-12. Therefore, the Ld. CIT is not right in his rem to invoke the provisions of section 263 on this count in the case of the assessee for both the relevant AYs.
7. Ground No: 3 share of profits from the Joint Ventures:
8. The Ld. CIT observed that the assessee had reduced the share of profits earned from JV projects while computing it's loss declared in the 6 return of income. On query the assessee had submitted that all the JV Projects were separately assessed and therefore it was excluded while computing the income of the assessee. It was further submitted that the income tax returns were furnished before the Ld. AO based on which the Ld. AO has passed the assessment Order. However, the Ld. CIT opined that the Ld. AO had blindly accepted the version of the assessee without primarily examining the issue whether the profits had been separately assessed or not. We do not find any merit in the order of the Ld. CIT on this issue because the Ld. CIT was at liberty to call for any information from the assessee or grant an opportunity to the assessee to furnish any such requisite details. However, in the case of the assessee the Ld. CIT had simply presumed that the assessee might not have assessed the profits derived from the JV projects separately and therefore, invoked the provisions of section 263 which in our view is not appropriate. Therefore, we hereby hold that the reason for invoking the provisions of section 263 of the Act on this issue is not warranted.
9. Ground No.4 & 5 depreciation on Plant & Machinery and Notional gain:
10. The Ld. CIT further observed that the assessee had claimed depreciation of Rs. 3,19,619/-, Rs. 1,65,18,278/- being 15% of Rs. 26,10,793/- and Rs. 11,01,21,858/- for the AYs 2010-11 and 2011-12 respectively being loss arising out of fluctuation in Forex rates with 7 respect to acquisition of depreciable asset from abroad. The Ld. CIT further observed that the notional gain (sic) loss of Rs. 18,12,42,208/- for the AY 2010-11 and the notional gain (sic) loss of Rs. 9,17,21,454/- for the AY 2011-12 shall not qualify for deduction as the same is 'notional' in character and requires to be disallowed. On query, the assessee had made the following submission vide its letter 21 st March, 2016.
"3. Incorrect claim of gain on capital item, depreciation, notional gain on capital items etc. consequential to the change in rate of currency - Section 43A of Income Tax Act, 1961. "Actual gain on capital items (Forex)" of Rs. 11,01,21,858/- is actual loss on capital items due to change in foreign currency -rates. The amount was reported in profit and loss account under "Schedule 22 - Administrative and selling expenses". The amount was included in line item loss on exchange fluctuation (net) under schedule 22. The breakup of the same is given for your ready reference.
As per section 43A any gain or loss on account of changes in rate of exchange of currency shall go in enhancing or reducing the cost of capital asset acquired and shall not be adjusted to the taxable income. Since "Actual gain on capital items (Forex)" of Rs. 11,01,21,858/- is actual loss on capital items, debited to profit and loss account and hence added back in computation in compliance with section 43A of Income Tax Act, 1961.
"Notional gain on capital items (Forex)" of Rs. 9,17,21,454/- is notional gain on capital items due to change in foreign currency rates. Notional gain is change in foreign currency rate on date of reporting of financials and not actual gain. Notional gain on capital items (Forex)" was credited to profit and loss account under "schedule 17 - Other Income"
as "Loss on derivatives written back" Rs. 1,67,30,808/- and the balance clubbed under "Schedule 22 - Administrative and selling expenses" as "item loss on exchange fluctuation (net)". The breakup with detail working is enclosed for your ready reference. Since the gain is not actual gain and moreover it is notional gain on capital items and hence the same is not taxable under, Income Tax Act, 1961."
11. However, it appears that the Ld. CIT without verifying the submissions of the assessee hastily passed orders on 29/3/2016 for 8 the both AYs 2010-11 and 2011-12 which is not appropriate. Therefore, we do not find any merit in the action of the Ld. CIT for invoking his powers U/s. 263 of the Act on this issue also.
12. Since all the reasons cited by the Ld. CIT for invoking his powers U/s. 263 of the Act are found to be devoid of merits we hereby quash the order passed by the Ld. CIT U/s. 263 of the Act in the case of the assessee for both the AYs 2010-11 and 2011-12. It is ordered accordingly. Since the Ground No.1 is general in nature it does not call for adjudication.
13. In the result, both the appeals of the assessee are allowed.
Pronounced in the open Court on 12 th July, 2019.
Sd/- Sd/-
(P. MADHAVI DEVI) (A. MOHAN ALANKAMONY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated:12 th July, 2019
OKK
Copy to:-
1) M/s. IL & FS Engineering & Construction Co. Ltd., (formerly M/s.
Mytas Infra Pvt. Ltd) , 8-2-120/113/3, 4 t h Floor, Sanali Info Park, Road No.2, Banjara Hills, Hyderabad.
2) DCIT, Central Circle-3(2), IVth Floor, Signature Towers, Kothaguda, Opp. Botanical Gardens, Serilingampally Mandal, R.R. Dist, Hyderabad - 500 001.
3) The Pr. CIT (Central) , Hyderabad 4) The DR, ITAT, Hyderabad 5) Guard File