Income Tax Appellate Tribunal - Lucknow
Vijay Infrastructure Limited, Lucknow vs Assessee on 30 October, 2015
1
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH "A", LUCKNOW
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA No.254/LKW/2015
Assessment year:2005-06
M/s Vijay Infrastructure Limited, Vs. A.C.I.T.,
B-5/21, Vishal Khand, Central Circle-I,
Gomti Nagar, Lucknow. Lucknow.
PAN;AABCV2697Q
(Appellant) (Respondent)
ITA Nos.452, 35 to 37/LKW/2015
Asstt.Years:2005-06 to 2008-09
A.C.I.T., Vs. M/s Vijay Infrastructure Limited,
Central Circle-I, B-5/21, Vishal Khand,
Lucknow. Gomti Nagar, Lucknow.
PAN;AABCV2697Q
(Appellant) (Respondent)
C.O. Nos. 12 & 13/LKW/2015
(in I.T.A. Nos. 36 & 37/Lkw/2015)
Assessment years:2007-08 & 2008-09
M/s Vijay Infrastructure Limited, Vs. A.C.I.T.,
B-5/21, Vishal Khand, Central Circle-I,
Gomti Nagar, Lucknow. Lucknow.
PAN;AABCV2697Q
(Objector) (Respondent)
Assessee by Shri H. P. Singh, Advocate
Shri P. K. Tandon, C. A.
Revenue by Shri A. K. Singh, CIT, D. R.
Shri Vivek Mishra, CIT, D. R.
Date of hearing 19/08/2015
Date of pronouncement 30/10/2015
2
ITA Nos.38 to 39/LKW/2015
Asstt.Years:2009-10 to 2010-11
A.C.I.T., Vs. M/s Vijay Infrastructure Limited,
Central Circle-I, B-5/21, Vishal Khand,
Lucknow. Gomti Nagar, Lucknow.
PAN;AABCV2697Q
(Appellant) (Respondent)
ITA No.696/LKW/2014
Assessment year:2011-12
A.C.I.T., Vs. M/s Vijay Infrastructure Limited,
Central Circle-I, B-5/21, Vishal Khand,
Lucknow. Gomti Nagar, Lucknow.
PAN;AABCV2697Q
(Appellant) (Respondent)
Assessee by Shri P. K. Tandon, C. A.
Revenue by Shri A. K. Singh, CIT, D. R.
Date of hearing 10/09/2015
Date of pronouncement 30/10/2015
ORDER
PER BENCH:
Out of this bunch of 10 appeals and Cross Objections, one appeal and two Cross Objections are filed by the assessee and remaining seven appeals are filed by the Revenue for various assessment years. Out of these appeals and Cross Objections, seven were heard on 19/08/2015 and balance three on 10/09/2015 and all are being disposed of by way of this common order for the sake of convenience.
2. We find that in these total 10 appeals and Cross Objections, only eight issues are involved. Hence, we decide these appeals and Cross Objections on issue basis.
33. The first issue is regarding addition made by the Assessing Officer and confirmed by learned CIT(A) on the basis of seized material. This issue has been raised by the assessee in its appeal for assessment year 2005-06 in I.T.A. No.254/Lkw/2014 as per ground No. 1, which is reproduced below:
"1. The learned CIT(A) has erred in the law and facts of the case in confirming addition of Rs.1,16,50,863/-."
4. Learned A. R. of the assessee reiterated the same contentions which were raised before learned CIT(A) whereas Learned D. R. of the Revenue supported the orders of the authorities below.
5. We have considered the rival submissions. We find that the contentions raised by the assessee on this issue before CIT(A) are noted by CIT(A) in Para 6 to 6.6 of his order, which are reproduced below for the sake of ready reference:
"6. GROUND NO. 1 - ADDITION OF Rs.1,16,50,863/-
Your kind attention is invited towards the seized paper, on the basis of which the above mentioned addition has been made. The page no 95 of the seized material contain two set of entries, one is total amount received Rs.74,00,000/-, in which dates for first two amounts viz Rs.10,00,000/- on 5.3.2005 and Rs.19,00,000/- on 9.3.2005 has been mentioned. Whereas against the amount of Rs.45,00,000/-, no date is mentioned. In the second set of entries, drafts prepared for cash from various places and commission paid there on are mentioned. The total amount of demand drafts prepared are for Rs.79,87,900/- on different dates and the amount of bank commission is Rs.24,963/-. The total of these two figures comes to Rs.80,12,863/- In this regards it was submitted that the said paper was prepared by the accountant for the reconciliation purposes. Cash is being remitted from head office to meet the day to day expenses at the site, as the assessee is not having signing authorities at all the sites. In order to make the payments to various persons, drafts were got prepared by the cashier in the name of the suppliers on 4 different occasion and the source of such drafts was out of cash received from the head office as mentioned there in.
6.2 As far as the source of cash is concerned the same was given out of cash withdrawals from the bank accounts. During the course of assessment proceeding the assessee provided the details of cash given on 5.3.2005 and 9.3.2005 as the dates were mentioned against the transaction. As in case Rs.45,00,000/- received by the cashier the date is not mentioned so it could not be verified from the books. The Ld AO has not disputed these facts.
6.3 Again on page no. 97 of the seized paper we find that the cashier had stated details of DD and cheques of different amounts, which represent the payments being made to various parties and cash being received. These are rough reconciliation working done by the cashier and do not represent any unaccounted entries. These types of papers are working papers for reconciliation purposes and no addition on the basis of these papers can be made.
6.4 Further as per the seized paper there is cash receipt of Rs. 74 lacs and against this drafts were got prepared from different places for payments for Rs.80,12,863/- including bank commission and again on page 97 there are demand draft and cheques amount written which have been taken as unexplained income in the hands of the assessee. The Ld AO has stated that the assessee company routed though demand draft/cheques mentioned in the said document. The transactions mentioned on this page are related to the assessee company as the document was found from a premises belonging to the brother of Shri Nausad Ahmad. He further states that from the entries recorded on these pages it can easily be inferred that the demand drafts were bought by the assessee by paying cash of equal amount.
6.5 It is true that the drafts were got prepared by the assessee out of cash but were used to pay the suppliers and as far as the source of such cash is concerned the same is out of cash available in the books.
6.6 The assessee relies upon the following judicial pronouncements in support of its contention:
5Chander Mohan Mehta v. Assistant Commissioner of Income- tax [1999] 71 ITD 245 (PUNE) Section 158BB of the Income-tax Act, 1961 - Block assessment
-Computation of undisclosed income - Assessment years 1986- 87 to 1996-97 - Based on loose papers found during survey after search as well as subsequent statement of assessee recorded under section 131, giving nature and details of transactions indicated therein in regard to money-lending business, Assessing Officer made addition of entire borrowings received from certain persons even though confirmation letters were produced by them - Whether since said loose papers did not indicate name of assessee, from list of persons given in loose papers it could not be inferred that either any loan or any advance was given to or received from those persons, and since total amount on those loose sheets indicated a very small amount, those loose papers alone would have to be considered as dumb papers having no evidentiary value and no addition could be sustained - Held, yes Assistant Commissioner of Income-tax v. Dr. Kamla Prasad Singh [2010] 3 ITR (TRIB.) 533 (PAT.) I. Section 158B of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income - Block period 1991-92 to 2000-01 Where documents found and seized and relied upon for making addition under appeal by revenue had neither date nor name of assessee, it could not be assumed or presumed as to when and by whom noting were recorded: no addition could be made on basis of such dumb documents [In favour of assessee] Neither any enquiry report nor any document procured either before or after the search can be considered while computing the undisclosed income. Similarly, it is also settled law that any document found during the course of search has to be interpreted literally and nothing can be added or subtracted.
Where the documents found and seized and relied upon for making the addition under appeal by the revenue had neither date nor the name of the assessee it could 6 not be assumed or presumed as to when and by whom the notings were recorded. It was also not known as to in what connection the notings even if considered as giving and taking of money were made, meaning thereby that these documents being dumb documents, no addition could be made on the basis of assuming or presuming the notings in those documents relating to any other transaction not recorded in the documents CIT v Girish Chaudhary [2007] 163 TAXMAN 608 (DELHI) Section 158B of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income - Block period 1990-91 to 1999-2000 - During search at premises of company in which assessee was a director, document containing, entry '48' was seized - As assessee failed to explain said entry, Assessing Officer treated Rs. 48 lakhs as assessee's undisclosed income and made addition - Whether since there was no material on record to show as to on what basis Assessing Officer had reached at the conclusion that figure '48' was to be read as Rs. 48 lakhs and document recovered was a dumb document, addition of Rs. 48 lakhs was unjustified - Held, yes In view of above judicial pronouncements the addition of Rs.1,16,50,863/- be deleted."
5.1 Thereafter, we find that this issue has been decided by learned CIT(A) against the assessee on the basis of following observations on pages 9 to 11 of his order, which are also reproduced below for the sake of ready reference:
"I have perused the facts stated in the assessment order as well as facts stated in the assessee's submission. The Assessing Officer has made the addition of Rs.1,16,50,863/- by observing that :During the course of search u/s 132 a register inventoried cm Annexure B-10 was found from the residence of Shri Abusad Ahmad at 4.202, Vishal Khand, Gomti Nagar, Lucknow and seized. The seized documents is a register belonging to the assessee (M/s Vijay Express Way Engineers Pvt. Ltd.) and which has entries of huge amounts received/paid from/to various persons especially on pages 95 and 97. At some places name of one Shri Vikas Singh is mentioned. At other place entry like 7 "DD received from Aligarh" is mentioned. On page 95 entry of cash payment totaling Rs.74,00,000/- and Rs.6,12,863/- to 'Jhaji' is made. On the same page entry of Rs.1,61,043/- against 'S. S. Singh is mentioned. .......... 4.1 From the above entries, it is clear that these are entries relating to receipts through DDs against cash payments. On page 95, first entry dated 7/3/2005 reveals that demand draft of Rs.7,85,000/- was arranged from Sultanpur through one 'Jhaji ' for which 'Jhaji' was paid Rs.7,87,639/- which included commission of Rs.2639/- (probably charged by the bank). Similar facts also emerge from other entries also. Vide questionnaire dated 08-02-2013 and subsequent queries, that assessee was required to explain nature and detail of such entries and how the same are recorded in the books of accounts. In explanation, the assessee stated that, "This is working paper made by the cashier of Sultanpur to reconcile the cash received by him on payments made. The amount of Rs. 74,00,000/- was received over a period of time from head office at Lucknow which is being sourced out of the cash available in the books of the assessee. Since no dates are mentioned against the amount of Rs.45 lacs so it is not possible to get it reconciled with the books. However, the other two entries are duly recorded in books. It is a general practice that cash was being transferred from HO to branches to meet the expenses and the said page is a rough reconciliation of the same."
4.2 The reply furnished by the assessee is not satisfactory inasmuch as it lacks evidence and tries to disown the facts of the impugned document. The nature and detail of entries show that the purpose of transactions mentioned on these pages is to buy demand drafts/cheques against cash payments. From the entries like 'S.S. Singh' (major share holder, director and promoter of the assessee company), 'Sri Abusaad Ji ' (share holder, brother of Shri Naushad Ahmad, another major share holder, director and promoter of the assessee company), 'Jha Ji' and 'Vikas Singh', both working for the assessee, it is established that these persons, who are involved in the activities of the assessee company, helped the undisclosed income of the assessee company routed though demand drafts/cheques mentioned in the said document. The transactions mentioned on this page are related to the assessee company as the document was found from a premises belonging to the brother of Shri Naushad Ahmad, a promoter 8 and chief managing director of the company and the impugned page itself mentions name of Shri S.S. Singh, another promoter and director of the company. The relationship of the document with (the assessee company is further established from the fact that name of the company itself is mentioned on the cover page of the impugned register. In view of overall facts of the case it is established that the assessee failed to offer satisfactory explanation on this issue. Hence, the value of transaction effected through this document is treated as assessee's undisclosed income.
From the entries recorded on these pages it can easily be inferred that the demand drafts were bought by the assess by paying cash of equal amounts. On page, 95, total expenses on demand drafts are worked out at Rs.80,12,863/- and at the lower portion of the same page equal amount is paid in cash to 'Jhaji' apparently for this purpose. Similar is the positions for entries on page 97 also. The total of receipts through demand drafts/cheques, as mentioned on pages 95 & 97 is at Rs.1,16,50,863/- (Rs.80,12,863/- being total of page 95+Rs. 36,38,000/-, being total of page 97), which is added to the assessee's total income in view of the above discussion. As the assessee has concealed particulars of its income on this account and furnished inaccurate particulars thereof, penalty proceedings u/s 271(1)(c) is also being initiated separately.
Added: Rs. 1,16,50,863/-
According to the assessee these seized paper pages 95 and 97 are Annexure B-10 is a working paper made by the cashier of Sultanpur to reconcile the cash received by him and payments made. The amount of Rs.74,00,000/- was received over a period of time from head office at Lucknow which is being sourced out of cash available in the books of the assessee but it is seen that the assessee has not been able to demonstrate from his books of account as from where the cash has been withdrawn i.e. from which bank A/cs and to whom draft was given i.e. which parties and for which work site, the assessee has not establish any link of these papers. These documents found during search are not dumb paper these are speaking papers and reflect all the details about the transactions of the assessee, these documents does bear the names like 'Sri Abusaad Ji'( major shareholder and director and promoter of 9 the assessee company), Jha Ji and Vikas Singh both are working for the assessee.
Hence, after considering the above stated facts when the assessee gives an evasive reply to the Assessing Officer, the Assessing Officer has no choice but to make an estimation of the income which has to be reasonable and on the basis of material available on record, therefore, I agree with the findings of Assessing Officer. The total receipts through demand drafts/cheques, as mentioned on pages 95 & 97, is at Rs. 1,16,50,863/- (Rs. 80,12,863/-, being total of page 95 + Rs. 36,38,000/- being total of page 97), which is treated as undisclosed/unaccounted income of the assessee, the Assessing Officer has rightly made the addition, hence, the addition of Rs.1,16,50,863/- is hereby upheld and this ground of appeal is being confirmed/dismissed."
5.2 From the observations in the order of learned CIT(A) as reproduced above, we find that this issue has been decided by learned CIT(A) on the basis that from the entries in the seized materials, it is clear that these are entries relating to receipts of Demand Draft against cash payments. It is also noted by learned CIT(A) that on page No. 95, first entry dated 7/3/2005 reveals that demand draft of Rs.7,85,000/- was arranged from Sultanpur through one 'Jhaji ' for which 'Jhaji' was paid Rs.7,87,639/- which included commission of Rs.2639/- (probably charged by the bank). Thereafter, it is further noted by learned CIT(A) that similar facts emerged from other entries also and vide questionnaire dated 08/02/2013 and subsequent queries, the assessee was required to explain nature and detail of such entries and how the same are recorded in the books of accounts. In reply, it was submitted by the assessee that, this is working paper made by the cashier of Sultanpur to reconcile the cash received by him and payments made. Thereafter, it is observed by CIT(A) that the reply furnished by the assessee is not satisfactory inasmuch as it lacks evidence and tries to disown the facts of the impugned document. This categorical finding of CIT(A) could not be controverted by Learned A. R. of the assessee 10 before us and therefore, we do not find any reason to interfere in the order of CIT(A) on this issue. When the assessee could not bring evidence to establish that the cash transactions shown in seized material is duly recorded in books of the assessee, it has to be accepted that unaccounted cash was channelized in books by showing bank draft receipts. Hence, there is no infirmity in the order of CIT (A) on this issue. Accordingly, this issue is decided against the assessee. Ground No. 1 for assessment year 2005-06 is rejected.
6. The second issue is regarding disallowance made by the Assessing Officer on ad hoc basis to the extent of 1% of total expenses debited by the assessee in profit & loss account. This disallowance was made by the Assessing Officer in all the seven assessment years which are before us i.e. assessment year 2005-06 to 2011-12 and in all these years, this disallowance has been deleted by CIT(A) and Revenue has raised this issue in all its seven appeals for these assessment years. In assessment year 2005-06 to 2008-09, this issue was raised as per ground No. 1 whereas in assessment year 2009-10, this issue has been raised as per ground No. 6, in assessment year 2010-11 this issue has been raised as per ground No. 7 and in assessment year 2011-12 as per ground No. 5.
7. On this issue, Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT(A).
8. We have considered the rival submissions. We find that in Para 6 of the assessment order for assessment year 2005-06, it is observed by the Assessing Officer that the assessee has debited various expenses under construction expenses and administrative expenses. He has further noted that in explanation to genuineness of these expenses, books of accounts 11 and some vouchers were produced but the vouchers produced are neither full nor verifiable inasmuch as complete identity of the payees is not mentioned therein. He has also noted that many vouchers are self-made debit vouchers without verifiable detail of payees. On the basis of these observations, he made disallowance on ad hoc basis to the extent of 1% of total expenses of Rs.5945.48 lac and in this manner, he made disallowance of Rs.59,45,488/-. When the assessee carried the matter in appeal before CIT(A), he deleted the disallowance on the basis that the Assessing Officer did not give any finding that the expenditure incurred and claimed by the assessee is either capital in nature or personal in nature or wholly and exclusively not incurred for the purpose of business and this disallowance is made on the basis that the vouchers produced are neither full nor verifiable inasmuch as complete identity of the payees is not mentioned therein. He has also noted that as per the A.O. many vouchers are self-made debit vouchers without verifiable detail of payees. Thereafter, he has also observed that the Assessing Officer could not point out any defect in any specific voucher nor did Assessing Officer invoke provisions of section 145(2) of the Act and the A.O. did not reject the books of accounts. Thereafter, he has held that in absence of specific defect, no ad hoc disallowance can be made. He has also held that the general observation of the A.O. that the vouchers are self-made cannot be a basis for addition. At best, it can be a starting point for enquiry but if the vouchers were defective, the Assessing Officer should have pointed out the defects and should have asked the assessee for a reasonable explanation.
9. So is the case in assessment year 2006-07. In this year also, the Assessing Officer made similar disallowance of Rs.71,44,748/- to the extent of 1% of total expenses of Rs.7144.74 lac with the same observation that the vouchers produced are neither full nor verifiable inasmuch as complete 12 identity of the payees is not mentioned thereon and in this year also, the disallowance was deleted by CIT(A) on the same basis.
10. So is the case for assessment year 2007-08 because in this year also, the Assessing Officer made similar disallowance of Rs.88,05,015/- being 1% of total expenses of Rs.8805.01 lac with same observations and in this year also, this disallowance was deleted by CIT(A) on the same basis.
11. In the remaining years also, the facts are identical. After considering the facts of the present case on this issue and the orders of the authorities below on this issue, we find no infirmity in the order of CIT(A) because on the basis of general observations, without pointing out even a single specific defect in the vouchers or books of accounts, ad hoc disallowance made by Assessing Officer is not justifiable and the same was rightly deleted by CIT(A). Hence, on this issue, we decline to interfere in the order of learned CIT(A). Accordingly, issue no. 2 is decided in favour of the assessee.
12. The issue No. 3 & 4 are in respect of deduction claimed by the assessee u/s 80IA(4). This claim was not allowed by the Assessing Officer for two reasons. The first reason is that the assessee's case is of a civil contractor and therefore, as per explanation below 80IA(13) inserted by Finance (No. 2) Act, 2009 with retrospective effect from 01/04/2000, the deduction u/s 80IA(4) is not allowable in case of a contractor and the assessee is a contractor and therefore, this deduction claimed by the assessee is not allowable to the assessee. This is issue No. 3 and it is raised by the Revenue in assessment year 2009-10, 2010-11 and 2011-12 as per ground No. 1 & 2 in all these years. The second aspect of this matter is non allowability of claim of the assessee u/s 80IA(4) because this claim is made by the assessee for the first time in the return filed by the assessee u/s 153A and no such claim was made in any return filed by the assessee u/s 13 139(1) of the Act. On this aspect i.e. issue No. 4, the grounds raised by the Revenue are ground No. 3 to 5 in assessment year 2009-10 and ground No. 3 to 6 in assessment year 2010-11 and this issue has been raised by the assessee as per ground No. 1 & 2 of Cross Objection in assessment year 2007-08 and 2008-09 because in these two years, the decision of CIT(A) is against the assessee.
13. On issue No. 3, Learned DR of the revenue supported the assessment order and learned AR of the assessee supported the order of CIT (A). Reliance was placed on the tribunal order rendered in the case of Koya and Co. Construction (P) Ltd. vs. ACIT as reported in 32 CCH 43 (Hyderabad). On issue No. 4, Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT(A) for assessment year 2009-10 and 2010-11. Regarding assessment year 2007-08 and 2008-09, he submitted that in these two years also, the issue should be decided in favour of the assessee because the claim was made in the return of income filed u/s 153A and as per the provisions of clause (a) of sub section (1) of section 153A, the return furnished u/s 153A should be considered as if such return was a return furnished u/s 139 of the Act.
14. We have considered the rival submissions. Regarding issue No. 3, we find that the decision of CIT(A) in assessment year 2009-10 is contained on page Nos. 36 to 44 of his order, which are reproduced below for the sake of ready reference:
"For this year also the appellant had entered into contracts agreements with the NHA1 and UPPWD, and the facts are same therefore, I follow my order for A.Y. 2010-11 and A.Y. 2011-12 in which I had allowed the assessee's claim because the Assessing Officer failed to consider the amendment made by the legislature to the section 80IA(4) of the l.T.Act, from a 14 close reading of the two contracts agreement entered by the appellant with NHAl and UP PWD, it is seen that the appellant was engaged in development of road and is not a mere contractor as he had deployed his own capital used his own management and expertise in maintenance and had to bear the risk and defect correction. That as per the provisions contained in the agreement, the assessee had given guaranty for the road and bridges and other construction work, done by the assessee, for one year referred to as "Defect Liability Period", during which period any defect was to be removed by the assessee as per the need.
My attention was drawn to the March 2012 case of Hon'ble ITAT Hyderabad Bench case of Koya & Co. Construction (P)Ltd. vs. Asstt, Commissioner of Income Tax wherein they have discussed in detail about the 801A deduction which is as below:
"... Section 80-lA of the Income-tax Act, 1961 - Deductions - Profits and / gains from infrastructure undertakings - Assessment years 2003-04 to 2006-07 - Whether word 'owned" in sub-clause (a) of clause (1) of section 80-IA(4) refers to enterprise carrying on business which would mean that only companies are eligible for deduction under section 80-IA(4) and not any other person like individual, HUF, firm, etc. - Held, yes - Whether for purpose of allowing deduction under section 80-IA, it is necessary that assessee should have been owner of infrastructure facility - Held, no -Whether where from an undeveloped area, infrastructure is developed and handed over to Government, such activity is eligible for deduction under section 80-IA(4) - Held, yes - Whether if contract entered into by assessee with Government involves design, development, operating & maintenance, financial involvement, defect correction and liability period, then such contracts cannot be called as simple works contract to deny deduction under section 80-IA - Held, yes - Assessee claimed deduction under section 80-IA for developing infrastructure projects under different Government authorities - Revenue authorities held that assessee was only a contractor carrying on construction of infrastructure and, therefore, was not eligible for deduction under section 15 80-IA(4) - Facts revealed that agreement was not for a specific work, but for development of facility as a whole ; that material required was to be brought in by assessee by sticking to quality and quantity irrespective of cost of such material; that assessee utilized its funds, its expertise, its employees and took responsibility of developing infrastructure facility; and that assessee handed over developed infrastructure facility to Government on completion of development - Whether, on facts, assessee was a developer and not a works contractor and, therefore, was entitled to deduction under section 80-IA - Held, yes [In favour of assessee] Words & Phrases : 'Owned' as occurring in clause (1)(a) of section 80-1A(4) of the Income-tax Act, 1961.
FACTS The assessee claimed deduction under section 80-IA(4) for the years under consideration for developing infrastructure projects under different authorities, like, HUDA, ICICI Park, HMWSSB, TNWSDB, TWAD, etc. The claim of the assessee was that the company had been allotted the work of development of infrastructure and handed it over to the Government as an infrastructure after completion and, hence, it was to be allowed as deduction under section 80-IA(4). The lower authorities were of the opinion that the assessee had not undertaken the infrastructure activities and it did not own the infrastructure itself. According to them the assessee was only a contractor carrying on construction of the infrastructure and, therefore, was not eligible for deduction under section 80-IA(4). Accordingly, deduction under section 80-1A(4) was denied by the lower authorities to the assessee. On second appeal:
HELD The provisions of section 80-IA(4), when introduced afresh by the Finance Act, 1999, the provisions under section 80-IA(4A) were deleted from the Act, The deduction available for any enterprise earlier under section 80-IA(4A) are also made available under section 16 80-IA(4) itself. Further, the very fact that the Legislature mentioned the words (i) 'developing' or (ii) 'operating and maintaining1 or (iii) 'developing, operating and maintaining' clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-tax Act. Where an assessee incurred expenditure for purchase of materials himself and executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, an assessee, who enters into a contract with another person including the Government or an undertaking or enterprise referred to in section 80-IA for executing works contract, will not be eligible for the tax benefit under section 80-IA. The word 'owned' in sub-clause (a) of clause (1) of sub- section (4) of section 80-IA refers to the enterprise. By reading the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to. Therefore, the word 'ownership' is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80-IA(4) and not any other person like individual, HUF, Firm, etc. [Para 21] According to sub-clause (a), clause (i) of sub-section (4) of section 80-IA the word 'it' denotes the enterprise carrying on the business. The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by anyone. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. [Para 22] The next question to be answered is whether the assessee is a developer or mere works contractor. It 17 purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. In the instant case, the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and, thereafter, developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assesses. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Government or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development.18
Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during (his period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular, dated 18-5-2010, such activity is eligible for deduction under section 80-IA(4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a work contractor as presumed by the revenue. The circular issued by the Board, relied on by the assessee, clearly indicates that the assessee is eligible for deduction under section 80-IA(4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. [Para 23] As per the provision of the section 80-IA, a person being a company has to enter into an agreement with the Government or government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word 'contractor' is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word 'contractor' is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. [Para 24] The decision in the case of Laxmi Civil Engineering (P.) Ltd. v. Addl. CIT [IT Appeal No. 766 (Pn) of 2009, dated 8-6-2011] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held 19 that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80- IA. Section 80-IA intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80-IA, which ultimately culminated into amendment under section 80-fA, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. To avoid misuse of the aforesaid amendment, an Explanation was inserted in section 80- IA, in the Finance Act 2007 and 2009, to clarify that mere works contract would not be eligible for deduction under section 80-IA. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only works contract or sub-contract as distinct from the developer. This is clear from the express intention of the Parliament while introducing the Explanation. The explanatory memorandum to the Finance Act, 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80-IA is available to developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that the assessee has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. Therefore, if the contracts involve design, development, operation & maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract, to deny the deduction under section 80-IA. The contracts which contain above features to be segregated, have to be 20 granted deduction under section 80-IA, and the other agreements, which are pure works contracts hit by the Explanation to section 80-IA(13), are not entitled for deduction under section 80-IA. The profit from the contracts which involve design, development, operating & maintenance, financial involvement, and defect correction and liability period is to be computed by the Assessing Officer on pro-rata basis of turnover. The Assessing Officer is directed to examine the records, accordingly, and grant deduction on eligible turnover, [Para 25] I also place reliance on Hon'ble ITAT Pune Bench 'A' case of Rohan & Rajdeep Infrastructure. The Reverie, 1st Floor, 805, Bhandarkar Institute Road, Pune-411004 Vs. Assistant Commissioner of Income Tax, Cir.-3, Pune, ITA No.1214/PN/2010 A.Y. 2006-07 and order dated 05.04.2013.
Which is on similar facts and they have held that widening and strengthening of road is bringing into existence a new infrastructure facility which is in the nature of road details are below....
"...8. We have heard the rival submissions of the parties and perused the record. The assessee company is in the business of Developing and Execution of infrastructure contracts. It is necessary to examine the terms of the contract with the Govt. of Rajasthan. The assessee has filed the Paper Book and a copy of agreement/contract with the Gov. of Rajasthan dated 15.12.2000 which is placed at page no. 70 to 79. As per the title to the Agreement, it is mentioned that -
IMPROVEMENT AND STREGTHENING OF HANUMANGARH-SURATGARH ROAD VIA PILIGANGA KM. 0/0 TO 26/0 ON BOT BASIS". The said Agreement is in the form of lease of land as mentioned in the recital. It is asserted that lessor "Govt. of Rajasthan" is desirous to entrust Improvement and strengthening of Hanumangarh-Suratgarh Road via Pilibangan on BOT basis. The Bid document as well as Project report are made a part of the Agreement/Contract. As per the document on record, the length of the road is shown as 21 26 Km and the project cost is shown at Rs. 643.02 Lacs. The necessity for carrying out the improvement and strengthening of the said road is stated that said road has got crust thickness of 25 cm only, while the present day traffic is 1526 no. commercial vehicle per day which requires minimum crust thickness of 37 cm. The exiting width of carriage way was 7.00M (page no. 84 of the P/B). After considering the project report which is the part of the Agreement/ Contract is appears that Government has made the estimation of cost as well as the revenue collection by authorizing the toll collection to the private parties. As per the terms of agreement, the height of the road has been increased by 12 cm. It is mentioned in the specification that the road is to be widened by 1 mtr. vide shoulders by using Dalmera Kankar in 50cm thickness. In sum and substance, width of the exiting road is also enhanced by 1 mtr. each side to coup up traffic/vehicle movements.
"...9. Now in the background of the above facts, we have to examine whether the deduction/claimed by the assessee in respect of the project improvement and strengthening of Hanumangarh-Suratgarh Road via Pilibangan which is for 26 km qualify for deduction u/s 801A(4) as a new infrastructure facilities. We are not going into the cost working but the drawing specifications are necessary to understand what exact work is done by the assessee on said road.
Assessee has given a drawing in this page.............. ...........................
...........................
The above drawings (part of Bid Document) shows Existing Road (A) and New Road (B) which support the contention of the assessee that the thickness as well as the width of the road have been increased. Now the question is whether it can be said that it is merely repair and maintenance work ? And our answer should be in favour of the assessee that it is not merely a repair and maintenance work but doing entire restructuring of existing road The learned counsel has placed is reliance on the CBDT Circular No. 4/2010 dated 10.05.2010..."22
"...10 The CBDT has clarified the expression "New infrastructure facility". In fact the said circular supports the claim of the assessee that the widening of existing road by constructing additional lane as a part of the highway project is a new infrastructure facility. So far as the Hanumangarh -Suratgarh Road is concerned, the width is also increased as one additional lane is developed. In addition to increasing the thickness of the road, it is pertinent to note here that the project report which is the part of the agreement clearly suggest that the existing road was not capable of taking the increased load of the vehicles and hence, there was necessity for strengthening as well as widening the said road. It is not the case that merely some minor work like carpeting has been done to be done but the additional lane of 1 mtr. widening with 12 cm increased thickness has been done.
"...11. In the case of Tata Hydro Electric Power Supply Co. (Supra) the old irrigation dam was strengthened by using modern technique. On the expenditure incurred for strengthening of the dam, the assessee claimed the development rebate with the plea that it was a new plant. As per the provisions of law Development Rebate was allowable on a new plant. When the matter reached before Hon'ble High Court, the issue was decided in favour of the assessee and Hon'ble High Court held that the assessee incurred a huge expenditure which resulted into increasing the life of the existing dam and it was the work of the creation of new plant and the assessee was entitled for the Development Rebate. It is true that the parameters for the development rebate are different than the deduction to be claimed for developing infrastructure facilities but the principles underline the concept whether the "new infrastructure" means which is never in existence at all and the said principles can be applied to the assessee's case. We find that in the case of Shristi Infrastructure Development Corporation Ltd. (supra) on the identical facts i.e. for strengthening and improving of the existing road the Tribunal held that the work is to be considered as new infrastructure facilities..."23
"....12. It is true that each case is to be examined on it's own facts. So far as the present case is concerned, we do not agree with the authorities below that it is merely work of the maintenance and repairs but in fact it is a work of bringing into existence new infrastructure facility which is in the nature of road. We, therefore, allow the ground taken by the assessee and hold that the assessee is entitled for deduction U/s 80IA(4) of the Act and direct the Assessing Officer to allow deduction to the assessee..."
Further clarification on type of works covered u/s 80IA has been given by the CBDT's Circular NO.4/2010 [F.NO. 178/14/2010-IT(A-I)], DATED 18-5-2010 which are as under:
Section 80-IA(4)(\) of the Income-tax Act, 1961 - Deductions - In respect of profits and gains from infrastructure facility - Clarification regarding widening of existing road - Definition of a new infrastructure facility CIRCULAR NO. 4/2010 [F.NO.178/14/2010-IT(A-I)], DATED 18/05/2010 References have been received by the Board as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-lA(4)(i) of the Income-tax Act, 1961.
Section 80-IA(4)(i) provides for a deduction to an undertaking engaged in developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility subject to satisfaction of the conditions laid down in the section. The Explanation to section 80-IA(4)(i) states that for the purpose of this clause, infrastructure facility means inter alia :-
(a)a road including toll road, a bridge or a rail system;
(b)a highway project including housing or other activities being an integral part of the highway project;"
The issue has been examined by the Board. It has been decided that widening of an existing Road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new 24 infrastructure facility for the purpose of section 80- IA(4)(i). However, simply relaying of an existing Road would not be classifiable as a new infrastructure facility for this purpose.
This circular has been issued after the Finance Act 2009 and has clarified that the widening of an existing road in an infrastructure facility by an enterprise entitles the enterprise for deduction U/S 80IA(4)(i).
It is a settled position in Law that the CBDT circulars are binding on the Assessing Officer reference is invited to the case of [Azadi Bacchao Andolan (Supreme Court)] as CBDT circulars are contemparanea expositio.
This deduction U/S 80IA(4)(i) is available to any company which has entered into an agreement with the government or other government bodies/corporation, the appellant company falls under this.
After considering the CBDT Circular 4/2010 case laws of Koya & Company and Rohan and Rajdeep Infrastructure and as well as the facts at pages 40 to 42 of this order. The appellant company has widened the road from 2 lane to 4 lane in case of agreement with NHAI and at the same time constructed bridges, culverts, drainage, junctions, footpaths, traffic signals etc which shows that assessee company is a developer and not a mere contractor. Similarly, agreement with UP PWD assessee had increased the road length and widened it, the works consisted of the up gradation of the existing road, including the provision of an asphaltic overlay, GSB and WMM with DBM and BC and the widening of carriageway as shoulders (hard and soft). The work also includes the widening of existing culverts and minor bridges along with the new construction of culverts and bridges.
Thus from the above it is quite clear that the appellant company is not a mere work contractor but has developed the road from existing 2 lane to 4 lane and while doing so the appellant company has also made substantial investment by himself and also executed the development works and carried out civil-works on its own by using his own material and expertise. No material consumed in the of roads and bridges 25 was provided by the NHAI and UP PWD. This fact is duly referred to in the copies of agreement as well as in the payment advices, where in no amount was deducted by the agencies on account of material. The maintenance of the existing facility during the period of development also was of the appellant company and so also was the risk during the period to maintain the infrastructure and after the completion of development of road and its handing over to the Government, the risk period of the appellant company was of 12 months for maintenance of the road. Further the appellant company has not subcontracted his work. In this case Statutory Report in form 10CCB under Rule 18BBB as prescribed by the CBDT was also filed along with the return. Wherein the Auditors have duly certified that the assessee was a developer of road and has maintained separate books of accounts wherein all details have been recorded and nothing adverse was noted by the Assessing Officer relating to this.
Therefore, after considering all the facts the appellant company fulfills all the criteria of a developer as per section 80IA(4)(i) and by his works a new infrastructure facility in the nature of road has come into existence and is eligible for tax benefit under section 80IA(4)(i) of the Act.
After considering the above stated facts, the assessee is entitled for the deduction u/s 80IA(4), therefore the addition of Rs.10,34,06,532/ is hereby deleted and this ground of appeal is allowed."
14.1 From the above paras, reproduced from the order of CIT(A), we find that a categorical finding has been given by CIT (A) that the assessee company is not a mere work contractor but has developed the road from existing 2 lane to 4 lane and while doing so, the assessee company has also made substantial investment by itself and also executed the development works and carried out civil-works on its own by using its own material and expertise and no material consumed in the roads and bridges were provided by the NHAI and UP PWD. This is also noted by CIT(A) that the maintenance of the existing facility during the period of development also was of the assessee company and so also was the risk during this period to 26 maintain the infrastructure and after the completion of development of road and its handing over to the Government, the risk period of the assessee company was of 12 months for maintenance of the road. As per explanation below sub section (4) of section 80IA, infrastructure facility includes a road including toll road, bridge or a rail system. This is not in dispute that the assessee has widened the road and therefore, activity of the assessee falls within the definition of infrastructure. The CIT(A) has also referred to several judicial pronouncements as per which it was held that there is no requirement that the assessee should have been the owner of the infrastructure facility. The facts in the case of Koya & Co. (Supra) are identical. In that case, the relevant paras of the Tribunal Order are Para No. 21 to 28 and the same are reproduced below for ready reference:-
21. We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 80IA (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA (4) itself.
Further, the very fact that the legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word "owned" in sub-clause
(a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clears that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" 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. 27
22. We also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility.
23. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un- developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer 28 and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.
24. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor.
25. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgment of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or sub- contract as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources. Further, the order of Tribunal in the case of B.T.Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or 29
(ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been inserted w.e.f. 1- 4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA 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 as simple works contract 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. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work 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. It is needless to say that similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter-alia holding as follows:
"7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80IA."
26. The above order was followed in subsequent assessment years 2007- 2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee.
27. Further in the case of R.R. Constructions, the Chennai Bench of Tribunal in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 vide order dated 3.10.2011 held as follows:
28. Being so, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.30
14.2 From the above Para of this tribunal order, it comes out that if the contracts involves design, development, operating & maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction under s.
80IA and profit from the contracts which involves design, development, operating & maintenance, financial involvement, and defect correction and liability period is to be accepted as development and cannot be said to be contract simplicitor to apply the explanation. In the present case, categorical finding has been given by CIT (A) that the assessee was engaged in development of road and is not a mere contractor as he had deployed his own capital, used his own management and expertise in maintenance and had to bear the risk and defect correction. These findings of CIT (A) could not be controverted by learned DR of the revenue and therefore, this tribunal order rendered in the case of Koya & Co. (Supra) is squarely applicable because the facts are similar. In the order of CIT (A), he has followed this tribunal order and various other judicial pronouncements as noted by him in his order, as reproduced above. Considering this factual and legal position, we find no infirmity that the order of CIT (A) on this aspect that in the facts of the present case, it cannot be said that the assessee company was mere a contractor and not a developer. Therefore, on issue No. 3, we find no infirmity in the order of CIT(A). This issue is decided in favour of the assessee.
15. Now we take up issue No. 4. Issue No. 4 is that the assessee has claimed the deduction u/s 80IA(4) in the return filed by it u/s 153A and not in return of income filed by it u/s 139(1). In this regard, it was the submission of Learned D. R. of the revenue that the provisions of section 80AC are relevant and therefore, we reproduce the provisions of section 80AC herein below:
"Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible u/s 80IA or s. 80IAB or s.80IB or s. 80IC or s.80ID or s.80IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.31
16. We find that this aspect was decided by CIT(A) by making following observations on page No. 36 of his order in assessment year 2009-10, which is reproduced below for the sake of ready reference:
"I have perused the facts stated in the assessment order as well as assessee's submission. For this Assessment year 2009- 10 due date for filing of Income Tax Return was 30-09-2009 and the appellant had filed the Income Tax Return on 25-09- 2009 vide acknowledgement Number 91215411250909 without claiming deduction u/s 801A. Later on in response to notice u/s 153A dt 07-02-2012,which was received by the appellant on 03-03-2012 the appellant had filed return of Rs.3,79,90,641/- and the appellant had also claimed 80IA deduction for Rs.103406532/-, The time limit to revise the return was till 31/03/20U i.e. after the date of search but because of search the assessee could not file revise return he could file return in response to notice u/s 153A on 31-03-2012, therefore the claim for 80IA is within time limit."
16.1 In assessment year 2010-11 also, this issue has been decided by CIT (A) in favour of the assessee on the basis of similar observations but in assessment year 2007-08 and 2008-09, this issue has been decided by CIT (A) against the assessee by making following observations:
"I have perused the facts stated in the assessment order as well as assessee's submission. For this Assessment year 2007- 08 due date for filing of Income Tax Return was 15.11.2007 but the appellant had filed the Income Tax Return before i.e. on 27.10.2007 vide acknowledge no. 3583111271007 and no claim of 80IA was made. Later on in response to notice u/s 153A (dated 17.02.2012 which was received by the appellant on 03.03.2012), the appellant had filed return of Rs.3,54,95,203/- on 31.03.2012 by claiming 80IA for Rs.2,31,33,322/-. This claim of appellant is not tenable as the time limit to revise the return had expired on 31.03.2009 even before the date of search. Hence this ground of appeal is dismissed."32
16.2 From the above finding of CIT(A) in assessment year 2007-08 and 2008-09 on issue number 4, we find that it is noted by CIT(A) that in assessment year 2007-08, the time limit to revise the return has expired on 31/03/2009 i.e. much before the date of search i.e. 14/09/2010 and similarly in assessment year 2008-09 also, the time limit to revise the return has expired on 31/03/2010 i.e. much before the date of search i.e. 14/09/2010 and therefore, the claim made by the assessee for the first time in these two years in the return of income filed u/s 153A cannot be considered as claim made in a return filed u/s 139(1) as required by section 80AC. Moreover as per the judgment of Hon'ble Apex Court rendered in the case of Sun Engg. As reported in 198 ITR 297 (SC), it was held that reassessment proceedings are for the benefit of revenue and not for the benefit of the assessee and therefore, no new claim can be made by the assessee in reassessment proceedings. On the same analogy, search and subsequent assessment proceedings u/s 153A are also for the benefit of revenue and not for the benefit of the assessee and therefore, no new claim can be made by the assessee in proceedings u/s 153A. But the decision of CIT (A) is on this basis that in assessment year 2009-10, the time available for filing revised return of income to revise the return filed u/s 139 (1) had not expired on the date of search on 14.09.2010 as it was available up to 31/03/2011 and for assessment year 2010-11, the due date for filing return u/s 139 (1) was up to 31.10.2010 and for revising the return up to 31/03/2012 and the search has taken place before this i.e. on 14/09/2010. He has also noted that in both these years i.e. assessment year 2009-10 and 2010-11, the original return of income was filed by the assessee without claiming deduction u/s 80IA but within the time available u/s 139(1) because in assessment year 2009-10, the original return of income was filed by the assessee on 25/09/2009 whereas time available for filing the return 33 was 31/10/2009 and in assessment year 2010-11, time available for revising the return was up to 31/03/2012 and the return u/s 133A was filed on 31/03/2012 i.e. within the time available for filing the revised return of income and till the date of search, due date of filing the return has not expired. Considering these facts that in these two years i.e. A.Y. 2007 - 08 & 08 - 09, where the time available for filing the revised return has expired before the date of search, CIT(A) has held that the claim made for deduction u/s 80IA(4) in the return filed by the assessee u/s 153A is not acceptable but in the later two years i.e. assessment year 2009-10 and 2010-11, since the time was available for filing the revised return/return of income u/s 139 (5)/ 139 (1) and the assessee could not file the revised return of income within the available time because of search, the return furnished in response to notice issued by the Assessing Officer u/s 153A should be considered as a return filed u/s 139(1) of the Act and therefore, on this issue also, we find no infirmity in the order of CIT(A) and therefore, this issue is decided in favour of the assessee in two assessment years i.e. assessment year 2009-10 and 2010-11 whereas in the earlier two years in which this issue has been raised by the assessee in its C.O. in assessment year 2007-08 and 2008-09, this issue is being decided against the assessee. Our decision is on this basis that where time was available for revising the return of income to revise the return originally filed u/s 139 (1) as in A. Y. 2009 - 10 or to file the return u/s 139 (1) as in A. Y. 2010 - 11, the return filed u/s 153A should be considered as a return filed u/s 139 (1) and hence all claim raised in these returns should be decided on merit but where the time available to file revised return has elapsed before search as in A.Y. 2007 - 08 and 2008 - 09, the new claim raised in the return filed u/s 153A is not acceptable.
3417. Issue no. 5 is raised by the Revenue in assessment year 2009-10 is as per ground No. 7, which reads as under:
"7. That the learned CIT(A)-III, Lucknow has erred in law as well as on facts in deleting the addition of Rs.1,30,23,020/- made by the Assessing Officer on the basis of valuation report of D.V.O."
18. Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT(A).
19. We have considered the rival submissions. We find that this issue has been decided by CIT(A) in favour of the assessee by making following observations on pages 44 to 52 of his order, which are reproduced below for the sake of ready reference:
"I have perused the facts stated in the assessment order, Remand Report as well as facts stated in the assessee's submission and Rejoinder. The assessee has made an investment in property at B-5/21, Vishal Khand, Gomti Nagar, Lucknow, on 13.05.2008.The Assessing Officer in the assessment order has mentioned that as the assessee could not explain the investment made in the subject property before the Assessing Officer, the A.O. referred the matter or investment in house construction u/s 142A of the I.T. Act to the Departmental Valuation Officer(DVO), Accordingly, vide this office letter dated 08-012-2013, reference was made u/s 142A to the DVO to elucidate correct cost of construction (reconstruction/furnishing as claimed by the assessee).
The Valuation Officer submitted his report dated 16-03-2013 estimating the cost of construction in the aforesaid house property at Rs.2,10,61,200/- which was confronted to the assessee. The assessee submitted his comments on 18-03- 29013 by raising the following objections to the valuation report stating therein the following facts:35
That the assessee is maintaining regular books of accounts which are part of the seized record and there was nothing contained in the seized material which could suggest that the assessee has not accounted for the investment in the office premises at 5/21 Vishal Khand Gomti Nagar, Lucknow. The section 142A(1) of I.T.Act 1961, read as under:
For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the values of any bullion, jewellery or other valuable article referred to in section 69A or section 689B (or fair market value of any property referred to in sub section (2) of section 56] is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. Your honour will appreciate that the property under reference does not fall within the provisions of section 69, 69A, 69B and 56(2) of the I.T. Act. This is because under section 69, 69A and 69B, the first condition which is to be satisfied is that the investment either should not be recorded in the books of accounts or if recorded, the AO should find that the investment is under recorded. It is also not covered u/s 56(2) as the property in question has not been gifted to anyone. Therefore the reference made to the DVO is uncalled for and bad in law. In support of our contention we are enclosing here with the following judicial pronouncements in support. In the case of Prahalad Kukmar Jindal v. Assistant Commissioner of Income tax, Central Circle, Agra.
Section 142A, read with section 145 of the Income- tax Act, 1961 - Valuation officer - Estimate by, in certain cases - Reference to DVO - Assessment year 2004-05 - Assessing Officer without rejecting books of account maintained by assessee made a reference under section 142A to DVO for valuation of factory building of assessee
- Assessing Officer further on basis of cost of construction estimated by DVO made certain addition to income of assessee - Commissioner (Appeals) also estimated cost of construction on basis of DVO's report and reduced addition to some extent - Whether reference under 36 section 142A to DVO without rejecting books of account regularly maintained by assessee was without jurisdiction
- Held, yes - Whether action of Commissioner (Appeals) for estimation of construction cost on basis of DVO's report could not be approved particularly when Assessing Officer made reference to DVO without rejecting books of account - Held, yes [Paras 7 and 10]. I.T.A.T. Agra Bench [2012] 27 taxmann.com 17 (Agra).
Without prejudice to legal position as stated above we would like to submit regarding the valuation report of the DVO as under:
2. That the assessee had purchased land and building vide purchase deed dated 13-05-2008, which included a land and constructed building area of 511 sq.mts as stated in the deed (copy enclosed). An additional area of 377.49sq.mts..(888.49-511) along with some changed in the internal structure was added to this construction.
However, the Ld. D.V.O. not given the credit for such existing construction which was purchased by the assessee, as the cost of the same was included in the cost of the purchase. The purchase price consists of Rs.22,17,600/- towards the cost of land and Rs.3582400/- towards the cost of constructed area, totalling to Rs.58,00,000/-. The valuation of land and building for the purpose of section 50C of the I.T. Act, by the revenue authority was determined at Rs.57,94,600/-. However, the assessee had purchased the same for Rs.58,00,000/- which was more than the value taken by the Stamp Authorities for the purpose of section 50C of the I.T. Act. Thus the cost of land and building purchased earlier stands fully disclosed in the books of accounts. Therefore, this cost of land and building cannot be disputed before any authority functioning under the Income Tax Act. The assessee should be allowed credit of the same, for the purpose of valuation.
3. The assessee after purchasing the said building did the construction in the year 2008-09 relevant to A.Y. 2009-10. Copy of the construction accounts has already been filed. The Ld. DVO had applied the rate of construction relevant to February, 2013 and an amount 37 of Rs.89,47,687/- had been added by the DVO to the cost of construction, stating Add " cost of index 183 to bring the valued as on dated Feb.2013=8947,887.00". But as the construction was carried out in between September, 2008 and March, 2009, the index taken by the DVO is incorrect. The same may kindly be substituted with correct figures.
4. That the assessee is engaged in the construction business and the entire construction was done by themselves and under their own supervision and the in construction business effect has not been considered by the DVO. No cost towards architect expenditure was incurred by the assessee as the assessee himself is in construction business. Further, assessee being in construction business, use to make bulk purchases, that too at a competitive rates. This will further reduce the cost of construction. This aspect should also be given credit by the DVO, for the purpose of valuation of the fresh constructed area.
5. That we are enclosing here with the detailed working to arrive at the cost taken the rates taken by DVO.
6. It appears that the Ld. DVO has done the valuation for wealth tax purposes as the rate for index had been taken for February, 2013 instead of average rare for the periods from September 2008 and March, 2009 the period of actual construction.
7. That the Ld. DVO has stated in his report that no details were provided. Since the reference was not as per the provisions of section 142A(i) of I.T. Act 1961 so no details were provided. However, all the required details were filed before your honour.
8. That the assessee had shown and investment in the building as under:
Purchase of property as per deed 58,00,000 Add Stamp duty 5,80,000 Total cost of purchases of land and 38 511 sq.mts. of constructed area 63,80,000 Cost of construction of 377.49 sq. Mts. of building and Renewals etc. 95,96,116 Total amount of investment as per books 1,59,76,116 Thus the amount of investment for the area constructed by the assessee and renewals is Rs.95,96,1166/-
9. The point of discrepancies in DVO area as under:
a. Area of 511 st.mts. as per deed valued at Rs.35,82,400/- should be taken and not at the value worked as per CPWD rates. The areas of construction and its photo at the time of purchase are being enclosed as slated above.
b. The base rate have been taken as 2007 rates and additions of 83% have been added to the value worked out by the DVO which is the index rate for February 2013. However, as the construction had taken place between September 2008 and March 2009 so the average rate for this period should be taken. As per the CPWD circular (copy enclosed) the index rate for March 2009 was 113. So instead of 183 taken by the DVO 113 should be token.
c. The %age cost for services should be taken on the value of construction for 377.49 sq mts. only.
d. Credit for self supervision and assessee being into construction activities should also be given which is about 8 to 10%.
If only the area and index rates are corrected in the DVO report the cost of investment shall be Rs.66,83,271/- against which the assessee had shown an investment of Rs.95,96,116/-.
In view of above the valuation done by the DVO is not correct and should not be relied upon.
39The aforesaid objections were forwarded to the Valuation Officer vide this office letter dated 22.03.2013. The valuation officer in his comments vide his letter dated 26.03,2013 reiterated his findings in the valuation report and rejected the objections raised by the assessee stating as under:-
"Parawise reply on Assessee's objections dated 22.03.2013 are as following:-
1. No comments are required from this end.
2. In response to this office notice no.
1406/VO/ITDS/Lko/12-13/272 Dt. 11.01.2013, Assessee's chose not to provide any information. No purchase deed was provided. Even now it has not been done. Some pates of deed only have been enclosed. Bo copy of deed is enclosed in this objection. The present structure is totally different from the one which is annexed as a double storeyed residential structure. A residential unit of double storey is normally a load bearing structure whereas the present structure is purely a R.C.C. framed structure. The present structure is having basement plus three additional storeyed purely supported on R.C.C. columns & beams. Thus the present structure is not possible without dismantling entirely the old structure. Assessee has tried to escape this vital point. Present structure is totally new in entirely. Only addition of 377.49 sqm. averment is thus baseless. Total area of 884.49 sqm. has been constructed by assessee only. Thus, no credit on account of alleged existing structure (old) cannot be given. Purchase cost has not relevance in investment worked out in valuation report as only investment in present structure has been accounted.
3. No proof of construction in year 2008-09 has been given with objection hence it is untenable. No modification in cost index is required.
4. No proof of self-supervision/construction has been given therefore no weightage on this account can be given. No proof of purchase on competitive rates has been given hence claim is untenable.
5. The enclosed working of rates is untenable as the areas has been reduced which is contrary to what is existing.
406. In absence of period of construction the valuation is prepared as per existing norms of value as on date of inspection.
7. No comments.
8. Already replied under Para 2.
9. (a) Areas as per deed is inadmissible in light of averments under Para 2.
(b)Already replied under Para 3. Cost index enclosed by assessee is for Delhi and not Lucknow.
(c)Percentage of services has been rightly taken for entire new structure area.
(d)No credit for self supervision is admissible in absence of its proof.
The Assessing Officer observed that:
In view of the above comments of the Valuation Officer, the objections raised by the assessee regarding quantum of valuation of construction in the said house property was rejected and value of construction is taken as that estimated by the DVO vide his report dated 26.03.2023 prepared on the basis of his inspection of the property on 19.02.2013. So far as assessee's claim of construction of the property in financial year 2008-09 i.e. the year under consideration is concerned the same is accepted and the value estimated the DVO i.e. Rs.2,20,62,200/- taken as correct cost of investment in the house property. As observed by the Ld. DVO the present structure is not possible without dismantling entirely the old structure, the whole building is taken as constructed during the year in question anew. In its reply dated 22.03.2013 the assessee has claimed investment of Rs.95,96,126/- in the construction of the impugned building after its purchase in September, 2008 and furnished copy of 'new office maintenance' account as per its books of accounts to support reconstruction/furnishing of the said building.
However, as per the 'new office maintenance' account enclosed the disclosed expenditure is at Rs.80,38,180/- only. And, after considering this amount of Rs.
80,38,180/-, the undisclosed investment in the construction of the said building was worked out at Rs.2,30,23,020/-.
41From the above stated facts it is seen that the assessee purchased a house property bearing number -B-5/21, Vishal Khand, Gomti Nagar, Lucknow on 13-05-2008, during the financial year 2008-09 and carried out certain renovation/alteration during the financial year. It is a fact the assessee did only some cosmic changes in the building is a factual matter and is supported by photograph enclosed by the assessee of the building. The old building was also on RCC framed structure constructed in 2002. The DVO has wrongly stated that the building was double storied with RB structure. The building purchased was a RCC framed structure with a basement and there floors.
It is seen that the purchase and renovation were duly disclosed in the original Return so filed. The Valuation by the DVO suffers from a basic and inherent defect as it has not taken into consideration the fact that this property has been purchased and then renovation was carried out in a fully constructed state as being floor space in a commercial building.
Moreover, this is a search case hence in the absence of any incriminating material found/seized during search, no addition can be made. Further, books of accounts have not been rejected.
In this regard my attention is also drawn to the Supreme Court Case Law in the case of Sargam Cinema.
In this regard, reliance is placed on the following judgments:
(1) Sargam Cinema v. Commissioner of Income-tax (2011) 197 Taxman 203 (SC) Headnote:
"Section 142A of the Income-tax Act, 1961 - Assessment
- Estimate by Valuation Officer in certain cases - Whether an assessing authority can refer any matter to Departmental valuation Officer without books of account being rejected - Held no"
It is only an estimate. Reliance is placed on Supreme Court's Case of "2..Sargam Cinema (2010) 328 ITR 0513- Sargam Cinema V. Commissioner of Income tax 42 (Supreme Court of lndia) that.. 1 Valuation report has been considered to be only an opinion, so that it cannot form a firm basis either for assessment or for assumption of jurisdiction for reassessment . It has been so seceded in various contests, some of which are available even in the present volume.
Where the assessee's expenditure on construction of property was supported by the assessee's books, the question of getting valuation report cannot possibly arise. It was so held by the Supreme Court in Sargam Cinema v. CIT (2010) 328 ITR 513 in the context of the categorical finding of the Tribunal that where the books were not rejected, reference to departmental Valuation Officer is misconceived. It is on this view that the Supreme Court set aside the High Court judgment to the contrary restoring the decision of the Tribunal..." There are other case Laws on similar facts which are as under:
(1) CIT vs BAJRANG LAS BANSAL [2011] 335 ITR 572 (DELHI) UNDISCLOSED INVESTESTMT- ADDITION ON BASIS OF REPORT OF DISTRICT VALUATION OFFICER- NO EVIDENCE SUGGESTING ASSESSEE MADE ANY PAYMENT ABOVE CONSIDERATION MENTIONED IN RETURN-
BOOKS OF ACCOUNT NOT REJECTED-ADDITION NOT PERMISSIBLE-INCOME TAX ACT,1961,s.69B A search was conducted at the assessee's residence by the Department and unexplained cash and fixed deposit receipts were found. During the search, no evidence was found suggesting a higher valuation for the property. However, the Assessing Officer solely on the basis of the report of the District Valuation Officer made an addition of Rs. 99,33,000/- under section 69B of the Income tax Act, 1961 on account of undisclosed investment. The Commissioner (appeals) deleted the addition. The Tribunal upheld this decision. On appeal.
Held, dismissing the appeal, that the primary burden to prove understatement or concealment of income was on the revenue and it was only when such burden was discharged that it would be permissible to rely upon the 43 valuation given by the District valuation Officer. The opinion of the District Valuation Officer, per se, was not an information and could not be relied upon without the books of account being rejected which had not been done in the assessee's case. Moreover, there was no evidence found as a result of the search to suggest that the assessee has made any payment over and above the consideration mentioned in the return of the assessee. Cases referred to : CIT (Assessment) v. Dhariya Construction Co. [2010] 328 ITR 515 (SC) (Para 7) (2) DVO Valuation : THE HIGH COURT OF DELHI AT NEW DELHI Judgment delivered on -23-01-2013 + ITA42/2013 ABHINAV KUMAR MITTAL6. We have no reason to differ from the view taken by the Tribunal, particularly, as no material was found in the search and seizure operations, which would justify the Assessing Officer's action in referring the matter to the DVO for his opinion on valuation of the said properties. If that be the case, then the valuation arrived at by the DVO would be of no consequence. In any event, the Tribunal has also, on facts, held that the DVO's valuation was based on incomparable sales, which is not permissible in law. (3) CIT vs. SMT. SURAJ DEVI [2011] 64 DTR (Del) 372; 2010 328 ITR 604 Income from undisclosed sources-Addition under s.69B- Undisclosed investment in property vis-a-vis report of DVO-Primary burden of proof to prove understatement or concealment of income is on the Revenue-Opinion of the DVO, per se, is not information and cannot be relied upon without the books of account being rejected -Moreover, no evidence much less incriminating evidence was found as a result of the search to suggest that the assessee had made any payment over and above the consideration mentioned in the registered purchase deed -Addition not justified.
Held:
It is settled law that the primary burden of proof to prove understatement or concealment of income is on the Revenue and it only when such burden is discharged that 44 it would be permissible to rely upon the valuation given by the DVO, In any event, the opinion of the DVO, per se, is not an information and cannot be relied upon without the books of account being rejected which has not been done in the present case. Moreover, in the present case, no evidence much less incriminating evidence was found as a result of the search to suggest that the assessee had made any payment over and above the consideration mentioned in the registered purchase deed. A reading of the AO's order does not disclosed that the assessee had made any admission in her alleged statement under s. 132(4), In fact, no such statement has been produced. It is also pertinent to mention that no adjustment on account of sales consideration has been made by the Revenue in the case of the seller. Consequently, no substantial question of law arises in the present appeal which, being bereft of merit, is dismissed- KP Varghese Vs.ITO (1981) 24 CTR (SC) 358; (1981) 131 ITR 597 (SC), CIT vs. Smt. Shakuntala devi (2009) 224, CTR (Del) 79; (2009) 316 1TR 46 (Del), Sargam Cinema vs CIT (2011) 241 CTR (SC) 179 and Asstt. CIT vs. Dhariya Construction Co. (2010) 236 CTR (SC) 226;
(2010) 47 DTR (SC) 288 followed.
(3)CIT vs. Lahsa Construction Pvt. Ltd. [2013] 357 ITR 0671-(Del) HC Addition cannot be justified solely relying upon the valuation report by the departmental Valuation Officer-
CIT v. S.K. Construction Co. [2008] 167 Taxman 171 (Delhi), CIT v. Naveen Gera (2010) 328 ITR 516 (Delhi), CIT v. Suraj Devi (2010) 328 ITR 604 (0) and CIT v.
Bajrang Lal Bansal [2011] 335 ITR 572 (Delhi) followed.
A property was sold in the period relating to the assessment year 2004-05 for Rs. 1 crore. The property had two sellers, i.e. (i) the assessee, and (ii) for individual co-owners. The assessee disclosed a sale consideration of Rs. 39,Lakhs for sale of its 50 per cent. Share, in the property, Rs. 44 lakh was paid to the four individual co- owners for purchase of the balance 50 percent, share. Thus, in all they showed a sale consideration of Rs. 83 lakhs. In the assessee's case , the 45 Departmental Valuation Officer opined that the value of the property at the time of purchases was Rs.
2,84,72,600 and this became the basis of addition made by the Assessing Officer. The Tribunal held in favour of the assessee. On appeal;(Held) dismissing the appeal, that no addition could be made solely on the basis of the report of the Departmental Valuation Officer.
CIT v. S.K. Construction Co. {2008} 167 Taxman 171 (Del.)-followed, Commissioner of Income Tax v. Naveen Gera [2010] 328 ITR 0516 (Del.)-followed , Commissioner of Income tax v. Smt. Suraj Devi[2010] 328 ITR 0604 (Del)-followed, Commissioner of Income - tax v. Bajrang Lal Bansal (2011)335 ITR 0572 (Del.)- followed.
Further jurisdictional High Court has also held the same view:
(i)The decision of the Apex Court in the case of Sargam Cinema (supra) has been followed by the jurisdictional High Court in the case of CIT vs. Lucknow Public Educational Society reported in (2011) 339 ITR 588 (Alld).
(ii)ITO Versus Dr. Mahendra Kumar Agarwal 2007 (9) MTC 97 (Trib. Alld) Headnote:
"Income-tax Act, 1961- Section 69A- investment in construction of building- Department valuer estimating cost at higher amount-No evidence that cost shown was not correct-Books of account not held incomplete or incorrect-Addition of difference as unexplained investment- Not justified."
(iii) ACIT v. CITY Associates 2009 (13) MTC 926 (Trib. Lko) Headnote:
"Income-tax Act, 1961-Sections 69 and 145- Construction of commercial property forming part of business assests- Cost of construction recorded in the accounts maintained by the assessee- DVOs report estimating construction cost at higher figures-Addition for unexplained investment could not be made without rejecting books of accounts.
46Even on the merit the appellant has a strong case as the appellant has pointed various defects in the valuation report as evident from pages 16 to 18 and 30 to 33 of this appeal order, which has not been adjudicated by the Assessing Officer. He has simply relied on DVO's technical expertise. Had this been so legislature would not have provided further opportunity to the assessee granted by the Assessing Officer to give comments. He has not considered that this property was directly purchased by the assessee and then renovated and photograph of the building before renovation and after renovation was submitted before the authorities and the said investment was duly disclosed by the assesses in their income tax returns regularly submitted with the I.T. department.
Further, the DVO report does not say that there is an extra investment over and above the declared amount. His report is only an estimate of the fair market value and not an estimate of investment. DVO's valuation report is based on fair market valuation and this fair market value is relevant for Wealth Tax purposes but under section 69 the term used is unexplained investment in the property. U/s 69 of the I.T. Act only unexplained investment can be added not the fair market valuation for eg. If the investment in the building was Rs. 1,00,000 in April, 2003 and now the fair market valuation of the same building in December, 2003 becomes Rs 1,45,000/-, then no addition can be made of Rs. 45,000/-.
After considering the above facts and the various case laws the appeal of the appellant is allowed and the addition of Rs.1,30,23,020/- is hereby deleted."
19.1 From the above observations of CIT (A), it is seen that as per the judgment of Hon'ble Apex Court rendered in the case of Sargam Cinema v. Commissioner of Income-tax 328 ITR 513, reference by Assessing Officer to the D.V.O. without rejection of books of accounts is not valid. In the present case also, reference was made without rejection of books of accounts and therefore, the same is not valid. On merit also, he has given a finding that the Assessing Officer has not considered this aspect that this property was directly purchased by the assessee and then renovated and 47 photograph of the building before renovation and after renovation was submitted before the Assessing Officer and the said investment was duly disclosed by the assessee in its income tax returns but the DVO report does not say that there is an extra investment over and above the declared amount. His report is only an estimate of the fair market value and not an estimate of investment. He has given a finding that the DVO's valuation report is based on fair market value and this fair market value is relevant for Wealth Tax purposes but under section 69, the term used is unexplained investment in the property. He has given example that if investment is made of Rs.1,00,000 in April, 2003 and the fair market value of the same building in December, 2003 becomes Rs.1,45,000/-, then no addition can be made of Rs.45,000/- being difference between investment in April, 2003 and fair market value in December, 2003. Learned D. R. of the Revenue could not point out any defect in this finding of CIT (A) on merit also and considering the totality of facts, we find no infirmity in the order of CIT (A) on this issue also. This issue is decided in favour of the assessee.
20. The issue No. 6 is regarding disallowance u/s 14A, which has been deleted by CIT (A). This issue has been raised by the Revenue vide ground No. 8 in assessment year 2009-10 and 2010-11.
21. Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT (A).
22. We have considered the rival submissions. We find that the disallowance was made by the Assessing Officer u/s 14A as per Rule 8D in assessment year 2009-10 and 2010-11 and the same was deleted by CIT (A) on this basis that since there was no exempt income in these two years, no disallowance u/s 14A can be made. While holding so, CIT(A) has 48 followed the judgment of Hon'ble Allahabad High Court rendered in the case of DCIT vs. Shivam Motors (P) Ltd. in I.T.A. No.17/Lkw/2012. We have taken a view in various judgments after considering this judgment of Hon'ble Allahabad High Court in the case of Shivam Motors (supra) on this basis that since the judgment of Hon'ble Apex Court rendered in the case of Rajendra Prasad Moody 115 ITR 519 was not cited before Hon'ble Allahabad High Court in Shivam Motors and therefore, we have to follow the judgment of Hon'ble Apex Court in the case of Rajendra Prasad Moody (Supra). As per the judgment of Hon'ble Apex Court in the case of Rajendra Prasad Moody (Supra), it was held in the context of allowability of expenses u/s 57(iii) that actual earning of dividend income is not necessary for the purpose of allowing interest expenditure incurred for borrowing for making investment in shares. We have held that on the same analogy, for the purpose of making disallowance u/s 14A also, actual earning of dividend income is not necessary and if it is seen that the expenditure was incurred for earning dividend income, disallowance has to be made u/s 14A of the Act. Accordingly, on this issue, we reverse the order of CIT (A) and restore that of the Assessing Officer. This issue is decided against the assessee.
23. The issue No. 7 is regarding vehicle expenses. This issue has been raised by the Revenue in its appeal for assessment year 2011-12 as per ground No. 5, which is reproduced below:
"5. That the learned CIT(A) has erred in law and on facts in deleting the addition of Rs.2,91,000/- made by the Assessing Officer on account of vehicle running expenses without appreciating the fact that the addition has been made on the basis of incriminating material found during the search."
24. Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT (A).
4925. We have considered the rival submissions. We find that in Para 7 of the assessment order for assessment year 2011-12, it is noted by the Assessing Officer that in the course of search, a document inventorized as on page No. 195 of Annexure A-11, there was payment of Rs.2,91,000/- against repair of three vehicles. The Assessing Officer asked the assessee to explain as to how this payment was recorded in the books of accounts and also prove its genuineness and business purpose. In reply, it was submitted by the assessee before the Assessing Officer that the transaction is duly recorded in the books of accounts but the Assessing Officer did not accept the contention of the assessee as it failed to furnish any supporting evidence. This addition was deleted by CIT (A) on the basis that the Assessing Officer has not mentioned the section of I.T. Act in which he has disallowed whether it is section 69C or 37 etc. and books of accounts were also not rejected and therefore, the disallowance was deleted. We are of the considered opinion that the order of CIT (A) is not sustainable because although section 69C is not mentioned by the Assessing Officer, this comes out from the language of Para 7 of the assessment order that the assessee could not explain as to how this payment found recorded in the seized paper was recorded in the books of accounts. If the assessee fails to establish by bringing evidence that the entry of expenses found in seized material was recorded in books of accounts or that the same was paid out of known sources of fund, addition has to be made u/s 69C and deduction for corresponding expenditure is not allowable. Since the assessee could not establish by bringing evidence on record before us or before lower authorities that the expenditure noted in the seized material was in fact recorded in the books of accounts or was paid out of known sources of fund, the addition made by the Assessing Officer is to be considered as addition u/s 69C and since before CIT(A) or before us also, the assessee could not establish that the entry was made in the books of accounts or that 50 the same was paid out of known sources of fund, deletion of addition by CIT(A) is not proper. Therefore, we reverse the order of CIT (A) on this issue and restore that of the Assessing Officer. This issue is decided against the assessee.
26. The last issue being issue No. 8 is raised by Revenue in assessment year 2011-12 as per ground No. 6, which is reproduced below:
"6. That the learned CIT(A) has erred in law and on facts in deleting the addition of Rs.69,83,015/- made by the Assessing Officer on account of cash payment exceeding Rs.20,000/- without appreciating the fact that the addition was made on the basis of seized material/incriminating documents found during the search."
27. Learned D. R. of the Revenue supported the order of Assessing Officer whereas Learned A. R. of the assessee supported the order of learned CIT (A).
28. We have considered the rival submissions. We find that in Para 8 of the assessment order, it is noted that during the course of search, a number of incriminating documents were found and seized and on examination, it was found that the documents inventorized as page No. 20 to 26 and 33 to 34 of Annexure A-24, contained details of cash payments exceeding Rs.20,000/- made by the assessee in respect of certain expenditure in violation of provisions of section 40A(3) of the Act. The Assessing Officer has made summary of these pages and the total amount has been worked out at Rs.69,83,015/-. As per Para 8.1 of the assessment order, the Assessing Officer asked the assessee to explain the reasons for such cash payments but no compliance was made and therefore, the Assessing Officer drawn inference that the assessee does not have any material to prove that the default was compulsive and covered by Rule 6DD of the I.T. Rules, 1962. In view of these facts, the Assessing Officer invoked the provisions of section 40A(3) of the I.T. Act and the total amount of Rs.69,83,015/- alleged as paid in cash exceeding Rs.20,000/- was disallowed. When the assessee carried the matter in appeal before the CIT(A), he deleted the disallowance. It is noted by CIT(A) on page No. 31 of his order that part of expenses are related to assessment year 2008-09 and in that year, when the A. O. asked the assessee to explain, it was 51 submitted by the assessee before the Assessing Officer that cash payments were not made to one single person on one single day and there was no bar under the provisions of IT Act for multiple payments being made to different persons which were less than Rs.20,000/- for each person. The CIT(A) has noted down some instances also that amount of Rs.85,894/- has been stated to have been made in cash consisting of payments of Rs.19,894 + Rs.20,000 + Rs.18,000 + Rs.15,000 + Rs.15,000. Regarding one more payment of Rs.1.05 lac, it was noted by CIT(A) that this is not a single payment to one party but is being paid to various parties and in support, copies of accounts are enclosed. Similarly payment of Rs.1,10,000/- and Rs.10,01,420/- was made but it was stated the same is duly recorded in the books of accounts being paid to various persons as per books of accounts produced. Considering these facts that the cash payment in excess of Rs.20,000/- was not made to a single person on single date, we decline to interfere in the order of learned CIT(A) on this issue. Accordingly, Issue No. 8 is decided in favour of the assessee.
29. In the result, the appeal of the assessee for assessment year 2005-06 is dismissed and Cross Objections of the assessee for assessment year 2007-08 and 2008-09 are also dismissed and out of seven appeals of the Revenue, three appeals for assessment year 2009-10, 2011-11 and 2011-12 are partly allowed and remaining 4 appeals are allowed.
(Order was pronounced in the open court on the date mentioned on the caption page) Sd/. Sd/.
(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member Dated:30/10/2015 *Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar