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2020 (3) TMI 328 - AT - Income TaxBogus expenses - material collected by the Assessing Officer under section 142(1) - HELD THAT - No information has been received against the assessee and nowhere the name of the assessee-com pany was mentioned. Even the assessee-company was not aware that their sub-contractor has further sub-contracted the impugned work. Further, no such material or evidence was obtained by the Assessing Officer from Silicon Real Estate Pvt. Ltd. from which it can be ascertained that M/s. Sintex Infra Projects Ltd. had sub-contracted projects of the assessee-company to them. Hence, this statement cannot be considered as basis for disallowing the expenses of ₹ 5.42 crores. Moreover, it is also a matter of fact that both the aforesaid statements of the third party were recorded at the back of the assessee and therefore these statements could not be the basis for making the addition. The assessee vide submission dated October 31, 2016 submitted on November 2, 2016 requested the learned Assessing Officer to afford an opportunity of cross-examination of both the parties so as to enable the assessee to rebut the contentions raised by the Assessing Officer on the basis of their statements. Copy of the submission is enclosed at pages 108-115 of the paper book. However, the learned Assessing Officer did not provide opportunity for cross-examination which had lead to violation of the principles of natural justice. Payments have been made through banking channels after deduction of TDS and the Assessing Officer has failed to bring any cogent evidence on record to demonstrate that these documents/evidence are false. Therefore, addition made by the Assessing Officer needs to be deleted The mandate of law to conduct enquiry by the Assessing Officer on due information coming to him to verify authenticity of information was not done as per section 142 of the Act. Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. This is because section 142(2) mandates any such material adverse to the facts of the assessee collected by the Assessing Officer under section 142(1) has to be necessarily put to the assessee under section 142(3) before utilising the same for assessment so as to constitute as reliable material evidence through the process of assessment under section 143(3) of the Act. Admittedly as discussed above, it is evident that the assessee had nothing to do with M/s. Silicon Real Estate Pvt. Ltd. The fact of contract between M/s. Sintex Infra Projects Ltd. and M/s. Silicon Real Estate Pvt. Ltd. is not a matter of record nor any such material was provided by the Assessing Officer to the assessee. Therefore, there was nothing to suggest that any wrong doing between Sintex Infra Projects Ltd. and Silicon Real Estate Pvt. Ltd. infringe upon the transaction at hand or can operate as reliable evidence against the assessee. - Decided in favour of assessee Disallowance on account of provision for future loss being unascertained liability - provision for losses expected to be incurred on contracts in accordance with Accounting Standard 7 - AO disallowed the same observing that losses are in respect of some contract which was cancelled by one of the clients and in respect of which termi nation proceedings are pending before the Supreme Court - HELD THAT - As per Accounting Standard 7 which is mandatory in nature, the assessee is required to estimate its total contract costs, (i. e., sum of costs incurred and expected future costs) and recognise the expected losses, (i. e., difference between the contract revenue and total contract costs). We note that in the case of Dredging International N. V. v. Asst. DIT (I.T.) 2011 (9) TMI 666 - ITAT MUMBAI held that any provision for losses recognised in accordance with Accounting Standard 7 is allowable under the Act We note that in fixed price contracts, the assessee having credited all its revenue, as per the contract, has to provide for all the foreseeable expenses which it is bound to incur as per the contract. Accounting Stand ard AS 7 provides for such an eventuality. Having gone through the order of the learned Commissioner of Income-tax (Appeals), we note that there is no infirmity in the order of the learned Commissioner of Income-tax (Appeals). That being so, we decline to interfere in the order passed by the learned Commissioner of Income-tax (Appeals), his order on this issue is hereby accepted and the grounds of appeal raised by the Revenue is dismissed. Deduction under section 80-IA - assessee-company is simply a contractor who merely executed work contract on the basis of quoted tender funded by the Government/semi-Government organisation and hence not entitled to deduction under section 80-IA - HELD THAT - Assessee was not a works contractor simpliciter and was a developer and hence Explanation to section 80IA(13) does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction under section 80-IA. As the issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench, in the assessee's own case in CIT (Dy.) v. SPML Infra Ltd. 2016 (11) TMI 75 - ITAT KOLKATA for the assessment years 2006-07 and 2009-10 and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). - Decided against revenue Addition u/s 36(1) - payment for employees' contribution to provident fund/ESI which were paid before due date of filing of return - HELD THAT - We note that the payments were made before the due date of filing of return under section 139(1) of the Act as apparent from the tax audit report. We note that various High Courts and now conclusively decided by the hon'ble Supreme Court, in the case of Pr. CIT v. Rajasthan State Beverages Corporation Ltd. 2017 (7) TMI 1087 - SC ORDER wherein it was held that the contributions received from the employees, being deposited to the Government account before the due date of filing Registrar of Companies, could not be disallowed under section 43B or under section 36(1)(va) of the Act. Respectfully following the judgment of the hon'ble Supreme Court, we dismiss the ground raised by the Revenue. Disallowance u/s 14A made for the purpose of computing book profit under section 115JB - HELD THAT -Section 14A clearly says for the purpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act . Whereas the computation of total income under section 115JB falls under Chapter XII-B of the Income-tax Act, 1961. Therefore, it is very clear that the disallowance/computation for section 14A read with rule 8D will not be applicable for the purpose of calculation of income under section 115JB of the Income-tax Act, 1961. Hence, the disallowance under section 14A relatable to exempt income cannot be added for computation of book profit under section 115JB. For that we rely on the decision of the hon'ble Bombay High Court in the case of CIT v. Bengal Finance and Investments Pvt. Ltd. 2015 (2) TMI 1263 - BOMBAY HIGH COURT - thus disallowance under section 14A cannot be made for the purpose of computing the book profit under section 115JB of the Income-tax Act, l961, hence we dismiss the ground raised by the Revenue.
Issues Involved:
1. Disallowance of ?5.42 crores as bogus expenses. 2. Deletion of disallowance of ?14,83,51,419 on account of provision for future losses. 3. Disallowance under section 14A of the Income-tax Act. 4. Deduction under section 80-IA of the Income-tax Act. 5. Allowability of employees' contribution to provident fund/ESI paid after the due date. 6. Disallowance under section 14A for computing book profit under section 115JB of the Income-tax Act. Issue-wise Detailed Analysis: 1. Disallowance of ?5.42 crores as bogus expenses: The assessee contested the disallowance of ?5.42 crores paid to M/s. Sintex Infra Projects Ltd., which was further subcontracted to M/s. Silicon Real Estate Pvt. Ltd. The Assessing Officer (AO) disallowed the expenses based on statements from third parties, which the assessee argued were not provided for cross-examination, violating natural justice principles. The Tribunal noted that the AO did not conduct proper verification or inquiry as mandated by section 142 of the Income-tax Act. The Tribunal found that the assessee provided sufficient evidence, including bills, bank statements, and TDS deductions, proving the genuineness of the transactions. The Tribunal deleted the addition of ?5.42 crores, emphasizing the need for proper inquiry and adherence to natural justice. 2. Deletion of disallowance of ?14,83,51,419 on account of provision for future losses: The AO disallowed the provision for future losses, considering it an unascertained liability. The assessee argued that the provision was made following Accounting Standard 7 and was necessary due to fixed-price contracts. The Tribunal upheld the assessee's claim, referencing several judicial precedents that recognized provisions for foreseeable losses under fixed-price contracts as allowable deductions. The Tribunal confirmed the deletion of the disallowance, highlighting the adherence to Accounting Standard 7 and the factual correctness of the provision. 3. Disallowance under section 14A of the Income-tax Act: The AO disallowed expenses under section 14A, which the assessee contested, stating no exempt income was earned during the year. The Tribunal agreed with the assessee, citing judicial precedents that disallowance under section 14A is not warranted in the absence of exempt income. The Tribunal directed the AO to delete the entire disallowance under section 14A, supporting the principle that no disallowance is required when no exempt income is earned. 4. Deduction under section 80-IA of the Income-tax Act: The AO disallowed the deduction under section 80-IA, arguing that the assessee was merely a contractor and not a developer. The Tribunal, referencing its earlier decisions, held that the assessee was a developer, not just a contractor, as it undertook significant risks, investments, and responsibilities in developing infrastructure projects. The Tribunal confirmed the assessee's eligibility for the deduction under section 80-IA, dismissing the AO's contention. 5. Allowability of employees' contribution to provident fund/ESI paid after the due date: The AO disallowed the employees' contribution to provident fund/ESI paid after the due date under the respective Acts. The Tribunal, referencing the Supreme Court judgment in Pr. CIT v. Rajasthan State Beverages Corporation Ltd., held that contributions paid before the due date of filing the return under section 139(1) are allowable. The Tribunal confirmed the deletion of the disallowance, aligning with the Supreme Court's ruling. 6. Disallowance under section 14A for computing book profit under section 115JB of the Income-tax Act: The AO added the disallowance under section 14A to the book profit under section 115JB. The Tribunal, referencing the Bombay High Court decision in CIT v. Bengal Finance and Investments Pvt. Ltd., held that disallowance under section 14A cannot be added for computing book profit under section 115JB. The Tribunal directed the AO to exclude the disallowance under section 14A from the computation of book profit, dismissing the Revenue's ground. Conclusion: The Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal, providing relief on all contested issues by adhering to judicial precedents and statutory provisions.
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