2012 (4) TMI 149 - AT - Income Tax

Notice under section 153 - There was a search operation conducted at the business premises and there was seizure of some incriminating documents and the cases were notified with the DCIT - Thereafter, notice under section 153A has been issued consequent to the search action - Held that - no merit in the ground this ground of the assessee is dismissed. - Notice issued u/s 153 upheld. Deduction under section 80IA - the assessee contended that he is not a contractor but a developer of infrastructure facility revenue denied it as the assessee not developed any new infrastructure facility as required under section 80IA(4)(i)(b) had only taken up the renovation and modernization of the existing net work/infrastructure facilities - Held that - in view of retrospective amendment, the most important question for examination on facts is whether the business agreement in question can be termed a works contract or not. If the answer is in affirmative, nothing else matters because the Explanation takes over. If not, the other nuances such a development/operation etc., and other specified conditions become relevant. - 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. Ownership of project - held 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. 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. - Matter remanded back to AO. Sustaining/deleting of the expenses in the absence of bills and vouchers Held that - disallowance of expenses in these years also at 5% confirmed. Self made vouchers and bills in respect of purchase of sand disallowed expenses by AO - there are chances of inflating the expenditure - Held that - direct the assessing officer to disallow Rs.50 lakhs of the expenditure incurred by the assessee as it is not substantiated. Ground in assessee appeal partly allowed. Addition is made towards the difference between projected/provisional balance-sheet and the final balance-sheet. - The provisional balancesheet cannot be considered for determining the undisclosed income. However, as per disposition an amount of Rs.80 lakhs was agreed to be admitted as income, the same be considered as income on this count and no set off could be given towards workin- progress in any subsequent assessment year. This ground of assessee partly allowed. Seizure of cash - held that - Either the assessee s explanation is to be accepted as a whole or rejected as a whole. They cannot pick and chose according to their convenience and make addition. In our o opinion, the addition made towards cash found at the premises of Sri K. Venkata Kutumba Rao, cannot be made either in the hands of the assessee s company i.e. M/s GVPR Engineers Limited or in the hands of Sri Siva Shanker Reddy. Accordingly, this ground of assessee is allowed.

Issues Involved:
1. Validity of assessment under section 153A.
2. Eligibility for deduction under section 80IA.
3. Disallowance of expenses due to lack of supporting evidence.
4. Addition based on difference between provisional and final financial statements.
5. Addition of unexplained cash found during search operations.
6. Protective addition in respect of land purchase transactions.
7. Validity of notice under section 153A in the absence of incriminating material.
8. Disallowance of deductions claimed under section 80C.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The assessee argued that there was no valid search and no incriminating material found at the premises, making the notice under section 153A invalid. The Tribunal found that there was indeed a search operation at the business premises of GVPR Engineers Limited, resulting in the seizure of incriminating documents. Therefore, the notice under section 153A was deemed valid, and the ground was dismissed.

2. Eligibility for Deduction under Section 80IA:
The assessee claimed deductions under section 80IA, arguing that it was a developer of infrastructure facilities. The Revenue contended that the assessee was merely a contractor and not eligible for the deduction. The Tribunal referred to various judicial pronouncements and concluded that the assessee was indeed a developer, not just a contractor, and thus eligible for the deduction. The Tribunal directed the Assessing Officer to grant the deduction on eligible turnover after examining the records.

3. Disallowance of Expenses Due to Lack of Supporting Evidence:
The Assessing Officer disallowed a percentage of various expenses due to the lack of supporting evidence. The Tribunal, following its earlier decision in the case of M/s GSP Infratech Development Ltd., confirmed the disallowance at 5% of such expenses, considering the practical difficulties in documenting such expenditures.

4. Addition Based on Difference Between Provisional and Final Financial Statements:
The Assessing Officer added the difference between the provisional and final financial statements to the income of the assessee. The Tribunal noted that the provisional balance sheet was often prepared to obtain higher financial assistance and could not be considered for determining undisclosed income. However, it sustained an addition of Rs. 80 lakhs admitted by the assessee as income.

5. Addition of Unexplained Cash Found During Search Operations:
The Assessing Officer added unexplained cash found during search operations to the income of the assessee. The Tribunal found that the cash belonged to GVPR Engineers Limited and was meant for expenses at various project sites. The addition was deleted as the cash was explained to belong to the assessee company.

6. Protective Addition in Respect of Land Purchase Transactions:
The Assessing Officer made a protective addition in the hands of the assessee company for land purchase transactions. The Tribunal noted that the addition was already confirmed in the hands of the individual (Sri Veera Shekar Reddy) and directed the Assessing Officer to re-examine the books of accounts to determine if the entries related to development charges or purchase consideration.

7. Validity of Notice under Section 153A in the Absence of Incriminating Material:
The Tribunal dismissed the ground challenging the validity of the notice under section 153A, reiterating that incriminating documents were found during the search, justifying the notice.

8. Disallowance of Deductions Claimed under Section 80C:
The Assessing Officer disallowed deductions claimed under section 80C, arguing that the income disclosed under section 132(4) should not be reduced by such deductions. The Tribunal held that even in block assessments, income should be computed in accordance with the provisions of the Act, including Chapter VI-A deductions. The disallowance was thus overturned, allowing the deductions claimed by the assessee.

Conclusion:
The Tribunal provided a detailed analysis of each issue, upholding some of the Assessing Officer's decisions while overturning others based on legal precedents and the specific facts of the case. The final outcome was a mix of dismissals, partial allowances, and directions for re-examination by the Assessing Officer.

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