2013 (12) TMI 19 - AT - Income Tax

Estimation of profit - Income from development works Held that - The amounts were recovered by the Government and are paid to the respective authorities - Since the amount was paid on behalf of the assessee such recovery is included in the operating income and is claimed as an expenditure by debiting to the Profit & Loss Account - there is no profit element in respect of the said recoveries made - It is only in the year in which assessee receives such recoveries made by the Government that such income should be estimated and brought to tax. It is also the case of the assessee that the assessee has been following consistent method of accounting for the income in respect of the departmental reveries only in the year in which such recoveries have been released in favour of the assessee by the Government The issue was restored for fresh decision. Estimation of income work entrusted to sub-contractors Held that - Following assessee s own cases for assessment years 2001-02 The tribunal estimated the income on sub-contract receipts at 4% - Partly allowed in favour of assessee. Interest received on provision of bank guarantee Held that - Following assessee s own cases for assessment years 1991-92 and Tuticorin Alkali Chemicals & Fertilisers Ltd. 1997 (7) TMI 4 - SUPREME Court Income attracts tax as soon as it accrues. The application/destination of the income has nothing to do with its accrual/taxability - Interest income is always of a revenue nature unless it is received by way of damages/compensation - Decided against assessee. Deduction u/s 80IA Held that - following assessee s own case for earlier years - 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 - The assessee has developed infrastructure facility as per the agreement - Merely because in the agreement for development of infrastructure facility the assessee is referred to as a contractor or because some basic specifications are laid down it does not detract the assessee from the position of being a developer nor will it debar the assessee from claiming deduction u/s 80IA(4) Decided against Revenue.

Summary

Issues Involved:
1. Estimation of income from development works.
2. Estimation of income from sub-contract works.
3. Treatment of interest income from bank guarantees.
4. Allowance of deduction under Section 80IA.

Issue-wise Detailed Analysis:

1. Estimation of Income from Development Works:
The assessee contested the method used by the Assessing Officer (AO) for estimating income from development works, specifically the inclusion of recoveries made by the contractees (government departments) in the gross receipts. The Tribunal agreed with the assessee that departmental recoveries, which were not actually received by the assessee, should not be included in the gross receipts for income estimation. The Tribunal set aside the CIT(A)'s order on this aspect and directed the AO to verify the assessee's claim that such recoveries were disclosed in subsequent assessment years and to reassess the income accordingly.

2. Estimation of Income from Sub-Contract Works:
The assessee challenged the 7.5% estimation rate applied by the AO on gross receipts from sub-contract works. The Tribunal referred to its previous decision in the assessee's own case for earlier years, where a 4% rate was applied. Consequently, the Tribunal directed the AO to estimate the income from sub-contract receipts at a 4% rate, partially allowing the assessee's grounds on this issue.

3. Treatment of Interest Income from Bank Guarantees:
The assessee argued that interest received on fixed deposits used for margin money or bank guarantees should be treated as business income and not as income from other sources. The Tribunal, however, upheld the CIT(A)'s decision, citing Supreme Court rulings in Tuticorin Alkali Chemicals & Fertilisers Ltd. and Pandian Chemicals V/s. CIT, which established that such interest income should be assessed under the head 'other sources'. The Tribunal found no merit in the assessee's contention and rejected the appeal on this issue.

4. Allowance of Deduction under Section 80IA:
The Revenue contested the CIT(A)'s decision to allow the assessee's claim for deduction under Section 80IA, arguing that the assessee was merely a contractor and not a developer. The Tribunal noted that this issue was previously settled in favor of the assessee by the Tribunal in earlier years. Additionally, the Tribunal cited consistent rulings in similar cases, such as M/s. Sushee Hitech Constructions P. Ltd., which supported the allowance of deduction under Section 80IA. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals on this issue.

Conclusion:
The Tribunal partly allowed the assessee's appeals for statistical purposes, directing the AO to reassess certain aspects, while dismissing the Revenue's appeals entirely. The order was pronounced on 28.10.2013.