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TMI Blog2012 (12) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, ITA No. 1078/Hyd/12, ITA No. 1497/Hyd/11, ITA No. 1498/Hyd/11, ITA No. 800/Hyd/10, ITA No. 801/Hyd/10, ITA No. 802/Hyd/10, ITA No. 803/Hyd/10, ITA No. 804/Hyd/10, ITA No. 805/Hyd/10, ITA No. 806/Hyd/10 Appellant by: Shri P. Murali Mohan Rao Respondent by: Shri M. Ravinder Sai ORDER PER CHANDRA POOJARI, AM: All the above appeals, both by the assessee and the Revenue are directed against the different orders of the CIT/CIT(A) for the respective assessment years. Since the issues are common in nature and belong to the same group, these appeals are clubbed together, heard together and are being disposed of by this common order, for the sake of convenience. In certain appeals there are certain additional grounds raised before us which are either not in accordance with the ITAT Rules or irrelevant in view of our findings in respective appeals. Madhucon Granites Ltd., Khammam (Assessee appeals): ITA No. 666/Hyd/2010 - 2000-01 ITA No. 667/Hyd/2010 - 2001-02 ITA No. 674/Hyd/2010 - 2002-03 ITA No. 675/Hyd/2010 - 2003-04 ITA No. 684/Hyd/2010 - 2004-05 ITA No. 685/Hyd/2010 - 2005-06 ITA No. 703/Hyd/2010 - 2006-07 2. All the above appeals by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue challenged the returns filed in these cases is beyond the due date allowed u/s. 139(1) of the Act and hence as per the 4th provision to section 10(1) of the Act, the assessee is not entitled for deduction u/s. 10B of the Act for A.Y. 2005-06 being the return filed belatedly. 6. We have heard both the parties on this issue. For the A.Ys. 2000-01 to 2004-05, the assessee claimed deduction with regard section 80HHC of the Act. According to the Department rough granite is merely an unprocessed granite and in view of circular Nos. 693 dated 17.11.1994 and 729 dated 1.11.1995 the assessee is not entitled for deduction u/s. 80HHC of the Act. For clarity, we reproduce herein the provisions of section 80HHC and Board circular Nos. 693 dated 17.11.1994 and 729 dated 1.11.1995: S.80HHC(1) For the assessee to be eligible u/s 80HHC(1), where an assessee being an Indian Company or a person (other than a company) resident in India, is engaged in business of export out of India of any goods or merchandise to which this section applies there shall in accordance with and subject to the provisions of this section be allowed in computing the total income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessed granites. It was not disputed by the Department that the assessee is engaged in cutting and polishing and sizing of granites into required sizes. Once the assessee is engaged in cutting, polishing and sizing of the granite to the required sized and exporting the same, it is to be and it has to be concluded that the assessee is engaged in "production". In similar circumstances, the Bombay High Court in the case of CIT vs. Fateh Granites Pvt. Ld. (314 ITR 32) (Bom) held that the activity of cutting, polishing and sizing of granites would be covered within the meaning of expression "production". Therefore, the assessee is entitled to the benefit u/s. 80HHC/10B of the Act. Further, the Chennai Bench of this Tribunal in the case of ACIT vs. M/s. Janani Holdings, Chennai in ITA No. 1094/Mds/2010 vide order dated 25.2.2011 held that if the assessee in the sales invoices described the exported goods "as processed dimensional rough or crude granite" and the granite has been processed into blocks and dressed by the assessee and these were exported, because the assessee described as "rough blocks or crude block" in sale invoices by which the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Ys. 2000-01 to 2006-07 (7 years). The assessee is a public limited company engaged in the business of construction and execution of infrastructure projects like roads and highways, irrigation projects and canals. There was a search action u/s. 132 of the Act in the Madhucon group of companies on 20.10.2005 and subsequent to it assessment was framed u/s. 143(3) r.w.s. 153A of the Act for A.Ys. 2000-01 to 2006-07. According to the CIT the assessment orders passed for these assessment years are erroneous and prejudicial to the interest of revenue. Consequent to the search action, the assessee filed returns of income offering additional income of Rs. 9 crores the details are as follows: Sl. No. Assessment year Additional income disclosed (Rs.) 1. 2000-01 30,00,000 2. 2001-02 1,00,00,000 3. 2002-03 1,50,00,000 4. 2003-04 2,40,00,000 5. 2004-05 2,00,00,000 6. 2005-06 1,80,00,000 11. The Assessing Officer rejected the books of account and estimated income from contract work at 12.5% of the gross contract receipts before allowing depreciation. The Assessing Officer also made separate addition on account of gratu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.67 crores for different assessment years. This action of the Assessing Officer in allowing telescoping of income had rendered the orders erroneous. For all the A.Ys. 2000-01 to 2006-07, the Assessing Officer estimated income a the rate of 12.5% on which he had allowed depreciation. The net income after allowance of depreciation is substantially lower as is evident from the table below: AY Turnover of contract work Income at 12.5% Depreciation Income assessed from contracts Income assessed as percentage of turnover. AY Turnover of contract work Income at 12.5% Depreciation Income assessed from contracts Income assessed as percentage of turnover. 2000-01 983469703 122933713 64434214 58499499 5.95 2001-02 1165820088 145727511 67648367 78079144 6.69 2002-03 2003284348 250410543 117900105 132510438 6.61 2003-04 2319082321 305528375 216879164 88649211 3.82 2004-05 3014293807 376786725 201999036 174787689 5.79 2005-06 3063147554 382893444 152463828 239429616 7.81 2006-07 3420902384 507612798 126158087 381454711 11.15 13. The action of the Assessing Officer in allowing deduction for depreciation after. estimation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 776) Hon'ble A.P. High Court have held that if books of account are not correct or complete, the Income Tax Office may reject those books of account and estimate the income to the best of judgment. When such an estimate is made it is in substitution of the income that is to be computed u/s. 29. In other words, all the deductions which are referred to u/s. 29 are deemed to have been taken into consideration while making such estimate. This will also mean that there will be no further deduction u/s. 30 to 43D as required u/s. 29. The AO has allowed depreciation from estimated income which is against the decision of jurisdictional High Court. d. According to the CIT, the AO has followed ITAT decision in estimating income at 12.5% of turnover. But, in one of these orders there is no direction to allow depreciation from estimated profit. The decision of jurisdictional High Court is binding. When the AO passes any order which is against the decision of jurisdictional High Court the order is "not sustainable" or erroneous. Since, substantial tax is involved it is prejudicial to the interest of revenue and therefore, revised order u/s. 263 and income was estimated at 12.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly seized material A/NS/ND/3 contains 158 self-made vouchers. Though the assessee stated that these vouchers are not debited in the books of account but the fact is that in the vouchers except the amount other description was not mentioned in the vouchers. Except voucher Nos. 157 and 158 all others are undated. These two vouchers are not accounted in the books of account. Self-made vouchers also found at the assessee's business premises. To the query, the assessee replied before the Assessing Officer as follows: " ... The general aspect that as a matter of common experience that all vouchers and supporting evidences are not always available for the reason that certain expenses shall be found unvouched and/or incurred and recorded based on self made vouchers ..." Self made vouchers are inevitable considering the nature of business. Most of the expenses will be in cash for which the desired level of evidence may not be available ". 17. Further it is observed from the internal audit report as follows: The observations in the Internal Audit Report of the company in regard to audit of Amba Tunnel Site for the period April 2003 to Jan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 145 the Income-tax Act and estimate the net profit and determine the undisclosed income for the year." 20. In our opinion, rejection of books of account by the Assessing Officer is justified. Once the books of account are rejected income has to be estimated. At this stage the learned AR strongly opposed the rejection of books of account by the Assessing Officer by placing reliance on the various judgements, especially: a) ACIT vs. Intermedic cable Connections Pvt. Ltd., ITA No. 1043/09 Chennai order dated 31.1.2012. b) DCIT vs. Associated Petroleum Corporation (44 SOT 45) (Ahd) c) Vishal Infrastructure Ltd. vs. ACIT, 104 ITD 537 (Hyd) d) Ashok Refractories Pvt. Ltd. vs. CIT (279 ITR 457) (Cal.) e) Madnani Constructions vs. CIT (296 ITR 45) (Gauhati) f) PM Abdul Razack vs. ITO (63 ITD 398) (Cochin). 21. However, these judgements are not relevant at this stage while considering the order of the CIT u/s. 263 of the Act. 22. Coming to the facts of the present case, the Assessing Officer is justified in rejecting the books of account as seen from earlier para as the vouchers do not find place in the books of account maintained by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the total contract receipts of Rs. 40 lakhs. By taking clue from this provision u/s. 44AD as is applicable for the assessment year under consideration and the provisions which are applicable w.e.f. 1.4.2011, we find that the deduction available u/ss. 30 to 38 shall be deemed to have been given full effect and no further deduction under these provisions shall be allowed. Depreciation is allowable u/s. 32 of the Act. Therefore, as provided in section 44AD no other/separate deduction shall be allowed. However, in our opinion, estimation of income at 12.5% on the gross receipts is at higher side. The AR relied on the order of the Tribunal in the case of Krishna Mohan Constructions in ITA Nos. 116 & 117/Hyd/2007 for the A.Ys. 1993-94 and 1994-95 wherein the Tribunal estimated the income of the assessee at 12.5% and thereafter given deduction towards depreciation. But when we come across the order of the Special Bench of Ahmedabad in the case of Arihant Builders Pvt. Ltd. vs. ACIT (291 ITR (AT) 41) (SB) (Ahd) wherein income is estimated at 8% of the main contract receipts and at 5% on sub-contract receipts. Being so, in our opinion, consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000-01 ITA No. 1830/Hyd/11 - 2001-02 ITA No. 1831/Hyd/11 - 2002-03 ITA No. 1832/Hyd/11 - 2003-04 ITA No. 1833/Hyd/11 - 2005-06 ITA No. 1834/Hyd/11 - 2006-07 ITA No. 1835/Hyd/11 - 2004-05 28. All the above 7 appeals by the assessee are directed against the orders passed by the CIT(A) u/s. 154 of the Act. Brief facts of the issue are that the original orders passed by the Assessing Officer u/s. 143(3) r.w.s. 153A for all these assessment years were subjected to revision by the CIT vide his order dated 30.3.2010 u/s. 263 of the Act. Consequent to the orders u/s. 263, the Assessing Officer passed the orders for these assessment years u/s. 143(3) r.w.s. 263 of the Act. These orders are subject matter of appeal before the CIT(A). The CIT(A) given a direction to estimate the income of the assessee at 10% and allow depreciation. Later he found that there is an error committed by him in view of the judgement in the case of Indwell Constructions (supra) as the assessee is not entitled for depreciation on the income estimated and passed the rectification order withdrawing the depreciation for these assessment years. Against this wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure facility on behalf of the Government is a contractor. 28. 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 Judgement 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 circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmer, generator, panel boards etc. iv) Design and construction of raw water pumping stations, water treatment plant, treated water pumping station, treated water transmission main, construction of surge tank and pipe connection arrangement, booster stations, internal transmission main and feeder mains, construction of service reservoirs and master reservoirs. v) Mobilisation of labourers, [preparation of plans technical expertise, supervision, co-ordination and control, set up manufacturing facility nearby the project site to manufacture project specific pipes as per the required specifications which requires well equipped machines, employment of skilled labour and technical experts, equipment to transport heavy pipes to laying sites, equipment to lift and lowering of pipes at the excavated sites, provide qualified and experience engineer for each project site etc to bring in to existence an infrastructure facility. Manufacturing of pipes to sites, excavation under various conditions of soil and rock, lowering and laying of pipes, jointing and testing of pipe joint and pipe line as a whole, construction of pump houses, stora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess risk. Without any doubt, the assessee clearly demonstrated that the 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 80IA. The contracts which contain above features to be segregated have to be granted deduction under section 80IA and the other agreements which are pure works contracts hit by the Explanation to section 80IA(13) are not entitled for deduction under section 80IA. 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. 32. In the case of KMC Construction Ltd. v. ACIT, 51 SOT 214 (Hyd) (URO) wherein the Tribunal has taken the same view. 33. In the case of Sushee Hi-T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has to see whether the assessee carried on contract for sale or contract for work and the applicability of Explanation below section 80IA(13) of the Act. The Assessing Officer is directed to examine the terms of contract including the nature of obligation to be discharged by the assessee while executing the contract. For claiming deduction u/s. 80IA(4) the assessee shall satisfy the two conditions viz., investment in eligible projects and (2) execution of project by itself. If the assessee satisfies the above conditions and the above Explanation if not applicable then only the assessee is entitled for deduction u/s. 80IA(4) of the Act. With this observation, we remit the entire issue back to the file of the Assessing Officer for fresh consideration and to decide in accordance with law." 35. Same view was taken in the case of Maytax-NCC-NV in ITA No. 1875/Hyd/2011 for A.Y. 2008-09 vide order dated 31st October, 2012 and accordingly the issue is remitted to the file of the Assessing Officer with a direction to examine the issue afresh and to see whether the assessee carried on the development of infrastructure facilities cumulativel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee is not liable to deduct TDS on this royalty payment. He also relied on the order of the Special Bench in the case of Merilyn Shipping & Transports vs. Addl. CIT reported in (2012) 16 ITR (Trib) 1 (Visakhapatnam) (SB). 39. We have heard both the parties and perused the material on record. Admittedly the assessee is liable for deduction of TDS as there is amendment to section 40(a)(ia) of the Act by Taxation Laws (Amendment) Act, 2006 with effect from 13.7.2006. As per clause (c) royalty introduced to subsection 194J(1) and as per section 40(a)(ia) of the Act which got amended with retrospective effect from 1.4.2006 wherein rent and royalty are introduced. Being so, the assessee is liable for deduction of TDS on the royalty payment. However, the Special Bench in the case of Merilyn Shipping & Transports (supra) held that the word "payable" used in section 40(a)(ia) of the Act has to be given its natural meaning and going by strict interpretation the section 40(a)(ia) of the Act is applicable only to expenditure which is payable as on on 31st March of every year and cannot be invoked to disallow the amounts which are already paid during the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT. There is a delay of 350 days in filing ITA No. 1077/Hyd/2012 and 1078/ Hyd/2012. However, we are not going to adjudicate the issue relating to delay in filing these appeals as all the appeals have become infructuous in view of our findings in appeals by the assessee against the orders passed by the CIT u/s. 263 of the Act in these assessment years. As we have modified the order of the CIT(A) passed u/s. 263 of the Act in ITA Nos. 668, 669, 676, 677, 682, 683 and 702/Hyd/2010, accordingly, all these appeals are dismissed as infructuous. M/s. Madhucon Projects Ltd., Hyderabad (Assessee appeals) ITA No. 800/Hyd/10 - 2000-01 ITA No. 801/Hyd/10 - 2001-02 ITA No. 802/Hyd/10 - 2002-03 ITA No. 803/Hyd/10 - 2003-04 ITA No. 804/Hyd/10 - 2004-05 ITA No. 805/Hyd/10 - 2005-06 ITA No. 806/Hyd/10 - 2006-07 45. All these appeals by the assessee are directed against the common order of the CIT(A) dated 31.3.2010. In these cases the Assessing Officer passed the order u/s. 143(3) r.w.s. 153A of the Income-tax Act, 1961. Against this the assessee went in appeal before the CIT(A) for all these A.Ys. 2000-01 to 2006-07. The CIT(A) dismissed the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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