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Income Tax Appellate Tribunal, DELHI BENCHES “C”: DELHI
Before: SHRI ANIL CHATURVEDI & SHRI ANUBHAV SHARMA
ORDER PER ANIL CHATURVEDI, A.M. :
The above cross appeals by Assessee and Revenue are directed against the order of the Ld. CIT(A)-35, New Delhi, dated 29.05.2019 in Appeal No.216/18-19 relating to the A.Y. 2016-17.
The relevant facts from culled out from the material on record are as under :
2.1. Assessee company is a Government of India undertaking and is engaged in the execution of Civil Engineering, Electrical and Communication and Turnkey contract, in India as well as Abroad. The assessee filed its return of income for the A.Y. 2016-17 on 10.10.2016 declaring total income at Rs.236,56,64,780/- and book profit of Rs.318,82,48,608/- u/s. 115JB of the Act. The case of the assessee was selected for scrutiny and thereafter assessment was framed under section 143(3) of the I.T. Act, 1961 vide order dated 27.12.2013 in order no.
3 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. ITBA/AST/S/143(3)/2018-19/1014622659(1) and the total taxable income of the assessee was determined at Rs.468,53,22,800/-, and the book profit u/s. 115JB was computed at Rs. 520,13,72,607/-.
2.2. Aggrieved by the order of the A.O, assessee carried the matter in appeal before the Ld. CIT(A) who vide order dated 29.05.2019 in appeal no. 216-18/19 granted partial relief to the assessee.
Aggrieved by the order of the Ld. CIT(A), the Assessee and Revenue is now in appeal before the Tribunal. The grounds raised
by the assessee in reads as under:-
1. (a)That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in treating the foreign income of Rs.159,62,39,471/- as taxable in India whereas this income is not taxable in India in any manner and more so when assessee is following exemption method and paid taxes on the said income under the tax laws of the Host Country as per the provisions of Double Taxation Avoidance agreement and 4 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. impugned addition is illegal and is based on incorrect facts and findings and without considering and appreciating the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds and without observing the principles of natural justice.
1(b)That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in treating the global income of Rs.159,62,39,471/- taxable in India is beyond jurisdiction, illegal, bad in law and against the facts and circumstances of the case. 2. (a)That having regard to the facts and circumstances of the case, Ld.CIT(A) has erred in law and on the facts in not deleting the entire disallowance of Rs.4,30,42,385/- made by the Ld. AO u/s 14A r.w.r. 8D and has erred in sustaining the same to the extent of Rs. 1,49,31,635/- and that too by recording incorrect facts and findings and without observing the principle of natural justice. 2(b)That in any case and in any view of the matter, action of Ld. CIT(A) in sustaining the action of Ld. AO in making disallowance of Rs.1,49,31,635/-, is bad in law and against the facts and circumstances of the case. 3. (a)That having regard to the facts and circumstances of the case, Ld.CIT(A) has erred in law and on facts in 5 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. confirming the action of Ld. AO in making addition of Rs.58,91,399/- on account of advance written off and that too by recording incorrect facts and findings and without observing the principle of natural justice. 3(b) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs. 58,91,399/-on account of advance written off, is bad in law and against the facts and circumstances of the case.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
4. On the other the grounds raised by the Revenue in reads as under:-
1. That the appellant denies its liability to be assessed at income of Rs.468,53,22,800/- as against the returned income of Rs.236,56,64,780/-and accordingly denies its liability to pay tax, surcharge and interest demanded thereon.
2. That the appellant denies its liability to be assessed at book profit of Rs.520,13,72,607/- as against the declared book profit of Rs.318,82,48,608/- 6 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
3. That having regard to the facts and circumstances of the case, Ld. AO has erred in law and on facts in framing the impugned assessment order without assuming jurisdiction as per law. 4. (a) That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in denying the benefit of deduction of Rs.33,71,10,185/- claimed by assessee u/s 80IA and that too without observing the principles of natural justice and by disregarding the submissions/evidences of the assessee and further erred in observing that assessee is a contractor whereas the fact is that assessee is a developer and without observing the principles of natural justice. 4(b) That in any case and in any view of the matter, action of Ld. AO in denying the benefit of deduction of Rs.33,71,10,185/- claimed by assessee us 80IA, is bad in law and against the facts and circumstances of the case. 6(b) That in any case and in any view of the matter, action of Ld. AO in treating the global income of Rs. 159,62,39,471/- taxable in India is 5. (a)That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in making disallowance of Rs.33,73,74,583/-on account of 7 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. provision for maintenance and that too without observing the principles of natural justice.
5(b) That in any case and in any view of the matter, action of Ld.AO in making disallowance of Rs.33,73,74,583/- on account of provision for maintenance, is beyond jurisdiction, illegal, bad in law and against the facts and circumstances of the case. 6. (a) That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in treating the foreign income of Rs.159,62,39,471/- as taxable in India whereas this income is not taxable in India in any manner and more so when assessee is following exemption method and paid taxes on the said income under the tax laws of the Host Country as per the provisions of Double Taxation Avoidance agreement and impugned addition is illegal and is based on incorrect facts and findings and without considering and appreciating the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds and without observing the principles of natural justice. 6(b) That in any case and in any view of the matter, action of Ld. AO in treating the global income of Rs. 159,62,39,471/- taxable in India is beyond jurisdiction, 8 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. illegal, bad in law and against the facts and circumstances of the case. 7. (a) That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in making disallowance of Rs.4,30,42,385/-us 14A r.w.r. 8D and that too without observing the principles of natural justice. 7(b) That in any case and in any view of the matter, action of Ld. O in making disallowance of Rs.4,30,42,385/- u/s 14A r.w.r. 8D is beyond jurisdiction, illegal, bad in law and against the facts and circumstances of the case. 8. (a) That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in making disallowance of Rs.58,91,399/- on account of advances written off and that too without observing the principles of natural justice. 8(b) That in any case and in any view of the matter, action of Ld. AO in making disallowance of Rs.58,91,399/- on account of advances written off is bad in law and against the facts and circumstances of the case.
That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in making addition of Rs.163,27,07,031/- on account of 9 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. Global Income in Malaysia and Sri Lanka while computing the total income under MAT.
10. That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in making addition of Rs.33,73,74,583/- account of provision for maintenance being unascertained liability while computing the total income under MAT.
11. That having regard to the facts and circumstances of the case, Ld. A.O has erred in law and on facts in making addition of Rs.4,30,42,385/- w/s 14A while computing the total income under MAT.
12. That in any case and in any view of the matter, impugned assessment order and all the additions/disallowances made therein are bad in law, illegal, unjustified, barred by limitation, contrary to facts & law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed and same are not sustainable on various legal and factual grounds.
13. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts in not allowing the credit of prepaid taxes (including foreign tax credit).
10 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. 14. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts in charging interest u/s 234A, 234B, 234C and 234D of the Income Tax Act, 1961. 15. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
5. We, first proceed to decide the grounds raised by the assessee in its appeal.
6. In ground no. 1 including the sub grounds are with respect to the taxing of foreign income of Rs. 159,62,39,471/- as taxable in India.
During the course of assessment proceedings AO noticed that while computing the total income assessee had excluded the income earned in Malaysia and Sri Lanka amounting of Rs. 159,62,39,471/- on the basis of Double Taxation Avoidance Agreement (DTAA) entered into by India with Malaysia and Sri Lanka. AO was of the view that in 11 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. case of a resident person as per the provision of Income Tax Act, global income is taxable in India. The assessee was accordingly asked to show cause as to why the income earned in Malaysia and Sri Lanka excluded from taxable income not be added back. In response to the query of the AO, assessee made details submissions which are reproduced by the AO at pages 9 to 19 of the assessment order. The submissions made by the assessee was not found acceptable to AO. AO noted that assessee had followed “exemption” method whereby all the profits derived from the projects in Malaysia and Sri Lanka was excluded from the inclusion in the computation of income for the purpose of taxation in India. AO was of the view that assessee should have included overseas income against which the credit for tax split abroad should have been availed. AO also noted that identical issue arose in assessee’s own case in AYs’ 2013-14 & 2014-15 where in Ld. CIT(A) had confirmed the treatment of including the income from Malaysia and Sri Lanka under the normal provisions but had deleted the addition under MAT provisions. He noted that against the 12 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. decision of Ld. CIT(A), Revenue is in appeal before ITAT. He therefore following the order of his predecessor, held the income aggregating of Rs. 159,62,39,471/- to be taxable under normal provisions as well as for the purpose of computing MAT under section 115JB of the Act. He however held that the credit of taxes paid in Malaysia and Sri Lanka, be given as per DTAA entered with Malaysia and Sri Lanka.
8. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who by following the order his predecessor for A.Y. 2012-13 and his decision in the case of assessee for A.Y.’s 2013-14, 2014-15 and 2015-16 upheld the addition for working out the taxable income but however directed the deletion under the provisions of section 115JB of the Act.
9. Aggrieved by the order of Ld. CIT(A), assessee is now in appeal before us and Revenue vide ground no. 4 is aggrieved to the extent relief granted by the Ld. CIT(A).
13 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
Before us at the outset Ld. AR submitted that the issue raised in the present grounds by the Assessee and Revenue is covered in assessee’s favour by the decisions of Hon’ble Tribunal in assessee’s own case for earlier years. He further submitted that the Hon’ble Tribunal while deciding the identical issue in assessee’s own case for A.Y. 2014-15 vide order dated 07.09.2022 in and 2062/Del/2018 and by following the order of the Tribunal in assessee’s own case for A.Y. 2000-01 has decided the issue in favour of the assessee. He pointed to the relevant findings of the Tribunal order at page 262 to 264 of the paper book. He submitted that since the facts of the case in the year under consideration are identical to that earlier year, the issue be decided following the order of Tribunal for A.Y. 2014-15.
Ld. DR on the other hand did not controvert the factual submissions made by the learned AR that the issue is covered in favour of the assessee by earlier years order, but however supported the order of AO.
14 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
We have heard the Learned Representative of both the parties and perused the material available on record. The issue in the present ground is with respect to addition of the income earned from Malaysia and Sri Lanka. We find identical issue arose before the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 2014-15 and the co-ordinate bench of Tribunal by following the order of the Tribunal in assessee’s own case for earlier years decided the issue by observing as under:- Income from foreign Contracts (Malaysia and Sri Lanka) – u/s 115JB: Ground No. 1 in (Assessee Appeal) Ground No . 4 in ITA No. 2062/Del/2018 (Revenue Appeal) 15. The issue has been extensively discussed at para no. 10 to 14 in the order of the ITAT ITA No.2401/Del/2013 A.Y. 2006-07 vide order dated 23.01.2022.
15 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
This issue has been adjudicated by the Tribunal in for the A.Y. 2000-01 and also in ITA No.1825/Del/2005 dated 31.10.2019 and allowed in favour of the assessee. The relevant part of the order of the Tribunal is as under: “22.2 The Assessing Officer held that adjustment can be made only as provided in Explanation to section 115J as decided by the Hon’ble Supreme Court in the case of Apollo tyres Vs CIT (2002) 255 ITR 273 (SC). According to him, exclusion of DTAA is not provided in that explanation. The Ld. CIT(A) confirmed the action of the Assessing Officer. 22.3 Before us the Ld. Counsel of the assessee submitted that issue in dispute is covered in the favour of the assessee by the decision of the Tribunal in the case of the assessee for assessment year 2000-01, wherein it is held that when such income is not to be taxed as per DTAA, it cannot be brought to tax indirectly under the deeming fiction under section 115JB of the Act.
16 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. 22.4 The Ld. DR, on the other hand relied on the order of the lower authorities. 22.5 We have heard rival submission and perused the relevant material on record. The Tribunal in in the case of the assessee for assessment year 2000-01 has adjudicated on the identical issue in dispute involved as under: “9. We considered the above heard the rival submissions made by the parties in respect of Ground No.7 and it is seen that income earned from permanent establishment in foreign countries is liable to be excluded from the computation of book profit in view of the decision in the case of the bank of Tokyo-Mitsubishi UFJ Ltd vs .ADIT 152 1TD 796 (Del.), which has been affirmed by Hon’ble High Court of Delhi. When such income is not to be taxed as per DTAA, it cannot be brought to tax indirectly under the deeming fiction under section 115JA . Accordingly, this ground of appeal is decided in favor of the appellant.”
17 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. 22.6 The issue in dispute involved in the present ground of the appeal, being identical to the issue adjudicated by the Tribunal (supra) above, respectfully following the finding of the Tribunal (supra), we direct the Assessing Officer to exclude the income which is subject matter of dispute under this ground of the appeal from the ambit of the computation of book profit under section 115JB of the Act. The ground of t he appeal is according allowed.”
Following the orders of the Co-ordinate Benches of the Tribunal, the appeal of the Revenue on this ground is dismissed and that of the assessee is allowed.
Before us revenue has not placed any material on record to demonstrate any distinguishing feature in the facts of the case in the year under consideration and that of earlier years nor has placed any material on the record demonstrate that the order of the coordinate bench in assessee’s own case for earlier years has been set aside/overruled/stayed by higher judicial forum. We therefore following the reasoning of the co-ordinate Bench
18 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. while deciding the appeal in assessee’s own case and for similar reasons hold that A.O. was not justified in including the income earned in Malaysia and Sri Lanka as income of the assessee. We therefore direct the setting aside of the addition made by A.O and thus this ground of the assessee is allowed and Revenue is dismissed.
Ground no 2a and 2b are with respect to disallowance u/s. 14A r.w.r 8D of the Act.
During the year under consideration AO noticed that assessee has earned tax free income of Rs. 20,67,07,646/- and had made a disallowance of Rs. 14,58,115/- u/s. 14A of the Act. The assessee was asked to show cause as to why the disallowance u/s.14A not be made by applying Rule 8D of the Income Tax Rules. In response to the query of the AO assessee inter alia submitted that all the investments are made out of interest free funds and no borrowed funds has been used for making the investments. It was further submitted that the decision
19 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. of making long term investments is taken up by the investment committee and considering the time spend by them, assessee had suo moto worked out that disallowance u/s. 14A at Rs. 1458,115/-. The submissions of the assessee was not found acceptable to AO. AO noted that during the year consideration assessee had made fresh investments and the disallowance made by the assessee was not commensurate to the exempt income earned as well as investments being handled by the company. AO also did not accept the contention of the assessee that it has incurred only of Rs. 14,58,115/- for earning exempt income. He thereafter by following the methodology described in Rule 8D worked out the total disallowance u/s. 14A at Rs. 4,45,00,500/- and after given the credit of the suo motto disallowance made by assessee of Rs. 14,58,115/- disallowed the net amount of Rs. 4,30,42,385/-.
16. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A).
20 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
17. CIT(A) by following the decision of jurisdictional Delhi High Court in the case of ACB India vs. ACIT directed the disallowance to be restricted to Rs. 1.638975 crores and also directed the AO to allow the credit of the suo motto disallowance of Rs. 14.58 lacs. He thus directed the AO to restrict the disallowance to Rs. 1,49,31,635/-. He also noted that Ld. CIT(A)-39 by allowing the appeal of the assessee on this ground for earlier year had followed the aforesaid decision of Hon’ble Delhi High Court. He further following the decision of Hon’ble ITAT Special Bench in the case of ACIT vs. Vineet Investment Pvt. Ltd. (2017) 58 ITR 313 (Trib) held that disallowance made u/s. 14A cannot be added for computing book profit. He thus directed accordingly.
Aggrieved by the order of Ld. CIT(A), assessee is now in appeal before us.
Before us learned AR reiterated the submissions made before AO and CIT(A) and further submitted that identical issue arose in assessee’s own case in A.Y. 2014-15
21 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. before the Hon’ble Tribunal. The Tribunal vide order dated 07.09.2022 in and 2062/Del/2018 has decided the issue in assessee favour. He pointed to para 28 and 29 of the order. He therefore submitted that since the facts of the case under year consideration are identical to that A.Y. 2014-15, the addition be deleted.
Ld. DR on the other hand did not controvert the factual submissions made by the learned AR that the issue is covered in favour of the assessee by earlier years order, but however supported the order of AO.
We have heard the Learned Representative of both the parties and perused the material available on record. The issue in the present ground is with respect to the disallowance made u/s. 14A r.w.r. 8D. We find identical issue arose before the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 2014-15. The co-ordinate bench of Tribunal by following the order of the Tribunal in assessee’s own case for earlier years decided the issue by observing as under:-
22 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
The AO noticed that assessee declared tax free income amounting to Rs.17,82,35,102 /- and itself disallowed a sum of Rs.2.52 lakhs u/s 14A of the Act. During the course of assessment proceedings, the assessee informed the AO that no interest was p aid on investments made on which assessee earned the exempt income.
The assessee contended that it has itself disallowed about 10% of the expenses on salary etc paid to the team consisting of manager (finance) and Asst. Manager considering the time involved by these persons in this activity apart from their routine work. According to AO substantial fresh investment was made in the year ending as on 31.03.2014 and there was increase in investment during the year by an amount of Rs. 198.93 crores. Thus according to AO the amount claimed to have disallowed by the assessee was not commensurate to the exempt income. In his view there were also incidental expenditure of collection, telephone follow up etc.
23 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
27. Accordingly invoking the provisions of clause (iii) of Rule 8D(2), the AO made a disallowance of Rs.1,94,86,000/- after considering the disallowance made by the assessee itself amounting to Rs.2.52 lakhs.
28. During the course of appellate proceedings, it was argued before ld. CIT(A) that the case of assessee is covered with the decision of the Jurisdictional Delhi High Court in the case of M/s ACB India Vs. ACIT, where Hon'ble High Court held that the disallowance u/s 14A cannot be more than 0.5% on the average of the investments made on which the assessee received the dividend income. ld. CIT(A) held that in the present case, the assessee has sub mitted the details of the dividend received and also worked out the disallowance following the decision of the Hon'ble Delhi High Court, which works out to Rs. 137.105 Lacs. The ld. CIT( A) following the judgment of the Hon'ble Delhi High Court restricted the amount to Rs. 137.105 lacs and 24 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. determined at Rs. 134.585 lacs owing to the disallowance of Rs.2.52 lakhs made by the assessee. 29. Placing reliance on the judgment of the Hon’ble jurisdictional High Court, keeping in view, the average investments, the disallowance of Rs. 134.585 lacs ( Rs. 137.105 – Rs.2.5 lacs) made by the Revenue u/r 8D(2)(iii) by considering 0.5% of the average investment of Rs.271.21 Cr. is hereby sustained.
Before us Revenue has not placed any material on record to demonstrate any distinguishing feature in the facts of the case in the year under consideration and that of earlier years nor has placed any material on the record demonstrate that the order of the coordinate bench in assessee’s own case for earlier years has been set aside/overruled/stayed by higher judicial forum. We therefore following the order of the co-ordinate Bench in assessee’s own case for earlier years and for similar reasons set aside the addition made by AO and upheld by CIT(A) Thus this ground of the assessee is allowed.
25 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. 23. Ground no. 3a and 3b are with respect to the addition of Rs. 58,91,399/- on account of advances written off.
During the course of assessment proceedings AO noticed that assessee had written off advances amounting to Rs. 58,91,399/- but it was not added back to the taxable income. The assessee was asked to substantiate its claim of deduction. Assessee made the submissions which are reproduced by the AO at page 24 to 26 of his order. The submissions of the assessee was not found acceptable to AO. AO noted that the advances written off by the assessee were never booked as Revenue in the Profit and Loss account in earlier years. He further noted that assessee had not filed any details about the nature of advances written off during the year. He accordingly disallowed Rs. 58,91,399/-.
25. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A).
26 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. 26. CIT(A) upheld the action of AO by noting the fact that out of the total advances written off, Rs. 57.98 lacs pertaining to security deposits and the balance written off was of capital in nature. He held that since the advances written off were of capital in nature, no deduction could be allowed. He thus upheld the order of AO.
Aggrieved by the order of Ld. CIT(A), assessee is now in appeal before us.
Before us, learned AR reiterated the submissions made before lower authorities and further fairly admitted that identical issue arose in assessee’s own case in A.Y. 2014-15 and the ground was dismissed by the co-ordinate bench of Tribunal. He pointed to para 18 to 20 of the order at page no 264 of the paper book. He therefore submitted that the ground be decided accordingly.
Ld. DR on the other hand supported the order of lower authorities.
27 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the disallowance of amount of advances written off which was disallowed by the AO and upheld by the Ld. CIT(A).
Before us, learned AR submitted that identical issue was decided by the co-ordinate Bench of Tribunal in A.Y. 2014-15. We find that the co-ordinate Bench while dismissing the grounds of the assessee noted as under:- 18. This ground relates to disallowance made by the A.O. amounting to Rs.8,26,887/- on account of advance written off. On the ground that, no details regarding advances written off has been filed by the assessee before the AO. 19. The ld. CIT(A) held that the expenditure was already allowed in the year in which the material was purchased and the same cannot be allowed twice when the same has been returned by the sub-contractor. 20. Ongoing through h the facts, we decline to interfere with the ratio of the ld. CIT(A). The appeal of the assessee on this ground is dismissed.
28 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
Before us distinguishing feature in the facts of the present case at that of A.Y. 2014-15 has been pointed out by learned AR. In such a situation we find no reason to interfere with the order of Ld. CIT(A) on this ground. Thus this ground of the assessee is dismissed.
In the result the appeal of assessee is partly allowed.
Now we proceed with Revenue appeal
Ground no 1 is with respect to the deduction u/s. 80-IA which Ld. CIT(A) held to be allowable to the assessee.
During the course of assessment proceedings AO noticed that assessee had claimed deduction of Rs. 33,71,10,185/- as deduction u/s. 80-IA of the Act, for following projects:-
29 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
S. Name of Nature of the Authority/Statutory Total income No the project body awarding the eligible for Project project deduction u/s. 80-OF THE I.T. ACT, 1961 (In Rs.) 1. ROB Development Ministry of Railway 1,31,59,927 Patna for Bridges 2. RCF, Rail RCF, Rai Bareli 11,03,05,025 Raibareli CoachFactory Adminstration Project 3. ROB Road over Govt of Rajasthan 4,86,28,178 Jaipur Bridge (New) 4. ROB Road over Govt of Bihar 10,92,78,767 Patna bridge Phase II (New) 5. PMGSY Construciton of Govt of Jharkhand 3,44,,78,430 roads and and India bridge 6. Gaya ROB Govt of Bihar State 2,12,59,858 Manpur TOTAL 33,71,10,185
AO on perusing the agreements entered by the assessee for the projects on which it has claimed deduction concluded that the agreement with the assessee was a works contract wherein the assessee was required to setup the rail coach factory for specified consideration. He also noted that the remuneration to the assessee was a specified
30 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. percentage of the total cost of the work and the payments which was to be released by the work awarding agencies was on the basis of progress of project/cost incurred by the assessee. AO therefore concluded that the contract entered by the assessee was in the nature of works contracts and assessee cannot be stated to be a developer of those facilities. He further noted the identical issue arose in earlier assessment years wherein the claim of the assessee was disallowed and in most of the years the disallowance was upheld by Ld. CIT(A). He further noted that for A.Y. 2013-14, CIT(A) had deleted the addition by placing reliance on the decision of Tribunal of A.Y. 2000-01 but against the order of Tribunal, Revenue had filed appeal before Hon’ble Delhi High Court. He therefore concluded that assessee is not eligible for deduction u/s. 80-IA and accordingly denied the claim of deduction to the extent of Rs.33,71,10,185/-
37. Aggrieved by the order of AO, assessee carried the matter before CIT(A).
31 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
CIT(A) noted that identical issue arose in assessee’s own case for A.Y. 2012-13 and his predecessor vide order 30.06.2017 and decided the issue in favour of the assessee. He also noted that for A.Y. 2000-01 the Tribunal has allowed the claim of the assessee and the CIT(A) in A.Ys. 2013-14, 2014-15 & 2015-16 by following the decision of the Tribunal had allowed the claim of the assessee. He therefore following the order in assessee’s own case allowed the claim of the assessee.
Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.
Before us learned DR supported the order of AO, learned AR on the other hand reiterated the submissions made before AO and CIT(A) and further submitted that identical issue arose in A.Y. 2014-15 and the co-ordinate bench of the Tribunal has decided the issue in favour of the assessee by dismissing the ground of Revenue. He pointed to page no. 255 to 259 of the paper book. He therefore
32 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. submitted that since the facts of the case in the year under consideration are identical to that of A.Y. 2014-15, no interference to the order of Ld. CIT(A) is called for.
We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the claim of deduction of u/s. 80- IA which was denied by AO but allowed by CIT(A). We find that identical issue arose in assessee’s own case for A.Y. 2014-15 and the co-ordinate bench of the Tribunal in and 2062/Del/2018 has decided the issue in favour of the assessee by observing as under:- 7. The same issue stands adjudicated by the Co- ordinate Bench of ITAT in assessee’s own case in ITA No.2401/Del/2013 for the A.Y. 2006-07. The operative part of the order is reproduced as under: “3.1 At the outset, we find that this issue has been adjudicated in favour of the assessee and the deduction has been held to be allowable vide the orders of the Co- ordinate of the ITAT for the A.Ys. 2000-01, 2001-02, 33 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. 2003-04, 2005-06. For the sake of ready reference, the relevant portion of the order of the ITAT in the combined order in for A.Y 2004-05 and ITA No. 2220/DEL/2011 for A.Y 2005-06 dated 30.01.2020 is reproduced below: ”36. Ground No. 2 relates to the deletion of disallowance of deduction u/s 80IA of the Act amounting to Rs. 26.71 crores made by the Assessing Officer.
The claim of deduction came up for adjudication for the first time in Assessment Year 2000-01 and the co-ordinate bench in ITA No. 2596/DEL/2004 held as under: “3.5 Considering the arguments advanced by the parties and after going through the orders and material placed before us, we hold as under” Regarding the claim of deduction u/s 801A, it is seen that appellant is a company and has entered into contracts with various Central Government, State Government, State Government and Local
34 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. Authority and other statutory bodies. A close reading of the agreement (for instance agreement with MSRDC enclosed in the paper book) clearly shows that appellant developed the infrastructure facility and has not acted merely as contractor as sought to be made out by Assessing Officer and C1T (Appeals). The Oxford dictionary defines the term developer as a person that designs and crate new products, whereas contractor is a person or a company that has a contract to do work or to provide goods or services. Various clauses of the above referred agreement to which reference has been made by us little below would show that the construction rail over bridge projection (ROB) 23 awarded by MSRDC to the appellant is nothing but development of infrastructure facility, which was to be legally handed over to the Railways and MSRDC after the payment was received. Various clauses of the agreement would show that the jobs done by the appellant were planning, execution,
35 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. construction and making the infrastructure facility ready for operations. Ld. Assessing Officer has not pointed out any specific clauses of any agreement, which shows that all attributes of development were not present. Making a bald assertion that assessee was a contractor does not serve any purpose. Merely using the terms contractor in the agreement would not make any difference as what has to be seen is the substance. Anybody who enters into a contract is closely called a contractor but that does not mean that such person entering into the contract cannot be developer. The other agreement with MSRDC shown to us as one as instance clearly shows mat appellant was engaged in investigation, planning, organizing and construction of road over bridge within the stipulated time. If the activities undertaken by the appellant cannot be termed as development, we are afraid then what can be called development? Therefore, we do not have any hesitation in 36 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. holding in view of the arguments advanced from the sides of both parties and decisions relied upon that appellant was developing infrastructure facility and claimed deduction u/s 80IA in respect of income derived from the development of infrastructure facilities. Explanation inserted below section 80IA(13) does not prevent developers in claiming deduction u/s 80IA(4). Similarly showing the receipts as work receipts in the books of accounts of the appellant alone cannot determine the character of the appellant which in our opinion was that of development. The argument of revenue that infrastructure facility should be owned by the appellant is also misplaced in view of ITO vs. Cable 24 Constructions 354 ITR 13 (Guj.) and various decisions relied upon by the Ld. Counsel for the appellant. We also note that the Ld. CIT (DR) tried to raise issues which were not even the case of the assessing officer and this in our considered opinion is clearly impressible. Case 37 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. laws relied by the revenue are clearly misplaced on facts and are clearly distinguishable. Special bench decision in the case of B. T. Patil (Mum.) 126 TTJ 577 was recalled later on as it did not consider the binding decision of Hon’ble Bombay High Court in the case of ABG 322 ITR 323 (Bom). According to the assessment order, copies of all the agreements were before Assessing Officer yet assessing officer chose to make sweeping observation that the assessee is not developer. Such sweeping and bald assertion cannot be approved by us. Therefore, taking into the facts of the present case, we are the considered view that appellant is entitled to claim deduction 80IA, which was wrongly denied. We set aside the order of the ld. CIT (Appeals) and direct the Assessing Officer to allow deduction u/s 801A has claimed by the appellant. Ground No. 1 is allowed.”
As no new facts have been brought on record for the year under consideration, respectfully following the 38 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. findings of the co-ordinate bench, we direct the Assessing Officer to allow deduction u/s 80IA of the Act.
Before us Revenue has not placed any material on record to demonstrate any distinguishing feature in the facts of the case in the year under consideration and that of earlier years nor has placed any material on the record demonstrate that the order of the coordinate bench in assessee’s own case for earlier years has been set aside/overruled/stayed by higher judicial forum. In such a situation we find no reason to interfere with the order of CIT(A) on this issue. Thus this ground of the Revenue is dismissed.
Ground no 2 and 3 are with respect to deleting the addition of Rs. 33,73,74,583/- on account of provision for maintenance.
During the course of assessment proceedings AO noted that the assessee has debited of Rs. 33,73,74,583/- towards provision for maintenance. The assessee was asked
39 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. to file the details of expenditure and also explain as to why the amount not be disallowed. Assessee inter alia submitted that the provision for maintenance expenses related to the projects executed in India and abroad and it was provided to cover the expenditure of liability towards defect rectification/or maintenance cost to be incurred by the assessee after completion of the contract. It was further submitted that as per the agreement with the clients the assessee was liable to maintain the works executed by it even after the projects are completed and handed over to the clients for a period of 12 to 24 months from the date of completion. It was thus submitted that provision was an allowable expenditure. The submissions of the assessee was not found acceptable to AO. AO noted that assessee had not provided any details regarding the basis on which the provision of maintenance was being created and thus failed to substantiate the provision made. He further noted the identical issue arose in A.Ys. 2013-14 & 2014-15 wherein CIT(A) had deleted the addition and decided the issue in favour of the assessee but however Revenue had filed appeal
40 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. before the ITAT. He therefore held that the provision of maintenance expenses was not allowable and according disallowed of Rs. 33,73,74,583/-.
Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A).
CIT(A) noted that identical issue arose in assessee’s own case in A.Ys. 2012-13, 2013-14, 2014-15 & 2015-16, and the issue was decided in the favour of the assessee. He following the decision in assessee’s own case for earlier years deleted the disallowance made by AO and further held that the addition made cannot be added for the purpose of working out book profit under MAT. He accordingly decided the issue in assessee’s favour.
Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.
Before us, learned DR supported order of AO, learned AR on the other hand reiterated the submissions made before AO and CIT(A) and further submitted that 41 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. identical issue arose in assessee’s own case for 2014-15 and the co-ordinate bench of the Tribunal has decided the issue in favour of the assessee by dismissing the ground of Revenue. He pointed to para 11 to 14 at page no. 261 of the paper book. He therefore submitted that no interference to the order of CIT(A) is called for.
We have heard the rival submissions and perused the material on record. The issue in the present ground is w.r.t disallowance of provision for maintenance made by AO that deleted by CIT(A). We find that on identical issue the co-ordinate Bench of Tribunal in A.Y. 2014-15 has decided the issue by observing as under:- 9. The assessee has challenged disallowance of provision for maintenance for the project executed by the assessee amounting to Rs.105,96,46,297/- The Assessing Officer has held that this provision has been made on estimated basis and unascertained liability. The assessee submitted that it has to maintain or repair the defects in the projects executed by it during the defect liability period as specified in the contract agreement. The assessee claimed that these are 42 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. mandatory expenses and provision has been made on the basis of its past experience and on scientific basis, therefore, such provision is an allowable expenditure.
10. It was submitted that the provision for maintenance expenditure is provided to cover the company's expenditure to liability towards defect rectification and/or maintenance incurred by the company after completion of the contract. Such provision is made taking into account contractual provisions, operating turnover for the year, type of project, period of maintenance, contractual obligations of the subcontractors and other relevant factors, if any. As per the agreement with the client, the company is liable to maintain the works executed by it even after the projects are completed and handed over to the clients, for a period of 12 or 24 months from the date of completion. During this period, all the defects are to be rectified free of cost even though the Company has already handed over completed project to the client. The total project cost i.e. contract receipts, have already been received from the client in respect of the said projects before handing over the same to the client and no separate consideration is receivable During the year an amount of Rs.2,27,42,328/- has been provided for non-DTAA project and Rs.7,18,000/- for DTAA projects.
11. The ld. CIT(A) deleted the addition holding that the 43 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. assessee has been claiming that provision for maintenance has been made taking into account contractual provision, operating turnover of the y ear, type of project period of maintenance and other relevant factors. It was held by the ld. CIT(A) that as per contract agreement the assessee is liable to provide free of cost maintenance to the clients for the period mentioned in the agreement. At the time of completion of the contract, liability arises in the hands of the assessee company to provide free maintenance to the various contractees for the period specified in the agreement. This liability arises at the time of the completion of the project itself and obviously the expenditure required can only be estimated on the basis of past experience, nature of the contract, type of the project and turnover of the assessee in that particular year. The ld. CIT(A) held that the assessee claimed that estimate has been made on best estimated basis based upon the experience in the construction industry and therefore, the objection of the Assessing Officer that the liability has not arisen during the year as it has been quantified on estimated basis is not correct.
12. It is also a fact not disputed by the Assessing Officer in the assessment order that all along the provision for maintenance of expenses have been allowed to the assessee company except the disallowances made in A.Y. 1985-86 and 1995-96.
44 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi.
13. We find that the same matter of provision for maintenance stands adjudicated by the Co-ordinate Bench of the Tribunal The assessee has been providing for expenses to b e incurred on demobilization, maintenance and other expenses since by inception of the Company. The same has been allowed by the Department all along excep t in the Assessment Years 1985-86, 1995-96 & 2001-02, 2002-03, 2003-04, 2004- 05 and 2005-06. In these years, the A.O. disallowed the aforesaid provisions. Further, in appeal before the Ld. C IT(A), in the assessment year 1985-86, 1995-96 and 2001-02 and 2002-03, these were allowed on the basis of the aforesaid judicial analysis.
14. Since, the decision of the ld. CIT(A) is based on the decision of the earlier years which stands upheld, we decline to interfere with the order of the ld. CIT(A) on this issue.
Before us revenue has not placed any material on record to demonstrate any distinguishing feature in the facts of the case in the year under consideration and that of earlier years nor has placed any material on the record demonstrate that the order of the coordinate bench in assessee’s own case for earlier years has been set
45 I.T.A.Nos.6044 & 6488/Del./2019 M/s. IRCON International Ltd., New Delhi. aside/overruled/stayed by higher judicial forum. We therefore find no reason to interfere with the order of Ld. CIT(A) and thus this ground of the Revenue is dismissed.
Ground no 4 has already been decided above with assessee ground no 1. In the result, appeal of the Revenue is 52. dismissed.
To sum-up, appeal of the Assessee is partly 53. allowed and appeal of the Revenue is dismissed.
Order pronounced in the open Court on 07.02.2023.