BSCPL INFRASTRUCTURE LIMITED,HYDERABAD vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(3), HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

ITA No. 1817/H/2017 Assessment Year: 2014-15 BSCPL Infrastructure Ltd., Vs. Dy. Commissioner of Hyderabad. Income-tax, Central Circle – 1(3), PAN – AAACB 8316K Hyderabad.

(Appellant) (Respondent)

Assessee by: Shri D.V. Anjaneyulu Revenueby: Shri Rohit Mujumdar Date of hearing: 05/10/2021 Date of pronouncement: 20/10/2021

O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A) - 1, Hyderabad’s order dated 25/07/2017 for AY 2014-15 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short “the Act, on the following grounds of appeal: “1. The CIT(A) erred in confirming the addition of Rs.

2 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. 4,10,288/- termed as a sales tax liability in the sales tax assessment order, though contended such payment never claimed as an expenditure with material evidence, also it is not a violation or infringement of law as envisaged in explanation 1 of sec.37(1). 2. The CIT (A) further erred in law, confirming the disallowance of Rs.35,28,444/_ represents cash payments to labour workers in remote places in different locations as the appellant executing national highway works, expenditure covered with rules 6DD, therefore the disallowance is totally unjustified as per settled case laws in the cases of (2007)ITD-104, Pg:-537, Vishal infrastructure Ltd Vs ACIT.(Hyd), (2016) ITD-156, Pg:- 34, ITO Vs Shanti Comrn odities. (Pune). 3. The CIT (A) furthererred in law in disallowing amount of Rs. 5,77,052/- represents interest in remittance of delay in TDS where the law itself allows under the relevant provisions to pay TDS with interest at a _ prescribed rate and therefore it is not a violative and prohibitive under explanation 1 of 37(1) and as per settled case law "2016-TT]-175, Pg:-81, Gillco developers & Builders (P) Ltd Vs DCIT(Chd). 2. The assessee also filed the following additional ground relying on the decision of National Thermal Power Co. Ltd. Vs. CIT, [1998] 229 ITR 383: "Appellant being exclusively in the construction of National Highways, is eligible to claim deduction U/s 80IA of the Income Tax Act, 1961 in respect of profit & gains, which was omitted to claim in the assessment stage or in appellate stage may kindly be admitted in accordance with provisions of law." 3. Since this ground is purely legal in nature for which no additional information is required and the same are

3 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. available on record, we admit this additional ground of appeal.

4 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd.

7.1 Before the CIT(A), the assessee, inter-alia submitted that it is not a sales tax adjustment though it is mentioned as penalty.

7.2 After considering the submissions of the assessee, the CIT(A) observed that it was noticed from the commercial taxes department, govt. of AP order dated 30/07/2009, the sales tax penalty was raised for under-declared tax of Rs. 16,72,831/- and not for delay in the payment of sales tax and, therefore, the sales tax penalty of Rs. 4,10,282/- cannot be allowed u/s 37(1) of the Act. Accordingly, he upheld the disallowance made by the AO.

7.3 Before us, the ld. AR of the assessee besides reiterating the submissions made before the CIT(A), submitted that it has been paid to the commercial taxes department of Govt. of AP being the difference in VAT for the period from 4/2005 to 05/2007 for under declared tax

5 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. and the Audit raised a penalty demand of Rs. 4,10,288/-, which is no way connected to the payment as penalty and, therefore, it is an allowable expenditure. He further stated that though it is mentioned as sales penalty it is a sales tax adjustment. He relied on the decision in the case of ITO Vs. Shanti Commodities, [2016] 156 ITD 34 (Pune).

7.4 The ld. DR relied on the orders of revenue authorities and submitted that the penalty was raised by the commercial taxes department for under declared tax and not for delay in payment of sales tax and, therefore the same cannot be allowed u/s 37(1) as held by the revenue authorities. He, therefore, submitted that the order of the CIT(A) may be upheld.

7.5 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We observe that it is payment raised for the period from 4/2005 to 5/2007 for under-declared tax and imposed penalty vide order dated 30/07/2009 by the commercial tax department. Any penalty paid for violation of any law, is not allowable u/s 37 of the Act. Our view is supported by the decision of Hon’ble Delhi High Court in the case of CIT Vs. Bharat Steel Tubes Ltd., [1997]226 ITR 750 (Del.) wherein the Hon’ble Court has observed as under: “3. Assessment year 1968-69 :

6 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. "(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the provisions of section 40A(5) do not apply to the cash allowance paid by the employer to the employees for meeting house rent expenses and thereby deleting the disallowance of Rs. 8,289 made by the Income-tax Officer under section 40A(5) of the Income-tax Act ?" (ii) Whether, on the facts and circumstances of the case, the payment of Rs. 2,150 claimed as deduction for delayed payment of sales tax was as a result of infraction of law or it was a discharge of a civil liability ?" 6. As regards question No. (ii) arising out of the assessment year 1968-69, the Tribunal has clearly noticed in paragraph 10 that "The first objection in this cross-objection is regarding the disallowance of Rs. 2,150 paid as penalty for delayed payment of sales tax". In Haji Aziz and Abdul Shakoor Bros. v. CIT U/SC/0120/1960, it was held that no expense which was paid by way of penalty for a breach of law, even though it might involve no personal liability, could be said to be an amount wholly and exclusively laid out for the purpose of the business of the assessee within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922, and the fine paid by the assessee was not an allowable deduction under that section. The position is the same in the Act of 1961. 7. Reference may also be made to the decision of the Bombay High Court in CIT v. Bharat Barrel and Drum Mfg. Co. Pvt. Ltd. [1990] 182 ITR 21. In the said decision, the Bombay High Court was concerned with deduction claimed as penalty payable for non-payment of sales tax as in the present case. The Bombay High Court held that the penalty payable for non-payment of sales tax within the prescribed time is not interest for late payment of tax and is not deductible as business expenditure under section 37 of the Income-tax Act, 1961. From the facts found by the Tribunal, it is evident that the payment of Rs. 2,150 was as a result of infraction of law and not in discharge of a civil liability. The question is answered accordingly.” Therefore, we do not find any infirmity in the action of CIT(A) in confirming the disallowance made by the AO on this account and accordingly, upholding the order of CIT(A), we dismiss the ground raised by the assessee on this issue.

7 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. the assessment proceedings, the AO noticed from the books of account and bills/vouchers that some of the labour payments were made in cash. The AO, therefore, proposed to disallow 15% of cash payments to labour. The AR of the assessee company stated that the projects sites were in remote areas and the labour procured from respective localities where bank facility is not available. Further, he also stated that labour were illiterate, hence, the company was forced to make cash payments to labour. The assessee was, therefore, requested to confine the disallowance to the extent of 10%. Rejecting the submissions of the assessee, the AO made a disallowance of Rs. 35,28,444/- @ 15% (Rs. 2,35,22,961 x 15%) of the cash portion of labour payments.

8.1 Before the CIT(A), the assessee submitted that the execution works spread over different states in remote places for construction of roads and the labour payments supported by bill and vouchers which was authorised by the site in charge who maintains muster rolls maintained at work sites authenticated by the works manager in respective sites. In this regard, the assessee relied on the decision in the case of M/s Vishal Infrastructure Ltd Vs. ACIT, 104 ITD 537 (ITAT – Hyd.). The assessee further submitted that in audited financial statements wherein details of salaries, wages and other benefits pertaining to various sites was shown at Rs. 92,91,70,862/- which was inclusive of cash payment to labour amounting to Rs.

8 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. 35,28,444/-.

8.2 After considering the submissions of the assessee, the CIT(A) observed that the reasons mentioned by the assessee that due to different terrain and conditions of the project sites, it is natural to make payments to the labour in cash, which was accepted by the AO. However, since these payments were in contravention of the Act, a portion of it, i.e. cash payments had been disallowed @ 15% by the AO, which is proper and, therefore, the CIT(A) confirmed the action of AO.

8.3 Before us, the ld. AR of the assessee besides reiterating the submissions made before the CIT(A), submitted that the assessee was engaged in the national highway project and the work places are situated in remote places/areas where banking facilities are not available and the labourers engaged as per the requirement of work, do not have bank accounts. Therefore, the assessee is forced to pay wages in cash to labourers.

8.4 The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that the assessee conceded for the disallowance of the cash portion of labour payments @ 10% before the AO and, therefore the disallowance should be upheld.

8.5 After considering the rival submissions and perusing

9 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. the material on record as well as the orders of revenue authorities, we find that before the AO the assessee requested to confine the disallowance to the extent of 10%, but, the AO made the disallowance @ 15% of the cash portion of labour payments. On considering the totality of the facts and circumstances of the case, we restrict the disallowance 10% of the cash portion of labour payments and the AO is directed accordingly. Thus, this ground is partly allowed.

9.1 Before the CIT(A), the assessee submitted that the delay was caused in payment of TDS was on account of paucity of funds and the TDS is nothing but withholding amount of the respective parties from whom services/materials/goods procured which is allowable deduction in its hands and the credit goes to the respective parties. Further, it was submitted that according to the provisions of section 2(43) rws 40(A)(ii) of the Act, any

10 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. interest relatable to the tax payable by the assessee which inclusive of self-assessment. It was also submitted that advance taxes, self-assessment and interest thereon is not allowable expenditure whereas in this case, the interest relates to TDS payable under Chapter XVII – B i.e. deduction at source. It was therefore submitted that the disallowance made by the AO was totally unjustified. The assessee relied on the decision in the case of M/s Gillco Developers & Builders (P) Ltd. Vs. DCIT [2016] 175 TTJ 81 (ITAT – Chandigarh).

9.2 After considering the submissions of the assessee, the CIT(A) observed that it is a serious and criminal offence for not remitting tax deducted at source to the Govt. treasury and Rs. 55,77,052/- is the penal interest paid by the assessee for non-remittance of TDS to the Govt. account. He further observed that the assessee had wrongly equated this non remittance of TDS with delay payment of service tax and the AR of the assessee was accepted this addition before the AO. He, therefore, confirmed the addition made by the AO on this count.

9.3 Before us, the ld. AR of the assessee reiterated the submissions made before the revenue authorities and submitted that the assessee deposited the TDS with interest as the law itself has provided that TDS can be deposited with interest at a prescribed rate. He further submitted that for further verification, requested the Bench to remit the

11 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. issue back to the file of AO.

9.4 The ld. DR, on the other hand, relied on the orders of lower authorities.

9.5 After considering the submissions of the assessee and perusing the material on record as well as the orders of revenue authorities, we observe that before the authorities the assessee submitted that the delay was caused in payment of TDS on account of paucity of funds whereas the revenue's grievance is that the assessee paid the interest for non-remittance of TDS to Govt. Account. Therefore, taking into consideration the request of the assessee that the issue may be remitted to AO for further verification, we remit the issue to the file of AO with a direction to verify whether the amount paid by the assessee towards delay or for non-remittance and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee. The assessee is directed to substantiate its claim. Accordingly, this ground is treated as allowed for statistical purposes.

12 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. Bench to remit this issue to the file of AO for further allowable of deduction u/s 80IA.

10.1 The ld. DR on the other hand submitted that the additional ground of appeal may not be admitted for the reasons stated in the written submissions filed before us, the contents of which are as under:

10.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The Hon’ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. In view of this, the additional ground taken by the assessee is admitted for adjudication. However, since the facts relating to this issue have not been examined by the lower authorities, hence, this issue is restored to the file of

13 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd. the Assessing Officer for adjudication of the same as per law. The assessing officer is also directed that while deciding the additional ground of appeal regarding claim of deduction as per u/s 80IA if the Income Tax Act. 1961, the assessing officer will consider the CBDT Circular No. 37 of 2016 dated 2nd November, 2016 issued vide F.No. 279/Misc./140/2015/ITJ also. The assessee is directed to appear before the A.O. with necessary documents to substantiate its claim of deduction as per u/s 80IA and further directed to avoid unnecessarily delay to dispose-off the case. Thus, this additional ground is allowed for statistical purposes.

Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 20th October, 2021. kv

14 ITA No. 1817/Hyd/2017 BSCPL Infrastructure Ltd., Hyd.

Copy to : 1 BSCPL Infrastructure Ltd., C/o M/s Anjaneyulu & Co., Cas, 30, Bhagyalakshmi Nagar, Gandhi Nagar, Hyderabad – 80 2 DCIT, Central Circle – 1(3), Hyderabad. 3 CIT(A) - 1, Hyderabad 4 Pr. CIT - 1, Hyderabad 5 ITAT, DR, Hyderabad. 6 Guard File.