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Income Tax Appellate Tribunal, DEHRADUN CIRCUIT BENCH: DEHRADUN
IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN CIRCUIT BENCH: DEHRADUN BEFORE, SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.1315/Del/2017 (ASSESSMENT YEAR 2008-09) Dy. CIT M/s. Samsung Heavy (International Taxation) Industries Co. Ltd. Dehradun Vs. C/o Price Water House Coopers Pvt. Ltd. Building No.10 17th Floor Tower ‘C’ DLF Cyber City Gurgaon-122 002. PAN-AAJCS 7859K (Appellant) (Respondent) ITA No.873/Del/2017 (ASSESSMENT YEAR 2012-13) M/s. Samsung Heavy Dy. CIT Industries Co. Ltd. (International 34th FI, Samsung Life Taxation)-2 Insurance, Seocho Dehradun Tower, 1321-15, Seocho Dong, Seocho Gu, Seoul, Korea 137-955 PAN-AAJCS 7859K (Appellant) (Respondent)
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ITA No.177/Ddn/2019 (ASSESSMENT YEAR 2016-17) M/s. Samsung Heavy Dy. CIT Industries Co. Ltd. (International Taxation) 23, Pangyo-Ro, 227 Circle-2, Dehradun Beon-Gil Bundang-Gu, Seongnam-SI, Gyeonggi-Do (13486) South Korea PAN-AAJCS 7859K (Appellant) (Respondent)
Assessee By Sh. Ravi Sharma, Advocate and Smt. Shruti Khima, AR Department by Sh. Mayank Kumar, Addl. CIT- DR (Intt. Date of Hearing 12/12/2023 Date of Pronouncement 22/12/2023 ORDER PER M.BALAGANESH, AM:
These are the appeals filed by the assessee and revenue against the order of CIT(A)-2, Noida dated 19.12.2016 for AY 2008-09, for AY 2012-13 dated 19.12.2016 and AO dated 20.08.2019 for AY 2016-17. 2. The assessee has raised the following grounds of appeal in ITA No. ITA No.1315/DDN/2017:- “(i) Whether the CIT (A) has erred in observing that the AO had completed the assessment in a routine manner ignoring the directions of ITAT in respect of "inside India Revenue, completely ignoring the fact that examination of method of accounting
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could have been done by the AO only if the books of accounts and supporting documents had been produced by the assessee. (ii) Whether the CIT (A) has erred in deleting the income arrived at by the AO in respect of "Inside India Revenue” without appreciating the fact that no books of accounts or supporting documents were produced by the assessee in the course of assessment, based on which AO could have examined the consistency in respect of method of accounting adopted by the assessee arrived at the correct income.
(iii) Whether on facts and circumstances of the case the CIT (A) has erred in holding that interest u/s 234C of the Act is not chargeable in the case of the assessee ignoring the judgment of Delhi High Court in the case of M/s Alcatel Lucent dated 07.11.2013 in ITA No. 327 & others of 2012, the facts of the issue being identical to the present case. (iv) The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of or before the hearing of the appeal. 3. We have heard the rival submission and perused the material available on record. Samsung Heavy Industries Co. Ltd ('assessee herein‟) is a company incorporated in South Korea and is a tax resident of the said country. It is engaged, inter alia, in the business of heavy engineering. The assessee along with its consortium partner Larsen and Toubro ('L&T') was, awarded the Vasai East Development ('VED') Project by Oil and Natural Gas Corporation Limited ('ONGC') on 28.02.2006 for Surveys (Pre-Engineering, Pre-construction, pre- installation and post construction), Design, Engineering, Procurement, Fabrication, Anti Corrosion and Weight coating, Load out, Tie down/Sea fastening, Tow-out/ Sail Out, Transportation, Installation, Modifications at existing facilities, Hook-up, Testing, Pre Commissioning, start up and Commissioning of entire facilities covered under Vasai East Development Project. A supplementary agreement was entered into between the assessee and L&T to formalize the terms of their consortium. For AY 2008-09, the assessee had filed its return of income declaring total loss of Rs. 89,73,23,135. The learned AO vide his order dated 18.10.2011 passed u/s 143(3)/144C of the Act, assessed the total income of the assessee at Rs. 1,76,02,16,110 (as against returned loss of Rs. 89,73,23,135/-). While doing so, the learned AO held as under:
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1) That the assessee had a PE in India;
2) That the contract under consideration was a composite contract; and
3) That the entire contract revenues (both inside India and outside India) were attributable to the alleged PE in India and chargeable to tax in India on income computed @25% deemed profit rate.
The income has been computed by the ld AO after holding „inside India revenue‟ of Rs. 60,89,46,384/- and “outside India revenue” of Rs. 643,19,18,042/-, being income attributable to „inside India Operations‟ and to the Indian Permanent Establishment (PE) and income computed at profit rate of 25% thereof. While doing so, the ld AO rejected the books of account and rejected book results shown by the assessee. In AY 2008-09, the Tribunal remanded the matter to the file of the ld AO with regard to determination of profit for outsource supply vide its order in ITA NO. 5103/Del/2010 dated 27.09.2013. The tribunal did not however, give any finding with regard to taxability of domestic revenue (i.e. inside India revenue). Accordingly, the assessee filed a miscellaneous application before this Tribunal and this Tribunal disposed of miscellaneous application in MA No. 148/Del/2013 dated 21.04.2014. For the sake of convenience, the relevant operative part of the order passed by this tribunal in MA No. 148/Del/2013 dated 21.04.2014 is reproduced below:- “5. The assessee had filed its return of income in respect of inside India Operations only. 6. The AO had rejected the books of account and determined the income at 25% of gross revenue from inside India operations as the income attributable to the PE of the assessee in India. The AO in the draft assessment order has observed that assessee submitted that it was following percentage completion method and, therefore, revenue as per invoice and revenue as per books could not match. The AO pointed out that this itself showed the contention of the department to be correct that the milestone payments were not related to the cost of the actual activity completed. She pointed out that assessee had not
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explained basis of percentage completion. She, therefore, observed that the accounts did not reflect correct state of affairs in regard to inside India Operations. She, therefore, rejected the same, and computed 25% of the gross receipts as revenue from inside India operations aggregating to Rs. 60,89,46,384l- against Rs. 60,51,32,172/- revenue recognized by assessee. 7. In the course of hearing the assessee has filed following reconciliation of revenue on the basis of percentage completion method:
Ld. Counsel submitted that in A.Y. 2007-08 the revenue was recognized on percentage completion method by assessee and the same was accepted by AO. Similarly, in A.Y. 2009-10, as per the directions of DRP contained from pages 657 to 664 at page 662, the AO was directed to verify the contention of the assessee that the percentage completion method had been followed by it consistently in earlier years and if it was found to be correct then to adopt the figure as per the method adopted by the assessee. In this regard para 5.2 of DRP reads as under: 5.2 "The assessee has further submitted that for working out the Inside- India revenues the AO has taken into account the amounts invoiced by the assessee to ONGC as revenue liable to tax as against the revenue of Rs. 64,04,45,015 declared by the assessee on the basis of percentage of
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completion method which has been followed by it regularly in earlier years. According to the assessee this variation has been made without any justification and without assigning any reasons. It has been submitted that for the A.Y. 2007-08 the AO had accepted the revenues on the basis of percentage of completion method and that order was confirmed by the DRP. In view of this, it was not open to the AO to take a different approach and adopt the invoiced amount as revenue. The submissions of the assessee on this point have been considered by this Panel. It is seen that this issue has been dealt with in para (c) on page 12 of the draft order. The AO has considered the clarification given by the assessee about the percentage of completion method followed by it and has rejected. However, no reasons have been given by the AO to reject then assessee's reply and to adopt the revenue as per the invoices for working out the 'Inside-India' income. As the assessee has stated that the percentage of completion method has been followed consistently by it in earlier year, there appears to be no reason to reject this explanation without any justification. The AO is therefore, directed to verify the contention of the assessee that the percentage of completion method has been followed by it consistently in earlier years and if it is found to be correct then to adopt the figures as per the method adopted by the assessee." 9. Ld. Counsel further submitted that in A.Y. 2010-11, the AO accepted the assessee's income in regard to inside India revenue as per retum which was on the basis of percentage completion method and had only made certain additions/disallowances. He, therefore, submitted that in principle inside India revenue has been returned by assessee on percentage completion method of accounting over four years during which the project continued. He, therefore, submitted that there is no reason to take a different view in A.Y. 2008-09. 10. Ld. DR relied on the order of AO. 10.1 We have considered the rival submissions and have perused the record of the case. 10.2 In A.Y. 2007-08 the Tribunal has taken note of the fact that assessee had returned its inside India revenue on percentage completion method which is evident from the observations of Tribunal in para 17 of its order which are reproduced hereunder: "During the year under consideration, as per letter dated 24th May, 2006 of the RBI, Mumbai, the project office is opened on 24th May, 2006. The assessee furnished the return of income in accordance with Article 7 of Double Taxation Avoidance Agreement (DTAA) between Indian and Korea.
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The assessee offered the revenue of Rs. 23,73,45,563/- on account of aforementioned contract. However, the return of income was filed at nil showing loss of Rs. 23,50,939/-. The Assessing Officer required the assessee to show cause as to why the return of income was filed at nil. In response to such show cause notice, it was stated by the assessee that the business of the assessee company is governed by the accounting standard VII (Revised) and the accounts have been prepared on the basis of completion method. The percentage of completion is determined as a proportion of cost incurred upto the date of each accounting period to the total estimated cost. The provision is made for foreseeable losses when current estimate of total contract cost and revenues indicate a loss. The assessee is governed by the provisions of Article 7 of the DTAA and as per the said article all expenses incurred in earning income are fully deductible based on the commercial accounting principle in computing the said business profits chargeable to Indian Income-tax. The AO observed that Profit & Loss A/c of the Mumbai Project office as showing the gross income of Rs. 23,73,083/- against which the assessee had claimed the expenses of Rs. 24,34,70,741/-. The contract revenue of Rs. 23,73,45,563/- was 14.56% of the total revenue of the for inside India work which was Rs. crore. The invoices raised by the assessee for inside India activity were to the tune of Rs. 3,25,82,569/- which have been listed at para 5 of the assessment order. It was further noticed out of total expenses incurred at Rs. 24,34,70,741/-, which was debited to Profit & Loss A/c, the assessee had incurred expenses on account of cost of revenues, selling, general and administrative expenses and depreciation on total amount of Rs. 24,34,70,741/-. It was further observed that cost of revenues were shown under the following three sub-heads for an aggregate sum of Rs. 23,91,08,293/-: (i) Hook up and commissioning Rs. 89,04,947/- (ii) Insurance Rs. 22,66,85,140/- (iii) Pre-engineering and survey Rs. 35,18,206/-
It was further noticed that the insurance was paid by the assessee to IFFCO-TOKIO General Insurance Company Ltd. and the policy taken was in the name of Samsung Heavy Industries Ltd. So far as it relates to the amount of Rs. 89,04,947/- claimed on account of hook up and commissioning, the same was paid to 'Offshore Hook up and Construction Services India Pvt. Ltd.' for which the TDS was deducted, hence, the AO
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allowed the said amount to the assessee. He found that TDS on pre- engineering and survey was belatedly made, therefore, he excluded the expenses of Rs. 35,18,206/- on the ground of application of section 40(a)(ia) of the Act. It was also noticed that the AO had disallowed the said amount and the AO has calculated the income of the assessee from Inside India activity at a loss of Rs. 23,33,939/- in the following manner.
Thus, the contention is that the AO in A.Y. 2007-08 had in principle accepted the assessee's mode of computation of inside India revenue on percentage completion method and had primarily made disallowances u/s 40(a)(i). 11. Further Schedule 9 dealing with significant accounting policies and notes to accounts contained at page 348 of paper book reads as under in regard to revenue recognition: Revenue Recognition "The business of the Company being of the nature covered under Accounting Standard 7 (Revised) Construction Contracts issued by the Institute of Chartered Accountants of India, the Revenue/Income and cost/expenditure is accounted for in accordance with the Completion Method for Accounting of Construction Contracts. The Percentage of Completion is determined as a proportion of cost incurred upto the date of each accounting period to the total estimated costs, provision is made for foreseeable losses when current estimates of total contract costs and revenues indicate a loss." 12. The Profit & Loss Account is contained at page 342 of paper book in which loss has been computed at Rs. 898246384/-. This loss has been computed by taking into consideration the contract Revenue income of Rs. 605132172/-. At page 335 of paper book is the computation of income, wherein the same loss has been taken into consideration for computing income. Thus the contention is that assessee is returning its revenue from inside India Operations is on percentage completion method.
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Ld. DRP while rejecting the assessee's contention for the current year under consideration has observed in para 3.3 as under: 3.3 With respect to Objection No. 3 regarding estimating the income @ 25% of the Gross receipts, the DRP has observed that, Objection relates to attribution of a rate of 25% for the purpose of determining the income of the assessee from the operations outside India. The Panel has considered the submissions made by the assessee. It is however, noted that the same issue came up for consideration came up for consideration of this Panel for the A. Y. 2007-08 and this Panel after careful consideration come to a view that the AO was correct in making an attribution of profits at the rate of 25%. As there is no change in the facts and circumstances of the case the addition made by the AO at the rate of 25% is confirmed. It was further observed by the DRP that "3.3.2 During the proceedings the assessee has also raised the issue about application of the rate of 25% for the income relating to the activities carried out within India. It has been stated that for the A.Y. 2007-08 the AO had accepted the books of accounts of the appellant in respect of the Indian activities and as that order was confirmed by the DRP the AO was not justified in taking a different view for the year under consideration without any material change in the method of accounting adopted by the assessee. This contention of the assessee is however not supported by the facts. It is seen that this Panel observed as under at the end of the para 5.1 of its order for A. Y. 2007-08 "The average of the above four companies comes to 24.7% and, therefore, the AO in absence of any account, is justified in estimating the profit of the assessee at 25% of gross receipts (including inside and outside India revenues) In view of the substantial evidence available with the Panel in the form of comparatives and in absence of any evidence produced by the assessee to substantiate its claim of lower profit, the objection raised by the assessee to substantiate its claim of lower profit, the objection raised by the assessee in this account is rejected. "(emphasis added). In view of the objection raised by the assessee in this regard is rejected and stand taken by the AO is confirmed." 13.1 We have noted earlier the findings recorded by Tribunal from which it is evident that in A.Y. 2007-08, the assessee's stand of returning inside- India revenue on percentage completion method had not been disturbed. However, the final Assessment Order was not in conformity with Id. DRP's observations for AY 2007-08, as noted above. Therefore, the matter was again listed for clarification from both the sides. After hearing both the parties, we find that in A.Y. 2007-08 in the Draft Assessment Order dt. 31/12/2009 contained at pages 28 to 56 of paper book 2 filed in course of hearing, the income of the assessee in respect of inside India activity was brought to tax as follows as per computation contained at page 4 of Draft Assessment Order:
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Further, we find that while disposing of assessee's objections, Id DRP in para 5.1 observed as under: 5.1 "In the Grounds of objection no. 1 to 9 the assessee has challenged the action of Assessing Officer in taxing its outside India receipts of the contract and the rate of tax applied on them." However, while concluding it observed as under: "(iv) During the hearing before the Panel, the assessee neither produced any accounts nor submitted any basis to substantiate its claims that the profit rate adopted by the AO is on a higher side. The Panel is of the firm view that objection should not be raised by merely making allegations and not complying with the statutory provision of the Income Tax Act. The following datas have been obtained from the database 'Capital Line' the data obtained from Capital Line is as follows: Name of the company Profit margin Artefact Project Ltd 18.57% Engineers India Ltd. 35.56% One source Name of the company Profit Margin Ezyone Holding Ltd. 30% Dolphin Offshore 14.3%
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The average of the above four companies comes to 24.7% and, therefore, the AO in absence of any accounts, is justified in estimating the profit of the assessee at 25% of the gross receipts (including inside and outside India revenues), In view of this substantial evidence available with the Panel in the form of comparative and in absence of any evidence produced by the assessee to substantiate its claim of lower profit, the objection raised by the assessee on this account is rejected. Regarding the other disallowance made by the AO, the Panel is in agreement with the Assessing Officer." 14.1 Thus, there appears to be some mistake in Id.DRP's directions. Further, while passing final Assessment Order, AO had computed the taxable income as per Draft Assessment Order, noted earlier. Further, Tribunal has also taken note of the same income, as noted earlier. Under these circumstances, it appears that Id. DRP's observations in A.Y. 2007- 08 were out of context as far as revenue from inside India operations was concerned 15. We find that in A.Y. 2009-10 Id. DRP has given direction to AO to examine the assessee's stand of recognizing the revenue on percentage completion method. 16. In view of above circumstances, we consider it necessary that the facts be re-marshalled and, therefore, in the interest of justice restore the matter to the file of AO to examine the assessee's stand of consistently returning the revenue from inside India operations over four years on percentage completion method as claimed by assessee noted in para 7 of this order. If the assessee's stand is found to be correct over earlier year and subsequent years then no divergent stand can be taken by department during the yearunder consideration. 17. the result Ground No 10 is allowed for statistical purposes. In the result, the miscellaneous application is allowed and the assessee's ground no. 10 is allowed for statistical purposes.”
Effectively the Tribunal having dealt with the entire issue had finally restored the matter to the file of the ld AO to examine the stand of the assessee of consistently offering the revenue from inside India operation over 4 years on percentage of completion method with a direction that if the assessee‟s stand is found to be correct, no divergent stand shall be taken by the revenue for the year under consideration. The
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ld AO in the second round of proceedings held that all the activities performed outside India by the assessee were for execution of contract to be concluded in India for which designing, engineering and fabrication work was done and for which supply of material and fabrication items concluded and terminated only in India at the project site and the ownership over the material and engineering goods passed on to ONGC only in India. Accordingly, he attributed profits to the Indian PE @60% resulting in net profit for overseas operaton @119,24,77,604/- and 25% for Indian revenue @15,22,36,596/-. The dispute before us is only with regard to profit attribution for domestic revenue (Inside India revenue) and not for overseas revenue.
The ld CIT(A) observed that the ld AO had not complied with the clear cut directions given by the Tribunal in the first round of proceedings. The ld CIT(A) also observed that assessee have been consistently following percentage of completion method of offering the revenue to tax in all the earlier years and also in subsequent years and accordingly held that the revenue offered by the assessee is to be accepted and no estimation of profit @25% of domestic revenue need to be done. The relevant observations of the ld CIT(A) in this regard would be relevant for reproduction:-
“5.4 1 have considered the submission of the appellant, perused the original assessment order, Ld ITAT order against the original assessment order. Miscellaneous Application order dated April 21, 2014 in MA No. 148/ Del/ 2011, Hon'ble High court order in appellant's own case for assessment year 2007-2008 and other material available on records. 5.5 Against the original assessment order dated 18.10.2011, Ld. ITAT had directed the AO (vide M.A. order dated April 21, 2014) as "In view of the above circumstances, we consider it necessary that the facts be re-marshalled and, therefore, in the interest of justice restore the matter to the file of AO to examine the assessee's stand of consistently returning the revenue from inside India operations over four years on percentage completion method as claimed by assessee noted in Para 7 of this order. If the assessee's stand is found to be correct over earlier year and subsequent year then no divergent stand can be taken by department during the year under consideration." 5.6 This order was available before the AO at the time of passing the order u/s 143(3)/254 on 30.03.2015. Ld. ITAT categorically directed the AO that If the assessee's
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stand is found to be correct over earlier year and subsequent year then no divergent stand can be taken by department during the year under consideration. Ignoring the direction of the Ld. ITAT, the AO has passed the order in regard to "Inside India activities" in routine manner at para 4.2 of the order. The AO has not at all mentioned the direction of the Ld. ITAT while taking this issue into consideration. The AO only reiterated that the assessee was not able to substantiate the expenses claimed in the books of accounts for A.Y. 2007-08. The AO mentioned that in A.Y. 2007-08, the assessee had not provided the bills/vouchers of various expenses nor default u/s 40(a)(i)/40(a)(ia) could be examined in absence of requisite details. Without examining the facts related to the relevant year under consideration, the AO has relied on the facts of 2007-08 & assessed the income as computed by the AO for inside India activities in original order dated 18.10.2011. 5.7 I have gone through the assessment order of A.Y. 2007-08. At para 5 of the assessment order, the AO had discussed the taxability of 'Inside India activities'. After disallowing a sum of Rs. 17,000/-on account of donation, the taxable income in respect of inside India activity' was computed at loss of Rs.23,33,939/-. No other disallowance has been made in regard to inside India activities. Neither there is any rejection of books of account nor any discussion regarding 'percentage completion method' adopted by the assessee in the assessment order of A.Y 2007-2008. 5.8 In any case, the AO is bound to follow the direction of the Ld. ITAT while giving effect to the direction in assessment order passed u/s 143(3)/254 of the Act. It was a clear direction by the Ld. ITAT that "we consider it necessary that the facts be re- marshalled and, therefore, in the interest of justice restore the matter to the file of AO to examine the assamee's stand of consistently returning the revenue from inside India operations over four years on percentage completion method as claimed by assessee noted in Para 7 of this order. If the assessee's stand is found to be correct over earlier year and subsequent year then no divergent stand can be taken by department during the year under consideration." The AO has completely ignored the direction of the AO and proceeded manner adopt findings of AO in original assessment order. 5.9 It is submitted that the appellant is regularly and consistently following the percentage completion method of accounting for inside India revenues earned from the contract with ONGC. In this regard, the appellant submitted its audited financial statements with respect to inside India activities for preceding and succeeding financial years i.e for AY 2007-08 (Page number 220 to 234 of Paper Book) for AY 2009-10 (Page number 253 to 270 of Paper Book) and for AY 2010-11 at Page number 271 to 283 of Paper Book. It is also found from the records that the AO had accepted the method of accounting for inside India activities in the immediately preceding previous year (AY 2007-08) where he accepted the percentage completion method. Also, in the immediately succeeding year i.e. AY 2009-10, the AO again rejected the method of accounting in the draft assessment order (Page 141 to 143 of Paper book). However, the DRP directed the AO to consider the method of accounting consistently followed by the appellant in previous year and follow the same method (refer Page 128 to 128 of Paper Book, para 5.2). DRP has directed as "The A.O is therefore directed to verify the contention of the assessee that the percentage of completion method has been followed
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by it consistently in earlier years and if it is found to be correct then to adopt the figures as per the method adopted by the assessee. "It is also noted that the AO had accepted the audited India accounts in AY 2010-11 at the draft assessment stage itself.
5.10 It is a settled proposition that the principle of res judicata is not applicable to the income tax proceedings, as under income tax, each assessment year is treated as a different unit. However, where the facts of the case are similar over the years, there cannot be an outright rejection of a method adopted by the Appellant, which consistently was being accepted by the department. There should be a cogent justification to deviate from what was being done earlier. If there is no material to substantiate that the facts of the case have changed, a deviation is not warranted. 5.11 In view of the above discussion, I consider that the of the AO in not following the direction of the Ld. ITAT is inappropriate & not correct. AO should follow the direction of the Ld ITAT as given in its order dated 21.04.2014 in ITA No.5103/Del/2011. Hence, the addition of Rs. 15,22,36,596/, on account of Inside India activity' is not sustainable and, therefore, deleted. Ground no.2 & 2.1 are allowed.”
In view of elaborate observations of the ld CIT(A) and in view of the consistency maintained by the assessee in returning the revenue using percentage of completion method and also in view of the same had been accepted by the ld AO himself in AYs 2007-08, 2009-10 and 2010-11, there is absolutely no reason for the ld AO to take a divergent stand during the year under consideration by rejecting the books of account and resorting to estimation of 25% profit for domestic revenues. Hence we do not find any infirmity in the order of the ld CIT(A). Accordingly, Ground Nos. (i) and (ii) raised by the revenue are dismissed.
Ground No. (iii) raised by the revenue is with regard to chargeability of interest u/s 234B of the Act through wrongly typed in the ground as section 234C of the Act. This typographical error is hereby condoned by the Bench and we proceed to adjudicate the issue of chargeability of interest u/s 234B of the Act.
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We have heard the rival submission and perused the material available on record. It is not in dispute that the revenue earned by the assessee is tax deductible at source. Up AY 2012-13, section 209 of the Act duly provides that tax payable by a non resident assessee would be reduced by tax deductible at source by the payer and only on the reduced figure thereon, the assessee would be liable for the payment of advance tax. Though the proviso in section 209 of the Act has been introduced to nullify this proposition, the said amended proviso would be applicable only from 2013-14 and not for the year under consideration. This fact has been duly appreciated by the ld CIT(A) while holding the chargeability of interest u/s 234B of the Act in favour of the assessee. Hence, we do not find any infirmity thereon. Hence the Ground No. (iii) raised by the revenue is dismissed.
Ground No. (iv) raised by the revenue is general in nature and does not require any specific adjudication.
In the result, the appeal of the revenue in ITA No. 1315/Del/2017 for AY 2008- 09 is hereby dismissed.
ITA NO. 873/Del/2017 AY 2012-13. 12. The assessee has raised the following grounds of appeal:- “1. That on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in confirming the disallowance made by the Ld. AO amounting to Rs.2,81,90,744/- and Rs.4,20,03,868/- under section 40(a)(ia) of the Act for the payments made to M/s Buildcraft Interior Pvt. Ltd. and M/s Arjuna Engineering Pvt. Ltd. respectively on the ground that applicable provision for deduction of taxes was 194J and no 194C as applied by the Appellant. 1.1 That on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in not appreciating that the contracts entered by the Appellant are in the nature of works contract and accordingly would come within the purview of provisions of section 194C only.
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1.2 Without prejudice to the above, the Ld. CIT(A) erred in applying the provisions of Section 40(a)(ia) without appreciating that the same is not applicable in the cases of short deduction of taxes. 1.3 Without prejudice to the above, the CIT(A) failed to understand that provisions of section 40(a)(ia) is applicable only to those expenses which are outstanding at the end of the year. The above grounds of appeal are independent and without prejudice to one another. The Appellant craves leave to alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing of this appeal.”
The only issue to be decided in this appeal of the assessee is whether the provisions of section 40(a)(ia) of the Act could be made applicable for short deduction of tax at source.
We have heard the rival submission and perused the material available on record. It is not in dispute that the assessee made payments to Arjun Engineering Pvt. Ltd and Builcraft Interior Pvt. Ltd and deduced tax at source @2% thereon in terms of section 194C of the Act for carrying out electrification work and interior work respectively. The revenue concluded that the said work falls under the limb of professional services and fee for technical services warranting deduction of tax at source u/s 194J of the Act @10%. Since the assessee had not deducted tax at source in terms of section 194J of the Act, the ld AO proceeded to disallow the expenses u/s 40(a)(ia) of the Act. Now the short question that arises for our consideration is whether the provision of section 40(a)(ia) of the Act per se could be made applicable for short deduction of tax at source. This issue is no longer res integra in view of the decision of Hon‟ble Calcutta High Court in the case of S. K. Tekriwal in ITA No. 183/2012 GA No. 2067/2012 dated 03.12.2012 wherein it had been categorically held that section 40(a)(ia) of the Act cannot be made applicable to short deduction of tax at source and the disallowance made was deleted. Further the Hon‟ble Delhi High Court in the case of PCIT Vs. Future First Info Services Pvt. Ltd in ITA No. 195/2022 dated 14.07.2022 had
17 ITA Nos.1315, 873 & 177/Ddn/2019 Samsung Heavy Industries Co. Ltd. vs. DCIT (Int. tax.)
also given the same proposition. The ld CIT(A) however relied on the decision of the Hon‟ble Kerala High Court in the case of PVS International Hospital Ltd reported in 380 ITR 284 (Ker) and decided the issue against the assessee. As could be seen above, none of the High Court decisions referred are the decisions rendered by the Hon‟ble Jurisdictional High Court. The Hon‟ble Supreme Court in the case of Vegetable Products Ltd reported in 88 ITR 192 had held that when there are divergent views of various non- Jurisdictional High Courts on an identical issue, the construction that is favourable to the assessee should be considered. Respectfully following the said decision of the Hon‟ble Supreme Court, we are inclined to follow the ratio laid down by the Hon‟ble Calcutta High Court and decision rendered by the Hon‟ble Delhi High Court referred (supra) and hold that section 40(a)(ia) of the Act cannot be made applicable for short deduction of tax at source. Accordingly, the ld AO is hereby directed to delete the disallowance thereon. The grounds raised by the assessee are allowed.
In the result the appeal of the assessee in ITA No. 873/Del/2017 for AY 2012-13 is allowed.
ITA No.177/DDN/2019 AY 2016-17 16. The assessee has raised the following grounds of appeal:- 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Deputy Commissioner of Income Tax (“Ld. AO”) under section 143(3) read with section 144C(13) of the Income tax Act, 1961 (“the Act”) is bad in law. 2. That on the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in disallowing Service tax input credit of INR 42,72,229/- and failed to appreciate that the service tax credit had been written off as projects were completed in India and accordingly, the service tax registration was surrendered to the concerned authorities.
18 ITA Nos.1315, 873 & 177/Ddn/2019 Samsung Heavy Industries Co. Ltd. vs. DCIT (Int. tax.)
That the Ld. AO/DRP while computing the taxable income erred in not setting off the business losses of current year from the income under head other sources. 4. That the appellant reserves its right to add, alter amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.
The only effective issue to be decided in this appeal is whether service tax input credit receivable which was written of by the assessee in the sum of Rs. 42,72,229/- in respect of project completed by the assessee in India, would be eligible for deduction in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had completed all the projects in India and had duly surrendered its service tax registration to the competent authority. The assessee had not adjusted the service tax input credit receivable lying in its balance sheet as on 31.03.2015. This sum was duly written off by the assessee during the year under consideration as the service tax input credit could not be adjusted with any other service tax payable by the assessee in view of the fact that the project had already been completed by the assessee in India during the year and service tax registration is also duly surrendered to the competent authority. This write off of service tax input credit receivable was duly claimed by the assessee as deduction which was denied by the lower authorities. In our considered opinion, service tax input credit arises when the assessee makes some purchase of input service on which service tax is paid by it. This input credit of service tax would be reflected in the balance sheet of the assessee under the head „current assets‟. This input credit of service tax would be adjusted against the service tax payable by the assessee on its output services and as and when the same are adjusted, the balance lying in input credit of service tax would get reduced. Hence, the net credit of service tax receivable could be adjusted when there are service tax payable on output service. Hence, it cannot be denied at all that the service tax input
19 ITA Nos.1315, 873 & 177/Ddn/2019 Samsung Heavy Industries Co. Ltd. vs. DCIT (Int. tax.)
credit lying in the balance sheet arises in the course of the business and for the purpose of execution of the project in India and hence it becomes inextricably linked with the business of the project carried out in India. When the projects in India are completed by the assessee, there is no point in retaining the unadjusted service tax input credit lying in the balance sheet. Hence we hold that the assessee was duly justified in writing off the said service tax input credit receivable by debiting its profit and loss account and claiming the same as deduction. The observation of the lower authorities that no income has been offered by the assessee in terms of section 36(2) of the Act and accordingly, the service tax input credit written of would not be eligible for deduction as bad debt, is clearly absurd in view of the aforesaid observation. It has to be understood that all write offs made by the assessee cannot be given the colour of bad debts, as treated by the lower authorities in the instant case. This is not a debt arising during the course of business. Rather the service tax input credit receivable that had arose in the course of business which has been lying under the head „current assets‟ and the same has been written off by the assessee. It is effectively a trading loss to the assessee which has been claimed as deduction. Our view is further fortified by the decision of Hon‟ble Madras High Court in the case of PCIT Vs. Kaleeswari Refinery Pvt Ltd in ITA No. 282/2018 dated 08.03.2021. In view of the aforesaid observations and respectfully following the judicial precedent reliedupon hereinabove, we direct the ld AO to grant deduction for service tax input credit receivable in the sum of Rs. 42,72,229/-. Accordingly, the ground No. 2 raised by the assessee is allowed.
Ground No. 1 and 4 raised of the assessee are general in nature and does not require any specific adjudication.
20 ITA Nos.1315, 873 & 177/Ddn/2019 Samsung Heavy Industries Co. Ltd. vs. DCIT (Int. tax.)
Ground No. 3 raised by the assessee is consequential in nature and ld AO is directed to allow the set off business loss of the current year against the income from other source in accordance with law.
In the result, appeal of the assessee in ITA No. 177/DDN/2019 for AY 2016-17 is allowed for statistical purposes.
To sum up, ITA No. Appeal by Assessment Year Result 1315/Del/2017 Revenue 2008-09 Dismissed 873/Del/2017 Assessee 2012-13 Allowed 177/DDN/2019 Assessee 2016-17 Allowed for statistical purposes
Order pronounced in the open court on 22nd December, 2023. Sd/- Sd/- (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22/12/2023 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI (Dehradun Circuit Bench, Dehradun)
Draft dictated 15.12.2023