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Income Tax Appellate Tribunal, DEHRADUN BENCH ‘DB’ : DEHRADUN
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal filed by the assessee is directed against the order of Assessing Officer passed under section 143(3)/144C(13) of the Income- tax Act, 1961 (for short 'the Act') pursuant to the directions of the Dispute Resolution Panel (DRP) for the assessment year 2012-13. 2. Grounds of appeal
taken by the assessee read as under :- ./2016
1. In law and on facts and circumstance of the case, Learned Assessing Officer (,'Ld. AO'') erred In proposing addition of Rs.68,32,902/- in the order passed u/s 143(3)/144C of the Income Tax Act (''the Act'').
2. In law and on facts and circumstances of the case, Ld. AO erred in not affording a proper opportunity to the Assessee of being heard. The Assessment order passed is against the principle of natural justice.
3. Without prejudice to above and in law and in facts and circumstances of the case, the Ld. AO erred in not computing the income of Assessee u/s 44BB(1) of the Act.
4. In facts and circumstances of the case, the Ld. AO erred in computing the Income of the Assessee as per Section 44DA of the Act.
5. Without prejudice to above and in law and circumstances of the case, the Ld. AO erred in disallowing the cost of materials of Rs. 493,200/- on the ground that the expense could not be verified.
6. Without prejudice to above and in law and circumstances of the case, the Ld. AO has erred in disallowing the expense of Rs 10,78,358/- u/s 40a(ia) of the Act for non deduction of TDS.
7. Without prejudice to above and in law and circumstances of the case, the Ld. AO has erred in denying the claim of depreciation and amortization of Rs. 49,75,184/-.
8. Without prejudice to above and in law and circumstances of the case, the Ld. AO erred in disallowing expense of Rs.11,660/- on the ground that they cannot be verified.
9. Without prejudice to above and in law and circumstances of the case, the ld. AO erred in disallowing the expense of Rs.274,500/- by treating it as prior period expense.
10. In law and circumstances of the case, Ld. CIT(A) erred in not passing an order considering the grounds appealed against by the Assessee after admitting an appeal filed u/s 246A by the Assessee.
11. Without prejudice to above and in law and circumstances of the case, the AO erred in initiating penalty u/s 271G of the Act.”
be pressing Ground No.3. She submitted that the issue raised in that ground is covered in favour of the assessee by the decision of ITAT in assessee’s own case for immediately preceding assessment year.
4. We note that in this case, the DRP has noted that facts are similar to one in AY 2011-12 and DRP had rejected the assessee’s plea to bring it under the purview of section 44BB of the Act. AO noted the DRP’s directions and his subsequent action is as under :-
“With respect to ground nos. 1 to 19, the DRP has observed/directed as under:- "These grounds are taken up together. The submissions have been considered by the panel. The assessee has not furnished complete details in respect of contracts to help the panel examine the nature of services/ supplies etc. However the issues appear to be identical to the earlier assessment year. The similar issues were apparently decided by the then DRP in respect of A.Y. 2011-12. The assessee has taken a plea to be brought to tax u/s 44BB. The assessee has as in the earlier period filed return as per normal provisions and not u/s 44BB whereas the assessee had the benefit per the ITAT order in its own case for A.Y. 2009-10 which was passed on 28.02.2014 and the return was e-filed on 28.03.2014. Therefore, the plea to be now taken in purview of section 44BB is not justified as the assessee has itself made a clear choice. It is a well accepted proposition in legal doctrines that vigilant bus non dormientibus- meaning that law will help only those who are vigilant. Law will not assist those who are careless of his/her right. In order to claim one's right, she/he must be watchful of his/her right. Only those persons, who are watchful and careful of using his/her rights, are entitled to the benefits of law. Therefore, respectfully following the earlier DRP directions and in line with the considered directions given therein, the objections are rejected. It is seen that the assessee has adopted similar approach of non compliance in the previous proceedings also. The DRP had in the earlier period in para 4.3 of its directions directed to AO to consider the submissions after affording a fresh opportunity to the assessee. Respectfully following the same, this panel also directs that ./2016 AO to grant a reasonable opportunity to the assessee within the time available under law to furnish necessary details to help the AO arrive at correct income assessment. The assessee should also extend full and timely cooperation to the AO by furnishing required material to help arrive at correct Income determination. Further. the plea against the initiation of proceedings u/s 271G is premature, hence no directions are required at this stage."
In view of the directions of the DRP, as mentioned above, fresh opportunity was accorded to the assessee by notice dated 28.10.2015, to furnish all evidence by 16.11.2015 which assessee would like to rely upon and which have not been filed earlier during assessment proceedings. Vide reply dated 16.11.2015 and 24.11.2015 written submissions alongwith evidences were Died by the assessee through its Authorized representative M/s KRA & Co., CAs, New Delhi which have been considered.
5. Accordingly, assessment is being finalized on the various issues which were raised by the assessee before the DRP and the issues on which assessee has filed evidences/replies in respect of DRPs directions and queries of this office.
(i) Vide reply dated 24.11.2015 assessee filed copies of bills with respect to "Chemical Purchased" from Gumpro Drilling Fluids Pvt. Ltd. additionally. The same were considered. Since assessee could not file evidence in respect of purchase of chemical claimed at Rs.4,93,200/- it is disallowed. The same is also therefore, not considered as an allowable expenditure u/s 37 of I.T. Act. The disallowance is therefore made at Rs.4,93,200/-. (Disallowance of Rs.4,93,200/-)
(ii) A disallowance of Rs. 51,61,757/- was made in the draft assessment order on account of expenses on which no TOS was deducted. The assessee file reply dated 16.11.2015 and 24.11.2015 which have been considered. Certain expenses were disallowed by the assessee itself in the computation filed with the Return and the same are therefore not added back again. The total disallowance made by the assessee comes to Rs. 40,70,527/-. The balance amount of assessee's claim of expenses, is therefore, disallowed. The assessee's explanation with regard to this disallowance was not found acceptable as per the provisions of I.T. Act and vide reply dated 16.11.2015 assessee has stated that "if any disallowance is to be made, the same should be restricted to Rs.10,78,357/- i.e. the amount on which no TDS has been deducted”. (Disallowance of Rs. 10,78,358/-)
./2016 (iii) The assessee's written submission vide their reply dated 16.11.2015, with regard to disallowance made as per para 5.1 of the draft assessment order regarding "Depreciation and Amortization expenses" of Rs.49,86,844/-, has been perused and found not acceptable. The assessee could not prove the genuineness of this claim of depreciation and amortization expenses even during these proceedings. No documentary evidence was filed in support of their claim even now. The assessee could not prove/substantiate the genuineness of this claim of expenses nor could it prove that conditions required for claim of depreciation are satisfied when there was no business activity during the year for WT services. The receipts shown in P/L account in respect of well testing services (WT) were found to be not in respect of any business activity in respect of this service/contract and therefore it is clear that the claim of depreciation is not genuine. (iv) The assessee's claim of allow-ability of expenses amounting to Rs.2,74,500/-, addition on account of which was made in the draft assessment order owing to claim of expenses which were found to be not pertaining to the year under consideration i.e. F.Y. 2011-12, was examined and not found acceptable. Vide reply dated 16.11.2015 assessee has only stated that these expenses were prior period expenses on account of "transportation charges" which were not expended in previous years since there were some pending issues and disputes with the supplier ND Mahatre and got settled during the current year i.e. A.Y. 2012-13. The assessee’s submission are not acceptable since assessee is following and maintaining books of accounts on “Mercantile basis” since last many years, as mentioned in 3CD report, and has also not shown any such prior period expenses in the Audit report. Also no provision for such expenses has been created in the books of account for the previous year for these expenses.”
Thus, from the above, it is amply clear that the DRP has accepted that the issues are similar to AY 2011-12 and they have rejected the request of the assessee to bring it under the purview of section 44BB of the Act. In this regard, ld. Counsel for the assessee has referred to ITAT order in assessee’s own case for AY 2011-12 order dated 15.09.2023.
The pleadings of the assessee’s counsel are that the same contract has verdict. Hence, ld. Counsel of the assessee submitted that following the same, this issue is to be allowed in favour of the assessee.
Per contra, ld. Dr for the Revenue could not dispute the proposition that in the immediately preceding assessment year, the same contract was running and the issue is decided in favour of the assessee by the Tribunal.
We may gainfully refer to order of the ITAT in assessee’s own case for AY 2011-12 (supra) as under :-
“21. From the scope of work executed by the assessee in the contract, it is very clear that the assessee’s nature of business is to provide services and facilities for prospecting/ extraction/ production of mineral oil thereby it clearly falls within the ambit of provisions of section 44BB of the Act. Hence, the income of the assessee should be determined in accordance with provisions of section 44BB(1) or 44BB(3) of the Act, as the case may be. Hence, the observation of the ld DRP that claim of assessee to determine the income in accordance with the provisions of section 44BB of the Act as an afterthought, is not in accordance with the law. When the activities carried out by the assessee are not disputed by the revenue, then it would be unjust to reject the claim of the assessee for determining the income in terms of the section 44BB of the Act. We have also noticed from the contracts executed by the assessee that the pith and substance of assessee’s work is providing services in connection with prospecting/ extraction/ production of mineral oil, as such, is squarely eligible to be assessed u/s 44BB of the Act. In fact a similar view has been accepted by the ld CIT(A) for AY 2009- 10 which order has been approved by this Tribunal for AY 2009-10 in and 5110/Del/2013 dated 28.02.2014 in assessee’s own case in respect of contract with ONGC. Hence, there is no scope of taking a divergent stand from the view taken by this Tribunal in AY 2009-10 in respect of contract with ONGC which is continuing during this year also. However, with regard to contract entered with the Petrogas E&P LLC, we find that the same was entered for provision of MUD services on service contract to drill 04 number of wells with water based mud system. Infact this contract with Petrogas was entered as a consortium of Oil exploration ./2016 company with shares of Petrogas @20%; share of Gas Authority of India Ltd of 20%; share of Gujarat State Petroleum Corporation Ltd of 20%; share of Hindustan Petroleum Corporation of 20%; share of India Oil Corporation of 20% and assessee herein. The nature of services rendered under this Petrogas contract has already been detailed herein (supra). From the same it is evident that the services provided by the assessee are in connection with prospecting/ extraction/ production of mineral oil and hence, its activities would be squarely covered within the ambit of provision of section 44BB of the Act. We also find similar services were rendered by the assessee in the past and the same had been subject matter of adjudication of this Tribunal for AY 2007-08 to 2009-10 wherein, this tribunal had categorically observed that the services rendered by the assessee would be falling under the ambit of provision of section 44BB of the Act. As stated supra, the Tribunal in AY 2009-10 in assessee’s own case had already held that income of the assessee would have to be determined in accordance with the provision of section 44BB of the Act and not section 44DA of the Act. Hence, the entire contract receipts derived by the assessee would have to be determined for the purpose of taxability only in accordance with the provisions of section 44BB of the Act. The assessee in the instant case has reported consolidated profit of Rs. 1,96,00,820/- in its profit and loss account and business income of Rs. 1,86,97,157/- under normal provisions of the Act in the income tax which works to 24.36% of gross receipts. Now the question arises that whether the assessee though falling under the ambit of provisions of section 44BB of the Act, but earning income above the presumptive rate of 10% fixed u/s 44BB(1) of the Act, would be eligible for showing income in terms of section 44BB(1) of the Act. In order to understand this issue, it would be pertinent to look at the same in the event of assessee’s incurring losses. If the assessee is incurring losses, still it has to offer income at the presumptive rate of 10% on gross receipts as per section 44BB(1) of the Act. As a corollary, if an assessee earns income more than 10% on gross receipts actually, then still its income would be determined only in terms of section 44BB(1) of the Act. There is absolutely no scope for determining income of the assessee under normal provisions of the Act. This is so because of non obstante clause provided u/s 44BB of the Act which reads as under:-
“Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.
44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an ./2016 assessee , being a nonresident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" :
Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely :—
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.
(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that subsection, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.”
In view of non obstante clause of section 44BB(1) of the Act, all other disallowances made by the ld AO either u/s 37(1) of the Act ./2016 or section 40(a)(i) of the Act would not survive. Similarly, the adjudication of additional ground for claim of income tax depreciation u/s 32 of the Act also would become academic. In our considered opinion, even though the assessee has offered more income in its return than the income u/s 44BB(1) of the Act , still it is not estopped from pointing out a mistake in the assessment though such mistake is on account of submission by the taxpayer. It is trite law that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to prevail. Further, it is also settled law that there is no estoppel against the statute. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Ltd Vs. CIT reported in 82 ITR 363 as under:-
"We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry to the books of account and although under the law, a deduction must be allowed by the Income-tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the View which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter."
Further, the Hon'ble Delhi High Court also in the case of CWT Vs. Meattles (P) Ltd reported in 156 ITR 569 had held “whether the revenue authorities take a particular view of the statutory provision in the income tax assessment and later on realise that it was mistaken view, then they cannot be estopped from taking correct view of the statutory provision later on.” Further, Hon'ble Supreme Court in the case of Director of Inspection of Income Tax Vs. Pooran Mall and sons reported in 96 ITR 390 had held as under:-
The question whether a certain provision of law is directory does not fall to be decided on different standards because it is found in a taxing statute. There is no rule that every provision in a taxing statute is mandatory. The strict construction that a citizen does not become liable to tax unless he comes within the specific words of a statute is a different proposition. That a person cannot be taxed on the principle of estoppel does not admit of much argument. Article 265 of the Constitution lays down that no tax shall be levied except when authorised by law.
./2016 24. In any case, the elaborate circular has been issued by the CBDT vide Circular No. 14 (SL-35) dated 11.04.1955 wherein, it has been specifically observed by CBDT that the purpose of this circular is merely to emphasis that Income Tax Officer should not take advantage of assessee’s ignorance to collect more tax out of him than his legitimate due from him.
In view of the aforesaid detailed observations and respectfully following the judicial precedents relied upon hereinabove, we hold that income of the assessee should be determined on presumptive basis as per section 44BB(1) of the Act in the peculiar facts and circumstances of the case. Accordingly, the various disallowances made by the ld AO in the assessment would be liable for deletion. Accordingly, the ground nos. 2 to 11 raised by the assessee are allowed and additional ground raised by the assessee is allowed.”
From the above, we note that the Tribunal has elaborately considered the contract and provisions of law and finally come to the conclusion that income of the assessee should be determined on presumptive basis as per section 44BB(1) of the Act in the peculiar facts and circumstances of the case. We respectfully follow the same and direct accordingly.
The adjudication of other issues are academic in nature and has also not been pressed by the ld. Counsel for the assessee.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 5th day of October, 2023.