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Facts
The assessee, a non-resident company incorporated in Singapore, is engaged in providing services for oil exploration. They filed their return under Section 44BB, declaring income based on a 10% profit rate. The Revenue made a disallowance of Rs. 16,00,155/- while processing the return under Section 143(1), which was upheld by the CIT(A).
Held
The Tribunal held that once an assessee opts for the presumptive taxation scheme under Section 44BB, no further disallowance is permissible. The Tribunal distinguished the case from the decision in Checkmate Solutions Pvt. Ltd. regarding Section 43B, as the assessee had not claimed any deduction under that section.
Key Issues
Whether a disallowance under Section 143(1) is permissible when the assessee has opted for the presumptive income scheme under Section 44BB, and whether Section 43B is applicable in such a scenario.
Sections Cited
143(1), 139, 44BB, 43B, 143(3), 36, 44AA, 44AB
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T VARKEY & SHRI AMITABH SHUKLA
(प्रत्यर्थी/Respondent) (अपीलार्थी/Appellant) अपीलार्थी की ओर से/ Assessee by : Shri P.Murali Mohan Rao, C.A, प्रत्यर्थी की ओर से /Revenue by : Shri N.Rajakumar, Addl.CIT सुनवाई की तारीख/Date of Hearing : 14.05.2025 घोषणा की तारीख /Date of Pronouncement : .06.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M :
This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / APL / S / 250 / 2024-25 / 1071526100(1) dated 24.12.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), Chennai for the assessment years 2022-23. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. 2.0 The only issue raised by the appellant assessee, through its grounds of appeal
, in the present case is regarding an addition of Rs.16,00,155/- made by the Revenue u/s 143(1) on account of provident fund payment. The Ld.Counsel drew our attention to the following factual matrix of the case. It has been stated that the assessee company is non-resident company in India which has been incorporated in Singapore is engaged in the business of providing services and facilities relating to exploration and exploitation of mineral oil and natural gas. Thus the company undertakes the activity of drilling oil wells in off-shore territories and attending to all associated services. Return of income for AY-2022- 23 was filed on 28.11.2022 u/s 139 whereby the assessee taking recourse to provisions of section 44BB(1) declared income of Rs.26,54,64,804/-. The impugned return was processed u/s 143(1) on 29.07.2023 determining assessee’s income at Rs.26,70,65,000/-. The determined income was arrived at by making a disallowance of Rs.16,00,160/-. Aggrieved by the order the assessee, approached the Ld.First Appellate Authority which confirmed the action of the Ld.AO / CPC. Aggrieved by the aforesaid appellate order the assessee is in appeal before us. 3.0 It is the case of the assessee that it has declared its income within the meanings of section 44BB of the Act which is in the form of a code in itself. The assessee has submitted that once recourse is taken to provision of section 44BB and income offered accordingly, no separate additions / disallowance are permissible. The Ld.Counsel for the Page - 2 - of 10 assessee has placed reliance, inter-alia, upon the judicial precedents laid down in the decision of Hon’ble Calcutta High Court in the case of schlumberger Sea CO Inc as at 124 taxman 358 (2002 Calcutta). The Ld.Counsel also contested the very disallowance on the premise that it is a settled principle of law that no such debatable disallowance is permissible u/s 143(1)(a). Thus it was argued that because the issue per se was a debatable one, no disallowance was legally permissible u/s 143(1)(a). 4.0 Per contra, Ld.DR placed vehement reliance upon the order of lower authorities. It was submitted that the decision of Hon’ble Apex Court in the case of Checkmate solutions limited is applicable in the present case and therefore the corresponding disallowance is in order. 5.0 We have heard the rival submissions in the light of material available on records. Before proceeding further, we deem it appropriate to reproduce, hereunder, the statutory provisions of the Act which are seminal to the controversy being section 43B and section 44BB of the Act. “…….43B. 54Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable 52 under this Act in respect of- 55[(a) any sum payable 56 by the assessee by way of tax 56, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (b) any sum payable by the assessee as an employer by way of 56contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, 57[or] 57[(c) any sum referred to in clause (ii) of sub-section (1) of section 36,] 58[or] 58[(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution 59[or a State financial corporation or a Page - 3 - of 10. State industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing 60[, or] 61[(da) any sum payable by the assessee as interest on any loan or borrowing from 62[such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette 63 in this behalf], in accordance with the terms and conditions of the agreement governing such loan or borrowing, or] 60[(e) any sum payable by the assessee as interest on any 64[loan or advances] from a scheduled bank 65[or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank] in accordance with the terms and conditions of the agreement governing such loan 66[or advances],] 67[or] 67[(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, 68[or]] 68[(g) any sum payable by the assessee to the Indian Railways for the use of railway assets, 69[or]] 70[(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 71 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006),] shall be allowed (irrespective of the previous year 72 in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid 72 by him : 73[Provided that nothing contained in this section 74[[except the provisions of clause (h)]] shall apply in relation to any sum 75[***] which is actually paid 72 by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. 76[***]] Explanation 77[1].-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commenc- ing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee 78, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 79[Explanation 2.-For the purposes of clause (a), as in force at all material times, “any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.] 80[ 81[Explanation 3].-For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) 82[or clause (d)] of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled
Page - 4 - of 10 to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 83[Explanation 3A.-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 84[Explanation 3AA.-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (da) is allowed in computing the income referred to in section 28, of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 2019, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 85[Explanation 3B.-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) of this section is allowed in computing the income, referred to in section 28, of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 2001, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 86[Explanation 3C.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing 87[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid.] 88[Explanation 3CA.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (da), shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing 87[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid.] 89[Explanation 3D.-For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance 87[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid.] 90[Explanation 4.-For the purposes of this section,- (a) “public financial institutions” shall have the meaning assigned to it in section 4A 91 of the Companies Act, 1956 (1 of 1956); 92[(aa) “scheduled bank” shall have the meaning assigned to it in the Explanation to clause (iii) of sub-section (5) of section 11;] (b) “State financial corporation” means a financial corporation established Page - 5 - of 10 under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); (c) “State industrial investment corporation” means a Government company within the meaning of section 617 93 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and 94[eligible for deduction under clause (viii) of sub-section (1) of section 36];] 95[(d) “co-operative bank”, “primary agricultural credit society” and “primary co- operative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub- section (4) of section 80P;] 96[(e) “micro enterprise” 97 shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006);] 98[(f) “non-banking financial company” 97 shall have the meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);] 99[(g) “small enterprise” 97 shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).] 1[Explanation5.-For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.] 44BB. (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee 30[, being a non-resident,] 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 31 of, mineral oils 31, 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 32[section 44DA or] section 115A or section 293A a pply 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 33 (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 33 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.
Page - 6 - of 10 34[(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub- section, 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.] 35[(4) Notwithstanding anything contained in sub-section (2) of section 32 and sub- section (1) of section 72, where an assessee declares profits and gains of business for any previous year in accordance with the provisions of sub- section (1), no set off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year.] Explanation.-For the purposes of this section,- (i) “plant” includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) “mineral oil” includes petroleum and natural gas.] ....." 5.1 It is an undisputed fact of the case that the assessee is engaged in the business of oil exploration of the type mentioned in section 44BB. We have noted that section 44BB clearly postulates that an assessee doing the business of the nature defined therein has the clear option of opting to pay taxes on 10% of its profits or to pitch for lower profit percentage. The Act mandates that in the latter situation it will have to confirm to various conditions of maintaining books of accounts, auditing etc. In the situation of the assessee opting for 10% profit element it will be exempted from application of conditions prescribed in section 28 to 41 and 43 and 43A. However, once the taxpayer opts for 10% flat profit rate, the law is clear that by way of deeming provision, the same shall be deemed to be its taxable profits and no further additions or disallowance stipulated under the Act would be permissible. In the present case
Page - 7 - of 10 opting to be a part of 10% profit regime, the assessee has insured itself against any further statutory intervention to its book results. 5.2 Accordingly, we find sufficient force in the reliance placed upon by the Ld.Counsel upon the decision of Hon’ble Calcutta High Court in the case of schlumberger Sea CO Inc as at 124 taxman 358 (2002 Calcutta). We have noted that in para 20 of their order on page 67 their lordships have held that “….With respect, this contains a fundamental fallacy. Once a non- resident supplier of machinery comes within the purview of section 44BB, it cannot come again under the purview of the other parts of the Act dealing with profits and gains of business or profession. It cannot be said that the assessee is liable to 10 percent of the profits ad gains under section 44BB and is liable to 100 percent under the other parts of the Act which make profits and gains liable to tax. If section 44BB operates, it operates to exclude altogether the incidence of tax on profits and gains of business or profession which would otherwise be incident on the basis of the other sections apart from section 44BB….”
Thus, Hon’ble Calcutta High Court has categorically laid down that once an assessee opts for 44BB, no further disallowance is possible.
5.3 We have also examined the argument of the Revenue qua application of decision of Hon’ble Supreme Court in the case of checkmate solutions Pvt. Ltd. We have noted that the said decision is w.r.t. applicability of items mentioned in section 43B. Section 43B(b) of the Act postulates that certain payments could be allowed as deduction in the year in which they are paid. Thus, Hon’ble Apex Court has ruled Page - 8 - of 10 that the amounts covered and claimed by the assessee would be allowed as a deduction if they were paid within the timelines prescribed in the respective Acts. The decision brought a citus to the otherwise controversy of whether payments would be allowed if paid after due dates but before filing of return of income etc. The debates and controversy raging prior to decision of Hon’ble Supreme Court in the case of checkmate solutions Pvt. Ltd has thus reached a finality now. We have noted that the assessee’s case is distinguished from the impugned decision. Section 43B comes to fore when there is a case of a payment of the nature defined in the said section and it has been claimed by the assessee. In the instant case, the Ld.Counsel vehemently argued that the assessee has not made any claim of any payment, of the nature defined u/s 43B and therefore the said section and the corresponding decision in the case of checkmate solutions Pvt. Ltd supra would not apply in its case. 5.4 We are therefore of the considered view that in view of the fact that the assessee has opted for section 44BB, has not made any claims qua section 43B and the decision of Hon’ble Calcutta High Court supra covers its case, the disallowance of Rs.16,00,155/- u/s 143(1) cannot be made in its case. Therefore, we set aside the order of lower authorities and direct the Ld.AO to delete the impugned addition. Accordingly, all the grounds of appeal raised by the assessee are therefore allowed. Page - 9 - of 10 8.0 In the result, the appeal of assessee is allowed.
Order pronounced on , June -2025 at Chennai.