PRYSMIAN CAVI E SISTEMI S.R.L,HYDERABAD vs. DCIT (INT,TAXN)-2, HYDERABAD

आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.:

4. Aggrieved, the assessee also filed an appeal before the Ld. CIT(A) challenging the consequential assessment order passed by the Ld. AO under section 143(3) r.w.s. 263 dated 29.03.2006.

5. While both the above-mentioned appeals were pending before the Ld. CIT(A), the Ld. AO reopened the assessment under section 147 of the Act and passed a reassessment order under section 143(3) read with section 147 of the Act dated 20.12.2006. In the said reassessment, the Ld. AO rejected the books of accounts of the assessee under section 145(3) and estimated profit of Rs.1,54,46,987/- at the rate of 10% on offshore contract receipts of Rs.15,44,69,874/-. Further, he estimated profit at the rate of 20% on offshore contract service receipts of Rs.47,11,231/-, amounting to Rs.9,42,246/-. While computing the total income, the Ld. AO adopted the income assessed in the earlier order under section 143(3) r.w.s. 263 of the Act dated 20.12.2006 and added the above estimated profits over and above the same. The assessee filed a third appeal before the Ld. CIT(A) against this reassessment order under section 143(3) r.w.s. 147 of the Act dated 20.12.2006. Accordingly, three appeals were simultaneously pending before the Ld. CIT(A), namely - a) Appeal against assessment order of the Ld. AO under section 143(3) of the Act dated 29.03.2004; b) Appeal against assessment order of the Ld. AO under section 143(3) r.w.s. 263 of the Act dated 29.03.2006; and c) Appeal against reassessment order of the Ld. AO under section 143(3) r.w.s. 147 of the Act dated 20.12.2006.

a. appeal arising out of the original assessment order of the Ld. AO under section 143(3) of the Act dated 29.03.2004; b. appeal arising out of the assessment order of the Ld. AO under section 143(3) r.w.s. 263 of the Act dated 29.03.2006; c. appeal arising out of the reassessment order of the Ld. AO under section 143(3) r.w.s. 147 of the Act dated 20.12.2006; and d. appeal arising out of the revisionary order of Ld. CIT under section 263 of the Act dated 13.03.2006.

8. The Tribunal, vide consolidated order dated 25.07.2014, disposed of the three appeals out of above four appeals as under : a) In the appeal against the revisionary order of Ld. CIT under section 263, the Tribunal quashed the order of the Ld. CIT dated 13.03.2006 and held that offshore contract receipts are not taxable in India. b) Consequently, in the appeal against the assessment under section 143(3) r.w.s. 263 dated 29.03.2006, the Tribunal held that since the section 263 order was quashed, the assessment made in pursuance thereof has no legal standing and is therefore also quashed. c) In the appeal against the original assessment dated 29.03.2004, the Tribunal held that since the order under section 263 no longer survives, the original assessment order revives and therefore restored the matter to the file of the Ld. CIT(A) with a direction to decide the appeal on merits. The corresponding findings of this ITAT are placed at para nos.10 to 12 of its order (page no.91 of the paper book) which is to the following effect :

“ 10. This appeal by the assessee is against the Order of Ld. CIT(A)-V, Hyderabad dated 29.11.2011 preferred against the assessment order under section 143(3) dated 29.03.2004. Assessee is aggrieved on the order of the Ld. CIT(A) who stated that the appeal is not maintainable consequent to the proceedings under section 263 initiated by the Ld. CIT-IV vide order dated 13.03.2006 wherein the assessment order was set aside and directed the A.O. to pass fresh assessment order.

8.1 The appeal against the reassessment order dated 20.12.2006 under section 143(3) r.w.s. 147 of the Act was adjudicated separately by the Tribunal vide order dated 30.11.2015. In that order, the Tribunal directed the Assessing Officer to delete the addition made in respect of offshore contract receipts; estimate the income at 10% of the onshore contract works / services receipts; and specifically directed not to consider the returned income declared by the assessee. The relevant portion of the order of this ITAT is given at para nos.13 & 15 of its order (page nos.106 & 107 of the paper book), which is to the following effect :

9. At the threshold, it is observed that there is a delay of 2,996 days in filing the present appeal before the Tribunal. In this regard, the assessee has filed a petition for condonation of delay supported by a duly sworn affidavit, setting out the reasons for such delay. In this regards, the learned Authorised Representative (“Ld. AR”) submitted that the impugned order of the Ld. CIT(A) was passed on 31.08.2016, and the assessee has filed this appeal before the Tribunal on 27.11.2024. It was submitted that for the same assessment year, the Tribunal had earlier passed an order in assessee’s own case on 30.11.2015, and the assessee was under the bona fide belief that the issue involved in the impugned order of the Ld. CIT(A) stood already covered by the said Tribunal order.

9.1 Subsequently, when the Ld. AO passed a consequential order dated 09.02.2017 giving effect to the Tribunal’s order, and thereafter passed a rectification order under section 154 of the Act on 28.06.2017, disallowing the business expenditure, the assessee preferred an appeal against such rectification order before the Ld. CIT(A). However, the Ld. CIT(A), vide order dated 29.07.2022, confirmed the disallowance made by the Ld. AO.

9.2 It was explained that the assessee, under a genuine and bona fide impression, believed that since the issues arising from the impugned order were already under litigation before the Department and the appellate forums, no separate appeal against the original order of the Ld. CIT(A) was required.

However, once the issue continued to be adversely decided at various levels— including in the consequential and rectification proceedings—the assessee was advised to prefer a substantive appeal before this Tribunal against the impugned order dated 31.08.2016. Accordingly, the present appeal has been filed with the aforesaid delay.

9.3 The Ld. AR submitted that the delay was not deliberate, wilful, or intentional, but occurred due to bona fide and procedural misunderstanding of the appeal requirements and sequence of events. Therefore, in the interest of substantial justice, the Ld. AR prayed that the delay be condoned.

9.4 Per contra, the learned Departmental Representative (“Ld. DR”) strongly objected to the condonation, contending that the delay is inordinate, and the explanation is insufficient to justify such a long lapse of time.

9.5 We have considered the rival contentions and perused the material on record. It is a well-settled principle that where sufficient cause is shown, and the delay is not arising from a deliberate or negligent act, the courts and tribunals are expected to take a liberal view in the interest of justice. In the present case, notwithstanding the fact that the delay is substantial, we are inclined to accept that the assessee was under a genuine mistaken belief, arising from the overlap of issues and procedural complexities across various proceedings—including original assessment, rectification, and consequential effect-giving orders. The sequence of events demonstrates that the assessee remained actively engaged with the appellate proceedings, and did not abandon its claim. The consistent litigation of the same issue at various levels reinforces the assessee’s bona fides.

9.6 In view of the above, we are satisfied that the cause shown by the assessee is sufficient and genuine. Accordingly, we condone the delay of 2,996 days in filing the appeal and direct that the appeal be admitted for adjudication on merits.

“ 6.2 Since the Hon'ble ITAT, Hyderabad already gave directions to the Assessing Officer with regard to the issue of estimation of income on onshore contracts at 10% of the gross value of the contracts the Assessing Officer is directed to implement the order of the ITAT, if not already done, as extracted above and arrive at the total income to be taxed for the year under consideration. Since there is no direction by the Hon'ble ITAT, Hyderabad about the additions made by the Assessing Officer they are adjudicated as under: 7. The assessee did not file any written submissions with regard to the additions made by the Assessing Officer.

as business expenditure should also to be rejected. Hence for the reasons given in the assessment order the addition made by the Assessing Officer is confirmed. This ground of appeal is dismissed.

10. Ground 2(iii)is with regard to the write off of sundry debtors amounting to Rs.28,59,938/-. The assessee did not prove that Power Grid Corporation of India rejected the bills raised by the assessee. Until and unless there is rejection by the contracted, assessee cannot treat them as bad debts. The assessee did not prove that debts have become bad for allowance u/s. 36(1). Therefore, this addition is confirmed also for the reasons given by the Assessing Officer in the assessment order. This ground of appeal is dismissed.

11. Ground No. 2(iv) is with regard to the addition of 'interest others' amounting to Rs. 35,55,024/-, towards interest on tax deducted at source on salaries paid to expatriate employees on deputation to the India project office and interest paid on the delay in payments towards the service tax, these are not allowable expenditures u/s. 37(1) and hence this addition is confirmed as there is change in the stand of the assessee before the Assessing Officer and in the grounds of appeal. This ground of appeal is dismissed.

12. Ground No. 2(v) is with regard to the payment of customs duty amounting to Rs. 41,46,906/- paid by the assessee on behalf of Power Grid Corporation. Since the same is not related to the business of the assessee and to be recovered from the contractee and since no details are filed, the addition on this is confirmed also for the reasons given by the Assessing Officer in the assessment order. This ground of appeal is dismissed.

13. Ground No. 3: As regards ground No. 3 that the Assessing Officer has not considered the losses to be carried forward upto A.Y. 2000-01 amounting to Rs. 4,93,03,551/-, it is observed from consequential orders of earlier years that there is no loss as per the consequential orders passed by the Assessing Officer. Therefore, there is no question of any losses brought forward from earlier years for set off during this year. Hence this ground of appeal is dismissed.

14. In the result, the appeal is partly allowed for statistical purposes.”

11. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal raising the following grounds of appeal :

12. The Ld. AR submitted that the solitary issue arises out of the appealis on account of the various disallowances made on account of business expenditure and upheld by the Ld. CIT(A). The Ld. AR further submitted that, once the books of account are rejected under section 145(3) and income is estimated, no separate disallowances on business expenditure can be made. Reliance was placed on the decision of the Hon’ble Allahabad High Court in the case of CIT vs. Banwari Lal Bansidhar (229 ITR 229), which has laid down this legal proposition.

12.1 The Ld. AR further submitted that, the Ld. CIT(A) has directed the Ld. AO to estimate the income at 10% of the onshore contract works / services receipts. However, with regard to various disallowances made by the Ld. AO on account of claim of business expenditure, the Ld. CIT(A) has upheld the said disallowances. The Ld. AR contended that, once the books of accounts of the assessee are rejected u/s. 145(3) of the Act and the income is thereafter estimated on a percentage basis, then the entire estimation subsume the effect of allowable as well as disallowable expenses. Therefore, any further disallowances or additions on account of specific business expenses becomes redundant or impermissible in law. In support of this submission, the Ld. AR placed reliance on the judgements of Hon’ble High Court of Andhra Pradesh in the case of Indwell Constructions Vs. CIT (1998) 232 ITR 776 (A.P.) & Hon’ble High Court of Allahabad in the case of CIT Vs. Banwari Lal Banshidhar (1998)

229 ITR 229(All.) Finally, the Ld. AR contended that the disallowances over and above the estimated income are liable to be deleted.

“All the three questions, referred to this court, revolve round the same controversy. The question for consideration is when no deduction was sought and allowed under Section 40A(3), was there any need to go into Section 40A(3) and Rule 6DD(j). We see force in the view taken by the Appellate Tribunal that when the income of the assessee was computed applying the gross profit rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of Section 40A(3) and Rule 6DD(j). No disallowance could have been made in view of the provisions of Section 40A(3) read with Rule 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When the gross profit rate is applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases by the assessee.” 14.1 We have also gone through the decision of Hon’ble High Court of Andhra Pradesh in the case of Indwell Constructions Vs. CIT (supra), the relevant portion of which is reproduced as under :

“4. The pattern of assessment under the Income-tax Act is given by Section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in Sections 30 to 43D. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under Section 29 is to be made under section 145 on the basis of the books regularly maintained by the asses-see. If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under Section 29. In other words, all the deductions which are referred to under Section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in Section 40 is also taken into account.

14.2 On perusal of above, we found that the Hon’ble High Courts have held that once the income estimated on a percentage basis, then the entire estimation subsume the effect of allowable and disallowable expenses.

Therefore, respectfully following the decisions of Hon’ble High Courts (supra), we hold that once the income of the assessee has been estimated at 10% of the onshore contract works / services receipts, no separate disallowances can be made towards business expenditure. Accordingly, we are of the considered opinion that, the disallowances separately made over and above the estimated income is unsustainable in law and deserves to be deleted.

Therefore, we direct the Ld. AO to delete the same.

In this regards, the Ld. AR submitted that the delay was neither deliberate nor intentional, but was caused by genuine circumstances beyond the assessee’s control. Accordingly, it was prayed that the delay may be condoned in the interest of substantial justice. We further note that the Ld. DR has not raised any serious objection to the condonation of the said delay.

16.1 In view of the above facts and in the interest of justice, we are of the opinion that sufficient cause has been demonstrated for the delay in filing the appeal. Accordingly, we condone the delay of 84 days and admitted the appeal for adjudication on merits.

1. The order of the learned CIT(A), on the aspects agitated in this appeal, is bad in law and without appreciation of the facts and circumstances of the case in the right perspective.

2. On the facts and law, the Learned Commissioner Of Income Tax ( Appeals)- 10 Hyderabad has erred in not appreciating and following the Order of the Hon'ble ITAT order dated 30/11/2015 Wherein the additional Grounds Appeal for deletion of Additions made by the Assessing Officer to the extent of Rs. 3,18,56,193 was allowed. The relevant part of the direction is given in para 15 by the Hon'ble ITAT in their order.

3. The learned CIT (A) erred in not appreciating the directions of the Hon'ble ITAT and also in confirming the action of the AO. But stated in his order that the there is no direction from the Hon'ble ITAT Bench Hyderabad about the additions made by the AO. This clearly shows that the learned CIT (A) has erred in confirming the additions of Rs.3,15,42,043/-.Which ought to be deleted. Further Additions of Interest Income 173/- and Additions of liabilities no longer required Rs. 12,67,483 total amounting to Rs.12,67,656/- also to be deleted. Only estimated profit only to be considered.

18. This appeal arises out of the rectification order passed under section 154 dated 28.06.2017, pursuant to the appeal effect order dated 09.02.2017 (giving effect to the CIT(A)’s order dated 31.08.2016). In this rectification order, the AO made the following two additions: i) Rs.12,67,483/- on account of “liability no longer required”; and ii) Rs.3,15,42,043/- on account of disallowance of business expenditure.

19. Aggrieved with the rectification order of Ld. AO dated 28.06.2017, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) upheld both additions. The assessee is in appeal before the Tribunal.

Order pronounced in the open Court on 14th July, 2025.