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Facts
The assessee, a private limited company engaged in civil and infrastructure development, filed its income return for AY 2013-14. The Assessing Officer (AO) made several additions, including disallowance under Section 40A(3), interest income, agricultural income, other expenses, deemed dividend under Section 2(22)(e), and disallowance of Section 80IA deduction. The CIT(A) reduced some additions, confirmed others, and deleted the deemed dividend addition, leading to cross-appeals by both the assessee and the Revenue.
Held
The Tribunal partly allowed both cross-appeals for statistical purposes. The issue of Section 80IA deduction was remanded to the CIT(A) for fresh adjudication to verify the filing of Form 10CCB and relevant agreements. The deletion of deemed dividend under Section 2(22)(e) by CIT(A) was also remanded for fresh consideration in light of the Supreme Court's judgment in Gopal And Sons (HUF). The Revenue's appeal regarding agricultural income and other expenses was dismissed, upholding the CIT(A)'s partial relief.
Key Issues
1. Whether the assessee is entitled to deduction under Section 80IA, considering the filing of Form 10CCB and relevant agreements. 2. Whether the loan taken by the assessee from its sister concern constitutes deemed dividend under Section 2(22)(e) of the IT Act. 3. Whether the partial relief granted by CIT(A) regarding agricultural income and other expenses was justified.
Sections Cited
143(2), 142(1), 143(3), 40A(3), 68, 2(22)(e), 80IA, 80AC, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
ORDER PER VINAY BHAMORE, JM: These are the cross appeals filed by the assessee as well as by the Revenue are directed against the order dated 30.06.2017 passed by Ld. CIT(A)-12, Pune [‘CIT(A)’] for the assessment year 2013-14.
The facts of the case, in brief, are that the assessee is a private limited company and stated to be engaged in the business of execution of civil and infrastructure development contracts. The return of income was filed on 30.11.2013 declaring total income of Rs.1,51,62,266/-. The case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) along with questionnaire were issued respectively. After considering the reply of the assessee, the Assessing Officer completed the assessment u/s 143(3) of the IT Act determining total income at Rs.54,83,58,570/- as against the income returned by the assessee at Rs.1,51,62,226/-. The above assessed income includes following additions on account of :- (a) Disallowance u/s 40A(3) of Rs.5,12,194/-, (b) Interest income of Rs.53,32,948/- which remained to be added back by the assessee, (c) Disallowance of agricultural income of Rs.6,00,000/-, (d) Disallowance of other expenses of Rs.35,00,000/-, (e) Deemed dividend u/s 2(22)(e) of Rs.49,59,14,779/- and (f) Disallowance of deduction claimed u/s 80IA of Rs.2,73,36,424/- 3. In first appeal, after considering the reply of the assessee, Ld. CIT(A) reduced the addition made u/s 68 of the IT Act on account of agricultural income of Rs.6,00,000/- to Rs.3,00,000/-, Ld. CIT(A) also reduced the addition made on account of other expenses of Rs.35,00,000/- to Rs.20,00,000/-. However, the addition of Rs.5,12,194/- made u/s 40A(3) and assessee’s claim of deduction of Rs.2,73,36,424/- u/s 80IA was confirmed by Ld. CIT(A). It is this order against which the assessee is in appeal before this Tribunal. However, Ld. CIT(A) also deleted the addition of Rs.49,59,14,779/- made by the Assessing Officer u/s 2(22)(e) of the IT Act which is against the Revenue, the Revenue is in cross appeal before this Tribunal.
First, we shall take up the appeal of the assessee in ITA No.2058/PUN/2017.
– By Assessee : 5. The appellant has raised the following grounds of appeal :-
1. The learned Commissioner of Income-tax (Appeals)-12, Pune, has erred in law as well as in facts by confirming the disallowance of a sum of Rs.5,12,194/- made under section 40A(3) of the I.T. Act, 1961, by the learned A.O., despite the fact that the evidence in the form of vouchers of Rs.3,42,800/- were submitted during the appellate proceedings.
2. The learned Commissioner of Income-tax (Appeals)-12, Pune, has erred in law as well as in facts by confirming the addition of Rs.3,00,000/- made under section 68 of the I.T. Act, 1961, by treating agricultural income as cash credit.
3. The learned Commissioner of Income-tax (Appeals)-12, Pune, has erred in law as well as in facts by confirming the addition of Rs.20,00,000/- on account of disallowance made under various heads.
4. The learned Commissioner of Income-tax (Appeals)-12, Pune, has erred in law as well as in facts by confirming the disallowance of assessee's claim of a deduction of Rs.2,73,36,424/- under section 801A of the I.T. Act, 1961, made by the A.O., as the assessee is a developer.
5. The appellant craves leave to alter, amend, add or delete one or all the Grounds of appeals mentioned above.”
6. Ld. AR appearing from the side of the assessee submitted before us that he did not want to press the ground nos.1, 2 and 3 raised by him in memo of appeal. Accordingly, ground nos.1, 2 and 3 are dismissed as not pressed.
7. Ground no.4 relates to the addition of Rs.2,73,36,424/- made on account of disallowance of assessee’s claim of a deduction of Rs.2,73,36,424/- made under section 801A of the I.T. Act, 1961. In Ld. AR that the assessee is a developer of infrastructure facility & has claimed deduction of Rs.2,73,36,424/- u/s 80IA of the IT Act. It was submitted by Ld. AR that one of the main reason for denying the benefit of deduction u/s 80IA of the IT Act was non-filing of the audit report in Form 10CCB & relevant agreements. Even Ld. CIT(A) confirmed the above disallowance made by the Assessing Officer on the ground that the assessee has not furnished prescribed audit report in Form 10CCB. In this regard, Ld. AR submitted that form 10CCB was filed during assessment proceedings and the same was neither considered by the Assessing Officer nor by Ld. CIT(A), however while inspection of the assessment case records by the assessee, it was found that Form 10CCB was already filed by the assessee. In support of this contention, Ld. AR furnished an affidavit duly sworn in by Mr. Premnath Madhavrao Fakire, the Chief Financial Officer of the assessee company. In this affidavit, it was stated that the original assessment case records were summoned from the Assessing Officer on the directions of the Tribunal and after inspecting the same it was found by the assessee that Form 10CCB was available in the case record, which was filed by the assessee during the course of assessment proceedings and the same was forming part of the original assessment records. Ld. AR submitted that the Chief Financial Officer in his affidavit also stated that the agreements/tender documents were submitted to the Assessing Officer in hard copy as well as in Pen Drive and despite that the Assessing Officer proceeded to record erroneous and misconceived findings to the effect that agreements were not filed. In the light of these facts, it was requested before the Bench to pass appropriate orders and further requested to allow the claim of the assessee u/s 80IA of the IT Act. Apart from above, Ld. AR in support of his contentions relied on various case laws. Ld. AR also submitted that the claim of the assessee u/s 80IA was allowed since assessment year 2010-11 and thereafter for assessment years 2011-12 and 2012-13 by the order dated 19.03.2015 of the Income Tax Settlement Commission.
8. Ld. DR appearing from the side of the Revenue relied on various case laws & the order passed by subordinate authorities with regard to the above ground & also submitted that the department has 80IA of the IT Act by the assessee. LD Dr also submitted that when the Audit report in form 10CCB was not available before sub-ordinate authorities i.e. either before the Assessing officer or before Ld. CIT(A), how the same is now available in the assessment case record. Accordingly Ld. DR requested to confirm the disallowance u/s 80IA of the IT Act.
We have heard Ld. Counsels from both the sides and perused the material available on record including the case laws furnished by both the parties. We find that the deduction u/s 80IA of Rs.2,73,36,424/- claimed by the assessee was denied on various grounds, i.e. the assessee is a works contractor & not engaged in development & maintenance of infrastructure facility, that the assessee has not furnished its return of income u/s 139(1) of the IT Act hence in the light of section 80AC of the IT Act he is not entitled to claim deduction u/s 80IA of the IT Act , that the assessee has not furnished prescribed audit report in Form 10CCB, & that the assessee has not furnished relevant agreements entered into with the Government or any other authorised agency. However before us it was the claim of the assessee that Form 10CCB was filed during the course of assessment proceedings & the agreements were also produced but the Assessing Officer as well as Ld. CIT(A) has not accepted this fact and therefore the disallowance made by the Assessing Officer was confirmed by Ld. CIT(A). We find that Ld. AR of the assessee produced an affidavit duly sworn in by the Chief Financial Officer of the assessee company stating that Form 10CCB was filed during the course of assessment proceedings and the same is still available in the original assessment case records. It is also the contention of the assessee that this fact was revealed when the assessee sought permission of inspection of original assessment case records which was called at the direction of this Tribunal. We find in the affidavit that the assessee also claimed that the relevant agreements/documents were also handed over to the Assessing Officer physically as well as in Pen Drive. Considering the totality of the facts and without going into the merits of the case, we deem it appropriate to set-aside the order passed by Ld. CIT(A) with regard to ground no.4 only i.e. in respect of disallowance of deduction 80IA of the IT Act and remand the matter back to him with a direction to decide this limited issue only, afresh, as per fact and law, after providing reasonable opportunity of hearing to the assessee. The assessee is also hereby directed to respond to the notices issued by Ld. CIT(A) in this regard and produce additional documents/evidences in support of his claim regarding deduction u/s 80IA of the IT Act without taking adjournment under any pretext, otherwise Ld. CIT(A) shall be at liberty to pass appropriate order as per law. Thus, this ground no.4 raised by the assessee stands partly allowed for statistical purposes.
In the result, the appeal filed by the assessee in is partly allowed for statistical purposes.
Now, we shall take up the appeal of the Revenue in for adjudication. – By Revenue : 12. The Revenue has raised the following grounds of appeal :-
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.49,59,14,779/- made u/s 2(22)(e) of the Income tax Act, 1961 despite the fact that the nature of transaction was in the form of "Loan" and the transaction was within the meaning of "Dividend" as defined in section 2(22)(e) of the Act.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing a relief of Rs. 3,00,000/- in respect of agriculture income to the assessee without giving proper justification for the same.
On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in restricting the addition in respect of expenses to Rs.20,00,000/- without giving any cogent reasons and despite the fact that during the year the assessee had claimed higher expenses comparative to the last year and the increase in expenditure with compared to last year was not proportionate to increase in its turnover as compared to last year.
4. The appellant prays leave to add, amend, alter or delete any one or more of the grounds of appeal
, as may be required in the nature and circumstances of the case.”
13. In ground no.1 the Revenue has challenged the deletion of addition of Rs.46,59,14,779/- made u/s 2(22)(e) of the IT Act. Brief fact on the basis of which the Assessing Officer made addition of Rs.46,59,14,779/- are that the assessee company has taken loan of Rs 60,45,43,526/- from its sister concern i.e. M/s Patil Construction & Infrastructure Ltd. Since Shri Mallikarjun B. Patil holds 99.98% share in lender concern M/s Patil Construction & Infrastructure Ltd. and also holds 97.5% shares in the assessee company, the transaction comes within the purview of section 2(22)(e) of the IT Act, therefore, the amount of loan advanced Rs.60,45,43,526/- by M/s Patil Construction & Infrastructure Ltd. to the assessee company i.e. M/s M.B. Patil Construction Pvt. Ltd. will be treated 2(22)(e) of the IT Act.. However, section 2(22)(e) limits the amount of deemed dividend to the extent of accumulated profits of the lender company (i.e. M/s. Patil Construction & Infrastructure Ltd. Since the accumulated profits in audit report of M/s. Patil Construction & Infrastructure Ltd. was Rs.49,59,14,779/- accordingly deemed dividend in the hands of the assessee company M/s M. B. Patil Construction Pvt. Ltd. was restricted to Rs.49,59,14,779/- and the same amount is added back to the total income of the assessee company as deemed dividend u/s 2(22)(e) of the IT Act by the Assessing Officer.
14. In first appeal, after considering the reply of the assessee, Ld. CIT(A) deleted the above addition. It is this order against which revenue is in appeal before this Tribunal.
15. Ld. DR appearing from the side of the revenue submitted before us that the order passed by Ld. CIT(A) is unjustified. LD DR further placed reliance on latest decision passed by Hon’ble Apex court in the case of Gopal & Sons (HUF) 77 taxmann.com 71 in support of its contentions. It was accordingly requested before the bench to set-aside the order passed by Ld. CIT(A) wherein he RS 49,59,14,779/- made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the IT Act.
16. Ld. AR appearing from the side of the assessee relied on the order passed by Ld. CIT(A) and requested to confirm the same. Ld. AR also furnished paper book and relied on various case laws in support of his contentions. It was contended that Ld. CIT(A) relied on the judgement passed by Hon’ble Bombay High Court in the case of Impact Containers Pvt. Ltd., 367 ITR 346 wherein under identical facts similar addition was deleted. Accordingly, Ld. AR requested before us to confirm the order passed by Ld. CIT(A).
We have heard Ld. Counsels from both the sides & perused the material available on record including case laws furnished by both the parties. In this regard we find that Ld. CIT(A) deleted the addition of Rs.49,59,14,779/- by relying on the Jurisdictional Hon’ble Bombay High Court Judgement passed in the case of Impact Containers Pvt. Ltd., 367 ITR 346 against which SLP of Department was dismissed. On the other hand, Revenue is strongly relying on the judgement passed in the case of Gopal And Sons (HUF) vs. CIT, [2017] 77 taxmann.com 71 (SC) order dated 04.01.2017. Hon’ble Supreme Court in the above case (supra) decided the issue of deemed dividend u/s 2(22)(e) against the assessee and in favour of Revenue. In this case the assessee HUF has received certain advances from the company in which the assesse holds 37.2% shareholding of the company and, therefore, amount received by the assessee-HUF from said company was to be included in the income of the assessee HUF as deemed dividend u/s 2(22)(e) of the IT Act. We observe that the above referred judgment of Hon’ble Apex Court in the case of Gopal And Sons (HUF) (supra) though referred by Ld. CIT(A) in the impugned order but the facts of the case has not been examined in light thereof. Also in the catena of judgements referred by Ld. Counsel for the assessee as well as in the impugned order, the ratio laid down by the Hon’ble Apex Court in the case of Gopal And Sons (HUF) (supra) has not been considered. Under these given facts and circumstances, we deem it appropriate to remit back the issue of addition for deemed dividend u/s 2(22)(e) of the IT Act back to the file of Ld. CIT(A) who shall examine the facts in the light of above judgement of Hon’ble Apex Court in the case of Gopal And Sons (HUF) (supra) and shall also conduct necessary enquiry to examine about the application of alleged funds received by the company. Before parting, we also notice that one of the ground raised
by Ld. Counsel for the assessee is that the transaction between the two companies i.e. one which gave the alleged some and one which received the alleged sum are in the nature of business transactions, however, as to whether the company which has given the loan is into lending business or not, this aspect also needs to be considered by Ld. CIT(A) while carrying out the proceedings of examination of the issue of addition for deemed dividend u/s 2(22)(e) of the IT Act. Needless to mention, a proper and fair opportunity shall be granted and the issue to be decided in accordance with law. Thus, the ground no.1 raised by the Revenue is allowed for statistical purposes.
18. In ground no.2, the Revenue has challenged the order of Ld. CIT(A) wherein relief of Rs.3,00,000/- was allowed to the assessee in respect of agricultural income. In this regard, we find Ld. CIT(A) has allowed the relief of Rs.3,00,000/- by observing as under :-
5.2 I have gone through the assessment order and the submissions filed by the appellant. Brief facts are that during the course of assessment proceedings appellant failed to substantiate claim of exempt agricultural income of Rs.6,00,000 resulting in addition of Rs.6,00,000 u/s 68 of the Act. During the course of appellate proceedings it was contended that appellant held agricultural land and this fact was evident from the copy of balance sheet filed for FY 2010- 11 and subsequent FYs. Appellant claim of agricultural income was accepted before the settlement commission for Rs 3,20,500/- and of Rs.5,50,000/- during preceding AYs 2011-12 and 2012-13 respectively. Appellant owned cultivable agricultural land admeasuring 5 acres and 14 Gunthas at Gut No. 292 and 293 at village Mitmita. Although Appellant failed to file supporting evidences to prove exempt income before the A.O., however facts regarding cultivated land holdings and deriving of agricultural income by the appellant during preceding years were available on the record of the A.O. For the want of proper documentation claim made by the appellant is not fully verifiable. Still it cannot be held that no agricultural income was derived during the year under consideration. In the interest of justice I hereby accept claim only to the extent of Rs 3,00,000/- and addition to the extent of Rs. 3,00,000/- is upheld. Ground raised by the appellant is hereby partly allowed.
19. After perusing the above order of Ld. CIT(A), we find that similar claim of agricultural income was allowed in earlier years and the ownership of substantial agricultural land was also accepted, accordingly, we do not find any infirmity in the order passed by Ld. CIT(A) wherein he allowed the relief of Rs.3,00,000/-. Thus, this ground no.2 raised by the Revenue is dismissed.
20. In ground no.3, the Revenue has challenged the order passed by Ld. CIT(A) wherein relief of Rs.15,00,000/- was allowed to the assessee out of total disallowance of Rs.35,00,000/- made by the Assessing Officer on account of various expenses. In this regard, We find that Ld. CIT(A) has allowed the relief of Rs.15,00,000/- by observing as under :- “6.2 I have gone through the assessment order and the submissions filed by the appellant. Brief facts are that during the course of assessment proceedings the appellant failed to furnish details regarding "other expenses" debited at Rs 3,60,27,497/-. The AO noted that in comparison to marginal rise in the turnover, the rise in the expenses claimed under the head "other expenses" had gone up by 32%. For the failure to justify the reasonableness and business nature of such expenses, the AO made adhoc disallowance at Rs 35,00,000/- which was around 9.7% of total expenses. During appellate proceedings the appellant contended that turnover of its contract business was around Rs 92 crores and contracts were executed in different parts of Maharashtra and Karnataka. At the remote sites supervisors/ site engineers fail to maintain precise documentation. For these reasons adhoc disallowances to the range of Rs 5,00,000/- to Rs.8,00,000/- were made during AYs 2006-07 to 2008-09. In similar circumstances in the case of sister concern M/s Patil Industries out of expenses debited of Rs 4.27 crores, the disallowance was upheld to the tune of Rs 24,30,095/-. It was requested that disallowance may be confined to reasonable amount. In the facts and circumstances it would meet the interest of justice if adhoc disallowance is restricted to Rs.20,00,000/- and appellant gets relief of Rs 15,00,000/-. Ground raised by the appellant is hereby partly allowed.”
21. After perusing the above order of Ld. CIT(A), we find that the Assessing Officer has made ad-hoc/estimated disallowance and no specific instance was pointed out and accordingly Ld. CIT(A) gave relief by estimating the reasonable disallowance and therefore we do not find any infirmity in the order passed by Ld. CIT(A) wherein he has restricted the addition of Rs.35,00,000/- to Rs.20,00,000/-