Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER S.No. ITA No. AY Appellant Respondent 1 637/Hyd/2020 2017- Asst. Madhucon 18 Commissioner of Projects Ltd., Income-tax, Hyderabad. Central Circle – 2(1), Hyderabad PAN – AABCM 4757A 2 710/Hyd/2020 2017- Madhucon Dy. 18 Projects Ltd., Commissioner of Hyderabad. Income-tax, Central Circle – PAN – AABCM 4757A 2(1), Hyderabad 3 722/Hyd/2020 2014- Asst. Madhucon 15 Commissioner of Projects Ltd., Income-tax, Hyderabad. Central Circle – 2(1), Hyderabad PAN – AABCM 4757A Revenue by: Shri Vijay Bhaskar Reddy Assessee by: Shri P. Murali Mohan Rao Date of hearing: 07/04/2022 Date of pronouncement: 13/04/2022
O R D E R PER L.P. SAHU, A.M.: ITA Nos. 637 & 710/Hyd/2020 for AY 2017-18 Both these appeals are cross appeals by assessee and revenue directed against the CIT(A) – 12, Hyderabad’s order dated 31/08/2020 passed u/s 143(3) of the Income- tax Act, 1961 (in short ‘the Act’) for the AY 2017-18.
:- 2 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
We notice at the outset that assessee’s instant appeal suffers from 4 days delay in filing before the ITAT. In this connection, the assessee has filed a petition for condonation of delay along with an affidavit, wherein, it was affirmed that due global covid pandemic at the relevant point of time, caused the impugned delay in filing the appeal belatedly. We rely on Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that assessee’s impugned delay in filing this appeal is neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Case is now taken up for adjudication on merits.
Briefly the facts of the case are that the assessee company filed its return of income for the A.V. 2017-18 originally on 31.10.2017 admitting total income of Rs. 37,15,65,518/- and filed a revised return on 30.03.2019 revising the total income to Rs. 100,13,71,520/-. The revised return was selected for scrutiny under CA55. Notices u/s. 143(2) and 142(1) were issued and served on the appellant. After examining the materials on record and the information furnished, assessment was completed by
:- 3 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
the Assessing Officer u/s. 143(3) of the Act by disallowing u/s 43B amounting to Rs. 22,12,60,042/-, by observing as under in his order:
:- 4 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
:- 5 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and filed written submissions contesting the addition made by the AO, as under:
:- 6 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
After considering the submissions of the ld. AR of the assessee, the CIT(A) following the decision of the Hon’ble Madras High Court in the case of CIT Vs. M/s Abhinitha Foundation Pvt. Ltd., directed the AO to allow the sum of Rs. 3,35,85,928/-, which was disallowed in earlier years u/s 43B and the same was paid during the current year.
The AO had also disallowed MAT credit u/s 115JAA of the Act amounting to Rs. 25,71,43,174/-, by observing as under:
:- 7 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
Before the CIT(A), the ld. AR of the assessee stated as under:
After considering the submissions of the ld. AR of the assessee, the CIT(A) observed as under:
:- 8 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
Aggrieved by the order of the CIT(A), the revenue is in appeal before the ITAT challenging the action of the CIT(A) in allowing the deduction of Rs. 3,35,85,928/- u/s 43B of the Act and the assessee is in appeal before the ITAT challenging the action of the CIT(A) in not allowing the claim for Rs. 22,12,60,042/- made u/s 43B and not allowing the MAT credit of Rs. 25,71,43,174/-.
Before us, in respect of the revenue appeal, the ld. DR besides relying on the order of the AO submitted that the AO has rightly disallowed the assessee’s claim of Rs. 3,35,85,928/- u/s 43B because in the return of income, the assessee had not claimed the same and even in the revised return of income also not claimed the same. He, therefore, submitted the AO has rightly relied on the judgment of the Hon’ble Supreme Court in the case of Goetz (India) Ltd., 285 ITR 323 (SC).
9.1 In respect of assessee’s appeal, the ld. DR submitted that the assessee has also not claimed its claim u/s 43B in the return of income and, therefore, the AO has rightly added the same to the income of the assessee.
9.2 In respect of MAT credit, the ld. DR submitted that the assessee has not filed any working details and the CIT(A) also directed the AO to allow the applicable credit of MAT liability as per the finality of the assessments by the
:- 9 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
appellate authorities. He therefore, submitted that the order of the AO should be restored on this count.
The ld. AR, on the other hand, submitted that the CIT(A) has rightly allowed the assessee’s claim of Rs. 3,35,85,928/- u/s 43B because the same was disallowed in the previous assessment year and has paid during the year.
10.1 In respect of addition of Rs. 22,12,60,042/- made u/s 43B, he submitted that this amount has already paid, but it was not claimed in the original return of income. However, the assessee has rightly claimed before the AO in the revised computation of income and the CIT(A) after discussing the issue at length did not decide the issue. He therefore, requested the Bench to remit the matter to the file of the AO for verification of the payments made.
10.2 In respect of MAT credit, he requested that the same may be remitted to the file of the AO for verification and adjudication.
After considering the rival submissions and perusing the material on record as well as going through the orders of revenue authorities, in respect of the revenue appeal with regard to the allowability of deduction of Rs. 3,35,85,928/- u/s 43B by the CIT(A), we are of the view that the CIT(A) has rightly decided the issue is in favour of
:- 10 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
the assessee for the reason that it was paid after the due date of filing of the return of income and suo-moto it was disallowed in the respective year but the assessee is eligible as per section 43B that the amount to be allowed u/s 43B in the year in which the payments have been made. Therefore, we do not find any reason to interfere with the order of the CIT(A) on this count. In view of this the appeal of the revenue is dismissed.
11.1 In respect of assessee’s appeal, with regard to the claim of Rs. 22,12,60,042/- u/s 43B, the CIT(A) has discussed the issue at length, but could not adjudicate the issue. In this connection, we observe that the assessee did not claim this in the return of income, but, during the assessment proceedings, he filed revised computation of income claiming the said claim. As per the judgment of the Hon’ble Supreme Court in the case of Goetz (India) Ltd., 285 ITR 323 (SC), the appellate authority can accept the revised computation of income. Since the ld. AR requested that this issue may be remitted to the file of the AO for the purpose of verification and genuineness of the payments and the actual date of payments, we remit the issue to the file of the AO with a direction to decide the issue in accordance with law after providing opportunity of being heard to the assessee in the matter and the assessee is directed to file the necessary documents in support of his claim and avoid to unnecessary adjournments for early disposal of the case.
:- 11 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
11.2 In respect of MAT credit of Rs. 25,71,43,174/-, the CIT(A), remitted the issue to the file of the AO with a direction to allow the applicable credit of MAT liability as per the finality of the assessments by the appellate authorities. Before us, the ld. AR of the assessee undertook to file the details before the AO, which could not be filed during the assessment proceedings. Therefore, considering the prayer of the ld. AR of the assessee, we remit this issue to the file of AO for the purpose of verification and adjudication in accordance with law. The assessee is directed to file the details as required to substantiate its claim before the AO.
In the result, revenue appeal in ITA No. 637/Hyd/2020 is dismissed and the assessee’s appeal in 710/Hyd/2020 is treated as allowed for statistical purposes.
ITA No. 722/Hyd/2020 for AY 2014-15
This appeal of the revenue is directed against the order of CIT(A)-12, Hyderabad dated 15/09/2020 passed u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) for the AY 2014-15, wherein the revenue has raised the following grounds of appeal:
:- 12 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
“1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. The ld.CIT(A) erred in deleting the disallowance of Rs.90,00,000/- made towards 'provision of interest on delayed payment of welfare cess when admittedly it is a provision hence not allowable as expenditure. 3. The Ld.CIT(A) erred in deleting the disallowance of Rs.30,33,670/- made u/s.36(1)(va) towards delayed payment of employees' contribution to Provident Fund ignoring CBDT's Circular No.22 of2015 dated 17-12- 2015. 4. The Ld.CIT(A) erred in deleting the disallowance made towards prior period expenditure incurred towards customs duty of Rs.12,01 ,82,379/- on the basis of additional evidence filed by the assessee without affording an opportunity to the Assessing Officer under Rule 46A. 5. The Ld.CIT(A) erred in deleting the disallowance of Rs.29,61,24,000/ towards deduction claimed u/s.80IA in respect of other operating income from sale of metal, scrap and metals as such income cannot said to derive from an eligible business, in the assessee's case, from BOT projects. 6. The appellant craves leave to amend or alter any ground or grounds which may be necessary.”
Briefly the facts of the case are that the assessee company filed its return of income for the A.Y. 2014-15 on 30.11.2014 admitting total income of Rs. 30,03,73,970/- after claiming the deduction u/s. 80lA of the Act at Rs. 38,69,56,252/-. The case had been selected for scrutiny under CASS and a notice u/s. 143(2) was issued and duly
:- 13 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
served by the AO. Subsequently, notices u/s. 142(1} and 143(2} t.ws, 129 along with questionnaire were issued by the AD. After examining the material on record and the information furnished, assessment was completed by the Assessing Officer u/s. 143(3) of the Income Tax Act, 1961, making the following additions / disallowances:
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A), who partly allowed the appeal of the assessee.
The revenue is in appeal before us against the action of the CIT(A) in deleting the additions made by the AO.
The revenue has raised 6 grounds of appeal, out of which ground Nos. 1 & 6 are general in nature.
As regards ground No. 2 relating to the disallowance of Rs. 90,00,000/- towards provision of interest on delayed
:- 14 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
payment of welfare cess, during the course of assessment proceedings, the AO observed that the assessee company had debited an amount of Rs. 90,00,000/- towards interest on delayed payment of welfare cess, but, the same had not been paid by the assessee. He, therefore, disallowed the same on the ground that though the amount provided in the books of account, but, the same was not paid before filing of the return of income.
Before the CIT(A), the assessee, inter-alia, submitted that no reason was brought on record by the AO that the expenditure was not genuine. Further, the AO has not brought any evidence contradicting the genuineness of the above expenditure.
After considering the submissions of the assessee, the CIT(A) directed the AO to allow the interest on delayed payment on welfare cess of Rs. 90,00,000/- by observing as under: “9.3 I have carefully considered the submissions of the appellant, the order of the Assessing Officer as well as the evidence filed by the appellant's AR. The Assessing Officer disallowed interest on delayed payment of welfare cess amounting to Rs. 90,00,000/- stating that the same has not been paid by the assessee on or before the due date of filing of return. The AR contended that the Welfare cess is an allowable expenditure in the regular course of business and the interest paid for delay in making the payment of welfare cess is not in the nature of penalty as it does not amount to infraction of law or an illegal act and therefore is
:- 15 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
compensatory in nature and is an allowable expenditure. The AR also stated that in view of inherently risky construction business, the appellant company has created a provision for interest on welfare cess by estimating provision on reasonable basis basing on experience and historical trends and is wholly and exclusively for the purposes of business and is entitled for deduction u/s. 37 of the Act. 9.3.1 The contentions of the AO and the appellant's AR have been perused. Admittedly, the provision is created on account of interest on delayed payments of welfare cess and not on welfare cess itself. Section 43B(a} applies for disallowance of non payment of cess before the due date of filing of return but that does not apply to "interest" on delayed payment of welfare cess. The interest on delayed payments of welfare cess is compensatory in nature and is not penal in nature nor is it paid on account of infraction of law. Therefore the interest on delayed payment of welfare cess is an allowable expenditure u/s. 37 of the Act. The Assessing Officer is directed to allow the interest on delayed payment on welfare cess of Rs. 90,00,000/-. Accordingly, the grounds related to this issue are allowed.”
Before us, the ld. DR submitted that though the assessee has debited an amount of Rs. 90 lakhs towards interest on delayed payment of welfare cess and the same was not paid before filing of return of income and, therefore, the AO has rightly made the addition.
The ld. AR of the assessee on the other hand besides reiterating the submissions made before the CIT(A), submitted that the provision for interest on welfare cess
:- 16 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
has rightly made by the assessee because it has incurred present obligation as a result of past events. Further, he submitted that the expenditure incurred for the purpose of business is neither an offence nor is prohibited by law. He, therefore relied on the order of the CIT(A) and prayed for upholding the same.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) observed that the interest on delayed payments of welfare cess is compensatory in nature and is not penal in nature nor is it paid on account of infraction of law. This expenditure is also not covered under section 43B of the Income Tax Act. 1961. The Hon’ble Supreme Court in the case of CIT Vs. McDowell & Co. Ltd., [2009] 180 Taxman 514(SC), observed that section 43B applies to payments relatable to tax, duty, cess or fee and the interest chargeable for late payment does not amount to tax duty and cess. Therefore, we do not find any reason to interfere with the order of the CIT(A) in directing to allow the assessee’s claim of Rs. 90 lakhs towards interest on delayed payment on welfare cess and accordingly, upholding the same, we dismiss the ground raised by the revenue on this issue.
As regards ground No. 3 relating to disallowance of Rs. 30,33,670/- made u/s 36(1)(va) towards delayed
:- 17 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
payment of employees’ contribution, during the course of scrutiny proceedings, the AO observed from the audit report in Form No. 3CD that the sum received from employees to an extent of Rs. 30,33,670/- towards PF was not credited within the specified due dates. He, therefore, disallowed the said amount.
Before the CIT(A), the assessee submitted that though the employees contribution was not paid within the due date as per the PF Act, the same was paid before the due date of filing of return of income and hence claimed that the deduction is allowable u/s 36(1)(va) rws 43B of the Act.
The CIT(A) after considering the submissions of the assessee and relying on various case laws, directed the AO to delete the addition made on this count.
Before us, the ld. DR, relied on the orders of revenue authorities and submitted that since the assessee failed to remit the employees contributions towards PF & ESI, within the due date as prescribed under the respective Acts, the AO disallowed the same u/s 36(1)(va) of the Act.
The ld. AR of the assessee, on the other hand, besides relying on the order of the CIT(A), submitted that though the employees contribution was not paid within the due date as per the PF Act, the same was paid before the due
:- 18 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
date of filing of return of income. For this proposition, he relied on the following cases: 1. CIT Vs. Kichha Sugars, 36 taxmann.com 54. 2. Secunderabad Hotels Pvt. Ld. Vs. ACIT, ITA No. 268/Hyd/2020 3. M/s Sanzyme Pvt. Ltd. Vs. DCIT, ITA No. 542/Hyd/2020. 29. We have considered the submissions of Ld. DR and perused the material on record as well as gone through the orders of revenue authorities. It is observed that the assessee had filed its return income on 10/09/2019 and filed its revised return of income on 30/11/2020 against the extended due date for filing of original return on 31/10/2019. The assessee submitted before the lower authorities that the employees’ contributions to PF & ESI paid after the due date, but, before the due date of filing the return of income. Therefore, the issue has been settled that if the assessee has paid the PF and ESI payments before the due date of filing of return income u/s 139(1) of the Act, no disallowance is warranted as held by the coordinate bench of the ITAT Hyderabad in case of ITA No. 2197/Hyd/2017 for Assessment Year: 2013-14, in case of Value Momentum Software Services Private Limited, Vs Deputy Commissioner of Income Tax, in which, it was held as under:
“5. Next comes the latter issue of Section 43B disallowance of Rs.8,11,648/- pertaining to employees provident fund. It is not in dispute that learned lower
:- 19 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
authorities held that the same had to be deposited before the due date prescribed in the corresponding statute than the due date for filing Section 139(1) return. The Revenue’s case in tune thereof relies on Section 36(va) read with explanation thereto that it is not Section 43B but the former provision which is applicable in such an instance. We find no merit in the Revenue’s foregoing stand. We take note of the explanatory memorandum to the Finance Act, 2021 proposing amendment in both Section 36(va) as well as Section 43B by inserting corresponding Explanations that although the impugned employees provident fund comes under the former provision only, the same is applicable from 01-04-2021 onwards. Meaning thereby that the legislature itself has condoned the impugned default before 01-04-2021. We thus delete the impugned employees provident fund disallowance of Rs.8,11,648/- for this precise reason alone. Necessary computation to follow as per law.”
29.1 As the issue is settled that if the assessee is remitted the employees contribution towards PF & ESI before filing of the return u/s 139(1) of the Act, no disallowance can be made under these heads. Therefore, following the decision of the coordinate bench cited supra, we direct the AO to delete the addition made on account employees contribution of PF & ESI of Rs. 30,33,670/-. Accordingly, the grounds raised by the assessee on this issue are allowed.
As regards ground No. 4 relating to disallowance of Rs. 12,01,82,379/- towards prior period expenditure incurred towards customs duty, the AO observed that the Company had debited an amount of Rs.12,01,82,379
:- 20 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
towards Customs duty and C&F charges on imports bills. When requested the assessee to furnish the details of the imports made and amount paid towards customs duty and C& F charges. The assessee submitted the invoices and bills for the F.Y 2010-11. The AO observed that when the amount paid which pertains to the other financial year, which is not to the current year which is under consideration amounts to prior period expenditure. The AO, therefore, opined that the same will not be allowed under the Act and, hence, disallowed the same and brought to tax.
Before the CIT(A), the assessee filed written submissions, which were extracted by the CIT(A) in his order at pages 23 to 25.
After considering the submissions of the assessee, the CIT(A) directed the AO to allow the payment of customs duty of Rs. 12,01,82,379/- by observing as under: “10.3 I have carefully considered the submissions of the appellant, the order of the Assessing Officer as well as the evidence filed by the appellant's AR. The Assessing Officer disallowed an amount of Rs. 12,01,82,379/- towards Customs duty and C&F charges on import bills stating that the same pertains to F.Y.2010-11 which is a prior period expenditure and is not related to the current year. During the appellate proceedings, the AR submitted that as per contractual norms, the contract has been entered in F.Y. 2010-11 wherein the sister concern of the appellant has discharged the custom duty that arose in the F.Y. 2010-11 and paid a total amount of Rs. 12,01,82,379/- on behalf of the appellant
:- 21 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
company. Subsequently, the sister concern has raised the invoice against the appellant company in the FY 2013-14 for the custom duty it discharged in the FY 2010-11 on behalf of the appellant company. On receipt invoice from the sister concern, appellant company has discharged the liability and booked the said expenditure in the year and has cleared the payment. 10.3.1 In view of the above factual matrix, the appellant contended that since liability to discharge the payment arose in F.Y. 2013-14 and also that the concerned payment was made in F.Y. 2013-14, the expenditure is an allowable in the current year. It was also stated that the expenditure incurred by the appellant is genuine and no disallowance on the said expenditure can be made for the year under consideration. The AR also filed a copy of the invoice raised in respect of Customs duty wherein the invoice is dated 30.11.2013 (for contract dated 28.06.2010) for an amount of Rs. 12,01,82,379/-. It was also stated by the AR that the appellant company has neither booked the said expenditure in any of the earlier years nor has made payment in respect of such expenditure in any of the previous years. It was averred that the Assessing Officer erred in misinterpreting the meaning of 'Prior Period Expenses', though the custom duty was related to F.Y. 2010-11 but the liability for payment arose in FY 2013- 14 and thus the expenditure is crystallized in F.Y. 2013- 14 relevant to the A.Y.2014-15 and the same is allowable in the current year and should not be treated as Prior Period Expenditure. 10.3.2 I have carefully considered the contention of both the AO and the AR. It is not in dispute that the invoice dated 30.11.2013 was raised by Simhapuri Energy Limited (appellant's sister concern) for a sum of Rs. 12,01,82,379/- in the current year which pertains to a contract dated 28.06.2010. There is no dispute on the fact that the invoice was paid in the current year. The liability to pay the invoice arises only when the invoice
:- 22 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
has been raised on the appellant company and not before that. As per the appellant's contractual terms, the appellant's sister concern has discharged the Customs duty liability on its behalf and thereafter raised invoice against the appellant company in the current year. Since the invoice was raised during the current year, the liability for the same has arisen in the current year and has come payable in the current year. The expenses due but not payable in earlier year years can be provided for in the books in the period when it is accrued but can be claimed in the year when it is crystallized. In the present case, the expenditure became payable or crystallized only when the invoice was raised on the appellant by its sister concern and not in the year in which the sister concern has paid the Customs duty on behalf of the appellant. Therefore, the Assessing Officer is not correct in disallowing the payment of Customs duty as Prior Period expenses. The Assessing Officer is directed to allow the payment of Customs duty of Rs.12,O1,82,379/-. Accordingly, the grounds related to this issue are allowed.
Before us, the ld. DR besides relying on the order of the AO submitted that since the amount paid pertains to other financial year, which is not to the current year which is under consideration amounts to prior period expenditure and, therefore, the AO has rightly disallowed the same.
The ld. AR of the assessee, on the other hand besides relying on the order of the CIT(A) and reiterating the submissions made before the CIT(A) submitted that the AO erred in disallowing the expenditure claimed without taking into consideration that the expenditure was crystalized during the year under consideration and not in
:- 23 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
the AY 2011-12. He further submitted that in none of the earlier years the same was claimed and allowed by the AO. He, therefore, submitted that the order of the CIT(A) be upheld. He relied on the following case law: 1. Ocimum Bio Solutions India Ltd. Vs. ITO, ITA No. 2090/Hyd/2016 2. CIT Vs. Mahanagar Gas Ltd., [2014] 42 taxmann.com 40 (Bombay) 3. Pr. CIT Vs. Rajasthan State Seed Corporation, [2017] 88 taxmann.com 445 (Rajasthan) 4. Madhurai Tutikorin Expressways Ltd., ITA No. 2332/Hyd/2018.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) observed that in the present case, the expenditure became payable or crystalized only when the invoice was raised on the appellant by its sister concern and not in the year in which the sister concern has paid the customs duty on behalf of the appellant. In the decision of the coordinate bench of ITAT, Hyderabad in the case of Ocimum Bio Solutions India Ltd., (supra), on which reliance placed by the assessee, the coordinate bench held as under: “ 3. Learned departmental representative's vehement contention during the course of hearing is that both the lower authorities have rightly disallowed the assessee's impugned prior period expenditure claim for the precise reason that the same ought to have been claimed in the relevant previous year in which the same was incurred. The assessee's case on the other hand is that it claimed the instant head of expenditure only in
:- 24 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
the year of crystalisation i.e. AY.2014-15 than the earlier corresponding assessment year(s). It is an admitted fact that the Assessing Officer's as well as the CIT{A) 's detailed discussions have been fair enough in not disputing this clinching crystalisation aspect. Coupled with this, the assessee has been assessed at the same rate all along. The hon 'ble Gujarat high court's decision in PClT Vs. Adani Enterprises Ltd., (Tax Appeal No.566 of 2016) holds that the impugned prior period expenditure disallowance in such a case ought not to be made as it is a revenue neutral instance only. We adopt the same reasoning herein as well and direct the Assessing Officer to delete the impugned disallowance. The assessee's former substantive ground is accepted therefore.”
35.1 As the issue in dispute is materially identical to that of the case decided by the coordinate bench cited supra, respectfully following the same, we uphold the order of the CIT(A) and dismiss the ground raised by the revenue on this issue.
As regards ground No. 5 relating to the disallowance of Rs. 29,61,24,000/- towards deduction claimed u/s 80IA, the AO observed that the assessee filed return of income declaring total income of Rs. 30,03,73,970/- after claiming deduction u/s 80IA of the Act to Rs. 38,69,56,252/-. During the scrutiny assessment proceedings, the AO observed from P/L Account the assessee has two types of revneue i.e., Income from Revenue operations 865,31,42,000/- other operating income 32,48,22,000/-. At notes 2.19 the details of revenue from operations consists of operating Income
:- 25 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
from civil engineering projects of Rs. 838,14,76,000/- and other operating income from sale of metal, scrap and others 27,16,66,000/-. At notes 2.20 the details of other income from (a) interest income Rs.30,03,74,000/- (b) other non- operating Income 2,44,48,000/-.
36.1 On verification it was noticed that profit before tax of Rs.49,72,03,745/- as per P/L account was taken to computation. The net Income of Rs.30,03,73,968/- is arrived after claiming deduction u/s 80IA excluding Income from other sources of Rs. 30,03,73,968/- which is separately considered for taxation. But all other incomes l.e. from 'sale of metal, scrap and others' income shown Note No.2.19(ii) of Rs. 27,16,66,000 and other non- operating Income shown in Note No.2.20(b) of the financial statement of Rs.2,44,48,OOO totaling to Rs.29,61,24,OOO were allowed and arrived the profits eligible for deduction u/s 801A.
36.2 In this regard Sub section (1) of section 80lA of the Act stipulates the profit eligible for deduction that where the gross total Income of the assessee includes any profit and gains derived by undertaking or enterprises from any business referred to in sub section (4) (such business being hereinafter referred to as the eligible business) there shall, in accordance with the and subject to the provisions of this section be allowed in computing the total income of the
:- 26 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
assessee, a deduction of an amount equal to 100% of the profit and gain derived from such business for ten consecutive assessment years. Hence, section 80lA is profit linked incentives in respect of the income derived by the eligible business, the income from sale of metal, scrap and other incomes earned otherwise are not derived directly from eligible business i.e. in the present case from BOT projects and the same are not eligible for deduction under sec.80IA. In view of the above observations, the AO held that income from sale of metal, scrap & other incomes and other non-operating Income total amounting to Rs.29,61,24,OOO is required to be added to the Income thereby disallowing the excess claim of Rs.29,61,24,000/-.
Before the CIT(A), the assessee filed elaborate written submissions, which were extracted by the CIT(A) in his order at pages 28 to 34.
After considering the submissions of the assessee, the CIT(A) allowed the assessee’s claim of deduction u/s 80IA of the Act by observing as under:
:- 27 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
Before us, the ld. DR relying on the order of the AO submitted that section 80IA is applicable profit linked incentives in respect of the income derived by the eligible business, the income from sale of metal, scrap and other incomes earned otherwise are not derived directly from eligible business as in the present case from BOT projects and the same are not eligible for deduction u/s 80IA.
The ld. AR of the assessee on the other hand besides relying on the order of the CIT(A) reiterated the submissions made before the CIT(A) and further submitted
:- 28 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
that the AO has allowed the assessee claim u/s 80IA(4) in the earlier AY 2013-14 and further in earlier AYs 2007-08 and 2008-09 and subsequent years the deduction u/s 80IA was allowed only after taking into consideration the fact that the eligibility of the claim includes sale of scrap materials. He submitted that the CIT(A) after appreciating the facts on record allowed the assessee’s claim of deduction u/s 80IA, hence, the order of the CIT(A) be upheld. He relied on the following cases: 1. CIT Vs. Jagadishprasad M. Joshi, 318 ITR 420 (Bom.) 2. DCIT Vs. JVK Infra Pvt. Ltd., ITA No. 1404/Hyd/2017 40.1 In addition to the above arguments, the ld. AR referred to the Circular No. 37/2016, dated 2nd November, 2016 issued by the CBDT, which is applicable in the present case.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) after considering the submissions of the assessee in this regard observed in para No. 11.4.1 in his order that the issues pertaining to discount, sale of scrap, insurance claims, miscellaneous incomes, sale of old batteries, sale of waste oil etc., were elaborately discussed and adjudicated in the assessee’s own case by ld. CIT(A) in AY 2013-14 in appeal No. 10442/2019-20 dated 31.08/2020 relying on the decision
:- 29 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
of the Hon’ble Supreme Court in the case of CIT Vs. Chambal Fertilizer & Chemicals Ltd., 257 taxman 93 (SC) [2018]. The assessee company is engaged only in the business of execution infrastructure projects and no other activities were carried out by the assessee. On perusal of the computation of income filed by the assessee which is placed at page No. 2 of the paper book, the assessee has shown income from business at Rs. 38,69,56,252/- to which the assessee has claimed deduction u/s 80IA of the Act. Further, the assessee has shown income from other source, which is interest on bank deposits and others to the tune of Rs. 30,03,73,968/-, which is offered for tax, to which the AO has considered while computing the taxable income of the assessee. The contention of the ld. DR is not acceptable that the income from sale of metal, scrap and other incomes earned otherwise are not derived directly from eligible business as in the present case from BOT projects and the same are not eligible for deduction u/s 80IA. We rely on the decision of the ITAT, Chennai in the case of L&T Transportation Infrastructure Ltd. Vs. ITO, [2011] 12 taxmann.com 499 (Chennai) wherein the coordinate bench has observed as under: “18. The last issue relates to scrapsales. We find force in the submissions of the ld. Authorized Representative in this respect. We find that sale of scrap represents the sale of left over materials which were acquired for developing road. No material has been brought on record by the lower authorities to controvert the above submission of the assessee. Thus we agree that the above sale of scrap was intimately connected with the business of developing operating and maintaining infrastructure facility and income from such sale goes on to reduce the expenditure of developing the infrastructure facility and truly speaking the same is not an independent
:- 30 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
income to the assessee. We therefore, delete the disallowance of deduction under section 80-IA in respect of the sale of scrap and allow this part of the ground of the assessee.”.
As the issue in dispute is similar to the issue decided by the coordinate bench of ITAT, Chennai cited supra, respectfully following the same, we do not find any infirmity in the order of the CIT(A) in allowing the assessee’s claim of deduction u/s 80IA. Accordingly, we uphold the order of the CIT(A) on this issue and dismiss the ground raised by the revenue in this regard.
In the result, appeal of the revenue is dismissed.
To sum up, revenue’s appeal in ITA No. 637/Hyd/2020 and ITA No. 722/Hyd/2020 are dismissed and the assessee’s appeal in 710/Hyd/2020 is treated as allowed for statistical purposes in above terms. A copy of this common order be placed in the respective case files.
Pronounced in the open court on 13th April, 2022.
Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 13th April, 2022. kv
:- 31 -: ITA Nos.. 637, 710 & 722/Hyd/2020 M/s Madhucon Projects Ltd., Hyd.
Copy to : 1 ACIT, Central Circle –2 (1), Room No. 612, 6th floor, Aayakar Bhavan, Basheerbagh, Hyderabad. 2 M/s Madhucon Projects Ltd., P.No. 8-2-293/82/A/1129A, Road No. 36, Jubilee Hills, Hyderabad – 500 033 3 CIT(A) – 12, Hyderabad. 4 The Pr. CIT (Central), Hyderabad ITAT, DR, Hyderabad. 5 Guard File. 6