DCIT, CIRCLE - 8(2), KOLKATA , KOLKATA vs. M/S. SPML INFRA LIMITED , KOLKATA

आदेश / O R D E R Per A.L. Saini, AM:

The captioned cross appeals filed by the Assessee as well as Revenue, pertaining to assessment year 2011-12, are directed against the order passed by the Ld. Commissioner of Income Tax (Appeal)-3, Kolkata in appeal no.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 10812/CIT(A)-3/R-8/Kol/15-16, which in turn arise out of assessment order passed by the Assessing Officer u/s 263 / 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 20/12/2016.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 Sintex in his statement has confirmed that sub-contract and payments on completion of work both were received from the appellant. 6. That, as the order of Ld. C.I.T.(A) on the above facts suffers from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 7. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 issued by M/s SPML Infra Ltd. It is also pertinent to mention that M/s SPML Infra Ltd, has deducted TDS on such contract and the same was passed on to M/s Silicon Real Estate (P) Ltd. by the M/s Sintex Infra after deducting the TDS. Under such facts and circumstances, it appeared to Assessing Officer that the entire work subcontracted ultimately to M/s Silicon Real Estate (P) Ltd. was sourced from M/s SPML Infra Ltd. Under the above circumstances, the assessee was asked to explain that why the expenses of Rs. 5,42,00,000/- should not be treated as bogus.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 deducting TDS. All projects in respect of which work was given to M/s Sintex Infra Projects Ltd. are Govt, projects and are duly monitored by the various Government Authorities, therefore genuineness of the transactions cannot be doubted. The ld. Counsel further submitted that assessee company was not given an opportunity to cross examine the statements of Shri P.K. Singha and Shri Narayan Maheswari, therefore, Assessing Officer has violated the principles of natural justice and therefore addition made by AO should be deleted.

8.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We note that Ld. CIT(A) disallowed the expense only on the basis of statement of Sri Pranay Kumar Sinha, director of M/s Silicon Real Estate Pvt Ltd. and Statement of Sri Narayan Maheshwari, CFO of M/s Sintex Infra Projects Ltd. In this connection ld Counsel submitted before us that the assessee during the relevant assessment year had given Labour contract for Hard Rock Chiselling using rock hammers and chisels, stacking on road side for pipe line trenches, carting excess earth and other similar labour job to M/s Sintex Infra Projects Ltd. in relation to following projects:

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211 s. 1228 & 1211/Kol/2018 Assessment Year: Assessment Year:2011-12 (i).T K Hally Projects: TK Hally Project was awarded by the original party T K Hally Projects: TK Hally Project was awarded by the original party T K Hally Projects: TK Hally Project was awarded by the original party BWSSB (govt.) to joint venture SPML & Kirloskar BWSSB (govt.) to joint venture SPML & Kirloskar. SPML Infra Ltd SPML Infra Ltd, Assessee company provided the labour contract for Hard Rock Chiselling to Sintex Infra company provided the labour contract for Hard Rock Chiselling to Sintex Infra company provided the labour contract for Hard Rock Chiselling to Sintex Infra Projects Ltd. The total work done by Sintex in this project is Rs. 4,68,32,646/ Projects Ltd. The total work done by Sintex in this project is Rs. 4,68,32,646/ Projects Ltd. The total work done by Sintex in this project is Rs. 4,68,32,646/-. (ii) Jamui Projects :The total work done by Sintex Infra Projects Ltd. in this The total work done by Sintex Infra Projects Ltd. in this The total work done by Sintex Infra Projects Ltd. in this projects is Rs. 74,48,980/ cts is Rs. 74,48,980/-. The total amount paid to Sintex Infra Projects Ltd . The total amount paid to Sintex Infra Projects Ltd is to the tune of Rs. 5,42,81,626/ Rs. 5,42,81,626/-( copies of invoices issued by M/s Sintex Infra ( copies of invoices issued by M/s Sintex Infra Projects Ltd. are enclosed at page 284 Projects Ltd. are enclosed at page 284-293 of the paper book).As per the invoices, As per the invoices, the activities under taken by M/s Sintex Infra Projects Ltd. are as under: under taken by M/s Sintex Infra Projects Ltd. are as under: under taken by M/s Sintex Infra Projects Ltd. are as under:

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211 s. 1228 & 1211/Kol/2018 Assessment Year: Assessment Year:2011-12

From the above table, it is apparent that M/s Sintex Infra Projects Ltd has well From the above table, it is apparent that M/s Sintex Infra Projects Ltd has well From the above table, it is apparent that M/s Sintex Infra Projects Ltd has well described the type of work undertaken by it for the assessee. In the case of TK described the type of work undertaken by it for the assessee. In the case of TK described the type of work undertaken by it for the assessee. In the case of TK Hally projects, Sintex Infra P Hally projects, Sintex Infra Projects Ltd provided firstly, chiselling hard rock, then rojects Ltd provided firstly, chiselling hard rock, then shifting of hard rock and finally carting excess earth and removing soft rock. In the shifting of hard rock and finally carting excess earth and removing soft rock. In the shifting of hard rock and finally carting excess earth and removing soft rock. In the case of Jamui Project, Sintex Infra Projects Ltd had Constructed Road including case of Jamui Project, Sintex Infra Projects Ltd had Constructed Road including case of Jamui Project, Sintex Infra Projects Ltd had Constructed Road including clearing, filling, levelling and clearing, filling, levelling and disposal along with excavation, disposal of excess disposal along with excavation, disposal of excess earth. Hence, ld Counsel submitted that ld Counsel submitted that all the works were duly executed by all the works were duly executed by Sintex Infra Projects Ltd and the payment were made accordingly through bank Sintex Infra Projects Ltd and the payment were made accordingly through bank Sintex Infra Projects Ltd and the payment were made accordingly through bank after deduction of TDS.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 section (1) of section 139, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or] (ii) to produce or cause to be produced, such accounts or documents as the Assessing Officer may require, or (iii) to furnish in writing and verified in the prescribed manners information in such form and on such points or matters (including a statement of all assets and liabilities of the ……………………………. (2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. ……………………………….. (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilized for the purpose of the assessment.” ………………………………

With reference to section 142 of the Act, it is seen that the said section lays down the procedure of the enquiries that are to be conducted before assessment whereby vide section 142(1), it is laid out that the A.O. is to serve notice on the Assessee and the Assessee is to produce all relevant accounts/documents as the A.O. may require. Next, vide section 142(2) it is laid out that the Assessing officer is required to make all such inquiry as he considers necessary for the purpose of obtaining full information in respect of the income or loss of the Assessee. In immediate succession is the section 142(3) which lays down that in respect of the material gathered on the basis of the said inquiry and which is proposed to be utilized for the purposes of the assessment, the A.O. is to give the Assessee an opportunity of being heard on the same. Applying the above sections to the case of the assessee, it is firstly seen that the Ld. A.O. vide the Notice dated 03.09.2016, asked the assessee to show cause why the said expenses of Rs.5.42 crores should not be treated as bogus. The assessee in response to the said notice furnished all the details and documents before the A.O. and asked the A.O. to provide the

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 opportunity to examine the copies of statement recorded and also the opportunity to the cross examine the said parties on the basis of whose statement the expenses were held to be bogus. The A.O. has nowhere raised any doubts on the said evidences as filed by the assessee before him in response to the show cause notice.

Thereafter, the Ld. AO provided the copy of the statement of Sri Narayan Maheshwar, CFO of Sintex Infra Projects Ltd recorded on 28.03.2014 and Sri Parnay Kumar Sinha, Director of Silicon Real Estate Pvt Ltd. recorded on 12.03.2014. However, the Ld. AO neither provided opportunity to cross examine the said parties nor he himself called them for examination. If the A.O. doubted the veracity of the said evidences/documents produced, he should have, having called for the said information/documents, conducted inquiries relating to the said documents by calling the information from Sintex Infra Projects Ltd and Silicon Real Estate Pvt Ltd. and also examining them. Then after all such inquiries if the A.O. found that the veracity of the evidences/documents were submitted by the assessee were not genuine, then the A.O., as per requirement of section 142(3) of the Act, should have provided the inquiry documents (in the form of possible evidences and statements recorded of concerned persons) to the assessee for verification and cross examination. The A.O. in the assessee`s case, before arriving at the adverse conclusion of rejecting the contention of the assessee, has admittedly, done nothing of the above which was the absolute pre requisite to the law. Thus, if there was no doubt about the genuineness of the said documents and if it needed no further inquiry then how come the A.O. arrived at his adverse conclusion on the basis of some so called information from JCIT, Range-8, Ahmedabad.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 what enquiry the A.O. has conducted after coming to know of such information. It is also an admitted fact that the fact of any such information and any such enquiry on the same was never made known to the Assessee as mandated by section 142(3) of the Act. Thus it is not understood as to how the Ld. A.O. framed the assessment in the case of the assessee by utilizing such information and how the A.O. drew adverse conclusion at to the claim of the assessee that it had incurred bogus expenditures. The ld. Counsel submitted before us that assessment order framed by Assessing Officer is not as per the scheme of section 142 of the Act, as explained above, therefore order passed by Assessing Officer should be quashed.

The ld Counsel further submitted before us that it is also the matter of fact that both the projects undertaken by the assessee were Government projects and were duly monitored by the authorities who have given the said projects to the assessee. No doubt was raised by the Ld. AO regarding the genuineness and validity of the project awarded to the assessee by the government. The Ld. AO also accepted that the labour contract was given to Sintex Infra Projects Ltd in relation to both the projects. Invoices raised by Sintex Infra Projects Ltd were duly accepted by the Ld. AO. It was also accepted by the Ld. AO that the payment were made through bank and TDS was also deducted. The aforesaid facts were not available in the information received from JCIT, Ahemdabad, nor were it obtained from Sintex Infra Projects Ltd or Silicon Real Estate Pvt Ltd. The assessee himself during the period of assessment proceedings provided the details of the aforesaid facts. Thus, the project being the government project, the expenditures were incurred in relation to these projects. It would be absurd to say or assume that the authorities who have given the projects had sanctioned or approved the assessee’s work and had made payments to it without assessee having done the job as entrusted to it, a part of which was given to Sintex Infra Projects Ltd. The Government Authorities were obviously satisfied with the work done by the assessee and only after examining the work, payment was made by them to the assessee company. Hence, after the major facts being on record, it was the responsibility of the Ld. AO to conduct proper enquiry in this respect. Simply relying on the statements recorded by the Jurisdictional AO of Sintex Infra Page | 10

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 Projects Ltd and Silicon Real Estate Pvt Ltd. do not justify that the Ld. AO had conducted proper enquiry. It is settled law that the addition cannot be made solely based on third party information. Any third party information received shall be subject to further enquiry and assessment shall be made with proper application of mind. For that we rely on the Judgment of Hon`ble Supreme Court in the case of Commissioner of Income Tax vs. Odeon Builders Pvt. Ltd. (21.08.2019-SC) [2019] 418 ITR 315 (SC), where it was held as follows: “3. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted." 4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.”

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 the year under appeal, of Rs.284.00 crores and had disclosed a profit of Rs. 19.23 crores in its Profit & Loss account. A copy of the audited accounts as downloaded from the ROC site of the said party is enclosed at page 244-283 of the Paper Book. As per the information so received form JCIT, Ahmedabad, it was stated that:- “In the said statement, Mr. Maheshwari stated that such work order was arranged to his company by one Mr. Anshu Balbir. Sri Maheshwari has categorically stated that his company has received the entire work of Rs.23,92,37,351/- on back to back basis from five companies.”The turnover from the five companies was Rs.23,92,37,351/- whereas the total turnover comprises of 284 crores. This very clearly shows that M/s Sintex Infra Projects Ltd had also undertaken several other projects during the year. Only on the basis of the statement without any material evidence in this regard, it cannot be deemed that the expenditure was incurred by Sintex Infra Projects Ltd only in relation to this five projects. The ld Counsel also submitted that the Ld. AO relied on the statement of Sri Narayan Maheshwari, CFO of M/s Sintex Infra Projects Ltd. In this regard it is submitted that the said statement was not recorded by the Jurisdictional AO of the assessee but was recorded by the Jurisdictional Assessing Officer of Sintex Infra Projects Ltd. The statement was recorded during the assessment stage in the case of Sintex Infra Projects Ltd. on the basis of the statement provided by P.K. Sinha in the case of Silicon Real Estate Pvt. Ltd. The relevant extract of the statement is produced as under:

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211 s. 1228 & 1211/Kol/2018 Assessment Year: Assessment Year:2011-12

Analyzing the aforesaid statement so recorded, it ing the aforesaid statement so recorded, it was submitted s submitted by ld. Cousnel that if the statement of Mr. S N Maheshwari is to be relied then it is accepted fact that if the statement of Mr. S N Maheshwari is to be relied then it is accepted fact that if the statement of Mr. S N Maheshwari is to be relied then it is accepted fact in his statement that he had nowhere stated that M/s Sintex Infra Projects Ltd is in his statement that he had nowhere stated that M/s Sintex Infra Projects Ltd is in his statement that he had nowhere stated that M/s Sintex Infra Projects Ltd is involved in providing accommodation entry and no such information has been involved in providing accommodation entry and no such information has been involved in providing accommodation entry and no such information has been received by revenue authorities from any other source. Moreover, he has stated evenue authorities from any other source. Moreover, he has stated evenue authorities from any other source. Moreover, he has stated that the certificate of completion was received by them on completion of the work that the certificate of completion was received by them on completion of the work that the certificate of completion was received by them on completion of the work which clearly shows that the work was actually executed. which clearly shows that the work was actually executed. However, the Ld.AO did However, the Ld.AO did not verify the statement so not verify the statement so recorded by the Jurisdictional AO of M/s Sintex Infra recorded by the Jurisdictional AO of M/s Sintex Infra Projects Ltd. The Ld. AO could have called for the certificate of completion from Projects Ltd. The Ld. AO could have called for the certificate of completion from Projects Ltd. The Ld. AO could have called for the certificate of completion from Sintex Infra Projects Ltd. He also could have issued notice u/s 133(6) and called Sintex Infra Projects Ltd. He also could have issued notice u/s 133(6) and called Sintex Infra Projects Ltd. He also could have issued notice u/s 133(6) and called for the invoices raised by M/s Silicon for the invoices raised by M/s Silicon Real Estate (P) Ltd, copy of bank statement, Real Estate (P) Ltd, copy of bank statement, receipts and payments details and also the documents/evidence which shows the receipts and payments details and also the documents/evidence which shows the receipts and payments details and also the documents/evidence which shows the

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 projects of the assessee were actually sub-contracted by Sintex Infra Projects Ltd to Silicon Real Estate Pvt Ltd.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211 s. 1228 & 1211/Kol/2018 Assessment Year: Assessment Year:2011-12

From the above statement, it is clear that no information has been receiv From the above statement, it is clear that no information has been receiv From the above statement, it is clear that no information has been received against the assessee and nowhere the name of the assessee company was mentioned. Even the assessee and nowhere the name of the assessee company was mentioned. Even the assessee and nowhere the name of the assessee company was mentioned. Even the Assessee company was not aware that their sub the Assessee company was not aware that their sub-contractor has further sub contractor has further sub- contracted the impugned work. Further, no any such material or evidence was contracted the impugned work. Further, no any such material or evidence was contracted the impugned work. Further, no any such material or evidence was obtained by the assessing officer from Silicon Real Estate Pvt Ltd from which it e assessing officer from Silicon Real Estate Pvt Ltd from which it e assessing officer from Silicon Real Estate Pvt Ltd from which it can be ascertained that M/s Sintex Infra Projects Ltd had sub can be ascertained that M/s Sintex Infra Projects Ltd had sub-contracted projects contracted projects of assessee company to them. Hence, this statement cannot be considered as basis of assessee company to them. Hence, this statement cannot be considered as basis of assessee company to them. Hence, this statement cannot be considered as basis for disallowing the expens for disallowing the expenses of Rs.5.42 crores. Moreover, it is also a matter of fact Moreover, it is also a matter of fact that both the aforesaid statements of the third party were recorded at the back of that both the aforesaid statements of the third party were recorded at the back of that both the aforesaid statements of the third party were recorded at the back of the assessee and therefore these statements could not be the basis for making the the assessee and therefore these statements could not be the basis for making the the assessee and therefore these statements could not be the basis for making the addition. The assessee vide sub The assessee vide submission dated 31.10.2016 submitted on 02.11.2016 mission dated 31.10.2016 submitted on 02.11.2016 requested the Ld. AO to afford an opportunity of cross requested the Ld. AO to afford an opportunity of cross-examination of both the examination of both the parties so as to enable the assessee to rebut the contentions raised by the parties so as to enable the assessee to rebut the contentions raised by the parties so as to enable the assessee to rebut the contentions raised by the assessing officer on the basis of their statements. on the basis of their statements. Copy of the submission is enclosed at Copy of the submission is enclosed at page 108-115 of the Paper Book. 115 of the Paper Book. However, the Ld.AO did not provide opportunity for However, the Ld.AO did not provide opportunity for cross-examination which had lead to violation of principle of natural justice. examination which had lead to violation of principle of natural justice. examination which had lead to violation of principle of natural justice. It is settled law that denial of opportunity to the appellant to cross examine witnesses settled law that denial of opportunity to the appellant to cross examine witnesses settled law that denial of opportunity to the appellant to cross examine witnesses whose statements have been relied upon is contrary to the principles of natural whose statements have been relied upon is contrary to the principles of natural whose statements have been relied upon is contrary to the principles of natural justice. For that we rely on the For that we rely on the decision of the Hon’ble Supreme Court in the case Hon’ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise ndaman Timber Industries vs. Commissioner of Central Excise ndaman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) wherein it was held wherein it was held as follows: Page | 15

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 “5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses”.

We note that assessee asked the AO to provide the opportunity to cross examine the parties whose statement was relied upon, however the same was not provided. Further, the assessee also pleaded before the ld CIT(A) for cross examination, however, ld CIT(A) ignored the same and confirmed the addition made by AO only on the basis of statement of third parties which was recorded at the back of the assessee, which violates the principle of natural justice.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 We note that during the assessment stage, the assessee submitted the following documents and evidences: (i).Bills raised by M/s Sintex Infra Projects Ltd. (ii).Ledger Copy of M/s Sintex Infra Projects Ltd (iii).Bank Statement highlighting the payments made to the said party. (iv). TDS has been deducted properly as per the rate prescribed in the Income Tax Act.

The ld assessing officer did not find any mistake in these material evidences/ documents except to say that explanation of the assessee is not acceptable. We note that payments have been made through banking channels after deduction of TDS and AO has failed to bring any cogent evidence on record to demonstrate that these documents/evidences are false. Therefore, addition made by the assessing officer needs to be deleted and accordingly we delete the addition of Rs. 5.42 Crores.

For the sake of academic discussion, we also note that aforesaid two projects are infrastructure projects specified u/s 80IA of the Act and 100% profit from such infrastructure project is allowed as deduction u/s 80IA of the Act. Even if the disallowance of Rs.5.42 crores is made, there would be no impact on the tax liability of the assessee, as disallowance of the expenditure of Rs.5.42 crores will increase the profit u/s 80IA of the Act and such increased profit will be allowed as deduction u/s 80IA of the Act.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 1. That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs. 14,83,51,419/- on account of provision of Future Loss being unascertained liability.

We note that before the ld. CIT(A), the assessee furnished the detailed submission in respect of the provision for future losses of Rs. 14,83,51,419/- claimed by the assessee. After considering the submission, the ld. CIT(A) examined the facts of Page | 18

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 the assessee’s case along with the related decision of ITAT Mumbai and ITAT Pune and reached to the following conclusion:

i) The contract should be fixed price contracts. ii) The contractor is liable to claim foreseeable losses on the basis of AS-7. iii) AS-7 is acceptable for contract accounting. iv) The losses are not contingent or unascertained.

The ld. CIT(A) also considered the tax audit report and audited annual accounts of the assessee and held that the ld. Assessing Officer failed to point out any defect in the estimate or application AS-7.

We note that during the year, the assessee claimed a sum of Rs. 14,83,51,419/- by way of provision for losses expected to be incurred on contracts in accordance with AS-7. The Assessing Officer disallowed the same observing that losses are in respect of some contract which was cancelled by one of the clients and in respect of which termination proceedings are pending before the Supreme Court. The ld AO held that a sum of Rs. 14,83,51,419/- is an unascertained and anticipated liability in respect of the cancelled contract which has not accrued during the FY 2010-11. Accordingly, he disallowed the provisions of Rs.14,83,51,419/- and added the same to the income of the assessee. The assessee calculates a budgeted cost, project-wise every year, which is a sum of costs actually incurred and expenditures expected to be incurred in the future. A percentage is worked out by dividing the actual cost incurred till date by such budgeted cost. Such a percentage is referred to as the percentage of work completed. Comparing such budgeted cost with the contract value a profit margin is computed. Such margin is applied to the unexecuted portion of the work (Unexecuted percentage of work x Contract value) to arrive at the future loss i.e. loss on unexecuted portion of the project. The above may be explained with the help of an example. Suppose Contract Value is Rs. 100/-. Budgeted Cost is 110. Costs incurred till date is 90. Then the provisions for future losses shall be computed as below:

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211 s. 1228 & 1211/Kol/2018 Assessment Year: Assessment Year:2011-12

The aforesaid sum of Rs.10 also represents the difference between the Contact The aforesaid sum of Rs.10 also represents the difference between the Contact The aforesaid sum of Rs.10 also represents the difference between the Contact Value - Budgeted cost (sum of costs incurred till date and expected expenditure in Budgeted cost (sum of costs incurred till date and expected expenditure in Budgeted cost (sum of costs incurred till date and expected expenditure in the future) which is allowable under the future) which is allowable under para 35 ofAS-7.

Para 35 ofAS-7, provides as 7, provides as follows:

“35. When it is probable that total contract costs will exceed total contract “35. When it is probable that total contract costs will exceed total contract “35. When it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately. revenue, the expected loss should be recognized as an expense immediately. revenue, the expected loss should be recognized as an expense immediately. 36. The amount of such a loss is determined irrespec 36. The amount of such a loss is determined irrespective of : a) whether or not work has commenced on the contract; a) whether or not work has commenced on the contract; b) the stage of completion of contract activity; or b) the stage of completion of contract activity; or c) the amount of profits expected to arise on other contracts which are not treated c) the amount of profits expected to arise on other contracts which are not treated c) the amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with p as a single construction contract in accordance with paragraph 8.” aragraph 8.” Thus, as per AS-7 which is mandatory in nature, the assessee is required to 7 which is mandatory in nature, the assessee is required to 7 which is mandatory in nature, the assessee is required to estimate its total contract costs (i.e. sum of costs incurred and expected future estimate its total contract costs (i.e. sum of costs incurred and expected future estimate its total contract costs (i.e. sum of costs incurred and expected future costs) and recognize the expected losses (i.e. difference between the contract costs) and recognize the expected losses (i.e. difference between the contract costs) and recognize the expected losses (i.e. difference between the contract revenue and total contract costs). enue and total contract costs). We note that Coordinate Bench of ITAT We note that Coordinate Bench of ITAT Mumbai in case of Dredging International N.V. vs. ADIT [48 SOT 430] in case of Dredging International N.V. vs. ADIT [48 SOT 430] in case of Dredging International N.V. vs. ADIT [48 SOT 430] held that any provision for losses recognized in accordance with AS any provision for losses recognized in accordance with AS-7 is allowable under 7 is allowable under the Act. The Findings of the . The Findings of the Coordinate Bench is given below: Page | 20

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 “As far as the factual position is concerned assessee has given detailed explanation for estimating the future losses which in fact it had suffered and the final loss was already determined by the A.O. in the next assessment year, the order of which does not contain any disallowance. There is evidence on record that assessee has suffered loss and loss claimed in that year on completion of the project stood allowed. No adjustments have been made to the loss claimed in later year. In view of this we are of the opinion that as far as quantification of loss is concerned assessee has made a justifiable claim in arriving at the future loss for this year. Assessee’s claim for provision for loss, which was made in accordance with the guidelines of AS-7 and duly debited in the audited accounts of the company is an allowable expenditure.”

We note that same view was upheld by the Coordinate Bench of ITAT (Mumbai) and Pune in case of ACIT vs. ITD Cementation India Ltd. [146 ITD 59] and in case of ACIT vs. Ashoka Buildcon Ltd. [170 TTJ 19] respectively.

“These grounds are regarding disallowance made by the AOFuture loss of Rs. 14,83,51,419/-. The AO has made the disallowance on the ground that the future losses were in the nature of an unascertained and anticipated liability. The Assessing Officer was of the opinion that since the expenditure was contingent in nature the liability had not crystallized and hence not allowable. The AO has referred to notes on accounts point no. 24 which reads as follows: "During the year, one of the clients of the company has prematurely terminated a part of the contract with consequential damages. The company has challenged the said termination in the Hon'ble Supreme Court. However, as a matter of prudence, the company has revised the contract value and contract cost, as per the management's best estimate and the expected loss has been duly provided for in the accounts. The company has also lodged counter claims on the client and it does not expect any further loss arising out of such termination ". Before me the A/R of the appellant has stated that the appellant enters into fixed price contracts and the estimated future losses are made in accordance with Accounting Standard (AS-7). It has been submitted that the total revenue of the appellant company during the previous year was Rs.1140.83 Crores. The unbilled revenue of the fixed price contract, offered to taxation, as submitted by the A/R was Rs. 299.58 Crores. Accordingly, it was argued that as the entire revenue of the fixed price contract had been offered to taxation the immediate and foreseeable losses as per AS-7 was accordingly claimed as a deduction. The loss has been explained to be computed according to the guidelines as provided in the Para 35 of AS-7.

The future losses have been claimed on account of the fact that the revenue which has not been billed to the principal, as the work has not been done, has been recognized. Accordingly it has been stated that the excess revenue has been recognized by the assessee therefore the estimated future losses on the same should be allowed.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 A similar issue regarding fixed price contract and future losses claimed as per AS-7 came before the Hon’ble ITAT Mumbai Bench in the case of Dredging International N. V. [2011] 15 taxmann.com 198 (Mumbai). The facts in the said case were as follows: “The assessee made provisions for foreseeable loss amounting to Rs. 32,86,17,293 and claimed deduction on same. The Assessing Officer disallowed said claim on the reason that the expenses were contingent upon occurrence or non-occurrence of certain events and assessee itself had classified it as a provision for future losses. The contingent liability did not constitute expenditure as the same could not be subject matter of deduction and the expenditure which was deductible for this purpose was only those liabilities which were not contingent. By holding this, Assessing Officer disallowed the provisions for future losses. The assessee raised objection against said disallowance before the DRP. The DRP however, rejected said objection with a single sentence that assessee did not file proper reply.”

The Hon’ble Tribunal on the said issue of claim for future losses has held as under: “As far as the factual position is concerned assessee has given detailed explanation for estimating the future losses which in fact it had suffered and the final loss was already determined by the A.O. in the next assessment year, the order of which does not contain any disallowance. There is evidence on record that assessee has suffered loss and loss claimed in that year on completion of the project stood allowed. No adjustments have been made to the loss claimed in later year. In view of this we are of the opinion that as far as quantification of loss is concerned assessee has made a justifiable claim in arriving at the future loss for this year. [Para 24]

Further, the assessee was following the guidelines of AS-7 which provided for the estimated loss in books of account. This issue about the claim of future loss on the basis of AS-7 was also examined by various Co-ordinate Benches of ITAT and claim of future losses on the basis of AS-7 was considered as allowable deduction while computing profit of the year. [Para-26]

In the case of Jacobs Engg. Pvt. Ltd. vs. ACIT [IT appeal nos. 7017 and 7018 (Mum) of 2006 and 335 and 336(Mum) of 2007, dated 26.05.2009] the Mumbai Tribunal has held that the provision for forseeable losses under AS-7 is an allowable expenditure. Mazagaon Dock Ltd. vs. Jt. CIT [2009] 29 SOT 356 (Mum). [Para 27]

Keeping the principle laid down on this issue in various Co-ordinate Bench decisions, it is held that assessee’s claim for provision for loss, which was made in accordance with the guidelines of AS-7 and duly debited in the audited accounts of the company is an allowable expenditure. Therefore, DRP was not correct in rejecting the same without assigning any reason. The Assessing Officer is directed to allow the claim of future loss in this year. Since assessee’s claim was rejected by the Assessing Officer in the order and adjusted in the next assessment Page | 22

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 year, Assessing Officer is free to pass necessary modification order, if necessary in Assessment year 2007-08 withdrawing the claim to that extent being allowed in this year. [Para 29]

Further, the Hon’ble ITAT Pune Bench in the case of Ashoka Buildcon Ltd. [2015] 61 taxmann.com 330 (Pune-Trib.) on the issue of allowability of future losses has held as under: 15. It is not in dispute that the assessee is executing fixed price contract which means that the contractor has agreed to a fixed contract price or rate in some cases subject to cost escalation prices. As per AS-7, the assessee is entitled to make provision for foreseeable losses. 16. A perusal of the accounting statement of the assessee for the year under consideration shows that at para 1.6 to the notes to the financial statement, the auditors have provided as under : 'Revenue recognition on contracts Contract prices are either fixed or subject to price escalation clause. Revenue from contracts is recognized on the basis of percentage completion method, and the level of completion depends on the nature and type of each contract including : Unbilled work-in-progress valued at lower of cost and net realizable value upto the stage of completion. Cost includes direct material, labour cost and appropriate overheads; and Amounts due in respect of the price and other escalation, bonus claims and/or variation in contract work approved by the customer/third parties etc. where the contract allows for such claims or variations and there is evidence that the customer/third party has accepted it. In addition, if it is expected that the contract will make a loss, the estimated loss is provided for in the books of account. Contractual liquidated damages, payable for delays in completion of contract work or for other causes, are accounted for as costs when such delays and causes are attributable to the Company or when deducted by the client.' 17. A similar issue has been considered by the Tribunal in the case of Mazagon Dock Ltd. v. Jt. CIT (supra) wherein the Tribunal has held as under : The question that came up for consideration was as to whether the anticipated loss on the valuation of fixed price contract in view of the mandatory requirements of the AS-7, was to be allowed in the year in which the contract had been entered into or it was to be spread over a period of contract, as was done by the assessee in earlier years. As far as the change in the method of valuation of work-in-progress was concerned, it could not be disputed that in view of mandatory requirements of the AS-7, it was a bona fide change in the method of valuation of work-in-progress, particularly in view of the qualification made in this regard by statutory auditors as well as by the Comptroller & Auditor General of India. Therefore, the observation of the CIT(A) that the assessee had booked bogus loss was not correct. As far as the basis of estimation was concerned, the same was done on technical estimation basis and, therefore, merely because there were some variations in the figures furnished by the assessee at different stages, it could not be said that the estimated loss was not allowable. It was not disputed Page | 23

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 that the Department in earlier years had allowed the loss on estimated basis having regard to the expenditure actually incurred in various years. Therefore, in principle, it was not disputed that the estimated loss under the present circumstances was an allowable deduction. However, merely because the change in method of accounting was bona fide, it could not lead to the inference that the income was also deducible property under the Act. This aspect is very evident from the first proviso to s. 145 as it stood prior to the amendment by the Finance Act, 1995 w.e.f. 1st April, 1997. It could not be disputed that from the method adopted by the assessee, the assessee's income could not be deducted properly in the year in which the loss had been anticipated. As a matter of fact this aspect was not disputed by the AO also. He had swayed more by the revenue loss than by the correct principle to be applied. The matching principle of accounting was not of much significance in the present context because if the loss had been properly estimated in the year in which the contract had been entered into, then it had to be allowed in that very year and could not be spread over the period of contract. The matching principle is of relevance where income and expenditure, both are to be considered together. However, in the instant case, the effect of valuation of WIP would automatically affect the profits of subsequent years accordingly. Therefore, there was no reason for not accepting in principle the assessee's claim as being allowable. However, in view of discrepancies pointed out by the CIT(A) for correct estimation of loss, the matter was to be restored to the file of the AO to examine the correctness of amount claimed.' 18. A similar view has been taken by the Tribunal in the case of Jacobs Engineering India (P.) Ltd. v. Asstt. CIT (supra) wherein the assessee's claims of foreseeable losses were allowed irrespective of method of accounting in terms of AS-7. In the case of Dredging International (supra), the issue before the Tribunal was whether under s. 37(1) of the Act provision for foreseeable loss made in accordance with guidelines of AS-7 and duly debited in audited accounts of company is an allowable expenditure. The Tribunal decided the case in favour of the assessee and held that 'yes' it is an allowable expenditure. The Tribunal while deciding this issue has also considered the decision of Mazagon Dock Ltd. v. Jt. CIT (supra). 19. Considering the facts of the case in the light of the accounting standards and the decisions of the Tribunal (supra), and as no distinguishing cases have been brought on records by the Revenue, reversing the findings of the learned CIT(A), we direct the AO to recompute the business profits by allowing the losses provided by the assessee in its books. The appeal filed by the assessee is allowed." 12. To the similar effect is the decision of the Mumbai Bench of the Tribunal in the case of Mazagaon Dock (supra) which has also been relied upon by the Tribunal in the case of ITD Cementation India Ltd. (supra). Therefore, in view of the aforesaid precedents in principle, it has to be inferred that where an assessee is executing an infrastructure development fixed price contract, the foreseeable losses of future years can be recognized following the rationale of AS-7 issued by ICAI, and such a provision is an allowable deduction.”

A similar issue has been decided in the case of ITD Cementation India Ltd. [2013] 36 taxmann. Com 74 (Mumbai-Trib) by the Hon’ble ITAT Bench, Mumbai. In the said case the facts as follows:

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 ■ During the remand report proceedings, the Assessing Officer issued show cause notice to the assessee requiring to explain as to why 100 per cent loss was claimed even when the project was not completed 100 per cent. He asked the assessee to explain why loss should not be allowed only up to the per cent of work completed and why the excessive loss should not be disallowed and added back to its income of the assessment year 2004-05. The Assessing Officer further after considering the submissions of the assessee observed that the assessee had claimed entire foreseeable losses of future years in the assessment year 2004-05. He opined that such claim could not be allowed because it was only based on estimate and was contingent in nature. ■ The Commissioner (Appeals) held that the expenses relating to business were allowable as per provisions of sections 28 to 43. The expenses allowable had been specifically mentioned in the relevant section of the Act. The residuary expenses were allowable under section 37(1) only. He concluded that the assessee's claim of future losses was not fitting in the frame work of provisions of section 37(1). He observed that the provisions of accounting standards could not over write the statutory provisions of the Act. Accordingly, he directed to rework out the accounts/work in progress by excluding therefrom the claim of future losses. The Hon’ble Tribunal in this case has held as under: ■ Section 145(2) provides that the Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. It is a fact that AS-7 has not been notified by the Central Government. This does not mean that the assessee is precluded from following AS-7. A perusal of the provisions of section 145 show that accounting standards which have been notified by the Central Government have to be mandatorily followed by the assessee. But this does not mean that the assessee cannot follow the other accounting standards issued by ICAI. The accounting standards issued by ICAI cannot be brushed aside lightly. On the contrary, if an assessee is following the accounting standards issued by ICAI, it would give more credibility and authenticity to its account. [Para 14] ■ It is not in dispute that the assessee is executing fixed price contract, which means that the contractor has agreed to a fixed contract price or rate in some cases subject to cost escalation prices. As per AS-7 the assessee is entitled to make provision for foreseeable losses. [Para 15] ■ A perusal of the accounting statement of the assessee for the year under consideration shows that in the financial statement, the auditors have provided as follows: Contract prices are either fixed or subject to price escalation clauses. Revenue from contracts is recognized on the basis of percentage completion method, and the level of completion depends on the nature and type of each contract. In addition, if it is expected that the contract will make a loss, the estimated loss is provided for in the books of account. [Para 16] ■ Considering the facts of the case in the light of the accounting standard and the decisions of the Tribunal rendered in the cases of Mazagaon Dock Ltd. v. Jt. CIT [2009]29SOT356(Mum.) and Jacobs Engg. India (P.) Ltd. v. Asstt. Page | 25

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 CIT [2011]14taxmann.com 186 (Mum.) and Dredging International v. Asstt. DIT (IT) [2011] 48 SOT 430/15 taxmann.com 198 (Mum.), the Assessing Officer was to be directed to recompute the business profits by allowing the losses provided by the assessee in its books. [Para 19] The salient features emerging from the above discussion are as follows: i) The contract should be fixed price contracts. ii) The contractor is liable to claim foreseeable losses on the basis of AS-7. iii) AS-7 is acceptable for contract accounting. iv) The losses are not contingent or unascertained. Further in this case it is observed as follows: i) In the Tax Audit Report it has been stated that the loss of Rs. 14,83,51,419/- has been provided as per AS-7. ii) In notes to account it has been stated that one of the companies has terminated the contract. However, on account of prudency, the company has revised the contract value and contract cost and estimated the future loss which has been duly provided for. iii) The AO has merely rejected the claim of the assessee by calling it a contingent and unascertained expenditure. However, as per the discussion, in the various decisions discussed above it has been held that applicability of AS-7 is acceptable. In this case, it has been argued that as the unbilled revenue has been offered for taxation therefore the provision for future losses, as per AS-7 should be allowed. The AO has not pointed out any defect in the estimate of application of AS-7. iv) The sum and substance of the above decisions, is that in fixed price contracts, the appellant having credited all its revenue, as per the contract, has to provide for all the foreseeable expenses which it is bound to incur as per the contract. The Accounting Standard AS-7 provides for such an eventuality. In view of the facts discussed above, it is observed that the company has followed AS-7 and has debited the future losses. Respectfully following the various decisions as discussed above, I am of the considered opinion that deduction for Future loss of Rs. 14,83,51,419/- is allowable. Therefore, these grounds of appeal of the appellant are hereby allowed.”

We note that in fixed price contracts, the assessee having credited all its revenue, as per the contract, has to provide for all the foreseeable expenses which it is bound to incur as per the contract. The Accounting Standard AS-7 provides for such an eventuality.Having gone through the order of ld CIT(A), we note that there is no infirmity in the order of ld CIT(A). That being so, we decline to

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 interfere in the order passed by the ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.

“2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in law in directing the AO to rework the disallowance u/s 14A of the IT Act,1961 of the IT Act 1961 to Rs.43,16,078/- considering only those investments which have yielded the exempted income in the form of dividend or LTCG”

“The assessee had not earned any exempt income during the year under appeal, hence, no expense can be said to have been incurred in relation to exempt income. Hence the question of disallowing any expense does not arise. In this regard, reliance is placed on judgment of Delhi High Court in the case of M/s Cheminvest Ltd. vs. CIT, 378 ITR 33 (Del), (copy enclosed at page 63-67 of paper book) where it is held that “if no exempt income has been earned, then no disallowance is warranted.” Further reliance is also placed on the following decisions: The decision of the Allahabad High Court in ITA No. 88 of 2014, Commissioner of Income Tax vs. M/s Shivam Motors P Ltd. decided on 05.05.2014 reported in (2014) 272 CTR (All) 277 (copy enclosed at page 68-71 of paper book). In the said decision it was held that: “ As regards the second question, s. 14A of the Act provides that for the purposes of computing the total income under the chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what s. 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax-free income. Hence, in the absence of any tax-free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752 made by the AO was in order.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 The Madras High Court judgment in the case of Redington (India) Ltd. vs. The Additional Commissioner of Income Tax, Company, Range-V [2017] 392 ITR 633 (Mad) (copy enclosed at page 72-75 of paper book), wherein it was held that: “15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC). The language of s.14A (1) should be read in that context and such that it advances the scheme of the Act rather than distort it. 16. In conclusion, we are of the view that the provisions of s. 14A read with Rule 8D of the Rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The questions of law are answered in favour of the assessee and against the department and the appeal allowed.”

“3. Whether on the facts and in the circumstances of the case and in laws, the Ld. CIT(A) erred in law as well as on facts in allowing the deduction u/s 80-IA of the IT Act. Whereas the assessee company is simply a contractor who merely executed work contract on the basis of quoted tender funded by the Government/Semi-government organization and hence not entitled to the deduction u/s 80-IA within the scope of Explanation below sub-section 13 to 80-IA of the Act”

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 25. Brief facts qua the issue are that during the scrutiny proceedings the AO noticed that the assessee has claimed deduction amounting to Rs.59,83,57,154/- u/s 80IA of the Act. The assessing officer, in order to ascertain the availability of the deduction to the assessee, analyzed and investigated the claim. The Assessing Officer referred the provisions of section 80IA of the Act and case law on the subject and concluded that the assessee is not at all a developer going by the legislative intent of the Act.That is, the assessee is not at all a developer who has undertaken entrepreneurial and investment risk. Instead it is merely into the business of works contract as a contractor who has only undertaken business risk. There is no element of contribution by the assessee in terms of private sector participation in the development of infrastructure facilities which is a significant aspect for identification of an assessee as developer. Hence such business does not qualify for deduction u/s 80IA of the Act. In view of the above, the entire claim of deduction of assessee under chapter VIA amounting to Rs. 59,83,57,154/- was disallowed.

“During the previous year the assessee has undertaken the various projects as observed by the Assessing Officer as follows: i) Jawai Pali Projects ii) Bisalpur Jaipur Projects- PK-4 iii) R.K. Puram Project iv) T.K. Hally Project, W-5 v) Taraka Lift Irrigation Scheme vi) Rajarhat Project vii) Project with UP Jal Nigam viii) T.K. Hally Project(W3). ix) Urbani Lift Irrigation Scheme x) Pokhana Project xi) Mira Bhayandar project xii) Preet Vihar Projects xiii) Lasalgaon Projects xiv) Delhi Jal Vihar Projects The appellant claimed deduction u/s 80IA of Rs. 59,83,57,154/- on the above projects which was denied by the Assessing Officer on the following ground:

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 a) The assessee is a mere contractor and cannot be considered as a “developer” as envisaged u/s 80IA. b) The assessee is only executing civil construction contract and is not taking any entrepreneurial or investment risks. c) The assessee is merely a works contractor as per the explanation to 80-IA(13) and hence not eligible for deduction u/s. 80-IA. d) The definition of work as provided in the explanation to section 194(c) is only for the purposes of TDS only and is not applicable to the case of the assessee. During the course of appellate proceedings the A/R furnished the detailed analysis of the scope of work with reference to various projects, stating inter alia facts regarding labour and material supplied, risk undertaken, investment made, etc. Before me the A/R of the appellant has argued that it is engaged in all the three activities as required u/s. 80-IA. It was further stated that in some projects the appellant is involved only in the development of infrastructure facility. In some projects it was involved in operation and maintenance of infrastructure facility, and in some projects it was involved in development, maintenance & operation of infrastructure facility.

Further it was submitted that the work was completed by using drawing, design, labour, plant & machinery and material procured by them. Investments in the form of Bank Guarantee EMD etc. was made in the projects. Mobilisation Advance in some cases were received on furnishing of bank guarantee. Various risks with reference to project were undertaken by them. In most cases the liability for damages to any property or work executed was on account of the appellant. The A/R therefore argued that the appellant company is not a mere works contractor as provided in explanation to section 80-IA(13). The A/R stated that the issue is covered by the decision of the Hon’ble Jurisdictional ITAT in their own cases in assessment years 2006-07 to 2010-11.

The Hon’ble ITAT in ITA Nos. 1291-1292/Kol/2013 for Asst Yr. 2006-07 & 2009-10, has allowed the claim of the appellant for deduction u/s. 80-IA(4). The salient points with regard to allowability of deduction u/s. 80-IA which emerges from the aboveorder is as follows: i. In a case where a person makes the investment development work i.e. carries out the civil construction work he will be eligible for tax benefit u/s. 80-IA of the Act. ii. "Works contract" used in Explanation to section 80-IA(13) means a contract of developing infrastructure by merely employing labour and making no investments. iii. However, if under a contract, the contractor employs his capital and enterprise in addition to labour, then the said contract does not constitute a works contract under the Explanation to section 80-IA(13) and the contractor shall be eligible for deduction u/s 80-IA. iv. Even if an assessee is merely developing the infrastructural facility (without operating and maintaining the same), it is entitled to deduction u/s 80-IA. v. Merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing the infrastructure facility would be entitled to deduction under section 80IA(4). vi. As regards the observation of the AO that the assessee is executing the contract of civil construction at the predetermined rate, and hence it is a Page | 30

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 works contract the Hon’ble ITAT has observed that “the assessee was responsible for overall development of the infrastructure facility. It was merely provided with the site which it had to develop into an infrastructural facility by deploying his resources i.e. material, plant & machinery, labour, supervisors etc. It was responsible for any damage/loss caused to any property or life in course of execution of the works. It was even responsible for remedying of the defects in the works at its cost”. vii. The assessee vide the agreements has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Employer and indemnify the employer of any losses/damage caused to any property/life in course of execution of works. Further, it was responsible for the correction of defects arising in the works that the assessee had not undertaken any risk. viii. The assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. On perusal of the above order it seen that the Hon’ble ITAT, in the case of assessee has discussed as to what are the ingredients for allowing deduction u/s 80IA.Appellant is not a mere works contractor. In this case it is observed that the appellant has been carrying out similar projects with similar functional responsibilities. Respectfully following the above findings of the Hon’ble ITAT I am of the considered opinion that the assessee is a developer, and not merely a works contractor and is eligible for deduction u/s80-IA.Accordingly, the claim for deduction u/s. 80-IA(4) is hereby allowed.

27.From the above, it is clear that the assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80-IA(13) does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80-IA. As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee`s own case in ITA Nos. 1291-1292/Kol/2013 for Asst Yr. 2006-07 & 2009-10 and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). The ld CIT(A) relied on the Judgment of the Coordinate Bench in the assessee`s own case(supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the Coordinate Bench in assessee’s own case we dismiss the ground raised by the Revenue.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 4. “That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing to allow the payment for employees contribution to PF/ESI of Rs.2,35,61,904/- which were paid before due date of filing or return whereas section 36(i)(va) clearly state that the payment will be allowed on payment on or before the due date”

We note that various High Courts and now conclusively decided by the Hon’ble Supreme Court, in the case of CIT vs. Rajasthan State Beverages Corpn. Ltd. (2017) 84 taxmann.com 185 (SC) 250 Taxman 0016, wherein it was held that the contributions received from the employees, being deposited to the Govt, account before the due date of filing ROI, could not be disallowed under section 43B or

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 under section 36(1 )(va) of the Act. Respectfully following the judgment of the Hon`ble Supreme Court, we dismiss the ground raised by the Revenue.

M/s SMPL Infra Ltd. ITA Nos. 1228 & 1211/Kol/2018 Assessment Year:2011-12 &Investments Pvt. Ltd [Income Tax Appeal NO.337 of 2013], wherein it was held as follows: “4. So far as question (b) is concerned, the impugned order of the tribunal followed the decision in M/s Essar Teleholdings Ltd. vs. DCIT in ITA No. 3850/Mum/2010 to held that an amount disallowed under section 14A of the Act cannot be added to arrive at book of profit for purposes of Section 115JB of the Act. The Revenue’s appeal against the order of the Tribunal in M/s Essar Teleholdings (supra) was dismissed by this Court in the ITA No. 438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not arise any substantial question of law.”

Therefore, respectfully following the decision of Hon’ble Bombay High Court in the case of CIT vs. Bengal Finance & Investments Pvt. Ltd [Income Tax Appeal No.337 of 2013] (supra) we note that disallowance u/s 14A cannot be made for the purpose of computing Book profit u/s 115JB of the IT Act, l961, hence we dismiss the ground raised by the Revenue.

Order pronounced in the Court on 17.01.2020

Sd/- Sd/- (S.S.GODARA) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 17/01/2020 (SB, Sr.PS)

Copy of the order forwarded to: 1. M/s SMPL Infra Ltd. 2. DCIT, Circle-8(2), Kolkata 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File.