ADVANCE CONSTRUCTION CO. P.LTD,MUMBAI vs. DCIT 8(1), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “A” BENCH MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.999/Mum/2012 (Assessment Year 2006-07) M/s Advance Construction Co. P. DCIT-8(1) Ltd. “Kavita” Plot No. 37, 2nd Aayakar Bhavan, Churchgate, Floor, Vithal Nagar Co-op. Vs. Mumbai-20. Housing Soc. 11th Road, JVPD Scheme, Mumbai -400049. PAN: AABCA0710B Appellant Respondent ITA No.5477/Mum/2015 (Assessment Year 2011-12) M/s Advance Construction Co. P. DCIT-8(1) Ltd. “Kavita” Plot No. 37, 2nd Aayakar Bhavan, Churchgate, Floor, Vithal Nagar Co-op. Vs. Mumbai-20. Housing Soc. 11th Road, JVPD Scheme, Mumbai -400049. PAN: AABCA0710B Appellant Respondent Appellant by : Shri Nirmit Mehta (AR) Respondent by : Shri Virender Singh (Sr-DR) Date of Hearing : 09.05.2018 Date of Pronouncement : 09.05.2018 Order under section 254(1) of Income–tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeals by assessee under section 253 of the Income-tax Act

(the Act) are directed against the separate orders of ld. Commissioner of

Income-Tax-16 [ld. CIT], Mumbai for Assessment Year 2006-07 dated

12.12.2011 & Assessment Year 2011-12 dated 21.04.2014 respectively. In

ITA No. 999/Mum/2012, the assessee has challenged the penalty levied

under section 271(1)(c) of the Act. The assessee has raised the following

grounds of appeal:

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. 1. The learned CIT(A) erred in fact and in law in confirming the action of AO in levying penalty of Rs. 65,53,855/- U/s 271(1)(c) of the Income Tax Act, 1961. 2. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.

for Assessment Year 2006-07 on 29.11.2006 declaring total income at Rs.

1,23,16,534/-. The assessee has shown its income from the business of

construction and development. The assessment was completed on

24.12.2008 under section 143(3) computing total income at Rs.

2,71,10,200/-. In the return of income, the assessee claimed deduction

under section 80IA(4) and in alternative under section 80IA(4) claiming

itself to be developer of the housing and infrastructure project. During the

assessment, it was transpired that assessee is not a developer; assessee was

awarded work for execution by M/s Patel Engineering ltd, which was

assigned to them from Mumbai Urban Transport Project (MUTP).

Therefore, the assessee was held not eligible for deduction either under

section 80IA (4) or under section 80IB (10) as assessee also not fulfilled

the conditions either of the section. The Assessing Officer initiated the

penalty on the disallowance claimed under section 80IA/80IB. The

Assessing Officer levied the penalty of Rs. 65,53,855/- being 100% of the

tax sought to be evaded. On appeal before the ld. CIT(A), the action of

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

Assessing Officer was confirmed. Therefore, further aggrieved by the

order of ld. CIT(A), the assessee has filed the present appeal before us.

ld. Departmental Representative (DR) for the Revenue and perused the

material available on record. The ld. AR of the assessee submits that

return of income for Assessment Year 2006-07 was filed on 29.11.2006

claiming deduction under section 80IA(4) and in alternative under section

80IB(10). The deduction of section 80IA as well as 80IB was denied/

disallowed to the assessee holding that the assessee is a contractor and not

a developer. The disallowance under section 80IA(4) was denied to the assessee on the basis of insertion of Explanation, after sub section (13) of

80IA by Finance Act, 2009, with retrospective amendment, wherein it

was clarified that the benefit of provisions of section 80IA are not

applicable on contractors. The amendment was made with retrospective

date with effect from 01.04.2004. Similar the amendment was made in sub-section section 80IB(10) by inserting Explanation with retrospective

effect from 01.04.2001. Thus, the addition/ disallowance were made due

to change of law with retrospective effect. The assessee has claimed the

deduction in accordance with the provision of law applicable at the

relevant time i.e. at the time of filing the return of income. There was no

concealment of income or furnishing inaccurate particular thereof, on the

part of assessee. In support of his submission, the ld. AR of the assessee 3

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

relied upon the decision of Hon’ble Bombay High Court in case of CIT vs.

Yahoo India (P.) Ltd. [2013] 33 taxmann.com 332 (Bombay) and the

decision of Tribunal in Raj Shipping Agencies Ltd. vs. ACIT [2013] 38

taxmann.com 345 (Mum Trib.).

authorities below. The ld. DR for the Revenue submits that the claim of

assessee was rejected under section 80IA in alternatively under section

80IB. The amendment to the section 80IA was brought on statute book by

Finance Act, 2007. The assessee has option to revise his claim in the

return of income. The assessee has not exercised his right for filing revised

return of income. The assessee in alternative claimed under section 80IB,

which was also disallowed as the assessee is not developer and only

developer is entitled for the benefit of section 80IB(10). Therefore, it was

a fit case for levying penalty under section 271(1)( c) of the Act. 5. We have considered the rival submission of the parties and have gone

through the orders of authorities below. There is no dispute that the

assessee claimed deduction of Rs. 1,94,70,746/- under section 80IA and in

alternative under section 80IB(10), while filing the return of income. The

assessee was not held entitled for deduction in any of the provision. The

claim of the assessee was based on the scheme of housing project at

village Majas which was part of “World Bank Aided MUTP-II

Infrastructure Project” undertaking for improvement of Mumbai Urban 4

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

Transport System, which consist of construction and widening of road

which is ‘infrastructure facility’, the assessee claimed that road project are

covered in “infrastructure facility” as defined under section 80IA and

should be allowed deduction under section 80IA. However, due to

retrospective amendment by insertion of Explanation in section 80IA by

Finance Act, 2007, which was again amended by Finance Act 2009 with

retrospective effect from 01.04.2000, by virtue of which the contractor

were excluded from such deduction, therefore, the assessee was not

allowed deduction. The reasons of disallowing the claim of deduction was

due to retrospective amendment in the said section. 6. The assessee in alternative claimed deduction under section 80IB(10),

which was also disallowed, due to similar amendment by insertion of Explanation under section 80IB(10). There is no dispute about the

amendment in section 80IA as well as in section 80IB in Finance Act

2007, as well as by Finance Act 2009 respectively; both the amendments

were made applicable with retrospective effect. The Hon’ble jurisdictional

High Court in case of CIT vs. Yahoo India (P.) Ltd. (supra) held that the

penalty levied by Assessing Officer under section 271(1)(c) upon the

assessee on regular assessment, amount paid by assessee to the foreign

company without deducting tax at source by disallowing in invoking

provision of section 40(a). The Hon’ble Court further held that the fact

that law had been amended with retrospective effect clearly shows that 5

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

issue was debatable and in absence of failure to disclose material fact. The penalty levied under section 271(1)(c) was not justified. We have also perused the assessment order. The Assessing Officer while making

disallowing (rejecting claim) of deduction either under section 80IB or under 80IA has not given any finding that the assessee has deliberately furnished inaccurate particulars of income. 7. In our considered view, the amendment in section 80IA as well as in section 80IB with retrospective effect was an unforeseen situation for the assessee. Prior to insertion of Explanations in both the sections there was

no such exclusion that the ‘work contractor’ is not entitled for such deductions under section 80IA or 80IB. In our view the ratio of case law relied by ld AR for the assessee in Yahoo India (P) Ltd is squarely

applicable on the facts of the present case, therefore, no penalty under section 271(1)(c) was leviable on the fact of the case, when the assessee has claimed deduction on the basis of statutory provision which was withdrawn by subsequent amendment in the Act. The submissions of ld

DR for the revenue that the assessee has option to file the revise return of income has no force as the assessee has sufficient explanation for claiming such deduction on the basis of provision under law during the relevant

period. Hence, the grounds of appeal raised by the assessee are allowed. 8. In the result the appeal of the assessee is allowed.

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

following grounds of appeal:

All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. 1. The learned Commissioner of Income Tax (Appeals)-16, Mumbai ["the CIT(A)"] erred in fact and in law in confirming the action of the Deputy Commissioner of Income Tax-8(l), Mumbai ("the At)") in making disallowance of Rs.7,81,473/- u/s. 14A of the Income Tax Act,1961 (''the Act") r.w.r. 8D. 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in increasing the book profit u/s. 115JB by the amount of disallowance computed u/s. 14A of the Act. 3. The learned CIT(A) erred in fact and in law in not allowing the set off of brought forward loss/unabsorbed depreciation as per clause (iii) of explanation-l of Section 115JB while computing Book Profit under the Act. 4. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s. 234D of the Act.

assessee filed return of income for Assessment Year 2011-12 on

29.09.2011. The assessment was completed on 14.03.2014 under section

143(3) of the Act. The Assessing Officer while passing the assessment

order besides the other addition and disallowance made the disallowance

under section 14A for Rs. 7,81,473/-. The Assessing Officer made the

disallowance under section 14A by invoking Rule 8D. The Assessing

Officer also increased the book profit under section 115JB. On appeal

before the ld. CIT(A), the action of Assessing Officer was confirmed.

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us. 11. We have heard the ld. Authorized Representative (AR) of the assessee and

ld. Departmental Representative (DR) for the Revenue and perused the material available on record. Ground No.1 relates to disallowance under section 14A of the Act. The ld. AR of the assessee submits that during the

relevant Financial Year, the assessee earned dividend income of Rs. 5,51,797/-. No suo-moto disallowance was made by assessee. The assessee has not incurred any expenses to earn exempt income. The Assessing

Officer while invoking the provision of Rule 8D as not recorded the satisfaction about the correctness of claim made by assessee. The Assessing Officer has not recorded the satisfaction about the correctness

of the assessee’s claim. As no satisfaction about the correctness was recorded by assessing officer, therefore, the assessing officer has no right to compute the disallowance by invoking the provision of the Rule 8D. 12. On the contrary, the ld. DR for the Revenue supported the order of

authorities below. The ld. AR of the assessee submits that the assessee has shown exempt income of Rs. 29,14,179/- which consists of Long Term Capital Gain of Rs. 6,19,063/-, dividend income of Rs. 5,51,797/-, share of

profit from partnership firm of Rs. 69,928/- and share from joint venture of Rs. 16,73,391/-. No voluntary disallowance was made by assessee. The assessee should have made voluntary disallowance of expenditure in 8

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

relation to the income which does not or shall not form part of total

income as per the requirement of section 14A r.w. Rule 8D. The Assessing

Officer has recorded his dissatisfaction about the correctness of claim

which clearly recorded in paragraph no.3.4 of the assessment order. after

recording his dissatisfaction the assessing officer invoked the provision

under Rule8D. No disallowance was made by Assessing Officer under

Rule 8D(2)(i) and 8D(2)(ii). The Assessing Officer only, disallowed Rs.

7,81,473/- under clause-(iii) of Rule 8D(2). The disallowance are in

accordance with the provision of section 14A read with Rule8D. the ld DR

for the revenue further submits that the ld AR for the assessee made a

wrong assertion before the Tribunal that the only exempt income earned

by the assessee during the financial year is divided income of

Rs.5,51,797/-. The facts speak otherwise. 13. We have considered the rival submission of the ld representatives of the

parties and have gone through the material available on record. The

perusal of assessment order reveals that assessee claimed exempt income

of Rs. 29,14,179/-, which consist of Long Term Capital Gain of Rs.

6,19,063/- claimed exempted under section 10(38), dividend income of Rs.

5,51,797/- claimed exempted under section 10(34/35), share on profit from

partnership firm of Rs. 69,928/- claimed exempted under section 10(2)(a)

and share of profit from Joint Venture amounting to Rs. 16,73,391/-. The

assessee has not made any suo-moto disallowance under section 14A. 9

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

During the assessment proceeding, the Assessing Officer asked the

assessee to furnish the details of investment and to show cause as to why

disallowance under section 14A should not be made in accordance with

the provision of Rule 8D. The assessee filed its reply dated 21.10.2013. In

the reply, the assessee contended that they have not incurred any

expenditure in relation to its exempt income. The assessee has sufficient

reserves and surplus fund. The assessee has not incurred any interest on

such investment. The assessee further contended that dividend income of

Rs. 5,51,797/- was earned from equity share investment in listed company.

The share of profit of Rs. 16,73,391/- from Joint Venture and further Long

Term Capital Gain on securities of Rs. 6,19,063/- is also exempted and

that no disallowance under section 14A is called for. After considering the

contention of the assessee recorded his dissatisfaction about the

correctness of the claim. The Assessing Officer invoked the provision of

Rule 8D and disallowed .5% of value of investment, income from which

does not part of the total income. The Assessing Officer worked out the

disallowance of Rs. 7,81,473/-. 14. During the first appellate stage the ld. CIT(A) observed that Rule 8D is

applicable from Assessment Year 2008-09 and that the Assessing Officer

is entitled to compute the disallowance of expenditure as per Rule in

respect of exempt income, where the assessee claimed that no expenditure

has been incurred and not suo-moto disallowance has been made by the 10

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

assessee. The contention of assessee that no expenses incurred by assessee

in earning the exempt income was discarded as the assessee is not

maintaining separate account for the purpose of investment in share,

mutual fund. The ld. CIT(A) upheld the action of Assessing Officer

holding that no satisfactory explanation was given by assessee regarding

the expenditure incurred for earning exempt income. 15. Even before us, the ld. AR of the assessee could not convince us that no

expenditure was incurred in earning the exempt income. Rather, the ld.

AR of the assessee tried to mislead the Bench that only on dividend

income of Rs. 5,51,797/- was earned during the relevant Financial Year,

which is claimed as exempt income. However, the fact speaks otherwise.

The assessee has earned total exempt income of Rs. 29,14,179/-. No

working of suo-moto disallowance was offered by ld. AR of the assessee.

We have noted that although, the assessee has filed two bulky set of Paper

Book. However, while making submissions, not a single document was

referred or relied except repeating the same contention that the Assessing

Officer has not recorded it satisfaction before invoking the provision of

Rule 8D and that no disallowance under section 14A is required to be

made. In our view a subjective dissatisfaction was clearly recorded by

assessing officer before invoking the provision of Rule 8D. In the present

case, the Assessing Officer has clearly recorded his satisfaction regarding

the correctness of assessee’s claim that he is not satisfied with the claim of 11

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

assessee. Even otherwise, we have seen that no working of voluntary disallowance under section 14A was offered by assessee either before the Assessing Officer or before the First Appellate Authority or before the

Tribunal except insisting in by ld. AR that no expenses was incurred for earning exempt income. In view of the above discussion, we do not find any merit in the Ground No.1 raised by assessee. 16. In the result the Ground No.1 of the appeal is dismissed. 17. Ground No.2 relates to increasing the book profit under section 115JB on disallowance under section 14A. The ld. AR of the assessee submits that

this ground of appeal is covered by the decision of Special Bench of Tribunal in ACIT vs. Vireet Investment (P.) Ltd. [2014] 82 taxmann.com 415 (Del. Trib.). On the contrary, the ld. DR for the Revenue submits that

this issue may be restored to the file of Assessing Officer to make the computation under section 115JB without resorting to computation as contemplated under section 14A of the Act as per the decision of Special Bench of the Tribunal as submitted by ld AR for the assessee. 18. Considering the submission of both the parties, Ground No.2 of the appeal is restored to the file of Assessing Officer to make computation under section 115JB after considering the decision of Special Bench in ACIT vs.

Vireet Investment (P.) Ltd. (supra). Needless to say that Assessing Officer shall provide the opportunity of hearing before passing the order in accordance with law. 12

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

assessee has raised the addition ground of appeal before the ld. CIT(A). However, the ld. CIT(A) has not adjudicated the ground of appeal and rejected the same summarily holding that no specific argument was made.

On the other hand the ld. DR for the Revenue supported the order of ld. CIT(A). 21. We have considered the submission of both the parties and have gone

through the order of ld CIT(A). we have seen that the assessee has raised this grounds of appeal, for the first time, before ld CIT(A). The CIT(A) dismissed the ground of appeal holding that the assessee has not made any

specific submissions on this ground of appeal. Considering the fact that assessee has raised the additional ground of appeal before the ld. CIT(A) and the same was not adjudicated on merit. Therefore, we admit the ground of appeal and considering the fact that ld. CIT(A) has not passed

the order on merit and that the additional ground was raised before the First Appellate Authority, hence, the same is restore to the file of Assessing Officer to consider the same afresh and pass the order in

accordance with law. Needless to say that the ld. CIT(A) shall grant opportunity to the assessee before passing the order in accordance with law. In the result this ground of appeal is allowed for statistical purpose. 13

ITA No.999/M/12 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

Order pronounced in the open court on 09 .05.2018.

Sd/- Sd/- B.R. BASKARAN PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 09 .05.2018 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “A” Bench, ITAT, Mumbai 6. Guard File

BY ORDER, Dy./Asst. Registrar ITAT, Mumbai