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

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.

Brief facts of the case are that assessee-company filed its return of income 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).

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. 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 & 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.).

On the other hand, the ld. DR for the Revenue supported the order of 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.

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 & 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.

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

In for A.Y. 2011-12, the assessee has raised the following grounds of appeal:

Brief facts related to the grounds of appeal raised herein are that the 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.

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.

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 & 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.

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 & 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.

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 & 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.

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.

In the result the Ground No.1 of the appeal is dismissed.

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

Ground No.3 relates to denial of set off of brought forward loss/unabsorbed depreciation. The ld. AR of the assessee submits that the 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.

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 & 5477/M/15- M/s Advance Construction Co. P. Ltd.

In the result, appeal filed by assessee is partly allowed.