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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the Revenue and the assessee filed the appeals against the
very same order of the Commissioner of Income Tax (Appeals)-3,
Coimbatore, dated 29.04.2016 pertaining to assessment year 2012-13.
Therefore, we heard both the appeals together and disposing of the
same by this common order.
Let’s first take the assessee’s appeal in I.T.A.
No.3161/Chny/2017.
There was a delay of 546 days in filing the appeal by the
assessee before this Tribunal. Shri S. Sridhar, the Ld.counsel for the
assessee, submitted that there was a search in the premises of the
assessee on 24.03.2016 and the assessment order was passed by the
Assessing Officer for the year under consideration. According to the Ld.
counsel, the Department initiated post search enquiries, therefore, the
assessee was fully focused in the assessment proceeding initiated by the
Department after the search. In the process, according to the Ld.
counsel, the order received by the assessee was inadvertently
misplaced. The assessee could not locate the same inspite of best
efforts. After completion of post search enquiries, the assessee traced
out the impugned order of the CIT(Appeals). In fact, according to the Ld.
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counsel, the assessee was advised by the Tax Consultant that in view of
the proceeding initiated under Section 153A of the Income-tax Act, 1961
(in short 'the Act'), the regular assessment proceeding would stand
terminated and there would not be any action taken on the assessment
order passed in the regular course. According to the Ld. counsel, the
assessee, thereafter consulted another Advocate and he advised the
assessee that a separate appeal needs to be filed, therefore, there was a
delay of 546 days. According to the Ld. counsel, the assessee was
prevented from filing the appeal within the period of limitation. Therefore,
the delay may be condoned.
On the contrary, Shri Asish Tripathy, the Ld. Departmental
Representative, submitted that there was no reasonable cause on the
part of the assessee for not filing the appeal within the period of
limitation. According to the Ld. D.R., the search took place before the
date of order of the CIT(Appeals), therefore, the assessee is not justified
in filing the appeal belatedly.
We have considered the rival submissions on either side and
perused the relevant material available on record. The order of the
CIT(Appeals) is dated 29.04.2016 and admittedly, the search took place
on 24.03.2016. Therefore, naturally the assessee has to focus only on
the search assessment by reconciling the material found during the
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course of search operation. Moreover, the assessee submits that there
was legal advice that in view of the initiation of search proceeding, the
pending assessment would stand terminated. This advice given by the
consultant may be a wrong one. But, for the purpose of deciding the
issue of condonation of delay, this Tribunal is of the considered opinion
that the assessee was wrongly advised by a Tax Practitioner. Hence, the
assessee has reasonable cause in not filing the appeal within the period
of limitation. Therefore, the delay of 546 days is hereby condoned and
the appeal of the assessee is admitted.
Now coming to the merit of the appeal, the only issue arises for
consideration is the claim of deduction under Section 80-IA of the Act.
According to the Ld. counsel, the assessee is a developer of housing
projects, therefore, eligible for deduction under Section 80-IA of the Act.
However, the lower authorities rejected the claim of the assessee on the
ground that the assessee is a contractor. Therefore, deduction under
Section 80-IA of the Act is not available. According to the Ld. counsel for
the assessee, the assessee apart from developing eligible infrastructure
facility, is also maintaining separate books of account for all such works.
The assessee is taking a financial risk in developing the project. The
contracts were entered into with State Government, more particularly with
Irrigation Department. According to the Ld. counsel, the Assessing
5 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
Officer as well as the CIT(Appeals) have not gone into the development
work executed by the assessee and simply rejected the claim of the
assessee on the ground that the assessee is a contractor.
The Ld.counsel for the assessee further submitted that there are
various types of contracts as follows:-
(i) Build Own Operate & Transfer (BOOT); (ii) Build Own Lease & Transfer (BOLT); (iii) Build Operate & Transfer (BOT)
Since, the assessee develops the infrastructure facility by taking financial
risk, according to the Ld. counsel, the Revenue cannot say that the
assessee is only a contractor and not a developer. Therefore, according
to the Ld. counsel, the CIT(Appeals) is not justified in confirming the
order of the Assessing Officer.
On the contrary, Shri Asish Tripathy, the Ld. Departmental
Representative, submitted that the assessee is only a contractor and not
developer of the infrastructure facility. According to the Ld. D.R., the
assessee has not developed any project. For the purpose of considering
the assessee as a developer of infrastructure facility, according to the Ld.
D.R., the assessee need to execute the project on Build, Operate and
Transfer mode or Build Own Lease & Transfer mode. The assessee has
to invest its own funds for developing the infrastructure project. Besides
entering into agreement with Government, according to the Ld. D.R., the
6 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
assessee need to undertake operation as well as maintenance contracts
for claiming as a developer of the project. In the facts of the case,
according to the Ld. D.R., the assessee is only executing works contract
and not developing any project, therefore, not eligible for deduction under
Section 80-IA of the Act.
We have considered the rival submissions on either side and
perused the relevant material available on record. Whether the assessee
is a developer or contractor would depend upon how the project was
executed by the assessee. For the purpose of deciding whether the
assessee is a contractor or developer, the agreement said to be entered
into between the parties plays a major role. Unfortunately, there is no
reference about the clauses or terms and conditions of agreement either
in the assessment order or in the CIT(Appeals)’s order.
Moreover, copies of the agreement for developing the so-called
infrastructure project are not available before this Tribunal. Therefore,
this Tribunal is of the considered opinion that the matter needs to be
reconsidered. Accordingly, the orders of both the authorities below are
set aside and the Assessing Officer is directed to re-examine the matter
afresh considering the agreement entered into by the assessee with
other parties, including the Government, and thereafter decide the issue
7 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
afresh in accordance with law, after giving a reasonable opportunity to the assessee.
Now coming the Revenue’s appeal in I.T.A. No.2127/Chny/2016, the only issue arises for consideration is deduction claimed by the assessee under Section 35D(1)(ii) of the Act.
Shri Asish Tripathy, the Ld. Departmental Representative, submitted that the assessee has considered entire share premium collected on the IPO for working out the eligible deduction under Section
35D of the Act. According to the Ld. D.R., share premium cannot be included while calculating the capital employed in the business of the company in view of proviso (b)(ii) of Explanation to 35D(3) of the Act. Therefore, according to the Ld. D.R., the CIT(Appeals) ought not to have deleted the addition made by the Assessing Officer to the extent of ₹20 lakhs. According to the Ld. D.R., the CIT(Appeals) has also deleted the addition of ₹23,62,536/- without appreciating the facts of the case.
On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee-company wrote off ₹87,25,987/- being the preliminary expenses / share issue expenses. According to the Ld.
counsel, the Assessing Officer found that the expenses wrote off cannot be allowed. According to the Ld. counsel, the assessee incurred capital
8 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
expenditure of ₹4,24,29,460/- written off over a period of five years. Correspondingly the Assessing Officer found that even if the assessee is eligible for deduction under Section 35D(1), then the same works out to ₹6,10,058/- only. According to the Ld. counsel, the Assessing Officer disallowed the entire share issue expenses of ₹84,89,892/- on the ground that the funds were not raised for carrying out any expansion work or setting up of any new unit. According to the Ld. counsel, the assessee is engaged itself in developing infrastructure facility and expansion could only include additional capital in the business. According to the Ld. counsel, the additional capital was instrumental for taking many projects and its execution. The capital employed by the assessee had been adopted as aggregate of the share capital and long term borrowings. According to the Ld. counsel, the expenditure incurred at Indonesia and Ivory Coast is directly relatable to the business of the assessee- company. The Ld.counsel further submitted that what was claimed by the assessee is 1/5th of total expenditure under Section 35D of the Act. If Section 35D is not applicable, then the entire expenditure has to be allowed under Section 37 of the Act. Therefore, according to the Ld. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. From the material
9 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
available on record it appears that the assessee has executed projects
for Government of Tamil Nadu and maintains separate books of account.
Section 35D(1)(ii) of the Act clearly says that after commencement of
business if the assessee incurs any expenditure in connection with
extension of undertaking or in connection with setting up of new unit, it is
eligible for deduction under Section 35D of the Act. Since the assessee
is engaged in development of infrastructure facilities, the CIT(Appeals)
has rightly found that each project is to be treated as undertaking within
the meaning of Section 35D of the Act. It is also not in dispute that the
assessee is maintaining separate books of account for each project.
Therefore, the CIT(Appeals) has rightly allowed the claim of the
assessee. This Tribunal do not find any reason to interfere with the order
of the lower authority and accordingly the same is confirmed.
The next ground of appeal raised by the Revenue is with regard to addition of ₹20 lakhs.
The Assessing Officer made disallowance of ₹20 lakhs due to 15.
non-reconciliation of tax deducted at source. The assessee filed the
details of reconciliation before the CIT(Appeals). Therefore, the
CIT(Appeals) found that the reconciliation statement filed before him
needs to be verified. This Tribunal is of the considered opinion that this
is only a reconciliation with regard to tax deducted at source. The
10 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
Assessing Officer is directed to verify the reconciliation statement filed
which was annexed to the impugned order of the CIT(Appeals) and
thereafter decide the issue afresh in accordance with law, after giving a
reasonable opportunity to the assessee. Thus, we confirm the order of
the CIT(Appeals).
The next issue arises for consideration is with regard to disallowance of ₹23,62,536/-.
The expenditure of ₹23,62,536/- was incurred in connection with 17.
launching of project in Indonesia. The assessee admittedly is
maintaining an establishment in Indonesia and incurred expenditure for
floating tenders and preparing projects, etc. These expenses were
incurred before commencement of business, therefore, it has to be
capitalized and the assessee is eligible for deduction under Section
35D(i) of the Act. In view of this, this Tribunal do not find any reason to
interfere with the order of the lower authority and accordingly the same is
confirmed.
In the result, Revenue’s appeal in I.T.A. No.2127/Chny/2016 is
dismissed, whereas, the assessee’s appeal in I.T.A. No.3161/Chny/2017
is allowed for statistical purposes.
11 I.T.A. No.2127/Chny/16 I.T.A. No.3161/Chny/17
Order pronounced on 17th July, 2018 at Chennai.
sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member
चे�नई/Chennai, �दनांक/Dated, the 17th July, 2018.
Kri.
आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A)-3, Coimbatore 4. Principal CIT-2, Coimbatore 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.