PRATAP CHANDRA MOHANTY,JAGATSINGHPUR vs. ITO, WARD-1, PARADEEP, PARADEEP

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.152/CTK/2013 Assessment Year: 2011-2012

Astt. Commissioner of Vs. ARSS Infrastructure Pvt. Ltd. Income Tax, Circle-2(1), Plot No. 38, Sector-A, Bhubaneswar. Mancheswar Estate, BBSR. PAN/GIR No. AADCA4203D (Appellant) .. ( Respondent)

ITA No.540/CTK/2013 Assessment Year: 2011-2012

ARSS Infrastructure Pvt. Ltd. Vs. Astt. Commissioner of Plot No. 38, Sector-A, Income Tax, Circle-2(1), Mancheswar Estate, BBSR. Bhubaneswar. PAN/GIR No. AADCA4203D (Appellant) .. ( Respondent)

Assessee by : Shri P.S.Panda/K.Agarwal, AR Revenue by : Shri Kunal Singh, CIT DR

Date of Hearing : 10 /07/ 2017 Date of Pronouncement : 14/07/ 2017

2 ARSS Infrastructure Pvt. Ltd.

O R D E R PER N.S.SAINI, JUDICIAL MEMBER: These are cross appeals filed by the Revenue and the Assessee

against order dated 4.10.2013 of the CIT(A),-II, Bhubaneswar for the

assessment year 2011-2012.

ITA No.152/CTK/2013: Revenue’s appeal

the CIT(A) is not justified in allowing deduction of Rs.31,88,99,188/- u/s.

80IA(4) of the Act.

the assessee has claimed deduction from profits for construction of roads,

bridges and rail roads. The Assessing Officer was of the view that most of

the roads built by the assessee during the year under consideration does

not amount to creation of new infrastructure facilities as the assessee has

simply executed the work for upgradation/repairing/maintenance of old

roads, and this is evident from the copy of contract agreements called for,

which mention the nature of job to be performed as widening/improvement

of roads. Therefore, he held that the assessee has not undertaken

construction of any new infrastructural projects but merely improved upon

existing infrastructures, which were pre-existent and the contracts for

which were provided by government authorities. According to the

Assessing Officer, it is a case of government (contractee) giving work to

3 ARSS Infrastructure Pvt. Ltd.

assessee (contractor) and by no stretch of imagination can assessee claim

to be the developer and not a contractor. Hence, he disallowed deduction

u/s.80IA(4) of the Act to the assessee of Rs.31,38,99,188/-.

dated 13.6.2013 of this Bench of the Tribunal passed in ITA Nos.142 and

143/CTK/2010 and ITA Nos.483 and 484/CTK/2010 in the case of the

assessee itself in Assessment Years 2006-07 and 2007-08.

assessee supported the order of the CIT(A). Ld A.R. also submitted that

similar issue has been decided by this Bench of the Tribunal in assessee’s

own case for the assessment years 2006-07 to 2010-2011 in ITA Nos. 147,

148, 149, 150 & 151/CTK/2013 for the Assessment Years :2006-

2007,2007-08, 2008-09, 2009-10 & 2010-11 vide order dated

28.6.2017 and the disallowance deleted by the CIT(A) has been

confirmed by the Tribunal.

authorities, we find that the issue which is involved in this ground of appeal

relates to allowability of deduction u/s.80IA(4) of the Act in the case of the

assessee in respect of its business of construction of roads, bridges and rail

roads. We find that this issue has already been decided against the revenue

by this Bench of the Tribunal in the case of the assessee itself for the

assessment years 2006-07 to 2010-2011, wherein following the decision

of the Tribunal in appeals arising out of order dated 13.6.2013 passed

4 ARSS Infrastructure Pvt. Ltd.

u/s.263 of the Act in ITA Nos.142 and 143/CTK/2010 and ITA Nos.483 and

484/CTK/2010, the Tribunal held as under:

"Admittedly, the AO in the course of original assessment proceedings u/s. 143(3) of the act has called for the explanation of the assessee as also directed the assessee to prove its claim for deduction u/s. 80IA(4) of the Act. The assessee has responded to the AO. The AO after considering the explanation and the proofs as produced by the assessee found that the assessee was eligible for deduction u/s. 80IA(4) of the Act. A perusal of the order of the Id. CIT u/s. 263 of the Act does not anywhere show as to what is the specific error that the AO has committed when granting the assessee the deduction u/s. 80IA(4) of the Act. It is true that the Ld. CIT has referred to provisions of explanations substituted by the Finance Act, 2009 with retrospective effect from 01.04.2000. However, this explanation was available to the AO when the assessment for A/Y. 2007-08 was being completed. Still the AO held that the assessee was entitled to the deduction u/s. 80IA(4) of the Act. The said explanation admittedly was not available when the assessment for A/Y. 2006- 07 was being completed u/s. 143(3) of the Act. For the A/Y. 2006-07, the order passed u/s. 263 of the Act could not be used for making order treating as assessment order erroneous on account of a subsequent amendment or substitution done to the provision. Under these circumstances, as it is noticed that the AO has chosen one of the two views in respect of the claim of deduction u/s. 80IA(4) of the Act and in view of the decision of the Hon'ble Karnataka High Court in the case of Gokuldas Exports & Ors., referred to supra, we are of the consideration view that the order passed u/s. 263 of the Act is not sustainable in law and consequently, the same stands annulled. This view of ours also finds support from the decision of the Hon'ble Bombaly High Court in the case of Ranka Jewellers vs. Addl. CIT (2010) 328 1TR 148.

Now coming to the merits of the deduction u/s. 80IA(4) of the Act. A perusal of the provisions of section 80IA(4) of the Act shows that in the explanation 'infrastructure facility' has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of Ld. CIT at the provisions of Section 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the benefit of BOT contracts then, the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include toll road, a bridge or a rail system. BOT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 80IA of the Act shows that the term "works contract' is not defined in the said section. However, the terms 'works' and 'contract' is defined in the provisions of section 194C of the Act. If a particular word or term is not defined in the specific section then one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing of supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been

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specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word 'works contract' for the purpose of the act due to the exclusion provided in the meaning of 'work' in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 80IA(4) of the Act. On this ground also, we are of the view that the Ld. CIT's order passed u/s. 263 of the Act is unsustainable and is liable to be quashed and we do so. Here, we may specifically mention that in view of the fact that the explanation to section 80IA(4) of the Act which has been substituted by the Finance, Act 2009 with retrospective effect of 01.04.2000 is attempting to take away the statutory benefit granted to the assessee u/s. 80IA(4) of the Act without making any amendment to the explanation to section 80IA(4) of the Act, the said explanation substituted by the Finance Act, 2009 w.e.f. 01.04.2000 being hindrance to the statutory deduction available to the assessee under the provision of section 80IA(4), the said explanation would have to stand down in view of the decision of the Hon'ble Supreme Court in the case of S. Sundarm Pillai, referred to supra. Consequently, on this ground also the order passed u/s. 263 of the Act by the Id. CIT for A/Y. 2006- 07 and 2007-08 stands quashed. Appeals of the assessee are allowed. “

Respectfully following the Jurisdictional ITAT’s orders as mentioned above in the case of the appellant which is binding on me, I direct the AO to allow the claim of deduction made by the appellant u/s. 80IA(4) of the At. Hence, the addition made by the AO in this regard amounting to Rs.87,38,019/- is deleted.”

requirement to interfere with the order of the CIT(A) which is in consonance

with the above order of the Tribunal. We, therefore, do not find any merit

in this ground of appeal of the Revenue and, accordingly, same is

dismissed.

6 ARSS Infrastructure Pvt. Ltd.

the CIT(A) was not justified in allowing deduction of Rs.29,488/- towards

employees contribution to PF u/s.36(1)(va) of the Act.

that the assessee has not deposited the employees contribution to PF to

the appropriate authority within the due date prescribed under the PF Act

and hence, disallowed the deduction for the same u/s.36(1)(va) r.w.s. u/s.

2(24)(x) of the Act.

it has been decided by the judicial authorities that the deposit of employees

contribution to PF if made before due date of filing of the return by the

assessee should be allowed as deduction u/s.36(1)(va) of the Act.

of Hon’ble Delhi High Court in CIT Vs. AIMIL Limited [2010] 321 ITR 508

(DEL) , wherein, it has been held that the employees’ contribution towards

EPF and ESI etc. deposited after the due date but before the time allowed

for filing the return u/s.139(1) will not call for any disallowance

u/s.36(1)(va) of the Act. Hence, we confirm the order of the CIT(A) and

dismiss the ground of appeal of the revenue.

7 ARSS Infrastructure Pvt. Ltd.

the CIT(A) is not justified in accepting the findings of the Assessing Officer

in violation of Rule 46A.

evidence produced by the assessee before the CIT(A), which was relied

upon by the CIT(A) while passing the order. Hence, we dismiss this ground

of appeal.

ITA No.540/CTK/2013: Assessee’s appeal

separate adjudication.

the CIT(A) is not justified in confirming the addition of Rs.9,50,000/-.

operation u/s.132 of the Act in the case of Ramesh Prasad Agrawal, Project

Director of the assessee company, an amount of Rs.9.50 lakhs was seized

from him. The Assessing Officer added the same to the income of the

assessee as unexplained income for the reasons that the assessee could

not produce any credible explanation regarding the source of cash.

each was withdrawn from the State Bank of India, Aizawal, Mizoram

account of the assessee on 14.3.2011 and 15.3.2011. It was submitted

that since project sites were in remote areas, Shri Agrawal was carrying

8 ARSS Infrastructure Pvt. Ltd.

cash with him for different expenses. It was submitted that transaction

was duly recorded in the books of account of the assessee.

the cash so drawn and the cash found in the vehicle of Shri Agarwal on

17.3.2011 and since the assessee neither before the Assessing Officer nor

before the CIT(A) explained how such transactions were recorded in the

books of account of the assessee, he confirmed the addition made by the

Assessing Officer.

appeal before us.

authorities and materials available on record. During the course of search,

cash of Rs.9,50,000/- was found in the possession of Shri Ramesh Prasad

Agarwal, Project Director on 17.3.2011. It is not in dispute that said seized

cash belongs to the assessee company. Before the Assessing Officer,

assessee explained that said cash of Rs.9,50,000/- was part of

Rs.14,00,000/-, which was withdrawn from the bank account of the

assessee company maintained with SBI, Aizawal, Mizoram of Rs.7 lakhs on

14.3.2011 and Rs.7 lakhs on 15.3.2011.

9 ARSS Infrastructure Pvt. Ltd.

assessee on the ground that the nexus between the said cash withdrawn

and cash of Rs.9,50,000/- found on 17.3.2011 could not be established by

the assessee. The Assessing Officer, therefore, added Rs.9,50,000/- to the

income of the assessee.

Officer.

the regular bank account of the assessee maintained with SBI, Aizawal,

Mizoram on 14.3.2011. Further, it is also not in dispute that a further sum

of Rs.7 lakhs was withdrawn in cash from the very same bank account on

15.3.2011. The assessee’s explanation that Rs.9,50,000/- found on

17.3.2011 at Guwahati was part of that Rs.14 lakhs cannot be rejected by

the Revenue without bringing any cogent material on record. The revenue

could not bring any material before us to show that the said cash withdrawal

could not have been the source of said cash of Rs.9,50,000/-. In the

circumstances, in our considered view, the addition of Rs.9,50,000/- cannot

be sustained. We, therefore, delete the addition of Rs.9,50,000/-. Thus,

this ground of appeal of the assessee is allowed.

the CIT(A) erred in confirming the addition of Rs.54,58,000/- made by the

10 ARSS Infrastructure Pvt. Ltd.

Assessing Officer on account of alleged bogus expenses claimed by the

assessee in the books of account.

the CIT(A) erred in confirming the addition of Rs.1,86,40,000/- made by

the Assessing Officer based on the seized documents, which is not

corroborated by any evidence.

they are adjudicated together as under:

operation in the vehicle of Shri Ramesh Prasad Agarwal, Project Director of

the assessee on 17.3.2011, a cash book was seized where a sum of

Rs.54,58,000/- were credited towards earth cutting expenses. The

Assessing Officer treated this amount as bogus expenditure which is

narrated in the auxiliary cash book of the assessee. The Assessing Officer

found that no concrete compliance by the assessee was received regarding

the expenditure recorded outside the main cash book of the assessee. The

Assessing Officer, therefore, added the amount of Rs.54,58,000/- to the

total income of the assessee as unexplained expenditure.

expenses are inherent part of all civil contract works and all costs cannot

11 ARSS Infrastructure Pvt. Ltd.

be accounted for as such in the books of account. The assessee further

stated that since profit percentage of the assessee was more than 8% of

the turnover, no adverse remarks should be taken regarding the

expenditure.

He observed that the expenditures are recorded out of the books and the

assessee was not able to explain the expenditures in relation to its books

of account. He further observed that the assessee has shown higher net

profit than the rate of 8% of gross turnover which is generally acceptable

profit in civil contract business, does not immune it from the illegality that

it can incur expenditure out of the books of account. Hence, he confirmed

the order of the Assessing Officer.

the assessee, certain documents were seized. Out of such documents, Page

17 of ARSS-HO-74 included certain details which were regarded as cash

account of the assessee by the Assessing Officer. The Assessing Officer

found that on the basis of such notings, the individuals and the lassessee

company filed their returns for the assessment year 2011-12. Further,

while the individuals Shri Subash Agarwal, Shri Anil Agarwal, Shri Rajesh

Agarwal and Shri Sunil Agarwal in their Returns of Income have shown the

income just as per the notings of the seized documents, the assessee

company instead of showing the income at Rs. 37.264 crores showed Rs.

12 ARSS Infrastructure Pvt. Ltd.

35.40 crores only. The Assessing Officer further stated that the assessee

during investigation and scrutiny admitted that the amount of Rs. 37.264

crore is its unaccounted income and, therefore, the same should have been

shown in the Return of the assessee. The Assessing Officer did not consider

the reasons provided by the assessee that amount of Rs. 35.40 crores

shown as income is net of expenditure in earning such income of Rs. 37.264

crores. According to the Assessing Officer, the modus operandi through

which this unaccounted income is generated should be similar in case of

individuals and the assessee company. Apparently, the Assessing Officer

held that such income was earned by commission from sub-contracts and

bogus sub-contracting. Therefore, he held that no further expenditure can

be allowed from this income and added the difference amount of Rs.

1,86,40,000/- to the total income of the assessee.

admitted to the unaccounted income of Rs. 37.264 crore, after incurring

certain expenses an amount of Rs. 35.40 crores were shown as the income

of the assessee. It was further submitted that the seized paper had no

evidentiary value and basing on such, an addition of Rs.1,86,40,000/- is

illegal and bad in law.

that the assessee itself agreed to the finding of the investigation by the

Income tax Department that Rs.37.264 crore is its unaccounted income.

13 ARSS Infrastructure Pvt. Ltd.

The assessee had paid tax on an income of Rs.35.40 crores. Therefore, the

statement that the seized paper does not have any evidentiary value is not

tenable. The CIT(A) further observed that it has been well established that

assessment u/s.153A after search and seizure operation should be based

on documents seized from the premises of the assessee and more so if the

same has not been recorded in the books of account of the assessee. In

the case of the assessee, this document as mentioned above was found

during the search and seizure operation in the premises of the assessee

and the assessee has admitted the figures to be in Rs. crores as its

unaccounted income. Therefore, he held that there is no justification in

further allowing expenditure on the unaccounted income of Rs.37.264

crores as found out from the document seized from the premises of the

assessee. Accordingly, he confirmed the order of the Assessing Officer.

authorities and materials available on record. In the instant case, a search

and seizure operation was conducted on 17.3.2011. The undisputed facts

of the case are that during the course of search, a document marked as

ARSS-HO-74 was found and seized from the possession of Shri Ramesh

Prasad Agarwal, Project Director on 17.3.2011. Further, a cash book was

also seized from the vehicle of Shri Ramesh Prasad Agarwal, Project

Director of the assessee company on 17.3.2011. The seized documents

marked ARSS-HO-74 shows that the assessee has received Rs.37.264

crores , which was not recorded in the regular book. The assessee also

14 ARSS Infrastructure Pvt. Ltd.

admitted the aforesaid amount as its unrecorded income. Further, the

assessee in its return of income disclosed only Rs.35.40 crores as income

on account of this document. The claim of the assessee was that balance

amount of Rs.1,86,40,000/- was business expenditure which was incurred

out of the aforesaid receipt of Rs.37.264 crores. However, the Assessing

Officer not accepted the same. The Assessing Officer observed that in the

very same document, amounts were written against the name of other

persons also and those persons have disclosed the entire amount written

in the documents as their income in their return of income. Therefore,

according to the Assessing Officer, the assessee ought to have also

disclosed the entire amount of receipt of Rs.37.264 crores as its additional

income. Therefore, the Assessing Officer added the balance amount of

Rs.1,86,40,00/- to the income of the assessee.

course of search shows that Rs.54,58,000/- as business expenditure of the

assessee on account of earth cutting expenses. According to the Assessing

Officer, the assessee could not explain the source of the said business

expenditure and, therefore, Rs.54,58,000/- was added to the income of the

assessee u/s.69C of the Act. Thus, the total addition of Rs.2,40,98,000/-

was made by the Assessing Officer on account of aforesaid two seized

documents.

15 ARSS Infrastructure Pvt. Ltd.

was for the purpose of business of the assessee and, therefore, the revenue

was not justified in not allowing the same. Further, the business

expenditure of Rs.54,58,000/- was part of business expenditure of

Rs.1,86,40,000/-, which was incurred out of additional income of Rs.37.264

crores. Therefore, the revenue was not justified in making separate

addition of the same by invoking provisions of section 69C of the Act.

business expenditure of the assessee, which was found recorded in the

seized documents. We find that no material has been brought on record

by the revenue to show that said business expenditure of Rs.54,58,000/-

could not have been incurred out of unrecorded business receipts of

Rs.37.264 crores of the assessee. The claim of the assessee that said

business expenditures of Rs.54,58,000/- were incurred out of receipts of

Rs.37.264 crores cannot be negated without any material on record to show

that said expenditure could not have been incurred out of said business

receipts of Rs.37.264 crores. Therefore, in our considered view, the

addition of Rs.54,58,000/- by the Assessing Officer by invoking the

provisions of section 69C is untenable.

16 ARSS Infrastructure Pvt. Ltd.

Rs.1,86,40,000/- made by the assessee, we find that expenditure to the

tune of Rs.54,58,000/- is evident by the said seized documents itself.

However, in respect of balance amount of Rs.1,31,82,000/-, we find that

no material could be brought on record by the assessee. In absence of any

material to show that further expenditure of Rs.1,31,82,000/- are incurred

for business purposes, in our considered view, deduction for the same

cannot be allowed.

because other persons have declared entire amount mentioned in the

seized documents as their income, therefore, the assessee cannot be

allowed deduction in respect of business expenditure incurred out of the

amount of receipt stated in the seized documents.

business expenditure of Rs.54,58,000/- were incurred by the assessee

apart from those expenses, which were recorded in its books of account, in

our considered view, deduction for the same is allowable to the assessee

when the source of the same is explainable from unrecorded receipts found

during the course of search. Therefore, addition to the extent of

Rs.54,58,000/- out of Rs.1,86,40,000/- is found to be unsustainable.

Consequently, out of total addition of Rs.2,40,98,000/- (Rs.1,86,40,000 +

Rs.54,58,000/-), addition to the extent of Rs.1,09,16,000/- (Rs.54,58,000

+ Rs.54,58,000/-) is deleted and balance addition of Rs.1,31,82,000/-,

17 ARSS Infrastructure Pvt. Ltd.

which was not supported by any material is hereby confirmed. Accordingly,

Ground No.3 of the appeal is allowed and Ground No.4 of the appeal is

partly allowed.

Order pronounced on 14 /07/2017. Sd/- sd/- (PAVAN KUMAR GADALE) (N.S Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER

Cuttack; Dated 14 /07/2017 Parida, SPS Copy of the Order forwarded to : 1. The Appellant/Assessee: Astt. Commissioner of Income Tax, Circle-2(1), Bhubaneswar. 2. The Revenue: ARSS Infrastructure Pvt. Ltd. Plot No. 38, Sector-A, Mancheswar Estate, BBSR.

SR.PRIVATE SECRETARY ITAT, Cuttack