ADDL. CIT, SPECIAL RANGE- 4, NEW DELHI vs. IRCON INTERNATIONAL LTD., NEW DELHI

PER ANUBHAV SHARMA, JM:

Two appeals have been filed by the Assessee and Revenue respectively against order dated 27.11.2018 passed in appeal no. 53/2017-

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 2

18 for assessment year 2015-16, by the Commissioner of Income Tax (Appeals)-35, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 28.12.2017 u/s 143(3) of I.T. Act, 1961 (hereinafter referred to as ‘the Act’) passed by ACIT, Special Range-4, New Delhi (hereinafter referred as Ld. Assessing officer or in short Ld. AO). 2. The facts of the case that the assessee filed return of income declaring an income of Rs. 341,15,89,440/- on 18.11.2015. The case was selected for scrutiny on the basis of parameter Manual Compulsory Guidelines of CBDT issued vide Instruction No. 04/2016 dated 13.07.2016 and accordingly notice u/s 143(2) of I. T. Act, 1961 was issued. 2.1 The assessee company is a Government of India undertaking and is engaged in the execution of civil engineering, electrical turnkey contracts in India as well as abroad. In the P&L account, the assessee company has declared a profit of Rs. 844,28,48,066/-. 2.2 During the year under consideration Ld. AO examined a claim of deduction u/s 80IA of the Act, in regard to the work of contractor for the projects undertaken by the assessee company and was of the view that the contract agreement with the Rail Coach Factory, Rae Bareli, for setting of rail coach factory at Lal Ganj, Rae Bareli, the assessee was merely providing work contracts and assessee was not developer of such infrastructure facilities, therefore, denied deduction of Rs. 90,68,76,022/- u/s 80IA and added back the same to the total income of assessee. Ld. CIT(A) by making relevant observations on page no. 24-29 of the order deleted the addition following the Tribunal’s order in assessee’s own case for 2000-01.

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 3

2.3 Further a disallowance was made for the provision of maintenance to the extent of Rs. 23,23,98,275/-. Ld. AO considered that the provisions for maintenance expenses were neither ascertained liability nor the quantum has any scientific basis accordingly, the addition was added back to the income of assessee. Ld. CIT(A) while dealing with the issue on page no. 41-43 of the order has deleted the addition on the basis of findings in favour of the assessee from the Tribunal for A.Y. 2001-02 and his own decision for A.Y. 2012-13. 2.4 The Ld. AO had further made an addition of Rs. 366,46,46,944/- of global income earned from Malaysia and Sri Lanka with reasoning that as per existing DTAA, India has adopted credit method. Ld. CIT(A) on page no. 52-54 has considered the matter on the basis of decision of ITAT in asessee’s own case for 2000-01 and his own decision for A.Y. 2013-14 and 2014-15. Ld. CIT(A) has sustained the addition under the normal provision however addition under the MAT was deleted. 2.5 Ld. AO had made an addition on account of delay in deposit of provident fund contribution of the employees beyond the due date of deposit under the relevant Act. Ld. CIT(A) dealing with the issue on page no. 69-70 has deleted the addition by following judgment of Hon’ble Delhi High Court in CIT vs. AIMIL Ltd. 35 DTR 68 (Del). 2.6 Ld. AO has taken into account the fact that during the year assessee has earned tax free income of Rs. 19,22,69,510/- and assessee disallowed an amount of Rs. 4.96 lakhs u/s 14A. Ld. AO after taking into account the investment activity during the year concluded as follows in para no. 37 :- “37. On perusal of the documents available on record and having regard to the accounts of the assessee. I am not satisfied with the correctness of the claim of the assessee. The assessee has made substantial fresh investments during the year as the investments as on 31.3.2014 were Rs. 494.22 crore and against this, investments

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 4

as on 31.3,2015 are Rs. 737.21 crores. The amount disallowed by the assessee is not commensurate to the exempt income earned as well as investments being handled by the company. The assessee itself has stated that the decisions of making investments are taken by investment committee. This indicates that there is a well prescribed manner in which investment related matters arc handled in the company. In such a scenario, it cannot be accepted that the assessee incurred only Rs. 4.96 lakhs in earning exempt income. The earning of exempt income is not in a nature of passive activity having no input In fact, in present situation making of investment, maintaining or continuing investment and lime of exit from investment are well informed and well informed and well coordinated management decisions involving not only inputs from various sources but also acumen of senior management functionaries. Therefore, cost is inbuilt into even so called “passive” investment. There are incidental expenditure of collection, telephone, follow up etc. in addition to application of mind, time and energy by the management & concerned persons.” “ 2.6.1 Accordingly, proceeded to make a disallowance of Rs. 3,02,90,000/- as per calculations u/s 14A r.w.r 8D. Ld. AO has taken the average of value investment appearing in the balance sheet of the assessee on the first day and the last day of the previous year, at Rs. 615.72 crores and thus he calculated the disallowance at 0.5 % of Rs. 6,15,72,00,000/-, at Rs. 3,07,86,000/- and further adjusting suo moto disallowance of 4,96,000/-, made a disallowance of Rs. 3,02,90,000/-. 2.6.2 Ld. CIT(A) has sustained the addition u/s 14A with relevant findings of page no. 54-58 by restricting the addition to 1.50 crores on the basis of the submissions of the assessee and further directed that no addition shall be made on account of disallowance made u/s 14A r.w.r. 8D under the provisions of MAT. 2.7 Lastly the Ld. AO has made a disallowance of Rs. 96,95,365/- against the advances written off by the assessee as they were never booked as revenue in P&L account in any earlier year. Ld. AO made following relevant findings in para no. 42 as follows :-

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 5

“42. The submissions filed by the assessee have been examined. It may be mentioned that advances written off by the assessee were never booked as revenue in P&L account in any earlier year. These appear to advances to some parties which have been written off by the assessee during the year, it may also be mentioned that the nature of 'advances written off’ is different from 'bad debts written off because in the case of bad debts, the amount have been shown as receipts in the earlier years. However, the same is not the case with advances and these are not allowable expenditure under the provision of Income Tax Act. Further, the assessee has not filed any details or nature of advances written off during the year. Accordingly, same is being disallowed and added back to the income of the assessee. I am satisfied that the assessee has furnished inaccurate particulars of income and accordingly penalty proceedings u/s 27 I (I )(c) are being initiated separately. (Addition : Rs. 96,95,365/-)”

2.7.1 The Ld. CIT(A) dealing with the issue of advances written off has recorded findings at page no. 58-61 while allowing the ground partly in favour of the assessee observing that the amount of Rs. 29.23 lacs was actually receivable from M/s. PGCIL but categorized under advance. This amount was withheld by the client on account of rebate for dismantled material. Ld. CIT(A) considered that this amount of Rs. 29.23 lacs originated by crediting the revenue, therefore same cannot be considered as capital expenditure and accordingly out of total disallowance of Rs. 96,95,365/- deleted to the extent of Rs.29.23 lakhs and confirmed Rs. 67,72,365/-. 3. Assessee is in appeal before tribunal raising following grounds :

(a)That having regard to the facts and circumstances of 1. the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in treating the foreign income of Rs.366,46,46,944/- as taxable in India whereas this income is not taxable in India in any manner and more so when assessee is following exemption method and paid taxes on the said income

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 6

under the tax laws of the Host Country as per the provisions of Double Taxation Avoidance agreement and impugned addition is illegal and is based on incorrect facts and findings and without considering and appreciating the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds and without observing the principles of natural justice. l(b)That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in treating the global income of Rs.366,46,46,944/- taxable in India is beyond jurisdiction, illegal, bad in law and against the facts and circumstances of the case. 2.(a) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on the facts in not deleting the entire disallowance of Rs. 3,02,90,000/- made by the Ld. AO u/s 14A r.w.r. 8D and has erred in sustaining the same to the extent of Rs. 1,45,04,000/- and that too by recording incorrect facts and findings and without observing the principles of natural justice. 2(b)That in any case and in any view of the matter, action of Ld. CIT(A) in sustaining the action of Ld. AO in making disallowance of Rs. 1,45,04,000/-, is bad in law and against the facts and circumstances of the case. (a) That having regard to the facts and circumstances of 2. the case, Ld. CIT(A) has erred in law and on facts in not deleting the entire disallowance of Rs.96,95,565/- made by Ld. AO on account of advance written off and has erred in sustaining the same to the extent of Rs.67,72,365/- and that too by recording incorrect facts and findings and without observing the principle of natural justice. (b) That in any case and in any view of the matter, action 3. of Ld. CIT(A) in sustaining the action of Ld. AO in making disallowance of Rs. 67,72, 365/- on account of advance written off, is bad in law and against the facts and circumstances of the case. That having regard to the facts and circumstances of the 2. case, Ld. CIT(A) has erred in law and on facts of the case in not reversing the action of Ld. AO in charging interest u/s 234A, 234B, 234C and 234D of the Act. That the appellant craves the leave to add, modify, amend 3. or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 7

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in allowing the deduction u/s 80IA amounting to Rs.90,68,76,022/- by rejecting the view of the AO that the agreement entered into by the assessee is of work-contract nature and, accordingly, it is not eligible for deduction u/s 80IA. 2. 2.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition of Rs.23,23,98,275/- made on the account of Provisions for Maintenance by holding the said expenditure as being similar to after-sales service/warranty expenditure. 2.2 Without prejudice to the above, whether the Ld CIT(A) was correct in holding that the amount of Rs.23,23,98,275/- claimed on account of Provision for maintenance is not liable to be added in computing the book profits of the assessee u/s 115 JB of the Act. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in excluding income from Malaysiya and Sri Lanka amounting to Rs.366,46,46,944/- from net profits of the assessee company for working out of book profits u/s 115 JB of Income Tax Act, 1961. 4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition made by the AO in respect of delayed payment of the Employee’s contribution to the Provident Fund and ESI, not appreciating that the Employees contribution to PF & ESI is governed by the provisions of section 2(24) read with section 36(l)(va) and not by section 43B of the Income Tax Act, 19961(‘the Act’)”

Heard and perused the record. The submissions on both 4. sides were primarily on the basis of previous year judgments in assessee’s own case by Tribunal. A chart of issues with relevant orders of Co-ordinate Benches is filed as paper book. As with regard to Appeal of assessee, ITA No. 127/Del/2019 5.

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 8

the grounds are decided as follows; 6.1 Ground no. 1; Ld. CIT(A) has dealt with the ground no1 from para no. 4.5 onwards and benefited the assessee with conclusions made in para no. 4.5.3.2 on the basis of findings in assessee’s own case for A.Y. 2012-13. Further the matter of fact is that vide order dated 28/1/2022, a co-ordinate Bench dealing with the issues for A.Y. 2006-07 to 2013-14 in ITA No 2401 and Ors, has followed the findings in case of assessee for A.Y. 2000-01, with following relevant observations in para no. 10 to 14 :- “Income through PE & 115 JB: 10. The assessee computed the income /profits in accordance with the provisions o f DTAA with UK, Bangladesh and Malaysia to Rs .12,26 ,84,700/-. The AO disallowed Rs.2,75,600/- on account o f corporate office expenses which have not been ITA No. 2401 & Ors M/s. Ircon International Ltd. 9 deducted by the assessee while computing profit from foreign entities. 11. The ld . CIT(A) enhanced this amount to the tune of the total amounts earned from the foreign projects . 12. The ld . CIT(A) while enhancing held that the assessee is a resident of India and due to the state of residency the India has inherent right to tax global income of an assessee as per provisions of section 5 of the IT Act. Sub-clause-(c) of Clause- (1) to section 5 provides that total income of any previous year of a person who is a resident includes all income from whatever source derived which accrues or arises to him outside India during such year. As per provisions of the Act the appellant is a resident assessee of India and because of this income from all sources derived by the appellant within India or outside India has to be included in its total income for taxation purposes in India. Due to state of residency, India has inherent right to tax the global income of the appellant as per provisions of section5. As per India’s existing DTAA’s, India has adopted credit method whereby the global income of a resident tax payer is considered which includes income accruing or arising outside India as well, even though on such income a more beneficial tax treatment under the tax laws of host country

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 9

may have been available. Under this system once the assessee has paid tax under the tax laws of host country, the credit for the tax payments in the host countries is given against the global income of the assessee under Indian Income Tax Act, which includes the overseas income as well. The appellant has claimed that it has permanent establishment in the foreign countries from where the project income have been derived and with India has entered into double taxation avoidance ITA No. 2401 & Ors M/s. Ircon International Ltd. 10 agreement. The appellant has opted for application of DTAA u/s 90(2). The character o f the income earned by the appellant is 'income from business' . Article- 7 of relevant DTAA's which are applicable in the appellant's case are similarly worded . In these DTAAs, i t has been provided that the profit of an enterprise of contracting state shall be taxable only in that state unless the enterprise carries on business in other contracting state through a permanent establishment situated therein . I f the enterprise carries on business as aforesaid, the profits of the enterprises may be taxed in the other Contracting State but only so much of them as is attributable directly or indirectly to that permanent establishment. This Article-7 of the all relevant DTAA is consisting of two parts, i .e., one is that the profit o f an enterprise o f a contracting state shall be taxable only in that state; and, the second part is that when the enterprise carries on business in the other contracting state through a permanent establishment. In that si tuation , the profits of enterprise may be taxed in the other contracting state but only so much of them as is attributable to that permanent establishment. Thus, the first part of the Article gives exclusive right to the taxation of business income to the state of residency as the phrase used as 'shall be taxable only'. The second part of this article 7 of the relevant DTAA provides right to taxation of the state of residency as well as to the other contracting state wherein the permanent establishment si tuated . Thus, the Article 7 provides that in such a situation, the state o f the residents does not have exclusive right to tax but it has inherent right to tax such income. The article also provides that the state of the source has also right to tax the business income . It is a non-exclusive right in case there exist a permanent establishment. The phrase used 'may be taxed'. Therefore, the combined reading of the sentences o f Article 7 of

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 10

relevant DTAA means that the ITA No. 2401 & Ors M/s. Ircon International Ltd. 11 state of source has non-exclusive right to tax business income attributable to permanent establishment . In view of this, such income may be taxed as per the domestic laws. This nonexclusive right of state of source does not extinguish the inherent right o f state of residency to tax global income of its residents. In the circumstances, where the state o f the residents o f the taxpayer has given up its inherent right to tax the global income, in such situation, the phrase used in Article 7 of the DTAA is 'shall be taxable only'. Since in all the DTAA applicable in the case of appellant the phrase used is 'may be taxed', therefore , inherent right of taxation o f global business income in India is not lost. The fiscal domicile of the appellant had to be decided in view of the provisions o f Treaty . Appellant's contention that its foreign income is taxable income in foreign countries and it cannot be taxed in India is an untenable contention . It is a fallacious view taken by the appellant by wrong interpretation o f Article 7 of relevant DTAA. In the sphere of international taxation, there are two fundamental systems o f taxation, one is based on residency of the taxpayer and the other is based on the source of the income. In the international arena, most of the countries follow the residency based taxation system. According to this system, a country can tax its residents on the global income of the taxpayer while the non-residents are taxed only on the income sourced inside the country. The provisions of section 5 as enumerated above give a scope of a total income o f the assessee who is resident of India. As per these provisions, the income of the resident taxable in India includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arise in India during such year or accrues or arises to him outside India during such year . Thus, the scope of the total income in the case o f a resident also extended to the income accrues or arises to him outside India during such year. Under the source based system, a country can tax a person whether resident or non- resident, only on income sourced inside the country . Had all the countries in the world following source based taxation system then the problem of double taxation would not have arisen . However, under the resident based system , there

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 11

arises a situation of double taxation because countries where the taxpayer is a resident then it will have to pay tax on its global income. To avoid the double taxation , two rules are devised in the DTAA's, i .e ., one is by way of providing Distributive Rules under which taxing rights allocated between contracting state with respect to various kinds of income; and the second rule is to put state of residence under an obligation to give either credit for taxes paid in the source state or to exempt the income which is taxed in source state . The taxation law in India follows the credit method for reliving the burden o f double taxation. Therefore , appellant ought to have included the overseas income against which credit for taxes paid overseas should have been availed . Therefore , the income received from foreign projects of Rs. 12,26,84,796/- required to be included for taxation purposes under normal provisions of the IT Act and credit for taxes paid in the host countries i .e. Malaysia of Malaysian Ringgets of 2 ,783,105 .90 after converting the same in Indian Rupees as on 31.03.2006 should be allowed . Accordingly, the income to the extent o f Rs .12,26,84 ,796/-has been enhanced. 13. The ld . CIT(A) has also held that this amount is required to be taxed both under normal provisions and MAT provisions. This issue has been adjudicated by the Tribunal in ITA No .2596/Del/2004 for the A .Y . 2000-01 and also in ITA No .1825/Del/2005 dated 31.10.2019 and allowed in favour o f the assessee. The relevant part o f the order of the Tribunal is as under: “22 .2 The Assessing Officer held that adjustment can be made only as provided in Explanation to section 115J as decided by the Hon’ble Supreme Court in the case o f Apollo tyres Vs CIT (2002) 255 ITR 273 (SC). According to him , exclusion of DTAA is not provided in tha t explanation. The Ld . CIT(A) confirmed the action of the Assessing Officer . 22 .3 Before us the Ld . Counsel of the assessee submitted that issue in dispute is covered in the favour o f the assessee by the decision o f the Tribunal in the case o f the assessee for assessment year 2000- 01 , wherein it is held that when such income is not to be taxed as per DTAA , it cannot be brought to tax indirectly under the deeming fiction under section 115JB o f the Ac t. 22 .4 The Ld . DR , on the other hand relied on the order of

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 12

the lower authorities . 22 .5 We have heard rival submission and perused the relevant material on record. The Tribunal in ITA No. 2596/Del/2004 in the case o f the assessee for assessment year 2000-01 has adjudicated on the identical is sue in dispute involved as under: “9 . We considered the above heard the rival submissions made by the parties in respec t of Ground No.7 and it is seen that income earned from permanent es tablishment in foreign countries is liable to be excluded from the computation o f book pro fit in view o f the decision in the case o f the bank o f Tokyo-Mitsubishi UFJ Ltd vs . ADIT 152 1TD 796 (Del .), which has been af firmed by Hon’ble High ITA No. 2401 & Ors M/s. Ircon International Ltd. 14 Court o f Delhi . When such income is not to be taxed as per DTAA , it cannot be brought to tax indirectly under the deeming fiction under sec tion115JA . Accordingly , this ground of appeal is decided in favor o f the appellant .” 22 .6 The issue in dispute involved in the present ground o f the appeal , being identical to the issue adjudicated by the Tribunal (supra) above, respect fully following the finding of the Tribunal (supra), we direct the Assessing Officer to exclude the income which is subject matter o f dispute under this ground of the appeal from the ambit o f the computation of book profit under section 115JB o f the Ac t. The ground o f the appeal is according allowed.” 14. Following the orders of the Co-ordinate Benches of the Tribunal, the appeal of the assessee on this ground is allowed."

Ld. DR could not distinguish on the same, therefore following the aforesaid findings of co-ordinate bench, the ground is decided in favour of assessee. 7. Ground no. 2; Ld. CIT(A) has dealt with the issue in para no. 4.6 onwards and issued directions to the Ld. AO in para no. 4.6.3.1 as follows :- “4.6.3.1. The submissions of the appellant, case laws cited and the assessment order have been considered. I have considered the observations made by the AO while making the

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 13

disallowance under rule 8D (2) (iii) r.w.s 14A of the Act. During the course of appellate proceedings the AR argued that the case of appellant is covered with the decision of the Jurisdictional Delhi High Court in the case of M/s. ACB India Vs. ACIT, where Hon'ble High Court held that the disallowance u/s 14A cannot be more than 0.5% on the average of the investments made on which the appellant received the dividend income. In the present case, the appellant has submitted the details of the dividend received and also worked out the disallowance following the decision of the Hon'ble Delhi High Court, which works out to Rs.1.50 crores. I also find that Ld. CIT(A)-39,New Delhi, while allowing the appeal of the assessee on this ground has followed the above judgment. Respectfully following the judgment of the Hon'ble Delhi High Court the addition made by the AO is restricted to Rs.1.50 crores. The AO shall further allow the addition made by the Appellant itself i.e. Rs.4.96laes and thus, the addition shall be restricted to Rs. 1,45,04,000/- only. This ground of appeal is partly allowed.”

7.1 However, the issue in regard to assessee, has been dealt by a co-ordinate bench as ITA no. 1400/Del/2018 for A.Y. 2014-15 and has made following observations in para no. 24 to 29 which are squarely applicable on facts:- “24. The details of the investment of the assessee are as under : Particulars Balance as on 31-03- Balance as on 31-03- 2013 (Rs. in crores) 2014 (Rs. in crores) Non Current Investment 191.19 116.27 (refer schedule 12 of Balance sheet PB534) Current Investments (refer 176.01 64.95 schedule 16 of balance sheet PB538) Total 367.20 181.22 Average investment = (367.2 = 181.22)/2= 274.21 Cr. The AO noticed that assessee declared tax free income 25. amounting to Rs. 17,82,35,102 /- and itself disallowed a sum of Rs.2.52 lakhs u/s 14A of the Act. During the course of assessment

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 14

proceedings, the assessee informed the AO that no interest was paid on investments made on which assessee earned the exempt income. The assessee contended that it has itself disallowed 26. about 10% of the expenses on salary etc paid to the team consisting of manager (finance) and Asst. Manager considering the time involved by these persons in this activity apart from their routine work. According to AO substantial fresh investment was made in the year ending as on 31.03.2014 and there was increase in investment during the year by an amount of Rs. 198.93 crores. Thus according to AO the amount claimed to have disallowed by the assessee was not commensurate to the exempt income. In his view there were also incidental expenditure of collection, telephone follow up etc. Accordingly invoking the provisions of clause (iii) of 27. Rule 8D(2), the AO made a disallowance of Rs. 1,94,86,000/- after considering the disallowance made by the assessee itself amounting to Rs. 2.52 lakhs. During the course of appellate proceedings, it was 28. argued before Id. CIT(A) that the case of assessee is covered with the decision of the Jurisdictional Delhi High Court in the case of M/s ACB India Vs. ACIT, where Hon'ble High Court held that the disallowance u/s 14A cannot be more than 0.5% on the average of the investments made on which the assessee received the dividend income. Id. CIT(A) held that in the present case, the assessee has submitted the details of the dividend received and also worked out the disallowance following the decision of the Hon'ble Delhi High Court, which works out to Rs. 137.105 Lacs. The Id. CIT(A) following the judgment of the Hon'ble Delhi High Court restricted the amount to Rs. 137.105 lacs and determined at Rs. 134.585 lacs owing to the disallowance of Rs.2.52 lakhs made by the assessee. Placing reliance on the judgment of the Hon'ble 29. jurisdictional High Court, keeping in view, the average investments, the disallowance of Rs. 134.585 lacs ( Rs. 137.105 - Rs.2,5 lacs) made by the Revenue u/r 8D(2)(iii) by considering 0.5% of the average investment of Rs.271.21 Cr. is hereby sustained.” No distinguishing facts appear, accordingly following the

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 15

aforesaid, the addition is sustained. 8. Ground no. 3; The Ld. CIT(A) in para no. 4.7 onwards has dealt with the issue and made relevant findings in para no. 4.7.3.1 and 3.2 as follows :- “4.7.3.1 The submission of the appellant/case laws cited and the assessment order have been considered. During the course of appellate proceedings on specific enquiry made from the appellant with regard to details of disallowances made, I find that the amount of Rs.29.23/- lakhs- are actually receivable/debtors from M/s PGCL but categorized under advance. This amount was withheld by the client from the revenue on account of rebate for dismantled material to be allowed as per the contract. The amount written off is revenue in nature since it was originated by crediting to revenue basically consisted of the value of material not returned by sub - contractor. 4.7.3.2 Since the amount due from M/s PGCIL Rs.29.23 lakhs was originated by crediting the revenue (i.e. profit and loss account), same cannot be considered as capital expenditure. Hence out of the total disallowance of Rs.96,95,365/-, disallowance amounting to Rs.29.23 lakhs is deleted and remaining disallowance amounting to Rs.67,72,365/- is confirmed. This ground is partly allowed.” 8.1 However, as submitted for Assessee in assessee’s own case the issue has been dealt with ITA No. 1400/Del/2018 for A.Y. 2014- 15 which following relevant findings in para no. 18 to 20 :- “18. This ground relates to disallowance made by the AO amounting to Rs.8,26,887/- on account of advance written off. On the ground that, no details regarding advances written off has been filed by the assessee before the AO. 19. The Id. CIT(A) held that the expenditure was already allowed in the year in which the material was purchased and the same cannot be allowed twice when the same has been returned by the sub-contractor. 20. On going through the facts, we decline to interfere with the ratio of the Id. CIT(A). The appeal of the assessee on this ground is dismissed.

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 16

8.2 Then in ITA no 2401 and Ors decided on 28/1/2022 for AY 2006-07 to 2013-14, the issue was disposed of with following findings; “Advances Written off: 52. This ground relates to disallowance made by the AO amounting to Rs .60,00,000/- on account of advance written of f. On the ground that, no details regarding advances written off has been filed by the assessee before the AO . 53. The ld . CIT(A) allowed an amount of Rs.22 ,80,890/- pertains to TDS credit which could not be availed and written off and confirmed an amount of Rs.31,44,974/- spent on account of expenditure incurred by the assessee in connection with the joint venture . This amount pertains to the expenses incurred by the assessee for the Joint Venture wherein the expenses had to be irrecoverably written off. This is a sunk cost to the assessee which has been spent from the accounts of the assessee. Hence , the amount is eligible to be written off and to be claimed. In the result, the appeal of the assessee on this ground is allowed”. 8.3 The Previous year orders as reproduced above do not benefit the assessee as the issues were dealt on the basis of facts for said years. In the case in hand Ld. CIT(A) has taken note of the facts submitted during appeal with regard to amount due from M/s PGCIL of Rs.29.23 lakhs and there is nothing to show that any other amount was booked as revenue. The order of Ld. CIT(A) requires no interference.

9.1 Ground no. 1 – This arises from the deletion of addition u/s 80IA of the Act by the Ld. AO treating the agreement entered into by assessee as the work contract in assessee’s own case for A.Y.

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 17

2000-01. The issue has been examined threadbare in previous years holding that assessee is entitled to claim deduction u/s 80IA and Ld. CIT(A) has merely followed the same. Ld. DR is unable to cite any contrary on facts and law. Thus by following the Tribunal’s order in favour of the assessee, Ld. CIT(A) has committed no error requiring interference. The ground is decided against the assessee. 9.2. Ground no. 2 :- It can be observed that this issue has also been examined at the level of Tribunal repeatedly and lately while determining appeal of the assessee for A.Y. 2014-15 in ITA no. 1400/Del/2018 with following relevant findings in para no. 9 to 14:-

“9. The assessee has challenged disallowance of provision for maintenance for the project executed by the assessee amounting to Rs.105,96,46,297/- The Assessing Officer has held that this provision has been made on estimated basis and unascertained liability. The assessee submitted that it has to maintain or repair the defects in the projects executed by it during the defect liability period as specified in the contract agreement. The assessee claimed that these are mandatory expenses and provision has been made on the basis of its past experience and on scientific basis, therefore, such provision is an allowable expenditure. 10. It was submitted that the provision for maintenance expenditure is provided to cover the company's expenditure to liability towards defect rectification and/or maintenance incurred by the company after completion of the contract. Such provision is made taking into account contractual provisions, operating turnover for the year, type of project, period of maintenance, contractual obligations of the subcontractors and other relevant factors, if any. As per the agreement with the client, the company is liable to maintain the works executed by it even after the projects are completed and handed over to the clients, for a period of 12 or 24 months from the date of completion. During this

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 18

period, all the defects are to be rectified free of cost even though the Company has already handed over completed project to the client. The total project cost i.e. contract receipts, have already been received from the client in respect of the said projects before handing over the same to the client and no separate consideration is receivable. During the year an amount of Rs.2,27,42,328/- has been provided for non-DTAA project and Rs.7,18,000/- for DTAA projects. 11. The ld. CIT(A) deleted the addition holding that the assessee has been claiming that provision for maintenance has been made taking into account contractual provision, operating turnover of the year, type of project period of maintenance and other relevant factors. It was held by the ld. CIT(A) that as per contract agreement the assessee is liable to provide free of cost maintenance to the clients for the period mentioned in the agreement. At the time of completion of the contract, liability arises in the hands of the assessee company to provide free maintenance to the various contractees for the period specified in the agreement. This liability arises at the time of the completion of the project itself and obviously the expenditure required can only be estimated on the basis of past experience, nature of the contract, type of the project and turnover of the assessee in that particular year. The ld. CIT(A) held that the assessee claimed that estimate has been made on best estimated basis based upon the experience in the construction industry and therefore, the objection of the Assessing Officer that the liability has not arisen during the year as it has been quantified on estimated basis is not correct. 12. It is also a fact not disputed by the Assessing Officer in the assessment order that all along the provision for maintenance of expenses have been allowed to the assessee company except the disallowances made in A.Y. 1985-86 and 1995- 96.

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 19

9.3 Ground no. 3 ; Again the issue has been examined in previous years at the level of the Tribunal and for A.Y. 2014-15 the issue has been considered and decided in favour of the assessee with following relevant findings in para no. 15 to 17 reproduced as under :

“15. The issue has been extensively discussed at para no. 10 to 14 in the order of the ITAT ITA No.2401/Del/2013 A.Y. 2006-07 vide order dated 23.01.2022. 16. This issue has been adjudicated by the Tribunal in ITA No.2596/Del/2004 for the A.Y. 2000- 01 and also in ITA No.1825/Del/2005 dated 31.10.2019 and allowed in favour of the assessee. The relevant part of the order of the Tribunal is as under:

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 20

“22.2 The Assessing Officer held that adjustment can be made only as provided in Explanation to section 115J as decided by the Hon’ble Supreme Court in the case of Apollo tyres Vs CIT (2002) 255 ITR 273 (SC). According to him, exclusion of DTAA is not provided in that explanation. The Ld. CIT(A) confirmed the action of the Assessing Officer. 22.3 Before us the Ld. Counsel of the assessee submitted that issue in dispute is covered in the favour of the assessee by the decision of the Tribunal in the case of the assessee for assessment year 2000-01, wherein it is held that when such income is not to be taxed as per DTAA, it cannot be brought to tax indirectly under the deeming fiction under section 115JB of the Act. 22.4 The Ld. DR, on the other hand relied on the order of the lower authorities. 22.5 We have heard rival submission and perused the relevant material on record. The Tribunal in ITA No. 2596/Del/2004 in the case of the assessee for assessment year 2000-01 has adjudicated on the identical issue in dispute involved as under: “9. We considered the above heard the rival submissions made by the parties in respect of Ground No.7 and it is seen that income earned from permanent establishment in foreign countries is liable to be excluded from the computation of book profit in view of the decision in the case of the bank of Tokyo-Mitsubishi UFJ Ltd vs. ADIT 152 1TD 796 (Del.), which has been affirmed by Hon’ble High Court of Delhi. When such income is not to be taxed as per DTAA, it cannot be brought to tax indirectly under the deeming fiction under section115JA. Accordingly, this ground of appeal is decided in favor of the appellant.” 22.6 The issue in dispute involved in the present ground of the appeal, being identical to the issue adjudicated by the Tribunal (supra) above, respectfully following the finding of the Tribunal (supra), we direct the Assessing Officer to exclude

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 21

the income which is subject matter of dispute under this ground of the appeal from the ambit of the computation of book profit under section 115JB of the Act. The ground of the appeal is according allowed.” 17. Following the orders of the Co-ordinate Benches of the Tribunal, the appeal of the Revenue on this ground is dismissed and that of the assessee is allowed.” 9.3.1 Ld. DR has failed to make any argument on facts or law to distinguish, accordingly following the co-ordinate bench decision on the issue, the ground is decided against the revenue.

Sd/- Sd/- (SHAMIM YAHYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:-20.04.2023 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT

ITA No. 127./Del/2019 M/s. Ircon International Ltd. 22