TMI Blog2012 (12) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... /11, ITA No. 1499/Hyd/11, SA No. 83/Hyd/12, ITA No. 1970/Hyd/11, SA No. 84/Hyd/12, ITA No. 469/Hyd/11, ITA No. 1494/Hyd/11, ITA No. 1495/Hyd/11, ITA No. 1496/Hyd/11, ITA No. 1077/Hyd/12, ITA No. 1078/Hyd/12, ITA No. 1497/Hyd/11, ITA No. 1498/Hyd/11, ITA No. 800/Hyd/10, ITA No. 801/Hyd/10, ITA No. 802/Hyd/10, ITA No. 803/Hyd/10, ITA No. 804/Hyd/10, ITA No. 805/Hyd/10, ITA No. 806/Hyd/10 Appellant by: Shri P. Murali Mohan Rao Respondent by: Shri M. Ravinder Sai ORDER PER CHANDRA POOJARI, AM: All the above appeals, both by the assessee and the Revenue are directed against the different orders of the CIT/CIT(A) for the respective assessment years. Since the issues are common in nature and belong to the same group, these appeals are clubbed together, heard together and are being disposed of by this common order, for the sake of convenience. In certain appeals there are certain additional grounds raised before us which are either not in accordance with the ITAT Rules or irrelevant in view of our findings in respective appeals. Madhucon Granites Ltd., Khammam (Assessee appeals): ITA No. 666/Hyd/2010 2000-01 ITA No. 667/Hyd/2010 2001-02 ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the A.Y. 2005-06 and 2006-07 in ITA Nos. 34 and 35/Hyd/2012 the Revenue challenged granting of deduction u/s. 10B of the Act on similar reasons. Further the Revenue challenged the returns filed in these cases is beyond the due date allowed u/s. 139(1) of the Act and hence as per the 4th provision to section 10(1) of the Act, the assessee is not entitled for deduction u/s. 10B of the Act for A.Y. 2005-06 being the return filed belatedly. 6. We have heard both the parties on this issue. For the A.Ys. 2000-01 to 2004-05, the assessee claimed deduction with regard section 80HHC of the Act. According to the Department rough granite is merely an unprocessed granite and in view of circular Nos. 693 dated 17.11.1994 and 729 dated 1.11.1995 the assessee is not entitled for deduction u/s. 80HHC of the Act. For clarity, we reproduce herein the provisions of section 80HHC and Board circular Nos. 693 dated 17.11.1994 and 729 dated 1.11.1995: S.80HHC(1) For the assessee to be eligible u/s 80HHC(1), where an assessee being an Indian Company or a person (other than a company) resident in India, is engaged in business of export out of India of any goods or merchandise to which this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were mentioned in the invoices or in the director's report as rough blocks in sale invoices. But it does not mean that they are unprocessed granites. It was not disputed by the Department that the assessee is engaged in cutting and polishing and sizing of granites into required sizes. Once the assessee is engaged in cutting, polishing and sizing of the granite to the required sized and exporting the same, it is to be and it has to be concluded that the assessee is engaged in production . In similar circumstances, the Bombay High Court in the case of CIT vs. Fateh Granites Pvt. Ld. (314 ITR 32) (Bom) held that the activity of cutting, polishing and sizing of granites would be covered within the meaning of expression production . Therefore, the assessee is entitled to the benefit u/s. 80HHC/10B of the Act. Further, the Chennai Bench of this Tribunal in the case of ACIT vs. M/s. Janani Holdings, Chennai in ITA No. 1094/Mds/2010 vide order dated 25.2.2011 held that if the assessee in the sales invoices described the exported goods as processed dimensional rough or crude granite and the granite has been processed into blocks and dressed by the assessee and these were exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected against the order of the CIT dated 30.3.2010 passed u/s. 263 of the Income-tax Act, 1961 for A.Ys. 2000-01 to 2006-07 (7 years). The assessee is a public limited company engaged in the business of construction and execution of infrastructure projects like roads and highways, irrigation projects and canals. There was a search action u/s. 132 of the Act in the Madhucon group of companies on 20.10.2005 and subsequent to it assessment was framed u/s. 143(3) r.w.s. 153A of the Act for A.Ys. 2000-01 to 2006-07. According to the CIT the assessment orders passed for these assessment years are erroneous and prejudicial to the interest of revenue. Consequent to the search action, the assessee filed returns of income offering additional income of ₹ 9 crores the details are as follows: Sl. No. Assessment year Additional income disclosed (Rs.) 1. 2000-01 30,00,000 2. 2001-02 1,00,00,000 3. 2002-03 1,50,00,000 4. 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders erroneous. The company surrendered additional income of ₹ 9 crores for the AY 2000-01 to 2005-06. In the assessment order, the Assessing Officer estimated the income at 12.5%. He had also added gratuitous payment of ₹ 5.34 crores. However, he had allowed telescoping of the balance income offered while computing the total income. As a result the Assessing Officer had not made addition of ₹ 3.67 crores for different assessment years. This action of the Assessing Officer in allowing telescoping of income had rendered the orders erroneous. For all the A.Ys. 2000-01 to 2006-07, the Assessing Officer estimated income a the rate of 12.5% on which he had allowed depreciation. The net income after allowance of depreciation is substantially lower as is evident from the table below: AY Turnover of contract work Income at 12.5% Depreciation Income assessed from contracts Income assessed as percentage of turnover. AY Turnover of contract work Income at 12.5% Depreciation Income assessed from contracts Income assessed as percentage of turnover. 2000- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of ₹ 9 crores for the A.Ys. 2001-01 to 2006-07. This income was also included in the returns filed u/s. 153A. The Assessing Officer after estimating the income has disallowed amount of Ts. 5.33 crores being gratuitous payment and for balance amount of ₹ 3.67 crores no addition has been made. b. It is stated by the assessee that since books of account have been rejected and income estimated the AO is justified in not making the above addition of ₹ 3.67 crores as this amount is telescoped into the estimated income. According to the CIT, the AO has taken a contradicting stand. The assessee has surrendered ₹ 9 crores and added the same in the return of income u/s. 153A. Out of this the AO has added ₹ 5.33 crores being gratuitous payment. By same logic he should have added ₹ 3.67 crores. Without addition of ₹ 3.67 crores the assessment orders have been rendered erroneous and prejudicial to the interests of revenue. c. Depreciation allowed from Estimated Income - Further, from estimated income of 12.5% of contract turnover, the AO has allowed depreciation. In the case of Indwell Construction vs CIT (232 ITR 776) Hon'ble A.P. High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is in appeal before us in all these appeals. 16. We have heard both the parties at length. We have carefully perused the orders passed by the Assessing Officer u/s. 143(3) r.w.s. 153A in all these assessment years. We have also carefully gone through the orders passed u/s. 263 of the Act. While framing the assessment in these cases in these assessment years u/s. 143(3) r.w.s. 153A, the Assessing Officer rejected the books of account and estimated income of the assessee. While framing assessments of the assessee, he has considered 12.5% of the gross receipts as income of the assessee. Thereafter, he has given deduction towards depreciation/s. 32 of the Act. In addition to this, the Assessing Officer made addition towards gratuitous cash payment, disallowance u/s. 35D and also considered the income from other sources. Now the objection of the CIT in his orders u/s. 263 is that the Assessing Officer not made proper enquiry while passing the assessment orders u/s. 143(3) r.w.s. 153A of the Act and the orders are erroneous and prejudicial to the interest of revenue. According to the CIT once income is estimated at 12.5% the assessee is not entitled for deduction tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction activity in respect of the some of the materials, there will not supporting bills except the debit vouchers of the company..... Unquote 19. In the light of the above, it was inferred by the Assessing Officer as follows and rejected the books of account: In the light of the above and the connected features noticed in the search, the assessee was called upon to explain why the books of account should not be rejected and the profit on the contract receipts estimated. The submission made by the assessee in this regard in its reply filed on 27-8-2007 has been considered. However, keeping in view the clear evidence of debit of gratuitous cash payments in the books as business development expenditure or labour payments as admitted by the Chairman and Managing Director of the company, and also evidence and admission of self-made vouchers in support of expenses debited in the books, the explanation of the assessee to the effect that the books cannot be rejected is unacceptable and the books of account, it is evident, are not maintained properly and correctly. From the facts narrated above, I am of the view that the books maintained by the assessee are not correct an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct work, guaranty or warranty, maintenance, etc. In our opinion, when assessment made by lower authorities, it should depend upon various factors and it should be unbiased. To some extent it is a guess work also based on the above particulars. Nobody can make 100% foolproof estimation. However, it shall be reasonable. 24. Now coming to the issue of allowability of depreciation, we have carefully gone through the judgement of the jurisdictional High Court in the case of Indwell Constructions (cited supra). In the case before the jurisdictional High Court an addition was made towards interest and remuneration paid to partners when the profit was estimated. The High Court after considering the provisions of sections 29 and 40 found that no separate addition/ deduction shall be made. The contention of the Department is that no depreciation has to be allowed. The contention of the learned AR is that depreciation on the WDV of the assets shall be allowed. Estimation of income in these cases is taken clue from the provisions of section 44AD of the Act. Earlier this provision is applicable to cases where the contract receipts not exceeded ₹ 40 lakhs. However, by Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 1478/Hyd/11 - 2004-05 ITA No. 1479/Hyd/11 - 2005-06 ITA No. 1480/Hyd/11 - 2006-07 26. The above 7 appeals are Department appeals directed against the different orders of the CIT(A) for the assessment years 2000-01 to 2006-07 passed u/s. 250 r.w.s. 263 of the Act. Consequent to the orders passed u/s. 263 of the Act, the Assessing Officer passed the order u/s. 143(3) of the Act. While passing the consequential orders the Assessing Officer straightaway estimated income of the assessee at 12.5% on contract receipts. On appeal, the CIT(A) directed the Assessing Officer to estimate the income at 10% of the gross receipts and allow depreciation. Against these orders, the Revenue is in appeal before us. 27. We have heard both the parties and perused the material on record. As we have given certain direction in the appeals by the assessee against the orders of CIT passed u/s. 263 of the Act, the consequential orders passed by the Assessing Officer have become infructuous. Accordingly, all the above 7 departmental appeals in ITA Nos. 1474 to 1480/Hyd/2011 are dismissed as infructuous. M/s. Madhucon Projects Ltd., Hyderabad (Assessee appeals) ITA No. 1829/Hyd/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeals is with regard to allowability of deduction u/s. 80IA of the Act for the development of infrastructure facilities for various Government agencies. 31. After hearing both the parties we are of the opinion that the allowability of deduction u/s. 80IA is subject matter of appeal before this Tribunal in various cases and the Tribunal given a finding in these cases. The same issue was considered by this Tribunal in the case of M/s. Maytas-NCC (JV) in ITA No. 1292/ Hyd/2010 for A.Y. 2007-08. The Tribunal vide order dated 27.8.2012 held as follows: 22. We have heard both the parties and perused the material on record. In our opinion, this issue came for consideration before this Tribunal in the case of M/s. Koya Co. Construction (P) Ltd. v. ACIT, 51 SOT 203 (Hyd) (URO) wherein the Tribunal held as follows: 24. We find that the provisions of Section 80IA (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA (4) itself. Further, the very fact that the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee s responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not a developer. 27. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word contractor is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word contractor is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. 28. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the work undertaken by the assessee is as follows: i) Designing and Manufacturing of pipes: The assessee specially designed and manufactured Pre-stressed concrete pipes and it has been done in accordance with specific requirements. ii) Design and manufacturing of pipe fittings or specials ii) Transporting, Laying and Joining of pipes conforming with specifications. The activity involves earth work excavation, trench excavation, hard rook blasting, lowering and laying of pipes, fitting of specials, fitting of rubber rings at the joints, testing pipe joints and pipeline. iii) Construction of pump house, providing and fitting of pump sets. Supply and fitting of submersible pumps, centrifugal pumps, turbine pumps, submersible motors, motors for turbines and centrifugal pump sets, transformer, generator, panel boards etc. iv) Design and construction of raw water pumping stations, water treatment plant, treated water pumping station, treated water transmission main, construction of surge tank and pipe connection arrangement, booster stations, internal transmission main and feeder mains, construction of service reservoirs and master reservoirs. v) Mobilisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accordingly and grant deduction on eligible turnover as directed above. It is needless to say that similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view. 23. In the case of GVPR Engineers Ltd. v. ACIT, 51 SOT 207 (Hyd) (URO) wherein the Tribunal held that deduction u/s. 80IA is available to developers who undertake entrepreneurial investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that the plant and machinery, technical know-how, expertise and financial resources. Therefore, if the contracts involve design, development, operation maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract, to deny the deduction under section 80IA. The contracts which contain above features to be segregated have to be granted dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before us the assessee filed certain copies of tenders suggesting nature of activity carried on by the assessee and argued that the issue is already decided by this Tribunal in favour of the assessee by various decisions cited supra. However, at this stage we are not in a position to express any opinion on the nature of activities carried on by the assessee. The lower authorities had no occasion to examine the nature of activities carried on by the assessee. Being so, in our opinion, it is appropriate to remit the issue back to the file of Assessing Officer for fresh consideration. While doing so, the Assessing Officer has to see whether the assessee carried on contract for sale or contract for work and the applicability of Explanation below section 80IA(13) of the Act. The Assessing Officer is directed to examine the terms of contract including the nature of obligation to be discharged by the assessee while executing the contract. For claiming deduction u/s. 80IA(4) the assessee shall satisfy the two conditions viz., investment in eligible projects and (2) execution of project by itself. If the assessee satisfies the above conditions and the above Explanation if not applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year is ₹ 681.10 crores. Considering the quantum of expenditure and non maintenance of proper vouchers, the disallowance is justified because there is every chance of inflating the expenditure by self-made vouchers. The disallowance is justified. 38. The next ground in ITA No. 1499/Hyd/2011 is with regard to disallowance of royalty payment of ₹ 9,44,10,345 u/s. 40(a)(ia) of the Act. It is observed by the lower authorities that the assessee not made TDS on royalty payment u/s. 194J of the Act. The learned AR submitted that the assessee is not liable to deduct TDS on this royalty payment. He also relied on the order of the Special Bench in the case of Merilyn Shipping Transports vs. Addl. CIT reported in (2012) 16 ITR (Trib) 1 (Visakhapatnam) (SB). 39. We have heard both the parties and perused the material on record. Admittedly the assessee is liable for deduction of TDS as there is amendment to section 40(a)(ia) of the Act by Taxation Laws (Amendment) Act, 2006 with effect from 13.7.2006. As per clause (c) royalty introduced to subsection 194J(1) and as per section 40(a)(ia) of the Act which got amended with retrospective effect from 1.4.2006 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects Ltd. (Assessee appeals) ITA No. 1494/Hyd/11 A.Y. 2000-01 ITA No. 1495/Hyd/11 A.Y. 2001-02 ITA No. 1496/Hyd/11 A.Y. 2002-03 ITA No. 1077/Hyd/12 A.Y. 2003-04 ITA No. 1078/Hyd/12 A.Y. 2004-05 ITA No. 1497/Hyd/11 A.Y. 2005-06 ITA No. 1498/Hyd/11 A.Y. 2006-07 44. These appeals by the assessee are directed against the order passed by the CIT(A) u/s. 250 consequent to appeal against the order of Assessing Officer u/s. 143(3) r.w.s. 263 of the CIT. There is a delay of 350 days in filing ITA No. 1077/Hyd/2012 and 1078/ Hyd/2012. However, we are not going to adjudicate the issue relating to delay in filing these appeals as all the appeals have become infructuous in view of our findings in appeals by the assessee against the orders passed by the CIT u/s. 263 of the Act in these assessment years. As we have modified the order of the CIT(A) passed u/s. 263 of the Act in ITA Nos. 668, 669, 676, 677, 682, 683 and 702/Hyd/2010, accordingly, all these appeals are dismissed as infructuous. M/s. Madhucon Projects Ltd., Hyderabad (Assessee appeals) ITA No. 800/Hyd/10 - 2000-01 ITA No. 801/Hyd/10 - 2001-02 ITA No. 802/Hyd/10 - 2002-03 ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dismissed 12. ITA No. 33/Hyd/12 Department Dismissed 13. ITA No. 34/Hyd/12 Department Partly allowed for statistical purposes 14. ITA No. 35/Hyd/12 Department Dismissed 15. ITA No. 668/Hyd/10 Assessee Partly allowed 16. ITA No. 669/Hyd/10 Assessee Partly allowed 17. ITA No. 676/Hyd/10 Assessee Partly allowed 18. ITA No. 677/Hyd/10 Assessee Partly allowed 19. ITA No. 682/Hyd/10 Assessee Partly allowed 20. ITA No. 683/Hyd/10 Assessee Partly allowed 21. ITA No. 702/Hyd/10 Assessee Partly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee Dismissed 43. ITA No. 1496/Hyd/11 Assessee Dismissed 44. ITA No. 1077/Hyd/12 Assessee Dismissed 45. ITA No. 1078/Hyd/12 Assessee Dismissed 46. ITA No. 1497/Hyd/11 Assessee Dismissed 47. ITA No. 1498/Hyd/11 Assessee Dismissed 48. ITA No. 800/Hyd/10 Assessee Dismissed 49. ITA No. 801/Hyd/10 Assessee Dismissed 50. ITA No. 802/Hyd/10 Assessee Dismissed 51. ITA No. 803/Hyd/10 Assessee Dismissed 52. ITA No. 804/Hyd/10 Assessee Dismissed 53. ITA No. 805/Hyd/10 ..... 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