Express Drilling Systems LLC, New Delhi V. ADIT (International Taxation), Dehradun

ITA 1567/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4018 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VI SHAL MISHRA
• Keywords: Retrospective amendment
• Section: 194C; 201(1)

Judgement Text

1 ITA NOS. 1566 & 1567 /DEL/2016 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI G. D. AGRAWAL, PRES IDENT AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 1566/DEL/2 016 (A.Y 2010-11) I.T.A .NO.1567 /DEL/2 016 (A.Y 2012-13) EXPRESS DRILLING SYSTEMS LLC C/O. NANGIA & COMPANY, SUIT 4A, PLAZA M-6, JASOLA NEW DELHI AABCE6891R (APPELLANT) VS ADIT (INTERNATIONAL TAXATION) CIRCLE-1, INCOME TAX OFFICE SUBHASH ROAD DEHRADUN (RESPONDENT) APPELLANT BY SH. AMIT ARORA & VISHAL MISHRA, CA RESPONDENT BY SH. ARUN KUMAR YADAV, SR. DR ORDER PER BENCH THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS DATED 29/1/2016 PASSED BY CIT(A)-2, NOIDA FOR ASSESSMENT YEAR 2010-11 & 2011- 12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 1566/DEL/2016 DATE OF HEARING 06.12.2017 DATE OF PRONOUNCEMENT 18.01.2018 2 ITA NOS. 1566 & 1567 /DEL/2016 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, YOUR APPELLANT RESPECTFULLY SUBMITS THE FOLLOWING GROUNDS: GROUND NO.1 THAT THE LD. CIT(A) ERRED IN FACTS AND IN LAW IN DI SALLOWING SUB-CONTRACTOR EXPENSES U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF PURCHASES MADE FROM SHIV-VANI OIL & GAS EXPLORATION SERVICES LIMITED WITHOUT DEDUCTION OF TAX AT SOURCE. IN DOING SO THE LD. CIT(A) FAILED TO APPRECIATE THAT: BY VIRTUE OF AMENDMENT BROUGHT TO SECTION 201(1) O F THE INCOME TAX ACT, 1961 BY FINANCE ACT, 2012, THE ASSESSEE CANNOT BE R EGARDED AS ASSESSEE IN DEFAULT; IN THE ABSENCE OF BEING HELD AS AN ASSESSEE IN DE FAULT THE DISALLOWANCE U/S 40(A)(IA) CANNOT BE MADE; THE AMENDMENTS BROUGHT IN BY THE FINANCE ACT, 2012 TO THE SECTION 201(1) AND 40(A)(IA) BEING CURATIVE IN NATURE AND THUS, HA VE RETROSPECTIVE EFFECT; THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN CASE OF COMMISSIONER OF INCO ME TAX-1 VS ANSAL LAND MARK TOWNSHIP (P) LTD. SHIV-VANI OIL & GAS EXPLORATION SERVICES BEING A CO NSORTIUM PARTNER OF THE ASSESSEE IS NEITHER A CONTRACTOR NOR A SUB-CONTR ACTOR OF THE ASSESSEE AND THUS, THE PROVISIONS OF SECTION 194C ARE NOT AP PLICABLE TO PAYMENTS/CREDITS MADE TO SHIV-VANI OIL & GAS EXPLOR ATION SERVICES. 3 ITA NOS. 1566 & 1567 /DEL/2016 YOUR APPELLANT PRAYS THAT THE ERRONEOUS ORDER BE CA NCELLED AND APPROPRIATE RELIEF MAY BE GRANTED TO THE APPELLANT. 3. IN BOTH THE ASSESSMENT YEARS THE ISSUES ARE IDEN TICAL. THEREFORE, WE ARE TAKING THE FACTS OF ASSESSMENT YEAR 2010-11 FOR THE SAKE OF CONVENIENCE. THE ASSESSEE IS A WHOLLY OWN SUBSIDIARY OF CDX GAS, LLC A COMPANY DULY INCORPORATED NOT LAWS OF USA. CDX GAS IS EXPERT PR ODUCTION OF COAL BED METHANE AND HAS VARIOUS EXPLORATIONS AND PRODUCTION BLOCKS IN USA. THE ASSESSEE PROVIDES SPECIALIZED DRILLING FOR COAL BED METHANE AND HAS REQUISITE EXPERIENCE AND TECHNOLOGY IN DRILLING HORIZONTAL, L ATERAL AND MULTILATERAL WELLS. SHIV-VANI OIL AND GAS EXPLORATION SERVICES LTD. SHIV-VANI IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF T HE COMPANIES ACT, 1956. SHIV VANI IS ENGAGED IN THE BUSINESS OF PROVIDING D RILLING, WORK OVER, SEISMIC, OFFSHORE LOGISTIC COMPRESSIONS, TURNKEY PROJECTS IN SETTING UP GAS GATHERING STATIONS, INSTALLATIONS AND OIL AND GAS SERVICES. MINERAL EXPLORATION CORPORATION LTD UNDER(MECL) IS A GOVERNMENT OF IN DIA ENTERPRISE AND IS A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956. MECL IS A PREMIER EXPLORATION AGENCY WHICH CARRIES OUT SYSTEMATIC DET AILED MINERAL EXPLORATION AND ALLIED WORK ON PROJECT BASIS RANGING FROM EXPLO RATION TO DEVELOPMENT, IN ORDER TO ESTABLISH RESERVES IN VARIOUS MINERALS/ORE S. ONGC WAS DESIROUS OF HIRING OF INTEGRATED SERVICES FOR DEVELOPMENT OF CE NTRAL PARBATPUR AND DRILLING, COMPLETION AND TESTING OF PILOT WELLS IN JHARIA, BOKARO AND NORTH KARANPUR CBM BLOCKS. THE ASSESSEE, SHIV-VANI AND M ECL HAD NECESSARY EXPERIENCE AND EXPERTISE TO PERFORM THE SERVICES RE QUIRED BY ONGC IN ITS TENDER AND JOINTLY SUBMITTED THE BID AS A CONSORTIU M. THE ASSESSEE AND SHIV-VANI SUBSEQUENTLY ENTERED INTO AN AGREEMENT S COPE OF WORK AGREEMENT ON DECEMBER 16, 2006. THE INDIVIDUAL RESPONSIBILI TY OF THE MEMBERS OF THE CONSORTIUM WAS SET OUT IN THE AGREEMENT. DURING TH E PREVIOUS YEAR 2009-10, THE ASSESSEE INCURRED THE EXPENDITURE AGGREGATING T O A SUM OF RS.120,200,916/- UNDER THE HEAD SUB-CONTRACTOR COST . THE WORK PERTAINING 4 ITA NOS. 1566 & 1567 /DEL/2016 TO CIVIL WORKS, DRILLING RIGS, WORK OVER RIGS AND A LL RELATED EQUIPMENT AND REPAIR FACILITIES AS WELL AS PERSONNEL AND PROVISIO N OF OTHER ANCILLARY SERVICES FOR DRILLING, TESTING AND COMPLETION OF THE WELLS I NCLUDING CEMENTATION LOGGING AND HYDRO-FRACTURING, PUT WELLS ON PRODUCTION, INST ALL PRODUCTION, TRANSPORTATION AND PROCESSING FACILITIES WAS PERFOR MED BY SHIV VANI FOR WHICH THE SAID COMPANY RAISED INVOICES ON THE ASSESSEE. THE ASSESSEE HAD DEDUCTED TAX APPLYING THE PROVISIONS OF SECTION 194 C OF THE INCOME-TAX ACT, 1961 IN RESPECT OF THE ENTIRE EXPENDITURE DEBITED U NDER THE HEAD SUB- CONTRACTOR COST PIPELINES, TOOLS, ETC FROM SUPPLIER S WHO WERE INDIAN RESIDENTS. THE DRAFT ASSESSMENT ORDER U/S 143(3)/144C(1) OF TH E INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2010-11 WAS PASSED ON 30/3/ 2013 AT A TOTAL INCOME OF RS.9,11,62,280/- AS AGAINST TOTAL LOSS OF RS.4,1 6,47,738/- SHOWN IN THE RETURN OF INCOME. THE ASSESSEE DID NOT FILE ANY OB JECTION AGAINST THE DRAFT ORDER BEFORE THE DISPUTE RESOLUTION PANEL. THE ASS ESSING OFFICER MADE DISALLOWANCE OF CERTAIN EXPENDITURE SINCE TAX WAS N OT DEDUCTED AT SOURCE THEREON AND WHILE MAKING PAYMENTS AND CERTAIN OTHER EXPENSES SINCE THE ASSESSEE FAILED TO SUBMIT ANY PROOF. THE ASSESSING OFFICER HAD COMPLETED THE ASSESSMENT IN CASE OF THE ASSESSEE TREATING THE EXP ENDITURE ON ACCOUNT OF OUTRIGHT PURCHASE FROM SHIV-VANI NOT ALLOWABLE U/S 40(A)(IA) OF THE ACT BECAUSE TAX WAS NOT WITHHELD ON SUCH OUTRIGHT PURCH ASES. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A) AND THE CIT(A) UPHELD THE ORDER O F THE ASSESSING OFFICER IN DISALLOWING THE ENTIRE PAYMENT OF SHIV-VANI ON WHIC H TAX WAS NOT DEDUCTED AT SOURCE BY THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE HON'BLE HIGH COURT IN CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP PVT. LTD. (2015) 377 ITR 635 HELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS DECLARATORY AND CURATIVE AND HAD RETROSPECTIVE EFFECT FROM 1 ST APRIL 2005. THEREFORE, THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS NOT TAKEN COGNIZANCE THAT ONCE THE BUYER HAD 5 ITA NOS. 1566 & 1567 /DEL/2016 DISCLOSED RECEIPT IN RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION THEN AS PER SECOND PROVISO TO SECTION 40(A)(IA) AND FIRST PROVISO TO SECTION 201(1) OF THE ACT DISALLOWANCE OF SUCH PAYMENTS BY THE ASSESS EE CANNOT BE MADE EVEN IF THESE AMENDMENTS WAS MADE EFFECTIVE FROM 1/4/20 13. THE LD. AR ALSO RELIED ON THE TRIBUNALS ORDER IN CASE OF MOHIT BUR MAN VS. ACIT. 6. THE LD. DR RELIED UPON THE ORDER OF THE CIT(A) A ND THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE CIT(A) HA S RELIED UPON THE DECISION IN CASE OF POTENTIAL LOGISTIC & TRANSPORTS VS. ITO 364 ITR 689 OF THE HONBLE KERALA HIGH COURT BUT THE JURISDICTIONAL HIGH COURT DECISION IN CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP PVT. LTD. & ITAT DECI SION IN CASE OF MOHIT BURMAN VS. ACIT HAS NOT BEEN CONSIDERED. THEREFORE, THE MATTER IS REMANDED BACK TO THE FILE OF THE CIT(A) TO TAKE COG NIZANCE OF THESE TWO DECISIONS. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN O PPORTUNITY OF BEING HEARD. 8. IN RESULTS, BOTH THE APPEALS OF THE ASSESSEE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY, 2018 . SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) PRESIDENT JUDICIAL MEMBER DATED: 18/01/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 6 ITA NOS. 1566 & 1567 /DEL/2016 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 06/12/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 06/12/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 18.01.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 8 .01.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.