M/S. INTERNATIONAL METRO CIVIL CONTRACTORS, MUMBAI V. ADDL. CIT 18(1), MUMBAI

ITA 2368/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8140 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 31-07-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 24-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Cost of acquisition; Revised return; Revenue expenditure
• Section: 32; 145; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI , !' # # # # , $ % & , !' ( BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I .T.A. NO. 2368 & 3732/MUM/2011 ( ) ) ) ) / ASSESSMENT YEAR : 2004-05 & 2005-06 M/S. INTERNATIONAL METRO CIVIL CONTRACTORS , G-3, T.V. INDUSTRIAL ESTATE, 248-A, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 / VS. THE ACIT, RANGE-18(1), MUMBAI ./I .T.A. NO. 8160/MUM/2010 ( ) ) ) ) / ASSESSMENT YEAR : 2006-07 M/S. INTERNATIONAL METRO CIVIL CONTRACTORS , G-3, T.V. INDUSTRIAL ESTATE, 248-A, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 / VS. THE ACIT, RANGE-18(1), MUMBAI ./I .T.A. NO. 3608/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2007-08 M/S. INTERNATIONAL METRO CIVIL CONTRACTORS , G-3, T.V. INDUSTRIAL ESTATE, 248-A, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 / VS. THE ACIT, RANGE-18(1), MUMBAI ./I .T.A. NO. 2961/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2007-08 THE ACIT, RANGE-18(1), MUMBAI / VS. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS , G-3, T.V. INDUSTRIAL ESTATE, M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 2 248-A, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 ./I .T.A. NO. 5787/MUM/2013 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 M/S. INTERNATIONAL METRO CIVIL CONTRACTORS , G-3, T.V. INDUSTRIAL ESTATE, 248-A, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 / VS. THE ACIT, RANGE-18(1), MUMBAI ./I .T.A. NO. 6383/MUM/2013 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 THE ACIT, RANGE-18(1), MUMBAI / VS. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS , G-3, T.V. INDUSTRIAL ESTATE, 248-A, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 '* ./ +, ./ PAN/GIR NO. : AAAA1 0325D ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / ASSESSEE BY: SHRI SUNIL M. LALA SHRI VARUN SANKHESARA SHRI HARSH SHAH ./*- 1 0 / REVENUE BY: SHRI PRITAM SINGH SHRI AKHILENDRA P. YADAV 1 $2 / DATE OF HEARING :18.09.2014 34) 1 $2 / DATE OF PRONOUNCEMENT :26.9.2014 !% / O R D E R PER BENCH: ITA NOS. 2368 & 3732/M/2011 & 8160/M/2010 ARE APPEA LS BY THE ASSESSEE FOR ASSESSMENT YEARS 2004-05 TO 2006-07. ITA NOS. 3608 & M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 3 2961/M/2012 ARE THE CROSS APPEALS BY THE ASSESSEE A ND THE REVENUE FOR ASSESSMENT YEAR 2007-08 AND ITA NOS. 5787 & 6383/M/ 2013 ARE THE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE FOR A.Y. 2008-09. ALL THESE APPEALS WERE HEARD TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 2368/MUM/2011 A.Y. 2004-05 2. THE ASSESSEE IS A JOINT VENTURE COMPRISING OF 5 MEMBERS NAMELY S. NO. NAME OF MEMBER PARTICIPATING INTEREST A. DYCKERHOFF & WIDMANN AG, GERMANY (LATER CHANGED TO DYWIDAG INTERNATIONAL GMBH) 29.0% B. LARSEN & TOUBRO LTD., INDIA 26.0% C. SAMSUNG CORPORATION, KOREA 26.0% D. IRCON INTERNATIONAL LTD. INDIA 9.5% E. SHIMIZU CORPON, JAPAN 9.5% 100.0% 3. THE JOINT VENTURE IS ENGAGED IN EXECUTION OF A PROJECT FOR CONSTRUCTION OF THE RAIL CORRIDOR FROM ISBT UPTO CE NTRAL SECRETARIAT PACKAGED AS MCIB FOR THE DELHI METRO RAIL CORPORATI ON. THE RETURN FOR THE YEAR WAS FILED ON 30.10.2004 DECLARING A LOSS O F RS. 6,59,74,376/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 3.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, A PROPOSAL U/S. 142(2A) FOR AUDIT OF THE BOOKS OF ACCOUNT WAS FORWA RDED TO THE M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 4 COMMISSIONER OF INCOME TAX-18, MUMBAI. THE CIT GRA NTED APPROVAL WHICH WAS CHALLENGED BY THE ASSESSEE VIDE A WRIT PE TITION. THE HONBLE BOMBAY HIGH COURT SET ASIDE THE ORDER. AGAIN A PRO POSAL WAS SENT FOR SPECIAL AUDIT U/S. 142(2A) WHICH WAS APPROVED BY TH E COMMISSIONER. AGAINST THIS ORDER, THE ASSESSEE APPROACHED THE HON BLE BOMBAY HIGH COURT IN A WRIT PETITION AND THE HONBLE BOMBAY HIG H COURT DISMISSED THE PETITION. THE ASSESSEE FILED A SPECIAL LEAVE P ETITION BEFORE THE HONBLE SUPREME COURT AGAINST THE ORDER OF THE HON BLE BOMBAY HIGH COURT. THE HONBLE SUPREME COURT DISMISSED THE SP ECIAL LEAVE PETITION AND THE AUDIT U/S. 142(2A) CONSEQUENTLY CO NDUCTED BY THE AUDITORS. 3.2. THE ASSESSING OFFICER NOTICED THAT THE AUDITOR S HAVE MADE THE OBSERVATION IN RELATION TO THE ACCOUNTING OF THE AS SESSEE. THE SPECIFIC OBSERVATIONS RELATED TO THE ACCOUNTING TREATMENT OF SALES, THE ASSESSEE EXPLAINED THAT IT IS FOLLOWING THE ACCOUNTING STAND ARD AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) ON CONSTRUCTION CONTRACTS. THIS METHOD OF ACCOUNTING WAS OUTRIGHTL Y REJECTED BY THE SPECIAL AUDITORS/AO WITH THE OBSERVATION THAT ACCOU NTING STANDARD AS-7 ISSUED BY THE ICAI IS MANDATORILY APPLICABLE ONLY F OR THE LIMITED PURPOSE OF PREPARING ANNUAL ACCOUNT AND DECLARING SALES AND COST OF SALES BY ALL ENTERPRISES ENGAGED IN THE EXECUTION OF CIVIL CONS TRUCTION CONTRACTS. HOWEVER, THE MANDATORY NATURE OF THIS ACCOUNTING ST ANDARD DOES NOT EXTEND TO THE COMPUTATION OF THE ASSESSABLE INCOME UNDER THE INCOME-TAX ACT. THE SPECIAL AUDITORS/AO FURTHER OBSERVED THAT ONLY TWO ACCOUNTING STANDARDS HAVE BEEN NOTIFIED BY SECTION 145(2) OF T HE ACT WHICH ARE NAMELY (I) ACCOUNTING STANDARD-I RELATING TO DISCLO SURE OF ACCOUNTING POLICIES, AND (II) ACCOUNTING STANDARD-II RELATING TO DISCLOSURE OF PRIOR PERIOD AND EXTRAORDINARY ITEMS AND CHANGES IN ACCOU NTING POLICIES. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 5 EXCEPT FOR THESE TWO ACCOUNTING STANDARDS, NO OTHER ACCOUNTING STANDARDS HAVE BEEN PRESCRIBED IN RESPECT OF ANY CLASS OF ASS ESSES OR ANY CLASS OF INCOME. ACCORDING TO THE AO, THE ASSESSABLE INCOME OF ANY PERSON ENGAGED IN CARRYING ON A BUSINESS OR PROFESSION IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN CHAPTER IV-D OF THE ACT, BASICALLY PROVIDES THAT ALL INCOMES FROM BUSINESS A RISING AND ACCRUING DURING A PREVIOUS YEAR MUST BE ASSESSED TO TAX AFTE R REDUCING ALL EXPENSES PERTAINING TO THAT BUSINESS INCURRED DURING THE REL EVANT PREVIOUS YEAR AND ALSO AFTER ALLOWING ANY DEDUCTIONS PERMISSIBLE UNDE R CHAPTER VI-A OF THE ACT. THE AO WAS OF THE FIRM BELIEF THAT ASSESSABLE INCOME HAS TO BE COMPUTED INDEPENDENT OF AS-7 ISSUED BY THE ICAI BY CONSIDERING ALL INCOMES AND EXPENSES OF PREVIOUS YEAR. IT WAS FURT HER OBSERVED THAT THE ASSESSEE HAS SHOWN A TURNOVER OF RS. 4,94,75,18,674 /- IN ITS BOOKS AS PER AS-7. HOWEVER, THE TURNOVER DECLARED IN THE RETURN S OF WORK CONTRACT WAS AT RS. 5,30,46,88,602/-. THE TURNOVER AS PER R UNNING ACCOUNT (RA) WAS AT RS. 5,00,68,52,523/-. THE AO WAS OF THE STR ONG BELIEF THAT THE TURNOVER AS PER RUNNING ACCOUNT SHOULD BE CONSIDERE D AS THE ACTUAL TURNOVER FOR THE YEAR. 3.3. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF TURNOVER OF RS. 4,94,78,18,674/-. THE ASSESSEE FILED A DETAILED RE PLY STATING THAT IT HAS BEEN CONSISTENTLY FOLLOWING AS-7 AND IT IS INCORREC T TO HOLD THAT IT IS NOT MANDATORY UNDER THE INCOME TAX ACT. THE ASSESSEE C LAIMED THAT THIS METHOD WAS ACCEPTED IN THE EARLIER YEARS ALSO. THI S EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO. THE AO W AS OF THE BELIEF THAT INCOME ASSESSABLE UNDER THE INCOME TAX ACT HAS TO B E COMPUTED IN ACCORDANCE WITH THE ACT AND SINCE THE ACCOUNTS HAVE BEEN DRAWN BY THE ASSESSEE ON THE BASIS OF AS-7 WHICH IS NEITHER RECO GNIZED NOR MANDATORY UNDER THE ACT. THE AO PROCEEDED BY TAKING THE TURN OVER AS PER THE M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 6 RUNNING ACCOUNT STATEMENT AS THE ACTUAL TURNOVER FO R THE YEAR UNDER CONSIDERATION AND ADDED THE DIFFERENCE OF RS. 5,90, 33,849/- TO THE INCOME OF THE ASSESSEE. 3.4. PROCEEDING FURTHER, IT WAS NOTICED THAT THE AS SESSEE HAS DEBITED DEPRECIATION OF RS. 43,42,76,155/- TO THE PROFIT AN D LOSS ACCOUNT. ON PERUSAL OF THE DEPRECIATION CHART, IT WAS FOUND THA T THE ASSESSEE HAS PROVIDED DEPRECIATION BASED ON THE USEFUL LIFE OF T HE ASSET OVER THE CONTRACTUAL PERIOD OF THE PROJECT AND THE VALUE OF ASSET FOR THIS PURPOSE HAS BEEN ARRIVED AT THE COST OF ACQUISITION MINUS I TS ESTIMATED RESIDUAL VALUE. THE AO WAS OF THE OPINION THAT UNDER THE AC T, DEPRECIATION HAS TO BE PROVIDED AS PER THE PRESCRIBED RULE. THE ASSESS EE WAS ASKED TO JUSTIFY ITS CLAIM. IT WAS EXPLAINED BY THE ASSESSEE THAT I N THE CASE OF LARGE CIVIL CONSTRUCTION CONTRACTS LIKE THAT EXECUTED BY THE AS SESSEE, CORRECT METHOD OF COMPUTING DEPRECIATION WAS THE AMORTIZATION METH OD ADOPTED BY IT. THE AO DID NOT ACCEPT THIS CONTENTION OF THE ASSESS EE. ACCORDING TO THE AO, THE DEPRECIATION AS PER THE I.T. RULES ALLOWABL E FOR THE YEAR UNDER CONSIDERATION WORKS OUT TO RS. 19,81,46,925/- AND D ISALLOWED THE DIFFERENCE OF RS. 23,61,29,230/- AND COMPLETED THE ASSESSMENT. 3.5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MA TTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM THAT IT IS CONSISTE NTLY FOLLOWING ACCOUNTING STANDARD AS-7 WHICH HAS BEEN ACCEPTED IN EARLIER YEARS THEREFORE, THE AO HAS GROSSLY ERRED IN REJECTING IT S METHOD OF ACCOUNTING. THE LD. CIT(A) ALTHOUGH ACCEPTED THE FACT THAT ASSE SSEE HAS BEEN CONSISTENTLY FOLLOWING AS-7 FOR PREPARING ITS ACCOU NT AT THE SAME TIME AGREED WITH THE FINDINGS OF THE AO THAT RAISING BIL LS FOR THE WORK COMPLETED IS AN OBJECTIVE AND REASONABLE BASIS FOR DETERMINING THE SALES. THE METHOD ADOPTED BY THE ASSESSEE WILL AMOUNT TO F ACTORING MANY M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 7 UNFORESEEN EVENTS WHICH ARE YET TO OCCUR AT THE TIM E OF CLOSING OF THE YEAR. ACCORDING TO THE LD. CIT(A), ONLY ASCERTAINED LIABI LITIES CAN BE ALLOWED AS DEDUCTION FOR THE PURPOSE OF DETERMINING INCOME. THE LD. CIT(A) FURTHER DISMISSED THE SUBMISSION OF THE ASSE SSEE THAT AS-7 HAS ALREADY BEEN ACCEPTED IN EARLIER YEARS SINCE IN EAR LIER YEARS, THE PROJECT DID NOT EXCEED COMPLETION OF 50%. THE LD. CIT(A) CONCLUDED BY HOLDING THAT THE METHOD OF ACCOUNTING PRESCRIBED IN ICAI COULD BE MANDATORY FOR THE ASSESSEE. HOWEVER, FOR THE PURPO SE OF INCOME TAX, THE ASSESSEE HAS TO MODIFY THE RESULTS ACCORDING TO THE PROVISIONS OF THE INCOME TAX ACT AND ACCORDINGLY CONFIRMED THE ADDITI ONS MADE BY THE AO. 3.6. IN SO FAR AS THE CLAIM OF DEPRECIATION BY AMOR TIZATION METHOD BY THE ASSESSEE IS CONCERNED, AFTER CONSIDERING THE FA CTS AND THE SUBMISSION, THE LD. CIT(A) WAS OF THE OPINION THAT DEPRECIATION IS A CHARGE ON CURRENT YEARS INCOME BY PRESCRIBED RATE MANDATED BY THE STATUTE. THEREFORE, THERE IS NO OPTION AVAILABLE EITHER FOR THE ASSESSE E OR FOR THE AO TO DEVIATE FROM THE PRESCRIBED RATE MANDATED BY THE ST ATUTE. THE LD. CIT(A) FURTHER OBSERVED THAT THE DIFFERENCE AMOUNT BETWEEN THE STATUTORY DEPRECIATION AND EXCESS AS PER AMORTIZATION ALSO CA NNOT BE ALLOWED U/S. 37 OF THE ACT AS SEC. 37 IS NOT APPLICABLE TO DEPRE CIATION. THE LD. CIT(A) CONCLUDED THAT THERE IS NO EVIDENCE TO SHOW THAT EXPENSES ON MACHINERIES WERE REVENUE IN NATURE AND ACCORDINGLY UPHELD THE FINDINGS OF THE AO IN RELATION TO THE CLAIM OF DEPRECIATION. 3.7. BEFORE THE LD. CIT(A), THE ASSESSEE RAISED AN ADDITIONAL GROUND WHICH RELATED TO THE CLAIM OF FORESEEABLE LOSSES OF RS. 4,42,31,018/-. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE ITSELF HAS DI SALLOWED THE CLAIM IN THE RETURN OF INCOME. SINCE HE HAS REJECTED THE ME THOD ADOPTED BY THE M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 8 ASSESSEE AND FURTHER RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD 157 TAXMAN 01, THE LD. CIT(A) WAS OF THE FIRM BELIEF THAT NO SUCH CLAIM CAN BE MA DE WITHOUT FILING A REVISED RETURN AND ACCORDINGLY DISMISSED THE CLAIM OF FORESEEABLE LOSSES OF RS. 4,42,31,018/-. 3.8. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 4. GROUND NO. 1 RELATES TO THE ADDITION OF RS. 5,90 ,33,849/- ON ACCOUNT OF ALLEGED DIFFERENCE IN SALES. 4.1. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBM ITTED THAT THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN REJECTING THE METHOD OF ACCOUNTING OF THE ASSESSEE WHEN THE ASSESSEE HAS FO LLOWED A WELL RECOGNIZED METHOD FOLLOWING THE ACCOUNTING STANDARD AS-7 ISSUED BY ICAI SPECIFICALLY IN RESPECT OF CONSTRUCTION CONTRA CTS. IT IS THE SAY OF THE LD. COUNSEL THAT IN THE IMMEDIATELY PRECEDING ASSES SMENT YEARS I.E. A.Y. 2002-03 AND 2003-04, THE SAME METHOD WAS FOLLOWED A ND THE MATTER TRAVELLED UPTO THE HONBLE JURISDICTIONAL HIGH COUR T AND THE REVENUE LOST IN SUCCESSIVE APPEALS. THEREFORE, A DIFFERENT VIEW TAKEN FOR THE YEAR UNDER CONSIDERATION IS UNCALLED FOR. 4.2. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY S UBMITTED THAT FACTS OF THE YEAR UNDER CONSIDERATION ARE DISTINGUISHABLE FROM THE FACTS OF THE EARLIER YEAR AS IN THE EARLIER YEAR, THE PERCENTAGE OF COMPLETION WAS MUCH LESS THAN 50% AND THE ASSESSEE DID NOT OFFER ANY TA XABLE INCOME DURING THOSE YEARS. RELYING UPON THE FINDINGS OF THE LOWE R AUTHORITIES, THE LD. DR STATED THAT THE INCOME HAS TO BE COMPUTED AS PER PROVISIONS OF THE ACT AND THE REVENUE AUTHORITIES HAVE DONE NO ERROR IN COMPUTING THE INCOME AS PER PROVISIONS OF LAW. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 9 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS AN UNDISPUT ED FACT THAT THE ASSESSEE HAS BEEN FOLLOWING AS-7 RIGHT FROM ITS INCEPTION. THE SALES ARE BOOKED AS PER ACCOUNTING STANDARD AS-7. IT IS AN ADMITTED FACT THAT NO ADVERSE INFERENCE HAS BEEN DRAWN IN EARLIER ASSESSMENT YEAR S IN SO FAR AS THE METHOD OF RECORDING SALES IN THE BOOKS IS CONCERNED . THE ENTIRE DISPUTE REVOLVES AROUND THE APPLICATION OF AS-7 ISSUED BY I CAI. THE REVENUE AUTHORITIES HAVE DISMISSED THE APPLICATION ON THE G ROUND THAT IT IS NOT A NOTIFIED ACCOUNTING STANDARD AS PER THE PROVISIONS OF SEC. 145 OF THE ACT. 4.4. THE PRINCIPAL PROBLEM RELATING TO ACCOUNTING F OR CONSTRUCTION CONTRACTS IS THE ALLOCATION OF REVENUES AND RELATED COSTS TO ACCOUNTING PERIODS OVER THE DURATION OF THE CONTRACT. FOR SOLV ING THIS PROBLEM, THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA CAME OUT WITH ACCOUNTING STANDARD AS-7 ON ACCOUNT FOR CONSTRUCTION CONTRACTS . CONSTRUCTION CONTRACTS ARE FORMULATED IN A VARIETY OF WAYS IN GE NERAL FALL INTO TWO BASIC TYPES (1) FIXED PRICE CONTRACTS AND (2) COST PLUS CONTRACT. TWO METHODS OF ACCOUNTING FOR CONTRACTS COMMONLY FOLLOWED BY TH E CONTRACTORS ARE THE PERCENTAGE OF COMPLETION METHOD AND THE COMPLETED C ONTRACT METHOD. 4.5. UNDER THE PERCENTAGE OF COMPLETION METHOD, REV ENUE IS RECOGNIZED AS THE CONTRACT ACTIVITY PROGRESSES BASE D ON THE STAGE OF COMPLETION REACHED. THE COST INCURRED IN REACHING THE COSTS OF COMPLETION ARE MATCHED WITH REVENUE RESULTING IN TH E REPORTING OF RESULTS WHICH CAN BE ATTRIBUTED TO THE PROPORTION OF THE WO RK COMPLETED. ALTHOUGH AS PER THE PRINCIPLE OF PRUDENCE, REVENUE IS RECOGNIZED ONLY WHEN REALIZED UNDER THIS METHOD, THE REVENUE IS RE COGNIZED AS THE M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 10 ACTIVITY PROGRESSES EVEN THOUGH IN CERTAIN CIRCUMS TANCES IT MAY NOT BE REALIZED. UNDER THE PERCENTAGE OF COMPLETION METHO D, THE AMOUNT OF REVENUE RECOGNIZED IS DETERMINED BY REFERENCE TO TH E STAGE OF COMPLETION OF THE WORK ACTIVITY AT THE END OF EACH ACCOUNTING PERIOD. THE ADDITION OF THIS METHOD OF ACCOUNTING FOR CONTRACT, REVENUE IS THAT IT REFLECTS REVENUE IN THE ACCOUNTING PERIOD DURING WHICH ACTIVITY IS U NDERTAKEN TO EARN SUCH REVENUE. IN ACCOUNTING FOR CONSTRUCTION CONTRACT I N FINANCIAL STATEMENT, EITHER THE PERCENTAGE OF COMPLETION METHOD OR THE C OMPLETED CONTRACT METHOD MAY BE USED. WHEN A CONTRACTOR USED A PARTI CULAR METHOD OF ACCOUNTING FOR A CONTRACT, THEN THE SAME SHOULD BE ADOPTED FOR ALL CONTRACTS. THE ASSESSEE IS FOLLOWING THE PERCENTAG E OF COMPLETION METHOD AND DURING THE YEAR UNDER CONSIDERATION, TH E PERCENTAGE OF COMPLETION IS ACCEPTED AT 62.66%. 4.6. COMING TO THE PROVISIONS OF SEC. 145 OF THE AC T, SEC. 145(2) PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOW ED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. I T IS A FACT THAT AS-7 HAS NOT BEEN NOTIFIED BY THE CENTRAL GOVERNMENT. THIS DOES NOT MEAN THAT THE ASSESSEE IS PRECLUDED FROM FOLLOWING AS-7. WHA T SECTION 145 PROVIDES IS THAT THE ACCOUNTING STANDARDS WHICH HA VE BEEN NOTIFIED BY THE CENTRAL GOVERNMENT HAVE TO BE MANDATORILY FOL LOWED BY THE ASSESSEE. BUT THIS DOES NOT MEAN THAT THE ASSESSEE CANNOT FOLLOW THE OTHER ACCOUNTING STANDARDS ISSUED BY ICAI. THE IC AI IS THE HIGHEST ACCOUNTING BODY OF THE COUNTRY CREATED BY AN ACT OF PARLIAMENT THEREFORE ACCOUNTING STANDARDS ISSUED BY IT CANNOT BE BRUSHED ASIDE LIGHTLY. ON THE CONTRARY, IF AN ASSESSEE IS FOLLOWING THE ACCOUNTI NG STANDARDS ISSUED BY ICAI, IT WOULD GIVE MORE CREDIBILITY AND AUTHENTIC ITY TO ITS ACCOUNT. FURTHER, SEC. 145(1) OF THE ACT PROVIDES THAT INCO ME CHARGEABLE UNDER M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 11 THE HEAD PROFITS AND GAINS OF BUSINESS SHALL BE CO MPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE WHICH MEANS THAT IN EITHER OF THE S ITUATION I.E. MERCANTILE SYSTEM OR CASH SYSTEM, IF THE ASSESSEE IS CONSISTEN TLY FOLLOWING ACCOUNTING STANDARDS ISSUED BY THE ICAI, THE SAME WILL BECOME PART OF THE METHOD OF ACCOUNTING OF THE ASSESSEE AND THE INCOME FOR THE PURPOSE OF TAX HAS TO BE COMPUTED AS PER THE METHOD OF ACC OUNTING FOLLOWED BY THE ASSESSEE. NO DOUBT, THE CENTRAL GOVERNMENT HAS NOTIFIED ONLY TWO ACCOUNTING STANDARDS. THIS MEANS THAT IF THE METHO D OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS IN CONTRAVENTION TO THE NOTIFIED ACCOUNTING STANDARDS, THE PROVISIONS OF SEC. 145 WILL PREVAIL. THIS DOES NOT MEAN THAT IF THE ASSESSEE IS FOLLOWING A PARTICULAR ACCO UNTING STANDARD ISSUED BY ICAI WHICH IS NOT NOTIFIED BY THE CENTRAL GOVERNMEN T, THE METHOD OF ACCOUNTING OF THE ASSESSEE WOULD BE OUT-RIGHTLY REJ ECTED. AS THERE IS NO DOUBT THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLO WING ACCOUNTING STANDARD-7, IN OUR CONSIDERED OPINION, THE METHOD F OLLOWED BY THE ASSESSEE HAS TO BE ACCEPTED. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION IN NOT ACCEPTING THE SALES RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AS PER ACCOUNTING STANDARD AS-7. WE SET A SIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDI TION OF RS. 5,90,33,849/-. GROUND NO. 1 IS ACCORDINGLY ALLOWED . 5. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 23,61,29,230/- OUT OF AMORTIZATION OF COST OF SPECIFIC EQUIPMENT. 5.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, IT WAS NOTICED THAT THE ASSESSEE HAS DEBITED DEPRECIATION OF RS. 4 3,42,76,155/- TO THE PROFIT AND LOSS ACCOUNT. ON PERUSING THE SCHEDULE, IT WAS FOUND THAT THE ASSESSEE HAS PROVIDED DEPRECIATION ON THE USEFUL LI FE OF THE ASSET OVER THE M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 12 CONTRACTUAL PERIOD OF THE PROJECT AND THE VALUE OF AN ASSET FOR THIS PURPOSE HAS BEEN ARRIVED AT BY THE COST OF ACQUISITION MINU S ITS ESTIMATED RESIDUAL VALUE. IT WAS FURTHER NOTICED THAT THE ASSESSEE HA S CLAIMED THE SAME AMOUNT OF DEPRECIATION UNDER THE INCOME TAX ACT ALS O. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS NOT FOLLOWED THE PROCEDURE FOR COMPUTING DEPRECIATION AS PER THE RATES PRESCRIBED IN THE INCOME TAX RULE WHICH ARE MANDATORILY REQUIRED TO BE FOLLOWED BY ALL ASSESSEES WITHOUT ANY EXCEPTION. 5.2. IT WAS EXPLAINED BY THE ASSESSEE THAT IN THE C ASE OF LARGE CIVIL CONSTRUCTION CONTRACT, CORRECT METHOD OF COMPUTING DEPRECIATION WAS THE AMORTIZATION METHOD ADOPTED BY THE ASSESSEE. IT WA S FURTHER EXPLAINED THAT THE EQUIPMENTS ARE PURCHASED SPECIFICALLY FOR THE PARTICULAR PROJECT ONLY AND IN MANY CASES THE SPECIALIZED EQUIPMENT A ND MACHINERY IS NOT CAPABLE OF BEING USED FOR OTHER PROJECTS. TO SUBSTA NTIATE THIS PROPOSITION, THE ASSESSEE STATED THAT THE AOP HAVE BEEN FORMED O NLY FOR THE PURPOSE OF EXECUTING THE CONTRACT WITH DMRC. THE RESIDUAL VALUES OF THE ASSETS HAVE BEEN EVALUATED BY TECHNICAL EXPERTS AND THE CO ST OF THE ASSETS AS REDUCED BY THE RESIDUAL VALUE IS WRITTEN OFF OVER T HE PERIOD OF THE PROJECT. THE AO WAS OF THE OPINION THAT THERE IS NO OPTION A VAILABLE TO THE ASSESSEE TO CLAIM DEPRECIATION OTHERWISE THAN WHAT IS PRESCRIBED UNDER RULE 5 OF THE INCOME-TAX RULES. THE AO FURTHER DEN IED THE CLAIM U/S. 37 OF THE ACT STATING THAT SEC, 37 IS APPLICABLE ON AN Y EXPENDITURE OF REVENUE NATURE WHICH IS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS BUT WHICH IS NOT AN EXPENDITURE OF THE NAT URE PRESCRIBED IN SECTIONS 30 TO 36 OF THE ACT. THE AO ACCORDINGLY D ISALLOWED AND ADDED A SUM OF RS. 23,61,29,230/-. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 13 6. BEFORE US, THE ASSESSEE REITERATED ITS CLAIM OF AMORTIZATION. IT IS THE SAY OF THE LD. COUNSEL THAT EVEN IF SPECIFIC RATES ARE PROVIDED IN THE ACT FOR THE CLAIM OF DEPRECIATION, THERE IS NO PROHIBIT ION IN CLAIMING THE AMOUNT AS EXPENDITURE. TO SUBSTANTIATE, RELIANCE W AS PLACED ON THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN THE CASE O F BRICS SECURITIES LTD., IN ITA NOS. 4515 & 4516/M/08. FURTHER RELIAN CE WAS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF ORACLE VS CIT 39 TAXMANN.COM 150. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISIO NS RELIED UPON BY THE ASSESSEE. THE ASSESSEE HAS FOLLOWED A PARTICULAR M ETHOD OF CLAIMING DEPRECIATION/AMORTIZATION. HOWEVER, THE INCOME TAX ACT U/S. 32 SPECIFICALLY PROVIDES THE METHOD OF COMPUTING THE D EPRECIATION AND THE INCOME TAX RULES PROVIDE THE RELEVANT RATES. ALL A SSESSEES ARE BOUND TO FOLLOW THE RATES PRESCRIBED UNDER THE RULES AND COM PUTE THE DEPRECIATION AS PER THE PROCEDURE LAID DOWN U/S. 32 OF THE ACT. THE ASSESSEE HAS FOLLOWED NONE. THE CORPORATE ASSESSEES COMPUTE DEP RECIATION IN THEIR BOOKS OF ACCOUNT AS PER THE COMPANIES ACT 1956. TH E SAME IS RECOMPUTED FOR FILING THE INCOME TAX RETURNS IN LIN E WITH THE PROVISIONS OF THE INCOME TAX ACT. BY SIMILAR ANALOGY, THE ASSESS EE IS FREE TO COMPUTE THE DEPRECIATION IN ITS BOOKS IN WHATEVER MANNER/WH ATEVER METHOD IT WANTS TO ADOPT BUT FOR INCOME-TAX PURPOSE, THE DEPR ECIATION SHALL BE COMPUTED AND ALLOWED AS PER THE PROVISIONS OF THE I NCOME-TAX ACT. THE RELIANCE ON THE JUDICIAL DECISIONS PLACED BY THE AR DO NOT SUPPORT THE FACTS OF THE CASE. THE DECISION RELIED UPON BY THE ASSESSEE RELATE TO THE M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 14 FACT THAT WHETHER THE EXPENDITURE IS OF REVENUE OR CAPITAL IN NATURE. IN BOTH THE CASES RELIED UPON BY THE ASSESSEE THE EXPE NDITURE RELATES TO THE PURCHASE OF SOFTWARE AND THE JUDICIAL AUTHORITIES H AVE TAKEN A VIEW THAT EVEN IF SPECIFIC RATE OF DEPRECIATION IS PROVIDED IN THE RULES IN RESPECT OF SOFTWARES, YET SOFTWARE EXPENDITURE CAN BE ALLOWED AS REVENUE EXPENDITURE CONSIDERING THE NATURE OF THE SOFTWARE EXPENDITURE. THE SAME ANALOGY CANNOT BE APPLIED ON THE FACTS OF THE CASE IN HAND BECAUSE THE ASSESSEE HAS NEVER CLAIM THE ENTIRE COST OF EQU IPMENT AS REVENUE EXPENDITURE. THUS, FACTS ARE CLEARLY DISTINGUISHAB LE. AS THE REVENUE AUTHORITIES HAVE RIGHTLY ALLOWED THE DEPRECIATION A S PER PROVISIONS OF THE ACT, NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 I S ACCORDINGLY DISMISSED. 9. GROUND NO. 3 RELATES TO THE PROVISION OF FORESEE ABLE LOSSES AGGREGATING TO RS. 4,42,31,018/-. 10. THIS CLAIM WAS MADE FOR THE FIRST TIME BEFORE T HE LD. CIT(A) AND THE LD. CIT(A) DECLINED TO ENTERTAIN THE CLAIM FOLL OWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZ INDI A LTD. AS WE HAVE HELD THE APPLICABILITY OF ACCOUNTING STANDARD AS-7 IN FAVOUR OF THE ASSESSEE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO FURNISH THE CLAIM OF FORESEEABLE LOSSES BEFORE THE AO. THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH IN THE L IGHT OF THE ACCOUNTING STANDARD AS-7. GROUND NO. 3 IS SET ASIDE FOR STATI STICAL PURPOSE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 3732/M/2011 A.Y. 2005-06 M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 15 12. GROUND NO. 1 RELATES TO THE ADDITION OF RS. 21, 74,20,707/- ON ACCOUNT OF ALLEGED DIFFERENCE IN SALES. 13. THE ENTIRE ISSUE REVOLVES AROUND THE APPLICABIL ITY OF ACCOUNTING STANDARD AS-7. WE HAVE CONSIDERED THIS ISSUE IN DE TAIL IN ITA NO. 2368/M/2011 QUA GROUND NO. 1 OF THAT APPEAL. FOR O UR DETAILED DISCUSSION IN THE SAID APPEAL AND FOR SIMILAR REASO NS, GROUND NO. 1 IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. 14. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF EX PENDITURE OF RS. 1,31,59,717/- BEING PRIOR PERIOD EXPENSES. 14.1. IT WAS NOTICED THAT THE ASSESSEE HAS CHARGED SPARE PARTS IMPORTED AT RS. 84,13,454/- AND RS. 47,46,263/- FOR FREIGHT PAC KING, FORWARDING AND RATES AND TAXES WHICH IN THE OPINION OF THE REVENUE AUTHORITIES PERTAIN TO EARLIER YEARS AND ACCORDINGLY WERE DISALLOWED AS PR IOR PERIOD EXPENSES. 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT SINCE THE ASSESSMENT YEAR 2004-05 IS ALSO UNDER CONSIDERATION , THE EXPENSES MAY BE ALLOWED IN THAT YEAR. WE FIND FORCE IN THE CONT ENTION OF THE LD. COUNSEL. IT IS NOT IN DISPUTE THAT THE EXPENDITURE OF RS. 1,31,59,717/- HAS BEEN DISALLOWED AS IT PERTAIN TO A.Y. 2004-05. WE, ACCORDINGLY, RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIREC TED TO ENTERTAIN THE CLAIM OF THE ASSESSEE IN A.Y. 2004-05. GROUND NO. 2 IS T REATED AS ALLOWED FOR STATISTICAL PURPOSE. 16. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS. 3,84,018/- OUT OF SALARY. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 16 16.1. IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED TDS LIABILITY OF RS. 1,15,68,355/- BEING TDS ON SALARY TO EXPATRIATE EMP LOYEES BY JV. THE SUM WAS REDUCED TO RS. 1,08,84,337/- THROUGH A RECT IFICATION ENTRY BY DEBITING TDS PAYABLE BY RS. 3,84,108/- AND CREDITIN G SALARY ACCOUNT. ACCORDINGLY, RS. 3,84,10-8/- WAS TREATED AS EXCESS CREDIT OF SALARY. IT WAS EXPLAINED BY THE ASSESSEE THAT THIS MISTAKE HAS CREPT UP AND HAS BEEN RECTIFIED BY THE ACCOUNTANT. HOWEVER, THE SAME WAS DISALLOWED AS EXCESS SALARY. 16.2. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE S TATED THAT IT WAS A GENUINE MISTAKE ON THE PART OF THE ACCOUNTANT AND T HE SUM OF RS. 3,84,018/- HAS BEEN ADDED BACK IN A.Y. 2006-07. 17. WE FIND THAT THERE IS NO DISPUTE THAT THERE WAS AN EXCESS CREDIT OF SALARY BY RS. 3,84,018/-. WE, THEREFORE, DO NOT FI ND ANY INFIRMITY IN THE FINDING OF THE REVENUE AUTHORITIES. HOWEVER, IN TH E INTEREST OF JUSTICE, WE DIRECT THE AO TO VERIFY WHETHER THIS AMOUNT WAS ADDED BACK IN A.Y. 2006-07 AND IF FOUND ADDED BACK, THE SAME MAY BE RE DUCED ACCORDINGLY. GROUND NO. 3 IS ALLOWED IN PART FOR STATISTICAL PU RPOSE. 18. GROUND NO. 4 & 5 ARE NOT PRESSED AND ARE DISMIS SED AS NOT PRESSED. 19. GROUND NO. 6 RELATES TO THE DISALLOWANCE OF RS. 6,70,16,775/- OUT OF AMORTIZATION OF COST OF SPECIFIC EQUIPMENT. 19.1. THIS ISSUE HAS BEEN DISCUSSED BY US IN DETAIL IN ITA NO. 2368/M/11 QUA GROUND NO. 2 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, THIS GROUND IS DISMISSED. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 17 20. GROUND NO. 7 IS NOT PRESSED AND IS ACCORDINGLY DISMISSED. 21. GROUND NO. 8 RELATES TO THE DISALLOWANCE OF RS. 3,25,340/- U/S. 40(A)(IA) OF THE ACT. 21.1. IT WAS NOTICED THAT PAYMENT OF RS. 1,98,790/- TO TIMES OF INDIA AND PAYMENT OF RS. 1,26,550/- TO THOMSON PRESS WAS DISA LLOWED AS NO TAX WAS DEDUCTED AT SOURCE U/S. 40(A)(IA) OF THE ACT. 21.2. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE S TATED THAT THE SAME SHOULD BE ALLOWED IN THE YEAR OF PAYMENT. 21.3. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION O F THE LD. COUNSEL. IF IN SUBSEQUENT YEAR, IT IS FOUND THAT THE ASSESSEE H AS DEPOSITED THE TAX, IT WILL AUTOMATICALLY BE ALLOWED AS PER PROVISIONS OF THE LAW. IT REQUIRES NO SPECIFIC DIRECTION. GROUND NO. 8 IS ACCORDINGLY DI SMISSED. 21.4. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 8160/MUM/2010 A.Y. 2006-07- ASSESSEES AP PEAL 22. GROUND NO. 1 RELATES TO THE GRIEVANCE THAT THE REVENUE AUTHORITIES HAVE NOT ACCEPTED THE APPLICABILITY OF ACCOUNTING S TANDARD AS-7. 22.1. THIS ISSUE HAS BEEN DISCUSSED AND DECIDED AT LENGTH BY US IN ITA NO. 2368/M/2011 QUA GROUND NO. 1 OF THAT APPEAL. F OR OUR DETAILED DISCUSSION IN THAT APPEAL GROUND NO. 1 IS DECIDED I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 18 23. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF AMO RTIZATION OF THE COST OF ASSET. 23.1. THIS ISSUE HAS ALSO BEEN DECIDED BY US IN ITA NO. 2368/M/11 QUA GROUND NO. 2 OF THAT APPEAL. . FOR OUR DETAILED D ISCUSSION THEREIN GROUND NO. 2 IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 24. GROUND NO. 3 IS AGAINST ADJUSTMENT OF RS. 11.48 CRORES TO ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTI ON ENTERED INTO WITH ASSOCIATED ENTERPRISES (AE). 24.1. FACTS RELATING TO THIS ISSUE ARE THAT THE ASS ESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE. SR. NO. NAME OF THE ASSOCIATED ENTERPRISE NATURE OF INTERNATIONAL TRANSACTION METHOD USED FOR DETERMINING ALP AMOUNT IN INR 1. GTCKERHOFF & WIDMANN AG PURCHASE OF OLD EQUIPMENTS COMPARABLE UNCONTROLLED PRICE METHOD 2,939,660 2. SAMSUNG CORPORATION TUNNEL VENTILATION AND STATION AIR CONDITIONING & VENTILATION WORKS COMPARABLE UNCONTROLLED PRICE METHOD 690,805,808 3. SAMSUNG CORPORATION HEAD OFFICE OVERHEADS COST PLUS METHOD 43,893,690 4. DYTWIDAG INTERNATIONAL GMBH HEAD OFFICE OVERHEADS COST PLUS METHOD 53,420,531 5. SHIMIZU CORPN. HEAD OFFICE OVERHEADS COST PLUS METHOD 17,499,829 6. SAMSUNG CORPORATION DIRECT EXPENSES COST 1,114,860 7. DYTWIDAG INTERNATIONAL GMBH DIRECT EXPENSES COST 11,543,328 M/S. INTERNATIONAL METRO CIVIL CONTRACTORS 19 8. SHIMIZU CORPORATION DIRECT EXPENSES COST 464.236 TOTAL 821,681,942 24.2. THE NATURE OF INTERNATIONAL TRANSACTION IS AS UNDER: SR. NO. NAME, ADDRESS AND COUNTRY OF TAX RESIDENCE OF THE ASSOCIATED ENTERPRISE. RELATIONSHIP WITH IMCC NATURE OF BUSINESS 1. DYCKERHOFF & WIDMANN AG LANDSTRASSE 1, POST SACH, 810280, D 81902, MUNICH, GERMANY MEMBER OF UJV SPECIALIZED CIVIL CONSTRUCTION 2. DYWIDAG INTERNATIONAL GMBH ERDINGER LANDSTRASSE 1, 81902 MUNCHEN, GERMANY, TAX RESIDENCE: GERMANY MEMBER OF UJV SPECIALIZED CIVIL CONSTRUCTION 3. SAMSUNG CORPORATION SEONGNAM-SI,GYEONGI-DO, KOREA, TAX RESIDENCE:KOREA MEMBER OF UJV SPECIALIZED IN INTERNATIONAL TRADE, EXPORT, IMPORT, PROJECT FINANCING, CONSTRUCTION & DEVELOPMENT. 4. SHIMIZU CORPORATION SEAVANS SOUTH, `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