The ACIT, Circle-4, Baroda V. M/s. Welspun Projects Ltd.,(Formerly known as MSK Projects (India) Ltd.,), Baroda

ITA 2940/AHD/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8452 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VARTIK R CHOKSI
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 32; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE, SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 2940 /AHD/2013 (ASSESSMENT YEAR: 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4, BARODA APPELLAN T VS. M/S. WELSPUN PROJECTS LTD. (FORMERLY KNOWN AS MSK PROJECTS (INDIA) LTD., 707/708, STERLING CENTRE, R.C. DUTT ROAD, BARODA 390007 RESPONDENT & ITA NO. 2956/AHD/2013 (ASSESSMENT YEAR: 2010-11) M/S. WELSPUN PROJECTS LTD. (FORMERLY KNOWN AS MSK PROJECTS (INDIA) LTD., 707/708, STERLING CENTRE, R.C. DUTT ROAD, BARODA 390007 APPELLANT VS. ADDL. C.I.T. RANGE-4, BARODA RES PONDENT PAN: AABCM4107C /BY REVENUE : SHRI K. MADHUSUDAN, SR. D.R. /BY ASSESSEE : SHRI VARTIK R. CHOKSI, A.R. /DATE OF HEARING : 19.09.2017 /DATE OF PRONOUNCEMENT : 28.09.2017 ITA NOS. 2940 & 2956/AHD/13 [M/S. WELSPUN PROJECTS LTD. VS. ACIT] A.Y. 2010-11 - 2 - ORDER PER S. S. GODARA, JUDICIAL MEMBER THE REVENUE AND ASSESSEE HAVE INSTITUTED THEIR INSTA NT CROSS APPEALS FOR ASSESSMENT YEAR 2010-11 AGAINST THE CIT(A)-III, BARO DAS ORDER DATED 04.09.2013 PASSED IN CASE NO. CAB/III-300/12-13, IN PROCEEDINGS U/S. 143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961; IN SHORT TH E ACT. 2. WE ADVERT TO RIVAL PLEADINGS FIRST. THE REVENUE APPEARS TO BE RAISING THREE SUBSTANTIVE GROUNDS INTER ALIA CHALLENGING TH E CIT(A)S ORDER DELETING DISALLOWANCES / ADDITIONS U/S.40(A)(IA) AMOUNTING T O RS.5,48,450/-, INTEREST U/S. 36(1)(III) AND IN TREATING THE ASSESSEE TO BE AN IN FRASTRUCTURE DEVELOPER THAN A MERE WORKS CONTRACTOR ON BOT BASIS QUA ITS TWO P ROJECTS NAMELY HOSHANGABAD HARDA KHANDWA AND RAISEN RAHATGAR H; RESPECTIVELY AS MADE IN ASSESSMENT ORDER DATED 26.02.2013. THE ASSE SSEE ON THE OTHER HAND PLEADS FOUR SUBSTANTIVE GROUNDS ASSAILING CORRECTNE SS OF BOTH THE LOWER AUTHORITIES ACTION INVOKING SECTION 40(A)(IA) DISA LLOWANCE OF RS.64,02,620/-, 14A R.W. RULE 8D DISALLOWANCE OF RS.1,09,85,008/- Q UA ITS EXEMPT INCOME OF RS.46,643/-, SECTION 40A(7) DISALLOWANCE OF GRATUIT Y AMOUNTING TO RS.12,84,936/- AND ALLOCATING ITS EXPENSES RESULTIN G IN SECTION 80IA DEDUCTION DISALLOWANCE OF RS.7,45,28,297/-; RESPECTIVELY. 3. BOTH PARTIES INFORM US AT THE OUTSET THAT SOME O F THE ISSUES EMANATING IN THE INSTANT CROSS APPEALS ARE INTER CONNECTED. WE PROCEED TO NOTICE THAT FIRST SUCH COMMON ISSUE IS THAT OF SECTION 40(A)(IA) DISA LLOWANCE. THE ASSESSING OFFICER NOTICED DURING SCRUTINY THAT THE ASSESSEE H AD NOT DEDUCTED ANY TDS ON RENT / LEASE RENT/GODOWN RENT, MACHINERY HIRE, VEHI CLE HIRE, CONSULTANCY, SHUTTERING WORK, LAMINATION, SITE OFFICE EXPENSES, STEEL TRANSPORT, ROAD WORK AND LEGAL / PROFESSIONAL CHARGES TOTALING TO RS.64,66,6 31/-. HE FURTHER CAME ACROSS ITA NOS. 2940 & 2956/AHD/13 [M/S. WELSPUN PROJECTS LTD. VS. ACIT] A.Y. 2010-11 - 3 - ITS DETAILS HAVING PAID SECURITY SERVICE AND MACHIN ERY HIRE CHARGES INVOLVING GROSS FIGURE OF RS.5,48,450/- BY DEDUCTING LESS THA N THE PRESCRIBED RATE OF TDS. HE THEREFORE DISALLOWED THE ABOVE GROSS AMOUNT OF R S.70,15,081/- BY INVOKING SECTION 40(A)(IA) OF THE ACT. 4. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) OBSERV ES FIRST OF ALL THAT THE IMPUGNED DISALLOWANCE PROVISION ENSHRINED U/S.40(A) (IA) OF THE ACT DOES NOT APPLY IN CASE OF SHORT DEDUCTION OF TDS. HE THEN FI NDS ASSESSEES PAYMENTS OF RS.64,011/- TO BE LESS THAN THE CUT OF LIMIT INVITI NG TDS DEDUCTION. THE CORRESPONDING DISALLOWANCE ACCORDINGLY STANDS DELET ED. THE CIT(A) THEREAFTER CONFIRMS THE REMAINING DISALLOWANCE AMOUNT OF RS.64 ,02,620/- IN LOWER APPELLATE ORDER LEAVING THE REVENUE AS WELL AS ASSE SSEE AGGRIEVED TO THE EXTENT INDICATED IN THEIR RESPECTIVE PLEADINGS. 5. WE HAVE HEARD BOTH THE PARTIES. RELEVANT FINDIN GS PERUSED. WE FIRST PROCEED TO DEAL WITH REVENUES ARGUMENTS IN SUPPORT OF ITS GRIEVANCE THAT THE ASSESSING OFFICER HAD RIGHTLY DISALLOWED ASSESSEES EXPENSES TO THE TUNE OF RS.5,48,450/- SINCE IT HAD DEDUCTED LESS THAN THE P RESCRIBED TDS DEDUCTION IN CHAPTER XVIIB OF THE ACT. WE FIND THAT HONBLE CAL CUTTA HIGH COURTS JUDGMENT IN CIT VS. S. K. TEKRIWAL (2014) 361 ITR 432 (CAL) HO LDS THAT SECTION 40(A)(IA) DISALLOWANCE DOES NOT APPLY IN CASE OF SHORT DEDUCT ION OF TDS. LEARNED DEPARTMENTAL REPRESENTATIVE THEREAFTER SEEKS TO INV OKE PROPORTIONATE DISALLOWANCE OF EXPENSES TO THE EXTENT OF SHORT DED UCTION OF TDS ONLY. WE FIND NO MERIT IN THE INSTANT ALTERNATIVE PLEA AS WELL SI NCE THERE IS NO SUCH COURSE OF ACTION PRESCRIBED IN THE ACT. THE REVENUE THEREFOR E FAILS IN FIRST SUBSTANTIVE GROUND. 6. WE ADVERT TO ASSESSEES CASE NOW SEEKING TO DELE TE THE ABOVESTATED SECTION 40(A)(IA) DISALLOWANCE AMOUNTING TO RS.64,0 2,620/-. THERE IS NO DISPUTE ITA NOS. 2940 & 2956/AHD/13 [M/S. WELSPUN PROJECTS LTD. VS. ACIT] A.Y. 2010-11 - 4 - THAT IT HAS NOT DEDUCTED TDS ON THE ABOVESTATED PAY MENTS. ITS CASE HOWEVER IS THAT THE PAYEES IN QUESTION HAVE ALREADY BEEN ASSES SED QUA THE IMPUGNED EXPENSES PAYMENTS AS INCOME IN THEIR HANDS. IT QUO TES HONBLE DELHI HIGH COURTS DECISION IN CIT VS. ANSAL LANDMARK TOWNSHIPS PVT. LTD. (2015) 377 ITR 635 (DELHI) REPRODUCING IN EXTEMPORE THIS TRIBUN ALS CO-ORDINATE BENCH ORDER IN RAJEEV KUMAR AGARWAL VS. ADDL.CIT (2014) 14 9 ITD 363 (AGRA) THAT SECTION 40(A)(IA) SECOND PROVISO ENVISAGING NO DISA LLOWANCE TO BE MADE IN CASE THE ASSESSEE CONCERNED IS NOT AN ASSESSEE IN DEFAUL T U/S.201 OF THE ACT; IS SQUARELY APPLICABLE IN THE INSTANT CASE. LEARNED CO UNSEL STATES THAT THE ASSESSEE IS VERY MUCH READY AND WILLING TO FILE ALL NECESSAR Y PARTICULARS IN THIS REGARD. THE REVENUE ON THE OTHER HAND IS FAIR ENOUGH IN NOT DISPUTING ABOVE LEGAL DEVELOPMENTS. ITS ONLY PLEA IS THAT THE RELEVANT F ACTS ARE NOT AVAILABLE ON RECORD. WE THEREFORE ACCEPT ASSESSEES FIRST SUBSTANTIVE GR OUND HEREIN IN PRINCIPLE AND DIRECT THE ASSESSING OFFICER TO VERIFY RELEVANT FAC TS AT ITS RISK AND RESPONSIBILITY IN CONSEQUENTIAL PROCEEDINGS AS PER LAW. THE ASSESS EE SUCCEEDS IN ITS FIRST SUBSTANTIVE GROUND FOR STATISTICAL PURPOSES. 7. THE REVENUES SECOND SUBSTANTIVE GROUND PLEADS TH AT THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING SECTION 36(1) (III) INTEREST DISALLOWANCE OF RS.9,89,280/- AS MADE IN THE COURSE OF ASSESSMENT P ROCEEDINGS. IT EMERGES THAT HE HAS FOLLOWED THIS TRIBUNALS ORDER IN ITA NO. 282 0/AHD/2010 FOR ASSESSMENT YEAR 2009-10 DECIDED ON 25.07.2013 (PAGES 165 TO 17 2 IN PAPER BOOK). HE THEREAFTER CONCLUDES THAT THE ASSESSEES ADVANCES I N QUESTION OF RS.63.08 CRORES ARE MUCH LESS THAN ITS INTEREST FREE FUNDS OF RS.29 .90 CRORES. RELEVANT PARTIES HAVE ALSO BEEN FOUND TO BE THE SAME AS IN THE SAID EARLIER ASSESSMENT YEAR. ALL THESE CLINCHING FACTS HAVE GONE UNREBUTTED IN THE C OURSE OF HEARING. WE THEREFORE AFFIRM THE CIT(A)S FINDINGS DELETING THE IMPUGNED DISALLOWANCE. THE REVENUE FAILS IN ITS SECOND SUBSTANTIVE GROUND. ITA NOS. 2940 & 2956/AHD/13 [M/S. WELSPUN PROJECTS LTD. VS. ACIT] A.Y. 2010-11 - 5 - 8. THE REVENUES THIRD SUBSTANTIVE GROUND CHALLENGES CORRECTNESS OF THE CIT(A)S ACTION TREATING THE ASSESSEE AS AN INFRASTR UCTURE DEVELOPER AND NOT A WORKS CONTRACTOR QUA ITS BOT ROAD PROJECTS IN MADHY A PRADESH (SUPRA). THE ASSESSEES FOURTH SUBSTANTIVE GROUND CONNECTED TO T HE INSTANT ISSUE PLEADS THAT THE SAID ALLOCATION OF EXPENSES HAS BEEN WRONGLY MA DE IN ITS CASE. WE THEREFORE TAKE UP BOTH THESE GROUNDS TOGETHER FOR ADJUDICATIO N. 9. WE ADVERT TO REVENUES GRIEVANCE FIRST THAT THE ASSESSEES BOT ROAD PROJECT CANNOT BE TREATED AS AN INSTANCE OF INFRAST RUCTURE DEVELOPMENT RENDERING PROFITS DERIVED THEREFROM IN THE FORM OF TOLL COLLE CTION AS ELIGIBLE FOR THE IMPUGNED SECTION 80IA DEDUCTION. WE NOTICE THAT TH E VERY ISSUE PERTAINING TO THE SAID TWO PROJECTS HAD ARISEN IN ASSESSMENT YEAR 2008-09 AS WELL. THE ASSESSEE FILED SECTION 264 REVISION. THE CIT-II, BA RODA IN HIS ORDER DATED 28.12.2011 UPHELD ITS CASE TREATING THE ABOVE TWO P ROJECTS TO BE ELIGIBLE FOR THE IMPUGNED DEDUCTION. THE SAME HAS ATTAINED FINALITY AS ON DATE. THE CIT(A)S ORDER UNDER CHALLENGE IN PARA 10.3 PAGE 58 TAKES DU E NOTE THEREOF IN ACCEPTING ASSESSEES ARGUMENTS. WE THEREFORE ADOPT CONSISTEN CY TO AFFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE IN REVENUES THIRD SUBSTAN TIVE GROUND. ITS APPEAL ITA NO.2940/AHD/2013 THEREFORE FAILS. 10. WE STAY BACK ON ASSESSEES GRIEVANCE NOW CHALLE NGING CORRECTNESS OF ALLOCATION OF EXPENSES RESULTING IN THE IMPUGNED DI SALLOWANCE OF RS.7,45,28,297/- MADE BY BOTH THE LOWER AUTHORITIES . THE RELEVANT ITEMS ARE DIRECTORS REMUNERATION, AUDIT FEES, CONSULTANCY CH ARGES, POSTAGE / TELEGRAM EXPENSES, GENERAL EXPENSES, TELEPHONE EXPENSES, BOA RD MEETING SITTING FEES EXPENSES AND DEPRECIATION ETC. LEARNED COUNSEL APPE ARING AT ASSESSEES BEHEST IS FAIR ENOUGH IN NOT PRESSING FOR THE IMPUGNED CHA LLENGE MADE TO ALL ABOVE HEADS OF ALLOCATION EXCEPT DEPRECIATION. WE THEREF ORE UPHOLD BOTH THE LOWER AUTHORITIES ACTION ALLOCATING THE IMPUGNED EXPENSE S OTHER THAN DEPRECIATION ITA NOS. 2940 & 2956/AHD/13 [M/S. WELSPUN PROJECTS LTD. VS. ACIT] A.Y. 2010-11 - 6 - PERTAINING TO BUILDING, AIR CONDITIONER, COMPUTERS, OFFICE EQUIPMENTS, FURNITURE/FITTING AND VEHICLES. WE FIND NO MERIT I N LEARNED DEPARTMENTAL REPRESENTATIVES VEHEMENT CONTENTIONS SUPPORTING BO TH THE LOWER AUTHORITIES ACTION ALLOCATING ASSESSEES DEPRECIATION CLAIM IN THIS REGARD SINCE THE SAME IS APPLICABLE QUA THE RELEVANT BLOCK OF ASSETS AS DEFI NED IN SECTION 2(11) R.W. SECTION 32 OF THE ACT PRESCRIBING BLOCK WISE DEPREC IATION QUA BUILDINGS, MACHINERY, PLANT OR FURNITURE IN TANGIBLE ASSETS CA TEGORY FOLLOWED BY INTANGIBLE ONE SPECIFYING KNOWHOW, PATENT, COPYRIGHT ETC. THE REVENUE FAILS TO QUOTE ANY CASE LAW THAT THE IMPUGNED DEPRECIATION IS NOT ALLO WABLE ONCE A PARTICULAR ASSET STANDS INCLUDED IN THE CORRESPONDING BLOCK HEREINAB OVE. WE THEREFORE REVERSE BOTH THE LOWER AUTHORITIES ACTION ALLOCATING ASSES SEES DEPRECIATION CLAIM. THE CONSEQUENTIAL DISALLOWANCE ARISING THEREFROM FOR TH E PURPOSE OF ASSESSEES DEDUCTION CLAIM U/S. 80IA OF THE ACT IS DIRECTED TO BE DELETED. THE ASSESSEE THEREFORE PARTLY SUCCEEDS IN ITS FOURTH SUBSTANTIVE GROUND. 11. WE NOW COME TO ASSESSEES SECOND SUBSTANTIVE GR OUND CHALLENGING CORRECTNESS OF SECTION 14A R.W. RULE 8D DISALLOWANC E OF RS.1,09,85,008/- MADE BY BOTH THE LOWER AUTHORITIES QUA ASSESSEES EXEMPT INCOME OF RS.46,643/-. LEARNED COUNSEL IS AGAIN VERY FAIR IN NOT DISPUTING THE IMPUGNED DISALLOWANCE IN PRINCIPLE. HE ONLY QUOTES HONBLE DELHI HIGH COURT S JUDGMENT IN JOINT INVESTMENTS PVT. LTD. VS. CIT (2015) 372 ITR 694 (DELH I) THAT SUCH A DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME AMOUNT ITSELF. THE REVENUE IS UNABLE TO REBUT APPLICATION OF THE ABOVE JUDICIAL P RECEDENT. WE THEREFORE DIRECT THE ASSESSING OFFICER TO RESTRICT THE IMPUGNED DISA LLOWANCE TO THE EXTENT OF RS.46,643/- ONLY. THE ASSESSEE PARTLY SUCCEEDS IN T HE INSTANT SUBSTANTIVE GROUND. 12. LEARNED COUNSEL LASTLY INFORMS US THAT THE ASSES SEE NO MORE WISHES TO PRESS FOR ITS CHALLENGE TO SECTION 40A(7) DISALLOWA NCE (SUPRA) AMOUNTING TO ITA NOS. 2940 & 2956/AHD/13 [M/S. WELSPUN PROJECTS LTD. VS. ACIT] A.Y. 2010-11 - 7 - RS.12,84,936/-. WE APPRECIATE THIS FAIR SUBMISSION TO DECLINE THE INSTANT SUBSTANTIVE GROUND AS NOT PRESSED. ASSESSEES APPE AL ITA NO.2956/AHD/2013 IS PARTLY ACCEPTED. 13. WE QUOTE OUR ABOVE DETAILED DISCUSSION TO DISMI SS REVENUES APPEAL ITA NO.2940/AHD/2013 AND PARTLY ALLOW ASSESSEES CROSS APPEAL ITA NO.2956/AHD/2013. ORDERED ACCORDINGLY. [PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF SEPTEMBER, 2017.] SD/- SD/- ( N. K. BILLAIYA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL M EMBER AHMEDABAD: DATED 28/09/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0