ACIT, New Delhi V. M/s. Lahmeyer International India (P) Ltd., New Delhi

ITA 4165/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1066 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 28-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 201; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA . NO. 4165 /DEL/20 1 6 ASSESSMENT YEAR S 201 2 - 13 ACIT, CIRCLE-15(1), ROOM NO.306, C.R. BUILDING, NEW DEL HI V. M/S LAHMEYER INTERNATIONAL INDIA (P) LTD. A-3, 2 ND FLOOR, NEETI BAGH, NEW DELHI-110049 TAN/PAN: AAACL1902H (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI J.K. MISHRA CIT - D.R. RESPONDENT BY: SHRI NIRBHAY MEHTA DATE OF HEARING: 16 0 1 20 20 DATE O F PRONOUNCEMENT: 12 03 20 20 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 17.05.2016 PASSED BY LD. C IT (APPEALS)-5, DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS RAISED FOLLOWING GROUND S: I. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.10,89,77,286/- MADE BY A.O. ON ACCOUNT OF EXPENS ES CLAIMED BY THE ASSESSEE. II. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.1,95,000/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE UNDER S ECTION 14A READ WITH RULE 8D FOR THE A.Y. 2012-13 BY IGNORING FACT THAT AS PER THE CBDTS CIRCULAR NO.5/2014 DATED 11.02.2014 RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWAN CE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEA R HAS NOT ITA NO.4165/DEL/2016 2 EARNED ANY EXEMPT INCOME. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN SO FAR AS GROUND NO. 1 IS CONCERNED, THE SA ME IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 PASSED IN ITA NOS.4350 & 6073/DEL/2014, ORDER DATED 21/06/2018. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CONSULTANCY SE RVICES IN THE FIELD OF POWER SECTOR COMPRISING THERMAL, HYDEL , WIND AND SOLAR ENERGY AND ALSO INFRASTRUCTURE SECTOR AND AS PER SCHEDULES/PLAN/REQUIREMENT OF THEIR PROJECTS IT RAI SES INVOICES, AS PER SERVICES PROVIDED TO THEIR CLIENTS . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO GIVE PROJECT WISE DETAILS OF EXPENSES AND INCOME EA RNED DURING THE YEAR AND FURTHER ALSO ASKED WHY THE ADDI TION SHOULD NOT BE MADE ON ADHOC BASIS BEING 10% OF THE TOTAL EXPENDITURE AS WAS MADE IN THE EARLIER ASSESSMENT Y EARS 2010-11 AND 2011-12, WHEREIN IT WAS HELD THAT DISPROPORTIONATE EXPENSES ARE BEING INCURRED BY THE ASSESSEE COMPANY IN RESPECT OF REVENUE BOOKED. IN RESPONSE, THE ASSESSEE HAS FILED A VERY DETAILED REPLY AND DESCRI BED THE NATURE OF SERVICES RENDERED, METHOD OF REVENUE RECO GNITION FOLLOWED, EXPENSES INCURRED TO EARN THE INCOME AND THE STATUS OF ITS ONGOING PROJECTS. IT WAS FURTHER SUBMITTED T HAT IT WAS ALSO DISCUSSED AND CLARIFIED THAT HAVING REGARD TO THE PECULIAR NATURE OF SERVICES BEING RENDERED AND THE SIZE OF B USINESS, THERE CANNOT BE WORK-IN-PROGRESS IN THE CASE OF ASS ESSEE. IT ITA NO.4165/DEL/2016 3 WAS ALSO EXPLAINED THAT MAINTAINING PROJECTS WISE A CCOUNTING IS NOT FEASIBLE AND MOREOVER NOT MANDATORILY REQUIR ED. IT WAS FURTHER EXPLAINED THAT DURING THE RELEVANT ASSESSME NT YEAR, ASSESSEE WAS HAVING 148 JOBS AND REVENUE EARNED WAS RS.45.48 CRORES. OUT OF THESE, 62 JOBS WERE COMPLET ED BY THE END OF YEAR HAVING REVENUE 19.77 CRORE. OUT OF 86 O NGOING JOBS (HAVING REVENUE OF 25.71 CRORE), CONSIDERING T HE NATURE OF PROJECTS THERE IS NO WORK-IN-PROGRESS FROM THE LEND ERS ENGINEERING (LE) JOBS. THERE WERE 52 ONGOING LE JOB S (CONTRIBUTED REVENUE OF RS.8.46 CRORES) ON 31 ST MARCH, 2010. OUT OF REMAINING 34 ONGOING JOBS, 5 JOBS ARE ON MAN HOURS OR MAN DAYS BASIS. SINCE REVENUE FOR THESE JOBS (RS.11 .08 CRORE) HAVING ALREADY BEEN CHARGED FOR SERVICES RENDERED U P TO 31 ST MARCH, 2010 THERE IS NO WORK-IN-PROGRESS. FURTHER, IN REMAINING 29 ONGOING JOBS (HAVING REVENUE OF RS.6.1 7 CRORE) IN SOME JOBS REVIEW AND SUPERVISION SERVICES ARE AL SO PROVIDED BESIDES MAJOR ACTIVITIES ON LUMP SUM BASIS . SINCE REVENUE OF ALL SUCH ACTIVATES (I.E. REVIEW AND SUPE RVISION) PERFORMED TILL 31 ST MARCH, 2010 HAS ALREADY BEEN BOOKED THERE IS NO WORK IN PROGRESS FOR THE AS WELL. HOWEV ER, THE ASSESSING OFFICER PROCEEDED TO MAKE THE AD-HOC DISA LLOWANCE OF 10% OF THE EXPENSES, WHICH WAS WORKED OUT AT RS.10,89,77,268/-ON THE GROUND THAT PROJECT WISE EX PENSES ARE NOT BIFURCATED. 4. THE LD. CIT (A), AFTER DETAILED DISCUSSIONS AND FOLLOWING THE EARLIER APPELLATE ORDER HAS DELETED THE ADDITIO N ON THE GROUND THAT PROJECT WISE ACCOUNTING IS NEITHER FEAS IBLE NOR ITA NO.4165/DEL/2016 4 MANDATORY IN RESPECT OF SERVICES PROVIDERS AND THER E COULD NOT BE ELEMENT OF STOCK-IN-TRADE AND WORK IN PROGRE SS AND THEREFORE, THE AD-HOC DISALLOWANCE OF EXPENDITURE F OR ALLOCATION OF WORK IN PROGRESS DO NOT CORRECT. 5. WE FIND THAT THIS ISSUE HAD COME UP FOR CONSIDE RATION BEFORE THIS TRIBUNAL IN EARLIER YEARS AND THE TRIBU NAL HAS DELETED THE ADDITION HOLDING AS UNDER:- 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND FIND THAT THE LD AO HAS DISALLOWED 10% OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE ON AD HOC BASI S. AS THE ASSESSEE IS ENGAGED IN PROVIDING SERVICES IT RECOGN IZED REVENUE ON MILESTONE BASIS. AS SOON AS MILESTONE IS ACHIEVED THE INVOICES HAVE BEEN RAISED, HENCE, IT WAS CONTEN DED BY THE ASSESSEE THAT THERE IS NOT REMAINED ANY WORK IN PRO GRESS AT THE END OF THE YEAR. THE LD AO ASKED THE ASSESSEE T O FURNISH PROJECT WISE REVENUE AND THE PROJECT WISE EXPENSES WHICH THE ASSESSEE DID NOT MAINTAIN AND THEREFORE, SAME WAS N OT GIVEN AND ON OUR EXAMINATION OF THE METHOD OF ACCOUNTING APPLIED BY THE ASSESSEE, IT APPEARS THAT WHEN THE ASSESSEE HAS RECEIVED BILLING AS PER MILESTONE AND FROM THE MILE STONE TILL THE CLOSE OF THE YEAR THERE ARE NO EXPENDITURE IDENTIFI ED BY THE LD AO THEN THERE CANNOT BE ANY WORK IN PROGRESS IN THE BUSINESS OF THE ASSESSEE. THE LD AO COULD NOT FIND OUT THAT WHETHER THERE IS SUCH EXPENDITURE EXISTS OR NOT. IT WAS ALS O NOT FOUND BY THE LD AO THAT THE ASSESSEE HAS INCURRED SUBSTAN TIAL EXPENDITURE. IF THE MILESTONE BEFORE THE CLOSE OF T HE YEAR.AS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSULTA NCY SERVICES DEFINITELY THERE CANBE SUM OVER LAP OF THE EXPENSESBETWEEN TWO YEARS. HOWEVER THAT DOES NOT GI VE ANY RISE TO THE AO TO DISALLOWTHE EXPENDITURE @10% AND TREATITAS WORK IN PROGRESS. WE DO NOT FIND ANY REASON TO DEVI ATE FROM THIS REASON GIVEN BY THE LD CIT(A) IN DELETING THE ABOVE DISALLOWANCE. EVEN OTHERWISE THE ORDER OF THE LD CI T(A) IS REASONABLE AS IT FOLLOWS THE DECISION OF THE HONBL E BOMBAY ITA NO.4165/DEL/2016 5 HIGH COURT, WE DO NOT HAVE ANY REASON TO DEVIATE FR OM THE SAME. ACCORDINGLY GROUND NO. 1 OF THE APPEAL OF THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 6. THUS, RESPECTFULLY FOLLOWING THE EARLIER YEAR PR ECEDENTS WHICH IS APPLICABLE TO THE FACTS OF THE PRESENT APP EAL ALSO, WE HOLD THAT THE FINDING OF THE LD. CIT(A) IS BASED ON CORRECT APPRECIATION OF FACTS AND LAW, THEREFORE, THE SAME IS UPHOLD. ACCORDINGLY, GROUND NO.1 OF THE REVENUE IS DISMISSE D. 6. IN SO FAR AS GROUND NO.2 IS CONCERNED, RELATING TO DELETION OF ADDITION OF RS.1,95,000/- UNDER SECTION 14A READ WITH RULE 8D, THE FACTS IN BRIEF ARE THAT THE ASSES SEE HAS MADE INVESTMENT IN RESPECT OF HDFC MUTUAL FUND, WHICH WA S A SHORT TERM MUTUAL FUND AND THERE WAS NO OPENING AND CLOSING BALANCE. THESE MUTUAL FUNDS WERE MADE OUT OF ASSESS EES OWN AVAILABLE SPARE FUNDS AND NO INVESTMENTS WERE M ADE IN THE SHARES. THE LD. AO HAS MADE DISALLOWANCE AFTER INVOKING RULE-8D BY TAKING PEAK INVESTMENT OF RS.3,90,00,000 /- AND DISALLOWED RS.1,95,000/- UNDER FORMULA PROVIDED IN RULE- 8D(2)(III). THE LD. CIT(A) DELETED THE SAID ADDITIO N ON THE GROUND THAT, FIRSTLY, THE ASSESSEE HAS NOT INCURRED AND CLAIMED ANY EXPENDITURE AGAINST EXEMPT INCOME; AND SECONDLY, THERE IS NO EXPRESS SATISFACTION BY THE A O TO REBUT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS B EEN INCURRED IN RELATION TO EXEMPT INCOME. APART FROM T HAT, IN THE PRESENT CASE PERCENTAGE OF AVERAGE VALUE OF INVESTM ENT APPEARING IN THE BALANCE SHEET FOR THE FIRST DAY AND LAST DAY IS NOT ESTABLISHED AND THEREFORE, ADDITION CANNOT BE M ADE. ITA NO.4165/DEL/2016 6 7. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE BEFORE TH E AO HAS VERY SPECIFICALLY STATED THAT IT HAS MADE SHORT TER M INVESTMENT IN MUTUAL FUNDS OF HDFC BANK AND THESE INVESTMENTS HAVE BEEN REDEEMED DURING THE YEAR ITSE LF AND THERE IS NO OPENING AND CLOSING INVESTMENT, THEREFO RE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE CO MPUTED. APART FROM THAT, THE ASSESSEE HAS STATED THAT THE I NVESTMENT HAS BEEN MADE OUT OF SURPLUS FUNDS WHICH HAVE ALSO NOT BEEN REBUTTED BY THE AO. THE LD. AO WITHOUT RECORDING AN Y SATISFACTION ABOUT THE CLAIM OF THE ASSESSEE THAT N O EXPENDITURE HAS BEEN INCURRED DIRECTLY OR INDIRECTL Y IN RELATION TO THE EARNING OF EXEMPT INCOME AND HAS PR OCEEDED TO MECHANICALLY APPLY RULE-8D WHICH CANNOT BE DONE. THEREFORE, THE FINDING OF THE LD. CIT (A) IS UPHELD . ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSE D. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2020. S D/ - SD/ - [DR. B.R.R. KUMAR] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12 TH MARCH, 2020 F{X~{T? FA CF ITA NO.4165/DEL/2016 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR