Gujarat H.C : Where assessee, engaged in execution of turnkey projects, maintained books of account under section 44AA(2) and, moreover, said accounts were audited and audit report had been furnished before Assessing Officer, its claim for being taxed as per provisions of section 44BBB(2) was to be allowed

High Court Of Gujarat

CIT (IT & TP) Vs. Shandong Tiejun Electric Power Engineering Co.

Section 44BBB

Akil Kureshi And Biren Vaishnav, JJ.

Tax Appeal No. 623 Of 2017

September 18, 2017

ORDER

Akil Kureshi, J. – Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 18.01.2017 raising the following questions for our consideration:

(A) Whether, the Hon’ble ITAT has erred in law and on facts of the case, in holding that A.O. has no power to assess income on presumptive basis u/s 44BBB(1) of the Act, if assessee has maintained books of account as prescribed u/s 44BBB(2) of the Act although books of account maintained by assessee are not proper and do not reflect the correct income of assessee?

(B) Whether, the Hon’ble ITAT has erred in law and on facts of the case, in holding that A.O. has erred in rejecting books of accounts of assessee relying on the decision of Hon’ble Gujarat High Court decision in the case of CIT v. Advanced Construction Co. (P) Ltd. reported in 275 ITR 30, although the ratio laid down by the Hon’ble Gujarat High Court is squarely applicable in present facts of the case and in favour of the revenue?

2. Respondent – assessee is a foreign company engaged in execution of turnkey projects. In terms of section 44BBB of the Act, the income of the assessee would be taxed at a presumptive rate of 10% of the amount paid or payable to the assessee or any person on behalf of the assessee under sub-section (2) of section 44BBB of the Act if the assessee satisfies certain conditions therein. Assessee could claim lower profit and gain than what is referred in sub-section (1). Assessee availed of such provision of sub-section (2) of section 44BBB of the Act while filing the return before the Assessing Officer. The Assessing Officer was not satisfied on various grounds, principally, that the assessee had followed the accounting system of AS-7 which was not applicable, the assessee should have offered tax in terms of section 44BBB of the Act and lastly that in any case the assessee had not followed the correct method of determining the stage of completion of the contract and the accounts of the assessee were not reliable. The Assessing Officer after putting the assessee to notice rejected the assessee’s accounts and taxed the assessee under sub-section (1) of section 44BBB of the Act.

3. The assessee carried the matter in appeal before the Commissioner. Commissioner held in favour of the assessee. The Commissioner held that the accounting standard AS-7 was applicable to the assessee. The assessee had pointed out to the Assessing Officer that the true cost of the project was estimated on the basis of experience of the assessee in executing similar works in the past. The assessee had also submitted detailed break-up of the estimated profit and loss account for the entire project for five financial years. The assessee had also submitted the details of the budgeted costs to the revenue. The assessee had produced the audited financial statements during all the financial years. The Commissioner had the benefit of further developments by the time the appeal was disposed of and noted that the financial statements of the financial years 2009-10 and 2010-11 were available which were submitted before him by the assessee which matched the estimated costs presented by the assessee before the Assessing Officer. The Commissioner also noted that the entire project was completed and the total income was offered to tax. The Commissioner therefore relied and referred to the decision of this Court in case of CIT v. Advanced Construction Co. (P.) Ltd. [2005] 275 ITR 30/143 Taxman 61 and reversed the order of the Assessing Officer.

4. The Tribunal on somewhat similar grounds rejected the Revenue’s appeal. Hence, the present appeal.

5. Section 44BBB of the Act reads as under:

’44BBB. Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.- (1) Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf , a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

(2) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.’

6. Under sub-section (1) of section 44BBB of the Act therefore in case of assessee being a foreign company engaged in the business of civil construction or business of erection of plant or machinery or testing or commissioning thereof in connection with a turnkey power project approved by the Central Government would be taxed at the rate of 10% of the amount paid or payable to the assessee or to any person on behalf of the assessee on account of such civil construction, erection etc work. Sub-section (2) of section 44BBB of the Act would however give an option to the assessee to claim lower profit if the assessee keeps and maintains the books of accounts and other documents as provided in sub-section (2) of section 44AA of the Act and gets the accounts audited and furnishes the audit report as required under section 44AB. The AO thereupon would frame an assessment of the total income of the assessee under sub-section (3) of section 143 of the Act. In the present case, the CIT (Appeals) as well as the Tribunal both held that the assessee had fulfilled all requirements of sub-section (2) of section 44BBB of the Act. It is not the case of the revenue that the assessee had not maintained the books of accounts and documents as required under sub-section (2) of section 44AA or that the assessee’s accounts were not audited or the audit report not furnished before the Assessing Officer. The Commissioner and the Tribunal also held that the Assessing Officer was wrong in holding that the accounting standard AS-7 did not apply to the assessee.

7. Such being the facts, we see no reason to interfere since no question of law arises. Learned counsel for the Revenue, however, strenuously urged that the Assessing Officer was authorised to examine the books of accounts and other documents and if found that the assessee had not recorded the details correctly he could have rejected such accounts. We may not dispute this proposition. However, the Assessing Officer, as recorded by the Tribunal has not found any major defects in such accounts. The Commissioner (Appeals) in fact elaborated that the assessee had the past experience from which it could estimate the total cost and had presented figures to show the percentage completion of the project. These figures match with the actual income and expenditure statements of the subsequent financial years. In fact the entire project was completed by the time the Commissioner (Appeals) decided the appeal.

8. In the result, tax appeal is dismissed.

[Citation : 400 ITR 371]