2015 (11) TMI 1665 - AT - Income Tax

Deduction under section 80IA(4) - whether assessee was a developer and not contractor - Held that - After analyzing the major clause of the agreement to determine the scope and nature of work undertaken, we found that assessee was a developer, therefore, eligible for claim of deduction u/s.80IA(4). After considering and deliberating on the meanings of the words developer and contractor , scope of the work, responsibilities and risks undertaken by the assessee in each of the contracts the CIT(A) recorded a finding to the effect that the assessee is not a contractor but a developer. In coming to the above finding, in para 6.15, the CIT A also considered the clarificatory amendment by way of Explanation below sub section (13) of section 80IA by the Finance Acts 2007 and 2009 and held, after considering various judicial pronouncements, that the amendment does not impact development contracts. CIT(A) noted that for the Koyna and Udhampur projects, the assessee has already been held to be a developer by the Hon ble ITAT in its own case in the earlier years. Moreover, the Koyna project has also been held to be eligible for deduction in B.T. Patil& Sons Belgaum Construction Pvt. Ltd. After analyzing the terms of the contract, the CIT(A) reiterated that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the assessee is a developer of the respective projects. As regards the issue whether, to be eligible for deduction, the assessee has to develop the entire infrastructure facility and not only a part thereof, the CIT(A) relied on the CBDT circular no. 4/2010, the decisions of the ITAT in the assessee s own case, B.T. Patil& Sons Belgaum Construction Ltd. 2013 (11) TMI 197 - ITAT PUNE and the Hon ble Bombay High Court in ABG Heavy Industries Ltd. 2010 (2) TMI 108 - BOMBAY HIGH COURT We also found that the CIT(A) has dealt in great detail the scope of the work, risk and responsibilities undertaken by the assessee and after applying the proposition of law laid down in the following decisions arrived at the conclusion that assessee was a developer and not only a contractor. We uphold the action of CIT(A) for allowing claim of deduction u/s.80IA(4) in respect of all the projects. - Decided in favour of assessee. Disallowance under s.14A - Held that - We have considered rival contentions and found that a clear finding has been given by the CIT(A) to the effect that amount was receivable on account of hire charges on machinery from JV or on account of assessee s share in the JV firm. The question of disallowance of interest u/s.14A arises only when the funds have been given to JV/sister concern income from which is not liable to tax. The detailed finding recorded by CIT(A) at para 7.3 has not been controverted, accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the disallowance made u/s.14A Income assessable in the hands of the assessee on substantive basis - Held that - No infirmity in the order of CIT(A) for taxing assessee s share of income in assessee s hand on substantive basis rather than on protactive basis. Accordingly, we dismiss the ground of assessee. Expenses incurred by the assessee to the projects eligible for deduction under s.80IA(4) - Held that - Certain expenditure incurred by Panvel workshop and the USA office was attributed by the AO to the eligible units, consequently profit claimed as deduction was reduced. The contention of ld. AR was that these expenses were not directly incurred for earning the income which is liable to deduction u/s.80IA(4). However, it has not been brought on record by lower authorities to show that expenses incurred at Panvel workshop and USA office was incurred directly for assessee s projects eligible for deduction u/s.80IA(4). As relying on M/s Liberty India Versus Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT we do not find any merit for reducing the profit of eligible undertaking by these expenses. Accordingly, we direct the AO not to reduce the profit eligible for deduction u/s.80IA(4). We direct accordingly. Disallowance of credit of TDS in respect of advances received - Held that - Where tax is deducted at source on an amount which is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in the year of receipt of amount, in which the tax was deducted at source.In respect of advance against work and material, we found that the said advance is reflected as a reduction from construction work in progress, which itself is valued at contract rates i.e. selling price. In other words, the income pertaining to such advance is already impregnated in the work in progress offered for tax during the impugned year itself. Thus we direct the AO to allow the credit for TDS in year of deduction itself. We direct accordingly. Denial of deduction u/s.80IA(4) in respect of NHPC project - Held that - Resources are earmarked for NHPC in the budgetary allocations of the India budget, more particularly for Teesta Lower Dam project also. NHPC has signed a MOU whereby the commitments/assistance to be received by NHPC from the Government are enumerated. In the Ministry of Power, Government of India work allocation is made for NHPC, including in respect of Jammu & Kashmir; co-ordination, forwarding of returns to Prime Minister s office, Ministry of Home Affairs and other Departments, concerning power issues of J & K. in sum and substance, the objects to be pursued are ordinarily performed by Government Thus, assessee s contract with NHPC fulfills the condition prescribed in section 80IA(4)(i)(b) of the Act as it performs functions akin to state.No reason to disallow assessee s claim for deduction u/s.80IA(4) in respect of project awarded by NHPC. We found that assessee s contracts with NHPC fulfills all the conditions prescribed u/s.80IA(4)(1)(b) of the Act as it performs functions akin to estate. Accordingly, the AO is directed to allow deduction u/s.80IA(4) in respect of project awarded by NHPC. See Som Prakash Rekhi Versus Union of India 1980 (11) TMI 113 - SUPREME COURT OF INDIA

Summary

Issues Involved:
1. Deduction under section 80IA(4).
2. Disallowance under section 14A.
3. Protective assessment of income from Joint Venture.
4. Attribution of expenses to projects eligible for deduction under section 80IA(4).
5. Credit of TDS on advances received.
6. Adjustment to book profit under section 115JB.
7. Levy of interest under section 234B.

Detailed Analysis:

1. Deduction under Section 80IA(4):
The primary issue was whether the assessee qualified as a "developer" under section 80IA(4) for various infrastructure projects. The CIT(A) allowed the deduction for all projects except the Teesta Lower Dam Project. The CIT(A) found that the projects executed were highly technical and specialized, involving significant risk, and the assessee deployed substantial resources. The CIT(A) relied on case law, including ABG Heavy Industries Ltd., and concluded that the assessee was a developer and not merely a contractor. For the Teesta Lower Dam Project, the CIT(A) agreed with the AO that the assessee did not fulfill the condition of entering into an agreement with the Central or State Government or a statutory body. The Tribunal upheld the CIT(A)'s decision, confirming the deduction under section 80IA(4) for all projects except the Teesta Lower Dam Project.

2. Disallowance under Section 14A:
The AO disallowed Rs. 88,69,937/- under section 14A, attributing interest expenses to investments in joint ventures. The CIT(A) deleted the disallowance, noting that the amounts were receivables from joint ventures for machinery hire charges and share of profit, not investments. The Tribunal upheld the CIT(A)'s decision, agreeing that no funds were invested in joint ventures and thus section 14A was not applicable.

3. Protective Assessment of Income from Joint Venture:
The AO assessed the income from the LGE & C-Patel JV on a protective basis. The CIT(A) directed the AO to assess the income on a substantive basis, referencing the Ahmedabad Tribunal's decision that the income should be taxed in the hands of Patel Engineering. The Tribunal upheld the CIT(A)'s decision, confirming the substantive assessment of the income.

4. Attribution of Expenses to Projects Eligible for Deduction under Section 80IA(4):
The AO allocated expenses from the Panvel workshop and the USA office to the projects eligible for deduction under section 80IA(4), reducing the deduction amount. The CIT(A) upheld this allocation. However, the Tribunal disagreed, citing the decision in DCW Ltd. and Liberty India, and directed the AO not to reduce the profit eligible for deduction by these expenses.

5. Credit of TDS on Advances Received:
The AO denied credit for TDS on advances received. The CIT(A) allowed credit for TDS where the corresponding income was offered during the current year. The Tribunal directed the AO to allow credit for TDS in the year of deduction itself, following decisions in ACIT v. Peddu Srinivas Rao and Zelan Projects Pvt. Ltd.

6. Adjustment to Book Profit under Section 115JB:
Since the disallowance under section 14A was deleted, the adjustment to book profit under section 115JB became infructuous and was dismissed by the Tribunal.

7. Levy of Interest under Section 234B:
The levy of interest under section 234B was deemed consequential by the Tribunal.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, confirming the CIT(A)'s decisions on various issues, and providing specific directions on the allocation of expenses and credit for TDS.