2014 (10) TMI 961 - AT - Income Tax

Deduction claimed u/s. 80IA in respect of profit earned from the project Godawari Lift Irrigation Scheme developed by the Govt. of Andhra Pradesh - Held that - As decided in assessee s own case 2014 (9) TMI 1065 - ITAT PUNE we are not inclined to interfere with the finding of CIT(A) who has deleted the disallowances u/s.80IA of the Act in respect of profit earned from the project Godawari Lift Irrigation Scheme and Guthpa Lift Irrigation Scheme respectively. Disallowance of the warranty provision - Held that - CIT(A) has rightly decided the issue in the light of judgement of the Hon ble Supreme Court in the case of Rotork Control India P. Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA). We uphold the same. Disallowance u/s.40(a)(ia) - assessee has not deducted tax at source on payment of commission to the Non-executive Directors - Held that - The issue before us is with regard to commission paid to director. The issue has to be looked into its facts and circumstances which needs deep probe into the matter. So, in the interest of justice, we restore this issue to the Assessing Officer with a direction to decide the same as per fact and law after providing due opportunity of being heard to the assessee. Computation of Book profit u/s.115JB - Held that - We are not inclined to interfere with the finding of CIT(A) who has upheld the addition made by the Assessing Officer to the Book Profit as defined under Explanation to section 115JB. We uphold the same. Medical expenses reimbursed to employees and payment of Fringe Benefit Tax - Held that - Since the CBDT has issued clarification that reimbursement of medical expenses up to ₹ 15,000/- is taxable as a fringe benefit in the hands of the employer, the Assessing Officer following the Circular has rightly treated the reimbursement of medical expenses to employees and non-working directors of the company as a fringe benefit under section 115 WB(2)(E) of the Act. Accordingly, the action of the Assessing Officer on this ground is upheld.

Summary

Issues Involved:
1. Disallowance of deduction u/s 80IA for profits from Godawari Lift Irrigation Scheme.
2. Disallowance of deduction u/s 80IA for profits from Guthpa Lift Irrigation Scheme.
3. Disallowance of warranty provision.
4. Disallowance of deduction u/s 80IA for infrastructure facility developed for SSNNL.
5. Disallowance u/s 40(a)(ia) for commission to non-executive directors.
6. Computation of book profit u/s 115JB.
7. Medical expenses reimbursed to employees and payment of Fringe Benefit Tax.

Issue-wise Analysis:

1. Disallowance of Deduction u/s 80IA for Profits from Godawari Lift Irrigation Scheme:
The Revenue challenged the deletion of disallowance of Rs. 3,59,81,384/- by the CIT(A). The Tribunal referred to its previous decision in the assessee's case for A.Y. 2006-07, where it was held that the Assessing Officer's action was based on conjectures and surmises without any cogent material. The CIT(A)'s deletion of disallowance was affirmed as the profits declared by the assessee were based on audited books of account without any infirmity. Therefore, the Tribunal upheld the CIT(A)'s order.

2. Disallowance of Deduction u/s 80IA for Profits from Guthpa Lift Irrigation Scheme:
Similarly, the Revenue's appeal against the deletion of disallowance of Rs. 82,87,446/- by the CIT(A) was dismissed. The Tribunal followed its earlier reasoning from the Godawari project case, affirming the CIT(A)'s decision due to the lack of contrary evidence from the Revenue.

3. Disallowance of Warranty Provision:
The Revenue contested the relief of Rs. 83,85,380/- granted by the CIT(A). The Tribunal referred to its previous decision in the assessee's case for A.Y. 2006-07, where it was held that the provision for warranty was allowable based on the Supreme Court judgment in Rotork Control India P. Ltd. v. CIT. The CIT(A)'s decision was upheld as it was in line with this precedent.

4. Disallowance of Deduction u/s 80IA for Infrastructure Facility Developed for SSNNL:
The assessee appealed against the disallowance of Rs. 31,73,97,655/-. The Tribunal referred to its earlier decision for A.Y. 2006-07, where it was held that the assessee was a developer and not merely a contractor. The Tribunal noted that the assessee used its resources and technology, and the project was similar to the Godavari Lift Irrigation Scheme, where the deduction was allowed. The CIT(A)'s order was set aside, and the Assessing Officer was directed to allow the deduction.

5. Disallowance u/s 40(a)(ia) for Commission to Non-Executive Directors:
The assessee contested the disallowance of Rs. 80,00,000/- for not deducting tax at source. The Tribunal referred to the ITAT Pune Bench decision in Bharat Forge Ltd. v. Addl.CIT, where it was held that sitting fees paid to directors did not amount to professional services u/s 194J. However, since the issue required a deeper probe, it was restored to the Assessing Officer for a fresh decision.

6. Computation of Book Profit u/s 115JB:
The assessee challenged the inclusion of Rs. 177,77,56,572/- in book profits. The CIT(A) followed its predecessor's decision for A.Y. 2006-07, where it was held that capital gains included in the profit and loss account could not be excluded for book profit computation under section 115JB. The Tribunal upheld the CIT(A)'s decision, aligning with the Kerala High Court and Bombay High Court judgments.

7. Medical Expenses Reimbursed to Employees and Payment of Fringe Benefit Tax:
The assessee contested the inclusion of medical expenses reimbursed to employees amounting to Rs. 1,65,65,947/- as fringe benefits. The CIT(A) followed the CBDT Circular No. 8 of 2005, which clarified that medical reimbursement up to Rs. 15,000/- was taxable as fringe benefit. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's stance on the binding nature of CBDT circulars.

Conclusion:
The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The Tribunal upheld the CIT(A)'s decisions on most issues, except for the commission to non-executive directors, which was remanded for further examination.