2011 (7) TMI 302 - AT - Income Tax

Disallowance - Deduction u/s.80-IA - appellant had executed a works contract in respect of each of the projects for which it has claimed a deduction u/s.80IA(4) of the Act - Appellant has been unable to establish as to how did it make an investment in the project, part from not being able to prove that it had not executed a works contract as is evident above - there is no dispute about the fact that as the law stands now in the light of retrospective insertion of Explanation below to Section 80IA(13), the assessee is not eligible for deduction u/s. 80IA(4). Deduction - Bonus paid to employees - It was submitted that the company had distributed the bonus before filing the return and before filing the tax audit report but what is disallowable under section 43B is unpaid bonus and not unclaimed bonus. The submissions of the assessee was that the amount of ₹ 4,73,084 represents the amount which the assessee has offered to pay but which the employees have not claimed - the test of disallowing of bonus under section 43B is whether the amount has been paid or not, and the reasons for non payment are immaterial - Decided against the assessee. Repairs and maintenance expenditure - expenses are clearly in the nature of current repairs inasmuch as even though some replacements are needed but replacements are of the consumable which have limited span of life - The claim of the assessee deserves to be allowed as in the nature of current repairs - find support from the judgment of Hon ble Bombay High Court in the case of Commissioner of Income-tax v. Hede Consultancy Pvt. Ltd. 2002 (6) TMI 19 - BOMBAY High Court , wherein, it has been held that since the assets created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the expenditure should be looked upon as revenue expenditure - Decided in favour of assessee. Bad debts - Amounts which have been disallowed as bad debt represents the amounts written off in respect of certain deposits, etc. - This claim, is not permissible as bad debt for the elementary reason, as rightly noted by the authorities below, that the related amount has not been included as income in any one of the earlier previous years - To that extent, the stand of the authorities below is quite justified and does not call for any interference. However, none of the authorities below have examined whether the amounts so written off qualify for deduction as a business loss - Therefore, remit the matter to the file of the Assessing Officer for re-adjudication in this light after giving proper hearing to the assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80-IA of the Income Tax Act, 1961.
2. Deduction of unpaid bonus under Section 43B.
3. Nature of expenditure as capital or revenue.
4. Deduction of bad debts.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-IA:
The primary issue is whether the assessee qualifies for a deduction under Section 80-IA of the Income Tax Act, 1961. The assessee claimed a deduction of Rs. 11,39,42,000 for developing infrastructure projects. The Assessing Officer (AO) and the CIT(A) both concluded that the assessee was a contractor, not a developer, based on the retrospective amendment to Section 80-IA by the Finance Act, 2007. The amendment clarified that the deduction does not apply to persons executing a works contract. The Tribunal upheld this view, stating that the assessee merely executed works contracts for infrastructure development and did not make any investment in the projects. Therefore, the deduction under Section 80-IA was rightly denied.

2. Deduction of Unpaid Bonus under Section 43B:
The second issue concerns the disallowance of Rs. 4,73,084 claimed as unpaid bonus. The AO disallowed this amount, stating that under Section 43B, only actually paid bonuses are deductible. The CIT(A) upheld this view, and the Tribunal agreed, noting that the statute specifically requires actual payment for the deduction. The reason for non-payment, whether it is due to the employees not claiming the bonus, is immaterial.

3. Nature of Expenditure as Capital or Revenue:
The third issue pertains to whether an expenditure of Rs. 2,68,475 incurred under the head "repairs" should be considered capital or revenue in nature. The AO and CIT(A) treated this expenditure as capital, allowing depreciation instead. However, the Tribunal examined the nature of the expenses and found them to be for current repairs and maintenance, such as replacing consumables and minor repairs. The Tribunal allowed the deduction, referencing the Bombay High Court's judgment in the case of Hede Consultancy Pvt. Ltd., which supported treating such expenses as revenue expenditure.

4. Deduction of Bad Debts:
The fourth issue involves the disallowance of Rs. 1,66,833 claimed as bad debts. The AO and CIT(A) disallowed this claim because the debts had not been included in the income of any previous year, as required by Section 36(2)(i). The Tribunal upheld this view but noted that the authorities had not considered whether the amounts could be deducted as a business loss. The Tribunal remitted the matter back to the AO for re-adjudication to determine if the amounts qualify as a business loss.

Conclusion:
The Tribunal dismissed the appeal on the first two issues, agreeing with the lower authorities that the assessee was not entitled to the deductions claimed under Section 80-IA and Section 43B. On the third issue, the Tribunal allowed the appeal, treating the disputed expenditure as revenue in nature. On the fourth issue, the Tribunal remitted the matter back to the AO to consider the possibility of treating the disallowed bad debts as a business loss. Thus, the appeal was partly allowed.