2014 (9) TMI 82 - AT - Income Tax

Denial of deduction u/s 80IA(4) - Buffer agency granting work contract of local bodies on behalf of the Government of Gujarat and not as a developer of infrastructure facility Held that - As decided in assessee s own case it has been held that assessee s works as a nodal agency for implementation of various works undertaken/decided by the government - on a project originally estimated at ₹ 100 crore, the actual cost over runs to any amount may be even ₹ 500 crore; the assessee loses nothing - its own allocation increases and it gains - it doesn t get any benefit when it saves cost or is more efficient - the appellant is doing the work of a concern engaged in work which is in the nature of a works contact awarded by any person (including the Central or State Government) and executed by it - as per the amended Explanation below section 80IA(13) with retrospective effect from 1.4.2000, the work should not be of the nature of contract and not only contract - the project costs and source not being revenue of the appellant, it being not affected by the actual cost and efficiency of work, the assets created and the source not being of the appellant at any stage and it being entitled to a fixed remuneration for its professional services; it clearly is falling in the excluded category as per the amended Explanation below section 80IA(13); and therefore, not eligible for deduction - the objections of the CIT(A) was that the assessee does not bear any risk and consequences arising from the project Decided against assessee. Interest on unutilized grants as income from other sources whether taxable or part of grant received from the government and not taxable - Held that - the assessee is 100% government owned company appointed as a Nodal Agency for implementation of various infrastructure development projects all across Gujarat - the observation of the AO that the interest is not credited to the respective Grant accounts is factually incorrect, as a perusal of the balance-sheet and the respective ledger accounts of the Grant/Project clearly show that in fact the interest is credited to the respective account. - Earlier decision of the same assessee 2014 (4) TMI 789 - ITAT AHMEDABAD followed - interest is not taxable Decided in favour of Assessee.

Issues Involved:
1. Denial of deduction claimed under Section 80IA(4) of the Income Tax Act.
2. Addition of interest receivable on unutilized grants as 'income from other sources'.
3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act.
4. Initiation of penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Denial of Deduction Claimed Under Section 80IA(4):
The primary issue was whether the assessee was eligible for deduction under Section 80IA(4) of the Income Tax Act, amounting to Rs. 1,47,90,185/-. The assessee argued that it was a developer of infrastructure facilities and not merely a contractor. The Assessing Officer (AO) and the Commissioner of Income-Tax (Appeals) [CIT(A)] held that the assessee acted as a nodal agency for the Government of Gujarat, executing projects like water supply schemes, sanitation, and road construction, and was thus not eligible for the deduction. The AO disallowed the claim, stating that the assessee did not undertake any risks and received a fixed percentage of the project cost, which indicated a works contract rather than development of infrastructure.

The Tribunal noted that the CIT(A) had followed the precedent set by the Tribunal in the assessee's own case for earlier years, where the claim was similarly disallowed. The Tribunal reiterated that the assessee did not bear any risk and received a fixed percentage of the project cost, affirming the CIT(A)'s decision. Consequently, the Tribunal dismissed the additional grounds of appeal raised by the assessee.

2. Addition of Interest Receivable on Unutilized Grants as 'Income from Other Sources':
The second issue involved the addition of Rs. 22,63,60,745/- as interest receivable on unutilized grants, which the AO treated as 'income from other sources'. The assessee contended that the interest earned on grants was not its income but was to be used for the specific projects for which the grants were received. The CIT(A) upheld the AO's decision, stating that the interest income was taxable under Section 56 of the Income Tax Act, as the appellant was a separate entity from the Government of Gujarat and the interest was earned on funds parked in GSFS.

The Tribunal, however, found that the issue had been decided in favor of the assessee in its own case for earlier years, where it was held that the interest earned on grants was not taxable as income of the assessee. The Tribunal followed the precedent and set aside the CIT(A)'s order, deleting the addition of Rs. 22,63,60,745/-.

3. Levy of Interest Under Sections 234A, 234B, and 234C:
The assessee challenged the levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act. However, no arguments were made by the assessee's representative during the hearing. Consequently, the Tribunal dismissed this ground for want of prosecution.

4. Initiation of Penalty Under Section 271(1)(c):
The assessee also contested the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. The Tribunal dismissed this ground as premature, indicating that the penalty proceedings were not yet concluded.

Conclusion:
The Tribunal dismissed the additional grounds of appeal regarding the deduction under Section 80IA(4) and upheld the CIT(A)'s decision. However, it allowed the appeal concerning the addition of interest receivable on unutilized grants, following the precedent in the assessee's own case. The grounds related to the levy of interest and initiation of penalty were dismissed. The appeal was partly allowed.

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