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2016 (1) TMI 682 - AT - Income TaxTDS u/s 194A - Disallowance u/s 40(a)(ia) - compensation paid in the form of interest by the appellant to various allottees for delays occurred in delivering the respective plots - non deduction of tds - Held that - There was neither borrowing or debt incurred by the assessee. The arguments of the ld. DR that the expression moneys borrowed or debt incurred is further qualified by the word claim or other similar right or obligation and the liability of the assessee in question arises out of the claim made by an allottee of plot is also not acceptable. The expression including a deposit claim or other similar right or obligation has to be read ejusdem generis with the expression moneys borrowed or debt incurred . In other words the expression interest should be traceable to transactions in the form of borrowing of money. The decisions referred to by the ld. Counsel for the assessee clearly lay down the proposition that the nature of payment for delay in delivery of the plots is in the nature of damages and not in the nature of interest. We therefore are of the view that the amount in question cannot be characterised as interest within the meaning of section 194A of the Act. Consequently there was no obligation on the part of the assessee to deduct tax at source. Consequently no disallowance could be made u/s 40(a)(ia) of the Act. We therefore direct the disallowance made by the AO and sustained by the CIT(A) should be deleted. - Decided in favour of assessee Addition on interest income in relation to the deposit lying the Government of West Bengal - accrual of income - Held that - The plea of the assessee for not recognising the interest income has been on the basis that the State Government had not issued orders for payment/credit of interest to the interest bearing treasury account of the assessee. There is no allegation that the State Government has refused to pay interest on the treasury account maintained by the assessee. It cannot also be said that the interest in question cannot be recognised owing to denial by the State Government of its obligation to pay interest or for the reason that the State Government is unable to pay interest. In such circumstances we are of the view that the revenue authorities were justified in bringing to tax interest on the premise that there was an accrual of income under the mercantile system of accounting. - Decided against assessee. Deduction u/s 80- IA - CIT(A) disallowed the claim - Held that - the condition for grant of deduction u/s.80IA(4)(i) of the Act is that the assessee should start operating and maintain the infrastructure facility. As rightly contended by the ld. DR the CIT(A) in deciding the appeal for A.Y.2008-09 has not considered any of the aforesaid requirements for allowing deduction u/s 80IA(4)(i) of the Act. In the impugned order the CIT(A) has only refused deduction that the conditions mentioned u/s 80IA(4)(b)(i) of the Act has not been satisfied. In the given circumstances we are of the view that it is just and appropriate to set aside the order of CIT(A) and remand the question of allowing deduction u/s 80IA(4)(i) of the Act to the AO for fresh consideration. The AO will examine all the requirements for allowing the aforesaid deduction. - Decided in favour of assessee for statistical purposes. Addition on account of Penal Interest - Held that - The assessee submitted that the said item of the income has been considered in A.Y.2008-09 besides relying upon Accounting Standard-XVI of ICAI. The AO has thereafter observed that a sum of 26.17 crores being penal interest collected for period payment on sale value of the land during the year is required to be included in other income and since the sale of land was completed the credit of interest to the project cost of work in progress is not in order and has resulted in understatement of income. The AO has accordingly added a sum of 26.17 crore to the total income of the assessee. The assessee has accepted this addition and has not challenged the same before CIT(A) for A.Y.2007-08. In the light of the factual background on the aforesaid issue we are of the view that a sum of 26.17 crore was income of A.Y.2007-08 and has been taxed in the said assessment year and therefore cannot be taxed again in A.Y.2008-09.- Decided in favour of assessee Addition on account of under statement of profit - CIT(A) deleted the addition - Held that - We are of the view that the order of the CIT(A) does not call for any interference. It is not disputed by the revenue that there has been a method of accounting followed by the assessee was to recognise income only when registration of conveyance is completed in favour of the allottees. In fact the settled position in law is that a sale is complete only on registration of conveyance. The extended meaning of the definition transfer u/s 2(47) of the Act will not be applicable in the present case for the reason that sale of land by the assessee is sale of stock in trade and stock in trade is not a capital asset within the meaning of definition of the said term u/s 2(14) of the Act. The extended meaning of the definition transfer u/s 2(47) of the Act is applicable only to transfer of a capital asset. Besides the above we are of the view that the assessee has recognised this income from the sale of land in the subsequent year i.e. 2009-10. In the given facts and circumstances we are of the view that CIT(A) was fully justified in deleting the addition made by the AO - Decided in favour of assessee
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194A. 2. Addition of alleged interest income on deposits with the Government of West Bengal. 3. Disallowance of deduction under Section 80-IA. 4. Double assessment of penal interest income. 5. Understatement of profit due to non-recognition of income from sale of land. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for non-deduction of TDS under Section 194A: The assessee, a government-owned company, claimed a deduction of Rs. 9,71,17,977/- as "compensation for delay in delivery of plots" in its profit and loss account. The AO disallowed this deduction, treating it as interest under Section 194A, requiring TDS deduction. The CIT(A) upheld this view. The Tribunal, however, held that the payment was in the nature of damages, not interest, as it did not arise from borrowed money or incurred debt. The Tribunal relied on the definitions and precedents (CIT vs H.P. Housing Board and Ghaziabad Development Authority vs Dr. N.K. Gupta), concluding that there was no obligation to deduct TDS under Section 194A. Thus, the disallowance under Section 40(a)(ia) was deleted, allowing the assessee's grounds. 2. Addition of alleged interest income on deposits with the Government of West Bengal: The AO added Rs. 26,85,000/- as interest income on treasury deposits, following the mercantile system of accounting. The assessee contended that no interest was credited by the treasury despite reminders. The CIT(A) upheld the AO's addition. The Tribunal agreed with the revenue authorities, noting the absence of denial or inability of the State Government to pay interest, thus affirming the addition. The assessee's grounds were dismissed. 3. Disallowance of deduction under Section 80-IA: The assessee claimed a deduction under Section 80-IA for developing infrastructure facilities. The CIT(A) disallowed the claim, citing the lack of a valid license and necessary notifications from the Government of West Bengal. The Tribunal noted that the CIT(A) for A.Y. 2008-09 had allowed a similar claim, recognizing the assessee's role in developing infrastructure as per government approvals. However, the Tribunal remanded the issue back to the AO for fresh consideration, directing the assessee to substantiate its claim. The grounds were allowed for statistical purposes. 4. Double assessment of penal interest income: The assessee argued that Rs. 26.17 crore, assessed as penal interest in A.Y. 2007-08, was wrongly included again in A.Y. 2008-09. The CIT(A) dismissed the claim, suggesting the issue should be raised in A.Y. 2007-08. The Tribunal found that the sum had indeed been taxed in A.Y. 2007-08 and should not be taxed again in A.Y. 2008-09, allowing the assessee's grounds. 5. Understatement of profit due to non-recognition of income from sale of land: The AO added Rs. 204.67 crore as understated profit based on the CAG's report, arguing that the sale was complete upon allotment and handing over of land. The CIT(A) deleted the addition, noting the assessee's consistent practice of recognizing income only upon registration of conveyance, which occurred in A.Y. 2009-10. The Tribunal upheld the CIT(A)'s decision, affirming that the extended definition of "transfer" under Section 2(47) does not apply to stock-in-trade. The revenue's ground was dismissed. Separate Judgments: - For A.Y. 2006-07, 2007-08, and 2009-10, the Tribunal followed the same reasoning as in A.Y. 2005-06, partly allowing the appeals. - For A.Y. 2008-09, the Tribunal allowed the assessee's appeal regarding TDS and penal interest, while remanding the Section 80-IA deduction issue back to the AO. The revenue's appeal was partly allowed, affirming the addition for understatement of profit and remanding the Section 80-IA issue. Conclusion: The Tribunal provided a detailed analysis of each issue, considering the legal definitions, precedents, and specific circumstances of the case. The decisions reflect a thorough examination of the facts and adherence to established legal principles.
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