2017 (9) TMI 1741 - AT - Income Tax

Section 40(a)(ia) disallowance - assessee had not deducted any TDS on rent / lease rent/godown rent, machinery hire, vehicle hire, consultancy, shuttering work, lamination, site office expenses, steel transport, road work and legal / professional charges - Held that - We first proceed to deal with Revenue s arguments in support of its grievance that the Assessing Officer had rightly disallowed assessee s expenses to the tune of ₹ 5,48,450/- since it had deducted less than the prescribed TDS deduction in chapter XVIIB of the Act. We find that judgment in CIT vs. S. K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT holds that Section 40(a)(ia) disallowance does not apply in case of short deduction of TDS. DR thereafter seeks to invoke proportionate disallowance of expenses to the extent of short deduction of TDS only. We find no merit in the instant alternative plea as well since there is no such course of action prescribed in the Act. The Revenue therefore fails in first substantive ground. Section 36(1)(iii) interest disallowance - Held that - The assessee s advances in question of ₹ 63.08 crores are much less than its interest free funds of ₹ 29.90 crores. Relevant parties have also been found to be the same as in the said earlier assessment year. All these clinching facts have gone unrebutted in the course of hearing. We therefore affirm the CIT(A) s findings deleting the impugned disallowance. The Revenue fails in its second substantive ground Section 80IA deduction - assessee s BOT road project cannot be treated as an instance of infrastructure development rendering profits derived therefrom in the form of toll collection as eligible for the impugned Section 80IA deduction - Held that - The relevant items are Director s remuneration, audit fees, consultancy charges, postage / telegram expenses, general expenses, telephone expenses, board meeting sitting fees expenses and depreciation etc. Learned counsel appearing at assessee s behest is fair enough in not pressing for the impugned challenge made to all above heads of allocation except depreciation. We therefore uphold both the lower authorities action allocating the impugned expenses other than depreciation pertaining to building, air conditioner, computers, office equipments, furniture/fitting and vehicles. We find no merit in learned Departmental Representative s vehement contentions supporting both the lower authorities action allocating assessee s depreciation claim in this regard since the same is applicable qua the relevant block of assets as defined in Section 2(11) r.w. Section 32 of the Act prescribing block wise depreciation qua buildings, machinery, plant or furniture in tangible assets category followed by intangible one specifying knowhow, patent, copyright etc. The Revenue fails to quote any case law that the impugned depreciation is not allowable once a particular asset stands included in the corresponding block hereinabove. We therefore reverse both the lower authorities action allocating assessee s depreciation claim. The consequential disallowance arising therefrom for the purpose of assessee s deduction claim u/s. 80IA of the Act is directed to be deleted. Correctness of Section 14A r.w. Rule 8D disallowance - Held that - Hon ble Delhi high court s judgment in Joint Investments Pvt. Ltd. vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT) that such a disallowance cannot exceed the exempt income amount itself. The Revenue is unable to rebut application of the above judicial precedent. We therefore direct the Assessing Officer to restrict the impugned disallowance to the extent of ₹ 46,643/- only. The assessee partly succeeds in the instant substantive ground.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for TDS deduction
2. Interest disallowance under Section 36(1)(iii)
3. Classification as an infrastructure developer for Section 80IA deduction
4. Allocation of expenses resulting in disallowance
5. Disallowance under Section 14A r.w. Rule 8D for exempt income
6. Disallowance under Section 40A(7)

Analysis:

1. Disallowance under Section 40(a)(ia) for TDS deduction:
The Assessing Officer disallowed expenses of &8377; 5,48,450 due to short deduction of TDS. However, the CIT(A) ruled that Section 40(a)(ia) does not apply in cases of short deduction of TDS. The disallowance was reduced to &8377; 64,011, which was below the TDS limit. The remaining disallowance was upheld. The Tribunal agreed with the CIT(A) and directed the Assessing Officer to verify relevant facts for further proceedings.

2. Interest disallowance under Section 36(1)(iii):
The Revenue challenged the deletion of &8377; 9,89,280 interest disallowance by the CIT(A). The Tribunal upheld the CIT(A)'s decision based on the assessee's advances being less than interest-free funds, following a previous tribunal order. The Revenue's appeal on this ground was dismissed.

3. Classification as an infrastructure developer for Section 80IA deduction:
The Revenue contested the CIT(A)'s decision to treat the assessee as an infrastructure developer for Section 80IA deduction related to BOT road projects. The Tribunal noted a previous order upholding the eligibility of the projects for the deduction. The CIT(A)'s decision was affirmed, and the Revenue's appeal failed.

4. Allocation of expenses resulting in disallowance:
The dispute involved the allocation of expenses leading to a disallowance of &8377; 7,45,28,297. The Tribunal upheld the allocation except for depreciation, which was allowed as per the relevant block-wise depreciation rules. The Revenue's arguments against the depreciation allocation were rejected, and the disallowance was directed to be deleted.

5. Disallowance under Section 14A r.w. Rule 8D for exempt income:
The assessee challenged the disallowance of &8377; 1,09,85,008 under Section 14A r.w. Rule 8D for an exempt income of &8377; 46,643. The Tribunal directed the Assessing Officer to limit the disallowance to the exempt income amount, as per judicial precedent, resulting in a partial success for the assessee.

6. Disallowance under Section 40A(7):
The assessee withdrew its challenge to the disallowance of &8377; 12,84,936 under Section 40A(7). The Tribunal acknowledged this decision and partially accepted the assessee's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal and partially allowed the assessee's cross-appeal, addressing various substantive grounds raised by both parties in the assessment for the year 2010-11.