2021 (1) TMI 1154 - AT - Income Tax

Claim u/s 80IA in respect of parking lot developed on CIDCO land at truck terminal - assessee submitted before the AO that it has developed parking lot with access road at truck terminal Kalamboli Navi Mumbai on BOT basis and is responsible for repair maintenance and operation of the said parking lot - HELD THAT - In this case the assessee was awarded a project by CIDCO to construct a parking lot called truck terminal having facilities on BOT basis. Under the terms of award the assessee was responsible for repair maintenance and operation of the said terminal. The assessee used to collect fee from the truck owners from the trucks and also pay yearly fee to CIDCO. According to the AO the assessee is not eligible for deduction under section 80IA of the Act on the ground that the truck terminal is not an infrastructure facility which was affirmed by Ld. CIT(A) in the appellate order. According to the revenue authorities the truck parking terminal is an independent contract with CIDCO which has nothing to do highways. Whether the truck terminal is an integral part of highways or not? - We note that Finance Act 2001 has modified the definition of infrastructure facility which means a highway project including housing or other activities being an integral part of the highway project. It is clear from the amended definition that any infrastructure which is part of the high way falls within the definition of infrastructure - examining the terms and conditions of award of contract to the assessee to construct build or operate the said terminal on BOT basis we find that this is an integral part of highway though the highway was existing already and it was only a stand alone project awarded to the assessee later on - As noticed that the said terminal was having various facilities as stated hereinabove. The case of the assessee finds support from the decision of Dy. Commissioner of Income Tax Vs. Vintage Advertising Pvt. Ltd. 2015 (6) TMI 593 - ITAT KOLKATA wherein it has been held that assessee is entitled for deduction under section 80IA of the Act on bus shelter and foot over bridge - we direct the AO to allow the deduction under section 80IA. Disallowance on account of labour charges equal to 1% of the total purchases - disallowance on adhoc basis made by the AO on the ground that these expenses were incurred in cash - CIT(A) partly allowed the appeal of the assessee by directing the AO to add 1% of the purchases - HELD THAT - There is an apparent mistake in the order of Ld. CIT(A) the labour charges debited to the profit loss account - We observe that the AO as well as the Ld. CIT(A) has made the disallowance on adhoc basis. We are of the view that ends of justice would be met if a reasonable disallowance is made on this account. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to disallow a sum of 1, 00, 000/-. Addition u/s 14A read with rule 8D - HELD THAT - We find merit in the contentions of the AR the disallowance under rule 8D2(iii) was wrongly made at 1.5% of the average investment instead of .5%. Therefore the same is required to be rectified. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to make a disallowance at .5% of average investment. Needless to say that disallowance computed under rule 8D(ii) is correct. Accordingly we direct the AO to delete the disallowance to the extent of 10, 750/-. Ground is partly allowed.

Summary

Issues Involved:
1. Disallowance under section 80IA.
2. Disallowance of labor charges.
3. Disallowance under section 14A read with rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance under section 80IA:

The primary issue raised by the assessee was the confirmation of disallowance of ?68,22,830 by the CIT(A) under section 80IA of the Income Tax Act. The assessee claimed this deduction for a parking lot developed on CIDCO land at a truck terminal, asserting it as an integral part of a highway project. The AO disallowed the deduction, stating that the parking lot was not on a highway and therefore did not qualify as an infrastructure facility under section 80IA. The CIT(A) upheld the AO's decision, noting that the project was a commercial venture and not part of any highway project. However, the Tribunal found that the parking lot, though a standalone project, was an integral part of the highway infrastructure, referencing the Finance Act, 2001, which modified the definition of infrastructure facility to include projects integral to highways. The Tribunal cited the case of Dy. Commissioner of Income Tax Vs. Vintage Advertising Pvt. Ltd., which allowed similar deductions for bus shelters and foot overbridges, and directed the AO to allow the deduction under section 80IA.

2. Disallowance of labor charges:

The second issue involved the disallowance of labor charges. The AO disallowed ?7,25,120 on an ad-hoc basis, citing improper bills and cash expenses. The CIT(A) reduced this disallowance to 1% of the total purchases, amounting to ?4,16,430, but mistakenly applied this percentage to the previous assessment year's purchases. The Tribunal acknowledged the error and directed the AO to disallow a reasonable sum of ?1,00,000, finding the ad-hoc disallowance approach inappropriate.

3. Disallowance under section 14A read with rule 8D:

The third issue pertained to the disallowance of ?34,541 under section 14A read with rule 8D. The AO calculated this disallowance based on the assessee's tax-free income, comprising ?18,460 under rule 8D(ii) and ?16,125 under rule 8D(iii). The CIT(A) confirmed this disallowance. The Tribunal found merit in the assessee's contention that the disallowance under rule 8D(iii) should be 0.5% of the average investment, not 1.5%. Consequently, the Tribunal directed the AO to adjust the disallowance accordingly, providing the assessee relief of ?10,750.

Additional Appeals:

For the assessment year 2011-12, the issues raised were similar to those for 2012-13. The Tribunal applied its findings from the 2012-13 appeal to the 2011-12 appeal, allowing the assessee's appeal in part and directing the AO to disallow and allow a sum of ?1,25,000 for labor charges and adjust the disallowance under rule 8D(iii) to 0.5% of the average investments, providing additional relief of ?18,500. Ground no. 1 was dismissed as not pressed.

Conclusion:

In conclusion, the Tribunal partly allowed both appeals, directing the AO to allow the deduction under section 80IA, make a reasonable disallowance for labor charges, and adjust the disallowance under rule 8D(iii) to 0.5% of the average investments. The orders were pronounced in the open court on 08.01.2021.