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2022 (9) TMI 1414 - AT - Income TaxDisallowance of Deduction u/s 80IA - Whether characteristics of contract agreements clearly indicate that these are work contracts and the assessee cannot be said as developer of these facilities? - HELD THAT - As decided in own case for the A.Y. 2006-07 2022 (1) TMI 1276 - ITAT DELHI . According to the assessment order, copies of all the agreements were before Assessing Officer yet assessing officer chose to make sweeping observation that the assessee is not developer. Such sweeping and bald assertion cannot be approved by us. Therefore, taking into the facts of the present case, we are the considered view that appellant is entitled to claim deduction 80IA, which was wrongly denied. We set aside the order of the ld. CIT (Appeals) and direct the Assessing Officer to allow deduction u/s 801A has claimed by the appellant. Ground No. 1 is allowed. Provision for maintenance for the project executed by the assessee - AO has held that this provision has been made on estimated basis and unascertained liability - assessee claimed that these are mandatory expenses and provision has been made on the basis of its past experience and on scientific basis, therefore, such provision is an allowable expenditure - CIT(A) deleted the addition holding that the assessee has been claiming that provision for maintenance has been made taking into account contractual provision, operating turnover of the year, type of project period of maintenance and other relevant factors - HELD THAT - At the time of completion of the contract, liability arises in the hands of the assessee company to provide free maintenance to the various contractees for the period specified in the agreement. This liability arises at the time of the completion of the project itself and obviously the expenditure required can only be estimated on the basis of past experience, nature of the contract, type of the project and turnover of the assessee in that particular year. The ld. CIT(A) held that the assessee claimed that estimate has been made on best estimated basis based upon the experience in the construction industry and therefore, the objection of the Assessing Officer that the liability has not arisen during the year as it has been quantified on estimated basis is not correct. Fact not disputed by the AO in the assessment order that all along the provision for maintenance of expenses have been allowed to the assessee company except the disallowances made in A.Y. 1985-86 and 1995-96. We find that the same matter of provision for maintenance stands adjudicated by the Co-ordinate Bench of the Tribunal. The assessee has been providing for expenses to be incurred on demobilization, maintenance and other expenses since by inception of the Company. The same has been allowed by the Department all along except in the Assessment Years 1985-86, 1995-96 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06. In these years, the A.O. disallowed the aforesaid provisions. Further, in appeal before the Ld. CIT(A), in the assessment year 1985-86, 1995-96 and 2001-02 and 2002-03, these were allowed on the basis of the aforesaid judicial analysis - we decline to interfere with the order of the ld. CIT(A) on this issue. MAT computation u/s 115JB - Income from foreign Contracts (Malaysia and Sri Lanka) u/s 115JB - HELD THAT - Exclude the income which is subject matter of dispute under this ground of the appeal from the ambit of the computation of book profit under section 115JB of the Act. The ground of the appeal is according allowed. Advances Written off - disallowance made by the AO on account of advance written off - no details regarding advances written off has been filed by the assessee before the AO - HELD THAT - CIT(A) held that the expenditure was already allowed in the year in which the material was purchased and the same cannot be allowed twice when the same has been returned by the sub-contractor - On going through the facts, we decline to interfere with the ratio of the ld. CIT(A). The appeal of the assessee on this ground is dismissed. CSR Expenses - AO treated as non-allowable business expenditure - HELD THAT - The issue of deduction of CSR expenses read with Explanation 2 to Section 37(1) w.e.f. 1st April 2015 has been examined by the Co-ordinate bench of this Tribunal in the case of ACIT vs. Jindal Power Ltd. 2016 (7) TMI 203 - ITAT RAIPUR we hereby direct the AO to delete the disallowance. Disallowance u/s 14A r.w. Rule 8D(iii) - HELD THAT - As argued before ld. CIT(A) that the case of assessee is covered with the decision in the case of M/s ACB India Vs. ACIT 2015 (4) TMI 224 - DELHI HIGH COURT where held that the disallowance u/s 14A cannot be more than 0.5% on the average of the investments made on which the assessee received the dividend income. CIT(A) held that in the present case, the assessee has submitted the details of the dividend received and also worked out the disallowance following the decision of the Hon'ble Delhi High Court, which works out to Rs. 137.105 Lacs. CIT(A) following the judgment of the Hon'ble Delhi High Court restricted the amount to Rs. 137.105 lacs and determined at Rs. 134.585 lacs owing to the disallowance of Rs.2.52 lakhs made by the assessee. Placing reliance on the judgment of the Hon ble jurisdictional High Court, keeping in view, the average investments, the disallowance of Rs. 134.585 lacs ( Rs. 137.105 Rs.2.5 lacs) made by the Revenue u/r 8D(2)(iii) by considering 0.5% of the average investment of Rs.271.21 Cr. is hereby sustained.
Issues Involved:
1. Taxability of foreign income in India. 2. Disallowance of Corporate Social Responsibility (CSR) expenses. 3. Disallowance under Section 14A read with Rule 8D. 4. Disallowance of advances written off. 5. Deduction under Section 80IA. 6. Disallowance of provision for maintenance. 7. Exclusion of foreign income from book profit under Section 115JB. Issue-wise Detailed Analysis: 1. Taxability of Foreign Income in India: The assessee contested the taxability of foreign income amounting to Rs. 812,37,75,113/- in India, arguing that the income was not taxable in India as per the Double Taxation Avoidance Agreement (DTAA). The Tribunal, referencing earlier decisions, ruled in favor of the assessee, stating that income from foreign contracts should be excluded from the computation of book profit under Section 115JB of the Income Tax Act, 1961, as it is not taxable under DTAA provisions. 2. Disallowance of Corporate Social Responsibility (CSR) Expenses: The assessee incurred Rs. 8.49 Crores on CSR activities, which the Assessing Officer (AO) disallowed, arguing that these expenses were not incurred wholly and exclusively for business purposes. The Tribunal upheld this disallowance, referencing Explanation 2 to Section 37(1), which explicitly states that CSR expenses are not deductible as business expenditures. The Tribunal cited the case of ACIT vs. Jindal Power Ltd., emphasizing that the amendment to Section 37(1) is prospective and does not apply retrospectively. 3. Disallowance under Section 14A read with Rule 8D: The AO disallowed Rs. 134.585 lacs under Section 14A read with Rule 8D, related to expenses incurred for earning exempt income. The assessee argued that no interest was paid on investments, and a self-disallowance of Rs. 2.52 lakhs was already made. The Tribunal, following the Delhi High Court's decision in M/s ACB India Vs. ACIT, upheld the disallowance calculated at 0.5% of the average investment, amounting to Rs. 134.585 lacs. 4. Disallowance of Advances Written Off: The AO disallowed Rs. 8,26,887/- on account of advances written off, citing a lack of details. The CIT(A) upheld this disallowance, noting that the expenditure was already allowed in the year the material was purchased. The Tribunal agreed with the CIT(A) and dismissed the assessee's appeal on this ground. 5. Deduction under Section 80IA: The assessee claimed a deduction under Section 80IA for various infrastructure projects. The AO disallowed this, categorizing the projects as "work contracts" rather than development projects. The Tribunal, referencing earlier decisions, ruled in favor of the assessee, stating that the assessee was indeed developing infrastructure facilities and was thus eligible for the deduction under Section 80IA. 6. Disallowance of Provision for Maintenance: The AO disallowed Rs. 105,96,46,297/- provisioned for maintenance, considering it an unascertained liability. The CIT(A) and the Tribunal found that the provision was based on scientific estimates and past experience, and was a mandatory contractual obligation. The Tribunal upheld the CIT(A)'s decision to allow the provision for maintenance expenses. 7. Exclusion of Foreign Income from Book Profit under Section 115JB: The Revenue contested the exclusion of foreign income from the book profit calculation under Section 115JB. The Tribunal, following earlier decisions, ruled in favor of the assessee, stating that income not taxable under DTAA should not be included in the book profit under Section 115JB. Conclusion: The Tribunal's judgment addressed multiple issues, consistently referencing earlier decisions and legal precedents. The key outcomes include the exclusion of foreign income from book profit calculations, upholding the disallowance of CSR expenses, and allowing deductions under Section 80IA. The Tribunal's adherence to legal precedents ensures consistency and clarity in its rulings.
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