2019 (6) TMI 1166 - HC - Income Tax

Deduction u/s 80IA - whether assessee is contractor or developer ? - HELD THAT - Appeals admitted for consideration of following substantial question of law - Whether the respondent - assessee fulfills the requirement stipulated in Section 80-IA(4) of the Income Tax Act, 1961 once the conclusion reached is that it is contractor and not developer as stated in the sub-section? Proportionate disallowance of interest on diversion and advance of funds for non-business purposes and investment in non-business activities - whether all the funds are in common hotchpotch and it cannot be distinguished / proved whether such advances are out of own funds or out of interest bearing borrowed funds? - HELD THAT - Before the CIT(A) assessee supplied a statement showing the amount paid, bills adjusted and the balance payable in respect of sub-contractors for whom the job workers were doing the work. CIT(A) accepted such explanation and deleted disallowance. Revenue carried the matter in appeal. Tribunal dismissed the Revenue's appeal inter alia accepting CIT(A)'s observation that the assessee had his own sufficient interest free funds which were much higher than the advances made by the assessee. Thus, no interest bearing funds were utilized by the assessee for such purpose. Essentially, this is a question of facts concurrently held by the CIT(A) as well as Tribunal in favour of the assessee. No question of law arises in this respect.

Summary

Issues involved:
1. Interpretation of Section 80-IA(4) of the Income Tax Act, 1961 regarding contractor vs. developer status of the assessee.
2. Disallowance of interest expenditure on diversion and advance of funds for non-business purposes.

Analysis:
1. The primary issue in this judgment revolves around the interpretation of Section 80-IA(4) of the Income Tax Act, 1961, specifically focusing on whether the respondent- assessee fulfills the stipulated requirement once it is categorized as a contractor rather than a developer. The Assessing Officer had disallowed the deduction of interest expenditure, alleging that the assessee diverted interest-bearing funds for non-business purposes. However, the CIT(A) accepted the assessee's explanation, highlighting that the assessee had sufficient interest-free funds higher than the advances made, indicating no utilization of interest-bearing funds for the alleged purpose. The Tribunal upheld this decision, emphasizing the factual position that no interest-bearing funds were utilized by the assessee for non-business purposes. The court concluded that no question of law arises in this regard, as the findings were concurrent and in favor of the assessee.

2. The secondary issue addressed in the judgment pertains to the disallowance of interest expenditure on diversion and advance of funds for non-business purposes. The Assessing Officer contended that the assessee had diverted funds meant for interest-bearing purposes, leading to disallowance. However, the CIT(A) and the Tribunal disagreed, holding that the assessee had ample interest-free funds exceeding the advances made, thereby negating the use of interest-bearing funds for non-business activities. The Revenue, citing judgments from other High Courts and the Supreme Court, attempted to challenge the decision. The court, after considering the arguments, confined the admission of the appeal to the sole question framed earlier, emphasizing the need for a focused consideration of the specific issue at hand. The court directed the Registry to inform the Tribunal to keep all relevant papers and proceedings available for future reference, ensuring a streamlined process for the ongoing appeal.

In conclusion, the judgment delves into the intricate details of the interpretation of statutory provisions and the factual assessment of financial transactions to determine the tax implications for the assessee. The court's meticulous analysis and adherence to established legal principles highlight the importance of factual findings in tax matters, ultimately underscoring the significance of a thorough understanding of the law and diligent application of legal precedents in resolving complex tax disputes.