2019 (8) TMI 291 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - whether any disallowance can be made under section 14A of the Act read with Rule 8D of the Rules in the year when no income is earned, which is exempt from tax? - HELD THAT - We find that the issue now stands covered by latest decision of Hon'ble Supreme Court in CIT Vs. Chettinad Logistics (P.) Ltd. 2018 (7) TMI 567 - SC ORDER that in the absence of exempt income, no disallowance is to be made under section 14A of the Act. In view thereof, we find merit in the plea of assessee and we delete the disallowance made under section 14A of the Act read with Rule 8D of the Rules. The grounds of appeal raised by assessee are thus, allowed. Eligibility of claim of deduction under section 80IA(4) on Miscellaneous receipts - HELD THAT - Bank interest received - where the assessee had made the aforesaid bank deposits for tender deposits and security deposits and for guarantees were inextricably linked to the business of assessee and other deposits could not be said to be investment of surplus funds, but on the other hand, was a pre-condition for obtaining bank guarantee / security deposits for running day-to-day activities of business of infrastructure development and hence, were eligible for claim of deduction under section 80IA(4) of the Act. Sales Tax Refund - Under the scheme of Maharashtra VAT Act, VAT / sales tax is paid by assessee or deducted by the contractee from RA bills and the same is debited to Profit and Loss Account. However, excess amounts, if any, after calculating the net liability is credited to Profit and Loss Account; where sales tax / VAT has direct link to the business activity of infrastructure development, the receipts were eligible business receipts in the hands of assessee and entitled to the claim of 80IA(4) deduction. Accordingly, we hold so. VAT reimbursement - Authorized Representative for the assessee explained that as per contract agreement in respect of work of Jalochi and Khadkpurna, VAT liability was payable by the contractee over and above contract price. Such VAT paid was debited to Profit and Loss Account. However, the same was reimbursed by the Department as per contract agreement and as such VAT reimbursement was part of contract price irrespective of the fact that there was no impact on profits derived from business of assessee. Thus, we find merit in the claim of assessee that there is no merit in excluding the said receipts which were in fact reimbursement of amount deducted / paid, on which the assessee is entitled to claim 80IA(4) deduction. Other deduction from sub-contractors and material deduction - These were in the form of recoveries from the sub-contractors on account of material difference or other accounts i.e. diesel, transport charges, rent for machinery, etc. and were in the nature of reimbursement of expenditure, which was already debited to the books of account. Once the said recoveries are made from the sub-contractors, which were against expenditure claimed by assessee, were part of its carrying on of business activity, then the recoveries were to be treated as income from business of infrastructure development and there is no merit in taxing them separately. The assessee is entitled to the aforesaid deduction claimed under section 80IA(4) Other income - assessee claims that it represents Miscellaneous receipts from the Department for Bodhegaon maintenance bill. In view of the nature of receipts being relatable to the business activity carried on by the assessee, there is merit in the claim of assessee of deduction under section 80IA(4) of the Act and the same cannot be denied to the assessee on the aforesaid receipts. Accordingly, we hold so and direct the Assessing Officer to allow the claim of assessee except on the amounts of ₹ 1,60,121/- and ₹ 1,17,218/-. Thus, to that extent appeal of Revenue is allowed. The grounds of appeal raised by Revenue are thus, partly allowed.

Summary

Issues Involved:
1. Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.
2. Eligibility of claim of deduction under section 80IA(4) of the Income Tax Act on Miscellaneous receipts.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The primary issue raised by the assessee was the disallowance of ?2,47,716/- under section 14A read with Rule 8D. The assessee argued that the investment in shares was for business purposes and not for earning exempt income, and that no dividend income was received from the investment. The assessee cited the decision of the Hon'ble Supreme Court in CIT Vs. Chettinad Logistics (P.) Ltd., which held that no disallowance under section 14A is warranted if no exempt income is earned during the relevant assessment year. The Tribunal found merit in the assessee's plea and deleted the disallowance, allowing the grounds of appeal raised by the assessee.

2. Eligibility of Deduction under Section 80IA(4) on Miscellaneous Receipts:

The Revenue's appeal contested the eligibility of the assessee's claim for deduction under section 80IA(4) on Miscellaneous receipts totaling ?2,82,54,726/-. The assessee was engaged in infrastructure development and had claimed the deduction in its return. The Assessing Officer (AO) denied the deduction, treating the assessee as a contractor rather than a developer. The CIT(A), however, allowed the deduction based on the Hon'ble Bombay High Court's decision in ABG Heavy Industries Ltd. & Ors., which was later upheld by the Hon'ble Supreme Court.

The Tribunal examined each head of Miscellaneous receipts:

- Bank Interest (?78,85,014/-): The Tribunal held that the interest earned on bank deposits made for tender deposits and security deposits was inextricably linked to the business activity and was eligible for deduction under section 80IA(4).

- Sales Tax Refund (?14,50,489/-): The Tribunal allowed the deduction, stating that VAT/sales tax refunds were directly linked to the business activity of infrastructure development.

- VAT Reimbursement (?53,03,571/-): The Tribunal found merit in the assessee's claim that VAT reimbursements were part of the contract price and allowed the deduction.

- Other Deduction from Sub-Contractors (?1,20,04,233/-) and Material Deduction from Sub-Contractors (?10,15,398/-): These were considered reimbursements of expenses already debited and were treated as business income eligible for deduction.

- Other Income (?4,35,000/-): This was related to maintenance bills and was considered eligible for deduction.

The Tribunal denied the deduction on commission from sub-contractors (?1,61,021/-) and interest income (?1,17,218/-) as these were not pressed by the assessee.

Conclusion:
The appeal of the assessee was allowed, and the appeal of the Revenue was partly allowed. The Tribunal directed the AO to allow the deduction under section 80IA(4) on the eligible Miscellaneous receipts, except for the amounts of ?1,61,021/- and ?1,17,218/-.