2019 (12) TMI 138 - AT - Income Tax

Disallowance of deduction u/s 80IA - HELD THAT - The enterprises carrying on development of the infrastructure facilities should be owned by a company or consortium of companies. The infrastructure facilities need not be owned by a company. It was held that the word ownership is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA(4) and not any other person like new HUF Firm etc. Hence, we hold that the assessee fails to satisfy the applicability clause of the provision as envisaged under section 80IA(4)(i) of the Act . So far as catena of the judgments submitted assessee, we notice that they only pertain to section 80IA(4)(i)(b) i.e. regarding the issue of contractor viz-a-vis developer. Hence, we do not deem it appropriate to decide on the said issue since the assessee does not fulfill the condition enumerated in the first part of the statutory provision. Disallowance u/s 40A(3) - HELD THAT - The provisions of section 40A(3) of the Act restrict payment or aggregate of payment made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeding ₹.20,000/-. Moreover, in the case of N. Mohammed Ali v. ITO 2016 (1) TMI 941 - MADRAS HIGH COURT the Hon ble Jurisdictional High Court has held that where the assessee made cash payments in excess of ₹.20,000/- for purchase of crackers, in absence of even names of agencies or agents or retailers living in villages to whom the said payments were made on a day-to-day basis, the impugned disallowance made by the authorities below u/s 40A(3) should be confirmed. We confirm the disallowance of expenses made to New Bharat Electricals Enterprises, PSK Blue Metal and New Bharat Foundation. We direct the AO to allow the payment made to Raghvendra Blue Metal of ₹.10,000/-, which is less than the monetary limit stipulated under section 40A(3). Accordingly, the ground raised by the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance of deduction under section 80IA of the Income Tax Act, 1961.
2. Disallowance under section 40A(3) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IA:

The assessee, engaged in civil works contracts with the Chennai Corporation, claimed a deduction of ?1,84,58,220 under section 80IA of the Income Tax Act, 1961. The Assessing Officer disallowed this claim, observing that the assessee was a "works contractor" and not a "developer" as required under section 80IA(4). The agreements were classified as "contract agreements" rather than "development agreements." The CIT(A) upheld this disallowance, referencing the Tribunal's decision in the assessee's own case for previous assessment years 2009-10 and 2010-2011.

The Tribunal reviewed the matter and noted that the provisions of Section 80IA(4) apply to enterprises involved in developing, operating, and maintaining infrastructure facilities. The Tribunal emphasized that an enterprise must incur its own expenses for materials and labor to qualify for the deduction. The assessee, being a proprietorship, did not meet the criteria as the provision specifies that the enterprise should be a company, consortium, authority, or similar body established under Central or State law. The Tribunal cited the principle of "ejusdem generis" to interpret the statute, concluding that the assessee did not satisfy the conditions of section 80IA(4)(i).

The Tribunal also referred to the Hyderabad bench's decision in the case of M/s. Ramky Infrastructure Ltd vs. DCIT, which clarified that only companies are eligible for the deduction under section 80IA(4), not proprietorships. Consequently, the Tribunal dismissed the assessee's ground regarding the deduction under section 80IA.

2. Disallowance under Section 40A(3):

The assessee made cash payments exceeding ?20,000 on a single day to various parties, including M/s. New Bharat Electricals & Enterprises, PSK Blue Metal, and New Bharat Foundations. The Assessing Officer disallowed these payments under section 40A(3), which restricts cash payments above ?20,000. The CIT(A) confirmed the disallowance, noting that the assessee failed to provide evidence that these payments were made in areas without banking facilities, as required by Rule 6DD.

The Tribunal reviewed the case and found that the assessee did not furnish any evidence to support the claim that the payments were made in remote areas without banking facilities. The Tribunal cited the case of N. Mohammed Ali v. ITO, where the Hon'ble Jurisdictional High Court upheld disallowance under section 40A(3) in the absence of evidence for cash payments exceeding ?20,000.

However, the Tribunal directed the Assessing Officer to allow the payment of ?10,000 made to Raghvendra Blue Metal, as it was below the monetary limit stipulated under section 40A(3). Thus, the disallowance was partially upheld, and the assessee's ground was partly allowed.

Conclusion:

The appeal filed by the assessee was partly allowed. The Tribunal upheld the disallowance of the deduction under section 80IA and partially confirmed the disallowance under section 40A(3), allowing the payment to Raghvendra Blue Metal. The order was pronounced on 11th October 2019 at Chennai.