2020 (7) TMI 170 - AT - Income Tax

Deduction u/s 80IA(4) on miscellaneous receipts - HELD THAT - Miscellaneous receipts can be sub-grouped into three lots i.e. (i) the receipts covered by the earlier Tribunal s order; (ii) the receipts, assessee never claimed deduction; and, (iii) the business connected receipts or otherwise. So far as sub-group one is concerned, we find the receipts is covered by the order of the Tribunal in the assessee s own case for the assessment year 2008-09 2012 (6) TMI 316 - ITAT, PUNE . Assessing Officer is directed to follow the said order of the Tribunal scrupulously. When it comes to the balance of receipts, we find in respect of few receipts, the assessee never claimed the deduction. The Assessing Officer is directed to consider the same. Finally, regarding the rest of the receipts, if any, Assessing Officer shall examine each of them carefully qua the business nature, nexus to the business activity of the assessee etc and allow the deduction if they are of business nature. The Assessing Officer, after giving reasonable opportunity to the assessee, shall decide the issue in accordance with the law. Accordingly, the ground no.1 is partly allowed for statistical purposes. Deduction us. 80IA(4) - income offered by the assessee during the search and seizure action u/s 132 - HELD THAT - We find the issue of granting of deduction u/s 80IA(4) of the Act in respect of the undisclosed business income of the assessee, is a covered issue by a series of judgements. A special reference is made here to the Co-ordinate Bench decision in the case of (i) M/s. Gajraj Constructions 2015 (10) TMI 1858 - ITAT PUNE and (ii) Naresh T. Wadhwani 2014 (11) TMI 689 - ITAT PUNE . In these cases, the Tribunal granted deduction u/s 80IA of the Act in respect of the undisclosed business income of the assessee. In our view, the issue is now covered one in favour of the assessee. Non-appropriation of seized cash toward the advance tax liabilities and consequent levy of interest u/s 234 - HELD THAT - We find the seized cash is available for adjustment towards advance tax liability which constitutes any existing liability as defined in effect prior to the amendment by the Finance Act, 2013. This interpretation is supported by the Co-ordinate Bench of the Tribunal in the case of Happy Home Developers 2017 (9) TMI 1884 - ITAT PUNE . - Decided in favour of assessee. Cash seized in search - Protective versus substantive addition - cash was added in the hands of Shri Shah is protective or substantive? - HELD THAT - Referring to facts that seized cash from the residence of Sri Shah, the evidences gathered during the search action, statements recorded by the search team, offer of the explanation of the assessee why the said cash is discovered at his residence, and the fact of offering the same as an additional income of company etc. Shri Shah does not have any other source leave alone the business income sources to earn such huge cash. Assessee company offered the said income as income of the company and the same is approved by the CIT(A) and also confirmed the same by us in the Tribunal. Therefore, met the consistency, we are of the considered opinion, the Assessing Officer s attempt to make this as protective addition appears logical and reasonable. Alternative addition made by the Assessing Officer on substantive basis is unsustainable for the reason that the addition becomes substantial if the assessee company makes any deduction u/s 80IA(4) of the Act. This is not the reasoning for making any assessment of any assessee s income. The total income of an assessee has to be determined first based on the parameters laid down in the Income Tax Act. If the deductions are allowable as is a case in the case of LCESPL as held by us, the same should be allowed in accordance with the provisions of the Act. Therefore, seized cash belongs to the company will not become income of the assessee merely for the reason the said company claimed the deduction u/s 80IA(4) of the Act. This reasoning given by the Assessing Officer is dismissed.

Summary

Issues Involved:
1. Deduction under Section 80-IA(4) of the Income Tax Act.
2. Classification of the assessee as "Developer" vs. "Contractor".
3. Claim of deduction on undisclosed income declared during a search.
4. Disallowance under Section 14A of the Income Tax Act.
5. Treatment of miscellaneous receipts.
6. Adjustment of seized cash towards tax liabilities.
7. Protective vs. substantive addition of seized cash.

Detailed Analysis:

1. Deduction under Section 80-IA(4) of the Income Tax Act:
The assessee, Laxmi Civil Engineering Services Pvt. Ltd. (LCESPL), claimed deductions under Section 80-IA(4) for the assessment years 2009-10 to 2011-12, including on undisclosed income declared during a search. The Assessing Officer (AO) denied these claims, arguing that the assessee was a contractor, not a developer, and that undisclosed income could not qualify for such deductions. However, the CIT(A) and the Tribunal relied on precedents, including the Jurisdictional High Court’s judgment in ABG Heavy Industries Ltd., to uphold the assessee's eligibility for these deductions, treating the contractor as a developer.

2. Classification of the Assessee as "Developer" vs. "Contractor":
The AO classified the assessee as a contractor, ineligible for Section 80-IA(4) deductions. The CIT(A) and Tribunal disagreed, citing previous Tribunal decisions and the Bombay High Court’s ruling in ABG Heavy Industries Ltd., which recognized contractors as developers for deduction purposes. The CIT(A) analyzed the explanation given by the Board in Circular No. 3/2008, which clarified the developer's role concerning infrastructure facilities.

3. Claim of Deduction on Undisclosed Income Declared During a Search:
The AO rejected the deduction claim on undisclosed income, arguing it was not business income and invoking Sections 37(1) and 69C of the Act. The CIT(A) and Tribunal found that the undisclosed income was business income, generated by inflating expenses, and thus eligible for deductions under Section 80-IA(4). The Tribunal cited various judgments, including the Bombay High Court’s decisions in Gem Plus Jewellery India Ltd. and Sheth Developers Pvt. Ltd., supporting deductions on enhanced business income.

4. Disallowance under Section 14A of the Income Tax Act:
The AO disallowed ?2,87,333 under Section 14A, which the CIT(A) upheld. The Tribunal reversed this, noting that the assessee earned no exempt income during the relevant year, making Section 14A inapplicable. The Tribunal relied on the Delhi High Court’s ruling in Cheminvest Ltd. v. CIT, which held that disallowance under Section 14A requires actual exempt income.

5. Treatment of Miscellaneous Receipts:
The AO denied deductions on miscellaneous receipts, treating them as non-business income. The CIT(A) and Tribunal analyzed each receipt type, determining eligibility for Section 80-IA(4) deductions. The Tribunal directed the AO to follow its previous order in the assessee’s case for similar receipts and to allow deductions for business-related receipts.

6. Adjustment of Seized Cash Towards Tax Liabilities:
The assessee requested the adjustment of seized cash against tax liabilities, which the AO denied, leading to interest charges under Section 234B. The Tribunal ruled in favor of the assessee, citing the Happy Home Developers case, which held that seized cash could be adjusted against existing liabilities, including advance tax, prior to the 2013 amendment.

7. Protective vs. Substantive Addition of Seized Cash:
The AO added ?2,51,44,400 found at the residence of Sri Vijaykumar Rajaram Shah (Managing Director of LCESPL) on both protective and substantive bases. The CIT(A) deleted this addition, accepting the explanation that the cash belonged to LCESPL, generated by inflating expenses. The Tribunal upheld the CIT(A)’s decision, noting that the cash was offered as LCESPL’s income and taxed accordingly, and that the AO’s reasoning for substantive addition was flawed.

Conclusion:
The Tribunal allowed the assessee’s claims for deductions under Section 80-IA(4) on both regular and undisclosed incomes, reversed the Section 14A disallowance, and directed the AO to appropriately treat miscellaneous receipts and adjust seized cash against tax liabilities. The Tribunal also upheld the CIT(A)’s deletion of the substantive addition of seized cash in the case of Sri Vijaykumar Rajaram Shah.