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2020 (8) TMI 18 - AT - Income TaxDisallowance of deduction claimed u/s 80-IA(4) - conditions specified under the relevant section have not been complied with - HELD THAT - In the event where the assessee fails to provide the copies of the agreements, the AO was empowered under the provisions of section 131/133(6) of the Act to call for the requisite information from the authorities which awarded the contract to the assessee. But we find that the AO has not done so despite having all the necessary details of such undertakings /local authorities of the government of Gujarat. Requirement of having the valid agreement with the Government was also there in the provisions of the Act before the amendment in the year 2002 by the Finance Act 2001. Assessee on the basis of these tender documents was claiming deduction in the earlier assessment years which was allowed by the Revenue.AO in the under consideration cannot change his stand. Therefore, the deduction claimed by the assessee under section 80-IA of the Act cannot be denied to the assessee merely on the reasoning that there was no valid agreement furnished by the assessee in the present situations as there were other materials available before the AO. Infrastructure facilities started prior to 1 April 1995 were not eligible for such deduction. Thus the sub clause (c) provides the jurisdiction to the assessee for claiming the deduction only with respect to the projects which started or starts operating on or after 1 April 1995. In holding so we draw support and guidance from the order of Hon ble Mumbai ITAT in case of ACIT vs. Bharat Udyog Ltd 2008 (6) TMI 225 - ITAT BOMBAY-F Interpretation that the deduction shall be allowed only with respect to the infrastructure facility upon the commencement of operation and maintenance, does not hold good, particularly in a situation where the assessee is engaged only in the development of infrastructure facility. Assessee has not filed the form 10CCB separately with respect to each infrastructure project being considered as an undertaking as mandated under rule 18BBB of Income Tax Rules - assessee was under the obligation to treat each project as separate and distinct undertaking for the purpose of claiming the deduction under section 80 IA (4) of the Act. However, we find important to mention/highlight the fact in the present facts and circumstances that what would be the impact on the deduction claimed by the assessee with respect to all the projects where the assessee furnished the reports combinedly and cumulatively. At the threshold, there is no ambiguity to the fact that all the development projects carried out by the assessee are the infrastructure projects/facilities as provided under the statute in explanation attached to section 80 IA (4) of the Act. There cannot be any dispute regarding the deduction claimed by the assessee under section 80-IA (4) of the Act based on combined and cumulative audit report for all the projects/infrastructure facilities in the present facts and circumstances. It is because there cannot be any dispute about the quantification of the amount for the deduction claimed by the assessee in the present facts of the case as all the projects are eligible projects and the assessee has furnished the audited profit loss account and form 10CCB combinedly along with the income details of each project eligible for deduction under section 80-IA. Assessee during the assessment proceedings has also contended that it has maintained separate books of accounts for each infrastructure projects. This contention was not rejected by the authorities below. Thus in the present facts and situation, we are of the view that the assessee should not be penalized merely for non-furnishing the separate report for each project. Whether the assessee is acting as a developer or a work contractor in the projects of road development? - the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the assessee in the tender documents as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Government and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose the Government retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk. Thus on perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor but a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. It may be concluded that even after the amendment by the Finance Act, 2007 and the Finance Act, 2009, the contractors performing the work in the nature of a developer-cum-contractor and assuming risks and responsibilities shall be eligible for deduction under section 80-IA in respect of the eligible infrastructural facilities. Hence the ground of appeal of the assessee is allowed. Addition of income other than the income of 80-IA projects on the ground that the books of accounts are not reliable - HELD THAT - In the case on hand undisputedly the books of accounts of the assessee have not been rejected. In such a situation, the onus is on the AO to point out the specific expenses which were not incurred in connection with the business and thereafter he can make the disallowance under the provisions of section 37 of the Act or any other provision of the Act as the case may be. As such there is no provision provided under the Act empowering the AO to make the disallowance on ad hoc basis despite the fact that the assessee consents for such disallowance during the assessment proceedings. In this connection a reference can be made to the CBDT instructions issued vide F. No. 286/98/2013-IT(Inv.II) dated 18th of December 2014 whereby the officers were discouraged to make any addition merely on the basis of the statement. Gross profit and the net profit declared by the assessee in the year under consideration was greater than the earlier years viz a viz the profit declared for non-eligible projects was accepted. Accordingly we are of the view that no addition in the given facts and circumstances is warranted in the hands of the assessee on ad-hoc basis - Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction under section 80-IA(4) of the Income-tax Act, 1961. 2. Confirmation of trading addition of ?70,00,000 due to unreliable books of accounts. 3. Deletion of addition made on account of disallowance of Labour Work Expenses of ?10,00,000. Issue 1: Disallowance of Deduction under Section 80-IA(4) The primary issue was whether the assessee was eligible for deduction under section 80-IA(4) of the Act. The AO disallowed the deduction of ?2,35,41,640 on the grounds that the assessee did not fulfill the conditions specified under section 80-IA(4). The AO observed that the assessee failed to produce valid agreements with the government authorities, did not operate the infrastructure facility, and did not maintain separate accounts for each project. The AO also considered the assessee as a mere work contractor rather than a developer. The assessee contended that it had entered into agreements with local authorities and had been claiming the deduction since AY 2004-05. The assessee argued that it was responsible for the entire project development, including financial and operational risks, and was not merely executing a part of the project. The CIT(A) upheld the AO's decision, relying on the Gujarat High Court's judgment which denied the deduction to entities engaged in works contracts. Upon appeal, the Tribunal noted that the assessee had provided tender documents, letters of intent, and work orders, which were equivalent to agreements. The Tribunal held that the tender documents coupled with letters of intent and work orders were legally enforceable and satisfied the requirement of an agreement under section 80-IA(4). The Tribunal also observed that the assessee had been allowed the deduction in earlier years based on similar documents. Furthermore, the Tribunal clarified that the deduction was available even if the assessee was only developing the infrastructure facility and not operating it. The Tribunal concluded that the assessee was acting as a developer, not a mere contractor, and thus eligible for the deduction under section 80-IA(4). Issue 2: Confirmation of Trading Addition of ?70,00,000 The AO made an ad hoc disallowance of ?70,00,000 due to defects in the books of accounts, including the inability to produce site-wise trading accounts, quantitative details, and reliance on self-made vouchers. The assessee argued that its gross and net profit margins were better than previous years, and there was no basis for the ad hoc disallowance. The Tribunal noted that the AO had not rejected the books of accounts and had not pointed out specific expenses that were not incurred for business purposes. The Tribunal emphasized that disallowance could not be made on an ad hoc basis without specific evidence. The Tribunal referred to CBDT instructions discouraging additions based on statements without credible evidence. Consequently, the Tribunal held that the ad hoc disallowance was unwarranted and allowed the assessee's appeal. Issue 3: Deletion of Addition on Account of Disallowance of Labour Work Expenses of ?10,00,000 The Revenue appealed against the CIT(A)'s decision to delete the addition of ?10,00,000 made by the AO on account of disallowance of Labour Work Expenses. The Tribunal, following its reasoning in the previous issues, upheld the CIT(A)'s decision and dismissed the Revenue's appeal. Conclusion: The Tribunal allowed the appeals of the assessee for AY 2005-06 and 2010-11, granting the deduction under section 80-IA(4) and deleting the ad hoc disallowance of ?70,00,000. The Tribunal dismissed the Revenue's appeal for AY 2009-10, upholding the deletion of the addition on account of Labour Work Expenses.
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