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2022 (5) TMI 773 - AT - Income TaxDeduction u/s 80IA - work contract v/s development contract - Claim rejected on the ground that the assessee is not a developer, but a contractor since the assessee has merely executed the contract for the various sites awarded by various entities - whether a civil construction work is assigned on development basis or contract basis only the terms and conditions of the agreement needs to be considered? - HELD THAT - On perusal of various clauses of Tender documents and case laws relied upon by both the parties, it reveals that the tender work under consideration are not for a specific work, rather they are for development facility as a whole. The responsibility is fully assigned to the developer for execution and completion of the work. Various stipulations contained in the Tender documents demonstrate various risks undertaken by the assessee for execution of the project work awarded by the competent authority in terms of financial resources, manpower deployment, both technical and administrative expertise, drawing and designing of the project specifications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because if some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will deprive the assessee from claiming deduction u/s.80IA(4) of the Act. As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under section 80IA(4) of the Act. Thus, the issue of claim of deduction under section 80IA(4) of the Act is allowed in favour of the assessee . Denial of claim of deduction u/s 80IA of the Act on interest and other income - HELD THAT - We find that before the lower authorities the assessee has explained regarding interest income earned by it from the fixed deposits, security deposits, margin-money and from the bond, with the banks and other institutions, as per the terms and conditions of the contract agreement with the Government authorities. Furnishing of fixed deposits for bank guarantees, security deposits etc. are the pre-condition for awarding the project work by the competent authority, and therefore, these are necessity of regular course of business and has direct nexus with the activities. Jurisdictional High Court in the case of Empire Pumps P. Ltd (supra) held that interest income having direct nexus with its business, was to be considered as income derived from business. Thus, deduction under section 80I of the Act was allowed on such income. Yet in another decision by jurisdictional High Court in the case of CIT Vs. Shah Alloys Ltd. 2016 (8) TMI 1191 - GUJARAT HIGH COURT has held that interest received on margin money placed for business purpose cannot be treated as income from other sources and is, therefore, eligible for deduction under section 80IA of the Act. Further, various higher judicial authorities have held that profits of the business of the undertaking include other incidental incomes derived from the business of the undertaking. This being the position of law, we have no hesitation in accepting the claim of the assessee that the income earned from the deposits is business income is eligible for deduction under section 80IA - Decided in favour of assessee. Setting off loss of four infrastructure facilities from the profits of other infrastructure facilities despite having legal provisions that deduction should be allowed on standalone basis - HELD THAT - As relying on Nirma Ltd 2016 (7) TMI 331 - GUJARAT HIGH COURT as decided that in terms of provisions of sub Section 5 of Section 80 IA, deduction has to be given unit wise without considering profit or loss of other eligible units. In that view of the matter respectfully relying upon the same we allow this ground of appeal preferred by the assessee with the direction upon the AO to grant relief to the assessee only on the profitmaking unit without setting off loss suffered by other eligible units. Thus, this ground of appeal preferred by the assessee is allowed. Disallowance of interest under section 36(1)(iii) - HELD THAT - Revenue has not established any nexus between the interest bearing funds and free advances so allegedly made by the assessee nor it has been proved that the assessee has diverted the funds for non-business purpose so as to deny interest expenditure. The impugned disallowance is merely on some assumption that it is diversion of interest bearing funds without any basis or justification. The Hon ble Apex Court in the case of CIT v. Reliance Industries Ltd., 2019 (1) TMI 757 - SUPREME COURT held that where interest free funds available with the assessee were sufficient to meet its investment and it could be presumed that the investments were made from the interest free funds available with assessee, therefore, there is no reason to deny the claim of the assessee. Hence, we delete the impugned disallowance of interest expenditure and this ground of appeal of the assessee is, thus, allowed. Disallowing the assessee s claim of bad debts - HELD THAT - Upon consideration of the same the loss is found to be incurred during the course of conducting business by the assessee and therefore, the same can be allowed as business/trading loss under section 28 of the Act. With this observation we allow this ground of appeal raised by the assessee in both the appeals with the direction upon the Ld. AO to grant relief accordingly. Deduction under section 80 GGB denied by the revenue which has been contributed by the assessee to one political party by account payee cheque during A.Y. 2008-09 - HELD THAT - The same was claimed as deduction under chapter VI-A at hundred percent under section 80 GGB in the return filed by the assessee appearing at page 1 of the paper book filed before us and the returned income was shown at Rs.54, 24,610. However the Ld AO on page 16 of his order has started the computation of income by taking the figure at Rs.64,24,614/- and disallowed the above claim. During the assessment by and under the reply dated 16.07.2010 the assessee had drawn the attention of the Ld AO to the annexed donation receipt. The same is further filed before us. In view of the provision of law under section 80 GGB we, therefore, allow this deduction of Rs.10,00,000 as claimed by the assessee. This ground of appeal preferred by the assessee is, therefore, allowed. Disallowance of employees contribution made under section 36(i)(va) - HELD THAT - It appears from the records that that the Ld.AO has disallowed the impugned amount and added to the total income of the assessee as per provisions of section 2(24)(x) r.w.s. 36(1)(vi) of the Act in view of the judgement passed by the Hon ble Jurisdictional High Court in the case of CIT vs. GSRTC, 2014 (1) TMI 502 - GUJARAT HIGH COURT whereby and whereunder the ratio as laid down to this effect that when the employer has not credited the sum received by it as employees contribution to the employees account in relevant fund on or before due date as prescribed in the explanation to Section 36(1)(va), the assessee shall not be entitled to deduction of such amount though he deposits the said sum before filing of Return. We would like to mention that with all his fairness the Ld. Counsel appearing for the assessee conceded before us that the judgement goes against the claim of the assessee. In that view of the matter we dismiss this ground of appeal preferred by the assessee. Penalty u/s 271(1)(c) - disallowance of claim of deduction under Section 80IA (4) - HELD THAT - Since we have already decided the quantum appeals preferred by the assessee granting relief of the claim of deduction under 80IA(4) of the Act, the penalty arising out of the said quantum proceeding automatically become infructuous. CIT-A has deleted the penalty on the ground that the assesses s claim is a bona fide one, all the particulars were fully disclosed in the return itself, supported by audit reports under Section 80 IA(7) in Form No. 10 CCB and none of the particulars or figures are found to be untrue or wrong. The disallowance is made only due to a bona fide difference of opinion between the assessee and the Department as to whether the assessee is a developer or contractor . It further appears that relying on the decision passed in the matter of Reliance Petro Products Pvt. Ltd., 2010 (3) TMI 80 - SUPREME COURT the penalty was deleted by the Ld. CIT(A) which according to us is without any ambiguity so as to warrant interference. We, thus, find all the appeals preferred by the revenue as above as devoid of any merit and therefore, dismissed.
Issues Involved:
1. Deduction under Section 80IA(4) of the Income Tax Act, 1961. 2. Deletion of penalty imposed under Section 271(1)(c) of the Act. 3. Disallowance of interest income and other income as not eligible for deduction under Section 80IA(4). 4. Setting off loss of eligible sites against profits of eligible sites for computing deduction under Section 80IA(4). 5. Disallowance of interest under Section 36(1)(iii) of the Act. 6. Other residuary grounds. Issue-wise Detailed Analysis: 1. Deduction under Section 80IA(4): The main issue was whether the assessee qualified as a 'developer' or a 'contractor' for claiming deduction under Section 80IA(4). The Tribunal found that the assessee undertook significant responsibilities, including arranging finances, purchasing machinery, and employing skilled personnel, which qualified it as a 'developer'. The Tribunal relied on several judicial precedents, including the jurisdictional High Court’s decision in Radhe Developers, which emphasized that the developer undertakes full risk and responsibility for the project. The Tribunal concluded that the assessee was entitled to the deduction under Section 80IA(4). 2. Deletion of Penalty under Section 271(1)(c): The Tribunal noted that since the quantum appeals were decided in favor of the assessee, the penalty under Section 271(1)(c) became infructuous. The Tribunal upheld the CIT(A)’s decision to delete the penalty, emphasizing that the assessee’s claim was bona fide and supported by audit reports, and there was no concealment of income or furnishing of inaccurate particulars. 3. Disallowance of Interest Income and Other Income: The AO disallowed interest income and other income, arguing they were not derived from industrial activities. The Tribunal, however, noted that the interest income was earned on fixed deposits made for obtaining bank guarantees and security deposits, which were necessary for the business. Citing jurisdictional High Court decisions, the Tribunal held that such interest income had a direct nexus with the business and was eligible for deduction under Section 80IA. 4. Setting Off Loss of Eligible Sites: The AO set off losses from some sites against profits from others, reducing the deduction under Section 80IA. The Tribunal, citing the jurisdictional High Court’s decision in Nirma Ltd., held that the deduction should be computed on a standalone basis for each unit without setting off losses from other units. The Tribunal directed the AO to grant relief on this basis. 5. Disallowance of Interest under Section 36(1)(iii): The AO disallowed interest on the grounds that interest-bearing funds were diverted for non-business purposes. The Tribunal found that the assessee had sufficient reserves and surplus funds and that the Revenue had not established any nexus between interest-bearing funds and interest-free advances. The Tribunal deleted the disallowance, relying on the Supreme Court’s decision in Reliance Industries Ltd. 6. Other Residuary Grounds: - Bad Debts: The AO disallowed bad debts, considering them as loans and advances. The Tribunal, relying on the jurisdictional High Court’s decision in Abdul Razak & Co., allowed the claim, noting that the advances were made in the course of business and written off as trading loss. - Deduction under Section 80GGB: The Tribunal allowed the deduction for contributions to a political party, noting that the donation was made by account payee cheque and was eligible under Chapter VI-A. - Disallowance of Employees’ Contribution: The Tribunal upheld the disallowance of employees’ contribution to PF/ESI, following the jurisdictional High Court’s decision in GSRTC, which mandated that contributions must be credited by the due date. Summary of Decisions: - Assessee’s appeals were mostly allowed, with some partly allowed and others dismissed as not pressed. - Revenue’s appeals were dismissed. - Penalty appeals were dismissed as infructuous following the favorable decision on quantum appeals.
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