2018 (11) TMI 1968 - AT - Income Tax

Allowance of deduction claimed u/s 80IA - whether the assessee is to be treated as an infrastructure developer or simply a contractor? - HELD THAT - Respectfully following the decisions of the Co-ordinate Bench in the earlier assessment years viz. Asstt. Year 2005-06 to 2008-09 and applying the facts to these facts as well as the provisions of sec. 80IA sub-sec.(4) we are of view that assessee is not merely a contractor but a developer looking to the scope of activities undertaken by it for the completion of the project and, therefore, eligible for deduction u/s 80IA. We therefore, find no reason to interfere with the order of ld. CIT (A) and uphold the same. The appeal of Revenue is dismissed. Assessment of interest income as income from other sources and upheld exclusion of these amounts from eligible profit for grant of deduction u/s 80IA - Assessee fairly admitted that in earlier years, this issue was not agitated before the Tribunal. Considering the smallness of the amount involved in all these years, the issue was not pressed by the assessee, hence these grounds are rejected in all three years. Interest income on FDR has rightly been assessed as income from other sources and rightly been excluded from eligible profit from the amount of deduction u/s 80IA. Accordingly, this issue is decided against the assessee. Disallowance of employees contribution towards PF and ESI, which was deposited after expiry of time limit - Assessee did not dispute that the issue is covered against the assessee by the decision of Gujarat State Road Transport Corpn. 2014 (1) TMI 502 - GUJARAT HIGH COURT wherein Hon ble Court has held that if employee s contribution is not being deposited within time limit prescribed in provident fund and ESI Act then deduction of such amount will not be admissible to the assessee. Disallowance of additional depreciation - assessee has claimed additional depreciation on water treatment plant - claim of the assessee was disallowed by the AO on the ground that it is just engaged in development of infrastructure and not engaged in any manufacturing activity - assessee contended that this disallowance will increase the profit of the assessee and 80IA would be admissible to it, he did not advance much argument on the claim for additional depreciation - HELD THAT - We allow alternate claim of the assessee and direct the AO to include this amount for eligible profit for grant of deduction under section 80IA. This ground is partly allowed. Disallowance of claim of bad debts - assessee submitted that though security deposits for business was allowable as deduction under section 37, but even if it is disallowed, the AO be directed to consider this issue for deduction under section 80IA - HELD THAT - Since specific arguments were not raised qua main fold of contentions, therefore, considering alternative contentions of the assessee, we remit this issue to the file of the AO for examination. AO shall adjudicate this issue with the angle whether this amount can be construed as eligible for grant of deduction under section 80IA or not. If it has live nexus and be construed as derived from infrastructure activities of the assessee, then 80IA be granted to the assessee. Our above observations will not impair or injure the case of the AO and will not cause any prejudice to the defence/explanation of the assessee. The ld.AO shall decide it in accordance with law.

Summary

Issues Involved:

1. Eligibility of the assessee for deduction under Section 80IA of the Income Tax Act.
2. Classification of interest income as income from other sources.
3. Disallowance of employees' contribution towards PF and ESI.
4. Disallowance of additional depreciation.
5. Disallowance of claim of bad debts.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IA:

The primary issue was whether the assessee could be considered as a "developer" of infrastructure projects, thus eligible for deduction under Section 80IA. The Assessing Officer (AO) initially disallowed the deduction, classifying the assessee as a contractor rather than a developer. However, the CIT(A) and the Tribunal, referencing earlier decisions from assessment years 2005-06 to 2009-10, upheld the assessee's status as a developer. The Tribunal noted that the assessee undertook comprehensive responsibilities such as designing, constructing, commissioning, and maintaining infrastructure projects, which aligned with the role of a developer. The Tribunal emphasized that the nature of work, risk undertaken, and the scope of activities performed by the assessee were consistent with those of a developer rather than a mere contractor.

2. Classification of Interest Income:

The assessee contested the classification of interest income on fixed deposits as "income from other sources," which was excluded from eligible profits for deduction under Section 80IA. The Tribunal affirmed the CIT(A)'s decision, stating that interest income does not qualify as profit derived from infrastructure development activities and thus correctly classified as income from other sources.

3. Disallowance of Employees' Contribution towards PF and ESI:

The Tribunal addressed the disallowance of employees' contributions to the Provident Fund (PF) and Employees' State Insurance (ESI), which were deposited after the due date. The CIT(A) upheld this disallowance, citing the Gujarat High Court's decision in CIT Vs. Gujarat State Road Transport Corporation, which mandates timely deposit for deduction eligibility. The Tribunal agreed with the CIT(A), noting that delayed deposits disqualify the amounts from being deductible.

4. Disallowance of Additional Depreciation:

The assessee claimed additional depreciation on a water treatment plant, which the AO disallowed, arguing that the assessee was not engaged in manufacturing. The CIT(A) confirmed this disallowance. However, the Tribunal considered the assessee's alternative claim that the disallowance would increase profits eligible for deduction under Section 80IA. The Tribunal directed the AO to include the disallowed depreciation amount in the eligible profit for the deduction.

5. Disallowance of Claim of Bad Debts:

In the assessment year 2012-13, the assessee's claim of bad debts was disallowed. The Tribunal remitted this issue to the AO for examination, directing that if the bad debts have a direct nexus with infrastructure activities, they should be considered for deduction under Section 80IA. The Tribunal instructed the AO to evaluate this claim in accordance with the law, ensuring no prejudice to either party.

Conclusion:

The appeals by the Revenue were dismissed, affirming the CIT(A)'s decisions in favor of the assessee regarding the deduction under Section 80IA. The cross-objections by the assessee were partly allowed for the assessment years 2011-12 and 2012-13, with specific directions for the AO to reassess certain claims.