2024 (9) TMI 1662 - AT - Income Tax

Deduction u/s 80IA(4) - profits derived from the projects awarded to JV / Consortium - HELD THAT - Exemption provisions should be interpreted liberally in order to achieve the objectives of the legislature and going by the above ratio, in our considered view, there is no dispute with regard to the fact in the present case, the appellant is engaged in the business of developing infrastructure project like irrigation project, water supply system, hydropower plants and roads and railway lines and the statute provides for specific exemption under section 80IA(4) of the Act in respect of infrastructure projects, in our considered view, going by the liberal interpretation of the statute, the assessee must be given the benefit of deduction, having been satisfied all the conditions, including the condition of entering into an agreement with the State Government or Central Government or with any local authority, as a constituent partner of the JV/Consortium, more particularly, except entering into agreement, all other activities were carried out by the assessee We are of the considered view that the assessee is eligible for deduction under Section 80IA(4) of the Act towards profits derived from infrastructure project awarded to JV / Consortium, but executed by the appellant. The ld.CIT(A) after considering relevant facts, has rightly allowed the deduction under Section 80IA(4) of the Act. Thus, we are inclined to uphold the findings of ld.CIT(A) and reject the grounds taken by the Revenue. Disallowance of expenditure related to exempt income u/s 14A read with Rule 8D - CIT(A) to restrict disallowance under Section 14A read with Rule 8D to the extent of exempt income - HELD THAT - As relying on Joint Investment Pvt. Ltd 2015 (3) TMI 155 - DELHI HIGH COURT and Chettinadu Logistics (P) Ltd. 2018 (7) TMI 567 - SC ORDER disallowance contemplated under Section 14A read with Rule 8D shall not exceed exempt income. Therefore, we are of the considered view that there is no error in the reasons given by the ld.CIT(A) or to restrict the disallowance to exempt income and thus, we are inclined to uphold the findings of ld.CIT(A) and reject the grounds taken by the Revenue. Disallowance u/s 36(1)(va), in respect of belated payment of employee contribution to Provident Fund - HELD THAT - We find that the Hon ble Supreme Court in the case of Checkmate Services P. Ltd 2022 (10) TMI 617 - SUPREME COURT has considered the issue and held that in case of belated payment of employee contribution to PF and ESI, beyond the due date specified under the respective Act, cannot be allowed as deduction under Section 36(1)(va) read with Section 2(24)(x) and this fact has been accepted by assessee. We find that in case as claimed by the Ld.A.R. for the assessee, the assessee made payment on or before the grace period as provided in the respective statute, then the Assessing Officer may verify the claim of the assessee in light of relevant dates and in case, the AO find that the assessee has paid the amount within grace period, then disallowance should be deleted. Insofar as two payments, the assessee himself admitted that the above two payments are paid beyond the due date and thus, we reverse the findings of the ld.CIT(A) insofar as two items are concerned and addition made by the AO is upheld.

Summary

Issues Involved:

1. Eligibility for deduction under Section 80IA(4) of the Income Tax Act for projects executed by a constituent of a Joint Venture (JV) or Consortium.
2. Disallowance of expenditure related to exempt income under Section 14A read with Rule 8D.
3. Disallowance under Section 36(1)(va) for belated payment of employee contributions to Provident Fund.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IA(4):

The primary issue was whether the assessee, a constituent of a JV or Consortium, is eligible for deduction under Section 80IA(4) of the Income Tax Act. The Revenue contended that the deduction should be disallowed because the JV or Consortium, not the assessee, entered into agreements with the government. The assessee argued that the JV was a pass-through entity and that all activities, including design, development, and financial risk, were undertaken by the assessee. The CIT(A) allowed the deduction, relying on the decision of ITAT Visakhapatnam in M/s. Transstory (India) Ltd. Vs. ITO, which held that constituents of JVs are eligible for such deductions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee satisfied all conditions under Section 80IA(4), including entering into agreements as a constituent of the JV, and thus was entitled to the deduction.

2. Disallowance of Expenditure under Section 14A:

The Revenue challenged the CIT(A)'s decision to restrict the disallowance under Section 14A to the extent of exempt income earned by the assessee. The assessee had earned a small amount of dividend income, while the AO had disallowed a much larger amount. The Tribunal upheld the CIT(A)'s decision, referencing judicial precedents that support limiting disallowance to the amount of exempt income, including the decisions of the Delhi High Court in Joint Investment Pvt. Ltd. Vs. CIT and the Supreme Court in CIT Vs. Chettinadu Logistics (P) Ltd.

3. Disallowance under Section 36(1)(va):

The Revenue appealed against the CIT(A)'s decision to delete the disallowance for belated payment of employee contributions to the Provident Fund. The Tribunal considered the Supreme Court's decision in Checkmate Service P. Ltd. Vs. CIT, which held that late payments beyond the due date specified in the statute are not deductible. The Tribunal directed the AO to verify if any payments were made within the grace period allowed by the statute and to allow deductions accordingly. The Tribunal upheld the disallowance for payments made beyond the grace period, reversing the CIT(A)'s decision for those specific items.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on the first two issues, affirming the eligibility for deduction under Section 80IA(4) and the restriction of disallowance under Section 14A. However, it partially reversed the CIT(A)'s decision on the disallowance under Section 36(1)(va), allowing deductions only for payments made within the statutory grace period.