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2025 (2) TMI 285 - AT - Income TaxDenial of deduction claimed u/s 80IA - treating the assessee as a contractor - HELD THAT - The assessee was only awarded the contract for design and construction of tunnel as specified in the tender document and the job of the assessee was over when the construction of tunnel was done as per the design approved. Assessee also does not fulfil the condition that the agreement has to be with Central Government/ State Government / Local Authority/Statutory Authority as LMRCL does not fit in any of them. It can be seen from the record that LMRCL was incorporated on 25/11/2013 under the Companies Act 1956 as a special purpose vehicle between the Central and State Government with equity share of 50 50 therefore in our understanding of the law it cannot be regarded as Central Government or State Government nor does it fall under the definition of local authority statutory authority. It is trite law that for claiming deduction u/s 80IA(4) of the Act all conditions have to be fulfilled cumulatively. No merit in the claim of deduction u/s 80IA and the lower authorities have not faulted anywhere by denying the same. Ground raised by the assessee dismissed. Disallowance of legal and professional fees (fees for technical services) paid to Gulemark TPL JV - sole reason for the disallowance is that Gulemark TPL JV has not rendered the services therefore the claim was disallowed u/s 37 of the Act - HELD THAT - The fees for technical services as claimed by the assessee has been incurred for the purpose of business and therefore eligible for deduction under section 37 of the Act. Moreover the AO has never treated the said claim as capital expenditure and has accepted the same as revenue expenditure therefore we do not find any reason to interfere with the findings of the ld. CIT(A). Accordingly appeals of the revenue are dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are: 1. Whether the assessee is entitled to claim a deduction under Section 80IA of the Income Tax Act for the assessment years 2017-18 and 2018-19. 2. Whether the disallowance of legal and professional fees paid to Gulemark TPL JV by the Assessing Officer (AO) was justified under Section 37 of the Income Tax Act. ISSUE-WISE DETAILED ANALYSIS 1. Deduction under Section 80IA of the Income Tax Act Relevant legal framework and precedents: Section 80IA of the Income Tax Act provides deductions for enterprises engaged in developing, operating, and maintaining infrastructure facilities. The eligibility criteria include having an agreement with the Central or State Government, a local authority, or a statutory authority. Court's interpretation and reasoning: The Tribunal examined whether the assessee's contract with Lucknow Metro Rail Corporation Ltd. (LMRCL) qualifies under Section 80IA. LMRCL is a corporate body with major shareholders being the Central and State Governments, but it does not fit the statutory categories required for deduction under Section 80IA. Key evidence and findings: The Tribunal found that the assessee was merely a contractor for the construction of the metro rail project and did not engage in developing, operating, and maintaining the infrastructure facility. The project was conceived and funded by LMRCL, and the assessee's role was limited to execution. Application of law to facts: The Tribunal concluded that the assessee does not meet the conditions for deduction under Section 80IA as it was not involved in the development, operation, and maintenance of the infrastructure facility. The Tribunal distinguished this case from precedents like Ranjit Projects Private Limited and ABG Heavy Industries Ltd., where the entities were involved in operational aspects. Treatment of competing arguments: The assessee argued that LMRCL should be considered a statutory authority, but the Tribunal disagreed, noting the lack of statutory status as required under the Act. Conclusions: The Tribunal upheld the denial of the deduction under Section 80IA, affirming the decisions of the lower authorities. 2. Disallowance of Legal and Professional Fees under Section 37 Relevant legal framework and precedents: Section 37 of the Income Tax Act allows deductions for expenses incurred wholly and exclusively for business purposes, provided they are not capital or personal expenses. Court's interpretation and reasoning: The Tribunal assessed whether the fees paid to Gulemark TPL JV were justified as business expenses under Section 37. The AO disallowed the fees, claiming no services were rendered. Key evidence and findings: The assessee provided evidence of services rendered, including technical staff selection, design review, and method statement preparation. The Tribunal noted the presence of supporting documents like bank payment advices, visas, and accommodation records for GLM employees. Application of law to facts: The Tribunal found that the fees were incurred for business purposes and were not capital in nature. The AO had accepted the fees as revenue expenditure, which supported the assessee's claim. Treatment of competing arguments: The Tribunal rejected the AO's argument due to lack of concrete evidence against the services rendered and found the assessee's documentation sufficient. Conclusions: The Tribunal allowed the deduction of legal and professional fees under Section 37, dismissing the revenue's appeals. SIGNIFICANT HOLDINGS Core principles established: The Tribunal reinforced the principle that for deductions under Section 80IA, all statutory conditions must be met cumulatively. It also emphasized that expenses under Section 37 must be substantiated with adequate evidence of business purpose. Final determinations on each issue: The Tribunal dismissed the assessee's appeals for deduction under Section 80IA due to non-fulfillment of statutory conditions. It also dismissed the revenue's appeals, affirming the deduction of legal and professional fees as valid business expenses under Section 37.
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