2011 (1) TMI 1213 - AT - Income Tax

Depreciation, Unexplained expenditure, Deductions - Profits and gains from infrastructure undertakings

Summary

Issues Involved:
1. Disallowance of expenses due to lack of proper vouchers and cash payments.
2. Disallowance of depreciation on leased machinery.
3. Disallowance of deduction under section 80-IA of the Income-tax Act.
4. Application of interest under section 234B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses:
The Assessing Officer (AO) disallowed Rs. 50 lakhs from the expenses claimed by the assessee due to lack of proper vouchers and most payments being made in cash. The AO found that expenses towards site expenses, laying and jointing, and labor payments were not supported by external vouchers. The CIT(A) upheld the AO's decision, agreeing that the absence of supporting evidence justified the disallowance. The assessee argued that the expenses were supported by account copies from M/s. IVRCL and other documents, but the tribunal found that the account copies alone were insufficient proof. The tribunal upheld the disallowance, stating that the assessee failed to provide primary evidence for the expenses claimed.

2. Disallowance of Depreciation on Leased Machinery:
The AO disallowed the depreciation claim of Rs. 41.15 lakhs on machinery leased from M/s. IVRCL, as IVRCL continued to claim depreciation on the same assets. The CIT(A) confirmed the AO's decision, noting that the ownership of the machinery remained with IVRCL. The tribunal upheld the disallowance, agreeing that the assessee was not entitled to depreciation since the machinery was not transferred to the assessee. The tribunal allowed the lease rentals paid by the assessee as revenue expenditure, finding no infirmity in the lower authorities' orders.

3. Disallowance of Deduction under Section 80-IA:
The AO denied the deduction under section 80-IA, stating that the assessee was merely building infrastructure projects and not operating or maintaining them. The CIT(A) upheld the AO's decision. The assessee argued that it was engaged in developing infrastructure facilities, including operation and maintenance for a period of 2 to 5 years. The tribunal referred to the Larger Bench decision in B.T. Patil & Sons Belgaum Construction (P.) Ltd., which held that a mere contractor cannot claim the benefit under section 80-IA. The tribunal found contradictions in the AO's facts and remitted the issue back to the AO for fresh consideration, providing the assessee an opportunity to be heard.

4. Application of Interest under Section 234B:
Interest under section 234B is consequential in nature. The tribunal disposed of this ground accordingly, noting that it would follow the outcome of the other issues.

Conclusion:
The tribunal upheld the disallowance of expenses and depreciation on leased machinery but remitted the issue of deduction under section 80-IA back to the AO for fresh consideration. Interest under section 234B was treated as consequential. All appeals were partly allowed for statistical purposes, except ITA No. 720/Hyd./07 for the assessment year 2003-04, which was dismissed.