2012 (11) TMI 581 - AT - Income Tax

Deduction u/s 80-IA of the Income Tax Act, 1961 industrial undertaking versus works contract - Held that - Assessee did not satisfy the conditions prescribed under the said section as he has not set up any power plant but only operating and maintaining the power plant set up and is a contractor for the purpose of rendering services and hence the charges received by the assessee cannot be treated as profits derived from the industrial undertaking for the purpose of section 80-IA of the Act - Decision of Supreme Court in case of A.M. Moosa vs. CIT 2007 (9) TMI 24 - SUPREME COURT OF INDIA followed Order of Commissioner of Income-tax (Appeals) is confirmed appeal of assessee is dismissed. Whether Reserve created for plant maintenance expenditure is an application of Income - Held that - Following the decision of court in case of CIT v. Shiv Prakash Janak Raj And Co. Pvt. Ltd 1996 (9) TMI 5 - SUPREME COURT Held that - AO has not examined the contract agreement entered into by the assessee which is for a period of 15 years and has only considered the quantification of fee as for one year - therefore, in the interest of justice this issue needs detailed examination by the AO - Order passed by the learned CIT(A) is set aside and remit the matter back to the file of the AO to examine the entire issue de novo - appeal raised by the assessee is allowed for statistical purposes. Interest u/s 234 D Following the decision of court in case of CIT v. infrastructure Development Finance Co. Ltd.2011 (9) TMI 591 - MADRAS HIGH COURT - Held that - As Regular assessment had been completed on March 30, 2004 and section 234D came into operation on and from June 1, 2003, which was prior to the completion of the regular assessment, the assessee was liable to pay interest on the excess refund amount received as contemplated under section 234D of the Act. It is not the year of assessment that falls for consideration in such circumstances, but the date on which the regular assessment order has been passed - appeal raised by the assessee for the assessment year 2003- 04 is dismissed. Allowability of Bad debts - Held that - Claim of bad debt amount claimed as bad was offered for earlier taxation - assessee is eligible to claim bad debt - order passed by the learned CIT(A) is set aside and remit the matter back to the AO with the direction to examine sec. 36(1)(vii) of the Act and decide the issue afresh in accordance with law appeal allowed for statistical purposes.

Summary

Issues Involved:
1. Claim of deduction under section 80-IA of the Income Tax Act, 1961.
2. Reversal of excess revenue and plant maintenance expenditure.
3. Interest under section 234D of the Income Tax Act.
4. Disallowance of bad debts.

Issue-wise Detailed Analysis:

1. Claim of Deduction under Section 80-IA of the Income Tax Act, 1961:
The assessee, a private limited company engaged in the operation and maintenance of a power plant, claimed a deduction under section 80-IA of the Income Tax Act. The Assessing Officer (AO) disallowed this deduction on the grounds that the assessee did not satisfy the conditions prescribed under the section, specifically that the assessee was only operating and maintaining a power plant set up by another company and was thus only a contractor. The CIT(A) upheld this decision, following the precedent set in the assessee's own case for the previous assessment year. The Tribunal, upon review, also dismissed the assessee's appeal, citing a lack of new evidence to overturn the previous decision and reinforcing that the deduction under section 80-IA(4)(iv) is not available to enterprises merely operating and maintaining a power plant.

2. Reversal of Excess Revenue and Plant Maintenance Expenditure:
The AO noticed that the assessee had debited an amount towards plant maintenance, which included contributions to a Major Maintenance Reserve Account. The AO treated this as an application of income already earned and disallowed the expenditure. The CIT(A) upheld this decision, stating that Accounting Standard 9 (AS 9) was not applicable as the contract was operative on a year-to-year basis. The Tribunal found that the AO had not examined the contract agreement, which was for a 15-year period, and thus remitted the matter back to the AO for a detailed examination of the entire issue.

3. Interest under Section 234D of the Income Tax Act:
The AO charged interest under section 234D of the Income Tax Act, which the assessee contested on the grounds that the section came into effect from June 1, 2003, and should not apply to the assessment year 2003-04. The CIT(A) dismissed the appeal, stating that the interest should be computed from the date of insertion of the provision. The Tribunal upheld this decision, referencing a jurisdictional High Court ruling that the date of the regular assessment order, not the assessment year, is the determining factor for the applicability of section 234D.

4. Disallowance of Bad Debts:
The AO disallowed the assessee's claim of bad debts, which arose from a withdrawn claim of service tax by a customer. The CIT(A) allowed the claim, accepting the assessee's explanation regarding the contractual terms and the withdrawal of the service tax claim. The Tribunal, noting that neither the AO nor the CIT(A) had considered the provisions of section 36(1)(vii) of the Act, remitted the matter back to the AO to re-examine the issue in accordance with the law.

Conclusion:
The Tribunal's judgment resulted in the partial allowance of the assessee's appeals for statistical purposes and the remittance of specific issues back to the AO for further examination. The Revenue's appeal was also allowed for statistical purposes, necessitating a re-evaluation of the bad debts claim under section 36(1)(vii).