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2013 (6) TMI 351 - AT - Income TaxDeduction u/s 80IA denied - whether deduction u/s 80IA is admissible to those assessee who develop, operate and maintain any infrastructure facility? - assessee company was allotted a contract for execution of the work by the Airport Authority of India to undertake the work of extension of runway with shoulders, turning paid, stop way, construction of isolation bay, box culvert, perimeter road and allied works - Held that - Section 80IA(4) does not require that there should be a direct agreement between the transferee enterprises and the specified authority. As decided in Ayush Ajay Construction Ltd. vs. ITO (2000 (7) TMI 225 - ITAT INDORE) assessee company having obtained a contract for construction of a bridge from the original tenderer through its promoter by a valid assignment and executed the construction work stepping into the shoes of said tenderer with the approval of the State Governmentis entitled to deduction u/s 80-IA. Also in Chetak Enterprises 2005 (1) TMI 338 - ITAT JODHPUR that the erstwhile firm which had obtained the contract for construction of road and completed the work having been converted into a company under Part IX of the Companies Act whereby the latter acquired all the assets, rights and liabilities of the erstwhile firm, assessee-company fulfilled all the conditions laid down in s. 80-IA(4)(i) and is entitled to claim. Thus in the present case the annual report of the assessee company that does not speak that the assessee is a developer. Moreover, the AO has not brought on record any material to suggest that the assessee is not a developer. The deduction is available to the infrastructure facilities and the assessee has to develop infrastructure and not to operate the same. The assessee having fulfilled all the conditions as laid down in section 80-IA therefore, is eligible for deduction. In favour of assessee. Quota written off - revenue v/s capital - Held that - Said quota is a license quota which is a tradable commodity and which has to be utilized within a period of three years and third year was ending in 2004 falling in the impugned year, since the assessee s export business is of ready made garments and the balance lying in the Quota account has been written off, the assessee had purchased Quota which was for a limited period of three years and without purchasing this quota, it was not possible for the assessee to do business and make trading. Even if, the findings of the authorities below are agreed the assessee had obtained enduring benefit for three years, the same cannot be a conclusive test to be applied blindly and mechanically. Since the assessee had incurred expenditure, which advantage consists facilitation of trading operations of the assessee for enabling the assessee to make the export it is to be treated as revenue expenditure as relying on Empire Jute Co. Ltd. vs. CIT 1980 (5) TMI 1 - SUPREME Court .In favour of assessee. Disallowance being the amounts written off - Held that - The assessee is obliged to give advance to labours and suppliers of the material during the course of business, which is sometime left over and is not recoverable and these advances have been left over and had been written off during the year. Even as per section 36(1)(vii), such expenses, when written off by the assessee unilaterally in the post amendment in the Act, has to be allowed, as expenditure and otherwise also this is business expenditure to be allowed under section 36(1)(vii). No disallowance on this account can be made. In favour of assessee.
Issues Involved:
1. Eligibility for deduction under section 80IA of the Income Tax Act. 2. Treatment of 'Quota written off' as revenue expenditure. 3. Treatment of advances written off as revenue expenditure. Comprehensive, Issue-Wise Detailed Analysis: 1. Eligibility for Deduction under Section 80IA of the Income Tax Act: Facts and Arguments: - The assessee claimed deductions under section 80IA(4) for developing infrastructure facilities, specifically the extension of a runway at Agartala Airport. - The Assessing Officer (AO) disallowed the claim, arguing that the deduction is only available to entities that develop, operate, and maintain the entire infrastructure facility, not just a part of it, like extending a runway. - The assessee contended that the law does not require the development, operation, and maintenance to be cumulative conditions. They relied on various judicial precedents, including CIT vs. ABG Heavy Industries Ltd., Patel Engineering Ltd. vs. DCIT, and others, which support the view that even partial development qualifies for deduction. Tribunal's Findings: - The Tribunal noted that the amendment to section 80IA(4) by the Finance Act, 2001, allows deductions for entities engaged in either developing, operating, or maintaining infrastructure facilities. - The Tribunal emphasized that the use of "or" in the amended law indicates that fulfilling any one of the conditions is sufficient for claiming the deduction. - The Tribunal referenced several cases, including CIT vs. ABG Heavy Industries Ltd., which clarified that an entity does not need to develop the entire infrastructure to qualify for the deduction. - The Tribunal concluded that the assessee, being a developer of an infrastructure facility, is entitled to the deduction under section 80IA(4). Conclusion: - The Tribunal allowed the assessee's claim for deduction under section 80IA(4) for all relevant assessment years (2003-04 to 2006-07), recognizing them as developers of infrastructure facilities. 2. Treatment of 'Quota Written Off' as Revenue Expenditure: Facts and Arguments: - The assessee wrote off an amount of Rs. 7,85,590/- on account of quota licenses purchased for the manufacture and export of garments, which expired and had no value after the period ended. - The AO treated this write-off as a capital loss, not allowable as revenue expenditure. - The assessee argued that the expenditure was for facilitating trading operations and should be considered revenue expenditure, citing the decision in Empire Jute Co. Ltd. vs. CIT. Tribunal's Findings: - The Tribunal agreed with the assessee, stating that the purchase of quota licenses was essential for the trading operations and the advantage was limited to a specific period. - It was held that the expenditure facilitated the assessee's trading operations and did not add to the fixed capital, thus qualifying as revenue expenditure. Conclusion: - The Tribunal directed that the amount written off on account of quota licenses should be treated as revenue expenditure and allowed the deduction. 3. Treatment of Advances Written Off as Revenue Expenditure: Facts and Arguments: - The assessee wrote off advances amounting to Rs. 2,53,077/- given to laborers and suppliers, which were not recoverable. - The AO disallowed this write-off, treating it as a capital loss. - The assessee argued that these advances were part of the business operations and should be considered revenue expenditure. Tribunal's Findings: - The Tribunal accepted the assessee's argument, noting that the advances were given during the course of business operations and were not recoverable. - It was held that such write-offs qualify as revenue expenditure under section 36(1)(vii) of the Income Tax Act. Conclusion: - The Tribunal allowed the deduction for advances written off, treating them as revenue expenditure. Final Order: - The Tribunal allowed all four appeals of the assessee for the assessment years 2003-04 to 2006-07, granting the deductions claimed under section 80IA and treating the write-offs as revenue expenditure.
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