2013 (6) TMI 665 - AT - Income Tax

Deduction u/s 80IA disallowed - conditions specified at (a), (b) and (c) of the section are not found fulfilled by assessee - Held that - Respectably following assessee s own case 2010 (9) TMI 938 - ITAT HYDERABAD claim of the assessee for deduction 80IA allowed. Against revenue. Payment to PSAM towards professional charges disallowed - Held that - AO and the CIT(A) were not correct in concluding that there was no necessity for services to be rendered over and above those contemplating in the BIMCO agreement. As refering to the decision of CIT Vs. Dhanrajgiri Raja Narsingiriji 1973 (3) TMI 6 - SUPREME Court wherein held that it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. In the case of Jaipur Electro (P) Ltd. Vs. CIT 1996 (5) TMI 55 - RAJASTHAN High Court it was held that the doctrine that the businessman is the best judge of business expediency does not affect the right, any duty of the assessing authorities to know whether it was incurred for business purposes and not for other extraneous conditions. Thus the expenditure to PSAM has been wholly and exclusively incurred for the purpose of business is to be allowed as a deduction. In favour of assessee.

Summary

Issues:
1. Disallowance of deduction u/s 80IA
2. Disallowance of payment to PSAM

Analysis:

Issue 1: Disallowance of deduction u/s 80IA
The Assessing Officer (AO) disallowed the deduction u/s 80IA for the assessee, stating that conditions specified under 80IA(4)(ia) were not fulfilled. The AO emphasized that the business operations were executed through a contract, which, as per the AO, did not qualify for the deduction under 80IA. The CIT(A) upheld this disallowance, stating that the assessee's activities were not identical to those of another company, and the operations were solely contract-based. However, the ITAT Hyderabad, in line with a previous decision for AY 2006-07, ruled in favor of the assessee, allowing the deduction of Rs. 54,81,140 u/s 80IA. The ITAT noted that the activities fulfilled the conditions under 80IA(4) and were eligible for the deduction.

Issue 2: Disallowance of payment to PSAM
Regarding the disallowance of payment to PSAM, the AO contended that the services provided were advisory and not essential, as covered by the BIMCO agreement. The CIT(A) concurred with the AO, stating that the expenditure was not wholly and exclusively for business purposes. However, the ITAT disagreed with the lower authorities. The ITAT noted that the services provided by PSAM were necessary for business operations, as explained by the assessee. Citing legal precedents, the ITAT emphasized that the businessman is the best judge of business expediency and allowed the claim for payment of Rs. 24,36,600 to PSAM towards professional charges. The ITAT found the expenditure genuine and wholly for business purposes, thereby overturning the disallowance.

In conclusion, the ITAT allowed the appeal of the assessee, overturning the disallowances made by the lower authorities. The ITAT's decision highlighted the fulfillment of conditions under 80IA for the deduction and the genuine business necessity of the payment to PSAM, emphasizing the prerogative of the businessman in determining business expediency.