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2016 (7) TMI 396 - AT - Income TaxDisallowance of the claim of deduction U/S 80IA(4) - Held that - The assessee has filed copies of performance guarantees given by the assessee on behalf of PCL-ILHC as an additional evidence to prove that the assessee had undertaken the financial obligations as well. On going through these documents, we find that the Government Agency i.e., THDC has accepted the assessee to be the official sub-contractor executing the entire project and even the original contractor and the Rithwik Swati J.V. have accepted the assessee to be the subcontractor who has taken on all the assets, risks and liabilities of the contract. As in the case of the A.L. Logistics P. Ltd. 2015 (1) TMI 401 - MADRAS HIGH COURT , the Hon ble Madras High Court has held that where the Government has given an approval to the assessee to execute the work, even in the absence of any specific agreement, the assessee is eligible for deduction under section 80IA of the Act. Taking all the above into consideration, we are in agreement with the contentions of the assessee that the assessee is eligible for making claim under section 80IA(4) of the I.T. Act as the assessee is considered to be the official sub-contractor of the said project and also in view of the fact that the employer or the original contractor or the Rithwik Swati JV have not claimed the deduction under section 80IA of the Act. This issue is therefore decided in favour of the assessee. Unexplained expenditure - Held that - We are satisfied that the assessee has not proven that the expenditure has been incurred for the business purpose of the assessee and since the recipient has denied having executed any work, it cannot be considered as genuine expenditure and cannot be allowed. Disallowance u/s 40A(3) - Held that - CIT (A) correctly confirmed the order of the AO by holding that the AR has furnished any explanation, leave alone but the evidence to show that it was covered by any of the expenses given under Rule 6DD.
Issues Involved:
1. Disallowance of deduction under section 80IA(4) of the I.T. Act. 2. Addition of ?9 lakhs towards unexplained expenditure. 3. Disallowance under section 40A(3) of the I.T. Act. 4. Disallowance of deduction under section 80G of the I.T. Act. 5. Restriction of TDS claim based on Form 26AS. 6. Initiation of penalty proceedings under section 271(c) of the I.T. Act. Issue-wise Analysis: 1. Disallowance of Deduction under Section 80IA(4): The assessee, engaged in executing infrastructure projects, claimed a deduction under section 80IA(4) for the construction of Koteshwar Dam. The A.O. disallowed the deduction, arguing that the assessee was merely a subcontractor and not directly contracted by the government. The CIT(A) upheld this view, stating the assessee did not meet the conditions of section 80IA(4)(i)(b). The Tribunal, however, considered additional evidence and previous judicial decisions, concluding that the assessee, recognized by the government agency (THDC) as the official subcontractor, is eligible for the deduction. The issue was remanded to the CIT(A) for further examination of the nature of work and compliance with section 80IA(4) conditions. 2. Addition of ?9 Lakhs towards Unexplained Expenditure: The A.O. added ?9 lakhs as unexplained expenditure, citing the recipient's denial of executing any work for the assessee. The CIT(A) confirmed this disallowance. The Tribunal upheld the decision, agreeing that the assessee failed to prove the business purpose and genuineness of the expenditure. 3. Disallowance under Section 40A(3): The A.O. disallowed ?21,35,295 under section 40A(3) for cash payments exceeding ?20,000. The CIT(A) upheld this disallowance, noting the assessee did not provide evidence to justify the cash payments. The Tribunal confirmed the CIT(A)'s decision due to the lack of supporting evidence from the assessee. 4. Disallowance of Deduction under Section 80G: For A.Y 2010-11, the assessee did not press the ground against the disallowance of ?1,30,000 under section 80G. This ground was rejected as not pressed. 5. Restriction of TDS Claim Based on Form 26AS: The Tribunal remanded the issue of TDS claim restriction based on Form 26AS to the CIT(A) for reconsideration, ensuring the assessee is given a fair opportunity of hearing. 6. Initiation of Penalty Proceedings under Section 271(c): The Tribunal rejected the ground against the initiation of penalty proceedings under section 271(c), considering it premature. Conclusion: The appeals for A.Ys 2009-10 and 2010-11 were partly allowed for statistical purposes, with several issues remanded for further consideration by the CIT(A). The order was pronounced in the open court on 04.07.2016.
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