2017 (2) TMI 1098 - AT - Income Tax

Bifurcation via statutory disallowances under section 14A , 36(1)(va) and disallowance of claim under section 80IA - Held that - The first two items of the table i.e. ₹ 25,98,406/- and ₹ 17,476/- have been added by the Assessing Officer to the total income of the assessee separately and, hence, no such addition could be made as a part of additional income declared. Further, the Assessing Officer himself has stated that the statutory disallowance cannot form part of the declaration and, hence, he has rejected such break-up. Here, we are in agreement with the view of the Assessing Officer that statutory disallowance cannot form part of adhoc declaration. However, the correctness of the addition on account of adhoc declaration has to be examined on the strength of its own merit, accordingly we confirm the addition of ₹ 1,99,850/-, ₹ 5,17,000/-, ₹ 23,42,900/- and ₹ 3,88,377/-. The last amount of the table being ₹ 2,39,35,991/- being disallowance of the part of the claim u/s. 80IA(4) of the Act is again a statutory disallowance and cannot form part of disclosure. In any case, the issue of disallowance of the claim u/s. 80IA(4) of the Act is subject-matter of Departmental appeal before us.By following the order of Tribunal in assessee s own case, we have deleted the disallowance of deduction claimed u/s.80IA(4). Thus, the ad hoc addition of ₹ 3 crores (and for that matter the adhoc addition of ₹ 1 crore) cannot be supported by any figures mentioned in Annexure A-2 or Annexure A-3. As Board itself is of the view that in the absence of credible evidence the confessional statement would not serve any useful purpose. In fact going further i.e. from 10.03.2003 onwards, the Board mandatorily directed the officers that while recording statement, no attempt should be made to obtain confession as to the undisclosed income. Therefore, in the present case not only the recording of confessional statement but making the addition solely on the basis of the statement is against the binding instructions of the CBDT. In view of the above discussion, we confirm the addition of ₹ 1,99,850/- ₹ 5,17,000/-, ₹ 23,42,900/- and ₹ 3,88,377/- out of the total addition made by AO.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IA(4) of the Income Tax Act.
2. Ad hoc addition of ?3 crores and ?1 crore based on search and seizure operations.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IA(4):

The assessee, a developer of infrastructure projects, claimed deductions under Section 80IA(4) for various projects including the construction of Rabale Railway Station, expansion of CSI Airport Terminal 1B, construction of a railway tunnel in Agartala, and development of irrigation canals under the Indira Sagar Project. The CIT(A) allowed the assessee's claim, referencing the decision in the case of M/s. B.T. Patil & Sons Belgaum Construction Private Ltd., which was initially overruled but later upheld by the Tribunal. The Tribunal concluded that the assessee was eligible for the deduction as it had shouldered investment and technical risks, employed a qualified team, and was liable for liquidated damages. The Tribunal emphasized that the assessee was not merely a contractor but a developer, fulfilling the conditions laid down in Section 80IA(4).

The Revenue appealed against this decision, arguing that the projects were not new and the deduction had been disallowed in earlier years. However, the Tribunal noted that the same projects had been allowed for deduction in subsequent years by the Hon'ble Tribunal. Following the Tribunal's earlier orders, the CIT(A)'s decision to allow the deduction under Section 80IA(4) was upheld, confirming the assessee's eligibility for the deduction.

2. Ad hoc Addition of ?3 Crores and ?1 Crore:

During a search at the Unity Group's premises, a letter was found offering an income of ?9.5 crores on behalf of various group entities. The break-up of this declaration included ?3 crores for the assessee for AY 2008-09 and ?1 crore for other discrepancies in group concerns. The assessee retracted this statement in its income return, leading to disputes over the ad hoc additions.

The Assessing Officer (AO) rejected the assessee's break-up of ?3 crores, which included statutory disallowances and part disallowance under Section 80IA(4), and made the addition based on the statement made during the search. The CIT(A) upheld this addition, stating that the statement was not withdrawn and there was no evidence of undue influence.

The Tribunal, however, found no incriminating material supporting the addition and noted that the declaration was adhoc and lacked corroborative evidence. The Tribunal referenced the legal position that additions cannot be made solely based on a statement retracted in the income return without corroborative evidence. The Tribunal confirmed the addition of specific amounts related to seized materials but rejected the ad hoc additions of ?3 crores and ?1 crore, citing the absence of supporting evidence and the improper reliance on the retracted statement.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to allow the deduction under Section 80IA(4), confirming the assessee's status as a developer. However, the Tribunal rejected the ad hoc additions of ?3 crores and ?1 crore made by the AO, confirming only specific amounts related to seized materials. The appeal of the assessee was allowed in part, and the Revenue's appeal was dismissed.