2018 (2) TMI 1519 - AT - Income Tax

Claim of deduction u/s. 80IA - denial of claim as AO was of the view that assessee is only executing works contract as a contractor and not as a developer of infrastructural facilities - Held that - At the out set it is to be agreed that the issue is covered in favour of assessee by the orders of the ITAT in earlier years in assessee s own case which the Ld.CIT(A) has followed. Consequently we do not see any reason to interfere with the order of CIT(A) as there seems to be no change in facts and circumstances of the case in the years under appeal. However AO has not distinguished on what percentage assessee has claimed u/s. 80IA and what are the contracts undertaken. In earlier years as seen from the orders of AYs. 2010-11 and 2011-12 AO has issued an annexure identifying various projects. The matter was sent back to AO for verification. In view of that since assessee ascertains that it has claimed only the deduction on infrastructural projects undertaken by it AO is directed to examine this aspect and allow the claim after verification as in earlier years. The ground is considered partly allowed for statistical purposes Disallowance u/s.40(a)(ia) - amounts on which TDS was not deducted or TDS deducted but not paid - CIT-A restricted the disallowance only to the amount of TDS deducted and not paid in AY. 2012-13 - Held that - As the issue is now decided by the Hon ble Supreme Court of India in the case of Palam Gas Service Vs. CIT 2017 (5) TMI 242 - SUPREME COURT in which it was held that even the amounts paid during the year are also covered by the provisions of Section 40(a)(ia) the Special Bench decision of the ITAT in the case of Merilyn Shipping and Transport Ltd. Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) is no longer a valid one. Consequently the order of CIT(A) relying on the above for giving relief is to be set aside. Allowance of deduction u/s. 80IA on the amount disallowed u/s 43B - Held that - The amount disallowed u/s. 43B will become profits of business in the computation of income under the head business or profession. Consequently if the amounts disallowed are pertaining to the projects on which the claim u/s 80IA was made the same has to be allowed as profits get increased to that extent. AO is directed to the examine working of profits and allow the claim. The grounds raised by revenue has no merit.

Summary

Issues Involved:
1. Deduction under Section 80IA.
2. Disallowance under Section 40(a)(ia).
3. Deduction under Section 80IA on the amount disallowed under Section 43B.

Issue-Wise Detailed Analysis:

Issue of Section 80IA:

The primary contention revolves around whether the assessee qualifies for the deduction under Section 80IA of the Income Tax Act. The Assessing Officer (AO) argued that the assessee was merely executing works contracts and did not meet the criteria of a developer of infrastructural facilities. Conversely, the assessee claimed that it was engaged in both contractual and infrastructural development activities, and the deduction was claimed only for direct infrastructural projects. The Commissioner of Income Tax (Appeals) [CIT(A)] sided with the assessee, referencing previous ITAT orders favoring the assessee. However, the AO did not distinguish the percentage of projects qualifying under Section 80IA. Consequently, the matter was remitted back to the AO for verification, instructing to allow the claim post-verification, as done in earlier years. The same directions were applied for the Assessment Year (AY) 2013-14.

Issue of Section 40(a)(ia):

For both AYs, the AO disallowed amounts under Section 40(a)(ia) due to non-deduction or non-payment of TDS. The CIT(A) allowed the amounts, referencing the Special Bench decision in Merilyn Shipping and Transport Ltd. However, the Supreme Court in Palam Gas Service Vs. CIT ruled that even amounts paid during the year are covered under Section 40(a)(ia), invalidating the Special Bench decision. Therefore, the CIT(A)'s order was set aside. The assessee raised a cross-objection, citing that it was not treated as an assessee-in-default under Section 201(1) and could provide certificates proving the payee included the amounts in their returns. The matter was remitted to the AO for re-examination, considering these aspects.

Deduction under Section 80IA on the amount disallowed under Section 43B:

For AY 2012-13, the Revenue objected to the CIT(A)'s allowance of deduction under Section 80IA on amounts disallowed under Section 43B. The CIT(A) ruled that disallowed amounts increase business profits, referencing ITAT's decision in M/s. Koya and Company Construction Pvt. Ltd. The CIT(A) directed the AO to recompute the deduction under Section 80IA, including the disallowed amount. The ITAT upheld this view, stating that disallowed amounts under Section 43B become part of business profits and should be considered for Section 80IA deduction if related to eligible projects.

Conclusion:

Both the Revenue appeals and the cross-objections by the assessee were partly allowed for statistical purposes, with directions for the AO to verify and re-examine specific aspects as detailed above. The order was pronounced in the open court on 16th February 2018.