2019 (8) TMI 500 - AT - Income Tax

Rectification u/ 154 - Interest on mobilization advance by upholding the same as Mistake apparent from record - eligibility u/s 80IA - HELD THAT - When the issue of allowability of the claim of interest paid to RVNL is a debatable issue on which a decision is required on the basis of the relevant facts of the case then it is not an apparent mistake on record which is obvious and patent that can be rectified without the process of long drawn reasoning. Accordingly, we hold that the order passed by the AO U/s 154 of the Act dated 29.12.2015 is beyond the scope and jurisdiction of the AO and consequently the same is liable to be quashed. Allowability of Interest on mobilization advance - HELD THAT - AO has not disputed the fact that the said amount was received as mobilization advance only for the execution of work contract in question and M/s KIEL the lead partner responsible for the execution of the work and incurring all the expenditure on behalf of the joint venture has actually incurred the expenditure and utilized the said amount only for execution of the work under the joint venture. Once the said amount was not utilized by M/s KIEL otherwise than the execution of the contract work of the assessee joint venture then the interest paid on the mobilization advance is an allowable expenditure in the hand of the joint venture. It is also not disputed that KIEL is also paying tax @ 30% though the AO pointed out that the said interest was not claimed by the KIEL to maximize the claim of deduction U/s 80IA. We find that the contract work received by the KIEL are not eligible for deduction U/s 80IA and only the wind mill power generation was eligible U/s 80IA. Thus, the said reasoning of the AO is contrary to the facts while disallowing the claim of interest. Hence, in view of the above facts and circumstances of the case we hold that even on merits the claim of the interest on paid to RVNL on mobilization advance is allowable expenditure of the assessee joint venture.

Summary

Issues Involved:
1. Disallowance of interest on mobilization advance.
2. Validity of rectification under Section 154 of the Income Tax Act.
3. Allowability of interest expenditure on mobilization advance.

Issue-wise Detailed Analysis:

1. Disallowance of Interest on Mobilization Advance:
The primary issue revolves around the disallowance of ?9,01,730/- as interest on mobilization advance received by the joint venture from Rail Vikas Nigam Ltd. (RVNL). The assessee, a joint venture between M/s Kiran Infra Engineers Ltd. (KIEL) and M/s Rachana Construction Company, received mobilization advance for contract work awarded by RVNL. The joint venture agreement stipulated that KIEL would handle the execution and financial aspects of the project, while Rachana Construction Company would provide technical support. The AO initially accepted the return of income but later disallowed the interest claimed, arguing it should be claimed by KIEL, not the joint venture. The CIT(A) upheld this disallowance.

2. Validity of Rectification under Section 154 of the Income Tax Act:
The assessee contended that the issue of interest on mobilization advance is debatable and does not qualify as a "mistake apparent from record" under Section 154. The AO had issued a notice under Section 154 to rectify the mistake and subsequently disallowed the interest. The assessee argued that the rectification was essentially a reassessment, which is beyond the scope of Section 154. The Tribunal noted that the scope of rectification under Section 154 is limited to obvious and patent mistakes. The AO's detailed reasoning for disallowance indicated that the issue was debatable and not a clear mistake. Citing the Supreme Court's decision in T.S. Balaram, ITO vs. M/s Valkart Brothers, the Tribunal held that the AO's action was beyond the jurisdiction of Section 154.

3. Allowability of Interest Expenditure on Mobilization Advance:
On the merits, the Tribunal examined whether the interest paid to RVNL on mobilization advance was an allowable business expenditure for the joint venture. The Tribunal noted that the mobilization advance was received for executing the contract work, and KIEL, as the lead partner, utilized the funds for this purpose. The financial statements showed that a significant portion of the mobilization advance was spent on project execution. The Tribunal concluded that since the funds were used for the joint venture's business, the interest paid on the mobilization advance was a legitimate business expense. The Tribunal also dismissed the AO's argument that KIEL did not claim the interest to maximize its deduction under Section 80IA, noting that the deduction was claimed only for windmill operations, not contract work.

Judgment:
The Tribunal quashed the AO's rectification order under Section 154, holding it was beyond the scope and jurisdiction. On the merits, the Tribunal allowed the interest expenditure as a deductible business expense for the joint venture. Consequently, the appeals for the assessment years 2012-13, 2013-14, and 2014-15 were allowed, and the disallowances made by the AO were deleted.