2019 (12) TMI 141 - AT - Income Tax

Eligible for deduction u/s 80IA - income is attributable to the manufacturing activities - HELD THAT - Case made out by the assessee, the documents in support of such claim on record before us and respectfully relying on the ratio laid down on this issue of allowability of supervision charges by the Jurisdiction High Court, we find no alternative but to allow the claim of the assessee for deduction u/s. 80IA since we find the income is attributable to the manufacturing activities. Consequently the addition is deleted. Hence, the assessee appeal is allowed. Applicability of the provision of Sec. 194C or Sec. 194J - payment to the contractors - non-deduction of tax at source or non payment of tax though was deducted on payments made to residents - HELD THAT - It is a fact that the assessee has made such payment to the contractors but TDS has not been deducted u/s 194C and hence the disallowance was made under section 40(a)(ia) by the authorities below. It is also a fact that the assessee was with the bona fide wrong impression regarding the applicability of the provision of Sec. 194C or Sec. 194J to such nature of payments. It is also a fact that Sec. 40(a)(ia) after its amendment brought in by Finance (No. 2) Act, 2014 given a specific relief to the assessee that in case of non-deduction of tax at source or non payment of tax though was deducted on payments made to residents as specified in Sec. 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the expenditure so claimed by the assessee. If that be so, the disallowance of entire expenditure of ₹ 7,65,700/- for drawing charges and ₹ 2,84,050/- towards PLC Programming Charges ought not to have been made by the authorities below. We, therefore, taking into consideration the amended provision of Sec. 40(a)(ia) of the Act, restrict 30% of such disallowance. In the result, these grounds of assessee s appeal are partly allowed.

Summary

Issues Involved:
1. Deduction under section 80IB for supervision income.
2. Disallowance of drawing charges and PLC programming charges due to non-deduction of TDS under section 194J.
3. Application of amended provisions of section 40(a)(ia) regarding disallowance of expenditure.

Issue-wise Detailed Analysis:

1. Deduction under section 80IB for supervision income:
The assessee filed a return for A.Y. 2011-12 declaring total income, including a deduction under section 80IB for supervision income. The Assessing Officer (AO) disallowed this deduction, considering supervision income as not attributable to manufacturing activities. The CIT(A) confirmed this disallowance. The assessee argued that supervision income is part of the manufacturing activities, relying on judgments from the Hon'ble Jurisdictional High Court and Bombay High Court. The Tribunal found that the supervision and maintenance are integral to the trading and supply of electric panels, thus eligible for deduction under section 80IB. The Tribunal allowed the assessee's appeal, stating that the income is attributable to manufacturing activities and deleted the addition.

2. Disallowance of drawing charges and PLC programming charges due to non-deduction of TDS under section 194J:
For A.Y. 2009-10, the assessee challenged the disallowance of drawing charges and PLC programming charges due to non-deduction of TDS under section 194J. The AO disallowed these charges, considering them as fees for technical services. The assessee contended that these charges were for semi-skilled labor, not technical services, and thus not subject to section 194J. The Tribunal noted that the assessee had a bona fide wrong impression regarding the applicability of section 194C or 194J. The Tribunal referred to the amended provision of section 40(a)(ia) by Finance (No. 2) Act, 2014, which restricts disallowance to 30% of the expenditure. Consequently, the Tribunal restricted the disallowance to 30% of the drawing charges and PLC programming charges.

3. Application of amended provisions of section 40(a)(ia) regarding disallowance of expenditure:
The Tribunal considered the amended provision of section 40(a)(ia) for disallowance of expenditure due to non-deduction of TDS. The amendment restricts disallowance to 30% of the expenditure. The Tribunal applied this amendment to the disallowance of drawing charges and PLC programming charges for A.Y. 2009-10 and 2010-11, reducing the disallowance to 30% of the claimed expenditure.

Conclusion:
The Tribunal allowed the assessee's appeal for deduction under section 80IB for supervision income, considering it part of manufacturing activities. For the disallowance of drawing charges and PLC programming charges, the Tribunal restricted the disallowance to 30% of the expenditure, applying the amended provision of section 40(a)(ia). The appeals for A.Y. 2009-10 and 2010-11 were partly allowed, while the appeal for A.Y. 2011-12 was fully allowed.