2020 (12) TMI 1156 - AT - Income Tax

Deduction u/s 80IA - disallowance of deduction as assessee is a contractor not a developer HELD THAT - As decided in own case 2020 (11) TMI 469 - ITAT CHANDIGARH deduction u/s 80IA of the Act for the relevant projects i.e. Thural and Dehra has already been allowed in the earlier years and this year being a subsequent year, the findings arrived for the same project in earlier years will mutatismutandis apply to thesubsequent assessment year also with the condition that the total number of years for claiming deduction will be subject to the other conditions relating to the time period of claiming deduction and percentage of the deduction as provided u/s 80IA of the Act. Disallowance u/s 14A - HELD THAT - It is noticed that the Ld. CIT(A) decided this issue by following the judgment of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Lakhani Marketing Inc. 2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT wherein it has been held that when there is no exempt income, no disallowance under section 14A of the Act can be made. Ld. CIT(A) also followed the judgment of the Hon'ble Supreme Court in the case of Principal CIT Vs. Oil Industry Development Board 2019 (3) TMI 1571 - SC ORDER . We therefore in the absence of any contrary decision brought on record, do not see any valid ground to interfere with the view taken by the Ld. CIT(A).

Issues Involved:
1. Partly allowing the appeal of the assessee by Ld. CIT(A).
2. Disallowance under section 14A of the Income Tax Act.
3. Applicability of section 14A or Rule 8D without earning of income.
4. Following decisions of High Courts with distinguishable facts.
5. Legislative intent expressed in CBDT's Circular No. 5/2014.
6. Supreme Court's principles of apportionment and pending SLPs.
7. Deleting the addition made under section 14A.
8. Following High Court decisions in Lakhani Marketing.
9. Overlooking the scheme of the Income Tax Act.
10. Reliance on previous order for A.Y. 2011-12.
11. Allowing deduction under section 80IA.
12. Nature of work carried out by the assessee under contract.

Detailed Analysis:

1. Partly Allowing the Appeal of the Assessee by Ld. CIT(A):
The Revenue contended that the Ld. CIT(A) erred in partly allowing the appeal of the assessee without appreciating the facts of the case. The Tribunal noted that the main issue relating to deduction under section 80IA had already been decided in favor of the assessee in previous years, and the Ld. CIT(A) followed these precedents.

2. Disallowance under Section 14A of the Income Tax Act:
The Revenue argued that the Ld. CIT(A) was not justified in not upholding the disallowance of ?81,348/- under section 14A on the ground that disallowance cannot be made where there is no exempt income. The Tribunal referenced the judgment of the Hon'ble Supreme Court in the case of Principal CIT Vs. Oil Industry Development Board, which supported the Ld. CIT(A)'s decision.

3. Applicability of Section 14A or Rule 8D Without Earning of Income:
The Revenue cited the Supreme Court case of CIT vs. Rajender Prasad Moody to argue that the applicability of section 14A or Rule 8D does not depend on earning income. However, the Tribunal upheld the Ld. CIT(A)'s view that no disallowance under section 14A can be made when there is no exempt income, following the jurisdictional High Court's decision in CIT Vs. Lakhani Marketing Inc.

4. Following Decisions of High Courts with Distinguishable Facts:
The Revenue claimed that the Ld. CIT(A) erred by following decisions of Hon'ble High Courts whose facts were distinguishable from the taxpayer's case. The Tribunal found that the Ld. CIT(A) correctly followed relevant precedents and did not err in its judgment.

5. Legislative Intent Expressed in CBDT's Circular No. 5/2014:
The Revenue argued that the Ld. CIT(A) ignored the legislative intent expressed in CBDT's Circular No. 5/2014, which states that expenses related to earning exempt income should be considered for disallowance irrespective of earning such income. The Tribunal found that the Ld. CIT(A) appropriately followed the Supreme Court's decision, which took precedence over the CBDT circular.

6. Supreme Court's Principles of Apportionment and Pending SLPs:
The Revenue contended that the Ld. CIT(A) erred by not considering the principles of apportionment upheld by the Supreme Court and pending SLPs on similar issues. The Tribunal noted that the Ld. CIT(A) followed the Supreme Court's binding decisions, which were applicable to the case.

7. Deleting the Addition Made Under Section 14A:
The Revenue argued that the Ld. CIT(A) erred in deleting the addition of ?81,348/- made under section 14A. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the disallowance under section 14A cannot be made without exempt income, as per the jurisdictional High Court's ruling.

8. Following High Court Decisions in Lakhani Marketing:
The Revenue claimed that the Ld. CIT(A) erred by following the High Court decision in Lakhani Marketing, which was distinguishable from the taxpayer's case. The Tribunal found that the Ld. CIT(A) correctly applied the High Court's ruling, which was relevant and applicable to the case.

9. Overlooking the Scheme of the Income Tax Act:
The Revenue argued that the order of the Ld. CIT(A) was perverse and overlooked the scheme of the Income Tax Act. The Tribunal found no merit in this argument, as the Ld. CIT(A) followed established legal principles and precedents.

10. Reliance on Previous Order for A.Y. 2011-12:
The Revenue contended that the Ld. CIT(A) erred by relying on a previous order for A.Y. 2011-12, where facts were different. The Tribunal noted that the facts and issues were similar, and the Ld. CIT(A) correctly relied on the previous order, which had been upheld by higher authorities.

11. Allowing Deduction Under Section 80IA:
The Revenue argued that the Ld. CIT(A) erred in allowing deduction under section 80IA, as the nature of work carried out by the assessee was in the nature of a work contract. The Tribunal found that the contracts were composite and involved developing, operating, and maintaining infrastructure facilities, making them eligible for deduction under section 80IA.

12. Nature of Work Carried Out by the Assessee Under Contract:
The Revenue claimed that the nature of work carried out by the assessee was a work contract, not eligible for deduction under section 80IA. The Tribunal found that the assessee's contracts were for developing infrastructure facilities, which qualified for deduction under section 80IA, following previous Tribunal decisions and Supreme Court rulings.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the decisions of the Ld. CIT(A) on all grounds, including the disallowance under section 14A and the deduction under section 80IA, following relevant legal precedents and Supreme Court rulings.

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