2012 (8) TMI 1010 - AT - Income Tax

Tribunal remits deduction matter under section 80IA, appeal against penalty allowed

M/s. Nagarjuna Construction Company Ltd., Versus Assistant Commissioner of Income Tax Central Circle-3 Hyderabad

The Tribunal remitted the matter of deduction under section 80IA and the claim of bad debts back to the Assessing Officer for further examination. The ... Allowability of deduction u/s. 80IA(4)(i) - Held that:- In the case of GVPR Engineers Ltd. v. ACIT (2012 (4) TMI 149 - ITAT HYDERABAD) wherein held that deduction u/s. 80IA is available to developers who undertake entrepreneurial investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that the plant and machinery, technical know-how, expertise and financial resources. Therefore, if the contracts involve design, development, operation & maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract, to deny the deduction under section 80IA. The contracts which contain above features to be segregated have to be granted deduction under section 80IA and the other agreements which are pure works contracts hit by the Explanation to section 80IA(13) are not entitled for deduction under section 80IA. The profit from the contracts which involve design, development, operating & maintenance, financial involvement and defect correction and liability period is to be computed by the Assessing Officer on pro rata basis of turnover. The Assessing Officer is directed to examine the records, accordingly, and grant deduction on eligible turnover. Disallowance of claim of bad debt by enhancement of assessment by the CIT(A)- Held that:- As noticed by the CIT(A), there was a dispute regarding this issue and the dispute is pending before the Madras High Court. Further, it is not possible to claim the debt as bad debt in this assessment year 2002-03 on the basis of Tribunal award dated 10.1.2000 which is relevant to the assessment year 2000-01. Being so, we do not find any infirmity in the order of the CIT(A) and the same is confirmed on this issue. Penalty 271(1)(c) - Held that:- The issue relating to allowability of deduction u/s. 80IA we have remitted back the issue relating to allowability of deduction u/s. 80IA to the file of the Assessing Officer for fresh consideration. Hence, at this stage levy of penalty u/s. 271(1)(c) is premature. Accordingly, we are of the opinion that levy of penalty at this stage is not justified. Issues Involved:1. Allowability of deduction under section 80IA(4)(i) of the Income-tax Act, 1961.2. Claim of bad debts.3. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.Detailed Analysis:1. Allowability of Deduction under Section 80IA(4)(i)The primary issue in these appeals concerns the allowability of deduction under section 80IA(4)(i) of the Income-tax Act, 1961. The assessee, engaged in developing infrastructure facilities, claimed a deduction under this section, which was disallowed by the Assessing Officer (AO) and confirmed by the CIT(A). The assessee argued that the amendment by the Finance Act, 2001, effective from 1-4-2002, allowed enterprises engaged in developing, operating, and maintaining infrastructure to claim this deduction. The Tribunal cited various judgments, including the Mumbai ITAT in ACIT vs. Bharat Udyog Limited and the Bombay High Court in CIT vs. Glenmark Pharmaceuticals Limited, to support the claim that the assessee, as a developer, was entitled to the deduction. The Tribunal concluded that the assessee's activities, including designing, manufacturing, and constructing infrastructure on a turnkey basis, qualified for the deduction under section 80IA. The Tribunal remitted the issue back to the AO to grant the deduction on eligible turnover, segregating contracts that involved development, operation, maintenance, financial involvement, and defect correction from pure works contracts.2. Claim of Bad DebtsThe second issue involved the claim of bad debts amounting to Rs. 26,42,293 and Rs. 1,68,79,143. The CIT(A) disallowed the claim of Rs. 26,42,293, stating that the assessee failed to furnish complete details of the debtors. The Tribunal remitted this issue back to the AO to verify if the debt was written off in the books of account as required under section 36(1)(vii) of the Act. Regarding the claim of Rs. 1,68,79,143, the CIT(A) disallowed the amount related to the Tamil Nadu Housing Board (TNHB) due to an ongoing dispute and the timing of the claim. The Tribunal upheld the CIT(A)'s decision, noting that the debt could not be claimed as bad in the assessment year 2002-03 based on a Tribunal award relevant to the assessment year 2000-01.3. Levy of Penalty under Section 271(1)(c)The third issue concerned the levy of penalty under section 271(1)(c) for filing inaccurate particulars of income. The CIT(A) had enhanced the assessment by disallowing the deduction under section 80IA and initiated penalty proceedings. The Tribunal noted that the issue of allowability of deduction under section 80IA was remitted back to the AO for fresh consideration, making the levy of penalty premature. Citing the Supreme Court's decision in CIT vs. Reliance Petro Products (P) Ltd., the Tribunal held that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars. Therefore, the Tribunal allowed the appeal against the penalty.Conclusion:The Tribunal provided a detailed analysis of the issues, remitting the matter of deduction under section 80IA and the claim of bad debts back to the AO for further examination, and allowed the appeal against the penalty under section 271(1)(c), emphasizing the need for a fresh assessment and the principle that making an unsustainable claim does not automatically imply furnishing inaccurate particulars.