2013 (5) TMI 80 - AT - Income Tax

Tribunal restores AO's order, rejects ad-hoc disallowances, upholds deduction under section 80IA(4)

The Tribunal allowed the appeal, restoring the AO's order and deleting various ad-hoc disallowances. The disallowances for signboard, temporary building ... Eligibility of deduction u/s 80IA(4) – Nature of contract - CIT(A) considered it as a contract only for short term improvements and routine maintenance & the assessee had only entered into agreement with M/s. Nagarjun Construction Co. Ltd. (NCC) and not with the Government as required in the section respectively. Held that - After considering nature of works carried out by the assessee, the details of expenditures incurred by the assessee and in the light of amendments in section 80IA R.W. judgement of Bajaj Tempo vs. CIT [1992 (4) TMI 4] held that a provision in a taxiing statute granting incentives for promoting growth and development should be construed liberally. As the case of the assessee covers by the conditions laid down in section 80IA(4)(i), (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining, therefore, the claim of deduction under section 80IA(4) is allowable in respect of Panipat-Jalandhar Project. As in relation to Sagar- Beena project a supplementary agreement of Nagarjuna Construction Company (NCC) Limited between NCC Limited and M/s. PNC Construction Company Limited, the assessee, wherein it is stated that both the parties have formed a JV with the sole purpose to submit a joint bid for Sagar- Beena Road Project. M/s. PNC Construction Co. Limited was offered for the entire works of joint venture and shall be liable for all taxes including income tax solely liable to government of Madhya Pradesh. The agreement with Government of Madhya Pradesh and NCC-PNC joint venture accepted the concept of Joint Venture. Thus the CIT(A) failed to consider the relevant provision of section 80IA(4)(i)(a) which provides that the prescribed infrastructure project in section 80IA(4)(i) is owned by company registered in India or by a consortium of such companies & considered only clause 80IA(4)(i)(b) of the Act without considering section 80IA(4)(i)(a.) As decided in ACIT vs. JSR Constructions (P) Ltd, [2013 (4) TMI 512 - ITAT BANGALORE], and DCIT vs. M/s. Transstroy (India) Limited, [2013 (5) TMI 87 - ITAT VISAKHAPATNAM],the assessee has satisfied the conditions laid down in section 80IA(4)(i)(a)(b) & entitled for deduction under section 80IA(4). Disallowance claim of sign board expenses – Held that - Merely failure to file the relevant vouchers as required by the A.O. cannot be the basis for making disallowance unless it is found that the expenditures were not incurred wholly and exclusively for the purposes of business. Thus delete the addition. Disallowance of temporary building structure expenditure – Held that - The A.O. made the disallowance without pointing out any specific expenditure which was incurred other than for the purposes of business. Thus delete the adhoc addition. Disallowance of Repair & Machinery expenses – Held that – A.O. made the addition on presumption basis. Thus delete the adhoc addition as the expenditures were incurred for the purposes of business. - Other grounds are general in nature, require no independent finding. Issues Involved:1. Adequate opportunity for the appellant.2. Disallowance of Rs. 5,00,000/- out of signboard expenses.3. Disallowance of Rs. 5,00,000/- out of temporary building structure expenses.4. Disallowance of Rs. 10,00,000/- out of repair and machinery expenses.5. Enhancement of assessment by disallowing deduction claimed under section 80IA(4) of Rs. 1,60,49,232/-.6. Lack of adverse material to support ineligibility for deduction under section 80IA(4).7. Validity of the order passed by the authorities.8. Ad-hoc disallowance of Rs. 5,00,000/- out of paint expenses.Detailed Analysis:1. Adequate Opportunity for the Appellant:The appellant contended that the CIT(A) erred in passing an ex-parte order without affording adequate opportunity. The Tribunal did not specifically address this issue, focusing instead on the substantive grounds of appeal.2. Disallowance of Rs. 5,00,000/- out of Signboard Expenses:The AO disallowed Rs. 5,00,000/- out of the total signboard expenses of Rs. 61,64,601/- due to the absence of relevant bills. The Tribunal noted that the AO admitted the necessity of such expenses for the business. The Tribunal held that the disallowance was unjustified as the expense was recorded in the regular books of accounts and was necessary for business purposes. The disallowance was deleted.3. Disallowance of Rs. 5,00,000/- out of Temporary Building Structure Expenses:The AO made an ad-hoc disallowance of Rs. 5,00,000/- out of Rs. 1,02,11,975/- claimed for temporary building structure expenses. The Tribunal found that the AO did not point out any specific non-business expenditure and that the expenses were necessary for the business. The disallowance was deleted.4. Disallowance of Rs. 10,00,000/- out of Repair and Machinery Expenses:The AO disallowed Rs. 10,00,000/- out of Rs. 1,89,46,155/- claimed for repair and machinery expenses. The Tribunal noted that the AO acknowledged the necessity of such expenses for the business but made the disallowance on a presumptive basis. The Tribunal deleted the disallowance, finding it unwarranted.5. Enhancement of Assessment by Disallowing Deduction under Section 80IA(4):The CIT(A) disallowed the deduction of Rs. 1,60,49,232/- under section 80IA(4), which was allowed by the AO. The Tribunal examined the nature of the projects (Panipat-Jalandhar and Sagar-Beena) and found that the assessee met the conditions under section 80IA(4). The Tribunal cited relevant judgments and circulars, noting that the deduction was allowable for enterprises engaged in developing, operating, or maintaining infrastructure facilities. The Tribunal restored the AO's order allowing the deduction.6. Lack of Adverse Material to Support Ineligibility for Deduction under Section 80IA(4):The Tribunal found that the CIT(A) withdrew the deduction without pointing out any error in the AO's order or bringing any adverse material on record. The Tribunal emphasized that the assessee had fulfilled the conditions under section 80IA(4) and allowed the deduction.7. Validity of the Order Passed by the Authorities:The Tribunal noted that the AO's order for the subsequent assessment year (2006-07) allowing the deduction under section 80IA(4) became final, as no appeal was filed against it. The Tribunal stressed the principle of consistency and found the CIT(A)'s withdrawal of the deduction for the assessment year 2005-06 to be unjustified.8. Ad-hoc Disallowance of Rs. 5,00,000/- out of Paint Expenses:The AO disallowed Rs. 5,00,000/- out of Rs. 2,16,78,425/- claimed for paint expenses. The Tribunal noted that the AO admitted the necessity of such expenses for road marking. The Tribunal deleted the disallowance, finding that the expenses were incurred for business purposes and were recorded in the regular books of accounts.Conclusion:The Tribunal allowed the appeal of the assessee, restoring the AO's order and deleting the various ad-hoc disallowances made by the AO and confirmed by the CIT(A). The Tribunal emphasized the necessity of the expenses for business purposes and the fulfillment of conditions under section 80IA(4) for the claimed deduction.