2013 (5) TMI 87 - AT - Income Tax

Tribunal upholds deduction for business profits under Section 80IA(4) and deletes disallowance of freight payments.

The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claim of deduction under Section 80IA(4) for profits derived from work executed, ... Deduction u/s 80IA - Joint Venture - Person u/s 2(31) - nature of works contract - as per the revenue the assessee is required to enter into an agreement with the Central Govt. or State Government or a local authority or any other statutory body for i) developing or ii) operating and maintaining or iii) developing, operating and maintaining a new infrastructure facility, which the assessee has not substantiated by furnishing a copy of the agreement entered despite affording several opportunities to the assessee. Held that:- There is no dispute with regard to the nature of business or the activities undertaken by the assessees. The dispute is only with regard to the identity of a person to whom this benefit of deduction u/s 80IA(4) can be allowed. The legislature have also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body for its execution by its constituents. If the constituents do not want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption u/s 80IA(4). Issues Involved:1. Claim of deduction under Section 80IA(4) of the Income-tax Act.2. Disallowance of freight payment under Section 40a(ia) due to non-deduction of TDS.Issue-wise Detailed Analysis:1. Claim of Deduction under Section 80IA(4):The main issue revolves around the claim of deduction under Section 80IA(4) of the Income-tax Act. The assessee, a company, formed a joint venture (JV) named 'Navayuga Transtroy' which bid for a contract awarded by the Irrigation Department of Andhra Pradesh. The JV was entitled to execute the works, with the assessee responsible for 40% of the work. For the year ending 31.3.2006, the assessee completed part of the allocated work and raised bills accordingly. The JV raised a consolidated bill without any addition to the Irrigation Department, which made payments to the JV, subsequently shared with the constituents based on the raised bills. The JV filed income-tax returns separately but did not claim deduction under Section 80IA(4).The assessee also formed a consortium with M/s. Corporation Transtroy OJSC, Moscow, to execute 100% of the work awarded by KSHIP, Karnataka. The assessee claimed deduction under Section 80IA(4) for the work executed, which was disallowed by the A.O. on the grounds that the work was not allotted to the assessee but to a JV.Upon appeal, the CIT(A) followed the Tribunal's decision for the assessment year 2006-07, which held that the assessee is entitled to deduction under Section 80IA(4). The Tribunal examined the issue in detail, noting that the JV or consortium was formed to obtain the contract, but the work was executed by the constituents. The Tribunal concluded that the benefit of deduction under Section 80IA(4) should be given to the enterprises carrying on the classified business.The Tribunal reiterated that the JV was only a de-jure contractor, while the assessee was the de-facto contractor. The Tribunal highlighted that the joint venture agreement and consortium agreement indicated that the work/project awarded to the JV would be executed by the constituents as per mutually agreed terms. The Tribunal emphasized that the benefit of deduction under Section 80IA(4) is to be given to the enterprise carrying on the classified business, and the formation of a consortium should not debar the enterprises from claiming the deduction.2. Disallowance of Freight Payment under Section 40a(ia) due to Non-Deduction of TDS:In appeal no. 326 of 2011, the revenue raised an additional issue regarding the disallowance of freight payment under Section 40a(ia) due to non-deduction of TDS. The A.O. made a disallowance in respect of freight charges paid to M/s. D.R. Southern Constructions Pvt. Ltd., amounting to Rs. 1,78,70,997/-. The assessee contended that the payment was made on behalf of M/s. D.R. Southern Constructions Pvt. Ltd. and debited to the party, hence no TDS was required. The CIT(A) re-examined the issue and deleted the addition, noting that the payments were in the nature of reimbursements and did not involve any element of income.The CIT(A) observed that the payments were made on behalf of M/s. D.R. Southern Constructions Pvt. Ltd. and reflected as receivables in the assessee's books. Therefore, there was no obligation to deduct TDS. The Tribunal upheld the CIT(A)'s decision, agreeing that the payments were reimbursements and not sub-contract payments, thus no TDS was required.Conclusion:The Tribunal upheld the CIT(A)'s order, confirming that the assessee is entitled to deduction under Section 80IA(4) for the profits derived from the work executed. Additionally, the Tribunal found no infirmity in the CIT(A)'s decision to delete the disallowance of freight payment under Section 40a(ia), as the payments were reimbursements made on behalf of M/s. D.R. Southern Constructions Pvt. Ltd. Consequently, the appeals of the revenue were dismissed.