Appeals partly allowed: Deduction granted for parking lot project, labor charges adjusted, and rule 8D(iii) disallowance reduced.

The Tribunal partly allowed both appeals, directing the AO to allow the deduction under section 80IA for the parking lot project, make a reasonable disallowance for labor charges, and adjust the disallowance under rule 8D(iii) to 0.5% of the average investments. The orders were pronounced on 08.01.2021.

---

---

Issues Involved:
1. Disallowance under section 80IA.
2. Disallowance of labor charges.
3. Disallowance under section 14A read with rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance under section 80IA:

The primary issue raised by the assessee was the confirmation of disallowance of Rs. 68,22,830 by the CIT(A) under section 80IA of the Income Tax Act. The assessee claimed this deduction for a parking lot developed on CIDCO land at a truck terminal, asserting it as an integral part of a highway project. The AO disallowed the deduction, stating that the parking lot was not on a highway and therefore did not qualify as an infrastructure facility under section 80IA. The CIT(A) upheld the AO's decision, noting that the project was a commercial venture and not part of any highway project. However, the Tribunal found that the parking lot, though a standalone project, was an integral part of the highway infrastructure, referencing the Finance Act, 2001, which modified the definition of infrastructure facility to include projects integral to highways. The Tribunal cited the case of Dy. Commissioner of Income Tax Vs. Vintage Advertising Pvt. Ltd., which allowed similar deductions for bus shelters and foot overbridges, and directed the AO to allow the deduction under section 80IA.

2. Disallowance of labor charges:

The second issue involved the disallowance of labor charges. The AO disallowed Rs. 7,25,120 on an ad-hoc basis, citing improper bills and cash expenses. The CIT(A) reduced this disallowance to 1% of the total purchases, amounting to Rs. 4,16,430, but mistakenly applied this percentage to the previous assessment year's purchases. The Tribunal acknowledged the error and directed the AO to disallow a reasonable sum of Rs. 1,00,000, finding the ad-hoc disallowance approach inappropriate.

3. Disallowance under section 14A read with rule 8D:

The third issue pertained to the disallowance of Rs. 34,541 under section 14A read with rule 8D. The AO calculated this disallowance based on the assessee's tax-free income, comprising Rs. 18,460 under rule 8D(ii) and Rs. 16,125 under rule 8D(iii). The CIT(A) confirmed this disallowance. The Tribunal found merit in the assessee's contention that the disallowance under rule 8D(iii) should be 0.5% of the average investment, not 1.5%. Consequently, the Tribunal directed the AO to adjust the disallowance accordingly, providing the assessee relief of Rs. 10,750.

Additional Appeals:

For the assessment year 2011-12, the issues raised were similar to those for 2012-13. The Tribunal applied its findings from the 2012-13 appeal to the 2011-12 appeal, allowing the assessee's appeal in part and directing the AO to disallow and allow a sum of Rs. 1,25,000 for labor charges and adjust the disallowance under rule 8D(iii) to 0.5% of the average investments, providing additional relief of Rs. 18,500. Ground no. 1 was dismissed as not pressed.

Conclusion:

In conclusion, the Tribunal partly allowed both appeals, directing the AO to allow the deduction under section 80IA, make a reasonable disallowance for labor charges, and adjust the disallowance under rule 8D(iii) to 0.5% of the average investments. The orders were pronounced in the open court on 08.01.2021.

---