2022 (1) TMI 1276 - AT - Income Tax

Tribunal rules in favor of assessee on tax issues, allowing deductions and adjustments

The Tribunal ruled in favor of the assessee in a case involving various tax-related issues. The Tribunal upheld the assessee's claim for deductions under ... Disallowance of Deduction u/s 80IA - assessee is not engaged in the business of infrastructure facilities and the assessee in fact a contractor, - HELD THAT:- We find that this issue has been adjudicated in favour of the assessee and the deduction has been held to be allowable vide the orders of the Co-ordinate of the ITAT for the A.Ys. 2000-01, 2001-02, 2003-04 [2019 (11) TMI 270 - ITAT DELHI] , 2005-06 [2020 (1) TMI 1606 - ITAT DELHI] as held that According to the assessment order, copies of all the agreements were before Assessing Officer yet assessing officer chose to make sweeping observation that the assessee is not developer. Such sweeping and bald assertion cannot be approved by us. Therefore, taking into the facts of the present case, we are the considered view that appellant is entitled to claim deduction 80IA, which was wrongly denied. We set aside the order of the ld. CIT (Appeals) and direct the Assessing Officer to allow deduction - Decided in favour of assessee. Disallowance u/s 14A r.w.r. 8D - AO has disallowed an amount u/s 14A out of the total administrative and operative expenses - HELD THAT:- As decided in own case [2020 (1) TMI 1606 - ITAT DELHI] Rule 8D of the Rules has been held to be applicable from Assessment Year 2008- 09. Therefore, for the year under consideration, there is no formula to compute the disallowance. However, at the same time, we are of the view that reasonable expenditure should be disallowed for earning exempt income. Though the Assessing Officer has attributed the administrative expenses on the ratio of the tax free income to total receipts and computed the disallowance but we are of the opinion that such computation is on the higher side. Thus we hold that Rs.20 lacs be treated as expenses incurred in earning of the exempt income. Disallowance of Prior Period Expenses - As argued that the expenses have been crystallized and fully allowable - HELD THAT:- Since, this expenditure is specific to this year, in the absence of any details produced before the revenue authorities, the claim of the assessee cannot be allowed. In the interest of justice, we hold that this is a fit case to remand this issue to the file of the Assessing Officer with directions to the assessee to submit the details of the AO and claim the deduction in accordance with the provisions of the Act. Income through PE & 115 JB - AO disallowed on account of corporate office expenses which have not been deducted by the assessee while computing profit from foreign entities - HELD THAT:- The taxation law in India follows the credit method for reliving the burden of double taxation. Therefore, appellant ought to have included the overseas income against which credit for taxes paid overseas should have been availed. Therefore, the income received from foreign projects required to be included for taxation purposes under normal provisions of the IT Act and credit for taxes paid in the host countries i.e. Malaysia of Malaysian Ringgets after converting the same in Indian Rupees as on 31.03.2006 should be allowed. CIT(A) has also held that this amount is required to be taxed both under normal provisions and MAT provisions. This issue has been adjudicated by the Tribunal in [2019 (11) TMI 270 - ITAT DELHI] and allowed in favour of the assessee. Provision of maintenance - CIT(A) deleted the addition holding that the assessee has been claiming that provision for maintenance has been made taking into account contractual provision, operating turnover of the year, type of project period of maintenance and other relevant factors - HELD THAT:- At the time of completion of the contract, liability arises in the hands of the appellant company to provide free maintenance to the various contractees for the period specified in the agreement. This liability arises at the time of the completion of the project itself and obviously the expenditure required can only be estimated on the basis of past experience, nature of the contract, type of the project and turnover of the appellant in that particular year. The appellant claimed that estimate has been made on best estimated basis based upon the experience in the construction industry. Therefore, the objection of the Assessing Officer that the liability has not arisen during the year as it has been quantified on estimated basis is not correct. It is also a fact not disputed by the Assessing Officer in the assessment order that all along the provision for maintenance of expenses have been allowed to the appellant company except the disallowances made in A.Y. 1985-86 and 1995-96. We find that the similar matter of provision for maintenance stands adjudicated by the Co-ordinate Bench of the Tribunal. The assessee has been providing for expenses to be incurred on demobilization, maintenance and other expenses since by inception of the Company. Nature of expenditure on Technical Know-how - capital or revenue expenditure - HELD THAT:- The assessee furnished detailed ledger account in this regard before the Ld. CIT(A) who held that it is evident that these expenses are regular business expenses which are incidental to the business of the assessee and in no way provide any enduring benefit to the assessee. Therefore, applying the ratio laid down by the Hon’ble Supreme Court in the case of M/s Empire Jute Co. Ltd. [1980 (5) TMI 1 - SUPREME COURT] the addition made by the AO in this regard is deleted by the ld. CIT(A) correctly. Allowability of CSR Expenses - HELD THAT:- This is a straight issue supported by the provisions of the Income tax Act supporting the claim of the assessee. The Explanation 2 to section 37(1) of Income Tax Act 1961 was inserted in Finance Act 2015 with regard to the disallowance of CSR expenses and it does not have retrospective applicability. Hence, appeal of the assessee on this ground is allowed. Advances Written off - HELD THAT:- CIT(A) allowed an amount pertains to TDS credit which could not be availed and written off and confirmed an amount Spent on account of expenditure incurred by the assessee in connection with the joint venture. This amount pertains to the expenses incurred by the assessee for the Joint Venture wherein the expenses had to be irrecoverably written off. This is a sunk cost to the assessee which has been spent from the accounts of the assessee. Hence, the amount is eligible to be written off and to be claimed. In the result, the appeal of the assessee on this ground is allowed. Issues Involved:1. Disallowance of Deduction u/s 80IA2. Disallowance u/s 14A3. Prior Period Expenses4. Income through PE & u/s 115JB5. Provision for Maintenance6. Technical Know-how7. CSR Expenses8. Advances Written OffDetailed Analysis:1. Disallowance of Deduction u/s 80IA:The assessee, engaged in infrastructure projects, claimed deductions under Section 80IA for profits earned from projects in J&K and Bihar. The CIT(A) disallowed the claim, labeling the assessee as a contractor rather than a developer. However, the Tribunal, referencing past decisions (AYs 2000-01, 2001-02, 2003-04, 2005-06), upheld the assessee's claim, stating that the assessee's activities met the criteria of development and not merely contracting. The Tribunal directed the AO to allow the deduction as claimed.2. Disallowance u/s 14A:The assessee earned tax-free income from bonds and claimed it as exempt. The AO disallowed a portion of the administrative expenses under Section 14A. The Tribunal, referencing earlier decisions, adjusted the disallowance to Rs. 20 lakhs, noting that Rule 8D was not applicable for the year under consideration but reasonable expenses should be disallowed.3. Prior Period Expenses:The AO disallowed certain prior period expenses due to lack of detailed submissions. The Tribunal remanded the issue back to the AO, directing the assessee to provide necessary details to claim the deduction as per the Act.4. Income through PE & u/s 115JB:The assessee computed income under DTAA provisions, which the AO and CIT(A) adjusted. The Tribunal, referencing past decisions, ruled that income from foreign projects should be taxed under normal provisions and MAT, but credit for taxes paid overseas should be given. The Tribunal directed the AO to exclude such income from the computation of book profit under Section 115JB.5. Provision for Maintenance:The AO disallowed the provision for maintenance, labeling it as unascertained liability. The CIT(A) and Tribunal, referencing past decisions, upheld the assessee's claim, noting that the provision was based on contractual obligations and past experience, thus allowable.6. Technical Know-how:The AO treated charges for survey and consultancy services as capital expenditure. The CIT(A) and Tribunal, referencing the Supreme Court decision in M/s Empire Jute Co. Ltd. Vs. CIT, held these as regular business expenses, providing no enduring benefit, thus allowable as revenue expenditure.7. CSR Expenses:The AO disallowed CSR expenses. The Tribunal noted that the Explanation 2 to Section 37(1) of the Income Tax Act, 1961, disallowing CSR expenses, was inserted in Finance Act 2015 and does not have retrospective applicability. Hence, the appeal of the assessee on this ground was allowed.8. Advances Written Off:The AO disallowed advances written off due to lack of details. The CIT(A) allowed a portion related to TDS credit but confirmed the disallowance of expenses incurred for a joint venture. The Tribunal, noting these were sunk costs, allowed the write-off and the claim.Conclusion:The Tribunal, largely referencing past decisions and consistent judicial interpretations, provided relief to the assessee on most grounds, directing the AO to allow claims or recompute disallowances based on established principles and detailed submissions.