2016 (11) TMI 1237 - AT - Income Tax

Appeal granted: Section 80IA deductions upheld, business income classification, expenses justified

M/s Jaypee Infratech Ltd. Versus ACIT, Circle-2, Noida

The tribunal allowed the appeal in favor of the appellant, emphasizing eligibility for deduction under section 80IA, correct classification of income as ... Revision u/s 263 - Eligibility of claim u/ section 80IA(4)- Held that:- The income from sale/lease of plots has been in very categoric terms been held to be eligible for deduction under clause (a) of Explanation to section 80IA(4). We further note that in para 57 considering the gamut of business activities on the basis of the Agreements and documents on record which admittedly had accepted that the only aim and object of the assessee was developing infrastructure facility the Co-ordinate Bench in para 57 held that the business activities of the assessee company fell within the ambit of clause (a) of Explanation to Section 80IA(4). The source of the Bank interest admittedly is income from the sale/lease of plots in banks temporarily till the payments are due; or TPO funds temporarily in Banks; or the funds sourced through the development activity by way of sale and development of plots which were to be utilized for developing the infrastructure facility having been temporarily parked in banks and used for raising loans from the banks against Guarantees etc. The utilization of these amounts admittedly is again for the very same sole purpose of infrastructural facility. In the circumstances, we find the income is necessarily, directly and inextricably linked with the eligible business of the assessee. Considering the character of the same, the facts and circumstances of the specific and peculiar nature of assessee’s business, the nexus is direct. The income can be said to be inseparably linked with the sole business purpose of the assessee which is the infrastructural facility. The acceptance of this fact by way of precedent is not only evident from the fact that the income was included in eligible business by two different Assessing Officers in two separate assessment orders but is also evident from the order of the Co-ordinate Bench in the base year itself. Interest income is not derived from eligible business - Held that:- interest income is to be treated as business income of the assessee. The miscellaneous income qua sale of scrap etc. again being directly and inextricably linked with the development of infrastructural facility it is to be treated as business income. Same is the position for money forfeited in the peculiar facts of the present case. However, on these last two sources of income since supporting evidences are not available the issue is restored for verification on facts. The claims principally we find are directly linked to the only business activity of the assessee in terms of the Agreement and findings thereon and principally it deserves to be allowed. Similarly gains from foreign exchange fluctuations arising directly out of the sole business activity of the assessee which is the infrastructural facility development we hold is inextricably linked and having a direct first degree nexus with the sole business of the assessee thus income therefrom we hold has to be allowed and treated as business income. Disallowance of depreciation - Held that:- On a consideration of the reasoning qua depreciation recorded by the AO and upheld by the CIT(A), we find that the only reasoning taken is that since the project of toll road construction was in progress where from no receipt was declared the profit being solely from sale/lease of plots the claim was disallowed. In view of the categoric finding of the Co-ordinate Bench that the business has commenced the reasoning adopted cannot be sustained. Subject to verification of ownership and user principles the claim has to be allowed. We note that disallowance of the said expenditure anyway would go to inflate the income and result in an enhanced deduction on a fact which may have escaped the tax authorities. Accordingly, we hold that principally depreciation on assets used in the developing of infrastructural facility and owned by the assessee has to be allowed. We restore the issue for verification on facts. Non deduction of tds for payment of interest u/s 194A and for payment of lease rent in term of section 194I - disallowance u/s 40(a)(ia) - Held that:- where the assessee has not claimed it as an expense the occasion to make an addition by way of a disallowance does not arise and if at all it had to be made it could be limited only to ₹ 10,149/- which is the amount claimed as an expense. We also find that reliance has been placed on the decision of the Jurisdictional High Court to argue that as far as the assessee is conceded nothing was payable in terms of the decision of the Jurisdictional High Court in CIT vs Vector Shipping Services [2013 (7) TMI 622 - ALLAHABAD HIGH COURT]. The applicability of which decision has not been disputed by the Revenue. Accordingly, we direct that subject to verification on facts that no amount is payable as per assessee’s books at the end of the year the relief in principle has to be allowed. We note that the arguments that per se section 194A and 194I itself are not applicable is left open as the issue becomes academic at this stage. Appeal partly in favour of assessee for statistical purposes. Issues Involved:1. Assessment of total income.2. Lawfulness and principles of natural justice.3. Erroneous views and non-appreciation of facts.4. Admission of additional evidence.5. Classification of income from other sources vs. business income.6. Deduction under section 80IA.7. Disallowance of expenses under section 40(a)(ia).8. Disallowance of depreciation.9. General grounds of appeal.Detailed Analysis:1. Assessment of Total Income:The appellant challenged the assessment of total income at Rs. 18,55,39,36.310/- against a returned income of Rs. Nil. The tribunal noted the appellant's claim that the income should be classified under business income eligible for deduction under section 80IA. The tribunal upheld the appellant's claim, referencing the ITAT's decision in the initial assessment year (2009-10) which allowed the deduction under section 80IA(4).2. Lawfulness and Principles of Natural Justice:The appellant argued that the assessment order was unlawful and against natural justice principles due to insufficient lawful opportunity. The tribunal noted that the appellant did not press this ground, indicating it was not a primary contention.3. Erroneous Views and Non-Appreciation of Facts:The appellant contended that the assessment was based on erroneous views and non-appreciation of facts. The tribunal found that the Assessing Officer (AO) and CIT(A) had not properly appreciated the binding case laws and the facts presented, leading to an incorrect assessment.4. Admission of Additional Evidence:The appellant argued that the CIT(A) erred in not admitting additional evidence. The tribunal noted that the need for additional evidence arose due to the AO's rejection of the main claim under section 80IA(4). The tribunal allowed the admission of additional evidence, emphasizing the importance of a fair hearing.5. Classification of Income from Other Sources vs. Business Income:The AO classified certain incomes as 'income from other sources' rather than business income, impacting the deduction under section 80IA. The tribunal found that the interest income on FDRs, profit on currency fluctuations, and other miscellaneous income were indeed part of the business income derived from the infrastructure facility project. The tribunal referenced various case laws supporting the netting of interest income and the classification of such income as business income.6. Deduction Under Section 80IA:The appellant's primary contention was the eligibility for deduction under section 80IA. The tribunal upheld the appellant's claim, referencing the ITAT's decision in the initial assessment year (2009-10) which allowed the deduction under section 80IA(4). The tribunal emphasized that the appellant's activities fell within the ambit of clause (a) of Explanation to section 80IA(4), and the deduction was justified.7. Disallowance of Expenses Under Section 40(a)(ia):The AO disallowed expenses under section 40(a)(ia) for non-deduction of TDS on interest and rent. The tribunal found that the disallowance was not justified as the alleged interest and rent were not claimed as expenses but capitalized. The tribunal referenced the jurisdictional High Court's decision in CIT vs Vector Shipping Services, which supported the appellant's position.8. Disallowance of Depreciation:The AO disallowed depreciation on assets used for business purposes. The tribunal found that the disallowance was unjustified as the assets were owned and used for business purposes. The tribunal noted that any disallowance would lead to an enhanced deduction under section 80IA, making the disallowance irrelevant.9. General Grounds of Appeal:The appellant's general grounds of appeal were noted to be without prejudice to each other, and the tribunal found that the assessment and CIT(A)'s order were against the law and facts of the case.Conclusion:The tribunal allowed the appeal in favor of the appellant, emphasizing the eligibility for deduction under section 80IA, the correct classification of income as business income, and the unjustified disallowance of expenses and depreciation. The tribunal's decision was based on a thorough analysis of the facts, relevant case laws, and the legislative intent behind the provisions of section 80IA.