2018 (2) TMI 1583 - AT - Income Tax

Tribunal Reverses CIT(A) Decision on Deductions, Emphasizes Developer Role

The Tribunal reversed the CIT(A)'s decision on deduction under section 80IA(4) for new projects, emphasizing the assessee's role as a developer. It upheld ... Eligibility for deduction u/s 80IA (4) in respect of Tuirial lot II Tuirial lot Ill and Lohari Nagpala projects - scope of work and terms and conditions of contract between the assessee and the principles - Held that:- To be qualified for claiming deduction u/s 80IA assessee should be a developer of infrastructure facility whether on its own or on behalf of third party principles, but if such activity is in the nature of developing an infrastructure facility within the meaning of section 80IA, then the assessee is eligible for deduction towards profits and gains of undertakings which carried out development of infrastructure facility. In this case, all the projects developed by the assessee including on-going projects and new projects on which the development has been commenced during the year under consideration are all related to developing an infrastructure facility for water supply schemes and hydro-electric power generation, which are in the nature of infrastructure facilities as defined u/s 80IA(4). The scope and nature of work and terms of contract clearly establishes an undisputed fact that the assessee is a developer of infrastructure facility which would entails the assessee deduction u/s 80IA(4) of the Act. AO has erred in denying deduction claimed u/s 80IA(4). CIT(A), though in principle accepted the fact that the nature of works undertaken by the assessee in respect of three new projects are similar to the nature of works undertaken by the assessee in respect of projects already considered by the ITAT, denied the deduction claimed u/s 80IA by holding that the assessee is merely a works contractor executing works for development of infrastructure facility. Hence, we reverse the findings of the CIT(A) in respect of three new projects - Decided in favour of assessee. Disallowance of expenditure in relation to exempt income u/s 14A - Held that:- We find merits in the arguments of the assessee for the reason that the assessee has demonstrated with evidences that its investment in shares of subsidiaries and capital account of joint ventures are strategic investments for the purpose of controlling interest as its infrastructure projects are developed under JVs and in the name of subsidiaries. We further noticed that the assessee’s own fund in the form of share capital and reserves is more than its investment in shares and capital account of subsidiaries and JVs. Once, its own funds are more than its investment, then it is deemed that its investment are out of its own funds and no interest bearing fund is used for making investment and hence, no disallowance is called for in respect of interest expenses. This legal proportion is supported by the decision of Hon’ble Bombay High Court in the case of HDFC (2014 (7) TMI 724 - BOMBAY HIGH COURT ) and Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) wherein it is held that if the assessee is having both interest free as well as interest bearing funds at his disposal, the presumption has to be that the interest free funds have been utilized for interest free loans. In this case, admittedly assessee’s own funds are more than its investment in shares and capital accounts and hence, we are of the considered view that the AO has erred in disallowing interest expenses under rule 8D(2)(ii) of the IT Rules. Investments in foreign subsidiaries needs to be excluded for the purpose of determination of average value of investments to work out disallowances under rule 8D(2)(iii) of the Rules. If disallowances worked out under Rule 8D(2)(iii) is more than the amount of dividend income received during the year, than the AO is directed to restrict the disallowances to the extent of exempt income earned during the year as the disallowances contemplated u/s 14A of the Act cannot swallow the entire exempt income earned during the year as held in the case of Joint Investment (P) Ltd. As ACIT (2015 (3) TMI 155 - DELHI HIGH COURT). Rejection of credit for TDS on machinery and mobilization advance in the year of deduction - Held that:- As decided in assessee's own case [2015 (11) TMI 1665 - ITAT MUMBAI] direct the AO to allow credit for TDS in the year of TDS deduction. Additions made towards mismatch in AIR information for lack of reconciliation - Held that:- The assessee has received mobilization advance / machinery advance from the principles on which TDS has been deducted at the time of making payment as per the provisions of section 194C of the Act, whereas, the assessee is recognizing the Revenue as and when the work is completed and running bill is submitted to the assessee on which again TDS has been deducted at the time of payment. The advance received from the clients has been adjusted against running bill either in the year of receipt of advance or in the subsequent year which leads to difference in income recognized in the books of accounts and information appeared in AIR database. The assessee claims that it has reconciled every entry appeared in the AIR information with its books of accounts. Therefore, we are of the considered view that the issue needs to be examined by the AO in the light of our observations and also reconciliation filed by the assessee Short TDS credit - Held that:- credit for TDS needs to be given if resultant income from such TDS has been considered in the books of accounts. But facts are not clear whether the assessee has filed reconciliation before the AO to explain TDS credit appeared in Form 26-AS with corresponding receipts in its books of accounts. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of claim of the assessee. If the assessee is able to reconcile TDS credit as per Form 26-AS to its books of accounts with corresponding receipts, then the AO is directed give credit for TDS as per Form 26-AS. levy of interest u/s 234B - Held that:- The levy of interest u/s 234B is of mandatory in nature and the AO has no discretion, whatsoever in charging such interest and it depends upon income assessed and advance tax including TDS credit paid by the assessee. If there is tax payable as per the income computed in the assessment, then the AO is expected to workout interest under this section on prescribed rates for specified period as per the computation mechanism provided under section 234B of the Act. Therefore, we are of the view that there is no merit in the ground of the assessee Issues Involved:1. Deduction under section 80IA(4)2. Disallowance under section 14A3. TDS Credit on Machinery and Mobilization Advance4. Additions based on AIR Information5. Short Credit of TDS6. Levy of Interest under section 234BIssue-wise Detailed Analysis:1. Deduction under section 80IA(4):The assessee challenged the disallowance of deduction under section 80IA(4) for certain projects. The CIT(A) had partially accepted the assessee's claim for four ongoing projects but denied it for three new projects, holding that the assessee was merely a works contractor. The Tribunal, however, reversed the CIT(A)'s decision for the new projects, stating that the assessee was indeed a developer of infrastructure facilities, not just a contractor. The Tribunal emphasized that the nature of work, risks, and responsibilities undertaken by the assessee qualified it for the deduction under section 80IA(4).2. Disallowance under section 14A:The AO had disallowed expenses under section 14A, invoking Rule 8D, and the CIT(A) upheld this disallowance. The assessee argued that its investments were strategic, funded by its own interest-free funds, and hence no disallowance was warranted. The Tribunal found merit in the assessee's argument, noting that its own funds exceeded the investments. The Tribunal directed the AO to exclude investments in foreign subsidiaries while computing the disallowance and to restrict it to the extent of exempt income earned during the year.3. TDS Credit on Machinery and Mobilization Advance:The AO denied TDS credit on advances, stating it should be given only in the year the income is assessable. The Tribunal referenced its earlier decision in the assessee's case, directing the AO to allow TDS credit in the year of deduction itself, aligning with the principle that credit for TDS should be given when the tax is deducted.4. Additions based on AIR Information:The AO made additions based on discrepancies in AIR information. The CIT(A) provided partial relief after considering additional evidence and the AO's remand report. The Tribunal found that additions should not be made solely based on AIR mismatches when the assessee provided reconciliation. The Tribunal remanded the issue back to the AO for re-examination in light of the reconciliation provided by the assessee.5. Short Credit of TDS:The AO denied excess TDS credit as it was not claimed in the return of income. The Tribunal held that TDS credit should be given if the corresponding income is considered in the books. The issue was remanded to the AO for verification and to give credit as per Form 26-AS if the reconciliation matched.6. Levy of Interest under section 234B:The Tribunal upheld the levy of interest under section 234B, stating it is mandatory and depends on the assessed income and advance tax paid. The Tribunal found no merit in the assessee's challenge to this levy.Conclusion:The Tribunal provided a detailed analysis of each issue, reversing some of the CIT(A)'s decisions and remanding others for further verification. The decision emphasized the importance of considering the nature of work, the source of funds for investments, and the need for accurate reconciliation of AIR information. The Tribunal's directions aimed to ensure that the deductions and disallowances were correctly applied in accordance with the law.