TaxTMI 
TaxTMI 
2022 (1) TMI 538
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....d for scrutiny under CASS and a notice u/s 143(2) was issued and duly served on the assessee by the AO. After examining the material on record and the information furnished, The AO completed the assessment u/s 143(3) by making the following additions/ disallowances: 1. Disallowance of claim u/s 80IA - Rs. 47,66,23,235/- 2. Disallowance of interest expenditure u/s 14A - Rs. 50,26,69,200/- 3. Addition towards inflated expenditure by way of Sub-contract payments - Rs. 5,45,60,000/- 3. When the assessee preferred an appeal before the CIT(A), the CIT(A) partly allowed the appeal of the assessee. 4. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT. 5. As regards the issue of addition of Rs. 5,45,60,000/- towards inflated expenditure by way of sub-contract payments, which is raised as ground Nos . 2 to 10, the AO made the addition by observing, inter-alia, as under: 1. The issue of maintaining bank account at New Delhi where there is no work site of the subcontractor and where the assessee is maintaining office remains unexplained. 2. The issue of immediate withdrawal of cash on receipt of remittance from the....
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....r and which has been accepted by the revenue authorities. Once the expenditure is disallowed, it is automatically enhanced the profit of the assessee and the enhanced amount is eligible for deduction u/s 80IA)(4) in the case of the assessee. 8. The ld. DR, on the other hand, strongly relying on the orders of revenue authorities, submitted that the assessee is not eligible for claiming deduction under Chapter VI-A u/s 80IA against the addition made by the AO, as the issue has been elaborately dealt by both the lower authorities in their orders. He contended that the assessee is engaged in the malpractice for siphoning the amounts by way of inflating the expenditure and making payments to group companies. The cash has been withdrawn by the employees of the assessee company from the sub-contractors accounts. He, therefore, submitted that there is a direct nexus between the inflated expenditure from the other companies. He submitted that during the course of search proceedings, statements were recorded by the search team in which the employees of the assessee company have accepted that inflated monies were withdrawn from the sub-contractors bank account. He submitted that the assess....
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.... sub-contractors have been offered as their turnover and the turnovers had been accepted by the revenue authorities. Therefore, it clearly shows that the payments made by the assessee to sub-contractors is a business expenditure of the assessee. 9.2 We accept the arguments advanced by the ld. AR of the assessee that the Board's Circular No. 37/2016 dated 02/11/2016 is applicable to the case of the assessee. For the sake of clarity, we reproduce the contents in the Circular as under: CIRCULAR NO.37/2016 [F.NO.279/MISC./140/2015/ITJ] 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS - CHAPTER VIA DEDUCTIONS ON ENHANCED PROFITS CIRCULAR NO.37/2016 [F.NO.279/MISC./140/2015/ITJ], DATED 2-11-2016 Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect ....
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....n Courts/Tribunals may be withdrawn/not pressed upon. The above may be brought to the notice of all concerned. 9.3 On perusal of the said Circular, it is clear that at times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. The assessee is also eligible to claim for deduction u/s 80IA on the profit earned from its business. The issue before us is also regarding the enhancement of the profit of the assessee which is covered by the said Circular quoted supra and, therefore, the assessee is eligible to claim deduction u/s 80IA of the Act. Considering the totality of the facts and circumstances of the case, we set aside the order of the CIT(A) and direct the AO to allow the assessee's claim of deduction u/s 80IA of the Act on the enhanced expenditure towards the payment to sub-co....
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....erial on record as well as the orders of revenue authorities, we do not find any infirmity in the order of the CIT(A) in restricting the disallowance and, therefore, upholding the order of CIT(A), we dismiss the ground raised by the assessee on this issue. 13. In the result, appeal of the assessee is partly allowed. ITA No. 609/Hyd/2020 for AY 2013-14. 14. The facts of the case, briefly stated, are that the assessee company filed its return of income for the A.Y. 2013-14 on 29.09.2013 declaring total income of Rs. 13,42,56,510/after claiming the deduction u/s. 80IA of the Act. The case had been selected for scrutiny under (ASS and the order u/s. 143(3) of the IT Act was passed on 06.12.2016 determining the income at Rs. 81,15,76,061/-. Subsequently, the case of the assessee was selected for revisionary proceedings u/s. 263 by the Pr.C1T(Central), Hyderabad on 26.10.2018 with a direction to examine the issue of claim of deduction u/s. 80lA of the Act. Notice u/s. 142(1) was issued on 01.08.2019 to the assessee calling for objections against the proposed disallowance u/s. 80lA of Rs. 2406.93 lakhs. After examining the material on record and the information furnished, assessm....
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....ved due to the statutory provisions in the Act is not eligible for benefit of deduction u/s 801A. Therefore, the deduction on MAT credit of Rs. 2,48,96,334/- is directed to be withdrawn. Accordingly, disallowance of Rs. 2,48,96,334/- is confirmed." 18. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The finding of the CIT(A) that the MAT credit is held not to be eligible for deduction u/s 80IA as it is not directly linked to the eligible business but only comes into operation due to statutory provision. He relied on the decision of the Hon'ble Supreme Court in the case of Liberty India Vs. CIT cited supra. Therefore, we find no reason to interfere with the decision and CIT(A) and upholding the same, we dismiss the grounds raised by the assessee on this count. 19. In the result, appeal of the assessee is dismissed. ITA No. 635 & 636/Hyd/2020 - by revenue for AYs 2012-13 & 2013-14 20. In both the appeals, the revenue has raised a ground that the CIT(A) erred in deleting the addition made by the AO u/s 80IA of the Act. 21. The facts as taken from AY 2012-13 that the assessee claimed d....