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2011 (8) TMI 1168 - AT - Income TaxDeduction u/s 80IA(4) - Retrospective Effect of Explantion u/s 80IA - Assessee has entered into infrastructural development project promoted by State Govt - AO disallowed such deduction on the basis of explanation added in section 801A(4) through Finance Act 2007 and 2009 HELD THAT - We have gone through the facts of case the case of the department is that the explanation added to section 80IA(4) by Finance Act 2007 with retrospective effect from 1.4.2000 and thereafter amended by Finance Act 2009 with retrospective effect from 1.4.2000 is applicable. Since the explanation to section 80IA(4) has been added and as per explanation if any work is allotted to an assessee on contract basis then no deduction under section 80IA(4) is allowable. Once in a particular year an assessee has been declared as a Developer then on the same set of facts the assessee cannot be held as a Contractor in a subsequent year. Therefore the contention of ld. A/R that once assessee has been held as a Developer then in next year or the year under consideration it cannot be held as a Contractor is acceptable. We have seen the Explanation added to section 80IA by Finance Act 2007 and amended by Finance Act 2009 and found that there is no material difference in the language of Explanation added by Finance Act 2007 and amended by Finance Act 2009. There is only difference of words i.e. the Central or State Government were included by the Finance Act 2009. Otherwise the language is same. The language of the Explanation says that if the Enterprise is a contractor then deduction under section 80IA (4) will not be allowable. After going through clauses of agreement according to which assessee has to develop the design and has to be approved by the Engineer-in-Charge and thereafter the manufacturing of Gate has to be started. The awardee has to develop the design itself. If there was no development of design then there could not have been payment on account of development of design. Tender specifications specifically provide the cost of design which is 2%. There is also clause of payment on account of maintenance and running and from all these clauses it is established that assessee is not merely a contractor but a Developer also and as per Explanation added to section 80IA the Developer is not barred for deduction under section 80IA(4). On ground that assessee has not invested its own funds as they were taken from the VIDC. We have discussed various clauses of detailed Tender Notice the assessee has invested its own money in developing the design of Gates and manufacturing the Gates after approval of the Engineer-in-Charge of the VIDC. After getting satisfied then only payment is to be approved and made. Therefore this is not a case of financing the project by the Corporation or reimbursement of expenses by the Corporation. It is the investment of the assessee only and therefore the argument of ld. D/R does not have weight on this point. The ld. CIT D/R has relied on the decision of Special Bench in the case of BT. PATIL SONS BELGAUM CONSTRUCTION (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 2 KOLHAPUR 2009 (10) TMI 521 - ITAT MUMBAI . This decision of Special Bench has been over ruled now by the Hon ble Bombay High Court in case of COMMISSIONER OF INCOME-TAX VERSUS ABG HEAVY INDUSTRIES LIMITED 2010 (2) TMI 108 - BOMBAY HIGH COURT . In the present case the facts are on more stronger footing as assessee has to develop the design of gates of dam and thereafter they have to fix the gates in the dam and they have to operate and look after the maintenance also for two years. Therefore in our humble view the assessee is entitled for deduction under section 80 IA(4) even after the decision of Special Bench in case of M/s. B.T. Patil Sons and even after Explanation added in section 80IA(4) by Finance Act 2007 and amended by Finance Act 2009 with retrospective effect from 1.4.2000 - Decision in favour of Assessee. Disallowance on account of Traveling telephone and Prior Period Expenses - AO made disallowance as such expenses were not for business purposes - Also being prior period expenses disallowance was made - HELD THAT - Regarding traveling and telephone expenses - how the expenses are not for business purposes AO has not brought any material on record. Assessee filed full details regarding such expenses therefore we delete the addition on account of telephone and traveling expenses - Decision in favour of Assessee. Regarding disallowance of expenses being prior period expenses assessee did not produce any evidence in support of his claim. Therefore the expenditures were disallowed by AO and confirmed by ld. CIT (A) - Decision against Assessee.
Issues Involved:
1. Rejection of deduction claim under section 80IA(4) for Goshi Khurd Project. 2. Disallowance of Rs. 1,00,000/- on account of traveling expenses. 3. Disallowance of Rs. 1,00,000/- on account of telephone expenses. 4. Disallowance of Rs. 1,22,000/- being prior period expenses. Issue-wise Detailed Analysis: 1. Rejection of Deduction Claim under Section 80IA(4) for Goshi Khurd Project: The core issue was whether the assessee, a Public Limited Company, was eligible for a deduction of Rs. 16,89,16,692/- under section 80IA(4) for the Goshi Khurd Project, an irrigation project promoted by the Government of Maharashtra. The AO rejected the claim based on the Finance Act, 2007, and the Finance Act, 2009, which clarified retrospectively that section 80IA(4) would not apply to works contracts awarded by any person (including Central or State Government) and executed by the undertaking or enterprise. The CIT (A) upheld this decision, reasoning that the assessee was merely a contractor, not a developer. The assessee argued that the project was an infrastructural development project, and deductions were allowed in previous years (2003-04 to 2006-07). The Tribunal had previously upheld the allowability of the deduction. The assessee contended that the amendment did not change the nature of their work, which involved developing, designing, fabricating, transporting, supplying, erecting, and commissioning gates, thus qualifying them as a developer. The Tribunal noted that the earlier orders for assessment years 2003-04 to 2006-07 had considered the explanation added by the Finance Act, 2007, and concluded that the assessee was a developer. It found no substantial difference between the explanations added by the Finance Act, 2007, and the Finance Act, 2009. The Tribunal also referred to the Hon'ble Bombay High Court's decision in the case of ABG Heavy Industries, which overruled the Special Bench decision in B.T. Patil & Sons, confirming that even a contractor could be eligible for deduction if they developed the infrastructure. The Tribunal concluded that the assessee was a developer and not merely a contractor, thus eligible for deduction under section 80IA(4). The Tribunal directed the department to allow the deduction claimed by the assessee. 2. Disallowance of Rs. 1,00,000/- on Account of Traveling Expenses: The AO disallowed Rs. 1,00,000/- out of total traveling expenses of Rs. 1,56,76,474/- on the ground that the assessee could not prove that the entire expenses were for business purposes. The CIT (A) confirmed this disallowance. The Tribunal found that the AO had not brought any material on record to show that the expenses were not for business purposes. Given the substantial amount of total expenses and the lack of specific evidence against the claimed expenses, the Tribunal deleted the disallowance. 3. Disallowance of Rs. 1,00,000/- on Account of Telephone Expenses: Similarly, the AO disallowed Rs. 1,00,000/- out of total telephone expenses of Rs. 48,69,874/- for the same reason. The CIT (A) confirmed this disallowance. The Tribunal noted that the AO had not provided any evidence that the expenses were not for business purposes. Considering the total amount of expenses and the lack of specific evidence, the Tribunal deleted the disallowance. 4. Disallowance of Rs. 1,22,000/- Being Prior Period Expenses: The AO disallowed Rs. 1,22,000/- as prior period expenses because the assessee did not produce any evidence in support of the claim. The CIT (A) confirmed this disallowance. The Tribunal found no infirmity in the CIT (A)'s decision as the assessee failed to provide the necessary details to support the claim. Therefore, the Tribunal upheld the disallowance. Conclusion: The Tribunal allowed the appeal in part. The deduction under section 80IA(4) was granted, and the disallowances of Rs. 1,00,000/- each on traveling and telephone expenses were deleted. However, the disallowance of Rs. 1,22,000/- for prior period expenses was upheld.
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