Deduction 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.
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