2018 (5) TMI 244 - AT - Income Tax

Disallowance of claim of deduction u/s.80IA(4) - assessee had developed the infrastructure facility and was engaged in operating the Road - Held that - The obligations which had been assumed by the assessee under the terms of the contract were obligations involving the development of an infrastructure facility. Section 80-IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing maintaining and operating an infrastructure facility. A port was defined to be included within the purview of the expression infrastructure facility . The obligations which the assessee assumed under the terms of the contract were not merely for on a BOT basis. On the fulfillment of the ten years there was a vesting in the JNPT free of The finding that the assessee had developed the infrastructure facility and was engaged in operating the Road is entitled to the special deduction under Section 80 IA. Disallowance u/s. 40(a)(ia) - TDS deposited before filing the return u/s.139(1) - Held that - TDS deducted on payments have already been deposited before filing the return u/s.139(1) the same cannot be disallowed by invoking provisions of section 40(a)(ia) of the Act. From the record we find that TDS up to February 2008 have been duly deposited in the Government account on 29.8.2010 which is prior to the last date of filing the return u/s. 139(1). Accordingly there is no justification on the part of the Assessing Officer to disallow payment u/s. 40(a)(ia) of the Act. The Assessing Officer is directed to delete the disallowance so made. Disallowance of Labour Expenses - Held that - Nature of assessee s business and fact that labour payment have been made at site we restrict the disallowance at Rs. 20, 000/- in place of Rs. 2 lakhs made by the Assessing Officer. We direct accordingly.

Summary

Issues Involved:
1. Disallowance of claim of deduction u/s 80IA(4).
2. Disallowance under section 40(a)(ia) for non-deduction of TDS.
3. Adhoc disallowance of labor expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Deduction u/s 80IA(4):
The common grievance pertains to the disallowance of the claim of deduction under section 80IA(4) by the Assessing Officer (AO), who contended that the assessee is a contractor, not a developer. The assessee, engaged in the construction/development of infrastructure facilities such as roads and railway components, claimed deduction for infrastructure projects undertaken. The AO disallowed this claim, relying on a Chennai ITAT decision, which was found to be inapplicable as the facts differed significantly.

The Tribunal emphasized that merely entering into a contract does not preclude the assessee from being a developer. The term 'contractor' is not contradictory to 'developer,' and section 80IA(4) allows for deduction if the infrastructure facility is developed per an agreement with government authorities. The Tribunal concluded that the assessee, who developed roads for the Government of Rajasthan, qualifies as a developer and is entitled to the deduction under section 80IA(4). The Tribunal also noted that the amendment in section 80IA, effective from 1-4-2002, clarified that enterprises engaged in either developing or operating and maintaining infrastructure facilities are eligible for deduction.

2. Disallowance under Section 40(a)(ia):
In the assessment year 2008-09, the AO disallowed payments made to contractors and transporters under section 40(a)(ia) for non-deduction of TDS. The Tribunal found that the assessee had deducted and deposited TDS before the due date for filing the return under section 139(1). Therefore, the disallowance under section 40(a)(ia) was unjustified, and the AO was directed to delete the disallowance.

3. Adhoc Disallowance of Labor Expenses:
For the assessment year 2009-10, the AO made an adhoc disallowance of Rs. 2 lakhs from labor expenses, citing improper maintenance of muster rolls and cash payments. The Tribunal found that the expenses were incurred in the normal course of the assessee's business, and the books of accounts were audited without discrepancies. The Tribunal restricted the disallowance to Rs. 20,000, considering the nature of the business and the necessity of cash payments to laborers.

Conclusion:
The Tribunal allowed the appeals, directing the AO to allow the deduction under section 80IA(4) for all the years under consideration, delete the disallowance under section 40(a)(ia) for the assessment year 2008-09, and restrict the adhoc disallowance of labor expenses to Rs. 20,000 for the assessment year 2009-10. The order was pronounced on 26/04/2018.