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2018 (6) TMI 89 - AT - Income TaxDeduction claimed u/s 80IA denied - meaning and scope of the term "works contract" - works contract or developer of infrastructure facilities - widening of existing roads by construction of additional lanes of a highway - whether the interest income was to be set off against the interest expenditure and the net income was to be excluded for the purpose of calculation of deduction u/s 80IA - apportionment of expense of the expenses of Head Office - Held that:- The assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80IA - contention of AO that the assessee had not undertaken any entrepreneurial and investment risk is an incorrect interpretation of the facts. The assessee deploying its resources i.e. finance, technical expert, human resources, material, machinery, labour etc. in the construction work clearly exhibits the risks undertaken by the assessee. The assessee was to indemnify the employer of any losses/damage caused to any property/life in course of execution of works. Further, it was responsible for the correction of defects arising in the works at its cost. Thus, it cannot be said that the assessee had not undertaken any risk. It is clear that the assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80IA(13) of the Act does not apply to the assessee. In addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80IA of the Act. Interest income - the same represents interest on fixed deposits - there is a direct nexus of the fixed deposit with the development activity of the assessee. AO in the assessment order has pointed out that there were interest expenses incurred by the assessee on cash credit, equipment finance and unsecured loans. The total of the interest paid including bank charges (which are as per Section 2(28A) are also considered to be interest) for the BT Road project was ₹ 6,56,124. We find that the interest income and interest expenses are closely linked and hence we direct the ld AO to consider the net interest while determining the profit of the enterprise. In the instant case, the net interest expense is more and hence it would not affect the computation of deduction u/s 80IA of the Act. Apportionment of expenses and depreciation apportionment - we find that we have directed to consider the interest and bank charges net of interest income. We find that the amount of ₹ 8,84,703/- includes the bank interest and bank charges of ₹ 6,56,124/-. Thus the balance amount of ₹ 2,28,579/- and the amount of depreciation of ₹ 1,00,505/- shall also be reduced from computation of deduction u/s 80IA of the Act. To this extent the order of the ld AO is upheld. Whether the CITA was justified in upholding the action of the ld AO in reducing the claim of depreciation from 30% to 15% on commercial vehicles? - Held that:- Total contract value undertaken by the assessee includes a sum towards removal of earth from working site including loading, unloading and carriage within a distance of 2 km over pacca road. For this purpose, the commercial vehicles of the assessee had been used for execution of the development project undertaken by the assessee. Hence it could be safely concluded that the vehicles were used for the purpose of business for transportation of goods of running them on hire as admittedly the total contract value includes hire charges (in different nomenclature) and accordingly entitled for higher rate of depreciation @ 30%.- this depreciation is related to B.T.Road Project. Hence the disallowance of depreciation of 15% would only go to increase the profits of B.T.Road Project and consequentially the assessee would be entitled for higher claim of deduction u/s 80IA of the Act. We find that the CBDT in its Circular No. 37 of 2016 dated 2.11.2016 had also confirmed this aspect.
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