2022 (6) TMI 1516 - AT - Income Tax

Deduction u/s 80IA - assessee company carries on the business of contract work in respect of construction of Water Treatment Plants (WTP) Sewage Treatment Plant (STP) etc . - Deduction denied as assessee was not a developer of the projects but had carried out the project only as a work contractor - CIT (A) had found the facts relating to these projects identical to the remaining 9 projects and accordingly allowed the assessee s claim for deduction u/s. 80IA - HELD THAT - We see no reason to interfere in the order of the CIT (A) since admittedly the assessee s claim of deduction with respect to projects listed at serial no. 1 to 9 already stand examined and adjudicated upon by the ITAT in the preceding years wherein they were found to be eligible to grant to deduction u/s. 80IA. As for the remaining two new projects undertaken by the assessee during the year since the Ld. D.R. has been unable to distinguish the finding of the CIT (A) on facts that the scope of work relating to these two projects was identical to the other nine projects which were held to be eligible for the deduction u/s. 80IA by the ITAT the order of the ld. CIT (A) allowing assessee s claim of deduction vis a vis the remaining two project also is upheld. The order of the ld. CIT (A) therefore allowing assessee s claim of deduction u/s. 80IA is upheld. Treating interest income as income from other sources and not as the profit derived from the projects eligible u/s. 80IA - HELD THAT - We have gone through the decision of Shah Alloys 2016 (8) TMI 1191 - GUJARAT HIGH COURT and we find that while dealing with the claim of deduction u/s 80-IA of the Act on interest earned on Margin Money kept with Banks it was categorically held that the same being incidental to the business activities of the assessee and assessable as Income from Business and Profession it was eligible to deduction u/s 80-IA of the Act. The Hon ble Court held the issue to be covered by its earlier decision of Nirma Industries Ltd. 2006 (2) TMI 92 - GUJARAT HIGH COURT . The facts in the present case before us are on identical lines wherein the FD s earning interest were required to be made by the banks for issuing Bank Guarantees and Performance Guarantees to the assessee which was a necessary prerequisite as per the terms of the tender issued awarding projects to it. The interest income earned on these FD s were incidental to its business and have been assessed as Business Income also. The decision of the Hon ble Jurisdictional High Court therefore squarely applies in the present case and the interest income is therefore eligible for deduction u/s 80-IA of the Act. Disallowance being the delayed employees contribution to PF u/s. 2(24)(x) r.w.s. 36(i)(va) - assessee fairly admitted that the issue stood covered against the assessee by the decision of the Hon ble Jurisdictional High Court in the case of GSRTC Ltd 2014 (1) TMI 502 - GUJARAT HIGH COURT Addition u/s. 56(2)(viib) - determination of the excess consideration received by the assessee on issue of shares exceeding its fair market value - assessee had received share premium during the year by issuing shares of Rs. 10 at a premium of Rs. 140 per share - shares to be issued by the assessee at more than its FMV and made addition of the difference u/s 56(2)(vii)(b) - assessee had adopted the second method to justify the fair market value of the shares by including the value of goodwill to the assets held by it the Revenue authorities had merely insisted on the valuation being done as per the first method i.e. Rule 11UA prescribed by the Rules in this regard - HELD THAT - Undoubtedly the assessee had justified fair market value of shares issued by submitting a calculation including in the value of assets the value of goodwill as on the date of issue of shares. The said calculation was rejected by both the authorities below for the reason that the FMV could have been calculated only as per Rule 11UA of the Rules. This basis of the Revenue we find is not in accordance with law. The section as reproduced above clearly gives two options to the assessee for calculating the FMV of shares one of which is as per Rule 11UA of the Rules and the other based on the value of assets as on the date of the issue of shares. The ITAT Ahmedabad Bench in the case of Unnati Inorganics Pvt. Ltd. 2019 (9) TMI 553 - ITAT AHMEDABAD has held that as per the second method all assets including those not shown in the balance sheet are also to be considered. Since the assessee has included goodwill for the purpose of calculating the FMV even if it is not included in the books of accounts of the assessee the assessee is well within its right to consider the value of the same for determining the fair market value of shares. The Revenue authorities clearly have failed to examine the issue correctly in the light of the prevailing position of law. We consider it fit therefore to restore the issue back to the A.O. to examine afresh the issue of determination of FMV of shares issued during the year as prescribed in law u/s 56(2)(vii)b) of the Act. Needless to add the assessee be given due opportunity of hearing in this regard.

Summary

Issues Involved:

1. Deletion of disallowance of deduction under Section 80IA of the Income Tax Act.
2. Treatment of interest income as income from other sources versus business income eligible for deduction under Section 80IA.
3. Disallowance of employees' contribution to PF under Section 2(24)(x) read with Section 36(1)(va).
4. Disallowance under Section 40(a)(ia) related to reversal of expenses.
5. Disallowance of professional tax deduction under Section 43B.
6. Addition under Section 56(2)(viib) concerning the fair market value of shares and share premium.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 80IA:
- The Revenue's appeal contested the deletion of disallowance of Rs. 2,74,60,449/- under Section 80IA. The assessee claimed the deduction on profits from infrastructure projects. The CIT(A) allowed the deduction, referencing earlier years where similar claims were upheld. The ITAT confirmed this decision, noting that the projects were previously adjudicated as eligible for the deduction, and no distinguishing facts were presented for the current assessment year.

2. Interest Income Treatment:
- The assessee's appeal challenged the treatment of interest income of Rs. 13,18,599/- as income from other sources. The interest was earned on fixed deposits used for bank guarantees necessary for infrastructure projects. The CIT(A) denied the deduction under Section 80IA, but the ITAT found merit in the assessee's argument, citing the jurisdictional High Court's decision in Shah Alloys Ltd., which allowed such interest as business income eligible for deduction under Section 80IA.

3. Disallowance of Employees' Contribution to PF:
- The CIT(A) upheld the disallowance of Rs. 24,960/- for delayed employees' PF contributions under Section 2(24)(x) read with Section 36(1)(va). The ITAT noted that the issue was settled against the assessee by the jurisdictional High Court in GSRTC Ltd., thus dismissing this ground of appeal.

4. Disallowance under Section 40(a)(ia):
- The assessee's appeal included a ground regarding disallowance under Section 40(a)(ia) related to reversal of expenses. The assessee chose not to press this issue due to the small amount involved, leading to its dismissal by the ITAT.

5. Disallowance of Professional Tax:
- The CIT(A) confirmed the disallowance of professional tax of Rs. 44,320/-, which was deducted from employees' salaries. The assessee did not claim this as a deduction in the return of income. The ITAT dismissed this ground as the assessee did not wish to pursue it further.

6. Addition under Section 56(2)(viib):
- The AO added Rs. 30,19,663/- under Section 56(2)(viib), determining that shares were issued at a premium exceeding fair market value as calculated under Rule 11UA. The assessee argued that it could justify the fair market value by including goodwill, as permitted by law. The ITAT found that the Revenue failed to consider both valuation methods allowed under the Act and restored the issue to the AO for fresh examination, allowing the assessee to substantiate its valuation approach.

Conclusion:

- The ITAT dismissed the Revenue's appeal, upheld the assessee's claim for deduction under Section 80IA, and partly allowed the assessee's appeals for statistical purposes, directing a fresh examination of the fair market value of shares. The treatment of interest income as business income was also upheld in favor of the assessee, while other grounds were dismissed or not pressed.