2016 (9) TMI 1296 - AT - Income Tax

Addition u/s 40A - Held that - Nowhere the AO doubted genuineness of the expenditure and insufficiency of the details. Only reason given by AO was that payment was excessive or unreasonable. As per our considered view whenever provisions of Section 40A(2) is invoked burden is on the revenue to show that payment made to sister concern is more than the fair market value for which similar service are available. However there is no such finding by the AO to allege that payment so made was not reasonable or similar service were available to assessee at lower price than what was paid to the sister concern for getting the work done. After discussing the facts in detail the CIT(A) has also applied the decision in the case of Batliwala & Karani Vs. ACIT (2004 (12) TMI 626 - ITAT MUMBAI ) wherein it has been held that unless there is a clear finding that market value of services taken from sister concern is less than the price at which services are obtained there cannot be an occasion to apply disabling provisions of Section 40A(2). We do not require any interference on our part for deleting the addition made u/s.40A(2). - Decided in favour of assessee Disallowance of claim of deduction u/s.80IA(4) - absence of the operation and maintenance - Held that - The appellant carried out the entire development of its own by giving specifications and necessary Designs/plans as per the location of the site which was done by the technical experts employed by the assessee. Thus the assessee did the entire development of the infrastructure facility. We also found that the cost of development of the infrastructure facility was paid to the assessee and the same was received by the assessee as per the bills raised. The MCGM while making the payments deducted tax at source under the provisions of section 194-C of the Act as the development of infrastructure facility was as per the agreement entered into which was contract between the Government Authority and the assessee and the provisions of Section 194-C of the Act were applicable. However merely because the tax was deducted in terms of provisions of section 194-C of the Act It did not make the assessee a mere contractor executing the works contract. In the development of the project it was the technical personnel of the assessee that made the proper specifications etc. from time to time as per the location of the site and as the project progressed. Developer does not mean merely a person who was conceiving the idea. Any enterprise developing infrastructural facilities is a developer of such facility since all the responsibility of the project was that of the enterprise from the start of the project till Its completion Therefore It would not be said that merely because the idea was conceived by the government and more Importantly on the land etc. which was in domain of the government that the government was the developer. The fact that the TDS was deducted did not in any way bar the appellant from claiming the benefit of deduction u/s.80-IA as the fact remained that the appellant was a developer of Infrastructural facilities. With regard to the AO s objection that assessee is neither BOT nor BOOT we found that the wordings of the section prior to the amendment made w.e.f. 01.04.2000 did not have any alternative by usage of the word OR in sub-section (4) of section 80lA of the Act and hence the provision of section 80lA of the Act was available only to an assessee who not only developed but after developing also operated and maintained the Infrastructure facility. Thus while introducing the provisions of section 80lA of the Act the concept of BOT /BOOT prevailed and it was in this context that the Department issued circular nO.717 dated 14/8/1995 which clearly explained the new provisions of section 80-lA of the Act in terms of Infrastructural development. Thus the concept of BOT IBOOT underwent changes in the year 2000. If the Intention was only to give benefit to enterprises on the income earned from operating and maintaining the Infrastructure facility In that case the provision would not have been amended in such a manner so as to also allow benefit to the enterprise which was merely developing the facility. Further there would have been no necessity to make the amendment if the enterprise was to be allowed in respect of Income earned from operating and maintaining the facility. When the provision of section 80lA of the Act had been substantially amended and where the enterprise was only a developer of the Infrastructure facility deduction could not be denied under section 80-lA of the Act on the ground that the concept of BOT/BOOT was the main requirement for getting benefit of deduction under section 80-lA of the Act. Thus as keeping in view that assessee in earlier years have already been allowed deduction 80IA(1) by the AO we do not find any infirmity in the order of CIT(A) for allowing assessee s claim for deduction u/s.80IA - Decided in favour of assessee

Summary

Issues Involved:
1. Addition made by the AO under Section 40A(2) of the I.T. Act.
2. Disallowance of deduction under Section 80IA(4) of the I.T. Act.

Issue-wise Detailed Analysis:

1. Addition under Section 40A(2):

The first grievance of the revenue pertains to the addition made by the Assessing Officer (AO) invoking the provisions of Section 40A(2) of the I.T. Act. The AO observed that the assessee, a Joint Venture (JV) engaged in construction activities, paid Rs. 46.69 lakhs towards sub-contract charges to related parties. The AO deemed these payments excessive and unreasonable, applying an 8% margin based on Section 44AD, resulting in an addition of Rs. 3.95 crore.

The CIT(A) allowed the assessee’s claim, noting that the AO did not provide any comparable data to support the claim of excessiveness and merely disbelieved the assessee’s explanation. The CIT(A) referenced the judgment in Batliwala & Karani Vs. ACIT, which emphasized that unless there is a clear finding that the market value of services from a sister concern is less than the price paid, Section 40A(2) cannot be invoked.

The Tribunal upheld the CIT(A)’s decision, stating that the burden of proof lies on the revenue to show that the payment exceeded fair market value. Since the AO did not establish that the payment was unreasonable, the addition under Section 40A(2) was deleted.

2. Disallowance of Deduction under Section 80IA(4):

The second issue concerns the disallowance of the assessee’s claim for deduction of Rs. 40,744/- under Section 80IA(4). The AO rejected the claim, arguing that the assessee was not a developer but merely a contractor, and the conditions under Sections 80IA(2) and 80IA(4)(1)(c) were not met.

The CIT(A) allowed the deduction, explaining that Section 80IA provides for deduction to enterprises engaged in developing, operating, and maintaining infrastructure facilities. The CIT(A) cited various judicial precedents, including the Mumbai Tribunal’s decision in Patel Engineering Ltd., which clarified that a developer is entitled to deduction even if they do not operate the infrastructure facility.

The CIT(A) further noted that the appellant made significant investments, faced various risks, and was not merely executing a work contract. The CIT(A) also addressed the AO’s objections regarding the absence of BOT/BOOT models and the applicability of Section 80IA(4)(1)(c), concluding that these conditions were not relevant to the appellant’s case as it was solely a developer.

The Tribunal upheld the CIT(A)’s decision, stating that the appellant met all the necessary conditions for claiming the deduction under Section 80IA. The Tribunal emphasized that the appellant was a developer, not a mere contractor, and the deduction was rightly allowed.

Conclusion:

The appeal of the revenue was dismissed, affirming the CIT(A)’s decisions on both issues. The Tribunal concluded that the addition under Section 40A(2) was unjustified and the disallowance of deduction under Section 80IA(4) was incorrect, thereby allowing the assessee’s claims.