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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JUDICIAL MEMBER :
This appeal by the Revenue is directed against the order dated 31.10.2023 of the CIT(A)/NFAC, Delhi relating to the assessment year 2017-18.
The grounds raised
by the Revenue are as under :
1. In the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made by the Assessing Officer u/s.14A of the I.T. Act, 1961 of Rs.6,65,484/.
In the facts and in the circumstances of the case and in law, the Ld.CI (A) has erred in deleting the disallowance made by the Assessing Officer at Rs.11,57,627/- on account of un-supported expenses, since, the evidence submitted by the Assessee was not verifiable.
In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of depreciation on luxury cars of Rs.21,36,823/- ignoring the fact that the Assessee could not furnish necessary evidence to show that the luxury cars were used wholly for business purpose to rule out personal use by directors of the company.
Whether, the assessee fulfills the requirement stipulated in Section 80IA(4) of the Income Tax Act, 1961 once the conclusion reached is that it is contractor and not developer as stated in the sub-section? [Note : For this ground of appeal, the PCIT-1, Pune has accorded approval for deferment of appeal [As per provisionis u/s.158AB of the Act] u/s.253(3) of the Act, before ITAT in accordance to decision of the collegiums dated 27.12.2023 (copy annexed)].
Whether on the facts and in circumstances of the case, the Ld. CIT(A) was right in holding that even if the assessee is termed as contractor as he had developed, operated and maintained infrastructural facility and hence entitled to the deduction within the meaning of sub-section (4) of section 80IA? [Note : For this ground of appeal, the PCIT-1, Pune has accorded approval for deferment of appeal [As per provisions u/s.158AB of the Act] u/s.253(3) of the Act, before ITAT in accordance to decision of the collegiums dated 27.12.2023 (copy enclosed)].”
Facts of the case, in brief, are that the assessee is a company engaged in the business of infrastructure construction, i.e. construction of dams, Roads, Power House Tunnels, Electrical Transmission Lines, Sub-section Switch Yards, Power Generator and Distribution and allied work Bridges and Lift Irrigation Projects etc. It filed its return of income on 31.03.2018 declaring total income of Rs.20,79,02,355/-.
The Assessing Officer (AO) completed the assessment u/s.143(3) on 27.12.2019 determining total income of the assessee at 18,33,91,113/- wherein he made the following additions/disallowances :
(a) Disallowance out of deduction claimed u/s.80IA(4) amounting to Rs.5,57,30,793/-. (b) Helicopter expenses of Rs.6,17,328/-. (c) Disallowance u/s.14A read with Rule 8D of Rs.6,65,484/- (d) Disallowance out of profit & loss account of Rs.11,57,627 (e) Disallowance on account of Depreciation of Rs.21,36,823/-
In appeal, the ld. CIT(A) gave part relief to the assessee.
Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal.
Ground of appeal No.1 by the Revenue relates to deletion of the disallowance of Rs.6,65,484/- made by the AO u/s.14A of the I.T. Act.
Facts of the case, in brief, are that during the course of assessment proceedings, the AO noted that the assessee has made investment in shares and mutual funds to the tune of Rs.6,89,03,906/-.
On verification of the profit and loss account, he noted that the assessee has incurred interest expenditure on borrowed funds amounting to Rs.2,93,08,592/-. He, therefore, asked the assessee to explain as to why disallowance u/s.14A should not be made. The assessee submitted that the investment of Rs.6,89,03,906/- is out of own funds or receipts from earlier investments. It was submitted that the company has non- interest bearing funds as on 31.03.2017 to the tune of Rs.200.73 crore.
The decision of the Hon’ble Bombay High Court in the case of CIT Vs.
Reliance Utilities and Power Ltd. 313 ITR 340 was brought to the notice of the AO. However, the AO did not accept the contention of the assesssee. Applying the provisions of section 14A r.w. Rule 8D(i) and 8D(ii), he made disallowance of Rs.6,65,484/-.
In appeal, the ld. CIT(A) deleted the addition by holding as under:
“8.1 This issue has been discussed by the A.O in para 8 of the order. The A.O found that the assessee had made investment in shares and mutual fund to the tune of Rs. 6,89,03,906 and that the assessee had incurred interest expenditure on borrowed funds amounting to Rs. 2,93,08,592/-. Accordingly, the A.O made a disallowance u/s 14A rwr 8D of Rs 6,65,484/-. The detailed submissions of the assessee have been reproduced in para 5 above.
8.2 Looking at the financials of the appellant which have been submitted in these proceedings, I find that the appellant has sufficient non-interest bearing funds as on 31.07.2017 namely Share capital Rs. 9,14,13,770/- and Reserves and Surplus Rs. 165,79,47,094/- totaling Rs 174,93,60,864 and hence there is merit in the contention of the appellant that the investment made are either from its own funds or from earlier investments.
8.3 The Hon’ble Jurisdictional Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 has held that if there are funds available both interest free and overdrafts/loan taken then the presumption would arise that the investment would be out of interest free fund generated or available with company. The Hon’ble Pune ITAT has followed the above decision in the case of ACIT Vs. M/s Gujrat Tea Traders Pvt Ltd. and in case of S.M. Auto Engg. Pvt. Ltd. ITA No. 20502051/PN/2013. Accordingly, respectfully following these decisions, the addition of Rs 6,65,484/- is deleted and the Ground of Appeal is Allowed.”
8. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides and perused the record. We find the AO in the instant case applying the provisions of section 14A r.w. Rule 8D made the disallowance of Rs.6,65,484/- on the ground that assessee has made investment of Rs.6,89,03,906/- and has incurred interest expenditure on borrowed funds to the tune of Rs.2,93,08,592/-. We find the ld. CIT(A) deleted the addition, the reasons of which have already been reproduced in preceding paragraph.
It is the contention of the ld. DR that in view of various decisions the disallowance u/s.14A be made to the tune of actual dividend income received. It is the contention of the ld. AR that the assessee is having sufficient capital and free reserves which far exceeds the investment in shares, the dividend income of which is exempt. It is his alternate contention that the actual dividend income received in only Rs.23,575/- and he has no objection if the same is brought to tax. We accept the alternate contention of the ld. AR. Since the actual dividend income received by the assessee is only Rs.23,575/- which is verifiable from the audited accounts (at para 35 of the paper book), we direct the AO to restrict the disallowance u/s.14A to Rs.23,575/-. The order of the ld. CIT(A) is accordingly modified and the ground raised by the Revenue is partly allowed.
Ground of appeal No.2 by the Revenue relates to the deletion of Rs.11,57,627/- on account of unsupported evidences.
12. After hearing both the sides, we find the AO made disallowance of Rs.11,57,627/- being 10% of the following expenditure on the ground that some of the expenses are supported by self-made vouchers.
Communication expenses – Rs.9,18,016/-.
Travelling & Conveyance expenses – Rs.16,39,396/-. 3. Miscellaneous expenses – Rs.90,18,859/-.
We find in appeal the ld.CIT(A) deleted the addition by holding as under :
“9.1 In para 9 of the assessment order, the A.O has made a 10 percent adhoc disallowance out of the communication expenses, travelling and conveyance expenses and miscellaneous expenses on the ground that some of the expenses were supported by self made vouchers which could not be verified. 9.2 The A.O has not given any specific details regarding the anomalies found even by way of sample vouchers or particulars. Considering the fact that the books of account of the assessee are audited, an adhoc disallowance without any details or particulars cannot be sustained. The addition is deleted and the Ground of Appeal is Allowed.”
14. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides and perused the record. It is an admitted fact that the assessee is a Private Limited company and its accounts are audited and the Auditors have not pointed out any error/defect. Further, the AO has not given any specific detail regarding any voucher which according to him is self- made or does not give the details as required. Since no specific instance of any expenditure which is not supported by voucher or i.e.
self-made voucher is given by the AO, therefore, we do not find any infirmity in the order of the ld. CIT(A) deleting the estimated disallowance. The ground raised by the Revenue is accordingly dismissed.
The third ground of appeal by the Revenue relates to the order of the ld. CIT(A) in deleting the depreciation on Luxury Cars of Rs.21,36,823/-.
17. After hearing both the sides, we find the AO made disallowance of 50% of depreciation on Motor cars on the ground that personal use of the Luxury cars by family members of the assessee cannot be ruled out. We find the ld. CIT(A) deleted the disallowance by observing as under :
“10.1 This issue has been discussed in detail by the A.O in para 10 of the order. From the facts narrated therein, it is seen that depreciation of Rs 65,44,820 has been claimed on the block of cars which include Bentley, and passion pro. These cars are used by the Directors. The appellant has relied on the judgement of the Hon’ble Gujarat high court in the case of Sayaji Iran and engg. Co which has been followed by the Jurisdictional Pune Bench of the ITAT in the case of Hindumal Balmukund Investment Co Pvt Ltd to support the view that there cannot be disallowance of expenses in the hands of the company on account of personal use even by its directors. Respectfully following the decision of the Jurisdictional Tribunal, the disallowance/addition made by the A.O is deleted and the Ground of Appeal is Allowed.”
18. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
19. After hearing both the sides, we do not find any infirmity in the order of the ld. CIT(A) deleting the 50% disallowance of depreciation of Motor cars for probable personal use of the Directors and Family members by relying on the decision of Hon’ble Gujarat High Court in the case of Sayaji Iron and Engineering Company and the decision of the Pune Bench of the Tribunal in the case of Hindumal Balmukund Investment Co Pvt Ltd.. The ld. DR could not bring any material to take a contrary view than the view taken by the ld. CIT(A) on this issue. Accordingly, the ground raised by the Revenue is dismissed.
Ground of appeal No.4 by the Revenue relates to the order of ld.CIT(A) in deleting the disallowance u/s.80IA(4) of the Act.
21. After hearing both the sides, we find the AO disallowed the claim of deduction u/s.80IA(4) of Rs.2,66,92,291/- on the ground that the assessee was a contractor employed by the Government to execute a pre-determined work. In relation to work, the Government/Contractee continued to be the Developer which had not parted with the right to operate and maintain the facility which would come into existence after execution of contract. While doing so, the AO did not accept the contention of the assessee that similar issue has already been decided by the Tribunal in assessee’s own case for the immediately preceding assessment years on the ground that the Revenue has filed an appeal before the Hon’ble Bombay High Court against the order of the Tribunal which is pending and therefore, to keep the matter alive, the AO made the disallowance.
22. We find the ld. CIT(A) following the order of the Tribunal in assessee’s own case allowed the claim of deduction u/s.80IA(4) by observing as under :
“7.1 This issue is a recurring issue which has arisen in the earlier assessment years in the appellants own case for AY 2004-to 2010-11 which was decided in favour of the assessee by the Hon’ble ITAT Pune in to 2577/PN/2012 vide order dated 09.12.2015. This issue had also arisen in the appellants own case in AY 2011-12 and 2012-13 which was decided in favour of the assessee by the ITAT in ITA Nos. 146 and 147/PUN/2016 on 17.01.2018 and for AY 2013- 14 in ITA No 2169/Pun/2016 decided by the ITAT on 30.07.2018. Furthermore, my predecessor while deciding the assessee’s appeal for AY 2016-17 has decided the issue in favour of the appellant vide order dated 06.05.2019. Accordingly, following the decisions of the Hon’ble ITAT in the appellants own case for the earlier years, the addition made of Rs2,66,92,291/- on account of disallowance u/s 80IA(4) is deleted and the Ground of appeal is Allowed.”
23. We do not find any infirmity in the order of the ld. CIT(A) on this issue. Admittedly, the Tribunal in assessee’s own case is consistently allowing the claim of deduction u/s.80IA(4) treating the assessee as a developer and is entitled to claim deduction. Merely because an appeal has been filed by the Revenue against the order of the Tribunal, the same cannot be a ground to take a contrary view than the view taken by the Tribunal in assessee’s own case in the preceding years, in absence of any contrary decision of the Hon’ble Jurisdictional High Court. In this view of the matter, we do not find any infirmity in the order of the ld. CIT(A) on this issue. The ground raised by the Revenue is, therefore, dismissed.
In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 17th September, 2024.
Sd/- Sd/- R.K. PANDA ASTHA CHANDRA VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 17th September, 2024 Satish
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to :
अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The concerned Pr.CIT 4. "वभागीय ��त�न%ध, आयकर अपील�य अ%धकरण, पुणे “A” / DR ‘A’, ITAT, Pune; 5. गाड� फाईल / Guard file. आदेशानुसार / BY ORDER,
//स�या"पत ��त// True Copy//
व*र+ठ �नजी स%चव / Sr. Private Secretary आयकर अपील�य अ%धकरण, पुणे / ITAT, Pune