THE ACIT, CIRCLE-4,, BARODA vs. M/S. WELSPUN PROJECTS LTD.,(FORMERLY KNOWN AS MSK PROJECTS (INDIA) LTD.,), BARODA

We advert to rival pleadings first. The Revenue appears to be raising three substantive grounds inter alia challenging the CIT(A)’s order deleting disallowances / additions u/s.40(a)(ia) amounting to Rs.5,48,450/-, interest u/s. 36(1)(iii) and in treating the assessee to be an infrastructure developer than a mere works contractor on “ BOT” basis qua its two projects namely Hoshangabad – Harda – Khandwa and Raisen – Rahatgarh; respectively as made in assessment order dated 26.02.2013. The assessee on the other hand pleads four substantive grounds assailing correctness of both the lower authorities’ action invoking Section 40(a)(ia) disallowance of Rs.64,02,620/-, 14A r.w. Rule 8D disallowance of Rs.1,09,85,008/- qua its exempt income of Rs.46,643/-, Section 40A(7) disallowance of gratuity amounting to Rs.12,84,936/- and allocating its expenses resulting in Section 80IA deduction disallowance of Rs.7,45,28,297/-; respectively.

Both parties inform us at the outset that some of the issues emanating in the instant cross appeals are inter connected. We proceed to notice that first such common issue is that of Section 40(a)(ia) disallowance. The Assessing Officer noticed during scrutiny that the assessee had not deducted any TDS on rent / lease rent/godown rent, machinery hire, vehicle hire, consultancy, shuttering work, lamination, site office expenses, steel transport, road work and legal / professional charges totaling to Rs.64,66,631/-. He further came across

The assessee preferred appeal. The CIT(A) observes first of all that the impugned disallowance provision enshrined u/s.40(a)(ia) of the Act does not apply in case of short deduction of TDS. He then finds assessee’s payments of Rs.64,011/- to be less than the cut of limit inviting TDS deduction. The corresponding disallowance accordingly stands deleted. The CIT(A) thereafter confirms the remaining disallowance amount of Rs.64,02,620/- in lower appellate order leaving the Revenue as well as assessee aggrieved to the extent indicated in their respective pleadings.

We have heard both the parties. Relevant findings perused. We first proceed to deal with Revenue’s arguments in support of its grievance that the Assessing Officer had rightly disallowed assessee’s expenses to the tune of Rs.5,48,450/- since it had deducted less than the prescribed TDS deduction in chapter XVIIB of the Act. We find that hon’ble Calcutta high court’s judgment in CIT vs. S. K. Tekriwal (2014) 361 ITR 432 (Cal) holds that Section 40(a)(ia) disallowance does not apply in case of short deduction of TDS. Learned Departmental Representative thereafter seeks to invoke proportionate disallowance of expenses to the extent of short deduction of TDS only. We find no merit in the instant alternative plea as well since there is no such course of action prescribed in the Act. The Revenue therefore fails in first substantive ground.

We advert to assessee’s case now seeking to delete the abovestated Section 40(a)(ia) disallowance amounting to Rs.64,02,620/-. There is no dispute

The Revenue’s second substantive ground pleads that the CIT (A) has erred in law and on facts in deleting Section 36(1)(iii) interest disallowance of Rs.9,89,280/- as made in the course of assessment proceedings. It emerges that he has followed this tribunal’s order in ITA No. 2820/Ahd/2010 for assessment year 2009-10 decided on 25.07.2013 (pages 165 to 172 in paper book). He thereafter concludes that the assessee’s advances in question of Rs.63.08 crores are much less than its interest free funds of Rs.29.90 crores. Relevant parties have also been found to be the same as in the said earlier assessment year. All these clinching facts have gone unrebutted in the course of hearing. We therefore affirm the CIT(A)’s findings deleting the impugned disallowance. The Revenue fails in its second substantive ground.

The Revenue’s third substantive ground challenges correctness of the CIT(A)’s action treating the assessee as an infrastructure developer and not a works contractor qua its BOT road projects in Madhya Pradesh (supra). The assessee’s fourth substantive ground connected to the instant issue pleads that the said allocation of expenses has been wrongly made in its case. We therefore take up both these grounds together for adjudication.

We advert to Revenue’s grievance first that the assessee’s BOT road project cannot be treated as an instance of infrastructure development rendering profits derived therefrom in the form of toll collection as eligible for the impugned Section 80IA deduction. We notice that the very issue pertaining to the said two projects had arisen in assessment year 2008-09 as well. The assessee filed Section 264 revision. The CIT-II, Baroda in his order dated 28.12.2011 upheld its case treating the above two projects to be eligible for the impugned deduction. The same has attained finality as on date. The CIT(A)’s order under challenge in para 10.3 page 58 takes due note thereof in accepting assessee’s arguments. We therefore adopt consistency to affirm the CIT(A)’s findings under challenge in Revenue’s third substantive ground. Its appeal ITA No.2940/Ahd/2013 therefore fails.

We stay back on assessee’s grievance now challenging correctness of allocation of expenses resulting in the impugned disallowance of Rs.7,45,28,297/- made by both the lower authorities. The relevant items are Director’s remuneration, audit fees, consultancy charges, postage / telegram expenses, general expenses, telephone expenses, board meeting sitting fees expenses and depreciation etc. Learned counsel appearing at assessee’s behest is fair enough in not pressing for the impugned challenge made to all above heads of allocation except depreciation. We therefore uphold both the lower authorities’ action allocating the impugned expenses other than depreciation

We now come to assessee’s second substantive ground challenging correctness of Section 14A r.w. Rule 8D disallowance of Rs.1,09,85,008/- made by both the lower authorities qua assessee’s exempt income of Rs.46,643/-. Learned counsel is again very fair in not disputing the impugned disallowance in principle. He only quotes hon’ble Delhi high court’s judgment in Joint Investments Pvt. Ltd. vs. CIT (2015) 372 ITR 694 (Delhi) that such a disallowance cannot exceed the exempt income amount itself. The Revenue is unable to rebut application of the above judicial precedent. We therefore direct the Assessing Officer to restrict the impugned disallowance to the extent of Rs.46,643/- only. The assessee partly succeeds in the instant substantive ground.

Learned counsel lastly informs us that the assessee no more wishes to press for its challenge to Section 40A(7) disallowance (supra) amounting to

We quote our above detailed discussion to dismiss Revenue’s appeal ITA No.2940/Ahd/2013 and partly allow assessee’s cross appeal ITA No.2956/Ahd/2013. Ordered accordingly.