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Tax tribunal's ruling may open floodgates of claims from contractors supplying to infrastructure projects

Author : Renni Abraham/DNA-Daily News & Analysis

Content : In a precedent-setting ruling, the Income Tax Appellate Tribunal (ITAT) has allowed ABG Heavy Industries Ltd to claim tax exemption on its income generated during 1997-1998 and 1998-1999 through hiring out of cranes to the Jawaharlal Nehru Port Trust (JNPT).

While delivering the ruling in January 2008, the two-member bench of the appellate tribunal agreed with the ABG's contention that their activity was equivalent to the creation of a port, overturning its own ruling given in September 2006.

The income generated by ABG has been termed as 'investment allowance' that is exempted from income tax under Section 80(I)A of the IT Act.

ABG has now already contended that the Rs 80 lakh income generated through hiring out of cranes to the JNPT for 2000-2001 should also be treated as tax exempt in the wake of the appellate tribunal's ruling.

The ruling is expected to open the floodgates for all other civil contractors supplying goods and services to ports and other infrastructure projects, who could similarly claim exemption from income tax on the ground that their activity pertained to infrastructure-building. This could result in thousands of crores of income becoming tax exempt.

Moreover, the case file (ABG vs IT department) has mysteriously gone missing from IT records during the pendency of the case before the tribunal. In September 2006, another two-member bench of the appellate tribunal had rejected ABG's contention after a long process of hearings where stands of both parties were minutely scrutinised.

The ITAT had then ruled in favour of the IT assessing officer who had disallowed the contention of ABG that the income generated by it through the hiring out of cranes to the JNPT should be treated as investment allowance as this amounted to creation of infrastructure.

When contacted, commissioner of income tax (ITAT 8) Chetram told DNA: "We are verifying when the miscellaneous application by ABG was listed in the ITAT and who was the IT counsel supposed to be representing the department in the case, to find out why the ex-parte order came about. In the meanwhile, the assessing officer whose contention was upheld by the ITAT in September 2006 has filed a writ petition before the Bombay High Court against the January ruling of the ITAT."

On the issue of missing case file, Chetram said, "We are searching for the file. Quite often the clerks are handed over the file after the case hearing is complete and are unable to locate it immediately when it is called for. This does not necessarily mean that the file is lost."

On Friday, the tax tribunal is scheduled to hear ABG's petition seeking to exempt their income from hiring out cranes to JNPT in 2000-2001.

After the ITAT ruling in September 2006, ABG moved a miscellaneous application before the tribunal in which an order was issued in August 2007 recalling the September 2006 order. IT officials say that as per the conduct rules of the ITAT if an issue is already settled by the tribunal in one way, the same issue may not be decided in a contrary way unless a larger bench is constituted.


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