2013 (4) TMI 512 - AT - Income Tax

Disallowance of Deduction under Section 80IA Clarified in Landmark Infrastructure Case

The case involved the disallowance of a deduction claimed under section 80IA of the IT Act by the assessee. The CIT(A) allowed the deduction, highlighting ... Disallowance of deduction u/s 80IA – assessee engaged in the business of civil engineering works and construction of national highways, filed its return of income and claiming deduction – A.O. observed that the deduction u/s 80IA would not be available to a person who executes a works contract entered into with an undertaking or enterprise as the case may be. As the assessee has undertaken the sub-contract works with the j.v of M/s ECSB-JSR Construction Private Limited, he held that the assessee company is not eligible to claim deduction u/s 80IA. – CIT(A) gives the relief to assessee subsequently revenue file this appeal. Held that - We find that the assessee has filed sufficient evidence before the CIT(A) to prove his case that it is party to the consortium, which was engaged in the business of civil construction and was also awarded the contract by the NHAI. Thus, we are satisfied that the assessee has itself carried on the works contract and was not a sub-contractor carrying on the works contract. Further, as rightly held by the CIT(A), every year the assessee cannot be expected to enter into a new contract for the reason that the infrastructure project are by the very nature carried on over a period of time and cannot be completed within a year. Thus, the CIT(A) has properly appreciated the evidence before allowing the claim of the assessee and there is no reason to interfere with the same. Revenue is dismissed. Issues:- Disallowance of deduction claimed by the assessee u/s 80IA of the IT Act.- Eligibility of the assessee for deduction u/s 80IA based on the nature of contract works.- Interpretation of the term 'new' in the context of claiming deduction u/s 80IA.- Disallowance of deduction based on sub-contract works undertaken by the assessee.- Applicability of deduction u/s 80IA for infrastructure development projects.- Discrepancy in total contract receipts as per TDS certificates and profit and loss account.Analysis:1. The appeal involved the disallowance of a deduction claimed by the assessee u/s 80IA of the IT Act. The AO disallowed the deduction based on the observation that the assessee had undertaken sub-contract works and did not enter into new contracts during the relevant assessment year. The CIT(A) deleted the disallowance, emphasizing the assessee's role in a consortium awarded a contract by NHAI and its investment in the contract, making it eligible for the deduction.2. The eligibility of the assessee for deduction u/s 80IA was a key issue. The CIT(A) analyzed the joint venture agreements and consortium agreement, establishing that the assessee was a member of the consortium that secured the contract before entering into sub-contract works. The CIT(A) concluded that the assessee fulfilled the conditions for claiming the deduction under section 80IA.3. The interpretation of the term 'new' in the context of claiming deduction u/s 80IA was crucial. The CIT(A) clarified that the term 'new' should not be narrowly construed to require entering into new agreements every year, especially in infrastructure projects with longer implementation cycles. The focus was on contributing to the country's infrastructure, supporting the assessee's claim for deduction.4. The disallowance of deduction based on sub-contract works undertaken by the assessee was challenged. The revenue contended that the disallowance should be upheld to a certain extent. However, the tribunal found that the assessee's role in the consortium and its investment in the contract justified the claim for the entire deduction under section 80IA.5. The judgment also addressed the applicability of deduction u/s 80IA for infrastructure development projects. The tribunal emphasized the importance of improving infrastructure facilities in the country, supporting the CIT(A)'s decision to allow the claim of the assessee based on the evidence presented.6. Lastly, the discrepancy in total contract receipts as per TDS certificates and the profit and loss account was noted. The tribunal considered the evidence provided by the assessee to prove its investment in the contract and its eligibility for the deduction, ultimately dismissing the appeal filed by the revenue.