2015 (8) TMI 1446 - AT - Income Tax

Appeal allowed for Section 80IA(4) deduction claim. Assessing Officer to re-examine based on developer/contractor criteria.

The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to re-examine the claim for deduction under Section 80IA(4) in ... Deduction u/s 80IA denied - the assessee had acted only as a contractor - Held that:- According to us the Revenue Department is expected to examine few things to ascertain whether the assessee is a developer or a contractor such as the utilization of funds, development of project, the nature of venture, the substance of the transaction etc. The provisions of section 80IA also require a finding to the effect that whether the assessee as an enterprise carried out the business of developing a project or the assessee has developed, maintain and also operating the project. The provisions are applicable in respect of the project which is related to development of infrastructure facility. One of the primary requirement is that an assessee is entitled for the claim of deduction if he has developed the project. The assessee is expected to shoulder out the investment and also subjected to technical risk in respect of the work executed. Such a developer is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement. To keep brevity in mind it is not advisable to discuss all the parameters in this regard but to leave it to the Revenue authorities to examine the issue in its entirety so as to arrive at the correct judicial decision. It is also worth to mention that the guidelines enumerated in the case of ABG Heavy Industries Ltd. (2010 (2) TMI 108 - BOMBAY HIGH COURT) are required to be followed while deciding this issue. Revision u/s 263 - this is not the case of the assessee that on one hand the Assessing Officer has rightly granted the deduction under section 80IA(4) of I.T. Act and on the other hand there was a change of opinion of learned Commissioner while passing the order under section 263 of I.T. Act. Therefore, after recording these reasons, we are of the conscientious view that the issue should be re-examined by the Assessing Officer - Decided in favour of assessee for statistical purposes Issues Involved:1. Withdrawal of claim of deduction under Section 80IA(4).2. Effective date of the explanation below Section 80IA(13).3. Applicability of the explanation below Section 80IA(13) to the assessee as a work contractor.4. Coverage of the assessee under Section 80IA(4).Detailed Analysis:1. Withdrawal of Claim of Deduction under Section 80IA(4):The learned Commissioner of Income Tax (CIT) withdrew the assessee's claim for deduction under Section 80IA(4) on the grounds that the assessee acted as a contractor rather than a developer. The CIT noted that the assessee installed high tension/low tension electric lines and transformers at the behest of the contractee, Maharashtra State Electricity Distribution Company Ltd. (MSEDCL), and therefore, was not entitled to the deduction under Section 80IA(4) read with the explanation effective from 01-04-2000. The CIT argued that the assessment order was prejudicial to the interest of the Revenue.2. Effective Date of the Explanation Below Section 80IA(13):The CIT asserted that the explanation below Section 80IA(13) was effective from 01-04-2000. The assessee contended that this explanation was effective from 01-04-2009. The explanation in question clarifies that the deduction under Section 80IA does not apply to a business that is in the nature of a works contract.3. Applicability of the Explanation Below Section 80IA(13) to the Assessee as a Work Contractor:The CIT treated the assessee as a work contractor based on the terms of the contract with MSEDCL, which referred to the assessee as a 'Contractor.' The CIT concluded that the assessee was not eligible for the deduction under Section 80IA(4) because the nature of the work was that of a contractor, not a developer.4. Coverage of the Assessee under Section 80IA(4):The assessee argued that the Assessing Officer (AO) had thoroughly examined the facts and concluded that the assessee was entitled to the deduction under Section 80IA(4). The assessee claimed that the work involved developing electrical distribution infrastructure and laying new high tension and low tension electric lines, which qualified as developing infrastructure facilities under Section 80IA(4). The assessee also cited various judicial decisions supporting their claim, including cases like ACIT v. Indwell Linings (P) Ltd., Patel Engineering Company v. ACIT, and CIT v. ABG Heavy Industries Ltd.Tribunal's Findings:Examination of AO's Order:The Tribunal observed that the AO had not discussed the eligibility of the claim for deduction under Section 80IA(4) in detail but had only considered the computation part of the deduction. The AO had restricted the deduction based on the exclusion of certain incomes like bank interest and discounts received, which were not considered as derived from the business undertaking specified in Section 80IA.CIT's Reliance on Judicial Precedents:The Tribunal noted that the CIT relied heavily on the decision of the larger bench in B.T. Patil & Sons, which was later reversed by the Bombay High Court in ABG Heavy Industries Ltd. The Tribunal highlighted that the law as interpreted by the Third Member was no longer valid.Developer vs. Contractor:The Tribunal emphasized that the Revenue Department should examine whether the assessee acted as a developer or merely as a contractor by considering factors like the utilization of funds, development of the project, and the nature of the venture. The Tribunal referred to the guidelines from the ABG Heavy Industries Ltd. case, which required the assessee to shoulder investment and technical risks to qualify as a developer.Directions for Re-Examination:The Tribunal concluded that the issue should be re-examined by the AO. The Tribunal modified the CIT's directions, stating that the AO should not outright disallow the claim but should re-evaluate the eligibility for deduction under Section 80IA(4) in light of the Tribunal's discussion and relevant judicial guidelines.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the claim for deduction under Section 80IA(4) and adjudicate as per the law. The appeal was thus allowed for statistical purposes.Order pronounced in the Open Court on this 28th day of August, 2015.