2019 (9) TMI 375 - AT - Income Tax

Tribunal affirms Section 80IA(4) deduction for developers, denies for contractors.

The Income Tax Officer, Ward 2 (1), Kolhapur. Versus M/s. CRG Infratech Pvt. Ltd. And (Vice-Versa)

The Tribunal upheld the CIT(A)'s decision, allowing deduction under Section 80IA(4) for eleven out of thirteen projects, distinguishing between developers ... Allowability of claim u/s.80IA - works contractor or a developer - assessee highlighted the facts that they are developing, operating and maintaining infrastructure facility and is having ownership of the enterprise by a company registered in India. - simultaneously following three conditions embodied in S.80-IA(4)(i) - assessee is a contractor/developer and claimed deduction under section 80-IA(4) - HELD THAT:- CIT(Appeals) out of the thirteen projects allowed deduction u/s.80IA(4) of the Act to the assessee for eleven projects undertaken during the year except for projects in Sl. No.8 and 9 i.e. Sarjapur and Benwad. We have perused the case records and have given considerable thought to the findings of the Ld. CIT(Appeals). The Ld. CIT(Appeals) has analyzed the scope and activities of the assessee in view of the judgment of the Hon’ble Bombay High Court in the case of CIT Vs.ABG Heavy Industries Ltd & Ors. [2010 (2) TMI 108 - BOMBAY HIGH COURT] followed by the decision of M/s. Laxmi Civil Engg. Services (P) Ltd. Vs. Addl. CIT, Range-2 [2012 (6) TMI 316 - ITAT, PUNE] Therefore, we are of considered view that the order of the Ld. CIT(Appeals) is well reasoned and therefore does not call for any interference.- Decided against revenue Issues Involved:1. Eligibility for deduction under Section 80IA(4) of the Income Tax Act.2. Classification of the assessee as a developer versus a contractor.3. Applicability of the explanation to Section 80IA(4) regarding works contracts.4. Deduction eligibility for sub-contracted projects.5. Levy of interest under Section 234B.Issue-wise Detailed Analysis:1. Eligibility for Deduction under Section 80IA(4) of the Income Tax Act:The primary issue was whether the assessee, engaged in infrastructure development, was eligible for deduction under Section 80IA(4). The Assessing Officer initially denied this deduction, categorizing the assessee as a contractor rather than a developer. The assessee argued that they were developers, as their projects were awarded by government entities.2. Classification of the Assessee as a Developer versus a Contractor:The assessee contended that they were developers of infrastructure projects, citing agreements with government bodies and compliance with the conditions set forth in Section 80IA(4). The CIT(A) and the Tribunal referenced the Bombay High Court's decision in CIT Vs. ABG Heavy Industries Ltd., which clarified that developers who do not operate and maintain infrastructure facilities are still eligible for deductions under Section 80IA(4). The Tribunal upheld that the assessee qualified as a developer, not merely a contractor.3. Applicability of the Explanation to Section 80IA(4) Regarding Works Contracts:The explanation to Section 80IA(4) introduced in 2009, effective from 01.04.2000, excludes works contracts from the deduction. The CIT(A) examined the nature of the assessee’s contracts and found that two projects (Sarjapur and Benwad) were sub-contracted, thus falling under the works contract exclusion. The Tribunal agreed with this assessment, denying deductions for these specific projects.4. Deduction Eligibility for Sub-contracted Projects:The CIT(A) and Tribunal concluded that projects sub-contracted to the assessee (Sarjapur and Benwad) were not eligible for deductions under Section 80IA(4), as they were works contracts. The assessee’s appeal against this decision was dismissed, affirming that sub-contracted projects do not qualify for the deduction.5. Levy of Interest under Section 234B:The CIT(A) addressed the levy of interest under Section 234B, noting that it is mandatory and consequential. The AO was directed to rework the interest after giving effect to the order. This aspect was not contested further, and the Tribunal did not interfere with this part of the CIT(A)’s decision.Conclusion:The Tribunal upheld the CIT(A)’s decision, allowing the deduction under Section 80IA(4) for eleven out of thirteen projects. The appeals of both the Revenue and the assessee were dismissed. The Tribunal's decision emphasized the need for a harmonious reading of the provisions, distinguishing between developers and contractors, and clarified the ineligibility of sub-contracted projects for the deduction.Order Pronouncement:Both the appeal of the Revenue and the cross-appeal of the assessee for the assessment year 2013-14 were dismissed, as pronounced on 04th September 2019.