2024 (8) TMI 864 - AT - Income Tax

Assessee denied Section 80IA deduction for advisory services to SPVs executing infrastructure contracts as SPVs were separate legal entities

ITAT Mumbai denied Section 80IA deduction to assessee providing project advisory services to SPVs executing NHAI infrastructure contracts. Tribunal held ... Deduction u/s 80IA - Assessee received fees as provided Project Advisory Services to three companies as Special Purpose Vehicles (SPV) formed to execute the contract obtained from National Highways Authority of India Ltd (NHAI) - as contended that the SPV is only an ‘enterprise’ or ‘undertaking’ of the assessee - HELD THAT:- It is the SPVs which are actually executing the work of development and operation of infrastructure facility. We noticed earlier that the SPVs have divided entire work of execution of infrastructure facility and each of the said work have been allocated to members of the consortium. That’s how the assessee has been allotted project advisory work. In addition to the assessee, other consortium members have also executed the part of the work allocated to them. It was stated that the assessee has raised invoices upon the SPVs by including its mark-up over the costs incurred by it. That is how the assessee has earned income on the work executed by it for the SPVs. This fact also shows that the assessee has also recognised the SPVs as separate legal entity and not its own enterprise/undertaking. All the Special Purpose Vehicles are filing their return of income separately. If the enterprise is owned by the assessee, the income earned by the enterprise would be credited to the profit and loss account of the assessee, which is not the case here. The members of consortium are also charging the SPVs at more than the cost incurred by them and thus making their own profits. SPVs cannot be considered as an undertaking or enterprise owned by the assessee. Hence, we are of the view that the AO was right in holding that the assessee has only executed a works contract allotted to it by the SPVs. There should not be any dispute that the deduction u/s 80IA is not available to the persons executing works contract. CIT(A) was justified in affirming the decision of the AO in rejecting the claim for deduction u/s 80IA of the Act. Decided against assessee. Issues Involved:1. Eligibility of the assessee to claim deduction under Section 80IA of the Income Tax Act.Detailed Analysis:Issue 1: Eligibility of the Assessee to Claim Deduction under Section 80IA of the Income Tax Act1. Background and Context:- The assessee, formerly known as M/s Gammon Infrastructure Projects Ltd., provided Project Advisory Services to three Special Purpose Vehicles (SPVs): Mumbai Nasik Expressway Ltd, Kosi Bridge Infrastructure Company Ltd, and Gorakhpur Infrastructure Company Ltd.- The assessee claimed deductions under Section 80IA of the Income Tax Act for the fees received from these SPVs.2. Formation and Role of SPVs:- The SPVs were formed to execute contracts obtained from the National Highways Authority of India Ltd (NHAI).- These SPVs were owned by Indian companies and had entered into agreements with NHAI, fulfilling the conditions stipulated in Section 80IA(4) of the Act.3. Assessee's Argument:- The assessee argued that since the SPVs were its subsidiary companies, the term 'enterprise' under Section 80IA should include subsidiary companies as well.- The assessee contended that the conditions prescribed in Section 80IA(4) were satisfied, and thus, it was eligible for the deduction.4. Assessment Officer's (AO) Findings:- The AO rejected the assessee's claim, stating that the concession agreement was entered into by the SPVs with NHAI, and the assessee was only providing advisory services.- The AO referred to an Explanation in Section 80IA, which clarifies that the deduction does not apply to businesses in the nature of a works contract.- The AO concluded that the assessee was executing a works contract and was not eligible for the deduction under Section 80IA.5. CIT(A)'s Findings:- The CIT(A) upheld the AO's decision, noting that the assessee had not provided proof of executing the works mentioned under the 'Scope of work'.- It was also observed that most of the work was completed in earlier years, further disqualifying the assessee from claiming the deduction.6. Tribunal's Analysis and Conclusion:- The Tribunal noted that the SPVs were distinct legal entities formed under the Companies Act and were the actual 'enterprises' executing the infrastructure projects.- The income from the SPVs was not reflected in the assessee's profit and loss account, indicating that the SPVs were not the assessee's own enterprise.- The Tribunal concluded that the SPVs, not the assessee, satisfied the conditions of Section 80IA(4) and were the entities eligible for the deduction.- The Tribunal dismissed the assessee's appeals, stating that the assessee had only executed a works contract and was not entitled to the deduction under Section 80IA.7. Case Laws Cited:- The Tribunal distinguished the present case from various case laws cited by the assessee, noting that those cases involved different factual scenarios and legal interpretations.Conclusion:The Tribunal upheld the decisions of the AO and CIT(A), concluding that the assessee was not eligible for the deduction under Section 80IA of the Income Tax Act. The appeals filed by the assessee were dismissed.