2025 (10) TMI 436 - HC - Income Tax

Petition allowed; order set aside and appeals remitted for fresh decision after failure to consider material evidence under section 80-IA

HC allowed the petition, holding the Tribunal's order suffered from mistakes apparent on the record because it failed to consider material evidence, ... Rectification u/s 254(2) - Tribunal while passing the order [2025 (2) TMI 285 - ITAT MUMBAI] has not considered the material/evidence on record, the contentions raised before it during the course of the hearing and the various judgments of the co-ordinate benches of the Tribunal and the High Courts HELD THAT:- We find that the grievance of the Petitioner is justified as the order does not refer to, much less considers, the reliance placed by the Petitioner on the factual documents and the legal position on the subject before coming to the conclusion that the Petitioner was not entitled to the deduction under section 80-IA of the Act. Therefore, the reliance placed by the counsel for the Revenue on the judgments in the case of Ramesh Electric [1992 (11) TMI 32 - BOMBAY HIGH COURT] and Reliance Telecom [2021 (12) TMI 211 - SUPREME COURT] is wholly misconceived. We set aside the Impugned Order [2025 (2) TMI 285 - ITAT MUMBAI] of the Act as the same suffers from mistakes apparent from the record and direct the Tribunal to decide the appeals of the Petitioner afresh in accordance with law. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal's failure to consider material evidence, detailed submissions and binding judicial precedents in its order under Section 254(1) of the Income-tax Act, 1961 amounts to a 'mistake apparent from the record' warranting rectification under Section 254(2). 2. Whether, on the facts and clauses of the contract, the assessee was a 'developer' of an infrastructure facility (entitling it to deduction under Section 80-IA) or merely a 'contractor' - and what contractual features are material to that determination. 3. Whether an agreement entered into with a Special Purpose Vehicle / nodal agency (constituted or appointed by Central/State Government) satisfies the requirement of Section 80-IA(4)(i)(b) that the agreement be with the Central Government, a State Government, a statutory authority or a local authority. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Tribunal's omission and rectification under Section 254(2) (legal framework) Legal framework: Section 254(1) records Tribunal's appellate order; Section 254(2) permits correction of mistakes apparent from the record. The Tribunal is the final fact-finding authority under the Act and must consider all material and arguments placed before it. Precedent Treatment: The Court relied on settled Supreme Court authorities requiring the Tribunal to consider evidence and give reasons (Omar Salay Mohammed Sait; Esthuri Aswathiah; Killick Nixon) and on decisions holding failure to consider material is rectifiable (CCE v. Bharat Bijlee; analogous treatment under provision pari materia). The Court distinguished Ramesh Electric and Reliance Telecom where facts showed either rehearing/reassessment or a detailed original Tribunal order. Interpretation and reasoning: The Tribunal's order contained bare conclusions that the assessee was a contractor and that the agreement did not satisfy Section 80-IA(4)(i)(b), but the order failed to refer to or consider (i) detailed notes and exhaustive clause-wise submissions filed by the assessee; (ii) material contractual clauses bearing on design, procurement, approvals, warranties, defect liability, performance guarantees, liquidated damages and insurance; and (iii) binding judicial precedents relied upon. The Court held that such omission makes it impossible to determine whether the Tribunal considered the evidence and arguments, and therefore the omission is a mistake apparent from the record. Ratio vs. Obiter: Ratio - where a Tribunal fails to consider material evidence, submissions and binding precedents, such failure constitutes a mistake apparent from the record and is rectifiable under Section 254(2). Distinguishing authority (Ramesh Electric; Reliance Telecom) on its facts is part of the ratio. Conclusion: The Tribunal's orders dated under Section 254(1) and its dismissal of the rectification application under Section 254(2) suffer from mistakes apparent from the record; the appropriate remedy is to set aside those orders and direct the Tribunal to decide the appeals afresh after considering the record and submissions. Issue 2 - Contractor v. Developer: material contractual features and adjudicatory duty Legal framework: Deduction under Section 80-IA depends on whether assessee is developing an infrastructure facility; factual determination governed by contractual rights, obligations and risk allocation. Precedent Treatment: The Court reiterated that findings of fact by the Tribunal are final if reached after due consideration, but must be founded on evidence and reasons (Omar Salay; Esthuri; Killick Nixon). Prior High Court and Tribunal decisions (cited by assessee) set out tests for distinguishing contractor from developer and are relevant binding/coordinate precedents to be considered. Interpretation and reasoning: The Court identified specific contractual clauses material to the determination - design responsibility; procurement of materials, labour and plant; obtaining approvals; testing and rectification of defects; warranty/defect liability; performance guarantee; liquidated damages; insurance - and held that the Tribunal was obliged to examine these clauses when deciding whether the assessee undertook operational, financial and entrepreneurial risk characteristic of a developer. The Tribunal's blanket conclusion that the assessee was a mere contractor without clause-wise analysis or engagement with submitted precedents amounted to decision-making on conjecture rather than on evidence. Ratio vs. Obiter: Ratio - the factual question of contractor versus developer must be answered by explicit engagement with material contract terms and evidence; failure to do so invalidates the Tribunal's factual conclusion. Obiter - examples of clauses enumerated are illustrative of material factors but the ultimate factual conclusion depends on full consideration on remand. Conclusion: The Tribunal's conclusion that the assessee was a mere contractor is vitiated by non-consideration of material contractual terms and must be re-adjudicated after proper consideration of those clauses and submissions. Issue 3 - Applicability of Section 80-IA(4)(i)(b) to agreements with SPVs / nodal agencies Legal framework: Section 80-IA(4)(i)(b) conditions deduction on the agreement being with Central/State Government or specified authorities; legal issue whether an agreement with an SPV or nodal agency appointed by such authorities satisfies the statutory requirement. Precedent Treatment: The Court acknowledged binding decisions of coordinate benches and High Courts holding that agreements with SPVs/nodal agencies (whose shareholding/control/appointment is by the government or statutory authority) satisfy Section 80-IA(4)(i)(b). The Tribunal failed to consider or distinguish those precedents despite their being placed on record. Interpretation and reasoning: On the material before the Tribunal, LMRCL was a nodal agency appointed by Central/State Government for the metro project and, prima facie, the ratio of precedents cited by the assessee was applicable. The Tribunal's cursory rejection without addressing the precedents or explaining distinguishing facts amounted to failure to consider relevant legal authorities. Ratio vs. Obiter: Ratio - where an SPV/nodal agency is constituted/appointed by or controlled by the authorities mentioned in Section 80-IA(4)(i)(b), agreements with such SPVs/nodal agencies can satisfy the statutory requirement; a tribunal must consider and, if necessary, distinguish precedents before rejecting their application. Obiter - factual assessment of whether a particular SPV meets those criteria is case-specific and for the Tribunal to determine on remand. Conclusion: The Tribunal erred in not engaging with the line of authority on applicability of Section 80-IA(4)(i)(b) to SPVs/nodal agencies; the question must be reconsidered after proper analysis of the precedents and the factual matrix of the nodal agency's constitution and appointment. Remedial Direction and Ancillary Findings The Court set aside the impugned Tribunal orders for the reasons above and directed the Tribunal to decide the appeals afresh in accordance with law, after considering material contract clauses, the evidence on record and the judicial precedents filed before it. The Court distinguished authorities relied upon by the Revenue where the factual matrix differed (i.e., rehearing/reassessment or detailed original reasons) and noted that rectification is not a remedy where the Tribunal had reheard and reversed itself on merits, but is available where a mistake is apparent from non-consideration of material.