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2012 (8) TMI 1011 - AT - Income TaxDisallowance of deduction u/s. 80IA - Held that - In the case of GVPR Engineers Ltd. v. ACIT, 2012 (4) TMI 149 - ITAT HYDERABAD wherein the Tribunal held that deduction u/s. 80IA is available to developers who undertake entrepreneurial investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that the plant and machinery, technical know-how, expertise and financial resources. If the contracts involve design, development, operation & maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract, to deny the deduction under section 80IA. The contracts which contain above features to be segregated have to be granted deduction under section 80IA and the other agreements which are pure works contracts hit by the Explanation to section 80IA(13) are not entitled for deduction under section 80IA. The profit from the contracts which involve design, development, operating & maintenance, financial involvement and defect correction and liability period is to be computed by the Assessing Officer on pro rata basis of turnover.
Issues Involved:
1. Disallowance of deduction under Section 80IA of the Income-tax Act, 1961. 2. Interpretation of the terms "developer" and "contractor" in the context of Section 80IA. 3. Applicability of amendments to Section 80IA and their retrospective effect. 4. Examination of the nature of contracts to determine eligibility for deduction under Section 80IA. 5. Analysis of judicial precedents and circulars issued by the CBDT. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80IA: The primary issue in this appeal is the disallowance of the deduction claimed by the assessee under Section 80IA of the Income-tax Act, 1961. The assessee argued that the projects executed were infrastructure facilities as defined under Section 80IA(4), but the lower authorities denied the deduction. The assessee contended that the projects involved the development of infrastructure facilities, thus qualifying for the tax holiday under Section 80IA. 2. Interpretation of the Terms "Developer" and "Contractor": The assessee argued that the term "developer" should be interpreted to include entities that develop infrastructure facilities, even if they do not operate and maintain them. The assessee cited the decision of the Mumbai ITAT in ACIT vs. Bharat Udyog Limited, which held that the amendment to Section 80IA by the Finance Act, 1999, allowed deductions for entities involved in developing, operating, and maintaining infrastructure facilities, or any combination thereof. The assessee also referred to the Bombay High Court decision in CIT vs. Glenmark Pharmaceuticals Limited, which clarified the interpretation of contracts and the applicability of Section 194C. 3. Applicability of Amendments to Section 80IA and Their Retrospective Effect: The assessee emphasized that the amendments to Section 80IA by the Finance Act, 2001, which introduced the word "or" between "developing," "operating and maintaining," and "developing, operating and maintaining," were applicable from 1-4-2002. This amendment clarified that entities engaged in any of these activities were eligible for the deduction. The assessee argued that this amendment should be applied retrospectively, as it was intended to clarify the existing provisions. 4. Examination of the Nature of Contracts to Determine Eligibility for Deduction under Section 80IA: The assessee provided detailed descriptions of the contracts undertaken, which involved comprehensive infrastructure development activities, including designing, manufacturing, transporting, laying, and joining pipes, constructing pump houses, and setting up water treatment plants. The assessee argued that these activities constituted the development of infrastructure facilities and should qualify for the deduction under Section 80IA. The assessee also cited various judicial precedents, including the Bombay High Court decision in ABG Heavy Industries Limited, which supported the claim that entities involved in developing infrastructure facilities were eligible for the deduction. 5. Analysis of Judicial Precedents and Circulars Issued by the CBDT: The Tribunal referred to several judicial precedents and CBDT circulars to analyze the issue. The Tribunal noted that the decision in B.T. Patil & Sons Belgaum Construction Pvt. Ltd. by the Mumbai ITAT larger third Member Bench held that the term "developer" included entities that developed infrastructure facilities, even if they did not operate and maintain them. The Tribunal also referred to the Bombay High Court decision in ABG Heavy Industries Limited, which emphasized the liberal interpretation of Section 80IA to promote infrastructure development. The Tribunal considered the CBDT circulars, which clarified that entities involved in developing infrastructure facilities were eligible for the deduction. Conclusion: The Tribunal concluded that the assessee was entitled to the deduction under Section 80IA for the projects that involved the development of infrastructure facilities. The Tribunal directed the Assessing Officer to examine the records and grant the deduction on eligible turnover, considering the comprehensive nature of the contracts and the entrepreneurial risks undertaken by the assessee. The appeal was partly allowed for statistical purposes.
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