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2012 (12) TMI 760 - AT - Income TaxDeduction under section 80IA - CIT(A) deleted the additions on account of disallowances u/s 153A - infrastructure projects where the assessee is merely a work contractor or developer - Held that - According to sub-clause (a), clause (i) of sub-section (4) of section 80-IA, the word it denotes the enterprise carrying on the business. The word it cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word it is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Government or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular, dated 18-5-2010, such activity is eligible for deduction under section 80-IA(4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicate that the assessee is eligible for deduction under section 80-IA(4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. Nothing either on facts or in law, which distinguishes, the already existing position as on the date of search and in the proceedings under section 153A read with 143(3), which substantiates the denial. Accept for the interpretation, as made out by the AO, there is nothing, which could substantiate the disallowance. In the entire proceedings upto the hearing before us, the department has not even said that there was either no agreement between the assessee and the state government or there is any change in the agreement entered into by the assessee and the government department. In fact the DPB filed by the department there are letters exchanged, written by the assessee and various government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee for ₹ 2,61,62,400, against the tendered cost. This proves beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the government, besides placing its own funds at risk and peril - thus no disallowance u/s 80IA(4)warranted - in favour of assessee. Deduction u/s 80IA on the amounts written back under section 41(1) - Held that - It is not the case of the department that these liabilities were non business. When the liabilities which have been written back/offered to tax by the assessee pertains to the business, then it has to be added back as a business income. CIT(A) has also taken note of the fact that the assessee was having two types of projects, i.e., which qualify for deduction under section 80IA and which do not qualify. But here, in the instant case, we are concerned with domestic projects, and the ceased liabilities are emanating from the normal course of business of the assessee. Hence the liabilities written back would be added to the claim of deduction under section 80IA. Since the assessee also has non-80IA projects and it has been accepted by the assessee that these written back liabilities would also pertain to non 80IA projects, in these circumstances, the assessee and the CIT(A) were very reasonable in allocating the income offered under section 132(4) on account of cessation of liabilities under section 41(1) in proportion of the turnover of 80IA project and non 80IA projects - no reason to deviate from the finding reached by the CIT(A) to direct the AO to add the proportion of offered amount of ₹ 1.95 crores to the income eligible for deduction under section 80IA for assessment year 2005-06.
Issues Involved:
1. Legality and applicability of section 153A of the Income Tax Act, 1961. 2. Eligibility for deduction under section 80IA of the Income Tax Act, 1961. 3. Allocation of written-back liabilities for deduction under section 80IA. Detailed Analysis: 1. Legality and Applicability of Section 153A: The primary issue raised by the assessee in the Cross Objections (COs) was the legality and applicability of section 153A of the Income Tax Act, 1961. The assessee contended that there was no incriminating material found during the search that could justify the invocation of section 153A. The AR argued that assessments for assessment years 2000-01 to 2003-04 had reached finality under section 143(1) and that no proceedings were pending for these years. The AR referred to various judicial precedents and CBDT Circular No. 7, dated 05.09.2003, to support the argument that section 153A could only be invoked in cases where proceedings were pending and that no new assessments could be made without incriminating material. The Tribunal, after considering the submissions, held that section 153A is automatically triggered upon the initiation of a search under section 132, and the AO is bound to issue notices for the preceding six years. The Tribunal noted that the AO has the jurisdiction to assess or reassess the total income, including undisclosed income, based on any incriminating material found during the search. However, in cases where no incriminating material is found and the assessments have reached finality, the AO should restrict the assessment to the income already determined. The Tribunal concluded that the AO was correct in issuing notices under section 153A and that the proceedings were valid. Therefore, the COs filed by the assessee challenging the legality of the assessments under section 153A were dismissed. 2. Eligibility for Deduction under Section 80IA: The department's appeals challenged the CIT(A)'s decision to delete the disallowance of deduction under section 80IA on the grounds that the assessee was merely a contractor and not a developer of infrastructure projects. The AO had disallowed the deduction, arguing that the assessee did not fulfill all the conditions specified in section 80IA(4), particularly the requirement to operate and maintain the infrastructure facility. The CIT(A) allowed the deduction, relying on the decision of the Mumbai ITAT in Patel Engineering Ltd. v. DCIT, which held that a developer of infrastructure facilities is entitled to the deduction under section 80IA, even if the developer does not operate and maintain the facility. The CIT(A) observed that the assessee was engaged in the development of infrastructure projects and had made significant investments and assumed various risks associated with the projects. The Tribunal upheld the CIT(A)'s decision, noting that the term "developer" is not contradictory to the term "contractor" and that the assessee met the conditions specified in section 80IA(4). The Tribunal referred to various judicial precedents, including the decision of the Bombay High Court in CIT v. ABG Heavy Industries Ltd., which supported the view that a developer who only develops infrastructure facilities is eligible for the deduction under section 80IA. The Tribunal dismissed the department's appeals on this issue. 3. Allocation of Written-Back Liabilities for Deduction under Section 80IA: For assessment year 2005-06, the department's appeal included a ground challenging the CIT(A)'s decision to allow the deduction under section 80IA on the amount of liabilities written back under section 41(1). The AO had rejected the assessee's claim, arguing that the assessee failed to prove that the written-back liabilities pertained to projects eligible for deduction under section 80IA. The CIT(A) accepted the assessee's method of bifurcating the written-back liabilities based on the proportion of turnover from 80IA and non-80IA projects. The Tribunal upheld the CIT(A)'s decision, noting that the liabilities written back were related to the business and should be added to the income eligible for deduction under section 80IA. The Tribunal found the allocation method reasonable and dismissed the department's appeal on this ground. Conclusion: The Tribunal dismissed the appeals filed by the department and the Cross Objections filed by the assessee for assessment years 2000-01 to 2004-05. The Tribunal also dismissed the department's appeal for assessment year 2005-06, upholding the CIT(A)'s decisions on all issues.
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