2014 (2) TMI 680 - AT - Income Tax

Disallowance of deduction u/s 80IA of the Act Income derived from business of civil contracts - Held that - The decision in M/s. Sushee Infra Pvt. Ltd. (Formerly Sushee Hi Tech Constructions Pvt. Ltd. Versus Dy. Commissioner of Income-tax 2013 (6) TMI 599 - ITAT HYDERABAD followed - where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80 IA of the Act - the assessee has carried out the development of infrastructure work in Consortium and not as a subcontractor, then also the assessee is entitled for deduction u/s 80IA of the Act - The orders of the Commissioners (Appeal) modified for both the years under appeal - and the AO is directed to allow the claims of the assessee with regard to deduction under S.80IA of the Act in respect of execution of civil contracts on own account Decided in favour of Assessee.

Summary

Issues Involved:
1. Disallowance of deduction under Section 80IA of the Income Tax Act.
2. Determination of whether the assessee qualifies as a "developer" or a "contractor."

Detailed Analysis:

1. Disallowance of Deduction Under Section 80IA:
The primary grievance of the assessee relates to the disallowance of its claim for deduction under Section 80IA of the Income Tax Act by the Assessing Officer, which was confirmed by the CIT(A). The assessee, engaged in the business of civil contracts, filed returns declaring 'NIL' income for the assessment year 2008-09, but the Assessing Officer determined the total income to be Rs. 4,05,69,245, rejecting the claim of Rs. 2,98,76,544 under Section 80IA and adding a differential amount of Rs. 1,06,92,701.

On appeal, the CIT(A) analyzed the conditions under Section 80IA, concluding that the assessee did not qualify for the deduction as it was merely engaged in construction work for various State Government Agencies and not as a developer of infrastructure facilities. This decision was based on the precedent set by the Larger Bench of ITAT, Mumbai, in the case of B.T. Patil & Sons Belgaum Constructions Pvt. Ltd. v. ACIT.

For the assessment year 2009-10, the Assessing Officer and CIT(A) followed the same reasoning, leading to the disallowance of the claim under Section 80IA.

2. Determination of Developer vs. Contractor:
The core issue was whether the assessee should be considered a "developer" or merely a "contractor." The Tribunal examined various decisions, including its own in the case of Sushee Tech Infrastructure Ltd., where it was held that an enterprise engaged in developing, operating, and maintaining infrastructure facilities qualifies for deduction under Section 80IA.

The Tribunal found that the assessee's activities involved significant responsibilities such as developing infrastructure facilities, maintaining them, and assuming risks and liabilities. This included bringing in materials, employing technical expertise, and ensuring the quality and quantity of work. The Tribunal emphasized that the term "developer" should not be narrowly interpreted to exclude those who undertake comprehensive development activities, even if they are referred to as contractors in agreements.

The Tribunal also referred to the decision of the Bombay High Court in the case of ABG Heavy Industries Ltd., which clarified that the amendment to Section 80IA by the Finance Act, 2001, inserting "or" between developing, operating, and maintaining activities, was clarificatory and retrospective. This meant that an enterprise engaged in any of these activities could qualify for the deduction.

The Tribunal concluded that the assessee, having undertaken substantial development activities and assuming significant risks, should be considered a developer. Consequently, the disallowance of the claim under Section 80IA was not justified.

Conclusion:
Modifying the orders of the CIT(A) for both assessment years, the Tribunal directed the Assessing Officer to allow the claims of the assessee for deduction under Section 80IA in respect of the execution of civil contracts on its own account. The appeals of the assessee were allowed, establishing that the assessee qualifies as a developer eligible for the deduction under Section 80IA.