2014 (8) TMI 420 - HC - Income Tax

Civil and labour construction - Whether the Tribunal was right in law in holding that the assessee engaged in the business of civil and labour construction was entitled to deduction u/s 32AB Held that - Following the decision in SA BUILDERS LTD. Versus COMMISSIONER OF INCOME-TAX (APPEALS) AND ANOTHER 2006 (12) TMI 76 - SUPREME COURT OF INDIA - the deduction u/s 32AB was not automatic and was subject to various conditions laid down - whether the assessee fulfilled those conditions for claiming the deduction or not required examination into facts which were not on record - the assessee had not placed any material to show how the assessee is entitled to deduction - Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 32AB of the Income Tax Act, 1961 regarding deduction eligibility for civil and labour construction businesses.

Analysis:
The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal regarding the eligibility of the assessee engaged in civil and labour construction for deduction under Section 32AB of the Income Tax Act, 1961 for the assessment year 1989-90. The Assessing Officer disallowed the deduction claimed under section 32AB, stating that civil construction was not an eligible business for the deduction as per Section 32AB(2) of the Act. The Commissioner of Income Tax (Appeals) partly allowed the appeal based on a CBDT circular, but the Tribunal dismissed the appeal. The revenue contended that the assessee, engaged in civil and labour construction, was not entitled to the deduction under Section 32AB.

The High Court referred to a judgment of the Apex Court in S.A.Builders' case, where it was held that the deduction under Section 32AB was not automatic and subject to specific conditions laid down in the provision. The Tribunal rejected the claim as the assessee did not provide sufficient material to show entitlement to the deduction. The High Court agreed with the Tribunal's view, emphasizing that the assessee's business was civil construction without any manufacturing activity, making them ineligible for the deduction under Section 32AB. Therefore, the substantial question of law was answered in favor of the revenue, leading to the appeal being allowed.

In conclusion, the judgment clarified that businesses engaged in civil and labour construction, without any manufacturing activity, are not eligible for deduction under Section 32AB of the Income Tax Act, 1961. The decision was based on the specific conditions and requirements outlined in the provision, emphasizing the need for factual evidence to support the claim for such deductions.