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2018 (1) TMI 1543 - AT - Income TaxDeduction u/s 80IA - how the assessee is qualified as a developer - AO has rejected the claim of deduction u/s 80IA mainly on the ground that the assessee has failed to submit its return of income u/s 139(1) - HELD THAT - The provisions contained in Section 80AC are directory in nature and if the return is filed by the assessee under either of the Sections 139(1) 139(4) 142(1) and 148 then the assessee would be entitled to claim deduction. The reason given by THE CHIRAKKAL SERVICE CO-OPERATIVE BANK LTD. VERSUS THE COMMISSIONER OF INCOME TAX 2016 (4) TMI 826 - KERALA HIGH COURT is that such claim cannot be disallowed merely on the ground that return was filed belatedly. A return filed by the assessee beyond the period stipulated u/s 139(1) or 139(4) or u/s 142(1) or Section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption. In this manner the aforementioned questions of law B and C have been answered in favour of assessee. Applying the aforementioned position of law as the present assessment is made by the A.O. u/s 147 r.w.s 143(3) on the basis of return filed by the assessee in response to notice u/s 148 and such assessment is pending in statutory hierarchy of adjudication the benefit of claiming deduction u/s 80IA cannot be denied to assessee therefore we are of the opinion that deduction cannot be disallowed merely on the ground that the return filed by the assessee was filed in response to notice u/s 148 and it was not filed u/s 139(1). This is apart from main claim of the assessee that in any case the deduction was claimed in the return filed u/s 139(1) inadvertently by the erstwhile proprietary concern of Shri Naresh Kumar Tomar which may be considered to be a reasonable cause for the present assessee for not filing the return within the prescribed statutory period u/s 139(1) of the Act. Second reason stated by the A.O. for which he has held that the deduction cannot be allowed to the assessee as the assessee cannot be categorized as Developer . A.O. while holding so has rested his decision mainly on two factors namely the assessee did not own plant and machinery usually owned by Developers and the assessee also does not have own role employees who have the capability to create and execute owned designs for infrastructural projects. He observed that merely engaging subcontractors and manual labor for doing some earth excavation work does not entitle any corporate to qualify itself as a Developer . Assessment order for A.Y. 2010-11 was already in existence and was passed by A.O. of the same ward and under same PAN number and reference to this order was made before the AO in the written submissions filed on 04-03-2014 i.e. before completion of the assessment for the impugned assessment year which is completed on 07-03-2014. Thus when the order for impugned A.Y. was passed the claim of deduction u/s 80IA was already accepted by the revenue and no material has been brought on record by the Revenue to suggest that the claim of deduction granted for A.Y. 2010-11 has ever been sought to be withdrawn after taking the view in the case of the assessee itself that such deduction was not available to the assessee on account of its not being classified as Developer in respect of impugned assessment year. After about one year the claim of the assessee regarding deduction u/s 80IA was again accepted by the A.O. in respect of A.Y. 2012-13. AO has conveniently ignored the submissions of the assessee in letter filed on 04-03-2014 and it has not been described by him that how the assessee which was already considered eligible for claiming deduction u/s 80IA being a developer in respect of A.Y. 2010-11 cannot be considered as developer for A.Y. 2007-08. We are of the opinion that it will be incorrect to deny the claim of the assessee regarding deduction u/s 80IA on the ground that the assessee does not fall within the category of Developer . Third reason given the A.O. to deny the claim of deduction u/s 80IA that initially the assessee did not submit complete Form no. 10CCB - Alongwith the above letter the assessee also filed Form no. 10CCB fulfilling all the deficiencies pointed out by the A.O and copy of such Form has been filed at pages 34 to 39 of the paper book. CIT(A) also has taken into consideration the fact that Form no. 10CCB complete in all respect was filled before the completion of the assessment. A.O. also has not denied that the said Form complete in all respects was filled before him as he has observed that initially incomplete Form was filled by the assessee. Taking into consideration all these facts we are of the opinion that deduction u/s 80IA of the Act cannot also be denied to the assessee on the ground that the report initially submitted along with letter dated 16-01-2014 in Form no. 10CCB did not contain complete particulars as the assessee had submitted complete Form during the course of assessment proceeding itself on 04-03-2014. Allowability of deduction u/s 80IA on business profits we are of the opinion that Ld. CIT(A) did not commit any error in holding that under the facts and circumstances of the case the assessee is eligible for claiming deduction u/s 80IA and he was right in directing the A.O. to modify the assessment order accordingly. Order of the CIT(A) that issue regarding allowability or otherwise of deduction u/s 80IA of the Act on the nterest earned on FDRs and NSCs was decided by way of separate ground which involves a sum of 4, 31, 338/-. Such issue has been decided by CIT(A) vide Para 6 of the impugned order. However while filling the appeal the revenue has impugned the entire amount of deduction amounting to 92, 22, 111/- which comprises of two components namely a sum of 87, 90, 773/- being an income from business and 4, 31, 338/- being interest earned on FDRs and NSCs. We have already held that CIT(A) is correct in holding that the assessee is eligible for claiming deduction u/s 80IA on business profit. Therefore addition of 87, 90, 773/- has rightly been deleted by CIT(A) and we decline to interfere in the deletion to the extent of 87, 90, 773. Deletion of addition we find no infirmity in the order of the ld. CIT(A) and accordingly to that extent ground of Revenue is dismissed - restore the issue regarding allowability or otherwise of deduction u/s 80IA in respect of interest income earned by the assessee on FDRs and NSCs to the file of A.O. for fresh adjudication as per provisions of law after giving the assessee a reasonable opportunity of hearing.
Issues Involved:
1. Reopening of the assessment under Section 147. 2. Eligibility for deduction under Section 80IA. 3. Filing of return within the statutory period under Section 139(1). 4. Classification of the assessee as a 'Developer'. 5. Submission of complete Form 10CCB. 6. Eligibility of interest income for deduction under Section 80IA. Detailed Analysis: 1. Reopening of the Assessment under Section 147: The assessment was reopened under Section 147 based on information received from ITO Ward 26(3), New Delhi, indicating that the income of M/s Gopi Construction should have been assessed in the name of the present assessee. The assessee had not filed its return of income for A.Y. 2007-08, leading to the initiation of proceedings under Section 147. 2. Eligibility for Deduction under Section 80IA: The assessee claimed a deduction under Section 80IA, which was initially disallowed by the A.O. on the grounds that the return was not filed within the statutory period under Section 139(1), and the assessee did not qualify as a 'Developer'. The CIT(A) later allowed the deduction, interpreting the provisions of Section 80AC as directory, not mandatory. 3. Filing of Return within the Statutory Period under Section 139(1): The A.O. disallowed the deduction under Section 80IA, citing that the return was not filed within the statutory period under Section 139(1). The CIT(A) and the ITAT referred to judicial precedents, including the case of Fiberfill Engineers and Chirakal Service Co-operative Bank Ltd., which held that the provisions of Section 80AC are directory and not mandatory. Therefore, the deduction should not be disallowed merely because the return was filed in response to a notice under Section 148 and not within the period specified under Section 139(1). 4. Classification of the Assessee as a 'Developer': The A.O. contended that the assessee did not qualify as a 'Developer' because it did not possess the necessary plant and machinery and relied on subcontractors. The CIT(A) found that the assessee had incurred substantial costs on subcontract charges, hire charges, and labor costs, and had been awarded projects as a 'Developer', including maintenance. The CIT(A) also noted that similar deductions were allowed for A.Ys. 2010-11 and 2012-13 by the same assessing officer. 5. Submission of Complete Form 10CCB: The A.O. initially disallowed the deduction because the Form 10CCB submitted by the assessee was incomplete. The CIT(A) noted that a complete Form 10CCB was submitted before the completion of the assessment, fulfilling all the deficiencies pointed out by the A.O. Therefore, the deduction could not be denied on this ground. 6. Eligibility of Interest Income for Deduction under Section 80IA: The A.O. assessed the interest income from FDRs and NSCs under the head 'income from other sources', disallowing the deduction under Section 80IA. The CIT(A) allowed the deduction, noting the close nexus between the business and the interest income, as the deposits were mandatory security for obtaining infrastructure projects. However, the ITAT restored this issue to the A.O. for fresh adjudication, as it was not argued during the hearing. Conclusion: The ITAT upheld the CIT(A)'s decision to allow the deduction under Section 80IA on business profits, dismissing the Revenue's appeal to that extent. However, the issue of the allowability of deduction on interest income was restored to the A.O. for fresh adjudication. The appeal of the Revenue was partly allowed for statistical purposes.
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