2016 (10) TMI 1369 - AT - Income Tax

Disallowance of deduction u/s. 80IA(4) - deduction from the profits of developing the infrastructure facility - AO noticed that assessee has claimed deduction under the provision of section 80-IA(4) against its work contract income which the Assessing Officer said is not in accordance with law - HELD THAT - Assessee entered into a contract with the government and the nature of work carried out shows that the assessee carried the work directly and it has employed various resources as stated above. Assessee has made huge investments in all kinds of resources for its business, namely plant and machineries, structures at sites, working capital, human resources, technical expertise etc. Assessee possesses its own technical knowledge of how to develop and lay roads, dams, bridges etc.. The assessee has purchased and employed its own materials for development and construction of the infrastructure facility. The entire planning of its business as also the work has been done by the assessee and not by the Government. Assessee can be said to be a developer and cannot be denied deduction from the profits of developing the infrastructure facility though it may not operate or maintain the same, particularly in view of the in insertion of the word or in sec.80-IA(4) of the act. In view of the facts and circumstances as stated above and legal legal findings as referred in the above judicial pronouncements, we considered that the assessee is entitled to a deduction under section 80IA(4) of the act, therefore, we uphold of the order of the learned CIT (A) - Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of deduction under Section 80IA(4) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Deduction under Section 80IA(4) of the Income Tax Act, 1961

Background:
The assessee, engaged in civil construction, filed a return declaring nil income for the Assessment Year (A.Y.) 2009-10 and claimed a deduction of Rs. 49,46,123/- under Section 80IA(4) of the Income Tax Act. The Assessing Officer (AO) issued a show cause notice to the assessee questioning the claim, stating that the deduction is not in accordance with the law as the assessee was merely executing a work contract.

Assessee's Argument:
The assessee contended that:
- They were engaged in developing infrastructure facilities, not just executing work contracts.
- The business involved substantial investment in resources like machinery, technical expertise, and human resources.
- They assumed significant risks and responsibilities similar to those of a developer.
- Previous years’ similar deductions were allowed, establishing a precedent.
- The term "developer" should be interpreted broadly, as per judicial precedents and dictionary definitions.
- The Explanation to Section 80IA(4) should not override the main provision, which allows deductions for developers.

Assessing Officer's Decision:
The AO rejected the assessee's explanation, stating that:
- The deduction under Section 80IA(4) is intended for developers of infrastructure facilities, not contractors executing work contracts.
- The Explanation inserted by the Finance Act, 2009, clarified that deductions are not available for work contracts awarded by the government.

CIT(A) Decision:
The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, reasoning that:
- The assessee's activities involved substantial investment and risk, akin to those of a developer.
- The assessee's role included planning, designing, and executing infrastructure projects using its resources and expertise.
- Judicial precedents and CBDT Circulars support the view that entities executing development work qualify as developers.
- The legislative intent behind Section 80IA(4) was to incentivize infrastructure development, which the assessee fulfilled.

Tribunal's Analysis:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that:
- The assessee employed significant resources and expertise in developing infrastructure facilities.
- The legislative framework of Section 80IA(4) includes entities engaged in developing, operating, and maintaining infrastructure facilities.
- The insertion of the word "or" in Section 80IA(4) indicates that the activities of developing, operating, and maintaining can be performed independently for eligibility.
- The assessee's activities and investments demonstrated that it functioned as a developer, not merely a contractor.

Conclusion:
The ITAT concluded that the assessee is entitled to the deduction under Section 80IA(4) as it fulfilled the conditions of being a developer of infrastructure facilities. The appeal by the Revenue was dismissed.

Order Pronouncement:
The order was pronounced in the open court on 28-10-2016.