2016 (3) TMI 407 - AT - Income Tax

Revision u/s 263 - entitlement to claim u/s. 80IA(4) allowed by AO - Held that - The admitted facts of the case are, therefore, clear that while making original assessment, the assessee submitted proper explanation and evidence before the AO to justify the claim u/s. 80IA(4) of the IT Act. The assessee is engaged in the business of developing and constructing infrastructure facilities in the form of railway tracks and canals on behalf of the Government and their agencies. The assessee was granted exemption in initial assessment year 2003-04 being first year of operation accepting that the assessee is engaged in developing of infrastructure facilities. Similar claim was also allowed in assessment year under appeal. Thus, the AO was satisfied that the assessee was entitled for exemption u/s. 80IA(4) of the Act. It is also proved on record that the assessee has a history of granting exemption u/s. 80IA(4) of the Act. In preceding assessment years 2006-07 and 2007-08, the AO allowed similar claim of assessee u/s. 143(3) of the Act. Copies of the assessment orders are placed on record. Therefore, the AO in preceding assessment years as well as in the assessment year under appeal has considered the Explanation to section 80IA(13) of the IT Act and was satisfied with the explanation of the assessee on the eligibility for deduction u/s. 80IA(4) of the IT Act. The AO, therefore, took one of the plausible view in the matter and therefore, the assessment order could not be treated as erroneous and prejudicial to the interest of revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the assessee was entitled to deduction under section 80IA(4) of the IT Act.
2. Whether the assessment order was erroneous and prejudicial to the interest of Revenue under section 263 of the IT Act.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80IA(4):
The assessee filed a return declaring income of Rs. 16,62,910/-, which was assessed at Rs. 22,79,810/-. The assessee claimed a deduction under section 80IA(4) amounting to Rs. 2.24 crores. The AO examined the records and initially allowed this deduction. However, the CIT later issued a notice under section 263, arguing that the assessee, being a works contractor, was not entitled to the deduction as per the Explanation to section 80IA(13). The assessee contended that it had been claiming this deduction since the assessment year 2003-04 and had been allowed the same in previous years. The AO had conducted a detailed enquiry at the assessment stage, considering the Explanation to section 80IA(13) and the assessee's submissions, and allowed the deduction based on the evidence and material on record. The CIT, however, found that the assessee merely executed works contracts for the development of rail systems awarded by the Railways and thus was not entitled to the deduction. The CIT considered the assessment order an error prejudicial to the interest of Revenue and set it aside, restoring the matter to the AO for proper enquiry.

2. Assessment Order Erroneous and Prejudicial to the Interest of Revenue:
The assessee argued that the AO had taken a permissible view under the law after detailed enquiry and examination of the material on record. The assessee relied on various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. and the Delhi High Court's decision in CIT vs. Ansal Housing and Construction Ltd., which held that if the AO takes one plausible view, it cannot be treated as erroneous or prejudicial to the interest of Revenue. The assessee also cited the ITAT Pune Bench's decision in Laxmi Civil Engg. P. Ltd. vs. Addl. CIT, which supported the claim that a developer who undertakes entrepreneurial and investment risk is eligible for the deduction under section 80IA(4). The assessee emphasized that it had substantial interest in the project, made significant investments, and took business and investment risks, qualifying it as a developer rather than a mere works contractor. The CIT's order did not provide reasons for treating the assessee as a works contractor, and the AO had consistently allowed the deduction in previous years under similar facts and circumstances.

Conclusion:
The Tribunal concluded that the AO had taken a plausible view based on detailed enquiry and examination of the material on record. The assessee had been consistently allowed the deduction under section 80IA(4) in previous years, and there was no change in the facts and circumstances. The CIT's order setting aside the assessment was found to be unjustified, as it failed to demonstrate how the assessee was a works contractor. The Tribunal set aside the CIT's order under section 263 and restored the original assessment order, allowing the appeal of the assessee.