2017 (1) TMI 1200 - AT - Income Tax

Revision u/s 263 - allowing the claim of the assessee for deduction u/s 80IA(4)(i) of the Act was erroneous and prejudicial to the interest of the revenue - Held that - Assessee has furnished the copies of contracts the receipts from which were claimed as profits derived from the business of carrying out infrastructure development eligible for deduction u/s.80IA(4)(i) of the Act. We have already seen that the AO while completing the assessment u/s.143(3) of the Act by order dated 25.3.2014 has taken note of Form No.10CCB giving complete details of the profits derived from the business that is eligible for deduction u/s.80IA(4)(i) of the Act. He had raised specific queries with regard to allocation of proportionate head office expenses while arriving at the profits of the eligible business. Keeping in mind the past history of the Assessee s case it cannot be said that the AO failed to deal the specific facts of the case as per law and has not scrutinized/verified the details in respect of the issues raised in the show cause notice u/s.263 of the Act. The liability that was assumed by the assessee under terms of the contract would be obligations involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons. If the above conditions are satisfied then it would not be correct to say that assessee is merely a contractor and not a developer. Without giving adverse finding on the above tests, the CIT could not conclude that the order of the AO was erroneous and prejudicial to the interest of the revenue. Further the CIT in the impugned order has also observed that the roads construed by the Assessee were not coming under expressway or highway category as mentioned in the Explanation to Sec.80IA(4)(i) of the Act, which defines Infrastructure facility for the purpose of claiming deduction under the aforesaid section. We are of the view that the definition covers any road including toll road. It need not be coming under expressway or highway category. - Decided n favour of assessee

Issues Involved:
1. Eligibility for deduction under Section 80IA(4)(i) of the Income Tax Act.
2. Validity of the Principal CIT's order under Section 263 of the Income Tax Act.
3. Interpretation of "developer" vs. "contractor" for the purpose of Section 80IA(4)(i).
4. Requirement of ownership of infrastructure facility for claiming deduction.
5. Classification of roads constructed under the definition of infrastructure facility.

Issue-wise Detailed Analysis:

1. Eligibility for deduction under Section 80IA(4)(i) of the Income Tax Act:
The Assessee, engaged in manufacturing and construction activities, claimed a deduction of ?1,49,16,548 under Section 80IA(4)(i) for profits derived from developing, operating, and maintaining infrastructure facilities. The AO reduced this claim by ?2,78,385 due to the non-deduction of proportionate head office expenses from the construction charges received. The CIT, invoking Section 263, deemed the AO's order erroneous and prejudicial to the revenue, asserting that the Assessee was merely executing civil construction jobs and not eligible for the deduction.

2. Validity of the Principal CIT's order under Section 263 of the Income Tax Act:
The CIT issued a show cause notice under Section 263 for both AY 2010-11 and 2011-12, alleging that the Assessee's deduction claim was erroneous. The CIT's order, passed without considering the Assessee's reply, set aside the AO's order and directed a de novo assessment. The Tribunal found that the AO had scrutinized the Assessee's claim, considering past assessments where similar deductions were allowed. The Tribunal quashed the CIT's order, stating that the AO's view was a plausible one and merely because the CIT disagreed with it, Section 263 could not be invoked.

3. Interpretation of "developer" vs. "contractor" for the purpose of Section 80IA(4)(i):
The CIT relied on the ITAT Pune Bench's decision in M/s. B.T. Patil & Sons, which differentiated between a "developer" and a "contractor." The Tribunal, however, noted subsequent legal developments, including the Bombay High Court's decision in ABG Heavy Industries, which clarified that an entity need not develop the entire project to qualify for the deduction. The Tribunal concluded that the Assessee, having shouldered investment and technical risks and being liable for liquidated damages, qualified as a developer.

4. Requirement of ownership of infrastructure facility for claiming deduction:
The CIT argued that the Assessee was not the owner of the infrastructure facility, a condition purportedly required for the deduction. The Tribunal clarified that the term "owned" in Section 80IA(4)(i) refers to the ownership of the enterprise, not the infrastructure facility. The infrastructure facility includes entities like rail systems and ports, which cannot be owned by individuals or companies, thus negating the CIT's interpretation.

5. Classification of roads constructed under the definition of infrastructure facility:
The CIT contended that the roads constructed by the Assessee did not fall under the expressway or highway category. The Tribunal countered this by stating that the definition of "infrastructure facility" under Section 80IA(4)(i) includes any road, not just expressways or highways. Therefore, the Assessee's construction activities qualified under the statutory definition.

Conclusion:
The Tribunal quashed the CIT's order under Section 263, affirming the AO's decision to allow the deduction under Section 80IA(4)(i). The Tribunal emphasized that the AO had conducted appropriate scrutiny and that the CIT's differing view did not justify invoking Section 263. The Assessee was deemed eligible for the deduction, having met the criteria of a developer as per the clarified legal standards.

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