2017 (5) TMI 406 - AT - Income Tax

Revision u/s 263 - AO had not examined the claim of the assessee to deduction under section 80-IA(4) vis-a-vis Explanation 13 to the said section which excludes profits earned from works contracts from deduction under section 80-IA(4) - Held that - There is no dispute about the fact that in the preceding assessment year, i.e. the assessment year 2010-11, which was the first year of claim of deduction under section 80-IA, the assessee was allowed the same under section 143(3) of the Act. This means that for all purposes the claim of the assessee having been examined in the light of the parameters of eligibility laid down under section 80-IA, it could not be said that in the succeeding year those very same parameters had changed on the same set of facts. The Assessing Officer, after considering all the documents placed before it, had in the preceding year concluded that the assessee was carrying out an infrastructure related project which was not in the nature of works contract as defined under section 80-IA(13), read with Explanation and thus the assessee was eligible to claim deduction under section 80-IA of the Act. In the impugned case, which is the succeeding year, on the very same set of facts the findings of the preceding year on the fact that the assessee was carrying out eligible infrastructure project and not works contract, cannot now be disturbed, which is exactly what has been stated by the High Court in the order passed in the case of Micro Instruments Co. (2016 (9) TMI 210 - PUNJAB AND HARYANA HIGH COURT ). Following the same also we hold that the learned Principal Commissioner of Income-tax could not have exercised his revisionary powers since the claim of the assessee had been decided in the preceding year itself and without disturbing the same it could not have been dislodged in the impugned year. Thus we set aside the order of the learned Principal Commissioner of Income-tax on this count. The assessee s claim for deduction under section 80-IA was examined in all respects by the Assessing Officer during the course of assessment proceedings and duly allowed. Moreover the fact that the assessee had been allowed deduction on the same pattern in the preceding and succeeding years lends credence to the allowance of the claim by the Assessing Officer in the impugned year also. Further we find that the learned Principal Commissioner of Income-tax has no basis at all for stating that the profit earned on account of job work got done by sub-contractors was a separate contract which was not eligible for deduction under section 80-IA of the Act. What can be gathered from the findings of the learned Principal Commissioner of Income-tax is that the assessee is eligible for deduction under section 80-IA only on account of work/contract/project executed by it. We find that this understanding of the provisions of section 80-IA is incorrect and has no judicial precedents at all and on account of the same we hold that there is no error in the order of the Assessing Officer on this count also and set aside the same for this reason. The provisions of section 80-IA(8)/80-IA(10) are attracted only between transactions that take place between an eligible and non-eligible entity. The learned Principal Commissioner of Income-tax has not pointed out as to which among the two projects are eligible and which is not eligible. Having not pointed out the same we fail to understand how the learned Principal Commissioner of Income-tax came to the conclusion that an error had occurred in the order vis-a-vis the applicability of the provisions of section 80-IA(8)/80-IA (10) of the Act and so we find that the learned Principal Commissioner of Income-tax has failed to point any error in the order of the Assessing Officer in this regard. Further as stated above the issue had been examined during the assessment proceedings as held above by us and therefore there was no error in the order of the Assessing Officer. We therefore set aside the order of the learned Principal Commissioner of Income-tax on this count also. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act.
2. Allowability of deduction under Section 80-IA.
3. Proportionate profit earned on job work done by sub-contractors.
4. Examination of provisions of Section 80-IA(8)/80-IA(10).

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act:
The appeal was filed against the order passed by the Principal Commissioner of Income-tax (PCIT) under Section 263, which allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The assessee argued that the proceedings under Section 263 were initiated based on a change of opinion, which is not permissible by law. The PCIT initiated the proceedings due to an audit objection and took a view contrary to the Department’s previous stance, which had defended the assessee's eligibility for deduction under Section 80-IA.

2. Allowability of Deduction under Section 80-IA:
The assessee claimed a deduction under Section 80-IA for the assessment year 2011-12, which was allowed by the Assessing Officer (AO) after scrutiny. The PCIT found that the AO had not examined the nature of the contract, which was allegedly a "works contract" and thus ineligible for deduction under Section 80-IA(4). The PCIT argued that the AO did not verify whether the contract fell under the exclusionary clause of Section 80-IA(13). However, the Tribunal found that the AO had indeed raised specific queries regarding the eligibility of the deduction and had received detailed responses from the assessee, including the nature of the contract and its qualification under Section 80-IA. The Tribunal held that the AO had made adequate inquiries and had applied his mind before allowing the deduction, making the PCIT's assumption of jurisdiction under Section 263 unjustified.

3. Proportionate Profit Earned on Job Work Done by Sub-contractors:
The PCIT argued that the AO had not examined the issue of proportionate profits earned on job work done by sub-contractors, which were allegedly not eligible for deduction under Section 80-IA. The assessee contended that the job work was part of the main infrastructure project and thus eligible for deduction. The Tribunal agreed with the assessee, noting that the AO had examined the entire claim under Section 80-IA, including the job work done by sub-contractors, and had allowed it after due consideration. The Tribunal found no error in the AO's order on this count and set aside the PCIT's revisionary order.

4. Examination of Provisions of Section 80-IA(8)/80-IA(10):
The PCIT pointed out that the AO had not examined the disproportionate expenses incurred on two projects vis-a-vis their receipts, which could attract the provisions of Section 80-IA(8)/80-IA(10). These sections deal with transactions between eligible and non-eligible entities. The Tribunal noted that the PCIT did not specify how these provisions were applicable or which projects were eligible or non-eligible. The Tribunal found that the AO had examined the expenses and receipts during the assessment proceedings, and there was no clear error pointed out by the PCIT. Thus, the Tribunal set aside the PCIT's order on this issue as well.

Conclusion:
The Tribunal concluded that the AO had made adequate inquiries and applied his mind before allowing the deduction under Section 80-IA. The PCIT's revisionary order under Section 263 was based on incorrect assumptions and a change of opinion, which is not permissible. The Tribunal set aside the PCIT's order on all counts and allowed the assessee's appeal.

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