2018 (7) TMI 213 - AT - Income Tax

Revision u/s 263 - claim of deduction under section 80IA(4) - shouldering of investment for a period of three moths cannot be said to be shouldering of investment - ITAT held that the issue in the said case needs to be re-examined by the Assessing Officer - CIT-A noted that the ITAT directed the Assessing Officer to examine the case particularly from the point of view whether the assessee is expected to shoulder out the investment part in execution of the contract - Held that - After the direction of the ITAT, the Assessing Officer had elaborately examined the issue. He has specifically mentioned that he is following the guidelines as emanating from the above said decision of the ABG Heavy Industries Ltd. (2010 (2) TMI 108 - BOMBAY HIGH COURT) by numerically noting the facts of the case which compared favourably with the guidelines emanating in the aforesaid case. AO noted that in this case, the assessee is responsible for funds and the development of the project. He is also responsible for the risk, damage, etc and hence, the Assessing Officer came to the conclusion that the assessee was eligible for deduction u/s. 80-IA(4) of the Act. Observation of the ld. Commissioner of Income Tax is totally extraneous and unsustainable - Commissioner of Income Tax has obtained the assessee s response in this regard. He noted that the assessee was shouldering the investment and after the substantial completion of the work, which entailed approximately three months, the assessee was made payment. The ld. Commissioner of Income Tax disregarded this aspect by holding that the payment of bills after three months is normally phenomenon in government contracts. We find this observation strange and not at all sustainable as even if the assessee is putting his investment for three months, it can by no stretch of imagination be said that the assessee is not shouldering investment. Hence, the Assessing Officer s acceptance of this aspect can by no stretch of imagination be said to be improbable or impossible view. Commissioner of Income Tax has further stated that the Assessing Officer is directed to examine the matter in the light of the above discussion. He further stated that the Assessing Officer may also examine the case from the other perspective arising out of the decision of the ITAT. We find that this clearly shows that the ld. Commissioner of Income Tax is sitting in appellate forum over the ITAT decision in this case, which is totally unsustainable. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Eligibility for deduction under Section 80IA(4) of the Income Tax Act.
3. Compliance with ITAT directions and judicial precedents.
4. Examination of the assessee's role as a developer or contractor.
5. Investment and financial responsibility in project execution.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee argued that the Principal Commissioner of Income Tax (Pr.CIT) wrongly assumed jurisdiction under Section 263 of the Income Tax Act, 1961. The Pr.CIT's order was challenged on the grounds that it was merely a change of opinion on the same set of facts. The ITAT had previously modified the Pr.CIT's order for the same assessment year, directing the Assessing Officer (AO) to re-examine the issue of deduction eligibility under Section 80IA(4). The ITAT emphasized that the Pr.CIT's direction to disallow the deduction entirely was not upheld, and the AO was instructed to adjudicate the matter as per law.

2. Eligibility for Deduction under Section 80IA(4):
The main contention was whether the assessee was eligible for deduction under Section 80IA(4). The Pr.CIT relied on the decision of the larger Bench of ITAT, Mumbai in B.T. Patil and Sons, which was later reversed by the Hon'ble Bombay High Court in ABG Heavy Industries. The ITAT noted that the AO must examine if the assessee functioned as a developer or merely as a contractor. The AO, following ITAT's direction, concluded that the assessee was responsible for funds, development, and risk, thus eligible for the deduction under Section 80IA(4).

3. Compliance with ITAT Directions and Judicial Precedents:
The ITAT had directed the AO to follow the guidelines from the ABG Heavy Industries case. The AO examined the case in light of these guidelines and concluded that the assessee met the criteria for deduction under Section 80IA(4). The AO's order was based on a thorough examination of records and compliance with judicial precedents.

4. Examination of the Assessee's Role as a Developer or Contractor:
The ITAT emphasized that the AO needed to ascertain whether the assessee was a developer or a contractor. The AO found that the assessee was responsible for the project’s development, utilization of funds, and technical risks. The AO's detailed examination concluded that the assessee was a developer, not merely a contractor, thus eligible for the deduction.

5. Investment and Financial Responsibility in Project Execution:
The Pr.CIT argued that the assessee did not make substantial investments in executing the contract, as funds were provided by MSEDCL. The assessee countered that it completed the work using its own funds and received payments only after project completion and certification. The AO found that the assessee shouldered the investment and risk, fulfilling the criteria for deduction. The ITAT noted that the Pr.CIT's observation about the three-month payment delay being normal in government contracts did not negate the assessee's financial responsibility.

Conclusion:
The ITAT quashed the Pr.CIT's order under Section 263, concluding that the AO had properly examined the issue in compliance with ITAT's directions and judicial precedents. The AO's finding that the assessee was eligible for deduction under Section 80IA(4) was upheld. The ITAT emphasized that differing views between the AO and Pr.CIT do not render the AO's order erroneous or prejudicial to revenue interests. The appeal by the assessee was allowed.

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