2020 (6) TMI 196 - AT - Income Tax

Assessment u/s 153A - whether in unabated assessments (no pending proceedings) as on the date of search, the AO could frame the search assessment u/s 153A making additions without any incriminating materials found during the course of search? - HELD THAT - Once the proceeding u/s 153A of the Act is initiated which are special proceedings, the legislature provides different treatments for abated and unabated assessments. However, in respect of unabated assessments the legislature has not conferred powers on the Ld. AO to disturb the assessments already concluded unless incriminating materials are found in the course of search. We hold that the disallowances made for the Assessment years i.e. 2005-05 and 2006-07 which were unabated/concluded assessments as on date of search cannot be made in the absence of any incriminating material found during the the course of search and accordingly all those additions are directed to be deleted. Since the legal issues are addressed, we refrain to give our findings on merits of additions under the provisions of the Act. Accordingly, the grounds raised by the assessee allowed. Disallowing the deduction claimed u/s 80-IA (4) with respect to the eligible infrastructure project - HELD THAT - Assessee is in development of the infrastructure facilities eligible for deduction under section 80 IA(4) of the Act. The ground of appeal of the assessee is allowed and ground of appeal of the Revenue is dismissed. Deduction u/s 80-IA (4) - Denial of claim assessee is not executing any projects eligible for deduction specified - AY 2009-10 - HELD THAT - We note that the assessee is supplying heavy earthmoving machinery on hiring basis to GMDC. CIT (A) held that there cannot be any deduction with respect to such projects under section 80-IA(4) of the Act, as the assessee is not executing any projects eligible for deduction specified under section 80-IA(4) of the Act. AR at the time of hearing before us has not advanced any argument against the finding of the learned CIT(A). Accordingly in the absence of any information/assistance from the side of the learned AR for the assessee, we do not find any reason to interfere in the finding of the learned CIT (A). Appeal of the assessee is dismissed. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Validity of assessment orders under section 153A read with section 143(3) of the Income Tax Act.
2. Disallowance of deductions claimed under section 80IA(4) for infrastructure projects.
3. Classification of the assessee as a developer or a contractor.
4. Disallowance under sections 40A(2)(b), 40A(3), and 36(1)(va) of the Act.

Detailed Analysis:

1. Validity of Assessment Orders under Section 153A:
The primary issue was whether the Assessing Officer (AO) could frame assessments under section 153A for years where no incriminating material was found during the search. The Tribunal noted that for the assessment years 2005-06 and 2006-07, which were unabated as of the search date, the AO could not make additions without incriminating material. This was supported by the judgments in *PCIT vs. Saumya Construction* and *CIT vs. Continental Warehousing Corporation*. Consequently, additions made by the AO for these years were directed to be deleted.

2. Disallowance of Deductions under Section 80IA(4):
The assessee claimed deductions under section 80IA(4) for various infrastructure projects. The AO disallowed these claims, treating the assessee as a contractor rather than a developer. The CIT(A) partly allowed the claims, recognizing the assessee as a developer for some projects but not for others. The Tribunal upheld the CIT(A)'s decision, noting that the assessee was indeed a developer for several projects based on the nature of the work, financial involvement, and responsibilities undertaken. This was consistent with the Tribunal's earlier decision in the assessee's case for AY 2007-08.

3. Classification as Developer or Contractor:
The Tribunal examined the nature of the contracts and the responsibilities undertaken by the assessee. It was found that the assessee was responsible for designing, developing, and maintaining the infrastructure projects, which qualified it as a developer. This classification was upheld for most projects, except for a few where the assessee acted as a sub-contractor or merely provided machinery on hire.

4. Disallowance under Sections 40A(2)(b), 40A(3), and 36(1)(va):
The Tribunal did not delve into the merits of these disallowances, as the primary issue of the validity of assessments under section 153A was decided in favor of the assessee for the relevant years. Therefore, the disallowances made under these sections were also directed to be deleted.

Conclusion:
The Tribunal allowed the appeals of the assessee for AY 2005-06 and 2006-07, directing the deletion of additions made without incriminating material. For AY 2008-09 and 2009-10, the Tribunal upheld the CIT(A)'s decision, recognizing the assessee as a developer for most projects and allowing the corresponding deductions under section 80IA(4). The appeals of the Revenue were dismissed.