2022 (1) TMI 1115 - AT - Income Tax

Eligibility to claim section 80IA deduction pertaining to twenty nine irrigation and road projects - HELD THAT - We find no merit in the assessee s foregoing arguments supporting the CIT(A) s action holding it partly eligible for the impugned section 80IA deduction relief. There is hardly any dispute about the assessee having undertaken irrigation and road projects from the concerned government departments in the nature of works contract only wherein it not only received mobilization advances in the initial stage but also there was no risk element involved as it had to carry out the construction of the irrigation project or and widening the road (supra) concerned as per the specific terms and conditions and prescribed specifications only. We notice in this factual backdrop that this tribunal s recent co-ordinate bench s decision in M/s. NEC NCC MAYTAS 2021 (5) TMI 1008 - ITAT HYDERABAD has considered the Explanation regarding works contract u/s 80IA as held assessee has first of all been paid mobilization advances by the state government s department on periodic basis, and, then only it executed the corresponding lift irrigation project works contract followed by its yet another claim of section 80IA of the Act deduction - We accordingly conclude both the learned lower authorities have rightly disallowed assessee's 80IA deduction claim involving varying sum(s) in their respective orders. The same stands confirmed. Section 80IA s Explanation(s) is squarely attracted herein that even if the assessee itself is treated as the developer under sub-section (4) of the very provision, the impugned claim shall be hit by the foregoing Explanation as its business is in the nature of a works contract only. Reliance placed on all earlier orders (supra); not considering the statutory Explanation(s) , are not forced to be binding precedent in light of CIT Vs. B.R. Constructions 1992 (6) TMI 13 - ANDHRA PRADESH HIGH COURT - Decided in favour of revenue.

Summary

Issues Involved:
1. Eligibility of the assessee to claim section 80IA deduction for irrigation and road projects.
2. Determination of whether the assessee is a developer or a contractor.
3. Applicability of the explanation to section 80IA regarding works contracts.
4. Interpretation of the CBDT Circular No. 4/2010 concerning road and irrigation projects.
5. Assessment of whether the projects constitute new infrastructure facilities or merely improvements to existing ones.
6. Consideration of business and financial risks undertaken by the assessee.

Detailed Analysis:

1. Eligibility of the Assessee to Claim Section 80IA Deduction:
The primary issue is the eligibility of the assessee to claim section 80IA deduction for twenty-nine irrigation and road projects. The Revenue contends that the assessee is a contractor, not a developer, and thus ineligible for the deduction. The CIT(A) partially accepted the assessee’s claim, which led to cross-appeals by both parties.

2. Determination of Whether the Assessee is a Developer or a Contractor:
The Revenue argues that the assessee is a contractor who did not undertake any business or financial risks, as it received mobilization advances and had to adhere strictly to the terms and conditions of the government contracts. The CIT(A) had assumed the assessee as a developer without sufficient basis, failing to consider the terms of the agreements and the findings of the Assessing Officer (AO).

3. Applicability of the Explanation to Section 80IA Regarding Works Contracts:
The tribunal noted that the explanation to section 80IA, inserted by the Finance Act 2009, explicitly excludes works contracts from the purview of section 80IA deductions. The tribunal referenced the case M/s. NEC NCC MAYTAS – JV Vs. DCIT, which held that development of irrigation works under government contracts falls under the works contract category, thereby disqualifying the assessee from section 80IA benefits.

4. Interpretation of the CBDT Circular No. 4/2010:
The Revenue argued that the CBDT Circular No. 4/2010, which pertains to road widening projects, does not apply to the assessee’s irrigation projects. The CIT(A) erroneously extrapolated the circular’s applicability to irrigation projects, which was not intended by the circular.

5. Assessment of Whether the Projects Constitute New Infrastructure Facilities:
The tribunal found that the projects undertaken by the assessee were primarily improvements to existing facilities rather than the development of new infrastructure. The AO had noted that the road projects involved merely relaying existing roads, and the irrigation projects were in the nature of repairs, renovations, and reconstruction.

6. Consideration of Business and Financial Risks Undertaken by the Assessee:
The assessee argued that it undertook business and financial risks, including design, development, and maintenance of the projects. However, the tribunal found that the assessee’s receipt of mobilization advances and the fixed lump sum payments indicated a lack of significant risk. The tribunal emphasized that the assessee’s role was limited to executing works contracts under the government’s specifications.

Conclusion:
The tribunal concluded that the assessee’s activities fell under the definition of works contracts as per the explanation to section 80IA. Consequently, the assessee was not eligible for the section 80IA deduction. The Revenue’s appeals were allowed, and the assessee’s cross-appeals were dismissed. The tribunal’s decision was consistent across all the relevant assessment years, involving identical projects. The order was pronounced in the Open Court on 9th December 2021.