2024 (10) TMI 855 - AT - Income Tax

Deduction u/s 80IA(4) - usage of word developing in juxtaposition to infrastructure facility - profits derived from projects which were received on sub-contract basis from independent private parties and not from the Central Government / State Government / Local authority HELD THAT - The assessee has invested its own funds, has given bank guarantee, has engaged requisite qualified / skilled / semi-skilled staff and the labourers and brought plant machineries to be utilized in the project. He has also adhered to the timelines for completing the project and tasks comprised therein, has also undertaken to bear the consequences for delay in completion of the project and tasks comprised therein. There is defect liability period and there is retention money / security deposit for due compliances including of quality works. It is also his submission that the various decisions relied on by the AO as well as the CIT(A) are distinguishable and not applicable to the facts of the present case. The Hon ble jurisdictional High Court has also taken a view in favour of the assessee in the case of CIT vs. ABG Heavy Industries Ltd. 2010 (2) TMI 108 - BOMBAY HIGH COURT We find the AO in the instant case has not gone through the terms and conditions of each and every project undertaken by the assessee during the year. He has not discussed anything about the clarification given by the CBDT vide Circular No.3/2008, dated 12.03.2008 which is binding on the Revenue. In the case of CIT vs. ABG Heavy Industries Ltd. while discussing an identical issue as to whether the assessee is a developer or merely a works contractor. We find the AO in the instant case without going through the terms and conditions of each of the project that has been undertaken by the assessee during the year has come to the conclusion that the assessee is a works contractor and not a developer. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to decide the issue afresh in light of the decision of ABG Heavy Industries Ltd 2010 (2) TMI 108 - BOMBAY HIGH COURT CBDT Circular No.3/2008, dated 12.03.2008 and the terms and conditions of each of the project that has been undertaken by the assessee to ascertain as to whether the assessee is a works contractor or a developer - The grounds raised by the assessee are accordingly allowed for statistical purposes.

Issues Involved:

1. Eligibility for Deduction under Section 80IA(4) of the Income Tax Act.
2. Classification as Developer or Works Contractor.
3. Applicability of Deduction to Sub-Contracted Projects.
4. Interpretation of Infrastructure Facility under Section 80IA(4).

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IA(4) of the Income Tax Act:

The primary issue in this case was whether the assessee was eligible for a deduction under Section 80IA(4) of the Income Tax Act, 1961. The assessee, a company engaged in infrastructure development, claimed a deduction for projects it undertook, asserting that it qualified as a developer under the said section. The Assessing Officer (AO) disallowed the deduction, arguing that the projects did not meet the criteria of an infrastructure facility and that the assessee acted as a works contractor rather than a developer. The CIT(A) upheld the AO's decision, emphasizing that the projects were executed as works contracts and not as development projects, thus disqualifying the assessee from claiming the deduction.

2. Classification as Developer or Works Contractor:

A critical aspect of the judgment was determining whether the assessee was a developer or merely a works contractor. The AO and CIT(A) concluded that the assessee was a works contractor, as it executed projects based on predefined specifications and did not conceive the projects independently. The AO noted that the assessee did not bear financial risks and operated under strict guidelines from the contracting authorities. The CIT(A) supported this view, citing that the assessee followed detailed instructions and specifications, indicating a works contract rather than development. The Tribunal, however, highlighted the need to examine each project's terms and conditions to ascertain the true nature of the assessee's role.

3. Applicability of Deduction to Sub-Contracted Projects:

The AO also disallowed deductions for projects obtained on a sub-contract basis from private parties, arguing that Section 80IA(4) required a direct agreement with government or statutory bodies. The CIT(A) agreed, stating that the deduction is not applicable to sub-contracted works. The assessee contended that the proviso to Section 80IA(4) does not necessitate a direct agreement with a specified authority, referencing case laws where similar deductions were allowed. The Tribunal did not provide a conclusive ruling on this aspect but emphasized the need for a detailed examination of contracts.

4. Interpretation of Infrastructure Facility under Section 80IA(4):

The AO identified certain projects, such as bus stations and health clinics, which did not qualify as infrastructure facilities under Section 80IA(4), leading to the disallowance of deductions for these projects. The CIT(A) upheld this view, stating that such projects did not meet the statutory definition of infrastructure facilities. The assessee argued that these projects were integral to infrastructure development and should qualify for deductions. The Tribunal noted the need for a detailed analysis of each project's nature to determine eligibility under the statute.

Conclusion:

The Tribunal found that the AO did not adequately examine the terms and conditions of each project to determine whether the assessee was a developer or a works contractor. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., which clarified the distinction between a developer and a works contractor. The Tribunal remanded the matter back to the AO for a fresh examination of the contracts and projects in light of the High Court's decision and the CBDT Circular No.3/2008. The Tribunal directed the AO to provide the assessee with an opportunity to present its case and to decide the issue based on the facts and law. The appeal was allowed for statistical purposes, emphasizing the need for a comprehensive review to ensure justice.

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