2015 (12) TMI 563 - AT - Income Tax

Eligibility for deduction u/s 80IA - Held that - Assessing Officer is not entitled, in the consequential proceedings, the scope of which is confined to giving effect to the order of the Tribunal, to sit in judgment over the view taken by the Tribunal on the issue in dispute, and if at all there is any grievance on account of the finding given by the Tribunal on the point at dispute, it should pursue the other appellate legal remedies provided in the statute itself, but cannot dilute the direction of the Tribunal. Accordingly, respectfully following the said order of the Tribunal 2012 (8) TMI 633 - ITAT HYDERABAD we are inclined to hold that the assessee is entitled to deduction under S.80IA of the Act. In the present case, the assessee is in infra development activity, the nature of expenditures are similar and it is maintaining the books on contract basis and the revenue is recognized from long term construction contracts on the percentage of completion method as mentioned in Accounting Standard (AS) 7 Construction Contracts notified by the Companies Accounting Standard Rules, 2006. Percentage of completion is determined on the basis of surveys performed. From the above, the profit generated by each project can be determined by applying the percentage of completion method under projects eligible for deduction u/s 80IA or non eligible projects. In our considered view, this cannot be the reason to deny the benefit to the assessee u/s 80IA of the Act. On analyzing the assessment order, AO had inferred from subsection (5) of section 80IA of the Act, stated that to claim deduction u/s 80IA, the profit of eligible business should be computed as if such eligible business was only source of the income of the assessee during the previous year relevant to the AY. Thus, according to AO, the assessee is bound to maintain separate accounts for the works. Since the assessee is dealing in the numerous projects at the same time and also the projects are not time bound, it is impractical to present books of account on project wise and year wise. The method adopted by the assessee is based on the accounting standard approved by the ICAI. These standards are tested and proven method. Considering the above findings, we observe that assessee is following the proper method of accounting and appropriate books to claim deduction u/s 80IA of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of depreciation on building.
2. Rejection of deduction under Section 80IA of the Income-tax Act.
3. Determination of whether the assessee is a "developer" or a "contractor."
4. Requirement to maintain separate books of account for Section 80IA claim.

Detailed Analysis:

1. Rejection of Depreciation on Building:
The judgment does not provide specific details on this issue, focusing primarily on the Section 80IA deduction. Therefore, no detailed analysis is available for the rejection of depreciation on the building.

2. Rejection of Deduction under Section 80IA:
The Assessing Officer (AO) rejected the deduction under Section 80IA on three grounds:
- The assessee did not "begin to operate" the infrastructure facility during the FY 2008-09.
- The assessee was considered a "contractor" rather than a "developer."
- The assessee did not maintain separate books of account for the 80IA claim project.

The CIT(A) allowed the appeal based on previous tribunal decisions in favor of the assessee for similar findings in earlier assessment years (AYs).

3. Determination of Whether the Assessee is a "Developer" or a "Contractor":
The tribunal analyzed whether the assessee is a "developer" or a "contractor" based on the nature of the work undertaken. The tribunal concluded that:
- The assessee incurred expenditure for materials and executed the development work, making it eligible for tax benefits under Section 80IA.
- The term "owned" refers to the enterprise carrying on the development of infrastructure, not the infrastructure facility itself.
- The agreement with the government for developing infrastructure involved significant responsibilities and risks, including maintenance and liability periods, which classify the assessee as a "developer" rather than a mere "contractor."
- The tribunal cited various case laws and circulars, including the CBDT Circular dated 18-05-2010, which supports the eligibility of a "developer" for deduction under Section 80IA.

4. Requirement to Maintain Separate Books of Account for Section 80IA Claim:
The AO argued that the assessee should maintain separate books of account for the 80IA claim project. However, the tribunal found that:
- The assessee maintained books on a contract basis, recognizing revenue from long-term construction contracts using the percentage of completion method as per Accounting Standard (AS) - 7.
- The method adopted by the assessee is appropriate and follows the accounting standards approved by the ICAI.
- The tribunal dismissed the AO's reasoning, stating that it is impractical to present books of account on a project-wise and year-wise basis for numerous ongoing projects.

Conclusion:
The tribunal dismissed the revenue's appeal, concluding that:
- The assessee is eligible for deduction under Section 80IA as a "developer."
- The method of accounting and maintenance of books by the assessee is appropriate for claiming the deduction.
- The appeal of the revenue is dismissed in its entirety.

Pronouncement:
The judgment was pronounced in the open court on 4th December 2015.