2016 (8) TMI 995 - AT - Income Tax

Eligibility for claiming deduction u/s. 80IA(4) - civil contract business - The work was allotted by DRDO, Ministry of Defence, Govt. of India for construction of rain water harvesting reservoir, i.e., the development of infrastructure facility. - Held that - As per section 80IA(4), the appellant should be engaged in the eligible business as defined in the section. For this, it was also to be examined and enquired by the revenue authorities from the agreements and the ground activities of appellant in compliance thereto as to who supplied the drawings and designing etc. of the project. It was also to be enquired as to what was the assessee s risk in the project. The Revenue authorities also did not examine the nature of payments received by the assessee whether it was disbursed by the contractee on the basis of M.B (Measurement Books) of the project, which is the basic record for making payment by the contractee or it was disbursed otherwise. In case the assessee is found to have received the periodic payment as per periodical measure book records of the project, then the assessee cannot be termed to be developer, as in that case no financial risk of the assessee would be there in the project. Furthermore, as per provisions of section 80IA, the eligible entity who claims himself to be a developer for the purpose of this section, is required to maintain separate books of account for the project and according to those accounts, correct profit has to be calculated. This aspect has also to be enquired by the Revenue authorities. If the Revenue Authorities find that the assessee has acted as developer, then he has to examine whether correct profit is deduced from the separate accounts required to be maintained by the assessee as per provisions of section 80IA of the Act. In view of all this discussion, we conclude that the lower authorities have not made thorough enquiry in the matter regarding the nature of agreements, terms of payments, maintenance of account books with respect to the project separately etc. before denying the claim of the assessee u/s. 80IA (4). However, for want of proper enquiries and in absence of correct facts emerged out of such enquiries, the decisions relied upon by the assessee, in our opinion, do not render any help to the assessee. We accordingly deem it proper in the interest of justice to restore the matter to the file of ld. Assessing Officer to decide the matter de novo after making proper enquiry as discussed above. The assessee is also directed to cooperate with the AO in fresh assessment proceedings. Needless to say, the assessee shall be given reasonable opportunity of being heard. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Contravention of Section 250(6) of the Income Tax Act, 1961.
2. Disallowance of deduction claimed under Section 80-IA(4) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Contravention of Section 250(6) of the Income Tax Act, 1961:

The appellant contended that the CIT(A) erred in passing the order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961. However, this issue was not elaborated upon in the judgment, and the primary focus remained on the second issue regarding the disallowance of the deduction under Section 80-IA(4).

2. Disallowance of Deduction Claimed Under Section 80-IA(4) of the Income Tax Act, 1961:

The appellant, a civil contractor, claimed a deduction of ?2,47,75,170 under Section 80-IA(4) for the assessment year 2007-08. The Assessing Officer (AO) disallowed this deduction, asserting that the appellant was not engaged in an eligible business as defined in Section 80-IA(4). The AO noted that the appellant did not submit a separate profit and loss account and balance sheet for the undertaking, as required by Rule 18BBB. The AO concluded that the appellant was merely a contractor and not a developer of infrastructure facilities.

The CIT(A) upheld the AO's decision, emphasizing that the appellant was only a contractor and not a developer or operator of the infrastructure project. The CIT(A) referenced the Explanation to Section 80-IA(13), which clarifies that the deduction does not apply to businesses in the nature of works contracts.

The appellant argued that the work allotted by DRDO for the construction of a rainwater harvesting reservoir qualified as the development of an infrastructure facility under Section 80-IA(4). The appellant provided documentary evidence, including work orders, completion certificates, and a separate profit and loss account. The appellant also cited several judicial decisions supporting their claim.

The respondent (DR) contended that allowing the deduction would violate Section 80-IA(4), as the appellant was not a developer but merely a civil contractor. The DR argued that the appellant did not assume any risks or rewards associated with the project.

The Tribunal considered both sides' arguments and the material on record. It found that the CIT(A) had thoroughly examined the facts and concluded that the appellant was not eligible for the deduction. The Tribunal noted that the project was owned and developed by DRDO, and the appellant was only a contractor. The Tribunal referenced several judicial decisions, including those from the Gujarat High Court and the Supreme Court, which supported the view that contractors executing works contracts are not eligible for the deduction under Section 80-IA(4).

The Tribunal also highlighted that the form No. 10CCB filed by the appellant was incomplete, missing crucial details from Sl. No. 25(e) to Sl. No. 30. The Tribunal emphasized that the Explanation to Section 80-IA(13) explicitly excludes works contracts from the deduction.

In conclusion, the Tribunal upheld the CIT(A)'s decision, affirming that the appellant was not eligible for the deduction under Section 80-IA(4). The Tribunal directed the AO to make a thorough enquiry regarding the nature of agreements, terms of payments, and maintenance of separate accounts for the project before denying the claim. The appeal was allowed for statistical purposes, and the matter was remanded to the AO for fresh consideration.