2012 (12) TMI 760 - AT - Income Tax

Deduction under section 80IA - CIT(A) deleted the additions on account of disallowances u/s 153A - infrastructure projects where the assessee is merely a work contractor or developer - Held that:- According to sub-clause (a), clause (i) of sub-section (4) of section 80-IA, the word 'it' denotes the enterprise carrying on the business. The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility.

The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Government or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular, dated 18-5-2010, such activity is eligible for deduction under section 80-IA(4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicate that the assessee is eligible for deduction under section 80-IA(4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.

Nothing either on facts or in law, which distinguishes, the already existing position as on the date of search and in the proceedings under section 153A read with 143(3), which substantiates the denial. Accept for the interpretation, as made out by the AO, there is nothing, which could substantiate the disallowance. In the entire proceedings upto the hearing before us, the department has not even said that there was either no agreement between the assessee and the state government or there is any change in the agreement entered into by the assessee and the government department. In fact the DPB filed by the department there are letters exchanged, written by the assessee and various government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee for ₹ 2,61,62,400, against the tendered cost. This proves beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the government, besides placing its own funds at risk and peril - thus no disallowance u/s 80IA(4)warranted - in favour of assessee.

Deduction u/s 80IA on the amounts written back under section 41(1) - Held that:- It is not the case of the department that these liabilities were non business. When the liabilities which have been written back/offered to tax by the assessee pertains to the business, then it has to be added back as a business income. CIT(A) has also taken note of the fact that the assessee was having two types of projects, i.e., which qualify for deduction under section 80IA and which do not qualify. But here, in the instant case, we are concerned with domestic projects, and the ceased liabilities are emanating from the normal course of business of the assessee. Hence the liabilities written back would be added to the claim of deduction under section 80IA. Since the assessee also has non-80IA projects and it has been accepted by the assessee that these written back liabilities would also pertain to non 80IA projects, in these circumstances, the assessee and the CIT(A) were very reasonable in allocating the income offered under section 132(4) on account of cessation of liabilities under section 41(1) in proportion of the turnover of 80IA project and non 80IA projects - no reason to deviate from the finding reached by the CIT(A) to direct the AO to add the proportion of offered amount of ₹ 1.95 crores to the income eligible for deduction under section 80IA for assessment year 2005-06.