2013 (7) TMI 1226 - AT - Income Tax

Summary

Issues Involved:
1. Denial of deduction u/s 80IA(4)(i) of the Income-tax Act, 1961 on the profit derived from business of developing new infrastructure facilities.
2. Determination of whether the assessee is a developer or merely a contractor.

Summary:

Issue 1: Denial of Deduction u/s 80IA(4)(i)

The assessee, engaged in civil works and turnkey execution of effluent and sewerage treatment plants, claimed a deduction u/s 80IA for developing infrastructure facilities. The Assessing Officer (AO) required details of the projects and observed that the deduction u/s 80IA is available to an enterprise carrying on the business of developing, maintaining, and operating infrastructure facilities. The AO, referring to Circular No. 14/2001, noted conditions for availing the deduction, including agreements with government bodies and the newness of the infrastructure facility. The AO concluded that the assessee was merely a contractor and not entitled to the deduction, as the entities named against the projects were developing the projects, not the assessee.

On appeal, the CIT(A) upheld the AO's decision, stating that the contract works allotted were specific types mentioned u/s 80IA, but the assessee was not a developer of the projects. The CIT(A) confirmed the disallowance of the deduction. The assessee appealed to the ITAT, arguing that it was engaged in developing infrastructure facilities and entitled to the deduction, citing various judgments supporting their claim.

Issue 2: Determination of Developer vs. Contractor

The learned DR argued that to be eligible for the deduction, the assessee must engage in developing and maintaining infrastructure facilities, not merely as a developer. The DR referred to sub-section (2) of Sec. 80IA(4) and sub-clause (c) of Sec. 80IA(4)(i), emphasizing that the provision applies to enterprises maintaining and operating infrastructure facilities. The DR cited the Bombay High Court in CIT vs. ABG Heavy Industries Ltd., which highlighted the significance of the commencement of operations for eligibility.

The DR further argued that the assessee's agreements did not provide autonomy in design and specification, indicating a works contract rather than development. The DR relied on judgments, including the Gujarat High Court in Katira Construction Ltd. v. Union of India, which upheld the validity of the explanation inserted below Sec. 80IA(13), clarifying that execution of works contracts does not qualify for the deduction.

The ITAT, considering similar issues in previous cases, held that the assessee must demonstrate involvement in planning, designing, financing, and coordinating infrastructure development. The Tribunal remitted the matter back to the AO to examine the contracts and evidence to determine if the assessee developed the infrastructure facilities or merely executed works contracts. If the assessee establishes the development activities, it would be entitled to the deduction u/s 80IA(4).

Conclusion:

The ITAT set aside the CIT(A)'s order and directed the AO to re-examine the issue, considering the entire contract and supporting evidence. The appeals were allowed for statistical purposes, with the AO to provide a reasonable opportunity of being heard to the assessee.