2018 (10) TMI 2053 - AT - Income Tax

Allowability of deduction u/s. 80IA(4) - Deduction not originally claimed in the return of income filed u/s. 139(1) nor Revised return was filed - Fresh claim of deduction during Scrutiny Assessment - AO denied claim as assessee is not an infrastructure facility but only a manufacturer of a specialized product Pozzocrete for which fly ash - HELD THAT - As in the light of the judgment of M/s. Pruthvi brokers and Shareholders Pvt. Ltd 2012 (7) TMI 158 - BOMBAY HIGH COURT we are of the considered opinion that CIT(A) being Appellate Authority is right in assuming jurisdiction in entertaining the claim of the assessee and allowing the claim of deduction u/s. 80IA(4) as held on examination of composition of Pozzocrete it is observed that fly ash is the major component. Pozzocrete is processed fly ash for eco friendly more durable and performance improved concrete. It is obtained by processing fly ash product as a by-product at coal-fired electricity generating power stations. The word solid waste management is not defined in income tax. As per Glossary of environment statistics Solid waste management refers to the supervised handling of waste material from generation at the source through the recovery processes to disposal. In the instant case the assessee procures the fly ash from MSEB. The fly ash so procured is processed and Pozzocrete. Pozzocrete has a successful history Of use in concrete around the world as Pozzolanic material Therefore assessee is handling the waste material generated from coal fired electricity generating power stations to its final disposal. This makes the assessee qualify as solid waste management company. Assessee being solid waste management company as envisaged u/s 80IA(4) explanation c as it qualifies the condition mentioned under section 80IA(4). Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the Appellate Authority (CIT(A)) was justified in allowing the claim of deduction under section 80IA(4) of the Income Tax Act, 1961, when the assessee had not claimed this deduction in the original return of income filed under section 139(1) of the Act, nor revised the computation of total income accordingly. The issue also implicitly involved determining whether the manufacturing activity of Pozzocrete from Fly-Ash qualifies as an infrastructural activity eligible for deduction under section 80IA(4).

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Allowability of deduction under section 80IA(4) when not claimed in original return

Relevant legal framework and precedents: Section 80IA(4) of the Income Tax Act provides deduction for profits and gains derived from the business of developing, maintaining, and operating infrastructure facilities, including solid waste management. The question of whether a claim for deduction not made in the original return but raised before the appellate authority can be entertained was central. The Tribunal relied on the decision of the Hon'ble Jurisdictional High Court in CIT Vs. M/s. Pruthvi Brokers and Shareholders Pvt. Ltd. (reported as 349 ITR 336), which held that an assessee is entitled to raise additional claims before appellate authorities. The appellate authorities have jurisdiction and discretion to entertain such claims, although they may choose not to exercise it. The Supreme Court decision in Goetze (India) Ltd. vs. CIT (284 ITR 323 (SC)) was distinguished as it dealt with claims made only before the Assessing Officer and not before appellate authorities.

Court's interpretation and reasoning: The Tribunal agreed with the CIT(A)'s view that the appellate authority has jurisdiction to entertain the claim of deduction under section 80IA(4) even if it was not claimed in the original return. The Tribunal emphasized that the assessee had made the claim before the Assessing Officer during assessment proceedings and had furnished all relevant details, which were examined and rejected by the AO. The CIT(A) rightly exercised discretion to admit the claim and allow the deduction, consistent with the High Court ruling.

Key evidence and findings: The assessee was engaged in manufacturing Pozzocrete from Fly-Ash, a by-product of coal-fired electricity generation. The AO denied the deduction on the ground that the assessee was not engaged in an infrastructure facility but only manufacturing a specialized product. However, the CIT(A) examined the composition and nature of Pozzocrete, noting that fly ash was the major component and that the activity constituted handling and processing of solid waste (fly ash) for eco-friendly concrete production. The CIT(A) referred to the definition of solid waste management from environmental statistics and concluded that the assessee's activity qualified as solid waste management under section 80IA(4) explanation (c).

Application of law to facts: Applying the legal principle that appellate authorities have jurisdiction to entertain additional claims, and considering the factual finding that the activity qualifies as solid waste management infrastructure, the Tribunal upheld the CIT(A)'s decision. The Tribunal held that the AO's denial was incorrect and directed allowance of the deduction subject to verification.

Treatment of competing arguments: The Revenue's contention rested on the AO's view and the precedent in Goetze, arguing that the claim was not made in the original return and hence not allowable. The Tribunal distinguished Goetze on facts and law, noting that the claim was made before the AO and was being raised before the appellate authority, which has jurisdiction to entertain such claims. The assessee's argument, supported by the High Court precedent, was accepted as legally sound and factually substantiated.

Conclusions: The Tribunal concluded that the CIT(A) was justified in allowing the claim of deduction under section 80IA(4) despite it not being claimed in the original return. The manufacturing of Pozzocrete from Fly-Ash was held to be an infrastructural activity under the said section, entitling the assessee to the deduction.

3. SIGNIFICANT HOLDINGS

The Tribunal preserved the following crucial legal reasoning verbatim from the CIT(A)'s order:

"It is well settled that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction. Goetze was confined to a case where the claim was made only before the AO and not before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. On facts, there was nothing to show that the claim entertained by the CIT(A) /ITAT was improper."

Further, the Tribunal quoted the CIT(A)'s detailed reasoning on the nature of Pozzocrete and its qualification as solid waste management:

"On examination of composition of Pozzocrete it is observed that fly ash is the major component. Pozzocrete is processed fly ash for eco friendly, more durable and performance improved concrete. It is obtained by processing fly ash product as a by-product at coal-fired electricity generating power stations... In the instant case the assessee procures the fly ash from MSEB. The fly ash so procured is processed and Pozzocrete... Therefore assessee is handling the waste material generated from coal fired electricity generating power stations to its final disposal. This makes the assessee qualify as solid waste management company. In view of the aforesaid discussion and facts of the case the assessee being solid waste management company as envisaged under section 80IA(4) explanation c, in my opinion, as it qualifies the condition mentioned under section 80IA(4), it is entitled for deduction under section 80IA of the Act."

The Tribunal's final determination was to dismiss the Revenue's appeal and confirm the CIT(A)'s order allowing the deduction under section 80IA(4) despite the claim not being made in the original return, and holding that the manufacturing activity qualifies as an infrastructure activity under the said section.