2023 (5) TMI 1446 - AT - Income Tax

Deduction u/s 80IA claimed in the revised return - eligibility of claim made in revised return of income filed u/s. 139(5) - AO observed that assessee has enhanced its gross total income due to the survey - HELD THAT - A plain reading of the above sections reveals that the deduction claimed u/s. 80IA(4) shall not be allowed unless the assessee furnishes a return of income on or before the due date specified u/s. 139(1) of the Act. Such deduction has to be claimed in the return of income. However the above provisions nowhere provide that such deduction has to be claimed in the return filed u/s. 139(1) only. A plain reading of the above provisions only speaks of filing a return of income within the time limit and making of the claim in the return of income. We therefore find merit in the arguments advanced by the assessee that once a valid revised return is filed it replaces the original return of income filed in time and therefore it cannot be said that a) the assessee has not filed the return of income within the time i.e. within the due date prescribed u/s. 139(1) of the Act or b) the claim has not been made in the return of income. We find in the case of ACIT vs. Shanti Gears Ltd. 2022 (3) TMI 960 - ITAT CHENNAI while holding that assessee can make a claim in the revised return. Thus we are of the considered opinion that the claim u/s. 80IA(4) can be made in the revised return filed u/s. 139(5) if the original return and revised returns were filed in time. Therefore the ld.CIT(A) in our opinion is fully justified in allowing the claim of deduction u/s. 80IA in the revised return. Allowability of deduction u/s. 80IA when the nature of activity is that of works contractor - We find the AO in the remand report has himself acknowledged that the nature of work undertaken by the assessee is that of developing infrastructure facility and thereby eligible for deduction u/s. 80IA. We therefore find merit in the argument of the ld.counsel for the assessee that once the AO himself has stated that the nature of work undertaken by the assessee is in the nature of developing infrastructure which would qualify for deduction u/s. 80IA of the Act he should not have filed the additional ground challenging the allowability of deduction u/s. 80IA treating the assessee as a work contractor. Since the ld.CIT(A) in the instant case after thorough analysis has held that the activities performed by the assessee is that of the developer and not merely that of a contractor and since the AO in the remand report itself has categorically held that the assessee is a developer and since the AO in the subsequent years has allowed the claim of deduction u/s. 80IA(4) in respect of the projects which were continuing for the impugned assessment year therefore in view of the detailed reasonings given by the ld.CIT(A) while allowing claim of deduction u/s. 80IA(4) we do not find any infirmity in the same. Decided in favour of assessee. Belated payment of PF and ESI - CIT(A) directed the AO to delete the addition if the amounts are paid before the due date filing of return of income - HELD THAT - We find the issue now stands decided against the assessee by the decision in the case of Checkmate Services Pvt.Ltd. reported in 2022 (10) TMI 617 - SUPREME COURT (LB) according to which if employees contribution to PF and ESIC is not paid on or before the statutory due dates provided under the said Act same cannot be allowed as deduction. Since admittedly the assessee in the instant case has not deposited the employees contribution to PF and ESIC before the statutory due dates prescribed under the said Act but has deposited the same before the due date of filing of the return therefore the ld. CIT(A) in our opinion was not justified in directing the AO to delete the addition made if the amounts are paid before the due date of filing of the return. Decided against assessee.

Summary

The core legal questions considered by the Tribunal in these appeals are:

1. Whether a claim for deduction under section 80IA(4) of the Income Tax Act, 1961, made for the first time in a revised return filed under section 139(5) after a survey action, is admissible where the original return was filed within the due date under section 139(1).

2. Whether the assessee, being a works contractor and subcontractor executing contracts for government and government-related entities, is eligible to claim deduction under section 80IA(4) which is intended for enterprises developing, operating, and maintaining infrastructure facilities.

3. Whether the additional income disclosed during survey proceedings, which led to filing the revised return, is eligible for deduction under section 80IA(4) when the income relates to undisclosed income admitted during survey.

4. Whether the belated payment of employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) can be allowed as a deduction if paid before the due date of filing the return of income, despite being paid after the statutory due dates under the respective Acts.

5. The admissibility of an additional ground raised by the Revenue challenging the nature of the assessee's activity as that of a contractor rather than a developer for the purpose of section 80IA(4).

Issue 1: Allowability of Deduction under Section 80IA(4) Claimed in Revised Return

The legal framework involves sections 80A(5), 80AC, 139(1), and 139(5) of the Income Tax Act. Section 80A(5) mandates that no deduction under Chapter VIA shall be allowed unless claimed in the return of income. Section 80AC stipulates that deductions under section 80IA and related sections are not allowed unless the return is furnished on or before the due date under section 139(1). Section 139(5) permits filing of a revised return before the expiry of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier.

Precedents from ITAT benches at Mumbai, Chennai, Kolkata, and Pune were cited, notably the decisions in Kamadhenu Builders and Developers, ACIT vs. Precot Meridian Ltd., DCIT vs. Mackintosh Burn Ltd., and ITO vs. Dirk India Pvt. Ltd. These cases held that if the original return is filed within the due date, a claim for deduction made in a revised return filed within the prescribed time under section 139(5) is admissible. The revised return replaces the original return and is treated as if filed under section 139(1).

The Tribunal reasoned that the statutory provisions do not explicitly require that the claim for deduction must be made in the original return filed under section 139(1). The crucial requirement is that the return itself must be filed within the due date. The revised return filed within time is valid and the claim therein is maintainable.

The Revenue's reliance on the Supreme Court decision in PCIT vs. Wipro Ltd. was distinguished on the basis that Wipro dealt with exemption provisions under section 10B and the mandatory withdrawal of claims before the original return due date, whereas section 80IA deals with deductions, and the provisions and principles differ. Thus, the Wipro decision was held not applicable.

Accordingly, the Tribunal upheld the Commissioner of Income Tax (Appeals) order allowing the claim of deduction under section 80IA(4) made in the revised return.

Issue 2: Eligibility of the Assessee as Developer Under Section 80IA(4) Versus Being a Works Contractor

Section 80IA(4) applies to enterprises engaged in developing, operating, and maintaining infrastructure facilities, provided certain conditions including ownership or agreements with government/statutory bodies are met. The Revenue contended that the assessee was merely a works contractor and subcontractor, thus ineligible for the deduction.

The AO initially disallowed the deduction on this ground, noting that the assessee's business was described as "Civil Contractor" and that receipts were from works contracts. However, upon remand, the AO acknowledged that the contracts and scope of work indicated the nature of the work was developing infrastructure facilities.

The Tribunal relied heavily on the detailed analysis of the agreements with government entities such as Rail Vikas Nigam Limited, East Central Railway, South East Central Railway, RITES Limited, and others, which qualify as infrastructure projects under section 80IA(4). It also referred to the Government of India Ministry of Railways' Office Memorandum dated 23.10.1997, which clarifies that infrastructure developed by private parties on railway premises becomes the property of Indian Railways, implying that such projects are infrastructure facilities for the purpose of section 80IA(4).

Further, the Tribunal referred to the Madras High Court judgment in CIT vs. Chettinad Lignite Transport Services Pvt. Ltd., which held that even subcontractors recognized by the concerned authorities and engaged in developing and maintaining railway sidings are eligible for deduction under section 80IA(4), without requiring a direct agreement with the government.

Since the AO in subsequent assessment years allowed the deduction for the same projects and the nature of the activities remained consistent, the Tribunal held that the assessee is a developer and eligible for deduction under section 80IA(4). The Revenue's additional ground challenging this was dismissed as the AO himself had accepted the assessee's status as a developer.

Issue 3: Claim of Deduction on Additional Income Disclosed During Survey

The Revenue argued that the additional income disclosed during survey proceedings (Rs. 5 crores for AY 2015-16 and Rs. 10 crores for AY 2016-17) was undisclosed income and hence not eligible for deduction under section 80IA.

The Tribunal noted that the additional income was offered separately in the computation and the taxable income after claiming deduction under section 80IA was still higher than the income disclosed during survey. The claim for deduction was not linked to the survey income but to the eligible infrastructure business profits. The Tribunal found no merit in the Revenue's contention and upheld the allowance of deduction.

Issue 4: Deduction of Belated Payment of Employees' Contribution to PF and ESI

The AO disallowed Rs. 2,67,611/- on account of belated payment of employees' contribution to PF and ESI. The CIT(A) directed deletion of this addition if the amounts were paid before the due date of filing the return.

The Tribunal referred to the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT, which held that payment of PF and ESI contributions is allowable as a deduction only if made on or before the statutory due dates under the respective Acts. Payment made after the due dates but before filing the return is not deductible.

Accordingly, the Tribunal allowed the Revenue's ground and restored the disallowance of the belated payments.

Issue 5: Admissibility of Additional Ground Challenging the Nature of Activity

The Revenue raised an additional ground challenging the nature of the assessee's activity as that of a works contractor rather than a developer. The Tribunal admitted the ground as it was purely legal and did not require new facts.

However, the Tribunal rejected the ground on merits, observing that the AO had already accepted the assessee's status as a developer in the remand report and in subsequent assessment years. The Tribunal held that the Revenue cannot be aggrieved by its own findings and the additional ground lacked merit.

Significant Holdings:

"A plain reading of section 80AC makes it clear that from the assessment year 2006-07, deduction claimed under section 80IA shall not be allowed unless the assessee furnishes a return on or before due date specified under sub-section (1) of section 139. Nowhere in the section it was provided that unless the assessee makes a claim in its return filed under section 139(1), the said claim is allowable."

"Once a valid revised return is filed, it replaces the original return of income and hence, it cannot be said that the assessee has not filed the return of income within the time i.e. within the due date prescribed u/s. 139(1) or the claim has not been made in the return of income."

"The Proviso to subsection (4) of section 80IA(4) stipulates that subject to the fulfillment of conditions, the transferee or contractor recognized by the concerned authority and undertaking the work of development of infrastructure facility is entitled to deduction under section 80IA."

"The Government of India Ministry of Railways' OM dated 23.10.1997 clarifies that infrastructure developed by private parties on railway premises becomes the property of Indian Railways and such development qualifies as infrastructure facility for the purpose of section 80IA(4)."

"The Tribunal has no power to take back the benefit granted by the Assessing Officer once a revised return is filed and accepted."

"Payment of employees' contribution to PF and ESI after the statutory due dates under the respective Acts is not allowable as deduction even if paid before the due date of filing the return."

In conclusion, the Tribunal upheld the allowance of deduction under section 80IA(4) claimed in the revised return, held the assessee to be a developer eligible for such deduction despite being a subcontractor, dismissed the Revenue's challenges to the claim of deduction on additional income disclosed during survey, and restored the disallowance of belated PF and ESI payments. The appeals filed by the Revenue were partly allowed on the PF/ESI issue and dismissed on other grounds.