2025 (4) TMI 1474 - AT - Income Tax

Delay of 445 days in filing the appeal by the assessee against the order passed u/s 263 - as submitted appellant was not aware of the order passed by the PCIT - HELD THAT - AO has passed order u/sec.143(3) r.w.s 263 on 30.03.2022 and served on the appellant. In fact the appellant has claimed in it s petition that after receipt of the order from the Assessing Officer dated 30.03.2022 the appellant-company has filed RTI application on 07.04.2022 before the learned PCIT to obtain necessary information. From the above facts it is undisputedly clear that the appellant was aware of the proceedings before the learned PCIT u/sec.263 of the Act and also participated in the proceedings by filing relevant evidences. Therefore reasons given by the appellant in the petition for condonation of 445 days delay that the appellant was not aware of the order passed by the learned PCIT u/sec.263 dated 29.03.2021 till the AO passed his consequential assessment order u/sec.143(3) r.w.s 263 on 30.03.2022 is devoid of merit and contrary to the facts available on record. Therefore we are of the considered view that the reasons given by the appellant for delay in filing appeal does not come under sufficient and reasonable cause Appellant claims that the Managing Director of the company was suffering from cancer and he was admitted to M.S. Ramaiah hospital at Bangalore - Although the claim of the appellant that it s Managing Director was suffering from cancer and was admitted in hospital but the fact remains that when the Director of the company was in hospital the appellant company has filed appeal against the order passed by the learned PCIT u/sec.263 the Act on 16.08.2022 which is evident from the date of admission into the hospital and date of death of the Managing Director. Further in a company there are more than one Directors and in case one Director or Managing Director is not able to attend any proceedings because of illhealth or for some other reasons but the other Director can very well attend the proceedings. Therefore in our considered view the reasons given by the appellant in the petition that due to ill-health of the Managing Director of the company the appeal could not be filed on or before the due date is devoid of merits and does not come under reasonable and sufficient cause going by the facts available on record. Therefore on this reason the delay of 445 days cannot be condoned. Arguments of the appellant in light of Covid-2019 pandemic period if we exclude the delay covered in the order of Hon ble Supreme Court then the actual delay is 79 days and therefore considering the short delay of 79 days the appeal may be admitted in the interest of justice - Once there is a delay it is the duty of the appellant to explain the total delay including the delay covered under Covid period and delay not covered under Covid period. Therefore even if we exclude delay covered by the Covid period still there is a delay 79 days which could not be explained by the appellant with sufficient reasons . Therefore we are of the considered view that the reasons given by the appellant on this account also cannot be accepted. As the reasons given by the appellant in the petition for condonation of delay does not come under sufficient and reasonable cause for condonation of huge delay a 445 days in filing the appeal before the Tribunal. Deduction u/sec. 80IA(4) applicability to the constituent of the JV Consortium - assessee had not directly entered into agreement with Central/State Governments or any Local Authority or Statutory Body but entered into agreement through JV/Consortium and therefore the Assessing Officer disallowed the claim of deduction u/sec.80IA(4) of the Act to the assessee - HELD THAT - We note that contracts awarded to JVs and whether the assessee can claim the same as a constituent of the above JVs the coordinate bench of ITAT Visakhapatnam in the case of Transstory (India) Ltd 2011 (7) TMI 810 - ITAT VISAKHAPATNAM held that the constituents of JVs are eligible to claim deduction u/s 80IA. Decided in favour of assessee. Deduction u/s 80IA - AO after examining the submissions of the assessee allowed the 80IA deduction only to the extent of assessee-company s proportionate share with respect to the works executed through JV/Consortium and disallowed excess claim - HELD THAT -The assessee-company had executed 100% project-work in respect of the above 02 projects. Since the back-to-back agreement entered into by the assessee company with JV/Consortium with respect to their proportionate share of project works in the above 02 projects are not verified either by the AO or by the CIT(A) we deem it appropriate to remit the issue back to the file of AO to the limited extent of examining the issue of back-to- back agreements with the JV/Consortium for execution of proportionate share of JV/Consortium project works by the assessee-company in respect of 02 projects and if the assessee-company furnishes relevant agreements with respect to completion of the project works to be done by the JV/Consortium by the assessee-company then the Assessing Officer is directed to allow the deduction claimed by the assessee-company u/sec.80IA of the Act. Needless to say the Assessing Officer should provide adequate opportunity of being heard to the assessee. Accordingly the grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues Presented and Considered

1. Whether the delay of 445 days in filing the appeal by the assessee against the order passed under section 263 of the Income Tax Act, 1961 ("the Act") can be condoned considering the reasons cited by the assessee, including non-receipt of the order, Covid-19 pandemic, and ill-health of the Managing Director.

2. Whether the assessee is entitled to claim deduction under section 80IA(4) of the Act in respect of profits derived from infrastructure projects executed through Joint Ventures (JVs) or Consortiums where the assessee is a constituent partner but the agreement is entered into by the JV/Consortium and not directly by the assessee.

3. Whether the assessee can claim 100% deduction under section 80IA in respect of projects executed through JV/Consortium when the assessee has executed the entire project work on back-to-back subcontract agreements with the other JV/Consortium partners, despite the Assessing Officer allowing deduction only to the extent of the assessee's proportionate share.

Issue-wise Detailed Analysis

Issue 1: Condonation of Delay in Filing Appeal

Legal Framework and Precedents: The condonation of delay is a discretionary power exercised by courts or tribunals based on whether "sufficient cause" or "reasonable cause" is shown for the delay. The Supreme Court in Collector, Land Acquisition vs. MST Katiji (1987) 167 ITR 471 emphasized that merit of the case should be preferred over technicalities but also held that it is the petitioner's duty to explain each day of delay with sufficient cause.

Court's Interpretation and Reasoning: The Tribunal examined the reasons cited by the assessee: non-awareness of the order passed under section 263 due to service on an email ID as per PAN database, disruption caused by Covid-19 pandemic, and ill-health and eventual demise of the Managing Director. However, the Tribunal found that the assessee had participated in the proceedings before the PCIT, including filing responses to show cause notices and appearing in consequential assessment proceedings. The assessee also filed an RTI application after receipt of the consequential assessment order to obtain details of the service of the order under section 263, indicating awareness of the proceedings.

The Tribunal observed that the claim of non-awareness of the order is contrary to the facts on record. Regarding the ill-health of the Managing Director, the Tribunal noted that the appeal was filed on 16.08.2022, during the period when the Managing Director was admitted in hospital, and that the company had other directors who could have managed the appeal process. The Tribunal also rejected the plea of delay due to Covid-19 pandemic, holding that even excluding the delay covered by the Supreme Court's order extending limitation due to the pandemic, a delay of 79 days remained unexplained.

Application of Law to Facts: The Tribunal applied the principle that delay must be explained with sufficient cause and found the reasons given by the assessee inadequate and not bonafide. The participation in proceedings and filing of appeal during the period of ill-health negated the claim of inability to file on time.

Treatment of Competing Arguments: The assessee argued that the delay was beyond control and due to exceptional circumstances. The Revenue contended that the delay was inordinate and unexplained, and the assessee was aware of the proceedings. The Tribunal sided with the Revenue.

Conclusion: The Tribunal dismissed the appeal as not maintainable due to the inordinate delay of 445 days in filing the appeal without sufficient cause.

Issue 2: Eligibility for Deduction under Section 80IA(4) for Projects Executed Through JV/Consortium

Legal Framework and Precedents: Section 80IA(4) provides deduction for profits derived from developing or operating infrastructure facilities under agreements entered into with Central/State Government or local authorities. The question is whether a constituent of a JV/Consortium can claim deduction when the agreement is entered into by the JV/Consortium and not directly by the constituent.

The Tribunal relied on binding precedents from coordinate Benches including ITAT Visakhapatnam in M/s Transtroy India Ltd. and ITAT Hyderabad in DCIT vs. Megha Engineering & Infrastructure Ltd. These decisions held that the constituents of JVs/Consortiums are eligible to claim deduction under section 80IA(4) if they carry on the business and execute the work, even if the contract is awarded to the JV/Consortium as a whole.

Court's Interpretation and Reasoning: The Tribunal accepted the view that the JV/Consortium is often a de jure entity formed to obtain contracts, but the actual execution is by the constituent partners. The constituent partners bear the technical, commercial, and contractual risks and perform the work in agreed proportions. The JV/Consortium files returns and pays tax but does not claim income or deduction under section 80IA(4). Thus, the benefit of deduction should be available to the constituent who actually carries on the business and executes the contract.

Key Evidence and Findings: The assessee furnished agreements and work orders evidencing execution of infrastructure projects through JVs/Consortiums. The Tribunal noted that the Assessing Officer allowed deduction for projects where the assessee entered into agreement directly but disallowed for projects executed through JV/Consortium on the ground that the assessee had no direct agreement with Government authorities.

Application of Law to Facts: The Tribunal held that the assessee satisfied all conditions except direct agreement with Government authorities in respect of two projects executed through JV/Consortium. Following the binding precedents, the Tribunal held that the assessee is entitled to deduction under section 80IA(4) for profits from such projects.

Treatment of Competing Arguments: The Revenue challenged the CIT(A)'s order allowing deduction, arguing that the assessee is not a developer but merely a contractor and lacked direct agreements with authorities. The Tribunal rejected these arguments, emphasizing judicial discipline and binding precedents.

Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order allowing deduction under section 80IA(4) in respect of projects executed through JV/Consortium.

Issue 3: Claim of 100% Deduction under Section 80IA for Projects Executed on Back-to-Back Subcontracts

Legal Framework and Precedents: The issue concerns whether the assessee can claim deduction for the entire profit from projects executed through JV/Consortium when the assessee executed the entire work by taking over other constituents' shares on back-to-back subcontract agreements.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer allowed deduction only to the extent of the assessee's proportionate share in the JV/Consortium projects and disallowed the excess claim. The CIT(A) confirmed this order. The assessee claimed that it executed 100% of the project work through back-to-back subcontracts but the Assessing Officer and CIT(A) did not verify these agreements.

Key Evidence and Findings: The back-to-back subcontract agreements were not examined or verified by the lower authorities. The Tribunal found this issue required further investigation and verification.

Application of Law to Facts: The Tribunal remitted the matter to the Assessing Officer for limited examination of the back-to-back subcontract agreements. If the assessee furnishes relevant agreements proving execution of the entire work, the Assessing Officer is directed to allow deduction accordingly, after providing the assessee an opportunity of being heard.

Treatment of Competing Arguments: The assessee argued for full deduction based on execution of entire work; the Revenue relied on proportionate share principle. The Tribunal balanced these by directing fact-finding on the back-to-back subcontract issue.

Conclusion: The Tribunal allowed the appeal of the assessee for statistical purposes and remitted the issue to the Assessing Officer for verification and appropriate decision.

Significant Holdings

"The delay in filing of the appeal needs to be condoned by considering the relevant reasons which prevented an appellant to file the appeal before the time allowed under the Act. Therefore, while exercising the powers of condonation of delay, the Court's must always give preference to the merits of the case, rather than technicalities." (Para 6)

"The reasons given by the appellant in the petition for condonation of 445 days delay that, the appellant was not aware of the order passed by the learned PCIT u/sec.263 dated 29.03.2021 till the Assessing Officer passed his consequential assessment order u/sec.143(3) r.w.s 263 of the Act on 30.03.2022 is devoid of merit and contrary to the facts available on record." (Para 7)

"In a joint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner... Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of s 80-IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business." (Para 16)

"The decisions of the jurisdictional ITAT are binding on the Revenue Authorities under its jurisdiction... The canons of judicial discipline... are respectfully followed." (Para 16)

"Since the back-to-back agreement entered into by the assessee company with JV/Consortium with respect to their proportionate share of project works in the above 02 projects are not verified either by the Assessing Officer or by the learned CIT(A), we deem it appropriate to remit the issue back to the file of Assessing Officer to the limited extent of examining the issue of back-to-back agreements..." (Para 29)

Core Principles Established

- Delay in filing appeals must be explained with sufficient and reasonable cause; mere disruption or illness of a director is insufficient if the company can otherwise act.

- Constituents of JVs/Consortiums who actually execute infrastructure projects and bear associated risks are entitled to claim deduction under section 80IA(4), even if agreements are entered into by the JV/Consortium.

- Judicial discipline mandates adherence to binding decisions of coordinate Benches and High Courts unless overruled or stayed by superior courts.

- Where factual issues such as back-to-back subcontract agreements arise, proper verification and opportunity to be heard must be provided before denying or allowing deductions.

Final Determinations on Each Issue

1. The appeal filed by the assessee against the order under section 263 was dismissed as unadmitted due to inordinate and unexplained delay of 445 days.

2. The Revenue's appeal challenging the CIT(A)'s allowance of deduction under section 80IA(4) for projects executed through JV/Consortium was dismissed, upholding the assessee's entitlement based on binding precedents and judicial discipline.

3. The appeal of the assessee claiming 100% deduction for projects executed through JV/Consortium on back-to-back subcontract basis was allowed for statistical purposes and remitted to the Assessing Officer for verification and decision after giving the assessee an opportunity of hearing.