Sec 80IA (4) Deduction allowable to Widening of Existing Roads by Construction of Additional Lanes of a Highway: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) in Adhunik Infrastructure (P)Ltd. vs. JCIT, held that the assessee is eligible for deduction under Section 80 IA (4) of the Income Tax Act, 1961 for taking up the Governmental Contract of widening the existing roads by construction of additional lanes of a highway.

The assessee is engaged in the business of construction of roads. During the assessment the Assessing Officer (A.O.) found that the assessee had been granted a contract by the Public Works Department, Government of West Bengal, for improving a road by widening the existing road. Since the assessee did not have any financial risk and as the assess need only to execute the designs made by the Government, the A.O stated that the assessee was not eligible for deduction u/s 80IA of the Act. He applied the Explanation to section 80IA of the Act inserted by Finance Act 2009 with retrospective effect from 1.4.2000 and held that the allowability of deduction in the hands of contractor is not permissible.  The Commissioner of Income Tax (Appeals) (CIT(A)) also upheld the order of the A.O. by holding that the assessee was only a works contractor and not a developer. Aggrieved, the assessee appealed before ITAT.

The Bench comprising of Judicial Member A.T. Varkey and Accountant Member M. Balaganesh noted that as per clause (4) to Section 80IA of the Income Tax Act, 1961 an enterprise which is a Company registered in India and is developing, operating and maintaining or developing, operating and maintaining any infrastructure facility is eligible for deduction if the said enterprise has entered into an agreement with Central Government, State Government and or local authority or Statutory body on or after 01.04.1995. They also found that the term infrastructure facility includes road. Perusing a Circular issued by the Central Board of Direct Tax, the bench observed that widening of existing roads by construction of additional lanes of a highway shall be considered to be new infrastructure facility for the purpose of Section 80IA(4)(i) of the Income Tax Act.

Setting aside the order of the CIT(A), the bench observed “It is clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80IA of the Act. It is clear that the assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80IA (13) of the Act does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80IA of the Act. In our considered view, we do not find any reason to uphold the order of ld. CITA. We therefore hold that the assessee was entitled to deduction u/s 80IA of the Act.”