Recently, the Pune Bench of the Income Tax Appellate Tribunal ( ITAT ) dealt with a significant issue regarding the denial of a deduction claim under Section 80IA(4) of the Income Tax Act, 1961.
The assessee, T and T Infra Limited, had claimed a deduction for developing infrastructure facilities, but the Assessing Officer ( AO ) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the claim, stating that the assessee was merely a “works contractor” rather than a “developer” under the provisions of Section 80IA(4) of the Income Tax Act.
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The AO had disallowed the claim on the grounds that the projects undertaken by the assessee were works contracts rather than development projects, thus not qualifying for the deduction under Section 80IA(4) of the Income Tax Act.
Additionally, some of the projects were awarded by private parties, which the AO argued did not meet the statutory requirement of an agreement with the government or local authority.
This section allows a deduction for profits and gains derived from developing, operating, or maintaining infrastructure facilities, provided the assessee has entered into agreements with the government or statutory bodies. However, the AO cited a retrospective amendment (Finance Act, 2009) which clarified that works contracts were ineligible for this deduction.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The assessee argued that it was involved in the comprehensive development of infrastructure projects, not merely executing works contracts. The company claimed it took financial risks, employed skilled labour, and utilised its own machinery, making it a “developer.” The assessee pointed to various judgments and CBDT circulars to support its stance.
The Tribunal Bench of Vice President R K Panda and Judicial Member Astha Chandra noted that the AO had not verified the terms and conditions of each contract to ascertain whether the assessee was acting as a developer or just a contractor. The Tribunal also observed that the AO did not consider CBDT Circular No. 3/2008, which clarifies the distinction between developers and contractors for Section 80IA purposes.
The ITAT remanded the case back to the AO for a fresh examination, directing the AO to review the contracts individually and reassess whether the assessee qualifies as a developer or not.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Tribunal thus directed the AO to consider the CBDT Circular and the decision in the case of CIT vs. ABG Heavy Industries Ltd., where the Bombay High Court ruled in favour of developers in similar circumstances.
The AO must now analyse the nature of each project and the involvement of the assessee, taking into account CBDT guidelines and relevant case law.
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