Income Tax Appellate Tribunal (ITAT) Hyderabad in a recent judgment has ruled that the in infrastructure development activity dealing in numerous projects at the same time, it is impractical to present books of account on project wise and year wise and therefore assessee was entitled for claiming pro-rata deduction u/s 80IA.

ITAT also upheld that a civil contractor when makes investment and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80IA(4).

Case Details:
ITA No. 1828/Hyd/2014 AY: 2009-10
Dy. Commissioner of Incometax (Appellant) vs Sushee Infra Pvt. Ltd (Respondent)
Date of Order: 04-12-2015

Brief Facts of the Case:
The assessee was engaged in the business of executing irrigation projects and development of infrastructure facility. The assessee filed return of income for the AY 2009-10, declaring total income of Rs. 26,89,66,421/- after claiming deduction u/s 80IA of Rs. 162,67,521/-. The Assessing Officer (AO) completed the scrutiny assessment and rejected the depreciation on building and rejected the deduction u/s 80IA of the Income-tax Act 1961.

The CIT(A) allowed the appeal of the assessee due to the fact that for earlier AYs ITAT had adjudicated in favour of the assessee for the similar findings of the AO

The Revenue contested the order before ITAT on the following ground:

(a) That the assessee has not satisfied the conditions of being a developer i.e, development, operating, maintenance, financial involvement, defect correct ion and liability period in the contract agreement.

(b) That the assessee's claim of deduction u/s 80IA wrongly worked out on pro rata basis of turnover, though the assessee had not maintained separate books of accounts, specifically in view of the Supreme Court judgment in the case of Arisudhana Spinning Mills Ltd Vs CIT, Ludhiana

Important Excerpts from ITAT Judgment

As regards the 4th ground of revenue, it is observed that the assessee had not maintained separate books of account to claim benefit u/s 80IA, hence, the assessee cannot claim deduction u/s 80IA relying on the Apex Court judgment in case of Arisudhana Spinning Mills Ltd. Vs. CIT. In the above case, the assessee had not maintained separate books for manufacturing and trading activities. The Apex Court upheld the findings of the Hon’ble High Court and ITAT that assessee should have maintained separate books for trading activities. The manufacturing and trading are two different activities and as per the apex court decision, assessee should have maintained separate books to claim deduction u/s 80IA. Whereas in the present case, the assessee is in infra development activity, the nature of expenditures are similar and it is maintaining the books on contract basis and the revenue is recognized from long term construction contracts on the percentage of completion method as mentioned in Accounting Standard (AS) – 7 ‘Construction Contracts’ notified by the Companies Accounting Standard Rules, 2006. Percentage of completion is determined on the basis of surveys performed (Refer page 19 of the paper book). From the above, the profit generated by each project can be determined by applying the percentage of completion method under projects eligible for deduction u/s 80IA or non eligible projects. In our considered view, this cannot be the reason to deny the benefit to the assessee u/s 80IA of the Act. On analyzing the assessment order, AO had inferred from subsection (5) of section 80IA of the Act, stated that to claim deduction u/s 80IA, the profit of eligible business should be computed as if such eligible business was only source of the income of the assessee during the previous year relevant to the AY. Thus, according to AO, the assessee is bound to maintain separate accounts for the works. Since the assessee is dealing in the numerous projects at the same time and also the projects are not time bound, it is impractical to present books of account on project wise and year wise. The method adopted by the assessee is based on the accounting standard approved by the ICAI. These standards are tested and proven method. Considering the above findings, we observe that assessee is following the proper method of accounting and appropriate books to claim deduction u/s 80IA of the Act. Therefore, we dismiss the 4 ^th ground of the revenue.

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