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Facts
The assessee, SPML Infra Ltd., a company engaged in infrastructure development, claimed deduction under Section 80-IA of the Income Tax Act. The Assessing Officer disallowed this deduction, treating the assessee as a mere contractor, and also disallowed employee contributions to PF/ESI for delayed deposits. The CIT(A) allowed the Section 80-IA deduction, following Supreme Court precedents, but upheld the PF/ESI disallowance. The Revenue appealed the CIT(A)'s decision regarding the Section 80-IA deduction before the Tribunal.
Held
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the Section 80-IA deduction. The Tribunal noted that the issue has been consistently decided in the assessee's favour by coordinate benches in prior years and acknowledged that the matter is currently sub judice before the Hon'ble Calcutta High Court. The Tribunal directed the AO to abide by the High Court's final order, once rendered.
Key Issues
Whether the assessee, classified as a works contractor, is eligible for deduction under Section 80-IA of the Income Tax Act, 1961, for developing infrastructure facilities.
Sections Cited
250, 143(3), 143(2), 142(1), 80-IA, 36(1)(va), 2(24)(x), 36(1)(iv), 43B, 194C
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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI RAKESH MISHRA
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)- 26, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2016-17 dated 31.12.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 26.12.2018. 2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal:
“1. That on the facts and circumstances of this case, whether the Ld. CIT(A) is correct in deleting the addition of Rs.20,18,62,470/- by allowing the deduction u/s.80IE of the Income-tax Act, 1961, whereas, the appellant company is simply a contractor who merely executed contractual work on the basis of quoted tender funded by the Government / Semi-Government I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. Organization and hence, no entitled to the deduction u/s.80IA within the scope of explanation under sub section 13 of Sec.80IA of the Income-tax Act, 1961. 2. That the revenue reserves its rights to substantiate, modify, delete supplement and/or alter any or all grounds of appeal at any the time of appeal proceedings.”
Brief facts of the case are that the assessee is a listed company engaged in the business of development of infrastructure facility eligible for deduction u/s 80-IA of the Act of profits earned from the various projects undertaken by it. The assessee company e-filed the return of income for AY 2016-17 showing total income of ₹Nil. The return was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act along with a questionnaire were issued and served to the assessee which were complied with by the assessee. The Assessing Officer (hereinafter referred to as the ‘Ld. AO') disallowed the entire claim of deduction under Chapter-VIA treating the as NIL and also disallowed the quantum of deduction claimed in the computation amounting to ₹20,18,62,470/- . Further, the Ld. AO observed that the assessee had deposited an amount of ₹2,50,01,347/- on account of employees’ contribution to Provident Fund and ₹2,91,676/- on account of employees’ contribution to ESI, respectively, beyond the due date prescribed in the Act and accordingly, added the same back to the income of the assessee u/s 36(1)(va) and u/s 2(24)(x) of the Act totalling to ₹2,52,93,023/-. The Ld. AO assessed the total income of the assessee at ₹22,71,55,490/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who followed the decision of Hon'ble Supreme Court in the case of Checkmate Services P. Ltd vs. CIT [2022] 143 taxmann.com 178 (SC) but allowed the claim of the deduction under I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. section 80-IA and partly allowed the appeal of the assessee after giving his finding as under in respect of the additions upheld: “It has finally been held by Hon’ble Court that there is clear distinction between employer’s contribution which is its primary liability under law [in terms of Section 36(1)(iv)] and its liability to deposit amounts received by it or deducted by it from its employees’! in terms of Sec.36(1)(va)]. The former forms part of the employers’ income, and the latter retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) and therefore, subjected to conditions spelt out by Explanation to Section 36(1)(va) i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two contributions- the employer’s liability is to be paid out of its income whereas the second is deemed to be an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43 B. If the same is not deposited as per mandate of Sec.36(1)(va), the deduction of the same would not be available to the assessee.
Respectfully following the decision income in the case of Checkmate (supra) the action of the AO in disallowing the deduction of employees contribution to PF & ESI beyond the dates in the specified Acts under Section 36(1)(va) r.w.s 2(24)(x) is upheld. In the result, the appeal is partly allowed.”
Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal.
Rival submissions were heard and the details filed have been examined. The only ground of appeal is regarding the claim of deduction u/s 80-IE of the Act which was allowed by the Ld. CIT(A). Although in the grounds of appeal the section is mentioned as 80-IE but the relief has been allowed u/s 80-IA of the Act. A perusal of the order of the Ld. CIT(A) shows that the assessee had carried out six projects for which deduction u/s 80-IA of the Act was claimed from AYs 2010-11, 2014- 15 and 2015-16 separately in respect of the project as per the eligibility thereof. The relevant extract from the order of the Ld. CIT(A) mentioning I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. the reasons of disallowance by the Ld. AO as well as the reasons for allowing the same by the Ld. CIT(A) are as under: “The appellants claim of deduction u/s. 80-1A of Rs. 20,18,62,470/- on the above projects was denied by the AO on the following grounds: i. The assessee is a mere contractor and cannot be considered as a "developer" as envisaged u/s. 80-IA.
The assessee is only executing civil construction contract and is not taking any entrepreneurial or investment risks.
The assessee is merely a works contractor as per the explanation to 80- IA(13) and hence not eligible for deduction u/s. 80-1A.
The definition of work as provided in the explanation to section 194C is only for the purposes of TDS only and is not applicable to the case of the assessee. During the course of appellate proceedings the A/R furnished the detailed analysis of the scope of work with reference to various projects, stating inter alia facts regarding labour and material supplied, risk undertaken, investment made, etc. Before me the A/R of the appellant has argued that it is engaged in all the three activities as required u/s. 80-1A. It was further stated that in some projects the appellant is involved only in the development of infrastructure facility. In some projects it was involved in operation and maintenance of infrastructure facility. and in some projects, it was involved in development, maintenance & operation of infrastructure facility. Further it was submitted that the work was completed by using drawing, design. labour. plant & machinery and material procured by them. Investments in the form of Bank Guarantee. EMD etc. was made in the projects. Mobilisation advance in some cases were received on furnishing of bank guarantee. Various risks with reference to project were undertaken by them. In most cases the liability tor damages to any property or work executed was on account of the appellant. The A/R therefore argued that the appellant company is not a mere works contractor as provided in explanation to section 80-IA(13). The A/R stated that the issue is covered by the decision of the Hon'ble Juri ictional ITAT in assessee’s own cases for the AY. 2010-11 to 2015-
The ITAT, Kolkata in the appellant case in ITA No 1212,1410 & 1950/Kol/2018 A.Y. s 2012-13, 2013-14 & 2015-16 has held as under: I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd.
Ground no. 2 is on the issue of deduction u/s 80-IA of the Act. The ld. CIT(A) held as follows: “The Hon'ble ITAT in ITA Nos. 1291-1292/Kol/2013 for Asst. Yr. 2006-07 & 2009-10 has allowed the claim of the appellant for deduction u/s. 80-IA(4). The salient points with regard to allowability of deduction us. 80-1A which emerges from the above order is as follows: i. In a case where a person makes the investment and himself executes the development work i.e. carries out the civil construction work he will be eligible for tax benefit u/s. 80-IA of the Act. ii. "Works contract" used in Explanation to section 80-1A(13) means a contract of developing infrastructure by merely employing labour and making no investments.
However, if under a contract, the contractor employs his capital and enterprise in addition to labour, then the said contract does not constitute a works contract under the Explanation to section 80-IA(13) and the contractor shall be eligible for deduction U/S 80-IA.
Even if an assessee is merely developing the infrastructural facility (without operating and maintaining the same), it is entitled to deduction u/s 80-IA.
Merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80-IA (4).
As regards the observation of the AO that the assessee is executing the contract of civil construction at the predetermined rate, and hence it is a works contract the Hon'ble ITAT has observed that "the assessee was responsible for overall development of the infrastructure facility It was merely provided with the site 'which it had to develop into an infrastructural facility by deploying his resources i.e. material, plant A machinery, labour, supervisors etc. It was responsible for any damage/loss caused to any property or life in course of execution of the works. It was even responsible for remedying of the defects in the works at its cost ".
The assessee vide the agreements has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Employer and indemnity the employer of any losses/damage caused to am property/life in course of execution of works, further, it was responsible I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. for the correct ion of defects arising in the works at it cost. Thus, it cannot he said that the assessee had not undertaken any risk. viii. The assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. On perusal of the above order it seen that the Hon'ble ITAT in the case of the assessee has discussed as to what are the ingredients for allowing deduction u/s 80-IA. It has been held that the appellant is not a mere works contractor. In this case it is observed that the appellant has been carrying out similar projects with similar functional responsibilities. Respectfully following the above findings of the Hon'ble ITAT I am of the considered opinion that the assessee is a developer, and not merely a works contractor and is eligible for deduction u/s. 80IA. Accordingly, the claim for deduction u/s. 80-IA(4) is hereby allowed.”
The Id. DR, though not leaving his ground, ultimately agreed that the issue is covered in favour of the assessee by the judgement of the Tribunal for the AY 2011-12. There is no dispute that the facts of this year are the same as that of the previous year.
In view of the above, respectively following the decision of the coordinate Bench of the Tribunal for the AY 2011-12 on this issue, we uphold the finding of the ld. CIT(A) and dismiss this ground of the Revenue. On perusal of the above order, it seen that the Hon'ble ITAT has concurred with the views of the CIT(A) who had relied on the decision in the appellants own case for A.Y. 2006-07 & 2009-10, where it has been discussed as to what are the ingredients for allowing deduction u/s 801A. It has been held that the appellant is not a mere works contractor. In this case it is observed that the appellant has been carrying out similar projects with similar functional responsibilities. Respectfully following the above findings of the Hon'ble ITAT, I am of the considered opinion that the assessee is a developer and not merely a works contractor and is eligible for deduction u/s. 80-IA. Accordingly, the claim for deduction u/s. 80-1A(4) of the Act is hereby allowed.”
The Ld. AR informed the Bench that the Revenue had challenged the order of the Tribunal before the Hon'ble Calcutta High Court and the issue is covered by the decision of the coordinate bench’s order in this regard in the past years. The Ld. AR wanted to seek adjournment which was rejected as the issue is covered by the earlier orders of the I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. Tribunal. A copy of the order in ITA/64/2022 PCIT-1, Kolkata vs. M/s. SPML Infra Ltd. dated 19th September, 2022 was also filed in which the appeal before the Hon’ble High Court has been admitted on the following three grounds, the relevant extract of the order of the Hon'ble High Court being as under: “Accordingly, the substantial question of law No. d is admitted which is as follows:- "Whether the Learned Tribunal has committed substantial error in law in allowing the deduction under Section 80-IA of the Act whereas the assessee company is simply a contractor who merely executed work contract on the basis of quoted tender funded by the Government/Semi-Government organization and accordingly not entitled to the deduction under Section 80- IA of the Act within the scope of Explanation below sub Section 13 to 80-IA of the Act?" It is further pointed out that substantial question of law No. 2 was not admitted, however, inadvertently it has been shown to have been admitted. The said defect is rectified and substantial question of law is not admitted. Accordingly, this appeal is admitted on the following substantial questions of law :- (1) Whether the Learned Tribunal committed substantial error in law in deleting the disallowance of Rs.5,42,00,000/- reported as accommodation entry claimed as bogus expenditure on observation that the assessee was not given opportunity to counter the statement and cross-examination of the person whereas, Hon'ble Income Tax Appellate Tribunal could have set- aside the case for fresh examination in view of the judgment of Hon'ble Supreme Court in the case of M. Pirai Choodi Vs. ITO [2012] 20 TAXMANN.COM 733 (SC)? (2) Whether the Learned Tribunal has committed substantial error in law by allowing the payment for employees' contribution to PF/ESI which were paid after the respective due dates as prescribed in the Act whereas Section 36(1)(va) of the Act clearly states that the payment will be allowed on payment on or before the due date ? (3) Whether the Learned Tribunal has committed substantial error in law by facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in laws observe that provision under Section 14A cannot be made for the purpose of computing Book Profit under Section 115JB of the Act? (4) Whether the Learned Tribunal has committed substantial error in law in allowing the deduction under Section 80-IA of the Act whereas the assessee company is simply a contractor who merely executed work contract on the basis of quoted tender funded by the Government/Semi-Government I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. organization and accordingly not entitled to the deduction under Section 80- IA of the Act within the scope of Explanation below sub Section 13 to 80-IA of the Act?"
It was submitted by the Ld. AR that in view of the decision of the coordinate Bench, the appeal of the Revenue may be dismissed. But the Ld. DR vehemently argued that since the matter is sub judice before the Hon'ble High Court the order of the Ld. CIT(A) may be set aside.
We have considered the rival submissions. Since the issue relating to the claim of the deduction u/s 80-IA of the Act is sub judice before the Hon'ble juri ictional High Court and as on date, the orders of the Hon'ble Tribunal have not been stayed, therefore, following the precedence in the earlier years as relied upon by the Ld. CIT(A), we do not find any infirmity in the order of the Ld. CIT(A) in allowing the claim of deduction u/s 80-IA of the Act to the assessee and the Revenue’s appeal is dismissed at present. However, we may add that since the issue is sub judice before the Hon'ble High Court, the Ld. AO shall follow the Hon'ble High Court’s order as and when the same is rendered and move an appropriate application, if required, for modification of this order on the basis of the outcome of the appeal pending before the Hon'ble High Court.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 11th September, 2025. [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 11.09.2025 Bidhan (Sr. P.S.) I.T.A. No.: 440/KOL/2025 Assessment Year: 2016-17 SPML Infra Ltd. Copy of the order forwarded to:
DCIT, CC-2(2), Kolkata.
SPML Infra Ltd., F-27/2, Phase-II, Okhla Industrial Area, New Delhi, 110020. 3. CIT(A)-26, Kolkata.
CIT-
CIT(DR), Kolkata Benches, Kolkata.
Guard File. //// By order