DCIT Vs Koya and Company Construction Ltd. (ITAT Delhi)
TP Adjustment Under 80IA(10) Unsustainable: Delhi ITAT Upholds 2% Margin & Dismisses Revenue’s Appeal
Revenue challenged deletion of TP/80IA(10) adjustment of Rs.2,57,05,203 & deletion of ad-hoc disallowance of Rs.12,72,014. Assessee, engaged in turnkey pipeline & civil infrastructure contracts, had sub-contracted civil works of the APSIDC Choutupalli Lift Irrigation project to AE Megha Engineering & Infrastructure Ltd (MEIL) on a back-to-back basis, retaining only a 2% margin. TPO rejected entity-level TNMM benchmarking, selected the Choutupalli project as tested party, adopted arm’s-length margin at 11.49%, & made an adjustment alleging that Assessee suppressed profits to inflate 80IA deduction.
CIT(A) examined the project bills, sub-contract agreement (including amendment dated 01.03.2015), revenue-recognition charts & year-wise margins & held that:
- MEIL’s billed value (Rs.1,02,91,486) was lower than its allocated scope (Rs.1,05,01,516), showing no under-billing;
- Assessee retained only 2% profit from MEIL’s civil-work portion, which was consistent over years;
- For AY 2017-18, the bulk of Rs.3.36 crore project profit arose from Assessee’s own pipeline & engineering work—not MEIL’s portion;
- 80IA projects without AE-transactions earned higher margin (10.02%) than projects with AE-transactions (5.94%), disproving allegation of profit inflation;
- Revenue failed to show any “arrangement” between Assessee & AE—mandatory pre-condition under 80IA(10).
Relying on judgments including HP Global Soft (Kar HC), Schmetz India (Bom HC) & Honeywell Automation (Pune ITAT), CIT(A) held that mere margin variation cannot trigger 80IA(10) without evidence of manipulation.
