SPS Construction India Private Ltd. Vs DCIT (ITAT Chandigarh)
Section 80-IA Deduction Allowed Because Developing Infrastructure Alone Meets Statutory Requirement: ITAT; 80-IA Benefit Cannot Be Denied Because EPC Contractor Lacked Ownership of Infrastructure Asset: ITAT; Infrastructure Tax Deduction Allowed Because ‘Developing’ Alone Is Enough Under Section 80-IA: ITAT Chandigarh; Bogus Purchase Addition Deleted Because Material Movement, Site Records and Banking Proof Established Genuineness: ITAT; Section 69A Addition Deleted Because Search Records Were Not Linked to Assessee Company: ITAT; Cash Seizure Addition Removed Because Ownership of Cash Was Not Proved Against Assessee: ITAT; Third-Party Statement Addition Fails Because No Corroborative Evidence Supported Cash Return Allegation: ITAT; 80-IA Deduction Upheld Because EPC Execution Involving Technical and Contractual Risk Qualified as Development Activity: ITAT
The appeals before the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, concerned Assessment Years 2019-20 to 2023-24 and involved multiple issues, the principal one being denial of deduction under Section 80-IA of the Income-tax Act, along with additions on account of alleged bogus purchases, unexplained cash entries, cash found during search, and alleged unexplained receipts.
Claim of deduction under Section 80-IA
The assessee was engaged in construction and maintenance of infrastructure projects such as bridges, flyovers, elevated roads, metro structures, highways, railway overbridges and related infrastructure works awarded by government departments, statutory bodies and agencies including DMRC, NHAI, state PWDs and other public authorities. For AY 2019-20, it claimed deduction under Section 80-IA amounting to ₹76.18 crore, and similar claims were made in subsequent years.
The assessee submitted that it was not merely executing civil construction work, but was engaged in development of infrastructure facilities through Engineering, Procurement and Construction (EPC) contracts. It stated that its role involved survey, site investigation, design inputs, drawing approvals, project planning, procurement of materials, arranging plant and machinery, deployment of manpower, furnishing bank guarantees, obtaining insurance coverage, quality control, execution responsibility, and bearing contractual liabilities for delay or non-performance. According to the assessee, these functions showed entrepreneurial and investment risk, making it a developer eligible for deduction under Section 80-IA.
The Assessing Officer, however, held that the assessee was only a works contractor. According to the department, the assessee merely executed construction according to specifications laid down by government authorities, had no ownership rights over infrastructure, did not operate or maintain the facility after construction, and was compensated through running bills. The deduction was therefore denied. The CIT(A) affirmed this view, holding that the assessee neither owned, operated, nor maintained the infrastructure facility and functioned only as contractor.
The Tribunal reversed this finding. It held that a plain reading of Section 80-IA(4) shows that deduction is available where an enterprise carries on any one of the three specified activities—(i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining infrastructure facility. It is not necessary that all three activities must be carried on cumulatively.
The Tribunal further held that the ownership condition in Section 80-IA(4) refers to ownership of infrastructure facility by an Indian company, consortium, authority, board or statutory body, and does not require the developer itself to own the facility.
On facts, the Tribunal noted that the assessee had executed around thirty infrastructure projects during the relevant year involving bridges, elevated roads, highways, metro viaducts, flyovers and major civil infrastructure works. It had furnished Form 10CCB, contracts, award letters and related records supporting its claim.
The Tribunal concluded that the lower authorities wrongly interpreted Section 80-IA by insisting that the assessee must also own, operate and maintain the facility. It held that if the assessee demonstrated that it was engaged in development of eligible infrastructure facility, that was sufficient compliance. Accordingly, deduction under Section 80-IA was allowed for all relevant years.
