DCIT Vs Vijay M. Mistry Construction Private Limited (ITAT Ahmedabad)
Developer Deduction Survives, Year-End Nil Investments Do Not: Ahmedabad ITAT Gives a Mixed Verdict
Three Issues, Three Different Outcomes
The Ahmedabad Tribunal considered three distinct questions: eligibility for deduction under section 80-IA(4), disallowance under section 14A read with Rule 8D, and deduction under section 80G for CSR donations.
The assessee retained its infrastructure deduction for both years. However, the Tribunal restored the section 14A disallowance for assessment year 2017-18 and upheld its inclusion in MAT book profit. The CSR donation claim for assessment year 2018-19 was remitted to the Assessing Officer for verification.
Infrastructure Development: An Earlier Finding Could Not Be Ignored Without Different Facts
The assessee constructed river bridges, railway overbridges, flyovers and marine structures with pile foundations, undertaking projects for State Governments, the Ministry of Railways and other authorities.
For assessment year 2017-18, it claimed ₹20.84 crore under section 80-IA in respect of ten infrastructure projects. The Assessing Officer rejected the claim, treating the assessee as a mere contractor rather than an eligible developer.
The Revenue argued that government works contracts did not satisfy the statutory requirements and relied upon the exclusion applicable to works contractors. The assessee, however, pointed out that the Tribunal had already examined its eligibility in earlier years, including the tender documents and the nature of its activities, and had allowed the deduction by order dated 23 December 2022.
The present Bench found that the Revenue had produced no material distinguishing the current projects from those previously examined. There was no demonstrated change in contractual terms, rights, obligations or other circumstances affecting eligibility.
Significantly, the Tribunal had specifically directed the Revenue to produce the current projects’ tender documents. Despite sufficient opportunity, those documents were not brought on record.
Judicial Consistency Prevailed
The earlier decision had neither been stayed nor reversed by the High Court. The objection that the assessee was merely a contractor had already been considered in that decision.
Accordingly, the Tribunal followed the earlier order and upheld the deduction. The same reasoning applied to the ₹8.04 crore deduction for assessment year 2018-19.
The ruling therefore rests on the earlier examination of the assessee’s activities and the absence of distinguishing facts. It does not declare that every contractor executing a government infrastructure project automatically qualifies under section 80-IA(4).
Section 14A: Investments Held During the Year Still Count
For assessment year 2017-18, the assessee earned ₹15.34 lakh as exempt mutual fund dividend but made no disallowance under section 14A.
The Assessing Officer computed a disallowance of ₹1,66,667, applying 1% to the relevant annual average investment. The CIT(A) deleted it because the balance sheet disclosed no investment at either the beginning or the end of the financial year.
The Tribunal rejected this reasoning. The investments had been made and redeemed within the same year. Consequently, their absence from the annual opening and closing balance sheets did not establish that no investments existed during the year.
The applicable Rule 8D calculation referred to the annual average of the monthly averages of opening and closing investment balances. The CIT(A) had overlooked this distinction between monthly balances and financial-year-end balances.
The Tribunal therefore restored the disallowance. A nil investment balance on 31 March could not erase investments held during intervening months.
MAT: The Tribunal Also Upheld the Book-Profit Adjustment
The assessee contended that the section 14A disallowance should not be considered while computing book profit under section 115JB.
The Tribunal rejected the contention, holding that the amount was required to be added under clause (f) of Explanation 1 to section 115JB. It accordingly upheld the Assessing Officer’s adjustment of ₹1,66,667 in the MAT computation.
This is the conclusion recorded in the present order, although its brief reasoning requires separate scrutiny in light of contrary authority.
CSR Donations: Eligibility Required Verification
For assessment year 2018-19, the assessee claimed ₹16.50 lakh under section 80G against CSR expenditure of ₹33 lakh.
The Revenue contended that CSR expenditure could not qualify. The Tribunal observed that the specific exclusions concerning CSR contributions to Swachh Bharat Kosh and Clean Ganga Fund did not constitute a blanket prohibition against all CSR donations.
Other qualifying donations could receive deduction, subject to fulfilment of section 80G conditions. However, neither the assessment order nor the appellate order identified the recipient funds.
The Tribunal therefore remitted the matter for verification of the recipients and the remaining statutory conditions. The deduction was not finally allowed.
Author’s Comments
The infrastructure finding reinforces judicial consistency, while the section 14A finding illustrates the importance of applying the correct monthly investment formula.
The MAT finding deserves particular caution. In ACIT v. Vireet Investment Pvt. Ltd. (2017) 165 ITD 27 (Delhi Special Bench), the computation under clause (f) was held to require an independent exercise, without importing the section 14A–Rule 8D computation. The present order does not discuss that distinction. Its MAT conclusion should therefore be reported accurately, while avoiding presentation as an uncontested proposition.
Cases Discussed
- CIT Vs. N. C. Budharaja & Co. — Supreme Court; cited in the Revenue’s grounds concerning the scope of section 80-IA for works contracts.
- Katira Construction Ltd. Vs. Union of India — Gujarat High Court; cited in the Revenue’s grounds concerning the works-contract exclusion under section 80-IA.
- Vijay M. Mistry Construction Pvt. Ltd. — ITA No. 2938/Ahd/2021 and connected appeals — Earlier Ahmedabad Tribunal order dated 23.12.2022 relied upon for the assessee’s eligibility under section 80-IA(4).
- Sequel Logistics Private Limited Vs. PCIT — ITA No. 1114/Ahd/2024, dated 28.10.2024; relied upon on the section 80G treatment of CSR donations.
- ACIT Vs. Vireet Investment Pvt. Ltd. — 2017 165 ITD 27 (Delhi Special Bench); discussed in the supplied Author’s Comments regarding independent MAT computation under clause (f) of Explanation 1 to section 115JB.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
These two appeals are filed by the Revenue against the separate orders of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] both dated 13.02.2025 for the Assessment Years (A.Y.) 2017-18 and 2018-19 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”]. As the main issue involved in the two appeals is common, both the matters were heard together and are being disposed of vide this common order for the sake of convenience. We will first take up the appeal for A.Y. 2017-18.
ITA No. 963/Ahd/2025: A.Y. 2017-18
2. The Revenue has taken the following grounds in this appeal:
(a) The Ld CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 20,83,62,422/- u/s. 80IA, ignoring that the assessee was merely a contractor executing government works contracts and did not meet the statutory definition of a “developer” as per Explanation to Section 801A(4) of the IT Act.
(b) The Ld.CIT(A) failed to consider binding legal precedents, including CIT v/s. N. C. Budharaja & Co. (SC) and Katira Construction Ltd (Guj. HC), which categorically hold that contractors executing civil contracts are not eligible for deduction under section 80IA.
(c) The Ld CIT(A) has erred in granting relief without appreciating the legislative intent behind the Finance Act (No. 2) of 2009, which explicitly bars work contractors from claiming deduction under section 80IA.
(d) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,66,667/- u/s 14A r.w. Rule 8D despite the fact that Rule 8D is mandatory where exempt income is earned.
(e) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.
3. The first three grounds taken by the Revenue pertain to disallowance of Rs. 20,83,62,422/- u/s. 80IA of the Act. Shri Kiran Unavekar, the Ld. CIT-DR has taken us through the assessment order. He explained that the assessee is engaged in the business of construction of river bridge, railway over-bridge, flyovers and marine structure with pile foundation on contract basis from State Governments, Ministry of Railways and others. Out of several projects executed by the assessee it had claimed deduction of Rs. 20,83,62,422/- in respect of 10 projects as detailed in the assessment order. The Ld. CIT-DR explained that the deduction u/s. 80IA is available only if an enterprise is developing or operating and maintaining any infrastructure facility and this condition was not fulfilled in the projects undertaken by the assessee. He submitted that the assessee was a mere contractor and did not operate any infrastructure facility. Therefore, the AO had rightly disallowed the claim for deduction u/s. 80IA of the Act. The Ld. CIT-DR fairly conceded that the Ld. CIT(A) had deleted the addition following the decision of the Tribunal in assessee’s own case for the earlier years.
4. Per contra, Shri Mehul K Patel, the Ld. AR of the assessee submitted that the applicability of provision of section 80IA(4) was examined in detail by the Coordinate bench of this Tribunal in the assessee’s own case for the earlier years in ITA No. 2938/Ahd/2021 and others dated 23.12.2022. He explained that the Ld. Tribunal after examining the tender documents and the nature of work carried out by the assessee had given a categorical finding that the assessee was eligible for deduction u/s. 80IA(4) of the Act. The Ld. AR submitted that the nature of activity carried out in the current year in respect of the 10 projects for which this deduction was claimed was identical and, therefore, the Ld. CIT(A) had rightly allowed the relief to the assessee following the decision of the Tribunal.
5. We have considered the rival submissions and perused the material available on record. The issue arising for consideration is whether, on the facts and circumstances of the present case, the assessee is eligible for deduction under section 80-IA(4) of the Act in respect of the ten infrastructure projects undertaken during the year under consideration. We find that the eligibility of the assessee for deduction under section 80- IA(4) has already been examined by the Co-ordinate Bench of this Tribunal in the assessee’s own case in ITA No.2938/Ahd/2021 and connected appeals, vide order dated 23.12.2022. The Tribunal had considered the relevant tender documents and the nature of the activities undertaken by the assessee and, after detailed examination, had held the assessee to be eligible for deduction under section 80-IA(4) of the Act. According to the assessee, the nature of the activities undertaken by the assessee during the year under consideration in respect of the ten projects is the same as that which was examined by the Co-ordinate Bench in the earlier years. No material has been brought on record by the Revenue to demonstrate that there has been any material change in the nature of the projects, the terms of the relevant contracts/tender documents, the rights and obligations of the assessee, or any other material circumstance having a bearing on the eligibility of the assessee under section 80-IA(4) of the Act. In fact, the Revenue vide order sheet note dated 28.07.2025 was directed to produce the tender documents relating to the projects, regarding which deduction u/s. 80IA(4) of the Act was claimed in the current year. However, the tender documents were not brought on record in spite of sufficient opportunity provided to the Revenue. The objection of the AO that the assessee was merely a contractor and, therefore, could not claim deduction under section 80- IA(4), was already considered by the Co-ordinate Bench in the assessee’s own case. The Revenue has not brought any distinguishing feature on record which would warrant taking a different view for the year under consideration. The decision of the coordinate bench of Tribunal vide order dated 23.12.2022 has neither been stayed nor reversed by the Hon’ble High Court. We, therefore, do not find any reason to deviate from the decision taken on this issue by this Tribunal in the earlier years. In these circumstances, judicial consistency requires that the decision already rendered by the Co-ordinate Bench in the assessee’s own case be followed, particularly when the material facts and the nature of the activity remain undisputedly similar. Respectfully following the decision of the Co-ordinate Bench in the assessee’s own case in ITA No.2938/Ahd/2021 and connected appeals dated 23.12.2022, we uphold the order of the Ld. CIT(A) allowing the assessee’s claim of deduction under section 80-IA(4) of the Act. The first three grounds raised by the Revenue are dismissed.
6. The next ground pertains to disallowance of Rs. 1,66,667/- u/s. 14A read with Rule 8D of Income Tax Rules. The Ld. CIT-DR explained that the assessee had earned exempt income of Rs. 15,34,230/- in the form of mutual fund dividend but no disallowance u/s. 14A read with Rule 8D was made by the assessee. The AO had, therefore, made addition of Rs. 1,66,667/- at the rate of 1% of annual average of investment, u/s. 14A of the Act read with Rule 8D of Rules. He submitted that the Ld. CIT(A) was not correct in deleting the addition for the reason that no opening or closing balance of investment appeared in the balance sheet. He explained that the investment was made during the year and was also redeemed during the year itself.
7. Per contra, Shri Mehul K Patel, the Ld. AR of the assessee supported the order of the Ld. CIT(A). He contended that the addition made u/s. 14A was not required to be considered for computation of book profit u/s. 115JB of the Act.
8. We have considered the rival submissions. There is no dispute to the fact that assessee had earned exempt income of Rs. 15,34,230/- during the year but no disallowance u/s. 14A of the Act was made in the return of income. The AO had made the disallowance at the rate of 1% of annual average investment. The Ld. CIT(A) had deleted the addition for the reason that no opening or closing balance of investment was appearing in the balance sheet. When the investment was made during the year, which was also redeemed during the year itself; there cannot be any question of the value of investment being appearing as opening or as closing balance, in the balance sheet. As per the provision of Rule 8D of IT Rules, the amount equal to 1% of annual average of the monthly average of the opening and closing balance of investment is required to be disallowed. When the Rule provides for considering the average of monthly investments, the Ld. CIT(A) was not correct in deleting the addition for the reason that no opening or closing balance at the beginning or at the end of the year was appearing in the balance sheet. Considering the provision of Rule, the decision of Ld. CIT(A) on this issue is not found correct. Accordingly, the addition of Rs. 1,66,667/- as made u/s. 14A, read with rule 8D of the IT Rules, is upheld and the ground of the Revenue is allowed.
9. As regarding addition of Rs. 1,66,667/- as made u/s. 14A of the Act for computing book profit u/s. 115 JB of the Act, as per clause (f) of Explanation (1) to section 115 JB of the Act, the book profit is required to be increased by the disallowance made u/s. 14A of the Act. Therefore, the AO had rightly considered the addition u/s. 14A of the Act in the working of book profit u/s. 115 JB of the Act. Accordingly, the ground taken by the Revenue is allowed.
10. In the result, the appeal of the Revenue is partly allowed.
ITA No. 964/Ahd/2025: A.Y. 2018-19
11. The Revenue has taken the following grounds in this appeal.
(a) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of deduction of Rs. 8,04,22,541/u/s. 80IA, ignoring that the assessee was merely a contractor executing government works contracts and did not meet the statutory definition of a “developer” as per Explanation to Section 80IA(4) of the IT Act.
(b) The Ld.CIT(A) failed to consider binding legal precedents, including CIT v/s. N. C. Budharaja & Co (SC) and Katira Construction Ltd (Guj HC). which categorically hold that contractors executing civil contracts are not eligible for deduction under section 801A.
(c) The Ld.CIT(A) has erred in granting relief without appreciating the legislative intent behind the Finance Act (No. 2) of 2009, which explicitly bars work contractors from claiming deduction under section 801A.
(d) The Ld CIT(A) has erred in deleting the disallowance of deduction of Rs. 16,50,000/-u/s. 80G, despite the absence of any supporting documentary evidence and contradictions in the assessee’s financial statements.
(c) The Ld.CIT(A) ignored discrepancies in the ITR and Audit report, which cast doubt on the genuineness of the donation claim
(f) That the Ld. CIT(A)’s reliance on the past ITAT orders is misplaced, as those decisions are under appeal before the Hon’ble Gujarat High Court and donot constitute a binding precedent for this assessment year
(g) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.
12. The first three grounds pertain to disallowance of deduction of Rs. 8,04,22,541/- u/s. 80IA of the Act. The decision taken on this issue in ITA No. 963/Ahd/2025 for A.Y. 2017-18 is applicable mutatis mutandis to this year as well. Accordingly, the grounds of the Revenue are dismissed.
13. The next ground pertains to disallowance of deduction of Rs. 16,50,000 u/s. 80G of the Act. The Ld. CIT-DR explained that the assessee had claimed deduction of Rs. 16,50,000 u/s. 80G of the Act in respect of CSR expense of Rs. 33,00,000/-. According to him, no deduction u/s. 80G of the Act was allowable in respect of CSR expense.
14. Per contra, Shri Mehul K Patel, the Ld. AR of the assessee submitted that the donation was not made to Swachha Bharat Kosh and Clean Ganga Fund, which were specifically debarred from deduction under the purview of section 80G of the Act. He submitted that the donation made by the assessee was not to these two ineligible funds. Therefore, the Ld. CIT(A) had rightly deleted the disallowance as made by the AO. The Ld. AR relied upon the decision of the coordinate bench of this Tribunal in the case of Sequel Logistics Private Limited Vs PCIT [ITA No. 1114/Ahd/2024] dated 28.10.2024] in this regard.
15. We have considered the rival submissions. The coordinate bench of this Tribunal has consistently held that only the donation made to Swachha Bharat Kosh and Clean Ganga Fund are ineligible for deduction u/s. 80G(2)(a) of the Act, as per the specified sub-clauses (iiihk) and (iiihl). It has been held that other donations specified u/s. 80G of the Act would be entitled to deduction, provided the conditions stipulated u/s. 80G of the Act, are fulfilled. In the assessment order as well as in the appellate order, there is no mention of the funds to which donation of Rs. 33,00,000/-, pertaining to CSR expense, was made by the assessee. We, therefore, deem it proper to set aside the matter to the file of the Jurisdictional AO with a direction to verify whether the donation of CSR expense was made to Swachha Bharat Kosh and Clean Ganga Fund. If not, the AO should verify the other eligibility conditions as in section 80G of the Act, and thereafter, allow the deduction claimed by the assessee as per law. The ground taken by the Revenue is allowed for statistical purpose.
16. The appeal of the Revenue is partly allowed for statistical purpose.
17. In the final result, the appeal in ITA No. 963/Ahd/2025 for A.Y. 2017- 18 is partly allowed where the appeal in ITA No. 964/Ahd/2025 for A.Y. 2018-19 is partly allowed for statistical purpose.
Order pronounced in the Court on 06/10/2026 at Ahmedabad.
