By TIOL News Service

KOLKATA, JUNE 01, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether benefit of deduction u/s 80IA(4) can be denied to a manufacturer, simply because infrastructure facility developed by it was not used by the public at large but only by the manufacturer himself for his business. NO IS THE ANSWER.

Facts of the case:

The assessee company is engaged in the business of manufacturing of iron and steel having its plants at Kharagpur, West Bengal. During the relevant year, a search and seizure operation was conducted on assessee and notices u/s 153A were issued. In response, the assessee filed its return and consequent to the same, the AO passed an order u/s 153A r.w.s. 143(3) for A.Ys 2009-10, 2010-11, 2011-12 and 2012-13. Subsequently, the Pr CIT, Kolkata issued a show cause notice u/s 263 by observing that the assessee had developed and owned two private sidings situated from Nimpura to Gokulpur in West Bengal and Barajamda to Barbil in Odisha and had entered into two separate agreements with South Eastern Railways. He noted from the perusal of the agreements that the private siding was not an infrastructure facility of Public Utility. Rather those were simply private facility and provided to facilitate the transportation of assessee's goods from/to its plant site to/from the destination/originating point. Thus, the agreements were entered for constructing the private railway sidings' for specifically catering to assessee's business requirement. The CIT thus opined that even without contributing anything to the development of Infrastructure sector, the assessee had claimed deduction u/s 80IA(4) for its Private Railway Sidings. Hence, an amount of Rs.17,62,41,550/- was required to be disallowed while arriving at the total income while passing order u/s 153A/143(3). The assessee objected to the revisional assessment by way of proposed disallowance, by urging that no incriminating documents relating to the issue were found and seized relatable to the claim of deduction u/s 80IA. The Pr.CIT however rejected such contentions of the assessee.

He held that the AO allowed the claim of assessee for deduction u/s 80IA, by solely relying on the claim made by assessee, without enquiry. Hence he held that the order passed by AO was erroneous and prejudicial to the interest of Revenue. He also pointed out that the AO had failed to make adequate enquiry and verification of the data base containing iron ore exported by the assessee from Paradweep Port, which was linked to the specific findings of the Special Investigating Team on black money. On merits, the Pr CIT held that, the assessee had developed and was managing and operating the railway sidings for his own benefit and not extending this infrastructure facility to the general public and as such the assessee was not contributing anything to the development of infrastructure sector of the country as a whole and hence the claim for deduction u/s 80IA was not allowable. After observing so, he set aside the assessments to the file of AO to examine and verify the complete data base and findings of the SIT report as well as the claim of deduction u/s 80IA of the Act.

Tribunal held that,

++ a perusal of the assessment order demonstrates that the assessments for all the three assessment years have not abated. Under the circumstances, it is well settled that no addition can be made on an issue, where no incriminating material relatable to that issue was found during the course of search and seizure operations. Now, the issue before the pressent case is, whether there was any incriminating material relatable to the issue of claim of deduction u/s 80IA(4) which was found during the course of search, warranting a fresh adjudication of the issue, as to whether the assessee is entitled to a claim of deduction u/s 80IA or not. The Pr.CIT as well as the DR on facts of this issue, have relied upon material marked as RCL-07 and INDA-4. It is seen that the documents marked as RCL-07, are the P&L A/c of the assessee for the F.Y 2011-12. These final accounts are part of the regular books of accounts and financial statements of the assessee and hence can by no stretch of imagination, be held as incriminating documents or material. They are material which are part of the return originally filed by assessee and examined by the AO. Coming to INDA-4, it is a letter issued by the Sr.DCM, ORE, South Eastern Railway, to the assessee, on the issue of freight evasion. These documents were the subject matter of assessments and addition has been made by the AO on this issue. The assessee has also challenged this letter in the courts of law. The addition itself was the subject matter of appeal before the CIT(A). Under the circumstances, it cannot be held that this letter is incriminating material. Even otherwise this letter is not connected with the claim of deduction u/s 80IA(4). Hence, it is concluded that there is no incriminating material found during the course of search relatable to the claim of deduction u/s 80IA(4) by the assessee;

++ now, coming to the merits of the case of allowability of deduction u/s 80IA(4), it is found that the Pr.CIT has categorically held that the claim of deduction u/s 80IA(4) in respect of providing railway sidings claimed by assessee, was not allowable. When such categorical findings is given by Pr. CIT, there is nothing left for the AO to adjudicate though the Pr. CIT has directed the AO to pass a fresh assessment order after giving the assessee adequate opportunity. The only ground on which the Pr. CIT holds that the assessee is not entitled to claim deduction u/s 80IA(4) is that, the infrastructure facility in question is not used by the public at large but by the assessee only for its business. A plain reading of Section 80IA(4) does not demonstrate that there is a condition that the infrastructure facility in question, should be open for use of the public at large. The Pr.CIT relies on the explanatory notes to the provision of the Finance Act, 2007 vide Circular No.3/2008, which in no way states that the infrastructural facility should be available to the public at large for use and cannot be used solely and exclusively by the developer of the facility. The emphasis of this circular is that, deduction will not be available for persons who merely execute civil construction works or any other works contract. The Pr.CIT cannot lay down or read into the Act conditions which are not stated therein. There is no dispute that the facility is an infrastructural facility. There is no dispute that there is an agreement with the Central Govt and that the facility started operation and maintenance after Apr 01, 1995. The assessee also filed letters as evidence that M/s. Rashmi Cement Pvt. Ltd and M/s. Orissa Metaliks Pvt. Ltd have for certain periods, have used the railway sidings of the assessee. Hence on facts, the infrastructure facility developed by the assessee could be used by persons other than the assessee. Thus on facts also, the Pr. CIT is in error in holding that the infrastructure facility cannot be used by any other persons than the assessee.

(See 2018-TIOL-772-ITAT-KOL)