S. 153A assessment is mandatory even if no incriminating material is found. Distinction between “developer” and “works contractor” in s. 80-IA(4) explained

ACIT vs. Pratibha Industries Ltd (ITAT Mumbai)

A search and seizure action u/s 132 was conducted on the premises of the assessee. No incriminating material or evidence was found to indicate that there was any undisclosed income. The AO passed an order u/s 153A for AY 2000-01 to 2005-06 in which he took the view that the assessee was not entitled to claim deduction u/s 80IA(4) on the ground that it was a contractor and not a developer of infrastructure projects. The Tribunal had to consider two issues: (a) whether if the assessments for the concerned years have attained finality and no incriminating is found in the course of the search, the AO has jurisdiction to proceed u/s 153A and (b) how to distinguish between a “developer” and a “works contractor” for purposes of s. 80-IA(4). HELD by the Tribunal:



(i) Three possible circumstances emerge on the date of initiation of search u/s 132(1): (a) proceedings are pending; (b) proceedings are not pending but some incriminating material is found in the course of search, indicating undisclosed income and/or assets and (c) proceedings are not pending and no incriminating material has been found. Circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the AO gets a free hand to make the assessment. Circumstance (b) has been answered in Anil Bhatia to hold that while there is no question of any abatement since no proceedings are pending, the AO is entitled to reopen the assessment (without having to comply with the strict conditions of s. 147, 148 and 151) and bring the undisclosed income to tax. Also, in All Cargo Global Logistics Ltd 137 ITD 287 (Mum)(SB) it was held that in the case of a non-abated assessment, an assessment u/s 153A has to be made on the basis of incriminating material. Circumstance (c) has been kept open and left unanswered. Circumstance (c) has to be answered to say that even where there is/are no pending proceedings and no incriminating material has to be found, the AO is still required to pass an order u/s 153A though the assessed income will have to be the same as the originally assessed income as there was no incriminating material. Accordingly, the assessee’s argument that when there is no incriminating material or assets, then there is no jurisdiction to proceed u/s 153A is not acceptable. S. 153A contains a non-obstante clause and is triggered automatically whenever a search is undertaken. The fact that no incriminating material was found has no bearing on the applicability of s. 153A;



(ii) S. 80IA(4) allows deduction to “any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility“. The Explanation provides that it shall not apply to “business which is in the nature of a works contract”. Whether an assessee is a developer or works contractor depends on the nature of the work undertaken by the assessee. The word ‘contractor’ is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer is a contractor. Contracts involving design, development, operating and maintenance, financial involvement, and defect correction and liability period cannot be called as simple works contract. A case where in an undeveloped area, infrastructure is developed and handed over to the Government cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. If the contract is composite, it will have to be segregated so as to allow deduction on the parts that involve design, development, operating and maintenance, financial involvement etc and to deny on those which are pure works contracts. On facts, the assessee had made substantial investments in fixed assets and was exposed to various kinds of risks. It was not a mere contractor. It is enough if the assessee is a developer. It need not also maintain & operate the infrastructure facility (Patel Engineering Ltd 94 ITD 411 (Mum) & GVPR Engineers Ltd (included in file) followed)

For more on s. 153A see Article 1 & Article 2. A challenge to the vires of Explanation to s. 80IA(4) is pending