2022 (11) TMI 1446 - AT - Income Tax

Infrastructure project developer qualifies for Section 80IA deduction when working with government undertakings

The ITAT Delhi held that the assessee was entitled to deduction under Section 80IA(4) for infrastructure projects executed for DFCCIL, IRCON, and PGCIL, ... Disallowance of deduction claimed u/s 80IA - six projects executed by the contractee companies are neither Central Government nor State Government or a local authority nor any other statutory body and therefore, the assessee is not entitled for deduction u/s 80IA - HELD THAT:- Assessee filed all the agreements entered into by it in respect of various projects with various undertakings for developing the infrastructural projects and made elaborate submissions as to why the assessee fulfills the conditions specified in Section 80IA(4) of the Act. Assessee contended that the Corporations with which it had entered into agreements are public sector undertakings of State/Central Governments, therefore, fulfills the basic condition u/s 80IA(4) of the Act. The assessee also explained the various clauses of the agreements entered with various entities to prove that assessee is a developer and not merely a contractor. The basic objection of the AO in denying the claim u/s 80IA was that the enterprise with which the assessee entered into agreement for developing the projects are not statutory bodies. The submissions and evidences placed on record suggest that these Companies/Entities were formed under various Ministries of Government of India and, therefore, the contention of the AO that the basic condition of provisions of Section 80IA(4) of the Act was not fulfilled by the assessee is not correct. Asessee is only an EPC contractor for carrying out work awarded by NHAI to Mokama-Munger Highway Ltd. and, therefore, the basic condition of sub-section (4) of Section 80IA is not fulfilled - LOA clearly specifies that assessee JV shall promote and incorporate the concessionary as a Limited Liability Company under the Companies Act as the NTT which shall undertake and perform the obligations and exercise the rights of the builder under LOA including the obligation to enter into the concession agreement pursuant to the LOA for executing the project. This clearly shows that MokamaMunger Highway Ltd. was incorporated as a pre condition for execution of the project as per the terms of LOA issued by NHAI to the assessee JV. Therefore, since NHAI through LOA has put a condition for incorporation of Limited Liability Company under the Companies Act for the purpose of undertaking and performing the obligation and exercise the rights of the builder under LOA and also to enter concession agreement pursuant to LOA for executing the project we are of the view that the assessee fulfills the basic condition under sub-section (4) of Section 80IA of the Act. Assessee is only a contractor and not a developer - Assessee is liable for all risks for loss, damage to physical property, personal death insurance in consequence of performance of contract liable for liquidated damages to the employer due to delay in execution of contract, liable for cost of repairs for the loss or damages to the works or materials. Assessee is responsible for whole work from the date of takeover of the site till completion responsibility for maintenance of the road portion including the portions where the work is not started. All these clauses goes to show that the assessee is not a simplicitor contractor rather the assessee is a developer of the project. Therefore, the contention of the AO that the assessee is not a developer but only a contractor is misconceived. Thus we hold that the assessee is entitled for deduction u/s 80IA(4) in respect of projects executed by the assessee and awarded by DFCCIL, IRCON, PGCIL. TP Adjustment - interest receivables on the advance given to AE of the assessee JV - HELD THAT:- As held in Kusum Healthcare (P) Ltd [2017 (4) TMI 1254 - DELHI HIGH COURT] very item of “receivables” appearing in accounts of entity which may have dealings with foreign AE would not automatically be characterized as an International Transaction. As observed that there has to be a proper enquiry by the TPO by analyzing the statistics for a period of time to discern a pattern which would indicate that vis-à-vis the “receivables” for the supplies made to an AE, the arrangement reflects an International Transaction intended to benefit the AE in some way. On perusal of the TPO’s order, we find that no such exercise has been carried out by the TPO in benchmarking the interest on “receivables”. Further, we observed from the order of the DRP none of the submissions or additional evidences were considered nor is there any finding by the DRP though the assessee has produced additional evidences before the DRP and made its submissions which were not made before the AO. Therefore, in the interest of justice, we are of the view that this matter should go back to the AO/TPO for deciding this issue afresh. TP adjustment being Arm’s length Price of interest on loan received from Mr. B. Krishnaiah - When once the bankers do not provide loans towards working capital requirements to the JV Companies the interest rate cannot be compared to the base rate of State Bank of India. At the same time, we are in agreement with the TPO that Arm’s Length Price of specified domestic transactions need to be determined as per Section 92 & 92C of the Act w.e.f. the AY 201314. TPO did not bring in any comparables for benchmarking the ALP interest on loan received from Mr. B. Krishnaiah. We further find that the TPO has not examined the CUP submitted by the assessee in its transfer pricing study. Therefore, in the interest of justice, we restore this issue also to the file of the AO/TPO to determine the ALP of the interest on the loan taken from B. Krishnaiah by bringing on record the comparables in similar circumstances and after analyzing the CUP adopted by the assessee in benchmarking the ALP on the interest paid to B. Krishnaiah and also keeping in view the observations in Kusum Healthcare (P) Ltd [2017 (4) TMI 1254 - DELHI HIGH COURT] after providing adequate opportunity of being heard to the assessee. This ground is allowed for statistical purpose. Late deposit of Employees contribution to Provident Fund - deposits beyond the due date specified in the PF Act but before the due date of filing the Income tax return - HELD THAT:- We find that this issue is decided against the assessee in the case of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] Respectfully following the said decision, we uphold the disallowance. This ground is dismissed. Disallowance on account of retention money released by the employer of the assessee - assessee submits that this amount has already been disallowed by the assessee in its revised return of income filed and if the AO makes the final computation of total income taking into account the income shown in the revised return no separate disallowance is called for - HELD THAT:- Considering the rival contentions, we direct the AO to verify the claim of the assessee with reference to the revised return of income filed and in case if the Assessee had already considered the retention money for disallowance in its revised return no separate disallowance once again is called for. AO is thus directed to verify the claim of the assessee and act accordingly. Issues Involved:1. Computation of Gross Total Income.2. Disallowance of Deduction under Section 80IA(4)(i).3. Transfer Pricing Adjustments.4. Disallowance on Account of Late Deposit of EPF Contribution.5. Disallowance on Account of Retention Money Released.Issue-wise Analysis:1. Computation of Gross Total Income:The assessee contested the computation of Gross Total Income without considering the Revised Return of Income filed on 31.03.2018. The original return declared an income of Rs. 145.64 crores, while the revised return declared NIL income after claiming deductions under Section 80IA. The Tribunal noted that the Assessing Officer (AO) had initially considered the revised return in the draft assessment order but reverted to the original return in the final assessment order. The Tribunal directed the AO to compute the income based on the revised return. Ground No. 2 was allowed for statistical purposes.2. Disallowance of Deduction under Section 80IA(4)(i):The AO disallowed the deduction claimed under Section 80IA(4)(i) on the grounds that the contractees were not recognized entities under the said section and that the assessee was merely a contractor, not a developer. The Tribunal examined the agreements and found that entities like DFCCIL, IRCON, and PGCIL, which awarded contracts to the assessee, were public sector undertakings under various ministries. The Tribunal held that these entities qualify under Section 80IA(4)(i) and that the assessee acted as a developer, not just a contractor. The Tribunal allowed the deduction under Section 80IA(4)(i) for the projects executed by the assessee. Ground Nos. 3 and 3.1 were allowed.3. Transfer Pricing Adjustments:a. Interest Receivable on Advance to AE:The AO/TPO made a TP adjustment of Rs. 1,01,87,884/- for interest receivable on an advance given to BSC C&C JV Nepal Pvt. Ltd. The assessee argued that the amount was not an advance but a transfer of LCs issued by JV partners due to the closure of business activities in Nepal. The Tribunal noted that the TPO did not analyze the pattern of receivables over time or the impact on working capital, as required by the Delhi High Court in PCIT Vs. Kusum Healthcare Pvt. Ltd. The Tribunal remanded the issue back to the AO/TPO for fresh adjudication. This ground was allowed for statistical purposes.b. Interest Paid to Mr. B. Krishnaiah:The AO/TPO made a TP adjustment of Rs. 37,71,124/- for interest paid to Mr. B. Krishnaiah, benchmarking the interest rate at 12.51%. The assessee contended that the interest rate of 24% was justified due to the inability to secure bank loans for working capital. The Tribunal found that the TPO did not bring in any comparables for benchmarking and did not examine the CUP submitted by the assessee. The Tribunal remanded the issue back to the AO/TPO for fresh adjudication. This ground was allowed for statistical purposes.4. Disallowance on Account of Late Deposit of EPF Contribution:The AO disallowed Rs. 3,55,46,576/- for the late deposit of EPF contributions. The Tribunal upheld the disallowance, citing the Supreme Court's decision in Checkmate Services Pvt. Ltd. Vs. CIT. This ground was dismissed.5. Disallowance on Account of Retention Money Released:The AO disallowed Rs. 2,33,25,511/- on account of retention money released by the employer, which the assessee claimed was already disallowed in the revised return. The Tribunal directed the AO to verify the claim and ensure no double disallowance. This ground was allowed for statistical purposes.Conclusion:The appeal was partly allowed, with directions for fresh adjudication on certain issues and upholding of specific disallowances.