AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1583
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....ll and Lohari Nagpala projects. 2. On the facts and circumstances of the case and in law, the learned CIT(A) ignoring various decisions of the higher appellate authorities including in the appellants own case, erred in confirming the disallowance under section 14A made by the Assessing Officer. 3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not following the binding decision of the Hon'ble Tribunal in the assessee's own case and not directing the AO to grant credit of TDS on" machinery advance and mobilization advance in the year of deduction itself. 4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition to the extent of Rs. 19,24,85,890/- based solely on AIR information. 5. On the facts and circumstances of the case and in law, the learned CIT(A) erred in directing the AO to grant short credit of TDS. after verification. 6. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the levy of interest under section 234B is consequential, thereby confirming its levy." The Revenue has raised following ....
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.... issued and duly served upon to the assessee. The assessment was completed u/s 143(3) on 31-03-2016, determining the total income at Rs. 120,84,42,920/-, inter alia making the following additions/ disallowances. i. Disallowance of deduction claimed under s. 80IA: Rs. 258,05,02,682/- ii. Disallowance under section 14A : Rs. 3,87,78,493/- iii. TDS credit on advances received : Rs. 19,52,82,263/- iv. Additions based on AIR reconciliation: Rs. 22,97, 86,725/- Vi. Initiation of Penalty proceedings under s. 271(1)(c) 4. Aggrieved, by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has filed elaborated written submissions in respect of additions made by the AO towards disallowance of deduction claimed u/s 80IA(4) along with various supporting evidences including copies of agreement entered into with authorities for development of infrastructure facility which has been reproduced by the learned CIT(A) at Paragraph 6, page no. 4 to 54 of his order. The assessee also relied upon the decision of ITAT, Mumbai Bench in assessee's own case for the AY 2005-06 in ITA No. 6605/Mum/2013 dated 18....
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....nterprise develops and begins to operate the infrastructure facility. The CIT(A) further observed that if the assessee activities are analyzed on the basis of above principle, it may be concluded that assessee is only engaged in executing a works contract and as such, has not developed any project nor it is maintained or operating any projects. The CIT(A) has discussed the projects undertaken by the assessee in the light of scope of work and agreements furnished during the course of hearing and come to conclusion that the assessee has bid for particular projects, on the basis of terms and conditions given by the government/ government undertaking to carry out a particular works contract as per the specification provided and other terms and conditions associated with the project. Time to time the assessee submits running bills for portion of work done and payments are made by the Government. At times, the assessee has executed only a part of the project so, it just cannot claim that it developed the full project so is to entitled for benefit u/s 80IA(4) of the Act. The CIT(A) after analyzing the scope of work and terms and conditions of contract between the assessee and the principl....
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....n which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines : Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub-section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted. (2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during t....
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....ss, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. (4) This section applies to- (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure....
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....uction for a period of 10 consecutive assessment years 10. However, the enterprise referred to in clause (i) of sub section (4) should also fulfill all the following conditions: (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 11. However sub section (2) has an overriding effect on sub section (1) to the extent. It provides that the deduction specified in sub section (1) is available at the option of the assessee for 10 consecutive assessment years out of 15 years beginning from the year in which the enterprise develops and begins to operate any infrastructure facility. ....
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....been fortified by the Explanation to Sec. 80IA which clarifies that the deduction is not available to a business referred in sub section (4), which is in the nature of a works contract awarded by any person including the central or state govt. and executed by the enterprise referred to in sub section (1). Memorandum explaining the provisions of the Finance Act, 2007, explains the need for the insertion of the Explanation as under:- Clarification regarding developer With reference to Infrastructure facility industrial park, etc. for the purpose of section 80IA. Section 8014, intetalia provides for a ten year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and Special Economic Zones. The tax benefit was introduced for reason that industrial modernization requires a massive expansion of and quantitative improvement in, infrastructure (viz, express ways, highway, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of tax benefit has all along being for encouraging private sector participation by way of investment in development of the infrastructure s....
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....astructure facility, to conduct geological and geotechnical investigations, carrying out topographical survey of the site, establish its own laboratory on site, install safety procedures, soil testing, earth tilling, installation of machinery etc., it has also argued that it takes lot of financial exposure/risk has to give guarantees to the government and some retention money is always kept by the government. However, the fact that the above activities are only part of overall works contract. and the assessee is only executing a 'works contract' as per the specifications provided by the government/govt. undertaking. In doing so the assessee as such is not taking any financial risk or any other risk nor does it have any ownership in the project, so its completion or successful running is not headache of the assessee Moreover whatever material is sourced at the site, the assessee takes advance from the government and whatever machinery is installed at the project site, the assessee gets advance for that also. Thus, as such, there is no financial risk involved at the end of the assessee. Not only this, the assessee time to time presents running bills to the government/ underta....
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....on is available to the assessee even when it has developed only a part of the project. We found that the CIT(A) has elaborately dealt with the contention of the AG at page 5 & 9 of his appellate order.... With regard to the contention of the 14 CIT DIR that assessee is a contractor, in so far as assessee has been mentioned as contractor in all the agreements, we rely on the following decisions: i) In the assessee's own appeal for Al' 2000-01. 94 iTD 411 (Mum); ii) ACIT vs Pratibha Industries 28Taxman.com 246 (mum), wherein Mahalaxmi Construction Gorpn Ltd it Asst CIT in ITA 4331Pn12007 has been relied upon; iii) ACIT vs Bharat Ltd Udyog Ltd 24 SOT 412 (mum). As regards the CIT DR's argument that the decision of the larger Bench in B 7' Pafil & Sons Belgaurn Construction P Ltd 126 TTJ 577 (Mum) is still good law, we rely on the confirmatory order (reported in 34 Taxmann.com 97 (Pune) passed by the Pune Bench. In view of the above discussion, we uphold the action of the c17(A) for allowing claim of deduction u/s 80IA(4) in respect of all the projects. 15. As I am bound by the judicial discipline and the order of th....
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....rwise include its administrator, successors, executors and permitted assigns) of the Other Pan. Where as NTPC desirous of setting up its Loharinag Pala Hydro Electric Power Project in Uttarkashi district of Uttaranchal wit/I an ultimate capacity of 600 MW (herein called the "Project") had invited tenders for the work of Construction of head race Tunnel Package' as per its bidding document No CS-5506908-2. AND Whereas M/s Patel Engineering Ltd. had participated in the above referred tendering vide their Stage- I (Techno . Commercial) Bid proposal No. 1001206814947 dated 1410912005 submitted and opened tin 15.09.2005 and stage -Ii (Price) Bid Proposal No. 1001206811971 dated 2410512006 submitted and opened on 1510912006 and NTPC accepted their aforesaid proposal and awarded the Contract for 'Construction of Head Race Tunnel Package' of Loharinag Pala Hydro Electric Power project (4 * 150MW) to M/s Patel Engineering Ltd. (the contractor) on terms and conditions contained in its letter of acceptance No. 011CS-5506-908-2-LOA-4709 dated 0610712006 and the documents referred to therein, which have been unequivocally accepted by M/s Patel Engineering Ltd. (the....
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....e Rid documents) issued by the corporation and whereas the terms and conditions stipulated in the detailed invitation for Bid for the said works were further negotiated and settled between the parties and where as the corporation did accept the offer of the contractor for execution of the said work. Now this agreement witnessed and it is hereby agreed and decided as follows;- In consideration of payments to be made to the contractor by the Corporation as herein mentioned, the contractor hereby covenants with the corporation its successor, and assigns that the contractor shall do and perform the said works and things in the contract mentioned and described or which are implied there-from or there in respectively within and at the times and in the mariner and subject to the terms conditions and stipulations mentioned in the schedule hereto; and in consideration of provisions and supervision and execution construction arid completion of the said works and the performance guarantee thereof as aforesaid, the corporations covenants with the contractor to pay the contractor the sums as per bill of' quantities and rates mentioned in the Detailed work order No. NEEPCO/GM/(C)/CO....
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....,07,13,288) is not acceptable. Consequently, the disallowance of deduction u/s 801A to the tune of Rs. 45,26,50,680/- made by the AO in respect of above mentioned three projects is upheld. However the overall deduction u/s 801A will be restricted to gross total income as prescribed u/s 80A(2) of the act . Consequently, this ground is partly allowed." 5. The learned AR for the assessee, at the outset submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT, Mumbai bench in assessee's own case for the earlier years, wherein the ITAT after considering the relevant facts has held that the assessee is a developer of infrastructure facility eligible for deduction u/s 80IA(4) of the Act. The AR further submitted that the assessee is in the business of developing infrastructure facility and claiming deduction u/s 80IA(4) from the assessment year 2000-01 onwards. The assessee is executing seven projects for various Government / Government authorities, out of which four projects are on-going projects and three projects are new projects which are also similar to projects already undertaken by the assessee. The assessee further submitted that in so far ....
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..... The contractor shall have full responsibility for the care of the workers from the date of work until completion of the work. The contractor shall be liable for any loss or damage to the works and also liable for insurance of the workers and indemnification of any loss in respect of all injuries or loses or damages to the person or property of the principles. The contractors should be responsible for perform, execute and maintain the works and provide all labour including supervision thereof materials, construction equipment and all other thing whether of a temporary or a permanent nature. The contractor shall be liable for defects liability period after completion of works for a period of 12 months and for this shall provide performance security equivalent to 10% contract price for his proper performance of the contract. The contractor shall arrange its own resources for timely completion of work. Though, the contractor has been given mobilization advance equivalent to 10% of the contract value against bank guarantee, such advance has been given against bank guarantee. All progressive invoices paid by the principal or treated as interim payments till the final certificates were ....
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....t in the case of CIT vs. ABG Heavy Industries Ltd. (supra) submitted that the Hon'ble Bombay High Court has considered the issue of developer for the provisions of section 80IA and after considering the provisions of section 80IA, held that if any enterprises engaged in the development of infrastructure facility, even though such facility has been operating and maintaining by another entity will also qualify for deduction under 80IA(4) of the act. In this regard relied upon the following judgments:- i. B.T. Patil & Sons Belgaum Constructions (P.) Ltd V. ACIT CC (2013) 34 taxmann.com 97 (Pune Trib.) ii. Patel KNR JV. V. ACIT and KNR Patel JV v. ACIT in ITA No. 7155 and 7156/Mum/2008 (ITAT Mum) iii. CIT v. ABG Heavy Industries Limited (2010) 322 ITR 323 (Bom). 8. On the other hand, the learned DR submitted that the CIT(A) brought out clear facts to the affect that the assessee merely a works contractor executing works for development of infrastructure facility which is evident from the fact that the assessee is participating in tenders floated by various Government / Government Agencies for development of infrastructure facility and after successful tend....
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..... The DR further argued that the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd. (supra) have not considered the explanation inserted by the Finance Act 2009, therefore, the AO was correct in not following the Hon'ble Bombay High Court judgment and denial of deduction claimed u/s 80IA(4) of the Act. 9. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. We have also considered the case laws relied upon by the parties. The AO denied deduction claimed u/s 80IA of the act, on the ground that the assessee is merely a work contractor executing civil works in relation to infrastructure project developed by the principles. According to the AO, the deduction provided u/s 80IA of the Act, is applicable only to an enterprise developing, operating and maintaining and developing, operating and maintaining infrastructure facility. The AO further observed that the nature of projects undertaken by the assessee for Govt. and Govt. agencies like NEEPCO and NTPC are in the nature of works contract awarded by principles in response to a tender floated for development of infrastructure facility. The AO fur....
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....refore, merely because it is developing infrastructure projects for Government / Government agencies, it cannot be considered that the works undertaken by the assessee is in the nature of works contract. The assessee further submitted that out of the total seven projects, four projects namely Ghatghar dam, Kameng hydro-electric project package I, Kameng hydro-electric project package II, Kameng hydro-electric project package III were existing projects which were already analyzed and considered by the ITAT in earlier years. The ITAT after analyzing scope of work and terms and conditions of contract categorically held that the assessee is a eligible for deduction u/s 80IA(4) of the Act, on those projects as assessee was a developer of those projects and that all the conditions laid down u/s 80IA(4) of the Act have been satisfied. As regards the remaining three projects the development on which has commenced during the year, viz., Tuirial lot II, Tuirial lot III and Lohari Nagpala projects, the nature and scope of work is identical to a number of other projects on which deduction u/s 80IA(4) of the Act has been granted in the earlier years and hence, also eligible for deduction u/s 80....
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....f provision of sub-section (4) and explanation inserted by the Finance Act 2009 clarifying the applicability of sub-section (1) to undertakings or enterprises. 12. In this case, the assessee claims that the scope and nature of work undertaken is in the nature of developing infrastructure facility which would entail deduction provided u/s 80IA of the Act. According to the assessee, the nature and scope of works includes development of complete infrastructure project of hydro-electric power project which includes development of civil and mechanical works, construction of dams and allied works and construction of head race tunnel. All these projects are related to either water supply or hydro-electric power generation plants. The terms of contract entered into within the principles are identical to each other, as per which the assessee has to develop the project right from the stage of planning to operation of the project and also maintain the project during the liability period which is 12 months form the date of completion of work. The assessee has to arrange men and machinery for executing the project and also arrange materials design and execute the work with its own resources.....
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....to come to the conclusion that the assessee is a developer, but not a contractor and the relevant portion of the order of ITAT is extracted below:- 6. Rival contentions have been heard and record perused. The Revenue has challenged the decision of the CIT(A) granting deduction u/s 80IA(4) holding the assessee to be a developer of the infrastructure facilities (projects) and also that deduction is available to the assessee even when it has developed only a part of the project. We found that the CIT(A) has elaborately dealt with the contention of the AO at page 5 & 9 of his appellate order, as reproduced above. The CIT(A) has gone through the terms and conditions of each and every contract and at page 19 para 6.6 of her order, the CIT(A) held that the contract documents show that the projects executed were highly technical and specialized and involved huge risk; the assessee has also deployed people, plant and machinery, technical expertise, knowhow and financial resources; moreover, all sums received till the final completion certificate is issued on completion of the defect liability period, are considered interim payments. While holding so the CIT(A) relied on the decisio....
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....ollowing decisions arrived at the conclusion that assessee was a developer and not only a contractor :- i) Patel Engineering Ltd. v. OCIT 94 ITO 411; ii) B.T. Patil & Sons Belgaum Constructions (P.) Ltd. v. ACIT, 34 taxmann.com 97; iii) ACIT v. Patel KNR Joint Venture ITA 5230/M/2012; iv) CIT v. ABG Heavy Industries Ltd. 322 ITR 323; v) DClT v. V.R.M. (India) Ltd. ITA 811/Del/2008; vi) KCL BEL Tarmat JV v, ITO, ITA 111/Rjt/2010. As regards the clarificatory Explanation inserted in section 80lA by the Finance Acts 2007 and 2009, we place our reliance on the following decisions: i) B.T. Patil& Sons Belgaum Constructions (P.) Ltd. v. ACIT 34 taxmann.com 97; ii) ACIT v. Pate I KNR Joint Venture ITA 5230/M/2012; iii) DClT v. V.R.M. (India) Ltd. ITA 811/Del/2008; iv) KCL BEL Tarmat JV v, ITO ITA 111/Rjt/2010; v) GVPR Engineers Ltd. v. ACIT 21 Taxmann.com 25 (Hyd); vi) KMC Constructions Ltd. v. ACIT 21 Taxmann.com 138 (Hyd). 9. With regard to contention of ld. CITDIR that assessee is a contractor, insofar as assessee has been mentioned as contractor in all the agre....
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.... generation, which are in the nature of infrastructure facilities as defined u/s 80IA(4) of the Act. The scope and nature of work and terms of contract clearly establishes an undisputed fact that the assessee is a developer of infrastructure facility which would entails the assessee deduction u/s 80IA(4) of the Act. Hence, we are of the considered view that the AO has erred in denying deduction claimed u/s 80IA(4) of the Income Tax, 1961. The learned CIT(A), though in principle accepted the fact that the nature of works undertaken by the assessee in respect of three new projects are similar to the nature of works undertaken by the assessee in respect of projects already considered by the ITAT, denied the deduction claimed u/s 80IA of the Act, by holding that the assessee is merely a works contractor executing works for development of infrastructure facility. Hence, we reverse the findings of the CIT(A) in respect of three new projects and direct the AO to allow deduction claimed u/s 80IA(4) of the Act, in respect of all seven projects. 15. The next issue that came up for our consideration from the assessee's appeal is disallowance of expenditure in relation to exempt income u/s ....
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....ubmitted that out of the total investments of Rs. 562.48 crores, a sum of Rs. 76.09 crores is invested in foreign subsidiaries and the income from which is taxable in India and hence, cannot be included in the computation of investment for working out disallowance u/s 14A of the Act. The assessee further submitted that its investment in subsidiaries and JVs are out of its own funds and no part of interest bearing funds has been used to make investments. If own funds are more than investments in subsidiaries and group companies a general presumption is drawn that investment in shares are out of own funds and accordingly no disallowance u/s 14A can be made. In this regard, he relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Power & Utilities Ltd 313 ITR 314. The assessee also made alterative submission to the effect that if at all disallowance is required, then the same may be restricted to exempt income earned during the year. 17. The CIT(A) after considering the relevant submissions of the assessee and also relied upon the decisions of judicial high court in the case of Godrej & Boyce Mfg. Co. Ltd (supra), observed that even if there is no ex....
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....should be upheld. 20. We have heard both the parties and perused the material available on record. The fact with regard to huge investment in shares of subsidiaries and capital in JVs is not disputed. It is also an undisputed fact that the assessee has made investment of Rs. 562.48 crores in shares and capital account of subsidiaries and JVs and received dividend income of Rs. 19,42,996/-. The assessee also suo-moto disallowed Rs. 1500 u/s 14A of the Act. The AO disallowed expenses incurred in relation to exempt income by invoking rule 8D(2) and determined disallowances of Rs. 10,11,05,698/- under rule 8D(2)(ii) and 8D(2)(iii), however, restricted disallowance to the extent of exempt income of Rs. 3,87,79,993/-. It is the contention of the assessee that disallowance worked out by the AO is incorrect as its investment in shares and capital account of subsidiaries and JVs are strategic investment for the purpose of controlling stake as its infrastructure project which are developed under JVs and in the name of subsidiaries. The assessee further contended that its investments are out of its own interest free funds as its own funds are more than the value of investment in shares and....
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....the extent of exempt income earned for the year. We find merits in the arguments of the assessee for the reason that the AO while working out average value of investment has included investment in foreign subsidiaries, the income from which is taxable in India and Hence, we are of the considered view that investments in foreign subsidiaries needs to be excluded for the purpose of determination of average value of investments to work out disallowances under rule 8D(2)(iii) of the Rules. If disallowances worked out under Rule 8D(2)(iii) is more than the amount of dividend income received during the year, than the AO is directed to restrict the disallowances to the extent of exempt income earned during the year as the disallowances contemplated u/s 14A of the Act cannot swallow the entire exempt income earned during the year as held by the Hon'ble Delhi High court in the case of Joint Investment (P) Ltd. As ACIT(Supra). Hence, we set aside the issue to the file of the AO and direct the AO to recompute the disallowances u/s 14A of the Act, in the light of our discussion above. 23. The next issue that came up for our consideration from assessee appeal is rejection of credit for TDS o....
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.... for TDS in the year of TDS deduction. 26. The next issue that came up for our consideration from the assessee as well as the revenue appeal is additions made by the AO towards mismatch in AIR information for lack of reconciliation. During the course of assessment proceedings, the assessee was asked to reconcile the transactions listed in AIR generated from the system AS-26. Since the assessee failed to provide relevant documents in respect of an amount of Rs. 22,97,86,725/-, the AO made additions to the total income of the assessee. During the course of appellate proceedings, the assessee has filed reconciliation statement in respect of entries appearing in the AIR and also supporting additional evidences in the form of ledger accounts and other documents supporting its claim. The CIT(A) forward the additional evidences filed by the assessee to the AO for his verification. The AO vide his remand report dated 25-11-2017 submitted that the assessee was given enough opportunity to furnish the details / clarifications in this regard, but it failed to do so without sufficient and valid reasons. Besides, the AO argued that sum of the entries, the assessee still was not able to reconc....
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....le making payments deduct TDS on advances as well as bills submitted by the assessee, but assessee recognizes income only on submissions of running bill after completion of works therefore, there will be always a difference between Revenue recognized in the books of accounts and information appeared in AIR database. Therefore, additions cannot be made only on the basis of AIR information, when the assessee has explained the differences with necessary evidences. 28. On the other hand, the learned DR. Submitted that the learned CIT(A) failed to appreciate the fact in the light of remand report of the AO, wherein the AO narrated the habit of non-cooperation of the assessee to furnish necessary evidences to reconcile the difference in AIR database. The assessee is non-cooperative and not filed any details to reconcile the difference appearing in AIR information therefore, the AO was right in making addition and his order should be upheld. 29. Having heard both the sides and considered the material on record, we find merits in the arguments of the assessee for the reason that additions cannot be made solely on the basis of AIR mismatch, when the assessee has explained the reasons ....