TaxTMI 
TaxTMI 
2016 (9) TMI 1445
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....sessee Appeals 2. The only issue to be decided in the appeals of the assessee is as to whether the retention money credited to profit and loss account is to be brought to tax on accrual basis or on receipt basis in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a public limited company engaged in the business of civil construction through the process of tender. The major projects where construction activities were carried on during the years under appeal were awarded by the following authorities :- (a) Hooghly River Bridge Commissioner (b) P.W.D., Mizoram (c ) P.W.D., Patna (d) East Central Railway (e) Central Public Works Deptt. 3.1. The facts for the Asst Year 2004-05 are stated herein and taken up for adjudication of the disputed issues and the same would apply with equal force for other asst years also in view of identical facts involved except variance in figures. 3.2. Consequent upon search and seizure operation u/s 132 of the Act conducted on 17.3.2010 at the office premises of the assessee company and its group concerns as well as survey operations at various places of the company, a notice u/s 153A of the Act date....
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....er reduced the retention money in the profit and loss account nor it did reduce from the computation of income while filing the return of income filed u/s 139(1) of the Act. The assessee had taken the opportunity to revise the return u/s 153A of the Act filed in consequence to search dated 17.03.2010. Importantly , not a single document emanates from the search and seizure operation which could prompt the assessee to reduce its income by revising its return of income already accounted for in the regular books of accounts. 3.5. The taxability of retention money under dispute on mercantile basis is as under:- Asst year 2004-05 - 1,35,96,919/- Asst year 2005-06 - 46,90,919/- Asst year 2006-07 - 1,52,69,653/- Asst year 2007-08 - 3,42,11,947/- Asst year 2008-09 - 7,01,40,322/- Asst year 2009-10 - 9,77,65,108/- Asst year 2010-11 - 10,65,10,578/- 4. The ld CITA upheld the treatment of retention money given by the ld AO by observing as under:- "5. I have considered the submission of the appellant and perused the assessment order. The facts of the case have already been discussed above. It is apparent that the appellant company is following the mercantile system of accounting and,....
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.... in the circumstances of the case, Ld. CIT (A) is wrong and unjustified in upholding the action of Assessing Officer who denied the claim for reduction of retention money and thereby enhancing the return income filed u/s. 153A of the Act by Rs. 1,35,96,919/-. 4. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in not holding that A.O. has traveled beyond jurisdictional limit as envisaged in Section 153A of Income Tax Act, 1961 while rejecting the claim of taxability of Retention Money on receipt basis." 6. The ld AR argued that the assessee had to change its stand in offering the retention money on receipt basis based on the decision of the Hon'ble Calcutta High Court in the case of CIT vs Simplex Concrete Piles (India) Pvt Ltd reported in (1989) 179 ITR 8 (Cal) which came to the knowledge of the assessee only after the search . Accordingly, he reiterated the submissions made by him before the lower authorities. He further argued that the provisions of section 153A of the Act which is stated by the ld CITA as meant for the benefit of the revenue and accordingly the assessed income u/s 143(3) of the Act earlier cannot be reduced in a search assessment. ....
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....unal in assessee's own case supra, we find that the assessments for the first time in those years were made u/s 143(3) of the Act vide orders dated 31.12.2010 and 30.12.2011. Hence in the case of regular assessment, the change in stand could be taken by the assessee and the same was also duly appreciated by the ld CITA and further by this tribunal vide abovementioned order. Hence we hold that the decision relied upon by the ld AR does not support the case of the assessee. 8.2. In view of these judicial precedents, we find no infirmity in the order of the ld CITA on the impugned issue. Accordingly, the grounds raised by the assessee in its appeals are dismissed. Revenue Appeals 9. The only issue to be decided in the appeals of the revenue is as to whether the assessee is entitled for deduction u/s 80IA (4) of the Act in the facts and circumstances of the case. 10. The brief facts of this issue is that the assessee is a public limited company engaged in the business of civil construction through the process of tender. The major projects where construction activities were carried on during the years under appeal were awarded by the following authorities :- (a) Hooghly River Brid....
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....to deny the benefit to a person who executes works contract, the Explanatory Memorandum to Union Budget 2007-08 explained that those contractors who have taken the contract directly from the Governments or Statutory Bodies should not get affected because they still comply with the conditions specified in the section. The explanation would only change the position of sub-contractors. 10.3. The ld AO examined the claim of deduction u/s 80IA of the Act with reference to various agreements entered into by the company with the Central / State Governments and Local Authorities etc. The deduction u/s 80IA of the Act was originally allowed u/s 143(3) proceedings to the tune of Rs. 5,93,37,353/- as against Rs. 10,64,04,988/- in respect of profits derived from 9 development projects. In the search proceedings u/s 153A of the Act also, the ld AO again called for the copies of all the agreements / contracts to examine the eligibility and allowability of deduction u/s 80IA of the Act. The ld AO was of the opinion, that in respect of 5 projects, the conditions of section 80IA were satisfied and the profit from such 5 projects to the extent of Rs. 4,12,88,960/- was eligible for deduction u/s 80I....
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....se could carry on anyone of the three or all the three activities. Thus, in a sense, the provisions were liberalized for being eligible for deduction. This was perhaps a practical realization of the fact that a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Thus, in a case where the enterprise has entered in to an agreement with the Central/State Government or a local authority, only for the development of new infrastructure facility, it has to recoup its investment from someone because it has not entered in to a contract to simultaneously maintain and operate such developed new infrastructure facility. In such cases, the developer receives the money from the person with whom agreement for development of facility is made. Such payment also include profit element of the enterprise eligible for deduction u/s 80IA subject to fulfillment of other conditions. If, an enterprise which only develops the infrastructure facility, would not receive the money from the Central Government or a State Gove....
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....nt of infrastructure project awarded to it. Such an enterprise also has to pay the state tax as per the provisions of law existing in the state where infrastructure facility is developed. It means that all sort of works executed by an enterprise by virtue of an agreement / contract awarded by the Government, only for development of infrastructure facility, would have to be treated as works contract and such an enterprise would not be entitled for deduction u/s 80IA of the Act. However, on going through the provisions of section 80IA of the Act w.e.f. 1.4.2002, it does not appear to be the intention of the legislation because the legislation intends to provide the benefit of the incentive to such enterprises also who only develop the new infrastructure facility. If the view taken by the ld AO is to be accepted, then the very purpose of legislature to extend incentive for development of infrastructure would be frustrated. Accordingly, the ld CITA held that it will not be correct to say that the assessee company was not a developer of infrastructure facility , but only a contractor and it has merely executed the works contract. The ld CITA further observed that on going through the ag....
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.... ,his opinion did not qualify for the deduction u/s 80lA being in the nature of only repair and renovation of existing facilities. The AO did not allow the deduction u/s. 80IA on the projects listed in Table - A for the reason that he was of the opinion that the appellant was a work contractor who executed the work contracts. He made this opinion on the basis of appellant company was denoted as a contractor in the agreements, paid work contract tax and also paid performance guarantee etc to the Government. The agreements produced before the AO were also produced by the appellant during the appellate proceedings and same were examined and verified with reference to the decision of ITAT, Hyderabad in the case of KMC Constructions Ltd. (supra). On going through the agreements entered into by the appellant company with the Government/ Government Bodies, it is observed that by virtue of these agreements, the appellant company is required to develop the new infrastructure facility and, therefore, the appellant has acted as a developer of infrastructure facility and it is not mere a works contractor within the meaning of Explanation below sub-section (13) of section 801A inserted by the ....
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.... plant, equipments and transport which may be required in preparation of and for the full and entire execution and successful completion of the works. The possession of the site will be handed over by the Engineer concerned and its area of occupation will be defined. The contractor shall make his own arrangement at his own cost for any addition; requirement by him for the purpose of executing the work. As per clause 29.2, the contractor shall on his own cost provide, if necessary, or if required on the site, all temporary access thereto and shall alter, adopt and maintain the same as required from time to time and shall take up and clear them away as and when no longer required and make good all damages done to the site. These accesses will also be permitted to be used by other agencies. The clause 32.1 says that the contractor shall at his own expense, provide all materials required for the was and shall maintain a minimum stock of at least 3 months consumption of all materials required for the work. As per clause 32.3, for stocking cement, the contractor shall at his own cost build suitable damp proof godowns at the site of work and make all satisfactory arrangements to see that ....
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.... in error of facts. 5. That the learned CIT(A) has failed to understand the meaning of "Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development" referred to in section 801A. 6. That the learned CIT(A) has failed to understand the meaning of the terms, '(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business)' in section 80IA(1). 7. That the learned CIT(A) failed to understand the meaning of section 80IA(2), " .... the year in which the undertaking or enterprise develops and begins to operate any infrastructure facility or ....."\ 8. That the Learned CIT(A) failed to understand the meaning of an eligible project in proviso below section 80IA(2) for an eligible project....." where the assessee develops or operates and maintains, or develops, operates, and maintenance any infrastructure facility referred to in ......" 9. That the learned CIT(A) failed to understand the meaning of an eligible project and profits from an eli....
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.... the conclusion that since the project had not yet been completed or yielded any profits after commencing operations, the eligible profits were nil. 16. That the learned CIT(A) has failed to understand the provisions of section 80IA(9) that only the profits from an 'enterprise' or an 'undertaking' can be considered for deduction in the hands of the assessee after such 'enterprise' or 'undertaking' starts yielding profits, which cannot arise unless the said activity is ready and fit to yield income, and actually yields income from operations as is commonly understood. 17. That the learned CIT(A) failed to understand the provisions of Explanation below section 801A( 13) which is only clarificatory, and not amendatory. 18. That the learned CIT(A) also failed to understand the simple meaning of income from an eligible project can commence only after the project is completed and starts earning income." 13. The revenue had also raised the following additional ground for all the years :- "That on the Hon'ble Gujrat High Court in Special Civil Application No.11781 of 2009 order dated 28.02.2013/04.03.2013 in the case of 'Katira Construction Ltd.....
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....essee is only a developer and not merely a works contractor and accordingly eligible for deduction u/s 80 IA of the Act. We also find that the Co-ordinate Bench of Chennai Tribunal in the case of ACIT vs R.R.Constructions in ITA No. 2061/Mds/2010 dated 3.10.2011 had an occasion to consider similar issue wherein it was held as under :- "The assessee has also produced all six agreements regarding six projects undertaken before the AO, whose copies are available before us also. It is a fact that even after taking a contract from Government, if the assessee develops infrastructure facilities, it would be regarded as a 'developer: and not as a 'works contractor'. The assessee has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/ local authority. A contractor who develops the infrastructure facility becomes a developer to claim deduction u/s 80IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. v. DCIT in ITA No. 1221/Mum/2004 h....