AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1571
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....es and railway tracks etc. on contract with various State Govt., Railways, BRTF etc. According to assessee, since the assessee company was in the business of infrastructural development and having a small scale industry in the North East Region it is eligible to claim deductions u/s. 80IA and 80IC of the Act for its business of infrastructure, development and manufacturing respectively and accordingly while filing the return of income the assessee filed the audited accounts, tax audit report and auditor's certificate certifying the amount eligible for deduction u/s. 80IA and 80IC of the Act. Scrutiny assessment in respect to original assessment was so completed u/s. 143(3) of the Act vide order dated 31.12.2008 and the total income was determined at Rs. 4,99,876/- after partially allowing deduction u/s. 80IA of the Act (without allowing the claim on interest component included in it) and the AO totally denied the assessee's claim of deduction u/s. 80IC of the Act. 4. Thereafter notice u/s. 148 of the Act was issued by the AO on 10.09.2010 and after recording the reasons which are given below the AO reopened the assessment, which action of AO was set at naught by the Ld. CIT(A), ....
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....equal to hundred percent of the profits and gains derived from such business. However, such deduction snail not be allowed if the undertaking was formed by splitting up or reconstruction of a business already in existence or was formed by the transfer to a new business of machinery or plant previously used for any purpose. In the present case, your company was not involved in any developing , maintaining and operating or any infrastructure project and had merely executed the contract work. Moreover, your company was formed by reconstruction of the existing business. For these reasons, deduction us/.80IA of the Act is not allowable to your company. 3. Further, as per the provisions of Section 80IC of the Act, where the gross total income of assessee includes profit and gains derived from the manufacture or production of any article thing, not being any article or thing specified in the Thirteen Schedule, the assessee shall be entitled to a deduction of specified percentage of profits. Other conditions stipulated u/s.80IC for being eligible to claim deduction under this Section include that there must be a substantial expansion of the unit, the undertaking must be situated i....
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.... in respect to earlier action of allowing deduction under sec. 80IA of the Act. The AO notes that the assessee was engaged in the business in civil construction and has claimed deduction of Rs. 2,86,71,025/- u/s. 80IA of the Act for the contract unit. According to the AO, during the year, the assessee company had undertaken various civil works in Railways, State Govt. and other local authorities on contract basis. He notes that the assessee company was not involved in any developing, maintaining and operating any infrastructure project and had merely executed the contract work and, therefore, is ineligible to claim deduction u/s. 80IA of the Act. Thus the major thrust for reopening the assessment in respect to Sec. 80IA of the Act claimed by the assessee is that assessee is merely a works contractor and not a developer and, therefore, not eligible for deduction u/s. 80IA of the Act. He also notes that the assessee's business was formed by reconstruction of the existing business and deduction cannot be allowed if the undertaking was formed by splitting up or reconstruction of business already in existence or was formed by the transfer to a new business of machinery or plant previous....
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....8,37,001/- Assessed Income Rs. 241,40,875/-" 7. From the aforesaid order passed by the AO in the original scrutiny proceedings dated 31.12.2008 it is very clear that the AO had clearly taken note that assessee has shown Rs. 286,71,025/- as profit from contract and has claimed deduction u/s. 80IA of the Act @ 100% and thereafter, found fault with the assessee's said claim only in respect of the interest component of Rs. 28,34,024/- on which the deduction u/s. 80IA of the Act was claimed which he did not allow and reduced it as clearly seen from the order as well as from the computation (supra). Thus we note that the assessee in its computation sheet produced before the AO during original assessment has clearly shown that the total income of Rs. 286,71,025/- as profit from contract and claimed depreciation. Thus, it is not the case where the assessee had misled the AO in any manner while making the claim u/s. 80IA of the Act. All the statutory requirements as per law for claiming deduction like tax audit report, etc. were filed before the AO and the AO had applied his mind and then had granted the deduction u/s. 80IA of the Act. The action of the AO to reopen an assessment c....
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....h the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' put also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason to believe', Parliament reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549, dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows: '7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression "reason to believe" in section 147. - A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and wa....
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....ed Explanation after sub- clause (13) changed the nature of the meaning of 'infrastructure facility' provided in the Explanation to section 80IA(4). Admittedly, the Explanation to section 80IA(4) gives the meaning the term 'infrastructure facility'. The substituted explanation after sub clause (13) brings in the nature of work as a works contract. The provisions of section 194C, which deals with TDS in respect of payment to contractors for carrying out any work in the Explanation thereto as explained the term 'work' to be an inclusive definition, but has provided an exclusion to be 'does not include manufacturing or supplying of a product. according to requirement or specification of the customer by using materials purchased from a person, other than such customer'. Thus, with this in mind, a perusal of the turnkey contract agreement entered into by the assessee with the Irrigation Department, Govt of A.P clearly shows that the construction of all the structures of the whole canal system is to be as per approved design, drawings, specifications of the department etc. The survey is to be done as per investigation and designing criteria of the Irrigation Department. This is also as p....
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....erits of the deduction u/s. 801A(4) of the Act. A perusal of the provisions of section 801A(4) of the Act shows that in the explanation 'infrastructure facility' has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of the Ld. CIT that the provisions of section 801A(4) of the Act after the substitution of the explanation to section 8OIA of the Act was introduced was only for the purpose of giving the benefit to BUT contracts then, the explanation to section 801A(4) of the Act becomes otiose. This is as explanation to section 801A(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BUT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 801A of the Act shows that the term 'works contract' is not defined in the said section. However, the terms 'works' and 'contract' is defined in the provisions of section 194C of the Act. If a particular word or term is not defined in the specific section then, one could ....
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....greement between the assessee and the customer being the Government is for the development of the infrastructure facility being roads and rail system by participating in the tenders. Under these circumstances and for the reasons given by the coordinate bench in similar facts in Simplex Somdatt Builders (supra), we are of the view that the assessee's claim for deduction u/s. 80IA of the Act is allowable and, therefore, the main reason found by the AO to deny the claim does not exist and, therefore, the reason to reopening itself falls. Before we part, the claim of the AO that the assessee company was formed by reconstruction of the existing business, we note that the said fact was also considered by the AO in the original assessment passed on 31.12.2008 at para 4.6.2 to 4.6.8 in which the AO has noted as under: "4.6.2. In the statement of account of A. Y. 2003-04, assessee has mentioned that on 1/4/2002 the company has taken over the running business of M/s.* Anupam Bricks & Concrete industries, a proprietorship firm of Sri Budhmal Baid (Managing Director of Company) in lieu of which the company has issued shares worth Rs. 2,0,00,000/- at premium amount of Rs. 29,40,000/- a....