TaxTMI 
TaxTMI 
2020 (3) TMI 683
X X X X Extracts X X X X
X X X X Extracts X X X X
....f income on 30.11.13 declaring total income of Rs. 98,38,37,660/-. Subsequently, the case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) were issued and served on the assessee. In response, AR of the assessee filed relevant information as called for. 4. A search and survey operations were conducted in the case of assessee as well as M/s Steelcon Infratrade Pvt. Ltd. (earlier known as M/s Dev Steels) and certain evidences were gathered during search. In view of the above, assessee was specifically asked to furnish the documentary evidence for the purchases made from M/s Steelcon Infratrade Pvt. Ltd. In response, assessee filed copy of bills issued by M/s Steelcon Infratrade Pvt. Ltd. and other self-made documents. Further in a letter, assessee submitted that the information found during survey in the premises of M/s Dev Steels / M/s Steelcon Infratrade Pvt. Ltd. relating to M/s Unity Infraprojects Pvt. Ltd. and denied that it has taken any bogus purchase bills from the companies owned by Shri Devang K. Gandhi and further Shri Devang K. Gandhi gave a statement about giving accommodation entries to various parties and subsequently Shri Devang K. Gandhi retract....
X X X X Extracts X X X X
X X X X Extracts X X X X
....loyment of technical and administrative qualified team. 8. The above features were extracted by the AO by heavily relying on the decision of Hon'ble Bombay High Court in the Case of ABG Heavy Industries Ltd. (189 taxman 54 Bombay) and the decision of Division Bench of ITAT in the case of B. T. Patil & Sons, Belgaum Constructions Pvt. Ltd. reported in 59 SOT 61. 9. By referring to the works contract agreement and tender document, AO observed that the above said features were missing and therefore assessee is not falling under the eligible criteria of section 80IA of the Act and also he observed that assessee was compensated by the respective agencies by settling the running bills as and when it is raised by assessee. Therefore, AO treated the assessee as only works contractor and not a developer and accordingly, he disallowed the claim made u/s 80IA of the Act. 10. Aggrieved with the above order, assessee preferred appeal before Ld. CIT(A) and submitted before him a detail submission. In summary, assessee submitted that; a) Assessee has submitted all the relevant document in support of purchases, which are not found to be improper. b) AO made the addition based only on Shri D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee filed a detail submission before Ld. CIT(A), which is reproduced below:- 2. During the captioned assessment year, the appellant has claimed deduction under Section 80IA(4) of the Act on account of 10 projects namely the following- Project Name Total Turnover Profit (PBT) MCGM TANSA PIPE LINE 59,90,75,279 3,89,39,893 MICROTUNNELING PROJECT 9,52,61,792 57,25,234 NAGPUR MUNICIPAL CORPORATION 50,60,55,044 3,79,54,128 SARDAR SAROVAR NARMADA NIGAM 57,27,71,604 4,00,94,012 WATER RESOURCES DEPT.-GOVT OF MP (HARSHI CANAL) 53,72,22,734 3,76,05,591 WATER RESOURCES DIVN., SHIVPURI (MAHUAR DAM) 60,64,94,635 4,85,19,571 SURATGARH SRIGANGANAGAR TOLL ROAD 80,50,65,791 11,27,09,211 JIND HARYANA BORDER TOLL ROAD 95,29,29,927 13,34,10,190 CHOMU MAHALA TOLL ROAD 1,19,16,71,432 16,68,34,000 SOLAPUR MUNICIPAL CORPORATION 59,98,49,447 4,49,88,709 Total 6,46,63,97,685 66,67,80,539 3. Further, it is pertinent to note that the appellant has claimed deduction u/s 80IA of the Act for Suratgarah Toll Road Project, Jind Haryana Toll Road Project and Solapur Road Project for the first time in the captioned assessment year. Also, wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eveloper - * Involvement in making investment * Shouldering Technical Risk * Liquidated Damages * Employment of Technical and Administrative Qualified Team 9. So far as the criteria of "Liquidated damages" and "Employment of technical staff" are concerned, the learned A.O. after perusal of tender documents has stated in the assessment order that these two criteria are fulfilled. 10. With respect to other two criteria's i.e. "Involvement in making investment" and "Shouldering Technical Risk", the interpretation of AO widely differs from the interpretation as adopted by the appellant. According to the appellant, "Involvement in making investment" refers to providing security deposit, bank guarantee, paying interest of mobilization advance or advance for Plant & Machinery received from the principal agency, getting material or labour at its own cost etc. Whereas A.O. has observed that the appellant has raised running bills (RA Bills) to principal agencies and got the payment, to that extent investment is very limited. Further, A.O. observed whatever construction done by the assessee, the assessee can claim payment filing suit irrespective of the fact that whether th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion contract because if it was, it would not be given the task to source the material but only be given task to provide labour. Hence UIL is a developer and not a contractor." 12. Similarly second criteria of "Shouldering technical risk" have been interpreted differently by A.O. as against interpretation adopted by the appellant. In the view of the appellant, the "shouldering of technical risk" refers to adopting safety precaution at the time of execution of the contract. Whereas the A.O. is of 'the opinion that execution of work by the appellant has been done in accordance with design and specification provided by the principal agency and to that extent, technical risk has not been undertaken by the appellant. In government contracts, even if responsibility for 'design' has been undertaken by the assessee, there is always a clause in the tender document to get these designs approved from the principal agency. Thus, interpretation of whoever undertakes the design work, the risk thereof lays with the principal agency only, as the approval is taken from such agency. Thus, the interpretation of the A.O. that technical risk is not undertaken by the assessee for this reas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the reliance on this judgement is not misplaced by the appellant. 16. In the decision of Koya & Construction Co. Pvt. Ltd., the facts were that the assessee had undertaken design, developing, operating and maintaining, financial involvement and defects, correction and liability period etc. In such scenario, it was held by Hon'ble Hyderabad ITAT that it cannot be simply treated as "work Contract". The learned A.O. is of the opinion that since in the aforesaid case, design has been the responsibility of the assessee, which is not present in the instant case. Further, in that case, the assessee has undertaken, developing, operating and maintaining of project, whereas in the instant case, operating and maintaining has not been the responsibility of the appellant. Because of these reasons, this decision is not applicable to the appellant company. 17. In this respect, it is respectfully submitted that the Hon'ble ITAT has tried to make a point that by undertaking all these activities, the appellant has taken overall responsibility. Merely because in the instant case, design work has not been undertaken by the appellant, that itself does not debar the appellant from claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs. 24. Further, the said deduction u/s 80IA(4) of the Act was disallowed in various assessment years, but the same was allowed by the appellate authorities. The below mentioned table highlights the above mentioned fact - Sr. No Assessment Year Deduction claimed u/s 80IA Deduction allowed u/s 80IA Allowed before CIT(A)/ITAT 1. 2004-05 Rs. 1,99,098 1,99,098 ITAT 2. 2005-06 Rs. 1,10,65,845 Rs. 1,10,65,845 ITAT 3. 2006-07 Rs. 9,73,68,452 Rs. 9,73,68,452 ITAT 4. 2007-08 Rs. 10,67,64,503 Rs. 10,67,64,503 ITAT 5. 2008-09 Rs. 5,50,13,614 Rs. 5,50,13,614 CIT(A) 6. 2009-10 Rs. 4,60,25,314 Rs. 4,60,25,314 ITAT 7. 2006-07 to 2012-13 -Block Assessment Rs. 96,66,35,656 Rs. 96,66,35,656 Pending before ITAT We request your goodself to kindly delete the disallowance made by the AO." 13. After considering the submission of assessee, Ld. CIT(A) deleted the disallowance made by the AO with the following observations:- 6.3.1 I have considered the stand of the A.O as well as the submissions of the appellant carefully. I have also gone through the assessment order, the AO has disallowed the deduction u/s 80IA(4) of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r completion of the project. Para 4.3 of the Concession Agreement - Concessionaire is liable to pay for the damages in case of delay of conditions precedent if the same are unfulfilled within a span of 180 days Para 17.8 - in case of delay in meeting the maintenance obligations, the authority shall be entitled to recover such damages from the concessionaire. Para 5. 5 of the Concession Agreement - Concessionaire ensures that the personnel engaged are properly trained Solapur Municipal Corporation Para 40.2 of section 5 of the tender document - rise or fall in costs shall not be compensated by the employer and shall be borne by the concessionaire . Para 43 of Section 5 - security deposit shall be provided to the employer and shall be valid for a period of 30 days from the end of the defect liability period. Further, security deposit shall also be provided in the case of unbalanced tenders. Para'12 of Section 5 of the Tender document - all the damages pertaining to the property or any personal injury in during or in consequence to the project are shall be liable in the hands of the concessionaire Para 41 of Section 5 of the tender document - the liquidated da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod of 120 days after completion of the project. Para 12.2 - the concessionaire shall bear all the cost in order to maintain the smooth functioning of the project during the construction period. Para 4.3 of the Concession Agreement - Concessionaire is liable to pay for the damages in case of delay of conditions precedent if the same are unfulfilled within a span of 180 days Para 5. 5 of the Concession Agreement - Concessionaire ensures that the personnel engaged are properly trained Para 5.4- concessionaire shall undertake and employ foreign personnel at their own cost. Microtunneling Project Para 31.1 of the tender document - the contractor is supposed to provide 5% of performance security in the form of bank guarantee within 2 1 days of the bid. Para 70 - the contractor shall bear all the costs in case any loss or damage is caused during the period of contract. Para 23.2 - the contractor shall be liable for the increase in cost that could have been avoided. Para 69 of the tender document - the contractor shall be liable to bear the cost of any defects post the completion of the project, in case the defect hasn't been rectified within the specific given time....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... machinery and experienced personnel to handle jobs of this type and magnitude. The technical staff should be available at site whenever required by engineer in charge. Para 3.22 of the tender document- the concessionaire will employ or produce evidence of having or has employed qualified technical person not below the rank of a Sub engineer/ graduate engineer from an institution recognised by the government of Madhya Pradesh and furnish all details to the engineer in charge in the following format. Nagpur Municipal Corporation Para A5.l of the tender document - the contract will have to give a performance security in the form of bank guarantee amounting to Rs. 1,01,00,000 within 15 days of receipt of work. Para A7 - apart from certain specified products, the concessionaire shall be liable to pay any amount pertaining to the increase in cost. Para A6. 1.17 of the tender document - the concessionaire shall bear all the cost in order to clear the utilities after completion of the project Para A6. 1.19 of the tender document - the concessionaire shall indemnify NMC for any damages, cost, charges, etc. Para A6. 1.19 of the tender document -the contractor sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cument - the contractor shall at his own cost hire skilled and experienced labourers for the job to be carried out at the site at hand. 6.3.2 I have considered the above chart and the tender agreements as submitted by the appellant. The said clauses as highlighted by the appellant indicate that all the 4 criteria as laid down by the decisions relied by it are fulfilled by the appellant. The AO has held that the appellant is not fulfilling the criteria of making investment and that the appellant is fulfilling the criteria of making investment and shouldering technical risk and thus, the appellant is entitled for deduction u/s 801A(4) of the Act. The issue of allowability of benefit to the assessee u/s 80IA(4) was also considered by the Hon'ble ITAT in the appellant's own case in earlier assessment years (supra). Therefore, keeping in view of the totality of facts, and circumstance case, the issue being a covered matter in favour of the appellant, the A.O is directed to delete the disallowances made on this account and allow the claim of the appellant. In the result, appellant's appeal is hereby allowed. 7. In the result, appeal is partly allowed. 14. Aggrieved with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s order and further he submitted that it has no proof that the purchases made by the assessee are pertains to the eligible business of the assessee. 17. With regard to Ground No. 2 & 3, Ld. DR brought to our notice the detail findings of AO in its order and he submitted that assessee is only a work contractor and not a developer and he objected to the findings of Ld. CIT(A) in this regard. He further submitted that Ld. CIT(A) relied on the order of Jurisdictional ITAT and submitted that department has gone on further appeal before Jurisdictional High Court against the order of Hon'ble ITAT. Ld. DR vehemently supported the finding of AO that assessee is only a works contractor and it does not fulfil the eligibility criteria as given in section 80IA(4) of the Act. 18. On the other hand, Ld. AR of the assessee submitted that during the search operation and post search statement was recorded from the director and at that time the director could not substantiate the purchases. He further submitted that the AO heavily relied on the statement of Shri Devang K. Gandhi, however Shri Devang K. Gandhi retracted the above given statement by filing a proper affidavit. He filed a copy of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce value and in the retraction statement, it was stated that department exerted pressure which is not true, if so why Shri Devang K. Gandhi retracted after 1 year. Therefore, the reasons given in affidavit cannot be accepted. Even otherwise, assessee has not filed proper documents and details of transportation in support of the goods supplied by the parties. 22. With regard to deduction u/s 80IA, Ld. DR submitted that assessee does not have technical as well as business risk in the transaction carried on by the assessee and findings of Ld. CIT(A) is general about business risk, therefore, he vehemently opposed the findings of Ld. CIT(A). 23. Considered the rival submission and material placed on record, we notice from the records that AO made the addition on bogus purchases disregarding the documents submitted by the assessee in support of the purchases made. It is fact that the addition was confirmed by AO based on the statement of Shri Devang K. Gandhi and it is also a fact that assessee has already declared profit which is matching to industry average as well as assessee is carrying on eligible business and aware of the fact that its business is eligible to claim deduction u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the facts whether the assessee is entitled to deduction u/s.80IA(4). We found that the works were allotted to the assessee company by the authorities on the basis of tenders filed by the assessee with respective departments fulfilling all the conditions of Section 80IA(4) of the Act. Section 80IA(4) of the Act is reproduced as under :- "80IA (4A) This sec. applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfils all the following conditions namely (i) the enterprise is owned by a company registered in India or by a consortium of such companies; (ii) the enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (iii)the enterprise starts operating and maintaining the infrastructure facility on or after the 1st ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 AY 2000-01 & 2001-02), after drawing inference from the decision given by Hon'ble jurisdictional High Court in the case of ABG Heavy Industries Ltd., held as under: * The opinion of the Third Member of the Mumbai ITAT in the case of B.T. Patil has been overruled by the Hon'ble Bombay High Court that even a contractor is a developer. Thus, the law as interpreted by the Third. Member of the Mumbai ITAT in the case of B.T. Patil is no longer good law. * The condition that the assessee company has to actually 'own' the infrastructure facility is not correct interpretation in order to claim deduction u/s 8QIA. * As long as the assessee company is undertaking/adhering to the following activities/responsibilities in respect of work executed, it cannot be said that, the assessee is merely a contractor and not a developer; i) Undertaking Financial risk by making investment ii) Shouldering Technical Risk iii) Liable for Liquidated Damages iv) Employment of technical and administrative qualified team * The 2009 amendment made to the 'Explanation' to Section 801A is not applicable in a case where the assesses undertakes the above-mentioned respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue to payment to the contractor on the pending "on account bills" so that the amounts so retained may not exceed 10% of the total value of the contract. The cash deposit recovered from the running account bills can be replaced by an irrevocable Bank Guarantee Bond from any scheduled Bank of equivalent amount in installments of Rs. 1 (one) lakh or more and the cash so recovered shall be refunded to the contractor. The entire security deposit shall be retained till expiry of maintenance period. The contractor must ensure submission of the Bank Guarantee Bond well in advance suitably extended by the Bank to cover both the contract and maintenance period as provided in the agreement." 13. It is crystal clear from the above clause that the financial risk has been undertaken by the assessee. UIL has maintained a security deposit, maintained bank guarantees and retention monies with NFR, thus it placed NFR in a favourable position by undertaking a part of the financial risk. This criteria enhances the stand of the appellant for being the developer of the project so to shoulder financial risk involved in the project to be undertaken. 14. As per the terms of tender documents (2.1) an a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee in the tendered project Such involvement in the spheres of material, labour and technical arrangements to be made for the project strengthens the claim of appellant to be a developer of the infrastructure and not a mere works contractor. 18. From the above clause, we also gather that the assesses required to source the material and men required to complete the project and no reimbursement of the same would be separately made by the NFR to UIL. This shows that UIL has been awarded a wholesome project and not just construction work. UIL is legally bound to source quality material as per the material specifications laid down in the agreements and hence liable for any deviation. The above clause shows that UIL was not merely undertaking a construction contract because if it was, it would not be given the task to source the material but only be given the task to provide labour. Hence UIL is a developer and not a mere works contractor. 19. The assessee has also fulfilled the condition of shouldering technical risk. The clause with regard to Safety precautions and liability of the contractor reads as under: - " 2.8.1 The contractor at his own cost shall provide upon t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....starting or If at the subsequent time the rate of execution falls below the specific programme as indicated above the Railway Administration (Construction organization) will have the power to determine the end of the contract at any stage without incurring any liability on the part of the Railway Administration for any sort of compensation for the money Invested by the contractors) or the loss incurred by him/ them due to such termination of the contract. In all cases of incomplete work either by termination of contract by the Railway Administration under consideration stated above or due to failure on the part of the contractors) to complete the work within stipulated date of completion of the Agreement, the Railway shall be entitled to: (i) Forfeit the whole or such portion of the security as it may consider and (ii) Execute the work through any other agency at the risk and cost of the contractor to recover from the contractors) the cost of carrying out the work in excess of the sum which would have been payable according to the certificate of the Engineer to the contractors) under the terms of contract such certificate being final and binding upon the contractors) provided ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and shall indemnify the Railway from and against any claims under the Contract Labour (Regulation and Abolition) Act 1970 and Central Rules 1971 or any further rules and regulations framed thereunder, by or on behalf of any person directly or through petty contractors or sub-contractors employed by him or otherwise. 27. It is crystal clear from the above clause that the overall responsibility of the labour issues involved during the execution of the above mentioned project is on the appellant. The appellant have to further indemnify the Railways in the case of any litigation arising in relation to laborers employed in the project 28. Furthermore the assessee company has the responsibility to employ qualified manpower to deal with the technicalities involved in the project and administer the working of the same. It also has to deal with complications involved with handling the immense labour employed at the work area. 29. Similarly in Indira Sagar Project - PKG 60 which involve development of reservoirs, canals and other related infrastructure to take care of irrigation needs. 30. As per the tender document, the scope of work consisted of Design and Engineering of-Civil, Hy....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect. It is essential that such a study be conducted since there involves diverse process such as soil exploration, excavations, investigation etc. 34. As per the terms of tender document, the assessee was liable for liquidated damages by way of replacement of defective parts and materials. The assessee has been assigned the liability of maintenance of the project for a period of around 3 years which in itself is a long tenure, it is also noteworthy from the above passage that the appellant has the responsibility to attend the defective work found in the execution of the project and rectify the same at his own cost. Such a longer tenure of maintenance after the completion of the project critically states the role of the assessee being a developer of the said infrastructure involving construction and maintenance rather than a mere works contract which involves just labour work. 35. We also found that for executing the project, the assessee has employed technical and administrative qualified team. Thus the assessee was under obligation too to employ and deploy technically qualified team of workers working on the project both on site as well as off site. 36. Now coming to the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ieved by suppression of the nuisance at source rather than abatement of the nuisance once generated. All vehicles deployed for material haulage shall be spillage proof. Haul roads shall be inspected at least once daily to clear any accidental spillage. In the event of any spoil, debris, wastes or any deleterious substance from the Site being deposited on any adjacent land, the Contractor shall immediately remove all such material at no cost to the Contract and restore the affected area to its original state to the satisfaction of the Engineer." 41. The assessee was under obligation to rectify loss or damage. The relevant clause reads as under: - "If any loss or damage happens to the Works, or any part thereof, or materials or Plant for incorporation therein, during the period for which the Contractor is responsible for the care thereof, from any cause whatsoever, other than the risks defined to SU&*' Clause 20.4, the Contractor shall, at his own cost, rectify such toss or damage so that the Permanent Works conform in every respect with the provisions of the Contract to the satisfaction of the Engineer. The Contractor shall also be liable for any loss or damage to the Wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spectfully following the order of the Tribunal in assessee's own case for assessment years 2003-04 to 2007-08 vis-a-vis the findings recorded above, we do not find any merit in the order of lower authorities for denial of claim of deduction u/s 80IA of the I.T. Act., 25 Considering the above decision and discussion, all the activities carried on by the assessee are eligible to claim deduction u/s 80IA(4) of the Act. Therefore, we are inclined to accept the findings of Ld. CIT(A). Accordingly, ground raised by the revenue is dismissed. 26. With regard to Ground No. 3, we notice that the disallowance of expenses in the eligible business will increase the eligible profit. This profit if it is proved that it is earned only from eligible business, then such profit is eligible to be claimed u/s 80IA(4) of the Act. In the given case, assessee does not have any other business other than the eligible business u/s 80IA(4) of the Act and the chart below show that the assessee was already claiming deduction u/s 80IA(4) of the Act over the past assessment year:- Sr. No Assessment Year Deduction claimed u/s 80IA Deduction allowed u/s 80IA Allowed before CIT(A)/ITAT 1. 2004-05 Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... profits of the business is eligible to claim deduction u/s 80IA(4) of the Act. 32 Before us, Ld. AR brought to our notice relevant facts which was submitted before Ld. CIT(A) that the addition was made mainly and relying heavily on the statement of Mr. Devang Gandhi and subsequently Mr. Devang Gandhi retracted his statement. In this respect, assessee has submitted before AO as well as Ld. CIT(A) the relevant documents in support of genuineness of the transactions. 33. After considering the overall facts in this case and Ld. CIT(A) has already gave the benefit of deduction u/s 80IA(4) of the Act and as such there is no impact of adjudication in this grounds raised by the assessee as assessee has already got the substantial relief, therefore we are inclined to accept the findings of Ld. CIT(A) and we would like only to observe that AO has made disallowance of Rs. 40 lakhs on bogus purchases, whereas assessee has declared huge profit in the operation carried on by it and assessee is aware that any profit earned by the assessee is eligible to claim deduction u/s 80IA(4) of the Act. Therefore, there is no incentive for the assessee to avail any bogus purchases and also the amount inv....