TaxTMI 
TaxTMI 
2020 (8) TMI 18
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....dice to one another. 2. The learned Commissioner of Income-tax(Appeal)-3, Rajkot [herein after referred to as the CIT(A) erred on facts as also in law in confirming the disallowance of claim of deduction u/s.80IA(4)of the Income-tax Act, 1961 [hereinafter referred as to the "Act"] of Rs. 2,35,41,640/- made by the Assessing Officer on the alleged ground that the appellant is not eligible for deduction u/s.80IA (4) as the appellant failed to fulfill the condition specified u/s.80IA(4) of the Act. The order passed by the ld.CIT(A) is totally unjustified on facts as also in law and claim of deduction u/s.80IA (4) may kindly be directed to be allowed. 3. The Ld.CIT(A) erred on facts as also in law in confirming the trading addition of Rs. 70,00,000/- on the alleged ground that the books of accounts of appellant are not reliable, genuine and incomplete in case of non-80IA projects. The AO may kindly be directed to accept the book results and delete the impugned trading addition of Rs. 70,00,000/- 4. Your Honor appellant craves leave to add, amend, alter to withdraw any or more grounds of appeal on or before the hearing of appeal. 3. The 1st issue raised by t....
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....cts. As the assessee was responsible for the completion of the projects within the stipulated time, it was exposed to various risks and responsibilities. Therefore it cannot be said that the assessee was merely carrying out part of the main activity of the infrastructure project. 5. However, the AO from the submission of the assessee for the deduction claimed under section 80-IA(4) of the Act, observed certain facts as detailed under: i. Sub-clause (b) to clause (i) of sub-section (4) to section 80-IA of the Act, requires the assessee to have 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. But the assessee failed to produce the copy of agreement and has filed only tender documents, letter of intent and work order with respect to 5 projects only out of 17 projects. As such the documents filed by the assessee cannot be considered as agreement as specified under sub-clause (b) of section 80-IA(4)(i) of the Act. ii. The assessee is not operating the infrastructure facili....
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.... Government with minor modifications as suggested by it in the manner as directed to the assessee against the monthly payment on the quantity of work done. d. The assessee in its submission claimed to execute the project on BOT basis which is totally wrong as the assessee is not operating any of the project awarded by the government. e. The AO upon analyzing the tender documents of one of the contract awarded to the assessee for the construction of missing link roads from Jakhau to Charopadi Road Km 0/0 to 18/510 as discussed above held that the assessee is acting mere of work contractor. The analysis of the AO for the ready reference stands as under: (a) For starting of work, assessee is only require to submit 10% of bid amount as earnest money deposit. (b) Further assesse will submit the monthly bill. Thus total investment in infrastructure facility by assessee is hardly 20%, 10 % as bid amount & rest 10% as working capital for carrying out the work for about one & half or two months, till the first payment is released. (c) Infact this 20% becomes much less, if we see that assessee is also eligible for mobilisation advance up to 5% of ....
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....en, urinal, and how much in number, (n) Details specification of each type of work, and its rates are provided, which is given in about 100 pages, which shows that assessee has to follow even small to small specification. In fact assessee is even given guidelines for storing of material at site (item no.4(A) to 4(F) from page no. 19 to23, which says what should be of stones what has to be of stones, how stacking should be done, even the payment for stacking of material. Similarly, what type of road signboard, what would be size, at what height, of what size of letter, how the same has to be fixed, how much cement & concrete in and what would be per signboard (stem§6, 56A page no.74) (o) Infact, in respect of each small to small type, detail procedure of work, detail specification, what material to be used, even in case of important material from whom to be purchased, has been given. ix. These all facts from detailed tender document which runs in 200 pages, shows that assessee is not developing but only executing (the used at every place) the work as per the designs, drawing, specification, instructions &- direction given by Engineer-In-charge under d....
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....ilizing its machines, manpower and finances. Thus the assessee has undertaken the full responsibility and risk involved in the projects carried out by it during the year. Hence the assessee cannot be treated as mere work contractor as provided under explanation attached with section 80-IA(13) of the Act. The assessee also contended that it has been claiming deduction under section 80-IA (4) of the Act with respect to the infrastructure projects awarded by the local authorities of the state governments and the same were allowed during the proceedings/by the learned CIT (A)/by the Hon'ble ITAT. As per the assessee the explanation introduced by the Finance Act 2009 with retrospective effect 1.4.2000 was clarificatory which implies that the law was the same from the very beginning. Thus it is not a case of introduction of new provision of law by retrospective effect. Accordingly the assessee claimed that it should be allowed the deduction under section 80-IA(4) of the Act as it was allowed in the earlier assessment years as well and therefore the same cannot be denied merely on the basis of explanation as discussed above brought in the statute. 6.3 The assessee also contended tha....
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.... through Cisco-Webex -reg, 1. In the above appeals reliance is place on the following case laws: 1. State Of Gujarat (Commissioner Of ... vs M/S. Variety Body Builders on 26 April, 1976 [1976 AIR 2108, 1976 SCR 131] 2. Hindustan Aeronautics Ltd vs The State Of Orissa on 16 December, 1983 [1984 AIR 753, 1984 SCR (2) 267] 3. State Of Tamil Nadu vs Anandam Viswanathan on 24 January, 1989 [1989 AIR 962, 1989 SCR (1) 301] 4. Gmr Tambaram Tindivanam ... vs Deputy Commissioner Of Income Tax ... on 26 November, 2018 [ITA 545, 546, 1130 & 1131/BANG/2018] 5. Yojaka Marine Pvt. Ltd. Bs. Assistant Commissioner of Income-tax, Circle 1(1), Mangalore on 14 June, 2012 [(2012) 25 taxman.com 260 (Bang.)] Relevant portion of case law. 1. State Of Guiarat (Commissioner Of ... vs M/S. Variety Body Builders on 26 April. 1976 [1976 AIR 2108, 1976 SCR 131] " Although the submission on the first blush is attractive and appears to be of some force, it will not bear lose scrutiny. Perusal of clause 17 itself upon which great reliance has been placed by Mr. Desai shows that "dates of completion of the building work will be deemed....
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.... work done. There is no provision in the agreement in that event for handing over of the unfinished railway coach by the respondent or his legal representatives or assignees to the Railway Administration. The Railway Administration automatically becomes the owner of the unfinished property which was lying in its premises. This is another reason why no exaggerated importance can be assigned to the words "delivery" and " handed over" in clauses 15 and 23 respectively as urged by Mr. Desai. This is therefore, not a contract where it can be said that there is an agreement to supply a completed railway coach which when produced will be the property of the contractor. Along with those of the contractor's materials and labour of Railway are also required to be ITHIS PAGE IS NOT WELL SCANED the value of the materials us conclusive although such matters may be taken into consideration in determining i the circumstance of a particular case whether the contract is in substance one for work and labour or one for the sale of the chattel". It can be treated as well-settled that there is no standard formula by which one can distinguish a contracts of sale from a contract for....
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....ct the to be sold. Ultimately the true effect of an accertion made pursuance to a contract has to be judged not by an artificial rule that the accretion may he presumed to have become by vitrue of affixing to a chattel part of that chattel but from the intention of the parties to the contract. We are fortified by all the above decisions of this Court in our conclusion in favour of the assessee. We are therefore clearly of opinion that the contract in the present case is one of works contract and the High Court is not in answering the question in favour of the assessee. The appeals therefore fail and are dismissed with costs. One hearing fee for counsel." 2. Hindustan Aeronautics Ltd vs The State Of Orissa on 16 December, 1983 [1984 AIR 753, 1984 SCR(2)267] "We have referred to the several correspondence which, according to us, indicate that the property in the aircrafts, in the equipments and the materials had always been with the Government. The materials imported under the licence or procured indigenously for the manufacture were always and had always remained the property of the Government. The appellant had no property, in any part thereof, a....
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....us materials procured or manufactured by the appellant in the process of fitting in and assembling, the appellant had no disposing power as the appellant was never the owner of these materials." 3. State Of Tamil Nadu vs Anandam Viswanathan on 24 January, 1989 [1989 AIR 962,1989 SCR (1) 301] "The court has to find out the primary object of the transaction and intention of the parties. In this connec- tion, it is necessary to rely on the observations of this Court in Hindustan Aeronautics Ltd's case (supra) at pages 327,333-334 of the report. The primary difference between a contract for work or service and a contract for sale is that in the former there is in the person performing or rendering service no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property. Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract. See the observation in The Court Press Job Branch, Salem v. The State of Tamil Nadu, 54 STC 383 a....
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....ng thereof to the existing 2 lane from km 67/0 to km 121/0 to 4 lane dual carriageway, with private sector participation on Build, Operate and Transfer (BOT) basis. With regard to the argument of the assessee that the service lane was developed by the assessee pursuant to the agreement we have considered opinion definition of service road and main lane as mentioned in Schedule D to agreement, are different and laying down of the service lane cannot be entitled the assessee to claim the benefit of laying down of the new infrastructure, we do not find that the benefit of maintenance and creation of service road can be given to the assessee. 16. The nature of activity which was undertaken by the assessee as we had understood from scope of work (supra) was only of maintaining and operating of the existing four lanes 28 km to 67kms. If we allow this kind of activity to fall with the ambit of Section 80IA, it will not be in consonance with the aims and objects for which this section has been introduced. The Explanation to section 80IA(4) provides the development of highway project including housing project to be integral part of highway projects. Hypothetically....
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....the deduction under section 80IA of the Act would not be allowable to a person who executes a works contract entered into with the undertaking or enterprise who developed the infrastructure facility. On careful consideration, we are of the considered view that the facts and circumstances of the above cited case are identical to those of the assessee in the present case on hand and therefore it is clear that the assessee is not eligible to be allowed deduction under section 80IA of the Act. In the course of arguments, the learned Departmental Representative had cited and placed reliance on the decision of the Chennai Tribunal in the case of ACIT Vs. Indwel Linings P. Ltd. (2009) 313 ITR (AT) 118. We have perused the cited decision and find that the assessee in that case we engaged in undertaking works for in situ lining for water supply project and anti-corrosive lining and had claimed deduction under section 80IA of the Act. The Tribunal after examining the facts of the case held that the benefit of deduction under section 80IA was available only to a developer as it was a condition precedent for grant of the benefit of this section that the undertaking or enterprise must drive inc....
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.... section reads as under: (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) ********* (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; 11.2 A perusal of the above provision reveals that it is mandatory for the assessee to have an agreement with the authorities as discussed above for claiming the deduction under section 80-IA of the Act. However, we note that the assessee has filed the copies of the tender documents along with 'letter of intent' and 'work award order' before us on sample basis which are available in the paper book. On perusal of the tender documents we note that these tender documents contains all the terms and conditions for the contracts awarded to the assessee which are equivalent to the agreements. 11.3 ....
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....find that the assessee with respect to every project has furnished the security deposits and performance bond. These work orders are sufficient enough to prove that the assessee has entered into agreements with the government authorities for the projects in respect of which the deduction under section 80 IA of the Act was claimed. Thus it becomes pertinent to note that in the event where the assessee fails to provide the copies of the agreements, the AO was empowered under the provisions of section 131/133(6) of the Act to call for the requisite information from the authorities which awarded the contract to the assessee. But we find that the AO has not done so despite having all the necessary details of such undertakings /local authorities of the government of Gujarat. 11.7 We also note that the requirement of having the valid agreement with the Government was also there in the provisions of the Act before the amendment in the year 2002 by the Finance Act 2001. In other words the assessee on the basis of these tender documents was claiming deduction in the earlier assessment years which was allowed by the Revenue. Therefore, we are of the view that the AO in the under considerat....
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....ways, or expressways or new bridges, airports, ports and rapid rail transport system on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise must have entered into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them. 12.3 Hence the legislature inserted sub-section 4A to section 80-IA of the Act w.e.f. 1st April 1996 for providing the deduction to the enterprise or undertaking engaged in the business of development and operating & maintaining of infrastructure facility. 12.4 Further w.e.f. 1st April 2000 the subsection-4A was re-numbered as subsection- 4 of section 80IA of the Act. Subsequently, the major changes were brought in the Finance Act 2001 w.e.f. 1st April 2002, where the requirement for developing and operating & maintaining of inf....
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....d maintain such infrastructure facility. Furthermore, the assessee who will start operating and maintaining such infrastructure facility after its development by developer would be eligible for such deduction and not the developer. It is because the assessee who has developed and the assessee who is operating & maintaining the infrastructure facility cannot claim the deduction simultaneously for the same project. This can be evident from the proviso attached to sub-clause (c) of section 80-IA(4) of the Act as reproduced above. 12.6 The above proviso itself allows the assessee to transfer the infrastructure facility after its development and stipulates the condition that the transferee can claim the deduction under section 80-IA (4) of the Act for the remaining period. It is also pertinent to note that the condition stipulated for the starting of the project on or after 1st of April 1995 was to allow the benefit of the deduction to those assessee who starts operating and maintaining the infrastructure facility after the said date. In other words the infrastructure facilities started prior to 1 April 1995 were not eligible for such deduction. Thus the sub clause (c) provides the j....
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....al areas as defined in sub-section (11B) of section 80-IB], shall be in Form No. 10CCB. (2) A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-I or 80-IA or 80-IB [or 80-IC] and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. (3) In the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, the form shall be accompanied by a copy of the agreement of the enterprise with the Central Government or the State Government or the local authority for carrying on the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility. 12.9 From the above provisions, it is clear that the assessee was under the obligation to treat each project as separate and distinct undertaking for the purpose of claiming the deduction under section 80 IA (4) of the Act. However, we find important to mention/highlight the fact in the present fact....
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....ion to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). " 13.1 The aforesaid Explanation to section 80-IA was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but the same was made applicable with retrospective effect i.e. 1-4-2000. This explanation restricts the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. For this purpose, first of all it is imperative to appreciate the difference between a 'developer' and a 'contractor'. Generally in common parlance a person is referred as 'developer' who undertakes the project to develop and construct on its own responsibility and takes all the risks of the development. These responsibilities and risk can be categorized as under: (a) That in a development contract" responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till hand....
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.... if it contravenes the any of the clause appearing in the contract awarded by the Government. Thus, the developer is responsible to complete the construction in a specified manner failing which it would be responsible for the consequences of delay/any other fault attributable to it. (k) That a developer shall undertake to maintain safety, security and protection of the environment. (l) That a developer shall provide and maintain at his own cost all lights, guards, fencing, warning signs and watching, when or where necessary. These are few broad sample qualities/ parameters of a developer through which the character of a developer can be defined. 13.2 On the other hand, a 'contractor' is a person who undertakes work on a contract basis. He does not assume risks and responsibilities like that of a developer. He merely carries out the work as has been instructed to him by the contractee. Moreover, in case of such work the contractor gets fixed amount of revenue for executing such work and is not entitled to any share of profit from revenue generated by the developer/land owner. 13.3 To summarize, the developer acts as a principal....
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....r other personnel approved by the Engineer. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX All risks of loss of or damage to physical property and of personal injury and death which arise during and in consequence of the performance of the Contract other than the excepted risks are the responsibility of the Contractor. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The Employer shall give possession of all parts of the Site to the Contractor. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The Contractor shall be responsible for the safety of all activities on the Site. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The contractor shall be responsible to make good and remedy at his own expenses any defect which may develop or may be noticed before the period mentioned hereunder from the certified date of completion. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The Contractor shall pay liquidated damages to the Employer at the rate per day stated in the Contract Data for each day that the Completion Date is la....
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....td. [2012] 28 taxmann.com 246/[2013] 141 ITD 151 (Mum.), the Hon'ble Mumbai Tribunal held that where the assessee had invested his own funds, it would be assumed that the assessee was acting as a developer and not as a contractor. Relevant extract of the above decision is reproduced as under : "83 ** ** ** There are letters exchanged, written by the assessee and various Government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee, against the tendered cost, which proved beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the Government, besides placing its own funds at risk and peril." 13.9 Reference is also invited to the decision of the Hon'ble Hyderabad Tribunal in the case of Sushee Hi Tech Constructions (P.) Ltd. v. Dy. CIT [2013] 33 taxmann.com 236/58 SOT 111 (URO) wherein it has been held that where contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contracts so as to deny deduction under section 80-IA(....
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....arat High Court in the own case of the assessee (supra) has decided the issue of the applicability of the explanation attached below section 80-IA (13) whether such explanation was applicable retrospectively in the case on hand. The assessee challenged the vires of Explanation inserted below sub-section (13) of section 80-IA of the Income-tax Act, 1961 by Finance (No. 2) Act of 2009 with retrospective effect from 1-4-2000. By adding the impugned Explanation, the Legislature provided that nothing contained in the section shall apply in relation to a business referred to in subsection (4) which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise. The central question is, whether in the present case, the explanation below sub-section (13) to section 80-IA introduced by the Finance Act No.2 of 2009 with effect from 1.4.2000 transgresses the legislative competence of the Parliament. The Hon'ble court decided the issue in favour of the revenue that such explanation brought with retrospective effect from 01-04-2000 by the Finance Act No. 2 of 2009 was very well within the competence of the Parliament. As such, there was no issue wheth....
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....material etc. as asked to assessee vide query-no,(h) order sheet dated 16.01.2013, again asked on 28.02.2013 by query no. 1. During the hearing on 16.03.2013 A.R shown its inability to produce the same as it involve huge exercise. ii. In respect of Consumables, procurement and disbursement register maintained at sites were no produced. iii. Assessee not able to produce job cards or any other evidence maintained at site in respect of labour employed. iv. Many of the expenses were booked in the books of the assessee on basis of self made vouchers, v. Assessee failed to match details like transportation of materials to various sites vis-avis purchase of material. vi. During survey it was found that assessee has debited few expenses without any supporting evidence just on the basis of cash vouchers on which even the names of the persons was not available. vii. There was a decline in GP ratio of assessee in post survey period. 14.2 However, the assessee before the AO contended that the gross profit and net profit for the year under consideration is better than the earlier years. Similarly, the rate of profit for the projects eligi....
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....O is empowered to reject the books of accounts and estimate the income on relational basis. 18.1 However in the case on hand undisputedly the books of accounts of the assessee have not been rejected. In such a situation, the onus is on the AO to point out the specific expenses which were not incurred in connection with the business and thereafter he can make the disallowance under the provisions of section 37 of the Act or any other provision of the Act as the case may be. As such there is no provision provided under the Act empowering the AO to make the disallowance on ad hoc basis despite the fact that the assessee consents for such disallowance during the assessment proceedings. In this connection a reference can be made to the CBDT instructions issued vide F. No. 286/98/2013-IT(Inv.II) dated 18th of December 2014 whereby the officers were discouraged to make any addition merely on the basis of the statement. The relevant extract of the circular is reproduced as under: "Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is....