AI Drafter 
TaxTMI 
TaxTMI 
2021 (5) TMI 1008
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....'s separate orders; all dt. 26.2.2018 in case Nos. 1165/2014-15/B1/CIT(A)-6; 0034/2015-16/B2/CIT(A)-6; 0037/2016-17/B2/CIT(A)-6 and 0460/2016-17/B2/CIT(A)-6 for Assessment Years 2011-12 to 2014-15; respectively. Relevant proceedings in first and foremost Assessment Year 2006-07 are under section 143(3) r.w.s. 254 and u/s. 143(3) of the Income Tax Act, 1961 ('in short the Act'); respectively. Heard both parties. Case files perused. 2. Both the learned representatives state at the outset that the assessee's identical sole substantive grievance that in all these nine cases seeks to reverse both the lower authorities' action disallowing its 80IA deduction claim(s) of Rs. 2,85,67,175/-, Rs. 1,62,25,941/-, Rs. 1,85,37,574/- Rs. 6,65,60,238/-, Rs. 2,01,03,559/-. Rs. 49,40,186/-, Rs. 5,85,122/-, Rs. 3,85,097/- and Rs. 13,15,184/-; assessment years, respectively pertaining to execution of the alleged contract works forming part of M/s. Bhima Lift Irrigation Scheme in Mahaboob Nagar District, Telangana State (erstwhile undivided Andhra Pradesh). Learned counsel invited our attention to the tribunal's first round remand order dt. 8.3.2013 in assessee's appeal....
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....sessing Officer completed the reassessment u/s. 143(3) rws 254 of the LT. Act on 26.03.2014 and rejected the claim for deduction u/s. 80IA of the Act. The Assessing Officer in the assessment order mentioned that - a) the entire project is not executed by the assessee and only part of the project was undertaken; b) the infrastructure facility was not operated by the assessee and the assessee did not commence the operating and maintenance and, therefore, failed to justify the crucial condition. c) The Assessing Officer is of the view that the infrastructure facility should be owned for a substantial period with a condition that the assessee should be eligible to operate and maintain. d) As the intent of the government is not to grant deduction u/s. 80IA and also block its funds in developmental activities, the Assessing Officer rejected the claim for deduction u/s. 80IA of the Act. 5. Before the learned CIT (A), a detailed submission was made a copy of which is available at page No. 18 & 19 of the paper book. The learned CIT (A) observed as under: 6. At paras 7.0 and 7.1, the learned CIT (A) held that for being eligible for deduct....
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....n the case of 10 -15 CIT, Central-II Vs. ABG Heavy Industries Ltd. 4. Hon'ble ITAT Hyderabad Bench-"A" in the case of Koya & Co. Constructions 16-22 (P.) Ltd Vs. ACIT. 5. Hon'ble ITAT Ahmedabad Bench-D in the case of Sugam Constructions Pvt. Ltd Vs. ITO. 6. Hon'ble ITAT Pune Bench-B in the case of B.T. Patil & Sons Belgaum Constructions (P.) Ltd Vs. ACIT. 7. Hon'ble ITAT Mumbai Bench-C in the case of ACIT Vs. Pratibha Industries Ltd. 8. [2016] 76 Taxmann.com 105 (Jammu & Kashmir) Hon'ble High Court of Jammu & Kashmir in the case of CIT Vs. TRG Industries Pvt. Ltd. 9. [2019] 107 Taxmann 362 (Madras) Hon'ble High Court of Madras CIT Vs. Chettinad Lignite Transport Services Pvt. Ltd. 10. Hon'ble ITAT Hyderabad Bench-B in the case of Sushee Hi Tech Constructions Pvt. Ltd Vs. DCIT. 11. Hon'ble ITAT Rajkot in the case of Katira Constructions Ltd Vs. ACIT. 12. Hon'ble ITAT Jaipur Bench-A in the case of Mis am Metals Infraprojects Ltd. Vs. CIT-I, Jaipur. 5. Ld. CIT-DR Mr. VYST Sai represents the Revenue in the instant batch of cases. He has strongly supported both the low....
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....tion vi] s. 80IA. In this connection, it is clearly evident from the Paper Book (Vol. II-Pt-I) filed by the assessee that the assessee was paid mobilisation advance and monthly lump sum payments which are adjusted periodically against work done. It is further submitted that even for supply of electro mechanical and other equipment, payments are made on receipts of goods(70%) and installation (20%). These details are available at Clauses 3.15.1 to 3.15.6 (at pages 1-73 to 1-78) of the contract agreement of the assessee with the Government with respect to Bheema Lift Irrigation Project. From the detailed reading of the above said clauses, it is seen that the assessee is not the developer but the Government is the developer. The Government has assigned contract work to the assessee, made advance payments as well as monthly lumpsum payments. There is no financial involvement or entrepreneurial risk borne by the assessee. 4. It is submitted that the letter and spirit of Section 80IA in general as well as Explanation to Sec. 80IA introduced by Finance Act, 2009 (w.e.f. 1.4.2000) in specific, has been dealt in detail by the Hon'ble Gujarat High Court in the case of Katira Con....
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....Suffice to say, such a course of liberal interpretation is no more available while dealing with the Income Tax Act's provisions as per honourable apex court's recent constitutional bench's decision in Commissioner of Customs (Import) Vs. Dilip Kumar and Co. (2018) 9 SCC 1 settling the law that a fiscal statute as well as an exemption clause incorporated therein ought to be construed in stricter parlance only. Their lordships make it clear that benefit of doubt in case of taxing provision goes to the tax payer and vice versa in an instance of an exemption provision. The assessee's first argument is rejected therefore. 9. We next examine the merits of the assessee's claim in light of section 80IA(4) r.w. Explanation (c) thereof. This is for the reason that the legislature has reintroduced the Explanation; formerly inserted by the Finance Act, 2007 w.e.f. 1.4.2007 that "For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise as the case may be," followed by its substitution by the Finance Act, 2009 w.e.f. 1.4.2000 that "for the re....
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....ucture, a building edifice. When it was used in the plural, that is, as works, it meant architectural or engineering operations, a fortified building, a defensive structure, fortification or any of the several parts of such structures". Their lordships also took note of honourable jurisdictional high court's judgment in B. Laxmikantha Rao Vs. D Chinna Mallaiah AIR 1979 AP 132 whilst adopting the dictionary meaning of "work" in foregoing terms. We further quote Raghunath Rai Baraza Vs. PNB (2007) 135 Company cases 163 (SC) that it is the cardinal rule of interpretation that words used by the legislature are to be understood in their natural, ordinary or popular sense or constructed as per their grammatical meaning unless such a construction lead to some absurdity or there is something in the context or in the object of the statute to the contrary. 12. We go by the foregoing observations of their lordships and observe that the stages I & II of the Bhima Lift Irrigation project undertaken by the assessee containing " all the civil works like canal approach to the tunnel, tunnel, surge pool pump house, delivery mains manufacturing, testing, inspection, packing, supply, erection ....
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....ormance guarantee only gave an assurance to the irrigation development that it had carried out the corresponding construction etc. as per the specified design norms than involving any business risk. We accordingly hold the view of our independent appreciation of facts as well as assessment findings that the assessee is a contractor having executed works contract only. 15. We also deem it appropriate to quote Adam Smith's 'The Wealth of Nations' (published in 1776 and called as the founding work on modern economics) that " It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."16. Nevertheless, the same connotation applies in the facts of the instant case. It is clear that the assessee has first of all been paid mobilization advances by the state government's department on periodic basis, and, then only it executed the corresponding lift irrigation project works contract followed by its yet another claim of section 80IA of the Act deduction (supra). We are afraid that such a liberal interpretation would amount to going against the stricter interpretation principle in view of h....
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....ssioning of the project. The learned AR further submitted that the assessee joint venture has made huge financial investments for executing the project and also employed technical personnel for executing the work. The technological risks undertaken in the design and drawing of various types of machinery to the satisfaction of the Government executing the infrastructure related work indeed are huge. It was further submitted that the assessee is responsible for certain works which requires application of technical expertise such as detailed design of the entire plant, providing engineering drawings, data, bill of materials etc., complete manufacture of all the equipment required for plant including their shop testing, supply includes packing and transportation from the manufacturer's works to the project site including customs' clearance of imported components, if any and storage, preservation and conservation of all the equipment at the site erection, testing and commissioning of all units and handing over to irrigation authorities in Document 4 complete shape. The learned AR relying upon a decision of Income-tax Appellate Tribunal, ....
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....led to claim deduction 80IA(4). The learned AR vehemently contented that the assessee in fact is involved in all stages of development like designing, execution of all civil works like canal manufacture, testing at manufacture works etc. It is entitled to claim deduction u/s 80IA (4) of the Act. The learned AR also relied upon the following decisions in support of his contentions:- ii) iii) iv) Income-tax Appellate Tribunal, Hyderabad Bench "B" in the case of GVPR Engineers Limited V/s. ACIT and vice versa in ITA Nos. 347/Hyd/2008 and 17 other appeals dated 29-2- 2012. Order of Income-tax Appellate Tribunal Chennai B- Bench in ACIT V/s. Chettinad Lignite Transport Services (P) Ltd./ in ITA Nos. 1312 and 1313/Hyd/2011 for the assessment years 2007-08 and 2008-09 dated 18-11-2011. order of Income-tax Appellate Tribunal Chennai Bench "C" in ACIT V/s. RR Constructions in ITA No.2061/Mad/2010 for the assessment year 2007-08 dated 3-10-2011. Order of Jaipur A Bench of Income-tax Appellate Tribunal in Om Metals Infra Projects Limited V/s. CIT in ITA Nos. 722 Document 6 5. ம௠v) vi) and 723/JP/2008 for t....
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....B.T. Patil (supra) and also taking into consideration the subsequent amendment to section 80IA(4) held that an enterprise which undertakes any one of the three activities viz., developing or (ii) operating and and maintaining or (iii) developing, operating and maintaining a new infrastructure facility would become eligible for deduction u/s 80IA(4) of the Act. 3. The co-ordinate bench in the said decision further held that for availing deduction u/s 80IA (4) of the Act the assessee need not be the owner of the infrastructure facility. The only requirement under clause (1) (a) of section 80IA (4) is that the enterprise which is executing the work should be owned by a company. In view of the clear statutory language and the ratio laid down by the co-ordinate bench in case of M's Sushee Hi Tech Construction Private Limited V/s. DCIT (supra), dalm of deduction u/s 80IA (4) cannot be denied on the ground that Document 8 the assessee has not carried out all the three activities and it is not an owner of the infrastructure facility. However, it is further evident from the orders of the revenue authorities that the claim of deducti....
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....to examine and grant deduction on eligible turnover as directed above." As would appear from the aforesaid observations made by the co- ordinate bench, an assessee is entitled for deduction u/s 80IA (4) of the Act if it develops the infrastructure facility. However, the assessee has to show that it has actually carried on development of the infrastructure facility cumulatively with all the activities of design, development, engineering,. Construction, maintenance, financial involvement, defect correction and such other ancillary and incidental work connected with the development of the project. The assessee has to establish by producing evidence on record that it has developed the project and has not executed the work merely as a contractor. Since these aspects have not been looked into properly, we are inclined to remit the matter back to the Assessing Officer who shall examine the issue afresh after considering the contract documents in its entirity and all other evidences that may be submitted by the assessee. If the assessee is able to establish the fact that it itself has carried out the development of the infrastructure fa....
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.... b. Contract is an EPC contract on turn-key basis. c. Assessee is liable for all risk factors. d. Assessee is eligible for deduction as per CBDT Circular dt. 18.05.2010. scheme Assessee's contentions are considered and discussed below. During the year under consideration, the company has carried out execution of contract work of Lift II -stage 1 and 2 pumping stations of Bhima Lift Irrigation at Thirumalayapally & Kothakota village of Kothakota mandal, Mahaboobnagar district, Andhra Pradesh. The work was allotted by the Project administrator & Superintending Engineer, BLIP Circle, Pebbair, Mahaboobnagar district. To evaluate the eligibility u/s 80 IA (4), the agreement entered by the Document 12 M/s NEC NCC MAYTAS JV A.Y.2006-07 r.w.s 254 assessee with the PA & SE, BLIP Circle, Mahaboobnagar District, is examined, leading to the following analysis. 6. a. The agreement is titled as 'contract agreement'. b. The authority that awarded the contract is termed as 'Employer' and the recipient of the contract is termed as 'Contractor'. c. In the letter submitted by the assessee to the PA & SE, BLIP Circle, furnishing the price s....
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....on in the form of deduction in incometax was envisaged. - 7.3 It is important to appreciate the transformation that is intended to infrastructure development scenario in India as an offshoot of 801A deduction. Previously, public infrastructure facilities were developed by the 'Public Works Departments (PWD)' or specially designated bodies carved out for this purpose. In turn, the PWD used to sub-contract the works to private participants. To that extent, private participation was in existence even before this deduction. The difference that this deduction sought to bring is that the private sector was given impetus not to relegate itself to mere sub-contract work, but to take up infrastructure projects in toto, right from mobilization of funds to EPC (Engineering, Procurement and Construction) and thereafter operating and maintaining the facility, in the process levying a user charge like toll tax and getting back its investment with a decent return, all on its own. The private sector was essentially required to take up combined roles of fund-raiser, builder and operator. The incentives are necessarily in recognition of this larger and....
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.... by the government authority and the assessee is required to merely execute the work as a contractor. It is to be noted this is akin to the works previously granted by the PWD, but not in the form of a comprehensive BOT or BOOT model. d. Nature of risks borne : Risk can be explained as exposure to the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility. Entrepreneur is besotted with plethora of risks in the business environment. In general parlance, business risks can be classified by the influence of two major risks: internal risks (risks arising from the events taking place within the organization) and external risks (risks arising from the events taking place outside the organization). Internal risks arise from factors (endogenous variables, which can be controlled) such as human factors (talent management, strikes), technological factors (emerging technologies), physical factors (failure of machines, fire or theft), operational factors (access to credit, cost cutting, advertisement). External risks arise from factors (exogenous variables, which cannot be....
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....et risk encompasses the milieu of buyers and sellers interacting to buy and sell goods and services, changes in supply and demand, competitive structures, marketing research for target market study, market segmentation and product positioning, buying behavior, selling and distribution management, retail and wholesale logistics, advertisement, brand management, media relations etc. These issues per se do not make a case for tax holiday because they are borne by all businessmen and not those in infrastructure field alone. But it is interesting to note that instead of bearing such risks, the assessee in his line of business, enjoys an advantage, because it is not being bothered by any of these issues as the assessee is only concerned with a singular customer, sans any marketing effort. The JV itself is formed by its partners viz., Navayuga Engineering Company Ltd., Nagarjuna construction Company & Maytas, with the express intention of executing the work awarded. Each of them had proven capabilities in the area of operation and have together joined hands and won the project by participating in the bidding. There is no other marketin....
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.... is less than in conventional businesses and does not form a ground for seeking tax holiday. Infrastructure facility should begin to operate : As per Sec 80IA(2), "..the deduction can be claimed by an assessee for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or enterprise develops and begins to operate any infrastructure facility..." The conjunctive word 'and' used between 'develops' and 'begins to operate' shows the legislative intent that the 'operations' are an integral component of the whole, which cannot be delinked. It can be seen from above that the deduction can be claimed by an enterprise which develops and begins to operate any infrastructural facility. It is clear therefore that the deduction is inextricably connected to the commencement of operations of the infrastructural facility. It follows that the deduction is available only on the income generated by the facility subsequent to commencement of its operations, such as toll revenues etc., but the work contract margins realized on mere execution of the contract cannot justify for the deduction claim. In thi....
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.... distributary system including construction of CM & CD works etc. to feed an ayacut of 35,800 Ac. Under Sangambanda BR M/s. R.M.M. & BRC (JV) 57.97 M/s. VPR- 68.94 Cromandal (JV) Document 21 19 20 12 21 222 22 27 15 16 17 18 Investigation, design, estimation and excavation of canal distributary system including construction of CM & CD works from Yenukunta BR, Waddewata (V), Kottakota (M), Mahabubnagar (D) to feed about 14,000 Acres upto Rangasamudram BR. Excavation of canal distributary system including constrction of CM & CD works from Ranga Samudram to feed an ayacut of 21,000 Acres Investigation, design, estimation and execution for converting the existing Rangasamudram tank, near Sri Rangapuram (V) Pebbair (M), Mahabubnagar district as balancing reservoir under Bhima Lift Irrigation Project (Lift-II) Investigation, design, estimation and execution for convesting the existing Shankarasamudram tank, near Knaipally (V) Kothakota (M). Mahabubnagar district as balancing reservoir under Bhima Lift Irrigation Project (Lift-II) Shankara Samudram Balancing Reservoir ....
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....l facility'. Classification in Form 10 CCB : The assessee claimed in Column 14 of Auditor Report in Form no. 10CCB that with respect to the infrastructure facility, the enterprise is engaged in development, operation and maintenance. The terms "develop, operate and maintain" have a particular connotation. An enterprise is said to operate and maintain a particular facility only if it runs the facility for an extended period of time subsequent to building it. Petty maintenance work during the period of building a facility is incidental to any contract work and does not qualify as operation and maintenance for the purpose of Section 80 IA. It is necessary to own the particular facility for a substantial period of Document 23 time, then operate and maintain that facility subsequently and finally transfer back the asset. This part of operation and maintenance envisages a levy of user charge for the asset, like toll tax etc., which the developer will collect for a period of time until his investments are paid back. This provision is intended to draw private investments into the domain of public expenditure and ensure that the investor is pai....
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....on of and qualitative improvement in infrastructure (viz. expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus in a case where a person makes the investment and himself carries out the development work i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this a person who enters into a contract with another person [i.e. undertaking or enterprise referred to in section 80-IA] for executing works contract, will not be eligible for the tax benefit under section 80-IA. This amendment will take retrospective effect from 1st April, 2000 and will ....