AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1110
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.... ground raised in all the appeals of the assessee is, denial of claim of deduction under section 80IA(4) of the Income Tax Act, 1961 by treating the assessee-company as a 'Contractor' and not 'Developer' by the Department. However, the Revenue is challenging the action of the Ld. CIT(A) in granting deduction under Section 80IA(4) of the Act for the Asst. Years 2003-04 and 2007-08. ii) The second main ground in respective appeals is with regard to disallowance of interest and other income as not eligible for deduction under Section 80IA(4) of the Act. iii) The third ground in respective appeals is with regard to disallowance of depreciation on plant & machinery has also been challenged before us. 3. The brief facts leading to the issue is this that the appellant is a private limited company engaged in the business of Infrastructure Development, filed its return of income on 28.11.2003 declaring total income of Rs. 5,18,334/- which was processed under Section 143(1)(a) of the Act followed by a scrutiny proceeding. Notice under Section 143(2) dated 12.10.2004 was issued under Section 142(1) dated 20.06.2005 along with detailed questionnaire and after notice under Section 143(2) d....
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....pecific drawings & designs recommended by the assessee, the same has to be approved by the competent authority and becomes part of the tender. Further that once the tender is awarded, the assessee has to pay earnest money, security deposits, performance guarantee. The assessee is also liable for liquidated damages/penalty, free maintenance and repair during defect liability period. During the construction of project, the assessee has to make all the arrangements and is liable for procurement of water, electricity, all materials, skilled, semi-skilled staff, labourers, plant & machinery, equipments& tools, and also wellbeing of the staff/labourers. He submitted that the assessee is always burdened with financial risk to carry out the project work on own cost with the fixed rate specified in the tender. The payment would be made by the competent authority every after a period upon completion of certain work. The construction and development of infrastructure projects is highly technical and required special skill, adherence to quality etc. Moreso, the assessee is not compensated for increase in prices of materials, cost of labourers, overhead expenses etc. These facts clearly demonst....
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....e complete detail of worked carried out in respect of the same was furnished in our earlier submission. The provisions of section 80IA(4) is very dear that it requires 1. The enterprise should be own by a company or consortiums of co. The enterprise should enter into agreement with Central Govt. State Govt. or a local authority or any other statutory body for i) Developing or ii) Operating and Maintaining of infrastructure facilities within the period stipulated in the agreement The enterprise starts operating and maintaining the infrastructure facilities on, or after the 1st day of April 1995" Therefore in order to make an enterprise eligible for the benefit of the section one of the important condition is that an enterprise should be entered in to agreement with State govt. Central Govt. local authority or and other statutory authorities. The term contractor is not essentially contradictory to the term "developer". On the other hand rather section 80IA4 it self provides that in order to develop the infrastructure facilities an enterprise as per agreement with the Central, state Govt. Local authority or other statutory body. So entering in to a lawful agreement and thereby....
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....plant, have to maintain permanent staff. The working condition, position of land mixture drawings and other technicalities to be followed by the assessee co. in order to developed the infrastructure facilities. Moreover as per the provisions of Act whatever nature of infrastructure facilities developed is ultimately to be transfer to the govt. or authorities as the case may be within stipulated time limit. In our case all the developed infrastructure facilities were transferred to the concern authorities. The agreement copy and tender document is the same what your goodself possess for verification. The copy of agreement is sign by both the parties, i.e. the authorities as specify in the act and enterprise own by a company registered in India or by a consortium of such company. The details of work to be carried out and consideration to be received for the said work along other terms and condition including the time limit for its development is specify in the said document. Further a formal work order also submitted to your goodself for verification. Therefore in light of our above discussion we like to request your honour that we are very well complied the provisions of t....
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....The assessee company token a work in a capacity of contractor not being a developer. iv) The assessee company has carried out construction of work of Ahmedabad Urban Development Authority, Road & Building Department of various district and Panchayat by filing a competitive tender to open market and agreed to work as specification of design, type of work, material etc. designed by the statutory authority. Hence the work done as per terms and conditions of the contract and design, structure, thickness of metal work, asphalt etc. so the assessee company has to work within the frame work decided by the statutory authority. v) If the contention of the assessee is treated as accepted then the every subcontractor engaged by the assessee company for this work would eligible for deduction u/s 80IA(4). Like transport contractor to carriage grit, sand, asphalt etc., a labor contractor even a financer would claim that they develop infrastructure facility. vi) The assessee company sighted the decision of the Hon'ble I.TAT. Bench-F, Mumbai in case of Patel Engineering Ltd. 94 ITD 411. I have gone to the said judgment. The facts of assessee company are different than the facts referred judg....
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....sessee company stated that the infrastructure facility was transferred back. The contention is incorrect as the ownership was never transferred to the assessee company by Government of statutory body. ix) The possession of a Drum mixed plant. Paver Project, JCB machine, roller, dumper and other equipment, skill persons, engineers, machine operators etc, does not qualify the assessee company for deduction u/s 80IA(4). x) The assessee company stated that they have carried out work as per agreement executed in whatever form and acted according to the terms of agreement and cost of that agreement. The assessee company fails to establish that work (as per the agreement) involves any development work. All the specification design etc. are provided by the other party not by the assessee company. xi) Even though the H'onble I.T.A.T., Mumbai given the decision in favor of Patel Engineering Ltd. It is not known that the department has accepted the findings of the H'onble I.TAT., Mumbai. However it is cleared that the Assessing Officer at Mumbai and the CIT(Appeals) did not accepted the contention of the contractor assessee." 9. The Ld. CIT(A) while confirming the order of reje....
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....intaining the infrastructure facility whereas the contractors are those persons who merely execute part of these functions on behalf of developer and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under Section 80-IA of the Act as they are not developing any infrastructure facility but only providing assistance to the actual developer. 13. In view of the above, in order to ascertain whether a civil construction work is assigned on development basis or contract basis only the terms and conditions of the agreement needs to be considered. Only on the basis of the terms and conditions and the scope, ambit and nature of the contract assigned it could be ascertained whether it is a "work contract" or a "development contract". 14. It is admitted fact that the assessee is registered as category I contractor for Road with the State Government. The appellant company has also deposited Rs. 22,50,000/- for granting of Registration which is to be refunded only on surrender of said Registration Certificate. For coming under the zone of construction as eligible for participating in the Tender processes/Bid as per the T....
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.... & surplus, secures & unsecured loans evident in the Balance Sheet available at Page 107 of the Paper Book. The assessee has raised total amount of Rs. 3,56,47,029/- for the year under consideration. The assessee has to use and invest heavily in purchasing plant and machinery in order to fulfilment the eligibility criteria to bid the Tender and to carry out the project of development of roads. In this regard, we have noted that the gross block of assets are to the tune of Rs. 2,01,36,510/-. Moreso, the assessee has to employ own teams of qualified Civil Engineers and arrange for skilled and semiskilled and unskilled workers. 19. So far as the financial risk is concerned the appellant has to pay Security Deposit at 10% of the total work order over a contract period. Relevant to mention that the amount of Security Deposit over a period was to Rs. 1,02,47,932/-. It was specifically mentioned in the Clause 1 of terms and conditions of the contract that 50% of the Security Deposit alongwith performance bond shall be refundable within 15 days after the final completion certificate issued as per Clause-7. All dues under this contract or other contract, or otherwise including the royalty ....
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.... per Clause 26 of the Tender document. 22. In terms of Clause 3 of Tender document if the contractor defaults in work or violates the term of the contract it shall be liable to penalty in terms of lien of Government over the plant, machinery, equipments etc. and forfeiture of security deposit too. 23. In view of the above detailed paper books containing the above tender documents comprising agreement clauses (relevant clauses have already dealt with by us hereinabove) the contents whereof would definitely suggest that the assessee has been entrusted with the work of development infrastructure facilities, and therefore being a 'developer', the assessee would be entitled for deduction under Section 80IA(4) of the Act. Relevant to mention that perusal of all tender documents in respect of the years also mentioned hereinabove reveals that the terms and conditions mentioned therein are almost same except the figures and name of the project. 24. The primary condition is that the enterprise must carry on the work of "developing" an infrastructure facility. As mentioned above, Explanation under sub-Section (13) of Section 80-IA clarifies that this section will not apply to any business ....
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....have considered the judgements relied upon by the Ld. AR passed by different judicial forums including the judgement passed in the matter of Patel infrastructure and Katira construction (supra) passed by the Rajkot Bench and Katira construction passed by the Hon'ble jurisdictional High Court wherein the constitutional validity of insertion of explanation below sub-Section 13 of Section 80 IA of the Act was challenged. The Ld. Representative appearing for the Revenue vehemently argued on this point that the jurisdictional High Court in the said matter already decided the issue against the assessee. Fact remains that the jurisdictional High Court in that particular matter dealt with the constitutional validity of the insertion of explanation as mentioned hereinabove and decided the same in favour of the revenue to this effect 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 Parliament. As such there was no issue whether the assessee was acting as a developer or contractor was raised before the Hon'ble Jurisdictional High Court neither the said has been decided in the said judgement. 27. We....
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....os. 118/Ahd/2009 and others. While dealing with the issue the Coordinate Bench has been pleased to observe as follows: "45. During the course of assessment proceedings, the AO noticed that the assessee in the profit & loss account has debited net interest expenses. As per the details furnished, it was found that the assessee has earned interest income from FD and investment in Sardar Sarovar Narmada Nigam and interest from AEC to the tune of Rs.56,96,723/-, whereas interest expenses on bank OD and interest paid to depositors was to the tune of Rs.1,08,38,755/-, and therefore, there was net interest expenses of Rs56,96,723/-. It is also noticed by the AO the assessee has received some other income in the form of dividend, misc. income, service charges. According to the AO, the net profit shown by the assessee inclusive of interest income earned by the assessee from the bank deposits and bonds, and claimed the same as deduction under section 80IA/80IB of the Act. The AO was of view that interest income could not be considered as income derived from industrial undertaking and therefore interest receipt were not eligible for the deduction, as sought for. He further opined that since ....