TaxTMI 
TaxTMI 
2022 (6) TMI 1110
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....see's appeals which are as follows- i) Common 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 alo....
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....ies gave only general specifications for the project. However, for the specific 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 material....
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....3-04 the assessee co has entered in to agreement to construct/developed road at various places with State Govt. Local Authority, and with other statutory authorities. The 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 ....
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....not carrying on any business of construction activity, but the govt. is interested in development of infrastructure project to facilitate the growth. The work undertaken involved the lot of risk also the continuous running of the 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 t....
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....tatutory body. iii) The representative of the assessee in his above reply stated that "entering in a lawful agreement and there by becoming a contractor should no way be bar to the one being a developer". In the case of assessee the issue is regarding the work carried out in the capacity of contractor not in a capacity of a developer. 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 car....
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....is ultimate designer of the facilities or has developed the infrastructure facility. Therefore govt. & not carrying on any business of construction activity, but the govt. is interested in development of infrastructure project to facilitate the growth." is incorrect. The statutory body i.e. AUDA and other R & B departments are definite/absolute owner of the rood constructed by the assessee company. Further the assessee 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 p....
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....tractor 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. In other words, the developer acts as a principal whereas the contractor acts as an agent in performing the functions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining 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 asce....
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....t under Section 44AB of the Act available at the Paper Book filed before us. It is also evident on record that particularly from the Audit Accounts available at Page 112 of the Paper Book that the assessee has purchased the materials of Rs. 3,19,38,994/- during the year under consideration. It is relevant to mention that various materials and mix were required to be tested by the assessee itself as its own cost from time to time at Government recognized laboratories as specified by the Tender document. 18. It is also on record that the assessee has to arrange own finance by raising adequate capital, reserves & 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 ....
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.... grass without written permission and has to take necessary measures to prevent fire spreading or otherwise damaging surrounding property. The Clause has also made it clear that the contractor would be liable for any damage done in or outside work area. It has to take all necessary measures for safety of traffic during construction and provide, erect and maintain barricades including signs and coma, marking, flags, lights and flagmen, as may be required. The contractor is not permitted to set the work without written approval in default the contract shall be rescinded and the Security Deposit would stand forfeited as 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 ....
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....n. (iv) Direct agreement between the transferee-assessee and the specified authority is not a mandatory requirement u/s.80-IA(4) of the I.T. Act. Needless to mention that the assessee qualified all the criterion fixed by the Amritsar Bench 25. We have already dealt with relevant clauses of the tender documents stipulating various conditions viz. financial involvements, risks, obligations and responsibilities of the assessee in developing, operating and maintaining of infrastructure facilities, which clearly make the case of the assessee within the scope and ambit of Section 80IA(4) of the Act so as to claim the impugned deduction. 26. We 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 Cour....
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....ll aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under Section 80IA(4) of the Act. Thus, the issue of claim of deduction under Section 80IA(4) of the Act is allowed in favour of the assessee and against the Revenue. This common ground raised in all the appeals are accordingly disposed of. 29. Ground No.2 in ITA No. 1679/Ahd/2011 for A.Y. 2007-08: This ground has already been decided in favour of the assessee in the case Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT in ITA Nos. 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....