TaxTMI 
TaxTMI 
2024 (10) TMI 522
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....Ahmedabad(hereinafter called "the CIT(A)") dated 11.07.2011 in Appeal No. CIT(A)-VIII/ACIT Rng-4/741/09-10 which in turn has arisen from the assessment order dated 21.12.2009 passed by ld. Assessing Office u/s 143(3) of the Income-tax Act, 1961(hereinafter called "the Act"). 2. The Revenue has raised following grounds of appeal in memo of appeal filed with the Income Tax Appellate Tribunal, Ahmedabad for assessment year 2007-08:- ITA No.2308/Ahd/2011 A.Y.2007-08 "1. The ld. CIT(A) has erred in law and on facts in deleting the addition made of Rs. 2,95,49,667/- u/s. 80IA(4) without appreciating the fact that the assessee did not fulfill the conditions precedent and the assessee was only a contractor not a developer. 2. On facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent." 2b. The Assessee has raised following grounds in the Cross Objection filed with Income Tax Appellate Tribunal, for assessment year:2007-08 CO. No.209/Ahd/2011 arising out of ITA No. 2308/Ahd./....
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....ictionary meaning of a developer is very exhaustive and the assessee falls in the category of developer, and there are no indications that the work of the assessee is in the nature of contractor. The assessee submitted before the AO that the consideration is paid by respective government authorities for executing infrastructure facility as a developer and not as a contractor. The assessee submitted before the AO that it has to undertake extensive liability which lasts till the tender document conditions. It was submitted by the assessee before the AO that as per the agreement, the assessee is not only developing the project but the assessee is also responsible for the maintenance of the developed work for which no separate consideration was paid. The assessee's liability does not cease on the completion of the project work, thus there is no reasons to consider nature of activity of the assessee as a contractor. 3.3 The AO rejected the contentions of the assessee vide assessment order dated 21.12.2009 passed u/s 143(3) of the 1961 Act, by holding as under:- "5. After going through the reply the following point arose and on the basis of these observation his reply is found not acc....
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....proval in all respect and responsible to the superintending Engineer, in all contracts matter & complete & said work " All the conditions related to employment of labours are also mentioned as "....you shall have to submit the necessary return certificate to Engineer-in- charge from time to time & shall not engage the labourers below age 15 & submit the indemnity bond for the strictly obey of labour lows " (Point C Sub Point 5). Extract from letter dated 26.10.2009 "....You have to fulfill the condition of deploying sufficient machinery & equipment on work for time bound completion, as stipulated in tender documents." " You will give the undertaking that not with standing of whatever submission made with the tender documents, you will deploy, all necessary & sufficient machineries, equipment & manpower etc. to complete the work within timeframe scheduled, without being rightful for any additional claim / financial assistance thereof from Nigam." (Point 2(iii)) 2. INDRODA SITE PROJECT:- Extract of letter dated 26.6.2003:- " As you have now paid the S.D & signed the tender documents, you are here by requested to start this work under instruction & guidance of Deputy Execu....
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....nt project, which is the basic requirement of the developer. However, the assessee has incurred the operative investment, and taken risk and reward for the execution of the work/civil contracts delegated to them through tender for the very well defined & planned activities. The major risk of development of the project is with the developer only. The assessee has no post completion responsibility neither related to the repair and maintenance nor related to it's supervision. The assessee is also not providing any kind of provision for this. It clearly shows that the risk and liability of the assessee is restricted up to the defective work done by him and the cost of only this default will be borne by him. i. Further from the perusal of the explanation below sec. 80IA (13) which has been brought on statute by the finance Act 2007 with retrospective effect from 1.4.2000, it can be seen that any person who executes a work contract entered into with undertaking or enterprises shall not be eligible for the deduction u/s. 80IA of the Act. The provision of the said explanation is reproduced here under :- "Explanation I for the removal of doubts, it is here by declared that nothing c....
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....nstruction contractor undertaking work contracts. The main bone of contention of the assessee on merits of the issue is that the assessee is engaged in the business of developing Road, Bridges etc., i.e. the infrastructure facilities after entering into agreement with the State / Central Government, and hence the assessee has duly fulfilled the conditions as laid down in section 80IA(4)(i)(a) and (b) of the Act. The assessee claimed that it fulfilled all the necessary conditions to be eligible for deduction u/s 80IA, and the newly inserted explanation is not applicable to the assessee. It was also submitted that the newly inserted Explanation below section 80IA(13) by Finance Act, 2009 is directly contrary to the main provision of the Act, and it cannot be derogatory to the main provision of the Act as held by Hon'ble Supreme Court in case of S. Sundaram Pillai & Others reported in AIR 1985 SC 582. The assessee submitted that the main provisions entitled an assessee to the deduction if the assessee is a Company registered in India, enters into an Agreement with the Central or State Government and undertakes to carry on the business of (i) developing or (ii) operating and maintainin....
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....y roads, dams, bridges etc., and it has its own technical as well managerial pool of manpower for the same. The assessee has purchased and employed its own material for development of the infrastructure facility .Thus, the assessee submitted that the entire planning of the business as well as methodology of the executing the work has been done by the assessee and not by the Government authority. 4.2 The assessee claimed that department in the earlier years had accepted that the assessee is a developer and merely because Explanation is now inserted in the statute, the assessee on the same set of facts and with identical kind of business cannot be held to be not a developer and merely a work contractor . The assessee submitted that the Act does not stipulate that the facility should be owned by the assessee and the person who takes the risk and reward on his shoulder constituted developer and the assessee is engaged in the development of infrastructure facility. The assessee referred to the following decision of ld. CIT(A) wherein deduction under section 80IA(4) was allowed, and prayed that the assessee should also be allowed deduction under section 80IA(4). The assessee relied upon....
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.... 6 STP - Jashpur Capital Project Division Turnkey work including Designs & Construction 76 MLD 5711807 -4239557 Gujrat state Govt. Sewerage Treatment Plant Complete with Maintaining and Running the Plant for 3 years 7 MPRRDA- Madhya Pradesh Rural Road Construction/Upgradation of Rural Road and PMGSY 0 -1631133 Vidisha Development Project Package MP 4502 8 VMC- Vadodara Municipal Construction of 1800 MM RCC Graviety Trunkline from 47582093 8977069 Pipeline Corporation Shrenik Cross Road to Atladra Sewage Treatment Plant+D4 9 Jodhpur Rajasthan Urban Infra Providing Laying Jointing and Commissioning of sanitary 367479 -1003946 Pipeline Develop. Project sewer in Pal III Zone including construction of manholes, serive connection along with restoration of roads in jodhpur city ....
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....ct 2009. 2.3.1 The Ld. A.R. drew my attention towards the decision of the Hon'ble Rajkot ITAT in the case of M/S TARMAT BEL (JV.) KCL, RAJKOT V/S ITO in ITA No. 1111/ RJT/2010, delivered on 23/09/2010 on the very same issue and similar facts and allowed the deduction u/s 80IA(4) of the Income Tax Act, 1961. The observation of the Hon'ble ITAT on various issues relating to deduction u/s. 80IA(4) are as under- "We find force in the argument of the A.R. before us that entering into a contract and that too with the Govt. only is a pre-condition u/s. 80IA(4) and hence merely because there is a contract between the Govt. and the assessee, that does not make the assessee a contractor for the purpose of a works contract only. Any person carrying on business may be required to carry out some work or the other in the course of pursuing its overall business objectives. But what does not mean that such a person does not or cannot carry out something more than such work only. In the present case, we have already held that although the appellant entered into a contract with the Govt., the contract is part of the primary conditions of Sec. 80IA(4) and further the nature of work carrie....
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.... case. It is significant to mention here that the ITAT in the above case, had considered the judgment of the ITAT Mumbai bench in the case of B.T. PATIL & SONS Belgaum Construction Pvt. Ltd V/S ACIT reported in 126 TTJ 577. The ITAT observed that facts in the case of B.T Patil & sons are quite different. In that case, the assessee was employed as a subcontractor to carry out civil work and that a portion of the contract was assigned to that assessee who carried out the assigned work in the capacity of a subcontractor. The ITAT held that in the case of the present assessee (Tarmet), the facts are totally different. The appellant itself is the developer. It is not a subcontractor. Therefore, the ratio of the judgment in the case of B.T. PATIL & SONS Belgaum Construction Pvt. Ltd is not applicable to the present case. 2.3.2 It is further, stated by the Ld. A.R. that even after the amendment brought to the statute book vide Finance (No. 2) Act, 2009 with retrospective effect from 01/04/2000, various CIT(A)'s had also considered the similar matter with identical set of facts and circumstances and deleted the addition made by the AO. The Ld. A.R. put three cases on records, whe....
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....squarely applies to the facts of the appellant's case, assessing officer is directed to allow deduction under section 80 IA of IT act in respect of the three projects, namely GWSSB-ADB project. GWSSB- Gondal and MPAKVN project. 3. Rajkamal Builders Infrastructures (Pvt.) Ltd. Appeal No.CIT(A)-XI/819/2008-09 "2.5 I have given my careful consideration to the provisions of section 80IA(4), the facts of the case, the A.O's findings and the written submissions of the appellant.in accordance with the provisions of section 80 IA(4), any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing. operating and maintaining any infrastructure facility will be eligible for deduction subject to fulfilment of certain conditions. In the instant case, the issue for consideration is whether the appellant is developing any infrastructure facility or whether he is a mere contractor. Going by the nature of works carried on, I am inclined to accept the contention of the appellant that their business is one of developing infrastructure facilities. There is force in the contention of the appellant that initial capital investment (by way of sec....
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....y are complying with all the terms and conditions of developer. The Ld. A.R. submitted that the projects undertaken by the appellant are highly technical and specialized. The appellant is required to carry out survey regarding those projects. The appellant is also required to make investment in key equipments and manpower apart from financial investments. The Ld. A.R. also submitted that the development of infrastructure facility involved huge risk, as well and for that the appellant is required to give security and performance guarantee. The appellant is also liable for liquidated damages. 2.3.5 In my considered opinion the appellant's case is identical to the case of M/s. Tarmat Bel (JV) KCL. Rajkot decided by the Hon'ble ITAT, Rajkot. The appellant has claimed the deduction u/s. 80IA(4) for the 10 (Ten) projects as reproduced in para 2.2.4 of this appellate order. From the written submissions as well as oral argument of the Id. A.R. it is observed that all the ten projects for which deduction has been claimed the appellant took the entire risk of the project and deployed its own resources. In the light of these facts the appellant cannot be termed as mere contractor. S....
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....d the assessee is entitled for deduction under section 80IA. The ld. Sr. Advocate Shri S N Soparkar also referred to and relied upon the following orders of Tribunal, as under:- Sr. No. Case Law Citation Judicial Forum 1. Vijay M Mistry Construction Pvt. Ltd. 2938/Ahd/2011 Ahmedabad 2. Katira Construction Ltd. 185 ITD 173 Rajkot 3. Patel Infrastructure Pvt. Ltd. 627/Rjt/2014 Rajkot 4. Rajkamal Builders Infrastructure Pvt. Ltd. 118/ahd/2009 & Others Ahmedabad 6. The issue involved in the C.O. filed by the assessee is with respect to disallowance of expenditure of Rs. 26,719/- by the AO which disallowance stood confirmed by the ld. CIT(A). The assessee has claimed transaction tax of Rs. 24,710/- which was disallowed by the AO in the absence of any satisfactory reply. So far as claim of the assessee of Rs. 70,830/- as income tax expenses is concerned, the assessee submitted that the assessee has already disallowed Rs. 68,824/-, and the AO disallowed the remaining amount of Rs. 2009/- and added the same back to the income of the assessee. Aggrieved by the assessment order passed by the AO, the assessee filed first appeal with ld. CIT(A). The ld. CIT(A) rejected the....
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....veloping, operating and maintaining any infrastructure facility, and the assessee company has earned income as contract receipt and the income being a contract receipt is not eligible for deduction u/s 80IA(4). The assessee company has filled tender for obtaining the work as contractor only. The assessee is registered with sales tax authorities of Gujarat and Madhya Pradesh as 'work contractor' as per the registration certificates. The assessee failed to prove that it has ownership of project to develop . The assessee is executing civil construction activities as per the specifications designs and plans provided by the Developer of the infrastructure project. The supervision of the project is undertaken by those who have given the civil construction work to the assessee. The assessee is bound to perform work with the drawing specification which is part of the contract. The AO then discussed in the assessment order at page number 5-8 about two of the work orders executed by the assessee. The ld. CIT(A) granted relief to the assessee with respect to 10 projects on the grounds that the assessee is a 'Developer' and not a 'Contractor'. The ld. CIT(A) observed that the assessee has take....
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....income of an undertaking providing telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent of such profits and gains for further five assessment years.] (3) This section applies to 40[an 41[undertaking]referred to in 42[clause (ii) or] clause (iv) 43[43a[or clause (vi)]] of sub-section (4)] which fulfils all the following conditions, namely :- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an 44[undertaking] which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such 44[undertaking]as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose: 45[Provided that nothing contained in this sub-section shall apply in the case of....
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....ity on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (here after in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. 50[Explanation.-For the purposes of this clause, "infrastructure facility" means- (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a wa....
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....ion or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 62[2011] : Provided that the deduction under this section to an 63[undertaking]under sub- clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution; 64[(c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 65[2011]. Explanation.-For the purposes of this sub-clause, "substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April, 2004;] 66[(v) an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant, if- (a) such Indian company is formed before the 30th day of November, 2005 with majority equity participation by public sector companies for the purposes of enforcing ....
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....if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. (6) Notwithstanding anything contained in sub-section (4), where housing or other activities are an integral part of the highway project and the profits of which are computed on such basis and manner as may be prescribed70, such profit shall not be liable to tax where the profit has been transferred to a special reserve account and the same is actually utilised for the highway project excluding housing and other activities before the expiry of three years following the year in which such amount was transferred to the reserve account; and the amount remaining unutilised shall be chargeable to tax as income of the year in which such transfer to reserve account took place. (7) 71[The deduction] under sub-section (1) from profits and gains derived from an 72[undertaking] shall not be admissible unless the accounts of the 72[undertaking] for the previous year relevant to the assessment year for which the deduction is claimed h....
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....to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. (12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger- (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the ama....
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....0IA provides that for the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation 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). This clarification was inserted by Finance Act, 2007 wef 01.04.2000 and was later modified by Finance Act, 2009. The main controversy in this appeal revolves around this explanation which was inserted below sub-section 13 to Section 80IA. The AO has held that the assessee is Contractor executing work contract, while the assessee is contending that it is not Contractor but developer. The word 'Developer', 'Contractor', 'work contract' are not defined in the 1961 Act. The word contractor refers to a person who executes contract/work order for others without taking any future risks and responsibilities of the work undertaken except normal business risk of completing the work contract successfully as directed by Contractee, while developer undertakes the project to develop and construct at its own responsibility and takes all the ....
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.... capacity of 'developer' requires deeper analysis of each and every work executed by the assessee wherein claim of deduction u/s 80IA(4) is made viz. the tender document issued by Government/Statutory Authority, Letter Awarding the work to successful contractor/developer, Agreement entered into by the developer/contractor with the Government/Statutory authority, the manner in which execution of the work took place, analysis of the financial statements to identify deployment of financial resources by the Contractor/developer, deployment of men, machine and material by Developer/Contractor in executing the work awarded, PERT chart prepared, the role and responsibility of the Contractor/Developer prior to execution of work, during the execution of work and post execution of work. The provisions for claim of deduction /exemption are to be strictly construed and any ambiguity is to be decided in favour of Revenue. Reference is drawn to the judgment and order of Constitutional Bench of Hon'ble Supreme Court in the case of Commissioner of Customs(Imports) v. Dilip Kumar & Company, reported in (2018) 95 taxmann.com 327(SC). The ld. Sr. Advocate has heavily relied on the judgment and order ....
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....the assessee has claimed that it acted as developer and claimed to be eligible for deduction u/s 80IA(4). The assessee as well the AO shall be given opportunity of being heard by the ld. CIT(A), keeping in view principles of natural justice. The evidences filed shall be admitted by ld. CIT(A) in accordance with law. The appeal of the Revenue on this issue is allowed for statistical purposes. We order accordingly. 7.2 W.r.t. the issue raised by the assessee in the CO filed, regarding dis-allowability of deduction of the expenses to the tune of Rs. 26,719/- both by the AO as well by ld. CIT(A) . The assessee has claimed that once deduction u/s 80IA(4) is allowed, then even if the income increases owing to disallowance of aforesaid expenditure, the deduction u/s 80IA(4) shall go up and hence disallowance is tax-neutral. This contention of the assessee is consequential to the issue of grant of deduction u/s 80IA(4), and we have already set aside and restored the matter to the file of ld. CIT(A) for adjudicating afresh issue of allowability of deduction u/s 80IA(4) in the preceding para's of this order, and hence this issue of disallowability of expenses to the tune of Rs. 26,719/- is ....
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.... the appeal which has resulted into a delay of one day in filing the appeal for assessment year 2008-09 beyond the time provided u/s 253(3) of the 1961 Act. It was submitted that it was unintentional and prayer was made to condone the delay. The Revenue does not have serious objection to the condonation of delay of one day by assessee is filing its appeal with ITAT. After hearing both the parties, we condone the delay of one day beyond the limitation as provided u/s 253(3) of the 1961 Act. If justice is pitted against technicalities, the Courts will lean towards advancement of justice rather than technicalities. We order accordingly. 12. The assessee has raised following grounds in CO in memo of CO filed with ITAT, Ahmedabad Bench, Ahmedabad, which is listed as CO No. 210/Ahd/2011 for assessment year 2008-09 :- Grounds in C.O. raised by Assessee-CO No. 210/Ahd/2011 arising out of ITA no. 2352/Ahd/2011 for assessment year 2008-09. "1. The learned Commissioner of Appeals- VIII, Ahmedabad erred in confirming addition to the extent of Rs. 66,86,461 made by the Assessing Officer by way of disallowance of expenses u/s 14 A r.w. rule 8 (d) of Income tax Rules. 2. The learned Commiss....
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....0IA(4), wherein the income of various projects subject to section 80IA(4) was claimed as an exempt income. The AO observed that the assessee has not made any disallowance under section 14A of the Act with respect to earning of such exempt income. The assessee submitted that the assessee has made investment in the earlier years of Rs. 7,21,490/- in the equity share of Union Bank of India which was made prior to 01.04.2004. It is a public listed company and shares are traded on the recognized stock exchange . The assessee submitted that the company has not done or carried out any activities in the investment nor has incurred any expenditure for earning the dividend income and as such provision of section 14A are not applicable. It was further submitted that the assessee has paid up Share Capital of Rs. 10,78,14,000/- while Reserves and Surplus are to the tune of Rs. 45,92,60,310/-, aggregating to Rs. 56,70,74,310/-. The assessee submitted that there are other funds available with the assessee also which do not carry any interest expenditure . The AO observed that the assessee has earned dividend income of Rs. 13,118/- exempt from tax. The assessee has also exempt income from joint ve....
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....0/- AXB/C 38078274 x 179409849 = 7615655/- 890644820 Rs. 7615655/- Rule 8D(2)(iii) Half percent of the average value of investment income Rs. 897050/~ from which does not form part of the total income = 1794009849 X 0.5% Rs. 8512705/- Rs. 897050/- Total Rs. 8512705/- 13.4 The assessee filed first appeal with ld. CIT(A) challenging additions as were made the AO u/s 14A read with Rule 8D. The ld. CIT(A) confirmed the additions as were made by ld. AO but reduced the disallowance by excluding bank guarantee commission to the tune of Rs. 58,64,606/- and bank charges to the tune of Rs. 24,64,381/- and stamp paper/legal charges to the tune of Rs. 1008885/-, which were earlier included by AO as part of interest expenditure paid by the assessee. Thus, the disallowance Section 14A u/r 8D(2)(b) stood reduced to Rs. 57,89,411/- as against Rs. 76,15,655/- made by the AO. The ld. CIT(A) confirmed the additions of Rs. 8,97,050/- as was made by the AO by invoking Section 14A of 1961 Act read with Rule 8D(2)(c) of 1962 Rules. 13.5. Aggrieved by decision of ld. CIT(A), the assessee ....
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....d. CIT(A) is concerned, we donot find any infirmity in the order passed by ld. CIT(A). So far as contention of the ld. Senior Advocate that if disallowance u/s 14A is confirmed by ITAT, then the assessee will be entitled for higher deduction u/s 80IA(4), we have already restored the issue of disallowance u/s 80IA(4) to the ld. CIT(A) for fresh adjudication, and hence, in the fitness of the things and fair play keeping in view facts and circumstance of the case, this issue to the extent of confirmation of addition u/s 14A read with Rule 8D(2)(c) by us as is confirmed by us vis-à-vis higher deduction u/s 80IA(4), is restored to the file of ld. CIT(A) for fresh adjudication. We order accordingly. Preliminary Expenses 14. The next issue concerns with disallowance of Preliminary expenses to the tune of Rs. 13,40,328/- u/s 35D. The AO observed that the assessee has written off preliminary expenses of Rs. 13,40,328/- under section 35D of the Act. The assessee was asked to explain the working of the preliminary expense. The AO observed that these are the expenses incurred by the assessee company in the preceding years for increase in the authorized share capital of the company. Th....