TaxTMI 
TaxTMI 
2018 (11) TMI 1968
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....evenue in these three years relates to allowance of deduction claimed under section 80IA of the Income Tax Act. Facts on all vital points are common therefore, for the facility of reference, we take up the facts mainly from the Asstt. Year 2010-11. 3. Brief facts of the case are that the assessee-company at the relevant time was engaged in the business of development of infrastructure projects. It has filed its return of income on 30.9.2012 declaring total income at NIL after claiming deduction at Rs. 1,61,33,833/- under section 80IA of the Income Tax Act. Similarly, in the Asstt. Year 2011-12 it has shown additional income at Rs. 75,97,540/- and claimed deduction under section 80IA at Rs. 1,78,72,268/-. In the asstt. year 2012-13 the assessee has declared NIL income and claimed deduction under section 80IA at Rs. 3,35,57,706/-. The case of the assessee was selected for scrutiny assessment in all these three years. Notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed development of various infrastructure projects during these assessment years. The ld.AO took note ....
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.... 2006-07 DEVELOPMENT (iv) Vadora Municipal Corporation -WTP 23/10/2009 2010-11 DEVELOPMENT (v) Vadora Municipal Corporation -STP 01/02/2009 2010-11 DEVELOPMENT (vi) Ahmedabad Municipal Corporation, Kotarpur (O& M) 12/09/2008 2009-10 OPERATION & MAINTENANCE (vii) Ahmedabad Urban Development Authority, Jaspur (O&M) 01/04/2007 2008-09 OPERATION & MAINTENANCE Asstt. Year 2011-12 "2. Sr. No. (4) of the notice u/s. 142(1) dt. 30-10-2013 You have asked the assessee company to demonstrate with necessary evidences that the undertaking fulfills all the conditions of section 80IA. (A) In respect of the following infrastructure projects the Hon'ble Commissioner of Income Tax (Appeal): VI, has allowed the claim u/s. 80IA hence, to avoid the repetitiveness the assessee company do not furnish the information as it is very much on record of the Department and rely on the appellate orders: Project Date of commencement 1st A.Y. of claim Nature of Work Ahmedabad Municipal Corporation, 01-04-2007 2008-09 O&M Ahmedabad Municipal Corporation 12-09-2008 2009-10 O&M G....
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....it is very much on record of the Department and rely on the appellate orders: Project Date of commencement 1st A.Y. of claim Nature of Work Ahmedabad Municipal Corporation, Jaspur 01-04-2007 2008-09 O&M Ahmedabad Municipal Corporation, Kotarpur 12-09-2008 2009-10 O&M GWSSB - Gondal - Kothaira 02-11-2004 2005-06 Development MPAKVN 02-03-2006 2007-08 Development Vadodara Municipal Corporation 23-10-2009 2010-11 Development of WTP Vadodara Municipal Corporation 01-02-2010 2010-11 Development of STP (B) The Development of following infrastructure projects have been awarded during the year relevant to A.Y. 2011-12 and the assessee company is in appeal before the Hon'ble Commissioner of Income Tax (Appeal): VI, Ahmedabad. Project Date of commencement 1st A.Y. of Claim Nature of work Khambhat Nagar SevaSadan, Khambhat 24-09-2009 2011-12 Development of WTP Gujarat Urban Development Company (GUDC) - Tarsadi 13-04-2010 2011-12 Development of WTP (C) The development of following projects have been awarded during the previous year relevant to A.Y. 2012-13 ....
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....medabad municipal corporation and GWSSB Nadiad, it was submitted that these projects relates to maintenance and other services and not infrastructure development therefore 80IA claim in respect of these projects were not pursued. In view of this appellant's claim in respect of these two projects is rejected. Coming to the other three projects appellant submitted detailed submission in respect of each project and demonstrated that as per the bid document and terms of the agreement the work included designing, construction, commissioning, testing, trial run etc. This also included training of the personnel. All three agreements were produced and were examined in detail. Appellant's claim that it was not a mere contractor was evidenced from these documents. Appellant was found to be a designer of the infrastructure facilities with its technical team. It also constructed infrastructure facilities with its risk and also commissioned the same and carried out trial run. Appellant also operated and maintained the infrastructure facilities created by it for some time and also trained the personnel when required. Considering these facts it cannot be said that appellant was a....
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....ucture. Appellant's case is identical since in respect of these three projects appellant designed the infrastructure projects, took risk of the project, commissioned the project and conducted trial run, deployed its own resources. In the light of these facts appellant cannot be termed as mere contractor. Since appellant perform all those tasks which Asst. Year 2005-06 & others is performed by a developer, appellant cannot be denied the benefit available to the developer. All the arguments of the assessing officer have been met by the appellant in detailed submissions quoted earlier. Respectfully following the recent decision of ITAT Rajkot bench which squarely applies to the facts of the appellant's case, assessing officer is directed to allow deduction u/s 80IA of IT act in respect of the three projects namely GWSSB-ADB project, GWSSB-Gondal and MPAKVN project. 26. We further observe that from the agreement entered into by the assessee with GWSSB & MPAKVN with regard to their scope of work wherein assessee is required to designing (process, hydraulic, structure, equipment and aesthetically) providing, constructing and commissioning conventional water treatment pla....
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.... is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80-IA(4) and not any other person like individual, HUF, firm etc. [Para 26] According to sub-clause (a ), clause ([) of sub-section (4) of section 80- IA, the word 'it' denotes the - enterprise carrying on the business. The word 'it' cannot be related to (he infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. [Para 27] The next question to he answered is whether the assessee is a developer or mere works contractor. The revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin (o works contract and it is not eligible for deduction under section 80-IA(4). Whether ....
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.... the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular, dated 18-5-2010, such activity is eligible for deduction under section 80-IA (4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicate that the assessee is eligible for deduction under section 8()-IA(4). The department is not correct in holding that the assessee is a mere contractor in the work and not a developer. [Para 28] As per the provisions of section 80-IA, a person being a company has to enter into an agreement with the Government or Government undertaking....
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....the assessee clearly demonstrated that it has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. After the amendment section 80-IA(4) is read as (\) developing Asst. Year 2005-06 & others or (\\) operating and maintaining or (\\\) developing, operating and maintaining any infrastructure facility. While prior to amendment the 'or' between three activities was not there, after the amendment 'or' has been inserted with effect from 1-4-2002 by Finance Act, 2001. Therefore, if the contracts involve design, development, operating and maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction under .section 80-IA. The contracts which contain above features to be segregated, this deduction under section 80-IA have to be granted and the other agreements which are pure works contracts hit by the Explanation to section 80-JA(13), those work are not entitled for deduction under section 80-IA. The profit from the contracts which involve Resign, development, operating and maintenance,....
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....ndicated that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-tax Act. Where an assessee incurres expenditure for purchase of materials himself and executes 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, an assessee, who enters into a contract with another person including the Government or an 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. The word 'owned' in sub-clause (a] of clause (1) of sub-section (4) of section 80-IA refers to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. Thai the provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word 'ownership' is attributable only to the enterprise carrying on the bus....
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....e whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work; it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of I 2 (o 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the a....
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..... to clarify that mere works contract would not be eligible for deductions under section 80-IA. But. certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the Parliament would have simply reversed the amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who do mere works contact or sub-contract as distinct from the developer. This is clear from the express intension of the Parliament while introducing the Explanation. The explanatory memorandum to Finance Act, 2007, states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80-IA is available to developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that it has undertaken huge risks in terms of deployment of technical personnel, plain and machinery, technical know-how, expertise and finan....
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.... years. Therefore, respectfully following the orders of Co-ordinate Bench, we do not find any merit in the grounds of appeal raised by the Revenue on this issue in all these three years. No other issue is agitated by the Revenue in its appeals hence, appeals of the Revenue are dismissed. 7. Now we take cross-objections of the assessee in all three years. 8. First issue in all these three years agitated by the assessee is that the ld.CIT(A) has upheld the assessment of interest income as income from other sources and upheld exclusion of these amounts from eligible profit for grant of deduction under section 80IA. The ld.counsel for the assessee fairly admitted that in earlier years, this issue was not agitated before the Tribunal. Considering the smallness of the amount involved in all these years, the issue was not pressed by the assessee, hence these grounds are rejected in all three years. Interest income on FDR has rightly been assessed as income from other sources and rightly been excluded from eligible profit from the amount of deduction under section 80IA. Accordingly, this issue is decided against the assessee. 9. In the next common grounds, the assessee has pleaded....