TaxTMI 
TaxTMI 
2024 (12) TMI 310
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....xecution of the contract with the permission of the State Government by the Assessee as a Sub-Contractor. 3. The Hon'ble CIT(A) failed to consider the law on beneficial exemption/deduction but arbitrarily relied on general exemption law while deciding the appeal matter. 4.The Hon'ble CIT(A) gravely failed to distinguish and consider the case law relied on by the Appellant and erred in arbitrarily deciding the appeal matter in an ad hoc manner." 3. The brief facts of the case are that the appellant, Prathima Infrastructure Ltd., is engaged in the business of Civil contractor and property developer. The assessee filed its return of income for A.Y 2017-18 on 31-10-2017, declaring total income of Rs. 15,22,62,650/-, after claiming deduction under Section 80IA(4) of the Income Tax Act, 1961, amounting to Rs. 51,05,42,952/-. The case was selected for scrutiny, and during the course of assessment proceedings, AO noted that as per the return of income filed for AY 2017-18, the assessee has claimed deduction of Rs. 51,05,42,952/- under Section 80IA(4)(i) of the Act. In this regard, the assessee was asked to furnish supporting evidence in respect of the claim of ....
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....tions required for claiming deduction under Section 80IA(4) of the Act. Therefore, the AO rejected the explanation of the assessee and disallowed deduction claimed under Section 80IA(4) of the Act, for Rs. 51,05,42,962/- and added it back to the total income of the assessee. The relevant findings of the AO are as under : "3. Deduction u/s 80IA of the Act. As per the return of income filed for AY.2017-18, the assessee has claimed deduction of Rs. 51,05,42,962/- under section of the Act. In this regard, the assessee was asked to furnish supporting evidence in respect of deduction claimed. The assessee in reply submitted copies of the Joint Venture Agreement dated 02/01/2009 entered between M/s.Hindustan Construction Company Limited(HCC), M/s.Megha Engineering & Infrastructure Limited(MEIL) and Bharat Electricals Limited(BHEL), Letter of Intent dated 16/10/2015, Work Order Agreement dated 02/12/2008 issued by Govt. of Andhra Pradesh Irrigation & C.A.D. Department to M/s.HCC-MEIL-BHEL(JV) in respect of Pranahitha-CheveII Lift Irrigation Scheme link-IV Package No.10, Work Order No.9CLIS-10 issued to the assessee by HCC and Form 10CCD. The extract of the assessee's ....
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....ed under the central state Act;] (b), it has entered into an agreement with the Central Government or a state Government or a local authority or any statutory body for (i). Developing or (ii). Operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c). it has started or starts operating and maintaining the infrastructure facility 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 enterprises (hereafter referred to in this section 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 transferor enterprises for t....
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.... the parties and undertaken all risks including, designing, drawing, planning and also undertaken the maintenance of the project. The appellant has also satisfied the conditions, like Enterprise should be owned by Indian company or by a Consortium and further, the project should be an infrastructural project and also the condition of entering into agreement with the authorities, because the work has been undertaken in terms of agreement between the Government of Andhra Pradesh and JV and as per clauses of the agreement, which are ingrained in the main agreement itself, the work has been awarded to the appellant company upon satisfying the eligibility criteria and approval from the Government of Andhra Pradesh. Therefore, the AO is incorrect in rejecting the deduction claimed under Section 80IA of the Act, only on the ground that the assessee has not entered into any agreement with Central Government or State Government or local authority or any other statutory body. 6. The LD.CIT(A) after considering the submissions of the assessee and also by following the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. M/s.HES Infra Private Limited in ITA Nos.184 and 185/Hyd/2018 dat....
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....her body established or constituted under the central state Act, (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any statutory body for (i). developing or (i) Operating and maintaining or (ii). Developing, operating & maintaining, (c). It has started or starts operating and maintaining the infrastructure facility on or after the 1st Day of April 1995. To verify, whether the appellant has fulfilled all the above three conditions mentioned in section 80IA(4) of the Act or not, the Joint Venture Agreement dated 02.01.2009 entered between M/s. HCC-MEIL-BHEL (UV) (Principal Contractor) & Govt. of Andhra pradesh, Letter of Intent dated 16.10.2015, Work Order Agreement dated 02.12.2008 issued by Govt. of Andhra Pradesh in respect of project Pranahitha Chavella Lift Irrigation Scheme link-IV Package No.10, Work Order No.SCLIS- 10 issued to the appellant by M/s. HCC, MOU dated 15.10.2015 entered between HCC & the appellant and Form 26AS of the appellant are perused. On perusal of the these documents, it is seen that the project Pranahitha- Chavella Lift Irrigation Scheme link-1V package No.10 ....
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....rating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely : (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (i) operating and maintaining or (ii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 14. From the perusal of section 80IA(4) of the Act, it is abundantly clear that for the purpose of claiming deduction, it is essential for the assessee to prove that the agreement has been entered by the assessee with the government/ statutory body. Admittedly, in the present case, the agreement was not entered between the assessee with the government body and the agreement was entered into by the Joint Venture ....
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..... After thoroughly examining the various precedents some of which we re cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 42. In Govind Saran Ganga Saran V. Commissioner of Sales Tax, 1985 Supp (SCC) 205, this Court pointed out three Components of a taxing statute, namely subject of the tax; person liable to pay tax; and the rate at which the tax is to be levied. If there is any ambiguity in understanding any of the components, no tax can be levied till the ambiguity or defect is removed by the legislature [See Mathuram Agrawal v. State of Madhya Pradesh, (1 999) 8 SCC667; Indian Banks' Association vs. Devkala Consultancy Service, (2004) 4 JT 587 = AIR 2004 SC 2615; and Consumer Online Foundat....
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.... but in terms of clauses of agreement between the JV and the Government of Andhra Pradesh, Irrigation and C.A.D. Department, one of the constituent partners of the JV has subcontracted entire civil work on back-to-back basis to the appellant in consultation and approval from the Government of Andhra Pradesh. Further, the appellant used its own financial resources, machinery, and materials and executed all stages of the project, including, investigation, designing and drawing, construction, operation and maintenance, and therefore satisfies the condition of a 'developer' within the meaning of Section 80IA(4) of the Act. In fact, the AO never disputed the fact that the appellant has carried out the entire civil works of the project, as per the agreement between the Government of Andhra Pradesh and M/s.HCC-MEIL-BHEL(JV), however, rejected the claim of the assessee only on the ground that the appellant has not satisfied the condition of entering into any agreement with Central Government or State Government or local authority or any statutory body, but fact remains that the main agreement itself provided for clauses and as per the said clauses, the portion of work has been sub-contract....
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.... case of DCIT Vs. M/s.HES Infra Private Limited (supra) and also by following the decision of Hon'ble Apex Court in the case of Government of Kerala and another Vs. Mother Superior Adoration Convent in Civil Appeal No.202 of 2012, distinguished the decision in the case of DCIT Vs. M/s.HES Infra Private Limited (supra). Therefore, submitted that, the decision relied upon by the LD.CIT(A) in the case of DCIT Vs. M/s.HES Infra (supra) is not applicable and needs to be rejected. 10. The learned CIT-DR, Shri B. Bala Krishna, on the other hand, supporting the order of the LD.CIT(A) submitted that, the AO and LD.CIT(A) had brought clear facts to the effect that the appellant is only a sub-contractor, who executed civil construction work for the main contract, i.e., M/s.HCC-MEIL-BHEL(JV), in terms of Work Order No.14020223 dated 22-03-2017. As per the provisions of Section 80IA(4) of the Act, one of the conditions for claiming deduction under Section 80IA of the Act, is an Enterprise developing an infrastructure facility shall enter into agreement with Central Government or any State Government or local authority or any statutory body. In the present case, the agreement for developm....
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.... infrastructure facility, as defined under Section 80IA(4) of the Act, and the profit derived from the development of infrastructure facility, is eligible for deduction under Section 80IA(4) of the Act. In order to resolve the dispute, it is necessary for us to refer to the provisions of Section 80IA(4) of the Act, and conditions provided therein for claiming deduction towards profits derived from eligible project. The provisions of Section 80IA(4) of the Act, deal with deduction in respect of profits and gains from industrial undertaking or enterprise engaged in infrastructure development etc. Sub-section (4) of Section 80IA of the Act, deals with deduction towards profits derived by any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, which fulfills all the following conditions, namely... "(a) it should be owned by a company registered in India or by a consortium of such companies or [by an authority or a board or a corporation or any other body established or constituted under the central state Act, (b) it has entered into an agreement with the Cen....
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....or M/s. HCC, in terms of Work Order No.14020223 dated 22-03-2017. Therefore, the Assessing Officer rejected the claim of deduction under Section 80IA(4) of the Act. 13. We have given our thoughtful consideration to the reasons given by the AO and LD.CIT(A) to reject deduction under Section 80IA(4) of the Act, towards profits derived from development of infrastructure project in light of arguments advanced by the learned counsel for the assessee and we ourselves do not subscribe to the reasons given by the LD.CIT(A) for the simple reason that, there is no dispute with regard to the project developed by the assessee, which is an infrastructure facility, as defined under Section 80IA(4) of the Act. On perusal of the documents submitted by the assessee, it is seen that the project Pranahitha Chevella Lift Irrigation System, Link-4, Package No.10, on which the appellant has claimed deduction under Section 80 IA(4) of the Act, has been awarded by the Government of Andhra Pradesh, Irrigation and C.A.D Department to M/s.HCC-MEIL-BHEL(JV) in terms of Agreement dated 02-12-2008. As per the agreement between the JV and Government of Andhra Pradesh, the civil work is to be carried out by M/....
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....uge infrastructure facility, within a short time. Therefore, considering the nature and size of the infrastructure facility, the developer i.e., Government of Andhra Pradesh, Irrigation and C.A.D. Department itself has provided for sub-contracting up to 50% of the work to the other eligible contractors upon satisfying the eligibility criteria and having required experience and strength to carry out the development work, which is provided in Clause 43 of the Agreement between the JV and the Government of Andhra Pradesh. Further, M/s.HCC-MEIL-BHEL(JV) has sub-contracted the entire civil work to the appellant company, after considering the experience and strength of the appellant and also after obtaining necessary permission from the authorities, as required under the BID document. Since the condition of sub-contracting portion of work to other contractor is ingrained in the agreement between the JV and Government of Andhra Pradesh itself, in our considered view, the agreement between the appellant company and M/s.HCC for developing the project (civil works) is akin to agreement with the Central Government or a State Government or any local authority or any other statutory body. In ou....
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....ion of facilities, project design associated risks, defect liability risk of 24 months after project completion, inherent risk of delayed payment, arbitration and litigation, and development work to be completed as per the agreement within time and as such, the assessee was faced with the risk of incurring heavy expenses of correction or redoing the work. Therefore, going by the nature of work and the work executed by the assessee, it is not less than to any developer, who develops a big infrastructure project like irrigation projects. Therefore, having noticed that the assessee has carried out development of infrastructure project, as defined under Section 80IA(4), upon satisfying the conditions of the BID document, in our considered view, the AO ought not to have rejected the claim of the appellant merely for the reason that the appellant has not entered into any direct agreement with the Central Government or a State Government or any local authority or any other statutory body. In our considered view, if you go by the provisions to Section 80IA(4) of the Act, it even allows deduction under Section 80IA(4) of the Act, to a successor entity, in case of transfer of project to othe....
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....idered view, the appellant is entitled for deduction under Section 80IA(4) of the Act. 17. The appellant has relied upon the decision of Hon'ble Madras High Court in the case of CIT Vs. Chettinad Lignite Transport Services (P.) Ltd (supra), wherein the Hon'ble High Court has considered an identical issue of deduction under Section 80IA(4) of the Act, in light of claim made by successor entity upon transfer of enterprise to other authority for operation and maintenance of infrastructure facility, and after considering the relevant facts and also provisions of Section 80IA(4) of the Act, held that even the sub-contractor is eligible for deduction as per the proviso of Section 80IA(4) of the Act, and there is no requirement of direct agreement between the specified authority and the transfer enterprise. The relevant findings of the Hon'ble High Court of Madras are as under : "8. From a reading of the aforesaid Provisos to Section 80IA (4), it is clear that the Legislature intended to extend the said bene fit under section 80IA of the Act to an enterprise involved in (i) developing or; (ii) operating and maintaining Or; (iii) developing, operating and maintainin....
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....by the Railways to operate and maintain the said railway sidings at Vadalur and Uthangal Mangalam Railway Stations. The findings of fact with regard to the said position recorded by the learned Tribunal are, therefore, unassailable and that clearly attracted the first Proviso to Section 80IA(4) of the Act. [Emphasis supplied]." 18. The assessee had also relied upon the decision of ITAT Hyderabad Bench, in the case of ACIT Vs. Megha Engineering & Infrastructure Ltd., in ITA No.1499/Hyd/2019 dated 25.09.2024, wherein the Coordinate Bench of the Tribunal has considered the deduction claimed under Section 80IA(4) of the Act, by a constituent partner of JV, in light of agreement between the JV and specified authority, and after considering the relevant provisions held that partner of JV is also eligible for deduction, if such deduction is not claimed by the JV. The Co-ordinate Bench of the Tribunal further held that in case of agreement with the specified authority, if the JV is entered into agreement with the specified authority, it is as good as the constituent partner is entered into agreement with the specified authority and further held that it satisfies the conditions provided ....
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....partners of JV / Consortia has signed the agreement with the Central or State Government or local government for development of infrastructure project. Therefore, in our considered view, once the appellant, being a constituent partner JV / Consortia has entered into an agreement with relevant authorities, then it is as good as the appellant has entered into agreement in its individual capacity for development of infrastructure project. This fact has been further strengthened by the relevant JV / Consortium agreement between the JV partners, wherein it has been clearly specified that this JV / Consortia has been constituted for the purpose of preparing or submitting qualification document and joint bid for the project. The said agreement further states that in the event of the contract being awarded to the JV / Consortium, being the members of the said JV / Consortium, the development works as contemplated by the above contract shall be executed as per the development and scope of works, but for no other purposes. We further noted that the JV / Consortia agreement between members clearly specify the scope of undertaking, its exclusivity, role and responsibility of the JV partners an....
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....f project and maintaining of said project. 11. The appellant has relied upon the decision of Income Tax Appellate Tribunal, Hyderabad in assessee's own case for assessment years 2010-11 to 2015-16, in ITA No.607 to 601/Hyd/2016 dt.15.02.2019. We find that the co-ordinate bench of ITAT for earlier years has considered very similar issues and by following the decision of Income Tax Appellate Tribunal, Visakhapatnam in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra) has held that the assessee is entitled for deduction under section 80IA(4) of the Act on the profits earned from the execution of the projects awarded to JV / Consortium. The relevant findings of the Tribunal are as under. "9.2 With regard to other issue, i.e. contracts awarded to JVs and whether the assessee can claim the same as a constituent of the above JVs, the coordinate bench of ITAT, Visakhapatnam in the case of Transstory (India) Ltd. (supra) held that the constituents of JVs are eligible to claim deduction u/s 80IA. For the sake of clarity, we reproduce the findings of the Bench in the said case, as under: "Undisputedly the joint venture or the consortium was formed only to obt....
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....t venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was Megha Engg. & Infrastructure Ltd. awarded by the Andhra Pradesh Government and the KSHIP, a body of the State Government of Karnataka to the JV and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40 per cent works were executed by the assessee and in case of consortium, the 100 per cent work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions under s. 80 -IA(4). Therefore, in all practical purposes, the contract was awarded to the const....
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....vt. Ltd (supra), We have gone through the decision of ITAT, Hyderabad Bench in the above case, and we find that, the Tribunal has gone on sole premise of interpretation of statutory provisions in light of the decision of Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) and held that in case of a person claiming deduction under the provisions of Section 80IA(4), the onus is on the assessee to prove that the assessee has fulfilled all the parameters laid down by the statute for claiming deduction. Since the appellant has not entered into agreement with these Government / statutory authorities, there is a violation as laid down by the statute and the assessee is not entitled to claim deduction. With due respect, we are unable to follow the decision relied upon by the ld.DR for the simple reason that, in the above case, the Tribunal has not discussed whether the appellant is otherwise eligible for deduction under Section 80IA(4) of the Act or not. Secondly, while deciding the issue, the Tribunal has not considered the decision of co-ordinate bench in appellant's own case for earlier years and other decisions ....