TaxTMI 
TaxTMI 
2024 (9) TMI 1951
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...., engaged in the business of development of infrastructure facilities namely development of Roads, Bridges, Irrigation canals, etc. For the Asst. Year 2018-19 assessee filed its return of income on 30-09-2018 declaring total income of Rs. 11,14,19,610/- after claiming the deduction u/s 80IA(4) of the Act for an amount of Rs. 153,66,29,467/-. The infrastructure developments carried out by the assessee from 8 Road projects, 4 Canal irrigation projects and 1 water supply project were commenced from the earlier assessment years itself. The past history in respect of claim made by the assessee u/s. 80IA(4) of the Act and decision of various authorities are as follows: Assessment Year Assessing Officer CIT(A) ITAT Final Remark A. Y. 2016-17 Allowed by Assessing Officer Not Applicable Not Applicable Allowed by Assessing Officer A.Y. 2015-16 Not claimed on account of carrying forward cumulative losses u/s 80IA(4) Not Applicable A. Y. 2014-15 Not claimed on account of carrying forward cumulative losses u/s 80IA(4) Not Applicable A.Y. 2013-14 Disallowed Fully Allowed Dismissed on account of low tax effect Allowed by CIT(A) A.Y....
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....on u/s 80IA(4). Considering detailed finding made in preceding paras in appellant's own case, it is held that appellant company is eligible and entitled for claim of deduction u/s. 80IA(4) of the Act. The AO is directed to allow the claim u/s 80IA(4) as made in the return of income for the year under appeal. The disallowance made by AO for Rs. 1,53,66,29,467/- is deleted subject to observation made herein below. The related grounds of appeal are allowed." 4. Aggrieved against the appellate order Revenue is in appeal before us raising the following Grounds of Appeal: "1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the deduction us 80IA(4) of the Act for an amount of Rs. 153,66,29,467/- which violates the explanation below section (13) to Section 80IA as the assessee has worked as a contractor not developer. 1.1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that after the amended provisions of the section 80-IA, a person who enters into a contract will not be eligible for the tax benefit w/s 80-IA of the Act 1.2. On the facts ....
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....gment dated 19-12-2023 and submitted copy of the judgment. 6. We have carefully considered the submissions of rival parties and perused the Judgement of the High of Gujarat in assessee's own case for the Asst. year 2008-09, after considering the concurrent findings of the facts, dismissed the Revenue's appeal that no Question of Law, much less any Substantial Question of Law arises from the impugned orders of the Tribunal by observing as follows: "3.5. The Revenue being aggrieved by the order of the CIT (Appeal) preferred the appeal before the Tribunal contending that the income derived from the use of infrastructure facility developed by the assessee is only eligible for reduction under Section 80IA(4) of the Act but in the facts of the case, the contract work was awarded to the assessee through the biding process where the lowest contract value was quoted by the assessee after considering the element of profit. It was therefore contended that the assessee was acting as a works contractor and income was derived by way of developing the infrastructure facility and not from the use of development facility. 3.6. It was further contended before the Tribuna....
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.... 11.17 The purpose for which the provisions of section 80IA(4) were brought under the statute were achieved in the given facts and circumstances. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the tender document as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the employer and indemnify at the same time for any losses/ damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose, the MPRDCL retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of a defect, if any. Thus, it cannot be said that the assessee had not taken any risk in the given facts and circumstances especially when the assessee has undertaken the project as a whole for the development of the road right from the beginning till the end. Thus, on perusal of the terms and conditions in the tender do....
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....anation attached below section 80-IA(13) of the Act as reproduced below: "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)." 3.10. Thus there are concurrent findings of fact arrived at by the CIT (Appeal) as well as the Tribunal that the assessee has undertaken the development of infrastructure facility and is eligible to claim the deduction under Section 80IA(4) of the Act. 3.11. Section 80IA of the Act provides for deduction from the gross total income of the assessee which includes any profit and gains derived by an undertaking or an enterprise from any business referred to in Subsection 4 of the Act as eligible business by providing deduction of an amount equal to the 100% of the profit and gains derived from such business for 10 consecutive assessment years. Subsection 4 of Section 80IA of the Act reads as under :- "(4) This section applies to- ....
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....n the business of "(1) developing, or (2) operating and maintaining or (3) developing operating and maintaining" any infrastructure facilities which fulfills the condition prescribed therein. In the facts of the case as held by the CIT (Appeals) as well as the Tribunal on giving a factual finding to the effect that the assessee has undertaken a work of development of infrastructure facilities by execution of the contract awarded to it as per the terms of the contract as enumerated by the CIT (Appeal) as under :- "To examine whether the project assigned to this Appellant was in the capacity of a "Contractor" or the Appellant has executed the work as a "Developer" with respect to the ROAD PROJECTS, I have perused the terms of some of the agreements. My attention has been drawn on agreements with "Madhya Pradesh Road Development Corporation Limited", from which the Appellant have been awarded two Road Projects, wherein the scope of the work has been defined as follows :- Sr. No. Name of Road Approx. Length in kms. Scope of Bid/Development work 1 Package-1: Chindwara- Amarwar- Nrasinghpur" Road Project: SH 47 103.3 Rehabilitation, Widening, Upgradation ....
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....ct, 1961- Deductions-Profit and gains from infrastructure undertakings (illustrations)-Assessment year 2012-13-Assessee company, engaged in road infrastructure development and maintenance business, had entered into agreements with a highway department and claimed deductions under section 80-IA - Assessing Officer Initially allowed deduction However, Commissioner invoked revisional jurisdiction under section 263, asserting that assessee was mere a work contractor and Assessing Officer had not correctly applied law on issue of deduction under section 80IAwhich made assessment order erroneous and prejudicial to interest of revenue. On appeal, Tribunal made a thorough examination of factual contentions and noted that assessee had not only employed plant and machinery and other assets along with staff but also it had been bearing all risks involved in said infrastructure projects and therefore assessee could not be treated a mere work contractors-it accordingly, quashed order passed under section 263. On appeal, High Court noted that revenue had not disputed that no disallowance was made in previous two assessment years as well as subsequent two assessment years, and further, in absence....
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....essee claims that it had incurred such expenditure to avoid any delay in the project. The assessee has claimed that if in any scenario, Assessee company is unable to get appointment of commencement of work and for any reason such work is not allotted to it, it has to bear such expenditure as it cannot get reimbursement of expenditures from NHAI. On this basis, the assessee company has claimed such expenditure as revenue expenditure. However, the ld AO has not treated the expenditure as non-genuine, accepting the expenses relating to the business only, but made disallowance mainly on the ground that the expenditure is allowable in the year in which income was offered to tax. Thereby the Ld AO disallowed the claim of loss of Rs. 37,28,56,145/- and added to the total income of the assessee. 9. On appeal before CIT(A), the Ld. CIT(A) deleted the addition by observing as follows: " ..... During the course of Assessment proceedings as well as appellate proceedings, appellant has explained the entire modus operandi of obtaining various Government contracts. In the present case, appellant has obtained the Letter of Award on 29th March, 2017, appointed date of the project was 28....
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....nded period provided in accordance with this Agreement, all rights, privileges, claims and entitlements of the Concessionaire under or arising out of this Agreement shall be deemed to have been waived by, and to have ceased with the concurrence of the Concessionaire, and the Concession Agreement shall be deemed to have been terminated by mutual agreement of the Parties. Provided, however, that in the event the non-occurrence of the Appointed Date is for reasons attributable to the Concessionaire, the Performance Security and the Additional Performance Security, if of the Concessionaire shall be encashed and appropriated by the Authority as Damages thereof. The agreement executed clearly prescribes that once Assessee has received Letter of Award it does not mean that date of appointment would be given to the Assessee. There are various conditions for termination of the contract and according to the same, any right or claim accruing to appellant would be waived. This also support the contention of appellant that expenditure claimed by it is a revenue expenditure. As per provision 37 of the Act any expenditure incurred for the purpose of business is allowable expenditure if i....
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....ore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. 33. For the aforesaid reasons, we dismiss the civil appeals with no order as to costs, but with the hope that the Revenue implements its litigation policy a little more practically and a little more seriously." 12.5 Considering the facts elaborately discussed herein above, the addition made by AO for Rs. 37,28,56,145/- is deleted. This ground of appeal is allowed." 10. Ld. CIT-DR appearing for the Revenue submitted that the appointed date of Project by the Local Authority namely 28.09.2018 which falls under the Asst. Year 2019-20. When no income is shown in the present asst. year, the question of expenses not allowable during the Asst. Year 2018-19. Further the ratio of Supreme Court Judgment in the case of Excel Industries will not be applicable to the present case, since deemed income was the issue before the Hon'ble Supreme Court. Therefore ....
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....require any interference. Thus the Ground No.3 raised by the Revenue is devoid of merits and hereby dismissed. 13. Ground No. 4, Ld. CIT(A) erred in deleting the disallowance of Rs. 50,28,970/- made u/s. 35AD of the Act, with respect to Gorakhpur Road Project. Brief facts is the Assessee claimed deduction of Rs. 50,28,970/- u/s. 35AD[1] of the Act. The Ld AO noted that the contract was not awarded to the assessee company but the same was awarded to Monte Carlo Ltd - Backbone Enterprises Ltd Gorakhpur JV [MCL-BEL Gorakhpur JV] which is a separate entity, hence the conditions laid down u/s. 35AD[2] is not complied with. In reply the assessee submitted that it is a common practice in Government contracts for various reasons including leveraging local expertise, benefiting from the partner's experience, pooling resources, increasing capacity to meet qualification criteria, sharing risks and costs, assessing new knowledge and expertise, technology and finance. In this case a Joint venture [JV] was formed between the assessee Monte Carlo Ltd [MCL] and Backbone Enterprises Limited [BEL] and subsequently a Supplementary Agreement was made which allowed the assessee to carry out the ....
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....real work was executed by the appellant and no income has been offered to tax by such JV nor any deduction under section 35AD has been claimed by such JV. While adjudicating the issue reliance was placed on relevant judicial pronouncements discussed therein, which are equally applicable in present case. Considering all these facts and relying upon the ratio lay down by decisions referred supra, it is held that appellant is entitled for deduction u/s.35AD for above referred project more particularly when corresponding receipt of the project is offered to tax by the appellant and not disputed by the AO. Thus the audition made by AO for Rs.50,28,970/ is deleted." 14. Ld Counsels appearing for the Assessee submitted for contract of Gorakhpur Road Project a Joint Venture was formed only for bidding tender in the name of MCL-BEL Gorakhpur JV, namely the assessee company Monte Carlo Ltd [MCL] and Backbone Enterprises Limited [BEL] as a Joint Venture. On successful bidding, a Supplementary Agreement was entered which allowed the assessee to carry out the entire project. Further the JV has neither done any work nor claimed any deduction u/s. 35AD of the Act. Ld Counsel relied upon the fo....
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....uted by the joint-venture or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party would be responsible for the provisions of agreement without limitation on resources required for the purpose of fulfilment of the scope and also solely responsible for the performance of its scope of work and would bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party would assign its rights and obligations to any other party without written consent of other party. After perusal of joint venture agreement and the consortium agreement, it was evidently clear that the joint venture and the consortium were formed only with an object to bid contract. Once the project or contract was awarded to the joint venture or the consortium, it was to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. For all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture was an independent identity and had filed its return of income and was also assessed to tax bu....
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....ecute the work awarded to it. In a joint 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. Whatever bills were raised by the assessee for the work executed on J.V. 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 had not executed any contract itself. They had also not offered any income out of the work executed by its constituents, nor did they claim any deductions under section 80-IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of section 80-IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, the assessee was entitled for the deductions under section 8....
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....l is treated as ALLOWED." 15.3 Hon'ble Supreme Court in the case of PCIT vs. Backbone Projects Ltd. dismissed the SLP filed by Revenue observing as under: "Section 4 of the Income-tax Act, 1961 - Association of person - Chargeable as (Joint venture) - Assessment years 2008-09 and 2009-10 - Assessee was a joint venture constituted through a joint venture agreement, holding a separate permanent account number and having status of AOP - AO finalised assessment in case of assessee under section 143(3) treating assessee as an AOP and making addition by adopting net profit ratio at 11.59 per cent of gross receipt - Commissioner (Appeals) deleted addition made by Assessing Officer - Tribunal concurred with findings recorded by Commissioner (Appeals) and found that AOP was formed only to secure work and after that there was no involvement of such AOP in execution of work as entire work was executed by members of joint venture as agreed between them - Commissioner (Appeals) as well as Tribunal found that members of joint venture had duly shown income in their returns of income and paid tax thereon - Joint venture and members of joint venture were being taxed at maximum margi....
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.... claim does not require any interference. Thus, we do not find any merits in the ground raised by the Revenue and ground no. 5 raised by the Revenue is hereby dismissed. 17. In the result, the appeal of Revenue in ITA No. 598/Ahd/2019 is hereby dismissed. ITA No. 599/Ahd/2023 A.Y. 2020-21 18. Grounds of appeal raised by Revenue are as under :- "1. On the facts and in the circumstances of the case and in law the ld CIT(A) has erred in allowing the deduction us 80IA(4) of the Act for on amount of Rs. 9,50,68,235/- which violates the explanation below section (13) to Section 80IA as the assessee has worked as a contractor not developer. 1.1. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in not appreciating the fact that after the amended provisions of the section 80-IA, a person who enters into a contract will not be eligible for the tax benefit u/s 80IAof the Act 1.2. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in not appreciating the fact that the company is not in the business of development of the infrastructure project but is merely executing the various well- def....