Income Tax Appellate Tribunal - Agra
Pnc Construction Co. Ltd., Agra vs Assessee on 11 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No.145/Agr/2012
Assessment Year: 2005-06
M/s. PNC Construction Co. Ltd., vs. Dy. Commissioner of Income
D-51, Kamla Nagar, Tax - 4(1), Agra.
Agra.
(PAN: AACCP 0377 Q).
(Appellant) (Respondent)
Appellant by : Shri Deependra Mohan, C.A.
Respondent by : Shri Waseem Arshad, Sr. D.R.
Date of Hearing : 11.02.2013
Date of Pronouncement of order : 15.02.2013
ORDER
PER A.L. GEHLOT, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order dated 12.01.2012 passed by the ld. CIT(A)-II, Agra for the Assessment Year 2005-06.
2. The assessee has raised the following grounds of appeal :-
"1. That the Ld. CIT (Appeal) has erred in passing the ex-parte order without affording adequate opportunity to the appellant, as due compliance was made.2 ITA No.145/Agr/2012
A.Y. 2005-06
2. That the learned assessing authorities below erred in law and on facts in making a disallowance of Rs.5,00,000/- out of sign board expenses of Rs.61,64,601/-.
3. That the learned assessing authorities below erred in law and on facts in making a disallowance of Rs.5,00,000/- out of temporary building structure claimed at Rs.1,02,11,975/-.
4. That the learned assessing authorities below erred in law and on facts in making a disallowance of Rs.10,00,000/- our of Repair & Machinery expenses claimed at Rs.1,89,46,155/-.
5. That the learned CIT(Appeals) has erred in law and on facts in enhancing the assessment by disallowing deduction claimed u/s 80IA(4) for an amount of Rs.1,60,49,232/- which was allowed by the learned Assessing Officer during the course of assessment proceedings.
6. That the Ld. C.I.T. (Appeal) has erred in law and on facts in not bringing any adverse material on record to support that the assessee was not eligible for deduction u/s 80I A(4) nor the appellant has been afforded an opportunity to examine any such adverse material.
7. That the order passed by the authorities below is bad in law and against the facts of the case.
8. That any other relief or reliefs deemed fit in the facts and circumstance of the case may be granted.
The appellant craves leave to add, alter or vary the grounds of appeal before or at the time of hearing."
3. The assessee has also raised an additional ground which reads as under :-
"That the learned authorities below erred in law and on facts in making an ad-hoc disallowance of Rs.5,00,000/- out of Paint Expenses claimed at Rs.2,16,78,425/-."3 ITA No.145/Agr/2012
A.Y. 2005-06
4. After hearing the ld. Representatives of the parties, we notice that the issue relating to additional ground arises out of order of CIT(A). However, inadvertently this issue has been left to incorporate in the grounds of appeal in Form No.36 while filing the appeal before the I.T.A.T. The ld. Departmental Representative did not object for admission of the additional ground of appeal. In the interest of justice and for the reasons stated above, we admit the additional ground.
5. The assessee is a Limited Company engaged in the business of infra- structure development contracts. Considering the nature of the grounds of appeal and for the sake of convenience, we would like to first take up grounds no.5 & 6 of the appeal.
6. Ground nos.5 & 6 pertain to disallowance claimed under section 80IA(4) of the Income Tax Act, 1961 ('the Act' hereinafter) amounting to Rs.1,60,49,232/-.
7. The brief facts of the issue are that during the year the assessee claimed deduction under section 80IA(4) of the Act. The assessee claimed such deduction under section 80IA(4) of the Act on two projects of which details are noted by the A.O. in his order which are as under :-
4 ITA No.145/Agr/2012
A.Y. 2005-06 Panipat Jalandhar Project 2,41,48,668 Sagar Beena Project (-) 80,99,435 1,60,49,232
8. The A.O. asked the assessee to justify the claim in respect of two projects i.e. Panipat Jalandhar Project and Sagar Beena Project. After considering the assessee's submission, the A.O. allowed the claim of the assessee. The A.O. accepted the assessee's claim after considering the following submission made by the assessee before him.
"9. The assessee made the following submissions in this regard.
"The assessee company is incorporated with the Registrar of Companies in India. The assessee company, which is a limited company registered with the Registrar of Companies in India has entered into an agreement with the National Highway Authority of India by means of contract agreement entered into with agreement No.NHAI/GM/CM/STMC/2003-2004. The agreement was signed by Deputy General Manager on behalf of National Highway Authority of India (Ministry of Road Transport and Highways) -1 vide letter dated 9.6.2003 bearing No.NHAI/CM/DGM/TMC-IV/2003/1996. The contents of work include toll operations, operating and maintaining the road.
The above nature of work is covered by provisions of section 80IA(4)(i) which reads as under :-
"Any enterprise carrying on the business (of (i) developing or
(ii) operating and maintaining or (iii) operating and maintaining any infrastructure facility which fulfills all the following conditions."
Since the assessee company's case is covered by the section as aforesaid that is 'Operating and Maintaining' the condition as laid down in the aforesaid section is fulfilled.
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2. Now coming to the conditions annexed with the aforesaid section are:
(a) It is owned by a company Since the enterprise carrying on registered in India or by a the business is registered in consortium of such India the condition is laid down companies in (a) is fulfilled
(b) It has entered into an The assessee company, which is agreement with the Central a limited company registered Government or a Sate with the Registrar of Government or a local Companies in India has entered authority or any other into an agreement with the statutory body for (i) National Highway Authority of developing or (ii) operating India by mans of contract and maintaining or (iii) agreement entered into with developing, operating and agreement No. maintaining a new NHAI/GM/CM/STMC/2003-
infrastructure facility; 2004. The agreement was signed by Deputy General Manager on behalf of National Highway Authority of India (Ministry of Road Transport and Highways) -1 vide letter dated 9.6.2003 bearing No. NHAI/CM/DGM/TMC-
IV/2003/1996. The contents of
work include toll operations,
operating and maintaining the
road. Thus the condition as
laid down in section
80IA(4)(i)(b) is also fulfilled.
(c) It has started or starts It is to submit that the assessee
operating and maintaining company is engaged in
the infrastructure facility on operating and maintaining
or after 1st day of April, infrastructure facility as per
1995; agreement entered into with
Provided that where an NHAI which is statutory body
infrastructure facility is of General Government for
transferred on or after the developing, operating and
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1st day of April, 1999 by an maintaining a new
enterprise which developed infrastructure facility, the
such infrastructure facility assessee company fulfills the
(hereinafter referred to in condition as laid down under
this section as the section 80IA(4)(i)(c).
transferor enterprise) to
another enterprise
(hereinafter 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. The assessee company has been
Explanation - For the sanctioned a tender for the
purpose of this clause, improvement and maintenance
"infrastructure facility" a of Panipat-Jalandhar Section
means - NH-1 from Km. 96 to 372.800
(a) a road including including toll operation. A
toll road, a bridge contract agreement was entered
or a rail system; into between NHAI & assessee
(b) a highway project company M/s PNC
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including housing Construction Co. Ltd. vide
or other activities agreement No.
being an integral NHAI/GM/CM/STMC/2003/04
part of the highway the date of agreement was
project; 13.06.2003.
It is also submitted that the control and management of the contract undertaking by the assessee company is enjoyed by the assessee company exclusively and no outside agency is involved in it.
The operation and maintenance activities are carried out by the assessee company and none of the agency is allowed to make any clam about the encroachment of the road and its sites.
Thus the assessee's company has fulfilled the requirements as contained in the provisions of section 80IA(4)(i)(a)(b) & (c) read with explanation attached thereto, it is eligible for deduction u/s 80IA of the I.T. Act."
9. The assessee preferred appeal before the CIT(A) against the adhoc additions made by the A.O. in respect of disallowance of various expenses. The CIT(A) withdrawn the claim of the assessee under section 80IA(4) of the Act as under:-
(CIT(A) page nos.11 & 12) "In the light of these provisions, it is to be seen as to whether the appellant is eligible for deduction u/s. 80IA(4). As regards the Panipat - Jalandhar project, as per the agreement, it was a contract for short-term improvement and routine maintenance of Panipat - Jalandhar section NH-1 from Km. 96 to Km. 372. So, it cannot be said that the assessee was (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining the Panipat - Jalandhar section of NH-1. It was a contract only for short-tem improvement and routine maintenance. It cannot be said that the assessee was developing or operating and maintaining or developing, operating and maintaining the highway. The assessee did not build or develop the highway, it was already existing. The 8 ITA No.145/Agr/2012 A.Y. 2005-06 assessee only did routine maintenance but did not operate it. Thus, the conditions as stipulated in section 80IA(4) are not satisfied in case of Panipat - Jalandhar project. As regards Sagar - Beena project nothing is forthcoming form the assessment order as to which kind of project it was and as to how did it qualify for deduction u/s. 80IA(4). Even during the appellate proceedings, inspite of having been given ample opportunities nothing has been stated by the appellant as to how it was justified in claiming the deduction u/s 80IA(4) relating to profits derived from this project. Apart from pre-requisite as mentioned in section 80IA(4)(i)(a) the appellant has also not met the condition as mentioned 80IA(4)(b) as there is nothing to suggest on record that the assessee had entered into any agreement with the Central Government or a State Government or a local authority or any other statutory body. Because, as per the details available on record, the assessee had only entered into agreement with M/s. Nagarjun Construction Co. Ltd., an entity which is not mentioned in section 80IA(4)(b). Agreement entered into by the appellant with M/s. Nagarjun Construction Co. Ltd. was not filed by the appellant inspite of having been specifically asked to do so. In view of the foregoing, I am of the opinion that the A.O. was no right in allowing the deduction u/s. 80IA(4) of Rs.1,60,49,233/-. Accordingly, the A.O. is directed to enhance the assessed income of the assessee by Rs.1,60,49,233/-. This is being done by virtue of powers vested in the undersigned u/s.251 of the Act."
10. The ld. Authorised Representative submitted that the A.O. allowed deduction under section 80IA(4) of the Act after examining in Department. The A.O. considered the relevant provisions and agreements. The CIT(A) withdrew the deduction without pointing out any error in the order of the A.O. The ld. Authorised Representative referred page nos.55, 18-23, 56, 58, 97 & 98 of the Paper Book and submitted these documents before the A.O. The A.O. has examined these documents including the contract agreements, details of work carried out by the assessee and details of expenditures. The ld. Authorised 9 ITA No.145/Agr/2012 A.Y. 2005-06 Representative submitted that in subsequent A.Y. 2006-07 the A.O. has allowed claim under section 80IA(4) of the Act and against that order of the A.O. neither appeal nor any other proceedings are pending. The ld. Authorised Representative submitted that the assessee satisfied the condition of sub-clause (a) of clause(i) of sub-section(4) of section 80IA of the Act. The ld. Authorised Representative with reference to relevant section 80IA(4)(i)(a) submitted that there is no dispute regarding the fact that M/s. PNC Construction Co. Ltd. i.e. the assessee is a company registered in India. The assessee was carrying on development/operation and maintenance of infrastructure. The ld. Authorised Representative in support of his contention relied upon an order of I.T.A.T. Mumbai Bench in the case of Patel Engineering Limited vs. Dy. CIT, 94 ITD 411 (Mumb.)
11. The ld. Authorised Representative referring the Assessment Order page nos. 4 & 6 submitted that Panipat Jalandhar project agreements between M/s. NHAI and M/s. PNC Construction Co. Ltd. was for operating and maintaining the toll road. He has also referred page nos.11, 12, 15, 18, 21, 24, 25, 41, 50, 54 & 55 of the Paper Book where details of equipment and personnel required for the work carried out by the assessee company have been given. The ld. Authorised Representative submitted that these documents are in support of the fact that the work carried out by the assessee in respect of Panipat Jalandhar Project was a contract of maintenance and operation.
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12. The ld. Authorised Representative submitted that the three conditions i.e. development, operation and maintenance were not intended to be cumulative in nature. Therefore, if the assessee carried out any one of the activity, the assessee is eligible to deduction under section 80IA(4) of the Act. The ld. Authorised Representative in support of his contention relied upon a judgement of Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries, 322 ITR 323 (Bomb.).
13. In respect of Sagar Beena Project, the ld. Authorised Representative submitted that it is an infrastructure project awarded by the Government of Madhya Pradesh entered between NCC-PNC (JV). The ld. Authorised Representative submitted that as per terms of tender, only consortiums can enter into contract, therefore, a joint venture was created between PNC Construction Co. Ltd. (assessee) and Nagarjuna Construction Company (NCC) and, therefore, a supplementary agreement was entered through which entire work was carried out by PNC Construction Company, the assessee. The ld. Authorised Representative referred various pages of Paper Book i.e. 97, 98, 61 & 100, page no.6 of Assessment Order and submitted that M/s. PNC Construction Co. Ltd., the assessee, was solely responsible for execution of the work and liable to M.P. Government. The ld. Authorised Representative submitted that in such 11 ITA No.145/Agr/2012 A.Y. 2005-06 circumstances, claim under section 80IA(4) is allowable. The ld. Authorised Representative in support of his contention relied upon following decisions:-
i) ACIT vs. M/s. JSR Constructions (P) Ltd., ITA No.898/Bang/2009 order dated 29.03.2011.
ii) DCIT vs. M/s. Transstroy (India) Limited, ITA No.325 & 326/Viz/2011 order dated 13.04.2012.
14. The ld. Authorised Representative submitted that after amendment in section 80IA(4) it is applicable even engaged in only developing infrastructure facility. The ld. Authorised Representative in support of his contention relied upon the judgement of Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Limited (supra) and an order of I.T.A.T. in the case of ACIT vs. Bharat Udyog Limited, 118 ITD 336 (Mum).
15. The ld. Departmental Representative, on the other hand, relied upon the order of CIT(A) and submitted that the condition specified in section 80IA(4)(i)(a) has not been satisfied in the case of the assessee. The ld. Departmental Representative submitted that contract work for Panipat Jalandhar Project was a contract only for routine maintenance. The assessee did not build up the Highway. The ld. Departmental Representative submitted that the agreement entered into by the assessee with Nagarjuna Construction Co. Ltd. was not filed by the assessee. 12 ITA No.145/Agr/2012
A.Y. 2005-06 The ld. Departmental Representative submitted that the decisions relied upon by the ld. Authorised Representative is distinguishable on facts. The ld. Departmental Representative submitted that the CIT(A) has rightly withdrawn the claim under section 80IA(4) of the Act as the A.O. was not correct in allowing the claim. The ld. Departmental Representative submitted that the CIT(A) decided the issue after giving proper opportunity of hearing to the assessee. The ld. Departmental Representative submitted that the order of the CIT(A) may be confirmed.
16. We have heard the ld. Representatives of the parties, perused records and gone through the decisions cited. The issue under consideration relates to section 80IA(4) of the Act. The relevant provisions, Circulars, judgements are as under:-
Relevant provisions 80IA "(4) This section applies to--
(i )any enterprise carrying on the business of (i ) developing (ii) maintaining and operating or (iii) developing, maintaining and operating 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;
(b)it has entered into an agreement with the Central Government or State Government or a local authority or any other statutory body for (i) developing (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement;13 ITA No.145/Agr/2012
A.Y. 2005-06 (c )it has started or starts operating and maintaining the infrastructure facility on or after 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 (hereafter 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.
Explanation.--For the purposes of this clause, 'infrastructure facility' means,--
(a )a road, bridge, airport, port, inland waterways and inland port, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette;
(b)a highway project including housing or other activities being an integral part of the highway project; and (c )a water supply project, irrigation project, sanitation and sewerage system."
Relevant Circulars That the scope and effect of the amendment, which brought about the introduction of sub-section (4A) has been explained in the Department's Circular No.717 dated 14th August, 1995 as under:-
"Finance Act, 1995 34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement is infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-14 ITA No.145/Agr/2012
A.Y. 2005-06 operate-transfer) concepts have been utilised for developing new infrastructure.
Finance Act, 1995 34.3 Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, a ten-year concession including a five-year tax holiday has been allowed for any enterprise which develops, maintains and operates any new infrastructure facility such as roads, highways, expressways, bridges, airports, ports and rail systems or any other public facility of similar nature as may be notified by the Board on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise has to enter into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The enterprise has to be owned by a company registered in India or a consortium of such companies. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them."
Some relevant judgments are as under:-
Commissioner of Income-tax, Central-II v. ABG Heavy Industries Ltd322 ITR 323 (Bomb) The brief facts of the case are that the assessee was awarded a contract for leasing of container handling cranes at the Jawaharlal Nehru Port Trust ('JNPT') in terms of the policy of the Government of India to encourage private sector participation in the development of infrastructure. Under the contract, the assessee was responsible for supplying installation, testing, commissioning and maintenance of the cranes. In terms of the agreement, the JNPT agreed to pay certain lease charges over a period of ten years. The contract envisaged two options. Under the first option, operation and maintenance was to be carried out by the assessee and under the second option, only maintenance was to be carried out by it. In the event, the assessee was not to carry out operation of the cranes, the lease charges were to be reduced by certain amount. The assessee assumed the responsibility of making the equipments available for operation for a minimum number of days as stipulated in the contract and became liable to pay liquidated damages for non-availability of the equipments after their commissioning. After the expiry of the lease period of ten years, the assessee 15 ITA No.145/Agr/2012 A.Y. 2005-06 was liable to hand over the equipments to the JNPT free of cost. Under the contract, the assessee furnished an indemnity to the JNPT towards damages that might have been sustained by the equipments or to any property of the Port Trust or to the lives, persons or properties of others. The assessee claimed the benefit of deduction under section 80-IA. The Assessing Officer rejected the claim holding that the assessee was merely engaged in the business of supplying, installing, testing, commissioning and maintaining cranes at the Port and was not in the business of developing, maintaining and operating a Port and, consequently, it could not be held to be in the business of developing an infrastructural facility. On appeal, the Commissioner (Appeals) allowed the deduction under section 80-IA to the assessee. The Tribunal confirmed the order of the Commissioner (Appeals). On appeal to the High Court, the revenue contended that (i ) section 80-IA requires the assessee to develop, operate and maintain an infrastructural facility in order to qualify for a deduction and in the instant case the assessee was not a developer of the facility but had only supplied and installed the container handling cranes at the JNPT; (ii) the assessee was not operating the equipment and was, therefore, not eligible for a deduction under section 80- IA; and (iii) equipment which had been installed was not a structure for loading and unloading at a port. The Court held as under:-
"21. While dealing with this submission, we note that neither in the memo of appeal nor in the submissions before us has any effort been made to suggest on the part of the revenue that the circulars of the Board are not binding on the revenue. Nor for that matter was it the submission of the revenue that the circulars issued by the Board from time to time were in violation of or contrary to legal provisions. Plainly, right from 1996 CBDT was seized with the question, as to whether infrastructure facilities developed under a BOLT project would qualify for exemption under section 80-IA of the Act. The first circular in that regard that was issued on 23-1-1996 specifically dealt with whether section 80-IA(4A) of the Act would be applicable to a BOLT Scheme involving an infrastructure facility for the Indian Railways. The circular clarified that an infrastructure facility set up on a BOLT basis for Railways would qualify for a deduction. That was followed by the two circulars of the Board dated 23-6-2000 and 16-12-2005. The first of those circulars recognizes that structures for storage, loading and unloading etc., at a port built under a BOT and BOLT Scheme would qualify for a deduction. Now, there is no question of an enterprise operating a facility in a BOLT Scheme 16 ITA No.145/Agr/2012 A.Y. 2005-06 because such a Scheme contemplates that the enterprise would build, own, lease and eventually transfer the facility to the Authority for whom the facility is constructed. The subsequent circular dated 16-12- 2005 once again clarified the position of CBDT that structures which have been built inter alia under a BOLT Scheme up to assessment year 2001-02 would qualify for a deduction under section 80-IA of the Act. In fact from assessment year 2002-03, the process was further liberalized, consistent with the basic purpose and object of granting the concession. In this background, particularly in the context of the objective sought to be achieved and in the absence of any challenge on the part of the revenue on the applicability of the binding circulars of CBDT, we are of the view that the condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the Authorities at all material times, to cover within its purview the development of an infrastructure facility under a Scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of CBDT. The fact that in such a Scheme, an enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. The Court cannot be unmindful in the present case of the underlying objects and reasons for a grant of deduction to an enterprise engaged in the development of an infrastructure facility. The provision was intended to give an incentive to investment for infrastructural growth in the country. In Bajaj Tempo v. CIT [1992] 196 ITR 1881 the Supreme Court emphasized that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. In the present case, the administrative circulars issued by the CBDT proceeded on that basis by adopting a liberal view of the scope and ambit of the provisions of section 80-IA of the Act. Parliamentary intervention endorsed the administrative practice. A provision inserted by the Legislature to supply an obvious omission and to make a section workable has in certain circumstances been regarded as retrospective particularly when it was intended to remedy unintended consequences. Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 2 17 ITA No.145/Agr/2012 A.Y. 2005-06 (SC) and CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 3 (SC). The Tribunal having only followed these provisions, we do not find any just reason to interfere in our appellate jurisdiction.
22. Another submission which was urged on behalf of the revenue is that under clause (iii) of sub-section (4A) of section 80-IA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1-4-1995. The same requirement is embodied in sub-clause (c) of clause (i) of sub-section (4) of the amended provisions of section 80-IA. On this basis, it was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this judgment. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1-4-1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1-4-1995.
After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are : (i) Ownership of the enterprise by a Company registered in India or by a consortium; (ii) An agreement with the Central or State Government, local authority or statutory body; and (iii) The start of operation and maintenance of the infrastructure facility on or after 1-4-1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1-4-1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure 18 ITA No.145/Agr/2012 A.Y. 2005-06 facility should be after 1-4-1995. In the present case, the assessee clearly fulfilled this condition.
23. In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The subsequent amendment of section 80-IA(4A) of the Act to clarify that the provision would apply to an enterprise engaged in (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by the Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to section 80-IA(4) of the Act set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature"
Patel Engg. Ltd. vs. Deputy Commissioner of Income-tax, [2005] 94 ITD 411 (MUM.). The brief facts of this case were that during the relevant assessment year, the assessee was engaged in the business activity of construction of two projects, allotted by two State Governments. The assessee claimed that the above two projects of construction of specialised structures and tunnels were 'infrastructure projects' and it 'developed' the same and, therefore, it was entitled to deduction under section 80-IA(4). The Assessing Officer rejected the assessee's claim. On appeal, the Commissioner (Appeals) agreed with the Assessing Officer. The ITAT held as under:-
"44. We have considered the rival contentions as also the relevant material on record. From the perusal of record, we find that in the Srisailam project, the assessee-company has constructed an underground tunnel to provide water supply by connecting the river Krishna to the power house. The assessee has also constructed underground specialised structures such as surge chamber, draft tube tunnels, tail race tunnel which takes the water back to the river for use for irrigation, etc. Similarly, for Koyna project, the assessee constructed inlet tunnel for water supply up to the point of power house. The above construction work would, in our considered opinion, 19 ITA No.145/Agr/2012 A.Y. 2005-06 amount to development, as a new facility has been developed. In fact, we may note that the Revenue authorities too have not denied the factum of development having taken place; however, the contention of the Revenue has been that the developer is not the assessee but the Government of Maharashtra in respect of Koyna project and APSEB in respect of the Srisailam project, because, the investments have been made by them.
45. In the circumstances, as per the contentions raised before us orally as also in writing by the two rival representatives, the moot question that poses itself for our consideration is as to whether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant, and no less beneficial, to refer to the legislative history of section 80- IA. As we have noted earlier, the amendment in section 80-IA was brought about by Finance Act, 1995 w.e.f. 1st April, 1996. By virtue of this amendment, exemption under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Thus to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i ) to develop, (ii) to maintain, and (iii) to operate. After the modification effected by Finance Act, 1999, w.e.f. 1st April, 2000, deduction under section 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or ( ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Therefore, from assessment year 2000-01, deduction is available if the assessee carries on the business of any one of the abovementioned three types of activities, and accordingly also when the assessee is carrying on the activity of only developing. When an assessee is only developing an infrastructure facility/project and is not maintaining nor operating it, obviously, such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realise its cost? If the infrastructure facility is, just after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the Maharashtra Government or APSEB has paid for the development of infrastructure facility carried out by the assesee, it cannot be said that the assesee did not develop the infrastructure facility. If the 20 ITA No.145/Agr/2012 A.Y. 2005-06 interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IA(4).
46. We have noticed above that the amendment brought in by the Finance Act, 1999 was with the sole intention/purpose of providing deduction under section 80-IA to the person, who only develops or who only maintains and operates an infrastructure facility. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. When the Legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, has no other source of recoupment of his cost of development. Considered as such, we note that the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity that is activity eligible for deduction under section 80-IA inasmuch as mere "development" as such and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80-IA. In the case of such a construction activity, which does not involve the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only 'development') to recover his costs of construction of his own from the infrastructure project/facility itself does not arise, and so for the recoupment of the costs, the same have to be paid whether through running bills or otherwise; and considering the largeness/hugeness of the total financial investment involved, some advance if paid at some point of time, will not, in our view, change the basic nature/feature of the assessee's business activity. Therefore, merely because the present assessee was paid by the Government, for development work, it cannot be denied deduction under section 80-IA(4) of the Act. The illustration of the artist, given by the assessee's counsel during the course of his arguments, is aptly illustrative and befitting. If an artist 21 ITA No.145/Agr/2012 A.Y. 2005-06 is asked to paint a beautiful picture and for such painting, payment is made by another person, the creator of the painting will be the artist and not the person who paid for it. We have also noted that the national water policy document furnished by the assessee, on p. 225 of its paper book-1, indicates the purpose of private sector participation. It states that private sector participation may help in introducing innovative ideas, generating financial resources and introducing corporate management and improving service efficiency and accounta-bility to users. It is revealed from record and has also not been disputed by the Revenue that both the projects executed by the assessee were highly technical and specialised, as also extremely tricky and did involve huge risks as well. It is also revealed from record that for executing such projects, the assessee has deployed people, plant and machinery, technical expertise, know-how and the financial resources as has also been the specific contention of the learned Authorised Representative of assessee as noted by us above.
47. There has also been the contention of the Revenue that the assessee is a contractor, executing civil contract and so it cannot be the developer as such. However, we are unable to agree with this contention of the Revenue. A person, who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer". On the other hand, rather section 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. The assessee, presently under consideration before us, has developed infrastructure facility as per agreement with Maharashtra State Government/APSEB. Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will it debar the assessee from claiming deduction under section 80-IA(4). Discussed/considered as above, we hold that the assessee having carried out the work of 22 ITA No.145/Agr/2012 A.Y. 2005-06 constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80- IA(4).
48. Now we proceed to consider the second issue, which is whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? The learned CIT/Departmental Representative contended that the infrastructure facility should be owned by the company registered in India. Ground No. 1 of the Revenue's cross-objection is also to this effect. He contended that in this case, both the infrastructure facilities were not owned by the assessee-company, but by the Government of Maharashtra/APSEB; therefore, the assessee is not entitled to deduction under section 80-IA(4). The learned counsel for assessee, on the other hand, contended that the requirement is that the enterprise developing the infrastructure facility should be owned by an Indian company.
49. We have considered the rival contentions as also the relevant material on record. However, we find substance in the contentions of the learned Authorised Representative of assessee. In our considered opinion, it should hardly take any time for one to understand that the word 'it' in sub-clauses (a), (b ) and (c) of clause (i) of sub-section (4) of section 80-IA has been used to denote 'enterprise'. A plain reading of the said clause (i) makes it clear, without any ambiguity, that it is 'any enterprise' that should fulfil the condition of carrying on the particular type of business narrated/specified in the main part of clause (i); and so also it is 'any enterprise' that has to fulfil the other conditions specified further in sub-clauses (a), (b ) and (c) of clause
(i) of sub-section (4) of section 80-IA. The word 'it' in the said sub-
clauses (a), (b) and (c ) qualifies the word 'enterprise' used in the main part of clause (i) of sub-section (4).
50. Besides, if we were to compare sub-section (4A) of section 80-IA, which stands replaced by sub-section (4) of section 80-IA by the Finance Act, 1999, we find that in clauses (i), (ii) and (iii ) of the earlier sub-section (4A), the word "enterprise" was used, but in the 23 ITA No.145/Agr/2012 A.Y. 2005-06 replaced (new) sub-section (4) in the corresponding sub-clauses (a),
(b) and (c ) the word "enterprise" has been replaced by the word "it". Obvious as it is, reading in the above context, it is amply clear that in sub-section (4), as amended by the Finance Act, 1999, the word "it" needs appropriately be interpreted to mean "enterprise". Moreover, if the interpretation canvassed by the Assessing Officer, that the word "it" represents the 'infrastructure facility', is accepted, it will lead to an absurd result, because, sub-clause (b) of clause (i) of sub-section (4) provides that : "it has entered into and agreement with Central Government......." and thus 'it' as used in sub-clause (b) has to be someone who/which has entered into an agreement with the Government, etc. Obviously, the infrastructure facility cannot be such an entrant as it cannot enter into an agreement with the Central Government or with anybody else. Understandably, it is only the 'enterprise', which can enter into an agreement with the Central Government or State Government or any other person. As such, viewed as above also, the word "it" denotes "the enterprise" and not "the infrastructure facility".
51. Accordingly, the conclusion drawn by learned CIT(A) on this count, that is on the count as to what is required to be owned in sub- clause (a) of clause (i) of sub-section (4) of section 80-IA, whether 'infrastructure facility' or 'the enterprise' is found to have rightly been drawn and quite justified, and the same need not be interfered with.
52. As seen above, we have held that 'the enterprise' should be owned by a company registered in India. In the instant case, the assessee is a company registered in India, which owns the enterprise and which developed the infrastructure facility. We, therefore, hold that the second condition for eligibility of deduction under section 80-IA(4) is also fulfilled by the assessee and ground No. 1 of the Revenue's cross- objection having no merit fails.
53. We now proceed to consider the next condition of having entered into an agreement with Central Government or State Government or a local authority or any other statutory body for developing an infrastructure facility, as contained in sub-clause (b) of clause (i) of sub-section (4) of section 80-IA. It is not in dispute, that the assessee has entered into an agreement with Government of Maharashtra for 24 ITA No.145/Agr/2012 A.Y. 2005-06 developing Koyna project and with APSEB for developing Srisailam project. APSEB is a statutory body. Thus, in respect of both the projects, the assessee is found to have fulfilled the condition contained in sub-clause (b) of clause (i) of sub-section (4) as well.
54. There is yet another condition required to be fulfilled for claiming deduction under section 80-IA which is such infrastructure facility should be transferred to Central Government or State Government or the local authority or any other statutory body within the stipulated time. It was vehemently contended by the learned CIT/Departmental Representative, that in this case there was no question of transfer of the infrastructure facility, because, whatever construction or development work was being done by the assessee always belonged to Maharashtra Government/APSEB, as the payment for the construction work was being given to the assessee periodically. To strengthen its plea, the Revenue has filed its cross-objection and has contended this aspect, in a way, in its ground No. 2 raised therein .........................................................................................
59. We have considered the rival contentions, as also the relevant material on record referred to by the parties. We may note that as per section 80-IA(4)(i)(b ), the infrastructure facility developed by the enterprise should be transferred to Government within the period stipulated in the agreement. It had been the contention of the learned CIT/Departmental Representative that since the land on which infrastructure facility has been developed always belonged to the Government and assessee has already been paid for construction work, there is no question of "transfer" of infrastructure facility by the assessee. However, we are unable to agree with this contention of the learned CIT/Departmental Representative. At the time of hearing before us it was pointed out by the learned counsel for assessee that land was handed over to the assessee for carrying out development work. In this reference, he referred to clause 12 of agreement with APSEB (i.e., p. 8 of assessee's paper book 2), and clause 42 of agreement with Government of Maharashtra (i.e., p. 32 of the assessee's paper book 2). He also stated that after completion of development of infrastructure facility, the same was transferred by handing over possession thereof. In support of this, he referred to p. 11 of assessee's paper book 1 for handing over of possession of infrastructure facility. We find that section 80-IA(4)(i)( b) requires 25 ITA No.145/Agr/2012 A.Y. 2005-06 development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it, by handing over possession thereof to the Government of Maharashtra/APSEB, as required by the agreement. The very handing over of the possession of the developed infrastructure facility/project is the transfer of infrastructure facility/project by assessee to the Government/authority. The handing over of infrastructure facility/project by developer to Government/local authority/statutory body takes place after recoupment of developer's costs whether it is 'BT' or 'BOT' or 'BOOT' and in BOT and BOOT this recoupment is by way of collection of toll therefrom whereas in 'BT' it is by way of periodical payment by the Government/local authority/statutory body. Since in 'BT' (the case of an assessee being a mere developer) the developer not being required/authorised to 'operate' has no option of recoupment of its costs by collection of tolls from infrastructure. The land involved in infrastructure facility/project always belongs to the Government/local authority/statutory body, whether it be the case of BOT or BOOT or BT, and it is handed over by the Government/local authority/statutory body to the developer for development of infrastructure facility/project. The same has been the position in the instant case as well. Undisputedly/undisputably, the deduction under section 80-IA is also available to an assessee, who undertakes merely "development" of infrastructure facility without "operating" aspect of the same. Accordingly, in a case of 'BT', that is, a case of a mere 'developer' the recoupment of his costs has to be by Government/local authority/statutory body whether it be by periodical payment or by lump sum payment, and whether the payment is made while development work is in progress or when the same has been completed. In that view of the matter, the question of comparing the rights, title, or interest of an assessee (a developer) in infrastructure in the case of 'BT' with those of a developer in the case of 'BOT' or 'BOOT' is, in our considered opinion, of no relevant bearing on the issue, inasmuch as a developer seems to have almost same rights, title or interest (except regarding mode of payment or collection of tolls) in infrastructure facility whether it be the case of 'BT' or that of 'BOT' or 'BOOT', in view of the discussions made by us above. Accordingly, in the instant case as the activity of these two projects of infrastructure facility undertaken by the present assessee was of the kind of "BT" (build and transfer) being merely of 'development' and did not involve 'operate' aspect in respect of the same, the 26 ITA No.145/Agr/2012 A.Y. 2005-06 infrastructure facility developed by assessee had to be transferred and handed over to the Government of Maharashtra/APSEB on its completion only and without operating it, that is without resorting to the collection of toll therefrom for recoupment of its costs. Accordingly, in our opinion, the assessee has duly complied with this condition as well. We, therefore, hold that ground No. 2 of Revenue's cross objection has no merit and the same accordingly fails. ......................................................................................
68. We have considered the rival contentions as also the relevant material on record. We may note that the statutory provision as contained in section 80-IA provides for "development of infrastructure facility". It nowhere provides that entire infrastructure project is to be developed by one enterprise. It is revealed from record that both the projects were multi-purpose projects for water supply, irrigation and power generation. The assessee has developed such part of the project, as was for supply of water from river/lake to turbine. Therefore, the assessee has developed "infrastructure facility" for supply of water and for irrigation. Merely because development work done by assessee is a point to point milestone of a multi-purpose project, it would not debar the assessee from claiming deduction under section 80-IA(4), so long as the nature of development made by assessee falls within the ambit of "infrastructure facility" and since we have found it established above that development work carried out by assessee was for development of infrastructure facility, the assessee cannot justifiably be denied of the deduction under section 80-IA, merely because the assessee has not developed the entire project. We hold accordingly.
69. There has, however, also been an alternative argument canvassed by the learned CIT/Departmental Representative that the provisions of section 80-IA(1) state that where the gross total income of an assessee includes any profits and gains 'derived from' any business of an enterprise engaged in the development of an infrastructure facility, the assessee shall be entitled to deduction on the profits and gains 'derived from' such business. He has raised this contention on the footing that the facts of the assessee's case reveal that the assessee is not a developer but is a mere contractor and is deriving income from civil contract work, and that the assessee is not deriving any profits 27 ITA No.145/Agr/2012 A.Y. 2005-06 and gains from the development of an infrastructure facility. His contention, accordingly, has been that the claim of the assessee falls/fails at the very threshold level and so no deduction is available to the assessee under the provisions of section 80-IA. As against this, the learned Authorised Representative of assessee, reiterating his arguments on the point of assessee being a developer as already made by him and discussed by us above, has contended that the assessee is a developer and the assessee's income from the construction activity of these two projects is assessee's income derived from the eligible business.
70. We have considered the rival contentions. We have, however, already dealt with this contention of the learned CIT/Departmental Representative above and have held that the assessee is a developer of an infrastructure facility and so the assessee's income from its business of construction activity of the two projects is the income derived from eligible business, that is the business eligible for deduction under section 80-IA. Accordingly, the assessee is entitled for deduction under section 80-IA. The contention of the learned CIT/Departmental Representative on this count, therefore fails.
71. In view of our above discussion, we hold the assessee to have fulfilled all the requisite conditions prescribed under sub-section (4) of section 80-IA for being eligible for deduction under section 80-IA. We, therefore, delete this disallowance of assessee's claim for deduction of Rs. 18,47,09,510 under section 80-IA and direct the Assessing Officer to allow the same. As such ground No. 1 in assessee's appeal stands allowed and the Revenue's cross-objection stands rejected. We order accordingly.
17. In the light of above back ground of discussions, if we consider the facts of the case under consideration, we notice that the A.O. has allowed the claim under section 80IA(4) of the Act. But the CIT(A) exercised his power under section 251 of the Act and withdrawn the claim under section 80IA(4) of the Act. The assessee claimed deduction under section 80IA(4) in respect of two projects - (1) Panipet- 28 ITA No.145/Agr/2012
A.Y. 2005-06 Jalandhar Project and (2) Sagar-Beena Project. The CIT(A) withdrew the claim under section 80IA(4) in respect of Panipat-Jalandhar Project on the ground that it was a contract only for short term improvements and routine maintenance. Therefore, it cannot be said that the assessee was developing or operating and maintaining or developing, operating and maintaining. The assessee only did routine maintenance and did not operate it. The deduction in respect of Sagar- Beena Project, the ground that the assessee had only entered into agreement with M/s. Nagarjun Construction Co. Ltd. and not with the Government as required in the section. Let us see the exact nature of work carried out by the assessee. The work-wise examinations of nature of work are as under:-
Panipat-Jalandhar Project.
18. The assessee filed relevant abstract of contract agreement between NHAI and the assessee for Panipat-Jalandhar project which have been placed at page nos.1 to 55 of the assessee's Paper Book. On perusal of clauses related to scope of work, we notice that clauses 4.1 & 4.2 related to scope of work which are reproduced as below :-
"4.1 General
- Road maintenance - this includes emergency; routine, periodic (whenever required) and disaster maintenance Broadly routine maintenance will include maintenance of shoulders and slopes, 29 ITA No.145/Agr/2012 A.Y. 2005-06 side drains, CD works, carriageway and crust and horticulture maintenance including requisite planting of trees, plants, shrubs and other suitable vegetation in the median and right of way also.
- Road property management - Identification of encroachment and ribbon development, Land acquisition as desired by NHAI, enforcement of regulations, Liaisoning with the relevant authorities for above and maintenance of road signs and road furnitures.
- Incident management - road patrols and surveillance, first aid, basic automobile assistance, tow away cranes, wireless/mobile facility and road safety works.
- Engineering Improvements - Providing Crash Barriers, management of access.
- Inspections 4.2 Road Maintenance
The Contractor shall be required to perform all routine road maintenance activities along with the project roads.
The Contractor shall be required to submit Maintenance Report for each component of the works.
The Contractor shall be required to utilize mechanized equipment and methods to perform these obligations.
All maintenance activities shall be carried out in accordance with Ministry of Surface Transport (MOST/MORT&H) specifications and relevant IRC codes. The requisite quality control tests as per specifications and codes are to be carried out by the Contractor at his cost as per direction of the Engineer.
Routine road maintenance means the planned ongoing works and activities required to ensure public safety, repair small defects and to maintain the road in the required condition. Ad hoc maintenance means the carrying out of unscheduled maintenance occasioned by irregular events such as accidents, natural failures, abnormal weather 30 ITA No.145/Agr/2012 A.Y. 2005-06 and the like, as mentioned in technical specification and performance standards.
The routine and ad hoc Road Maintenance shall include, amongst others, activities such as :
- Repairing Local Potholes
- Crack Sealing
- Asphalt Treatment
- Road Sign Maintenance
- Road Markings
- Guard Rail and supplementary road furniture repairs"
- Maintenance of Rigid Pavements
- Repair of Fences
- Repairs of Accident Damaged Assets
- Maintenance of Culverts, Drains and Channels
- Clearing of Litter and Debris
- Periodic Maintenance of Flexible Pavement
- Horticultural maintenance
19. Clause 4.3 is reproduced as under :-
"4.3 Road property maintenance
The Contractor shall ensure the maximum availability and efficient utilization of the assets for the NHAI. This shall also include the protection of the right of way from encroachments and other unauthorized activities.
For this purpose, the Contractor shall draw up a comprehensive asset register detailing the condition of the entire existing road and building assets. This asset register shall be maintained and continually updated after any additions to the infrastructure and after each of the required inspections."
20. To examine the nature of work one has to consider the nature of expenditures incurred by the assessee in respect of Panipat-Jalandhar Project. For 31 ITA No.145/Agr/2012 A.Y. 2005-06 the purpose of ready reference, the details of relevant expenses incurred by the assessee are reproduced from page no.55 of the assessee's Paper Book as under:-
S.No. Description Total (Rs.)
1. Bill No.7.1 - General Items 15,24,500/-
2. Bill No.7.2 - Road Maintenance 22,67,06,000/-
3. Bill No.7.3 - Road Property Management 2,63,38,000/-
4. Bill No.7.4 - Incident Management 1,41,13,000/-
5. Bill No.7.5 - Engineering Improvements 4,38,41,000/-
6. Bill No.7.6 - Toll Operations 5,29,20,000/-
Total 36,54,42,500/-
21. The expression "developing, operating and developing" have not been defined for the purpose of section 80IA of the Act and, therefore, its ordinary and natural meaning is to be seen. The condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities' at all material times, to cover within its purview the development of an infrastructure facility under a scheme road management, planning and activities required to ensure public safety repair and maintain the road in the required condition. After considering nature of works carried out by the assessee, the details of expenditures incurred by the assessee and in the light of amendments in section 80IA, reading of entire section together its harmoniously construed in view of the judgement of the Apex Court in the case of Bajaj Tempo vs. CIT (1992) 196 ITR 188 (SC) wherein the Apex Court emphasized that a provision in a 32 ITA No.145/Agr/2012 A.Y. 2005-06 taxiing statute granting incentives for promoting growth and development should be construed liberally, we find that the case of the assessee covers by the conditions laid down in section 80IA(4)(i), (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining. Therefore, the claim of deduction under section 80IA(4) of the Act is allowable in respect of Panipat- Jalandhar Project.
Sagar-Beena Project.
22. The objection of the CIT(A) in allowing deduction under section 80IA of the Act in respect of Sagar-Beena Project is that the assessee did not satisfy the conditions laid down under section 80IA(4)(b) of the Act. The objection of the CIT(A) is that there is nothing to suggest on record that the assessee had entered into any agreement with the Central Government or a State Government or a local authority or any other statutory body. He further noted that the assessee has entered into agreement with M/s. Nagarjuna Construction Company Limited, an entity which is not mentioned in section 80IA(4)(b) of the Act. To examine the case of the CIT(A), we would like to refer the word "consortium of such companies" in section 80IA)(i)(a) of the Act. The Section 80IA(4)(i)(a) provides that infrastructure facility as approved in (i) is owned by consortium of such companies. The consortium word has not been defined in section 80IA(4) of the 33 ITA No.145/Agr/2012 A.Y. 2005-06 Act. If we consider the dictionary meaning of that word, according to the "New International Webster's Comprehensive Dictionary" it is "Lichens, (fellowship) Law Coalition, union, as of incorporated companies". As per SAHNI Advanced Dictionary (Engligh-English-Hindi), the meaning of consortium is "a combination of financial institutions, capitalists, etc. for carrying into effect some financial operation requiring large resources of capital"
23. In this regard, we notice that I.T.A.T., Bangalore Bench in the case of ACIT vs. JSR Constructions (P) Ltd, ITA No.898/Bang/2009, order dated 29.03.2011 while examining allowability of deduction under section 80IA in case of sub- contractor held as under :-
"Having heard both the parties and having considered the rival contentions, we find that the deduction u/s 80IA is available in respect of profit and gains from the industrial undertaking or enterprises engaged in infrastructure development etc. The only reason for the disallowance by the AO is that the assessee has undertaken the sub- contract works and has also not undertaken the new contracts during the relevant asst. year. We find that the assessee has filed sufficient evidence before the CIT(A) to prove his case that it is party to the consortium, which was engaged in the business of civil construction and was also awarded the contract by the NHAI. It was also proved that the assessee has invested the entire capital for completion of the contract and so it was entitled to receive the entire contract receipts. In such a case, we are satisfied that the assessee has itself carried on the works contract and was not a sub-contractor carrying on the works contract. Further, as rightly held by the CIT(A) every year the assessee cannot be expected to enter into a new contract for the reason that the infrastructure project are by the very nature carried on over a period of time and cannot be completed within a year. The main aim of allowing the deduction u/s 80IA is for improving the 34 ITA No.145/Agr/2012 A.Y. 2005-06 infrastructure facilities in the country. In view of the same, we are of the opinion that the CIT(A) has properly appreciated the evidence before allowing the claim of the assessee and there is no reason to interfere with the same."
24. The I.T.A.T., Visakhapatnam Bench in the case of DCIT vs. M/s. Transstroy (India) Limited, ITA No.325 & 326/Viz/2011, order dated 13.04.2012 while examining allowability of claim under section 80IA(4) in case of Joint Venture followed the order of I.T.A.T. in earlier year in assessee's own case. The relevant observation are reproduced as below :-
"We have carefully examined the order of the CIT(A) and the order of the Tribunal in the assessee's own case for the assessment year 2006-07. on careful perusal of this order of the Tribunal, we find that Tribunal has examined the issue in detail in the light of legal provisions and various judicial pronouncements and finally concluded that for all practical purposes, the contract was awarded to the constituents of the joint venture through joint venture and the work was executed by them. Therefore, the benefit of deduction under this section is to be given only to the enterprises who carried on the classified business. The relevant portion of the order of the Tribunal is extracted hereunder for the sake of reference"
"Turning to the facts of the case, we find that joint venture and the consortium was formed only to obtain the contract form the Government body and they in fact did not execute 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 ventures or parties to the agreement in an agreed manner. The work was 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% works were executed by the assessee and in case of consortium, the 100% 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 35 ITA No.145/Agr/2012 A.Y. 2005-06 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 u/s 80IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint ventures through joint venture and the work was executed by them. As per provisions of section 80IA(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, we are of the view that the assessee is entitled for the deductions u/s 80IA(4) on the profit earned from the execution of the work awarded to JV and consortium. We accordingly set aside the order of the CIT(A) and direct the A.O. to allow the deductions."
25. With this back ground of discussions, if we consider the facts of the case under consideration, we find that the infrastructure project was awarded by the Government of Madhya Pradesh, a copy of the agreement has been placed in assessee's Paper Book at page no.56. This agreement was in between the Government of Madhya Pradesh and NCC-PNC (Joint Venture), Agra. A supplementary agreement of Nagarjuna Construction Company Limited dated 10.08.2004 between M/s. Nagarjuna Construction Company Limited and M/s. PNC Construction Company Limited, the assessee, wherein it is stated that both the parties have formed a Joint Venture called the "NCC-PNC JV" by virtue of Agreement dated 08.04.2004, with the sole purpose to submit a joint bid for Sagar- Beena Road Project. M/s. PNC Construction Co. Limited was offered for the entire works of joint venture and shall be liable for all taxes including income tax 36 ITA No.145/Agr/2012 A.Y. 2005-06 solely liable to government of Madhya Pradesh. The agreement with Government of Madhya Pradesh and NCC-PNC joint venture accepted the concept of Joint Venture vide clause no.27.1 which is at page no.95 of assessee's Paper Book. On perusal of agreements and supplementary agreement, we notice that the CIT(A) failed to consider the relevant provision of section 80IA(4)(i)(a) which provides that the prescribed infrastructure project in section 80IA(4)(i) is owned by company registered in India or by a consortium of such companies. The CIT(A) has considered only clause 80IA(4)(i)(b) of the Act without considering section 80IA(4)(i)(a) of the Act. If we read both the clauses of sub-section (4)(i)(a) and
(b), we find that the project agreement was with the Madhya Pradesh Government and it was owned by consortium of companies registered in India i.e. NCC-PNC. Thus, in the light of above discussions and in view of the decisions of the I.T.A.T. in the case of ACIT vs. JSR Constructions (P) Ltd, ITA No.898/Bang/2009, order dated 29.03.2011 and DCIT vs. M/s. Transstroy (India) Limited, ITA No.325 & 326/Viz/2011, order dated 13.04.2012, we find that the assessee has satisfied the conditions laid down in section 80IA(4)(i)(a)(b) of the Act. We are, therefore, of the view that the assessee is entitled for deduction under section 80IA(4) of the Act in respect of Sagar-Beena Project.
26. Apart from the above objections, one more common objection of the CIT(A) which has also been argued by the ld. Department Representative is that inspite of 37 ITA No.145/Agr/2012 A.Y. 2005-06 sufficient opportunity of hearing the assessee has failed to produce copies of agreement entered into by the assessee with M/s. Nagarjuna Construction Company Limited. In this regard, it is relevant to state that the A.O. has allowed the claim of the assessee after examining all these agreements and other records produced by the assessee. It is relevant to note that when the CIT(A) was not having copies of agreement of the parties, how he has come to the conclusion that the A.O. has wrongly allowed the claim of the assessee under section 80IA(4) of the Act is highly objectionable. It appears that the finding of CIT(A) in withdrawing the claim under section 80IA(4) was on the basis of presumptions and surmises and not based on facts particularly under the circumstances when the assessee has discharged burden in this regard by furnishing complete details before the A.O. and the A.O. after examining those details allowed the claim of the assessee.
27. Further, it is also relevant to state here that in A.Y. 2006-07, the A.O. allowed the assessee's claim on both the projects under section 80IA(4) of the Act. The submissions of the assessee was that the order of the A.O. for A.Y. 2006-07 became final as against that order of the A.O., neither appeal nor any other proceedings are initiated. On this submission of the ld. Authorised Representative, an opportunity was provided to the Ld. Departmental Representative to verify the stand of the Department, the case was adjourned from 02.01.2013 to 17.01.2013. 38 ITA No.145/Agr/2012
A.Y. 2005-06 At the time of hearing, the ld. Departmental Representative failed to controvert the submission of the ld. Authorised Representative and stated that no comments are offered by the ld. CIT, Agra on this case. The assessment order for A.Y. 2006-07 became final where the A.O. himself has allowed the claim of the assessee under section 80IA(4) of the Act. In this regard, we would like to refer one of the elementary principles of the judicial administration which is noted from a judgement of Hon'ble Madhya Pradesh High Court in the case of Arihant Builders, Developers & Investors (P) Ltd. vs. ITAT & Ors. (2005) 277 ITR 239 (MP) (Page No.243) that there should be consistency so that litigants are aware where they stand. If the Courts and Tribunals are allowed to take the view like the one in present case, it would lead to anarchy and total chaos which would be against judicial propriety and discipline. We may also refer the following judgements in this regard:-
i) CIT Vs. Goodlas Nerolac Paints Ltd., 188 ITR 1(Bom.):
(Page 5 ) "This, however, does not mean that subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the earlier Benchof the Tribunal in the same case for an earlier year on a similar set of facts. Such a thing may not be in the larger public interest as it is likely to shake the confidence of the public in the system".
ii) Sayaji Iron & Engg. Co. Vs. CIT [2002] 253 ITR 749 (Guj.):[Page 753] -
"9.4: In relation to the aforesaid approach of the CIT(A) and the Tribunal we cannot do better than reiterate what Madras High Court has stated in the case of CIT Vs. L.G. 39 ITA No.145/Agr/2012 A.Y. 2005-06 Ramamurthi & Ors. 1977 CTR (Mad) 416: (1977) 110 ITR 453 (Mad): :" No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. - If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself."
iii) Radhasoami Satsand Vs. CIT [1992] 193 ITR 321 (SC):
( Page 329)-
"Assessments are certainly quasi-judicial and these observations equally apply.
We are aware of the fact that, strictly speaking, res judicata does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
28. In the light of above judicial principle, the Revenue should follow the principle of consistency in allowing claim of the assessee as facts are identical to A.Y. 2006-2007.
29. As regards the contention of the ld. Departmental Representative that the matter may be sent back to the file of CIT(A), we would refer one judgment of Hon'ble Gujarat High Court in the case of Rajesh Babubhai Damania vs. CIT, 251 ITR 541 (Guj) wherein it was held that there was no question of giving "one 40 ITA No.145/Agr/2012 A.Y. 2005-06 more innings" to the Assessing Officer. The appeals are not to be decided for giving "one more innings", to the lower authorities. In the appellate jurisdiction, the appellate Court has to consider whether there is justification for upsetting the order against which the appeal is filed. We, therefore, reject the contention of the ld. Departmental Representative for sending back the matter to the file of the CIT(A).
30. In the light of above discussions, we find that the CIT(A) has wrongly withdrawn the claim of the assessee under section 80IA(4) of the Act. Therefore, we set aside the order of the CIT(A) and restore that of the A.O. and grant deduction under section 80IA(4) as claimed by the assessee. This ground of appeal of the assessee is allowed.
31. Now take up remaining grounds of appeal as under:-
32. Grounds no.1, 7 & 8 are general in nature, require no independent finding.
33. The brief facts of ground no.2 are that during the assessment proceedings, the A.O. noticed that the assessee has claimed Rs.61,64,601/- on account of signboard expenses. The assessee has failed to produce all the relevant bills. In absence of bills, the A.O. noticed that these expenses could not be verified. 41 ITA No.145/Agr/2012
A.Y. 2005-06 However, the A.O. admitted that in the line of work of assessee's company certain amount of signage are a mandatory requirement, but in absence of complete voucher and details, the A.O. disallowed Rs.5,00,000/- to cover leakage of revenue. The CIT(A) has confirmed the action of the A.O.
34. We have heard the ld. Representatives of the parties and records perused. We notice that various signboards were installed and placed at various locations/sites of the assessee company. This was sated to be a business requirement of the assessee company. The A.O. made adhoc addition without pointing out any specific expenses which were incurred for non-business purposes. Expenses incurred for the purpose of business are allowable under section 37 of the Act. The said section provides that the expenditure in question should not be in the nature described under specific provisions of the Act. The expenditure should not be of the nature of capital expenditure. It should not be a personal expenditure. The expenditure laid out or expended wholly and exclusively for the purposes of the business or profession is allowable expenses. We notice that it is not the case of the A.O. that expenditures were expended wholly and exclusively other than for the purposes of business. The objection of the A.O. is only that the assessee has failed to furnish the relevant vouchers. Merely failure to file the relevant vouchers as required by the A.O. cannot be the basis for making disallowance unless it is found that the expenditures were not incurred wholly and exclusively for the 42 ITA No.145/Agr/2012 A.Y. 2005-06 purposes of business. In the case under consideration, the assessee has discharged the burden as the expenditures were accounted for in the books of account regularly maintained by the assessee on day-to-day basis. The A.O. has failed to point out that the expenditure was not incurred wholly and exclusively for the purposes of business. Rather the A.O. admitted that the expenditure has been incurred for the purposes of business and he made the disallowance on adhoc basis. Such disallowance cannot be sustained particularly under the facts and circumstances where the assessee has discharged the burden in this regard that the day-to-day expenditures incurred were recorded in the books of account regularly maintained which is subject to audit. The A.O. did not point out any specific expenditure which was incurred other than for the purposes of business. In the light of above discussion and in the light of I.T.A.T. Agra Bench order in ITA No. 49/Agra/2012 dated 20.07.2012, we delete the addition of Rs.5,00,000/-.
35. The brief facts of ground no.3 are that during the assessment proceedings the A.O. noticed that the assessee claimed temporary building structure expenditure of Rs.1,02,11,975/-. The A.O. accepted the fact that the assessee has to incur such expenses in this line of business. The A.O. made adhoc addition of Rs.5,00,000/- to cover the possible loss of revenue on account of wrong claim of the assessee. The CIT(A) confirmed the said addition. 43 ITA No.145/Agr/2012
A.Y. 2005-06
36. We have heard the ld. Representatives of the parties and records perused. The admitted facts of the case are that the expenditure incurred was wholly and exclusively for the purposes of business. This fact has not been disputed by the A.O. The A.O. made the disallowance without pointing out any specific expenditure which was incurred other than for the purposes of business. In the light of the detailed discussion made while deciding ground no.2 in paragraph nos.33 & 34 of this order, following the said discussion, we delete the adhoc addition of Rs.5,00,000/-
37. Brief facts in respect of ground no.4 are that during the assessment proceedings, the A.O. noticed that the assessee has claimed Repairs & Machinery expenses of Rs.1,89,46,155/-. The A.O. made adhoc addition of Rs.10,00,000/- to cover the possible leakage. The disallowance made by the A.O. has been confirmed by the CIT(A).
38. We have heard the ld. Representatives of the parties and records perused. There is no dispute that the expenses were incurred for the purposes of business. The A.O. admitted that such expenses are necessary for carrying out the business of the assessee. However, he made the addition on presumption basis. In the light of detailed discussion made above while deciding ground no.2 in paragraph nos.33 44 ITA No.145/Agr/2012 A.Y. 2005-06 & 34 of this order, following the said discussion, we delete the addition of Rs.10,00,000/- as the expenditures were incurred for the purposes of business.
39. Now we would like to deal with the additional ground raised by the assessee. The brief facts of additional ground are that the assessee has claimed expenses of Rs.2,16,78,425/- under the head Paint. The A.O. disallowed Rs.5,00,000/- to cover the possible loss of revenue. However, the A.O. admitted that in the line of work of the assessee paint for road marking is used in substantial quantities. Therefore, the expenses were necessary for the purposes of business. The CIT(A) confirmed the addition on the ground that the assessee has failed to link he utilization of paint with the project.
40. We have heard the ld. Representatives of the parties and records perused. There is no dispute on the fact that the expenditures were incurred wholly and exclusively for the purposes of business. The A.O. himself admitted that such expenditures are necessary for the purposes of business. In the light of detailed discussion made while deciding ground no.2 in paragraph nos.33 & 34 of this order, following the said discussion, we delete the addition of Rs.5,00,000/- as the expenditures were incurred for the purpose of business. 45 ITA No.145/Agr/2012
A.Y. 2005-06
41. It is relevant to state that the A.O. while computing the total income at page 9 of his order, total of disallowances of expenses has taken at Rs.30,00,000/- whereas in the body of order he did not make any discussions regarding Rs.5,00,000/-. Therefore, it appears that there is some apparent mistake which is required to be taken into consideration by the A.O. while giving effect to this order.
42. In the result, appeal of the assessee is allowed.
(Order pronounced in the open Court)
Sd/- Sd/-
(BHAVNESH SAINI) (A.L. GEHLOT)
Judicial Member Accountant Member
PBN/*
Copy of the order forwarded to:
1. Appellant
2. Respondent
3. CIT (Appeals) concerned
4. CIT concerned
5. D.R., ITAT, Agra Bench, Agra
6. Guard File.
By Order
Sr. Private Secretary
Income-tax Appellate Tribunal, Agra
True Copy