Gujarat High Court
Avadh - Nipl (Jv) vs Deputy Commissioner Of Income Tax on 2 August, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/9474/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 9474 of 2016
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AVADH - NIPL (JV)....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE 1(1)....Respondent(s)
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Appearance:
MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1
MR PRANAV G DESAI, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 02/08/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 18.2.2016 issued by the respondent Assessing Officer seeking to reopen the petitioner's assessment for the assessment year 20102011.
2. The petitioner is a company registered under the Companies Act and is engaged in the construction relating activity. For the assessment year 20102011, the petitioner had filed return of income showing gross total income of Rs.70.52 lacs (rounded off) claiming entire amount by way of deduction under section 80IA(4) of the Income Tax Act ("the Act" for short). The Assessing Officer scrutinised such Page 1 of 11 HC-NIC Page 1 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER returns and framed assessment under section 143(3) of the Act on 24.3.2013. To reopen such assessment, respondent Assessing Officer issued impugned notice. To do so, he had recorded the following reasons :
"M/s. Avadh NILP(JV),Rajkot (PAN:AAQFA7091P), Rajkot, AY 201011: In this case, return of income for the AY 201011 showing income of Rs.NIL/ was filed by the assessee and the assessment was finalized vide order u/s 143(3) of the IT Act dated 24.3.2013.
The assessee has claimed deduction of a sum of Rs.70,52,150/ u/s. 80IA(4) of the IT Act.
After finalization of the assessment, it was noticed it is further seen that, the Ex.Engg Valsad had entered into an agreement with M/s. Avadh Infrastructure Pvt. ltd for construction of "NagroBridge" at Valsad and worked awarded vide order dtd. 12.06.2009. However, M/s. Avadh Infrastructure Pvt. Ltd. and Narayan Infra Pvt. Ltd has constituted a joint venture in the name of M/s. Avadh NIPL (JV) vide partnership deed dated06.11.2009. Thereafter, the assessee firm (JV) had carried out the construction work of bridge on behalf of the M/s. Avadh Infrastructure Pvt. It is seen that the receipts in the case of assessee mainly consist of works contract with the Govt./Semi Govt.
Bodies. On perusal of computation of income filed along with the return of income, it is noticed that the assessee has claimed a deduction of a sum of Rs.70,52,150/ u/s 80IA(40 of the IT Act on the profit derived from such contracts executed. In view of the provisions of section 80IA(4) of the IT Act the deduction is allowable to any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities. As per explanation to section 80IA(13) which as been substituted by the Finance (No.2), Act, 2009 w.e.f. 01.04.2000, the Page 2 of 11 HC-NIC Page 2 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER deduction u/s 80IA(4) of the Act shall not be allowed to the persons who are doing business in the nature of works contract awarded by any person (including the Central & State Govt.) On the basis of details collected during the course of assessment it is seen that the receipts are mainly from works contract with Valsad (R&B) Division, Valsad which is a Government body. On further perusal of copies of RA bills of the contract, it is noticed that the same are in respect of construction of bridge across Nagrol Crock. It is further seen that the assessee has been awarded contract for the completion of work by the R&B Division of Government for which the assessee has been raising the bills. Therefore, the work done by the assessee is a works contracts with the Government and it cannot be said that the assessee has been carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility.
4. Thus, it is abundantly clear that the assessee has been executing the works contracts from the Govt./Semi Govt. Bodies. In view of the above provisions of the Act, it is evident that undertakings or enterprise carrying out work as per contract awarded by person (including the Central or State Government) shall not be eligible for claiming deduction within the meaning of section 80IA(4). The details of work carried out by the assessee were called for during the course of assessment proceedings and on verification of the details, it can be seen that the assessee has been executing works contracts for which it has received contract amounts through RA (running account) bills and therefore it cannot be said that it has entered into any kind of agreement with the Central or State Govt or a local authority or any other statutory body for developing a new infrastructure facility.
5. Further, the deduction under section 80IA(4) is available to a developer of the infrastructural facilities as provided within the meaning of the said section and not to Page 3 of 11 HC-NIC Page 3 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER the contractors who simply execute work as per work contract received from either Central Govt. or State Govt. or any other agency. The Explanation, below sub section (13) of section 80IA, as inserted by the Finance Act, 2009 with retrospective effect from 01.04.2000 has only clarified that the deduction is not available to business referred to in subsection (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an enterprise referred to in subsection(1). The argument as to whether a contractor is a 'developer' within the meaning of the above provision of the Act has only been put to rest by providing an explicit clarification which leaves no scope for any ambiguity as regard the issue that the contractors are not developers within the meaning of subsection (1) of section 80IA and hence, they are not eligible for deduction in respect of their business income from executing work orders as per contract with either Central Govt. or State Govt. or any other agency. The explanation does not in any manner provide for restricting or altering the meaning of the said provision, Rather, the position which was earlier apparent on a careful look of the provisions of sub section(4) has now been made available even at the cursory look through the Explanation by clarifying the hitherto intention of the legislature that no person executing the works contract shall be eligible for deduction u/s 80IA, even if it is an enterprise or undertaking as referred to in subsection (1). The language of this explanation makes it crystal clear that the benefit under subsection (4) cannot be provided to a business which is in the nature of works contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in subsection(1). From the memorandum explaining the rationale behind the substitution of Explanation, it can easily be seen that the legislature clarified its intention beyond any doubt that the deduction cannot be allowed in relation to a business which is in the nature of works contract.
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6. In consideration of the above discussion and in view of the provision of section 80IA of the Income Tax Act, 1961 as applicable for the year under consideration, it is clear that the assessee is not eligible for deduction u/s 80IA(4) out of its business income under the provisions of the said section. Hence, the deduction claimed by the assessee in the return of income under section 80IA(4) of the Act is not allowable. However, this issue seems to have not been properly examined by the Assessing Officer while finalising the assessment.
7. For the reasons discussed above and in the facts and circumstances of the case, the order dated 24.3.2013 passed by the Assessing Officer u/s 143(3) of the IT Act seems to be erroneous and prejudicial to the interest of revenue in allowing the deduction of a sum of Rs.70,52,150/ u/s 80IA(4)(i) of the IT Act to the assessee and therefore the order dated 24.3.2013 passed u/s 143(3) needs to be reopened u/s. 147 of the IT Act.
In view of the above, I have reason to believe that the income to the extent of Rs.70,52,150/ as stated above had escaped assessment within the meaning of section 147 of the Income Tax Act, 1961."
3. The petitioner raised objections to the process of reopening under letter dated 31.3.2016. Such objections were however, rejected by the Assessing Officer on 9.5.2016.
4. Having taken us through the materials on record and the reasons recorded by the Assessing Officer, counsel for the petitioner submitted that there was no failure on part of the assessee to disclose truly and fully all material facts. Reopening of assessment beyond a period of four years was therefore, not permissible. Even otherwise, entire issue was Page 5 of 11 HC-NIC Page 5 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER examined by the Assessing Officer during the original scrutiny assessment. Any attempt on his part to now reopen the assessment would not be permissible.
5. On the other hand, learned counsel Shri Desai for the department submitted that the petitioner had raised wrong claim. Deduction under section 80IA(4) of the Act would not be available for carrying out the works contract since the petitioner was not engaged in development of the specified project.
6. The Assessing Officer had recorded elaborate reasons. Crux of the reasons however, is brief namely, that the assessee who claimed deduction of Rs.70.52 lacs under section 80IA(4) of the Act was not eligible for such deduction on the ground that it was not carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. He referred to explanation to section 80IA(13) which was brought in statute book by virtue of Finance Act 2009 but with retrospective effect from 1.4.2000 which provides that deduction under section 80IA(4) is not available to persons who are doing business in the nature of works contract awarded by any person including the Central or State Government.
7. In this background, we may refer to the materials on record. The assessee had filed the returns showing gross total income of Rs.70.52 lacs and entire sum was claimed by way of deduction under section 80IA of the Act. Along with the returns, the petitioner had produced audit report Page 6 of 11 HC-NIC Page 6 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER in Form no.10CCB which also refers to deduction claimed under section 80IA(4) of the Act. The entire working out of the deduction also formed part of the returns.
8. This being the sole claim of the assessee during the scrutiny assessment, the Assessing Officer verified the same for which purpose under a letter dated 25.1.2013, he conveyed as under :
"7. On verification of audit report, it is noticed that you have claimed deduction u/s 80IA of the IT Act. In this contention you are requested to furnish the following :
(i) Nature of work carried out justifying deduction claimed u/s 80IA.
(ii) As per Rule 18BBB, separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction u/s.80IA and shall be accompanied by the Profit and Loss account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. Please furnish the same.
(iii) As per Rule 18BBB, if the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, the form shall be accompanied by a copy of the agreement of the enterprise with the Central Government or the State Government or the local authority for carrying on the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility. Please furnish the same.
(iv) As per Rule 18BBB, in any other case, the form shall be accompanied by a copy of the agreement, approval or permission, as the case may be, to carry on the activity Page 7 of 11 HC-NIC Page 7 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER signed or issued on the Central Government or the State Government or the local authority for carrying on the eligible business. Please furnish the same.
(v) Contract wise details in following proforma along with working of 80IA of the Act.
Sl Particulars of the Amount of Nature of work No. contract/project profit earned done (Rs.) Please furnish consolidated contract income account."
9. In response to such query, the petitioner replied under letter dated 12.2.2013 as under :
"1. The assessee is a partnership firm. The firm is mainly established to construct a bridge across Nargol Creek near Nargol village on NargolDehri Gowada road upto M.S. Border CSH6 Dist Valsad. Accordingly, during the previous year and earlier years, construction work of the same has been done."
10. It was after such scrutiny that the Assessing Officer framed the assessment on 24.3.2013 in which he observed as under :
"3. During the course of assessment proceedings, details were called for regarding fulfillment of conditions for claim of deduction u/s 80IA of the Act. The assessee is a partnership firm came into existence with effect from 12.6.2009, is an enterprise of two partners (1) Avadh Infrastructure Pvt. Ltd. (2) Narnarayan Infrastructure Pvt. Ltd. had jointly applied to the Executive Engineer, Valsad (R&B) Division, Valsad and tender sanctioned by the Government of Gujarat, R&B department, Gandhinagar is Page 8 of 11 HC-NIC Page 8 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER mainly established to construct a bridge (i.e. developing infrastructure facility) across Nargol Creek Near Nargol village on NargolDehriGowda Road upto Maharashtra State Border CSH6 Dist. Valsad. This is the first year of the firm and during the year the assessee has done business activity of construction of bridge.
4. As per the Running Account Bills, date of written order to commence work is 01.09.2009 and date of completion as stipulated in the contract is 31.08.2011. The Agreement No. is B2/80 Year 200910.
5. After verification of details furnished, the total income of the assessee is recomputed as under : Gross total income as per Return of Income Rs.70,52,150/ Less : Deduction u/s80IA(4)(i) of the Act Rs.70,52,150/ Return total income Rs. NIL Assessed total income Rs.NIL"
11. It can thus be seen that the petitioner's sole claim that the return was for deduction under section 80IA(4) of the Act, came to be examined by the Assessing Officer during the scrutiny assessment. During such assessment, the Assessing Officer collected full information from the assessee in addition to what was already produced along with the returns. In the assessment order, he made no disallowance. In the order itself, he had noted that this is a partnership firm and is enterprise of two partners Avadh Infrastructure Pvt. Ltd. and Narayan Infrastructure Pvt. Ltd. who had jointly applied to the Executive Engineer Valsad. The assessee's tender was sanctioned by the Government of Gujarat for construction of bridge. Thus full details pertaining to the assessee's activities were at large before the Assessing Officer. Conscious of such details, he Page 9 of 11 HC-NIC Page 9 of 11 Created On Sat Aug 06 01:30:26 IST 2016 C/SCA/9474/2016 ORDER had framed the assessment.
12. It would therefore, not be permissible for the Assessing Officer to reopen such issue and that too beyond a period of four years from the end of relevant assessment year. Quite apart from the question of change of opinion, there was simply no failure on part of the assessee to disclose truly and fully material facts. As noted, in the original returns, the assessee had while claiming deduction, provided supporting materials in the form of audit report in Form No.10CCB. During the assessment proceedings, the assessee provided further details as called for by the Assessing Officer. Even the reasons recorded by the Assessing Officer for issuing notice for reopening do not even indirectly suggest that there was any failure on part of the assessee to disclose true and full facts. In fact, the reasons rely solely on the materials already on record. In earlier portion of the reasons, the Assessing Officer noted that "After finalization of the assessment, it was noticed it is further seen that..." Further in paragraph no.4, the Assessing Officer recorded that the details of work carried out by the assessee were called for during the course of assessment proceedings and on verification of the details it was seen that the assessee had been executing works contract. On the basis of such materials, the Assessing Officer recorded that assessee was not eligible for deduction under section 80IA(4) of the Act. He further recorded that "However, this issue seems to have not been properly examined by the Assessing Officer while finalizing the assessment."
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13. It can thus be seen that the Assessing Officer merely desires to revisit the claim which was granted after full scrutiny in the original assessment. His opinion that the claim was not properly examined during such assessment would not authorise him to reopen the assessment. The reasons are based on materials already on record.
14. For such reasons, impugned notice dated 18.2.2016 is set aside. Petition is allowed and disposed of.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) raghu Page 11 of 11 HC-NIC Page 11 of 11 Created On Sat Aug 06 01:30:26 IST 2016