Income Tax Appellate Tribunal - Ahmedabad
The Dy.Commissioner Of Income Tax ... vs M/S. Aquafil Polymers Co. Pvt. Ltd.,, ... on 1 November, 2018
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ ।
IN THE INCOME TAX APPELLATE TRIBUNAL,
"C" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA No.161/Ahd/2015 WITH CO No.33/Ahd/2015
नधा रण वष / Asstt. Year: 2010-2011
AND
ITA No.1532/Ahd/2015 WITH CO No.98/Ahd/2015
नधा रण वष / Asstt. Year: 2011-2012
AND
ITA No.1183/Ahd/2016 WITH CO No.73/Ahd/2016
नधा रण वष / Asstt. Year: 2012-2013
DCIT, Cir.1(1)(1) M/s.Aquafil Polymers Co.P.Ltd.
Ahmedabad. Vs. 202-203, Kamdhenu Complex
Ambawadi
Ahmedabad 380015.
PAN : AABCA 7902 R
(Applicant) (Responent)
Revenue by : Shri Lalit P.Jain, Sr.DR
Assessee by : Shri S.N. Soparkar, AR
सन
ु वाई क तार ख/ Dateof Hearing : 16/10/2018
घोषणा क तार ख / Date of Pronouncement: 01/11/2018
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
The ld.CIT(A) has decided appeals of the assessee for the Asstt.Years 2010-11, 2011-12 and 2012-13 vide orders dated 13-11-2014, 5-3-2015 and 26-2-016 respectively. Revenue is challenging the above orders of the ld. CIT(A) for the respective assessment years. On receipt of notice in the Revenue's appeal, the assessee has filed CO bearing No.33/Ahd/2015, 98/Ahd/2015 and 73/Ahd/2016 respectively. Since common issues are ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
2involved in all these appeals, therefore, we heard them together and deem it appropriate to dispose of them by this common order.
2. Only common issue agitated by the Revenue in these three years relates to allowance of deduction claimed under section 80IAof the Income Tax Act. Facts on all vital points are common therefore, for the facility of reference, we take up the facts mainly from the Asstt.Year 2010-11.
3. Brief facts of the case are that the assessee-company at the relevant time was engaged in the business of development of infrastructure projects. It has filed its return of income on 30.9.2012 declaring total income at NIL after claiming deduction at Rs.1,61,33,833/- under section 80IA of the Income Tax Act. Similarly, in the Asstt.Year 2011-12 it has shown additional income at Rs.75,97,540/- and claimed deduction under section 80IA at Rs.1,78,72,268/-. In the asstt.year 2012-13 the assessee has declared NIL income and claimed deduction under section 80IA at Rs.3,35,57,706/-. The case of the assessee was selected for scrutiny assessment in all these three years. Notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed development of various infrastructure projects during these assessment years. The ld.AO took note of these projects while taking cognizance of the written submissions made by the assessee. The AO thereafter made analysis of section 80IA(4) of the Act and observed that the assessee is not owner of these projects, and therefore, it could not be construed as developer of infrastructure projects, rather its role would be construed as a contractor. The contractor is not entitled for deduction under section 80IA. Accordingly, he disallowed the claim of deduction. On appeal, the ld.CIT(A) has relied upon the orders of his predecessor in earlier assessment years starting from Asstt.Year 2004-05 and treated the assessee as infrastructure developer. The ld.CIT(A) ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
3accordingly allowed deduction under section 80IA. Before us, the ld.counsel for the assessee contended that identical issue has been examined by the Tribunal in the Asstt.Years 2005-06 to 2009-10. The Tribunal has held in its order dated 30.9.2016 that the assessee was engaged in the business of infrastructure development and entitled for deduction under section 80IA. The Tribunal has decided ten appeals bearing Nos.811/Ahd/2010 and others vide this order. Copy of this order has been placed on record. The ld.DR, on the other hand, is unable to controvert this contention of the ld.counsel for the assessee.
4. With the assistance of the ld.representatives, we have gone through the record carefully. As far as the issue whether the assessee is to be treated as an infrastructure developer or simply a contractor is concerned, this issue has been decided in earlier years in favour of the assessee by the Tribunal. The ld.CIT(A) has followed orders of his predecessor in earlier assessment years viz. Asstt.Year 2005-06 to 2008-09. These orders have been upheld by the Tribunal. However, for the facility of reference and completeness, we would like to make reference to such details from the assessment orders.
Asstt.Year 2010-11 The assesses company has claimed deduction of Rs. 1,61,33,833/- u/s. 80IA for A.Y. 2010-11 in respect of the profit derived from the project eligible u/s. 80IA detailed as under:
Sr.No, Description Date of A.Y Remarks
Commencement
(i) GWSSB-ADB 16/01/2004 2004-05 DEVELOPMENT
(ii) GWSSB-Gondal/Kotharia 02/11/2004 2005-06 DEVELOPMENT
(iii) M.P.Audyogik Kendra 02/03/2006 2006-07 DEVELOPMENT
Vikas Nigam (Indore) Ltd.-
MPAKVN
ITA No.151/Ahd/2015 and 2 Others with CO
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(iv) Vadora Municipal 23/10/2009 2010-11 DEVELOPMENT
Corporation -WTP
(v) Vadora Municipal 01/02/2009 2010-11 DEVELOPMENT
Corporation -STP
(vi) Ahmedabad 12/09/2008 2009-10 OPERATION &
Municipal Corporation, MAINTENANCE
Kotarpur (O& M)
(vii) Ahmedabad Urban Develop- 01/04/2007 2008-09 OPERATION &
ment Authority, Jaspur MAINTENANCE
(O&M)
Asstt.Year 2011-12
"2. Sr. No. (4) of the notice u/s. 142(1) dt. 30-10-2013 You have asked the assessee company to demonstrate with necessary evidences that the undertaking fulfills all the conditions of section 801A.
(A) In respect of the following infrastructure projects the Hon'ble Commissioner of Income Tax (Appeal): VI, has allowed the claim u/s. 80IA hence, to avoid the repetitiveness the assessee company do not furnish the information as it is very much on record of the Department and rely on the appellate orders:
Project Date of 1st A.Y. of Nature
commencement of
claim Work
Ahmedabad Municipal 01-04-2007 2008-09 O&M
Corporation,
Ahmedabad Municipal 12-09-2008 2009-10 O&M
Corporation
GWSSB - Gondal - 02-11-2004. 2005-06 Development
Kothaira
MPAKVN 02-03-2006 2007-08 Development
(B) The development of following infrastructure projects have been considered in the assessment for A.Y. 2010-11 for the first time. The claim u/s. 801A has been disallowed in A.Y. 2010-11 and the assessee company is in appeal before the Hon'ble Commissioner of Income Tax (Appeal): VI, Ahmedabad:
ITA No.151/Ahd/2015 and 2 Others with CODCIT Vs. Aquafil Polymers Co.P.Ltd.5
Project Date of Ist A.Y. Nature of work
commencement of claim
Vadodara 23-10-2009 2010-11 Development of WTP
Municipal Corporation
Vadodara 01-02-2010 2010-11 Development of
Municpal Corporation . STP
(C) The development of following infrastructure projects have been awarded during the previous year relevant to A.Y. 2010-12.
Project Date of Ist A.Y. Nature of
commencement of claim work
Khambhat 24-09-2009 2011-12 Development
Nagar Seva Sadan, of WTP
Khambhat
Gujarat Urban 13-04-2010 2011-12 Development
Development Company of WTP
(GUDC) - Tarsadi
(A) The assessee company relies on the decisions of the Hon'ble Commissioner of Income Tax (Appeal): VI, Ahmedabad in respect of all the four (4) projects listed in section (A) above: .
AY. Order No. Dated
2005-06 CIT(A)-VI/ITO/Wd-1 (3)789/1 0-1 1 24-12-2012
2007-08 CIT(A)-VI/ITO/Wd-1 (3)7304/09- 29-12-2010
10
2008-09 CIT(A)-VI/ITO/Wd-1(3)/214/10-1 1 26-12-2012
2009-10 CIT(A)-VI/Addl. R-1/180/11-12 02-01-2013
Asstt.Year 2012-13
ITA No.151/Ahd/2015 and 2 Others with CO
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4. Disallowance of deduction claimed u/s.801A:
The assessee has claimed in the return a deduction of Rs. 3,35,57,706/- u/s. 801A of the Act and during the assessment proceedings, vide notice u/s 142(1) dated 13/01/2015, assessee was asked to demonstrate that the enterprise satisfies all the conditions laid down in Section 80IA of the Act. In response thereto, the assesses vide letter dated 23/01/2015 submitted as under:
You have asked the assessee company to demonstrate with necessary evidences that the undertaking fulfils all the conditions of section 80IA.
(A) In respect of the following infrastructure projects the Hon'ble Commissioner of Income Tax (Appeal): VI, has allowed the claim u/s. 80IA hence, to avoid the repetitiveness the assessee company do not furnish the information as it is very much on record of the Department and rely on the appellate orders:
st Project Date of 1 A.Y. of claim Nature of Work commencement Ahmedabad Municipal 01-04-2007 2008-09 O&M Corporation, Jaspur Ahmedabad Municipal 12-09-2008 2009-10 O&M Corporation, Kotarpur GWSSB - Gondal - Kothaira 02-11-2004 2005-06 Development MPAKVN 02-03-2006 2007-08 Development Vadodara Municipal 23-10-2009 2010-11 Development Corporation ofWTP Vadodara Municipal 01-02-2010 2010-11 Development of Corporation STP (B) The Development of following infrastructure projects have been awarded during the year relevant to A.Y. 2011-12 and the assessee company is in appeal before the Hon'ble Commissioner of Income Tax (Appeal): VI, Ahmedabad.
st Project Date of 1 A.Y. of Nature of work commencement Claim Khambhat Nagar SevaSadan, 24-09-2009 2011-12 Development of Khambhat WTP Gujarat Urban Development 13-04-2010 2011-12 Development of Company (GUDC) - Tarsadi WTP (C) The development of following projects have been awarded during the previous year relevant to A.Y. 2012-13 ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
7
st
Project Date of 1 A.Y. of Nature of work
commencement Claim
Rajasthan Urban 21-07-2011 2012-13 Development of Sewerage
Infrastructure Treatment Plant (STP)
Development Project
Bundi (RUIDP)
Ex. Engineer (R&B 19-09-2011 2012-13 Development of Sewerage
Division) Tarapur, Treatment Plant (STP)
Anand (Tarapur)
(A) The assessee company relies on the following appellate orders of the Hon'ble Commissioner of Income Tax (Appeal): VI, Ahmedabad in respect of all the four (4) projects listed in section (A) above:
A.Y. Order No. Dated
2005-06 CIT(A)-VI/ITO/Wd-l(3)/89/10-ll 24-12-2012
2007-08 CIT(A)-VI/ITO/Wd-l(3)/304/09-10 29-12-2010
2008-09 CIT(A)-VI/ITO/Wd-l(3)/214/10-ll 26-12-2012
2009-10 CIT(A)-VI/Addl. R-l/180/11-12 02-01-2013
2010-11 CIT(A)-VI/Wd. l(3)/7/13-14 13-11-2014
(B) The assessee company has made detailed submission in respect of both these projects in the assessment proceedings for A.Y. 2011-12. Once again the assessee company submits and reiterates as under:"
5. Reasons assigned by the AO in these assessments orders were similar to those involved in the asstt.Years 2006-07, 2006-07 and 2008-09. The Tribunal has considered this aspect. The discussion made by the Tribunal on this issue reads as under:
"25. We have heard the rival contentions and perused the material on the record and also gone through the decision relied on by the ld. AR. Solitary grievance of the Revenue is against the order of ld. CIT(A) allowing the claim of Rs. 42,19,807/- u/s 80IA of the Act. We observe that ld. CIT(A) has allowed the claim under section 80IA of the Act towards profit earned from three projects namely -GWSSB- ADB, Gondal, GWSSB-Gondal & MPAKVN by observing as below :-ITA No.151/Ahd/2015 and 2 Others with CO
DCIT Vs. Aquafil Polymers Co.P.Ltd.8
2.3 I have considered the facts of the case, assessment order and appellant's submission. Appellant claimed deduction u/s 80IA(4) of IT Act on five infrastructure development projects before assessing officer as under :-
1. GWSSB -Asian Development Bank (ADB) Project
2. GWSSB -Gondal/Katharia
3. Ahmedabad Municipal Corporation
4. GWSSB -Nadiad
5. MP Audyogik Kendra Vikas Nigam Ltd. (IMPAKVN) However in appeal submission dated 27.10.2010 appellant did not pursue its claim in respect of two projects namely -Ahmedabad municipal corporation and GWSSB Nadiad, it was submitted that these projects relates to maintenance and other services and not infrastructure development therefore 80IA claim in respect of these projects were not pursued. In view of this appellant's claim in respect of these two projects is rejected.
Coming to the other three projects appellant submitted detailed submission in respect of each project and demonstrated that as per the bid document and terms of the agreement the work included designing, construction, commissioning, testing, trial run etc. This also included training of the personnel. All three agreements were produced and were examined in detail. Appellant's claim that it was not a mere contractor was evidenced from these documents. Appellant was found to be a designer of the infrastructure facilities with its technical team. It also constructed infrastructure facilities with its risk and also commissioned the same and carried out trial run. Appellant also operated and maintained the infrastructure facilities created by it for some time and also trained the personnel when required. Considering these facts it cannot be said that appellant was a mere contractor and not a developer. All the decisions referred by the assessing officer and appellant were analysed and in the light of facts of the appellant, it is quite clear that in respect of these three projects, appellant was developer. Appellant relied upon a recent decision of ITAT, Rajkot dated 23.9.10 in ITA No.1111/RJT/2010 in the case of M/s Tarmet Bel (JV) KCL, Rajkot vs. ITO Wd 1(4), Rajkot. All relevant decision of the issue were discussed in this decision. The relevant extract of this order is as under :-ITA No.151/Ahd/2015 and 2 Others with CO
DCIT Vs. Aquafil Polymers Co.P.Ltd.9
"In the present case, we have already held that although the appellant entered into a contract with the Govt., the contract is part of the primary condition of Sec. 80IA(4) and further the nature of work carried out shows that the appellant not only directly (and not indirectly) carried out work as per the contract but it employed various resources of its own by way of machineries, technical knowledge, technical and other manpower, materials etc. and also funded the same out of its own capital and borrowings. The appellant was required to furnish guarantees including free maintenance of the infrastructure facilities. All these factors combined clearly go to show that the appellant also assumed considerable risk in the capacity of a businessman and the such tasks as undertaken, although under a contract as mandated by the Section, would require skills of planning of work, employing technical know-how to execute the work and to face the consequences of attendant risks. We find that the risks ore upon the assessee and not upon the Govt, These elements are generally missing in the case of a sub-contractor. Here, the appellant is directly engaged in performing its functions Further, in the case of Om Metals Infraprojects Ltd.(supra), it is held that if it is the assessee mobilizing people, plants, technical expertise etc., the assessee can be said to be a developer and that the assessee cannot be denied deduct/on from the profits of developing the infrastructure facility though it may not operate or maintain the same, particularly in view of the insertion of the word "or" in Sec. 80IA(4)."
Honorable ITAT held that if assessee assumes the risk of project, plan the project work, employ technical skills, mobilize people, funds and resources then assessee cannot be denied the deduction from the profit of developing infrastructure. Appellant's case is identical since in respect of these three projects appellant designed the infrastructure projects, took risk of the project, commissioned the project and conducted trial run, deployed its own resources. In the light of these facts appellant cannot be termed as mere contractor. Since appellant perform all those tasks which Asst. Year 2005-06 & others is performed by a developer, appellant cannot be denied the benefit available to the developer. All the arguments of the assessing officer have been met by the appellant in detailed submissions quoted earlier. Respectfully following the recent decision of 1TAT Rajkot bench which squarely applies to the facts of the appellant's case, assessing officer is directed to allow deduction u/s 80IA of IT act in respect of the three projects namely GWSSB-ADB project, GWSSB-Gondal and MPAKVN project.
26. We further observe that from the agreement entered into by the assessee with GWSSB & MPAKVN with regard to their scope of work wherein assessee is required to designing (process, hydraulic, structure, equipment and aesthetically) providing, constructing and commissioning conventional water treatment plant consisting of all civil, mechanical and electrical components including necessary hydraulic testing, structural testing, equipment testing, trial ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
10run etc. The assessee is also required to arrange cement, sand steel and equipments etc. and undertake soil investigation and other exploration work. In all the assessee company has to design, construct, commission, test/operate and maintain water treatment plant. All these conditions akin to the contract awarded to the assessee duly come within the ambit of the conditions laid down u/s 80IA sub-section (4) of the Act.
27. We further observe that similar issue came up before the Co- ordinate Bench, Hyderabad in the case of GVPR Engineers Ltd. vs. ACIT (2012) taxmann.com 25 (Hyd) wherein it has been held as under :-
HELD-I The provisions of section 80-IA(4), when introduced afresh by the Finance Act, 1999, the provisions under section 80-IA(4A) were deleted from the Act. The deduction available for any enterprise earlier under section 80-IA(4A) is also made available under section 80- JA(4) itself. Further, the very fact that the legislature mentioned the words (i ) 'developing' or (ii) 'operating and maintaining' or (iii) 'developing, operating and maintaining' clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Act. Where an assessee incurred expenditure for purchase of materials himself and executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-1A. In contrast to this, an assesses, who enters into a contract with another person including Government or an undertaking or enterprise referred to in section 80-IA, for executing works contract, will not be eligible for the tax benefit under section 80-IA. The word 'owned' in sub- clause (a.) of clause (I) of sub-sec.(4) of section 80-IA refers to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word 'ownership' is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80-IA(4) and not any other person like individual, HUF, firm etc. [Para 26] According to sub-clause (a ), clause ([) of sub-section (4) of section 80- IA, the word 'it' denotes the - enterprise carrying on the business. The word 'it' cannot be related to (he infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.11
requirement that the assessee should have been the owner of the infrastructure facility. [Para 27] The next question to he answered is whether the assessee is a developer or mere works contractor. The revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin (o works contract and it is not eligible for deduction under section 80-IA(4). Whether the assessee is a developer or works contractor purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to he analysed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. The Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to lake over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works arc to be executed by the assessee. It may be laying of a drainage system: may be construction of a project: provision of way for cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular Hem as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to Asst. Year 2005-06 & others he done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of the such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Government or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.12
infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular, dated 18-5-2010, such activity is eligible for deduction under section 80-IA (4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicate that the assessee is eligible for deduction under section 8()-IA(4). The department is not correct in holding that the assessee is a mere contractor ij the work and not a developer. [Para 28] As per the provisions of section 80-IA, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word 'contractor' is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word 'contractor' is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot he viewed differently. Every contractor may not be a developer hut every developer developing infrastructure facility on behalf of the Government is a contractor. {Para 29] Section 80-IA intends to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80-1A which ultimately culminated into amendment under section 80-IA in the Finance Act, 2001, to give effect to the aforesaid circulars issued by the CBDT. To avoid misuse of the aforesaid amendment, an Explanation was inserted in section 80-IA, in the Finance Act, 2007 to 2009. to clarify that mere works contract would not he eligible for deductions under section 80-IA. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the Parliament would have simply reversed {he amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the lax holiday to the entities who do mere works contract or sub- contract as distinct from the developer. This is clear from the express intention of the Parliament while introducing the Explanation. The explanatory memorandum to Finance Act, 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80-IA is available to developers who undertakes ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.13
entrepreneurial and investment risk and no! to the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that it has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. After the amendment section 80-IA(4) is read as (\) developing Asst. Year 2005-06 & others or (\\) operating and maintaining or (\\\) developing, operating and maintaining any infrastructure facility. While prior to amendment the 'or' between three activities was not there, after the amendment 'or' has been inserted with effect from 1-4-2002 by Finance Act, 2001. Therefore, if the contracts involve design, development, operating and maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction under .section 80-IA. The contracts which contain above features to be segregated, this deduction under section 80-IA have to be granted and the other agreements which are pure works contracts hit by the Explanation to section 80-JA(13), those work are not entitled for deduction under section 80-IA. The profit from the contracts which involve Resign, development, operating and maintenance, financial involvement, and defect correction and liability period is to be computed by the Assessing Officer on pro rata basis of turnover. The Assessing Officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above. [Para 30]
28. Further similar issue also came up before the Tribunal, Hyderabad Bench in the case of Sushee Hi Tech Constructions (P) Ltd. vs. DCIT (2013) 33 taxmann.com 236 (Hyderabad-Trib), wherein dealing with the issue has decided the same by observing as below :-
FACTS -1 The assessee had undertaken the development of irrigation canals and railway tracks including conversion of gauge. The project premises was handed over by the Government to the assessee for developing into an infrastructure and the scope of work involved taking over of the site and developing the site, re-handing over of the site after due development. Thereafter, the assessee would have to maintain the developed infrastructure facility for a certain period as provided in the agreement. The risk involved during the period from the date of taking over till the date of handing over of the infrastructure would be that of the assessee. Any loss suffered in the process of development would be that of the assessee. Assessee claimed that activities undertaken by it were development of infrastructure facility and, therefore, it was entitled to deduction under section 80-IA(4).
• The lower revenue authorities disallowed the deduction on the ground that assessee was a mere works contractor and not a developer. The ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.14
authorities took the view that unless operation of the infrastructure facility was also undertaken, the assessee would not be eligible for deduction.
On appeal Held -I Ownership of infrastructure facility not required for deduction under section 80-IAAsst. Year 2005-06 & others • The provisions of section 80- 1 A(4) when introduced afresh by the Finance Act, 1999, the provisions under section 80-IA(4A) were deleted from the Act. The deductions available for any enterprise earlier under section 80-1A(4A) are also made available under section 80-IA(4) itself. Further, the very fact that the Legislature mentioned the words (/') 'developing' or (//) 'operating and maintaining1 or (/;'/') 'developing, operating and maintaining1 clearly indicated that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-tax Act. Where an assessee incurres expenditure for purchase of materials himself and executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, an assessee, who enters into a contract with another person including the Government or an undertaking or enterprise referred to in section '80-IA for executing works contract, will not be eligible for the tax benefit under section 80-
IA. The word 'owned' in sub-clause (a] of clause (1) of sub-section (4) of section 80-IA refers to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. Thai the provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word 'ownership' is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80-1 A(4) and not any other person like individual. HUF, firm. etc. [Para 31] • According to sub-clause (a), clause (/) of sub-section (4) of section 80- IA. the word 'it' denotes the enterprise carrying on (he business. The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system. Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. [Para 32] ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
15Assessee is a developer and not a works contractor • Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Bach of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government.
• In the instant case, the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and, thereafter, developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the Asst. Year 2005-06 & others infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work; it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of I 2 (o 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010. such activity is eligible for deduction under section 80-IA (4). This cannot be ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
16considered as a mere works contract but has to be considered as a development of infrastructure facility.
• Therefore: the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicates that the assessee is eligible for deduction under section 80- IA (4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. [Para 33] Assessee is entitled to deduction under section 80-IA • As per the provisions of the section 80-IA, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word 'contractor' is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word 'contractor' is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. [Para 34] • Section 80-IA intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intends to grant the incentives to such entities.
• The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80-IA, which ultimately culminated into amendment Asst. Year 2005-06 & others under section 80-IA in the Finance Act, 2001. to give effect to the circulars issued by the CBDT. lo avoid misuse of the aforesaid amendment, an Explanation was inserted in section 80-IA in the Finance Act 2007 and 2009. to clarify that mere works contract would not be eligible for deductions under section 80-IA. But. certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the Parliament would have simply reversed the amendment made in theFinance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who do mere works contact or sub-contract as distinct from the developer. This is clear from the express intension of the Parliament while introducing the Explanation. The explanatory memorandum to Finance Act, 2007, states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
17construction work. It categorically states that the deduction under section 80-IA is available to developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that it has undertaken huge risks in terms of deployment of technical personnel, plain and machinery, technical know-how, expertise and financial resources.
• Further, after the amendment the section 80-IA(4) read as (/) developing or (//') operating and maintaining or (///') developing, operating and maintaining any infrastructure facility. Prior to amendment the 'or' between three activities was not there, after the- amendment 'or' has been inserted with effect from 1-4-2002 by Finance Act, 2001.
• Therefore, the assessee should not be denied the deduction under section 80-IA, as if the contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract. The contracts which contain above features are to be segregated and on this deduction under section 80-IA has to be granted and the other agreements, which are pure works contracts hit by the Explanation to section 80- IA(13), are not entitled for deduction under section 80-IA. The profit from such contracts which involve development, operating, maintenance, financial involvement, and defect correction and liability period is to be computed by Assessing Officer on pro-rata basis of turnover. The Assessing Officer is directed to examine and grant deduction on eligible turnover as directed above. [Para 35] • Further, where the assessee has carried out the development of infrastructure work in consortium and not as a sub-contractor, then also the assessee is entitled to deduction under section 80-IA. The same is also applicable in case of work allotted by Government corporation/Government bodies. [Para 37]
29. Respectfully following the decisions of the Co-ordinate Bench in the above referred cases and applying the facts to these facts as well as the provisions of sec.80IA sub-sec.(4) of the Act, we are of the Asst. Year 2005-06 & others considered view that assessee is not merely a contractor but a developer looking to the scope of activities undertaken by it for the completion of the project and, therefore, eligible for deduction u/s 80IA of the Act. We therefore, find no reason to interfere with the order of ld. CIT(A) and uphold the same. The ground raised by the Revenue is dismissed. The appeal of Revenue is dismissed."
ITA No.151/Ahd/2015 and 2 Others with CODCIT Vs. Aquafil Polymers Co.P.Ltd.
186. There is no disparity on the facts. The ld.CIT(A) has followed the orders of his predecessor which have been considered by the Tribunal in earlier years. Therefore, respectfully following the orders of Co-ordinate Bench, we do not find any merit in the grounds of appeal raised by the Revenue on this issue in all these three years. No other issue is agitated by the Revenue in its appeals hence, appeals of the Revenue are dismissed.
7. Now we take cross-objections of the assessee in all three years.
8. First issue in all these three years agitated by the assessee is that the ld.CIT(A) has upheld the assessment of interest income as income from other sources and upheld exclusion of these amounts from eligible profit for grant of deduction under section 80IA. The ld.counsel for the assessee fairly admitted that in earlier years, this issue was not agitated before the Tribunal. Considering the smallness of the amount involved in all these years, the issue was not pressed by the assessee, hence these grounds are rejected in all three years. Interest income on FDR has rightly been assessed as income from other sources and rightly been excluded from eligible profit from the amount of deduction under section 80IA. Accordingly, this issue is decided against the assessee.
9. In the next common grounds, the assessee has pleaded that the ld.CIT(A) has upheld disallowance of employees contribution towards PF and ESI, which was deposited after expiry of time limit. This disallowance was made with the aid of section 2(24)(x) of the Income tax Act. The ld.counsel for the assessee did not dispute that the issue is covered against the assessee by the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat State Road Transport Corpn., 366 ITR 170 wherein Hon'ble Court has held that if employee's contribution is not being deposited within time limit ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
19prescribed in provident fund and ESI Act then deduction of such amount will not be admissible to the assessee. The ld.CIT(A) has rightly based its reliance upon the decision of Hon'ble jurisdictional High Court cited supra. We do not any reasons to interfere on this issue accordingly, this ground of appeal is rejected in all three assessment years.
10. Next ground raised in CO No.98/Ahd/2015 is that the ld.CIT(A) has erred in confirming the disallowance of additional depreciation. It emerges out from the record that assessee has claimed additional depreciation on water treatment plant. This claim of the assessee was disallowed by the AO on the ground that it is just engaged in development of infrastructure and not engaged in any manufacturing activity. Hence, additional depreciation is not admissible. On appeal, the ld.CIT(A) confirmed this disallowance.
11. Before us, the ld.cousnel for the assessee contended that this disallowance will increase the profit of the assessee and 80IA would be admissible to it. However, he did not advance much argument on the claim for additional depreciation. Considering this aspect, we allow alternate claim of the assessee and direct the AO to include this amount for eligible profit for grant of deduction under section 80IA. This ground is partly allowed.
12. In the Asstt.Year 2012-13, the assessee has raised one more ground in its CO, wherein it has pleaded that the ld.CIT(A) has erred in confirming the disallowance of claim of bad debts. The ld.counsel for the assessee submitted that though security deposits for business was allowable as deduction under section 37, but even if it is disallowed, the AO be directed to consider this issue for deduction under section 80IA. Since specific arguments were not raised qua main fold of contentions, therefore, considering alternative contentions of the assessee, we remit this issue to the file of the AO for ITA No.151/Ahd/2015 and 2 Others with CO DCIT Vs. Aquafil Polymers Co.P.Ltd.
20examination. The ld.AO shall adjudicate this issue with the angle whether this amount can be construed as eligible for grant of deduction under section 80IA or not. If it has live nexus and be construed as derived from infrastructure activities of the assessee, then 80IA be granted to the assessee. Our above observations will not impair or injure the case of the AO and will not cause any prejudice to the defence/explanation of the assessee. The ld.AO shall decide it in accordance with law.
13. In the result, the appeals of the Revenue are dismissed. Cross objections in the Asstt.Year 2010-11 is dismissed. Cross-objections in the Asstt.Year 2011-12 and 2012-13 are partly allowed.
Order pronounced in the Court on 1st November, 2018 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 01/11/2018