Income Tax Appellate Tribunal - Rajkot
M/S. Kcl Bel Tarmet (Jv),, ... vs The Income Tax Officer,Ward-1(3),, ... on 3 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
[ Conducted through E-Court at Ahmedabad ]
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER And
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
Sl. ITA No(s) Assessment Appeal(s) by
Nos. Year (s) Appellant vs. Respondent
Appellant Respondent
1. 192/Rjt/2011 2005-06 ITO, Wrd-1(3) M/s.KCL-BEL
Rajkot Tarmat (JV)
Amin Marg Corner
Rajkot
PAN: AAGFB 1834Q
2. 193/Rjt/2011 2006-07 -do-Revenue -do- Assessee
3. 214/Rjt/2011 2008-09 The DCIT -do-Assessee
Circle-1 Rajkot
4. 485/Rjt/2014 2009-10 -by Assessee ITO, Ward-1(3)
Rajkot
Assessee by : Shri R.M. Rindani, AR
Revenue by : Shri Pravenn Verma, Sr.DR
ु वाई क तार ख/
सन Date of Hearing 25/10/2018
घोषणा क तार ख /Date of Pronounce ment 03 /12/2018
आदे श / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeals have been filed by the Revenue, and the Assessee are against the separate orders of the Commissioner of Income Tax (Appeals)-I, Rajkot [CIT(A) in short] passed for Assessment Years (AYs) 2005-06, 2006-07 and 2008-09 and 2009-10 respectively.
2. First, we take up ITA No.192/Rjt/2011 for AY 2005-06, appeal filed by the Revenue.
3. Revenue has raised the following grounds of appeal:
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -2-
1. The Ld. CIT(A)-I, Rajkot has erred in law and on fact of the case in deleting the addition made the A.O. by disallowing deduction u/s.80IA(4) of Rs.2,76,14,591/-.
2. On the facts of the case, Ld. CIT(A) ought to have upheld the assessment order of the A.O., dated 30/12/2010.
4. The assessee has made an application under rule 27 of ITAT Rules vide letter dated 27th of June 2013 contending the validity of the reopening under section 147 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The relevant contents of the application are reproduced as under:
"Prayer under Rule 27 of the Income-tax Appellate Tribunal Rules:
The respondent abovenamed most respectfully states that the aforesaid appeals have been filed by the Revenue against order of the first appellate authority dated 8-2-2011 arising out of orders u/s 147.
Before the first appellate authority, the appellant had raised a specific ground of appeal challenging the re-opening of the assessment u/s 148 of the Act. During the re-assessment proceedings, the respondent objected to the issue of notice u/s 148 for reasons furnished by the assessing officer. The same were negatived by the assessing officer and the claim for deduction of income u/s 80IA(4) of the Act which was originally allowed in order passed u/s 143(3) of the Act, was diseilowed by way of order u/s 147 of the Act.
Before the first appellate authority also the ground relating to challenge to issue of notice u/s 148 has been discussed by the said authority. However, in view of the decision given on merits of the case, the first appellate authority has dismissed the said ground without assigning reasons for dismissal except stating that the said ground became academic.
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -3- As the said ground relating to reopening has been dismissed and held against the respondent, the respondent begs to resort to the remedy granted to it under Rule 27 of the I.T.A.T. Rules wherein it is provided that the respondent can defend the order of the first appellate authority in respect of grounds decided against it.
In view of above, the respondent abovenamed hereby prays that the orders of both the lower authorities suffer from infirmities in as much as in view of the nature of reasons recorded prior to issue of notice u/s 148, the action u/s 148 amounts to change of opinion, which is not permissible in law and therefore the first appellate authority also erred in deciding the same against the respondent, particularly despite the objections taken by the respondent and decided case law cited vide objections taken before the assessing officer, which are reproduced in the re-assessment order. Moreover, the said issue arises from the material already on face of the records and being legal in nature, the same may kindly be allowed to be agitated by the respondent although no cross objections or cross appeal have been filed by the respondent."
5. The Ld. AR before us submitted that the issue raised in the application as discussed above was raised before the Ld. CIT(A) but he did not adjudicate the same. Therefore the assessee is very much entitled to raising the issue by way of an application under rule 27 of ITAT Rules.
6. On the other hand the Ld. DR did not raise any objection on the admission of the application made by the assessee under rule 27 of ITAT rules.
7. We have heard the rival contentions and perused the material available on record. In the instant case, the original assessment was framed under section 143(3) of the Act, by the AO. However, subsequently, the AO has selected the case of the assessee under section ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -4- 147 of the Act on account of escapement of income. As per the AO, the assessee was not entitled to a deduction under section 80IA(4) of the Act, in terms of the explanation inserted after sub-section 13 of section 80IA(4) of the Act, by the Finance Act 2009 with effect from 01.04.2000. Accordingly, the AO recorded the reasons for escapement of income and issued a notice to the assessee under section 148 of the Act. The reason recorded by the AO for reopening of the assessment under section 147 of the Act reads as under:
"Vide above referred letter you have requested the undersigned for dropping the assessment proceedings u/s.148 on the basis of judicial pronouncements of the Honorable Mumbai High Court in the case of M/s.R.Rallis India Ltd. vs. ACIT, Mumbai writ petition No.2514 (2009).
In this regard your kind attention is invited to this office order providing reasons for reopening of assessment for the year under consideration dated 05/07/2010 wherein the reasons for reopening the assessment proceedings have been well discussed. However, it is again informed that the assessment has been reopened on the following reasons:
The provision of law outlined in the section 80-IA(4)(i) as it stood during the previous year under consideration and on the basis of which you have claimed deduction, reads as under:
[Deduction in respect of profits and gain from industrial undertaking or enterprises engaged in infrastructure development etc. 80-IA ...... (4) This section applies to Any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -5- maintaining and infrastructure facility which fulfils all the following conditions.....
(a) It is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act.
(b) It has entered into an agreement with the Central Government or a State, Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility.
(c) It has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995;
The said amendment has been further amended by way of an explanation after sub-section (13) of sec. 80IA(4), with retrospective effect from 01/04/2000, which is as under: 'For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub- section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub- section (1).
In view of the provisions of the Act, it is evident that undertaking or enterprise carrying out work as per work contract awarded by any persons (including Central or State Government) shall not be eligible for claiming deduction within the meaning of section 80IA(4) and the incentive of tax holiday was only for such enterprises which are engaged in the activity of developing or operating the infrastructure facility. In other words, the deduction was available only for concerns who were either developer or operator or both.
In view of the amendment by way of an explanation after sub- section (13) of section 80IA(4) with retrospective effect from 01/04/2000, the assessments for the year under consideration has ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -6- been rightly opened and your request for dropping the same cannot be considered."
8. The assessee before the AO raised the objections for the reopening of the assessment under section 147 of the Act but could not succeed. The assessee carried the matter to the Ld.CIT(A) who did not adjudicate the issue of reopening the assessment under section 147 of the Act. The relevant extract of the Ld. CIT(A) order reads as under:
"8. In view of the above decision on merits of the case, the ground related to reopening of assessment has become purely academic, and needs no further adjudication. The same is, therefore, dismissed."
8.1. However, the Ld. CIT(A) was pleased to grant the relief to the assessee on merit. Therefore the assessee did not prefer any appeal to the ITAT. However, the Revenue against the order of Ld. CIT(A) has filed an appeal before the Ld. ITAT. Accordingly, the assessee applied under rule 27 of the ITAT rules challenging the validity of the reassessment under section 147 of the Act.
8.2. Now the controversy arises whether the assessee can challenge the validity of the reassessment under section 147 of the Act by way of an application under rule 27 of ITAT rules. At this juncture we find important to refer to the relevant provisions of rule 27 of ITAT rules which are reproduced as under :
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -7- "Respondent may support the order on any grounds Rule 27:- The respondent, though he may not have appealed, may support the conclusion on an issue arrived at in the impugned order on any of the grounds on that issue, including the grounds decided against him."
8.3. On perusal of the above rules, we are of the view that the assessee is entitled to raise the objections before ITAT by way of an application under rule 27 of ITAT rules. In holding so, we find support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd. Vs. PCIT reported in 86 taxmann.com 148 wherein it was held as under:-
8. Rule 27 of the Rules reads as under:
"Respondent may support order on grounds decided against him.
27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him."
9. This Rule thus provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. This rule embodies the fundamental principle that the person, who may not have been aggrieved by an order of the lower authority or the Court and has therefore not filed any appeal against such order, is free to defend the order before the Appellate Forum on all grounds including the ground, which may have been held against him by the lower authority or the Court, whose order is otherwise in his favour.
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -8-
10. The contention of the counsel for the Revenue was that the assessee had to file independent appeals or cross-objections in terms of section 253 (4) of the Act to enable the assessee to raise the ground of validity of the notices for reopening of the assessments since the said ground was held by the Commissioner (Appeals) against the assessee. For multiple reasons, we cannot accept this contention. As noted, under sub-section (1) of section 253, an appeal can be filed before the Appellate Tribunal by an assessee being aggrieved by the order of the Appellate Commissioner. Under sub-section (2) of section 253, only if the Principal Commissioner or the Commissioner objects to any order passed by the Appellate Commissioner, he would direct the Assessing Officer to file appeal before the Appellate Tribunal. Essentially therefore, an appeal before the Tribunal against the order of Appellate Commissioner would lie against an order which is adverse to the appellant. May be, on one out of two grounds if the appeal of the assessee is allowed by the Appellate Commissioner in its entirety, he cannot be stated to be a person aggrieved by such order. His appeal under sub-section (1) of section 253 would not be maintainable. The assessee cannot file a standalone appeal challenging a finding of the Appellate Commissioner which may be against the assessee as long as the appellate order of the Commissioner is entirely in favour of the assessee and no part of the appeal of the assessee's claim is rejected. Under sub-section (4) of section 253, it is open for a person either an Assessing Officer or, the assessee, upon receipt of a notice of the appeal filed before the Tribunal to file cross- objection against any part of the order of the Commissioner (Appeals) and such cross-objection would be dealt with by the Tribunal as if it were an appeal presented within the time specified. Two things thus become clear. A cross-objection under section (4) of Section 253 could be directed against any part of the order of the Appellate Commissioner and if so presented, it would be disposed of by the Tribunal in the manner an appeal would be decided. In other words, such cross-objection would have independent existence even if for some reason, the appeal of the opponent does not survive. The cross-objection could be filed only ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively -9- against any part of the order of the Appellate Commissioner and necessarily therefore, that part of the order of the Commissioner (Appeals) has to be adverse to the person raising the cross- objection. Rejection of a ground, an argument or a contention would not come within the expression "any part of the order of the Commissioner" in context of which, the said phrase has been used in sub-section (4) of section 253.
11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It can be easily appreciated that all prayers in the appeal may be allowed by the Commissioner (Appeals), however, some of the contentions of the appellant may not have appealed to the Commissioner. When such an order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross-objection.
12. Rule 27 of the Rules is akin to Rule 22 Order XLI of the Civil Procedure Code. Sub-rule (1) provides that any respondent, though he may not have appealed from any part of the decree, may not only support the decree but may also state that the finding against him in the Court below in respect of any issue ought to have been decided in his favour; and may also take any cross- objection to the decree which he could have taken by way of an appeal. In case of Virdhachalam Pillai v. Chaldean Syrian Bank Ltd.AIR 1964 SC 1425 in context of the said Rule the Supreme Court observed as under:
"32. Learned Counsel for the appellant raised a short preliminary objection that the learned Judges of the High Court having categorically found that there was an antecedent debt which was discharged by the suit-mortgage loan only to the extent of Rs. 59,000/- and odd and there being no appeal by the Bank against ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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the finding that the balance of the Rs. 80,000/- had not gone in discharge of an antecedent debt, the respondent was precluded from putting forward a contention that the entire sum of Rs. 80,000/- covered by Exs. A and B went for the discharge of antecedent debts. We do not see any substance in this objection, because the respondent is entitled to canvass the correctness of findings against it in order to support the decree that has been passed against the appellant."
8.4. We also find support and guidance from the judgment of Hon'ble Rajasthan High Court in the case of Deep Chand Kothari Vs. CIT reported in 35 taxman 223 wherein held as under:
"It was not in dispute that the jurisdiction of the ITO was duly challenged by the assessee before the ITO himself and also in the memorandum of appeals filed before the AAC. It was not disputed that the AAC did not touch this point in his common order dated 17-3-1972 and decided the appeals on merit in favour of the assessee. As such it would be deemed that the AAC decided the point of jurisdiction against the assessee. Admittedly, the said point of jurisdiction was duly raised before the Tribunal. Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. Thus, the assessee was entitled to support the order of the AAC for not clubbing the said two incomes on the said ground of lack of jurisdiction.
Therefore, the Tribunal was not justified in not allowing the objections as to the jurisdiction of the ITO to initiate the notice and as to the validity of the proceedings taken in pursuance thereof, to be raised. It is well settled law that the objection regarding lack of jurisdiction is decided first. Only after its decision holding that the Court or the Tribunal has jurisdiction, other questions relating to the merits of the case arise for decision, ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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otherwise not. Accordingly, the case was sent back to the Tribunal to decide the point regarding lack of jurisdiction."
8.5. In view of the above, we admit the application filed by the assessee under rule 27 and accordingly proceed to adjudicate the technical ground of appeal raised by it. Thus the application made by the assessee under rule 27 of ITAT rules is admitted for the purpose of adjudication.
8.6. The issue raised by the assessee in its application under rule 27 of ITAT rules is that the order passed by the AO under section 147 of the Act is not sustainable in view of the fact that there was no escapement of income.
8.7. At the outset the Ld. AR before us submitted that the reopening under section 147 of the Act was done on account of a retrospective amendment inserted as an explanation after subsection 13 of section 80IA(4) of the Act. Such explanation was brought under the statute by the Finance Act 2009 having retrospective effect from 01.04.2000.
8.8. The Ld. AR further submitted that it is well-settled law that reopening of assessment is invalid under section 147 of the Act if it is made on the ground of retrospective amendment under the statute.
8.9. On the other hand the Ld. DR vehemently supported the order of the authorities below.
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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9. We have heard the rival contentions and perused the materials available on record. There was an amendment under the Act by the Finance Act 2009 with retrospective effect from 01.04.2000. Accordingly, the AO was of the view that the assessee who is acting as a work contractor is not entitled to the benefit of deduction under section 80IA(4) of the Act. Accordingly, the AO on the basis of such retrospective amendment reopened the case of the assessee under section 147 of the Act. The reason for the reopening has already been discussed in the preceding paragraph.
9.1. It is settled law that reopening of the assessment under section 147 of the Act cannot be done on account of retrospective amendment in view of the judgment of Hon'ble Gujarat High Court in the case of Sadbhav Engineering Ltd. Vs. DCIT reported in 45 taxmann.com 388 wherein it was held as under:
"In the present case, as could be noted from the material on record, the Assessing Officer on a detailed scrutiny had explained the claim made by the Assessing Officer under section 80-IA(4) of the Act. This was also challenged further before the Commissioner (Appeals) and the Tribunal. The sole question, therefore, is whether the reassessment proceedings can be initiated only on the basis of insertion of Explanation which had been substituted by the Finance (No. 2) Act, 2009 with retrospective effect from 1-4-2000. Such Explanation clarified that the deduction under section 80-IA of the Act would not be admissible in the case of an assessee carrying on business in the nature of works contract. Such explanation having held to be clarificatory in nature, the ratio laid down in the case of Asstt. CIT v. Parikshit Industries ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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(P.) Ltd. [2012] 25 taxmann.com 301 (SC) would apply. The Assessing Officer initiated such proceedings of reopening solely on such ground of insertion of Explanation and, therefore, it needs to be held as mere change of opinion. Hence, the assumption of jurisdiction on the Assessing Officer shall need to be interfered by way of writ jurisdiction.
Resultantly, all the three petitions deserve to be allowed quashing the impugned notice issued under section 148 of the Act and all consequential proceedings emanating therefrom. Rule is made absolute. There shall be, however, no order as to costs."
9. 2. The principles laid down by the Hon'ble Gujarat High Court as discussed above are squarely applicable to the facts of the present case on hand. Therefore respectfully following the same we are not inclined to uphold the reassessment proceedings under section 147 of the Act. Thus we hold that the order framed under section 147 of the Act is not sustainable in the given facts and circumstances.
9.3. The assessee succeeds on the technical ground raised by it in the application filed under rule 27 of ITAT rules. Thus we are not inclined to decide the issue on the grounds raised by the Revenue on merit. Hence the ground of appeal of the Revenue is dismissed.
10. In the result, the appeal of the Revenue is dismissed.
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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Coming to ITA No. 193/Rjt/2011 for AY 2006-07 filed by the Revenue
11. Revenue raised the following grounds of appeal:
1. The Ld. CIT(A)-I, Rajkot has erred in law and on fact of the case in deleting the addition made the A.O. by disallowing deduction u/s.80IA(4) of Rs.2,71,57,932/-.
2. On the facts of the case, Ld. CIT(A) ought to have upheld the assessment order of the A.O., dated 30/12/2010.
12. At the outset, we note that the issue raised by the Revenue in grounds of appeal and the issue raised by the assessee in the application filed under rule 27 of ITAT rules are identical to the facts as discussed above in ITA No. 192/Raj/2011. Therefore we are of the view that the order framed under section 147 of the Act is not sustainable as discussed in Para number 9 to 9.3 of this order. Thus the ground of appeal of the Revenue is dismissed and application filed by the assessee under rule 27 of the ITAT rules is allowed.
13. In the result, the appeal of the Revenue is dismissed.
Now coming to ITA No. 214/Rjt/2011 for AY 2008-09 appeal filed by the Revenue
14. Revenue has raised the following grounds of appeal:
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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1) The learned CIT(A)-I, Rajkot, has erred in law and on facts in deleting addition made on account of disallowance of deduction u/s.80IA(4) of the IT Act.
2) On legal and factual status of the case, the learned CIT(A), ought to have upheld the order of the Assessing Officer.
3) It is, therefore, prayed that the finding given in the order of the Ld.CIT(A) may be dismissed/deleted and that of the Assessing Officer be restored.
15. The only issue raised by the Revenue is that Ld. CIT(A) erred in deleting the disallowance made by the AO for Rs.34,33,399/-under section 80IA(4) of the Act.
16. The assessee during the year has claimed deduction under section 80IA(4) of the Act for Rs. 34,33,399/- only. However, the AO was of the view that the assessee is acting as a works contractor and accordingly held that the assessee is not eligible for deduction under section 80IA(4) of the Act on the basis of explanation added by finance Act 2009 w.e.f 01.04.2000 after sub-section 13 of the section 80IA(4) of the Act. Thus the AO disallowed the deduction of Rs. 34,33,399/- and added back to the total income of the assessee.
17. Aggrieved assessee preferred an appeal before the Ld. CIT(A) who has deleted the addition made by the AO by observing as under :
"5. I have carefully considered the issue. It is to be pointed out that, in the appellant's other group cases, entire issue of claim u/s.80IA(4) was examined, and it was found that assessee was actually a developer of infrastructure facilities, as it had made huge investment of its own as well ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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as out of borrowed funds, and had invested the same in all kinds of resources for its business viz. plant & machinery, structures at site, technical expertise etc. The appellant also possesses its own technical knowledge of development of these projects. In many cases, even the design of the project is prepared by the appellant and submitted to the Government for approval. Even sub-letting of the work is not permitted, therefore entire planning of its business as also the work has been done by the appellant and not by the Government. However, it is noticed that many similar cases were decided by the Ld: CIT(A), in which it was held that such assessees were not entitled to deduction u/s.80IA(4). However, in all these cases, including some group cases, the matter was taken up before the Hon'ble ITAT, Rajkot Bench, and in all the cases, the Hon'ble ITAT has held that such type of assessees were entitled to a deduction u/s.80IA(4). Such decided cases by the Hon'ble ITAT, Rajkot Bench are as under: -
(1) M/s. Tarmat BEL (JV) vs. ITO, Ward. 1(4), Rajkot ITA No.1111/RJT/2010 - A.Y. 2007- 08 dated 23.09.2010 (2) M/s. Kishor Projects Pvt. Ltd. vs. DClf, Circle-1, Rajkot ITA No. 1119/RJT/2010 - A.Y. 2007- 08 dated 27.09.2010 (3) M/s. Classic Network Pvt. Ltd. vs. DCIT, Circle-1, Rajkot ITA No. 1110/Rjr/2010 - A.Y. 2007- 08 dated 23.09.2010 (4) M/s. Ketan Construction Ltd. vs. DCIT, Circle-1, Rajkot ITA No. 1107/RJT/2010 - A.Y. 2007- 08 dated 23.09.2010 (5) M/s. KCL BEL Tarmat JV. vs. ITO, Ward. 1(2), Rajkot ITA No. 1112/RJT/2010 - A.Y. 2007- 08 dated 23.09.2010 (6) M/s. Backbone Enterprise Ltd. vs. DCIT, Circle-1, Rajkot ITA No. 1108/RJT/2010 - A.Y. 2007- 08 dated 27.09.2010
6. The issue in question is squarely covered by the decision of the Hon'ble ITAT, Rajkot Bench in the above cases. The Hon'ble ITAT, Rajkot Bench has, in the case of M/s. Ketan Construction Ltd. (in ITA No.ll07/RJT/2010), held as under :-
"7. ..................................................... The main issue in controversy which is the subject matter of appeal before us is, whether the claim of the assessee-appellant for deduction of its profits and gains can be said to be admissible in law, in view of the specific provisions of ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 17 -
Sec. 80-IA(4) read with the impugned Explanation as applied to the facts and circumstances of the case. While answering this question, it would first be relevant and appropriate for us to examine the past records of assessments of the assessee and of other similar cases dealt with by us and involving similar kinds of businesses. In this context, we find, and there is no dispute from either side in this regard, that the issue regarding nature of business in such cases came to be examined by this Bench in various cases for various assessment years. In I.T.A. Nos 837 & 838/R/2009 for A.Ys, 2003-04 & 2004-05, in I.T.A. Nos. 835 & 836/R/2009 for A.Ys. 2003-04 & 2004-05, in I.T.A. Nos. 850 & 851 /R/2009 for A.Y, 2003-04 & 2004-05, on the issue concerning deduction u/s 80-IA(4) and other connected issues, we have already upheld the claims for deduction u/s 80-IA(4) of the Act after duly examining the nature of businesses. Besides, in I.T.A. No. 168/R/08 for A.Y. 2004-05 and in I.T.A. No. 145/R/08 for A.Y. 2003- 04, we find that assessments were completed u/s 143(3) of the Act under which the impugned deduction was granted but thereafter the C.I.T. passed orders u/s 263 of the Act on the ground that the assessees were contractors and not developers. Against the said orders, appeals were filed wherein after duly examining the nature of business of those assessees, we have given a finding that although the assessees had entered into agreements with Govt. for infrastructure facilities, the same were in the nature of development by the assessees within the ambit of infrastructure facility, which aspect was also noted from the accounts of the assessees and thereafter it was held by us that the assessees being developers, they were entitled to deduction u/s 80-1A(4) of the Act. In the case of Gujarat Industrial Development Corporation and Others 227 ITR 414 has considered the meaning of "Developer" and has held that the word "Development" should be understood in its wider sense and that development means the realisation of potentiality of land or territory by building or mining, in this context therefore, based on facts on record and after examining the nature of business, it was held that the assessees were developers and not mere contractors carrying out works contract only. We find that in the present case before us the facts relating to nature of business are not shown to be different than those 'already examined by us in the aforesaid appeals decided by us. That being the case, even if the impugned Explanation is to be considered for the year under present appeal we find that the Explanation clearly refers to the business in the nature of works contract. This clearly implies that the Explanation is limited in its scope ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 18 -
and as the nature of business of the present assessee, both in view of the facts for the year under appeal as also for the view already taken by us in similar cases for earlier years cited supra, the assessee being developer of infrastructure facility, in our considered opinion, the deduction under subsection (4). cannot be denied on the ground of said Explanation. While so holding, we are conscious of the fact that the said Explanation was not on the statute book at the time of passing of our said orders in above-referred ITAs but our finding regarding nature of business of the respective assessees continues to apply even after the insertion of the said Explanation. The factual position regarding nature of business being same as in earlier years of the very same assessee as also in similar other casers before us, has not been controverted before us. Hence, in our view, although it is held that the principle of res judicata does not apply to income tax proceedings, at the same time, the equally well-established rule of consistency also cannot be overlooked. In the case of Radhasoami Satsang vs C.I.T. 193 ITR 321 (SC) the Hon'bfe Supreme Court has laid down the principle which is well accepted all along that absence of any material change, a different view than that taken in earlier years, could not be taken in later years. We are of the opinion that this proposition of law read with the rule of consistency in tax proceedings has been applied all the more while granting various deductions from total income in the light of another well recognized proposition that any provision granting rebate or benefit to the assessee should be liberally construed generally in favour of the assessee. If the present case is viewed in the light of the aforesaid perspectives and judicial propositions laid down by the highest Court of land, we find that the intention behind granting such deductions is for creation of infrastructure facilities in the country as a special benefit or rebate to eligible persons and therefore even if there could be more than one view regarding the particular nature of business of the assessee, the view favourable to the assessee can be taken.
8. The C.I.T. D.R. relied upon the decision of the Hon'ble Mumbai Bench in the case cited supra. We have carefully perused the said judgement and from the facts narrated therein, we find that in that case the assessee namely B. T. Patil & sons therein is stated to have been employed as a sub-contractor by M/s. Patel Engineering Co. to carry out civil work and that a portion of the contract was assigned to that assessee who carried out the assigned work in the capacity of a sub- contractor. In this context, we find that in the present case before us, it ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 19 -
is nobody's case that the appellant is a sub-contractor. The appellant is stated to be the person who entered into the contract with the Covt. in respect of infrastructure facility and directly was involved in executing the same. We find force in the argument of the A.R. before us that entering into a contract and that too with the Govt. only is a pre- condition u/s 80-IA(4) and hence merely because there is a contract between the Govt. and the assessee, that does not make the assessee a contractor for the purpose of a works contract only. Any person carrying on business may be required to carry out some work or the other in the course of pursuing its overall business objectives. But that does not mean that such a person does not or cannot carry out"
something more than such work only. 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.8O-IA(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 are 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 deduction 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. 80-IA(4).
9. Considering the totality of the facts on record as also the development of law concerning the granting of deductions from gross total income, we are of the considered view that the appellant is entitled ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 20 -
to deduction u/s.80-IA(4) of the Act as it has been found to have fulfilled all conditions of eligibility................................."
The Hon'ble ITAT, Rajkot Bench, therefore, held that the assessee is entitled to deduction u/s.80IA(4) of the Act.
7. The case of the appellant is identical. In the present case also, though the appellant entered into a contract with Government, or Semi- Government Authorities, but such a contract is a part of the primary condition mentioned in Section 80IA(4), and further, the nature of work carried out by the appellant shows that the appellant not only directly carried out work 'as per the allotted job, but it also employed various resources of its own by way of machineries, technical knowledge, manpower, material etc. and also funded the same out of it own capital and borrowings. The appellant was required to furnish guarantees, including free maintenance of infrastructure facilities. All these factors combined clearly show that the appellant assumed considerable risk in the capacity of a businessman, and thus, all the factors mentioned in the above appellate order of the Hon'ble ITAT, Rajkot Bench squarely applies to the appellant's case also. Therefore, respectively following the above decision of the Hon'ble ITAT, Rajkot Bench, in group cases, as well as in assessee's own case for AY 07-08 it is held that the appellant is entitled to a deduction u/s.80IA(4). The AO is directed to allow the same in A.Y. 2008-09 as well."
18. Being aggrieved by the order of the Ld. CIT(A) Revenue is in appeal before us. Both the parties before us relied on the order of the authorities below as favorable to them.
19. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the ITAT in the own case of the assessee in ITA No. 1112/RJT/2010 pertaining to the assessment ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 21 -
year 2007-08 vide order dated 23.09.2010 decided the issue in favour of the assessee. The relevant extract of the order is reproduced as under:
"7. We have carefully considered the rival submissions put forth before us by both the sides. We have also perused the orders of lower authorities and the case law cited before us alongwith the material on record. The main issue in controversy which is the subject matter of appeal before us is, whether the claim of the assessee-appellant for deduction of its profits and gains can be said to be admissible in law, in view of the specific provisions of Sec. 80-IA(4) read with the impugned Explanation as applied to the facts and circumstances of the case. While answering this question, it would first be relevant and appropriate for us to examine the past records of assessments of the assessee and of other similar cases dealt with by us and involving similar kinds of businesses. In this context, we find, and there is no dispute from either side in this regard, that the issue regarding nature of business in such "cases came to be examined by this Bench in various for various assessment years. In I.T.A. Nos. 837 & 838/R/2009 for A.Ys. 2003-04 & 2004-05, in IT.A. Nos. 835 & 836/R/2009 for A.Ys. 2003-04 & 2004-05, in I.T.A.Nos.850 & 851/R/2009 for A.Y. 2003-04 & 2004-05, on the issue concerning deduction u/s.80-IA(4) and other connected issues, we have already upheld the claims for deduction IA(4) of the Act after duly examining the nature of businesses. Besides, in I.T.A.No. 168/R/08 for A.Y. 2004-05 and in I.T.A. No. 145/R/08 for A.Y. 2003-04, we find that the assessments were completed u/s 143(3) of the Act under which the impugned deduction was granted but thereafter the C.I.T. passed orders u/s 263 of the Act on the ground that the assessees were contractors and not developers. Against the said orders,, appeals were filed wherein after duly examining the nature of business of those assessees, we have given a finding that although the assessees had entered into agreements with Govt. for infrastructure facilities, the same were in the nature of development by the assessees within the ambit of infrastructure facility, which aspect was also noted from the accounts of the ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 22 -
assessees and thereafter it was held by us that the assessees being developers, they were entitled to deduction u/s 80-LA(4) of the Act. In the case of Gujarat Industrial Development Corporation and Others 227 ITR 414 has considered the meaning of "Developer"
and has held that the word "Development" should be understood in its wider sense and that development means the realisation of potentiality of land or territory by building or mining. In this context therefore, based on facts on record and after examining the nature of business, it was held that the assessees were developers and not mere contractors carrying out works contract only. We find that in the present case before us, the facts relating to nature of business are not shown to be different than those already examined by us in the aforesaid appeals decided by us. That being the case, even if the impugned Explanation is to be considered for the year under present appeal, we find that the Explanation clearly refers to the business in the nature of works contract. This clearly implies that the Explanation is limited in its scope and as the nature of business of the present assessee, both in view of the facts for the year under appeal as also for the view already taken by us in similar cases for earlier years cited supra, the assessee being developer of infrastructure facility, in our considered opinion, the deduction under subsection (4) cannot be denied on the ground of said Explanation. While so holding, we are conscious of the fact that the said Explanation was not on the statute book at the time of passing of our said orders in above- referred ITAs but our finding regarding nature of business of the respective assessees continues to apply even after the insertion of the said Explanation. The factual position regarding nature of business being same as in earlier years of the very same assessee as also in similar other casers before us, has not been controverted before us. Hence, in our view, although it is held that the principle of res judicata does not apply to income tax proceedings, at the same time, the equally well-established rule of consistency also cannot be overlooked. In the case of Radhasoami Satsang vs C.I.T. 193 ITR 321 (SC) the Hon'ble Supreme Court has laid down the principle which is well accepted all along that absence of any material change, a different view than that taken in earlier years, ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 23 -
could not be taken in later years. We are of the opinion that this proposition of law read with the rule of consistency in tax proceedings has been applied all the more while granting various deductions from total income in the - of another well recognized proposition that any provision granting rebate or benefit to the assessee should be liberally construed generally in favour of the assessee. If the present case is viewed in the light of the aforesaid perspectives and judicial propositions laid down by the highest Court of land, we find that the intention behind granting such deductions is for creation of infrastructure facilities in the country as a special benefit or rebate to eligible persons and therefore even if there could be more than one view regarding the particular nature of business of the assessee, the view favourable to the assessee can be taken.
8. The C.I.T. D.R. relied upon the decision of the Hon'ble Mumbai Bench in the case cited supra. We have carefully perused the said judgement and from the facts narrated therein, we find that in that case the assessee namely B. T. Patil & Sons therein is stated to have been employed as a sub-contractor by M/s. Patel Engineering Co. to carry out civil work and that a portion of the contract was assigned to that assessee who carried out the assigned work in the capacity of a sub-contractor. In this context, we find that in the present case before us, it is nobody's case that the appellant is a sub-contractor. The appellant is stated to be the person who entered into the contract with the Govt. in respect of infrastructure facility and directly was involved in executing the same. We find force in the argument of the A.R. before us that entering into a contract and that too with the Govt. only is a pre- condition u/s 80-IA(4) and hence merely because there is a contract between the Govt. and the assessee, that does not make the assessee a contractor for the purpose of a works contract only. Any person carrying on business may be required to carry out some work or the other in the course of pursuing its overall business objectives. But that does not mean that such a person does not or cannot carry out something more than such work only. In the present case, we have already held that although the ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 24 -
appellant into a contract with the Govt., the contract is part of the primary condition of Sec. 80-IA(4) and Anther the nature of work carried out shows that the appellant not only indirectly (and not indirectly) carried out work as per the contract but it employed various sources of it 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 wade, employing technical know-how to execute the work and to face the consequences of attendant risks. We find that the risks are upon the assessee and not upon the Govt. These dements 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 deduction 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. 80-IA(4).
9. Considering the totality of the facts on record as also the development of law concerning the granting of deduction from gross total income, we are of the considered view that the appellant is entitled to deduction u/s.80IA(4) of the Act as it has been found to have fulfilled all conditions of eligibility. Accordingly, we direct that the deduction as claimed be allowed. In the result, both the grounds of appeal are allowed."
20. From the above order of the ITAT, we note that the issue has already been decided by the ITAT in the own case of the assessee as ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 25 -
discussed above. Therefore we do not find to deviate from the view taken by the ITAT in the own case of the assessee. Therefore respectfully following the same we do not find any merit in the grounds of appeal raised by the Revenue. Hence the appeal filed by the Revenue is dismissed.
21. In the result, the appeal of the Revenue is dismissed.
Now coming to the ITA No. 485/RJT/2014 for AY 2009-10 appeal filed by the assessee
22. The assessee has raised the following grounds of appeal:
1. The learned Commissioner of Income Tax (Appeals)-I, Rajkot has erred in dismissing the appeal whereby upholding the disallowance of claim of deduction u/s.80IA of Rs.13,14,246/-
made by the Assessing Officer is unwarranted, unjustified and bad in law.
2. The learned Commissioner of Income Tax (Appeals)-I, Rajkot has erred in initiating the penal proceedings u/s.271(1)(c) of the I T Act is unwarranted, unjustified and bad in law.
3. The learned Commissioner of Income Tax (Appeals)-I, Rajkot has erred in charging the interest u/s.234A, 234B, 234C & 234D is unwarranted, unjustified and bad in law.
23. The only issue raised by the assessee is that Ld. CIT(A) erred in confirming the disallowance made by the AO for Rs. 13,14,246/-under section 80IA(4) of the Act.
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 26 -
24. The assessee during the year has claimed deduction under section 80IA(4) of the Act for Rs. 13,14,246/- only. However, the AO was of the view that the assessee is acting as a works contractor and accordingly held that the assessee is not eligible for deduction under section 80IA(4) of the Act on the basis of explanation added by finance Act 2009 w.e.f 01.04.2000 after sub-section 13 of the section 80IA(4). Thus the AO disallowed the deduction of Rs. 13,14,246/- and added back to the total income of the assessee.
25. Aggrieved assessee preferred an appeal before the Ld. CIT(A) who has confirmed the order of the AO by observing as under:
"5.3 I have carefully considered the submission of the appellant and the finding of the A.O. in his assessment order. It is seen that this issue has been decided by the Hon'ble Gujarat High Court in the case of Katira Construction Ltd. vs. Union of India (2013) 352 ITR 513. The Hon'ble High Court has held as under:-
"In the present- case, therefore, from both the angles, namely, whether the explanation aims to expand the prevailing provision and whether being in the nature of a tax statute, such change can be permitted with retrospective effect, it would be crucial for us to discern the true effect of such explanation. In this context, we may recall that the impugned explanation below sub-section (13) to section 80IA starts with an expression "for the removal of doubts, it is hereby declared that" and provides that nothing contained in this section shall apply to in relation to a 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 the undertaking or enterprise referred to in sub-section (1). Thus the explanation in question was introduced for the removal of doubts and it declared that nothing containing in sub- section (4) would apply to a business in the nature of works contract. We may recall that sub-section (4) of section 801 A even after ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 27 -
amendment of 2002, envisaged deduction in case of any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Thus, the Legislature by way of the impugned amendment distinguished between the cases of developing/operating and maintaining/developing, operating and maintaining any infrastructure facility from the works contract awarded by any person, be it the Central or the State Government, executed by the undertaking or enterprise seeking such an exemption. That there is an intrinsic difference between developing an infrastructure facility and executing a works contract, in our opinion, can hardly be disputed............................................... In our, opinion, what the explanation aims to achieve is to clarify that deduction under section 801 A(4) of the Act would not be available in case of execution of works contract. The fact that such interpretation of the existing provisions of sub-section (4) of section 801 A of the Act, even without the aid of the explanation was possible, in our opinion, is not disputable. As noted, sub-section (4) of section 80IA even after the amendment in the year 2002 envisaged deduction in case of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Even without the aid of the explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. Particularly, bearing in mind the observations made by this Court in the case of Radhe Developers (supra), there would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility.......................................................................
We, therefore, notice that from the inception, deduction was envisaged for development of infrastructure facilities with private participation. Of course, post 2002, certain relaxations were granted and in addition to extending tax holiday period, requirement for claiming such deduction was split into developing or operating and maintaining or developing, operating and maintaining infrastructure facility. The Revenue could therefore, legitimately contend that no such deduction was envisaged for mere execution of works contract. If this was the position, in our understanding, what the explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the explanation must be seen as one being in the nature of plain and simple explanation and not either ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 28 -
adding or subtracting anything to the existing statutory provision. When we hold that the impugned explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. If we agree with the submission of the counsel for the petitioners that such explanation restricted or aimed to restrict the provisions of deduction, certainly a question of reasonableness in the context of retrospective operation would arise. In the present case, however, we have come to the conclusion that the explanation only supplied clarity where, at best confusion was possible in the unamended provision. In that view of the matter, this cannot be seen as a retrospective levy even if we were to accept that withdrawal of a deduction would amount to afresh levy. "
5.4 In this landmark decision, the Hon'ble Gujarat High Court has laid down the following principles :-
1. What the newly inserted explanation below sub-section 13 to s.8OIA aims to achieve is to clarify that deduction u/s.80IA(4) of the Act would not be available in case of execution of works contract.
2. There would certainly be a demarcation between the developing the facility and execution of works contract awarded by an agency e developing such facility.
3. The explanation must be seen as one being in the nature of plain and simple explanation and not either adding or subtracting anything to the 'ting statutory provision.
4. The legislature by way of impugned amendment has distinguished between the cases of developing/operating and maintaining/developing, operating and maintaining any infrastructure facility from the works contract awarded by any person, be it the central or state government, executed by the undertaking or enterprise seeking such an exemption.
There is an intrinsic difference between developing and infrastructure facility and executing a works contract.
In the present case, it is an undisputed fact that the appellant has been awarded works contract by the State Government. The appellant's contention ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 29 -
that because of the investment made and the cumulative nature of work carried out by him, he is a developer and hence entitled for deduction u/s.80IA(4), has no force in light of the principles laid down by the Hon'ble Gujarat High Court in the case of Katira Construction (supra). In view of the findings of the Hon'ble Jurisdictional High Court, it is held that the appellant is not entitled for deduction u/s.80IA(4). It is also necessary to mention that this decision was subsequent to the decision of the Hon'ble ITAT, Rajkot Bench or the decision of the CIT(A)-I, Rajkot relied upon by the appellant. Therefore, in light of this decision, the findings given in the earlier decisions stand negated. This ground of appeal is thus dismissed."
26. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. The Ld. AR before us submitted that the order by which the Ld. CIT(A) confirmed the disallowance of the deduction under section 80IA(4) of the Act was distinguishable from the facts of the assessee.
27. In such case, the Hon'ble Gujarat High Court has upheld the validity of explanation added after sub-section 13 of section 80IA(4) under the statute by finance Act 2009 with retrospective effect from 01.04.2000. There was no question before the Hon'ble Gujarat High Court with regard to the fact whether the assessee is acting as a works contractor or not. Therefore no reliance can be placed on the judgment of Hon'ble Gujarat High Court as discussed above in the light of given facts & circumstances.
28. On the other hand the Ld. DR vehemently supported the order of the authorities below.
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 30 -
29. We have heard the rival contentions and perused the materials available on record. It is an undisputed fact that the assessee has been claiming deduction under section 80IA(4) of the Act which was allowed for all the years which was also upheld by the ITAT in its own case.
29.1. However, the ld. CIT-A reversed his stand for the year under consideration. Therefore the issue of whether the assessee is hit by the explanation added to section 80IA(4) of the Act stands decided in favor of the assessee.
29.2. At this juncture, we are inclined to reproduce the relevant extract of the judgment of Hon'ble Gujarat High Court in the case of Katira Construction Ltd. Vs. Union of India reported in 352 ITR 513 wherein the head note reads as under:
"Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings [Constitutional validity] - Whether no deduction was ever envisaged under section 80-IA for mere execution of works contract and Explanation inserted in section 80- IA(4) by Finance (No. 2) Act of 2009 with retrospective effect from 1-4- 2000, by which it was declared that deduction under section 80-IA will not be available in respect of mere execution of works contract, only supplied clarity where, at best, confusion was possible in unamended provision - Held, yes - Whether, therefore, it cannot be seen as a retrospective levy and is constitutionally valid - Held, yes [In favour of revenue]"
29.3. On the perusal of the above judgment, we note that the issue was before the Hon'ble Gujarat High Court was with regard to the validity of ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
- 31 -
the explanation added after sub-section13 to section 80IA(4) of the Act. There was no principle laid down by the order of the Hon'ble Gujarat High Court about the assessee whether he was acting as a works contractor or developer. Therefore in our considered view, no reliance can be placed on above judgment in the given facts and circumstances.
29.4. As there is no ambiguity that the issue whether the assessee is acting as developer or works contractor has already been decided by the Tribunal in the own case of the assessee for the assessment year 2007-08 in ITA No. 1112/RJT/2010 after considering explanation added in sub- section 13 to section 80IA(4) of the Act which has already been discussed in the preceding paragraph. Therefore we are of the view that the impugned issue stands decided in favor of the assessee.
29.5. In addition to the above, we also find that the Hon'ble Jammu and Kashmir High Court in the similar fact and circumstances have decided the issue in favor of the assessee in the case of CIT Vs. TRG Industries Pvt. Ltd. reported in 76 taxmann.com 105 wherein it was held as under:
"The first and the foremost requirement is that the assessee developer should come within the ambit of section 80-IA(4)(i)(a)(b) which the assessee satisfies. There is no dispute since there is a valid contract as required. The next requirement for the benefit to be extended under the said provision is that the enterprise should provide an infrastructure facility in relation to establishing a road, a bridge or a rail system or Airport. There is no specific intendment as to the nature of work to be undertaken as is evident from the explanation. Therefore, the word contained therein has wide amplitude. The Assessing Officer was not correct in prescribing certain limits and describing the nature of work. In other words, the assessing authority attempts to dissect the contract ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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and hold that it does not justify the claim for deduction. This is not inclined to be accepted if the requirement of section 80-IA(4)(i) and section 80-IA(4)(i)(c) explanation is satisfied, then the benefit has to flow.
The provisions of section 80-IA(4)(i) applies to an enterprise carrying business of a developer, who satisfies the requirement of section 80- IA4(i)(a)(b) and provides an infrastructure facility as set out in the explanation.
If the provision is read as a whole and the explanation is read in terms of the said provision, it would be amply clear from the facts of the present case that the assessee in this case is an enterprise carrying on the business of a developer has entered into an agreement with the Central Government or the State Government or an authority prescribed under section 80-IA(4)(i)(b) and has provided the infrastructure facility in terms of Explanation to section 80-IA(4)(i)(c), the details of which are set out in the chart.
The Assessing Officer has tried to read more into the provision by describing what is the nature of work that will qualify for the benefit of deduction under section 80-IA(4). The authority is bound to consider the claim as is contained in the provisions. If certain works are accepted as infrastructure facility and other works denied at the whim of one or other authority it will lead to an incongruous result whereby different the Assessing Officer will take different yardsticks. The proceedings will thereby become arbitrary and capricious. This position will be clear from the stand of one Assessing Officer who held stand that the benefit of section 80-IA(4) will be available to the assessee in the case of construction of railway bridges for the assessment year 2004-05. The Assessing Officer has taken a different stand insofar as assessment year 2006-07 and denied deduction. The department is not entitled to take inconsistent stand in respect of each assessment year on the same set of facts.
Since the requirements of section 80-IA(4) are satisfied, the assessee is entitled to the benefit of deduction under section 80-IA(4). The respondent assessee is entitled to the deduction in respect of all assessment years for which deduction under section 80-IA(4) has been denied."
ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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29.6. Besides the above, we also note that there was no change in the facts and circumstances in the case of the assessee in the year under consideration. Therefore in our considered view, the principle of consistency will be applied in the case on hand as held by the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT reported in 193 ITR 321. Where in it was held as under:
"13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax 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 assess ment 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.
14. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter--and if there was no change it was in support of the assessee--we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12."
29.7. In view of above, we hold that the assessee is very much eligible for deduction under section 80IA(4) of the Act. Accordingly, we set aside the order of the Ld. CIT-A and direct the AO to delete the addition made ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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by him by making the disallowance under section 80IA(4) of the Act. Thus, the ground of appeal of the assessee is allowed.
30. In the result, the appeal of the assessee is allowed.
31. In the combined result, all the appeals filed by the Revenue are dismissed and the appeal filed by the assessee is allowed.
This Order pronounced in Open Court on 03 /12/2018
Sd/- Sd/-
( RAJPAL YADAV ) ( WASEEM AHMED )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 03 /12/2018
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ! / The Appellant
2. "#यथ! / The Respondent.
3. संबं&धत आयकर आयु(त / Concerned CIT
4. आयकर आयु(त(अपील) / The CIT(A)-I, Rajkot
5. ,वभागीय " त न&ध, आयकर अपील य अ&धकरण,राजोकट/DR,ITAT, Rajkot
6. गाड; फाईल / Guard file.
आदे शानुसार/ BY ORDER, स#या,पत " त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot ITA Nos.192, 193 & 194/Rjt/2011 (By Assessee) & ITA No.485/Rjt/2014 (By Revenue) M/s.KCL BEL Tarmet (JV) vs. ITO/DCIT AYs - 2005-06, 2006-07, 2008-09 & 2009-10 respectively
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1. Date of dictation .. (word processed by Hon'ble AM in his computer)
2. Date on which the typed draft is placed before the Dictating Member ...28.11.2018
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......10.12.2018
7. Date on which the file goes to the Bench Clerk.....................10.12.2018
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................