Income Tax Appellate Tribunal - Hyderabad
M/S Taher Ali Industries & Projects (P) ... vs Assessee on 20 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
S.
ITA No. & A.Y. Appellant Respondent
No.
1. ITA No. 129/Hyd/2013 M/s. Taher Ali
The ACIT
A.Y. 2003-04 Industries & Projects
Circle-2(3)
2. ITA No. 130/Hyd/2013 (P) Ltd., Hyderabad
Hyderabad
A.Y. 2004-05 PAN: AABCT4110E
3. ITA No. 104/Hyd/2013 The DCIT M/s. Taher Ali
A.Y. 2003-04 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
4. CO No. 15/Hyd/2013 M/s. Taher Ali The DCIT
In ITA No. 104/H/2013 Industries & Projects Circle-2(3)
A.Y. 2003-04 (P) Ltd., Hyderabad Hyderabad
5. ITA No. 105/Hyd/2013 The DCIT M/s. Taher Ali
A.Y. 2004-05 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
6. CO No. 16/Hyd/2013 M/s. Taher Ali The DCIT
In ITA No. 105/H/2013 Industries & Projects Circle-2(3)
A.Y. 2004-05 (P) Ltd., Hyderabad Hyderabad
7. ITA No. 1425/Hyd/2012
A.Y. 2004-05
M/s. Taher Ali The DCIT
8. ITA No. 1426/Hyd/2012
Industries & Projects Circle-2(2)
A.Y. 2008-09
(P) Ltd., Hyderabad Hyderabad
9. ITA No. 1427/Hyd/2012
A.Y. 2009-10
10. ITA No. 1483/Hyd/2012 The ACIT M/s. Taher Ali
A.Y. 2004-05 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
11. CO No. 153/Hyd/2012 M/s. Taher Ali The ACIT
In ITA No. 1483/H/2012 Industries & Projects Circle-2(3)
A.Y. 2004-05 (P) Ltd., Hyderabad Hyderabad
12. ITA No. 1484/Hyd/2012 The ACIT M/s. Taher Ali
A.Y. 2005-06 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
13. CO No. 154/Hyd/2012 M/s. Taher Ali The ACIT
In ITA No. 1484/H/2012 Industries & Projects Circle-2(3)
A.Y. 2005-06 (P) Ltd., Hyderabad Hyderabad
14. ITA No. 1485/Hyd/2012 The ACIT M/s. Taher Ali
A.Y. 2006-07 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
15. CO No. 155/Hyd/2012 M/s. Taher Ali The ACIT
In ITA No. 1485/H/2012 Industries & Projects Circle-2(3)
A.Y. 2006-07 (P) Ltd., Hyderabad Hyderabad
16. ITA No. 1486/Hyd/2012 The ACIT M/s. Taher Ali
A.Y. 2007-08 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
17. CO No. 156/Hyd/2012 M/s. Taher Ali The ACIT
In ITA No. 1486/H/2012 Industries & Projects Circle-2(3)
A.Y. 2007-08 (P) Ltd., Hyderabad Hyderabad
2 ITA. No. 129/Hyd/2013 & Ors.
M/s. Taher Ali Industries &
Projects Pvt. Ltd.
=======================
18. ITA No. 1487/Hyd/2012 The ACIT M/s. Taher Ali
A.Y. 2008-09 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
19. CO No. 157/Hyd/2012 M/s. Taher Ali The ACIT
In ITA No. 1487/H/2012 Industries & Projects Circle-2(3)
A.Y. 2008-09 (P) Ltd., Hyderabad Hyderabad
20. ITA No. 1488/Hyd/2012 The ACIT M/s. Taher Ali
A.Y. 2009-10 Circle-2(3) Industries & Projects
Hyderabad (P) Ltd., Hyderabad
21. CO No. 158/Hyd/2012 M/s. Taher Ali The ACIT
In ITA No. 1488/H/2012 Industries & Projects Circle-2(3)
A.Y. 2009-10 (P) Ltd., Hyderabad Hyderabad
Assessee by: Sri K.C. Devadas
Revenue by: Sri M.H. Naik
Date of hearing: 20.06.2013
Date of pronouncement: 30.08.2013
ORDER
PER CHANDRA POOJARI, AM:
The above appeals both by the assessee and the Revenue and the Cross Objections (COs) by the assessee are directed against different orders of the CIT(A) for assessment years 2003- 04 to 2009-10. Since the issues arising from these appeals and COs are common in nature and belong to the same assessee, all these appeals and COs are clubbed together, heard together and are being disposed of by this common order for the sake of convenience.
ITA No. 1425/Hyd/2012 - A.Y. 2004-05 - By assessee:2. The crux of the grounds raised by the assessee in this appeal is with regard to reopening of assessment and thereafter sustaining addition by the CIT(A) in respect of commission towards subcontract at 1% on the basis of audit objection.
3. The learned AR submitted that the original assessment in this case was completed u/s. 143(3) on 15.12.2006. Thereafter notice for re-assessment u/s. 148 was served on the assessee 3 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= on 25.12.2011 on the basis of audit objection. He also submitted that the assessment was reopened to consider the amount of commission at 1% of on work executed by the subcontractor on contract receipt of Rs. 17,55,72,285, which worked out at Rs. 17,55,753. Further, he submitted that there is no fresh material for reopening the assessment. The Assessing Officer (AO) reopened the assessment only on the basis of materials what he has considered while passing the original assessment order u/s. 143(3) of Income-tax Act, 1961. According to the AR, there is no failure on the part of the assessee to furnish all material facts necessary for the purpose of assessment. He relied on the judgement of Supreme Court in the case of GKN Driveshaft (I) Ltd. vs. ITO (259 ITR 19). He also submitted that audit objection cannot be a reason for reopening of assessment. For this purpose, he relied on the following judgements:
(a) Indian and Eastern Newspaper Society vs. CIT (119 ITR
996) (SC) for the proposition that opinion of internal audit party on a point of law does not constitute "information"
for the purpose of section 147(b) of the IT Act. That part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitute "information".
(b) Suresh C. Parikh vs. ITO (353 ITR 505) (Guj) wherein while allowing the petition, the High Court held that a perusal of the reasons recorded indicated that the sole ground on which assessment was sought to be reopened was that the assessee had been allowed exemption of Rs. 4,15,000 for the purchase of a residential house while computing his income, and that, in support of such purchase he had produced receipts showing deposit of the 4 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= amount with two different parties. According to the Income-tax Officer, since the receipts filed could not prove the investment made for purchase of flat, and also no evidence like purchase deed, etc., were obtainable on record, this amounted to failure on the part of the assessee to disclose fully and truly all material facts. A perusal of the prescribed return form as existing at the relevant time and the notes thereto indicated that there was no requirement of producing any document like purchase deed, etc. The assessee was required to state material facts in respect of the claim for exemption under section 54 of the Act which he had duly stated. Hence, merely because the Assessing Officer who had sought to reopen the assessment found the proof submitted by the assessee at the time of assessment proceedings to be not sufficient for the purpose of admitting the claim, it could not be said that there was any failure on the part of the assessee so as to invoke the provisions of section 147 of the Act. The notice under section 148 of the Act, therefore, could not be sustained.
(c) Gujarat Flurochemicals Ltd. vs. ACIT (353 ITR 398) (Guj) wherein the High Court while allowing the petition, held that it was contended on behalf of the assessee that the Assessing Officer held no independent belief that income chargeable to tax had escaped assessment. He submitted that the Assessing Officer was under compulsion by the audit party to issue notice for reopening of assessment though she herself held a firm belief that no income had escaped assessment. The Assessing Officer in her affidavit did not deny this. In the affidavit what was vaguely stated was that the Department was apprehensive about the source of information on the basis of which such averments were 5 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= made. Inter-departmental correspondence was strictly confidential. On a direction from the court the Revenue made a candid statement that the file containing exchanges between the Assessing Officer and the audit party was not traceable. The Revenue not having either denied the clear averments of the assessee made in the petition on oath nor having produced the original files to demonstrate the independent formation of opinion by the Assessing Officer though sufficient time was made available, the issue stood firmly concluded in favour of the assessee. The reassessment notice was not valid.
(d) Rose Serviced Apartments Pvt. Ltd. & Anr. vs. DCIT (348 ITR 452) (Del) wherein held that an assessment cannot be reopened on a mere change of opinion; where there is no allegation that there was failure on the part of the assessee to disclose true and full facts, notice issued u/s. 148 after expiry of four years was not valid.
4. The DR relied on the orders of the lower authorities.
5. We have heard both the parties and perused the material on record. In the present case original assessment was completed u/s. 143(3) of the Act on 15.12.2006. The re- assessment notice u/s. 148 was issued to the assessee vide notice dated 25.2.2011 and assessment was completed on 21.11.2011. Section 147 of the Act reads as follows:
"Income escaping assessment
147. If the Assessing Officer,[has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has 6 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:] Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1: Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2: For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-7 ITA. No. 129/Hyd/2013 & Ors.
M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;]
(c) where an assessment has been made, but-
(i) income chargeable to tax has been under assessed; or
(ii) such income has been assessed at too Iowa rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.]
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed].
Explanation 3: For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in 8 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= the reasons recorded under sub-section (2) of section 148.] Explanation 4: For the removal of doubts, it is hereby clarified that the provisions of this section, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.]"
6. Section 149 prescribes time limit for issue of notice which reads as follows:
"Time limit for notice.
[(1) No notice under section 148 shall be issued for the relevant assessment year,-
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.]
(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.] Explanation: In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.] (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section
151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in 9 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= ,pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of [two years] from the end of the relevant assessment year.
Explanation.-For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.]"
7. Being so, a period of four years from the end of relevant assessment year is normally the period during which the AO can issue a notice unless the case falls under clauses (b) and (c) of section 149 of the Act which gives extended period of 6 years from the end of the relevant assessment year. Now the argument of the AR before us is that the Department has no material to show that the income which is said to have been escaped is on account of failure on the part of the assessee so as to reopen the assessment when the original assessment was completed u/s. 143(3) of the Act. Provisions of section 147 prescribed that no action should be taken u/s. 147 after the expiry of four years from the end of the relevant assessment year, unless income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make a return u/s. 139 or in response to notice issued under subsection (1) of section 147 or section 148 or to disclose fully and truly all material facts necessary for its assessment for that assessment year. The DR was not able to point out applicability of these provisions to assessee's case. Unless these conditions are fulfilled assessment cannot be held to be valid. Being so, in our opinion, initiation of re-assessment proceedings for the assessment year 2004-05 by means of notice u/s. 148 dated 25.2.2011 after a period of more than 4 years is clearly barred by time limit. Being so, we are not in a 10 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= position to uphold the reopening of assessment. Accordingly, re-assessment order is quashed.
8. The other grounds in this appeal raised by the assessee on merit are dismissed as infructuous, as we have already adjudicated the appeal on legal issue.
9. In the result assessee's appeal in ITA No. 1425/Hyd/ 2012 is allowed.ITA No. 1426/Hyd/2012 - A.Y. 2008-09 - By assessee and ITA No. 1427/Hyd/2012 - A.Y. 2009-10 - By assessee:
10. The first common ground in these appeals is with regard to disallowance of depreciation on plant and machinery. Brief facts of the issue are that the assessee raised this ground as ground No. 3 before the CIT(A) which reads as follows:
"3. The AO has erred in disallowing the depreciation on machinery which was acquired by the assessee under finance lease from M/s. IVRCL Ltd., without going into the details of the lease agreement, agreement for mobilisation advance and other related transactions. In other words without going into the merits of the case and legality of same. Moreover, there is no dispute with M/s. IVRCL Ltd., with regard to the acquisition of the assets in other words there is no dispute with regard to the leased assets with M/s. IVRCL Ltd., as the same is still being under the use by the assessee and no lease is being paid subsequent to the expiry of lease period even though the leased assets is being held by the assessee and M/s. IVRCL Ltd., has no right over the leased assets after the expiry of lease period which implies that the ownership is with the assessee after the expiry of lease period and the assessee is eligible for depreciation u/s. 32 of the IT Act, 1961."
11. This ground was not adjudicated by the CIT(A). The AR submitted that when the issue was not adjudicated by the CIT(A), it is deemed to have been dismissed by the CIT(A). For 11 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= this proposition, the AR relied on the judgement of Gujarat High Court in the case of CIT vs. Steel Cast Corporation (107 ITR
683) wherein it was held as under:
"Held, It must be found out what is the subject- matter of the appeal and that can be determined only by finding out what the AAC expressly or impliedly decided. Implied decision means that though a point might have been raised before the AAC, in his final order the AAC might not have dealt with that point and thereby impliedly rejected it. That is an implied decision of the AAC and a party may be aggrieved by an express decision of the AAC or by an implied decision of the AAC. The subject-matter of appeal before the Tribunal can only be the decision express or implied of the AAC and the jurisdiction of the Tribunal is restricted to the subject-matter of appeal. In the instant case, the grievance of the assessee before the Tribunal was that, though the question of relief under s. 80J and 80J(3) was orally urged before the AAC in the course of arguments, the AAC in his order had not dealt with this point and had not granted any relief. If in fact such a contention was orally urged, the Tribunal, in the first instance, should have found out whether factually the ground of appeal before it was correct or not, namely, whether such an oral contention had or had not been raised before the AAC. If such oral contention had been raised before the AAC, then the grievance of the assessee that the AAC had not dealt with this contention orally urged before the AAC at the time of the appeal formed the subject-matter of the appeal before the Tribunal and the Tribunal had the jurisdiction to deal with the question. In the exercise of that jurisdiction it was open to the Tribunal to remand the matter back either to the ITO or to the AAC to ascertain the facts regarding its claim for relief under s. 80J. The record of the Tribunal need not show and is not likely to contain whether in fact this contention was orally urged before the AAC by the assessee. Therefore, the Tribunal should first ascertain for itself whether such a contention had in fact been urged before the AAC. If it comes to the conclusion that it was not urged by the assessee before the AAC, then the grievance that the AAC did not take its contention regarding s. 80J into account cannot form the subject-matter of the appeal before 12 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= the Tribunal and it is not open to the Tribunal to allow the assessee to raise the same plea before the Tribunal for the first time. The Tribunal has failed to consider and decide the question whether the point regarding relief under s. 80J was urged before the AAC or not and it will be open to the Tribunal to dispose of the appeal under s. 260, sub-so (1), in the light of the observations made by Court after determining the question which ought to have been decided first."
12. On the other hand, the learned DR submitted that the issue is covered against the assessee by the Tribunal order in assessee's own case in ITA Nos. 720/Hyd/07 and 843/Hyd/08 for A.Ys. 2006-07, 2003-04 and 2004-05 dated 21.1.2011 wherein the claim of the assessee was rejected.
13. We have heard both the parties and perused the material on record. Admittedly, this issue is covered against the assessee by earlier order of the Tribunal (cited supra). However, the AR submitted before us that the facts in these two assessment years are entirely different as compared to the earlier assessment years and in the assessment years under consideration the assessee is the owner of plant and machinery and it was shown in the Balance Sheet and the depreciation has to be granted. Considering this plea of the assessee, in our opinion, it is appropriate to remit the issue to the file of the CIT(A) for consideration after taking note of the assessee's arguments as well as the decision cited supra and decide accordingly. This ground is allowed for statistical purposes.
14. The next ground in these two appeals is with regard to disallowance of liquidated damages.
15. The contention of the AR is that this expenditure pertains to liquidated damages as the same is charged by the contractee departments towards delay in execution and the same is not 13 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= penal action by the contractee departments. Since recoveries are entirely based on commercial agreement and is not the statutory provision, the same cannot be disallowed.
16. The DR submitted that the above ground is not before the CIT(A) and the same is to be dismissed.
17. We have heard both the parties and perused the material on record. Admittedly this ground does not find place before the CIT(A). Accordingly, considering the plea of the DR, we are inclined to remit the issue back to the file of the CIT(A). This ground is partly allowed for statistical purposes.
18. The next ground is with regard to ad-hoc disallowance towards unvouched expenditure at Rs. 80 lakhs in both the assessment years. The assessee raised this ground before the CIT(A) as ground No. 2 which is as follows:
"The AO has made an addition of Rs. 80.00 lakhs and whereas has failed to bring any material to show that the provisions of section 40A(3) of IT Act, 1961 were applicable and in such a situation the AO is not authorised to resort to any arbitrarily estimated additions but to complete the assessment after computing the income in accordance with the books of account."
19. However, there is no adjudication by the CIT(A) in his order. Being so, we feel it appropriate to remit the issue back to the file of the CIT(A) for adjudication.
20. In the result, ITA No. 1426/Hyd/2012 and ITA No. 1427/Hyd/2012 are partly allowed for statistical purposes.
ITA No. 129/Hyd/2013 - A.Y. 2003-04 - By Assessee ITA No. 104/Hyd/2013 - A.Y. 2003-04 - By RevenueCO No. 15/Hyd/2013 - A.Y. 2003-04 - By Assessee ITA No. 130/Hyd/2013 - A.Y. 2004-05 - By Assessee 14 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= ITA No. 105/Hyd/2013 - A.Y. 2004-05 - By Revenue CO No. 16/Hyd/2013 - A.Y. 2004-05 - By Assessee
21. The above appeals and COs by the assessee as well as by the Revenue are relating to levy of penalty u/s. 271(1)(c) of the Act. In the A.Y. 2003-04, the AO levied penalty u/s. 271(1)(c) of the Act at Rs. 33,49,763 and for A.Y. 2004-05 at Rs. 21,83,443.
22. The Assessing Officer for the A.Y. 2003-04 first made an addition of Rs. 50 lakhs towards unvouched expenditure in respect of jointing, labour, supervision charges, site preparation, etc. He also made addition at Rs. 41.15 lakhs by disallowing depreciation on plant and machinery which were taken on lease by the assessee from M/s. IVRCL. In respect of above discrepancies noticed by the Assessing Officer, he levied penalty u/s. 271(1)(c) of the Act towards this. On appeal, the CIT(A) deleted the penalty in respect of disallowance of expenditure. However, he confirmed the penalty in respect of depreciation disallowance. Similarly, for A.Y. 2004-05, there was a disallowance of expenditure at Rs. 50 lakhs and also disallowance of depreciation at Rs. 30,86,250 in respect of assets taken by the assessee on lease from M/s. IVRCL. On these two counts penalty was levied by the AO.
23. On appeal, the CIT(A) deleted the penalty levied in respect of ad-hoc disallowance of expenditure. However, he confirmed the penalty in respect of disallowance of depreciation. Against deletion of penalty, the Department is in appeal before us for A.Ys. 2003-04 and 2004-05. For sustaining penalty in respect of disallowance of depreciation, the assessee is in appeal before us for the same assessment years. The assessee also filed COs for these assessment years in support of deletion of penalty towards unvouched expenditure.
15 ITA. No. 129/Hyd/2013 & Ors.M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
24. The assessee not pressed the COs in CO No. 15/Hyd/2013 and 16/Hyd/2013 and the same are dismissed as not pressed.
25. The learned AR submitted, with regard to sustaining of penalty on disallowance of depreciation, that the assessee claimed depreciation on plant and machinery taken on lease basis from M/s. IVRCL and paid monthly instalments as per lease agreement. He also submitted that after expiry of lease period, as per clause No. 7 of the lease agreement dated 30.3.2001 with effect from 30.9.2002, the assessee became the owner of the said plant and machinery. He drew our attention to clause No. 7 of the lease agreement which reads as follows:
"7. TRANSFER OF OWNERSHIP: The machinery leased out as per schedule "A" hereto shall be transferred to Taher Ali on payment of Rs. 10,00,000/- (Rupees ten lakhs only) after completion of the lease period and regular payment of the lease rentals. It is expected that the lease rentals shall be regularly paid."
26. Further, he submitted that the assessee has been regularly paying the lease rentals and also paid Rs. 10 lakhs as per Lease Agreement. According to the AR, the plant and machinery is owned by the assessee and the same is appearing in the Balance Sheet of the assessee. Accordingly, the assessee is entitled for depreciation. The Tribunal has not considered these facts in the quantum appeal and disallowed the depreciation. Without prejudice to the above argument, he submitted that not granting of depreciation by the Revenue authorities cannot be a reason for levy of penalty u/s. 271(1)(c) of the Act. He relied on the judgement of Supreme Court in the case of CIT v. Reliance Petro Products Pvt. Ltd. (322 ITR 158).
16 ITA. No. 129/Hyd/2013 & Ors.M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
27. On the other hand, the learned DR submitted that the issue pertains to the claim of depreciation which was disallowed by the AO and this disallowance was confirmed by the Tribunal. The assessee claimed depreciation amounting to Rs. 41,15,000 for A.Y. 2003-04 and Rs. 30,86,250 for A.Y. 2004-05 on leased plant and machinery. There is no ambiguity in the law that depreciation is to be allowed only if the asset is owned by an assessee and is put to use during the financial year for business purposes. In the current case certain plant and machinery had been taken on lease by the assessee from M/s. IVRCL since many years. The assessee fully knew that the assets were not owned by it and that it could not claim depreciation on these assets. It was also within the knowledge of the assessee that M/s. IVRCL was claiming depreciation on these very assets. In earlier years the assessee had not claimed depreciation on these assets. The assessee made two claims with respect to the same plant and machinery i.e., claim for lease rentals and claim for depreciation. The assessee knew that both the claims cannot be simultaneously allowed. However, in spite of that legal knowledge it made the claims in question.
28. The DR further submitted that the assessee's argument that it is a legal issue and hence penalty cannot be imposed is not tenable. Firstly, there is no legal debate on the fact that both the claims in question cannot be made at the same time. Moreover, the facts are very clearly indicating the intent of the assessee. Had the assessing officer not conducted scrutiny and not added the amount in the assessment order, the assessee would have got away with its claim on depreciation which is not allowable. In addition it would also have claimed lease rentals on the same plant and machinery. The intent of the assessee was very obvious i.e., to artificially reduce their taxable income 17 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= by making the claims towards depreciation which are not allowable. He submitted that the Tribunal has clearly brought out the facts in its order in ITA No. 843/Hyd/08 dated 21.01.2011 for A.Y. 2004-05 and drew our attention to the relevant portion of which is as under:
"5 We have considered the rival submissions and perused the material available on record. With regard to the disallowance of expenditure amounting to Rs. 50 lakhs, we find that the department found that most of the payments paid by the assessee are by cash and no proper external vouchers are available for such payments. It is claim of the assessee that certain expenditure was incurred by M/s. IVRCL on behalf of the assessee and the same was debited to the account of the assessee as reflected in the ledger account. The assessee not produced any primary evidence in support of its claim. The assessee has not produced any evidence except filing account copy of M/s. IVRCL. The account copy of the IVRCL cannot be taken as proof of payment of expenditure. In some instances, the assessing officer noticed that the amounts debited in the capital accounts also reflected in the ledger account. The department rightly observed that the assessee could not absolve his duty simply by stating that the amount was paid by the IVRCL.
Since the assessee company claimed the expenditure, in our considered view, it is the duty of the assessee company to prove the genuineness of the same. In the absence of the supporting evidence, the department rightly not certified the correctness of the expenditure Incurred by the assessee company. The decision relied on by the learned, counsel are all distinguishable on facts of the instant case. As most of the payments are made by the cash and as most of the expenditure was not properly supported by vouchers, the lower authorities are rightly disallowed the expenditure amounting to Rs. 50 lakhs on ad-hoc basis and added the same to the income returned. In view of the above, we do not see any infirmity in the orders of the lower authorities and the same are upheld. With regard to the disallowance of depreciation of Rs. 41,15,000/- on certain leased machinery, we find that the assets were taken from 18 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= IVRCL on lease basis. We find that the assessing officer made an enquiry with IVRCL and found that the IVRCL still claiming depreciation on the assets in question which is evidenced by the letter dated 17-2- 2006 by IVRCL. Since the IVRCL not transferred the asset to the assessee company and they continue to claim depreciation, the lower authorities are right in holding that the assessee is not entitled for any depreciation and rightly allowed the lease rentals paid by the assessee as revenue expenditure. Hence, in our opinion, there should not by any grievance to the assessee in this regard. In view of the above, we do not see any infirmity int he orders of the lower authorities and the same are upheld. Hence, we reject grounds taken by the assessee on both the issues."
29. The learned DR on the issue relating to deletion of penalty on disallowance towards unvouched expenditure submitted that at the time of assessment proceedings, it was noticed that the assessee claimed expenditure in A.Y. 2004-05 towards site expenses at Rs. 37,91,067, laying, jointing and carting at Rs. 2,85,13,377, welfare expenses at Rs. 17,83,567 and miscellaneous expenses at Rs. 12,74,829. Same is the position for the A.Y. 2003-04 and only change in the amounts. On verification of the books of account and the vouchers produced by the assessee indicated that a good part of those claims were only supported by vouchers and payments were made in cash. While the assessee received reimbursement of the expenditure from the subcontractors, at the same time it failed to keep proper record of the expenditure incurred by it for earning the income. The assessee also failed to give satisfactory explanation for non maintenance or non production of proper vouchers. The AO added a lump sum amount of Rs. 50 lakhs in A.Y. 2003-04 and Rs. 30 lakhs in A.Y. 2004-05 to the income of the assessee on account of unverifiable expenditure. The AR of the assessee also agreed to this addition and so penalty was levied u/s. 271(1)(c) of the Act and he prayed to confirm the penalty.
19 ITA. No. 129/Hyd/2013 & Ors.M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
30. Regarding deletion of penalty, the AR relied on the order of the CIT(A).
31. We have heard both the parties and perused the material on record. Regarding the penalty on disallowance of depreciation on plant and machinery the penalty was levied by placing reliance on the order of the Tribunal in ITA No. 843/Hyd/2008 dated 21.1.2011 for A.Y. 2004-05 wherein the Tribunal confirmed disallowance of depreciation as cited above.
32. For levying penalty u/s. 271(1)(c) of the Act, there has to be concealment of particulars of income of by assessee or furnishing of inaccurate particulars of its income. In the present case, it is not the case of concealment of income and also it cannot be said that the assessee has furnished inaccurate particulars of income. The assessee claimed depreciation on plant and machinery taken on lease from M/s. IVRCL. It is on the basis of lease agreement entered by the assessee on 30th March, 2001 with M/s. IVRCL. It is in consonance with the agreement. However, the Tribunal not agreed with the contention of the assessee's counsel in its appeal in quantum addition. The facts remain that the assessee is having bona-fide belief that it is entitled for depreciation as per the lease agreement and the assets have been duly reflected in the Balance Sheet. The assessee has furnished the entire facts relating to this issue which was not found favourable with the Department. The Revenue authorities rejected the claim of granting of depreciation. It was up to the Revenue authorities to accept or reject the claim of the assessee. Merely because it was rejected, it does not lead to the conclusion that the assessee is liable for penalty. In our opinion, the disallowance of depreciation that itself cannot be said that it is false. So that the 20 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= judgement relied on by the Department in the case of CIT vs. Vidya Gauri Natverlal & Ors. (238 ITR 91) cannot be applied to the facts of the case. Accordingly, we delete the penalty on this issue by placing reliance on the judgement of Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd., wherein held that merely because the assessee claim of deduction of expenditure which was not accepted by the Revenue authorities, penalty u/s. 271(1)(c) of the Act is not attracted; mere making of a claim, which is not sustainable in law, will not amount to furnishing of inaccurate particulars of income of the assessee.
33. In view of the above discussion, we are inclined to delete the penalty on this issue. The assessee appeals in ITA Nos. 129/Hyd/2013 and 130/Hyd/2012 are allowed on this issue.
34. Regarding levy of penalty on ad-hoc disallowance of expenses like jointing, labour, supervision charges, site preparation, etc., this was disallowed on the reason that the expenditure was not properly vouched and the disallowance of expenditure is on ad-hoc basis. There is no conclusive proof that the assessee has furnished inaccurate particulars of income or concealed the particulars of income. The assessee was not able to file all vouchers and bills and that led to disallowance and the lump sum disallowance was made on estimate basis which cannot be a reason for levy of penalty. The AO could not point out which item of expenditure was not verifiable. Had the AO pinpointed the particular expenditure that is not verifiable then the case will be different. The Assessing Officer without examining the recipients of the payments, it is not appropriate to come to the conclusion that the assessee has concealed any particulars of income or furnished inaccurate particulars of income. The penalty 21 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= proceedings are quasi criminal proceedings and the consideration that arise in penalty proceedings are different from those arising in the assessment proceedings. Though the finding given in the assessment order is a good finding, the same is not conclusive in penalty proceedings. What is required to be seen is whether the addition has been passed on the material from which definite inference can be drawn that the assessee had concealed the income or furnished inaccurate particulars of income. In this case addition is made purely on estimate/ad-hoc basis without any basis and without any material to support that the assessee had income more than that declared by the assessee in its return of income. In respect of such estimated addition or disallowance, imposition of penalty will not be justified. Being so, we are inclined to confirm the deletion of penalty by the CIT(A). This ground in Revenue appeal is dismissed.
35. The assessee's appeals in ITA No. 129/Hyd/2013 and ITA No. 130/Hyd/2013 are allowed. Revenue appeals in ITA Nos. 104 and 105/Hyd/2013 are dismissed. The COs by the assessee in CO Nos. 15 and 16/Hyd/2013 are dismissed.
Revenue Appeals Assessee's COs___ ITA No. 1483/Hyd/2012 - CO No. 153/Hyd/2012 ITA No. 1484/Hyd/2012 - CO No. 154/Hyd/2012 ITA No. 1485/Hyd/2012 - CO No. 155/Hyd/2012 ITA No. 1486/Hyd/2012 - CO No. 156/Hyd/2012 ITA No. 1487/Hyd/2012 - CO No. 157/Hyd/2012 ITA No. 1488/Hyd/2012 - CO No. 158/Hyd/2012
36. The Revenue raised a common ground in the above appeals with regard to granting of deduction u/s. 80IA of the Act by the CIT(A) by holding that the business of the assessee was that of a developer of infrastructure facility as envisaged in 22 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= the provisions of section 80IA of the Act. The assessee filed the COs in support of the CIT(A) order.
37. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing of pipes for water supply and sewerage scheme and turnkey contractors in infrastructure sector, claimed deduction u/s. 80IA. The Assessing Officer, in the original assessment for the A.Ys. 2004- 05 to 2007-08 completed the assessments by disallowing deduction u/s. 80IA claimed by the assessee. Aggrieved by this, the assessee further filed appeals before the Tribunal, Hyderabad Benches. The Tribunal has remitted back the issue to the file of the Assessing Officer. In all these assessment years, i.e., A.Y. 2004-05 to A.Y. 2007-08, the Assessing Officer has reopened the assessments and decided the assessments by disallowing deduction u/s. 80IA and completed the assessments. Hence, these appeals were filed by the assessee for these assessment years before the CIT(A). For the assessment years 2008-09 and 2009-10, by following the earlier year assessments and to maintain continuity, the Assessing Officer completed the assessments by disallowing deduction u/s. 80IA. Aggrieved with this also, the assessee filed appeals for these two A.Ys. i.e., A.Ys. 2008-09 and 2009-10. On appeal, the CIT(A) allowed the claim of the assessee u/s. 80IA of the Act. Against this, the Revenue is in appeal before us.
38. We have heard both the parties and perused the material on record. We find similar issue was considered by this Tribunal in Sushee Hitech Constructions Pvt. Ltd. for A.Ys. 2005-06 to 2007-08 in ITA Nos. 269/Hyd/2009, ITA No. 1165/Hyd/2009 and ITA No. 1171/ Hyd/2010 respectively vide order dated 16.3.2012. The Tribunal by the said order decided the issue in the following manner-
23 ITA. No. 129/Hyd/2013 & Ors.M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= "31. Findings: We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 80IA (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA (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 Income-Tax Act. We find that 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 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word "owned" in sub- clause (a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clears 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 80IA (4) and not any other person like individual, HUF, Firm etc.
32. We also find that according to sub-clause (a), clause (i) 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 the infrastructure 24 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= 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.
33. The next question is to be 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 to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each 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. We find that 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 infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be 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 25 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= 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 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 un-developed 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 80IA (4) of the Act. 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, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.
34. We also find that as per the provisions of the section 80IA of the Act, 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 26 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= 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.
35. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi Civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended 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 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. 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 the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only 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 27 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= 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 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. Further, the order of Tribunal in the case of B.T. Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) 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 w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features to be segregated and on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitle for deduction u/s 80IA of the Act. The profit from such contracts which involves 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. It is needless to say that in similar circumstances, similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 28 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= the Tribunal has taken the same view by inter-alia holding as follows:
"7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80IA."
36. The above order was followed in subsequent assessment years 2007-2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee. Further, in similar circumstances, this Tribunal in the case of M/s. GVPR Engineers Ltd. Hyderabad in ITA No. 347/H/08 & others vide order dated 29th February 2012 has taken similar view and granted deduction under section 80IA of the act.
37. Further, we make it clear that 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 for deduction u/s 80IA of the Act. The same is applicable in case of work allotted by Government Corporation/Government Bodies.
38. Further in the case of R.R. Constructions, the Chennai Bench of the Tribunal in its order dated 3.10.2011 in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 held as follows:
"3. We have heard rival submissions and have carefully perused the entire record. The first issue of the appeal is regarding claim of deduction under section 80IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80IA(4) of the Act. The section 80IA(4) applies to any 29 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= enterprise, which carries on the business of (i) developing or
(ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfil all the above conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 01.04.1995.
From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of any one of the above mentioned three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, who develop the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer i.e. to the person who is carrying on the activity of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development. While filing the return, the assessee had made claim under section 80IA(4) of the Act.
4. The assessee has also produced all six agreements regarding six projects undertaken before the Assessing Officer, whose copies are available before us also. It is a fact that even after taking a contract from the Government, if the assessee develops infrastructure facilities, it would be regarded as a 'developer' and not as a 'works contractor'. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the 30 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= infrastructure facility becomes a developer to claim exemption under section 80IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. vs. DCIT in ITA No.1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4).
5. We have also taken a similar view in ITA No. 554/Mds/2010 in the case of East Coast Constructions & Industries Ltd v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder:
"9. After considering the rival submissions, we can safely say that the benefit of section 80IA is available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A person who enters into contract with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, as referred to in sub-section(4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80IA(4). Having said that, now we examine the facts of this case. The assessee- company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanation and amendment thereto. To trace the history of this deduction, we find that originally, in the provision of section 80IA, there was no mention of any development of 'infrastructure facility'. It is only with effect from 1.4.2000, this section was divided into two portions 80IA and 80IB. Section 80IA(4) prescribes about the deduction available to a developer who develops infrastructure facilities. In view of the amendment inserted by the Finance Act, 2007, with retrospective effect from 1.4.2000, the deduction u/s 80IA is available to those assessees who are 'investing and developing infrastructure facility' and not to persons who simply executes 'works- contracts'. Explanation in question, as it stands today, reads as under:
"Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section(i.e. 80IA) shall apply to a 31 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= person who executes a works contract entered into with the undertaking or enterprise, as the case may be."
In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA.
10. We have found that the assessee-company is a works contractor, who has entered into agreement with the local bodies to execute certain part of the work awarded to it through contract for infrastructure facility. It is true that where a person who makes infrastructure and himself executes development work and carries out civil work will be eligible for tax benefit u/s 80IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s 80IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s 80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper book] "Developer" means - a person engaged in development or operation or maintenance of Special economic Zone, and also includes any person authorized for such purpose by any such developer. The "works contract" means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT vs Indwell Lianings Pvt. Ltd (supra), on which the Assessing Officer has placed reliance is also relevant 32 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= and we extract certain relevant portion of this decision for ready reference:
Vide Finance Act, 2007, an Explanation was inserted with retrospective effect from April, 2000 after sub-section (13) of section 80- IA, which reads as under :
"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be."
According to Attorney's Pocket Dictionary, in relation to a corporation or business, the term "undertaking" denotes its whole enterprise and the word "enterprise" connotes all the related activities performed either through unified operation or common control by any person or persons for a common business purpose.
The mens legis with reference to developer of infrastructure facility can be gathered from the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.) 292 at page 312, which reads as under :
"Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones.
The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract.
Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- lA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for 33 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= executing works contract, will not be eligible for tax benefit under section 80- IA.
This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the assessment year 2000-01 and subsequent years."
It is made abundantly clear that the prescription of section 80- IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself executes development works and carries out civil works, will be eligible for tax benefit under section 80- IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract will not be eligible for the tax benefit under section 80-IA of the Act.
In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such, the benefit of section 80-IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and reverse the order of the Commissioner of Income-tax (Appeals)"
11. To further elaborate the discussion on this issue, paras 5 & 6 of the decision of ITAT Pune Bench rendered in the case of Laxmi Civil Engg. P. Ltd vs Addl. CIT, order dated 8.6.2011 are being extracted herein below:
5. We heard both the parties and perused the orders of the revenue. The contentious issues before us are (i) whether the contractor is synonymous with the developer within the meaning of section 80IA (4)(i) of the Act; (ii) whether the condition placed in clause (c) is applicable to the case of a developer, who is not carrying on business of operating and maintaining the infrastructural facilities. In our opinion, the answer to these question are provided by the judgment of the Bombay High Court in the case of ABG Heavy Engg Ltd (supra). In this regard, we perused the above cited para-22 of the said judgment and for the sake of completeness, the said paragraph is reproduced as under:-
"22. The submission which was urged on behalf of the Revenue is that Clause (iii) of sub-section (4A) of section 80-lA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April, 1995. The same requirement is embodied in sub 34 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= clause (1) of sub-clause (4) of the amended provisions. It was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law. "
That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility' which fulfils certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be harmoniously construed with the main provision under which deduction is available to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility".
A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or
(iii) develops, maintain and operates that infrastructure facility. However, the commencement of the operation and maintenance: of the infrastructure facility should be after 1"
April, 1995. In the present case the assessee clearly fulfilled this condition ".
Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S. 80-IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature
6. The above judgment of the Hon'ble High Court is delivered in the case of ABG Heavy Engg Ltd (supra), who is a contractor for the INP Trust and that contactor, assessee is found to be an eligible developer for making claim of deduction u/s section 80IA (4) of the Act. From the above, it is evident 35 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= that the person who only develops the infrastructure do not have the occasion to operate and maintain the infrastructure. It is further evident that the harmonious reading is necessary and mandatory in view of High Court's judgment in the case of an enterprise carrying on business or developing which is the case of the assessee, all the conditions referred to clause (i) of section 80IA (4) should refer to the conditions as applicable to the developer. In other words, the developer who is only developing the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfil the condition at sub clause (c) which is an impossibility and the requirements to fulfil the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis-à-vis of clause (i) of section 80IA (4) of the Act. Thus, the discussion in High Court's decision in paragraph-22 extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80IA (4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee. "
12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be liberally construed.
13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory to the term 'developer'. In fact, in every development the term 'developer' will definitely be a 'works contractor' but every works contractor may not be a 'developer'. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfils all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who - develops or operates and also maintains; or develops, maintains and operates that infrastructure facility. The provision for giving the impugned incentives has been examined, re-examined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a 36 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterprise, but only of the authority in question. Therefore, again this provision in so far as the conditions required to be fulfilled to be eligible for this incentive had to be provided by the juridical forums dealing with this issue. After in-depth deliberations, discussions and examination of these provisions, finally, it has been resolved that if an enterprise even after entering into a contract with a local authority or the Governments, may be Central or State, in case it constructs the infrastructure facility, operates it and also maintains the same, it would be eligible for this deduction.
14. Now, let us examine the facts of the given case. It is an undeniable fact that the assessee is engaged in the civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments. In fact, as per the terms of agreement, even the initial proposals formulated by the Department which are stated to be tentative, the assessee has the liberty to make different proposals without detrimental to the general features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon means "a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer". In the case of ACIT vs Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No. 145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a 'contractor' undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from 37 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= being a 'developer' as well. The term 'contractor' is not necessarily contradictory to the term 'developer'. On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a 'developer'. The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a 'developer'; nor will it debar the assessee from claiming deduction u/s 80IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held to be eligible for deduction u/s 80IA(4). Section 80IA(4)(i)(b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it by handing over the possession thereof to the concerned authority as required by the agreement. The handing over of the possession of developed infrastructure facility/project is the transfer of the infrastructure facility/project by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to the Government or authority takes place after recoupment of the developer's costs whether it be "BT' or 'BOT' or 'BOOT' because in 'BOT' and 'BOOT' this recoupment is by way of collection of toll there from whereas in 'BT' it is by way of periodical payment by the Government/Authority. The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of 'BOT' or 'BOOT' and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, 38 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= the decision of ACIT vs Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No. 4/2010[F.No. 178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i). The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT vs ABG Heavy industries Ltd, 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the enterprise. It applies to a work contract entered into between the enterprise and other party 'the sub-contractor'. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur 'A' Bench in the case of Om Metal Infra projects Ltd vs CIT-I, Jaipur, in I.T.A. No. 722 & 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai 'F' Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub-contractor and not a mini contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT vs Smt. C. Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80IB(10), but the definition of 'developer' given in that case is also relevant for this purpose. Moreover, we are in agreement that in incentive provisions, the construction should be liberally given as held by the Hon'ble Supreme Court rendered in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188. Thus, when the assessee makes investment and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect."
6. Therefore, by following the above arguments and reasoning, we confirm the findings of the ld. CIT(A) and do not find any valid merit in the Revenue's appeal. Accordingly, the appeal stands dismissed.
39 ITA. No. 129/Hyd/2013 & Ors.M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
39. In view of the above discussion, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA of the Act in all these appeals."
39. Further similar issue was considered by the Tribunal in the case of Koya & Co. Constructions, Hyderabad in ITA Nos. 417-418/Hyd/2013 dated 23.8.2013 and allowed the claim of the assessee after considering the giving effect order to the opinion of the Third Member in the case of B.T. Patil and Sons, Belgaum Constructions Pvt. Ltd. vs. ACIT in ITA No. 1408 and 1409/PN/2003 dated 28/02/2013, wherein the Tribunal held that in view of the judgement of Bombay High Court in the case of ABG Heavy Industries Ltd. (322 ITR 323) the assessee entitled for 80IA deduction by holding as follows:
"Background of the case is that the Assessing Officer passed an assessment order disallowing the assessee's claim for deduction u/s.80IA(4) of the Act. The CIT(A) confirmed the order of the Assessing Officer. Matter was carried before the ITAT. However, while passing the order, the Judicial Member and the Accountant Member differed. While the Judicial Member accepted the claim of the assessee, the Accountant Member did not agree. Accordingly, under provisions of section 255(4) of the Act the matter was referred to the Third Member. The issue in question pertains to A.Y. 2000-01 and 2001-02 The appeals were heard by the Third Member. However, while giving its opinion as per the provisions of section 255(4) of the Act the Third Member was of the opinion that the said matter ought to be heard by the Larger Bench of third Member i.e. a bench comprising of three members u/s. 255(4) of the Act. The matter was heard at length by the Larger Bench of the Third Member and they agreed with the Accountant Member. They were of the opinion that the assessee is not entitled to deduction u/s.80IA(4) of the Act. The said matter was referred back to the Division Bench of the Tribunal to give effect in conformity with the opinion of the Third Member as per the provisions of section 255(4) of the Act.40 ITA. No. 129/Hyd/2013 & Ors.
M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
2. The said appeals were pending before the Division Bench of the Tribunal to give effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act. However, the matter was dismissed in limine because of non-appearance on behalf of the assessee. The assessee moved a Miscellaneous Application before the Tribunal to recall the said order. While the said Miscellaneous Application was pending before the Tribunal, by way of abundant precaution the assessee filed appeals before the Hon'ble Bombay High Court being appeal number ITXA 1307 of 2011 for A.Y. 2000-01 and 1640 of 2011 for A.Y. 2001-02 raising various contention regarding the allowance of deduction u/s. 80IA(4) of the Act.
3. While the said appeal was sub judice before the Hon'ble Bombay High Court the Tribunal recalled its order dismissing the appeals of the assessee in limine and gave a fresh date of hearing to the assessee.
4. While the said appeals are pending before the Hon'ble Tribunal to give effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act, the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd., passed an order granting deduction to the said assessee u/s. 80IA(4) of the Act. The said jurisdictional order is contrary to the opinion given by the Third Member of the Tribunal. Meanwhile the appeal filed by the assessee against the order of the Tribunal dismissing the appeals of the assessee in limine, before the Hon'ble Bombay High Court came up for hearing on 24/01/2013. In the course of hearing before the Hon'ble Bombay High Court the Counsel of the assessee brought to the notice of the Hon'ble High Court the fact that the Tribunal in the Miscellaneous Application filed by the assessee had recalled its order and the said matter was now fixed for hearing on 15/02/2013. As such the assessee requested to withdraw the said appeal. The assessee also drew attention of the Hon'ble High Court to the decision of ABG Heavy Industries and requested the Hon'ble Bombay High Court to direct the Tribunal to consider the ABG Heavy Industries decision on the issue while giving effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act.41 ITA. No. 129/Hyd/2013 & Ors.
M/s. Taher Ali Industries & Projects Pvt. Ltd.
=======================
5. The Hon'ble Bombay High Court permitted the Counsel of the assessee to withdraw the said appeals. While passing the order the Hon'ble High Court has kept all the contentions open and further directed the Tribunal to consider the decision of the ABG Heavy Industries and other decisions while passing their order giving effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act. The relevant portion of the said order of Hon'ble jurisdictional High Court in ITXA No.1307 of 2011 for A.Y. 2000-01 and 1640 of 2011 for A.Y. 2001-02 is as under:
"1. Since the Tribunal has recalled the impugned order dated 23.03.2011, the appellant is withdrawing its appeal.
2. Further, while considering the matter afresh, the Tribunal will take into consideration all decisions including the decision of this court in the matter of CIT v. ABG Heavy Industries Ltd. reported in 322 ITR page 323. All contentions are kept open.
3. The appeal is dismissed of in above terms."
6. The issue before us is whether the Tribunal while complying with the provisions of section 255(4) of the Act can consider the judgment of the Hon'ble High Court in the case of ABG Heavy Industries. In light of the clear directions given by the Hon'ble Bombay High Court in the appeals filed by the assessee for the impugned assessment years inter alia directed the Tribunal to consider the said decision of ABG Heavy Industries and all other decisions, we can consider the said judgments of ABG Heavy Industries and also the other judgments for allowing the deduction u/s. 80IA(4) of the Act while giving effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act. Following the directions of the Hon'ble Bombay High Court being the Jurisdictional High Court, the Tribunal is bound to follow the directions and we do accordingly.
7. Stand of assessee before us is that issue at hand is covered by the decision of the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd.
42 ITA. No. 129/Hyd/2013 & Ors.M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= & others (supra). In view of the amendment to section 80IA(4A) by Finance Act, 1999 effective from 01.04.2000 to avail the deduction under such section for the A.Ys. 2000-01 & 2001-02, assessee should carry on all three activities i.e. developing, maintaining & operating cumulatively. By developing the infrastructure facility and transferring it to another person for maintaining and operating, the benefit can be availed only from the A.Y. 2002-03. In view of the amendment to section by Finance Act, 2001 where in 'or' is inserted between developing and maintaining & operating i.e. developing or Maintaining & operating. In case of ABG Heavy Industries Ltd. & others (supra), the Hon'ble Bombay High Court has observed as under:
"With effect from 1st April, 2000, by the Finance Act of 1999, certain changes were brought about. Section 80-IA & 80-IR were substituted for section 80-IA. Sub-section (4) of section 80-IA of the act provided that the section shall apply to any enterprise carrying on the business of (i) developing, (ii) Maintaining & operating, or (iii) developing, maintaining and operating an infrastructure facility which fulfils certain conditions. By the Finance Act of 2001, the word 'or' came to be introduced after the word developing, to clarify in effect that the agreement between the enterprise and the authority of the central or the state Govt. or, as the case may be, a local authority or a statutory body may provide for
(i) Developing, or (ii) Maintaining & operating, or (iii). Developing, maintaining & operating a new infrastructure facility. It was further held that the requirement of operation & maintenance of infrastructure facility should commence after 1st April, 1995 has to be harmoniously construed with the main provision under which the deduction is available. Thus, jurisdictional High Court held that the amendment of Finance Act 2001 of inserting 'or' between 'developing' and 'Maintaining & operating' is clarificatory in nature to cure the ambiguity of the amendment of Finance Act, 1999 and therefore such amendment will be applicable retrospectively from the A.Y. 2000-01 & onwards. In order to 43 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= be eligible for deduction the assessee should develop the infrastructure facility as a whole and not in a particular part of it. We find that Hon'ble Bombay High Court in the case of ABG Heavy Industries has observed as under:
"The assessee did not have to develop the entire project in order to qualify for a deduction under s. 80-IA. The Parliament did not legislate a condition impossible of compliance."
8. In the case of ABG Heavy Industries (supra), the assessee therein had not developed the entire port but was only the supplier of cranes at the loading and unloading terminal at the said JNPT port. Thus assessee was not required to execute the entire project as observed by the Third Member. Another significant word used here is "owned", which indicates that the infrastructure facility should be owned by a company so as to be entitled to deduction under this section. The work done by the assessee is not owned by it, it does not satisfy sub clause (a) of section 80IA(4)(i). The infrastructure facility should be owned by the assessee is not correct interpretation. It is evident from section itself as clarified by the jurisdictional High Court in ABG Heavy Industries (supra) inter alia held that the assessee has shouldered out Investment & technical risk in respect of the work executed and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement. The liability which has been assumed by the assessee under terms of the contract are obligations involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons and therefore it is not correct to say that assessee is merely a contractor & not a developer. The assessee is eligible for benefit u/s 80-1 A even if part of the Infrastructural Project work is executed.
9. It was found by the erstwhile Judicial Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the Hon'ble Bombay High Court. With regard to clarificatory amendment to sub-section (13) of section 80IA by Finance Act 2007 & 2009 whereby the assessee is not held eligible for deduction u/s 80IA(4A). In this 44 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA(4A) . The amendment of 2009 is not applicable in the case where the assessee executes the work by shouldering Investment & technical risk by employing team of technically & administratively qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement and also securing by Bank guarantee. As the assessee has fulfilled the said conditions is evident as discussed above. Practically, the opinion of the Third Member of the Hon'ble Tribunal has been overruled by the Hon'ble Bombay High Court that even a contractor is a developer and further interpretation of the amendments by Finance Act 2009 and the conditions to be fulfilled by an assessee to be termed as developer for the purpose of section 80IA has been followed by various Tribunals.
10. In view of the above, we find that law as interpreted by the Third Member of the Hon'ble Tribunal is no longer good law. More specifically in light of the observations made by the Hon'ble Bombay High Court in the case of ABG Heavy Industries Limited and while giving the effect as per provisions 255(4) of the Act the Hon'ble Tribunal was clearly directed to consider the said decisions and allow the deduction u/s. 80IA of the Act for all the projects undertaken by the assessee.
11. The assessee Company has been included as a sub contractor for the all the other projects either the contracts are directly in the name of assessee company or in the name of the joint venture enterprise. The assessee has undertaken the work on Back to Back Agreement concept under sub contract from Patel Engineering Company Limited (hereinafter referred to as PEC) vide Sub-Contract Agreement dated 15.10.1992 for construction of Tunnel which supplies the water form River Koyna and makes it available to Power House. In fact the assessee and PEC had proposed a joint venture to the relevant authorities for the Execution of the said project. As the project was being financed by World Bank the relevant authorities forwarded the proposal to World Bank. World Bank however did not accept the proposal but they suggested that M/s. Patel 45 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= Engineering Company Ltd., may employ the assessee company as sub contractor. It was at the suggestion of World Bank that the assessee companies name was included as a sub contractor instead of forming of a joint venture. The project authorities including World Bank have approved and certified the assessee as sub-contractor for the above said work after thorough scrutiny and detail description of the work to be undertaken by the assessee company. The assessee company name is included in Main contract Agreement entered into between the employer and PEC as sub contractor for Koyna Project Works by Project Authorities. In fact the Government of Maharashtra has entered in Tripartite Agreement with the assessee company and PEC. Works completion certificate has been issued in favour of the assessee company for the execution of the Work. Power of Attorney is given by Prime Contractor to Sub Contractor and accepted and exceeded by Project Authorities.
12. The fact that the assessee has a tripartite agreement with the relevant authorities makes the assessee a party to the main contract work itself and which clearly shows that the assessee on their own right are contractors and not just sub contractors as normally understood. The assessee is the contractor vis-a-vis the portion allotted to them and not only subcontractors, i.e. a direct party to the main agreement. The assessee has entered into a main agreement, in their own right, can claim the benefit of section 80IA. As the assessee being directly under contract to the concern for the work done and are also directly dealing with the Government on whose behalf the assessee are doing the work, they can be considered as main contractors alongwith PEC and are not simply sub contractors vis-a-vis the work undertaken by them. As such the assessee is otherwise fulfilling all the conditions they are entitled to deduction under the provisions of section 80IA. Similar view has been taken by ITAT Indore in the case of Ayush Ajay Construction Ltd. vs ITO 79 ITD 213, wherein the entire project was assigned by the party getting the tender to another company. In such circumstances the ITAT Indore, has held as under:
"It is a settled position of law that that while construing the tax provisions besides 46 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= determining the intention of the Legislature for its introduction to the statute, the expression used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the legislation. The provisions or promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it.
If the facts of the case were put within the above parameter, the assessee, though it not entered into an agreement with the State Government at the initial stage, had obtained the tender/contract by virtue of a valid assignment, which was duly recognised by the State Government. Therefore, it should be deemed to have entered into an agreement with the State Government for construction of the said bridge on BOT basis. It was not the case of the revenue that the entire expenditure incurred in the construction of the aforesaid bridge was not borne by the assessee but by "A ", the main tenderer. "
The revenue had rejected the claim of the assessee for the simple reason that the assessee had never entered into any contract with the State Government and the assessee- company was nothing but a colourable device to evade tax. It is a settled position of law that the company is a juristic entity and it should be considered independent from the shareholders or the directors. The action of the assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee 'A' and the State Government through which the State Government had recognised that the assessee had stepped into the shoes of 'A' and notified authorising the assessee to collect the toll tax for a particular period. Since the assessee company had rectified all act and deeds of its promoter 'U'' and owned all the assets and liabilities of its 47 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= promoter through an agreement of assignment executed between the assessee and 'A' after obtaining approval from the State Government, the assessee should be deemed to have undertaken the construction work since 1-4- 1995. Since the Government had provided this deduction in order to encourage economic growth of the country, the plenitude of exemption should not be whittled down, by laying stress on ambiguity here and there. If it was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub- section (4A) of section 80 IA. The action of "A" and the assessee could only be termed as a valid tax planning which was permissible under the law. Therefore, the assessee had fulfilled the requirements provided in section 80IA (4A)(ii) for claiming deduction, and, therefore, the Assessing Officer should have allowed the deduction claimed by the assessee company."
13. It was further clarified on behalf of the assessee that with regards to Bhima Sina Link Tunnel project, the Original Agreement is between the owner and Joint Venture from consisting of the assessee company and M/s.Swapnali Constructions which was formed to Share the work in 60% & 40%.
M/s.Swapnali Constructions expressed their inability to undertake the work and had transferred their share of 40% of work to the assessee company on Back to Back Agreement basis for a consideration vide agreement dated 28/04/97. Thus the assessee company had executed 100% of the work. It is further stated that the assessee company were issuing R.A. Bills for 100% of the work done to Joint Venture firm and Joint Venture firm in turn issued R.A. bills to the owners. Joint Venture firm had not executed any portion of work under the Project. The Joint Venture firm has filed its Return of Income with NIL Profit or Loss. In fact the work completion certificate issued by Project Authorities is in favour of the assessee company only and not in favour of Joint Venture, also the whole amount of initial security deposit, the Bank guarantees were given by the 48 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= assessee company only in the name of the assessee and not by the Joint Venture, as the joint Venture partner is in no way connected with the execution of the work and to that effect it had already submitted necessary instrument like "Assignment Deed, "Power of Attorney", Undertaking with Bankers etc.
14. In this background, the assessee could certainly claim the deductions under the provision of Section 80IA. One has to see the substance and not the Form Essentially, though it was a Joint Venture, it was converted into assessee's venture. The Other Venturer withdrew and the entire work was executed by the assessee though in the name of Joint Venture. The Joint Venture is nothing but the venture of the assessee company and the other person not being a party after withdrawing the question of Joint Venture does not arise. The Venture was fully carried out by the assessee and it was entirely executed by the assessee company. Taking the substance of the transaction, the assessee are entitled to all the profits in respect of the contract executed by them, hence the assessee would certainly be entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions. This view get strength from decision in the case of ITAT, Indore Bench, in case of Ayush Ajay Constructions Ltd. (supra). Thus, while giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ratio of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra), the Assessing Officer is directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years. The matter is disposed off accordingly."
40. In our opinion, in view of the above discussion, the assessee is entitled for deduction u/s. 80IA(4) of the Act. Accordingly, we dismiss the ground taken by the Revenue. As we have dismissed the ground taken by the Revenue in its 49 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
======================= appeals, the ground in the COs of the assessee, which is supportive of CIT(A) order, become infructuous.
41. In the result, Revenue appeals in ITA Nos. 1483 to 1488/Hyd/ 2012 and COs of the assessee in CO Nos. 153 to 158/Hyd/ 2012 are dismissed.
42. To sum up assessee's appeal in ITA Nos. 1425/Hyd/2012 is allowed S. Assessee/ Result No. ITA/CO No. Revenue appeal
1. ITA No.1425/Hyd/2012 Assessee Allowed
2. ITA No.1426/Hyd/2012 Assessee Partly allowed for statistical
3. ITA No.1427/Hyd/2012 purposes.
4. ITA No.129/Hyd/2013 Assessee Allowed
5. ITA No.130/Hyd/2013 Assessee Allowed
6. ITA No.104/Hyd/2013 Revenue Dismissed
7. ITA No.105/Hyd/2013 Revenue Dismissed
8. CO No. 15/Hyd/2013 Assessee Dismissed
9. CO No. 16/Hyd/2013 Assessee Dismissed 10- ITA No. 1483-1488/ Revenue Dismissed 15 Hyd/2012 16- CO Nos. 153 to 158/12 Assessee Dismissed 21 Order pronounced in the open court on 30th August, 2013.
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 30th August, 2013
tprao
Copy forwarded to:
1. M/s. Taher Ali Industries & Projects Pvt. Ltd., 1-11251/ 4/B, 6th Floor, Tirumala Heights, Behind Shoppers Stop, Begumpet, Hyderabad-16
2. The ACIT, Circle-2(3), 8th Floor, 'B' Block, IT Towers, AC Guards, Masab Tank, Hyderabad-500 004
3. The DCIT, Circle-2(3), 8th Floor, 'B' Block, IT Towers, AC Guards, Masab Tank, Hyderabad-500 004 50 ITA. No. 129/Hyd/2013 & Ors. M/s. Taher Ali Industries & Projects Pvt. Ltd.
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4. The DCIT, Circle-2(2), IT Towers, AC Guards, Masab Tank, Hyderabad-500 004
5. The CIT(A)-III, Hyderabad
6. The CIT-II, Hyderabad
7. The DR - 'A' Bench, ITAT, Hyderabad