Income Tax Appellate Tribunal - Hyderabad
Siva Swathi Constructions Pvt.Ltd., ... vs Department Of Income Tax on 3 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.189/Hyd/2015 : Assessment year 2011-12
Dy. Commissioner of Income- V/s. M/.s. Siva Swathi Constructions
tax, Circle-3(2), Hyderabad Pvt. Ltd., Hyderabad
(PAN - AAICS 9943 F)
(Appellant) (Respondent)
Appellant by : Shri H.Phani Raju
Respondent by : Shri S.Rama Rao
Date of Hearing 28.5.2015
Date of Pronouncement 03.06.2015
ORDER
Per Saktijit Dey, Judicial Member :
This is an appeal by the department against the order dated 29.12.2014 of learned Commissioner of Income-tax(Appeals) III, Hyderabad, pertaining to assessment year 2011-12.
2. The Department has raised four grounds. Ground no.1 and 4 being general in nature, do not require any specific adjudication. At the outset, the Learned Departmental Representative submitted that the ground No.3 has been inadvertently raised, as the issue raised therein has actually been decided in favour of the Department by learned CIT(A). Accordingly, he expressed his intention not to press that ground. Ground No.3 is therefore, dismissed.
2 ITA No.189/Hyd/2015M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad
3. In ground No.2, the Department has challenged the decision of the learned CIT(A) in allowing the assessee's claim of deduction under S.80IA of the Act.
4. Briefly, the facts relating to this issue are : The assessee, a company, is engaged in the building of infrastructure project. For the assessment year under consideration, the assessee filed its return of income on 30.9.2011 declaring total income of Rs.12,38,19,239, after claiming deduction of Rs.6,22,70,007 under S.80IA(4) of the Act. During the assessment proceedings, the Assessing Officer noticed that the deduction claimed by the assessee under S.80IA(4) pertains to profit derived from a road work amounting to Rs.79,11,060 and profit relating to construction of the bridge amounting to R.5,43,58,947. The Assessing Officer opined that since the road work obtained by the assessee from Executive Engineer RWD Mothihari was given on sub-contract basis to M/s. KCR Infra Project Pvt. Ltd. and M/s. Shaili Paradigam Infrastructure Pvt. Ltd., and the assessee has not involved itself in development, operating, maintenance or financial involvement in respect of the work obtained, it is not eligible to claim deduction under S.80IA(4). As far as the claim of deduction under S.80IA(4) on bridge work is concerned, the Assessing Officer noted that the assessee is not the owner of the bridge, but only a contractor executing the work on behalf of the Government of Tamil Nadu. The Assessing Officer observed that the assessee has neither made the investment himself nor is the owner of the infrastructure project, but executes the development work and hence, the assessee, being merely a contractor, is not eligible for deduction under S.80IA(4). On the aforesaid basis, the Assessing Officer disallowed the assessee's claim of deduction under S.80IA(4).
3 ITA No.189/Hyd/2015M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad
5. Being aggrieved by the disallowance made, assessee preferred appeal before the learned CIT(A). The learned CIT(A) after considering the submissions of the assessee and being made aware of the decision of the ITAT in assessee's own case for the immediately preceding year found that as far as the bridge project is concerned, the Income Tax Appellate Tribunal in assessment years 2009-10 and 2010- 11 has held the assessee as eligible for deduction under S.80IA(4). Accordingly, following the decision of the Tribunal in assessee's own case, she allowed the assessee's claim of deduction under S.80IA on the bridge project. As far as the road work is concerned, the learned CIT(A) also followed the principles laid down by the ITAT in assessment years 2009-10 and 2010-11 in assessee's own cases and allowed the assessee's claim of deduction.
6. We have considered the submissions of the parties and also perused the material on record. Learned counsel for both the parties agreed before us that the issue raised by the Department is squarely covered by the decision of the Tribunal in assessee's own case for assessment years 2009-10 and 2010-11. It is evident from the facts on record that the bridge work on Cauvery River at Mayanur Village is a continuing project from the preceding assessment years. When the assessee's claim for deduction under S.80IA(4) was disallowed by the Assessing Officer for assessment years 2009-2010 and 2010-2011, the assessee challenged the same before the appellate authorities. When the dispute ultimately came to the Tribunal, the coordinate bench vide its order dated 25.10.2013 passed in ITA No.1008-1009/Hyd/2013 while allowing assessee's claim of deduction u/s 80IA held as under-
"8. We heard both sides and perused the orders of the lower authorities and other material available on record. The assessee has undertaken the project relating to the construction of a barrage across river Kaveri in Mayanur 4 ITA No.189/Hyd/2015 M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad Village, Karur District, Tamil Nadu for a contract amount of Rs.174,01,80,550. As for this contract, the assessee has given a refundable security deposit of Rs.3.5 crores. The CIT(A) denied deduction under S.80IA of the Act, for the reason that the assessee has not undertaken the works drawing designs and specifications of the project. The CIT(A) relied on the 'SCHEDULE B - LIST OF DRAWINGS' forming part of the Contract Agreement, a copy of which is filed at pages 113 to 193 of the paper-book. The said Schedule B appears at page 44 of the said contract agreement, appearing at page 161 of the paper-book. It contains Serial Nos.1 to 17 and forms part of the articles of agreement dated 9th February, 2009 (Agreement CR No.90/LS/Floods/2008-2009. We have gone through the said 'SCHEDULE B - LIST OF DRAWINGS' attached to the contract agreement and also plan attached to it. This is the initial plan attached to the contract agreement, on the basis of which the assessee has to execute the project. To execute the work, the assessee has to draw separate designs an drawings. For that purpose, the assessee employed two Project Managers, who are qualified Civil Engineers with BE qualification and twelve years experience in the field, ten site engineers with BE qualification, having eight years experience in this field. The assessee also employed another twelve site engineers having Diploma in Civil Engineering. The plans and designs given in the documents are general in nature, and they themselves cannot be taken as comprehensive for being executed. They are only a basic drawings and designs, based on which the assessee has to prepare the working plans, drawings and designs, and thereby implement the project. The reasoning given by e CIT(A) in this behalf in the impugned order to deny deduction is not valid.
9. The next reason given by the CIT(A) is with regard to non-financial participation by the assessee, as the assessee has got mobilization advance. The mobilisation advance has not been given freely. It has been given after the assessee furnished a bank guarantee, and the bank guarantee has been given by the bank, only after getting enough security from the assessee, to protect itself from any risk on account of any default on the part of the assessee. The assessee has taken financial assistance from bank paid huge interest of Rs.2,87,10,943 for assessment year 2009-10 and of Rs.9,35,78,373 for assessment year 2010- 11, as seen from the Profit and Loss Account of the assessee 5 ITA No.189/Hyd/2015 M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad for the relevant years ending on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 20 and 65 of the paper-book. Similarly, assessee has invested its own fund of Rs.5,55,00,000 for assessment year 2009-10 and of Rs.7,86,75,710 for the assessment year 2010-11, as seen from the Balance Sheet of the assessee as on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 21 and 66 of the paper-book. In this view of the matter, the reason given by the CIT(A) on this aspect for denying deduction to the assessee under S.80IA is also not valid.
10. The CIT(A), while rejecting the assessee's claim for the deduction under S.80IA, observed that the Government has supplied the material to execute the work. As seen from the tender documents, specifically, the assessee has to procure its own men, material, like cement, steel, binding wires, etc. and machinery. It is more specifically mentioned as to the standards and quality expected of the material to be used by the assessee in the execution of the project. It is mentioned in this behalf in the tender documents that the assessee has to procure high yield strength deformed (H.Y.S.D) BARS of Grade Fe415 confirming to I.S.1786-1985 (I.S. Specification for high yield strength deformed steel bars and mixes for cement concrete) and also steel rods as fresh as possible. It is also mentioned in the tender documents that the assessee shall procure cement which shall conform to specifications, having capacity of rapid hardening and low heat cement (IS 269-1989) and portland pozzalana cement I.S. 1489-1991. Further, it is also mentioned in the tender documents that in respect of any machineries made available by the Department to the assessee, hire charges would be recovered for such machineries supplied by the Government. It is also specifically mentioned that whatever such machinery is supplied by the Government, shall be handed over back to the Government in proper and same form. This specific clause clearly indicates that the assessee has got any machinery from the Department free of cost. The assessee having paid hire charges of the usage of the machinery, it cannot be said that the assessee has not used machinery either owned or hired by it. In this view of the matter, it is not correct to say that that the assessee has not used its men, material and machinery, and consequently, the reason given by the CIT(A) that the assessee has not 6 ITA No.189/Hyd/2015 M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad used its own men, material and machinery cannot be accepted as valid.
11. Further reason given by the CIT(A) for denying deduction under S.80IA to the assessee is that the assessee has not undertaken any risks. The observations of the CIT(A) in this behalf are also not valid and correct. It was clearly mentioned in the agreement that the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act, the same shall be paid by the contractor, viz. the assessee only. In view of the various specific clauses in the agreement fastening the risks to be undertaken by the assessee, discussed above, it cannot be said that the assessee has not undertaken any risk.
12. Reading the contract document as a whole makes it clear that the assessee is obliged to employ requisite number of personnel, and execute the project making use of various materials of specified standards and with the use of the machinery of its own and also of the Government, which again were not made available to the assessee free of cost, but for some hire charges indicating thereby that the assessee is user of the machinery of he is either owner or hirer.
13. In the light of the above discussion, the case of the assessee, in our opinion, is clearly covered by the consistent view taken by the Tribunal in similar cases, including those referred to by the CIT(A), in the impugned order and the assessee is entitled for deduction under S.80IA of the Act. In one such decision of the Tribunal in the case of Sushee Tech Infrastructure Ltd. (ITA No.269/Hyd/2009 and two others for assessment years 2005-06 to 2007-08), a copy of which is also furnished before us, the Tribunal, vide para 33 of its order date 16.3.2013, held as follows-7 ITA No.189/Hyd/2015
M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad "33. The next question is to be answered is whether th 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 undertake 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 e 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. e agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted h 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 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 th 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 e regular traffic. Therefore, it is clear that from an un- developed area, infrastructure is developed and handed 8 ITA No.189/Hyd/2015 M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad 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."
14. As for the decision of the Gujarat High Court in the case of Katira Construction Ltd. V/s. Union of India (352 ITR 513), relied upon by the learned Departmental Representative, it may be noted that this decision relates to constitutional validity of the introduction of Explanation to S.80IA(13), and hence, the said decision has not applicability to the facts of the present case. Similarly, even the decision fo the Karnataka High Court in the case of Yojaka Marine Pvt. Ltd. V/s. Asst. CIT (354 ITR 530) has no application to the facts of the present case, since in that case the project was found to have been designed by th Government itself, as against the facts, as discussed above, which indicate that the assessee has made out its own working designs and drawings.
15. In the light of the above discussion, we hold that the assessee is entitled for deduction under S.80IA of the Act, and accordingly setting aside the impugned order of the CIT(A), direct the Assessing Officer to compute the income of the assessee giving relief under S.80IA of the Act, on the profit computed by the Assessing Officer in respect of the project in Cauvery Basin, Trichy(Tamil Nadu). Assessee's grounds of appeal on this aspect are accordingly allowed."
Following the decision of the Tribunal in assessee's own case, we do not find any infirmity in the order of the learned CIT(A) in allowing the assessee's claim. Similarly, as far as the road work is concerned, in the absence of any material brought on record by the department to controvert the finding of the learned CIT(A) to the effect that the assessee has undertaken the risks and liabilities itself in executing the infrastructure project, we are of the view that the conclusion drawn by 9 ITA No.189/Hyd/2015 M/s. Siva Swathi Constructions Pvt. Ltd., Hyderabad the learned CIT(A) deserves to be upheld. In the aforesaid view of the matter, we uphold the impugned order of the learned CIT(A) and dismiss Ground No.2 of the Revenue in this appeal.
7. In the result, appeal of the Revenue's is dismissed.
Pronounced in the court on 3rd June, 2015
Sd/- Sd/-
(P.M.Jagtap) (Saktijit Dey)
Accountant Member Judicial Member
Dt/- 3rd June, 2015
Copy forwarded to:
1. M/.s. Siva Swathi Constructions Pvt. Ltd., 303/A MLA Colony, Road No.12, Banjara Hills, Hyderabad
2. Dy. Commissioner of Income-tax Circle 3(2), Hyderabad
3. Commissioner of Income-tax(Appeals) III, Hyderabad
4. Commissioner of Income-tax II, Hyderabad
5. Departmental Representative, ITAT, Hyderabad.
B.V.S