Income Tax Appellate Tribunal - Pune
Income-Tax Officer,, vs Rohan And Rajdeep Infrastructure,, ... on 10 March, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
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BEFORE MS. SUSHMA CHOWLA, JM AND
SHRI ANIL CHATURVEDI, AM
आयकर अपील सं. / ITA No.1920/PUN/2014
नधा'रण वष' / Assessment Year : 2010-11
Income Tax Officer, .......... अपीलाथ /
Ward-3(1), Pune.
Appellant
बनाम v/s
Rohan and Rajdeep Infrastructure,
The Reverie, 1st Floor, 805,
Bhandarkar Institute Road, .......... यथ /
Pune - 411 004.
Respondent
PAN :AAFFR9455F.
अपीलाथ क ओर से / Appellant by : Shri Suhas Kulkarni
यथ क ओर से / Respondent by : Shri R.G. Nahar.
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 12.01.2017 Date of Pronouncement: 10.03.2017
आदे श / ORDER
PER ANIL CHATURVEDI, AM :
This appeal filed by the Revenue is emanating out of the order of Commissioner of Income Tax (A) - II, Pune dt.09.06.2014 for the assessment year 2010-11.
2. The relevant facts as culled out from the material on record are as under :-
2.1 Assessee is a partnership firm stated to be engaged in the business of execution of Infrastructure Projects on contracts.2 ITA No.1920/PUN/2014
AY.No.2010-11 Assessee filed its return of income for A.Y. 2010-11 on 23.09.2010 showing total taxable income at Rs.Nil and the case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dt.18.03.2013 and the total income was determined at Rs.1,75,65,950/- by denying the claim of deduction u/s 80IA(4) of the Act. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who vide order dt.09.06.2014 allowed the appeal of the assessee. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us and has raised the following grounds :
"1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.
2. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in allowing deduction u/s. 80IA(4) of the Act when the assessee was not engaged in development of new infrastructure project.
3. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not appreciating the fact that merely increasing the thickness & widening of an existing road would not qualify as a new infrastructure project.
4. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in holding that the contract work undertaken by the assessee was of adding extra lane.
5. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not appreciating the fact that the claim of the assessee for deduction u/s 80IA(4) does not fulfill conditions as per the Circular of CBDT bearing No.4/2010 which states that widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as new infrastructure facility for the purpose of section 80IA(4).3 ITA No.1920/PUN/2014
AY.No.2010-11
6. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in allowing the deduction u/s 80IA(4) on the interest income of Rs.9,60,890/- on accumulated balance of fixed deposits claimed to be derived from the business of the undertaking."
3. Before us, Ld.D.R. submitted that though assessee has submitted various grounds but the sole controversy is with respect to granting deduction u/s 80IA(4) of the Act.
4. During the course of assessment proceedings, AO noticed that during the year assessee had executed Hanumangarh - Sutargarh Road Project and Ahmadnagar - Ashti - Jamkhed Project. AO noticed that during the year under consideration assessee had earned profit of Rs.1,02,93,746/- on Ahmadnagar- Ashti-Jamkhed-Bhoom-Pardi Road Project which was awarded to it by PWD Government of Maharashtra in 2004 and the profits earned was claimed as deduction u/s 80IA(4) of the Act. He also noticed that assessee had also earned profit of Rs.63,11,301/- from Ahmadnagar - Ashti - Jamkhed - Bhoom - Pardi Road Project Phase - I & II and the profits earned from the project was claimed as exempt u/s 80IA(4) of the Act. AO was of the view that the projects were with relation to improvement of the road and the widening of the roads which has been undertaken by the assessee has not resulted into additional lanes and therefore the work undertaken by assessee cannot be classified as new infrastructural facility within the meaning of u/s 80IA(4) of the Act. He therefore held that the claim of the assessee for deduction was not allowable and in support of his view, he placed reliance on Circular No.4 of 2010 dt.18.05.2010 issued 4 ITA No.1920/PUN/2014 AY.No.2010-11 by CBDT. He accordingly denied the claim of aggregate deduction of Rs.1,06,05,047/-. AO also noticed that assessee had received accrued interest of Rs.9,60,898/- on the accumulated balances of fixed deposits and the accurued interest earned on the fixed deposits was considered to be derived from undertaking and on such interest assessee had claimed deduction u/s 80IA(4) of the Act. AO was of the view that the interest income earned by the assessee was not derived from the business of the undertaking and was therefore not eligible for deduction. He accordingly denied the claim. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who decided the issue in favour of the assessee by holding as under :
"3.3 During the appellate proceedings the Ld counsel of the appellant has submitted that two projects were executed by the appellant and the claim of deduction u/s 80IA(4) was rejected on the ground that the specification and the nature and character do not match to the situation referred to in circular No 4 of 2010. The Ld counsel has contended that the AO has given finding that it is merely a case of widening of the road which has not resulted in the additional lanes and merely relaying of existing roads has been low. The Ld counsel has submitted that with respect to the road proposed Ahmednagar - Taklikazi-Jamkhed- Kharade had many sugar cane traffic and for this purpose the road was required to be strengthened by providing 45 mm thick BBM apart from widening of the same to 10 mtrs and similarly carriageway is to be widened to 5.5 meters on certain sections of the road. The appellant has further added that in certain sections built up gutters were also provided as per the terms referred to in se 4 of the contract documents. It has been contended that this was a case of improving and strengthening of state highway and not merely relaying it. The appellant has also emphasized that the entire work was carried out as per the detailed specification in 2002 edition of the specification for road and bridge work of the Ministry of Surface transport, Govt. of India. The appellant has drawn attention to the order of the ITAT Pune in the appellant's own case for A.Y. 2006-07 bearing ITA No 1214/PN/2010 dated 5-4-2013 on which reliance has also been placed for the proposition that 5 ITA No.1920/PUN/2014 AY.No.2010-11 improving and strengthening of the road amounts to creating" New infrastructure facility' and entitle to deduction u/s 80IA(4). A copy of the said order has also been filed.
3.4 The material brought on record has been duly considered along with the submission made by the appellant. The only issue contested by the appellant in this ground of appeal relates to the disallowance of the claim of deduction u/s 80IA(4) in respect of the two road projects amounting to Rs.1,02,93,746/- and Rs.63,11,301/-. The claim of deduction has been disallowed by the AO on the plea that the specification, the nature and character of which do not match to the situation referred to in circular No 4 of 2010, though the AO has given the finding that the case is merely of widening of the road which has not resulted into the additional lanes and thus it was merely of widening of the road which has not resulted into the additional lanes and thus it was merely relaying of existing road. Thus it is not disputed that the appellant has widened the road by 10 mtrs and carriageway widened to 5.5 meters and 7 meters respectively in the two projects and also strengthened the road by providing 75mm/50mm thick BBM and also provided built up gutters. Hence it is a case of improving and strengthening of the state highway and not merely a case of relaying. The Hon. ITAT Pune in appellant's own case for A.Y. 2006-07 covering similar propositions on similar fact in respect of the project Hanumangarh - Sutargarh road Rajasthan on similar fact and also referring to circular No 4 /2010 concluded that improving and strengthening of the road amounts to creating 'New infrastructure facility' and, therefore, entitled to deduction u/s 80IA(4). The ITAT held as under:
10. The CBDT has clarified the expression "new Infrastructure facility". In fact the said circular supports the claim of the assessee that the widening of existing road by constructing additional lane as a part of the highway project is a new infrastructure facility. So far as the Hanumangarh -Suratgarh Road is concerned the width is also increased as one additional lane is developed. In addition to increasing the thickness of the road, it is pertinent to note here that the project report which is the part of the agreement clearly suggest that the existing road was not capable of taking the increased load of the vehicles and hence, there was necessity for strengthening as well as widening the said road. It is not the case that merely some minor work like carpeting has been done to be done but the additional lane of 1 mtr. widening with 12 cum increased thickness has been done.
11.In the case of Tata Hydro Electric Power Supply Co. (supra) the old irrigation dam was strengthened by using modern technique. On the expenditure incurred for strengthening of the dam, the assessee 6 ITA No.1920/PUN/2014 AY.No.2010-11 claimed the development rebate with the plea that it was a new plant. As per the provisions of law Development Rebate was allowable on a new plant.
When the matter reached before Hon'ble High Court the issue was decided in favour of the assessee and Hon'ble High Court held that the assessee incurred a huge expenditure which resulted in increasing the life of the existing dam and it was the work of the creating of new plant and the assessee was entitled for the Development Rebate. It is true that the parameters for the development rebate are different than the deduction to be claimed for developing infrastructure facilities but the principles underline the concept whether the 'new infrastructure' mean which is never in existence at all and the said principles can be applied to the assessee's case. We find that in the case of Shristi Infrastructure Development Corporation Ltd. (supra) on the identical facts i.e. for strengthening and improving of the existing road the Tribunal held that the work is to be considered as new infrastructure facilities.
12. It is true that each case is to be examined on it's own facts. So far as the present case is concerned, we do not agree with the authorities below that it is merely work of the maintenance and repairs but in fact it is a work of bringing into existence new infrastructure facility which is in the nature of road. We, therefore, allow the ground taken by the assessee and hold that the assessee is entitled for deduction u/s 80IA(4) of the Act and direct the Assessing Officer to allow deduction to the assessee."
3.5 In view of the above facts the claim of deduction of Rs.1,06,05,047/- (1,02,93,746/- + 63,11,301/-) u/s 80IA (4) is liable to be allowed and ground of appeal no. 1 raised by the appellant is allowed.
4. In ground of appeal no. 2 raised the appellant has contested the disallowance of interest income of Rs. 9,60,898/- earned by the appellant-company on account of fixed deposits created as Debt Service Reserve Account against the term loan taken for the purpose of business. During the assessment proceedings the AO noticed that the assessee firm had received interest of Rs.9,60,898/- on accumulated balance of fixed deposits of Rs.98,23,743/- as on 1-4-2009. The AO found that the assessee had claimed the said interest as profit derived from the undertaking and the deduction u/s 80IA(4) claimed. The explanation sought by the AO from the assessee was found to be not acceptable and held that the interest accrued of Rs.9,60,898/- was not derived from the undertaking and the contention of the assessee that FD was required to be made as per the terms and conditions of the loan for business of the project not tenable and thus the said 7 ITA No.1920/PUN/2014 AY.No.2010-11 amount was added to the total income. The AO has discussed the issue in para 3.1 of the order. 4.1 During the appellate proceedings the Ld counsel of the appellant has filed the document specifying the terms of loan which reveals that keeping an FD was an essential part for availing the loan and thus it has a direct nexus with the earning of income derived from FD which ought to have been treated as income from business of the project eligible for 80IA(4) deduction. The appellant referring to the terms and conditions of the loan from SBI, condition No 9B(c) required the appellant to maintain debt service reserve account during the currency loan account and to fulfill the condition the CD kept the FD from which the said interest account. The appellant in this regard has placed reliance on the following judicial decisions.
1. Jaiprakash Power Venture Ltd Vs DCIT ITA No 4249/Del/2011
2. Maxcare Laboratories Ltd Vs ACIT (2005) 95 ITD 11 Cuttack 4.2 The submission made by the appellant has been considered and material on record perused. The AO has held that the interest accrued of Rs.9,60,898/- is not derived from the undertaking. However, the material brought on record do indicate that the FD was an essential part of availing the loan whereby the appellant was required to maintain Debt Service Reserve account during the currency loan account and for that purpose maintained a FD through which the said interest has accrued. In the case of Jaiprakash Power Venture Ltd Vs DCIT cited supra, of ITAT Delhi, the assessee had borrowed fund from financial institute for business purpose needs to keep certain amount as FD's, the interest income earned from such FD's netted off against the interest expenses on borrowed fund. It has been held by the ITAT that such income is to be treated as income earned from business and eligible for deduction u/s 80IA(4). Likewise in the case of Maxcare Laboratories Ltd Vs ACIT (supra) the tribunal held that interest income earned on deposits is to be treated as eligible income for the purpose of deduction u/s 80IA(4). Thus in view of the above ratio of the aforesaid decision wherein the fact of the case are similar to them, the deduction u/s 80IA(4) is liable to be allowed to the appellant on the said interest income earned." Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.
5. Before us, Ld.D.R. supported the order of AO. With respect to the issue of interest on F.D.R. being not allowable for 8 ITA No.1920/PUN/2014 AY.No.2010-11 deduction u/s 80IA(4), he relied on the decision of Ahmedabad Tribunal in the case of Lincoln Pharmaceuticals Ltd., Vs. DCIT in ITA No.4374/Ahd/2007 order dt.07.10.2010. He also placed on record a copy of the aforesaid decision. Ld.A.R. on the other hand reiterated the submissions made before AO and Ld. CIT(A) and further submitted that the reliance placed by the Ld.A.R in the case of Lincoln Pharmaceuticals Ltd., (supra) is misplaced as the facts in those case are different from that of the assessee and therefore it is not applicable. He submitted that in the case of assessee, the assessee was required to keep the fixed deposits for availing loans and on such fixed deposits assessee had earned interest. He therefore submitted that the placing of fixed deposits was directly connected with the business of the assessee and the Ld. CIT(A) has rightly allowed the claim of deduction. He thus supported the order of Ld. CIT(A).
6. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to denial of deduction u/s 80IA(4) of the Act.
7. It is an undisputed fact that during the year, assessee had earned profits from 2 projects and the profits earned therefrom was claimed as deduction u/s 80IA(4) of the Act. We find that Ld. CIT(A) while deciding the issue has given a finding that the assessee had undertaken the strengthening of the roads as well as widening of the roads on certain sections of the road and had 9 ITA No.1920/PUN/2014 AY.No.2010-11 also built up gutters as per the terms of the contract and it was a case of improving and strengthening of the State Highway and not merely a case of relaying of existing roads. He has further given a finding that the entire project was carried out as per the detailed specification for road and bridge work issued by Ministry of Transport and Government of India and further in assessee's own case in A.Y. 2006-07, the Hon'ble Tribunal has held that improving and strengthening of road amounts to creating new infrastructure facility and is entitled to deduction u/s 80IA(4) of the Act. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case under consideration and the facts in assessee's own case for A.Y. 2006-07 nor placed any material on record to demonstrate that the decision of Tribunal in assessee's own case for A.Y. 2006-07 has been set aside by the Higher Judicial Authorities. With respect to the interest income being eligible for deduction u/s 80IA(4), we find that Ld. CIT(A) has given a finding that the fixed deposit was an essential part for availing the loan whereby assessee was required to maintain Debt Services Reserve account and for that purpose it had to necessarily place fixed deposit and on such fixed deposits the assessee had earned interest. He therefore held it to be connected with the business of the assessee. Ld. CIT(A) thereafter relying on the various decisions cited therein has allowed the claim of the assessee. Before us, Revenue has not placed any material on record to demonstrate that as to how the decisions relied upon by Ld. 10 ITA No.1920/PUN/2014 AY.No.2010-11 CIT(A) would not applicable to the present facts of the assessee. Considering the totality of the aforesaid facts, we find no reason to interfere with the order of Ld. CIT(A) and thus the grounds of the Revenue are dismissed.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced on 10th day of March, 2017.
Sd/- Sd/-
(SUSHMA CHOWLA) (ANIL CHATURVEDI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 10th March, 2017.
Yamini आदे श क) * त+ल,प अ-े,षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. Commissioner of Income Tax-1, Pune.
4. Commissioner of Income Tax (A) -1, Pune.
5. #वभागीय &त&न'ध, आयकर अपील य अ'धकरण, "ए" / DR, ITAT, "A" Pune;
6. गाड, फाईल / Guard file.
आदे शानस ु ार/ BY ORDER,स // या////// True Copy //T // // True // //Copy // // True Copy // // सहायक रिज12ार/ Assistant Registrar, आयकर अपील य अ'धकरण ,पुणे / ITAT, Pune.