Indian Kanoon - Search engine for Indian Law

ii) The second main ground in respective appeals is with regard to disallowance of interest and other income as not eligible for deduction under Section 80IA(4) of the Act.

iii) The third ground in respective appeals is with regard to disallowance of depreciation on plant & machinery has also been challenged before us.

3. The brief facts leading to the issue is this that the appellant is a private limited company engaged in the business of Infrastructure Development, filed its return of income on 28.11.2003 declaring total income of Rs. 5,18,334/- which was processed under Section 143(1)(a) of the Act followed by a scrutiny proceeding. Notice under Section 143(2) dated 12.10.2004 was issued under Section 142(1) dated 20.06.2005 along with detailed questionnaire and after notice under Section 143(2) dated 20.06.2005. The assessee claimed deduction under Section 80IA(4)(i) of the Act of Rs. 48,19,950/- arising out of engagement in the development of roads for the year under consideration. The assessee claimed to have required qualification for coming under the zone of deduction in terms of the said section. However, such claim of the assessee was not found allowable and the assessment was completed with addition of Rs. 48,19,650/- disallowing claim under Section 80IA(4) Asst.Year - 2003-04 to 2007-08 which was, in turn, confirmed by the First Appellate Authority. Hence, the instant appeal before us.

4. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee reiterated the submissions made before the authorities below. It was further submitted that the assessee has executed construction and development work of roads by entering into agreement with State Local Authorities and with other statutory authorities. It was further contended by the Ld. A.R. that the assessee has fulfilled all the conditions as mentioned under the provisions of Section 80IA(4) and in denying the claim of the assessee the AO wrongly construed that the assessee is a "contractor" and not carried out any development activities. It was further mentioned by the Ld. Counsel appearing for the assessee that the relief under Section 80IA(4) was granted to the assessee for A.Ys. 2009-10, 2010-11 & 2011-12 by the Ld. CIT(A) on the same set of facts. Moreso, no appeal has been preferred by the Revenue against those orders passed by the First Appellate Authorities. He further submitted that though the expression 'works contract" has not been defined in the Act but various judicial pronouncements examined the issue and held that the term has wider meaning so as to state that if the activities carried out by the assessee involve development of project, engagement of various agencies, undertaking risk element, raises own finances and invests its own funds in the construction of the project, then the case of the assessee falls within the meaning of expression "developer". A perusal of the tender documents clearly shows that the assessee has to arrange own finances, purchase own plant & machinery Asst.Year - 2003-04 to 2007-08 and purchase all materials at own cost, deploy of qualified personnel for construction and development of infra projects. The authorities gave only general specifications for the project. However, for the specific drawings & designs recommended by the assessee, the same has to be approved by the competent authority and becomes part of the tender. Further that once the tender is awarded, the assessee has to pay earnest money, security deposits, performance guarantee. The assessee is also liable for liquidated damages/penalty, free maintenance and repair during defect liability period. During the construction of project, the assessee has to make all the arrangements and is liable for procurement of water, electricity, all materials, skilled, semi-skilled staff, labourers, plant & machinery, equipments& tools, and also wellbeing of the staff/labourers. He submitted that the assessee is always burdened with financial risk to carry out the project work on own cost with the fixed rate specified in the tender. The payment would be made by the competent authority every after a period upon completion of certain work. The construction and development of infrastructure projects is highly technical and required special skill, adherence to quality etc. Moreso, the assessee is not compensated for increase in prices of materials, cost of labourers, overhead expenses etc. These facts clearly demonstrate that the financial and other risk, responsibility, obligations is undertaken by the assessee in construction and development of the various infrastructure projects. Hence, as per the ratio of the jurisdictional High Court in the case of Radhe Developers (supra), the assessee is not merely a works contractor, but is engaged in development of project as a whole, and therefore, entitled for claim of deduction under section 80IA(4) of the Act. The Ld. Asst.Year - 2003-04 to 2007-08 Counsel for the assessee further relied on the following decisions to support his case:

b) On going through the judgment it is noticed that the following words appearing.

"The assessee had developed infrastructure facility as agreement with the Maharashtra State Government/APSEB. Therefore merely because in the agreement for development of infrastructure facility".

So, it is cleared from the above text that Patel Engineering Ltd. Had entered and agreement for development not for merely contract. As the copy/details of the same agreement is not available it could not be stated that what sort of Asst.Year - 2003-04 to 2007-08

- 18 -

rescinded and the Security Deposit would stand forfeited as per Clause 26 of the Tender document.

22. In terms of Clause 3 of Tender document if the contractor defaults in work or violates the term of the contract it shall be liable to penalty in terms of lien of Government over the plant, machinery, equipments etc. and forfeiture of security deposit too.

23. In view of the above detailed paper books containing the above tender documents comprising agreement clauses (relevant clauses have already dealt with by us hereinabove) the contents whereof would definitely suggest that the assessee has been entrusted with the work of development infrastructure facilities, and therefore being a 'developer', the assessee would be entitled for deduction under Section 80IA(4) of the Act. Relevant to mention that perusal of all tender documents in respect of the years also mentioned hereinabove reveals that the terms and conditions mentioned therein are almost same except the figures and name of the project.