TMI Blog2013 (5) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... een NCC Limited and M/s. PNC Construction Company Limited, the assessee, wherein it is stated that both the parties have formed a JV with the sole purpose to submit a joint bid for Sagar- Beena Road Project. M/s. PNC Construction Co. Limited was offered for the entire works of joint venture and shall be liable for all taxes including income tax solely liable to government of Madhya Pradesh. The agreement with Government of Madhya Pradesh and NCC-PNC joint venture accepted the concept of Joint Venture. Thus the CIT(A) failed to consider the relevant provision of section 80IA(4)(i)(a) which provides that the prescribed infrastructure project in section 80IA(4)(i) is owned by company registered in India or by a consortium of such companies & considered only clause 80IA(4)(i)(b) of the Act without considering section 80IA(4)(i)(a.) As decided in ACIT vs. JSR Constructions (P) Ltd, [2013 (4) TMI 512 - ITAT BANGALORE], and DCIT vs. M/s. Transstroy (India) Limited, [2013 (5) TMI 87 - ITAT VISAKHAPATNAM],the assessee has satisfied the conditions laid down in section 80IA(4)(i)(a)(b) & entitled for deduction under section 80IA(4). Disallowance claim of sign board expenses – Held that - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has been afforded an opportunity to examine any such adverse material. 7. That the order passed by the authorities below is bad in law and against the facts of the case. 8. That any other relief or reliefs deemed fit in the facts and circumstance of the case may be granted. The appellant craves leave to add, alter or vary the grounds of appeal before or at the time of hearing. 3. The assessee has also raised an additional ground which reads as under :- That the learned authorities below erred in law and on facts in making an ad-hoc disallowance of ₹ 5,00,000/- out of Paint Expenses claimed at ₹ 2,16,78,425/-. 4. After hearing the ld. Representatives of the parties, we notice that the issue relating to additional ground arises out of order of CIT(A). However, inadvertently this issue has been left to incorporate in the grounds of appeal in Form No.36 while filing the appeal before the I.T.A.T. The ld. Departmental Representative did not object for admission of the additional ground of appeal. In the interest of justice and for the reasons stated above, we admit the additional ground. 5. The assessee is a Limited Company engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w coming to the conditions annexed with the aforesaid section are: (a) It is owned by a company registered in India or by a consortium of such companies Since the enterprise carrying on the business is registered in India the condition is laid down in (a) is fulfilled (b) It has entered into an agreement with the Central Government or a Sate Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; The assessee company, which is a limited company registered with the Registrar of Companies in India has entered into an agreement with the National Highway Authority of India by mans of contract agreement entered into with agreement No. NHAI/GM/CM/STMC/2003- 2004. The agreement was signed by Deputy General Manager on behalf of National Highway Authority of India (Ministry of Road Transport and Highways) -1 vide letter dated 9.6.2003 bearing No. NHAI/CM/DGM/TMCIV/ 2003/1996. The contents of work include toll operations, operating and maintaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and none of the agency is allowed to make any clam about the encroachment of the road and its sites. Thus the assessee's company has fulfilled the requirements as contained in the provisions of section 80IA(4)(i)(a)(b) (c) read with explanation attached thereto, it is eligible for deduction u/s 80IA of the I.T. Act. 9. The assessee preferred appeal before the CIT(A) against the adhoc additions made by the A.O. in respect of disallowance of various expenses. The CIT(A) withdrawn the claim of the assessee under section 80IA(4) of the Act as under:- (CIT(A) page nos.11 12) In the light of these provisions, it is to be seen as to whether the appellant is eligible for deduction u/s. 80IA(4). As regards the Panipat - Jalandhar project, as per the agreement, it was a contract for short-term improvement and routine maintenance of Panipat - Jalandhar section NH-1 from Km. 96 to Km. 372. So, it cannot be said that the assessee was (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining the Panipat - Jalandhar section of NH-1. It was a contract only for short-tem improvement and routine maintenance. It cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative submitted that in subsequent A.Y. 2006-07 the A.O. has allowed claim under section 80IA(4) of the Act and against that order of the A.O. neither appeal nor any other proceedings are pending. The ld. Authorised Representative submitted that the assessee satisfied the condition of sub-clause (a) of clause(i) of sub-section(4) of section 80IA of the Act. The ld. Authorised Representative with reference to relevant section 80IA(4)(i)(a) submitted that there is no dispute regarding the fact that M/s. PNC Construction Co. Ltd. i.e. the assessee is a company registered in India. The assessee was carrying on development/operation and maintenance of infrastructure. The ld. Authorised Representative in support of his contention relied upon an order of I.T.A.T. Mumbai Bench in the case of Patel Engineering Limited vs. Dy. CIT, 94 ITD 411 (Mumb.) 11. The ld. Authorised Representative referring the Assessment Order page nos. 4 6 submitted that Panipat Jalandhar project agreements between M/s. NHAI and M/s. PNC Construction Co. Ltd. was for operating and maintaining the toll road. He has also referred page nos.11, 12, 15, 18, 21, 24, 25, 41, 50, 54 55 of the Paper Book where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Limited (supra) and an order of I.T.A.T. in the case of ACIT vs. Bharat Udyog Limited, 118 ITD 336 (Mum). 15. The ld. Departmental Representative, on the other hand, relied upon the order of CIT(A) and submitted that the condition specified in section 80IA(4)(i)(a) has not been satisfied in the case of the assessee. The ld. Departmental Representative submitted that contract work for Panipat Jalandhar Project was a contract only for routine maintenance. The assessee did not build up the Highway. The ld. Departmental Representative submitted that the agreement entered into by the assessee with Nagarjuna Construction Co. Ltd. was not filed by the assessee. The ld. Departmental Representative submitted that the decisions relied upon by the ld. Authorised Representative is distinguishable on facts. The ld. Departmental Representative submitted that the CIT(A) has rightly withdrawn the claim under section 80IA(4) of the Act as the A.O. was not correct in allowing the claim. The ld. Departmental Representative submitted that the CIT(A) decided the issue after giving proper opportunity of hearing to the assessee. The ld. Departmental Representative submitted that the order of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be notified by the Board in this behalf in the Official Gazette; (b) a highway project including housing or other activities being an integral part of the highway project; and (c) a water supply project, irrigation project, sanitation and sewerage system. Relevant Circulars That the scope and effect of the amendment, which brought about the introduction of sub-section (4A) has been explained in the Department's Circular No.717 dated 14th August, 1995 as under:- Finance Act, 1995 34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement is infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure. Finance Act, 1995 34.3 Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee furnished an indemnity to the JNPT towards damages that might have been sustained by the equipments or to any property of the Port Trust or to the lives, persons or properties of others. The assessee claimed the benefit of deduction under section 80-IA. The Assessing Officer rejected the claim holding that the assessee was merely engaged in the business of supplying, installing, testing, commissioning and maintaining cranes at the Port and was not in the business of developing, maintaining and operating a Port and, consequently, it could not be held to be in the business of developing an infrastructural facility. On appeal, the Commissioner (Appeals) allowed the deduction under section 80-IA to the assessee. The Tribunal confirmed the order of the Commissioner (Appeals). On appeal to the High Court, the revenue contended that (i ) section 80-IA requires the assessee to develop, operate and maintain an infrastructural facility in order to qualify for a deduction and in the instant case the assessee was not a developer of the facility but had only supplied and installed the container handling cranes at the JNPT; (ii) the assessee was not operating the equipment and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Authorities at all material times, to cover within its purview the development of an infrastructure facility under a Scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of CBDT. The fact that in such a Scheme, an enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. The Court cannot be unmindful in the present case of the underlying objects and reasons for a grant of deduction to an enterprise engaged in the development of an infrastructure facility. The provision was intended to give an incentive to investment for infrastructural growth in the country. In Bajaj Tempo v. CIT [1992] 196 ITR 1881 the Supreme Court emphasized that a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of operation and maintenance of the infrastructure facility on or after 1-4-1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1-4-1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after 1-4-1995. In the present case, the assessee clearly fulfilled this condition. 23. In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The subsequent amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject and APSEB in respect of the Srisailam project, because, the investments have been made by them. 45. In the circumstances, as per the contentions raised before us orally as also in writing by the two rival representatives, the moot question that poses itself for our consideration is as to whether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant, and no less beneficial, to refer to the legislative history of section 80- IA. As we have noted earlier, the amendment in section 80-IA was brought about by Finance Act, 1995 w.e.f. 1st April, 1996. By virtue of this amendment, exemption under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Thus to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i ) to develop, (ii) to maintain, and (iii) to operate. After the modification effected by Finance Act, 1999, w.e.f. 1st April, 2000, deduction under section 80-IA(4) has become available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business activity of the nature of BT (build and transfer) also falls within eligible construction activity that is activity eligible for deduction under section 80-IA inasmuch as mere development as such and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80-IA. In the case of such a construction activity, which does not involve the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only 'development') to recover his costs of construction of his own from the infrastructure project/facility itself does not arise, and so for the recoupment of the costs, the same have to be paid whether through running bills or otherwise; and considering the largeness/hugeness of the total financial investment involved, some advance if paid at some point of time, will not, in our view, change the basic nature/feature of the assessee's business activity. Therefore, merely because the present assessee was paid by the Government, for development work, it cannot be denied deduction under section 80-IA(4) of the Act. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement for development of infrastructure facility, assessee is referred to as 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 under section 80-IA(4). Discussed/considered as above, we hold that the assessee having carried out the work of constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80- IA(4). 48. Now we proceed to consider the second issue, which is whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? The learned CIT/Departmental Representative contended that the infrastructure facility should be owned by the company registered in India. Ground No. 1 of the Revenue's cross-objection is also to this effect. He contended that in this case, both the infrastructure facilities were not owned by the assessee-company, but by the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infrastructure facility cannot be such an entrant as it cannot enter into an agreement with the Central Government or with anybody else. Understandably, it is only the 'enterprise', which can enter into an agreement with the Central Government or State Government or any other person. As such, viewed as above also, the word it denotes the enterprise and not the infrastructure facility . 51. Accordingly, the conclusion drawn by learned CIT(A) on this count, that is on the count as to what is required to be owned in sub- clause (a) of clause (i) of sub-section (4) of section 80-IA, whether 'infrastructure facility' or 'the enterprise' is found to have rightly been drawn and quite justified, and the same need not be interfered with. 52. As seen above, we have held that 'the enterprise' should be owned by a company registered in India. In the instant case, the assessee is a company registered in India, which owns the enterprise and which developed the infrastructure facility. We, therefore, hold that the second condition for eligibility of deduction under section 80-IA(4) is also fulfilled by the assessee and ground No. 1 of the Revenue' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying out development work. In this reference, he referred to clause 12 of agreement with APSEB (i.e., p. 8 of assessee's paper book 2), and clause 42 of agreement with Government of Maharashtra (i.e., p. 32 of the assessee's paper book 2). He also stated that after completion of development of infrastructure facility, the same was transferred by handing over possession thereof. In support of this, he referred to p. 11 of assessee's paper book 1 for handing over of possession of infrastructure facility. We find that section 80-IA(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 possession thereof to the Government of Maharashtra/APSEB, as required by the agreement. The very handing over of the possession of the developed infrastructure facility/project is the transfer of infrastructure facility/project by assessee to the Government/authority. The handing over of infrastructure facility/project by developer to Government/local authority/statutory body takes place after rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B on its completion only and without operating it, that is without resorting to the collection of toll therefrom for recoupment of its costs. Accordingly, in our opinion, the assessee has duly complied with this condition as well. We, therefore, hold that ground No. 2 of Revenue's cross objection has no merit and the same accordingly fails. ...................................................................................... 68. We have considered the rival contentions as also the relevant material on record. We may note that the statutory provision as contained in section 80-IA provides for development of infrastructure facility . It nowhere provides that entire infrastructure project is to be developed by one enterprise. It is revealed from record that both the projects were multi-purpose projects for water supply, irrigation and power generation. The assessee has developed such part of the project, as was for supply of water from river/lake to turbine. Therefore, the assessee has developed infrastructure facility for supply of water and for irrigation. Merely because development work done by assessee is a point to point milestone of a multi-purpose project, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative on this count, therefore fails. 71. In view of our above discussion, we hold the assessee to have fulfilled all the requisite conditions prescribed under sub-section (4) of section 80-IA for being eligible for deduction under section 80-IA. We, therefore, delete this disallowance of assessee's claim for deduction of ₹ 18,47,09,510 under section 80-IA and direct the Assessing Officer to allow the same. As such ground No. 1 in assessee's appeal stands allowed and the Revenue's cross-objection stands rejected. We order accordingly. 17. In the light of above back ground of discussions, if we consider the facts of the case under consideration, we notice that the A.O. has allowed the claim under section 80IA(4) of the Act. But the CIT(A) exercised his power under section 251 of the Act and withdrawn the claim under section 80IA(4) of the Act. The assessee claimed deduction under section 80IA(4) in respect of two projects - (1) Panipet-Jalandhar Project and (2) Sagar-Beena Project. The CIT(A) withdrew the claim under section 80IA(4) in respect of Panipat-Jalandhar Project on the ground that it was a contract only for short term improvements and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifications and codes are to be carried out by the Contractor at his cost as per direction of the Engineer. Routine road maintenance means the planned ongoing works and activities required to ensure public safety, repair small defects and to maintain the road in the required condition. Ad hoc maintenance means the carrying out of unscheduled maintenance occasioned by irregular events such as accidents, natural failures, abnormal weather and the like, as mentioned in technical specification and performance standards. The routine and ad hoc Road Maintenance shall include, amongst others, activities such as:- Repairing Local Potholes Crack Sealing Asphalt Treatment Road Sign Maintenance Road Markings Guard Rail and supplementary road furniture repairs - Maintenance of Rigid Pavements Repair of Fences Repairs of Accident Damaged Assets Maintenance of Culverts, Drains and Channels - Clearing of Litter and Debris Periodic Maintenance of Flexible Pavement Horticultural maintenance 19. Clause 4.3 is reproduced as under :- 4.3 Road property maintenance The Contractor shall ensure the maximum availability and effi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Apex Court in the case of Bajaj Tempo vs. CIT (1992) 196 ITR 188 (SC) wherein the Apex Court emphasized that a provision in a taxiing statute granting incentives for promoting growth and development should be construed liberally, we find that the case of the assessee covers by the conditions laid down in section 80IA(4)(i), (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining. Therefore, the claim of deduction under section 80IA(4) of the Act is allowable in respect of Panipat-Jalandhar Project. Sagar-Beena Project. 22. The objection of the CIT(A) in allowing deduction under section 80IA of the Act in respect of Sagar-Beena Project is that the assessee did not satisfy the conditions laid down under section 80IA(4)(b) of the Act. The objection of the CIT(A) is that there is nothing to suggest on record that the assessee had entered into any agreement with the Central Government or a State Government or a local authority or any other statutory body. He further noted that the assessee has entered into agreement with M/s. Nagarjuna Construction Company Limited, an entity which is not mentioned in section 80IA(4)(b) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same, we are of the opinion that the CIT(A) has properly appreciated the evidence before allowing the claim of the assessee and there is no reason to interfere with the same. 24. The I.T.A.T., Visakhapatnam Bench in the case of DCIT vs. M/s. Transstroy (India) Limited, ITA No.325 326/Viz/2011, order dated 13.04.2012 while examining allowability of claim under section 80IA(4) in case of Joint Venture followed the order of I.T.A.T. in earlier year in assessee's own case. The relevant observation are reproduced as below :- We have carefully examined the order of the CIT(A) and the order of the Tribunal in the assessee's own case for the assessment year 2006-07. on careful perusal of this order of the Tribunal, we find that Tribunal has examined the issue in detail in the light of legal provisions and various judicial pronouncements and finally concluded that for all practical purposes, the contract was awarded to the constituents of the joint venture through joint venture and the work was executed by them. Therefore, the benefit of deduction under this section is to be given only to the enterprises who carried on the classified business. The relevant portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rjuna Construction Company Limited dated 10.08.2004 between M/s. Nagarjuna Construction Company Limited and M/s. PNC Construction Company Limited, the assessee, wherein it is stated that both the parties have formed a Joint Venture called the NCC-PNC JV by virtue of Agreement dated 08.04.2004, with the sole purpose to submit a joint bid for Sagar- Beena Road Project. M/s. PNC Construction Co. Limited was offered for the entire works of joint venture and shall be liable for all taxes including income tax solely liable to government of Madhya Pradesh. The agreement with Government of Madhya Pradesh and NCC-PNC joint venture accepted the concept of Joint Venture vide clause no.27.1 which is at page no.95 of assessee's Paper Book. On perusal of agreements and supplementary agreement, we notice that the CIT(A) failed to consider the relevant provision of section 80IA(4)(i)(a) which provides that the prescribed infrastructure project in section 80IA(4)(i) is owned by company registered in India or by a consortium of such companies. The CIT(A) has considered only clause 80IA(4)(i)(b) of the Act without considering section 80IA(4)(i)(a) of the Act. If we read both the clauses of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing, the ld. Departmental Representative failed to controvert the submission of the ld. Authorised Representative and stated that no comments are offered by the ld. CIT, Agra on this case. The assessment order for A.Y. 2006-07 became final where the A.O. himself has allowed the claim of the assessee under section 80IA(4) of the Act. In this regard, we would like to refer one of the elementary principles of the judicial administration which is noted from a judgement of Hon'ble Madhya Pradesh High Court in the case of Arihant Builders, Developers Investors (P) Ltd. vs. ITAT Ors. (2005) 277 ITR 239 (MP) (Page No.243) that there should be consistency so that litigants are aware where they stand. If the Courts and Tribunals are allowed to take the view like the one in present case, it would lead to anarchy and total chaos which would be against judicial propriety and discipline. We may also refer the following judgements in this regard:- i) CIT Vs. Goodlas Nerolac Paints Ltd., 188 ITR 1(Bom.): (Page 5 ) This, however, does not mean that subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is filed. We, therefore, reject the contention of the ld. Departmental Representative for sending back the matter to the file of the CIT(A). 30. In the light of above discussions, we find that the CIT(A) has wrongly withdrawn the claim of the assessee under section 80IA(4) of the Act. Therefore, we set aside the order of the CIT(A) and restore that of the A.O. and grant deduction under section 80IA(4) as claimed by the assessee. This ground of appeal of the assessee is allowed. 31. Now take up remaining grounds of appeal as under:- 32. Grounds no.1, 7 8 are general in nature, require no independent finding. 33. The brief facts of ground no.2 are that during the assessment proceedings, the A.O. noticed that the assessee has claimed ₹ 61,64,601/- on account of signboard expenses. The assessee has failed to produce all the relevant bills. In absence of bills, the A.O. noticed that these expenses could not be verified. However, the A.O. admitted that in the line of work of assessee's company certain amount of signage are a mandatory requirement, but in absence of complete voucher and details, the A.O. disallowed ₹ 5,00,000/- to cover leakage of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.3 are that during the assessment proceedings the A.O. noticed that the assessee claimed temporary building structure expenditure of ₹ 1,02,11,975/-. The A.O. accepted the fact that the assessee has to incur such expenses in this line of business. The A.O. made adhoc addition of ₹ 5,00,000/- to cover the possible loss of revenue on account of wrong claim of the assessee. The CIT(A) confirmed the said addition. 36. We have heard the ld. Representatives of the parties and records perused.The admitted facts of the case are that the expenditure incurred was wholly and exclusively for the purposes of business. This fact has not been disputed by the A.O. The A.O. made the disallowance without pointing out any specific expenditure which was incurred other than for the purposes of business. In the light of the detailed discussion made while deciding ground no.2 in paragraph nos.33 34 of this order, following the said discussion, we delete the adhoc addition of ₹ 5,00,000/- 37. Brief facts in respect of ground no.4 are that during the assessment proceedings, the A.O. noticed that the assessee has claimed Repairs Machinery expenses of ₹ 1,89,46,155/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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