TMI Blog2014 (9) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... actual cost and efficiency of work, the assets created and the source not being of the appellant at any stage and it being entitled to a fixed remuneration for its professional services; it clearly is falling in the excluded category as per the amended Explanation below section 80IA(13); and therefore, not eligible for deduction - the objections of the CIT(A) was that the assessee does not bear any risk and consequences arising from the project – Decided against assessee. Interest on unutilized grants as income from other sources – whether taxable or part of grant received from the government and not taxable - Held that:- the assessee is 100% government owned company appointed as a Nodal Agency for implementation of various infrastructure development projects all across Gujarat - the observation of the AO that the interest is not credited to the respective Grant accounts is factually incorrect, as a perusal of the balance-sheet and the respective ledger accounts of the Grant/Project clearly show that in fact the interest is credited to the respective account. - Earlier decision of the same assessee [2014 (4) TMI 789 - ITAT AHMEDABAD] followed - interest is not taxable – Decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue by this Bench of the Tribunal in assessee's own case vide a consolidated order dated 19.03.2014 in Nos.2670/Ahd/2013 for AY 2009-10, 2671/Ahd/2013 for AY 2010-11, 1116/Ahd/2011 for AY 2007-08 787/Ahd/2012 for 2008-09. 5. The ld. CIT(A) has held as under:- 5. The first effective ground of appeal is against the disallowance of claim of deduction of ₹ 1,47,90,185/- u/s 80IA(4) of the Act. 6.1 The AO during the course of assessment proceedings noticed that the assessee had claimed deduction u/s 80IA(4) to the ₹ 1,47,90,185/- in respect of income of the eligible business of development of various projects and interest income of ₹ 22,63,60,745/-. However, the AO disallowed the claim of the deduction under section u/s 80IA(4) of the Act of ₹ 1,47,90,185/- by holding that the assessee has merely carried out various projects as nodal agency on behalf of Government of Gujarat in construction of Water Supply Schemes Sanitation and Sewerage System, Creating Solid Waste Management Infrastructure, Construction of Roads, Water Supply Projects etc., as works contract and not carried out any Development of infrastructure project within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works carried out by the company are not in the nurture of the works contract awarded to it. It is a Nodal Implementing Agency which is DEVELOPING the infrastructure facilities. And hence the business carried out by GUDC LTD. is an eligible business as stipulated under the provisions of Sec. 80IA(4). In the support of above arguments, judgment of the ITAT, Rajkot 23/09/2010 in ITA NO.1111/Rjt/2010 in the case of M/s Tarmet Bel (JV) KCL, Rajkot vs. ITO, Ward.I (4), Rajkot is enclosed. Further, GUDC LTD. carries various risks while carrying on the project on the behalf of local bodies. The entire risk of executing a project by engaging and supervising the works of the contractors, consultants and the staff is borne by GUDC LTD. Any escalations in the costs or delays in projects and its consequences are naturally the responsibility of GUDC LTD. It has to own up the responsibilities of execution and planning. So besides the financial risks of losses, it also bears long run business risks as well. GUDC LTD has to hand over the projects to the local bodies and in the interim period it is called upon to bear the operation maintenance costs. If required care is not taken, lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orked as a nodal agency for implementation of various works undertaken/allotted by the government. The work of the appellant bears no risk whatsoever of the cost or success of the projects. The appellant gets a fixed percentage of the money spent on the project. For e.g. supposedly, on a project originally estimated at ₹ 100 crore, the actual cost over runs to any amount may be even ₹ 500 crore; the assessee looses nothing. In fact its own allocation increases and it gains and similarly it doesn't get any benefit when it saves cost or is more efficient. In fact, the grants for the projects are not its revenue income at all. In fact, in various decisions the grants which are utilized for specified projects have been held to be not income but diversion of funds at source. The decisions include that of Hon'ble ITAT, Ahmedabad Bench in the case of Gujarat Safai Kamdar Vikas Nigam vs. ACIT, Gandhinagar Circle, Gandhinagar (ITA No.3232/Ahd/2008, order dated 17.04.2009), and Guajrat State Disaster Management Authority vs. ACIT, Gandhinagar Circle, Gandhinagar, ITA No.949/Ahd/2009, order dated 05.06.2006. In the entirety of facts and circumstances, the appellant is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010, thereby the AO disallowed the claim of the assessee made u/s.80IA(4) of the Act. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, rejected the appeal. 11. Ground Nos.1, 2 3 are inter-connected and, therefore, the same are decided together. 11.1. The ld.Sr.counsel for the assessee submitted that the assessee is a Developer and, therefore, he is entitled for deduction u/s.80-IA(4) of the Act. 11.2. On the contrary, ld.CIT-DR/Sr.DR submitted that the order of the ld.CIT(A) is justified. He drew our attention towards the decision of the ld.CIT(A) as contained in para-5.1 of his order. After some argument, ld.Sr.counsel for the assessee fairly conceded that the issue is decided against the assessee by the Hon'ble Jurisdictional High Court rendered in the case of Katira Construction vs. Union of India reported at (2013) 352 ITR 513 (Guj.). 12. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has given a finding on fact, which reads as under:- 5.1. I have considered the facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of a works contact. The decision of honorable Supreme Court in the case of Gujarat Industrial Development Corporation 227 ITR 414 is also not applicable as in that case the question was not whether the appellant was doing the activities in its own right or as a nodal agency as in the present case. Similarly, the facts and question are distinguishable in other cases cited by the appellant. The appellant is held not eligible for deduction claimed u/s.80IA(4) and the decision of the AO is upheld. The first two grounds of appeal are therefore, dismissed. 12.1. We find one of the objections of the ld.CIT(A) was that the assessee does not bear any risk and consequences arising from the project. In view of the ratio laid down by the Jurisdictional High Court rendered in the case of Katira Construction Ltd. Union of India(supra), we do not find any infirmity in the order of the ld.CIT(A), therefore ground Nos.1 to 3 of the assessee's appeal are rejected. 7. Facts being identical, respectfully following the precedent, we dismiss these additional grounds of appeal of the assessee. 8. The Grounds No.1 and 2 of the appeal of the assessee read as under:- 1. Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. Thus in a process interest expenses are claimed as expenses two times (i) By GSFS and (ii) By Other Government undertaking who takes loan from GSFS while income is offered only in one hand i.e. in hands at (i) GSFS. Thus, Government funds are routed through GSFS in such a way that it enables one Government entity to claim interest expenditure and thereby reduce its tax liability without increasing tax liability of another Government entity. Thus, entire income received as interest from GSFS remains out of tax net. 7.2 The appellant during the course of appellate proceedings on 17/09/2013, submitted as under: The Assessee receives the grants from the Government of Gujarat for implementation of projects schemes approved by the GOG. . These Grants are to be held exclusively to be used for the specific projects and schemes for which it is granted as per the prevailing directives of the Government. The funds are deposited with the GSFS for the period they are not utilized and with bank for the expenditure. Interest earned is also again utilized for the purpose of same Infrastructural facilities. There is no profit motive as the entire fund is given for implementati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the reasons discussed and decided in the following paragraphs. The facts can be summarized that the appellant is a nodal agency of Gujarat Municipal Finance Board (GMFB) which is implementing various schemes like Municipal Solid Waste Management Projects, Billimora Wadhwan Augmentation to Water Supply System under BIDSSMT, Integrated Infrastructure Development in Tribal Towns of Gujarat, Municipal Energy Efficiency Project (MEPP), Carbon Credit (COM), Clean Development Mechanism (COM) etc. It is also a fact that the grant given by Government of Gujarat to the appellant is parked in the GSFS, one of the other financial corporations' of Government of Gujarat. It is also a fact that the Corporation is a Limited Company which is assessed to tax under various provisions of the Income-tax Act, 1961. The appellant is in appeal against the addition of ₹ 22,63,60,745/- made by the AO as there were long term surplus funds and that interest was not part of Grant and deposits were kept in its name, after disallowing the assessee's claim as the interest income not taxable on the surplus funds under the head 'Income from Other Sources'. The assessee's submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney as well as utilization and treatment of surplus money, which are mere directives GMFC but not on the basis of any legislation which is overriding the provisions of Section 56 of IT Act, 1961. The fact is that there is an income of ₹ 22,63,60,745/- as interest earned and brought in the P L account of the appellant but ultimately not taxed which is not permissible under any provisions of the Income-tax Act. iv) The AO has well cited the example for escapement of income in the assessment order that the interest earned by the appellant on the grant parked in GSFS is claimed as an expenses by GSFS and the same amount is being advanced by GSFS to other government agencies from GSFS is receiving interest and thus other entities are again claiming expenses. Thus the interest expenses are claimed as expenses two times, first by GSFS and secondly by other government undertakings who take loans from GSFS while income is offered only in one hand i.e. GSFS. Thus, the government funds are routed through GSFS in such a way that it enables one government entity to claim expenditure and thereby reduce its tax liabilities without increasing tax liability of another government entity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al available on record and gone through the orders of the authorities below as well as the case-laws relied upon by the parties. We find that the ld.CIT(A) has given a finding on fact that the assessee is 100% government owned company appointed as a Nodal Agency for implementation of various infrastructure development projects all across Gujarat. He has further given a finding on fact that the observation of the Assessing Officer in para-13.3 particularly on page- 6 of the assessment order that the interest is not credited to the respective Grant accounts is factually incorrect, as a perusal of the balance-sheet and the respective ledger accounts of the Grant/Project clearly show that I fact the interest is credited to the respective account. The Hon'ble Jurisdictional High Court in Tax Appeal No.828 of 2013 formulated following substantial question of law for determination:- Whether in law and on facts, the ITAT was right in not treating the interest of ₹ 1,25,44,938/- accrued to Fixed Deposits as income of the assessee? 6.1. The Hon'ble High Court dismissed the appeal affirming the view of the Hon'ble Tribunal and held that no error has been committed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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