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2016 (7) TMI 396 - ITAT HYDERABAD

2016 (7) TMI 396 - ITAT HYDERABAD - TMI - Disallowance of the claim of deduction U/S 80IA(4) - Held that:- The assessee has filed copies of performance guarantees given by the assessee on behalf of PCL-ILHC as an additional evidence to prove that the assessee had undertaken the financial obligations as well. On going through these documents, we find that the Government Agency i.e., THDC has accepted the assessee to be the official sub-contractor executing the entire project and even the original .....

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all the above into consideration, we are in agreement with the contentions of the assessee that the assessee is eligible for making claim under section 80IA(4) of the I.T. Act as the assessee is considered to be the official sub-contractor of the said project and also in view of the fact that the employer or the original contractor or the Rithwik Swati JV have not claimed the deduction under section 80IA of the Act. This issue is therefore decided in favour of the assessee. - Unexplained ex .....

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e expenses given under Rule 6DD. - ITA.No.1781/Hyd/2013, ITA.No.1552/Hyd/2014 - Dated:- 4-7-2016 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Mr. P. Muralimohan Rao For The Revenue : Mr. P. Somasekhar Reddy ORDER SMT. P. MADHAVI DEVI, J.M. Both the above are assessee s appeals for the A.Ys. 2009-10 and 2010-2011 respectively. In these appeals, the assessee is mainly aggrieved by the disallowance of assessee s claim of deduction under secti .....

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Ld. Counsel for the assessee submitted that the assessee is not interested to press ground of appeal No.5 against the addition of ₹ 17,70,000. The said ground of appeal is accordingly rejected as not pressed. 3. As regards the grounds of appeal Nos. 2 to 4 against the disallowance of the claim of deduction U/S 80IA(4) of the Act, the brief facts of the case are as follows:The assessee company is engaged in the business of executing contracts like dams, roads, bridges, tunnels, reservoirs a .....

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tails which were filed by the assessee. On perusal of the same, the A.O. observed that the assessee company had carried out execution of certain contract works and had claimed deduction under section 80IA(4) of the Act to the tune of ₹ 34,24,73,802 being 100% of the profits from the construction of Koteshwar Dam at Uttarakhand, in the revised return of income filed by the assessee on 09.03.2010. The A.O. observed that as per the provisions of section 80IA(4) and the explanation thereto, th .....

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get speech for 1995-1996 which was delivered by the then Minister of Finance on 15th March, 1995, setting out the intention behind introducing the deduction, the A.O. held that the legislature intended that the benefit of deduction was meant to be extended only to those private enterprises which develop infrastructure facility in the collective role of a funds investor - builder - operator, but not merely as a works contractor. 4.1. Thereafter, the AO proceeded to examine the nature of works und .....

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or Local Authority and therefore, the first condition laid down in clause (b) of section 80IA(4)(i) has not been fulfilled by the assessee for claiming deduction. Further, the A.O. also examined the role of the assessee in execution of the contract and observed that the assessee is only a subcontractor. He therefore, issued a show cause notice to the assessee asking its explanation as to why the deduction claimed under section 80IA(4) should not be disallowed. 4.2 In reply thereto, the assessee, .....

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d infrastructure facility to execute the said work and that the only contract executed by the assessee is the contract in question for the A.Y. 2009-2010 and therefore, the assessee is eligible to claim deduction under section 80IA as even the principal contractor has not claimed any deduction with regard to the said contract. 4.4 The A.O. however, did not accept the assessee s contentions and held that the assessee has not made any investment in the form of infrastructure. He therefore, held th .....

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ontentions made before the A.O. The Ld. CIT(A), after considering the assessee s contentions, has, at para 4.1.3of his order, held that the only contract entered into by the local authority i.e., THDCL was with PCL-Intertech Lenhydro Consortium J.V. and not with the assessee herein in its own right or as a principal of a J.V. She observed that the contracts entered into by the assessee, whether as a member of J.V. on 16.11.2002 or in its own right by agreement dated 01.04.2008 with PCL-Intertech .....

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pheld the disallowance made by the A.O. and the assessee is in second appeal before us. 6. The learned Counsel for the assessee reiterated the submissions made by the authorities below and have also filed detailed written submissions before us which are at pages 1 to 6 of the paper book filed by the assessee on 4.9.2015. He has also placed reliance upon the following decisions in support of his above contentions: i) ITAT Indore in the case of Ayush Ajay Constructions Ltd, reported in 79 ITD 213 .....

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eported in (55 taxmann.com 283) viii) ITAT Hyderabad in the case of Siva Swathi Constructions P Ltd in ITA No.189/H/2015. 7. The learned DR, on the other hand, supported the orders of the authorities below and submitted that the assessee s contract was not with the Central or a State Government or any local authority or statutory body and further that the entire work was not executed by the assessee as the initial agreement for execution of the contract was entered into by PCL-ILHC with the join .....

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M/s. PCL-ILHC J.V. and against contract No. THDC/RSH/CV/187/80 dated 14.11.2002 M/s. Rithwik Projects (P) Ltd was the back to back sub contractor for the said work and further that Koteshwar Hydro Electric Projects is a multi purpose project where Hydro power generation, water supply and irrigation for D/S areas are involved and that this project is regulating water, release from Tehri Reservoir for irigation purpose. The certificate is dated 13.10.2015 i.e after the disposal of the appeal of th .....

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ider it for adjudication of the issue. 8. Having regard to the rival contentions and the material on record, we find that the undisputed facts are that the Govt. of India and Gov. of U.P formed a joint venture by the name of Tehri Hydro Development Corporation (THDC in short) with equity in the ratio of 75:25 between the Govt. of India and the Govt. of UP for the power component. The said company was incorporated in July 1988 to develop, operate and maintain the 2400 MW Tehri Hydro Power Complex .....

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alancing) reservoir for Tehri PSP. This project is also regulating water releases from Tehri reservoir for irrigation purpose. 8.1. A joint venture was formed on 30.01.2002 between M/s Progressive Constructions Ltd (1st Party) and M/s Inter Tech Service Russia and Institute Len Hydro Project (2nd Party) for the purpose of pre-qualification bid submitted to the Tehri Hydro Development Corporation Ltd. The joint venture was called as PCL-Intertech Lenhydro Consortium Joint Venture (PCL-ITHL in sho .....

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share in joint venture was 60% and share of Swathi Constructions was at 40%. 8.2. Consequent to the agreement between THDC and M/s PCL Intertech Lenhydro Consortium JV dated 14.11.2002, an agreement between M/s PCL Intertech Lenhydro Consortium JV and M/s Rithwik Swathi JV was executed on 16.11.2002 by virtue of which, Rithwik Swathi JV was to execute and complete the work as mentioned in the original agreement on back to back basis. This sub contract agreement was permissible as per clause 56 o .....

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as per the agreement, M/s Swathi Constructions was not entitled to any claim or credit for the work experience with respect to Koteshwar Dam work. 8.3. Subsequent to the dissolution deed, a fresh subcontract agreement between PCL-Intertech LenHydro Consortium JV (Principal) and Rithwik Projects Pvt Ltd (RPL) was entered on 1.4.2008 in respect of Koteshwar Dam work. According to the agreement, the assessee shall undertake, execute and complete on a back to back basis all the work to be carried o .....

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the amount deducted by THDC on account of the Principal. Thereafter, the assessee executed the entire work of Koteshwar Dam on its own by employing its investments and, deploying its labour and technology, assuming all the risks and carrying out the entire development activity. Thus the assessee has claimed the deduction u/s 80IA of the Act as no other party including PCLITLH or any of its constituents has either booked the revenue or claimed deduction u/s 80IA for the Koteshwar Dam Project for .....

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nstituent of Rithwik Swathi JV. We also find that part of the contract was executed by M/s Rithwik Swathi JV as well. Therefore, the assessee s claim has to be considered in the light of all the above facts. The assessee has relied upon the decision of the ITAT at Indore in the case of Ayush Ajay Constructions Ltd (Supra) for the proposition that though the assessee has not entered into an agreement with the State Govt., but having obtained a contract through a valid agreement, it shall be deeme .....

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ith the conditions laid down by the Government.. Let us therefore, first examine the applicability of these decisions to the case before us. 9. The first case is of Ayush Ajay Constructions Ltd., vs., ITO reported in (2001) 79 ITD 213 (IND.). In this case, the Coordinate Bench of this Tribunal at Indore has considered similar set of facts and has at paras 18 and 19 of its order held as under : 18. If we examine the relevant provisions of s. 80-IA(4A) of the Act and the object of its insertion to .....

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j Tempo Ltd. vs. CIT (supra), the provisions of promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it. If we put the facts of the case with the parameter laid down by the apex Court and the various High Courts, we would find that the assessee though not entered into an agreement with the State Government at the initial stage but has obtained the tender/contract by virtue .....

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r entered into any contract with the State Government and the assessee-company is nothing but a colourable device to evade tax. It is a settled position of law that the company is a juristic entity and it should be considered independent from the shareholders or the directors. Admittedly, M/s Ajay Construction, the original tenderer, have assigned the remaining work of the contract/tender along with the expenditure incurred by it to Smt Usha Agrawal, the promoter of the assesseecompany though an .....

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action of assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee, M/s Ajay Constructions and the State Government through which the State Government have recognised that the assessee has stepped into the shoes of M/s Ajay Constructions and notified authorising the assessee to collect the toll tax for a particular period. A copy of the letter dt. 22nd May, 2000, to this effect is also p .....

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sessee with the State Government that the assignment of contract was duly recognised by the State Government and it was admitted by them that the actual construction work was undertaken by the assessee only. 19. From a careful perusal of the text and tenor of the tender we are of the view that the tender can be duly assigned with the approval of the Chief Engineer of PWD in favour of any person and the assignee would step into the shoes of the tenderer on the same terms and conditions. Since the .....

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d to by the parties and find that though the financial assistance and the machineries were provided by M/s Ajay Constructions to the assessee-company in which the proprietor of M/s Ajay Constructions and his wife are the sole directors but this fact cannot be ignored that ultimately the contract was executed by the assessee-company and the act of assignment was duly recognised by the State Government. No doubt, it is true that in view of the judgment of the apex Court in the case of Juggilal Kam .....

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grawal, were the sole directors, to avail the tax deductions under s. 80-IA(4A) of the Act inasmuch as the deductions are only given to those enterprises which are owned by the companies registered in India or by a consortium of such companies. Since the Government has provided this deduction in order to encourage economic growth of the country, the plentitude of exemption should not be whittled down by laying stress on ambiguity here and there. If it is proved that the assesseecompany has obtai .....

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he framework of law. We, therefore, have no hesitation in holding that the assessee-company has fulfilled the requirements provided in cl. (ii) of sub-s. (4A) of s. 80-IA of the Act for claiming deduction under this section because had it not been recognised as a valid assignment of the tenderer by the State Government or had it not stepped into the shoes of the main tenderer, the State Government would not have notified authorising the assessee to collect the toll tax for a particular period as .....

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Court in the case of CIT, Chennai vs. AL Logistics P. Ltd., (2015) 55 taxmann.com 283 (Mad.) at paras 7 to 13 has held as under : 7. Now, we proceed to the next issue, whether in the absence of specific agreement with the Central/State Government, local authority or Statutory Body, the assessee is entitled to claim the benefit of section 80IA( 4) (i). The assessee had made an application for setting up of CFS at Haldia. In response to the application of the assessee, the Department of Commerce, .....

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: "No.16/6/2003-lnfra-I Government of India Ministry of Commerce & Industry Deptt. of Commerce Infrastructure Division Udyog Bhawan, New Delhi, Dated the 27th May, 2003 To The Director, M/s.AL Logistics Pvt. Ltd., Chennai. Subject: Setting up of an CFS at Haldia. Sir, I am directed to refer to your application dated 8.2.2003 on the above subject and to say that the Government has approved your proposal for setting up of an Container Freight Station at Haldia for handling import and exp .....

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nd Central Excise. (c) The approval would be subject to cancellation in the event of violation of the Customs and other laws of the land and Rules. (d) A quarterly progress report of the implementation shall be sent to the Ministry of Commerce. (e) The working of the CFS will be to review by the Inter Ministerial Committee. (f) Formalities in respect of acquisition/possession of the land shall be completed within 60 days and intimated to the M/o Commerce, failing which the approval granted would .....

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t of this letter. Yours faithfully, Sd/ (N.G.Biswas) DIRECTOR A perusal of clause 'b' of the above letter shows that the assessee was required to execute necessary bond and guarantees with the concerned Commissioner of Customs and Central Excise. It was only on the compliance of all the terms and conditions mentioned in the aforesaid letter that the assessee was allowed to carryon the services of CFS. The assessee on the compliance of the terms and conditions as mentioned in the letter, .....

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he assessee is providing CFS facility in accordance with the conditions laid down by the Government. In such circumstances there is no need to insist for the specific execution of agreements. The co-ordinate bench of the Tribunal in the case of United Liner Agencies of India (Private) Ltd; v. Joint CIT (OSD) in ITA Nos.273&275/Mum/2013 (supra), has taken a similar view. Where no specific agreement with the State Government was entered into but from the approvals granted to the assessee it wa .....

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uch, clearly state that with reference to the letter dated 8.2.2003, the Government has approved the proposal for setting up of a Container Freight Station at Haldia for handling import and export cargo. Therefore, there cannot be any doubt in the light of the approval given by the Government. The reason of the Tribunal is unimpeachable. 9.3. On going through the above decisions, we find the Tribunal in the case of Ayush Ajay Constructions (cited supra) has held that where an assessee has obtain .....

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case before us, we find that the initial agreement has been entered into by the Government Agency i.e., THDC with PCL-ILHC which has further sub-contracted the entire execution of the work to Rithwik Swati J.V. Though the Rithwik Swati J.V. has executed part of the agreement, it was dissolved thereafter and the entire project has been sub-contracted to the assessee herein with all its assets and liabilities and risks involved, as per the original contract. It is seen that at page 110 of the pap .....

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bad as the official subcontractor. Further, we also find from the income tax returns of PCL-ILHC and also the returns of Ritwik Swati JV for the A.Ys. 2003-04 to 2008-09 that none of them have booked the income from the said project. Further, the assessee has also furnished a certificate from PCL-ILHC to state that there was no claim of deduction made under section 80IA of the Act for the said project. The assessee has also filed copies of performance guarantees given by the assessee on behalf o .....

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onstructions Ltd., (cited supra) there was a tripartite agreement between the assessee therein, the original contractor and the Government, in the case of the A.L. Logistics P. Ltd., the Hon ble Madras High Court has held that where the Government has given an approval to the assessee to execute the work, even in the absence of any specific agreement, the assessee is eligible for deduction under section 80IA of the Act. Taking all the above into consideration, we are in agreement with the conten .....

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whether the assessee has fulfilled the said conditions, we find that the CIT(A) has not given any finding on this issue. The A.O. had held that the assessee was a mere works contractor , whereas, the assessee has filed before us voluminous documents to demonstrate that it has invested money and technical labour for execution of the work and therefore, is not a works contractor but is a contractor as per the conditions laid down under section 80IA(4) of the I.T. Act. Since the CIT(A) has not give .....

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aken-up by the Ld. D.R. was that the project was not an infrastructure facility as defined under section 80IA(4). The assessee had filed additional evidence in the form of a letter dated 13.10.2015.As discussed in the earlier paragraphs that the Koteshwar Dam is a multipurpose project where Hydro-power generation, water supply and irrigation for D/S are involved and that it is an irrigation project,this additional evidence also needs to be considered by the authorities below. In view of the same .....

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t of ₹ 9.00 lakhs to have been made to one Shri B. Prabhakar Naidu. During the course of the assessment proceedings, the assessee furnished the address and PAN of the said person. Summon u/s 131 was issued to the said person for examining him on oath. When Mr. Prabhakar Naidu was questioned as to the details of the work taken up by him in Rithwik Projects Ltd, consideration received through cheque and as to how the contract receipts were utilised, the said person replied that he did not do .....

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he has not entered into any agreement for any work nor is any work order received from them till the date of statement. Taking the same into consideration, the AO disallowed the same as unexplained expenditure and brought it to tax. On appeal, the CIT (A) confirmed the said disallowance and the assessee is in 2nd appeal before us. The learned Counsel for the assessee submitted that though the party to whom the payment has been made has denied executing any work to the assessee company, they hav .....

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business expediency and genuineness of the expenditure. Since the assessee has failed to establish both the above criteria, according to the learned DR, the disallowance has been rightly upheld. 11. Having regard to the rival contentions and the material on record, we are satisfied that the assessee has not proven that the expenditure has been incurred for the business purpose of the assessee and since the recipient has denied having executed any work, it cannot be considered as genuine expendit .....

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IT (A) stating that the AO had taken into a/c the payments from Head office to various sites towards site expenditure on an emergency basis from time to time for disallowance u/s 40A(3) of the Act. It was submitted that the amount has been paid to a persons who do not have any bank account and that the assessee had no alternative but to incur the expenditure in cash. The CIT (A) confirmed the order of the AO by holding that the AR has furnished any explanation, leave alone but the evidence to sh .....

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