TMI Blog2016 (11) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... iness loss - Held that:- From going through the observation of ld. CIT(A) we find that impugned transaction of giving bank guarantee to Rajkamal Builders was in the course of business for carrying out of the contract for construction of water treatment of GWSSB & ADB and amount of ₹ 17,77,540/- was outstanding to be received has been claimed as business loss as there was no possibility to recover the same. However, these facts could not be proved by the assessee with the support of necessary documents. Ld. AR has made a request for setting aside the issue for examination to which ld. DR did not object. Therefore, we set aside this issue to the file of Assessing Officer for the purpose of verification of necessary evidence/documents which will be submitted by assessee. Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) of the Act towards non-payment of employees contribution to the Government- Held that:- CIT(A) has rightly disallowed the expenditure of employees contribution to P.F. deposited after the due date - 811/Ahd/2010, 732/Ahd/2013, 812/Ahd/2010, 2132/Ahd/2011, CO No.30/Ahd/2011 in ITA No.250/Ahd/11, 487/Ahd/2013, 733/Ahd/2013, 488/Ahd/2013, 935/Ahd/2013 - - - Dated:- 30- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongly allowed the deduction u/s 80IA of the Act without making proper enquiry/verification or analyzing the said issue. The assessee made necessary submissions with requisite details of the contract awarded, nature of work entrusted on the assessee and in these contracts in order to prove that scope of work included designing (process, hydraulic, structure, equipment and aesthetically) constructing and commissioning conventional water treatment plant consisting of all civil, mechanical and electrical components including necessary hydraulic testing, structural testing, equipment testing, trial run etc. The assessee also submitted that all these details were put forth before the Assessing Officer also. However, ld. CIT was not convinced and was of the view that assessment u/s 143(3) of the Act dated 20.12.2007 passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue to the extent of allowance of deduction claimed by the assessee u/s 80IA of the Act at ₹ 33,10,007/- and ordered for setting aside the impugned assessment order u/s 143(3) of the Act to the extent that Assessing Officer will adjudicate on the issues of allowance of claim of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. We have heard the rival contentions and perused the material on record. Solitary grievance of the assessee is against the order u/s 263 of the Act framed by ld. CIT holding that the assessment order passed u/s 143(3) of the Act is erroneous and prejudicial to the interest of Revenue to the extent of allowance of deduction u/s 80IA of the Act without appreciating the fact that the impugned assessment order was passed under proper enquiry and verification. We observe that assessee has claimed deduction u/s 80IA of the Act of ₹ 33,10,007/- towards profit earned from the projects awarded by GWSSB and SADA, Gwalior, M.P. towards designing, constructing, commissioning, testing, operating and maintenance of water treatment plants and training the personnel of GWSSB. Necessary agreements and contracts are placed on record. Relevant portion of the provision relating to deduction u/s 80IA sub-section (4) of the Act applicable in the case of assessee reads as follows :- Sec.80IA: (4) This section applies to- ( i ) any enterprise carrying on the business [of ( i ) developing or ( ii ) operating and maintaining or ( iii ) developing, operating and maintaining] any infrastr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] Explanation.-For the purposes of this clause, domestic satellite means a satellite owned and operated by an Indian company for providing telecommunication service; 10. From going through the above provisions and applying the facts available on record, we observe that assessee also is engaged in operating maintenance of the projects entered into agreement with the Government/Local authorities. We further observe that explanation to section 80IA of the Act was inserted by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000 which reads as under :- Sec.80IA [ Explanation. -For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).] The above was substituted at the place of following explanation which reads as under :- For the removal of doubts it is hereby declared that nothing contained in this section was applied to a person to execute works contract entered into with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in residential house. . . - : 54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, a residential house] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r initiated revision proceedings on the ground that the Assessing Officer had allowed deduction under section 80-IB(10) without examining whether all the conditions prescribed by the section were satisfied and, hence assessment was erroneous and prejudicial to the interest of revenue. The Tribunal in its order held that as regards the interpretation placed on section 80- IB(10). there was no dispute that the project was approved by local authorities and was developed on land exceeding 1 acre, as required by the section. It further held that even if some flats exceeded 1000 sq. ft. of the built-up area, that did not disentitle the assessee to the deduction rather a proportionate deduction on flats which exceed the statutory limit of 1000 sq. ft. alone could be disallowed. On an appeal : Hon. Court adjudicated the issue by upholding the order of the Tribunal by observing as under :- 12 . The Tribunal was of opinion that merely because there was a honest and bona fide difference of opinion between the assessee and the Assessing Officer on the one hand and the CIT on the other with regard to the interpretation to be placed on a provision of law or there was a possibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee, it was held by the Tribunal that the building plans of each house submitted by the assessee were not sanctioned as such by the competent authority before 1st October, 1998. They were rejected and time and again modifications were proposed by the authority; finally the approvals of the building plans were issued after 1st October, 1998, except for 26 houses in Avantika Akruti Project. The Tribunal has also referred to certain orders of the Pune and Bombay Benches of the Tribunal where the date of approval by the competent authority was considered crucial to determine the date of commencement of development or construction. This discussion of the Tribunal shows that the determination of the question as to when the undertaking commenced development and construction, in the absence of any statutory prescription, has to be decided in a pragmatic and reasonable way. It would have been an entirely different issue had there been a statutory prescription of what would be the date of commencement of construction or development. It is certainly a debatable issue on which more than one plausible view is reasonably possible and merely because the Assessing Officer has taken o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall apply to a person who executes a works contract entered into with the undertaking or enterprise as the case may be 16. Thus, the above amendment to the Explanation to section 80-IA was made by the Finance (No. 2) Act 2009 while the assessment order passed on 28-3-2006 and the order of the CIT was passed on 13-3-2008. In this situation, the retrospective insertion of the Explanation to section 80-IA and amendment thereof with retrospective effect does not render the assessment order erroneous in so far as prejudicial to the interests of revenue so as to invoke provisions of section 263 of the Act, as held by Hon'ble Supreme Court in the case of Max India Ltd. (supra). Here we are confined to the limited issue of invoking the provisions of section 263. According to us, the Assessing Officer has taken one of the possible views available at the relevant point of time. In view of this, we are not inclined to agree with the finding of the CIT. We accordingly set aside the order of the CIT passed u/s 263 for A.Y. 2003-04. Similar is the issue raised by the assessee in its appeal in ITA No. 637/PN/2008 for A.Y. 2004-05. Facts being similar, so following the reasoning given w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09 ITA No.935/Ahd/2013 for Asst. Year 2009-10, Revenue has challenged the orders of ld. CIT(A) dated 29.12.2010, dated 26.12.2012 and dated 2.1.2013 raising common ground against these orders allowing claim u/s 80IA of the Act at ₹ 42,19,807/-, ₹ 35,26,005/- and ₹ 52,26,225/- respectively for asst. years 2007- 08, 2008-09 and 2009-10. 21. We take up the facts for Asst. Year 2007-08 for adjudicating the issue. Briefly stated facts are that the return of income was filed on 29.10.2007 declaring total income at ₹ 49,19,090/- followed by revised return dated 22.02.2009 declaring the same income. Case was selected for scrutiny assessment. Necessary details as required by Assessing Officer were filed by the assessee. Assessment was completed at an assessed income of ₹ 1,22,70,657/- after making addition towards disallowance of deduction u/s 80IA of the Act at ₹ 49,47,687/-, disallowance of claim of bad debt/business loss at ₹ 17,77,540/- and disallowance of bad debt at ₹ 6,26,340/-. Appeal of the assessee was partly allowed by ld. CIT(A). 22. Now Revenue is in appeal before the Tribunal against the allowability of claim of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded training of the personnel. All three agreements were produced and were examined in detail. Appellant s claim that it was not a mere contractor was evidenced from these documents. Appellant was found to be a designer of the infrastructure facilities with its technical team. It also constructed infrastructure facilities with its risk and also commissioned the same and carried out trial run. Appellant also operated and maintained the infrastructure facilities created by it for some time and also trained the personnel when required. Considering these facts it cannot be said that appellant was a mere contractor and not a developer. All the decisions referred by the assessing officer and appellant were analysed and in the light of facts of the appellant, it is quite clear that in respect of these three projects, appellant was developer. Appellant relied upon a recent decision of ITAT, Rajkot dated 23.9.10 in ITA No.1111/RJT/2010 in the case of M/s Tarmet Bel (JV) KCL, Rajkot vs. ITO Wd 1(4), Rajkot. All relevant decision of the issue were discussed in this decision. The relevant extract of this order is as under :- In the present case, we hove already held that although th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recent decision of 1TAT Rajkot bench which squarely applies to the facts of the appellant's case, assessing officer is directed to allow deduction u/s 80IA of IT act in respect of the three projects namely GWSSB-ADB project, GWSSB-Gondal and MPAKVN project. 26. We further observe that from the agreement entered into by the assessee with GWSSB MPAKVN with regard to their scope of work wherein assessee is required to designing (process, hydraulic, structure, equipment and aesthetically) providing, constructing and commissioning conventional water treatment plant consisting of all civil, mechanical and electrical components including necessary hydraulic testing, structural testing, equipment testing, trial run etc. The assessee is also required to arrange cement, sand steel and equipments etc. and undertake soil investigation and other exploration work. In all the assessee company has to design, construct, commission, test/operate and maintain water treatment plant. All these conditions akin to the contract awarded to the assessee duly come within the ambit of the conditions laid down u/s 80IA sub-section (4) of the Act. 27. We further observe that similar issue came up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. [Para 27] The next question to he answered is whether the assessee is a developer or mere works contractor. The revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin (o works contract and it is not eligible for deduction under section 80-IA(4). Whether the assessee is a developer or works contractor purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to he analysed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. The Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicate that the assessee is eligible for deduction under section 8()-IA(4). The department is not correct in holding that the assessee is a mere contractor ij the work and not a developer. [Para 28] As per the provisions of section 80-IA, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word 'contractor' is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word 'contractor' is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot he viewed differently. Every contractor may not be a developer hut every developer developing inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection and liability period, then such contracts cannot be called as simple works contract to deny the deduction under .section 80-IA. The contracts which contain above features to be segregated, this deduction under section 80-IA have to be granted and the other agreements which are pure works contracts hit by the Explanation to section 80-JA(13), those work are not entitled for deduction under section 80-IA. The profit from the contracts which involve Resign, development, operating and maintenance, financial involvement, and defect correction and liability period is to be computed by the Assessing Officer on pro rata basis of turnover. The Assessing Officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above. [Para 30] 28. Further similar issue also came up before the Tribunal, Hyderabad Bench in the case of Sushee Hi Tech Constructions (P) Ltd. vs. DCIT (2013) 33 taxmann.com 236 (Hyderabad-Trib), wherein dealing with the issue has decided the same by observing as below :- FACTS -1 The assessee had undertaken the development of irrigation canals and railway tracks including conversion of gauge. The project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. Thai the provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word 'ownership' is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80-1 A(4) and not any other person like individual. HUF, firm. etc. [Para 31] According to sub-clause (a), clause (/) of sub-section (4) of section 80-IA. the word 'it' denotes the enterprise carrying on (he business. The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system. Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of I 2 (o 24 months. During this period, if any damages are occurred, it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010. such activity is eligible for deduction under section 80-IA (4). This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore: the assessee is a developer and not a works contractor as presumed by the revenue. The circular issued by the Board clearly indicates that the assessee is eligible for deduction under section 80-IA (4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. [Para 33] Assessee is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under section 80-IA is available to developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only business risk. Without any doubt, the assessee clearly demonstrated that it has undertaken huge risks in terms of deployment of technical personnel, plain and machinery, technical know-how, expertise and financial resources. Further, after the amendment the section 80-IA(4) read as (/) developing or (//') operating and maintaining or (///') developing, operating and maintaining any infrastructure facility. Prior to amendment the 'or' between three activities was not there, after the- amendment 'or' has been inserted with effect from 1-4-2002 by Finance Act, 2001. Therefore, the assessee should not be denied the deduction under section 80-IA, as if the contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract. The contracts which contain above features are to be segregated and on this deduction under section 80-IA has to be granted and the other agreements, which are pure wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after carrying out certain debits and credits for various transactions the balance of ₹ 17,77,540/- was outstanding as on 31.03.2007 which was due to be received by the assessee. This amount of ₹ 17,77,540/- was claimed as business loss by the Assessee. However, ld. Assessing Officer was of the view that the advance given to Rajkamal Builders was of capital nature and, therefore, this amount of ₹ 17,77,540/- is merely a capital loss and not revenue loss and claim is treated as liability. Against this addition assessee went in appeal before ld. CIT(A) but ld. CIT(A) confirmed the addition of disallowance of business loss of ₹ 17,77,540/- by observing as under :- 3,3. I have considered the facts of the case, assessment order and appellant's submission. I have gone through the decisions relied upon by the assessing officer as well as appellant. Claim of business loss under section 28 is possible if following conditions are fulfilled- 1-the loss should be incidental to the business. 2-the loss suffered should be proved. In the case of appellant, facts have been elaborately discussed in assessment order as well as appellant's submission. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions and perused the material on record. The grievance of the assessee through this Cross Objection is against the sustaining of addition towards disallowance of ₹ 17,77,540/-. From going through the observation of ld. CIT(A) we find that impugned transaction of giving bank guarantee to Rajkamal Builders was in the course of business for carrying out of the contract for construction of water treatment of GWSSB ADB and amount of ₹ 17,77,540/- was outstanding to be received has been claimed as business loss as there was no possibility to recover the same. However, these facts could not be proved by the assessee with the support of necessary documents. Ld. AR has made a request for setting aside the issue for examination to which ld. DR did not object. Therefore, we set aside this issue to the file of Assessing Officer for the purpose of verification of necessary evidence/documents which will be submitted by assessee. Needless to mention that reasonable opportunity of being heard will be provided to the assessee. Accordingly, the C.O. of assessee is allowed for statistical purposes. 37. Now we take up appeals in ITA Nos.487/Ahd/2013 for Asst. Year 2008-09 and 48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 458/-) u/s 2(24)(x) r.w.s. 36(1)(va) of the Act towards non-payment of employees contribution to the Government. 40. Ld. DR submitted that this issue has now been settled in favour of Revenue by the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation 366 ITR 170 (Guj). Ld. AR accepted that this issue is decided against the assessee in the light of above referred decision. 41. We observe that this ground relates to disallowance of ₹ 3,21,458/- (correct amount is ₹ 3,19,458/-) u/s 2(24)(x) r.w.s. 36(1)(va) of the Act towards delayed payment of employees contribution to PF in the Government Account. Such delayed payment has been disallowed for claiming as an expenditure as per the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation wherein it has decided the issue by observing as under :- 7.00. Heard the learned advocates appearing on behalf of the respective parties at length. 8.00. In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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