TMI Blog2015 (11) TMI 1665X X X X Extracts X X X X X X X X Extracts X X X X ..... oyna project has also been held to be eligible for deduction in B.T. Patil& Sons Belgaum Construction Pvt. Ltd. After analyzing the terms of the contract, the CIT(A) reiterated that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the assessee is a developer of the respective projects. As regards the issue whether, to be eligible for deduction, the assessee has to develop the entire infrastructure facility and not only a part thereof, the CIT(A) relied on the CBDT circular no. 4/2010, the decisions of the ITAT in the assessee's own case, B.T. Patil& Sons Belgaum Construction Ltd. [2013 (11) TMI 197 - ITAT PUNE ] and the Hon'ble Bombay High Court in ABG Heavy Industries Ltd. [2010 (2) TMI 108 - BOMBAY HIGH COURT ] We also found that the CIT(A) has dealt in great detail the scope of the work, risk and responsibilities undertaken by the assessee and after applying the proposition of law laid down in the following decisions arrived at the conclusion that assessee was a developer and not only a contractor. We uphold the action of CIT(A) for allowing claim of deduction u/s.80IA(4) in respect of all the projects. - Decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at contract rates i.e. selling price. In other words, the income pertaining to such advance is already impregnated in the work in progress offered for tax during the impugned year itself. Thus we direct the AO to allow the credit for TDS in year of deduction itself. We direct accordingly. Denial of deduction u/s.80IA(4) in respect of NHPC project - Held that:- Resources are earmarked for NHPC in the budgetary allocations of the India budget, more particularly for Teesta Lower Dam project also. NHPC has signed a MOU whereby the commitments/assistance to be received by NHPC from the Government are enumerated. In the Ministry of Power, Government of India work allocation is made for NHPC, including in respect of Jammu & Kashmir; co-ordination, forwarding of returns to Prime Minister's office, Ministry of Home Affairs and other Departments, concerning power issues of J & K. in sum and substance, the objects to be pursued are ordinarily performed by Government Thus, assessee's contract with NHPC fulfills the condition prescribed in section 80IA(4)(i)(b) of the Act as it performs functions akin to state.No reason to disallow assessee’s claim for deduction u/s.80IA(4) in respect of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case and in Law, the Learned CIT(A) erred in confirming the order of the A.O. that the assessee is not entitled to claim for deduction u/s 80IA(4) in respect of the Teesta Lower dam Project. 2. On the facts and circumstances of the case and in Law, the Learned CIT (A) erred in directing the A.O to tax the income of the LGE C - Pate I JV on substantive basis. 3. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in confirming the action of A.O in attributing certain expenses incurred by the assessee to the projects eligible for deduction u/s 80 IA(4). 4. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in not directing the A.O to grant credit of T.D.S as claimed by the assessee 5. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in holding that the ground regarding disallowance u/s 14A while computing book profit u/s 115 JB is infructuous. 6. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in holding that the levy of interest u/s 234B consequential in nature. 2. Rival contentions have been heard and record perused. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 2007, the reasons for disallowing the deduction claimed under s. 80IA(4) in the earlier assessment years is followed and accordingly the claim for the current year in a sum of ₹ 23.34 crores is also disallowed. The AO further observed that the assessee is a mere works contractor while the owners and the developers were the respective authorities as mentioned in paragraph 6. According to the A.O these authorities supplied funds, drawings and specifications to the contractor who had been assured of the payment. Moreover, some of the works carried out forms a mere part of the whole project. Further, in the case of Teesta Lower Dam Project, a view was taken that the appellant does not fulfill the conditions laid down in section 80IA(4)(i)(b) which requires that an assessee must enter into an agreement with the Central Govt. or State Govt. or Local Authority or any Statutory; Body. The A.O has further concluded that consequent to the insertion of Explanation to section 80IA(4) by the Finance Act, 2007 retrospectively from A.Y 2000-2001, the assessee has been held to be a 'works contractor' and not a 'developer' in A.Y 2003-04 and 2004-05 and since there is no ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-s. (4) stipulated that the enterprise must have started operating. and maintaining the infrastructural facility on or often 1st April 1995. By the Finance Oct of 2007 the word 'or' came to be introduced after the word developing, to clarify in effect that the agreement between the enterprise and the authority of the Central or State Government or, as the case may be, a local authority or a statutory body may provide for) developing, or (11) maintaining and operating, or (iii) developing, maintaining and operating a new infrastructure facility. 6.6 Another objection is that the Govt/Authority for whom the work was carried out by the appellant, supplied funds and assured the payment for the work done. A perusal of the contract documents shows that the projects executed by the assessee were highly technical and specialized and involved huge risk. The assessee has also deployed people, plant and machinery, technical expertise know-how and financial resources. The appellant has furnished the relevant documents and details pertaining to the various projects in the paper book, Volume II. Reference to pages 250 to 257 of the said paper book indicate huge resource mobiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 8-IA(4) of the Act. The illustration of the artist, given by the assessee's counsel during the course of his arguments, is aptly illustrative and befitting. If an artist is asked to paint a beautiful picture and for such painting, payment is made by another person, the creator of the painting will be the artist and not the person who paid for it. We have also noted that the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue raised-bv the A.0 is whether the deduction is available only to contractors who develop the entire infrastructure facility and not only a part thereof. This issue, as well as the earlier deliberated issue have now been decided in a recent decision of the Pune Tribunal in B.T. Patil Sons Belgaum Construction Ltd. where as per order dated 28.02.2013 (reported in 34 Taxmann.com 97 (Pune) in ITA No. 1408 1409/PN/2003 for A.Y 2000-01 and 2001-02, wherein following the jurisdictional High Court in ABG Heavy Industries it has been held in paragraph 7 86 8 as under: 7 ...................... In order to be eligible for deduction the assessee should develop the infrastructure facility as a whole and not in a particular part of it. We find that Hon'ble Bombay High Court in the case of ABG Heavy Industries has observed as under: The assessee did not have to develop the entire project in order to qualify for a deduction under s. 80IA. The parliament did not legislate a condition impossible of compliance. 8. In the case of ABG Heavy Industries (supra), the assessee therein had not developed the entire port but was only the supplier of cranes at the loading and loadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Slip road for LBS flyover, and improvement of surrounding road junctions, development substructure for LBS flyover and completion of super structure of flyover. In this regard attention is drawn to the circular issued by the CBDT in circular no. 4/2010 it has been stated as under:- It has been decided that widening of an existing road by constructing additional lanes as a part of highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 801A(4)(i) Hence it is a Road Project covered in clause (a) above. 6.11 Another question to be decided is whether an Enterprise carrying on the business of developing alone is entitled for deduction under s. 80IA(4) without operating and maintaining or developing, operating and maintaining an infrastructure facility. To decide this question it is necessary to analyze the section over the years after it was first introduced Section 80IA of the Act as it was originally enacted, provided that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hostel or operation of a ship or developing, maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be in respect of the income derived from the use of the infrastructure facilities development of such enterprises. The infrastructure facility had to become operational on or after 1-4-1995. The provisions of Section 80IA(4) of the Act was introduced afresh by the Finance Act, 1999 and the provisions under section 801A(4A) of the Act were deleted from the Act. The deduction available for any enterprises earlier under section 801A(4A) are now made available under Section 80IA(4) itself. The subsequent amendment to this section was by Finance Act 2001 w.e.f.1.04.2002. Thus the evolution of section 80IA would show that originally the deduction was allowed to an Enterprise which carries on business of developing, maintaining and operating the infrastructure facility subject to fulfillment of conditions as per sub-clause (a), (b) and (c) of clause (i) of subsection 4A, which means that all the three activities have to be cumulatively carried out by an Enterprise. Subsequent amendments as discussed above have done away with the condition of the operation and the maintenance of the new infrastructure facility developed. The intention of the Parliament is now clear that after developin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constructional plant, equipments, etc. and also take third party insurance. j. The assessee has to give performance security, Bank guarantees and Retention money deducted becomes payable to the Contractor only after the defect liability period is over. k. The Contractor is liable to indemnify the Employer towards damage to equipments or property, or lives or persons or properties of others and against losses to the employur for breaches that might be committed by the Contractor. l. All payments received, till the entire work is complete and certificate of Final completion is issued, are interim payments. m. The Contractor is liable to pay liquidated damages for delays in execution/completion of the projects. Reference to pages 250-257 of the paper book would indicate huge Resource mobilization and financial involvement of the Appellant and on pages 258-260 are the details of Bank guarantees given, machineries and nialipower committed and the working capital committed on each of the project on which deduction u/s. 801A(4) is claimed. Copies of Agreement have been submitted by the appellant and the same have been place on record. A brief summary of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contractor hands back the Developed Infrastructure facility to the Government. (page 44) The Contractor has to construct and maintain all access and approach roads in the labour colony areci at its own cost. (Page 86) Additional roads as required by the Contractor for completion of work has to be constructed by the Contractor at its own cost (Page 90) From the commencement of the work until the completion of the whole of the work, the Contractor shall take full responsibility for the care of the Works. (Page 31) The Contractor was fully responsible for the-adequacy, stability and safety of all site operations and methods of construction. (Page 27) It is the responsibility of the Contractor to promptly bring to notice of the Engineer any error or discrepancy in the contract documents. (Page 25) The Contractor has to inform the Engineer of any error, omission, fault and other defect in the design of or specifications of the work. (Page 27) The Contractor has to submit general layout of plan of construction, plant and equipment and drawings or prints showing the location of major plants. (Page 26) The Contractor has to furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be deducted to form an additional security deposit and this amount would also be returned after a period of 15 month from the date of completion of the work. (Pages 19 and 20) The Contractor is liable to indemnify the Employer against all losses and claims in respect of injuries or damage to any person or property. (Page 34) The Contractor is liable to indemnify the Employer against all penalties and liabilities for breach of any applicable statute (Page 35) The Contractor is liable to indemnify the Employer against infringement of any patent or any trade mark rights (Page 36) All payments received, till the entire work is complete and certificate of Final Completion is issued, are interim payments. (Page 53) The Contractor is entitled to advance to cover cost of mobilizing the site against Bank guarantee, which advance will be recovered from the interim. payments. (Page 56) The Contractor is not entitled to any compensation for the delay in payment made to it. (Page 58) The other financial and Technical details of the project are given on pages 8, 147-148, 250 and 238-260 of the paper book. 2) Udhampur Project GOVE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e atmosphere while drilling tunnel. (Page 75) It is solely responsible for the safety of the site from the date of commencement of work till the date of handing over the developed site. (Page 78) It is liable to remove all defects/damaged work at its own cost. (Page 123- 124) The Development of tunnel is to be completed in 30 months. (Page 6) The Defect Liability Period is 6 months. (Page 44) It has to decide on the method proposed by it for construction of the tunnel including details of all related activities, list of machineries to be deployed, progress plan etc. (Page 31-A) It will submit the Methods and program for the work to be carried out. (Page 47) It has to set out the whole of the work and also amend any errors which may arise therein. (Page 49) It shall make its own arrangement for service roads, paths etc. for carrying their tools, plant, labour and material to the site and if need be construct additional roads ut its oula cost. (Page 53, 55, 63) It is agreed that the rates quoted by the Contractor are inclusive of ai elements of cost and nothing extra will be paid. (Page 20) The drawing for the works pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and maintenance etc. is also the responsibility of the Contractor. (Page 126) The Contractor has to submit detailed design for the pipelines from the point of dragging to the disposal/storage area (Page 148) To be eligible, the Contractor is required to have experience of under water concreting, reinforced cement concrete, reinforcement steel supply and fabrication (Page 90) and have liquid assets should be at least Rs, 30 Crores. (Page 90) The Contractor has to satisfy itself regarding the location of work, general and local site conditions etc. having a bearing on the work. (Page 127) The Contractor is expected, at its own cost, to inspect the site of the proposed work, inspect quarries and the network of road and satisfy itself about the quality and availability of the material before tendering for the project. No additional compensation will be paid or, this account. (Page 103 and 110) The Contractor shall make all enquiries regarding availability of materials, site conditions, soil conditions etc. at its own risk and cost. (Page 103) The entire site will be handed over to the Contractor for developing the infrastructure facility, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Contractor has to commit sufficient plant, equipment and labour to ensure timely progress and completion of the work (Page 121) All material required for the contract, necessary licenses, plant or machinery etc. has to be procured by the Contractor. (Page 124) The Contractor has to make arrangements and obtain permissions from authorities for transportation of equipments etc. on public roads/bridges (Page 126) The Contractor has to make arrangements, at its own cost, for water supply and power. (Page 128) The Contractor has to submit the list of plant, equipments and personnel to be committed at the construction site (Page 133) and is not allowed to remove any plant and other equipments without the prior approval of the Executive Engineer. (Page 134) The Contractor is responsible for supply and installation of all temporary facilities at the construction site. (Page 137) A field laboratory has to be established by the Contractor at the construction site. (Page 138) The Contractor is entirely responsible for any damage or injury to persons/properties during the course of the work. (Page 126) The earnest money deposit is li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k from the main roads. (Volume 1, Page 104) The term Contractor means the person or persons, firm or company whose tender has been. accepted by the employer and includes the contractor's personnel representative, successors and permitted assigns. (Volume 1, Page 40). The term Employer means the Government of Maharashtra (Volume 1, page 40). Works shall include both Permanent Works and Temporary Works. Work or Works shall mean and include plant and materials to be provided and work to be done by the contractor under contract, including all the preliminary and ancillary Works necessary for the fulfillment of the various items under the contract (Volume 1, page 40). To be eligible for award of the contract, the Bidder has to provide evidence of eligibility and adequacy of finance and technical resources that can be allocated to the work, which would include detailed construction schedule, plant and machinery proposed to be committed to the contract work, furnishing fresh 1VIOU with foreign construction firm/RCC construction design consultant, confirming the services which will be provided by them. (Volume 1, Page 16, 17) The Bidde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... administration and execution of contract - both on and off site need to be furnished at the bidding stage (Volume 1, Page 17) Based on the tentative drawings, the Contractor has to bid for the work, which offer will be valid for all the final designs and drawing incorporated for actual execution and the Contractor will have no claim for the details added later on. (Volume 1, Page 35) The Developer has to prepare necessary construction drawings (Volume 1, Page 47) The Contractor has to submit to the Government, a general lay out plan of construction, plant and equipment and drawings or print showing location of major plant and other facilities which he proposes to put up at the site. (Volume 1, Page 44) The selection of construction plant and equipments and their timely mobilization will be the responsibility of the Contractor. (Volume 1, Page 70) Such equipments and material once brought on site cannot be removed without the approval of the Government. (Volume 1, Page 71) The details of commitment of major equipments, plants, key personnel etc. are at (Volume 3, Pages 51 to 56) It is the responsibility of the Contractor to search and make available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t shall be regarded as payment by way of advance _ against the final payment only and not as payments for the work actually done and completed and shall not be considered as admission of due performance of the contract. (Volume 1, Page 76, 121) Work will be considered as complete only when the final payment certificate is issued. (Volume 1, Page 81) Interest bearing loan (.?_,-I) 14% p.a. can be obtained by the Contractor against- the cost of mobilization (Volume 1, Page 79) The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-260 of the paper book. 5. Kalwakurtu Lift Irrigation Project Kalwakurthy Lift Irrigation Scheme Lift -1 (Government of Andhra Pradesh) The Contract Value is: For EPC Turnkey Development Contract - ₹ 480.99 crores For Operation and Maintenance of the Plant for three years - ₹ 14.20 Crores. (Page 699) Hence, the agreement comprises two components, development and then Operation and Maintenance for which separate and independent considerations are fixed. The Agreement is for designing and execution of pumping station of Kaiwakurthy Lift Irr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , operate and maintain it for 5 years. Upon completion of the Operation and Maintenance period, acceptance test shall be carried out before the project is Handed over to the Employer. (Page 175) Being a Turnkey Contract, the Contractor shall take full responsibility for - Designing, Engineering and Execution of the project. (Page 112), However, the preliminary designs, drawings of various components of the project are given by the employer in Volume II, III and IV of the bid) (113) The designs and drawings submitted by the Contractor have to be approved by the Engineer of the employer. (Page 690) It shall submit drawings, data and descriptive literature as required in the specifications to enable evaluation of the bid as to the soundness, reliability, serviceability and efficiency. (Page 102) The development has to be completed in 46 months. (Page 708) The Defect Liability Period is 12 months from the date of completion of the project. (Page 714) It has to give a detailed construction program of executing the project, the technology and the methodology to be adopted by it. (Page 111) It has to make its awn arrangement for acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage on replacement value basis during the period of Operation and Maintenance. (Page 174) It has paid Earnest money deposit, which is liable to forfeiture. (Volume - Corrigendum) There are penalties for delays beyond the stipulated date of completion of each unit of work. (Page 55) The Employer will make 12% interest bearing recoverable advance payment against bank guarantee for an equivalent amount. (Page 56) All progressive payments made are interim payments which shall be reviewed on quarterly basis. (Volume Page 60) The Security deposit furnished by the Contractor is liable to forfeiture. (Volume 5) No enhancement of prices for whatever reasons will be allowed once the contract is entered into. (Page 114) It has to quote for the entire package on a single source responsibility basis. (Page 119) It shall indemnify the Employer against all action, suits, claims, costs or expenses, damages or injury to any person or property on account of the negligence of the Contractor or is associates. (Page 169) It shall replace/redo any unsound or imperfect work at its own expenses. (Page 170) The other financial an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and execution of the contract is laid down (Page 36) It is the bidders own responsibility to visit and examine the site of works and its surroundings and obtain all information that it considers necessary for entering into a contract for construction of works. (Page 23) The entire work site will be in its possession from the date of commencement of works. (Page 49) It is the responsible to obtain Commencement Certificate, Amended plan approval, if required and other statutory approvals from Local Authorities including Building Completion Certificate from the Competent Authority. Charges and deposits etc. for obtaining all the above approvals are to be paid by it. (Page 17) It is the responsible to obtain Occupation Certificate and the Building Completion Certificate from the Competent Authority. (Page 17) and other certificates from various authorities as required by law and shall obtain electric supply for the tenements. (Page 56) It is responsible to obtain amended approvals from SRA and other concerned authorities for any changes that are required. (Page 17) It has to obtain certificate from MCGM and water connection at site after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the safety of all activities on the site from the date of commencement of work till the site is handed back by the Contractor to the Employer on completion of the Work. (Page 49) All risks of loss of or damage to physical property and of personal injury and damage which arise during and in consequence of the performance of the Contract is the responsibility of the Contractor. (Page 48) It has to take insurance, including Third Party Insurance from the start date to the end by the Defect Liability Period for the loss or damage to the Works, plant and machinery, equipment, damage to property, personal injury or death. (page 48) It has to construct and install the works in accordance with the specifications and drawings (Page 48) It is the responsibility of the Contractor to draw the attention of the Engineer to specific likely future events or circumstances that may affect the work or cost of the project. Defects found are to be rectified by the Contractor free of cast during development of the infrastructure facility and upto the end of defect liability period. Any defect got -rectified by the Employer directly will have to be paid by the Contractor (Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the period of development. In addition to this, after construction of Barrage, one Permanent road and intermediate link access road and Bailey bridge has to be constructed by the Contractor. (Page 13) All drains, cross drainage works, culvert etc. have to be developed by the Contractor. (Page 14) It may have to build, if required, and maintain various haulage roads around the project site and quarry locations at its own cost. (Page 14) Contractor shall mean Patel Engineering Ltd. having its registered office at Patel Estate, Jogeshwari (W), Mumbai 400 102 and its legal representatives, successors and permitted assignee. (Page 119) Owner shall mean the National Hydroelectric Power Corporation Ltd. (A Government of India Enterprise), having its registered office at NHPC Office Complex, Sector - 33, Faridabad - 121 003 (Haryana) India and shall include its successors and assigns. (Page 11911) Site shall mean the land and other places on, under, in or through which the Permanent Works or Temporary Works of the Contract are to be executed including any other lands or places which may be provided by the Owner for work space or for any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) It has to make his own arrangement in engagement of labour. (Page 131) It undertakes that the plant, equipment, materials etc. forming part of the Permanent Work will be new. (Page 13) It shall procure/arrange all construction materials except cement, steel and explosives. (Page 134) Materials, appliances, equipments and spares forming part of the Works shall become the property of the Owner on the issue of Certificate of Completion. (Page 156) Selection of plant and equipments and the timely mobilization will be the responsibility of the contractor. (Page 157) It shall be solely responsible for protection of environment during the work at the construction site. (Page 167) On the completion of the Works, the Contractor shall furnish as constructed drawings for every component of the work at its own cost to the Owner (Page 157) It has to set up laboratory at site for material testing. (Page 176) It has to design, furnish, set up, maintain and operate at the site all Temporary Works, Site installations and Contractor's equipment. (Page 270) It shall be responsible for the safety around road related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tacruz Chembur Link Road MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY (MMRDA) ROAD NETWORK STRENGTHENING - SANTACRUZ CHEMBUR LINK ROAD (SCLR) _ MUMBAI URBAN TRANSPORT PROJECT (MUTP) The work comprises of construction of 6 lane SCLR from Mithi River Bridge upto Amur Mahal. The length of project road under section I is 2.00 km. The work includes construction of 6 lane concrete road with 3.0 meters wide footpath on either side and central divider, construction of 527 meters long flyover along with 7.5 meters wide service roads 3.0 meters footpath on either side, replacement of existing steel bridge with new one, road on Arnar Mahal side and construction of junctions at Amarmahal with EEH and S.G. Barve Marg and improvement on the surrounding road network. (Pages 26, 27) Hence, it is a Road Project The Contractor has to prepare traffic diversion plan at various stages of work, as required and has to maintain liaison with the traffic police/authorities so as to ensure smooth flow of traffic at all stages of the work without causing inconvenience to the traffic. (Page 83) It is responsible for supply of all traffic signal system eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the site \on duly completing the Works. (Page 43) It has to give O M manuals and As Built drawings within 4 weeks of completion of whole or section of the work (Page 33). Delay in submission of above documents will result in levy of damages. (Page 34) The whole of the Works was to be completed in 24 months (Page 6). The Defect Liability Period is 12 months from the date of certification of the completion of the Works. (Page 29) From the date of commencement of work till the defect liability period is over, the Contractor has to insure the Works, plant, materials, equipments and other properties, employees and also take Third party insurance. (Page 29) It has to employ key personnel to carry out the functions of development of Works. (Page 41) All risks of loss or damage to vehicle, property and of personal injury and death which arise during and in consequence to the performance of the contract, except employer's risks, is the responsibility of the Contractor. (Page 42) It is the responsible to construct and install the Works. (page 42) It is the responsible to warn the Employer at the earliest opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment advance after equipment is brought to site on submission of unconditional Bank Guarantee for an amount of advance. (Page 32) The Contractor is eligible for Secured advance against material required for the Works which have been delivered at site. (Page 32) All the above advances are recovered by way of percentage deductions from the interim payments certified by the Engineer under the Contract. (Page 33) The performance security will be by way of unconditional Bank Guarantee. (Page 33) Non compliance with certain key conditions would result in the breach of contract for which the Contractor is liable to pay damages @ 20% of the cost of incomplete work, (Page 34) The payment of liquidated damages does not release the Contractor from its liabilities. (Page 49) The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-26C) of the paper-book. 6.13 From the above synopsis it is apparent that the bidders who participate in the bid should have adequate experience, financial capacity and technical capability to undertake the contract. They should have key equipments and key personnel to carry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Govt./authority in each of the case only monitors or oversees the execution of the work and never involves in execution of the actual work. Therefore, the Govt. authority cannot be called a developer. In Water supply, Irrigation, Road Rail system contract executed by the appellant after acquiring the contract it carries out geological and geotechnical investigation and other special test, establishes it own laboratory on the site and prepares drawings which are submitted to the Govt/authority. It is the responsibility of the appellant to do the soil testing, earth filling, makes its own arrangement for quarry, site office, installation of crusher, concrete plan etc. The appellant undertakes investments financial and technical risks and indemnifies any loss of life or property to the respective employer. The appellant only receives interim payments till the infrastructure is completely developed and handed over to the respective owners. The details regarding advance received by the employers can be observed on page 261 of the paper book; from the said detail it is observed that substantial amounts received are interest bearing. It is a duty of the appellant to rectify the defects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons Belgaum Construction Pvt. Ltd., in the case reported in 34 Taxmann.com 97, pursuant to the directions of the Bombay High Court, wherein para 9 and 10 it was held: 9. It was found by the erstwhile judicial. Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the Hon'ble Bombay High Court. With regard to clarificatory amendment to sub-section (13) of section 80IA by Finance Act 2007 2009 whereby the assessee is not held eligible for deduction u/s. 80IA(4). In this regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA (4). The amendment of 2009 is riot applicable in the case where the assessee executes the work by shouldering investment technical risk by employing ream of technically administratively qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement and also securing by Bank guarantee. As the assessee has fulfilled the said conditions is evident as discussed above. Practically, the opinion of the Third Member of the Hon'ble Tribunal has been overruled by the Hon'ble Bombay High Court that even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons and its liable for liquidated damages if failed to fulfill the obligations laid down in the Agreement. As the appellant herein is admittedly not a subcontractor, effectively, the decision of my predecessor on this issue is not followed. Moreover, it is observed that after considering the clarificatory amendment by the Finance Act, 2007 and the Finance Act, 2009, the same Koyna Project, on which the appellant has claimed deduction under s.80IA(4) in the impugned assessment year, has been held to be eligible for deduction under the said section in B. T. Patil and Sons Belgaum Construction Pvt. Ltd. where in paras 11 and 12 of that order, it was held that :- 11. The assessee company has been included in as a sub contractor for all the other projects either the contracts are directly in the name of assessee company or in the name of joint venture enterprises. The assessee has undertaken the work on Back Agreement concept under sub contract form Patel Engineering Company Limited (hereinafter referred to as PEC) vide subcontract Agreement dated 15.10.1992 for construction of Tunnel which supplies the water from River Koyna and makes it available to Power House. In fact the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) on the Koyna Project also. 6.17 As regards the deduction under s. SOIA on the Udhampur Rail Projects, it has been allowed 'to the appellant by the ITAT for A.Y 2001-02 and 2002-03 on the basis that appellant is a Developer. However, for A Y 2004-05, based on the insertion of Explanation by the Finance Act, 2007 and negating the submission of the appellant that the said amendment applies only to subcontractors and not to it as it was a developer, my predecessor held that the said contract was a works contract and hence not eligible for deduction. However, in the light of the legal position presently prevailing, especially in view of the decision in B.T. Patil and Sons Belgaum Constructions Pvt. Ltd. as discussed above, wherein it was held that the Explanation inserted by the Finance Act, 2007 applies only to subcontractors, the same is held not to apply to the appellant as it is a developer and also following other Tribunal decisions it is held that the appellant is eligible for deduction under s. SOIA(4) on the Udhampur project also. 6.18 As per section 80IA(4)(i), an enterprise which is engaged in developing any defined infrastructure facility is eligible for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Teesta Lower Dam project, I concur with the view of the Assessing Officer that the appellant has not satisfied the condition laid down regarding entering of an agreement with Central Government or State Government or local authority or any other statutory body. 6.20 The NHPC (National Hydro Electric Power Corporation) is a Government of India enterprise but that does not make it the Government of India or State. Though the appellant may argue that it undertakes all the functions of the Central Government of India, it is not equivalent to being the State or Central Government. Such corporation fully owned by the Government, are only the arm of the Govt. and not the Government itself. 6.21 In view of the facts and legal position as enumerated in 'the above paragraph, the AO is directed to allow deduction on Koyna, Udhampur, Ghatghar, Kalwakurthy, .Jogeshwari- Vikhroli Link Road, Srisailam Weir and Santracruz-Chembur Link Road projects. The deduction in respect of Teesta Lower Dam is negated. 6.22 Ground 1 is allowed in part. 6. Rival contentions have been heard and record perused. The Revenue has challenged the decision of the CIT(A) granting deduction u/s 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for deduction in B.T. Patil Sons Belgaum Construction Pvt. Ltd. After analyzing the terms of the contract, the CIT(A) reiterated that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the assessee is a developer of the respective projects. As regards the issue whether, to be eligible for deduction, the assessee has to develop the entire infrastructure facility and not only a part thereof, the CIT(A) relied on the CBDT circular no. 4/2010, the decisions of the ITAT in the assessee's own case, B.T. Patil Sons Belgaum Construction Ltd. 34 Taxmann.com 97 and the Hon'ble Bombay High Court in ABG Heavy Industries Ltd. 8. We also found that the CIT(A) has dealt in great detail the scope of the work, risk and responsibilities undertaken by the assessee and after applying the proposition of law laid down in the following decisions arrived at the conclusion that assessee was a developer and not only a contractor :- i) Patel Engineering Ltd. v. OCIT 94 ITO 411; ii) B.T. Patil Sons Belgaum Constructions (P.) Ltd. v. ACIT, 34 taxmann.com 97; iii) ACIT v. Patel KNR Joint Venture ITA 5230/M/2012; iv) CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany's share of profit and machinery hire charges lying with them, which is already reflected as income in the P L A/c. Without prejudice, it was further stated before the A.O that the current account transactions are carried out from bank where sale proceeds of the assessee are deposited and also that the dues from J.Vs and Partnership firm on current-account are out of company's own fund and not out of borrowed funds. The A.O rejected the said contention of the appellant stating that from a summary of the current account it could be observed that funds have flown out of the current account on which the assessee had paid interest. In these circumstances, the A.O disallowed the proportionate interest on the current account applying the interest rate of 12.5% as charged by the bank on CC Account. Accordingly, a sum of ₹ 88,69,937/- has been disallowed and added back to the total income. 13. Before the CIT(A), the assessee submitted that the addition is not warranted since the same has been made on the basis of presumptions, conjectures and surmises. It is stated that the during the course of assessment the A.O had called for details of the balances in various join ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in such JV. In KNR Patel JV the debit balance of ₹ 7,49,10,863 as on 31.3.2005, comprise solely of machinery hire charges received/receivable of ₹ 12,69,86,836 by the appellant from them and the share of profit of the assessee in the said JV aggregates to ₹ 6,32,94,249; both, together, aggregating to ₹ 19,02,81,084. Hence the debit balance in the said JV is not on account of funds invested by the assessee in such JV. In AHCL PEL, the debit balance of ₹ 6,03,90,869, as on 31.3.2005, comprises of the share of profit of - the appellant in the firm for A.Y. 2004-05 of ₹ 5,0 1,57,164. 16. The alternate contention of assessee was that the provisions of section 14A cannot be applied to the appellant since the share of profit received by the appellant from such integrated joint venture AOP is chargeable to tax in terms of provisions of section 167B r.w.s. 86 of the Act. A further without prejudice submission is that the company has substantial own funds by way of capital reserves aggregating ₹ 12,936 lacs which is more than 5.50 times of the balance in such JV/partnership firm. The sale proceeds of the appellant are deposited in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the A.O in bringing to tax the share of income from the said JV in the hands of the appellant albeit OR protective basis. However, presently the view taken by the Hon'ble Tribunal is that the income of AOP is assessable in the hands of the appellant. In the said view of the matter, the A.O is directed to bring the said sum La tax in the hands of the appellant on substantive basis. It is ordered accordingly. 20. With regard to the cross objection filed by the assessee in ground No.2 for taxing income of LGE C Patel JV, we found that assessee's share of income had already been taxed in the hands of the AOP, the AO assessed the assessee's share therein on a protective basis. The ClT(A) discussed this on pages 70-71 of her order and held that, on facts, such income should now be taxed in the hands of the assessee on substantive basis. 21. As per ld. AR though in the JV's case, the Ahmedabad Tribunal held that the income is taxable in the assessee's hand and not in the hands of the JV, the said decision has not attained finality and hence it should be continued to be taxed in the hands of the assessee on protective basis. 22. We have considered r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure project. As stated by the appellant himself the activity of USA branch is to monitor the emerging trends in the infrastructure industry while that of the Panvel workshop is with reference to storage of equipment and material. As stated by the A.O these are cost centers and certainly have to be allocated to the eligible units on a reasonable basis. These expenses have a bearing on the eligible infrastructure project in that it enables the industry to gauge the global market to update itself with reference to technology and also to store the heavy equipments when not put into use. Therefore the A.O was correct in apportioning the said expenses to the eligible units on the basis of turnover. The AO will apportion the said expenditure on the basis of turnover while computing the deduction under s. 80IA(4). The said ground is held against the appellant. 25. Rival contentions have been heard and record perused. From the record we found that while claiming deduction u/s.80IA(4), the assessee apportioned the head office expenses to the Section 80IA profits of each infrastructure facility and calculated the profits and gains derived therefrom after deducting HO expenses based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y using the expression derived from , Parliament intended to cover sources not beyond the first degree. 27. In view of the above, ld. AR contended that no reallocation of expenses is required. It was further submitted by ld. AR that on page 17, in column C, the AO has made errors in mentioning the profit amount in respect of certain projects; this is apparent from the fact that such profit stated in the column does not match with the project wise profits mentioned by him on page 2 of the assessment order and page 7 of the PB. The AO be directed to substitute the correct amounts of profits eligible for deduction u/s 80IA(4) in column C. 28. On the other hand, ld. DR relied on the order of lower authorities. 29. We have considered rival contentions and found that certain expenditure incurred by Panvel workshop and the USA office was attributed by the AO to the eligible units, consequently profit claimed as deduction was reduced. The contention of ld. AR was that these expenses were not directly incurred for earning the income which is liable to deduction u/s.80IA(4). However, it has not been brought on record by lower authorities to show that expenses incurred at Panvel worksh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue field. ln all the above cases, the Principal uniformly deducts tax at source u/s 194C of the Act. From the record we found that the AO has discussed this on pages 18-21 of the assessment order and citing section 199 has disallowed credit of TDS of ₹ 1,29,31,900/- as the advances pertaining thereto are not credited to the profit and loss account during the year. The CIT(A), on page 73-74 para 11 of her order, concurred with the view of the AO. As per terms of various contract agreements under which Site Mobilisation Loan and the Machinery Mobilisation Loan/advances, mostly on interest ranging from @ 12% to 18% p.a., have been granted against bank guarantee. In the balance sheet, such contractee advance mobilisation loan is reflected as loan funds under the head Contractee advances as a liability. Such loan can never be the income of the assessee, neither in present or in future; deduction of such loan advance from running bills is only a practical and convenient way to recover the loan. Such mobilisation loan being a capital receipt, there was no legal obligation on the part of the contractee to deduct tax at source u/s 194C. If tax has been deducted at source, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Ors. v. Indian Institute of Chemical which have been referred to in the decision of the Hon'ble Pune Tribunal, in the context of section 80IA(4), in Kirloskar Brothers Limited v. DClT ITA 657/PN/2010 (CLPB 112 para 17). 39. We had carefully gone through the decision of Kirloskar Brothers Limited (supra), wherein the Tribunal has held as under :- 7. At the outset, we may refer to the relevant provisions of section 80IA of the Act, which have a bearing on the issue. Pertinently, the claim of the assessee has to be examined with reference to the provisions of section 80IA(4) of the Act as are applicable for the year under consideration. The relevant portion of section 80IA is reproduced hereinafter:- 80-IA. [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. [Explanation.-For the purposes of this clause, infrastructure facility means- (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway or inland port;] 8. Pertinently, section 80IA(1) of the Act prescribes for a deduction with respect to the profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) of section 80IA of the Act. The claim of the assessee before us is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infrastructure facility is eligible for deduction u/s 80IA(1) of the Act. 10. Now, the first and the foremost objection taken by the Revenue is that the assessee does not fulfill the condition prescribed in sub-clause (b) of clause (i) to sub-section (4) of section 80IA of the Act. In terms of the said objection, the Revenue contends that assessee has entered into a works contract agreement with SSNNL which is not an entity specified in subclause (b) of section 80IA(4)(i) of the Act. According to the Revenue, SSNNL is not a Central Government or State Government or a local authority or any other statutory body, so as to be considered as an entity specified in sub-clause(b) of section 80IA(4)(i) of the Act. As per the Revenue, SSNNL is a company registered under the Companies Act, 1956 and does not fall within the prescription of sub-clause (b) of section 80IA(4)(i) of the Act. As per the Revenue, though the entire share capital in the said company is owned either by the Central or the State Government, yet it can only be called a Government company but it does not come within the purview of the entities specified in sub-clause (b) of clause (i) of section 80IA(4) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Association of SSNNL, placed in the Paper Book at pages 26-27 to say that SSNNL functions under the direction and control of Government of Gujarat and further that it was essentially carrying out functions, which are otherwise carried out by the Government, for example, rehabilitation and resettlement of population affected by acquisition of land for Sardar Sarovar project, constructing hydro power generating stations, flood control, irrigation and water supply, etc.. The learned counsel pointed out that all kinds of infrastructure facilities referred in section 80IA(4)(i) of the Act, like Railways, ports, dams, bridges, roads, etc. are always owned by the Government and cannot be owned by private owners. So however, for an efficient execution and handling of such infrastructure facilities, the governments form a Special Purpose Vehicle (SPV) in the form of separate entity registered under the Companies Act, 1956. It was, therefore, contended that even if such like entities are incorporated under the provisions of the Companies Act, 1956 still having regard to the functions performed, they have to be considered as mere extensions of the Government. By referring to the features o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision has been rendered in a different context, but what is of relevance for us is the discussion made by the Bench which brings out the background and the manner in which SSNNL came to be incorporated by the Government of Gujarat. As per the discussion in the case of Sardar Sarovar Narmada Nigam Ltd. (supra) and the other material placed in the Paper Book, the following fact position emerges. 15. That in order to settle the dispute on distribution of the water of Narmada River, the Central Government had formed a Narmada Water Dispute Tribunal in 1969. In terms of the settlement arrived at by the Tribunal in 1979, the dam (i.e. Sardar Sarovar Dam) was to be constructed by the Government of Gujarat and the water was to be shared amongst the three States of Gujarat, Madhya Pradesh and Rajasthan. For erection of the dam, the Government of Gujarat set up a department called Narmada Development Department (NDD). NDD functioned as a Government Department and started erection work of the dam. In around 1988, the Government of Gujarat was advised that for efficient administration, execution and accountability the work may be carried out by a Nigam (i.e. a corporate body). Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control over the management and policies might lead, one to characterize an operation as State action. (iii) The existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (iv) Whether the corporation enjoys monopoly status which is State conferred or State protected is a relevant factor. (v) If the functions of the corporation are important public functions and related to governmental functions it would be a relevant factor in classifying the corporation as instrumentality or agency of the Government (vi) If a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference that it is an instrumentality of the State (vii) Where the chemistry of the corporate body answers the test of State if comes within the definition of Article (viii) Whether the legal person is a corporation created by a statute, as distinguished from under a statue is not an important criterion although it may be an indicium. 18. As per the Hon ble Supreme Court, if the aforesaid tests are fulfilled by an entity, it would qualify to be understood as an inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in carrying out State monopoly functions, like operation of Airports, Ports, Railways, etc.. The next test is whether the functions performed are important public functions related to governmental functions. In the case of SSNNL, it is quite obvious that apart from executing, operating and maintaining the Sardar Sarovar project it is also involved in promoting schemes in the State of Gujarat for flood control in the Narmada river, irrigation and water supply schemes for utilization of water from Sardar Sarovar. All these are essentially government functions and obligations, which are being performed by SSNNL. The next test is if a Department of a Government is transferred to a corporation. In this context, it is quite clear that the erstwhile Narmada Development Department consisting of its employees as well as the assets of Sardar Sarovar project were transferred enbloc by the Government of Gujarat to SSNNL. The next test is as to whether the chemistry of the concerned body answers the test of a State. In our view, the said test is also fulfilled in the face of the fact that the incorporation of SSNNL, its ownership, management, control as well as the powers have a unmistak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, though wholly owned by the Government. In the case before us, i.e. SSNNL, it is clear that SSNNL is not a commercial corporation, but it has been formed with the intent and purpose for carrying out essentially governmental functions which are otherwise a monopoly or an obligation of the Government. For all these reasons, the facts in the case before us are quite distinct from those in the cases of Steel Authority of India Ltd. (supra) and Heavy Engineering Mazdoor Union (supra). 23. In the light of the aforesaid discussion, in our view, SSNNL being a mere extended arm of the Government of Gujarat carrying out governmental functions can be understood as an entity qualifying for consideration u/s 80IA(4)(i)(b) of the Act. The objection of the Revenue in this context is thus rejected. 24. The second objection taken-up by the Revenue is that assessee was not a developer so as to be eligible for deduction u/s 80IA(4) of the Act. As per the Revenue, assessee was merely awarded a contract for execution of work by SSNNL. As per the Assessing Officer, assessee has executed a works contract and therefore, it was merely a contractor . 25. On this aspect, it would be appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork. In the present case, as the scope of work shows, assessee did not merely carry out a contract to do work but was responsible for conceptualizing, designing, erecting, commissioning and operating the water pumping scheme. On the above aspect, the judgement of the Hon ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., 322 ITR 323 (Bom), clearly supports the plea of the assessee of being a developer. In the case before the Hon ble High Court, assessee was awarded a contract by Jawaharlal Nehru Port Trust (JNPT) to supply, install, test, commission and maintain the container handling equipment, namely, the cranes. JNPT was owing the dedicated container handling terminal. The stand of the Revenue was that assessee was not a developer of the infrastructure facility but had only supplied and installed the container handling cranes at the JNPT port. Therefore, it was contended by the Revenue that assessee was not eligible for the benefits of section 80IA of the Act. The Hon ble High Court has negated the stand of the Revenue and held that the contract executed by the assessee for supply, installation, testing, commissioning and maintenance of container handling cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore rejected. 31. One of the objections of the Assessing Officer was that the entire investment in the infrastructure project has not been made by the assessee and that 80% of the project cost has been received from SSNNL. Therefore, according to the Revenue, assessee-company has not funded the project without any assistance from SSNNL. This objection of the Revenue, in our view, is quite misconceived because a developer would have income only if he is paid for development of the infrastructure facility. The Mumbai Bench of the Tribunal in the case of ACIT vs. Bharat Udyog Ltd., 118 ITD 336 (Mum) noted that the business activity of the nature build and transfer also falls within the eligible activities for deduction u/s 80IA of the Act. The Mumbai Bench of the Tribunal has made the aforesaid observations in the context of objection raised before it regarding the claim u/s 80IA of the Act on the ground that assessee was paid by the Government for the development work. The aforesaid objection was negated by the Tribunal and the claim of deduction was allowed u/s 80IA of the Act. Thus, we do not find any justification to deny the claim of deduction u/s 80IA(4) of the Act m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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