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M/s. Kotarki Constructions Pvt. Ltd. Versus The Asst. Commissioner of Income Tax

2018 (1) TMI 605 - KARNATAKA HIGH COURT

Reopening of assessment - Allowability of deduction u/s.80-IA(4) - Held that:- This Court is satisfied that there was no material on record before the Assessing Authority indicating any failure on the part of the assessee to truly and fully disclose the relevant material before the original Assessing Authority while passing the original assessment order u/S.143(3) of the Act on 28.03.2013 and the Assessing Authority had discussed all the relevant facts and evidence and had rightly allowed, albei .....

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is Court on 29.11.2016 challenging the Notice for Re-assessment for the A.Y. 2010-11 issued by the Assistant Commissioner of Income Tax, Circle-1, Kalaburgi, u/s. 147/148 of the Income Tax Act, 1961. 2. The reasons communicated on 15.03.2016 to the petitioner-assessee for such re-opening/re-assessment as produced on record are quoted below for ready reference: In the assessment completed u/s 143(3), the assessee was allowed a deduction of ₹ 1,82,03,125/- u/s 80-IA. However, it was verified .....

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Tax, Gulbarga. 3. The original Assessing Authority, while passing the Assessment Order under Section 143(3) of the Act, earlier on 28.03.2013, upon a detailed scrutiny of the records of the petitioner-assessee, engaged in the business of construction of roads, buildings, dams, National Highways etc., namely infrastructural facilities was allowed the deduction u/s. 80-IA(4) of the Act, for the A.Y.2010-11 vide Annexure-C dated 28.03.2013 after discussing all the relevant contracts and certificate .....

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structure facility for which such deduction in the form of incentives is given to the Developers of the Infrastructure facilities u/s. 80-IA(4) of the Act. 4. The relevant part of the original Assessment Order passed by the Assessing Authority on 28.03.2013 is quoted below for ready reference: 10-DEDUCTION CLAIMED U/S. 80-IA OF THE INCOME TAX ACT, 1961: The assessee claimed deduction of ₹ 1,22,33,272/- u/s. 80-IA of the Income Tax Act. In support of the above, the assessee also furnished a .....

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1 GE Air Force Bidar 35,85,000 2 EE PWD Bidar 1,94,93,022 3 EE NH Dn Bijapur 3,24,91,540 4 EE PRE Dn Bidar 57,51,525 5 SENH MOST,Bangalore 13,03,866 7 PD DUDC (BUDA) Bidar 11,84,64,300 8 KRDCL Bangalore 59,50,963 9 SCR Department 36,88,234 Total 19,07,28,450 With regard to the nature of works undertaken from the above mentioned departments, the assessee has produced copies of contract agreements entered into with the concerned Departments. It is noticed from the contract agreements that the wor .....

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owever, simply re-laying of an existing road would not be classifiable as a new infrastructure facility for this purpose. In view of the above clarification, the assessee is not entitled to claim deduction u/s 80IA of the Income Tax Act since the works undertaken are only improvements to roads. Therefore, the assessee has been asked to clarify as to how the company is eligible to claim deduction u/s. 80-IA of the Income Tax Act. In response to above, the assessee, vide its letter dated 25-03-201 .....

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as a new infrastructure facility for the purpose of section 80IA(4)(i). However, simply relaying of an existing road would not be classified as a new infrastructure facility for this purpose . From the above the board has given explanation regarding a highway project and not for road including toll road, a bridge or a rail system, we have claimed deduction under first head as road including toll road, bridge or a rail system and not under the highway project. We have taken certificates from the .....

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he tender has been given as formation and improvement of road works, it includes widening of an existing road by constructing new roads . 2. The Executive Engineer NH Division Bijapur stated that This is to certify that, M/s. Kotarki Construction Pvt. Ltd, Bidar, Opp. Police Station, Gandhi Gunj, Chidri Road, Bidar has granted and executed the National High Way Road Works, the party has completed road works as per our tender work orders executed during the year 1-4-2009 to 31-3-2010, the total w .....

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T, Bangalore certified that M/s. Kotarki constructing Pvt. Ltd, Bidar has awarded tendered for executed the National Highway Road Works. The nature of work has been given as improvements to Road work as a part of National highway Project work . 5. The Project Director DUDC, Bidar has given a certificate that the tender has been given as construction, formation and improvement of road works, it includes widening of an existing road by constructing additional lanes and this is further certified th .....

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for executed the State Highway Divison Road Works. The nature of works has been given as new Improvements Diversion Road under Bridge as a part of Central Project Work . From the above certificates, it can be seen that EE PWD Bidar, EENH Division Bijapur, EE PRE Division, Gulbarga, PD DUC Bidar, have certified that the works given to the assessee are improvements to Road includes Widening of an existing road by constructing additional lanes/roads. In view of the above certificates, it is to be t .....

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relating to South Central Railway, Secunderabad, the nature of work is improvements to Diversion under Bridge. It is also seen from the letter of the Deputy Chief Engineer SCR, Secunderabad that the work proposed is temporary diversion of road. Since, the work undertaken is only the construction of Temporary diversion road, the same cannot be treated as eligible for claiming deduction u/s.80IA of the Income Tax Act. With regard to the work undertaken from GE Air force, Bidar to the extent of &# .....

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acts, the receipts eligible for claiming deduction u/s. 80-IA of the Income Tax Act, 1961 in respect of works shown against each is worked out as under: Sl.No. Name of the Department Amount (in Rs.) 1 EE PWD Bidar 1,90,04,786 2 EE NH Dn Bijapur 3,24,91,540 3 EE PRE Dn Bidar 57,51,525 4 PD DUDC (BUDA) Bidar 11,84,64,300 5 KRDCL Bangalore 59,50,963 Total 18,16,63,114 Since, the assessee has not maintained any separate books of accounts in respect of the road works, the income attributable to road .....

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3,125/- and the same is allowed as deduction. 5. Heard Mr.Shankar A. and Mr.S.Annamalai, learned counsels appearing for the petitioner and Mr.E.I.Sanmathi, learned counsel for the Respondents-Department. 6. Mr.Shankar A. learned counsel for the assessee, argued that there was no failure on the part of the petitioner- assessee who truly and fully disclosed all the relevant facts and evidence for the developments of the roads and highway undertaken by the petitioner-assessee during the said year a .....

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18.05.2010 clarifying that the work of widening of an existing road by constructing additional lanes as a part of Highway project would be recorded as a new infrastructure facility for the purpose of Section 80-1A(4)(i) of the Act, however, simply re-laying or improving by tarring again of an existing road would not be classifiable as a new infrastructure facility for this purpose. 8. The said Circular is also quoted below for ready reference: CIRCULAR NO.4 OF 2010 DT. 18TH MAY, 2010 Widening o .....

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re facility subject to satisfaction of the conditions laid down in the section. The Explanation to sub-section 80-IA(4)(i) states that for the purpose of this clause, infrastructure facility means inter alia:- (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; The issue has been examined by the Board. It has been decided that widening of an existing road by constructing additional l .....

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sment Order vide Annexure-J dated 30.11.2015, holding that the petitioner-assessee was engaged only in the business of works contract and therefore was not entitled to the deduction under Section 80-IA(4) of the Act, and on that basis alone the Assessing Authority could not have initiated Re-assessment proceedings for the previous A.Y. 2010-11, which is challenged in the present writ petition. 10. The relevant extract of the subsequent Assessment Order for the A.Y. 2013-14 is also quoted below f .....

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hat the assesseee company is the developer of these infrastructure facilities. Explanation provided below Section 80-IA inserted by Finance Act, 2007 and later substituted by the Finance (No.2) Act, 2009 w.e.f.1-4-2000 clearly states that business in the nature of works contract is not eligible to claim the benefit u/s.80-IA. The explanation is reproduced hereunder: Section 80-IA Explanation-For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in re .....

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he purposes of Section 80-IA: Section 80-IA, inter alia provides for a ten- year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and Special Economic Zones. The tax benefit was introduced for the reason that industrial modernization requires a massive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country .....

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person makes the investment and himself executes the development work i.e, carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, a person, who enters into a contract with another person (including Government or an undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for the tax benefit under section 80-IA. This amendment will take retrospective effect from 1st April, 2000 and w .....

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on the floor of the Parliament is also included. 12. Learned counsel for the petitioner-assessee therefore submitted that the Re-assessment proceedings for the A.Y. 2010-11 deserves to be quashed by this Court. 13. Per contra, Mr.E.I.Sanmathi, learned counsel for the Respondents-Income Tax Department, urged before the Court that Explanation substituted by Finance Bill with retrospective effect from 1st April, 2000, which is quoted above denied such deduction u/s. 80-IA of the Act, in relation to .....

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used the records. 15. This Court is of the considered opinion that the present writ petition deserves to be allowed and the Re-assessment Notice dated 15.03.2016 deserves to be quashed. The reasons are as follows: (i) Firstly, the original Assessment Order discussed all the works of the Development of Infrastructural facility undertaken by the petitioner-assessee during the A.Y. 2010-11 in question and in accordance with the Provisions of the Act, 1961 u/s.80-IA(4) of the Act in the light of the .....

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as issued the Re-assessment Notice to the petitioner-assessee and which are assailed in the present writ petition, had to satisfy the twin conditions (a) failure on the part of the petitioner-assessee to truly and fully disclose the relevant facts, and (b) that the original Assessing Authority did not consider or apply his mind to the allowability of the deduction u/s.80-IA(4) of the Act on the facts and evidence placed before him while passing the Assessment Order. 16. After satisfying these tw .....

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f the Act in the light of the said Circular No.4/2010. Merely making a bald averment that since the petitioner-assessee was engaged in the business of works contract, he is not entitled to deduction under Section 80-IA(4) of the Act, could not undo the effect of Section 80-IA(4) of the Act itself, which specifically gives such deductions to the petitioner- assessee engaged in the business of development of infrastructure facilities, which necessarily amounts to works contracts. 17. The contentio .....

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of the existing roads, were not intended to be given the benefit of deduction u/S. 80-I(4) of the Act by the said Explanation, is not sustainable. 18. The said Explanation as explained in the Memorandum of Finance Bill 2007 as quoted above, clearly lays down the guidelines when it says, in contrast to this, a person, who enters into a contract with another person (including Government or an undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligibl .....

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he Act only to the principal works contractor of development of infrastructure facility which included laying of additional lanes by road widening as clarified by CBDT, could not have been denied such deduction on the anvil of the said Explanation as submitted by the learned Counsel for the Revenue. The said contention therefore is liable to be rejected and is hereby rejected. 19. The original assessment order passed in the present case u/S.143(3) of the Act clearly shows the complete and meticu .....

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have been disallowed or intended to be disallowed by resort to Section 147/148 of the Act under the garb of subsequent Assessment order passed for the subsequent A.Y.2013-14, which also prima-facie indicates that the Assessing Authority has been swayed by the words improvement, repairs and widening (sic !) of already existing roads . While the widening of the roads is intended to be included within the ambit of infrastructure facility by the CBDT, the Assessing Authority intends to deny the said .....

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uction by the original Assessing Authority ex-facie illegal. 20. Nothing of this sort appears from the record of the present case and the Assessing Authority appears to have very casually invoked its reassessment powers u/S.147/148 of the Act for the A.Y. 2010-11. 21. The powers of reassessment u/S.147/148 of the Act have to be invoked with great amount of circumspection and the relevant material on record, on the basis of which, a reasonable opinion can be framed in contrast with a mere change .....

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ent) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act (with effect from 1st April 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April 1989, power to .....

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as to be based on fulfillment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of .....

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and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989, ([1990] 182 ITR (St.), 1, 29), which reads as follows: 7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe in Section 147.-A number of representations were received against the omission of the words reason to believe from Section 147 and their substitution by the o .....

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recorded by him in writing, is of the opinion . Other provisions of the new Section 147, however, remain the same. For the afore-stated reasons, we see no merit in these civil appeals filed by the Department; hence, dismissed with no order as to costs. 23. In Sitara Diamond Pvt. Ltd., vs. Deputy Commissioner of Income Tax & Others [(2012) 345 ITR 91], the Division Bench of Mumbai High Court, headed by Hon ble Justice Dr.D.Y.Chandrachud, as his Lordship then was, held as under:- 6. We have co .....

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ssessment for that assessment year. In the present case, the sole basis on which the assessment proceedings were sought to be reopened is the order which has been passed on 5 July 2011 for assessment year 2007-08. In that order, according to the Revenue, it has been held that the assessee acts as a mere facilitator and is not a manufacturer so as to entitle it to the deduction under Section 10A. The issue, however, before the court, is as to whether that can form the basis of the reopening of th .....

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of four years has not been fulfilled in this case. Since the order passed by the Commissioner of Income-tax (Appeals) for assessment year 2007-08 has been passed after the assessment for assessment year 2005-06 has been sought to be reopened by the notice dated June 29, 2011, we have, for the purposes of this discussion, kept that circumstance out of consideration. We have come to the conclusion that the Assessing Officer having failed to establish that there was a failure on the part of the ass .....

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