TMI Blog2016 (9) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... her a developer or contractor) - also the claim of deduction u/s 80IA of the Act has been accepted by the revenue u/s 143(3) proceedings and there is no reason to disturb the same in section 153A proceedings without there being any incriminating materials - hence assessee has to be treated only as a developer in the facts and circumstances of the case and not merely as a works contractor, thereby eligible for deduction u/s 80IA - thus ground of revenue is dismissed. - I.T(SS).A No. 58 & 60/Kol/2012, I.T(SS).A No. 59,61 & 62/Kol/2012, I.T.A No. 69 to 71/Kol/2013 - - - Dated:- 23-9-2016 - Shri M. Balaganesh, AM Shri S. S. Viswanethra Ravi, JM For the Assessee: Shri Manish Tiwari, AR For the Revenue : Shri G. Mallikarjuna, CIT, DR ORDER Per Shri M. Balaganesh, AM: All these appeals of assessee are arising out of separate orders of CIT(A), Central-II, Kolkata vide appeal No. 129,131,130/CC-XIII/CIT(A)C-II/11-12 dated 08.10.2012 and 132 133/CC-XIII/CIT(A)C-II/11-12 dated 09.10.2012 and 10.10.2012. All these appeals of revenue are arising out of separate orders of CIT(A), Central0II, Kolkata vide appeal Nos. 131, 132 133/CC-XIII/CIT(A)C-II/11-12 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the assessee chose to offer the same on receipt basis (i.e. retention money offered in the year of receipt) by placing reliance on the following decisions :- CIT vs Ignifluid Boilers (I) Ltd reported in (2006) 283 ITR 295 (Mad) CIT vs P C Constructions (P) Ltd reported in (2009) 2 taxmann.com 47 (Mad) CIT vs Simplex Concrete Piles (India) Pvt Ltd reported in (1989) 179 ITR 8 (Cal) 3.3. The assessee tried to explain that since section 153A of the Act authorizes the ld AO to assess or reassess the total income in respect of each asst year falling within such six years, the said assessments have to be framed as per law and only such receipt which can be legally includible can be brought to taxation. Since the retention money is taxable only in the year of release by respective authorities as per judicial decisions referred earlier, the same should be taxed accordingly. 3.4. The ld AO rejected the claim , inter alia, on the ground that the assessee had accounted the retention money in the profit and loss account following mercantile system from year to year and such claim was not made in its original return filed u/s 139(1) of the Act. Moreover, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn filed u/s 153A of the Act. The appellant company is not entitled for change in the method of accounting or method of valuation in the proceedings initiated u/s 153A of the Act. The proceedings u/s 153A of the Act is for the benefit of the Revenue and not for the benefit of assessee. Hence, I am of the considered opinion that the AO has rightly disallowed the claim of the appellant for reduction of amount of retention money of Rs. l,35,96,919/- from the gross contract receipt. 5. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. A). That the observations / findings of Ld. CIT (A) that retention money 'having been credited in P L A/ c. on accrual basis, the appellant cannot shift and claim reduction for retention money from its income are opposed to the following decisions: - a) CIT - Vs. - Ignifluid Boilers (I) Ltd. 283 ITR 295 (Mad) b) CIT - Vs. - P C Constructions (P) Ltd. 2 Taxman. Corn 47 (Mad) c) CIT - Vs. - Simplex Concrete Piles (India) Pvt. Ltd. 179 ITR 8 (Cal) B.) That the Ld. CIT(A) has erred in not holding that A.O. has failed to consider that if in law certain receipt is not taxable the mere fact that such recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld AO and argued that there is no good reason for the assessee to shift its stand by not offering the retention money on mercantile basis in the return filed in response to notice issued u/s 153A of the Act. 8. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that though the Hon ble Calcutta High Court in the case referred to supra had held that the retention money would be taxable in the year of receipt due to contingencies involved therein for releasing the payment by the Contractees to the assessee, but it cannot be ignored that the assessee had offered the retention money year after year on mercantile basis and assessments framed accordingly. Without the existence of any incriminating materials found during the course of search with regard to the issue of retention money, we are of the considered opinion that the assessments framed already should not be disturbed in section 153A proceedings. Our understanding on this issue is further sanctified and approved by the recent decision of Hon ble Calcutta High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent upon search and seizure operation u/s 132 of the Act conducted on 17.3.2010 at the office premises of the assessee company and its group concerns as well as survey operations at various places of the company, a notice u/s 153A of the Act dated 12.1.2011 was served on the assessee. The assessee filed its return in response to notice u/s 153A of the Act on 11.2.2011 declaring total income of ₹ 27,71,510/- but showed its liability to tax at the book profit u/s 115JB of the Act as declared earlier. The ld AO sought to deny the claim of deduction u/s 80IA of the Act in the search assessment proceedings u/s 153A of the Act. The assessee explained that the assessee originally claimed deduction u/s 80IA of the Act for ₹ 10,64,04,988/- in respect of 16 construction projects. Later on, the claim was confined to 13 projects for ₹ 9,34,19,846/-. The then ld AO after examination allowed claim to the extent of ₹ 5,92,22,478/- in respect of 9 projects on the basis of detailed findings recorded in the order. The dispute was contested in appeal but the ld CITA on the basis of findings recorded in his order confirmed the action of the ld AO. Therefore this issue had reac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of development of infrastructure facilities. But the ld AO observed that the said deduction u/s 80IA of the Act is not eligible for the assessee because of the Explanation in Section 80IA inserted by Finance Act 2007 w.r.e.f 1.4.2000 and further substituted by Finance (No. 2) Act, 2009 w.r.e.f. 1.4.2000 , though, the primary conditions for allowability of deduction are satisfied. The ld AO observed that in view of the substituted Explanation, the assessee had executed only the works contract awarded by the Central / State Government and Local Authorities, therefore, not eligible for deduction u/s 80IA. In order to arrive at this conclusion, the ld AO referred to the definition of work contract as per the Government of Puducherry, payment of sales tax and work contract tax by the assessee, reference of the assessee company as contractor in the agreements / contracts. The ld AO also got lead from the fact that no claim of deduction u/s 80IA of the Act was made by the assessee for the Asst Years 2009-10 and 2010-11 pursuant to the Explanation in Section 80IA supra. 11. The ld CITA went to the history of provisions of section 80IA of the Act and observed that prior to 1.4.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for execution of works relating to civil works, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property for cash / deferred payment or other valuable consideration is a works contract. It further says that when a contract fulfilling the above conditions is executed by a dealer, he is liable to pay tax on sale value of goods involved in the execution of works contract at the rates provided in the schedule. In view of above, the ld AO held that all the works executed by the assessee during the year falls under works contract and assessee have also paid the works contract tax and sales tax. Further in the contracts / agreements, the company has been denoted as a contractor. The ld CITA observed that this understanding and conclusion of the ld AO and consequentially disallowing the claim of deduction u/s 80IA of the Act is unjustified in as much as , if this view of the ld AO is accepted, then in that situation no enterprise which entered into an agreement with the Government for only development of new infrastructure facility would be eligible for deduction u/s 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012) 21 taxmann.com 138 (Hyd.) , it is clear that in the case of an agreement entered into by an enterprise with the Government, such an enterprise is denoted by the word contractor;, but it does not mean that such enterprise is a work contractor and not a developer. The nature of all the agreements entered into have to be looked into and if the enterprise has entered into contract with the Government / Government Bodies for development of infrastructure facility and such development has been carried out by the enterprise itself by doing composite work by deploying its technical manpower, labour, technical knowhow, its expertise and finance and plant and machinery, etc., such development agreement cannot be treated as simple work contract and on such contracts the assessee will be eligible for deduction u/s 80IA of the Act. 11.3. The ld CITA ultimately held that the assessee is only a developer and accordingly eligible for deduction u/s 80IA of the Act by observing as under:- 8.8 In the case of appellant company, the facts are similar to the facts involved in the case of KMC Constructions Ltd. (supra). As mentioned earlier in this order, in the course of assessment proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertise, plant and machinery, purchases the materials required for the project and also deploy substantial fund of its own and borrowed funds. Therefore, it cannot be said that the appellant company was only works contactor with reference to all the agreements and not the developer. For example, the appellant company entered into an agreement with East Central Railway, for construction of new Bridge No.26 ( 4*76.2m + 2*30.5m through girder well foundation) at Km. 16.848, Bridge No.27(5*30.Sm under slung girder bored cast in situ piles) at Km.17.140 Bridge No.28(5*18.30m composite girder and bored cast in situ piles) at Km.18.240 over Tilaiya Reservoir between Koderma Hazaribagh in connection with new BG Rail line between Koderma Ranchi to the Railway Administration. As per agreement the company was required to acquaint itself, at its own responsibility, risk and expense, with all information of the site of work and their neighborhoods, actual working and other prevalent conditions, laws/regulations, availability and suitability of local laborers, materials, surface and sub-soil condition, accessibility of site of work sources and availability of water, electricity, camp s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for maintenance of the work for a further period of 12 months. The contractor shall make good and remedy at his own expense, any defect which may develop or may be noticed before the expiry of period of 12 months. Thus, the appellant company, in this contract, was involved in the development of new infrastructure facility in the form of construction of foundations, sub-structure and super structure for the Rail Bridge over Tiliaya Reservoir between Koderma and Hazaribagh in connection with new B.G. Railway line between Koderma and Ranchi. It cannot be said that by developing a new Bridge, the appellant company had executed only a works contract as held by the AO. In view of decision of ITAT, Hyderabad, in the case of KMC Constructions Ltd. (supra), the appellant company has executed the development contract and not the works contract and, therefore, eligible for deduction u/s 80lA of the Act. Similar is the situation with other four contracts entered Into by the company with the government/government bodies and listed in Table-A of the assessment order. 12. Aggrieved, the revenue is in appeal before us on the following grounds:- 1. That on the facts and in the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloping operating and maintaining any infrastructure of (iii) developing operating and maintaining any infrastructure facility .. in section 80IA(4). 12. That the learned CIT(A) failed understand the provisions of section 80IA(5) that first the eligible business or the project has to yield profits after it is completed, and then only the question of deduction of such profits of the project (revenue receipts from operations of the completed project less eligible deductions) arises u/s 801A. 13. That the learned CIT(A) failed to understand the provisions of s.80IA(7) which clearly indicates that where incidental income arises from a project, such income can be adjusted against the income of the project when it is completed, further clarifying that it is the income from completed project (after completion, revenue receipts from operations less deductible expenses) that would be eligible for deduction u/s 801A. 14. That the learned CIT(A) failed to understand the provisions of section 80IA(7) wherein it is clearly stated that accounts have to be prepared for each 'enterprise' of the assessee showing profits and gains derived from such an enterprise, and certificate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de of the issue to the file of the ld AO. In response to this, the ld AR vehemently supported the orders of the ld CITA. He stated that the decisions relied upon by the ld CITA are squarely applicable to the facts of the instant case , in as much as, in those cases, the relevant clauses of the agreements / contracts were not looked into by the lower authorities and hence the tribunal had in the interest of justice had remanded the matter back to the file of the ld AO to go through the agreements / contracts. Whereas , in the instant case, the entire agreements / contracts were very much produced before the ld AO both in the original scrutiny assessment proceedings u/s 143(3) and also in section 153A proceedings which only enabled the ld AO to prepare a tabulation in Table A and Table B in his assessment order. The ld AR further argued that absolutely no incriminating materials were found during the course of search which would enable the department to change its stand about the status of the assessee , being a developer or contractor. Accordingly he prayed that the status of the assessee being a developer and claim of deduction u/s 80IA cannot be disturbed in section 153A proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The ld CITA observed that profit to the tune of ₹ 1,79,33,518/- mentioned in the projects in Table B of the assessment order, the assessee failed to substantiate its claim of deduction u/s 80IA of the Act and accordingly confirmed the disallowance made thereon. We find that against this, the assessee had not preferred any appeal before us. Hence we refrain to give our comments on the same. 14.3. We also find that the ld CITA had duly met one of the observations of the ld AO that the assessee suo moto refrained from making any claim of deduction u/s 80IA of the Act for Asst Years 2009-10 and 2010-11 in the return pursuant to the Explanation brought out in Finance (No.2) Act, 2009 w.r.e.f. 1.4.2000. We find that the ld CITA in this regard had stated that each assessment year is a separate unit and the decision has to be taken on the basis of facts in that particular year. We find that the revenue cannot take undue advantage of the ignorance of an assessee by collecting undue taxes which would admittedly be against Article 265 of the Constitution. 14.4. We find that , in any case, the revenue had conceded to the fact that there was absolutely no incriminating materials ..... X X X X Extracts X X X X X X X X Extracts X X X X
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