TMI Blog2020 (8) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ion claimed by the assessee under section 80-IA of the Act cannot be denied to the assessee merely on the reasoning that there was no valid agreement furnished by the assessee in the present situations as there were other materials available before the AO. Infrastructure facilities started prior to 1 April 1995 were not eligible for such deduction. Thus the sub clause (c) provides the jurisdiction to the assessee for claiming the deduction only with respect to the projects which started or starts operating on or after 1 April 1995. In holding so we draw support and guidance from the order of Hon ble Mumbai ITAT in case of ACIT vs. Bharat Udyog Ltd [ 2008 (6) TMI 225 - ITAT BOMBAY-F] Interpretation that the deduction shall be allowed only with respect to the infrastructure facility upon the commencement of operation and maintenance, does not hold good, particularly in a situation where the assessee is engaged only in the development of infrastructure facility. Assessee has not filed the form 10CCB separately with respect to each infrastructure project being considered as an undertaking as mandated under rule 18BBB of Income Tax Rules - assessee was under the obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk. Thus on perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor but a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. It may be concluded that even after the amendment by the Finance Act, 2007 and the Finance Act, 2009, the contractors performing the work in the nature of a developer-cum-contractor and assuming risks and responsibilities shall be eligible for deduction under section 80-IA in respect of the eligible infrastructural facilities. Hence the ground of appeal of the assessee is allowed. Addition of income other than the income of 80-IA projects on the ground that the books of accounts are not reliable - HELD THAT:- In the case on hand undisputedly the books of accounts of the assessee have not been rejected. In such a situation, the onus is on the AO to point out the specific expenses which were not incurred in connection with the business and thereafter he can make the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.80IA (4) may kindly be directed to be allowed. 3. The Ld.CIT(A) erred on facts as also in law in confirming the trading addition of ₹ 70,00,000/- on the alleged ground that the books of accounts of appellant are not reliable, genuine and incomplete in case of non-80IA projects. The AO may kindly be directed to accept the book results and delete the impugned trading addition of ₹ 70,00,000/- 4. Your Honor appellant craves leave to add, amend, alter to withdraw any or more grounds of appeal on or before the hearing of appeal. 3. The 1st issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of the deduction claimed under section 80-IA(4) of the Act, amounting to ₹ 2,35,41,640/- on the reasoning that the conditions specified under the relevant section have not been complied with. 4. Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of contractors and project developers. There was a survey conducted under section 133A of the Act, at the premises of the assessee dated 6th November 2009. 4.1 The assessee in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a State Government or a local authority or any other statutory body for (i ) developing or (ii ) operating and maintaining or (iii ) developing, operating and maintaining a new infrastructure facility. But the assessee failed to produce the copy of agreement and has filed only tender documents, letter of intent and work order with respect to 5 projects only out of 17 projects. As such the documents filed by the assessee cannot be considered as agreement as specified under sub-clause (b) of section 80-IA(4)(i) of the Act. ii. The assessee is not operating the infrastructure facility constructed by it which is prerequisite for claiming the deduction in pursuance to the subclause (c) of section 80-IA(4)(i) of the Act. iii. The provisions of sub-section 2 of section 80-IA of the Act mandates that the deduction under section 80-IA of the Act, can be allowed to the assessee for 10 consecutive years out of 20 years beginning from the year in which the enterprise develops and begins to operate the infrastructure facility. However in the present case the assessee did not operate the infrastructure facility. iv. The assessee was under the obligation to maintain separate accounts fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce stands as under: (a) For starting of work, assessee is only require to submit 10% of bid amount as earnest money deposit. (b) Further assesse will submit the monthly bill. Thus total investment in infrastructure facility by assessee is hardly 20%, 10 % as bid amount rest 10% as working capital for carrying out the work for about one half or two months, till the first payment is released. (c) Infact this 20% becomes much less, if we see that assessee is also eligible for mobilisation advance up to 5% of cost offender (Clause no.75 page no.41). (d) Further whatever material, machinery contractor bring on site, for which it can take upto 75% of advance of the value. This coupled with other facts, in fact require less than 5% of working capital. (clause72,73,74 page41). (e) Assessee has to submit monthly bill specifying quantum of each work done, and get monthly payment according to quantity of work done. (Clause 10, page 19) (f) Assessee does not have any risk, as even the rates of its each type of work, / digging work, earth work, embankment, filling with murram, embankment if any, even diversion of roads during progress of work, concreting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, in respect of each small to small type, detail procedure of work, detail specification, what material to be used, even in case of important material from whom to be purchased, has been given. ix. These all facts from detailed tender document which runs in 200 pages, shows that assessee is not developing but only executing (the used at every place) the work as per the designs, drawing, specification, instructions - direction given by Engineer-In-charge under direct supervision OF Superintending entitled to A7 OR MANNER THEY ARE TO BE Assesses need not to invest except very little in plant machinery, for that also advance is given by government, and earnest money for bid, very small working capital. Assessee do not have any risk as its rates are subject to change for change in rates of labour, material, diesel, etc. Assessee's risk is limited to ernest money that to subject to completion of good work as desired by engineer-in-charge. The top of form 3-1, and definition of work as defined in contract Cleary says that it is contract for work. 5.2 In view of the above, the AO held that the assessee is acting as a mere work contractor and therefore it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich implies that the law was the same from the very beginning. Thus it is not a case of introduction of new provision of law by retrospective effect. Accordingly the assessee claimed that it should be allowed the deduction under section 80-IA(4) of the Act as it was allowed in the earlier assessment years as well and therefore the same cannot be denied merely on the basis of explanation as discussed above brought in the statute. 6.3 The assessee also contended that the object of section 80-IA of the Act was to promote the industry which was not possible without providing the requisite infrastructure facilities. Therefore such provision of section 80-IA (4) of the Act was brought in the statute to provide the incentives/exemption to the certain class of assessee. Accordingly the provisions of section 80-IA(4) of the Act should be read/interpreted liberally as held by the Hon ble Supreme Court in the case of Bajaj Tempo Ltd versus CIT reported in 196 ITR 188 6.4 The assessee also claimed that it has provided the report in form 10 CCB as provided under section 80 IA(7) of the Act combinedly and cumulatively for all the infrastructure projects treating itself as one undertaking. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant portion of case law. 1. State Of Guiarat (Commissioner Of ... vs M/S. Variety Body Builders on 26 April. 1976 [1976 AIR 2108, 1976 SCR 131] Although the submission on the first blush is attractive and appears to be of some force, it will not bear lose scrutiny. Perusal of clause 17 itself upon which great reliance has been placed by Mr. Desai shows that dates of completion of the building work will be deemed to be the respective dates on which the Chief Mechanical Engineer or his authorised representative certifies each coach as having been built to his satisfaction . It is also apparent from the contract that the contractor has to complete two coaches each month after expiry of the first six months of the contract. It is also clear that the con tractor has to get payment by submitting running bill; on completion of the coaches every month. In the above context when clause 17 refers to a fictional completion or the building work on the date of certificate by the Chief Mechanical Engineer or his authorised representative there is no requirement for a further ritual of delivery or handing over to which reference made in clauses 15 and. ' 23 respectively. The wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be ITHIS PAGE IS NOT WELL SCANED the value of the materials us conclusive although such matters may be taken into consideration in determining i the circumstance of a particular case whether the contract is in substance one for work and labour or one for the sale of the chattel . It can be treated as well-settled that there is no standard formula by which one can distinguish a contracts of sale from a contract for work and labour. There may be many common features in both the contracts, some neutral in particular context and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all time vexed jurists all over. In Commissioner of Commercial Taxes, Mysore v. Hindustan Aeronautical Ltd.(l) a bench of five Judges of this Court to which my learned brother was a party had to deal with a works contract With regard to manufacture and supply of railway coaches. This Court after consideration of all the facts In that case and the salient features of the contract came to the conclusion that it was a pure works contract with Court further held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave referred to the several correspondence which, according to us, indicate that the property in the aircrafts, in the equipments and the materials had always been with the Government. The materials imported under the licence or procured indigenously for the manufacture were always and had always remained the property of the Government. The appellant had no property, in any part thereof, and had no right to dispose of or disposal over these materials and spares. These had to be regulated by the procedure envisaged in the agreement between the parties. The test by which these transactions should be judged in deciding whether this was a works contract or a contract of sale of any part of the material has been emphasised in several decisions of this Court. Some of these principles have been reiterated in the decision of M/s Hindustan Aeronautics Ltd. vs. State of Karnataka in Civil Appeal Nos. 1386-91 (NT) of 1977 of this Court.(l) As emphasised by this Court, there is no rigid or inflexible rule applicable alike to all transactions which can indicate distinction between a contract for sale and a contract for work and labour. But the tests indicated in the several decisions of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt or even the whole of the material used by him may have been his property. Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract. See the observation in The Court Press Job Branch, Salem v. The State of Tamil Nadu, 54 STC 383 and Commissioner of Sales Tax, M.P. v. Ratna Fine Arts Printing Press, 56 STC 77. In our opinion, in each case the nature of the contract and the transaction must be found out. And this is possible only when the intention of the parties is found out. The fact that in the execution of a contract for work some materials are used and the property/goods so used, passes to the other party, the contractor undertaking to do the work will not necessarily be deemed, on that account, to sell the materials. Whether or not and which part of the job work relates to that depends as mentioned hereinbefore, on the nature of the transaction. A contract for work in the execu- tion of which goods are used may take any one of the three forms as mentioned by this Court in The Government of Andhra Pradesh v. Guntur Tobaccos (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m to 67kms. If we allow this kind of activity to fall with the ambit of Section 80IA, it will not be in consonance with the aims and objects for which this section has been introduced. The Explanation to section 80IA(4) provides the development of highway project including housing project to be integral part of highway projects. Hypothetically if we permit the claim of the assessee for repairing and maintenance of the existing infrastructure then this provision would be subjected to misuse and unscrupulous contractors would claim benefit of 80IA, who were into redeveloping, repair or re-plaster the existing houses. In our understanding the same cannot be permitted as it would be beyond the scope of Section 80IA of the Act. Further there is a distinction between the widening of the existing road by constructing additional lanes as part of the highways project ITA.545, 546, 1130 1131/Bang/2018 Page - 25 vis-a-vis, improving, maintaining, refurbishing the existing road. Circular No,4 of 2010 of the CBDT only provides the scope of section 80IA to include within its ambit the widening of the existing road, but the road which exists or the infrastructure which is existing can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrosive lining and had claimed deduction under section 80IA of the Act. The Tribunal after examining the facts of the case held that the benefit of deduction under section 80IA was available only to a developer as it was a condition precedent for grant of the benefit of this section that the undertaking or enterprise must drive income from carrying on the business of developing an infrastructure facility. The Tribunal held that the assessee had entered into a contract for executing works contract and therefore the benefit of deduction under section 80IA would not be available to it. We find that the facts of the cited case are identical to that of the present case and are therefore of the view that the assessee is not eligible for being allowed deduction under section 80IA of the Act. 3. In view of the above decisions which are applicable to the present appeal, the assessee is not entitled to deduction u/s 80IA(4). 10. The ld. DR vehemently supported the order of the authorities below. 11. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has denied the deduction cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and work award order before us on sample basis which are available in the paper book. On perusal of the tender documents we note that these tender documents contains all the terms and conditions for the contracts awarded to the assessee which are equivalent to the agreements. 11.3 The legal meaning of the word agreement is a negotiated and typically legally binding arrangement between parties as to a course of action . Further the word agreement has been defined under section 2(e) The Indian Contract Act 1872. The section 2(e) of the Act defines an agreements as detailed under: every promise and every set of promises, forming the consideration for each other is an agreement . Further section 2(b) of the Indian contract Act define promise as: When the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. Proposal when accepted, becomes a promises. Section 2(a) of the Indian contract Act define proposal as under: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the amendment in the year 2002 by the Finance Act 2001. In other words the assessee on the basis of these tender documents was claiming deduction in the earlier assessment years which was allowed by the Revenue. Therefore, we are of the view that the AO in the under consideration cannot change his stand. Therefore, the deduction claimed by the assessee under section 80-IA of the Act cannot be denied to the assessee merely on the reasoning that there was no valid agreement furnished by the assessee in the present situations as there were other materials available before the AO. 12. The 2nd allegation of the AO is that the assessee can claim the deduction only after it begins operating and maintaining the infrastructure facilities as per subclause (c) to section 80-IA (4) of the Act and as provided under sub-section 2 of section 80-IA of the Act. But the activity of the assessee is limited to the extent of constructing the infrastructure facilities. As such there was no question of operating and maintaining the infrastructure facilities by the assessee, therefore there is no possibility for allowing the deduction under section 80-IA(4) of the Act. 12.1 Before going into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further w.e.f. 1st April 2000 the subsection-4A was re-numbered as subsection- 4 of section 80IA of the Act. Subsequently, the major changes were brought in the Finance Act 2001 w.e.f. 1st April 2002, where the requirement for developing and operating maintaining of infrastructure facility simultaneously was done away. Now the deduction under section 80-IA(4)(i) is also available to assessee who is engaged only in development of infrastructure facility or only engaged in operation maintenance of infrastructure facility or engaged in both developing, operating and maintaining any infrastructure facility. The amended provision of section 80- IA(4)(i) of the Act reads as under: (4) This section applies to- (i ) any enterprise carrying on the business 91[of (i) developing or ( ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :- (a) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 93 [( b) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to those assessee who starts operating and maintaining the infrastructure facility after the said date. In other words the infrastructure facilities started prior to 1 April 1995 were not eligible for such deduction. Thus the sub clause (c) provides the jurisdiction to the assessee for claiming the deduction only with respect to the projects which started or starts operating on or after 1 April 1995. In holding so we draw support and guidance from the order of Hon ble Mumbai ITAT in case of ACIT vs. Bharat Udyog Ltd reported in [2009] 118 ITD 336 wherein it was held as under: Sub-clause (c) of section 80-IA(4) is applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1-4-1995. It is not applicable to the case of an enterprise, which is engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, the question of 'operating and maintaining' of infrastructure facility by such an enterprise before or after any cut off date cannot arise. When the Act provides for deduction under section 80-IA(4) , undisputedly for an enterprise, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was under the obligation to treat each project as separate and distinct undertaking for the purpose of claiming the deduction under section 80 IA (4) of the Act. However, we find important to mention/highlight the fact in the present facts and circumstances that what would be the impact on the deduction claimed by the assessee with respect to all the projects where the assessee furnished the reports combinedly and cumulatively. At the threshold, there is no ambiguity to the fact that all the development projects carried out by the assessee are the infrastructure projects/facilities as provided under the statute in explanation attached to section 80 IA (4) of the Act. This fact can be verified from the finding of the AO which reads as under: 5.7.1 There must be a infrastructure facility i.e. a Road { definition below 80IA(4)(i)} From the details, submitted by assesse, it was perusued that assessee is taking work contract for roads. Thus no adverse inference is called for. 12.10 In view of the above we are of the opinion that there cannot be any dispute regarding the deduction claimed by the assessee under section 80-IA (4) of the Act based on combined and cumulative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities and risk can be categorized as under: (a) That in a development contract responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the developer exercise complete realm over the land or the project. However, in some case there can be a situation that the developer has to take the approval of the design from the Government/ contractee but that will not change the status of the developer as works contractor. (b) That the first phase for the developers is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. (c) That a developer has to execute managerial responsibility by engaging the requisite qualifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and is not entitled to any share of profit from revenue generated by the developer/land owner. 13.3 To summarize, the developer acts as a principal whereas the contractor acts as an agent in performing the functions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility the infrastructure facility whereas the contractors are those persons who merely execute part of these functions on behalf of developer and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under section 80-IA of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer. 13.4 In view of the above, we note that it is possible to ascertain whether a civil construction work is assigned on development basis or contract basis only on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate per day stated in the Contract Data for each day that the Completion Date is later than the Intended Completion Date. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 13.6 On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the assessee in the tender documents as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Government and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose the Government retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk. Thus on perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e works contracts so as to deny deduction under section 80-IA(4) to assessee. Such contracts are eligible for deduction under section 80-IA and same is applicable in case of work allotted by Government corporation/Government bodies also. 13.10 We also extend the support and guidance from order of Mumbai Tribunal in the case of Bhinmal Contractors Property and Land Developers (P.) Ltd. Vs. ACIT/DCIT reported in 93 taxmann.com 296 wherein it was held that merely because, in the TDS certificate tax at source was deducted u/s. 194C being applicable to a contractor cannot be the reason for treating a genuine developer as a contractor. The same cannot detract the assessee from the position of being a developer; nor should it debar the assessee from claiming deduction under section 80-IA(4). Therefore, the assessee, who is only engaged in developing the infrastructural facility, i.e., road, is entitled to the benefits of the deduction under section 80-IA(4) of the Act. 13.11 Further, it may be worthwhile to mention that judiciary has time and again held that beneficial provision, as in the instant case, should be given liberal interpretation so as to benefit the assessee. The card ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petence of the Parliament. As such, there was no issue whether the assessee is acting as a developer or works contractor. Therefore, in our considered view no reference can be made to such judgment for deciding the issue on hand whether the assessee is acting as a developer or the works contractor. 13.13 The case laws quoted by the ld. DR of the Hon ble Supreme Court as discussed above were rendered in the context of sales tax/ service tax much before the insertion of section 80-IA of the Act whereas the issue before us relates to the provisions of income tax. Furthermore, there was no issue in the cases cited by the learned DR whether the assessee is acting as a developer or as contractor for claiming the deduction under section 80-IA (4) of the Act. Similarly, in the case of Gmr Tambaram tindivanam (supra) there was issue of relating to the fact whether the assessee carried out the activity of infrastructure facility which is not the issue in the case on hand. Likewise, the issue in the case of Yojaka Marine Pvt. Ltd. (supra) , the issue was in relation to the applicability of the explanation below to below 80-IA (13) of the Act which is not the issue before us. Accordingly we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of profit for the projects eligible for deduction under section 80-IA and the projects not eligible for deduction under section 80-IA of the Act is almost similar. Accordingly, there should not be any disallowance of the expenses. 14.3 However, the AO disagreed with the contention of the assessee and held that the assessee agreed for lump-sum disallowance. Accordingly he made the disallowance of ₹70 Lacs against the non 80 IA project income which was added to the total income of the assessee. 15. Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO by observing as under: 6.3 I have carefully considered the contention of the appellant and the /assessment order. The lumpsum disallowance of ₹ 70 lakhs has been made by the A.O. on account of defects in the books of accounts which are mentioned in para-6.1 of the assessment order. In para-6.2, it is contended by the A.O. that , the appellant has accepted this addition. It is also mentioned by the A.O. that it was clarified to the AR / -ssessee and noted in the order-sheet entry dt. 16/3/2013 that this addition does not cover the defective vouchers found and imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light. 2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Boards has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence. 3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely. 18.2 In view of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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