TMI Blog2013 (4) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure facilities relating to water and sewerage treatment on turnkey basis. In this regard, the assessee has stated that development of infrastructure projects includes design, detailed engineering, execution of civil, mechanical, electrical work interconnection of piping and instrumentation works includes erection, testing, tri-run and finally the commissioning of the plants. The scope of work has also included the operation and maintenance of plant for a period of 5 years depending upon the scope of the development agreement . For AY 2005-06, the assessee has claimed deduction of section 80IA at ₹ 3,52,96,181/-. The assessee s claim was that the said profit was earned from the development of the infrastructure project as prescribed under the Act. The AO has issued a notice through which he has informed that why the claim of 80-IA should not be disallowed because it was disallowed in last two years and the Department had filed an appeal before the Hon ble ITAT. The next objection of the AO was that the company had not owned the infrastructure facility. The third objection of the AO was that the assessee is only a contractor and not developer. In response, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 and after considering the nature of the work and the agreement with the said authority, as also following Patel Engineering Ltd.(supra) arrived at the conclusion that the CIT(A) had rightly allowed the claim. The finding is reproduced below:- 13. Having considered the rival submissions, facts and circumstances of the case and the provisions in law as well as the decision of ITA Mumbai Bench in the case of Patel engineering Ltd.(supra), we are of the opinion that so far as the issue involved in ground No.1 is concerned, the Revenue having not brought to our decision any decision contrary to the decision in the case of Patel Engineering Ltd.(supra), which has been subsequently followed by the Jodhpur Bench in the case of Chetak Enterprises (P.) Ltd. vs. Asst.CIT [2005] (95 ITD 01) [Jodh.] and also by the Bombay Bench [2008] (24 SOT 412) [Bombay], we do not find any reason for interfering with the order of the CIT(Appeals) on this point. Consequently, order of the CIT(Appeals) on this point is confirmed and Revenue s ground is rejected. 5. Now before us, from the side of the Revenue, ld.Sr.DR Mr.D.P.Gupta has supported the orders of the AO and CIT(A). By placing reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we shall deal, as also consider, the point-wise objection of the Revenue Department and examine whether those objections have rightly been raised in the case of the assessee. (a) The objection of the Revenue Department is that the assessee has been termed as contractor as per the terms of the agreement with SMC. This very objection has been dealt with by ITAT D Bench Ahmedabad in the case of En-vision Enviro Engineers Pvt.Ltd. vs. DCIT (in ITA No.2902/Ahd/08 others for AY 2005-06) order dated 30/04/2012, wherein we have opined, quote We have examined both the agreements. Undisputedly, the assessee has been referred as a Contractor in the agreement dated 15/07/2004. However, it was not so in the agreement dated 14/11/2002 executed with Surat Municipal Corporation. Be that as it was, merely mentioning the assessee as Contractor the exact nature of the execution of the work do not alter. Rather, this controversy has been resolved by Respected Coordinate Bench in the case of Patel Engineering Ltd. 94 ITD 411(Mum.)cited-supra. We are convinced with the argument of the ld.AR that a contractor can also be a developer. In this context, our attention has been drawn on a latest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er annum, the said agreement was entered into for seven years. The assessee is to make the construction on the land as per the approved plans. The assessee has to install necessary equipment and machinery. One of the clauses is very clear that En-Vision shall bear all the expenses for putting up the said plan . The assessee is entitled to charge for treatment of waste per kg. as fixed by Municipal Corporation from time to time. One of the clauses, thus is clear that the rate shall be as per the quotations agreed upon. On termination of agreement, the project is to be taken over. At this juncture, ld.AR has also mentioned the change in the Statute through which one of the condition of transfer of the infrastructure back to the Government has been waived of. unquote. The totality of the facts and circumstances of the case as also the material placed before us, we hereby hold that the said Explanation is not applicable on the assessee because the project assigned to the assessee by Surat Municipal Corporation was not merely in the nature of works-contract but much more that i.e. to develop the infrastructure and to operate the same. (c) An another objection of the Revenue Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to all the profits in respect of the contract executed by them, hence the assessee would certainly be entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions. This view get strength from decision in the case of ITAT, Indore Bench, in case of Ayush Ajay Constructions Ltd. (supra). Thus, while giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABG Heavy Industries ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ratio of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra), the Assessing Officer is directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years. The matter is disposed off accordingly. unquote. 7. Finally, the decision of Hon ble Bombay High Court in the case of ABG Heavy Industries 322 ITR 323(Mum.) is directly applicable on the assessee, wherein it was opined that the said assessee entered into a contract for supply, installation, testing, commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otally unconnected with the business activity of the assessee, therefore do not fall under the category of expenditure as defined u/s.37(1) of IT Act. We find no force in this ground of the assessee, hence hereby dismiss for all the years. 12. Next ground in Assessee s appeal is Ground No.3 for A.Ys. 2005-06, 2006-07 2007-08; reproduced below:- 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(Appeals) has erred in confirming the action of the Assessing Officer in disallowing ₹ 33,84,000/- (for AY 2006-07 ₹ 29,16,139/-) on account of interest not charged on securities deposits u/s.36(1)(iii) of the Act (for AY 2007-08 ₹ 33,84,000/-). 12.1. The assessee had advanced to Directors a sum of ₹ 2.82 crores. Further, it has also been noted by the AO that as per the P L account the assessee has claimed financial charges of ₹ 39,95,679/-. It was also noted that the assessee had paid interest at the rate of 12% on unsecured loans. The AO has concluded that the assessee has diverted the funds for non-business purposes. On the impugned amount, the AO has calculated the interest @ 12% i.e. ₹ 33,84,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the facts and circumstances of the case, we hereby reverse the findings of the authorities below and direct to delete the addition. 16. The only ground left is Ground No.4 for AYs 2005-06 2006-07 and Ground No.6 for AY 2007-08 which is an alternate plea that the assessee is entitled to increase the deduction u/s.80IA on addition made by AO. This alternate plea can be accepted only after satisfying the condition as prescribed under section 80IA(4) of IT Act. The assessee has to establish that in case a disallowance has been made, then if that disallowance is directly connected with the business activity as defined u/s.80IA(4), then the assessee is entitled to increase the deduction u/s.80IA(4) to that extent only. Resultantly, this ground (for these years) is restored back to AO for re-adjudication as per law and to be treated as allowed only for statistical purposes. 17. For AY 2007-08 in Assessee s appeal (ITA No.783/Ahd/2010), Ground No.4 reads as under:- On the facts and in circumstances of the case as well as law on the subject, the learned commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in disallowing ₹ 12,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1. The issue is that the assessee had claimed a deduction u/s.80IA(4) of ₹ 5,80,10,871/-. This was the profits earned from development of infrastructure facility projects carried out by the assessee. In one of the projects of infrastructure facility, the assessee had suffered a loss of ₹ 54,62,181/-. The assessee was issued a show-cause notice that the deduction u/s.80IA was excessively claimed because to the extent of loss, the same was to be disallowed. Resultantly, the loss figure was reduced from the total claim, however the balance claim u/s.80IA was disallowed, hereby discussed separately. We are of the view that the provisions of section 80IA(4) are unambiguous to the effect that it applies to a business activity of an Enterprise carrying on the business of development of infrastructure facility. Which means that an Enterprise has to compute the net income for the purpose of claim of deduction, which may have a component of loss in one of the project. We therefore hold that the Revenue Authorities have correctly taken a stand by recomputing the profit for the purpose of considering the claim u/s.80IA(4). We hereby hold that no interference is required, hence thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive, the AO was expected to place on record the reason for holding such opinion. We have noted that no such comparable instance was quoted by the AO. Additionally, it has also been argued before us that the payment made to the wife of the Director was a business requirement of the assessee and that lady is also subject to tax at the maximum rate. Hence, it is pleaded that there was no intention to save the tax. It has also been pleaded that there was no motive to divert the income because the assessee is entitled for the claim of 100% deduction on the income u/s.80IA(4). Thus, the totality of the circumstances demonstrates that there was no justification on the part of the AO to make such an adhoc addition. Resultantly, we hereby confirm the findings of the CIT(A) and dismiss this ground of the Revenue for the years under consideration. 23. For AYs 2005-06 (in ITA No. 2369/Ahd/11), 2006-07 (in ITA No.2794/Ahd/11) 2007-08 (in ITA No.2795/Ahd/11), the Assessee has filed these appeals against the levy of penalty u/s.271(1)(c) respectively of ₹ 1,52,41,496/-, ₹ 83,65,791/- ₹ 85,61,036/-. 24. These penalties were levied by the AO vide orders u/s.271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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