TMI Blog2017 (1) TMI 1830X X X X Extracts X X X X X X X X Extracts X X X X ..... NAI] and BT Patil [ 2013 (11) TMI 197 - ITAT PUNE] and Om Metal Infra Projects ( 2008 (12) TMI 744 - ITAT JAIPUR ) and ABG Heavy Industries Ltd. [ 2010 (2) TMI 108 - BOMBAY HIGH COURT] has considered similar activities performed by the assessee company is developing infrastructure i.e., conceptualization of designs, Level of investment should be considered to be called as developer. We found that the assessee company undertakes the entire responsibility from concept to Commissioning of developing the entire facility. Based on customer specifications, conceives the designs and technical plans, chooses the technology required for treatment of the effluents and executes the project through a skilled team of more than 250 - 300 engineers. The work performed includes the basic design of the plant, detailed engineering, procurement of equipment and components, delivery of supplies at site, civil construction of the structure, installation of equipment at site, interfacing through piping and cables, testing and commissioning and subsequent O M. Thus assessee has demonstrated the investments of the company in project from the assessment year 200-03 to 2007-08 consisting of Receivables, mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gove./local bodies which own the infrastructure is the developer and the assessee is a mere contractor and hence not eligible to the deduction u/s. 80IA. 2.4 The CIT(A) failed to appreciate that as per sec. 80IA(1), the assessee is eligible for deduction only for the profits and gains derived from any business referred to in sec. 80IA(40 and in the assessee's case, the net income derived by the assessee by entering into a mere contract agreement for development of infrastructural facilities cannot be equated to profits and gains derived by the assessee's undertaking derived from the profits and gains of development of infrastructural facilities. 2.5 The CIT(A) ought to have appreciated that some of the works executed by the assessee were related to expansion of already existing infrastructure facilities, which does not satisfy the condition that, for claiming deduction u/s. 80IA, the infrastructure projects should be a new one. 2.6 The CIT(A) failed to appreciate that the assessee does not have the entire plant and machinery for the execution of the works, but has sub-contracted the work to other persons, thus making it ineligible for deduction u/s. 80IA(4). 2.7 It is subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise carrying on a business of developing infrastructure facility; (ii) is owned by the assessee ; (iii) and entered into an agreement with local authorities for infrastructure development facilities, to be eligible to claim Deduction u/s. 80IA of the Act. The Ld. AR filed the information of execution of civil contract works and claimed as a developer and supported with the Tribunal decision of Mumbai in the case of Patel Engineers Vs. DCIT, 94 ITT 411(Mumbai) where it was clarified that: A person who enters into an contract with another person, will be a contractor no doubt; and the assessee having entered into an agreement with the Government of Authority for development of the infrastructure projects was obviously a contractor but that did not derogate the assessee from being a developer as well. The term 'Contract' is not essentially contradictory to the term 'developer'. On the other hand, rather sec. 80IA(4) itself provided that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a Local Authority. So entering into a lawful agreement and thereby becoming a contractor should, in no way, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss in the hands of the developer as he is not operating the infrastructure facility. When the legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e. to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, as he has no other source for recoupment of his cost of development. In applying the above principles the Assessing Officer observed that it must enter into a contract with State Governments and local authorities to execute infrastructure works as per the terms and conditions of contract and agreement and to claim deduction u/s. 80IA for the construction and maintenance of infrastructural works. But the Assessing Officer view that the assessee company has not made an agreement with Central or State Government, local authorities or any other statutory body for the purpose of develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled an appeal with the CIT(A). The Ld. AR argued the grounds and reiterated the submissions along with the evidence made in the assessment proceedings in supporting the claim of deduction u/s. 80IA. The Ld. CIT(A) viewed the findings and dealt exhaustively on the provisions and relied on the judicial decisions and made an distinction between the Developer and Contractor and also considered the written submissions, contract agreements, bidding documents, various drawings and designs submitted for the development of infrastructure facilities and took support from the decisions of High Court and Tribunal and earlier years CIT(A) decisions in assessee's own case. The Ld. CIT(A) found as per the amendment in Financial Act, 1999 effective from 01.04.2000, the assessee enterprise need not carry all the three activities of developing, operating and maintaining infrastructure facilities to claim deduction. The Ld. CIT(A) dealt exhaustively on the submissions supporting the claim and the decision of the Bombay Tribunal in the case of Patel Engineering Vs. DCIT 94 ITD 411, where the deduction has to be allowed to companies processing any one of the three activities and as per circular No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... patents. The assessee company is a pioneer in water and sewerage treatment technology having Research and Development centres in Switzerland, Vienna, Austria, Chennai and has mobilized and synthesized people, plans, technical expertise, supervision, co-ordination and control etc., to develop and create the infrastructure facilities and also developer in all projects entered with Chennai Metro Water Sewerage Board and the Government of West Bengal. The Ld. CIT(A) found that the assessee company has satisfied the ratio laid down in the Tribunal decisions of Patel Engineering's (Supra) and Om Metal Infra Projects (Supra) and dealt on the ownership and financial sources and the projects at Kolkata, Bangalore and Chennai and including the project of Kodambakkam and Arumbakkam project. The Ld. CIT(A) dealt on sub-contracting various activities and contention of Assessing Officer that the profits are not derived from development of infrastructure facilities. The Ld. CIT(A) test checked the criteria and conditions prescribed u/s. 80IA(4)(i) applicable to the assessee in respect of enterprise involved in (i) developing or, (ii) operating and maintaining or (iii) developing, operating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity earlier existing but the project undertaken by the appellant is also physically inspected a few sites of the appellant such as expansion project (water pumping) or sewerage system of T. Nagar which have been included in the category of expansion of infrastructure facilities. In fact, such projects have been developed by the appellant quite independent of the existing facility. Therefore, in my considered view, the expansion projects undertaken and developed by the appellant are required to be considered as independent projects eligible for de u/s. 80IA. Finally Ld. CIT(A) based on details exhaustive submissions and judicial decisions consider the assessee as developer except the project at Allandur where there is no clarity on the execution of work on sub-contract basis and the assessee is eligible for deduction u/s. 80IA of the Act and partly allowed the appeal. 5. Similarly, the assessee has raised the ground on the forex exchange loss Rs. 45,00,673/- were exchange loss was incurred during the course of normal business activity of the assessee due to fluctuation in foreign exchange while making payment on various raw material imported by the assessee for the purpose of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy, GSP Veera Reddy Hyderabad ITAT 10. Sushee Hi Tech Constructions Hyderabad ITAT ITA No. 269 1165/HYD/2009 1171/HYD/2010 11. KMC Constructions Ltd., Hyderabad ITAT ITA No. 233/HYD/2001 12. M/s. Ayyappa Infra Projects Pvt. Ltd Hyderabad ITAT ITA No. 734/HYD/2010 ITA No. 1832/HYD/2012 13. Om Metals Infraprojects Ltd Jaipur ITAT 26DTR 359 14. Sugam constructions Ahmedabad ITAT ITA No. 1828, 787, 1864, 1788/Ahd/2010 ITA No. 402, 403, 404 602/Ahd/2012 15. Modern Constructions Co. P Ltd Ahmedabad ITAT ITA No. 264/Ahd/2008, 572/Ahd/2008 950/Ahd/2010 16. M/s. Prathiba Industries Ltd., Mumbai ITAT ITA Nos. 2197- 2199,22002202/Mum/2008 17. Arss Infrastructure Projects Ltd Cuttack ITAT ITA No. 142 142/CTK/2010 The Ld. AR also filed additional paper book and the written submissions supporting the cases for allowing the deduction and emphasised on the coordinate bench decision of East Coast Constructions India Ltd. (Supra) and prayed for dismissing the Revenue ground. 7. We heard the rival submissions, perused the material on record and judicial decisions. The sole crux of the issue envisaged by the Ld. DR that the CIT(A) has erred in allowing the claim on deduction u/s. 80IA(4) to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer considered that the assessee is not a developer of the projects but is a mere contractor and sub-contracts part of the work. The Ld. AR filed the chart of Turkey Projects Annexure-3 with details of different projects and claim made in the assessment orders. The Ld. AO disallowed these claims of projects considering as sub-contracts, whereas, the Ld. CIT(A) has relied on the explanations on the projects with financial investment and new infrastructure facilities in developing and supply of sewerage system in order to cater to the population of Chennai city. The Ld. AO main contention that the assessee is only the contractor and not a developer but the person who develops the infrastructure facilities pursuant to contract with the State Government shall be considered as developer. We found the co-ordinate bench decision of East Coast Constructions (Supra) and Bombay Bench decision BT Patil and Jaipur bench decision of Om Metal Infra Projects (Supra) and Hon ble High Court of Bombay in the case of ABG Heavy Industries Ltd., 322 ITR 323 has considered similar activities performed by the assessee company is developing infrastructure i.e., conceptualization of designs, Level of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s. 80IA(4) was denied as under: We have heard both the sides, perused the records and gone through the orders of the authorities below. The issue involved in this appeal is whether the assessee is eligible for the deduction u/s. 80IA(4) of the Act or not. According to the Assessing Officer the assessee company had constructed water treatment plant for CMWSSB and some private entities and as per the construction contract the assessee had simply executed works contract on job work basis for CMWSSB and therefore was denied the deduction u/s. 80IA(4) of the Act. In appeal the ld. CIT(A) simply following the order of the Tribunal in the case of Patel Engineering Ltd., (94 ITD 141) allowed the deduction claimed by the assessee u/s. 80IA(4) of the Act. In the Assessment Order, the Assessing Officer has categorically given the findings that the assessee is a work contractor and he had constructed the water treatment plant for CMWSSB on job work basis. The fact was not disputed before us. It is clear from the facts available on record that the assessee has executed the works contract, i.e., water treatment plant for CMWSSB and has claimed deduction u/s. 80IA(4) of the Act. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No.145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a contractor undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from being a developer as well. The term contractor is not necessarily contradictory to the term developer . On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a developer . The assessee has developed infrastructure facility as per the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y stated, the decision of ACIT vs Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No.4/2010[F.No.178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) . The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT vs ABG Heavy industries Ltd, 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the enterprise. It applies to a work contract entered into between the enterprise and other party the sub-contractor . The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur A Bench in the case of Om Metal Infraprojects Ltd vs CIT-I, Jaipur, in I.T.A.No. 722 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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