9911796707
TMI Blog2017 (1) TMI 1830X X X X Extracts X X X X X X X X Extracts X X X X ..... the following grounds: 2.1 The CIT(A) erred in deleting the disallowance of deduction u/s. 80IA. 2.2 The CIT(A) ought to have appreciated that, as per sec. 80IA(4)(i), any enterprise carrying on business of (i) developing or ; (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility alone is eligible for deduction u/s. 80IA. 2.3 The CIT(A) failed to appreciate that the 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 expans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with questionnaire was issued. In compliance to notice, Ld. AR appeared from time to time and furnished the details as called for. The Ld. AO in the assessment found that the assessee company has assailed deduction u/s. 80IA Rs. 14,28,54,064/- and claimed to have complied the conditions stipulated u/s. 80IA(4) of the Act. The Ld. AO perused the main conditions for claim of deduction u/s. 80IA being (i) the assessee must be an 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, transferred to the Government, naturally the cost would be paid by the Central Government. The amendment brought in by the Finance Act, 1999 was with the sole intention/purpose of providing deduction u/s. 80IA to the person, who only develops or who only maintains and operates an infrastructure facility. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disallowed the claim of deduction u/s. 80IA Rs. 14,28,54,064/- and also disallowed forex exchange loss of Rs. 45,00,613/-, as the assessee company could not prove with evidence whether the forex exchange loss was incurred in Regular business transaction or was due to forward contracts and passed the order u/s. 143(3) dated 26.12.2008 determining total income of Rs. 17,17,02,474/- and raised the demand. 4. Aggrieved by the order, the assessee filed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and working capital facility of Rs. 62,10,00,000/- as on 31.03.2006 to support the assessee company, abundant investments in execution of the infrastructure projects and equipments as a part of contract agreement. The Ld. CIT(A) referred to the investments made in various engineering software to be utilised by the assessee to execute the preliminary and engineering drawings for the projects and had developed more than 160 process and production 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wings of the relevant projects in order to support the contentions that the work undertaken by them was totally new and independent and hence the same cannot be stated to be repair or renovation and the existing old projects. It was submitted that the appellant has developed the said infrastructure facilities right from start for each project and wherever it is described as expansion of the project, it is with reference to only the infrastructure facility 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03. BT Patil & Sons Belgam Constructions (P) Ltd, Bombay HC ITA No. 1307/2011 04. BT Patil & Sons Belgam Constructions (P) Ltd, Pune ITAT ITA No. 1408 & 1409/PN/2003 05. ABG Heavy Industries Ltd Bombay HC 322 ITR 323 06. Koya & Company Constructions Pvt. Ltd, Hyderabad ITAT ITA No. 180/Hyd/2006, 167-168/Hyd/08, 221/Hyd/09 07. Siva Swathi Constructions P. Ltd Hyderabad ITAT ITA No. 1008- 1009/HYD/2013 08. Ramki Infrastructure Ltd., Hyderabad ITAT ITA No 472475/HYD/09 & ITA No. 1906, 1668/HYD/2011 09. GVPR Engineers, GSP Infratech, G Siva Sankar Reddy, 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/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning such as designing, basic & detailed engineering, procurement, construction, erection, testing and commissioning, trial run and subsequent operation and maintenance (O & M) of water/waste water treatment plants and sewerage system. We found the assessee substantiated it works with the process flow chart of Turnkey Project on execution of effluent treatment plant of different projects referred as Annexure-2 involving activity of more than 20 stages. The assessee company has entered into agreement with various Municipal bodies/ local authorities, State Government authorities for execution of projects for development of new water treatment plants, whereas, the Assessing Officer 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch and Development Activities. 8. The Ld. AR elaborately demonstrated the facts and dealt on specific findings in the order of CIT(A) and supported with paper book containing details of copies of contracts and financial statements. We find that Ld. AO has placed reliance on the Tribunal decision of the Indwel Lining (P) Ltd., 122 TTJ 137 (Mds) which was considered by the East Coast Constructions Ltd., (Supra) and was distinguished where assessee was only civil contractor and did only civil works. Whereas, Ld. DR focused on the later decision of the Tribunal ACIT Vs. Sree Sella Infrastructure & Projects Ltd., in ITA No. 1294/Mds/2011 for the assessment year 2008-09 dated 28.09.2012 at Page 7 Para 6 where deduction 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 contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property chatter and not a contract or service. A 'developer' as per the Advanced Law Lexicon means "a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer". In the case of ACIT vs Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that 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 'contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Accordingly, we are not inclined to interfere with the orders of the CIT(A) who has discussed and examined the issue vis-a-vis explanations of the assessee and we upheld the same. 9. In the result, the ground of the Revenue is dismissed. 10. On the next ground of forex exchange loss, we found that the Ld. CIT(A) relied on the decision of the Sutlej Cotton Mills (Supra) at Page 31 of order as under: "The law may therefore, now be taken to be well settled that where profit or loss arises to an se on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital such profit or loss would be of capital nature." We find the loss due to forex exchange difference as on the date of balance sheet is expenditure falls u/s. 37(1) of the Act. The outstanding liability relating to the import of raw material based on closing r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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