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TMI Blog2024 (12) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment by the Assessee as a Sub-Contractor. 3. The Hon'ble CIT(A) failed to consider the law on beneficial exemption/deduction but arbitrarily relied on general exemption law while deciding the appeal matter. 4.The Hon'ble CIT(A) gravely failed to distinguish and consider the case law relied on by the Appellant and erred in arbitrarily deciding the appeal matter in an ad hoc manner." 3. The brief facts of the case are that the appellant, Prathima Infrastructure Ltd., is engaged in the business of Civil contractor and property developer. The assessee filed its return of income for A.Y 2017-18 on 31-10-2017, declaring total income of Rs. 15,22,62,650/-, after claiming deduction under Section 80IA(4) of the Income Tax Act, 1961, amounting to Rs. 51,05,42,952/-. The case was selected for scrutiny, and during the course of assessment proceedings, AO noted that as per the return of income filed for AY 2017-18, the assessee has claimed deduction of Rs. 51,05,42,952/- under Section 80IA(4)(i) of the Act. In this regard, the assessee was asked to furnish supporting evidence in respect of the claim of deduction. The assessee, in reply, submitted copies of the Joint Venture Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the AO rejected the explanation of the assessee and disallowed deduction claimed under Section 80IA(4) of the Act, for Rs. 51,05,42,962/- and added it back to the total income of the assessee. The relevant findings of the AO are as under : "3. Deduction u/s 80IA of the Act. As per the return of income filed for AY.2017-18, the assessee has claimed deduction of Rs. 51,05,42,962/- under section of the Act. In this regard, the assessee was asked to furnish supporting evidence in respect of deduction claimed. The assessee in reply submitted copies of the Joint Venture Agreement dated 02/01/2009 entered between M/s.Hindustan Construction Company Limited(HCC), M/s.Megha Engineering & Infrastructure Limited(MEIL) and Bharat Electricals Limited(BHEL), Letter of Intent dated 16/10/2015, Work Order Agreement dated 02/12/2008 issued by Govt. of Andhra Pradesh Irrigation & C.A.D. Department to M/s.HCC-MEIL-BHEL(JV) in respect of Pranahitha-CheveII Lift Irrigation Scheme link-IV Package No.10, Work Order No.9CLIS-10 issued to the assessee by HCC and Form 10CCD. The extract of the assessee's reply is also reproduced as under: "We are awarded a work at Pranahitha Chevella Lift Irri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority or any statutory body for (i). Developing or (ii). Operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c). it has started or starts operating and maintaining the infrastructure facility on or after the 1st Day of April 1995. Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprises (hereafter referred to in this section as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferor enterprises for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. As per the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conditions, like Enterprise should be owned by Indian company or by a Consortium and further, the project should be an infrastructural project and also the condition of entering into agreement with the authorities, because the work has been undertaken in terms of agreement between the Government of Andhra Pradesh and JV and as per clauses of the agreement, which are ingrained in the main agreement itself, the work has been awarded to the appellant company upon satisfying the eligibility criteria and approval from the Government of Andhra Pradesh. Therefore, the AO is incorrect in rejecting the deduction claimed under Section 80IA of the Act, only on the ground that the assessee has not entered into any agreement with Central Government or State Government or local authority or any other statutory body. 6. The LD.CIT(A) after considering the submissions of the assessee and also by following the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. M/s.HES Infra Private Limited in ITA Nos.184 and 185/Hyd/2018 dated 31-08-2023, rejected the arguments of the assessee and sustained addition made by the AO towards disallowance of deduction claimed under Section 80IA(4) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy for (i). developing or (i) Operating and maintaining or (ii). Developing, operating & maintaining, (c). It has started or starts operating and maintaining the infrastructure facility on or after the 1st Day of April 1995. To verify, whether the appellant has fulfilled all the above three conditions mentioned in section 80IA(4) of the Act or not, the Joint Venture Agreement dated 02.01.2009 entered between M/s. HCC-MEIL-BHEL (UV) (Principal Contractor) & Govt. of Andhra pradesh, Letter of Intent dated 16.10.2015, Work Order Agreement dated 02.12.2008 issued by Govt. of Andhra Pradesh in respect of project Pranahitha Chavella Lift Irrigation Scheme link-IV Package No.10, Work Order No.SCLIS- 10 issued to the appellant by M/s. HCC, MOU dated 15.10.2015 entered between HCC & the appellant and Form 26AS of the appellant are perused. On perusal of the these documents, it is seen that the project Pranahitha- Chavella Lift Irrigation Scheme link-1V package No.10 on which the appellant has claimed deduction u/s 80IA(4) of the Act, was entered between M/s. HCC-MEIL-BHEL (UV) (Principal Contractor) & Govt. of Andhra Pradesh and the appellant was awarded only sub contract from M/s. HC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (i) operating and maintaining or (ii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 14. From the perusal of section 80IA(4) of the Act, it is abundantly clear that for the purpose of claiming deduction, it is essential for the assessee to prove that the agreement has been entered by the assessee with the government/ statutory body. Admittedly, in the present case, the agreement was not entered between the assessee with the government body and the agreement was entered into by the Joint Venture company namely, HES-MEIL ZVS, whereas the deduction was claimed by assessee which happens to be one of its constituent member. In our view, the statue is unambiguous and clear which only provides that the enterprise in whose favour the work has been allotted or agreement has been ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 42. In Govind Saran Ganga Saran V. Commissioner of Sales Tax, 1985 Supp (SCC) 205, this Court pointed out three Components of a taxing statute, namely subject of the tax; person liable to pay tax; and the rate at which the tax is to be levied. If there is any ambiguity in understanding any of the components, no tax can be levied till the ambiguity or defect is removed by the legislature [See Mathuram Agrawal v. State of Madhya Pradesh, (1 999) 8 SCC667; Indian Banks' Association vs. Devkala Consultancy Service, (2004) 4 JT 587 = AIR 2004 SC 2615; and Consumer Online Foundation Vs. Union of India, (2011) 5 SCC 360.]" 16. From the reading of the above, it is clear that in case a person seeking the deduction under the provisions of the Act, then onus is on the assessee to prove strictly that assessee fulfills all the parameters laid down by the statute for claiming the deduction. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial resources, machinery, and materials and executed all stages of the project, including, investigation, designing and drawing, construction, operation and maintenance, and therefore satisfies the condition of a 'developer' within the meaning of Section 80IA(4) of the Act. In fact, the AO never disputed the fact that the appellant has carried out the entire civil works of the project, as per the agreement between the Government of Andhra Pradesh and M/s.HCC-MEIL-BHEL(JV), however, rejected the claim of the assessee only on the ground that the appellant has not satisfied the condition of entering into any agreement with Central Government or State Government or local authority or any statutory body, but fact remains that the main agreement itself provided for clauses and as per the said clauses, the portion of work has been sub-contracted to any other developer, who is having requisite experience and financial resources, but the only condition was that the sub-contract should be approved by the Government of Andhra Pradesh. In the present case, the Executive Engineer, Construction Division, Kaleswaram Project, after appraising the experience and expertise of the appellant, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat, the decision relied upon by the LD.CIT(A) in the case of DCIT Vs. M/s.HES Infra (supra) is not applicable and needs to be rejected. 10. The learned CIT-DR, Shri B. Bala Krishna, on the other hand, supporting the order of the LD.CIT(A) submitted that, the AO and LD.CIT(A) had brought clear facts to the effect that the appellant is only a sub-contractor, who executed civil construction work for the main contract, i.e., M/s.HCC-MEIL-BHEL(JV), in terms of Work Order No.14020223 dated 22-03-2017. As per the provisions of Section 80IA(4) of the Act, one of the conditions for claiming deduction under Section 80IA of the Act, is an Enterprise developing an infrastructure facility shall enter into agreement with Central Government or any State Government or local authority or any statutory body. In the present case, the agreement for development of infrastructure facility was entered into by M/s.HCC-MEIL-BHEL(JV) with Government of Andhra Pradesh, Irrigation and C.A.D. Department. If at all profit derived from infrastructure facility is eligible for deduction under Section 80IA(4) of the Act, then only the person, who entered into agreement with Government can claim deduction. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r claiming deduction towards profits derived from eligible project. The provisions of Section 80IA(4) of the Act, deal with deduction in respect of profits and gains from industrial undertaking or enterprise engaged in infrastructure development etc. Sub-section (4) of Section 80IA of the Act, deals with deduction towards profits derived by any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, which fulfills all the following conditions, namely... "(a) it should be owned by a company registered in India or by a consortium of such companies or [by an authority or a board or a corporation or any other body established or constituted under the central state Act, (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any statutory body for (i). developing or (i) Operating and maintaining or (ii). Developing, operating & maintaining, (c). It has started or starts operating and maintaining the infrastructure facility on or after the 1st Day of April 1995." 12. As per the said section, an "Enterprise" should be own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject in light of arguments advanced by the learned counsel for the assessee and we ourselves do not subscribe to the reasons given by the LD.CIT(A) for the simple reason that, there is no dispute with regard to the project developed by the assessee, which is an infrastructure facility, as defined under Section 80IA(4) of the Act. On perusal of the documents submitted by the assessee, it is seen that the project Pranahitha Chevella Lift Irrigation System, Link-4, Package No.10, on which the appellant has claimed deduction under Section 80 IA(4) of the Act, has been awarded by the Government of Andhra Pradesh, Irrigation and C.A.D Department to M/s.HCC-MEIL-BHEL(JV) in terms of Agreement dated 02-12-2008. As per the agreement between the JV and Government of Andhra Pradesh, the civil work is to be carried out by M/s.HCC and mechanical work of the project is to be carried out by M/s.MEIL and M/s.BHEL. The agreement between Government of Andhra Pradesh and JV provides for certain clauses, including sub-contracting certain portion of work to any other contractor, who fulfills eligibility criteria, as per the tender document floated by the Government of Andhra Pradesh for development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d strength to carry out the development work, which is provided in Clause 43 of the Agreement between the JV and the Government of Andhra Pradesh. Further, M/s.HCC-MEIL-BHEL(JV) has sub-contracted the entire civil work to the appellant company, after considering the experience and strength of the appellant and also after obtaining necessary permission from the authorities, as required under the BID document. Since the condition of sub-contracting portion of work to other contractor is ingrained in the agreement between the JV and Government of Andhra Pradesh itself, in our considered view, the agreement between the appellant company and M/s.HCC for developing the project (civil works) is akin to agreement with the Central Government or a State Government or any local authority or any other statutory body. In our considered view, once the project is considered to be 'eligible project' in terms of provisions of Section 80IA(4) of the Act and there is a provision for sub-contracting portion of the work to the other contractor, as per clauses of the agreement between the parties, in our considered view, the agreement between the appellant company and one of the JV partners is as good a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of work and the work executed by the assessee, it is not less than to any developer, who develops a big infrastructure project like irrigation projects. Therefore, having noticed that the assessee has carried out development of infrastructure project, as defined under Section 80IA(4), upon satisfying the conditions of the BID document, in our considered view, the AO ought not to have rejected the claim of the appellant merely for the reason that the appellant has not entered into any direct agreement with the Central Government or a State Government or any local authority or any other statutory body. In our considered view, if you go by the provisions to Section 80IA(4) of the Act, it even allows deduction under Section 80IA(4) of the Act, to a successor entity, in case of transfer of project to other entity for operating and maintaining of infrastructure facility, and thus, in our considered view, the proviso does not require that there should be a direct agreement between the transferee enterprise and the specified authority for availing the benefit under Section 80IA of the Act, and this legal principle is supported by the decision of Hon'ble Madras High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by successor entity upon transfer of enterprise to other authority for operation and maintenance of infrastructure facility, and after considering the relevant facts and also provisions of Section 80IA(4) of the Act, held that even the sub-contractor is eligible for deduction as per the proviso of Section 80IA(4) of the Act, and there is no requirement of direct agreement between the specified authority and the transfer enterprise. The relevant findings of the Hon'ble High Court of Madras are as under : "8. From a reading of the aforesaid Provisos to Section 80IA (4), it is clear that the Legislature intended to extend the said bene fit under section 80IA of the Act to an enterprise involved in (i) developing or; (ii) operating and maintaining Or; (iii) developing, operating and maintaining any infrastructure facility. The term "infrastructure facility" has been defined in the Explanation and the same includes a toll road, a bridge or a rail system, a highway project, etc. These are, obviously, big infrastructure facilities for which the enterprise in question should enter into a contract with the Central Government or State Government or Local Authority. However, the Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Bench, in the case of ACIT Vs. Megha Engineering & Infrastructure Ltd., in ITA No.1499/Hyd/2019 dated 25.09.2024, wherein the Coordinate Bench of the Tribunal has considered the deduction claimed under Section 80IA(4) of the Act, by a constituent partner of JV, in light of agreement between the JV and specified authority, and after considering the relevant provisions held that partner of JV is also eligible for deduction, if such deduction is not claimed by the JV. The Co-ordinate Bench of the Tribunal further held that in case of agreement with the specified authority, if the JV is entered into agreement with the specified authority, it is as good as the constituent partner is entered into agreement with the specified authority and further held that it satisfies the conditions provided under Section 80IA(4) of the Act. The relevant findings of the Tribunal are as under : "10. We have heard both parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the appellant has executed several development projects as enumerated in the assessment order and among the works, some projects were directly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment of infrastructure project. This fact has been further strengthened by the relevant JV / Consortium agreement between the JV partners, wherein it has been clearly specified that this JV / Consortia has been constituted for the purpose of preparing or submitting qualification document and joint bid for the project. The said agreement further states that in the event of the contract being awarded to the JV / Consortium, being the members of the said JV / Consortium, the development works as contemplated by the above contract shall be executed as per the development and scope of works, but for no other purposes. We further noted that the JV / Consortia agreement between members clearly specify the scope of undertaking, its exclusivity, role and responsibility of the JV partners and risk to be undertaken by each of the JV partners. Further, immediately after JV / Consortium, the same has been informed to relevant authorities and also the plan of action has been submitted to the principles for execution of development projects. Further, in few cases, the appellant, being the constituent partner of the JV has directly submitted bills to the authorities and the principles has directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sakhapatnam in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra) has held that the assessee is entitled for deduction under section 80IA(4) of the Act on the profits earned from the execution of the projects awarded to JV / Consortium. The relevant findings of the Tribunal are as under. "9.2 With regard to other issue, i.e. contracts awarded to JVs and whether the assessee can claim the same as a constituent of the above JVs, the coordinate bench of ITAT, Visakhapatnam in the case of Transstory (India) Ltd. (supra) held that the constituents of JVs are eligible to claim deduction u/s 80IA. For the sake of clarity, we reproduce the findings of the Bench in the said case, as under: "Undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of contract without limitation on resources required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture agreement, 40 per cent works were executed by the assessee and in case of consortium, the 100 per cent work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions under s. 80 -IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of s. 80-IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions under s. 80 -IA(4) on the profit earned from the execution of the work awarded to JV and consort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to prove that the assessee has fulfilled all the parameters laid down by the statute for claiming deduction. Since the appellant has not entered into agreement with these Government / statutory authorities, there is a violation as laid down by the statute and the assessee is not entitled to claim deduction. With due respect, we are unable to follow the decision relied upon by the ld.DR for the simple reason that, in the above case, the Tribunal has not discussed whether the appellant is otherwise eligible for deduction under Section 80IA(4) of the Act or not. Secondly, while deciding the issue, the Tribunal has not considered the decision of co-ordinate bench in appellant's own case for earlier years and other decisions rendered by the co-ordinate bench of the Tribunal. Further, the Hon'ble Supreme Court, in a subsequent decision in the case of Government of Kerala and another Vs. Mother Superior Adoration Convent in Civil Appeal No.202 of 2012, after considering its earlier decision in case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) held that the 5-Judge Bench did not refer to line of authority which made a distinction betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our considered view, the arguments of the learned counsel for the revenue in light of the order of ITAT in the case of DCIT Vs. HES Infra (P) Ltd., that the earlier order of the Tribunal in assessee's own case, has not considered the Hon'ble Apex Court's decision in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra), is not correct. Therefore, we prefer to follow the decision of ITAT, Hyderabad Bench in assessee's own case, rather than the decision relied upon by the ld. D.R. in the case of DCIT Vs. HES Infra Pvt. Ltd (supra)." 20. In this view of the matter, considering the facts and circumstances of the case, and also, by following the decision of Hon'ble Madras High Court in the case of CIT Vs. Chettinad Lignite Transport Services (P.) Ltd (supra) and the decision of ITAT in the case of ACIT Vs. Megha Engineering and Infrastructure Ltd., (supra), we are of the considered view that the appellant is entitled for deduction u/s 80IA(4) of the Act, towards profits derived from development of infrastructure facility. The LD.CIT(A) without appreciating the relevant facts, simply sustained the addition made by the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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