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Income Tax Appellate Tribunal, HYDERABAD ‘ B ‘ BENCH, HYDERABAD.
Before: SHRI S.S. GODARA & SHRI LAXMI PRASAD SAHU
O R D E R Per S.S. Godara, J.M. : The instant batch of nine cases pertains to a single assessee M/s. NEE-NPC-Mytas-JV. All these nine appeals arise against the Commissioner of Income Tax (Appeals)- 12, Hyderabad’s order dt.16.08.2017 in case No.0149/2016-17 for Assessment Year 2006-07; the CIT(Appeals)-9, Hyderabad’s common order dt.31.12.2015 passed in case Nos.0273/ACIT, Circle 6(1)/2015-16; 0311/ACIT, Circle 6(1)/2015-16 and 0339/ITO, Ward 6(1)/2015-16 in Assessment Years 2007-08, 2008-09 and 2010-11; the CIT(Appeals)-9, Hyderabad’s order dt.7.7.2017 in case No.0231/ITO, Ward 6(1)/2016-17 for Assessment Year 2009-10 and CIT(Appeals)-6, Hyderabad’s separate orders; all dt.26.2.2018 in case Nos.1165/2014-15/B1/CIT(A)-6; 0034/2015-16/B2/CIT(A)- 6; 0037/2016-17/B2/CIT(A)-6 and 0460/2016- respectively. Relevant proceedings in first and foremost Assessment Year 2006-07 are under section 143(3) r.w.s.
254 and u/s. 143(3) of the Income Tax Act, 1961 ('in short the Act'); respectively.
Heard both parties. Case files perused.
2. Both the learned representatives state at the outset that the assessee’s identical sole substantive grievance that in all these nine cases seeks to reverse both the lower authorities’ action disallowing its 80IA deduction claim(s) of Rs.2,85,67,175/-, Rs.1,62,25,941/-, Rs.1,85,37,574/- Rs.6.65,60,238/-, Rs.2,01,03,559/-. Rs.49,40,186/-, Rs.5,85,122/-, Rs.3,85,097/- and Rs.13,15,184/-; assessment years, respectively pertaining to execution of the alleged contract works forming part of M/s. Bhima Lift Irrigation Scheme in Mahaboob Nagar District, Telangana State (erstwhile undivided Andhra Pradesh). Learned counsel invited our attention to the tribunal’s first round remand order dt.8.3.2013 in assessee's appeal in in A.Y. 2006-07 restoring the instant sole issue back to the Assessing Officer as under :
It is in this backdrop that we deal assessee's appeal for Assessment Year 2006-07 as the lead case.
3. Mr. Afzal next took us to the Assessing Officer’s consequential second round order dt.28.2.2014 reiterating the impugned section 80IA(4) deduction disallowance of Rs.2,85,67,175 as follows :
----Space left intentionally------- The Oxford Dictionary gives the meaning for the word ‘execute’ as to carry out a work or an order. The work carried out by the assessee clearly The CIT(Appeals) admittedly confirmed the Assessing Officer’s action. This is what leaves the assessee's aggrieved. Mr. Afzal vehemently submitted during the course of hearing that both the lower authorities’ have erred in law and on facts in disallowing assessee's 80IA(4) deduction claim despite the fact that it has developed the impugned infrastructure facilities. He has further filed a detailed written synopsis summarizing assessee's arguments as under :
“ 1. The assessee herein is a Joint Venture Maytas NCC JV. The Joint Venture is a Consortium of Maytas Infra Ltd. (Presently known as IL & FS ECC Limited) and Nagarjuna Construction Company Limited (Presently known as NCC LIMITED) and engaged in development of irrigation projects which are defined as infrastructure facilities. During the financial year 2005-06, the assessee undertook 6 different infrastructure facilities being irrigation projects. The details of the projects eligible for deduction u/s 801A are mentioned at page 18 of the paper book.
The assessee submits that it is a consortium of companies. It enters into agreements with State Government; the State Government allotted the work of development of irrigation projects and the income thereon is eligible for deduction u/s 801A (4) of the I.T.Act. Accordingly, the assessee filed the return of income admitting NIL income.
3. The assessment was originally completed u/s 143(3) of the I.T.Act on 18.11.2008 denying the deduction claimed u/s 80IA of the Act. The learned Commissioner of Income Tax (Appeals) vide order dated 15.06.2009 dismissed the appeal filed. On further appeal filed before the Hon'ble Income Tax Appellate Tribunal, the Hon'ble ITAT vide order in ITA No.1040jHydj2009 dated 31.10.2012 set aside the issue to the filed of the Assessing Officer. The directions are at para 7, page 9 of the order of the Hon'ble ITAT.
4. The Assessing Officer completed the reassessment u/s 143(3) rws 2S4 of the LT.Act on 26.03.2014 and rejected the claim for deduction u/s 80IA of the Act. The Assessing Officer in the assessment order mentioned that - a) the entire project is not executed by the assessee and only part of the project was undertaken; b) the infrastructure facility was not operated by the assessee and the assessee did not commence the operating and maintenance and, therefore, failed to justify the crucial condition. c) The Assessing Officer is of the view that the infrastructure facility should be owned for a substantial period with a condition that the assessee should be eligible to operate and maintain. d) As the intent of the government is not to grant deduction u/s 80IA and also block its funds in developmental activities, the Assessing Officer rejected the claim for deduction u/s 80IA of the Act.
5. Before the learned CIT (A), a detailed submission was made a copy of which is available at page No. 18 & 19 of the paper book. The learned CIT (A) observed as under: 6. At paras 7.0 and 7.1, the learned CIT (A) held that for being eligible for deduction u/s 80IA, it is enough if any of the three conditions i.e. developing or operating and maintaining or developing, operating and maintaining is fulfilled.
32 to 432/Hyd/2016; 2137/Hyd/2017 & 496, 1129 to 1132/Hyd/2018 7. At para 7.2, the learned CIT (A) referred to the decision of the Hon'ble ITAT, Mumbai bench in the case of Patel Engg. Co. vs. DCIT reported in 94 lTD 411 and held that it is enough if the appellant develops infrastructure facility for becoming entitled for deduction u/s 80IA of the Act.
8. At para 7.4 the learned CIT (A) refers to the decision of the Hon'ble High Court of Bombay in the case of ABG Heavy Industries and held that though the assessee develops only part of the infrastructure facility, it does not bar the assessee from claiming deduction u/s 80IA.
At para 7.6, the learned CIT(A), refers to the order of the CIT (A)-4, Hyderabad and held that the works executed by the assessee are not simple works contracts but they are the development of infrastructure facility. The learned CIT (A) also extracted the relevant portion of the order of the CIT (A)-4, Hyderabad.
10. Against the said decision, the Department is in appeal before the Hon'ble Income Tax Appellate Tribunal.”
5. Mr. Afzal also took pains to place on record the assessee's twin sheets containing architectural design of stages I and II of Bhima Lift Irrigation Project containing “design and execution of all civil works like canal approach to the tunnel, tunnel, surge pool pump house, delivery mains, etc.” His case in light of the assessee's stand voluminous Paper Books comprising of agreement clauses to this effect is that it is in fact the assessee who has developed the relevant infrastructure facility defined in section 80IA(4) Explanation ( c ) of the Act and therefore, we ought to adopt liberal construction only so as to reverse the learned lower authorities’ action making the impugned disallowance. He has also filed a case law paper book running into 93 pages to be precise containing the following judicial precedents :
[2005] 94 lTD 411 (Mumbai) Hon'ble IT AT Mumbai Bench "F" in the case of Patel Engg Ltd Vs Dy Commissioner of Income-Tax .
2. Hon'ble ITAT Mumbai Bench-F order in the case of ACIT Vs Bharat Udyog Ltd. 3. [2010] 322 ITR 323 (Bombay) Hon'ble High Court of Bombay in the case of 10 -15 CIT, Central-II Vs ABG Heavy Industries Ltd. 4. Hon'ble ITAT Hyderabad Bench-"A" in the case of Koya & Co Constructions 16-22 (P.) Ltd Vs ACIT.
34 to 432/Hyd/2016; 2137/Hyd/2017 & 496, 1129 to 1132/Hyd/2018 5. Hon'ble ITAT Ahmedabad Bench-D in the case of Sugam Constructions Pvt Ltd Vs ITO. 6. Hon'ble ITAT Pune Bench-B in the case of B. T. Patil & Sons Belgaum Constructions (P.) Ltd Vs ACIT. 7. Hon'ble ITAT Mumbai Bench-C in the case of ACIT Vs Pratibha Industries Ltd. 8. [2016] 76 Taxmann.com 105 (
Jammu & Kashmir) Hon'ble High Court of Jammu & Kashmir in the case of CIT Vs TRG Industries Pvt Ltd . 9. [2019] 107 Taxmann 362 (Madras) Hon'ble High Court of Madras CIT Vs Chettinad Lignite Transport Services Pvt Ltd 10. Hon'ble ITAT Hyderabad Bench-B in the case of Sushee Hi Tech Constructions Pvt Ltd Vs DCIT. 11. Hon'ble ITAT Rajkot in the case of Katira Constructions Ltd Vs ACIT. 12. Hon'ble ITAT Jaipur Bench-A in the case of Mis am Metals Infraprojects Ltd. Vs CIT-I, Jaipur.
Ld. CIT-DR Mr. VYST Sai represents the Revenue in the instant batch of cases. He has strongly supported both the lower authorities making the impugned section 80IA (4) disallowance as per the following written synopsis :
“ The following synopsis of arguments made during hearing before the Hon'ble ITAT on 15.02.2021 is filed as directed by the Hon'ble ITAT on the date of hearing.
1. It is submitted that this is a second round of litigation before the Hon'ble ITAT. In the first round, he Hon'ble ITAT, while setting aside the order of the CIT(A) , and directing the AO to decide the issue afresh, has directed that the assessee has to show that it has actually carried on development of the infrastructure facility cumulatively with all the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction and such other ancillary and incidental work connected with the development of the project in relation to claim of deduction u/s. 80IA(4) of the Income Tax Act. The Hon'ble Bench has also directed examination of the issue that the assessee developed the project and not executed the work merely as a contractor.
2. It is submitted that neither before AO nor before the CIT(A), the assessee could establish that it has developed the project both in terms of entrepreneurial risk and financial involvement. Firstly, the assessee is a mere JV with no assets and no wherewithal to execute the project. As can be clearly seen from the JV Agreement, the work was distributed among the partners of JV who executed the work and are separately filing returns and are separately being assessed. When the assessee has not executed any work of the project and when the directions of the Hon'ble !TAT vide its order dated 8.3.2013 have been duly followed by the AO, there is no ground for the assessee to raise the issue again in the second round of litigation.
Secondly, the Hon'ble ITAT directed that it should be examined that whether the assessee has actually carried on development of the infrastructure facility cumulatively with all the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction and such other ancillary and incidental work connected with the development of the project. The Hon'ble ITAT specifically mentioned that financial involvement of the assessee is also required for becoming eligible for claiming the said deduction vi] s 80IA. In this connection, it is clearly evident from the Paper Book (Vol.II-Pt-I) filed by the assessee that the assessee was paid mobilisation advance and monthly lump sum payments which are adjusted periodically against work done. It is further submitted that even for supply of electro mechanical and other equipment, payments are made on receipts of goods(70%) and installation (20%). These details are available at Clauses 3.15.1 to 3.15.6 (at pages 1-73 to 1-78) of the contract agreement of the assessee with the Government with respect to Bheema Lift Irrigation Project. From the detailed reading of the above said clauses, it is seen that the assessee is not the developer but the Government is the developer. The Government has assigned contract work to the assessee, made advance payments as well as monthly lumpsum payments. There is no financial involvement or entrepreneurial risk borne by the assessee.
It is submitted that the letter and spirit of Section 80IA in general as well as Explanation to Sec.80IA introduced by Finance Act,2009 (w.e.f.1.4.2000) in specific, has been dealt in detail by the Hon'ble Gujarat High Court in the case of Katira Construction Ltd [352 ITR 513]. When there is no entrepreneurial risk and financial involvement, the entire project is developed by the Government and the assessee is merely a works contractor, the assessee is not be eligible to claim deduction ix] s 80IA ( Specific reference is made to paras-27 to 36 of the above referred decision)
Regarding the words "including Central Govt" in the Explanation which were added by the Finance Act,2009(w.e.f. 1.4.2000), it is submitted that the same are only clarificatory and the key factors of 'Entrepreneurial Risk' and 'Financial involvement' are mandatory even before the inclusion of said words in Sec. 80IA as well as Explanation to Sec.80IA of the Income Tax Act.
38 to 432/Hyd/2016; 2137/Hyd/2017 & 496, 1129 to 1132/Hyd/2018 6. In summary, it is humbly submitted that on both the aspects of executing of the work and entrepreneurial risk and financial involvement, the claim of the assessee falls flat and appeals filed by assessee may kindly be dismissed.”
Mr. Afzal has strongly reiterated the assessee's stand claiming itself as developer of the lift irrigation project in question.
We have heard the foregoing rival submissions qua the instant issue of section 80IA deduction. The assessee has admittedly claimed the same taking itself as the developer by court that a corresponding commercial project firm of “infrastructural facility” as per section 80IA(4) Expln.( c ) covering “a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system” only. Our attention has been invited to the corresponding project’s architectural design (supra). The assessee has thereafter pleaded that it has undertaken the business risk not only in the development of the said lift channel barren uneven tracks of land to a canal but also it had deployed all of the corresponding plant and machinery, labour force followed by retention money’s project thereby satisfying all the conditions of development of infrastructure facility.
All these assessee's arguments fail to evoke our concurrence for the reasons given hereunder.
9.1 The assessee's first and foremost plea that we ought to adopt liberal interpretation while considering section 80IA(4) claim in the light of relevant facts in the instant case deserves to reject. Suffice to say, such a course of liberal interpretation is no more available while dealing with the Income Tax Act’s provisions as per honourable apex court’s recent constitutional bench’s decision in Commissioner of Customs (Import) Vs. Dilip Kumar and Co. (2018) 9 SCC 1 settling the law that a fiscal statute as well as an exemption clause incorporated Their lordships make it clear that benefit of doubt in case of taxing provision goes to the tax payer and vice versa in an instance of an exemption provision. The assessee’s first argument is rejected therefore.
We next examine the merits of the assessee's claim in light of section 80IA(4) r.w. Explanation ( c ) thereof.
This is for the reason that the legislature has reintroduced the Explanation; formerly inserted by the Finance Act, 2007 w.e.f. 1.4.2007 that “For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise as the case may be,” followed by its substitution by the Finance Act, 2009 w.e.f. 1.4.2000 that “for the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub- section (4) which is in the nature of a works contract government) and executed by the undertaking or enterprise referred in sub-section (1).”
Learned CIT-DR at this stage quoted Katira Constructions Limited Vs. Union of India and Others (2013) 352 ITR 513 (Guj) upholding vires of the latter explanation that the same is purely explanatory in nature than amending the existing provision and therefore, the question of it being levying any tax with retrospective effect would not rise. It is thus explicitly clear that their lordships have held this latter explanation in the nature of a plain and simple one; neither adding nor subtracting anything to the earlier explanation, inserted vide Finance Acts, 2009 and 2007; respectively.
Learned CIT-DR further sought to pin point the fact that the latter explanation inserted vide Finance Act, 2009 w.e.f. ;1.4.2000 has rather covered a work contract as not entitled for the impugned deduction despite the fact that sub-section (4) of section 80IA of the Act. We find force in Revenue’s instant argument as the Finance Act, 2009 substitutes the earlier explanation that the same would not cover a works contract for the purpose of providing deduction qua industrial undertaking or enterprise engaged in infrastructure development, etc.
There is yet another equally important aspect which requires our apt adjudication at this stage i.e. of the clinching legislative expression in the latter explanation “nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the central or the state government)”. We note that honourable apex court yet another larger bench decision in Kartar Singh Bhadana Vs. Hari Singh Nalwa & Ors Civil Appeal No.6931 of 2000 decided on 27.03.2001 had an occasion to deal with the expression “works” used Hon’ble court therein went by the shorter Oxford English Dictionary’s meaning that “work means a structure or apparatus of some kind; an architectural or engineering structure, a building edifice. When it was used in the plural, that is, as works, it meant architectural or engineering operations, a fortified building, a defensive structure, fortification or any of the several parts of such structures”. Their lordships also took note of honourable jurisdictional high court’s judgment in B. Laxmikantha Rao Vs. D Chinna Mallaiah AIR 1979 AP 132 whilst adopting the dictionary meaning of “work” in foregoing terms. We further quote Raghunath Rai Baraza Vs. PNB (2007) 135 Company cases 163 (SC) that it is the cardinal rule of interpretation that words used by the legislature are to be understood in their natural, ordinary or popular sense or constructed as per their grammatical meaning unless such a construction lead to some absurdity or there is the contrary.
We go by the foregoing observations of their lordships and observe that the stages I & II of the Bhima Lift Irrigation project undertaken by the assessee containing “ all the civil works like canal approach to the tunnel, tunnel, surge pool pump house, delivery mains manufacturing, testing, inspection, packing, supply, erection and commissioning of electro mechanical and hydro mechanical equipment” indeed formed an architectural as well as engineering structure and therefore, amounts to an execution of a “works contract awarded by the state government” through its irrigation development only and covered u/s. 80IA Explanation incorporated in the Act by the Finance Act, 2009 w.e.f.
1.4.2000.
Learned CIT-DR at this stage invited our attention to page 18 in assessee's Paper Book II Part 1 that it had purely irrigation department had issued it mobilization advances on multiple occasions from time to time. He next took us to agreement clause 3.15 containing “contract price and payment” making it evident that the assessee had to be paid on “fixed lump sum monthly basis” only. And further that the assessee was entitled to get “fixed lump sum monthly instalment payments provided value of the work executed is more than or equal to the fixed lump sum monthly instalment as indicated in the agreement.” The said agreement stipulated advance payments to the assessee qua supply of goods at the site. All these facts sufficiently indicate that the assessee, assuming that not accepting that it is the developer u/s. 80IA(4) of the Act, executed a works contract only under Explanation to section 80IA of the Act and therefore, not entitled for the impugned deduction. place reliance on a catena of case law (supra) including CIT Vs. ABG Heavy Industries Limited (2010) 322ITR 323 (Bom). We find that neither of these decisions deals with the interplay between the section 80IA(4) Vs. 80IA Explanation involving execution of works contract as is the factual position before us. The said case law distinguished, therefore.
Mr. Afzal’s last argument seeks to buttress the point that such a strict interpretation employed in dealing with an instance of development of an infrastructure project would tantamount to closing the deduction chapter altogether and more particularly, when this assessee has borne all risks and responsibilities of the lift irrigation project by paying reduction money and performance guarantee(s) as well. We hold that this last argument also fails to cut any ice since the assessee has merely performed a works contract and its retention money or assurance to the irrigation development that it had carried out the corresponding construction etc. as per the specified design norms than involving any business risk.
We accordingly hold the view of our independent appreciation of facts as well as assessment findings that the assessee is a contractor having executed works contract only.
We also deem it appropriate to quote Adam Smith’s ‘The Wealth of Nations’ (published in 1776 and called as the founding work on modern economics) that “ It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Nevertheless, the same connotation applies in the facts of the instant case. It is clear that the assesseehas first of all been paid mobilization advances by the state government’s department on periodic basis, and, then works contract followed by its yet another claim of section 80IA of the Act deduction (supra). We are afraid that such a liberal interpretation would amount to going against the stricter interpretation principle in view of honourable apex court decision (supra). We accordingly conclude both the learned lower authorities have rightly disallowed assessee's 80IA deduction claim involving varying sum(s)
(supra) in their respective orders. The same stands confirmed. These assessee's appeals are dismissed therefore.
18. No other argument has been raised before us.
These assessee's appeals are dismissed.
Order pronounced in the open court on 12th May, 2021.