WELSPUN PROJECTS LTD.(FORMERLY KNOWN AS MSK PROJECTS (INDIA) LTD.),BARODA vs. THE INCOME TAX OFFICER, WARD-4(1), BARODA

PER RAJPAL YADAV, JUDICIAL MEMBER : Present two appeals are directed at the instance of the assessee against orders of the ld.CIT(A)- III, Baroda dated 14.10.20111 and 7.10.2013 passed in the Asstt.Years 2005-06 and 2006-07 respectively.

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under section 148 and disallowance of deduction under section 80IA(4) of the Income Tax Act, 1961.

“I, am director of Welspun Projects Ltd, (formerly known as MSK Projects (India) Ltd.) which is engaqed in the business of developing infrastructure facilities like road, highway projects, etc. I have been

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authorized by the Company to make this Affidavit on behalf of the Company.

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bonafide belief that the said retrospective amendment was squarely applicable and thus deduction u/s 80-IA was not available to it. Also, that the Assessing Officer while finalizing the assessment had assured the appellant company that no penalty will be levied on the appellant because of the reason that the addition was made on account of .a retrospective amendment. Even after assuring the appellant for not levying the penalty, the Learned Assessing Officer passed a penalty order u/s 271(1)(c) of the Income Tax Act dated 25.3.2013, alleging that the company had filed accurate particulars of income while filing its return of income.

Being aggrieved of the impugned penalty order, the appellant filed an appeal before the CIT(A) on 24.04.2013., wherein the Chartered Accountant Firm appointed to draft and file the appeal referred to very recent case laws. Decision of jurisdictional High Court in the. case of C1T v/s Katira Construction reported in the month of March 2013 where in the High Court has observed that claim u/s 80IA of the Act is allowable to entities who undertake substantial functions for the eligible project. Hence the understanding given by the assessing officer to the appellant company that it is not eligible to claim deduction u/s 80 IA was incorrect and misplaced in light of the retrospective amendment.

The case laws as referred above are enumerated hereunder along with the name of adjudicating authority and the relevant citation:

a. The Gujarat High Court decision in the case of Katfra Construction Co. vs. Union of India vide citation 352 ITR 513, pronounced on 04.03.201 3 and reported on 03.05.201 3 in ITR;

b. The Bombay High Court decision in the case of B.T.Patil & Co. Belgaum Construction Pvt. Ltd. reported on 1 1.04.2013 on ITAT Online website; c. The Hyderabad ITAT decision of KMC Construction Ltd. vs. ACIT vide citation 51 SOT 211 (URO) reported on 1 6.03.201 3 in SOT;

d. The Ahmedabad ITAT decision in the case of Sugam Construction vs. ITO vide citation 30 taxmann.com 331 for AY 2001 -02 reported in February 201 3 on Taxmann.com.

The adjudicating authorities citied above have allowed the benefit u/s 80- IA.to person who undertakes substantial functions such as planning,

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designing, constructions, etc. It has been held that these activities constituted development of project and hence eligible for deduction u/s 80-IA of the Act. The company has undertaken substantial activities in respect of the Hosangabad- Harda-Khandwa Road Project and Raisen- Rahatgarh Road Project so as to qualify as a developer of Infra facility. The activities undertaken have been discussed at length in the Statement of Facts filed along with the Grounds of appeal and Form 36. Consequently in accordance with the authorities cited above, it is eligible to deduction u/s 80-IA. Therefore the Company proceeded to file an appeal against CIT(A) order dated 14/10/2011 challenging the decision of disallowance of deduction u/s. 80IA of the Act along with a petition for condoning the delay of 557 days vide ITA No.1864/Ahd/2013.

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the deduction under section 80IA(4) has been allowed by the Commissioner while exercising revisional power under section 264 of the Act. He also emphasised that identical issue is open before the Tribunal in the Asstt.year 2006-07 where the appeal filed is within limitation. Thus, considering the above circumstances, delay in filing the appeal be condoned. On the other hand, the ld.DR contended that there is no plausible explanation at the end of the assessee for filing appeal after expiry of limitation. Therefore, she prayed that delay in filing appeal be not condoned and the appeal be dismissed being time barred.

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“1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.

“Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life- span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest

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reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time.

A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss.”

We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon’ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the delay, then such reasons are to be construed with a justice oriented approach.

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proceedings. However, subsequently Department has initiated penalty proceedings and imposed penalty for furnishing inaccurate particulars of income. This step at the end of the Department could expose the assessee under further financial liability as well as criminal proceedings. In between, there has been a lot of development about interpretation and construction of section 80IA(4) at the end of the Hon’ble High Courts. The ld.CIT(A) has also decided this issue against the assessee in the Asstt.Year 2006-07. Cumulative settings of all these factors would goad the assessee to challenge order of the ld.CIT(A) in the Asstt.Year 2005-06 also. Taking into consideration all these facts and circumstances, we are of the view that though some misconception and misconstruction of facts crept in the mind of decision making officer of the company, whether to file appeal or not, when the CIT(A) has decided this appeal, but subsequent development put the assessee against the wall, leaving no other way except to file appeal, because that would unnecessary bring it under the burden of penalty as well as could expose it with criminal proceedings. No choice has been left to the assessee. Some negligence may be attributable to the assessee for not filing appeal in time, but it was not adopted as a strategy, because, the assessee would not get anything by making the appeal time barred. Thereafter, after looking into facts and circumstances and the explanation given by the assessee, we allow the application of the assessee and condone the delay in filing he appeal.

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the Asstt.year 2005-06, which is running into 35 pages. In the statement it has highlighted its activity and how it is entitled for the deduction under section 80IA(4) of the Act. For appreciating the issue, whether reopening is justified or not, it is imperative upon us to take note of the facts and circumstances submitted in this statement of facts. Relevant part of the statement of facts read as under: “1. With regard to ground No.1 of the appeal, it is respectfully submitted that the reassessment proceedings initiated u/s.147 by issue of notice u/s.148 are bad in law for the reason that the original assessment was made u/s.143(3) and there was proper application of mind on the part of the Assessing Officer while framing the assessment and allowing deduction u/s.80-IA(4) of the I.T. Act. No new material has been brought on record by the Assessing Officer to justify initiation of reassessment proceedings. Further detailed submissions would be made on this issue, in due course, before the Hon'ble Tribunal. 2.1 With regard to ground No.2 pertaining to disallowance of deduction of Rs.3,68,23,101 u/s.80-IA(4) of the I.T. Act, the relevant facts are that the assessment was originally made on 31st December, 2007 u/s.143(3) of the I.T. Act. At para-2 of this assessment order the Assessing Officer has stated that the appellant-company is engaged in the business of development of infrastructure projects and that during the current year the subsidiary companies of the appellant-company viz. (1) MSK Highways Ltd.; (2) MSK Infrastructure and Toll Bridge Pvt. Ltd. and (3) Alfa Engicon Pvt. Ltd., have been amalgamated with the appellant-company with effect from 1st January, 2005, as approved by the Hon'ble High Court of Gujarat on 2nd November, 2006. The Assessing Officer after considering all the relevant facts, allowed the deduction by accepting the revised computation of total income and he made certain other disallowances. 2.2 Subsequent to the completion of the original assessment, as mentioned above, reassessment proceedings were initiated by issue of notice u/s.148 of the I.T. Act on 15.3.2010. The reassessment order which is subject matter of the present appellate proceedings was passed on 29.12.2010. While re-computing the total income in this reassessment order the Assessing Officer disallowed the claim for deduction u/s.80-IA(4). The Assessing Officer has recorded his finding at pages 8 to 10 of his order. He has mentioned that during the previous year relevant to this assessment year the appellant-company was only a Civil Contractor. He has mentioned that the appellant-company worked only as a sub-contractor for MSK Infrastructure and Toll Bridge Pvt. Ltd. and MSK Highways Ltd. which are two different companies, independently assessed to Income-tax. He has further stated that these two companies were engaged in construction of Hoshangabad-Harda-Khandwa Road and Raisen-Rahatgarh Road in the state of Madhya Pradesh. He has stated that these two companies got their work done through the appellant-company and the appellant- company has shown contractual receipt of Rs.28,90,86,936 from MSK

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Infrastructure and Toll Bridge Pvt. Ltd. and contractual receipt of Rs.33,72,99,030 from MSK Highways Ltd. for execution of the aforesaid contract works and on these payments the two companies also deducted TDS. From these facts the Assessing Officer assumed that the appellant- company was engaged in executing only works contracts during this year and that the Explanation inserted under sub-section (13) of section 80-IA by the Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000 was applicable to the case of the assessee. This Explanation reads as under: “Explanation.—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 awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).”

2.3 The Assessing Officer at page-9 of his order concluded that in view of the above Explanation, the appellant-company is not entitled to claim any deduction u/s.80-IA for the present assessment year and accordingly he disallowed the claim.

2.4 Aggrieved by the order of the Assessing Officer the appellant-company filed appeal before the learned CIT(A) and he confirmed the disallowance made by the Assessing Officer. Hence this appeal before this Hon'ble Tribunal.

2.5 Before coming to the legal position on this issue, it may be appropriate, at the outset, to set out briefly all the relevant facts having bearing on the issue of admissibility of deduction u/s.80-IA(4) of the I.T. Act. There is no dispute about the fact that the appellant-company (known as MSK Projects (India) Ltd. at the relevant time) was engaged in the activity of development of infrastructure projects eligible for deduction u/s.80-IA(4) of the I.T. Act. As mentioned above, deduction was granted by the Assessing Officer originally in the assessment made u/s.143(3) of the I.T. Act after detailed scrutiny. All relevant material/documents were available before the Assessing Officer who made the original assessment. The relevant facts may be stated below in chronological order for kind consideration of this Hon'ble Tribunal:

(1) M.P. Rajya Setu Nirman Nigam Ltd. (MPRSNN for short), as authorized by the Government of M.P., invited tenders from qualified companies for developing, strengthening, re-constructing, widening, rehabilitation, operation and maintenance of the following Toll Road sections:

(a) Raisen-Rahatgarh Road Project

(b) Hoshangabad-Harda-Khandwa Road Project

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(2) Since the appellant-company was fully qualified and well-equipped to undertake the development, completion and operation/maintenance of the above projects, it participated in the tender process. (3) After undergoing the rigorous processes, MPRSNN vide its letter dated 11.3.2002 addressed to the appellant-company, conveyed acceptance of appellant-company’s tender in respect of Raisen- Rahatgarh Road project and similarly vide its letter dated 28.3.2002, MPRSNN also conveyed acceptance of the tender submitted by the appellant-company in respect of the Hoshangabad-Harda-Khandwa Road project. (4) After the aforesaid communications from MPRSNN, all remaining formalities were completed by the appellant-company and on account of some technical difficulties, the appellant-company floated two fully owned subsidiary companies as Special Purpose Vehicle (SPV) companies for the purpose of getting the aforesaid works awarded to them by MPRSNN under tripartite agreements of which the appellant- company is one of the parties. This arrangement for awarding the works was duly approved by MPRSNN who awarded the works under the tripartite agreements. To give effect and practical shape to this arrangement the following tripartite agreements were executed: Agreement dated 7th May, 2003 between MPRSNN, MSK (a) Projects (India) Ltd. (i.e. appellant-company) and MSK Highways Ltd. in respect of the development works of Raisen- Rahatgarh Road project. Agreement dated 20th May, 2002 between MPRSNN, MSK (b) Projects (India) Ltd. (i.e. appellant-company) and MSK Infrastructure and Toll Bridge Pvt. Ltd. in respect of Hoshangabad-Harda-Khandwa Road project. (5) In Form No.10CCB authenticated by the auditors u/s.80-IA(7) of the I.T. Act, against column No.8, a note was given to the effect that the appellant-company has undertaken the construction of infrastructure projects being development etc. of the above mentioned sections of roads and that for this purpose SPVs were created viz. MSK Infrastructure and Toll Bridge Pvt. Ltd. and MSK Highways Ltd. (6) After execution of the tripartite agreements referred to above, the entire work related to both the infrastructure projects were taken over by the appellant-company under the following bipartite agreements: Agreement dated 28th March, 2002 between the appellant-company (a) and MSK Infrastructure and Toll Bridge Pvt. Ltd. in respect of Hoshangabad-Harda-Khandwa Road project.

Agreement dated 21st May, 2003 between the appellant-company and (b) MSK Highways Ltd. in respect of Raisen-Rahatgarh Road project.

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It is very important to note that the entire development activity was taken over by the appellant-company. Further, the development works for the two projects were taken over at the same cost at which these projects were awarded to two subsidiary companies by MPRSNN. The cost of Hoshangabad-Harda-Khandwa Road project was Rs.81.00 crores and the cost of Raisen-Rahatgarh Road project was Rs.57.73 crores.

(7) It is notable that the entire work relating to the two projects was handed over to the appellant-company by the two subsidiary companies which included “detailed designing, engineering, construction, operation and maintenance for all practical purposes the appellant-company stepped into the shoes of the two subsidiary companies to whom the works were directly awarded by MPRSNN under the tripartite agreements referred to above. The execution of these works also involved complete financing and procurement as also operating and maintaining on BOT (Build, Operate and Transfer) basis.

(8) All the terms and conditions of the tripartite agreements were repeated in the bipartite agreements which means that all responsibilities were taken over by the appellant-company for satisfactory execution of the works and further operating and maintaining these works on BOT basis.

(9) To get a comprehensive view of the responsibilities cast upon the appellant-company, a reference may be made to only some of the stipulations of the bipartite agreements. Since both the bipartite agreements are, mutatis mutandis, on similar lines, for the sake of brevity, a reference is made here only to bipartite agreement entered by the appellant-company with MSK Highways Ltd. as under:

(a) At page-6 of the agreement, “Construction Defects Liability Period” is defined as a period of 12 months commencing from the date stated in the Taking Over Certificate and ending upon the issuance of Maintenance Certificate.

(b) At page-7, “Independent Consultant” means the independent engineer appointed in accordance with the Concession Agreement (i.e. tripartite agreement). On the same page the term “liability” includes all claims damages, expenses, fines and penalties.

(c) At page-8, MSK Projects (India) Ltd. (i.e. the appellant- company) is defined as “Operator for Operation and Maintenance of Works”.

(d) At pages 16 & 17, “General Obligations” of the appellant- company are defined, some of which are as under:

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(i) To design and engineer the works with all skill, care and diligence, using the best design and engineering principles and practice.

(ii) To carry out the works so that the facility may be fully, efficiently, economically and safely used, operated and maintained.

(iii) To operate and maintaining the existing roads.

(iv) To maintain the facility during the Construction Defects Liability Period.

(e) At page-24, it is the appellant’s liability to provide all equipments necessary for the works and to bring such equipments to the project sites.

(f) At page-25, it is the obligation of the appellant-company to take and ensure all safety precautions.

(g) At page-27, the appellant-company is made responsible for designing of the works, verifying the correctness of all information received and to carry on remedial works necessary to correct any error in the works.

(h) At page-30, the appellant-company is responsible for making arrangements and engaging all personnel and for their payment, housing, feeding and transport.

(i) At page-31, the appellant-company is responsible for the health and safety of all personnel and staff members.

(j) At page-39, it is stipulated that the appellant shall be solely responsible for carrying out and completing the maintenance work during the Construction Defects Liability Period and maintain technical requirements and performance standards.

(k) At page-48, the appellant-company is to bear all risks or losses or damages to the work or any part thereof till the date of issue of Maintenance Certificate.

(l) At page-51, it is the responsibility of the appellant-company to get the works insured.

(m) At page-61 of the agreement, special conditions of contract have been specified. In these special conditions, all the conditions of the tripartite agreements as incorporated in Schedules J to N thereto have been stipulated.

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From the above stipulations contained in the tripartite and bipartite agreements, it is apparent that the two subsidiary companies are only intermediary vehicles and the entire responsibility of developing, maintaining, operating and the ultimate transfer is on the appellant- company with all risks and rewards. (10) A very important feature to be noted is that during the course of all the aforesaid arrangements of entering into tripartite and bipartite agreements, it was contemplated that the two subsidiary companies would merge and amalgamate with the appellant-company with effect from 1st January, 2005 i.e. well before the close of the accounting year relevant to the assessment year 2005-06 which is the subject matter of this appeal. (11) MSK Infrastructure and Toll Bridge Pvt. Ltd. addressed a letter dated 18.11.2004 to MPRSNN seeking approval of amalgamation of MSK Infrastructure and Toll Bridge Pvt. Ltd. and MSK Projects (India) Ltd. Similarly, MSK Highways Ltd. as per letter dated 26.11.2004 sought approval of amalgamation from MPRSNN. (12) Further, vide letter dated 10.1.2005 of MSK Infrastructure and Toll Bridge Pvt. Ltd. addressed to MPRSNN, the motive of the amalgamation was explained and certain very important averments were made, some of which merit narration hereunder: (a) Original bid was made by MSK Projects (India) Ltd. and the work was awarded to them. (b) Even though separate companies were formed for implementation of the projects, the original bidder is responsible for all liabilities arising out of the development of the works during the execution period as also during the course of operating, maintaining and running the project. (c) The Execution, Procurement and Construction (EPC) of contract are in favour of the original bidder of both the projects. (d) The finance has been provided by the bidder company and similarly technical expertise, machinery for erection of the project is also provided by the bidder company. (e) Amalgamation of both the SPV companies will result into large equity base and enhance the net worth of the company and will make it eligible for tendering larger projects. (13) Madhya Pradesh Road Development Corporation Ltd. which is a Government of Madhya Pradesh undertaking, vide its separate letters dated 6th April, 2005 addressed to MSK Infrastructure and Toll Bridge Pvt. Ltd. and MSK Highways Ltd. granted the permission for the aforesaid amalgamation on the condition that all the liabilities and

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obligations arising out of the Concession Agreement (i.e. tripartite agreement) will be honoured by MSK Projects (India) Ltd. (14) As already mentioned above, the amalgamation was authenticated by the order of the Gujarat High Court with effect from the appointed date of 1st January, 2005. This means that during the previous year relevant to the A.Y. 2005-06, the amalgamation became effective and both the SPV subsidiary companies merged and amalgamated with the appellant-company and the appellant-company legally took over the entire work of both the projects involving complete development, maintenance, operation and ultimate transfer to the statutory body of the Government of Madhya Pradesh. 2.6 In the backdrop of the factual position explained above, the moot question to be considered is as to whether the appellant-company is eligible for deduction u/s.80-IA(4) of the I.T. Act. The relevant provisions of sub-section (4) read as under: “(4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining]any infrastructure facility which fulfils all the following conditions, namely :— (a) it is 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 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 (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 enterprise (hereafter in this section referred to 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

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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 transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation.—For the purposes of this clause, "infrastructure facility" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea.” 2.7 The aforesaid provisions lay down that deduction would be available to any enterprise which carries on the business of – (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills the conditions prescribed therein. As per the Explanation, a road including toll-road is an infrastructure facility for the purposes of section 80-IA(4). The primary condition is that the enterprise must carry on the work of “developing” an infrastructure facility. As mentioned above, Explanation under sub-section (13) of section 80-IA clarifies that this section will not apply to any business which is in the nature of a “works contract”. To sum up the legal position, the benefit of section 80-IA(4) would be available to a developer and not to a contractor simplicitor. In the present case the lower authorities have denied the benefit of section 80-IA(4) to the appellant-company on the assumption that the appellant-company is engaged in executing merely a works contract and it is not carrying on the business of developing an infrastructure facility. The facts stated above clearly establish that the entire work form A to Z has been executed by the appellant- company for developing the two road projects in respect of the tenders submitted by the appellant-company were accepted by the statutory body, but mutual consent under tripartite agreements two subsidiary companies were also involved for some technical reasons, with the intention that these two subsidiary companies would be amalgamated with the appellant-company, as agreed to by the statutory body of the Government of Madhya Pradesh. As already mentioned above, the amalgamation became effective from 1st January, 2005 which is before close of the accounting year relevant to the assessment year under appeal. In these circumstances, when the appellant- company has entirely and exclusively carried out the development work for the road projects, there is hardly any basis for assuming that it is merely a contractor executing a works contract. The difference between a “developer” and a “contractor” has to be properly analyzed and understood. This particular question came up for adjudication before the Hon'ble ITAT, Amritsar Bench

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and decided vide order dated 19th March, 2013 in the case of M/s. TRG Industries P. Ltd. in ITA Nos. 433 etc./Asr/2009. In the case of M/s. TRG Industries P. Ltd. similar facts were involved and the Hon'ble Tribunal has considered various decided cases as under: (1) CIT vs. ABG Heavy Industries Ltd., 322 ITR 323 (Bom.) (2) Patel Engineering Ltd. vs. DCIT, 84 TTJ 646 (Mum.) (3) DCIT vs. Intercontinental Consultants & Technocrats (P) Ltd, 22 SOT 259 (Del.) (4) ACIT vs. Bharat Udyog Ltd., 123 TTJ 689 (Mum.) (5) Koya & Co. Construction P. Ltd. vs. ACIT, 51 SOT 203 (Hyd.) (6) Om Metal Infra Projects Ltd. vs. CIT, 26 DTR 359 (Jaipur) (7) Ayush Ajay Construction Ltd. vs. ITO, 79 ITD 213 (Indore) (8) Chetak Enterprises P. Ltd. vs. ACIT, 95 ITD 1 (Jodhpur) (9) Ocean Sparkle Ltd. vs. DCIT, 99 TTJ 582 (Hyd.) 2.8 Various relevant issues have been considered by the Hon'ble Tribunal in the light of the findings in the above cases and the Hon'ble Tribunal has laid down the following parameters: (i) The assessee does not have to develop the entire infrastructure facility to qualify for deduction u/s.80-IA(4) and if only a part of the infrastructure facility is developed, the assessee would be eligible for deduction. (ii) The three requirements of section 80-IA(4) viz. development, operation and maintenance are not cumulative. Thus, an enterprise which only develops facility would also be entitled to the benefit of section 80-IA(4). (iii) Merely because the assessee is referred to as a contractor in the agreement, it would not debar it from claiming deduction. (iv) Direct agreement between the transferee-assessee and the specified authority is not a mandatory requirement u/s.80-IA(4) of the I.T. Act. 2.9. Similar issue has also come up before the Hon'ble ITAT, Ahmedabad in the case of Sugam Construction P. Ltd. and has been adjudicated vide order dated 21st December, 2012 in ITA No.1828/Ahd/2010. In this order the Hon'ble Tribunal has considered in great detail the attributes of a “developer” in contradistinction to the attributes of a “contractor”. The Hon'ble Tribunal has also considered various cases which were referred to by the Hon'ble ITAT, Amritsar in the case of M/s. TRG Industries (supra). The Hon'ble Tribunal Ahmedabad has further considered the following two relevant judgements: (i) CIT vs. Radhe Developers, 341 ITR 403 (Guj.) (ii) GVPR Engineers Ltd. vs. ACIT, 21 Taxmann.com 25 (Hyd.)

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2.10 The Hon'ble Tribunal has succinctly brought out the difference between a “developer” and a “contractor” at para-13 of the order which is reproduced below for ready reference:

“13. In the background of the above discussion, it can be summarized that an enterprise has to enter into an agreement with the Central or State Government or a Local Authority or any Statutory Authority. That undisputedly the infrastructure facility belonged to the Government, therefore the infrastructure facility is owned by the Government. But the enterprise which is developing or constructing the infrastructure facility is to be owned by a Company registered in India. The Act also says that an enterprise which is constructing or developing the infrastructure facility can be a consortium of such companies. Such an arrangement is eligible for the claim of deduction. Few Circulars have been issued by CBDT through which it has also been clarified, as discussed in the foregoing case-laws, that the benefit of the impugned deduction is available to an enterprise which either develops or maintains or operated or executed the combination of these three, inter alia as a Build, Operate and Transfer (BOT), or, Build, Own, Operate and Transfer (BOOT), or, Build, Own, Lease and Transfer (BOLD) basis or similar other basis where ultimately the infrastructure facility so constructed is ultimately transferred to Government or Public Authority, then such an enterprise is within the ambits of qualification of deduction. The explanatory memorandum to the Finance Act, 2007, as quoted before us, states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work.

12.6. In the light of the above discussion and the view expressed by the Hon’ble Courts, a conclusion can be drawn that there is a distinction between “developer” and a “contractor”. (i) That in a case of civil contractor, it’s duty is only of civil construction. (ii) That after the civil construction is over, he is paid for the job of civil construction as per the bills raised. (iii) That at that point of time, his contract is over and the agreement ends. (iv) That after the completion or at the end of the agreement, a civil contractor hand over the site to the owner. (v) That a civil contractor constructs as per the specifications given. (vi) That a contractor does not involve much of his own money but raises bill of his civil construction work time-to-time to collect the expenditure incurred. (vii) That a contractor has no domain over the land or the site. (viii) That his access to the site is restricted and limited from commercial angle. (ix) That on the basis of the project he cannot raise the funds from the private financial institutions. (x) That “a contractor” is not responsible for the development of the project but his responsibility is limited to the job-assigned to him. (xi) That a “ contractor’s” duties and responsibilities can only be examined on the basis of the terms and conditions of the contract agreement.

12.7. Now we shall examine about a “developer”. From the above reading we have also gathered (a) That a developer is a person who undertakes the responsibility to

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develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is an another aspect that such design has to be approved by the owner of the project, i.e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a “work contract” or a “development contract”. (h) That in a “development contract” responsibility is fully assigned to the developer for execution and completion of work. (i) That although the ownership of the site or the ownership over the land remains with the owner but during the period of development agreement the developer exercise complete domain over the land or the project. (j) That a developer is not expected to raise bills at every step of construction but he is expected to charge the cost of construction plus mark-up of his profit from the assignee of the contract. (k) That a developer is therefore expected to arrange finances and also to undertake risk. (l) That in contrast to the rights of a “ contactor” a “developer” is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined.”

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appreciated this from the facts already on the record and issued notice under section 148 of the Act. The assumption of facts while reopening of the assessment was also erroneous at the end of the AO as highlighted by the assessee in the stamen facts. Two companies viz. M/s.MSK Infrastructure & Toll Bridge Pvt.Ltd. and MSK Highway Ltd. are itself hundred percent owned subsidiaries which were floated as a special purpose vehicle for getting the aforesaid work. There are tri- parte and bye-party agreements between these three companies as well as State of Madhya Pradesh from whom it has taken Raisen Rahatgarh Road project. Subsequently, both these subsidiaries have been amalgamated with assessee-company on the appointed date i.e. 1.1.2005. It means that during the previous year relevant to the Asstt.Year 2005- 06, the amalgamation became effective and both subsidiaries amalgamated with the assessee-company. The assessee has provided all these facts to the notice of the Revenue authorities, but they have not made any discussion on these issues. It simply issued a notice that it has wrongly claimed the deduction and thereafter disallowed it. At this stage, we would like to make reference to the finding of the AO in the Asstt.Year 2006-07 which has not specified anything. The finding recorded reads as under: “The assessee was supposed to file the return within 30 days from the receipt of the notice u/s 148 dated 06.07.2010,the assessee did not file the return within 30 days, Hence, a notice u/s 142(1) r.w.s 129 of the Act for A.Y. 2006-07 as issued on 18.07.2011 &\vas served upon the assessee on 19.07.2011,

The assessee, vide its letter dated 28.07.2011 submitted on 29.07.2011 requested to consider the return filed u/s 139 as if filed in response to the notice u/s 148 of the Act.

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'' The assessee had submitted full details & explanation on 12th August 2010 which the Ld Officer ignored in its order of re-opening of assessment u/s 147 dtd 08.10.2010. The assessee has complied with all the mandatory conditions as laid down u/s 80IA(4) of the Act in terms of Following:

a) It has entered into an agreement with Central Govt or the State Govt as the case may be for carrying out its business as laid down in sec 80IA(4)(i)(b) of the Act. b} The company has started operating or maintaining the infrastructure facility after 1985 in accordance with conditions mentioned in sec 80IA(4)(i)(c} of the Act.

c) The company has derived income from eligible business and claimed deduction for the eligible business carried out by it.

An Explanation below section 8oIA has been inserted by Finance(No.2) Act, 2009 w.r.e.f 01.04.2000 that "nothing contained in this section 8oIA shall apply in relation to business referred to in sub-section (4) which is in the nature of a works contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in sub section 1 of section 80IA."

The assessee has earned the income from contracts by executing the work, it was not eligible for the deduction u/s 80IA(4) of the Act.”

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Ltd. Vs. DCIT, (2014) 223 taxmann 229 (Guj) (Mag). In all these judgments, the AO has earlier granted deduction under section 80IA, thereafter reopened the assessment by re-appreciating the same material. The Hon’ble Court has held that re-opening is being made on account of change of opinion and it is not justifiable. In the present case, the ld.AO has re-appreciated the material. Earlier, the AO considered the assessee as engaged in the business of development of infrastructure project, but later on the basis of same material he construed the assessee as a contractor. To our mind, it is a just his change of opinion, and there is no tangible material in possession of the AO to reopen the assessment. Therefore, we allow first ground of appeal in both the years, and quash re-assessment orders in both the years.

“8. The Revenue's third substantive ground challenges correctness of the CIT(A)'s action treating the assessee as an infrastructure developer and not a works contractor qua its BOT road projects in Madhya Pradesh (supra). The assessee's fourth substantive ground connected to the instant issue pleads that the said allocation of expenses has been wrongly made in its case. We therefore take up both these grounds together for adjudication. 9. We advert to Revenue's grievance first that the assessee's BOT road project cannot be treated as an instance of infrastructure development rendering profits derived therefrom in the form of toll collection as eligible for the impugned Section 80IA deduction. We notice that the very

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issue pertaining to the said two projects had arisen in assessment year 2008-09 as well. The assessee filed Section 264revision. The CIT-II, Baroda in his order dated 28.12.2011 upheld its case treating the above two projects to be eligible for the impugned deduction. The same has attained finality as on date. The CIT(A)'s order under challenge in para 10.3 page 58 takes due note thereof in accepting assessee's arguments. We therefore adopt consistency to affirm the CIT(A)'s findings under challenge in Revenue's third substantive ground. Its appeal ITA No.2940/Ahd/2013 therefore fails.

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and details submitted in these years, we are of the view that the assessee is entitled for deduction under section 80IA(4) of the Act. We allow second ground of appeal.

Pronounced in the Open Court on 8th October, 2018.

Sd/- Sd/- (WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER