SABIR , SEW & PRASAD JV,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-6(1), HYDERABAD

O R D E R PER LALIET KUMAR, J.M :

These appeals filed by the assessee are directed against the separate orders of Commissioner of Income Tax (Appeals) – 6, Hyderabad dated 19.11.2018 for A.Y. 2006-07 20 2008-09. Since facts are identical and issues are common, for the sake of convenience, all the appeals filed by the assessee are being disposed of, by this consolidated order, by taking A.Y. 2006-07 as lead appeal.

1. The order of the Appellate Commissioner is contrary to law, facts and circumstances of the case. 2. The Appellate Commissioner ought not to have confirmed the disallowance of the deduction u/s.801A of Rs.29,06,918/- made by the A.O. 3. The Appellate Commissioner ought to have seen that the Appellant has developed infrastructure facilities by constructing the infrastructure and was not a works contractor for the government.

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1. The Assessing Officer ought not to have assumed jurisdiction u/s 153C of the Income Tax Act, 1961, without properly recording the reasons for assuming the jurisdiction. 2. The Assessing Officer ought not to have assumed jurisdiction u/s 153C, without properly recording the satisfaction note for such assumption.

4. Facts of the case, in brief, are that assessee is a Joint Venture (JV), comprised of (i) M/s. SABIR Dam & Water Works Constructions Company, Tehran, Iran ("SABIR" for short), (ii) M/s SEW Constructions Limited, Hyderabad ("SEW" for short) and (iii) M/s. Prasad & Company (Project Works) Limited, Hyderabad ("PRASAD" for short) engaged in the business of 'contract works' and assessed to tax in the status of an AOP. The assessee AOP filed its original return of income on 31.10.2006 declaring NIL income after claiming deduction of Rs.59,82,198/- u/s 80IA of the Act. Subsequently, a search and seizure operation u/s. 132 of the Act was conducted in the group cases of M/s SEW Constructions Limited and M/s. Prasad & Company (Project Works) Limited on 06.11.2007. Consequent to search action, the AO issued a notice u/s. 153C of the Act to the assessee on 17.10.2008. In response to the same, assessee filed its return of income for the AY 2006-07 on 28.10.2009 declaring nil income after claiming deduction u/s. 80IA of the Act to 4 SABIR, SEW & PRASAD JV the extent of Rs. 29,06,918/-. The assessment u/s 143(3) r.w.s. 153C for AY 2006-07 was completed on 31.12.2009, disallowing the assessee's claim u/s 80IA. The CIT(A) upheld the disallowance on 30.03.2010. On further appeal, the ITAT, vide order dated 19.08.2013 in remitted the issue to the AO for fresh examination in light of the decision in M/s Ramky Infrastructure Ltd. Accordingly, notice u/s 143(2) r.w.s. 254 was issued on 03.10.2024 requiring the assessee to attend the office on 14.11.2014 and furnished documents and other evidence in support of its return. Assessee furnished its submissions on 23.01.2015. After verification of documents and submissions filed by the assessee, Assessing Officer opined that assessee has not developed any infrastructure facility and hence, not eligible for deduction claimed u/s 80IA of the Act. Accordingly, the Assessing Officer the determined the total income of the assessee at Rs. 29,06,918/- by disallowing the assessee's claim of deduction u/s.80IA(4) of the Act.

7.4 I have gone through the decision of the Hon'ble ITAT (supra) wherein the issue of the assessee's eligibility to claim deductions u/s.801A(4) of the Act was set aside. While doing so, the Hon'ble ITAT has discussed decisions of various co-ordinate benches and High Courts and held that before coming to the conclusion whether the assessee is a contractor or a developer, the contract agreement has to be read in its entirety. It is 5 SABIR, SEW & PRASAD JV further observed that the AO has not done this exercise prior to coming to a conclusion that the assessee is not eligible to claim deduction w/s.801A(4) of the Act. Accordingly, a specific direction has been given to the AO to examine the issue afresh in the light of the decision of the co- ordinate bench in the case of M/s. Ramky Infrastructure Ltd. (supra). 7.5 Further, I have perused the decision of co-ordinate bench in the case of M/s.Ramky Infrastructure Ltd. (supra) wherein the issue of the assessee's eligibility to claim deduction u/s.801A(4) of the Act was remitted back to the file of the AO with a direction to examine the issue afresh after considering the contract agreement as a whole and all other evidences that may be submitted by the assessee to demonstrate the fact that the assessee had actually developed the infrastructure facilities by undertaking the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction of the contract during the warranty period. Further, the assessee was also directed to participate in the proceedings before the AQ and furnish necessary evidence in support of its claims. 7.6 Also, it is stated in the order that if the assessee is able to establish the fact that itself had carried out the development of the infrastructure facilities along with design, development, engineering, construction, maintenance, financial involvement, defect correction of the contract during the warranty period, then such contract should be considered as a development of a infrastructure facility executed by the assessee. 7.7 As such, as per the observations made by the Hon'ble ITAT in the case of the assessee for the impugned AY read with the decision of co-ordinate bench in the case of M/s. Ramky Infrastructure Ltd., it is imperative on the part of the AO to examine the terms of the contract in order to ascertain whether the assessee has undertaken the projects as a contractor or a developer. 7.8 Similarly, the assessee should have established with evidence the basic requirement highlighted by the Hon'ble ITAT before the AO during the course of set aside assessment proceedings. However, as seen from the assessment order for the impugned AY, it would appear that the assessee did not establish by producing the relevant evidence that it had developed the project rather than executed the work as a contract. In view of this, it would appear that the AO came to a conclusion that the assessee did not carry out the work as a developer within the meaning of the section 801A(4) of the Act. 7.9 At this juncture, it is important to note that there is a clear difference and distinction between the terms developer" and "contractor". Further, 6 SABIR, SEW & PRASAD JV normally, any "works contract" awarded by the Government to a contractor by way of a tender process would fall under the ambit of the contractor rather than developer. This issue has been clarified by the CBDT vide Circular No: 717 dated 14.08.1995 reported 275 ITR (Statute) 70. In the said circular, issued in connection with 801A (4) of the Act, it is clarified that the benefit of deduction is available to an enterprise which is in the business of undertaking the projects either by way of Build, Operate and Transfer (BOT) or Build, Own, Operate and Transfer (BOOT). 7.10 Further, one more circular has been issued by the CBDT vide Circular No.733 as reported in 217 ITR (Statute) 8 wherein it is clarified that the provisions of section 801A(4) of the Act would also be applicable to the projects undertaken by way of Build, Own, Lease and Transfer (BOLT). 7.11 In the instant case, it is an admitted fact that the assessee has not taken up the projects i.e., Gorakallu Project and Veligonda Project either on BOT, BOOT or BOLT basis. As clearly stated in the contract agreements (supra), the assessee has taken up the projects on Engineering, Procurement and Construction (EPC) turnkey basis. It is a known fact that in a case of EPC system of contract, funds will be provided by the Government based on the estimation made by the Government. On the other hand, in a case of BOT, BOOT & BOLT system of contract, the contractor is required to arrange the funds on its own and bear the entire cost of executing the project without depending upon the Government. However, they will recover their cost either by way of annuity from the Government or by way of collecting user charges/toll fee. 7.12 By applying these basic principles of contracts, in the instant case, it is an admitted fact that the Government has provided the funds to the assessee on the basis of running bills furnished depending upon the progress in completion of the project, apart from providing mobilisation advance. To be precise, the assessee did not contribute any funds towards executing the project either by way of infusing its own capital or by availing finance from banks or other financial institutions. On other hand, as admitted by the assessee itself, in order to implement the project, initially, the assessee received mobilisation advance @5% of project cost from the Government. The details of mobilisation advance received by the assessee during the FY 2005-06 relevant to the impugned AY 2006-07 as extracted from the written submissions dated 13.10.2009 filed by the AR of the assessee before the AO during the course of original assessment proceedings are given below for ready reference:

7 SABIR, SEW & PRASAD JV Sl.No. Name of the Project Project Cost Mobilisation (Rs. in crores) advance @5% of Project Cost (Rs. in crores) 1 Gorakallu Project 448.20 22.41 2 Veligonda Project 624.60 31.23 Total 53.64 7.13 In view of the above, it is an undisputed fact that there was no financial involvement of the assessee in executing the project. At this juncture, it is important to note that the main intention behind providing deduction by way of inserting the provisions of section 801A(4) of the Act in the statute by the legislature was to achieve rapid growth in the infrastructure development of the country by drawing additional resources both financial and technical with private participation. This particular intention of the legislature has been clearly highlighted by the Hon'ble ITAT in the case of M/s. Ramky Infrastructure Limited (supra). ……….. …… 7.14 As such, the assessee has not fulfilled some of the basic conditions highlighted by the Hon'ble ITAT, including infusion of capital/funds for executing the project by the assessee. Similarly, it is worthwhile to note that the Hon'ble ITAT has pointed out seven activities which are required to be performed by a developer of a project differentiating the activities of a contractor simpliciter. For the sake of ready reference, the said specific activities are listed below: 1. Design, 2. Development, 3. Engineering, 4. Construction, 5. Maintenance, 6. Financial involvement, and 7. Defect correction of the contract during the warranty period.

8 SABIR, SEW & PRASAD JV 7.15 In the instant case, though the assessee has performed some of the above mentioned activities, but, it is an undisputed fact that the assessee has failed to perform all the seven activities cumulatively while executing the projects under reference i.e., Gorakallu Project and Veligonda Project. At this juncture, it is important to note that the Hon'ble ITAT in the case of M/s. Ramky Infrastructure Ltd., (supra) has made it mandatory that in order to demonstrate that the assessee has carried out development of infrastructure activities as a developer rather than contractor, the assessee should produce clinching evidence that it had cumulatively undertaken all the seven activities mentioned, above. ………. ……..

7.16 However, in the instant case, the assessee has neither executed all the seven activities nor produced any clinching evidence to demonstrate that it had cumulatively undertaken all such activities to prove that it had executed the project/work as a developer rather than a contractor. 7.17 Further, it is clearly evident from the terms of the contract agreements as well as funds supplied by the Government to execute the project by the assessee that the assessee has not undertaken the project in the form of BOT, BOOT & BOLT. Accordingly, I am of the considered opinion that the assessee is not eligible to claim deduction u/s. 801A(4) of the Act. 7.18 There is one more distinction to be made out with regard to 'developer' versus 'contractor'. A'developer' is not a civil contractor simpliciter. As per the commercial principles, a 'developer' has to execute both managerial as well as financial functions. A role of a 'developer' in terms of responsibilities assigned, inclusive of financial, is larger than that of a 'contractor'. 7.19 In a development contract, responsibility is fully assigned to the 'developer' for execution and completion of the project. Accordingly, a developer' is not expected to raise bills at every stage of construction, but he is expected to charge the cost of construction plus mark up of his profits from the Government. 7.20 As such, in contrast to functions and responsibilities of a 'contractor', a 'developer' is, therefore, required to arrange finances on its own and bear the risk. As explained elsewhere in this order, in the instant case, the assessee has performed the role of a 'contractor' rather than a 'developer' inasmuch as it did not take full responsibility with regard to the finances of the project, but received the same from the Government on 9 SABIR, SEW & PRASAD JV the basis of running bills raised depending on the progress of the project, apart from mobilisation advance. In this regard, reliance is placed on the following judicial precedents: 1. Kartira Construction Ltd vs Union of India [2013/352 ITR 513 (Gujarat HC 2. CIT vs N C Budharaja & Co[1993] 204 ITR 417 (SC) 3. CIT vs Radhe Developers [2012] 341 ITR 403 (Gujarat HC) 4. B.T.Patil & Sons Belgaum Construction (P) Ltd. Vs Asstt. CIT [2010] 35 sot 171 (Mumbai ITAT) 7.21 In view of the aforementioned analysis and settled position of law and after studying the contract agreements(supra), I am of the considered opinion that the assessee had entered into agreements with State Govt. to execute certain works as a contractor on EPC turnkey basis. Nowhere in the agreements it is stated in clear and unequivocal terms that the irrigational projects right from the stage of conceiving the plan, design and drawings, mobilisation of funds on its own including bearing financial risks, till the stage of execution of the plan and development and maintenance of the projects had been assigned to the assessee either on BOT or BOOT or BOLT basis. More so in the case of Veligonda Project, the assessee had primarily undertaken construction of a tunnel which cannot be termed as an independent irrigation project. 7.22 Under these circumstances, in the absence of any clinching evidence furnished by the assessee to prove its credentials as the developer of the projects, I don't find any merit in the assessee's grounds of appeal that it is eligible to claim deduction u/s,801A(4) of the Act. Accordingly, the disallowance of deduction u/s. 801A(4) of the Act is confirmed on merits. Thus, the grounds of appeal raised by the assessee on this issue are dismissed. Execution of the project through/by JV constituents and sub- contractors: 7.23 Alternatively, even otherwise, the assessee is not entitled to claim deduction u/s.801A(4) of the Act inasmuch as the assessee JV has not executed the projects on its own, but the same had been executed through/by its JV constituents and outside sub-contractors. To be precise, subsequent to entering into the agreements with the Government, the assessee has distributed the work among its JV constituents and other sub-contractors.

10 SABIR, SEW & PRASAD JV 7.24 In the case of Veligonda Project, immediately after awarding the contract, the assessee entered into an agreement dated 05.10.2005 with outside sub-contractors M/s. Nuziveedu-Swathi-Coastal-Consortium ("NSC Consortium" for short), being a consortium of three independent corporate entities i.e., M/s.Nuziveedu Seeds Limited, M/s. Swathi Constructions Pvt Ltd & M/s Coastal Projects Private Limited, assigning the entire propetnaembook-to-back basis. 7.25 Subsequently, after completing the project work on back-to-back basis to the extent of Rs.36,69,73,858/-, vide cancellation agreement dated 01.11.2006, the original agreement was cancelled with the NSC, Consortium and one more agreement dated 01.11.2006 was entered into with NSC Consortium, Sri Avanthika contractors & two of its constituents SEW and PRASAD for executing the balance project work in the ratio of 50%, 25%, 12.5% & 12.5% respectively. 7.26 Similarly, in the case of Gorakallu Project, the entire project work has been assigned to the JV constituents i.e., SEW, PRASAD & two outside sub-contractors Sri Avanthika contractors and APR constructions Ltd on back-to-back basis. As such, it is an undisputed fact that the assessee has not executed any part of the project work on its own in respect of both the projects. 7.27 In view of the above, it is clearly evident that the assessee has not executed the project on its own and, therefore, the assessee has not derived any profits from such projects. Under the circumstances, even after presuming, but not admitting, that the scope of work assigned by the State Govt to the assessee is falling within the meaning of "developing" as envisaged u/s. 801A(4) of the Act, since the assessee did not execute the projects on its own, it cannot claim any benefit u/s. 801A(4) of the Act. At the same time, if at all, constituents of the JV and other outside sub-contractors, who actually executed the project may be entitled to claim deductions u/s. 801A(4) of the Act, subject to fulfilment of all other conditions stipulated under the Act. 7.28 In this regard, reliance is placed on the decision of Hon'ble ITAT, Vizag Bench in the case of Transtroy (India Ltd) vs ITO in dated 14.07.2011. …. ….. 7.29 As seen from the decision of the Hon'ble ITAT, Vizag Bench (supra), it is clearly evident that the assessee JV, having not executed the work 11 SABIR, SEW & PRASAD JV itself, is not eligible for claiming deduction u/s. 801A(4) of the Act. The fact that the JV did not execute the work by itself, but allocated the same to constituents of JV and outside sub-contractors in not disputed in the instant case. Accordingly, I am of the considered view that, on account of alternative ground also, the assessee is not eligible to claim deduction u/s. 801A(4) of the Act. Thus, the grounds of appeal filed by the assessee are dismissed.”

6. Feeling aggrieved with the order of LD.CIT(A), the assessee is now in appeal before us.

6.1. First, we will deal with the additional grounds raised by the assessee.

7. Before us, the ld.AR submitted that the assessment order was passed u/s 143(3) r.w.s. 153C of the Act and the additions were not made in the hands of the assessee on the basis of the incriminating material found during the course of search from the premises of the searched person. It was submitted that in the present case, the search action was initiated in the group cases of M/s. SEW Constructions Limited and M/s. Prasad & Company (Project Works) Limited on 06.11.2017 and thereafter, notice u/s 143(3) r.w.s. 153C of the Act was issued on 17.10.2008. It was submitted that since the assessee had declared the income after claiming deduction of Rs.59,82,198/- u/s 80IA of the Act at the time of original assessment, therefore, the Assessing Officer has no jurisdiction to make the disallowance of the claim under Section 80IA after the search proceedings carried out on the searched person 12 SABIR, SEW & PRASAD JV when no incriminating material was found disclosing the escapement of income as required u/s 153C of the Act.

10. Now coming to the merits of the case, it was submitted by the ld.AR that as per the Ld.CIT(A), to claim deduction u/s 80IA of the Act, the assessee was required to fulfill, seven specific activities as captured by him in 7.14 of his order, which are are to the following effect :

11. Before us, ld.AR submitted that the Ld.CIT(A) has examined and held that the assessee has failed to perform all the activities cumulatively while executing the projects under reference. Furthermore, the Ld.CIT(A) in para 7.1.7 has noted down that the 14 SABIR, SEW & PRASAD JV assessee has not executed the project either by BOT (build- operate-transfer) or BOOT (built-own-operate-transfer) or BOLT (build-own-lease-transfer). It was submitted that the findings of the Ld.CIT(A) that the assessee was merely acting as civil contractor and not a developer as the funds for raising the agricultural facilities were provided by the State Government and further, it was mentioned that the assessee was having the mobilization advances of 5% is not correct . It was submitted by the ld.AR that the assessee has fulfilled all the obligations as required under paragraph 7.14, however quite contrary it was pointed out that Ld.CIT(A) in para 7.21, that the assessee had entered into contract with state Government to execute certain works as a contractor on EPC turnkey basis and was not involving from the stage of conceiving the plan, design and drawing, mobilization of funds on its own including bearing financial risks till the stage of execution of the plan and development and maintenance of the project either on BOT or BOOT or BOLT basis.

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80IA(4). Explanation below sub-section (4) defines ‘infrastructure facility as— (1) a road, including toll road, a bridge or a rail system; (2) a highway project including housing or other activities being an integral part of the highway project; (3) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (4) a port, airport, inland waterway or inland port or navigational channel in the sea.”

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17. From the reading of the above, it is clear that if a person is carrying on business of developing or operating or making or developing or maintaining any infrastructure facility, then the assessee is entitled to deduction under section 80IA of the Act. Admittedly, the creation of the activity undertaken by the assessee would fall under section 80IA(4) of the Act to the Explanation to say that both the projects i.e., Veligonda Project and Gorakallu Balancing Reservoir being in the nature of creation of irrigation facility would fall within the realm of infrastructure facility and therefore, the assessee is entitled to claim deduction under Section 80IA(4) of the Act.

18. Now the question before us is whether the assessee has fulfilled all the conditions as required and referred by the Ld.CIT(A) in para 7.14 of the order pursuant to the direction of the Tribunal. The Ld.CIT(A) while deciding the issue has not made any specific comments for any of these 7 aspects , other than the finance. It was submitted that assessee has not mobilized his own funds and is not into financial risk and is not operating the project on the basis of BOT or BOOT or BOLT and therefore, the assessee is not entitled to the benefit of Section 80IA of the Act.

18.1. We found that Clause (3) of Sub-Section (4) of 80IA of the Act includes infrastructure facilities such as a water supply project, water treatment system, irrigation project, sanitation and sewerage system or sold waste management system. In the 19 SABIR, SEW & PRASAD JV present case, the assessee had constructed Gorakallu Balancing Reservoir as per the agreement made by the Superintending Engineer, SRBC Circle No.1, Nandyal. The scope of work under the contract was briefly given on page 1248 of the paper book, which is to the following effect :

20 SABIR, SEW & PRASAD JV • Regrading of vagu on Upstream and Downstream of Spillway portion. • Drilling of holes, insertion of pipes along Right Flank and Installation of piezometers at • suitable intervals. Providing piezometers in the gallery and earthen bund as per standards. • Construction of Drainage gallery from ch (-) 221m to ch 3405 m. (approximate). • Filling of excavated trenches with Impervious soils. • Instrumentation. • Installation, Testing and commissioning of the project. • Operation and Maintenance of the project for a period of 2 (Two) years after successful commissioning of the project. Hoist Bridge and Hoist equipment. • To examine the various alternatives like providing gallery along the toe of the Ridge of Right Flank (or) to provide approach shaft from top MWL to provide access to MDDL (or) any other methods to arrest any possible seepages/ Leakages through the hillock on Right Flank of Gorakallu Balancing Reservoir due to Geological formations and provide the best suitable treatment to arrest the seepages / Leakages.

18.2 Thus, for all purposes, the assessee is a ‘developer’ and was not merely a work contractor within the meaning of Section 80IA of the Act as scope of work detailed in the agreement involves significant infrastructure development, including the design, engineering, and construction of various critical components of the water supply and irrigation project. Given that the assessee is responsible for the execution of these projects and their 21 SABIR, SEW & PRASAD JV subsequent operation and maintenance, which qualify the assessee as a developer under the relevant provisions of the Act.

19. The general conditions of the contract were mentioned from page 1290 to 1326 of the contract such as A) General B) Time for Completion C) Quality Control D) Cost Control E) Finishing the Contract and F) Other General Conditions. From the perusal of these contract conditions, it is evident that the assessee was actively involved in the design, execution, and completion of the project, fulfilling all contractual obligations. In line with the contract, the assessee was responsible for paying all applicable duties, levies, and charges, as required, ensuring full compliance with the contractual and legal framework.

20. With respect to functioning of the assessee, the assessee has taken bank guarantee, insurance and has also given earnest money and has also undertaken various functions as required under law and therefore, it can be said that the assessee is under financial risk without any basis. Furthermore, we may note that the conclusion of the Ld.CIT(A) that the assessee is not operating either as BOT, BOOT BOLT MODEL for denying the benefit of section 80IA, was not correct. In our considered opinion BOT, BOOT BOLT MODEL , can not be applied to creation of irrigation project (infrastructure facilities) being intrinsically and inherently different from road /airport. Railway station project, as it is not impossible for present assessee who is into creation of irrigation 22 SABIR, SEW & PRASAD JV project, to recover the cost of the project from the end user / the consumer. The recovery of cost/ amortization can only be applied to BOT, BOOT, BOLT cases , as the authorities had laid down the mechanism to recover the cost after laying down the infrastructure.

21. In the case of the irrigation project, neither the end user is identified nor rules/ mechanism was provided by the state authority to recover the cost on account kind and size of the irrigation project. Further it is not known as to whether the irrigation facility would be used for industrial, commercial, domestic or agriculture purposes and how to recover the cost of the infrastructure from the end user more particularly when infrastructure created was in the form of tunnel for irrigation project . In view of the above, we do not find any reason to agree with the reasoning of the Ld.CIT(A).

22. Furthermore, the Assessing Officer and the Ld. CIT(A) relied upon the Explanation inserted by the Finance Act, 2009, with retrospective effect from 01.04.2000. Prior to this, an Explanation had been inserted by the Finance Act, 2007, also with effect from 01.04.2000, which clarified the eligibility criteria for claiming deductions under the section. Explanation inserted by the Finance Act, 2007 (w.e.f. 01.04.2000) clarified that the ‘infrastructure facility’ under Section 80-IA includes:

23 SABIR, SEW & PRASAD JV • Roads, bridges, highways, and similar facilities. • Power generation, transmission, or distribution systems. • Ports, airports, and rail systems. • Irrigation projects, water supply systems, and sanitation facilities were included in the list of infrastructure projects eligible for deductions under Section 80-IA.

This was aimed at expanding the scope of the term ‘infrastructure facility’ to include a wider range of projects, especially in the water and sanitation sectors.

23. Explanation Inserted by Finance Act, 2007:

The Finance Act, 2007, inserted an explanation to Section 80IA of the Income Tax Act that specifically excluded "works contracts" from being eligible for the benefits under Section 80IA. Prior to this amendment, an enterprise executing a "works contract" (a contract involving the execution of construction, installation, or similar services) was eligible for tax benefits under Section 80IA if the contract was awarded by the government or any public authority.

Explanation Inserted by Finance Act, 2009:

The Finance Act, 2009, further amended Section 80IA to expand the scope of the exclusion related to "works contracts." It stated 24 SABIR, SEW & PRASAD JV that the exclusion applied not only to works contracts awarded by private parties but also to contracts awarded by the Central or State Government.

23.1. In other words, after 2009, the benefit under Section 80IA was denied even if the contract was awarded by a government authority (Central or State). However, prior to 2009, there was restriction on the work executed for state or central government. This was an extension of the limitation placed in the Finance Act, 2007, and effectively broadened the category of contracts excluded from the benefits of Section 80IA.

Comparison Between the Two Explanations:

Finance Act, 2007:

• Exclusion of "works contract" benefits applied only to contracts awarded by private entities (not the government). • Government-awarded contracts were still eligible for benefits under Section 80IA. Finance Act, 2009:

• The exclusion of "works contract" benefits was expanded to include contracts awarded by the government (Central or State).

25 SABIR, SEW & PRASAD JV • This change meant that even government-awarded contracts would not be eligible for benefits under Section 80IA.

23.2 From the above reading, it is clear that prior to the insertion of the Finance Act, 2007, there was no such Explanation, and it was only by way of the Explanation that a specific category of persons executing works contracts was excluded from Section 80IA of the Act. This exclusion applied only to ‘works contracts’ awarded by any person other than the Government. However, by virtue of the Explanation inserted by the Finance Act, 2009, the scope of the exclusion was extended, and works contracts awarded by the Central or State Government were also brought under the purview of the Explanation. A comparison of the two provisions makes it abundantly clear that, prior to the Finance Act, 2007, an enterprise executing works contracts for the Central or State Government and discharging the functions for the Government was entitled to claim the benefit under Section 80IA. Post-2009, the scope was expanded, and works contracts executed for the Central or State Government were also excluded from the benefit under this section. In the present case, the assessment years in question (A.Y.s 2006-07, 2007-08, and 2008-09) are all prior to 01.04.2009. Therefore, we are of the opinion that the Explanation inserted by the Finance Act, 2009, cannot be applied to deny the benefit under Section 80IA of the Act, as the same is not applicable.

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24. We also find that in an identical case, the Tribunal has granted the benefit of deduction under Section 80IA to the assessee in the case of DCIT Vs. K. Raheja I.T. Park (Hyderabad) Limited, Madhapur, Hyderabad in for A.Y. 2012-13. The relevant portion of the Tribunal’s order is as under:

11. The ld. AO has rejected the assessee’s claim of deduction u/s. 80IA(4)(iii) of the Act for the reason that his predecessors have disallowed the claim of the assessee for the earlier years and has extensively relied on the same. It is observed that the assessee in A.Y. 2006-07 to 2009-10 in 1039 & 1040/Hyd/2014, order dated 07.11.2014 has assessed the rental income under the head ‘income from house property’ and services income under the head of ‘profit and gains of business or profession’. The ld. PCIT had invoked the revisionary powers for the purpose of treating the rental income to be income under the head ‘profit 27 SABIR, SEW & PRASAD JV and gains of business or profession’ by relying on various decisions. The same was contested by the assessee and the Tribunal quashed the order passed u/s. 263 but had not given any finding as whether the income is to be assessed under the head ‘business income or income from house property’. Subsequently, for A.Y. 2010-11 in and dated 11.07.2016 again in a revisionary proceeding the Tribunal held that even if the assessee has assessed the income as income from house property’, the assessee was eligible for claiming deduction u/s. 80IA(4)(iii) of the Act as ‘business income’, for the reason that the assessee was merely engaged in developing and maintaining infrastructural facilities which arose out of a project approved by the Government of India as an eligible project for claiming deduction u/s. 80IA(4)(iii) of the Act. Further, it held that as long as the approval given by the Central Government exist and has not been withdrawn the assessee would be entitled to deduction u/s. 80IA(4)(iii) of the Act. It further held that when deduction has been allowed in the earlier years, the same cannot be denied in subsequent years with no change in circumstance. It is also observed that for A.Y. 2011-12 in ITA No. 691/Hyd/2016, order dated 06.05.2021 also, the Tribunal has allowed the claim of the assessee. 12.From the above observation, it is evident that this issue has been recurring in nature were the Tribunal has constantly granted relief to the assessee by holding that the assessee is entitled to claim deduction u/s. 80IA(4)(iii) of the Act. Even on the merits of the case, it is pertinent that the Industrial Park Scheme, 2002, notified by the GOI in exercise of powers u/s. 80IA(4)(iii) of the Act facilitates projects for setting up industrial parks which are eligible for claiming deduction u/s. 80IA(4)(iii) of the Act. There is no iota of doubt that the assessee was entitled to get benefit under this provision, for the reason that the assessment order does not speak of any violation in the conditions specified in the scheme, though, the revenue has raised a specific ground of appeal

that the minimum 30 industrial units requisite for claiming deduction has not been satisfied. The assessment order nowhere has specified that the assessee has not complied with the said condition. In the absence of the same, we find no infirmity in the order of the ld. CIT(A) in allowing the deduction claimed by the assessee u/s. 80IA(4)(iii) of the Act.

13. In the result, the appeal filed by the revenue is dismissed.”

28 SABIR, SEW & PRASAD JV

“15. In light of the above, if we examine whether the assessee was entitled to deduction u/s 80IA(4) or not, it is necessary at this stage to reproduce the findings of the co-ordinate Bench of the Tribunal in the case of JMC Projects (India) Ltd. Vs. The ACIT (OSD) Range-4, Ahmedabad reported in 2024(12) TMI 898 ITAT, Ahmedabad, wherein in Para 14 to 17, it was held as under : “14. After thoroughly examining the submissions of both the Departmental Representative (DR) and the Authorized Representative (AR), as well as noting the judicial precedents presented, including Katira Construction Ltd. v. ACIT, M.S. Khurana Engineering Ltd. v. ACIT, and Montecarlo Ltd. v. Principal CIT, we are tasked with determining whether the assessee qualifies for the deduction under Section 80IA(4) of the Act. The primary point of contention is whether the assessee acted as a "developer" within the meaning of the section, thus eligible for the deduction, or merely as a "contractor," which would disqualify it from this benefit. Both the Departmental Representative (DR) and the Authorized Representative (AR) presented judicial precedents, including Katira Construction Ltd. v. ACIT (supra), M.S. Khurana Engineering Ltd. v. ACIT, and the Hon'ble Gujarat High Court's decision in the case of Montecarlo Ltd. v. Principal CIT (supra). A thorough analysis of these cases is necessary to assess the responsibilities, risks, and controls borne by the assessee, especially in light of the jurisdictional precedent set by Montecarlo Ltd., which aligns closely with the principles established in Katira Construction Ltd. 14.1. In Katira Construction Ltd., the Co-ordinate Bench delineated specific criteria to determine the eligibility for deduction under Section 80IA(4) of the Act, which are particularly relevant in distinguishing a developer from a contractor. We evaluate the assessee's operations in the Madhya Pradesh State Highway 29 SABIR, SEW & PRASAD JV (MPSH) as a lead project against these criteria and analyze them with respect to Montecarlo Ltd., where similar principles were applied. 14.2. Full Responsibility for Execution and Completion (Clause 13.1(a) in Katira): According to Katira, a developer must assume comprehensive responsibility for the project, encompassing all stages from inception through completion. In Montecarlo Ltd., the Co-ordinate Bench and the Hon'ble Gujarat High Court emphasized that the developer's role includes end-to-end responsibility, requiring the entity to manage and execute work beyond construction. Here, the assessee's responsibilities in the MPSH project extended to all aspects of project design, execution, and handover, mirroring the obligations seen in Montecarlo Ltd., where the court upheld that an entity with such overarching responsibilities qualifies as a developer. 14.3. Operational Autonomy and Approval Requirements (Clause 13.1(a) in Katira): Katira states that developers may require limited government approvals without negating their status as developers. In Montecarlo Ltd., the Hon'ble Gujarat High Court reinforced this, noting that operational autonomy within government contracts does not disqualify an entity from developer status. The assessee here maintained autonomy, bearing control over all phases of execution, despite needing certain government approvals. This autonomy, coupled with significant managerial duties, aligns with both Katira and Montecarlo Ltd., supporting the developer classification. 14.4. Development of Pre-Existing Infrastructure (Clause 13.1(b) in Katira): The Katira decision highlights that developers often redevelop or upgrade existing facilities. Similarly, in Montecarlo Ltd., the Co-ordinate Bench allowed deduction under Section 80IA(4) of the Act for rehabilitation work that transformed infrastructure. The MPSH project's scope of work entailed rehabilitating an existing highway, thereby transforming it into a new infrastructure facility--consistent with the development activities recognized in Montecarlo Ltd.. 14.5. Employment and Management of Skilled Workforce (Clause 13.1(c) in Katira): Both Katira and Montecarlo Ltd. emphasize that developers must recruit and manage skilled personnel. In this case, the assessee engaged project managers, engineers, and other skilled professionals, taking responsibility for all manpower requirements. This mirrors the approach upheld in Montecarlo Ltd., 30 SABIR, SEW & PRASAD JV where the Co-ordinate Bench observed that managing personnel indicated significant managerial control-- characteristics of a developer. 14.6. Technical Know-How and Expertise (Clause 13.1(d) in Katira): The Katira and Montecarlo Ltd. decisions both require that developers possess technical expertise, deploying skills essential to infrastructure development. The assessee's experience in similar projects and its use of technical knowledge in the MPSH project aligns well with the standards set in these decisions, showing that it actively contributed specialized expertise to the project. 14.7. Financial Responsibility and Risk Bearing (Clause 13.1(e) in Katira): As outlined in both Katira and Montecarlo Ltd., developers assume entrepreneurial and financial risks. The assessee here arranged financing independently, managed delays, and assumed liability for project risks, including property damage. The Gujarat High Court in Montecarlo Ltd. explicitly noted that a developer's financial risk-taking is central to eligibility under Section 80IA(4). By assuming such risks, the assessee demonstrates alignment with the financial responsibilities defined for developers. 14.8. Supply and Testing of Materials (Clause 13.1(f) in Katira): In Katira and similarly in Montecarlo Ltd., developers are expected to source quality materials independently, without reliance on government supply. The assessee complied with quality standards under Clause 36.1 of the Scope of Work, sourcing materials and overseeing quality control, much like the operations in Montecarlo Ltd., where the Co-ordinate bench observed material procurement as an indicator of developer status. 14.9. Provision and Use of Machinery (Clause 13.1(g) in Katira): Katira and Montecarlo Ltd. require developers to supply necessary equipment. The assessee in this case used its machinery, including specialized equipment, fulfilling the developer's responsibility of machinery provision. This approach resonates with Montecarlo Ltd., where similar machinery use supported the court's conclusion in favour of developer status. 14.10. Insurance and Comprehensive Risk Coverage (Clause 13.1(h) in Katira): The Katira guidelines mandate insurance and risk management, as supported by Montecarlo Ltd., where the court noted that developers must bear all project risks. The 31 SABIR, SEW & PRASAD JV assessee's insurance coverage throughout the project meets this requirement, reinforcing its role as a developer. 14.11. Liability for Quality and Defects (Clause 13.1(i) in Katira): Katira and Montecarlo Ltd. indicate that developers bear responsibility for defects within the liability period. Here, the assessee was accountable for quality assurance, mirroring the obligations in Montecarlo Ltd. and further supporting the claim to developer status. 14.12. Timely Completion and Liquidated Damages (Clause 13.1(j) in Katira): As both Katira and Montecarlo Ltd. decisions emphasize, developers bear risks for delays. The assessee in the MPSH project faced penalties for untimely completion, demonstrating adherence to the responsibilities outlined in these decisions. 14.13. Public Safety and Environmental Standards (Clause 13.1(k) and 13.1(l) in Katira): Both Katira and Montecarlo Ltd. mandate safety and environmental compliance, which the assessee fulfilled through extensive safety protocols and environmental protections, aligning with the standards expected of a developer.

15. The DR relied on two key decisions: M.S. Khurana Engineering Ltd. v. ACIT and NEC NCC Maytas JV. However, these decisions are distinguishable from the present case, and neither restricts the applicability of Section 80IA(4) of the Act in light of the jurisdictional precedent established in Montecarlo Ltd. v. Principal CIT, which adopts a broader interpretation in favour of infrastructure development. In Co-ordinate Bench restored the matter to the CIT(A) due to incomplete consideration of facts by the CIT(A), who had not fully analyzed the roles and risks undertaken by the assessee. The CIT(A) had classified the assessee as a contractor without examining its managerial responsibilities, financial risks, or control over project execution, leading the Co- ordinate Bench to require a re-evaluation. Unlike Khurana Engineering, the CIT(A) in the present case conducted a comprehensive review of the assessee's obligations, financial risks, and control, confirming that the assessee met the developer criteria under Section 80IA(4) of the Act. The Hyderabad bench in NEC NCC Maytas JV held that the JV performed a works contract, with the government directing the scope, funding, and progress. The Co-ordinate Bench found that the JV operated under strict government control, received lump-sum payments and mobilization advances, and bore minimal financial and operational risks, disqualifying it from Section 80IA(4) of the Act as a 32 SABIR, SEW & PRASAD JV developer. In contrast, the present assessee bears substantial entrepreneurial and financial risks, including performance guarantees, liquidated damages, and retention money, assuming the obligations and risks typically associated with a developer. The decisions in M.S. Khurana Engineering Ltd. and NEC NCC Maytas JV are not applicable in this case due to their factual and procedural distinctions, as well as the jurisdictional clarification in Montecarlo Ltd. that supports a broader interpretation of developer status under Section 80IA(4) of the Act. The present assessee's comprehensive control, significant financial risk, and managerial responsibilities align with the characteristics of a developer as outlined in Montecarlo Ltd., rendering the DR's reliance on these cases misplaced.

16. We have perused the order of CIT(A) in detail. The CIT(A)'s order provides an in-depth examination of the eligibility criteria for deductions under Section 80IA(4) of the Act, specifically analyzing whether the assessee qualifies as a "developer" rather than merely a "contractor." The CIT(A) applied several interpretative principles, statutory provisions, and relevant judicial precedents to arrive at its decision. The CIT(A) thoroughly examined the definitions of "developer" and "contractor" and clarified that merely executing a construction contract does not automatically disqualify an entity from claiming deductions under Section 80IA(4) of the Act. The order emphasized that the legislative intent behind Section 80IA of the Act was to incentivize infrastructure development, and, thus, the term "developer" should be interpreted broadly. This includes entities undertaking significant public infrastructure projects, such as the assessee's work on roads and drainage systems. The CIT(A) held that the assessee's active involvement in infrastructure projects aligned with the statutory objective of creating new facilities benefiting the public, confirming its status as a developer. The CIT(A) highlighted that the assessee bore significant financial and operational risks, including providing performance guarantees, facing potential liquidated damages for delays, and being liable for retention money. These elements evidenced the assessee's entrepreneurial risk, a hallmark of developer activities under Section 80IA. The CIT(A) referenced the legislative history and amendments to Section 80IA of the Act, particularly the Finance Act of 2000, which progressively liberalized the section to encourage private sector participation in infrastructure. Notably, this amendment clarified that "developing," "operating and maintaining," or any combination of these functions qualifies for deductions. The CIT(A) found that this liberalization intended to include entities like the assessee, whose activities contribute 33 SABIR, SEW & PRASAD JV directly to public infrastructure creation. Emphasizing the entrepreneurial and operational risks borne by the assessee, the CIT(A) concluded that the assessee's responsibilities aligned more closely with those of a developer rather than a contractor. The assessee's involvement in project outcomes, liability for delays, and management of quality control processes indicated that it functioned as an independent developer under Section 80IA of the Act. Additionally, the CIT(A) cited M/s. Tarmat Bel (JV) vs. ITO (Rajkot Bench) and Om Metals Infra Projects Ltd. vs. CIT (Jaipur Bench), which held that contractors managing substantial project responsibilities qualify as developers eligible for Section 80IA of the Act deductions. These judicial precedents reinforced the CIT(A)'s position, supporting the assessee's developer status. 16.1. After perusing the CIT(A)'s comprehensive analysis, we find that the CIT(A) rightly interpreted the assessee's role as a developer under Section 80IA(4) of the Act. The CIT(A)'s reliance on Circular No. 4/2010, along with precedents from rulings of various Benches of the Tribunal and Hon'ble Supreme Court guidance, provides a robust legal basis to affirm the developer status of the assessee. 16.2 The financial statements of the assessee, spanning Assessment Years (AYs) 2007-08 to 2015-16, provide a comprehensive view of the business's financial and operational profile, reflecting the nature, scope, and risk involved in its activities. The financial parameters across these years serve as indicators of the business's state of affairs, highlighting the responsibilities, risk assumptions, and commitments undertaken by the assessee in infrastructure projects. Analyzing these parameters aids in understanding the overall risk profile of the assessee and substantively differentiating a developer from a contractor. The following tabulated financial parameters across AYs 2007-08 to 2011-12 (to the extent comparable data is available in the paper book) underscore the risk elements characteristic of the assessee:- ……. 16.3. The financial parameters above reflect the overall business risk associated with the business of the assessee. Given the characteristics of a developer, the business risk profile illustrates the following critical points:-

34 SABIR, SEW & PRASAD JV Financial and Leverage Risk: • The company's debt-to-equity ratio, peaking at 0.96 in 2009, demonstrates substantial leverage, indicative of a developer taking on significant financial obligations to fund long-term projects. This high leverage level aligns with the financial risk a developer assumes, as developers typically engage in substantial upfront investment and long project cycles. The subsequent decrease in leverage suggests strategic risk management, reinforcing the financial commitment typical of developers. Operational Risk: • Low profit margins, fluctuating between 2.83% and 3.25%, highlight the cost-intensive nature of infrastructure projects and the narrow margins within which developers operate. The company's low profitability indicates a commitment to long-term project sustainability rather than short-term gains, consistent with a developer's operational profile. • The inconsistency in inventory turnover and high receivables suggest challenges typical of developers, who often face delayed payments linked to project milestones and demand cycles. This delay in cash inflows impacts liquidity but is an inherent risk in large-scale infrastructure development projects. Liquidity Risk: • Moderate liquidity risk is evident from the current ratio trends and fluctuating cash balances. As a developer, the company's liquidity is impacted by the cyclical nature of project payments, reflecting the working capital constraints associated with extended project timelines and staggered cash flows. • The rising receivables turnover time, declining cash balances, and high current liabilities also indicate reliance on project completions and customer payments, a common characteristic of developers with substantial liquidity requirements. Market and Profitability Risk: • The company's primary income is derived from contract receipts i.e the projects, which are contingent on project completion and client certification. This dependency exposes the company to market and client-related risks, such as changes in demand, government policies, and competitive pressures in the infrastructure sector. • Low profitability margins further suggest sensitivity to cost fluctuations and competitive pricing pressures, which is common among developers in a highly competitive sector.

35 SABIR, SEW & PRASAD JV 16.4. We have also noted the off-balance sheet items of liabilities i.e. Contingent liabilities and observe that there's a significant increase in contingent liabilities, especially in guarantees for joint ventures and disputed tax and royalty demands, which indicate growing exposure to financial and operational risks. 16.5. From a business risk and reward perspective, contingent liabilities are critical considerations for a developer aiming to maximize returns and maintain financial stability. Bank guarantees represent a significant cash flow risk; if invoked, they could strain liquidity, disrupt project timelines, and delay revenue recognition, ultimately affecting project profitability. Similarly, guarantees provided to subsidiaries expose the developer to financial risk if a subsidiary encounters difficulties, creating unplanned liabilities that can reduce overall project profitability and erode return on investment. Joint venture guarantees add an additional layer of risk by tying the developer's financial health to that of its partners; any default or underperformance by a joint venture partner could disrupt project financing and jeopardize the project's timeline, impacting expected returns. 16.6. Based on the financial parameters and business risk elements, it is apparent that the assessee operates as a developer rather than merely a contractor. The risk profile--characterized by substantial leverage, operational responsibility, liquidity constraints, and market dependency-- supports the classification of the assessee as a developer under Section 80IA of the Act. By assuming extensive financial, operational, and market risks, the assessee aligns with the statutory definition of a developer, undertaking comprehensive responsibilities in infrastructure creation. 16.7. The financial statements serve as indicators of the business's nature, scope, and the substantive responsibilities borne by the assessee, which collectively affirm that the assessee's activities qualify under the broader framework of infrastructure development as envisaged under Section 80IA of the Act. This analysis will provide the foundation for determining eligibility and distinguishing the assessee's role in alignment with legislative intent, statutory provisions, and relevant judicial precedents, ultimately supporting the assessee's position for developer status.

36 SABIR, SEW & PRASAD JV 16.8. Furthermore, in line with the Hon'ble Gujarat High Court's decision in the case of Montecarlo Ltd. v. Principal CIT, we note that Section 80IA(4) of the Act should be interpreted liberally to support the infrastructure development mandate. Montecarlo Ltd. affirmed that an entity operating under a government contract does not lose developer status if it assumes the independent roles and responsibilities associated with developing infrastructure. The assessee's case here mirrors Montecarlo Ltd., where the Hon'ble Gujarat High Court upheld deductions for infrastructure developers who mobilized resources, bore risks, and undertook comprehensive JMC Projects (India) Ltd. vs. DCIT-ACIT (By assessee and Revenue) Asst. Years : 2007-08 to 2015- 16 development duties. Given the binding nature of this jurisdictional precedent, we respectfully follow Montecarlo Ltd., concurring with the CIT(A) that the assessee qualifies as a developer entitled to deductions under Section 80IA(4) of the Act. 16.9. In view of the above, we find that the CIT(A) rightly allowed the assessee's claim under Section 80IA(4) of the Act based on its function as a developer in infrastructure projects. The CIT(A)'s reliance on statutory interpretation, judicial precedents, and CBDT guidance provides a sound basis for affirming the assessee's eligibility for the deduction. 16.10. Accordingly, the Revenue's appeals on the s relating to deduction u/s. 80IA of the Act are dismissed, and the orders of the CIT(A) granting the assessee deductions under Section 80IA(4) of the Act are upheld. 16.11. Under the s related to 80IA of the Act, the assessee contended that the CIT(A) erred in not directing the AO to allow the deduction under Section 80IA of the Act based on the "total income of the eligible business as finally computed and assessed by the AO," which includes adjustments arising from additions or disallowances made during assessment. 16.12. The AR argued that under Section 80IA of the Act, the deduction should be computed based on the final income of the eligible undertaking after all adjustments, additions, and disallowances are made by the AO. The AR also contended that this interpretation aligns with the legislative intent of providing deductions based on the "total income" as assessed, rather than on the income computed prior to adjustments.

37 SABIR, SEW & PRASAD JV Under Section 80IA(1) of the Act, the deduction is allowed in respect of "profits and gains derived from the eligible business." Section 80IA(5) of the Act further stipulates that for computing the deduction, the eligible business is treated as the "only source of income," and income attributable to the eligible undertaking should be calculated in isolation. However, judicial interpretations have clarified that the term "total income" for deduction purposes is often based on the final assessed income, reflecting the eligible business's actual income post-assessment adjustments. 16.14. Upon examining the provisions and judicial precedents, we agree with the assessee's interpretation that Section 80IA of the Act deductions should apply to the total income of the eligible unit as assessed by the AO, including any additions or disallowances made during the assessment process. The legislative intent of Section 80IA of the Act is to incentivize infrastructure development and industrial growth by providing deductions on income attributable to eligible undertakings. This objective is best achieved by allowing deductions on the income computed as per the final assessment, which captures the true profits of the eligible business. The CIT(A) should have directed the AO to allow the deduction under Section 80IA based on the final assessed income of the eligible undertaking, after considering all additions or disallowances. Accordingly, the AO is directed to recompute the Section 80IA deduction on the final assessed income of the eligible industrial undertaking. This ensures that the deduction accurately reflects the undertaking's profits, consistent with statutory provisions and judicial interpretations.

17. The assessee's respective grounds in for AY 2012-13 are allowed.”

16. The co-ordinate Bench of the Tribunal, while deciding the issue in the case of JMC Projects (India) Ltd., (supra) had the occasion to deal with the decision relied upon by the Ld.DR namely, M/s. NEC NCC MAYTAS-JV (supra) and has provided elaborate reasoning as to why the said decision is clearly distinguishable. It was observed that the assessee operates as a developer rather than merely a contractor. The risks undertaken, the professional expertise required, the substantial leverage, operational responsibility, liquidity constraints, and market exposure collectively characterize the assessee as a ‘Developer’ under Section 80IA of the Act.

38 SABIR, SEW & PRASAD JV 16.1. Similarly, if you examine the various stipulations given in the present case, it is clear that the assessee, by assuming essentially extensive financial and market risks, qualifies as a developer, undertaking comprehensive responsibility in infrastructure creation.

17. We further find that, although, CBDT Circular was neither relied upon by the Revenue at that time of argument nor by the Assessing Officer, it is essential to mention that in the present case, there is no mobilization advance as mentioned in the contract. Furthermore, as the contract pertains to the creation of an agricultural / irrigation facility, there is no mechanism for the assessee to recover the cost of creation of infrastructure facility, as the same is peculiar to the BOOT model. The BOOT model is typically applicable to the projects such as airports, highways, cand tunnel construction. However, in the present case, the assessee cannot recover the cost of the infrastructure facility such as dam, pond, bund etc., except through reimbursement from the statutory body, namely, the Superintending Engineer, I & CAD, Mahabubnagar, Telangana State. Therefore, the parameters which are applicable to BOOT Projects can’t be applied mutatis mutandis to the creation of irrigation and agricultural projects, as the freedom to charge in a particular manner cannot be extended to the developer of such irrigational infrastructure facilities. However, the same is not true with respect to the projects such as highways, tunnels, airports or metro stations, because the cost incurred by the developer can always be factored into the usage charges. However, in agricultural infrastructure, identifying and recovering costs from the end user is difficult. To merely categorize this as a work contract would be a fallacy, as all the risks, rewards, and responsibilities lie with the assessee engaged in the creation of the infrastructure facility. For these reasons, reliance on the decision in the case of JMC Projects (India) Ltd., (supra) is warranted in the facts of the present case.

18. It is useful to mention here that the co-ordinate Bench of the Tribunal in the case of M/s. NEC NCC MAYTAS-JV (supra) has relied upon the decision of Hon'ble Gujarat High Court in the case of Katira Construction Ltd Vs. ACIT. However, the decision in Katira Construction Ltd. (supra) had been discussed in the case of JMC Projects (India) Ltd., (supra), wherein the scope of Katira construction Limited, M.S. Khurana Engineering Ltd., and Montecarlo Ltd. was examined. The Hon'ble Gujrat High Court, in a subsequent decision in Montecarlo Ltd. Vs. PCIT (supra) has held that the scope and application of section 80IA is much broader than what was interpreted in Katira Construction Ltd. and M.S. Khurana Engineering Ltd. (supra).

39 SABIR, SEW & PRASAD JV

“3.6. The Tribunal, considering the above analysis carried out by the CIT (Appeals) held as under : "16. In the instant facts we have to firstly see whether the assessee is engaged in "development" for any "new infrastructural facility" or is engaged only in carrying out repair works or other incidental works, not amounting to development of a new infrastructural facility. In order to be eligible for claim of deduction under Section 80- IA(4) of the Act and to qualify as a "developer" ", the assessee should be engaged in "development" of a new infrastructural facility and mere "repairs and maintenance" or "upkeep" от "revamp" work of existing facility and other incidental works would not qualify for deduction under Section 80- undefined IA(4) of the Act, being primarily in the nature of "works contract" only. Once the essential threshold of assessee being engaged in "development" of a "new infrastructural facility" is satisfied, as a subsequent step, we need to analyze whether the "other conditions" for qualifying as a "developer" are satisfied ie. the assessee has taken the necessary financial and entrepreneurial risk associated with development of a new project, so as to qualify as a "developer".

17. In this case, we observe that the assessee entered into contract a contract for construction of new domestic arrival block at Sardar Vallabhbhai Patel International Airport, Ahmedabad (refer Pages 144 145 of Paper Book and Pages 27,28-30 of CIT (Appeals) order). It is observed that Ld. CIT(A) at Page 28 of his order observed that 40 SABIR, SEW & PRASAD JV the assessee was awarded a contract for full-fledged development undefined of an Airport along-with all facilities like AC, flight information display system, full electrification etc. Therefore, evidently the contract has not been awarded to the assessee for carrying out any repairs, maintenance or upkeep etc. of existing airport facility, but the assessee has been awarded contract for bringing into existence a new infrastructural facility in place being new domestic arrival block at Sardar Vallabhbhai Patel International Airport. Accordingly, the assessee in our view is has been entrusted the responsibility of bringing into existence and "new infrastructure facility" being a new domestic arrival block at Sardar Vallabhbhai Patel International Airport.

18. The next issue for consideration is whether the assessee has undertaken the necessary financial and entrepreneurial risk so as to qualify as a "developer" , or is it a case that the undefined assessee is merely acting on the directions of AAI wherein complete responsibility for finance, man-power, scope of work, penalty provisions etc. are to be borne by AAI and assessee is only working at the behest and under the control and directions of AAI. In this case, we observe that the assessee has furnished bank guarantee to AAI (refer Pages 51-61 of the Paper Book), the assessee has furnished detailed program and CPM work diagram to AAI for its approval (refer Pages 51-61 of the Paper Book), the assessee has prepared and submitted electrical layout drawing for site office (refer Pages 69-70 of Paper Book), the assessee has prepared various other designs like curtain glazing wall (refer Pages 72-98 of Paper Book), honey comb panels designs (refer Pages 99-103 of Paper Book), design for air handling unit Duct & Pipe (refer Pages 104-124 of the Paper Book) etc. Further, the assessee has also undertaken to provide all materials for the project at it's own undefined expenses (other than those which are supplied by AAI) (refer Pages 131 and 06 of Paper Book). The assessee has also undertaken to indemnify AAI employees against action for claim or proceedings relating to infringement or use of any patent or design etc. (refer Pages 132 of Paper Book). Accordingly, looking into the facts of the instant case, it is observed that the assessee has undertaken to bring into existence a new infrastructure facility being new domestic arrival block at Sardar Vallabhbhai Patel International Airport, Ahmedabad and further the assessee is also undertaken various financial and entrepreneurial risks required to be borne by a "Developer" of a project viz. providing bank guarantee to AAI, procurement of certain materials by the assessee at it's own cost during the construction phase, preparation of various architectural designs 41 SABIR, SEW & PRASAD JV relating to the project for approval of AAI etc. which all support the fact that the assessee undefined is in the instant facts is a "developer" within the meaning of Section 80-IA of the Act and is eligible for claim of deduction under Section 80-IA(4) of the Act. We observe that Ld. CIT(A) undertook a detailed analysis of the scope of work undertaken by the assessee and the various risks and responsibilities undertaken by the assessee and then came to conclusion that assessee qualifies as a "developer" and is eligible to claim of deduction under Section 80-IA(4) of the Act. Accordingly, we find no infirmity in the order of CIT(Appeals) so as to call for any interference."

“6. The Hon'ble Supreme Court in Commissioner of Income Tax v. Container Corporation of India Limited [2018] 93 taxmann.com 31/255 Taxman 334/404 ITR 397 (SC) explained the object and scope of Section 80IA of the Act by observing that with the purpose of boosting the country's infrastructure specially the transport infrastructure, Finance Act, 1995 which came into effect April 01, 1996 brought an amendment to the provisions of Section 80IA of the Act. In the said decision, the Hon'ble Supreme Court upheld the views taken in the case of Commissioner of Income Tax v. A.L. Logistics Private Limited [2015] 55 taxmann.com 283/230 Taxman 194/374 ITR 609 (Madras). In the said decision, the Hon'ble 42 SABIR, SEW & PRASAD JV Division Bench has held that the specific issue as to whether in the absence of a specific agreement with the Central/State Government, local authority or statutory body the assessee is entitled to claim the benefit under Section 80IA(4)(i) was considered and after analysing the terms and conditions of the agreement as well as the orders passed by the Government of India, it was held that the proposal of the said assessee was accepted by the Government on certain conditions which were duly complied with by the said assessee and therefore even if there may not be any specific agreement but the sequence of events clearly show that the assessee therein is providing container freight station facility in accordance with the conditions laid down by the Government and therefore there is no need to insists or the specific execution of agreements. In fact, the above finding rendered by the tribunal was affirmed by the court in the case of A.L. Logistics Private Limited (supra). We also note that the decision in the case of Ranjit Projects Private Limited (supra) has attained finality as the appeal filed by department before the Hon'ble Supreme Court in CIT v. Ranjit Projects (P.) Ltd. [Special Leave Petition (Civil) Diary No. 8895 of 2019, dated 8-4-2019].

15. In Commissioner of Income Tax v. Continental Warehousing Corporation [2015] 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Bombay) one of the substantial question which was considered was whether the tribunal erred in holding that the assessee therein was entitled to deduction under Section 80IA(4) which was contrary to the circular of the Central Board of Direct Taxes No. 10 of 2005. The said question was decided against the revenue and in favour of the assessee on the following lines:- 39. A perusal thereof would indicate as to how the Legislature had in mind deduction in respect of profits and gains from industrial undertakings or enterprises engaged in the infrastructure development etc. We are concerned with sub-section (4) and as it read at the relevant time. It says that this section applies to any enterprise carrying on the business of developing or operating and maintaining any infrastructure facility which fulfills all the conditions, namely, 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, it has entered into an agreement with the Central Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility and it has started or starts operating and maintaining the infrastructure 43 SABIR, SEW & PRASAD JV facility on or after 1st day of April, 1995. The explanation defines the infrastructure facility to mean, inter alia, a port, airport, inland waterway, inland port or navigational channel in the sea. The word "inland port" was always there in clause (d). What was there prior to its substitution by Finance Act of 2007 with effect from 1st April, 2008, were the words "or inland port". Now the word "or" is deleted, but the words are "inland port or navigational channel in the sea". Thus, an "inland port" was always within the contemplation of the Legislature and it is treated specifically as a infrastructural facility. Therefore, to that extent Mr. Dastur is right in his submission.

44 SABIR, SEW & PRASAD JV "16. Before analysing the above policy read with the notifications, it is important to bear in mind the connotation of the word "tax". A tax is a payment for raising general revenue. It is a burden. It is based on the principle of ability or capacity to pay. It is a manifestation of the taxing power of the State. An exemption from payment of tax under an enactment is an exemption from the tax liability. Therefore, every such exemption notification has to be read strictly. However, when an assessee is promised with a tax exemption for setting up an industry in the backward area as a term of the industrial policy, we have to read the implementing notifications in the context of the industrial policy. In such a case, the exemption notifications have to be read liberally keeping in mind the objects envisaged by the industrial policy and not in a strict sense as in the case of exemptions from tax liability under the taxing statute."

46 SABIR, SEW & PRASAD JV “11. We have heard both parties, perused the material available on record and gone through the orders of the authorities below. We have also carefully considered the relevant case laws relied upon by the AO and LD.CIT(A) in support of their reasoning and also case laws relied upon by the assessee in support of their contentions. The AO disallowed deduction claimed under Section 80IA(4) towards profits derived from infrastructure project Pranahita Chevella Lift Irrigation Scheme, Link-IV, Package No. 10, on the ground that the appellant had not entered into any agreement with Central Government or State Government or local authority or any statutory body and which is a pre-condition for claiming deduction under the said provisions of the Act. It was the contention of the assessee before the AO that the appellant is a ‘developer’ of infrastructure facility, as defined under Section 80IA(4) of the Act, and the profit derived from the development of infrastructure facility, is eligible for deduction under Section 80IA(4) of the Act. In order to resolve the dispute, it is necessary for us to refer to the provisions of Section 80IA(4) of the Act, and conditions provided therein for 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 owned by a company registered in India or by a consortium of such companies. Further, it shall enter into agreement with the Central Government or a State Government or any local authority or any 47 SABIR, SEW & PRASAD JV other statutory body for developing or, operating and maintaining or developing, operating and maintaining any infrastructure facility. Finally, it should start operating and maintaining the infrastructure facility on or after the 1st day of April of 1995. In other words, for claiming deduction under Section 80IA(4) of the Act, any enterprise engaged in the business of developing or, operating and maintaining or any developing, operating and maintaining any infrastructure facility and satisfy the above conditions can claim deduction towards profit derived from development of any infrastructure project. In the present case, there is no dispute with regard to satisfying the conditions of enterprise owned by a company registered in India or by a consortium of such companies. In fact, the appellant is owned by an Indian company. The only dispute is with regard to entering into an agreement with the Central Government or a State Government or any local authority or any other statutory body. In fact, the AO never disputed the fact that the Enterprise is owned by an Indian company and also satisfied the other conditions, however, disputed the condition of entering into an agreement with the Central Government or a State Government or any local authority or any other statutory body. According to the AO, the appellant has not satisfied the condition of entering into agreement with the Central Government or a State Government or any local authority or any other statutory body for developing infrastructure facility. In other words, the AO never disputed the fact that deduction claimed towards profit derived from development of infrastructure facility is eligible for claiming deduction under Section 80 IA(4) of the Act. According to the AO, the appellant is only a sub-contractor, who executed civil contract work for M/s. HCC, in terms of Work Order No.14020223 dated 22-03-2017. Therefore, the Assessing Officer rejected the claim of deduction under Section 80IA(4) of the Act.

13. We have given our thoughtful consideration to the reasons given by the AO and LD.CIT(A) to reject deduction under Section 80IA(4) of the Act, towards profits derived from development of infrastructure project 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 48 SABIR, SEW & PRASAD JV 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 said infrastructure project, but the only condition for sub-contracting work to other contractor is, the person, who executing the works should have eligible criteria and work experience and further, the sub-contract should be approved by the developer of the project, i.e., Government of Andhra Pradesh, Irrigation and C.A.D. Department. In terms of agreement with Government of Andhra Pradesh, Irrigation and C.A.D. Department, one of the JV partners, M/s. HCC, in terms of Clause 43 of Agreement dated 02-12-2008, sub-contracted entire civil work in the project on back-to-back basis to the appellant with all risks and rewards. Further, before entering into sub-contract work with the appellant, the Principal Contractor M/s.HCC has taken permission from the Government of Andhra Pradesh, Irrigation and C.A.D Department and the developer of the project has approved the appellant for executing the civil works. Therefore, it is necessary for us to examine the eligibility of the appellant to claim deduction under Section 80IA of the Act, in light of the infrastructure project developed by the Government of Andhra Pradesh, Irrigation and C.A.D. Department, the JV agreement between the constituent partners dated 02-12- 2009, bid document for the Project Pranahitha Chevella Lift Irrigation Scheme, issued by the Government of Andhra Pradesh and the Work Order issued by M/s.HCC to the appellant company.

14. The project Pranahitha Chevella Lift Irrigation Scheme is a huge irrigation Scheme developed by the Government of Andhra Pradesh for lifting 88.24 TMC of water from Mid Manair to new reservoir at Ananthagiri Village, Illanthakunta Mandal, Karimnagar District by water conveyor system with all associated components to irrigate an ayacut of 30,000 acres. The total size of the contract value as per revised estimate was Rs.2715 crores. If you go by the type of infrastructure project undertaken by the JV partners and the size of the contract value, it is impossible for a single person to execute such a huge infrastructure facility, within a short time. Therefore, considering the nature and size of the 49 SABIR, SEW & PRASAD JV infrastructure facility, the developer i.e., Government of Andhra Pradesh, Irrigation and C.A.D. Department itself has provided for sub-contracting up to 50% of the work to the other eligible contractors upon satisfying the eligibility criteria and having required experience and 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 as, the agreement between the authorities and the developer for developing the project and it goes back to the date of original agreement. Therefore, we are of the considered view that Assessing Officer, upon satisfying the fact that the profits derived from the project of development of infrastructure facility is eligible for claiming deduction under Section 80IA(4) of the Act, erred in disallowing the claim of the appellant only on the ground that the agreement between the appellant and M/s.HCC is not in terms of section 80IA(4) of the Act, and thus, in our considered view, reasons given by the Assessing Officer is incorrect and cannot be accepted.

15. Having said so, let us come back to the nature of work undertaken by the assessee. As we have said in earlier part of this order, the appellant has developed an infrastructure facility, in the nature of irrigation project, which satisfies the conditions for claiming deduction under Section 80IA(4) of the Act. Further, if you go by the scope of the project work, as defined in the BID document, it is a huge irrigation project for drawing 88.24 TMC water from Mid Manair Reservoir in 120 days with a static head 50 SABIR, SEW & PRASAD JV of about 88 mtrs lift in single stage at Anantagiri Village and the project requires large-scale civil, mechanical, and electrical works. Therefore, going by the nature of the project and size, in our considered view, the appellant has undertaken all the entrepreneurial and investment risk that any developer would have undertaken. The appellant has also undertaken the risks of the project. There was no reduction in quantum or quality of risk undertaken by the appellant in whatsoever manner, as the project was undertaken from a JV partner on back-to-back basis. A look at the business profile of the appellant clearly demonstrates that entrepreneurial and investment risk undertaken by the appellant in this venture. For example, the appellant has undertaken the following activities including, investigation of land and deciding the location of facilities, project design associated risks, defect liability risk of 24 months after project completion, inherent risk of delayed payment, arbitration and litigation, and development work to be completed as per the agreement within time and as such, the assessee was faced with the risk of incurring heavy expenses of correction or redoing the work. Therefore, going by the 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 the case of CIT Vs. Chettinad Lignite Transport Services (P.) Ltd (supra).

51 SABIR, SEW & PRASAD JV

16. We further noted that the professed goal of the legislation of Section 80IA(4) as per explanatory memorandum to Finance Bill, 2001 is measures to accelerate economic development – liberalization of tax holiday provisions for infrastructure under the existing provisions of Section 80IA i.e., roads, highways, bridges, airports, ports etc., Therefore, the legislation has extended the scope of deduction under Section 80IA of the Act, keeping in view the capital intensive nature of big infrastructure projects like irrigation projects etc. The CBDT issued a Circular No.4 of 2010, dated 18.05.2010, which was issued after introduction of the explanation by the Finance Act 2009, and a reading of the Circular would indicate that the Board clearly mentioned that the widening of existing road is an infrastructure facility, and any enterprise carrying out the widening of an existing road would be eligible for deduction under Section 80IA(4) of the Act. This also shows that it was never in contemplation of Legislature to assign a literal and constricted meaning to development vis-à-vis a simple contract. Therefore, from the intention of the legislation and clarifications issued by the CBDT, it is absolutely clear that the sole motive of the provisions of Section 80IA of the Act, is to provide deduction towards profit derived by the enterprise from development of an infrastructure facility and further, by way of proviso to Section 80IA(4), the Legislature has provided deduction for remaining period to any enterprise, who succeeds the project by way of amalgamation or transfer, etc. Therefore, in our considered view, once the successor entity is eligible to claim deduction under Section 80IA, then there is no question of denying the said benefit to any enterprise, which is a joint partner of said infrastructure facility. Since the appellant is one of the partners of the development of irrigation project, in our considered view, the appellant is entitled for deduction under Section 80IA(4) of the Act.

17. The appellant has relied upon the decision of Hon'ble Madras High Court in the case of CIT Vs. Chettinad Lignite Transport Services (P.) Ltd (supra), wherein the Hon'ble High Court has considered an identical issue of deduction under Section 80IA(4) of the Act, in light of claim made 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 :

52 SABIR, SEW & PRASAD JV “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 Proviso intends to extend the benefit of the said deduction under Section 80IA of the Act even to a transferee or a contractor who is approved and recognised by the concerned authority and undertakes the work of the said development of infrastructure facility or only operating or maintaining the same. The Proviso to sub-section (4) stipulates that subject to the fulfillment of conditions, the transferee will be entitled to the said benefit as if the transfer in question had not taken place. It has been found by the Assessing Authority himself, the present assessee in Transport Services Private Limited under M/s. Chettinad, the present case that an Agreement dated 16.04.2002 captioned as Lignite Transport System with M/s. ST-CMS Electric Company Private Limited, had undertaken the work of developing the said railway sidings and was operating and maintaining the same. The only ground on which the Assessing Authority denied the said benefit was that the assessee himself did not enter into any such contract with the Railways or with the Central Government.

9. The learned Tribunal, however, in our opinion, rightly applied the Proviso to Section 80IA(4) of the Act and held that since the assessee was recognised as contractor for these railway sidings, which undoubtedly fell under the definition of "infrastructure facility," it was entitled to the said benefit under Section 80IA of the Act. The grounds on which the Assessing Authority denied the said benefit to the assessee ignoring the effect of Provisos to Section 80IA(4), therefore, could not be sustained. The Tribunal, in our opinion, has rightly held that the law does not require that there should be a direct agreement between the transferee enterprise and the specified authority availing the benefit under Section 80IA of the Act. There is no dispute before us that the assessee was duly recognised as transferee or assignee of the principal contractor M/s. ST-CMS Electric Company Private 53 SABIR, SEW & PRASAD JV Limited and was duly so recognised by the Railways to operate and maintain the said railway sidings at Vadalur and Uthangal Mangalam Railway Stations. The findings of fact with regard to the said position recorded by the learned Tribunal are, therefore, unassailable and that clearly attracted the first Proviso to Section 80IA(4) of the Act. [Emphasis supplied].”

18. The assessee had also relied upon the decision of ITAT Hyderabad Bench, in the case of ACIT Vs. Megha Engineering & Infrastructure Ltd., in 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 awarded to the appellant as main developer / builder, while some projects were awarded to the JVs/Consortium, but executed by assessee company, as constituent partner of the said JV in proportion to their share. It is also not in dispute that the appellant has satisfied all the conditions except clause (b) of Section 80IA(4), as noted by the Assessing Officer. In other words, the AO accepted the fact that the projects executed by the appellant, including those projects which were awarded to JVs/ Consortiums, but executed by the assessee are infrastructure projects, as defined under Section 80IA(4) of the Act and thus, on being satisfied with the relevant provisions therein, the assessee is eligible for deduction under Section 80IA(4) of the Act. The only dispute is with regard to not satisfying clause (b) of Section 80IA(4)(1), which states that in order to claim deduction under Section 80IA(4) of the Act, the enterprises shall enter into an agreement with the Central government or State Government or local authority or any authority for developing, operating and 54 SABIR, SEW & PRASAD JV maintaining or developing, operating and maintaining a new infrastructure facility. The appellant claims that it has satisfied clause (a) of Section 80IA(4) of the Act, because as a constituent partner of JV /Consortia, it has signed agreement with relevant Central or State Government or local authority for development of infrastructure project. Further, as per clause (a) of Section 80IA(4) of the Act, in order to claim deduction under Section 80IA(4), the enterprise should be owned by a company registered in India or by a consortium of such companies.

Further, Clause (a) makes it clear that a company registered in India, or a consortium of such company registered in India should be owned the undertaking and Clause (b) states that such entity should be entered into agreement with the relevant authorities. Going by the above provisions, in our considered view, the assessee being one of the constituent partners of JV / Consortia has signed the agreement with the Central or State Government or local government for development of infrastructure project. Therefore, in our considered view, once the appellant, being a constituent partner JV / Consortia has entered into an agreement with relevant authorities, then it is as good as the appellant has entered into agreement in its individual capacity for development 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 directly paid to appellant, instead of JV / Consortia, after deducting the TDS applicable as per law in the name of the appellant. From the above, it is 55 SABIR, SEW & PRASAD JV undisputedly clear that although the JV/Consortium is a separate entity for the purpose of assessment, but all other activities, including designing, development, and maintenance of the project are undertaken by the assessee. Therefore, we are of the considered view that once the assessee, being a constituent partner of the JV/Consortium, has executed the project and also undertaken relevant risks, including financial risks, the assessee becomes a developer of the infrastructure project and also as a constituent partner of the JV/Consortium, satisfied the condition of entering into an agreement with relevant Central or State government or any authority as specified in clause (b) of Section 80IA(4)(1) of the Act. This is further fortified by the provisions of Section 80IA(4) of the Act and as per the proviso, the deduction is allowed to a successor entity in case one enterprise developed such infrastructure facility and after development, transfer such infrastructure facility to another Enterprise for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with agreement with the Central / State Government or 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 transferee enterprise for the unexpired period. Going by the above provisions, when the law itself allowed the benefit to successor entity in case of transfer, then there is no reason as to why such deduction shall not be allowed to constituent partner JV / Consortium, more particularly, when the facts of said JVs / Consortium clearly established the fact that the appellant has carried out all the activities, including design and development of project and maintaining of said project.

by the revenue in this regard.”

12. A similar view has been taken by ITAT, Lucknow Bench in the case of PMC Constructions Co. P. Ltd Vs. DCIT (supra), wherein it has been held that the appellant is eligible for deduction under Section 80IA(4) in respect of the profits derived from the projects awarded to JV / Consortium but executed by the appellant. The decision of the ITAT Lucknow Bench has been upheld by the Hon’ble Allahabad High Court. The sum and substance of the ratios laid down by the various benches of the Tribunal is that when the appellant has satisfied all the conditions prescribed under Section 80IA(4) of the Act, but merely for the reason that the agreement is entered into by JV / Consortium, the deduction under Section 80IA(4) cannot be denied.”

19. Coming back to the case laws relied upon by the ld.DR in the case of DCIT Vs. M/s.HES Infra Private Limited (supra). The co-ordinate Bench of the Tribunal by following the decision of 58 SABIR, SEW & PRASAD JV Hon'ble Supreme Court in the case of Commissioner of Customs (Import) Vs. M/s. Dilip Kumar and Company and others (supra), rejected the claim of the appellant deduction under Section 80IA of the Act, for not satisfying the condition of entering into agreement with specified authority. We find that the Co-ordinate Bench of the Tribunal of ITAT in the case of ACIT Vs. Megha Engineering and Infrastructure Ltd, (supra) has considered the decision relied upon by the ld.DR in the case of DCIT Vs. M/s. HES Infra Pvt. Ltd. (supra) and upon giving reasons, distinguished the decision of the co-ordinate Bench of the Tribunal in the case of DCIT Vs. HES Infra Pvt. Ltd. (supra) and relevant findings of the Tribunal are as under : “13. Coming back to case laws relied upon by the ld.DR for the Revenue. The ld.DR relied upon the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. HES Infra Pvt. Ltd (supra), We have gone through the decision of ITAT, Hyderabad Bench in the above case, and we find that, the Tribunal has gone on sole premise of interpretation of statutory provisions in light of the decision of Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) and held that in case of a person claiming deduction under the provisions of Section 80IA(4), the onus is on the assessee 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 between exemption provisions generally and exemption provisions which have a beneficial purpose. The Court further held that they cannot agree with Shri Gupta's contention that sub-silentio the line of 59 SABIR, SEW & PRASAD JV judgments qua beneficial exemptions has been done away with by this 5-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what it matters logically follow from it. This being the case, it is obvious that the beneficial purpose of exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of those cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand should be eschewed. Going by the subsequent decision of the Hon’ble Supreme Court in the above case, it is undisputedly clear that exemption provisions should be interpreted liberally in order to achieve the objectives of the legislature and going by the above ratio, in our considered view, there is no dispute with regard to the fact in the present case, the appellant is engaged in the business of developing infrastructure project like irrigation project, water supply system, hydropower plants and roads and railway lines and the statute provides for specific exemption under section 80IA(4) of the Act in respect of infrastructure projects, in our considered view, going by the liberal interpretation of the statute, the assessee must be given the benefit of deduction, having been satisfied all the conditions, including the condition of entering into an agreement with the State Government or Central Government or with any local authority, as a constituent partner of the JV/Consortium, more particularly, except entering into agreement, all other activities were carried out by the assessee. Further, the earlier order of ITAT in assessee’s own case was dt.15.02.2019 and order of the Hon'ble Apex Court in Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) is dated 31.07.2018. The Co- ordinate Bench of the ITAT had also taken note of the Judgment of the Hon'ble Apex Court in Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) while adjudicating the issue of deduction u/s 80IA(4) of the Act. Therefore, in 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).”

60 SABIR, SEW & PRASAD JV

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 towards disallowance of deduction claimed under Section 80IA(4) of the Act. Thus, we set aside the order passed by the LD.CIT(A) and direct the AO to delete the addition made towards disallowance of deduction claimed under Section 80IA(4) of the Act.”

61 SABIR, SEW & PRASAD JV and 214/Hyd/2024 for A.Ys.2018-19 and 2020-21

27. Now coming to the other appeals i.e. and 214/Hyd/2024, which are identical to the facts and issues raised by the assessee in ITA 212/Hyd/2024 for A.Y. 2006-07, our decision in would apply mutatis mutandis. Accordingly, these appeals of the assessee are also allowed.

Order pronounced in the Open Court on 24th February, 2025.