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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
O R D E R PER LALIET KUMAR, J.M:
These three appeals filed by the Revenue are directed against common order of Commissioner of Income Tax (Appeals) – 2, dated 15.03.2019 relevant to A.Ys. 2003-04, 2004-05 and 2005-06, respectively. Since, the facts are identical and issue is common but for the figures, for the sake of convenience, these
2 Koya and Company Construction Limited three appeals were heard together and are being disposed of, by this consolidated order by taking as lead appeal.
The grounds raised by the Revenue in read as under :
“1. Whether on the fact and circumstances of the case, the CIT(A) is correct in his interpretation of the provisions of section 801A(4) of the income tax Act 1961,so as to enable even builders and works contractors to avail the benefits that flow there from? 2.Whether on the facts and circumstances of the case, the CIT(A) is correct in allowing the deduction claimed by the assessee u/s801A(4) of the Income Tax Act, when the assessee was executing only specific work and not development of facility as whole and failed to satisfy the conditions of being a developer? 3.Whether on the facts and in circumstances of the case, the CIT(A) is correct in ignoring the specific findings of the assessing officer that disentitle the assessee for relief under section 801A of the Act?"
The brief facts of the case are that the assessee is a company engaged in the business of civil contracts works. The returns of Income filed by the assessee for Asst Years 2003-04, 2004-05 & 2005-06 showing total income of Rs. 66,16,440/-, Rs. 2,98,88,080/- & Rs. 3,54,88,930/- respectively, were taken up for scrutiny and the assessments were completed u/s. 143(3) of the Act with total assessed income of Rs. 3,55,05,410/-, 9,44,47,976/- & Rs. 6,93,75,033/- respectively, by disallowing claims of 80IA of the Act. Thereafter, the action of the AO was upheld by the LD.CIT(A) for AYs 2004-05 & 2005-06. Further, for the A.Y. 2003- 04, the LD.CIT(A) enhanced the income and consequential order
3 Koya and Company Construction Limited was passed with an income of Rs. 3,69,73,210/-. The appellant filed further appeals on the order of LD.CIT(A) dt.06.01.2006 before the ITAT, Hyderabad and the Hon'ble ITAT in its orders in (ΑΥ 2003-04), 167/Hyd/2008 (AY 2004-05) & 168/Hyd/2008 (AY 2005-06) dated 22.03.2012 gave certain directions to the AO and re-examine the contracts for features of development / construction, operating / maintenance, financial involvement, defect collection in liability period and grant deduction u/s 80Ia of the Act for contracts containing these features and further directed that these contracts are to be segregated from other contracts, which are in nature of pure work contracts and are not entitled for deduction u/s 80IA of the Act, being hit by explanation under Section 80IA(13) of the Act.
3.1. As per the directions of the Tribunal, the Assessing Officer has initiated proceedings u/s 143(3) and notice u/s 143(2) along with questionnaire calling for the details were issued on 09.10.2012 and duly served on the assessee. Thereafter, assessee filed its reply along with his submissions why it is entitled for deduction u/s 80IA(4) of the Act. Thereafter, the Assessing Officer, upon detailed examination of the contract agreements and perusal of submissions made by both parties, conducted an analysis of each contract for eligibility under section 80IA. This was done to give effect to the directions of the Hon'ble ITAT, in light of the decisions of various judicial authorities, circulars, clarifications, and submissions from both sides. Accordingly, the AO completed the assessments under section 143(3) read with section 254 of the 4 Koya and Company Construction Limited Income Tax Act on 04.04.2013, determining the total incomes as ₹3,69,73,210/-, ₹9,44,42,976/-, and ₹6,93,75,033/- for the Assessment Years 2003-04, 2004-05, and 2005-06, respectively, by denying the deduction under section 80IA of the Act.
Aggrieved with such assessment orders, assessee filed appeals before the LD.CIT(A), who granted part relief to the assessee by passing common order dt.15.03.2019, wherein it was held as under :
“6……. ….. ….. To sum up, the appellant is eligible for all the projects as claimed for deduction u/s. 801A but for the Narayanpet project for which the deduction was claimed only in A.Y. 2003-04. Therefore, for A.Y. 2004-05 and 2005-06 all projects as claimed are eligible for deduction u/s. 801A as per the factual details submitted by the appellant. As regards, the quantum of deduction in the case of the appellant, the appellant has mentioned that there has been no losses in any of the project and all the projects have profits, during these three Assessment Years, therefore the controversy of the set off of loss does not arise for the present year under consideration. The Hon'ble ITAT has given directions to allow the deduction on the basis of pro rata profit on the turnover. The AR has submitted that the profits on pro rata basis for all the three assessment years are higher than the quantum claimed. In view of this fact, the claim of the appellant is restricted to the quantum claimed in actual being less than the profit on pro rata basis. Subject to the above remarks, as all the grounds in all the years are identical in nature, in view of the discussion above the adjudication on the grounds is summarized as under: The ground no. 3, 4, 5 and 6 are partly allowed for A.Y. 2003-04 as one of the projects have been found to be ineligible for the claim of deduction u/s. 801A and the ground nos. 3, 4, 5
5 Koya and Company Construction Limited and 6 are allowed for A.Y. 2004-05 and 2005- 06 with respect to eligibility of projects under consideration discussed above. The ground no. 2 is partly allowed for A.Y. 2003-04 as one project has been found ineligible and deduction for other projects which are eligible subject to quantification of deduction, the ground no. 2 for A.Y. 2004-05 and 2005-06 are allowed with regard to eligibility and partly allowed with regards to deduction subject to quantification as discussed above. The above adjudication of the ground is limited to the eligibility of the projects and not on the quantum of deduction, which is subject to as per the observations regarding quantification of deduction/s. 801A. The ground no. 1, 7 and 9 for all the years are general in nature and need no separate adjudication in view of the discussion above.
Aggrieved with the order of LD.CIT(A), the Revenue is now in appeal before us.
Before us, the Ld.DR submitted that the Tribunal, in the case of the assessee for the earlier assessment years, had decided the issue in favour of the assessee. Our attention was drawn to the order passed by the Ld.CIT(A), which has been reproduced hereinabove. The ld.DR further submitted that the Revenue has already filed an appeal before the Hon'ble High Court and the present appeal has been filed with a view to continue the litigation.
Per contra, ld.AR has submitted that the relief was granted to the assessee by the Tribunal for earlier assessment years. Our attention was drawn to paragraphs 4 and 5 the order passed in dt.10.10.2018 for A.Y. 2014-15, wherein the Tribunal had decided the issue in favour of the assessee by holding as under :
6 Koya and Company Construction Limited
“4. Learned Departmental Representative supported the order of the A.O., while the Learned Counsel for the Assessee supported the order of the CIT(A) and had also brought to our notice that pursuant to the order of the Tribunal in assessee's own case for the A.Y. 2006-07, CIT(A) has passed an order after verifying the nature of the projects and segregating them and that the Revenue has not filed any appeal before the Tribunal and thus the order of the CIT(A) has become final. He submitted that the CIT(A) therefore, on the assessee's appeal for the A.Y. 2014-15, has followed the order of the ITAT in the assessee's own case and after considering the nature of contracts has held that the projects are not mere work contracts and that the assessee is eligible for deduction u/s 80IA of the Act.
5. Having regard to the rival contentions and the material on record, we find that the order of the CIT(A) for the A.Y. 2006-07 consequent to remittance by the Tribunal has become final and the Revenue has not filed any appeal before the Tribunal. We also find that the CIT(A) for the A.Y. 2014-15 has verified the nature of contracts before holding that they are not mere works contracts. Therefore, we see no reason to interfere with the order of the CIT(A), which is in consonance with the directions of the ITAT in the earlier years. Accordingly, the grounds raised by the Revenue are dismissed.”
It was submitted by the ld.AR that for A.Y. 2006-07, an identical issue came up for consideration before the CIT(Appeals)-2, Hyderabad, wherein the Ld.CIT(A), vide its order dt.09.02.2018 at page 121, has held as under :
“6.2. Aggrieved, the Revenue is in appeal before us. 6.3 The learned DR assailed the order of the CIT (A) stating that it is not a speaking order and the reasons for allowing deduction were not forthcoming from the order of the CIT (A). The learned DR referred to the order of the AO and submitted that as per the analysis done by the AO, assessee was doing only work contract and hence is not eligible for deduction. Per contra, the learned Counsel submitted that as per the directions of the ITAT, assessee company furnished detailed submissions segregating the development contracts and work contracts and the claim of 7 Koya and Company Construction Limited
801A was restricted to the profits earned on development contracts. He, however, supported the order of the CIT (A).
7. We have perused the facts on record and circumstances in this case, the legal principles arising herein and we arrive at our considered view that so far as the legal parameters are concerned, it has been very elaborately analysed by the ITAT in the assessee's own case that if the assessee is conducting developmental activities, then the deduction is allowable, but if it is only relate to the work contracts, then such deduction is not allowable. We also find as per the MA filed by the assessee the of 2015 Koya and co. Hyd Tribunal had directed the AO to segregate as regards the total contracts which one is development contracts and which are only works related contracts. Contracts which are development contracts, to that extent deduction is allowable u/s 801A of the Act. AD without examining the nature of contract as directed has treated all of them as work contracts. Coming to the order of the learned CIT (A), all these aforesaid parameters were to be examined and put forth in his otherwise elaborate and extensive order. But however, for reasons best known to him, though he has allowed the said deduction to the assessee, but the reasons for allowing those deductions were not at all farthcoming in his order. The order of the learned CIT (A) is not at all a speaking order, nor it has expressed in any way all the cogent reasons for which the assessee is eligible for the deduction claimed for. It is a matter of judicial exercise and knowledge that as per the ruling of the Apex Court in several cases, the quasi judicial authority are supposed to provide a specking order whereby the way of thought is specifically mentioned therein and if it is not a speaking order, then it is bad in law. This so because the mental process and thought leading to the decision is very much unclear. In the instant case, though the assessee has gone before the ITAT, we find in our considered view the order of the ITAT is essentially clarificatory in nature regarding the legal position of the assessee, but it is not decisive in nature so as to clearly decide whether in the given facts and situation, the assessee is eligible for deduction or not. Neither we find the CIT (A) has given a reasoned order for his decision. Therefore, under the circumstances and in the interest of justice, we find it deem and proper to send this file back to the CIT (A) to give a finding of 2015 Koya and co. Hyd about the nature of the contracts undertaken by the assessee and whether the segregation undertaken by the assesseevis-à-vis the development contract and work contracts is correct or not. We expect the learned CIT (A) to examine all contracts and give a finding on each of the contracts and determine the issue of deduction in a much more definite way, by way of a speaking order. Accordingly the appeal of the Revenue is allowed for statistical purposes."
8 Koya and Company Construction Limited
It was further submitted by the ld.AR that after the receipt of remand report, the Ld.CIT(A) has examined various issues and thereafter, granted relief to the assessee. In this regard, ld.AR has drawn our attention to Paragraphs 6 to 6.7 of the order (placed at page 126 of the paper book), wherein it was held as under :
“6. I have carefully considered the issue, the directions of the Hon'ble ITAT, the remand report of the AO and the rejoinder of the appellant filed in the earlier proceedings and the submissions made by the AR. It is evident from the order of the Hon'ble ITAT in the case of appellant dated 22.03.2012 that the Hon'ble ITAT held that the assesse is eligible for deduction u/s.80IA on the contracts which involve development, operation, maintenance, financial involvement and defect correction during liability period. On the other hand, it was held that mere works contracts are not eligible for the said deduction. It is for the purpose of segregating the contracts executed by the appellant Into the ones on which deduction u/s.801A has to be allowed and the ones which are mere works contracts, that the Hon'ble ITAT remitted the matter to the AO. The Hon'ble ITAT directed the AO to examine the contracts and work out the computation of deduction u/s.80IA (Para-31 of the order). 6.1 It is seen that during the assessment proceedings u/s.143(3) r.w.s. 254, the appellant submitted information/details of the nature of work Involved in the development of Infrastructure of water supply projects. Further, a comprehensive statement on the contracts/projects executed by the appellant over AYs 2006-07, 2007-08, 2008-09 and 2009-10 giving details of project name, total turnover u/s 801A projects and other projects and the profits derived as per the separate accounts maintained, year- wise and project-wise etc. were reportedly filed before the AO. As per the submissions of the appellant, it is eligible for deduction u/s 80IA In respect of 29 projects out of total 41 projects executed during the year under consideration, for which exhaustive details/explanation was given for each contract along with copies of salient features of Contract, terms of contract, operation &maintenance details, provision of defect correction during liability period etc. 6.2 Before me, the AR furnished copies of documents filed before the AO along with the comprehensive statement of Turnover, Profits eligible u/s 80IA etc. and working of deduction u/s 80IA on pro-rata basis on turnover as per the directions of Hon'ble ITAT in the Paper Book (PB) filed. From this comprehensive table and the supporting details/ documents furnished, it
9 Koya and Company Construction Limited was submitted that out of total turnover of Rs.147.54 crores, profit of Rs.6,00,15,663/- (after set off of losses) was claimed as eligible for deduction u/s.80IA and profit of Rs.2,62,68,763/- was claimed to be profit on account of projects not eligible for deduction u/s.80IA. 6.3 It is seen from the assessment order that the AO, without analyzing each of the 29 contracts claimed to be eligible for deduction u/s 80IA by the appellant, went on to generally examine the four conditions laid down by the ITAT and held that the appellant is not eligible for deduction u/s.80IA(4) in respect of all the projects being executed. The AO summarily brushed aside the claim of the appellant by stating "upon detailed examination of contract agreements and perusal of submissions made by the assesse company, it is held that all contracts are in the nature of pure works contracts and therefore not eligible for deduction u/s.80IA as examined in light of directions of Hon'ble ITAT". The case law relied upon by the AD is also not relevant to the facts of the appellant. 6.4 The conclusion drawn by the AO and the basis for the said conclusion goes against the spirit and directions issued by the Hon'ble ITAT to the AO to work out deduction u/s.801A(4) on the eligible projects. As mentioned above, the Hon'ble ITAT clearly held that the projects executed by the appellant are eligible for deduction u/s.801A. With regard to quantification and computation of deduction u/s.80IA(4) only, the AO was directed to examine the projects, segregate the works contracts and eligible contracts and work out the deduction u/s.801A on pro-rata basis on turnover. However, as stated above, the AO has simply disallowed the entire claim. 6.5 It is worthwhile to note that on similar set of facts, the Hon'ble ITAT allowed deduction u/s.801A(4) in respect of eligible projects of the appellant for the AY 2007- OS vide order in dated 05.04.2013 and for the AY 2008-09 & 2009-10 vide order in & 418/H/2013 dated 23.08.2013 (The Department was in appeal in ITAT as the CIT(A) allowed the appeals of the appellant). It is seen that the AO vide orders dated 25.08.2014 for the AYs 2008-09 & 2009-10 and order dated 11.03.2015 for the AY 2007-08 passed consequential orders allowing deduction u/s.80IA as per the order of Hon'ble ITAT. It was submitted by the appellant that same contracts under execution in the AY 2006-07 also continued in the AY 2007-08, 2008-09 & 2009-10 on which deduction u/s.80IA was already allowed by the AO in the consequential order. The AR thus argued that on the same/similar set of facts, deduction u/s 80IA was allowed in the subsequent years, whereas it was denied for the year under consideration, which is arbitrary. 6.6 In view of the above and the factual matrix, examination of the projects reflecting the development of infrastructure facility, operation & maintenance, defect correction during liability period, financial risk/involvement etc. furnished by the appellant and acceptance of the claim in the subsequent years on the same/similar projects etc., it is held
10 Koya and Company Construction Limited that the appellant is eligible for deduction u/s 801A(4) of the Act in respect of 29 Projects out of 41 Projects executed during the year under consideration. 6.7 Coming to the quantum of deduction, it is seen that the appellant claimed deduction u/s 80IA of Rs.6,00,15,663 in the return of Income. It was submitted during the appeal proceedings that the appellant derived profit of Rs.9,24,89,732 and loss of Rs. 3,24,74,069 form the eligible projects. However, Instead of claiming deduction u/s 80IA in respect of projects giving rise to profit only, it was erroneously claimed on the net profit arising from the eligible projects, after reducing the losses from the profits derived. It was contended that appellant is entitled to claim deduction u/s 80IA only from such eligible projects which resulted in profit. The AR however submitted that the Hon'ble Tribunal directed that the deduction has to be allowed on pro-rata basis on turnover. The AR accordingly submitted that the eligible deduction u/s 80IA, as per the directions of Hon'ble ITAT is Rs.7,29,56,073 as per the working given hereunder: Profit as per computation x 801A projects Turnover Total Turnover Total projects as per Balance Sheet Rs.147,54,39,058.46 80IA Projects Rs. 108,90,62,054.00 Profit finalized u/s.143(3) Rs. 9,88,39,403.00 Pro-rata profit to be allowed under 80IA as per ITAT Order dt. 23.03.2012 Rs. 7,29,56,075.43 I find force in the argument of the AR. As per the directions of Hon'ble ITAT, the AR worked out the deduction u/s 80IA on pro-rata basis to turnover at Rs. 7,29,56,073. The AO may allow the said deduction u/s 80IA after verifying the accuracy of the computation.”
On the basis of the above, it was submitted by the ld.AR that the issue is, in fact, covered in favour of the assessee, and therefore, the order passed by the Ld.CIT(A) is correct. Furthermore, the ld.AR has drawn our attention to page 28 of the order of Ld.CIT(A), wherein details of 38 projects are provided in a 11 Koya and Company Construction Limited tabulated manner. The ld.AR has drawn our attention to page 30 of the order, wherein the Ld.CIT(A) has mentioned that the contracts at Sl. Nos.1, 17, 18, 19, 21, 29 and 32 needs adjudication and that they did not percolate to A.Y. 2005-06 or A.Y. 2003-04. The Ld.CIT(A) has examined each contract and thereafter, had given a finding at page 42 of the order (reproduced in paragraph 4 of this order).
The ld.AR further submitted that the issue is covered by the earlier order of Tribunal and it was submitted that for A.Y. 2006- 07, against the order of Ld.CIT(A) dt.16.11.2018, no appeal has been preferred by the Revenue. It was submitted that in the judgment of the hon'ble Supreme Court, in the case of CIT Vs Bergar Paints reported in 138 taxman 586, it was submitted that once the Revenue has chosen not to challenge the correctness of law in respect of the assessee, then it is not open for the Revenue to challenge the correctness in other cases.
In rebuttal, the ld.DR has submitted that the appeal has been preferred before the Hon'ble High Court against the first order. Ld.DR besides submitting that the issue is covered, had further filed the written submissions, which is to the following effect :
“Assessment u/s. 143(3) was completed on 30.04.2008 assessing the total income at Rs.9,33,26,733/- disallowing the claim under section 801A. On appeal made by the assessee, CIT(A) upheld the action of AO. Assessee filed appeal before TAT against the order of CIT(A). Hon'ble ITAT, vide Order No. dated 22.03.2012, directed the AO to 12 Koya and Company Construction Limited examine the records and grant deduction u/s. 801A. Subsequently another order was passed by AO u/s. 143(3) r.w.s. 254 on 04.04.2013 disallowing the claim of assessee w/s. 801A. Against this order, assessee filed appeal before CIT(A) which was allowed. Aggrieved by the order of CIT(A), department filed appeal before ITAT. ITAT vide order in dated 27.06.2016 remitted the matter to the CIT(A) directing to pass the speaking order. Accordingly CIT(A) passed order on 09.02.2018 allowing the claim of the assessee u/s. 801A. Department did not file any further appeal against this CIT(A) order as department already filed appeal before Hon'ble High Court against this order of ITAT dated 22.03.2012 on the issue of 801A (Scrutiny reports of JAO, Range head recommendations and CIT office enclosed for ready reference, which are self explanatory). To sum up, department is in appeal before Hon 'ble High Court against the order of ITAT in dated 22.03.2012 on the issue of 80 A deduction.”
We have heard the rival submissions and perused the material on record. Admittedly, the Tribunal in order dt.27.06.2016, had remitted the matter to the file of Ld.CIT(A), as the earlier order of Ld.CIT(A) was not a speaking order. Subsequently, the Ld.CIT(A), in the order passed to give effect, granted relief to the assessee for A.Y. 2006-07 vide its order dt.09.02.2018.
It is an admitted fact that the LD.CIT(A) at page 30 of his order has mentioned that six contracts for the assessment year 2003-04 has not percolated to the assessment year 2006-07 and similarly, two contracts for the assessment year 2004-05 have not percolated to the assessment year 2006-07. The contracts for the assessment year 2005-06 have percolated to the assessment year 2006-07. Thus, the LD.CIT(A) concluded that the contracts at Sl.Nos.1, 17, 18, 19, 21, 29, 32 and 34 have not been percolated for 13 Koya and Company Construction Limited A.Y. 2006-07. Whereas, the other contracts at Sl.Nos.2-16, 22-28, 33 and 35 to 38 were percolated to A.Y. 2006-07. These contracts have been examined by the LD.CIT(A) in the appellate order passed for the assessment year 2006-07 pursuant to the direction of the Tribunal in dt.27.06.2016. Against the order of the LD.CIT(A) dt. 09.02.2018, the Revenue has not preferred the appeal. Thus, for all purposes, the finding of the LD.CIT(A) with respect to contract at Sl.Nos.2-16, 22-28, 33 and 35 to 38 have attained finality. In view of the above, we dismiss the grounds of the Revenue pertaining to the contracts at Sl.Nos.2-16, 22-28, 33 and 35 to 38. Furthermore, no specific ground has been raised challenging this finding of the fact by the LD.CIT(A) before us.
With respect to the contracts at Sl.Nos.1, 17, 18, 19, 21, 29, 32 and 34 at pages 30 to 41, the LD.CIT(A) has held as under :
-left intentionally- 14 Koya and Company Construction Limited 15 Koya and Company Construction Limited 16 Koya and Company Construction Limited 17 Koya and Company Construction Limited 18 Koya and Company Construction Limited 19 Koya and Company Construction Limited 20 Koya and Company Construction Limited 21 Koya and Company Construction Limited 22 Koya and Company Construction Limited 23 Koya and Company Construction Limited 24 Koya and Company Construction Limited 25 Koya and Company Construction Limited
It is the contention of the ld.AR that these contracts have been examined and were found to be parametria similar to the other contracts, which were examined for the assessment year 2006-07 and therefore, the relief was granted. In our considered opinion, the contracts at Sl.Nos.1, 17, 18, 19, 21, 29, 32 and 34 were required to be independently examined afresh by reference to the terms of the contract and following the direction of the Tribunal in (supra) and thereafter, it is required by the Ld.CIT(A) to record a finding as to whether these contracts are the work contracts fulfilling the criteria as laid down under Section 26 Koya and Company Construction Limited 80IA or not ? Since the above exercise has not been done by the Ld.CIT(A) independently and he has merely relied upon the order of the Tribunal / order of Ld.CIT(A) for A.Y. 2006-07, in our view, the same cannot be granted continence or permitted.
In light of the above, we remand back the matter in respect of contracts at Sl.Nos.1, 17, 18, 19, 21, 29, 32 and 34, as mentioned hereinabove, to the file of Ld.CIT(A) to record a separate finding having reference to the decision of Tribunal in the provision of Section 80IA of the Act and terms of the Contracts. After examining the terms of the contract, Ld.CIT(A) is required to record finding whether the contracts entered by the assessee in respect of Sl.Nos.1, 17, 18, 19, 21, 29, 32 and 34 were in nature of Work Contracts or Contracts for Work ? Accordingly, the matter is remanded to the file of Ld.CIT(A). Thus, the appeals of the Revenue are allowed for statistical purposes.
In the result, all the appeals of Revenue are partly allowed for statistical purposes.
Order pronounced in the Open Court on 16th January, 2025.