ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(1), PUNE, PUNE vs. PATIL CONSTRUCTION AND INFRASTRUCTURE LIMITED, MUMBAI

The assessee in response to the above filed certain documents which include copy of Form No.10CCB and chart showing working of computation of profit derived from eligible business u/s 80-IA of the Act. The assessee also submitted copies of ledger account and extracts of some bills in support of income received.

However, the Assessing Officer was not satisfied with the submissions made by the assessee. He noted that the assessee has not given (i) the copy of agreement of enterprise with the Central Government or a State Government or a local authority or any other statutory body for carrying on the business of developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility and (ii) evidence of having filed Form 10CCB and copy of the agreement of the enterprise with the Central Government or a State Government or a local authority or any other statutory body for carrying on the business of developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility.

He, therefore, was of the opinion that from the documents which are available on record, it is not clear as to whether the assessee has undertaken any business of developing or operating and maintaining or developing, operating and maintaining the new infrastructure facility. According to him the payments appear as contract payments and the assessee has brought nothing on record to justify its claim that it is carrying on the business of developing or operating and maintaining or developing, operating and maintaining the new infrastructure facility. The Assessing Officer was of the opinion that the assessee is a contractor and has executed the work contracts awarded by the clients/Govt. agencies involved in construction of infrastructure related projects. Merely by executing the works contracts relating to infrastructure projects, the assessee cannot be considered as an enterprise carrying on business of developing, operating and maintaining of any new infrastructure facility within the meaning of section 80-IA of the Act. He further noted that in most of the cases, the copies submitted do not contain details of the nature of work. He referred to the bill of the Commissioner, City Corporation, Gulbarga where it has been mentioned as under:

He, therefore, was of the opinion that the assessee has not carried out any work of development of new Infrastructure facility in these cases. He further noted in other cases also that it could not be verified for want of documents from the assessee's end.

The Assessing Officer referred to CBDT’s Circular No.4/2010 dated 18.05.2010 according to which simply relaying of an existing road could not be classifiable as a new infrastructure facility for the purpose of section 80-IA(4)(1) of the Act. The Assessing Officer relying on various decisions held that the assessee is not eligible for deduction u/s 80-IA of the Act for the following reasons:

Finally the Assessing Officer rejected the claim of deduction u/s 80-IA(4) by observing as under:

Similar disallowance was made by the Assessing Officer for assessment year 2014-15 at Rs.6,71,03,897/- and for assessment year 2015-16 at Rs.7,02,87,260/-.

Before the Ld. CIT(A) it was argued that the assessee has filed certain documents which include Form 10CCB and chart showing working of computation of profit derived from eligible business u/s 80IA. The assessee had also submitted copies of ledger account and extracts of some bills in support of income received. It was argued that the basic required information in Form No.10CCB and the chart showing working of computation of profit derived from eligible business u/s 80IA were duly furnished. It was submitted that as per the details furnished there is quantification of deduction u/s 80IA of Rs.5,60,11,420/-. It was further submitted that the assessee has not claimed any deduction u/s 80IA of the Act in respect of the following works: 1. Baner SWD work order no.10237 2. Sancheti Work oder no.709 3. Sangamwadi Yerwada work order no.833 4. Vitthalwadi work order no.10293 5. Wadgapn BK. Works order no.10239 6. Wadgapn Sheri works order no.10238

It was submitted that a detailed note in respect of claim u/s 80IA was filed before the Income Tax Settlement Commission which was duly accepted after considering the legal position in this respect. It was argued that once the benefit of section 80IA is given in the initial year then it would continue for the subsequent years and it cannot be withdrawn intermittently without there being any change in the facts of the case. The assessee also submitted that in the e-filing portal Form No.3CEB, 10CCB, 3CA and 29B have been filed online in time. Relying on various decisions it was submitted that the assessee is eligible for the claim of deduction u/s 80IA of the Act.

Based on the arguments advanced by the assessee the Ld. CIT(A) allowed the claim of deduction u/s 80IA by observing as under:

Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:

The Ld. DR strongly challenged the order of the Ld. CIT(A) in allowing the claim of deduction u/s 80IA(4) of the Act. He submitted that the Assessing Officer after analyzing the nature of projects undertaken by the assessee and related facts, had disallowed the deduction claimed u/s 80IA(4) of the Act for all the three years mainly on two grounds i.e. (a) the projects undertaken by the assessee do not fall under the category of “new infrastructure facility” as envisaged in section 80IA(4) and (b) the assessee in respect of the impugned projects acted as contractor and not as developer. He submitted that the Assessing Officer on sample basis had examined the nature of projects undertaken by the assessee in the assessment orders of all the three years. The Ld. DR drew the attention of the Bench to the following which has been examined by the Assessing Officer:

The Ld. DR referring to the order for assessment year 2013-14 submitted that the Assessing Officer at page 8 of his order has categorically mentioned that other projects for which 80IA deduction has been claimed by the assessee could not be verified for want of documents from the assessee. He submitted that the Ld. CIT(A) without going into the contentions of the Assessing Officer and project- wise anomalies pointed out by the Assessing Officer simply relied on the order of the Income Tax Settlement Commission for assessment year 2012-13 and the orders passed by the Ld. CIT(A) allowed the deduction u/s 80IA(4) to the assessee. He submitted that the order of the Ld. CIT(A) is a non-speaking one and displays blatant non application of mind. The Ld. CIT(A) had not discussed the findings of the Settlement Commission for assessment year 2013-14 or that of the CIT(A) for subsequent years and in a single paragraph has decided the issue. He submitted that the Ld. CIT(A) also failed to consider the fact that deduction u/s 80IA(4) of the Act depends upon the nature of projects executed by the assessee. He submitted that the nature of projects executed differed from year to year and therefore, the eligibility for deduction u/s 80IA(4) of the Act should be examined qua the nature of project and not qua the identity or status of the assessee as developer. He submitted that a particular assessee can be eligible for deduction u/s 80IA(4) for a particular project but can be ineligible for deduction u/s 80IA of the Act for another project executed during the same assessment year. He submitted that the assessee during the appeal proceedings has suo moto withdrawn claim of deduction u/s 80IA on certain projects for assessment year 2014-15 and 2015-16, the details of which are as under:

He submitted that the projects at serial Nos.1 and 3 have been discussed and considered by the Assessing Officer as ineligible for deduction u/s 80IA of the Act. The project at serial No.2 has not been discussed by the Assessing Officer for any of the assessment years. A perusal of the above would show that the assessee himself had withdrawn the deduction u/s 80IA on the projects which were discussed on sample basis by the Assessing Officer and also on those which have not been discussed by the Assessing Officer. This should have prompted the Ld. CIT(A) to analyze all the projects on which the deduction has been claimed by the assessee. However, the Ld. CIT(A) failed to do so and had merely relied on the orders of the Settlement Commission and the orders of the Ld. CIT(A) for the subsequent years. Further, the order of the Settlement Commission is only for assessment years 2011-12 and 2012-13.

Relying on the decision of the Hon’ble Supreme Court in the case of Ajmera Housing Corporation vs. CIT reported in (2010) 326 ITR 642 (SC) he submitted that the scope of proceedings before the Settlement Commission under Chapter XIX-A of the Income-tax Act, 1961 is sui generis in nature. These proceedings are neither akin to regular assessments nor appellate adjudications but are fundamentally designed to settle tax disputes based on a full and truthful voluntary disclosure made by the assessee. It is similar to arbitration proceedings. The Settlement Commission is not an appellate forum to examine the merits of long standing legal disputes between the assessee and the Department. The complex legal controversies are not within the domain of settlement proceedings, which are meant to end disputes, not continue them. The section 245-I clearly states that every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein, and no matter covered by such order shall be reopened in any proceeding under this Act or under any other law for the time being in force. He submitted that in view of the above, it can be inferred that the order of the Settlement Commission is final only for the assessment years before it, and cannot be treated as binding precedent for other years. This is more so when the facts of the subsequent assessment years are different from that of the assessment years covered by the application before it. The findings in a settlement order cannot be mechanically applied in regular assessments for later years. The settlement orders are case-specific, non-precedential and limited to the facts and disclosures on record. Hence, the Ld. CIT(A) has misdirected himself in relying heavily on the order of the Settlement Commission for assessment year 2011-12 and 2012-13 without going into the details of the projects executed by the assessee.

He submitted that when the statutory auditors in their tax audit reports have categorically mentioned that the deduction claimed by the assessee u/s 80IA for its projects executed for infrastructure facilities is in conflict with the provisions of the Act, the Ld. CIT(A) should have applied his mind. However, he has failed to do so. Relying on various decisions including CBDT Circular No.4/2010, the Ld. DR submitted that the order of the Ld. CIT(A) being not in accordance with law should be reversed and that of the Assessing Officer be restored. He also relied on the following decisions: i) GMR Tambaram Tindivanam Expressways Ltd. vs. DCIT vide & 546/Bang/2018, order dated 26.11.2018 for assessment years 2013-14 & 2014-15 ii) Yojaka Marine (P.) Ltd. vs. ACIT (2013) 354 ITR 530 (Karnataka) iii) B.T. Patil & Sons Belgaum Construction (P.) Ltd. vs. ACIT (2010) 1 ITR(T) 703 (Mumbai)(LB) iv) M/s. NEC NCC Maytas vs. DCIT vide & Ors. order dated 12.05.2021 v) Katira Construction Ltd. vs. Union of India (2013) 352 ITR 513 (Guj) vi) Yojaka Marine (P.) Ltd. vs. ACIT (2012) 25 taxmann.com 260 (Bangalore)

The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A). Referring to the decision of the Mumbai Bench of the Tribunal in the case of Patel Engg. Ltd. vs. DCIT (2005) 94 ITD 411 (Mumbai), he submitted that the Tribunal in the said decision has held that for availing deduction u/s 80-IA, ‘infrastructure facility’ should not necessarily be owned by the assessee. For the above proposition, the Ld. Counsel for the assessee drew the attention of the Bench to para 45 of the order of the Tribunal which reads as under:

Thereafter, the Ld. Counsel for the assessee drew the attention of the Bench to paras 48 and 49 of the order of the Tribunal which read as under: “48. Now we proceed to consider the second issue, which is whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? The learned CIT/Departmental Representative contended that the infrastructure facility should be owned by the company registered in India. Ground No.1 of the Revenue's cross-objection is also to this effect. He contended that in this case, both the infrastructure facilities were not owned by the assessee-company, but by the Government of Maharashtra/APSEB; therefore, the assessee is not entitled to deduction under section 80-IA(4). The learned counsel for assessee, on the other hand, contended that the requirement is that the enterprise developing the infrastructure facility should be owned by an Indian company. 49. We have considered the rival contentions as also the relevant material on record. However, we find substance in the contentions of the learned Authorised Representative of assessee. In our considered opinion, it should hardly take any time for one to understand that the word 'it' in sub-clauses (a), (b) and (c) of clause (i) of sub-section (4) of section 80-IA has been used to denote 'enterprise'. A plain reading of the said clause (i) makes it clear, without any ambiguity, that it

Referring to the decision of the Hon’ble Gujarat High Court in the case of PCIT vs. Montecarlo Construction Ltd. vide R/Tax Appeal No.786 of 2023, order dated 19.12.2023, the Ld. Counsel for the assessee drew the attention of the Bench to para 3.14 of the order which reads as under: “3.14. The CIT (Appeal) has further examined as to whether the project assigned to the assessee was in capacity of a contractor or the same was executed as a developer with respect to the canal projects, agreements were entered into by the assessee was analysed and tendered documents containing the terms and conditions of the project were taken into consideration with respect to the following aspects as to the entire investment in the project was to be made by the assessee. Interim payment to the tune of estimated contract value in respect of the development work done for each month after retention and other adjustments were to be made, security deposit was to be paid by the assessee, there was a penalty for delay, procurement of the material was the responsibility of the assessee, procurement of land for camp, for shop, labour camp etc. also the employment of qualified engineers, action and compensation in respect of bad work, defect liability of the accidents to persons in relation to Workman Compensation Act, indemnity insurance of the workmen employed. The CIT (Appeal) and the Tribunal considering such aspects of the tendered agreement, concurrently held that the assessee has entered into a development of infrastructure facility agreement and not the works contract.”

Referring to the decision of the Hon’ble Bombay High Court in the case of CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom), he submitted that the Hon’ble Bombay High Court in the said decision has held that unless deduction allowed for a particular assessment year on the same ground were withdrawn, they could not be denied for the subsequent years. He also relied on the decision of the Mumbai ‘G’ Bench of the Tribunal in the case of SMC Infrastructure Pvt. Ltd. vs. DCIT order dated 04.12.2024 for assessment year 2018- 19.

So far as the objection of the Revenue regarding qualification given by the auditors in the audit report is concerned, the Ld. Counsel for the assessee submitted that it is just an opinion and the same is not binding on the assessee or the Assessing Officer. The Assessing Officer has to decide the issue as per fact and law without being influenced by the comments given by the auditors.

He submitted that the assessee in the instant case has given bank guarantee, taken huge financial risk of maintenance, mobilized the equipment, arranged working capital and has also undertaken risk after completion of the project. Under these circumstances and in view of the various decisions of the Co-ordinate Benches of the Tribunal as well as Hon’ble High Courts, the assessee is entitled to claim deduction u/s 80IA(4). He submitted that since the Ld. CIT(A) after considering the order of the Settlement Commission has allowed the claim of deduction u/s 80IA(4), therefore, merely because the Revenue is in appeal before the Hon’ble High Court, the same cannot be a ground to take a different view than the view taken by the Ld. CIT(A) on this issue.

He accordingly submitted that the grounds raised by the Revenue be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of deduction u/s 80IA(4) on the ground that the assessee has not given complete details of the work undertaken by the assessee. Further, the assessee has acted only as a contractor on specific contracts allotted to it by its principals cost of which has been reimbursed from the principals who are the actual owners / developers. The assessee has not fulfilled the conditions prescribed under the provisions of section 80IA(4) and the statutory auditors of the assessee company in their audit report have also qualified for such claim. Further, the Revenue has not accepted the order of the Settlement Commission allowing the claim of deduction u/s 80IA for various assessment years till 2012-13 and filed appeals before the Hon’ble High Court which are pending before the Hon’ble High Court.

We find the Ld. CIT(A) allowed the claim of deduction u/s 80IA of the Act following the order of the Settlement Commission, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. DR that the Assessing Officer in the assessment order has categorically mentioned that the other projects for which deduction u/s 80IA has been claimed by the assessee could not be verified for want of documents. It is his submission that the order of the Ld. CIT(A) is a non-speaking one and displays blatant non- application of mind and he has not discussed the nature of projects executed in various years which are different from the projects for which the Settlement Commission has allowed the claim of deduction u/s 80IA. Further the assessee before the Ld. CIT(A) has suo motu withdrawn the claim of deduction u/s 80IA in some of the projects. Under these circumstances, without verifying the complete details the Ld. CIT(A) should not have allowed the claim of deduction u/s 80IA to the assessee.

We find some force in the above arguments of the Ld. DR. A perusal of the order of the Ld. CIT(A) shows that he has allowed the claim of deduction u/s 80IA by following the order of the Settlement Commission for assessment year 2012-13. However, it is a fact that the assessee, apart from continuing the various projects which were eligible for deduction u/s 80IA in assessment year 2012-13 as per the order of the Settlement Commission has also undertaken certain new projects during the impugned assessment year as well as in subsequent years. It is also an admitted fact that after claiming the deduction u/s 80IA(4) the assessee suo motu before the Ld. CIT(A) has withdrawn its claim of deduction to the extent of Rs.49,45,270/- for assessment year 2013-14, Rs.35,97,996/- for assessment year 2014-15 and Rs.41,94,902/- for assessment year 2015-16. Since the assessee has claimed the deduction u/s 80IA(4) on the eligible profits before the Assessing Officer and has suo motu withdrawn partially its claim of deduction u/s 80IA(4) before the Ld. CIT(A) and since the auditors have also given some comments regarding the eligibility of the assessee for such claim of deduction u/s 80IA(4), therefore, the Ld. CIT(A) should have been a little bit vigilant before allowing the claim of deduction u/s 80IA(4) on all the projects after due verification of the new projects that have been undertaken by the assessee during this year and subsequent years and not merely by relying on the decision of the Settlement Commission. No doubt, at the time of hearing before the Settlement Commission as stated in the order, after considering the details furnished by both the sides, the Settlement Commission have allowed the claim of deduction u/s 80IA in respect of eligible contracts only. The relevant observations of the Settlement Commission at paras 36 and 36.1 read as under:

It is also an admitted fact that the Department has not accepted the order of the Settlement Commission and has gone on appeal before the Hon’ble High Court which is pending. Under these circumstances, we are of the considered opinion that while the assessee is entitled for deduction u/s 80IA in respect of the projects which were subject matter of application before the Settlement Commission, however, the same cannot be blindly applied to the other projects without considering the nature and terms and conditions of each contract. The new contracts undertaken during the year may or may not be eligible for deduction u/s 80IA(4). Under these circumstances, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to consider the allowability of deduction u/s 80IA in the following manner: (a) Verify and allow the claim of deduction u/s 80IA(4) in respect of the projects which were the subject matter of application before the Settlement Commission till assessment year 2012-13 which were still continuing in the above 3 years i.e. assessment years 2013-14, 2014-15 & 2015-16; (b) Disallow the claim of deduction u/s 80IA(4) in respect of the projects for which the assessee has suo motu withdrawn the claim before the Ld. CIT(A). (c) So far as the other projects / contracts are concerned i.e. not covered by clause (a) & (b) above, the Assessing Officer shall verify the nature, terms and conditions of each contract separately and in case the terms

Needless to say the Assessing Officer shall provide due opportunity of being heard to the assessee while deciding the issue. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

Identical grounds have been raised by the Revenue in assessment years 2014-15 and 2015-16. We have already decided the issue and restored the issue to the file of the Assessing Officer with certain directions in the preceding paras. Following similar reasonings, the grounds raised by the Revenue in assessment years 2014-15 and 2015-16 are also allowed for statistical purposes.

In the result, all the three appeals filed by the Revenue are allowed for statistical purposes.