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Facts
The assessee, a Joint Venture, was awarded a part of a contract for upgrading a road as a sub-contractor. For AY 2007-08, the assessee claimed deduction under Section 80IA(4). The AO disallowed this deduction, stating the assessee was a sub-contractor and not a developer, and also disallowed expenses under Section 40(a)(ia).
Held
The Tribunal held that the assessee, by virtue of its sub-contractor status and the explanation to Section 80IA(4) introduced retrospectively, was not eligible for the deduction. The issue regarding Section 40(a)(ia) was set aside for further verification.
Key Issues
Whether the assessee, as a sub-contractor, is eligible for deduction under Section 80IA(4) given the retrospective amendment, and whether disallowance under Section 40(a)(ia) was justified.
Sections Cited
143(3), 80IA(4), 40(a)(ia), 201(1A), 234B, 234C, 234D, 271(1)(c)
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinha
M/s Draipal-Mskel, (JV) Addl. CIT, MSK House, Range-9, Nr. Passport Office, Vs Ahmedabad & Ambawadi, Ahmedabad ITO, Ward-9(1), Ahmedabad PAN: AAAAD3825B (Appellant) (Respondent) Assessee Represented: Shri Deepak Rindani, A.R. Revenue Represented: Shri V Nandakumar, CIT-DR & Shri Atul Pandey, Sr.DR. Date of hearing : 29-01-2025 Date of pronouncement : 29-04-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
These two appeals are filed by the Assessee as against two separate appellate orders dated 31.05.2009 and 15-12-2011 passed by the Commissioner of Income Tax (Appeals)-XV, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2007-08 and 2008- 09. Since common issue is involved in both the appeals, for the sake of convenience the same are disposed of by this common order.
Brief facts of the case is that the appellant is a Joint Venture undertaking constituted by two companies M/s. Dineshchandra R Agarwal Infracon Pvt. Ltd. and M/s. M.S. Khurana Engineering Ltd. under the name of DRAIPAL-MSKEL and is engaged in the business of execution of construction contracts. National Highway Authority of India [for short NHAI] awarded to a Chinese company M/s. Longjian Road & Bridge Ltd. [hereinafter referred as Main Contractor] to execute work of Rehabilitation and Upgrading of Bhiladi-Jetpur Road Section of NH-8B. The appellant was awarded part of the contract as a Sub-contractor to the Main Contractor (namely Longjian Road & Bridge Ltd.) which was awarded for laying the road in a particular section of Bhiladi-Jetpur Road section NH- 8B, Km. 52.50 to 117.00. The Running Account Bills were presented to NHAI under the signature of 'Longjian' as Contractor and the assessee as sub-contractor.
2.1. For the asst. year 2007-08, the assessee filed its Return of Income on 07.09.2007 claiming NIL income after claiming deduction of Rs.2,42,98,174/- under section 80IA[4] of the Act. The AO issued a show cause to the assessee asking why should the claim made u/s.80IA(4) of the Act not be disallowed in view of Explanation inserted to section 80IA by Finance Act 2009 w.r.e.f. 1.4.2000. On appellant’s reply, the AO denied the deduction stating that the assessee had failed to satisfy the condition laid down in sub-clause (i)(b) of explanation to section 80IA(4) of the Act, according to which the deduction is available to an enterprise carrying on the business of developing or operating or operating and maintaining a new infrastructure facility. In his view the assessee is merely a sub-contractor not a developer and it is covered by the Explanation inserted in section 80IA(4) (below section 80IA(13). Thus the Ld AO completed the regular assessment determining the income at Rs 2,61,21,380/= by making disallowance of deduction claimed u/s.80IA of Rs.2,42,98,174/= and also disallowance u/s.40(a)(ia) of Rs.18,23,203 and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before the Commissioner [Appeals]. During the appellate proceeding the assessee claimed that 80IA deduction is available to an assessee being an undertaking engaged in the business of developing, maintaining and operating any infrastructure facilities, that this deduction is available way back from A.Y. 1996-97, whereas the Explanation has been recently brought in the statute, because of which the assessee should not suffer. That the retrospective amendment is unduly oppressive and in gross violation of fundamental rights, and that the deduction should be allowed to the appellant because it is a developer. The Ld CIT[A] considered the submissions of the assessee and dismissed the claim by observing as follows:
“… 7. Facts on record show that the appellant which is a Joint Venture undertaking constituted by two companies Dineshchandra R Agarwal Infracon Pvt. Ltd. and M.S.Khurana Engineering Ltd. under the name of DRAIPAL-MSKEL was awarded to execute work of Rehabilitation and Upgrading of Bhiladi-Jetpur Road Section of NH-8B for Longjian Road & Bridge Ltd. Company, which was awarded a contract by the National Highway Authority of India. Thus the appellant is a sub-contractor of the main contractor (Longjian Road & Bridge Ltd. Company) which was awarded the contract of Laying the road in a particular section of Bhiladi-Jetpur Road, by the National Highway Authority of India. As per facts mentioned in para 3.6 of the assessment order the Running Account Bills were presented to NHAI under the signature of 'Longjian' as Contractor and the assessee as sub- contractor. Thus the appellant was indeed given a works contract by Longjian Road & Bridge Ltd. Company and is thus covered by the Explanation inserted vide Finance (No.2) Act, 2009 to the provisions of section 80IA (which appear after section 801A(13) with retrospective effect from 1.4.2000 which reads as under: "Explanation- For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1)." According to this Explanation a person awarded a works contract by anybody including state and central government is not eligible for deduction 80IA(4), therefore the disallowance made by the AO of Rs.2,42,98,174 is upheld. 3.1. Regarding the next issue namely disallowance made u/s. 40(a)(ia) of Rs. 18,23,203. The assessee submitted that it had paid financial charges to SREI Pvt. Ltd. on which it was not liable to deduct TDS. Assessee further stated that where recipient of income has already paid taxes on amount received from the deductor, the Department once again cannot recover tax from deductor on the same income by treating the deductor to be assessee in default. The deductor would only be liable to pay interest u/s.201 (1A) till the date of payment by the deductee. The Ld CIT[A] After going through rival submissions held that the appellant obtained finance from SREI Pvt. Ltd. to purchase the machinery and paid installments to SREI Pvt. Ltd. which consisted of both the principal and interest (financial charges), in such circumstances the appellant should have deducted TDS on the interest/financial charges part of the repayment and therefore confirmed the addition made by the AO.
Aggrieved against the appellate order the assessee is in appeal before us raising the following Grounds of Appeal in which reads as under:
1 The ld. CIT(A) has erred in confirming the disallowance of relief, u/s. 80IA (4) of the income tax Act, 1961. The benefit whereas the explanation to sec 80 IA was inserted by the Finance Act, 2009 with retrospective effect from 1.4.2000. The withdrawal of relief from retrospective effect is unjust unlawful and untenable. This has put the appellant in a very disadvantageous position as it has been made effective from a date when the provisions of income tax act were in favour of the applicant. 2 The ld. CIT(A) has wrongly confirmed the contention of the assessing officer that the appellant is not entitled to relief u/s.80 IA on the grounds that the job of rehabilitation and upgrading of Bhilladi-Jetpur Road section of NH8B for Longjain Road and Bridge Co Ltd was a subcontract. 3 The ld. CIT(A) has erred in confirming disallowance made u/s 40 (i) (a) amounting to Rs 18,23,203/-. The appellant submission that the recipient of the income has already paid required taxes on the amount received by them from the appellant was not considered. By disallowing the expenses to the appellant there has been double taxation on the same amount of income which was already accounted for by the recipient. 4 The Ld. CIT (A) has erred in confirming the levying of interest u/s 234 B/C/D of the income tax act, 1961. The Ld. CIT (A) has erred in confirming the proceedings of initiating penalty u/s 271(1)(c) of the Income Tax Act, 1961.
We have heard rival submissions at length and perused the materials available on record including the Paper Books and Case laws compilation filed by both parties. The undisputed facts are that, the assessee is a Joint Venture between Dinesh Chandra R.
Agrawal Infracon Pvt. Ltd. and M.S. Khurana Engineering Ltd. (DRAIPAL-MSKEL) formed as per Agreement dated 26.11.2005. As per the terms of the Agreement the Joint Venture was formed to execute the works as a sub-contractor of "Longjian Road and Bridge Limited Company", the relevant part of the Joint Venture Agreement are extracted hereunder:-
"WHEREAS (A) The work of Rehabilitation and Upgrading of Bhiladi-Jetpur Road Section of NH-8B (km 52.50 to k. 117.00) Contract Package II has been awarded by NHAI to Longjian Road and Bridge Limited Company (hereinafter referred to as Longjian).
(B) The Longjian have shown their intend to sub contract a part of the contract package, extending from Km. 97 to Km 117 (Jetpur).
(C) The parties DRAIPL and MSKEL hereto resolve to form a Joint Venture (hereinafter referred to as JV) to obtain Sub- Contract (To be officially approved by NHAI) of the work of Rehabilitation and Upgrading of Bhiladi-Jetpur Road Section of NH-8B (km 97.00 to km 117 00) Contract Package II (hereinafter referred to as 'Project')"
5.1. From the above clauses of the Agreement, it is clear that the assessee had not obtained the work from NHAI, but the assessee is only a sub-contractor of Longjian-Main Contractor, who was awarded the main contract by the NHAI. The assessee executed part of the total contract given to Longjian. Following are the documents which establish that the assessee is a sub-contractor of Longjian.
JV Agreement: The Joint Venture was formed for the purpose of executing the work awarded to Longjian by the NHAI, as a sub- contractor, as the Longjian have shown their intention to sub- contract the works, as mentioned in JV Agreement of the assessee and reproduced in para 5 above.
2. Letter of NHAI: In the records of the NHAI assessee is only a Sub-contractor. The 'Sub-contract of the assessee JV was approved only for direct No. NHAI/12011/EW-II/ADB/Packg-II/ payment vide 2004/502 07.03.2006, copy of which is available on the file. letter dated
3. RA Bills: All the RA Bills of the assessee are presented to NHAI under the signature of 'Longjian' as Contractor and the assessee as Sub-contractor. This is evident from the copies of RA Bills. 5.2. As per sub clause (i)(b) to explanation of Section 80IA [4] of the Act, the enterprise had to enter into an agreement with Central/State Government or Local Authority or a Statutory Body for the said works. In this case, the appellant entered into an Agreement with 'Longjian' for sub-contract works, which was covered by the newly inserted Explanation below section 80IA(13) of the Act. Therefore, the lower Authorities held that the appellant is not eligible for deduction of section 80IB of the Act and accordingly the claim of the assessee was denied.
5.3. To execute work of Rehabilitation and Upgrading of Bhiladi- Jetpur Road Section of NH-8B [117 kms] in the state of Gujarat, NHAI awarded this contract to a Chinese company M/s. Longjian Road & Bridge Ltd. on 28-12-2004. As per clause 4.1 of the main contract, part of the above work was sub-contracted to the assessee herein of 21.34% of the contract value amounting to Rs.64 crs for 97 to 117 kms and to M/s. Soma Enterprises Ltd., Hyderabad of 21.34% of the contract value amounting to 85 crores. This was entered into by way of Sub-Contract Agreement dated 02-03-2006. The appellant claims though it has been described as “Sub- Contractor” but the nomenclature does not decide the issue, since the appellant received payment directly from NHAI with appropriate TDS. Thus, substance of a transaction/Agreement is to be seen and not merely the Form thereof. On said principle, the appellant placed reliance on the following judgements: (i) Panbari Tea Co. Ltd. (1965) 57 ITR 422 (SC); (ii) Rajiv Kalia (2011) 8 ITR (T) 741 (Delhi Trib); (iii) Mangal Keshav Securities Ltd. (2017) 46 ITR (T) 458 (Mum Trib); (iv) Harmuny Entertainment (P.) Ltd. (2023) 157 taxmann.com 547 (Kol Trib). (v) Kanhaiya Lal Moti Lal (1969) 72 ITR 507 (Allahabad HC); (vi) Maharaja Shri Umed Mills (1984) 148 ITR 72 A (Raj. HC) (vii) Motors & General Stores (P.) Ltd. (1967) 66 ITR 692 (SC).
In substance and in practice, it is the appellant who carried out the scope of work assigned and transferred to it, duly so approved by NHAI and not by the Main Contractor/Longjian. It is relevant to note that Main Contractor did not develop the same stretch of road.
5.4. Further the signing of Running Account bills by the Main Contractor was a legal procedure and its not determinative of true nature of works done by the appellant, they are also signed by the appellant and endorsed by NHAI while making direct payment to the appellant. Thus the appellant became assignee of the work which makes it eligible as a developer and not as a sub-contractor and hence entitled for deduction u/s.80IA[4] and relied upon following case laws: Chettinad Lignite Transport Service P Ltd [2019] 413 ITR 162 MDS HC Bothra Shipping Services P Ltd [2024] 166 taxmann.com 608 CAL HC 5.5. Regarding Revenue’s argument that it was an existing road, not a new road and Not eligible for deduction. The appellant contented that widening of existing road is made eligible for deduction by CBDT Circular No.4/2010 as ‘new’ facility. Even strengthening of existing road is held to be eligible for deduction u/s. 80IA[4] by the following judgements: * Montecarlo Construction Ltd [2024] 161 taxmann.com 222 [Guj] * Simplex Infrastructure Ltd [2017] 49 CCH 88 [Kol Trib]
The case laws relied by the appellant are clearly distinguishable. The agreement entered by the appellant itself described the assessee as Sub-Contractor. In the above circumstances and facts of the case, this Tribunal directed the Department to verify from the Jurisdictional Assessing Officer whether the payments were made by NHAI directly to the appellant herein or to the main Contractor Longjian. The reply received from the Assessing Officer reads as follows:
“Left Blank Intentionally”
6.1. Thus the reply received from the Assessing Officer does not make it clear whether NHAI made payment only to the assessee or to the Main Contractor. We have perused a sample TDS certificate was placed on record at Page No. 63 of the Paper Book, which is as follows:
6.2. Further at Page No. 65 of the Paper Book, the assessee furnished bank guarantee for Rs. 1.6 crores for the above project extending the guarantee upto 16-04-2010. So, therefore the Assessing Officer is directed to verify from NHAI, the payments made by it to the appellant towards the project, though the appellant is described as Sub-Contractor and also any payment made to the Main Contractor, so that there is no double claim by the parties. The Jurisdictional Assessing Officer to make necessary enquiry and pass order in accordance with law by giving proper opportunity of hearing to the assessee
Since the assessment is set aside to the file of Jurisdictional Assessing Officer, the second ground namely disallowance u/s. 40(a)(ia) is also set aside to the file of JAO and pass order in accordance with the provisions of law by giving proper opportunity of hearing to the assessee
In the result, the appeal filed by the Assessee in is allowed for statistical purpose.
The Grounds of Appeal raised by the Assessee reads as under: 1.1 The Ld. Commissioner of Income Tax (Appeals) -XV, Ahmedabad erred in sustaining the disallowance of Rs.4,44,75,687/- on account of deduction claimed u/s. 80-IA (4) of the Act. 1.2 The Ld. Commissioner of Income Tax (Appeals) XV, Ahmedabad failed to appreciate that the Appellant was awarded the contract for infrastructure facility by NHAI and further that it was a developer of the same.
2. The Ld. Commissioner of Income Tax (Appeals) -XV, Ahmedabad erred in sustaining the disallowance of Rs.30,43,116/- u/s. 40(a)(ia) for alleged non-deduction of TDS on payment to SREI Infrastructure Pvt. Ltd.
3. The Ld. Commissioner of Income Tax (Appeals) -XV, Ahmedabad erred in sustaining the disallowance of expenses u/s. 40(a)(ia) for delayed deposit of TDS of Rs.2,41,04,505/-- 10. Since the grounds are identical with that of relating to the Asst. Year 2007-08, following the same, this appeal is also set aside to the file of Jurisdictional Assessing Officer to make necessary enquiry and pass order in accordance with law by giving proper opportunity of hearing to the assessee.