M/S. RAJKAMAL BUILDERS INFRASTRUCTURE PVT. LTD.,,AHMEDABAD vs. THE DCIT., CIRCLE-3(1)(2),, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SHRI PRAMOD M. JAGTAP, VICE PRESIDENT & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 417/Ahd/2018 (�नधा�रण वष� / Assessment Year : 2014-15) M/s. Rajkamal Builders The D.C.I.T. बनाम/ Infrastructure Pvt. Ltd. Circle – 3(1)(2), Vs. Ahmedabad 54, Park Hill Society, Opp: Karnavati Club Nr. Heaven Park, Ramdevnagar, Ahmedabad �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCR0326A .. (अपीलाथ� /Appellant) (��यथ� / Respondent) Shri Mehul K. Patel, Advocate अपीलाथ� ओर से /Appellant by : ��यथ� क� ओर से/Respondent by : Shri Vijay Kumar Jaiswal, CIT. D.R. सुनवाई क� तार�ख / Date of 13/07/2022 Hearing घोषणा क� तार�ख /Date of 10/10/2022 Pronouncement O R D E R PER Ms. MADHUMITA ROY - JM: The instant appeal filed by the assessee is directed against the order dated 20.12.2017 passed by the Ld. Commissioner of Income Tax (Appeals) – 9, Ahmedabad arising out of the order dated 17.10.2016 passed by the DCIT, Circle-3(1)(2), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2014-15, whereby and whereunder mainly the claim under Section 80IA(4) of the Act made by the

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 2 - assessee has been denied on finding that the assessee is a work contractor and not a developer.

“(1) That on facts, and in law, the learned CIT(A) has grievously erred in confirming the disallowance of deduction claimed u/s.80IA(4) of the Act of Rs.4,08,99,861/- (6,77,15,250 - 2,68,15,389). (2) That on facts, and in law, it ought to have been held that the entire deduction claimed, is allowable as such without set-off of losses of Rs.2,68,15,389/- of loss- making infrastructure facilities. (3) That on facts, and in law, the learned CIT(A) has grievously erred in not deciding the ground regarding exclusion of only net interest income for the purpose of allowance of deduction u/s 80IA(4) of the Act. (4) That on facts and in law, the learned CIT (A) has grievously erred in confirming the disallowance of interest of Rs.2,40,000/-u/s 36(1) (iii) of the Act. (5) That the learned CIT (A) has grievously erred in law and on facts in confirming the levy of interest u/s 234A, 234B and 234C of the Act.”

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 3 - assessee has been found to be a developer and not a work contractor and ultimately the benefit claimed under Section 80IA(4) of the Act has been granted. While doing so, the Co-ordinate Bench has been pleased to observe as follows:

“37. The terms and conditions of tender documents / agreements / work order and comprehensive view of the activities undertaken by the assessee clearly demonstrates that the assessee-company has undertaken substantial activities in respect of various projects awarded by various statutory bodies, which makes the assessee to qualify as a developer of Infra facility and to make claim necessary benefits under section 80IA(4) of the Act. 38. The provisions of section 80IA(4) of the Act provides that deduction would be available to any enterprise which carries on the business of – (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills the conditions prescribed therein. 39. As per the Explanation, even a road including toll-road is an infrastructure facility for the purposes of section 80-IA(4). The primary condition is that the enterprise must carry on the work of "developing" an infrastructure facility. As mentioned above, Explanation under sub-section (13) of section 80-IA clarifies that this section will not apply to any business which is in the nature of a "works contract". In other words, the essence of this section is that, the benefit of section 80-IA(4) would be available to a developer and not to a contractor simplicitor. In the present case the lower authorities have denied the benefit of section 80-IA(4) to the appellant-company on the assumption that the appellant-company is engaged in executing merely a work contract and it is not carrying on the business of developing an infrastructure facility. The assessee has undertaken entirely and exclusively the projects awarded by the local government authorities, as it is evident from the records as explained and already narrated hereinabove and therefore, there is hardly any basis for assuming that it is merely a contractor executing a works contract. The difference between a "developer" and a "contractor" has to be properly analyzed and understood. This issue has come up before the Hon'ble ITAT, Amritsar Bench in the case of M/s. TRG Industries P. Ltd. in ITA Nos. 433 etc./Asr/2009. The Tribunal after relying various case laws has laid down the following parameters when to treat an assessee as a developer or contractor. (i) The assessee does not have to develop the entire infrastructure facility to qualify for deduction u/s.80-IA(4) and if only a part of the infrastructure facility is developed, the assessee would be eligible for deduction. (ii) The three requirements of section 80-IA(4) viz. development, operation and maintenance are not cumulative. Thus, an enterprise which only develops facility would also be entitled to the benefit of section 80-IA(4). (iii) Merely because the assessee is referred to as a contractor in the agreement, it would not debar it from claiming deduction.

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 4 - (iv) Direct agreement between the transferee-assessee and the specified authority is not a mandatory requirement u/s.80-IA(4) of the I.T. Act. Needless to mention that the assessee qualified all the criterion fixed by the Amritsar Bench

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 5 - a whole. The responsibility is fully assigned to the developer for execution and completion of the work. Various stipulations contained in the Tender documents demonstrate various risks undertaken by the assessee for execution of the project work awarded by the competent authority in terms of financial resources, manpower deployment, both technical and administrative expertise, drawing and designing of the project specifications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because if some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will deprive the assessee from claiming deduction u/s.80IA(4) of the Act. As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under section 80IA(4) of the Act. Thus, the issue of claim of deduction under section 80IA(4) of the Act is allowed in favour of the assesee and against the Revenue. This common ground raised in all the appeals are accordingly disposed of.”

“50. Now we deal with third common issue viz. the Revenue authorities are erred in setting off loss of four infrastructure facilities from the profits of other infrastructure facilities despite having legal provisions that deduction should be allowed on standalone basis. This common issue is raised for the Asst.Year 2007-08 to 2013-14 and 2015-16 & 2016-17. 51. In Assessment Year 2007-08 the Ld AO disallowed the entire claim of deduction under 80 IA of the Act to the tune of Rs. 67, 23, 899 due to the reason that the appellant has

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 6 - not considered and setting off loss from 8 projects while calculating deduction under chapter VIA of the Act. 52. We have heard the respective submissions made by the parties; we have also perused the relevant materials available on record. It appears that while rejecting the claim of the assessee the Ld. AO observed as follows: “3.1 On perusal of above chart, it is seen that the assessee has earned profit in 16 sites aggregating to Rs.3,47,48,215/- which has been claimed as deduction u/s.80IA. however, this claim has been made without considering and setting off loss from 8 sites aggregating Rs.67,23,899/-. As per the provisions of Section 80A(2) r.w. section 80B(5) as well as the ratio of decision laid down by Hon'ble Supreme Court in the case of Synco Industries Ltd. Vs. Assessing Officer (IT) & Another, (2008) 299 ITR 444 (SC), in order to claim the deduction under Chapter- VI-A, first of all the gross total income is to be worked out and this has to be worked out after setting-off loss in one unit /division against profit of another unit and thereafter the gross total income is to be worked out for working of deduction u/s.80-IA of the Act. In the case of the assessee, this exercise has not been done. Therefore, the loss of Rs.67,23,899/- in 8 sites, as mentioned above, is first of all to be set-off against the profits of 16 sites, in order to arrive, at eligible amount of deduction U/S.80-IA. The assessee has claimed 80-IA deduction on profits of various sites, per se, but not set-off the losses. Hence, to the extent of Rs.67,23,899/- of 8 sites, deduction U/S.80-IA is not allowed. Disallowance on this core works out to Rs.67,23,899/-. Penalty proceedings u/s.271(1)(c) of the Act are initiated separately for furnishing inaccurate particulars of income.” 53. However, the case of the assessee is this that the deduction was to be calculated on standalone unit basis. In fact as per section 80 IA(5) the quantum of deduction is to be computed as if the eligible business is the only source of income and therefore, the deduction is to be computed unit wise without considering or set off of loss of other eligible units. On this aspect the Ld. AR relied upon the judgement passed by the jurisdictional High Court in the case of PCIT versus Nirma Ltd, passed in ITA No. 360 of 2016. 54. We have carefully considered the said judgement passed by the Hon’ble jurisdictional High Court. While dealing with this particular aspect of the matter the Hon’ble Court was pleased to observed as follows: “5. In the case of Commissioner of Income tax(Central) Madras vs. Canara Workshops P.Ltd. Reported in 161 ITR 320, in the context of deductions provided under section 80E of the Act, the Supreme Court held that the merit earned by one industry not to be lost or diminished for loss by some other industry when assessee was carrying on two priority industries. It was held that loss in one industry is not to be set off against profits from the other and the deduction would be on the whole profits from the profit making industry. It was held that in the application of section 80E, profits and gains earned by one priority industry cannot be reduced by loss suffered by another industry owned by the assessee. Each industry must be considered on its own working, while adjudging its claim to the deduction under section 80E. 6. In this context, Allahabad High Court in the case of Commissioner of Income- Tax and another vs. Modi Xerox Ltd. (supra) found that the assessee was a multi-

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 7 - unit company carrying on three different activities and had three separate units for such activities. Two of these units were profit making units and the third was a loss making unit. Qua the profit making unit, the assessee had claimed deduction under section 80HH and 80I of the Act. With this background, it was held and observed as under: "37. We have considered the facts and circumstances of the present case and the law laid down by the apex court and the decision of the Delhi High Court referred hereinabove. It is not the case of the assessing authority that the gross income of the company was nil. From a perusal of the income disclosed to all the three units it appears that the gross income was not nil and therefore, the assessee was eligible to claim the deduction under sections 80HH and 80-I of the Act. After becoming eligible to claim the deduction, the question for consideration is that whether deduction is eligible to the income derived to each industrial undertaking independently or on a consideration of losses suffered by the service unit. Sections 80HH and 80-I of the Act contemplate the deduction from the income derived by the undertaking. The Commissioner of Income-tax (Appeals) has rightly held that income of the undertaking shall be calculated on a consideration of an unabsorbed business losses, etc. in respect of each individual unit and thereafter on the profit derived by the unit the deduction is to be allowed. This view of the Commissioner of Income-tax (Appeals) confirmed by the Tribunal is in accordance to provisions of the Act as well as in consonance with the law laid down by the apex court and the Delhi High Court. The apex court in the case of SyncoIndustries Ltd. vs. Assessing Officer (Income-tax)(2008) ITR 444(SC) has held that the non obstante clause appearing in section 80-I(6) of the Act is applicable only to the quantum of deduction, whereas the gross total income under section 80B(5) which is also referred to in section 80-I(1) of the Act is required to be computed in the manner provided under the Act which pre- supposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. The apex court further held that under section 80-I(6) of the Act for the purposes of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) of the Act contemplates that only the profits shall be taken into account as if it was the only source of income. Therefore, from the decision of the apex court, two principles of law emerge one for the purposes of computation of gross total income the losses of other units are to be taken into account but for the purposes of calculating the deduction of industrial undertaking, the loss sustained in another unit cannot be taken into account and only the profit shall be taken into account as if it was the only source of income of that unit. In this view of the matter, we are of the view that there is no error in the order of the Tribunal." 7. We respectfully agree with the view expressed by Allahabad High Court. This view is not in conflict with the decision of the Supreme Court in the case of Synco Industries Ltd. (supra). In such case, it was found that the assessee had two industrial units namely, one in oil and another in chemicals. The assessee was making profits in chemical unit but incurring losses in oil unit. In this background, it was held that while computing gross total income, income should include both

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 8 - profit in chemical unit and loss in oil unit. If the result thereafter is nil, the assessee cannot get benefit of special deductions under section 80HH and 80I etc. In the context of computation of deduction under section 80I, the Supreme Court observed that while computing quantum of deduction under section 80I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial unit as the only source of income in order to arrive at a deductions under chapter VI. It was further observed that section 80I(6)deals with actual computation of deduction whereas section 80I deals with treatment to be given to such deductions in order to arrive at total income of the assessee and therefore, while interpreting section 80I(1) as also the gross total income, one has to read expression "gross total income" as defined under section 80B(5). It was therefore,concluded that the loss from oil division was required to be adjusted before determining gross total income and as gross total income was nil, the assessee was not entitled to claim deduction under sections 80I(6) which includes section 80I also. 8. This judgment nowhere provides that while computing the deduction under section 80HH or 80I or any other similar provision, loss of another unit is first to be set off. It only provides and in fact, reinforces that such deduction has to be computed as if the unit was an isolated industry. However, thereafter while computing gross total income, even the loss has to be accounted for and only if the income is positive, can the assessee claim deduction for its profit making eligible industry. This is how even this Court in the judgment in the case of Synco Industries (supra) had used or viewed or situation as can be seen from the following portion of the judgment referring the judgment in the case of Canara Workshop (supra). "The Hon'ble Supreme Court has further held that the object of section 80E was properly served only by confining the application of the provisions of that section to the profits and gains of a "single industry". In the present case, under section 80I(6), profit of Badi unit are required to be treated as if that was the only source of income. That the losses from the Daman unit are required to be ignored. Therefore, while calculating quantum of deduction, profit of the Badi unit alone are required to be taken. To that there is no difficulty. However, after calculating the deduction on the basis that the profits from the Baddi unit was the only source of income, one has to give effect to the computed deduction in order to arrive at the total income of the company and while giving effect, one has to consider the provisions of section 80IA and 80IB of the Act. In other words, while considering the gross total income of the assessee, deduction under section 80IA and 80IB of the Act are required to be allowed after adjusting loss worked out in other units." 9. We therefore, do not find any error in the view expressed by the Tribunal following the decision of the Allahabad High Court. Tax Appeal is therefore, dismissed.” 55. We have further considered the judgement passed by the Mumbai Bench in the case of Punit construction company, reported in 92 taxmann.com 28(Mum. Tri) wherein it has been specifically decided that in terms of provisions of sub Section 5 of Section 80 IA, deduction has to be given unit wise without considering profit or loss of other eligible units. In that view of the matter respectfully relying upon the same we allow this ground of appeal preferred by the assessee with the direction upon the AO to grant relief to the assessee only

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 9 - on the profitmaking unit without setting off loss suffered by other eligible units. Thus, this ground of appeal preferred by the assessee is allowed.”

“45. During the course of assessment proceedings, the AO noticed that the assessee in the profit & loss account has debited net interest expenses. As per the details furnished, it was found that the assessee has earned interest income from FD and investment in Sardar Sarovar Narmada Nigam and interest from AEC to the tune of Rs.56,96,723/-, whereas interest expenses on bank OD and interest paid to depositors was to the tune of Rs.1,08,38,755/-, and therefore, there was net interest expenses of Rs56,96,723/-. It is also noticed by the AO the assessee has received some other income in the form of dividend, misc. income, service charges. According to the AO, the net profit shown by the assessee inclusive of interest income earned by the assessee from the bank deposits and bonds, and claimed the same as deduction under section 80IA/80IB of the Act. The AO was of view that interest income could not be considered as income derived from industrial undertaking and therefore interest receipt were not eligible for the deduction, as sought for. He further opined that since the assessee has claimed deduction under section 80IA(4) of the Act of Rs.1,95,62,210/- on several projects, this amount included interest income also. In response to the show cause notice, it was explained by the assessee that the assessee has made different fixed deposits with different bank as security deposits with the Government Authorities in respect of the project contract, and for giving bank guarantees. For getting bank guarantee the assessee has to keep certain amount fixed deposits as margin money. These fixed deposits were made out of borrowed funds for giving security deposits to the Government. Therefore, claim of deduction under section 80IA was fully allowable. However, the AO did not accept this explanation of the assessee. He was of the view that since the assessee has huge surplus funds, the same was parked with the bank and earned

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 10 - interest income, which was not part of the income earned from any industrial activities but receipts from the investment of surplus fund with bank. The AO accordingly disallowed interest income and other income to the tune of Rs.65,58,550/-. In appeal preferred by the assessee, the CIT(A) confirmed the action of the AO. Hence, assessee is before the Tribunal. 46. Before us, the counsel for the assessee reiterated submissions as were made before the lower authorities. The counsel further submitted that the interest income is earned only on fixed deposits for obtaining bank guarantee and security deposit to be placed mandatorily as per the tender when work was awarded. Hence, such interest income is business income and eligible for deduction under section 80IA(4) of the Act. In support of his contentions, the counsel relied upon the following decisions: i) AVM Cine Products Vs. DCIT, (2021) 123 taxamnn.com 41 (Mad); ii) CIT Vs. Alloys Ltd. (2017) 84 taxmann.com 256 (Guj) iii) Empire Pumps P. Ltd. Vs. ACIT, (2015) 54 taxmann.com 317 (Guj) 47. For countering the above submissions of the assessee, the DR supported orders of the Revenue authorities, which was based on the decision of Hon’ble Supreme Court in the case of Pandian Chemicals Ltd. 48. We have considered submissions of both the parties; perused relevant orders and case laws cited by the parties. We have already hold the assessee a developer and eligible for deduction under section 80IA(4) of the Act. We further note that the amount of Rs 8,61,827 has been received by the assessee as other income which appears from the records is nothing but the claim approved and received by the assessee for the assessment year 2004-05 in respect of the infrastructure project undertaken by the assessee. We find that before the lower authorities the assessee has explained regarding interest income earned by it from the fixed deposits, security deposits, margin-money and from the bond, with the banks and other institutions, as per the terms and conditions of the contract agreement with the Government authorities. Furnishing of fixed deposits for bank guarantees, security deposits etc. are the pre-condition for awarding the project work by the competent authority, and therefore, these are necessity of regular course of business and has direct nexus with the activities. Jurisdictional High Court in the case of Empire Pumps P. Ltd (supra) held that interest income having direct nexus with its business, was to be considered as income ‘derived from’ business. Thus, deduction under section 80I of the Act was allowed on such income. Yet in another decision by jurisdictional High Court in the case of CIT Vs. Shah Alloys Ltd. (supra) has held that interest received on margin money placed for business purpose cannot be treated as income from other sources and is, therefore, eligible for deduction under section 80IA of the Act. Further, various higher judicial authorities have held that profits of the business of the undertaking include other incidental incomes derived from the business of the undertaking. This being the position of law, we have no hesitation in accepting the claim of the assessee that the income earned from the deposits is business income is eligible for deduction under section 80IA of the Act. Accordingly, this common ground raised in the appeals under consideration is allowed in favour of the assessee and against the Revenue. 49. As aforesaid, since the above issue is also identical to the assessee’s appeals for Asst.Year 2004-05, 2005-06, 2007-08to 2010-11 and 2012-13to 2016-17, in the absence of any changed circumstances, our finding and decision in the Asst.Year 2004-05 will apply mutatis mutandis in the instant appeals also.”

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 11 - 11. In the absence of any different fact, we do not find any reason to deviate from finding made by the Co-ordinate bench and therefore respectfully relying upon the same, we allow this ground of appeal preferred by the assessee.

“57. Fourth common ground is with regard to disallowance of interest under section 36(1)(iii) of the Act. This was raised in assessee’s appeals in the following assessment years: Asstt. Year Amount of disallowance of interest under section 36(1)(iii) of the Act. 2007-08 Rs.1,82,250/- 2010-11 Rs.3,60,000/- 2011-12 Rs.11,82,868/- 2012-13 Rs.3,60,000/- 2013-14 Rs.8,52,822/- 58. For adjudication this issue, we take facts stated in ITA No.442/Ahd/2011 for the Asst.Year 2007-08 where confirmation of disallowance of interest of Rs.1,82,250/- is under challenge before us by the assessee. 59. Heard both the parties and perused the relevant materials available on records. 60. During the course of assessment proceedings, upon verification of details of loans and advance from the records made available to the AO, it was found that the assessee has made interest free advance to M/s. Prutha Jewellers of Rs.5.00 lakhs and to M/s. Ruturaj Jewellers of Rs.16.5 lakhs. The AO treated the same as case of diversion of interest bearing funds to make free interest bearing loans and advances. Adopting rate of interest at 9%, the AO made double addition of Rs.1,82,250/- i.e. Rs.33,750/- plus Rs.1,48,500/-, which stood confirmed by the CIT(A). Hence, the instant appeal before the Tribunal.

ITA No. 417/Ahd/2018 (M/s. Rajkamal Builders Infrastructure Pvt. Ltd. vs. DCIT) A.Y.– 2014-15 - 12 -

This Order pronounced on 10/10/2022

Sd/- Sd/- (P. M. JAGTAP) (MADHUMITA ROY) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 10/10/2022 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT