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Facts
Tatva Global Environment (assessee) claimed deduction under Section 80IA(4) of the Income Tax Act for AY 2010-11 for profits from a solid waste management project. The project was initially awarded by the Municipal Corporation of Greater Mumbai to a consortium on 20/08/2009. The assessee company was incorporated on 12/10/2009 and subsequently received a Letter of Acceptance on 30/10/2009, with a formal concession agreement signed on 18/11/2011. The AO and CIT(A) denied the deduction, citing that the assessee was not in existence when the work was awarded, lacked a valid agreement for the assessment year, was merely a works contractor, and did not meet the tender's qualification criteria.
Held
The Income Tax Appellate Tribunal observed that the lower authorities had not adequately addressed whether the Letter of Acceptance constituted a valid agreement under Section 80IA(4)(i)(b) or how the project rights were transferred to the assessee. Given these unresolved issues and the agreement of both parties, the Tribunal decided to restore the matter back to the file of the Assessing Officer for a fresh examination.
Key Issues
1. Whether the Letter of Acceptance issued to the assessee can be considered an 'agreement' under Section 80IA (4)(i)(b) of the Act. 2. Whether the explanation to Section 80IA, which denies deduction to contractors, applies to the assessee. 3. How the rights to the project, initially allotted to a consortium, were transferred to the assessee company.
Sections Cited
Section 80IA, Section 80IA(4), Section 80IA(4)(i)(a), Section 80IA(4)(i)(b), Section 115JB, Section 143(3), Section 143(2)
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SANDEEP SINGH KARHAIL, JM
This appeal is filed by Tatva Global Environment (Deonar ) Ltd [ Assessee/ Appellant] against the appellate order passed by The Commissioner Of Income Tax (Appeals) – 21, Mumbai (the learned CIT – A) dated 19/3/2015 for assessment year 2010 – 11 wherein the appeal filed by the assessee against the assessment order passed by The Deputy Commissioner Of Income Tax – 9 (3), Mumbai (the learned AO) under section 143 (3) of The Income Tax Act, 1961 (The Act) dated 18/3/2013 wherein the return of income [ ROI] filed by the assessee on 14/10/2010
Assessee is aggrieved with that and is in appeal before us raising following grounds of appeal:-
“1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the action of the Assessing Officer in not granting deduction under Section 80IA of Income-tax Act, 1961 (the Act) in respect of the profits of the eligible undertaking amounting to ₹6,84,01,665/-.
2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the action of the Assessing Officer in holding that the appellant is merely executing the Deonar project as a work contractor for the consortium by an oral contract.
Without prejudice to the above grounds of appeal, it is submitted that if the conditions stated in section 80-IA of the Act are held to be fulfilled at any subsequent date, then deduction ought to be allowed from such subsequent date and the said assessment year ought to be treated as the initial assessment year.”
Brief facts of the case show that the assessee is a company engaged in the business of solid West management. It filed its return of income on 14/10/2010 at the total income of ₹ 169,300/– as per normal computation of income claiming deduction under section 80 IA of the act of ₹ 68,401,665/-. The book profit was computed U/s 115 JB of the act of ₹ 67,923,408/–. The return of income was selected for scrutiny and notice under section 143 (2) was issued on 26/8/2011.
During the course of assessment proceedings, the fact shows that the assessee company was set up during the previous year relevant to impugned assessment year and is engaged in the business of solid West management. The Municipal Corporation Of Greater Mumbai [ The Corporation] in charge of the municipal solid West management of Mumbai through an international bidding process floated a tender on 16/7/2007 for the selection of operator for the work of partial closure and maintenance of the existing dump site and design, engineering,
Assessee company was incorporated on 12/10/2009. From 27/3/2010 the assessee company became a subsidiary of UPL global eco-investment Holdings private limited, another company of United Phosphorous group. Assessee was issued a Letter of Acceptance [ LOA] by the corporation on 30/10/2009. Concession Agreement was entered into with corporation by the assessee company on 18/11/2011.
As the assessee company while filing ROI has claimed deduction under section 80 IA of the act assessee of Rs. 6,84,01,685/- . Form No 10CCB dated 24/09/2010 was filed in support of such deduction.
The ld. AO considered the explanation of the assessee and rejected the deduction claimed by the assessee for the following reasons:-
i. Assessee company was incorporated only on 12/10/2009 whereas the work was allotted by the Corporation prior to the existence of the company to the JV on 20/08/2009. Thus, the assessee company was not even in existence when the work was awarded by the Corporation to the consortium. ii. The assessee has produced a concession agreement between the assessee company and Corporation in support of its claim that the requirement of agreement for claiming deduction by the assessee is fulfilled. The AO noted that the date of agreement is 18/11/2011 whereas same is not relevant for assessment year 2010 – 11. Therefore, for assessment year 2010 – 11 there was no agreement between the assessee company and the Corporation for granting of deduction under section 80 IA of the act. Thus, the conditions of that section are not fulfilled. iv. The company has an equity share capital of only ₹ 610,000 whereas the qualification criteria mentioned by the Mumbai Corporation was of net worth of ₹ 50 crores and therefore the assessee also does not fulfil the prerequisite of the tender floated by the Corporation. Thus, the assessee company is not eligible for doing the work allotted by the Corporation. The assessee is only operating as a utility vehicle on behalf of the consortium to carry out the work of project or Mumbai Corporation. v. The AO repeatedly asked the assessee to submit documents to show how the rights allotted to the consortium have been assigned to the assessee company in respect of Deonar project. The assessee was not in possession of any such document, nor such documents are furnished. vii. Assessee has not given any explanation for remark made by the auditor in audit report in form number 10 CCB wherein in paragraph number 13 the auditors has stated that :-
The concession agreement with the Corporation is not yet executed till the date of signing of the certificate. Though the management is of the opinion that the same shall be executed shortly. However, considering the fact that the company has received the work order from Corporation and commenced activities according to the shared work order, besides part payment against the said work order has also been received, the management has decided to claim the deduction under section 80 IA of ₹ 68,561,096/– ."
Thus, the learned assessing officer has denied the deduction under section 80 IA (4) amounting to ₹ 68,401,665 claimed by the assessee. Accordingly, assessment order under section 143 (3) of the act was passed on 18/03/2013 determining total income of the assessee at ₹ 68,571,161/–.
The assessee aggrieved with the assessment order preferred an appeal before the learned CIT – A who
The learned CIT – A confirmed the disallowance for following reasons:-
i. Appellant company was incorporated on 12/10/2009 whereas the Corporation floated the tender on 16/7/2007 and awarded the project to the consortium on 20/08/2009. Thus, on the date of formation of the company tender was already awarded to the consortium and the company was not in existence. ii. It is factually incorrect to say that the assessee company is a special purpose vehicle promoted by the Shroff family. Further this company from 27th of March 2010 became a subsidiary of United phosphorus Ltd global eco-investment Holdings private limited. This company was quoted with the meager share capital of ₹ 680,000 and unsecured loan of ₹ 5 crores from holding company and 5 crores from other and therefore the assessee company was not at all competent to participate in bidding and nor was awarded any such solid waste management work by any local authority. iii. Concession agreement signed on 27/7/2011 and therefore for financial year 2009 – 10 assessment year 2010 – 11 there is no such concession agreement available. v. The land allotment was also given by the Mumbai municipal Commissioner to the consortium and not to the assessee company. Letter dated 09/09/2009 is clear on this issue. vi. Works contract was given to the appellant for execution of work and assessee company is to be regarded as a ‘contractor’ or executor of work assigned to consortium and therefore explanation under section 80 IA (4) is applicable which provides that the deduction is to be granted to the developer of infrastructure facility but not to a contractor. vii. The note given by the auditor in form number 10 CCB has mentioned with full reservation that the appellant has received solid waste management system contract and concession agreement was not yet executed till the date of signing of the certificate on 24/9/2010 and therefore obviously during financial year 2009 – 10 no such concession viii. Even the revenue recognition policy of the assessee company clearly shows that the assessee is merely a contractor.
Therefore, the assessee is aggrieved and is in appeal before us. Arguing ground number one, the learned authorized representative referred to a paper book containing 269 pages filed by the assessee. He firstly referred to page [6] wherein the copy of request for proposal [RFP] dated 16 July 2007 issued by the Mumbai municipal Corporation which was issued on 16/7/2007 and the main conference was arranged on 16/8/2007 referred to the request for proposal for the work wherein it is mentioned that selection of operator for partial closure and maintenance of the existing dump site and design, engineering, construction, operation and maintenance of integrated waste management facilities on the line, build, own, operate and transfer basis at Deonar Mumbai. Referring to page number [8] he referred to the qualification criteria mentioned therein. According to the qualification criteria the bidder for the lead consortium member of bidding consortium should have the financial capacity and must have networth not less than ₹ 50 crores. On page number 17 he referred to the scope of work for the project. He submits that at paragraph number 3.1 of the eligibility criteria bidding member of the bidding consortium must be duly incorporated into
According to him the learned assessing officer has disallowed the claim of the assessee merely because of the reason that concession agreement 18/11/2011 was entered into subsequent financial year and therefore the financial year relevant to the impugned assessment year there was no agreement and therefore the assessee was not entitled to deduction under section 80IA(4) of the act. He further stated that the learned assessing officer has also stated that explanation to that section which denies deduction to the contractor was also applied. He further stated that the learned CIT – A also held that there is no contract between the assessee as required under provisions of section 80IA(4) of the act. The learned CIT – A also denied the deduction for the reason that no deduction is allowable to a works contractor.
His main argument was that the letter of acceptance was issued to the assessee on 30/10/ 2009 and assessee was incorporated on 12/10/2009. This letter of acceptance is issued in the name of the assessee and therefore the assesseeentered into a contract with the Corporation on that date. The assessee is a special purpose vehicle which has been formed by all the members of consortium for carrying on of that work mentioned in Request for Proposal of the Corporation. He submitted that the contract requires an offer and acceptance that is
The learned Departmental representative vehemently supported the order of the learned assessing officer and the learned CIT – A holding that assessee does not satisfy the conditions laid down under section 80IA (4) of the act. He further submitted that assessee has not entered into an agreement with the Central government or any local authority for development of infrastructure facility. Therefore, the assessee is not entitled to deduction. Further the assessee is a contractor and therefore hit by the explanation to section 80 IA (4) of the act. He further submitted that when the contract was awarded, the assessee was not at all into existence therefore for this year the assessee is not entitled to deduction at all. It
We have carefully considered the rival contention and the orders of the learned lower authorities. The municipal Corporation of greater Mumbai floated tender for partial) maintenance of existing site and design, engineering, construction, operation, and maintenance of integrated waste Management facility on design, B, own, operate and transfer(DBOOT) basis at Deonar , Mumbai. As per the request for proposal of the work the date of issue of bid was 16/7/2007, date of Prebid conference was 16/08/2007 and date of the submission of bid was 23/10/2007. A consortium of United phosphorus Ltd, POBAs Enviro Tech private limited and MDSE made a bid for the project. This consortium was a successful bidder. Therefore, a Memorandum of understanding was entered into on 29/1/2008 amongst these three entities on 29 January 2008 prior to submitting the technical made on 11 February 2008. On 20 August 2009 the Corporation intimated the consortium that there joint-venture company has been selected as an operator for the above project based on the terms and conditions mentioned in the request for proposal document and concession
In these circumstances , the matter needs to be examined afresh that :-
(ii) Further the alternative contention of the assessee is that if the letter of acceptance is the agreement, then from that date the assessee is eligible for deduction u/s 80 IA (4) of the Act.
(iii) Whether explanation to section 80 IA applies to the assessee or not and (iv) how the rights of consortium were transferred to the assessee company, as these details were not furnished before the ld. AO.
The ld. AR and ld. DR also did not object to this but in fact agreed to this reexamination of the claim afresh in light of the above.
In view of this we restore the matter back to the file of the ld. Ao to reexamine the whole issue afresh, after giving an opportunity of hearing to the assessee to substantiate its claim, decide in accordance with law. Accordingly, All Grounds of appeal are restored to the file of the ld. AO.
Order pronounced in the open court on 12.06.2024.