DCIT, CIR-12(2), KOLKATA, KOLKATA vs. M/S TANTIA CONSTRUCTION LTD, KOLKATA

ORDER Per M.Balaganesh, AM

2 M/s Tantia Construction Ltd. A.Yr.2012-13 2.1. The brief facts of this issue is that the assessee filed its return of income for the Asst Year 2012-13 declaring total income of Rs Nil on 29.9.2012. In the said return, the assessee claimed deduction u/s 80IA of the Act to the tune of Rs 68,90,60,412/- being profit from infrastructure development in respect of 18 construction projects. The assessee furnished the copies of agreements entered into with different authorities for construction or development works in the assessment proceedings for verification by the ld AO. It was explained that the assessee is engaged in the business of developing infrastructure facilities like construction of roads, bridges, railway system etc pursuant to agreements entered with Central Government, State Government or local authorities viz Kolkata Municipal Corporation , Central Public Works Department (CPWD) and others. The company has invested substantial amount sourced from its own fund and from overdrafts with banks and deployed its own machinery and manpower to execute such projects. On completion of such projects, they are handed over to the authorities concerned. It was explained that the above activities of business fall within the definition of infrastructural facility as specified in Explanation attached to Section 80IA of the Act. The ld AO however observed that assessee has only carried out the entire projects only in the capacity of works contractor and hence as per the Explanation to Section 80IA by the Finance Act 2007 with retrospective effect from 1.4.2000 , it is not entitled for deduction u/s 80IA(4) of the Act. The ld AO also observed that the assessee had not fulfilled the conditions prescribed u./s 80IA(4) of the Act and rejected the claim of deduction of the assessee thereon.

2.2. The ld CITA granted relief to the assessee by observing as under:- “5.1. I have considered the submission of the appellant and perused the assessment order. It is observed that the similar issue arising in AYs 2006-07 to 2008-09 & 2011- 12 was adjudicated upon wherein my predecessor had held that the assessee-company was engaged in the business of development of infrastructural facilities on which deduction u/s 80IA was allowable. In view of the above facts and following the principles laid down in various judicial decisions, it is observed that the issue requires to be decided in favour of the assessee because the facts are similar and identical in 2

3 M/s Tantia Construction Ltd. A.Yr.2012-13 nature. Hence, following the decisions in earlier years and to maintain judicial consistency, it is held that the AO was not justified in denying the deduction u/s 80IA of the Act. Accordingly, AO is directed to allow the claim for deduction u/s 80IA of the Act as admissible under law. Ground No. 2 is allowed.”

2.3. Aggrieved, the revenue is in appeal before us on the following ground:- 1. In the facts & circumstances of the case and in law, the Ld. CIT(A) has erred n allowing deduction u/s. 80IA of the Act to the assessee.

2. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the contract was given to the assessee by the government body to set up the Govt. projects without any ownership stake in income from operations when the project is complete and due to which the basic intent of the legislature for allowing tax relief u/s. 80lA became infructuous.

3. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the construction of roads, bridges etc. was merely a work contract by the licensor, i.e. Govt. body and hence, the same does not constitute infrastructural facility under the meaning of Sec. 80IA of the Act, reliance is placed in the case of MV Omni Projects (India) Ltd, ITAT, Ahmedabad.

4. In the facts and circumstances of the case and in law, the Ld. CITCA) has erred in ignoring the fact that basic purpose for allowance of deduction u/s. 80IA for development of infrastructural facility, as required by legislature, did not get solved in performance of such type of work as performed by the assessee as the merely work contract, in no way, can come under the eligible business' for the purpose of deduction u/s. 80IA of the Act.

5. In the facts and circumstances of the case and in law, the Ld. CITCA) has erred by ignoring the fact that the basic intent of the legislature is absent in the work done by the assessee during the relevant previous year for claiming deduction u/s. 80lA of the Act in assessee's case and at best, the work of the assessee can be regarded as 'work contract'.

6. In the facts and circumstances of the case and in law, the Ld. CITCA) has erred by overlooking the fact that by performing the allotted work by the local authority, source of earning of income instead of income from development, operation and maintenance of infrastructure facility.

4 M/s Tantia Construction Ltd. A.Yr.2012-13 7. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by overlooking whether the receipt from construction work would fall within the ambit of the expression “derived from infrastructure facility” as defined in Section 80IA of the IT Act, 1961, in particular the Explanation appended to sub- section (4) thereof w.e.f. 01.04.2002 and as held in the case of Liberty India (S.C.) 317 ITR 218.

2.4. We have heard the rival submissions and we find that the similar issue had cropped up before this tribunal in assessee’s own case for the Asst Year 2011-12 in dated 6.9.2017. In the said order, this tribunal had held as under:- “3.5. We have heard the rival submissions. It is not in dispute that the assessee is entitled for deduction u/s 80IA of the Act for the development of infrastructural activities carried out by it. We find that this tribunal in assessee’s own case for the Asst Years 2004-05 to 2008-09 vide order dated 23.9.2016 had decided the same in favour of the assessee, wherein it was held as under:- 14. We have heard the rival submissions and perused the materials available on record. The DR vehemently supported the order of the Id AO. He further stated that the reliance placed the Id CITA on the certain decisions are not relevant as in those cases, the issue was only remanded back to Id AO for verification. Accordingly he prayed for setting aside of the issue the file of the Id AO. In response to this, the Id AR vehemently supported the orders of the CITA. He stated that the decisions relied upon by the Id CITA are squarely applicable to the facts of the instant case, in as much as, in those cases, the relevant clauses of the agreements/contracts were not looked into by the lower authorities and hence the tribunal had in the interest justice had remanded the matter back to the file of the Id AO to go through the agreements/contracts. Whereas, in the instant case, the entire agreements/contracts were very much produced before the Id AO both in the original scrutiny assessment proceedings u/s 143(3) and also in section l53A proceedings which only enabled the ld AO to prepare a tabulation in Table A and Table B in his assessment order. The Id AR further argued that absolutely no incriminating materials were found during the course of search which would enable the department to change its stand about the status of the assessee, being a developer or contractor. Accordingly he prayed that the status of the assessee being a developer and claim of deduction u/s 80IA cannot be disturbed in section 153A proceedings. He placed reliance in this regard on the Co-ordinate Bench of this Tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Ko//2011 , ITA Nos. 1390,1391 & 1553/Kol/2010 dated 9.12.2015. 14.1. We find lot of force in the arguments of the Id AR that all the agreements / contracts were filed before the lower authorities and the Id CITA had gone into the relevant clauses of the agreements/ contracts, analysed the same in his elaborate order and then arrived at a conclusion that the assessee is only a developer and not merely a works contractor and accordingly eligible for deduction u/s 80IA of the Act. We also find that the Co-ordinate Bench of Chennai Tribunal in the case of ACIT vs R.R.Constructions in ITA No. 2061/Mds/2010 dated 3.10.2011 had an occasion to consider similar issue wherein it was held as under :- "The assessee has also produced all six agreements regarding six projects undertaken before the AO, whose copies are available before us also. It is a fact that even after 4

5 M/s Tantia Construction Ltd. A.Yr.2012-13 taking a contract from Government, if the assessee develops infrastructure facilities. it would be regarded as a 'developer: and 110t as a 'works contractor'. The 'assessee has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/ local authority. A contractor who develops the infrastructure facility becomes a developer to claim deduction U/S 80IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. v. DCIT in ITA No. 1221 /Mum/2004 has gone the extent of holding that the assessee, a civil contractor. having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction u/s 80lA( 4). The similar view was taken by us in the case of East Coast Constructions & Industries Ltd. v. DCIT. ITA No. 554/Mds/201O dated 13.09.2011. Therefore. we confirm the findings of the CIT(A) and do not find any valid merit in Revenue's appeal." 14.2. We find that the Id CITA had granted relief for claim of deduction u/s 80IA of the Act in respect of profits mentioned in the projects in Table A of the assessment order. The Ld. CIT(A) observed that profit to the tune of Rs. 1,79,33,518/· mentioned in the projects in Table B of the assessment order, the assessee failed to substantiate its claim of deduction U/S 80lA of the Act and accordingly confirmed the disallowance made thereon. We find that against this, the assessee had not preferred any appeal before us. Hence we refrain to give our comments on the same. 14.3. We also find that the ld CITA had duly met one of the observations of the Id AO that the assessee suo moto refrained from making any claim of deduction u/s 80IA of the Act for Asst Years 2009-10 and 2010-11 in the return pursuant to the Explanation brought out in Finance (No. 2) Act, 2009 w.r.e.f. 1.4.2000. We find that the Ld. CIT(A) in this regard had stated that each assessment year is a separate unit and the decision has to be taken on the basis of facts in that particular year. We find that the revenue cannot take undue advantage of the ignorance of an assessee by collecting undue taxes which would admittedly be against Article 265 of the Constitution. 14.4. We find that, in any case, the revenue had conceded to the fact that there was absolutely no incriminating materials found during the course of search which would enable the ld AO to take a different stand with regard to the status of the assessee (whether a developer or contractor). Admittedly, the assessment framed in the impugned appeal is pursuant to search conducted u/s 132 of the Act wherein no incriminating materials were found, which fact is not disputed before us. Moreover, it is not in dispute that the claim of deduction u/s 80IA of the Act has been accepted by the. revenue in section 143(3) proceedings and there is no reason to disturb the same in section 153A proceedings without there being any incriminating materials to the contrary. In this regard, we find that the issue is squarely covered by the co-ordinate bench decision of this tribunal in the case of Kanchan Oil Industries Ltd supra. 14.5. With regard to the additional ground raised by the assessee, in view of our aforesaid findings, we do not deem it fit to go into the additional ground raised by the assessee as the same would only be superfluous in nature.

15. In view of our aforesaid findings and respectfully following the various judicial precedents relied upon hereinabove, we hold that the assessee has to be treated only as a developer in the facts and circumstances of the case and not merely as a works contractor thereby eligible for 5

6 M/s Tantia Construction Ltd. A.Yr.2012-13 deduction u/s 80lA of the Act in respect of profits derived from projects mentioned in Table A of the assessment order to the tune of Rs. 4,12,88,9601- which has been rightly allowed by the Ld. CIT(A) . In any case, we hold that the said claim cannot be disturbed by the Id AO in section 153A proceedings in the absence of any incriminating materials to the contrary found in the course of search. Hence, we do not find any infirmity in the order of the Ld. CIT(A) in this regard. Accordingly, the grounds raised by the Revenue are dismissed.” However, we find that the segregation of projects carried out by the assessee in Table A and Table B as was done in the earlier years , as rightly pointed out by the ld DR before us, were neither done by the ld AO nor by the assessee during the year under appeal. Moreover, it is not in dispute that the assessee had indeed carried out some projects which were carried forward from earlier years. Hence in the interest of justice and fairplay, we deem it fit and appropriate to remand this issue to the file of the ld AO to find out the list of projects that are eligible for deduction u/s 80IA of the Act in the light of the decisions of this tribunal for the earlier years and decide the same afresh in accordance with law . Accordingly the Ground No. 5 raised by the revenue is allowed for statistical purposes.”

2.5. We find that the issue involved in this year under appeal is identical to that of Asst Year 2011-12 and hence respectfully following the aforesaid decision, we deem it fit and appropriate to remand this issue to the file of the ld AO to find out the list of projects that are eligible for deduction u/s 80IA of the Act in the light of the decisions of this tribunal for the earlier years and decide the same afresh in accordance with law. Accordingly, the Grounds 1 to 7 raised by the revenue are allowed for statistical purposes.

3.1. The brief facts of this issue is that the assessee company being a developer of infrastructural facilities raises running bills before completion of the project as per agreed terms and conditions. The authorities generally release 90% of the bill amount immediately but retain 10% of each and every bill till the verification as to satisfactory

7 M/s Tantia Construction Ltd. A.Yr.2012-13 performance of the whole project is complete. Normally, completion of the project and verification takes considerable time resulting in delay in payment of retention money being 10% of the bill amount and the developer company has no right to receive the same. It was the earlier practice of the appellant company to credit its profit and loss account with the entire amount of bill raised on principles and to show the retention money receivable under a separate head in the Balance Sheet. The legal position regarding year of assessability of Retention money as clarified in several judicial decisions came to the knowledge of the assessee recently. Therefore, the assessee filed revised return to reduce its business profit to the extent of Rs. 10,60,18,958/- as Retention money since AO’s observations read as follows: “Some of the Principals retained part of the contract payment made by them as retention money. During the year retention money of Rs. 10,60,18,958/- was retained from contract receipt of the current year.”

3.2. The assessee placed reliance on the following decisions of various High Courts including that of Hon’ble Jurisdictional High Court :- a) CIT vs Ignifluid Boilers (I) Ltd reported in 283 ITR 295 (Mad) b) CIT vs P & C Constructions (P) Ltd reported in 2 taxmann.com 47 (Mad) c) CIT vs Simplex Concrete Piles (I) Pvt Ltd reported in 179 ITR 8 (Cal)

3.3. The assessee explained that in view of the aforesaid decisions, the company while filing return u/s 139(1) in its computation did not include the sum of money retained in its business profit as per accounts. Similarly, a sum of Rs. 6,22,37,760/- retained in earlier years and not included in computation of income as a taxable income has been included in computation of income during the year as the sum of money was received by the assessee during the relevant assessment year. The assessee also brought to the notice of the ld AO that as per Not 1, Part 3(a) of the Financial Statementt as at and for the year ended March 31, 2012. “During the year under review the Company has credited gross bill amount as revenue, instead of net of retention as it was thought to be 8 M/s Tantia Construction Ltd. A.Yr.2012-13 a better presentation of Financial Statement. Due to such change there has been an increase of gross contract receipt to the extent of Rs. 7,07,91,419/- relating to last year.” Thus, a sum of Rs. 7,07,91,419/- was reduced from the computation as related to last year and was already taxed by the Income Tax Department in the assessment proceeding during the A.Y. 2011-12 (copy of assessment order u/s 143(3) enclosed). It is worth mentioning here that the claim of retention money was allowed to the assessee in A.Y. 2010-11 & 2011-12. Thus, as a principle of judicial consistency the sum of Rs. 16,82,56,718/- should not be included in Gross Total Income of the assessee company.”

3.4. The ld AO observed that assessee is following mercantile system of accounting. The assessee’s contention is that in respect of retention money, the income arise to the assessee only when the said amount of retention money is received by the assessee and not at the time of raising of the bills. However, whenever a contractor executes a job and raises a bill to the contractee in the mercantile system of accounting, the whole bill value is credited to the profit and loss account of the assessee irrespective of the fact whether such bill amount is received by it during the previous year or not. It may happen that the some of the Contractees/ Principals do not pay the whole amount as claimed by the contractor and pay an amount lesser than that claimed by the contractor after making some deduction on account of some shortfall, improper work or other contingencies. Similarly, when the contractee retains some amount from the bill value it is assumed that the amount withheld which is receivable by the assessee will be received by the assessee except in a situation when the contractee finds some fault with the work. But the taxation of the amount retained cannot be withheld for the contingency that the contractee will find some fault with the work and the assessee will not get back the amount. The treatment of the retention money on anticipation of a contingency defies the very basis of accounting. In the present case, there was no change in the business model or modus operandi of the business carried on by the assessee for more than a decade. This method of accounting was being regularly 8

9 M/s Tantia Construction Ltd. A.Yr.2012-13 followed by the assessee. The Hon'ble Supreme Court in the case of Radhaswami Satsang reported in 193 ITR 321 held that consistency is the hall mark of law and justice. If the assessee has been following a method year after year by including receivable amount in it’s income it would not be justified in suddenly excluding such receivable form it’s income to reduce the profit. So the act of the assessee is not justified.

3.5. The ld CITA by giving due credence to the various judgments of the High Courts including that of Hon’ble Calcutta High Court in the case of CIT vs Simplex Concrete Piles India (P) Ltd reported in 179 ITR 8 (Cal) opined that the ld AO was not justified in rejecting the claim of the assessee on account of retention money claimed in the return. He also observed that the ld AO had relied on certain judicial pronouncements in his order but none of them are directly related to the issue involved in the instant case. He observed that the contentions of the ld AO that since the assessee company had credited the entire amount of job receipts in its profit and loss account and therefore the deduction of retention money cannot be allowed in the computation of income does not appear to be correct. He further observed that since in the year under consideration, the facts are similar to the facts in immediately preceding years, i.e Asst Years 2010-11 & 2011-12 and hence following the order of his predecessor for the earlier years, he held that the amount of retention money of Rs 10,60,18,958/- is not taxable in the year under appeal and assessee had rightly claimed the reduction of the said amount.

3.6. Aggrieved, the revenue is in appeal before us on the following grounds:-

8. In facts and circumstances of the case and in law, the Ld. CIT(A) erred by not appreciating the fact that the assessee has been following mercantile system of accounting and as per Mercantile System of accounting, the assessee is required to credit contract receipt as per whole bills and not after deduction of retention money retained by the respective principals/clients. Further Ld. CIT(A) gross ignored the decision in the case of DCIT vs. Amarshiv Construction (P) Ltd.

88. ITD 381. 9 3.7. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee’s own case for Asst Year 2011-12 in dated 6.9.2017 wherein it was held as under:- “2.4. We have heard the rival submissions. The ld AR stated that the issue under dispute is covered by the decision of this tribunal in assessee’s own case for the Asst Year 2010- 11 in ITA No. 2384 & 2392/Kol/2013 dated 16.6.2017, which was fairly conceded by the ld DR. In the said order , it was held that :- “13. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find t hat the instant issue has already been allowed by Co-ordinate Bench in assessee’s own case (supra) in its favour and relevant extract is reproduced below: 6.12. On merits, retention money in works contract with Government is taxable only on receipt basis as held by the Jurisdictional High Court in the case of Commissioner of Income-tax Vs. Simplex Concrete Piles (India) 1989 179ITR

8. (Cal). Thus, ground No. 1 of the assessee is allowed. Respectfully following the same we uphold the order of Ld. CIT(A). This ground of revenue’s appeal is dismissed”.

Respectfully following the same, we uphold the order of the ld CITA . Accordingly Ground No. 8 raised by the revenue is dismissed.

Order pronounced in the Court on 22.11.2017