M/S PARNIKA COMMERCIAL & ESTATES (P) LTD.,NEW DELHI vs. ADDL. CIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ‘F’ NEW DELHI BEFORE : SHRI C.M. GARG, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA No. 5724/Del./2010 Asstt. Year : 2007-08 Parnika Commercial & Estates (P) Ltd., vs. Addl. C.I.T., Range-14, G-15, Preet Vihar, New Delhi. New Delhi. [PAN: AAACP0555C] (Appellant) (Respondent) Appellant by : Sh. Kapil Goel, Advocate Respondent by : Sh. Ashish Chandra Mohanty, Sr. DR Date of hearing : 01.07.2016 Date of pronouncement : 22.07.2016 ORDER Per L.P. Sahu, Accountant Member: This is an appeal filed by the assessee against the order of the CIT(A)- XVII, New Delhi for the assessment year 2007-08 dated 21.01.2010 on the following grounds : “1. On the facts and in the circumstances of the case and in law, the Worthy CIT(A) in Appeal No. 40-IT/CIT(A)-I/Ldh/09-10 dated 22.09.2010 has erred in passing that order in contravention of the provisions of section 250(6) of the Income Tax Act, 1961. 2. That On the facts and in the circumstances of the case, the Worthy CIT(A) vide para 3 of the order has erred in facts and also in law in confirming addition of Rs.2,47,75,170/- by disallowing legitimately claimed deduction u/s. 80-IA(4) of the Act.”

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declared of Rs.2,47,75,170/-. The total profit rate comes to 23.4%. Thus, the profit worked out for eligible business claimed is much higher than the overall profit of the business. The appellant did not submit actual profit & loss account before the Assessing Officer where entire expenditure & income could be verified. According to the Assessing Officer, the assessee is not engaged in eligible business as defined in section 80IA(4) for claiming deduction under this section. He also found that as per Rule 18BBB, there should be separate profit & loss account and balance sheet of the undertaking /enterprises, but no such separate books of accounts and balance sheet were produced before the AO. In view of this, the ld. Assessing Officer disallowed the claim of deduction of Rs.2,47,75,170/- and added the same back to the assessee’s total income.

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separately prepared which is at page No. 22 & 23 of the paper book. Calculation of indirect expenses of project and indirect expenses of Head Office, have been calculated on the proportionate basis as placed at paper book page No. 24 & 25. Form No. 10CCB was submitted duly signed by the Chartered Accountant before the Assessing Officer which itself is a certificate from a highly competent professional of accounting and is enough to justify the compliance of the conditions referred to in section 80IA(4). The ld. AO has objected only on the report of CA that each page of Form No. 10CCB has not been signed. He has not rejected the said form No. 10CCB. The ld. AR also relied on the following decisions : (i). ARSS Infrastructure Projects Ltd. vs. ACIT (ITA Nos. 142, 143, 483 & 484) (ITAT Cuttack). (ii). CIT vs. VRM India Ltd. (ITA No. 2069/2010 (Delh. HC) (iii). CIT vs. M/s. Sarkar Builders (Civil Appeal No.4476 of 2015)(SC) (iv). CIT vs. Budharaja (NC) & Co. 204 ITR 412 (SC) (v). ACIT vs. RR Constructions (ITA No. 2061/Mds/10 (Chennai Bench) (vi). Om Metal Infraprojects Ltd. vs. CIT, 26 DTR (Jp)Trib) 359 (vii) M/s. Maytas-NCC(JV) v. ACIT (ITA No. 1875/Hyd/11 (Hyd. Tribunal) (viii). CIT vs. ABG Heavy Industries Ltd. & Ors., 322 ITR 323 (Bom. HC) (ix). Patel Engineering Ltd. vs. DCIT, 84 TTJ (Mum) 646(Mum. Tribunal) (x). M/s. Bongaigaon Refinery and Petrochemical Limited (Civil appeal No. 1679 of 2004) (SC) (xi). M/s. Pratibha Industries Ltd. (ITA Nos. 2197 to 2199/Mum/2008) (xii). M/s. GVPR Engineers Ltd. (ITA No. 347/Hyd/2008.

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claimed by the appellant, it will amount to violation of section 80IA(4). The appellant is not a developer. He is simply a civil contractor. The appellant got the contract value in lieu of works done under the contract. No risk or rewards were associated with him. In such case, the claim of the appellant is against the law. He also submitted that in the notification, there is no ambiguity. The cases relied upon by the appellant, being on different facts, are not applicable to the present case.

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(a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;] (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation.—For the purposes of this clause, "infrastructure facility" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway [, inland port or navigational channel in the sea]; (ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, [2005].]; Explanation.—For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park [or special economic zone] notified by the Central Government in accordance with the scheme framed and notified by that

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Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, [2006]: [Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking: [Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, [2011]" had been substituted;] (iv) an [undertaking] which,— (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, [2011]; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, [2011]: Provided that the deduction under this section to an [undertaking] under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution; (c)undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, [2011]. Explanation.—For the purposes of this sub-clause, "substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April, 2004;] (v) an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant, if— (a) such Indian company is formed before the 30th day of November, 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant

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and such Indian company is notified before the 31st day of December, 2005 by the Central Government for the purposes of this clause; (b) such undertaking begins to generate or transmit or distribute power before the 31st day of March, [2011];]" 3.1 It can be seen from the provisions of section 80IA (4) that in order to claim a deduction under this section, an assessee must fulfill following conditions: 1. The enterprise should be carrying on the business of (i) Developing or (ii) Operating or maintaining or (iii) Developing, operating and maintaining. any infrastructure facility which fulfills all the following conditions: (a) It is owned by a company registered in India or by a consortium of such companies or by an authority established under any statute; (b) It has entered into an agreement with the government/authority for developing, operating and maintaining a new infrastructure facility: (c) It has started or starts operating and maintaining the infrastructure facility on or after the first day of April 1995. 3.2. It may be mentioned that the explanation after section 80IA (13) specifically mentions that the deduction u/s 80IA (4) will not be available for the works in the nature of a work contract. For the sake of convenience, the Explanation is reproduced below: "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)." 3.3. In the case under consideration the project was owned by the DRDO. The project was being developed by the DRDO. The appellant company was neither owner of the said project nor developer of the project nor maintaining the new infrastructure facility. It was simply given a contract to undertake civil and earth work of the project in the capacity of a contractor. It was not the developer of the project. Developer is one who takes the initiative and who takes the responsibility of the risk. Thus, profit or loss whatever it may be is taken by the developer. But the contractor is not concerned with the profit and loss of the project. A contractor is interested only in the receipt of amount given in the contract. In order to claim a deduction u/s 80IA (4), an enterprise should be carrying on the business of developing, operating or maintaining any infrastructure facility which fulfills all the

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conditions mentioned at (a), (b) and (c) above. In the statement of facts submitted alongwith appeal memo, the appellant has admitted that they are involved in the business of civil contractors executing works on behalf of various agencies and parties. During the appellate proceedings, the appellant submitted a copy of letter dated 30.11.2006 issued by DRDO, which states that the work was to be commenced from 30.11.2006 and to be completed by 29.06.2007. It is seen from the letter of DRDO that the assessee was awarded a civil contract only for carrying out of earth work and civil work for the rain water harvesting project of DRDO. It can be seen that the appellant company is not qualifying even a single condition what to speak of all the conditions. The Ld. AR have not been able to point out even a single condition of section 80IA, which the appellant has fulfilled what to speak of fulfilling all the conditions cumulatively. Regarding the Ld. AR's submission that the AO has wrongly applied the Explanation as the same was applicable to sub-developers, the same is not correct as the Explanation as it stands amended w.e.f. 01.04.2000 says that the same shall apply in relation to business in the nature of a work contract awarded by any person. The Ld. AR submitted a copy of explanatory memorandum to the Explanation introduced by the Finance Act 2009. It will be convenient to reproduce the same for ready reference: "Clarification regarding developer with reference to infrastructure facility, industrial park, etc. for the purposes of section 80-IA Section 80IA, inter-alia, provides for a ten-year tax benefit to an undertaking engaged in development of infrastructure facilities, Industrial Parks and Special Economic Zones. The tax benefit was introduced for the reason that industrial modernization requires a massive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, a person who enters into a contract with another person [i.e., undertaking or enterprise referred to in section 80-IA] for executing works contract, will not be eligible for the tax benefit under section 80-fA. This amendment will take retrospective effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Clause 22]." It is clear from the explanatory memorandum that the purpose of section 80IA was to encourage private participation by way of investment in development of infrastructure sector and not for the persons who merely execute the civil

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construction work or any other work contract. The Explanation specifically mentions that the provisions of section 80IA shall not apply a person who executes a work contracts. It further explains that the benefit will be available only to that person who himself makes the investment and himself executes the development work. It further says that a person who enters into a contract with another person for executing works contract, will not be eligible for the tax benefit u/s 80IA. Admittedly, the appellant was given only a work contract by the DRDO for earth and civil work of the rain water harvesting project. Thus, the Explanation is fully applicable to the appellant's case. Therefore, I .do not find any merit in the submissions of the Ld. AR and hence the same are rejected. Since the appellant company does not fulfill any of the criteria for making it eligible for deduction u/s 80IA of the IT. Act, 1961, the other contention of the Ld. AR regarding proper working of the profit from rain water harvesting project and filing separate P&L account becomes academic in nature. In view of the above discussion and legal position on the issue, I do not find any infirmity in the order of the AO. I am of the considered opinion that the AO was fully justified in rejecting the claim of the appellant. Therefore, the assessment order passed by the AO is upheld and addition made by the AO is hereby confirmed. These grounds of appeal are rejected.” 8. The record reveals that the form No. 10CCB filed by the appellant is also found not complete, as the last para from Sl. No. 25(e) to Sl. No. 30 is missing therein. When the matter in hand came up before us in the second round of hearing fixed for clarification, the ld. Counsel for the assessee placed a strong reliance on a decision of ITAT, Chennai Bench in the case of ACIT vs. East Coast Construction & Industries Ltd. (ITA Nos. 558 to 561/Mds/2013) dated 20.05.2016 (copy placed on record), the relevant paragraphs of which are reproduced as under : 2. The first common ground in all the appeals by the Revenue is with regard to allowability of deduction u/s.80IA of the Act. 3. The facts are common in all these appeals, hence, we consider the facts narrated in assessment year 2005-06. The assessee is engaged in civil construction works like construction of fly over, under pass, sewerage, water supply and treatment etc., for various local bodies, railways and state/central governments. For the purpose, the assessee had entered into contract with the State/Central Governments and local authorities to execute the infrastructural works as per the contract agreement made

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and claimed deduction u/s.80IA for the construction of above infrastructural works. During the current year, the assessee has claimed deduction u/s.80IA in respect of profits earned out of three projects, viz., 1. Modi Under pass 2. Kumbakonam, 3. Thiruvallur Kadambatur During the course of scrutiny proceedings, it was noticed that the assessee has not made any suitable development agreement with the Central/State Government, local body or any other statutory body for the purpose of developing infrastructure facility as required under the provisions of the Income Tax Act. Accordingly, the disallowed the claim of the assessee u/s.80IA of the Act by applying the Explanation to sec.80IA of the Act. Against this, the assessee went in appeal before the Commissioner of Income- tax(Appeals), who following the earlier order of the Tribunal in assessee’s own case for the assessment year 2004-05 in ITA No.544/Mds/2010 dated 13.9.2011 allowed the claim of the assessee, by observing that the assessee is eligible for deduction u/s.80IA of the Act and against this, the Revenue is in appeal before us. 4. The ld. DR relied on the judgment of the Gujarat High Court dated 28.3.2013 in the case of Katira Construction Ltd. v. UOI (352 ITR 513), wherein it was held as under : “ There is an intrinsic difference between developing an infrastructure facility and executing a works contract. What the Explanation aims to achieve is to clarify that deduction under section 80-IA(4) of the Act would not be available in case of execution of works contract. Even without the aid of the Explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. There would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility. CIT v. RADHE DEVELOPERS [2012] 341 ITR 403 (Guj) relied on. From the inception in the year 1996, deduction under sub-section (4A) of section 80-IA of the Act was available to an enterprise engaged in developing, maintaining and operating any infrastructure facility. At the very first stage, the deduction was made available to draw additional resources for fulfilling the requirements of the country of rapid improvement in infrastructure such as, expressways, highways, airports, ports, in which areas development was found to be deficient. The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation. Even after bifurcation of section 80-IA into section 80-IA and section 80-IB , with effect from April 1, 2000, this fundamental concept was not discarded. Sub-section (4) which formed part of the recast section 80-IA did not carry any material changes from the earlier provisions of sub-section (4A) of section 80-IA which existed prior to April 1, 2000. With effect from April 1, 2002, some significant changes were made in the provisions. Such changes were (i) that sub-section (4) of section 80-IA now required the enterprise to carry on the business of developing or operating and maintaining or developing,

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operating and maintaining any infrastructure facility in contrast to the previous requirement of all three conditions being cumulatively satisfied ; (ii) that the Explanation of the term infrastructure facility was changed to besides others, a road including toll road instead of the hitherto existing expression road ; and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with. These changes, however, would not alter the situation vis-a-vis the Explanation. The basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. Even as amended with effect from April 1, 2002, section 80-IA(4) could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. In 2007, the Explanation below sub-section (13) of section 80-IA came to be added which clarified that nothing contained in the section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. However, this was not found to be sufficient. With a view to preventing such misuse of the tax holiday under section 80-IA , it was proposed to amend the Explanation to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undertaking. What the Explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the Explanation must be seen as one being in the nature of plain and simple Explanation and not either adding or subtracting anything to the existing statutory provision. If the Explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. The Explanation only supplied clarity where confusion was possible in the unamended provision. In that view of the matter, this cannot be seen as a retrospective levy.” He also relied on the order of the Tribunal in the case of ACIT v. M/s. Sree Stella Infrastructure & Projects Ltd. in ITA No.1294/Mds/2011 dated 28.9.2012 for the assessment year 2008-09, wherein it was observed as under: “6. We have heard both the sides, perused the records and gone through the orders of the authorities below. The issue involved in this appeal is whether the assessee is eligible for the deduction under section 80-IA(4) of the Act or not. According to the Assessing Officer the assessee company had constructed water treatment plant for CMWSSB and some private entities and as per the construction contract the assessee had simply executed works contract on job work basis for CMWSSB and therefore was denied the deduction u/s 80-IA(4) of the Act. In appeal the learned CIT(Appeals) simply following the order of the Tribunal in the case of Patel Engineering Ltd. (94 ITD 141) allowed the deduction claimed by the assessee under section 80- IA(4) of the Act. In the assessment order, the Assessing Officer has categorically given the finding that the assessee is a works contractor and he has constructed the water treatment plant for CMWSSB on job work basis. This fact was not disputed before us. It is clear from the facts available on record that the assessee has executed the works contract, i.e. water

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treatment plant for CMWSSB and has claimed deduction under section 80-IA(4) of the Act. The assessee is unable to establish as to how it had made investment in the project. Apart from that the assessee is not able to prove that it has not executed the work contract by producing relevant material to contradict the finding given by the Assessing Officer. We, therefore, hold that the assessee is a works contractor. 7. Now the only issue before us for consideration is whether the works contractor is eligible for deduction under section 80- IA(4) of the Act or not. It is pertinent to mention here that the Finance (No.2) Act, 2009 added an Explanation to sub- section(13) of Section 80-IA with retrospective effect from 1-04-2000, 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 subsection (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).” 8. As per the above Explanation to sub-section (13), works contractor is not eligible for deduction u/s 80-IA(4) of the Act. The very same Explanation was considered by the Tribunal, “I” Bench Mumbai in ITA No. 5172/Mum/2008 in the case of The Indian Hume Pipe Co. Ltd. v. DCIT for the assessment year 2004-05 (supra) and vide order dated 29-07-2010 has held as under : “++ the law stands now in the light of retrospective insertion of Explanation below to Section 80IA(13), the assessee is not eligible for deduction u/s 80IA(4). This Explanation, introduced by Finance Act, 2009 with retrospective effect from 1st April, 2000, provides that “(f)or the removal of doubts, it is hereby declared that nothing contained in this section (i.e. 80-IA) 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).” Such being the legal position, and the assessee having merely executed the works contract for infrastructure development as awarded to him, we are of the considered view that authorities below rightly declined the deduction u/s 80IA to the assessee. We approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter;” 9. In view of the facts and circumstances of the case and also following the decision of the co-ordinate Bench of this Tribunal in the case of The Indian Hume Pipe Co. Ltd. (supra), the assessee is not eligible for deduction under section 80-IA(4) of the Act. 10. The learned CIT(Appeals) simply followed the decision of the Tribunal in the case of Patel Engineering Ltd. v. IT (94 ITD 141), which has been followed in the case of ACIT v. Bharat Udyog Ltd. (24 SOT 412) also, and allowed the appeal of the assessee ignoring the explanation inserted to sub-section (13) of section 80-IA by the Finance (No.2) Act, 2009. However, we find that the order of the Tribunal in the case of Patel Engineering Ltd. v. DCIT (supra) relied on by the learned CIT(Appeals) no more holds

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the field as an Explanation has been inserted to subsection (13) of section 80-IA by the Finance (No.2) Act, 2009, reproduced above. Further, no material has been brought to our notice that the order of the Mumbai Bench of the Tribunal in the case of The Indian Hume Pipe Co. Ltd. (supra) has been reversed or modified by the Hon’ble High Court. Therefore, in view of the specific provisions of the Act, i.e. the Explanation added to sub-section (13) of Sec. 80- IA by the Finance (No.2) Act, 2009, and also the decision of the co-ordinate Bench of this Tribunal in the case of The Indian Hume Pipe Co. Ltd. (supra), we reverse the order passed by the learned CIT(Appeals) and restore the order passed by the Assessing Officer. 11. Insofar as the case law relied on by the learned counsel for the assessee in the case of ABG Heavy Industries Limited (supra) is concerned, the Hon’ble Bombay High Court has not at all considered the issue, whether works contractor is eligible for the deduction under section 80-IA(4) or not. The only issue before the Hon’ble Bombay High Court was whether the assessee has to develop the entire Port in order to qualify for deduction under section 80-IA. Therefore, the Hon’ble Bombay High Court never discussed anything with regard to the works contractor or such contractor is eligible for the deduction under section 80-IA(4) of the Act. The case before the Hon’ble Bombay High Court was that of an assessee who was a developer and the only dispute was whether the assessee was to develop the entire Port or not. In those circumstances the Hon’ble Bombay High Court has held that it is not necessary for an assessee to develop the entire port in order to qualify for deduction under section 80-IA. Therefore this decision has no application to the facts of the present case. 12. In view of the above facts and circumstances of the case and the statutory provisions, the appeal filed by the Revenue has to be allowed and we do so. 13. In the result, the appeal filed by the Revenue is allowed.” 5. The ld. AR relied on the order of the Judgment of the Supreme Court in the case of CIT v. Berger Paints Indi Ltd. (266 ITR 99), wherein it was held as follows: “If the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause.” She also relied on the order of the Tribunal in assessee’s own case for the assessment year 2004-05 in ITA No.544/Mds/2010 dated 13.9.2011, wherein it was held that : “9. After considering the rival submissions, we can safely say that the benefit of section 80IA is available only to a ‘developer’ who carries on business of ‘developing of infrastructure facility’. A person who enters into contract with another person for executing ‘works contracts’ is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or

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enterprise which executes the infrastructure development projects, as referred to in sub-section(4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80IA(4). Having said that, now we examine the facts of this case. The assessee company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanation and amendment thereto. To trace the history of this deduction, we find that originally, in the provision of section 80IA, there was no mention of any development of ‘infrastructure facility’. It is only with effect from 1.4.2000, this section was divided into two portions 80I and 80IB. Section 80IA(4) prescribes about the deduction available to a developer who develops infrastructure facilities. In view of the amendment inserted by the Finance Act, 2007, with retrospective effect from 1.4.2000, the deduction u/s. 80IA is available to those assessees who are ‘investing and developing infrastructure facility’ and not to persons who simply executes ‘works- contracts’. Explanation in question, as it stands today, reads as under : “Explanation – For the removal of doubts, it is hereby declared that nothing contained in this section (i.e. 80IA) shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be.” In contrast to this, a person who enters into a contract with another person (i.e. undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80-IA. 10. We have found that the assessee-company is a works contractor, who has entered into agreement with the local bodies to execute certain part of the work awarded to it through contract for infrastructure facility. It is true that where a person who makes civil work will be eligible for tax benefit u/s.80IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s.80IA. It was clarified by the Circular No.3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s.80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a ‘developer’ of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained but it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper books] “Developer” means – a person engaged in development or operation or maintenance of Special Zone, and also includes any person authorized for such purpose by any such developer. The “works contract” means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and

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includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT vs. Indwell Lianings Pvt. Ltd. (supra), on which the Assessing Officer has placed reliance is also relevant and we extract certain relevant portion of this decision for ready reference: Vide Finance Act, 2007, an Explanation was inserted with retrospective effect from April 1, 2000 after sub-section (13) of section 80-IA, which reads as under: “For the removal of doubts, it is hereby declared that nothing contained in this section shall to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be.” According to Attorney’s Pocket Dictionary, in relation to a corporation or business, the term “undertaking” denotes its whole enterprise and the word ‘enterprise’ connotes all the related activities performed either through unified operation or common control by any person or persons for a common business purpose. The mens legis with reference to developer of infrastructure facility can be gathered from the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.)292 at page 312, which reads as under: "Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80- IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- lA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the assessment year 2000 -01 and subsequent years."

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It is made abundantly clear that the prescription of section 80- IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself executes development works and carries out civil works, will be eligible for tax benefit under section 80- IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract will not be eligible for the tax benefit under section 80- IA of the Act. In the present case, we find that the assessee was doing only contract works of insitu cement lining for water supply project of the Gujarat Water Supply and Sewerage Foard. As such, the benefit of section 80- IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and the Commissioner of Income-tax (Appeals).” 11. To further elaborate the discussion on this issue, paras 5 & 6 of the decision of ITAT Pune Bench rendered in the case of Laxmi Civil Engg. P. Ltd vs Addl. CIT, order dated 8.6.2011 are being extracted herein below: “5. We heard both the parties and perused the orders of the revenue. The contentious issues before us are (i) whether the contractor is synonymous with the developer within the meaning of section 80IA (4)(i) of the Act; (ii) whether the condition placed in clause (c) is applicable to the case of a developer, who is not carrying on business of operating and maintaining the infrastructural facilities. In our opinion, the answer to these question are provided by the judgment of the Bombay High Court in the case of ABG Heavy Engg Ltd (supra). In this regard, we perused the above cited para-22 of the said judgment and for the sake of completeness, the said paragraph is reproduced as under:- "22. The submission which was urged on behalf of the Revenue is that Clause (iii) of sub-section (4A) of section 80-lA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1 st April, 1995. The same requirement is embodied in subclause (1) of sub-clause (4) of the amended provisions. It was urged that since the assessee was not operating and maintaining the facility, he did not fulfill the condition. The submission is fallacious both in fact and in law. " That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1s1 April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility' which fulfills certain conditions. Those conditions are (I) ownership of

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the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be harmoniously construed with the main provision under which deduction is available to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility". A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or (iii) develops, maintain and operates that infrastructure facility. However, the commencement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition". Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S.80- IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature ". 6. The above judgment of the Hon'ble High Court is delivered in the case of ABG Heavy Engg Ltd (supra), who is a contractor for the lNP Trust and that contactor, assessee is found to be an eligible developer for making claim of deduction u/s section 80IA (4) of the Act. From the above, it is evident that the person who only develops the infrastructure do not have the occasion to operate and maintain the infrastructure. It is further evident that the harmonious reading is necessary and mandatory in view of High Court's judgment in the case of an enterprise carrying on business or developing which is the case of the assessee, all the conditions referred to clause (i) of section 80IA (4) should refer to the conditions as applicable to the developer. In other words, the developer who is only developing the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfill the condition at subclause (c) which is an impossibility and the requirements to fulfill the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis-à-vis of clause (i) of section 80IA (4) of the Act. Thus, the discussion in High Court's decision in paragraph-22 extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80IA (4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee. ” 12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188, has ordained that taxing statute granting

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incentives for promoting growth and development should be liberally construed. 13. Now, the question arises as to whether the term ‘contractor’ is not essentially contradictory to the term ‘developer’. In fact, in every development the term ‘developer’ will definitely be a ‘works contractor’ but every works contractor may not be a ‘developer’. A ‘developer’ is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfills all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who – develops or operates and also maintains; or develops, maintains and operates that infrastructure facility. The provision for giving the impugned incentives has been examined, reexamined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterprise, but only of the authority in question. Therefore, again this provision in so far as the conditions required to be fulfilled to be eligible for this incentive had to be provided by the juridical forums dealing with this issue. After in- depth deliberations, discussions and examination of these provisions, finally, it has been resolved that if an enterprise even after entering into a contract with a local authority or the Governments, may be Central or State, in case it constructs the infrastructure facility, operates it and also maintains the same, it would be eligible for this deduction. 14. Now, let us examine the facts of the given case. It is an undeniable fact that the assessee is engaged in the civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments. In fact, as per the terms of agreement, even the initial proposals formulated by the Department which are stated to be tentative, the assessee has the liberty to make different proposals without detrimental to the general features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A ‘developer’ as per

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the Advanced Law Lexicon means “a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer”. In the case of ACIT vs Bharat Udyog Ltd, ‘F’ Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No.145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a ‘contractor’ undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from being a ‘developer’ as well. The term ‘contractor’ is not necessarily contradictory to the term ‘developer’. On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a ‘developer’. The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a ‘developer’; nor will it debar the assessee from claiming deduction u/s 80IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held to be eligible for deduction u/s 80IA(4). Section 80IA(4)(i)(b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it by handing over the possession thereof to the concerned authority as required by the agreement. The handing over of the possession of developed infrastructure facility/project is the transfer of the infrastructure facility/project by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to the Government or authority takes place after recoupment of the developer’s costs whether it be “BT’ or ‘BOT’ or ‘BOOT’ because in ‘BOT’ and ‘BOOT’ this recoupment is by way of collection of toll therefrom whereas in ‘BT’ it is by way of periodical payment by the Government/Authority. The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of ‘BOT’ or ‘BOOT’ and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere ‘developer’. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility

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project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a ‘developer’. In this regard, as we have already stated, the decision of ACIT vs Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No.4/2010[F.No.178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) . The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT vs ABG Heavy industries Ltd, 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the enterprise. It applies to a work contract entered into between the enterprise and other party ‘the sub-contractor’. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur ‘A’ Bench in the case of Om Metal Infraprojects Ltd vs CIT-I, Jaipur, in I.T.A.No. 722 & 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai ‘F’ Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub-contractor and not a min contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT vs Smt C.Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80IB(10), but the definition of ‘developer’ given in that case is also relevant for this purpose. Moreover, we are in agreement that in incentive provisions, the construction should be liberally given as held by the Hon'ble Supreme Court rendered in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188. Thus, when the assessee makes investment and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect.” 6. We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 80IA(4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA(4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA(4A) are also made available under Section 80IA(4) itself. Further, the very fact that the legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and

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maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurs expenditure on its own for purchase of materials and towards labour charges and itself executes the development work i.e., carries out the civil construction work, it will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. At this stage, we deem it appropriate to reproduce hereunder section 80IA of the “Act” providing deduction in respect of profits and gains from industrial undertaking or enterprises engaged in infrastructure development which reads as follows:- 80IA. (1)Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. (2)………………. (2A)…………… (3)……………… (4) This section applies to – (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely:— (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State

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Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation. - For the purposes of this clause, “infrastructure facility” means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system (d) a port, airport, inland waterway, inland port or navigational channel in the sea; (5) ………………… (13) ……………… *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). *It introduced by Finance (No.2) Act, 2009 w..e.f. 1.4.2000 6.1 A perusal of the statutory provisions makes it clear that it does not provide a blanket deduction i.e. in order to succeed in a claim of deduction; the concerned assessee has to derive profits and gains from any business referred to in sub-section 4. Further, sub-section 4 prescribes applicability of clause i.e. the case in which the deduction provision would apply. It is in this sub-section that the legislature has enumerated the nature of the undertakings, their activities in contributing raising of infrastructure. Further, in the explanation attached to the subsection, the legislature has also entrusted the meaning of the infrastructure facilities. In our opinion, an assessee while claiming deduction has to satisfy all conditions in sub-section 4(1)(a) or (b) or (c). It is mandatory for the assessee to first satisfy sub-section clause i(a), then (b) then (c), then proviso and so on. In case the concerned assessee fails in any one of the clauses, even if it satisfies the other part of the sub-section, the claim has to be rejected. Now we proceed to decide as to whether the assessee concern satisfies sub-section 4(i) of the “Act” or not. For the said subsection, a reading of the provision makes it unambiguous that the concerned claimant has to be an

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enterprises carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility and it has to be owned by a consortium of such company or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act. Admittedly, the assessee is a limited company and it satisfies this condition. 6.2 In our opinion, sec.80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT in Circular Nos.779 dated 14.9.1999 and 794 dated 9.8.2000 clarified that pure developer should also be eligible to claim deduction under sec.80IA of the Act, which ultimately culminated into Amendment under sec.80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in sec.80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under sec.80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contract or sub-contract as distinct from the developer. This is clear from the express intention of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under sec.80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. The learned counsel for the assessee stated before the Bench that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know how, expertise and financial resources. After the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the “or” between three activities was not there, after the amendment “or” has been inserted w.e.f.1-4-2002 by Finance Act 2001. Therefore, in the considered view of the Bench, the assessee should not be denied the deduction under sec.80IA of the Act, if the contracts involves design, development, operating & maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 80IA of the Act. In the opinion of the Bench the contracts which contain above features to be segregated on this deduction u/s.80IA has to be granted and the other agreements which are pure works contracts hit by the explanation to sec.80IA(13), those work are not entitled for deduction u/s.80IA of the Act. The profit from the contracts which involves design, development, operating & maintenance, financial involvement,

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and defect correction and liability period is to be computed by Assessing Officer on pro-rata basis of turnover. The Assessing Officer is directed to examine the contracts accordingly and grant deduction on eligible turnover as directed above. 7. Further, it is to be noted that while passing the impugned orders, the CIT(A) relied on the order of the Tribunal in assessee’s own case for the assessment year 2004-05, wherein Explanation to sec.80IA(13) was not in the present form and being so, the Tribunal took a note of earlier Explanation to sec.80IA(13) of the Act and decided the issue in favour of the assessee. More so, the judgment of the Gujarat High Court in the case of Katira Construction Ltd. cited supra, was not available before the Tribunal as well as before the lower authorities, for consideration, which was delivered on 28.3.2013. Further, neither the AO nor the CIT(Appeals) have gone through each agreement of the contract entered into by the assessee to carry out the projects. 7.1 It is also pertinent to note that in the case of CIT v. Hi Tech Arai Ltd. (321 ITR 477) the jurisdictional High Court held that simply because a Co-ordinate Bench of the Tribunal had taken a different view, the Tribunal on this occasion also ought to have followed the same, having no merit. When it is found that the Tribunal has applied a law correctly in the impugned order, there is no gainsaying that there was an earlier order by the Coordinate Bench and, therefore, for that reason, this time also the Tribunal should have blindly followed its earlier decision even if such earlier decision did not reflect the correct position of law. 7.2 Further, Mumbai Bench ‘I’ of this Tribunal in the case of CIT v. Pramod H. Lele (47 SOT 363), held that the decision, which was rendered in ignorance of the terms of a statute or rule, having no statutory force. In view of this, in our opinion, it is appropriate to remit the issue in dispute back to the file of the AO to consider all the agreements entered into by the assessee and he shall examine the same along with the explanations and also the application of the judgment of the Gujarat High Court cited supra. Accordingly, we remit the issue in dispute to the file of the AO for fresh consideration and decide the issue after examining all the agreements entered into by the assessee. 9. We have properly analyzed the aforesaid decision of ITAT Chennai Bench and the relevant provisions of law in the light of attending facts and circumstances of the case. Now, it has to be decided whether under the facts and circumstances of the present case, the assessee has undertaken eligible business for claiming impugned deduction or that the assessee is entitled to

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deduction u/s. 80IA(4) as reproduced above. It is worthwhile to note that sec.80IA of the Act, intends to cover the entities carrying out development or operation and maintenance or development, operation & maintenance of infrastructure facility. As per CBDT Circular Nos. 779 dated 14.9.1999 and 794 dated 9.8.2000, the developer is also eligible to claim deduction under sec.80IA of the Act irrespective of fulfilling the condition of operating and maintaining or developing, maintaining and operating, which ultimately culminated into Amendment under sec.80IA of the Act, in the Finance Act 2001. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in sec.80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under sec.80IA(4) of the Act. But, certainly, the Explanation cannot be read to debar the eligibility of the developer. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only works contract or sub-contract as distinct from the developer. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work as a contractor. It categorically states that the deduction under sec.80IA of the Act is available to developers who undertake entrepreneurial and investment

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risk and not for the contractors, who undertakes only business risk. After the amendment, the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility. Prior to amendment the word “or” between three activities was not there and after the amendment “or” has been inserted w.e.f.1-4-2002 by Finance Act 2001. Therefore, in our considered opinion that the entities who carry out any of the above activities shall be entitled to claim deduction under this section. Now, it has to be decided whether the assessee in the present case has acted as a developer, as claimed by assessee, or not. In the decision of Hon’ble ITAT Chennai Bench, it has been categorically opined that the deduction under section 80IA of the Act is available to such developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only the business risk. It is also opined by the Chennai Bench that the contracts, which involves design, development, operating and maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s. 80IA of the Act. While examining the paper book, we find that the assessee has filed letter issued by Chief Construction Engineer (R&D) No. CCC(R&D) C/O FN./8311/JO/CA/88 dated 30.11.2006 which mentions the job details to be done by the assessee. The ld. AR has also submitted completion

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certificate/performance report of work (page 26 to 33 of the paper book) issued by the Chief Construction Engineer R & D (Central) dated 21.08.2008. From this certificate, it reveals that the date of commencement of work was 30.11.2006. In the instance case, it is not clear as to whether the assessee has engaged its own financial resources /risk to develop the rain water harvesting reservoir. A perusal of material available on record shows that the assessee has deposited only the security of Rs.16,40,183/- as per letter dated 14.03.2007 placed at paper book page 29. The security deposit is usually refunded on completion of works and it is a common phenomenon in the activities of all contractors. We have also gone through the schedule of payment placed by the assessee, which shows the payments received by the assessee during the year under consideration as under : 1st payment voucher No. 409/06-07/CCE(R&D)C dt. 01.12.2006 Rs.1,14,89,859 2nd payment voucher No. 436/06-07/CCE(R&D)C dt. 10.01.2007 Rs.90,00,000 3rd payment voucher No. 437/06-07/CCE(R&D)C dt. 18.01.2007 Rs.1,11,00,000 4th payment voucher No. 455/06-07/CCE(R&D)C dt. 25.01.2007 Rs.49,00,000 5th payment voucher No. 467/06-07/CCE(R&D)C dt. 07.02.2007 Rs.2,00,00,000 6th payment voucher No. 477/06-07/CCE(R&D)C dt. 15.02.2007 Rs.1,37,00,000 7th payment voucher No. 505/06-07/CCE(R&D)C dt. 08.03.2007 Rs.2,66,00,000 8th payment voucher No. 517/06-07/CCE(R&D)C dt. 19.03.2007 Rs.89,00,000 9th payment voucher No. 523/06-07/CCE(R&D)C dt. 21.03.2007 Rs.65,00,000

From the contract documents, it is clear that the assessee has commenced the execution of works from 30.11.2006 and received the first payment from the contractee on 01.12.2006 of Rs.1,14,89,859/-, i.e., just next day of

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commencement of works. Similarly, substantial payments have been received by assessee periodically from the contractee. In presence of this payment schedule, the Revenue has not tried to examine as to under which heads, the assessee received these payments periodically. Therefore, it is a matter of enquiry whether the assessee has engaged any of its own financial risk in the project so as to ascertain the assessee to be a developer or a works contractor. The periodic huge receipts of payments by the assessee were relatable to development work or civil construction works, has not been examined by the authorities below in terms of agreements entered into between the parties. As also observed by ITAT, Chennai Bench in the aforesaid order, the developers who undertake entrepreneurial and investment risk are entitled for deduction under section 80IA(4) of the Act. Meaning thereby one of the distinction between a works contract and an infrastructure development is the element of risk which is necessary for a developer. Hon’ble ITAT also observed that if the contracts involve design, development, operating and maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s. 80IA of the Act. As per section 80IA(4), the appellant should be engaged in the eligible business as defined in the section. For this, it was also to be examined and enquired by the revenue authorities from the agreements

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and the ground activities of appellant in compliance thereto as to who supplied the drawings and designing etc. of the project. It was also to be enquired as to what was the assessee’s risk in the project. The Revenue authorities also did not examine the nature of payments received by the assessee – whether it was disbursed by the contractee on the basis of M.B (Measurement Books) of the project, which is the basic record for making payment by the contractee or it was disbursed otherwise. In case the assessee is found to have received the periodic payment as per periodical measure book records of the project, then the assessee cannot be termed to be developer, as in that case no financial risk of the assessee would be there in the project. Furthermore, as per provisions of section 80IA, the eligible entity who claims himself to be a developer for the purpose of this section, is required to maintain separate books of account for the project and according to those accounts, correct profit has to be calculated. This aspect has also to be enquired by the Revenue authorities. If the Revenue Authorities find that the assessee has acted as developer, then he has to examine whether correct profit is deduced from the separate accounts required to be maintained by the assessee as per provisions of section 80IA of the Act. In view of all this discussion, we conclude that the lower authorities have not made thorough enquiry in the matter regarding the nature of agreements, terms of payments,

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maintenance of account books with respect to the project separately etc. before denying the claim of the assessee u/s. 80IA (4). However, for want of proper enquiries and in absence of correct facts emerged out of such enquiries, the decisions relied upon by the assessee, in our opinion, do not render any help to the assessee. We accordingly deem it proper in the interest of justice to restore the matter to the file of ld. Assessing Officer to decide the matter de novo after making proper enquiry as discussed above. The assessee is also directed to cooperate with the AO in fresh assessment proceedings. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, the appeal of the assessee deserves to be allowed for statistical purposes. 10. In the result, the appeal is allowed for statistical purposes. Order pronounced in the open court on 22.07.2016. Sd/- Sd/- (C.M. GARG) (L.P. SAHU) Judicial Member Accountant Member Dated : 22.07.2016 *aks/- Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant. Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi