ASST CIT CIR 3, THANE vs. NCC SMC JV, THANE

आदेश / O R D E R

PER PAWAN SINGH, JUDICIAL MEMBER

1. On the facts and in the circumstances of the case, and in law, the ld. CIT(A)-I, Thane has not appreciated the facts and deleted the addition made u/s 80IA (4), ITA No. 7078/M/2017 NCC SMC JVA.Y. 2009-10 2. The appellant prays the order of the Ld. CIT(A)-I Thane, may be vacated and that of the Assessing Officer be restored. 3. The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary.” 2. At the very outset of the proceedings the Ld. AR of the assessee submitted that the grounds of appeal raised by the Revenue is covered in favour of assessee in assessee’s own case for assessment year 2008-09 in dated 25.06.2014. The ld. DR of the revenue not disputed the case of the assessee. We have seen that the assessee has raised the similar grounds of appeal in the appeal for A.Y. 2008-09 and the Tribunal while following the assessee’s own case for A.Y. 2007-08 in ITA No. 7885/M/2010 dated 23.06.2014 passed the following order: - “5. So far as it relates to the issue raised by the assessee in Ground No. 1(i) &(ii) we found that in assessee’s own case for A.Y 2007-08 vide order dated 20/06/2004 in ITA No.7885/Mum/2010 we have held that assessee is entitled to get deduction u/s 80IA(4) of the Act. Accordingly, following the order of the Tribunal in which both of us are party, we direct the AO to allow deduction u/s 80IA to the assessee. The relevant portion of the said order is reproduced below:

10. We have heard both the parties and their contentions have carefully been considered. We have carefully gone through the AO for A.Y 2004-05 which is the base year for which the assessee is claiming that it is entitled to get deduction u/s 80IA(4). The first and foremost objections of the AO is that assessee, while executing the project, had acted in the capacity of a contractor, therefore, the deduction cannot be allowed to the assessee as pre-requisite of the section to enable the assessee to claim deduction is that he should be a developer. 10.1 The second contention of AO is that assessee has only built some part of the project and it has neither operated or maintained the infrastructure project which is also a condition precedent to grant deduction u/s 80IA(4). The AO has rejected the contention of the assessee that its case is squarely covered by decision of ITAT in the case of Patel Engineering Ltd. (supra0. As against such case of the AO Ld. CIT(A) has followed mainly the decision of ITAT in the case of Patel; Engineering Ltd. (supra) and has allowed relief to the assessee. We have to examine that whether or not assessee is entitled to get deductions 80IA(4) in the 2 NCC SMC JVA.Y. 2009-10 light of aforementioned objection of the AO and plea of the assessee. It is the case of the assessee that AO has committed an error in holding that assessee has acted as a contractor in place of the claim of the assessee that it has worked as a developer of the infrastructure project. For raising such contention the assessee has placed reliance not only on the decision in the case of Patel Engineering Ltd. (supra) but also on the decision of Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd. (supra). It may be mentioned here that AO has passed the impugned assessment order for A.Y 2004-05 on 31/3/2006 when the benefit of decision of Hon’ble Bombay High Court in the case of CIT v/s ABG Heavy Industries Ltd. was not available. The assessee in that case did not develop, operate or maintain the entire port but only part but only part of the function of the port was developed and maintained by the assessee. Ld. A.O. in that case was of the view that the assessee merely engaged in the business of supplying, installing, testing, commissioning and maintaining cranes at the port and was not in the business of developing, maintaining and operating of port. This contention of the assessee is also recorded in para-7 of the decision which has already been reproduced in the above part of this order. (para-7) 10.2 While adjudicating the aforementioned contention of the Revenue their Lordships in para-16 have observed that such submission cannot be accepted. The expression “development” has not been artificially defined for the purpose of section 80IA(4) of the Act must, therefore received its ordinary and natural meaning. Under the terms of the contract between the assessee and JNPT the assessee undertook an obligation to supply, installing, testing, commissioning and maintenance of container handling equipments namely the cranes in question. Their Lordships in para-17 have observed that the obligations which have been assumed by the assessee under the terms of the contract areobligations involving the development of an infrastructure facility. Section 80IA(4) of the Act essentially contemplated a deduction in a situation, where an enterprise carried on a business of developing, maintaining and operating infrastructure,facility. A port was defined to include within the purview of theexpression “infrastructure facility”. The obligations which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes but involved a continuous obligation from the supply of the cranes to the installation testing, commissioning, operation and maintenance of cranes for a term of 10 years, after which the era rigs were to vest in JNPT free of cost. The assessee did not have to develop the entire port in order to qualify for deduction under section 80IA(4). Parliament did not legislate a condition impossible of compliance. 10.3 If the facts of the present case are to be examined in the light of aforementioned decision of Hon'ble Bombay High Court, then it can be said that for claiming deduction under section 80IA(4), it is not necessary for the assessee to develop the entire project in order to qualify for a deduction under section 80IA(4). If the provisions are so construed then it will be a condition impossible of compliance because of the magnitude of the entire project. For qualifying deduction under section 80IA(4) what would be necessary will be that the work carried on by the assessee must be an integral part of the project and if it is so, then it cannot be said that assessee is not eligible for deduction under section. 80IA(4) for the 3 NCC SMC JVA.Y. 2009-10 reason that the assessee on its own did not develop an infrastructure project. Therefore, observations of the AO that assessee did not develop an infrastructure project and only part of the work was carried out cannot disentitle the assessee to claim the deduction, 10.4 The nature of works carried out by the assessee regarding the project have been stated in para-4 of the assessment order for A.Y.2004-05. It interalia. include manufacturing, supplying, lowering, laying, jointing, testing and commissioning of 2200 mm diameter MS Pumping Main with cement mortar. In-lining & out- coating from clear water reservoir at Godakondalu to MBR at Gungal and similar activities were carried out in respect of other places which have been specified by the AO. The activity of the assessee is not limited only to construction of the project but as per the tender the assessee had to submit hank guarantee for completion of the contract and as per clause-88 of the contract the assessee is also liable for liquidated damages and the maximum amount for penalty has been prescribed which is not to exceed 5% of the contract value. There is also description of defect liability period in dause-89 which is the liability of the assessee under the contract for 24 months from the date of successful completion of the work and taken over by Visakhapatnam Municipal Corporation. Keeping in view the entirety of facts and aforementioned decision of Hon’ble Bombay High Court, it cannot be said that assessee did not act in the capacity of developer and it has already been mentioned that to be entitled to claim deduction under section 80IA(4) it is not necessary that entire infrastructure project should be developed by the assessee. 10.5 Now the next question will be that whether to claim deduction under section 80IA(4) it is necessary for an assessee not only to develop the project but also to operate and maintain the infrastructure facility. This issue is alsono more res- integra and is covered by the aforementioned decision of Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd. (supra). In that case it was the contention of the Revenue that for assessment year 1997- 98 and 1998-9, it was necessary for the, assessee to cumulatively fufill the requirement of developing, operating and maintaining infrastructure facility. It was pleaded by the Revenue that, even if it be held to have developed the facility it cannot be regarded as operating the facility. Their Lordships have referred to such contention of Revenue in para 19 of the decision and they observed that it is not possible to accept such submissions. Their Lordships have observed that it has already been noted that assessee had as a matter of fact developed the facility. Their Lordships after considering the provisions and various circulars of CBDT and also the judicial pronouncements have concluded in para 22 of the decision that after section 80IA was amended by 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. For the sake of completeness para22 & 23 of the decision is reproduced below.

“22. Another submission which was urged on behalf ofthe revenue is that under clause (iii) of sub-section (4A) of section 80-IA, one of the conditions imposed was that the enterprise must start operating 4 NCC SMC JVA.Y. 2009-10 and maintaining the infrastructure facility on or after 1.4.1995. The same requirement is embodied in sub-clause (c) of clause (i) of sub- section (4) of the amended provisions of section 80IA. On this basis it was urged that since the assessee was not operating and maintaining the facility, he did not fulfill the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this judgment. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1.4.1995. 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 1.4.1995. After section. 80IA was amended by the Finance Act of 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 fulfils certain conditions. Those conditions are (i) Ownership of the enterprise, by a Company registered in India or by a consortium; (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 on or after 1.4.1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1.4.4995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops or operates and maintains or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that, infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after 1.4.1995. In the present case the assessee clearly fulfilled this condition (emphasis ours).

10.8 In the order the Tribunal after considering the decision of Hon’ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd. (supra) has decided the issue in favour of assessee. While deciding the presentappeal vide order dated 9/2/2010 it was found by the Tribunal that both sides were in. agreement that the facts and circumstances are mutatis-mutantis similar to those considered by the Larger Bench of the Tribunal in the case of B.T Patel & Sons Belgaum Construction Pvt. Ltd. (supra). The said order of the Tribunal was recalled only for the reason that the Larger 6 NCC SMC JVA.Y. 2009-10 Bench decision in the case of M/sB.T. Patel & Sons Belgaum Construction Pvt. Ltd. (supra) was no more good law in thew of subsequent decision of Hon'ble Bombay High Court in the case of CIT vs. ABC Heavy Industries (supra), The order in the case of present assessee was not recalled for the reason that there is any difference in the facts and circumstances of the for case and the decision in the case of B. T. Patel & Sons Belgaum Construction Pvt. Ltd. (supra). Now the decision Larger Bench is no more good law and the Division Bench of the Tribunal in the case of B.T.Patel & Sons Belgaum Construction Pvt. Ltd. (supra) has decided this issue in favour of the assessee following the decision of Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd. (supra). Para -4 of the said order is reproduced below;

14. In this background, the assessee could certainly claim the deductions wider the provision of Section. 80IA. One has to see the substance and not the Form Essentially, though it was a Joint Venture, it was converted into assessee's venture. The Other Venturer with-draw and the entire work was executed by the assessee though in the name of Joint Venture. The Joint Venture is nothing but the venture of the assessee company and the other person not being a party after drawing the question of Joint Venture does not arise. The Venture was fully carried out by the assessee company. Taking the substance of the transaction, the assessee are entitled to all the profits in respect of the contract executed by them, hence the assessee would certainly he entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions. This view get from decision in the case of ITAT, Indore Bench, in case of Ayush Aiay Constructions Ltd. (supra). Thus, while giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ration of Jurisdictional High Court in thecase of ABG Industries Ltd. (supra), the Assessing Officer is direct to allow deduction u/s. 80IA of the Act to the assessee with regard to the projects in question for both the years, This matter is disposed off accordingly.

Therefore, also the issue is covered in favour of the assessee by the aforementioned decision of Co-ordinate Bench. 10.9 In view of above discussion, we hold that assessee is entitled for deduction under section 80IA(4) and Departmental appeal for A.Y 2004-05 and 2005-06 are dismissed.