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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI G.S.PANNU & SHRI SAKTIJIT DEY
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No.675/Mum/2017 (AY. 2008-09) ITA No.676/Mum/2017 (AY. 2009-10) ITA No.677/Mum/2017 (AY. 2012-13) ITA No.678/Mum/2017 (AY. 2013-14)
M/s.Patel Pratibha Jv. C/o.Jayesh Sangrajka & Co. LLP Chartered Accountants, Unit No.405, Hind Rajasthan Centre, D.S.Phalke Road, Dadar (E), Mumbai 40014 PAN: AAAAP 7150R ...... Appellant Vs. The DCIT-24(1)/ ITO 31(2)(5) Pratyakshkar Bhawan, Bandra Kurla Complex, Mumbai 400 051 .... Respondent
ITA No.4253/Mum/2015 (AY. 2011-12) ITO – 31(2)(5) R.No.71, Bldg., C-11, BKC Bandra, Mumbai – 400 102 .... Appellant
Vs.
M/s.Patel Pratibha JV, Patel Estate Road, Jogeshwari (W), Mumbai – 400 102 ... Respondent PAN: AAAAP 7150R
Appellant by : Shri Harsh Wardhan Datar Respondent by : Shri Rajat Mittal
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Date of hearing : 21/03/2017 Date of pronouncement : 31 /03/2017
ORDER PER G.S.PANNU,A.M:
The captioned are four appeals filed by the assessee and one by the Revenue pertaining to the same assessee for assessment years 2008-09, 2009-10 and 2011-12 to 2013-14. Since the appeals relate to the same assessee and involve certain common issues they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
ITA No 675/Mum/2017 for assessment year 2008-09 is taken as the lead case since the issues involved are similar. This appeal pertaining to assessment year 2008-09 is directed against an order passed by CIT(A)-42, Mumbai dated 28/10/2016, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 21/03/2014. In this appeal assessee has raised the following Grounds of appeal:-
“1. On the given facts, circumstances and judicial pronouncements the learned assessing officer erred in reopening the assessment under section 147 in absence of reason to believe, due to which assessment is bad in law and liable to be quashed. 2. On the given facts, circumstances and judicial pronouncements the learned assessing officer erred in reopening the assessment under section 147 is change of opinion, due to which assessment is bad in law and liable to be quashed. 3. On given facts, circumstances, and judicial pronouncements Hon. CIT (Appeals) erred in passing the appellate order by not following the decision of Hon. ITAT and predecessor CIT (A) in assessee's own case for the AY 2010-11 and hence order of Hon. CIT (Appeals) is bad in law and thereby addition made under section 40A(2)(b) is liable to be deleted. 4. Without prejudice to above, on the given facts, circumstances and judicial pronouncements; Ld.CIT(Appeals) has erred in confirming the disallowances on account of
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sub-contract charges paid to M/s. Pratibha Industries Limited covered u/s 40A(2) of Income Tax Act, 1961 by assuming the profit rate of the assessee, such addition is excessive and liable to be reduced. 5. Without prejudice to the above, On the given facts, circumstances and judicial pronouncements; Ld.CIT (Appeals) has erred in confirming the disallowances on account of sub-contract charges paid to M/s. Pratibha Industries Limited covered u/s 40A(2) of Income Tax Act, 1961 even though both the entities are taxed at same rate, such addition is bad in law and liable to be deleted. 6. On the given facts, circumstances and judicial pronouncements; , Ld. CIT (Appeals) has erred in denying, the claim of deduction under section 80IA of the Act without appreciating that the appellant has fulfilled the conditions prescribed in section 80IA of the Act and therefore eligible for claiming deduction under section 80IA of the Act and such denial of claim of deduction u/s 80 of the Act is unjustified and liable to be allowed. 7. Without prejudice to any ground or grounds of appeal, on the facts and circumstances of the case and on judicial proposition, if the addition made u/s 40A(2) is sustained then deduction u/s 80IA should be allowed on the same. Such disallowance is bad in law and erroneous in facts and liable to be deleted. 8. On the given facts, circumstances and legal propositions; Hon. CIT (A) erred in passing the order in absence of reasonable opportunity of making the submissions to the assessee in principles of natural justice and such order is in violation of principles of natural justice and liable to be quashed.” 3. At the outset, it may be stated that the issues raised in the captioned appeals are similar to those which have been considered by the Tribunal in the case of the assessee for the Assessment Year 2010-11 vide its order in ITA No/200/Mum/2015 dated 28/09/2016. So however, in order to impart completeness to the order the following discussion is relevant.
The assessee before us is a joint venture (AOP) which is engaged in the construction of tunnel from Malabar Hill to Cross Maidan in Mumbai for supply of water in terms of its engagement by the Mumbai Municipal Corporation. Notably, the assessee has been awarded the work on the basis of bids submitted to the Municipal Authorities in 2006. It also emerges that the execution of the work was entrusted to one M/s. Pratibha Industries Ltd., one of the members of the joint venture. In view of such operating mechanics of the business, the Assessing Officer noted that the assessee
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had paid sub-contract charges to M/s.Pratibha Industries Ltd., which according to him were covered within the scope of Section 40A(2) of the Act. Notably, Section 40A(2) of the Act relates to payments to related parties and it seeks to disallow the expenditure to the extent it is excessive or more than the market value of similar products / services. On being asked to justify the payments in terms of Section 40A(2) of the Act, the assessee furnished an explanation which, inter-alia, sought to point out that the market value of the impugned sub-contract charges paid to M/s. Pratibha Industries Ltd., was infact more than the actual payment. Assessee also canvassed that the provisions of Section 40A(2) of the Act are not attracted in such a situation. The Assessing Officer did not accept the explanation furnished and according to him the payments made as sub-contract charges to M/s. Pratibha Industries Ltd., fell within the scope of Section 40A(2) of the Act. The Assessing Officer treated the assessee as a contractor and considered net profit of 8% (as prescribed in Section 44D of the Act) as a reasonable profit. Accordingly, the Assessing Officer treated 92% of the receipts as the market value of the services availed from M/s. Pratibha Industries Ltd., and accordingly, the amount paid in excess has been disallowed in terms of Section 40A(2) of the Act. Considering the situation of Assessment Year 2008-09, such an addition is determined at Rs.7,14,820/-. The aforesaid is the first issue in dispute before us in as much as the CIT(A) has also affirmed the stand of the Assessing Officer. Notably, similar situation exists in other three assessment years of 2009-10, 2012-13 and 2013-14. So, however in Assessment Year 2011-12, though the Assessing Officer made a similar addition, the CIT(A), following his own decision for the Assessment Year 2010-11 allowed the plea of the assessee and deleted the addition. Thus, in
5 ITA No.675/Mum/2017 and other 4 appeals M/s. Patel Pratibha JV so far as Assessment Year 2011-12 is concerned, the captioned appeal is preferred by the Revenue and for the balance four assessment years, assessee is in appeal.
In the context of the controversy relating to the invoking of Section 40A(2) of the Act, we find that an identical issue has been dealt with by our Co-ordinate Bench vide order dated 28/09/2016 for Assessment Year 2010-11(supra) wherein the following discussion is relevant:-
We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that nowhere the AO doubted genuineness of the expenditure and insufficiency of the details. Only reason given by AO was that payment was excessive or unreasonable. As per our considered view whenever provisions of Section 40A(2) is invoked, burden is on the revenue to show that payment made to sister concern is more than the fair market value for which similar service are available. However, there is no such finding by the AO to allege that payment so made was not reasonable or similar service were available to assessee at lower price than what was paid to the sister concern for getting the work done. After discussing the facts in detail, the CIT(A) has also applied the decision of ITAT Mumbai bench in the case of Batliwala & Karani Vs. ACIT (2005) 2 SOT 279, wherein it has been held that unless there is a clear finding that market value of services taken from sister concern is less than the price at which services are obtained, there cannot be an occasion to apply disabling provisions of Section 40A(2). The detailed findings so recorded by CIT(A) are as per material on record, therefore, do not require any interference on our part for deleting the addition made u/s.40A(2). 6. Quite clearly, the aforesaid precedent fully covers the controversy before us and infact it was a common point between the parties that the said precedent continues to hold the field as it has not been altered by any higher authority. Therefore, in this background, the CIT(A) erred in not allowing the claim of the assessee for Assessment Year 2008-09, 2009-10, 2012-13 and 2013-14. In so far as the stand of the CIT(A) for the Assessment
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Year 2011-12 is concerned, the same is hereby affirmed as the same is in consonance with the decision of the Tribunal dated 28/09/2016(supra) in assessee’s own case.
The second dispute arises from the claim of the assessee for deduction u/s.80IA(4) of the Act in relation to the profits earned from the impugned project of construction and laying down of the tunnel to supply water from Malabar Hill to Cross Maidan. The assessee pointed out that the impugned was an infrastructure facility within the meaning of Section 80IA(4) of the Act. The Assessing Officer, following his stand for the Assessment Year 2010-11, held that assessee was not a developer of the infrastructure facility but was only a contractor executing the work awarded by the Municipal Corporation and therefore, it was not eligible for the benefits of Section 80IA(4) of the Act. Accordingly, the deduction claimed u/s.80IA(4) of the Act for all the captioned assessment years was denied by the Assessing Officer.
At the level of the CIT(A) it is seen that in so far as Assessment Year 2011-12 is concerned, the CIT(A) has since allowed the claim of the assessee following his own decision for the Assessment Year 2010-11, which has since been affirmed by the Tribunal vide order dated 28/09/2016(supra). In this background for the Assessment Year 2011-12, Revenue is in appeal before us.
In so far as Assessment Years 2008-09, 2009-10, 2012-13 and 2013-14 are concerned, the CIT(A) has affirmed the stand of the Assessing Officer inspite of the fact that the order of the Tribunal dated 28/09/2016 (supra) pertaining to Assessment Year 2010-11 was brought to his notice. Accordingly for such assessment years, assessee is in appeal before us.
7 ITA No.675/Mum/2017 and other 4 appeals M/s. Patel Pratibha JV 10. In the above background, we have perused the decision of the Tribunal dated 28/09/2016 and find that similar controversy has been adjudicated in favour of the assessee, after specifically observing that the issue is fully covered by the judgment of the Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd., (ITA 2121 of 2009). In this context, the operative part of the order of the Tribunal reads as under:- 10. We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that assessee has entered into an agreement with the Local Authority as stipulated in terms of provisions of section 80- IA(4)(i)(b) of the Act and developing the infrastructural facilities. The financial, technical and all the other resources required for the development of the infrastructure facility were of the appellant and it was not correct that the MCGM financed the infrastructure facility developed by the assessee. The appellant carried out the entire development of its own by giving specifications and necessary Designs/plans as per the location of the site, which was done by the technical experts employed by the assessee. Thus, the assessee did the entire development of the infrastructure facility. We also found that the cost of development of the infrastructure facility was paid to the assessee and the same was received by the assessee as per the bills raised. The MCGM while making the payments, deducted tax at source under the provisions of section 194-C of the Act as the development of infrastructure facility was as per the agreement entered into which was contract between the Government Authority and the assessee and the provisions of Section 194-C of the Act were applicable. However, merely because the tax was deducted in terms of provisions of section 194-C of the Act, It did not make the assessee a mere contractor executing the works contract. In the development of the project it was the technical personnel of the assessee that made the proper specifications etc. from time to time as per the location of the site and as the project progressed. Developer does not mean merely a person who was conceiving the idea. Any enterprise developing infrastructural facilities is a developer of such facility since all the responsibility of the project was that of the enterprise from the start of the project till Its completion, Therefore, It would not be said that merely because the idea was conceived by the government and more Importantly on the land, etc. which was in domain of the government, that the government was the developer. For this purpose reliance may be placed on the decision of the Mumbai ITAT in the case of ACIT v. M/s Pratibha Industries Limited 141 ITO 151) and ACIT vs Bharat Udyog Limited 24 SOT 412 and decision of Jaipur ITAT
8 ITA No.675/Mum/2017 and other 4 appeals M/s. Patel Pratibha JV in matter of Om Metal Infraprojects Limited ITA 722/JP/200S and decision of the Rajkot ITAT in the case of M/s Tarmat Bel JV ITA 1111/RJT/2010 and decision of Pune bench of ITAT in matter of Mahalaxmi Construction Corporation Limited v. ACIT ITA. 433/PN/2007 and decision of Pune bench of ITAT in matter of Pratibha Construction & Engineering Pvt Ltd. vs. ACIT ITA 27S/PN/1 0 and decision of Pune bench of ITAT in matter of Laxmi Civil Engg Pvt. Ltd. vs Add!. CIT ITA 766/PN/2009 and decision of Chennai Bench of ITAT in matter of ACIT v. RR Construction ITA No. 2061/MOSI 2010 and decision of Hyderabad Bench of ITAT in matter of GVPR Engineers v. ACIT ITA No. 1473/HYO/2011 and decision of Hyderabad Bench of ITAT in matter of KMC Constructions Ltd. v. ACIT ITA No. 84/HYD/2010 and decision of Hyderabad Bench of ITAT in matter of Koya and Company Construction Pvt Ltd. vs. ACIT ITA 221/HYD/2009. 11. The issue is also squarely covered by the decision of Hon’ble Bombay High Court in matter of ABG Heavy Industries Limited ITA 2121 of 2009 against which SLP of Revenue has been dismissed by Hon. Apex Court. The fact that the TDS was deducted did not in any way bar the appellant from claiming the benefit of deduction u/s.80-IA, as the fact remained that the appellant was a developer of Infrastructural facilities. 12. With regard to the AO’s objection that assessee is neither BOT nor BOOT, we found that the wordings of the section prior to the amendment made w.e.f. 01.04.2000 did not have any alternative by usage of the word 'OR' in sub-section (4) of section 80lA of the Act and hence, the provision of section 80lA of the Act was available only to an assessee who not only developed but after developing also operated and maintained the Infrastructure facility. Thus, while introducing the provisions of section 80lA of the Act, the concept of BOT /BOOT prevailed and it was in this context that the Department issued circular nO.717 dated 14/8/1995, which clearly explained the new provisions of section 80-lA of the Act in terms of Infrastructural development. While doing so, the Legislature itself realized that such concept was not feasible in all cases and therefore the provisions of section 80-IA of the Act were substantially relaxed and the benefits of section 80-IA of the Act were enlarged by providing for deduction to three categories as under:- (i) enterprise being a developer; OR (ii) enterprise being operating and maintaining; OR (iii) enterprise developing, operating and maintaining. Thus, the concept of BOT IBOOT underwent changes in the year 2000. If the Intention was only to give benefit to enterprises on the income earned
9 ITA No.675/Mum/2017 and other 4 appeals M/s. Patel Pratibha JV from operating and maintaining the Infrastructure facility, In that case, the provision would not have been amended in such a manner so as to also allow benefit to the enterprise which was merely developing the facility. Further, there would have been no necessity to make the amendment if the enterprise was to be allowed in respect of Income earned from operating and maintaining the facility. When the provision of section 80lA of the Act had been substantially amended and where the enterprise was only a developer of the Infrastructure facility, deduction could not be denied under section 80-lA of the Act on the ground that the concept of BOT/BOOT was the main requirement for getting benefit of deduction under section 80-lA of the Act. 13. In view of the above discussion and the detailed finding so recorded by CIT(A) and also keeping in view that assessee in earlier years have already been allowed deduction 80IA(1) by the AO, we do not find any infirmity in the order of CIT(A) for allowing assessee’s claim for deduction u/s.80IA amounting to Rs.40,744/-. 11. It was a common point between the parties that so far as the facts and circumstances in the captioned years are concerned, the same stand on similar footing to those considered by the Tribunal in the Assessment Year 2010-11 vide its order dated 28/09/2016 (supra); therefore, under these circumstances, the claim of the assessee is liable to be affirmed which we do so.
Before parting, we may touch upon the reasons which have weighed with the CIT(A) for not following the order of the Tribunal while deciding the appeals of the assessee for the Assessment years 2008-09, 2009-10, 2012-13 and 2013-14. The CIT(A) in para 59 of his order has noticed the reliance placed by the Tribunal on the judgment delivered by the Bombay High Court in the case of ABG Heavy Industries Ltd. As per the CIT(A), the decision of Hon’ble Bombay High Court was in the context of a “Port” where even partial completion of the project is deemed to be eligible for the purpose of deduction u/s.80IA of the Act. It is further observed by the CIT(A) that the decision of Hon’ble Bombay High Court was not in the context of the
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controversy of developer vs. Contractor and hence the decision was not relevant to the facts of the present case.
We have carefully considered the said observations of the CIT(A) and find that the same are not at all germane to depart from the decision of the Tribunal dated 28/09/2016(supra). Infact the judgment of the Hon’ble Bombay High Court specifically notes that the obligation of the assessee therein was not to develop the entire port in order to qualify for deduction u/s.80IA of the Act. The said observation of the Hon’ble High Court was after noticing the obligations of the assessee therein which involved not only the supply and installation of Cranes, but also the testing, commissioning, operation and maintenance of the Cranes for a period of 10 years after which the cranes were to vest in the Jawaharlal Nehru Port Trust (JNPT) free of cost. The Hon’ble High Court noticed that so long as the facility provided by the assessee was an integral part of the Port, which was an approved infrastructure facility, the assessee would be eligible for the benefits of Section 80IA(4) of the Act. Thus, quite clearly the observation of the CIT(A) that the Hon’ble Bombay High Court is in the context of partial completion of a Port is wrong. In any case, in the present case, the Tribunal in the Assessment Year 2010-11 has considered the nature and extent of the activities undertaken by the assessee and on that basis it has come to a conclusion that assessee was engaged in development of a prescribed infrastructural facility, namely, construction of tunnel from Malabar Hill to Cross Maidan for supply of water so as to be eligible for benefit of Section 80IA(4). Therefore, in the absence of any repudiation of the factual findings arrived at by the Tribunal in its order dated 28/09/2016 (supra), the CIT(A) was not justified from departing from the same. Even the attempt of the
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CIT(A) to distinguish the judgment of Bombay High Court in case of ABG Heavy Industries Ltd., (supra) is quite unjustified and is hereby rejected. Therefore, in our view the CIT(A) ought to have followed the order of the Tribunal as done in the Assessment Year 2011-12 and not disallowed the claim while deciding the appeals for the Assessment Years 2008-09, 2009-10, 2012-13 and 2013-14. Thus, on this aspect also assessee succeeds. Thus, the stand of the assessee on the aspect of Section 80IA(4) is upheld.
Before parting, we may put on record that in the appeals of the assessee for Assessment Years 2008-09, 2009-10, 2012-13 and 2013-14, a ground has been raised with regard to the validity of reopening of assessment u/s.147 / 148 of the Act which has not been pressed and the same is accordingly dismissed.
In final analysis whereas the appeal of the Revenue is dismissed, the other four appeals preferred by the assessee are allowed to the above extent.
Order pronounced in the open court on 31/03/2017
(SAKTIJIT DEY ) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER Mumbai, Dated 31/03/2017 Karuna, Sr. PS
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Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai Guard file. 6. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai