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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM ITA No.7282/Mum/2007 (A.Y:2003-04) ITA No.7283/Mum/2007 (A.Y:2004-05)
Patel Engineering Ltd. Dy. Commissioner of Income Tax, Patel Estae RD. Jogeshwari(W) Vs. 404, Aayakar Bhavan, K.K. Mumbai-400 102 Marg, Mumbai-20 .. Appellant Respondent PAN No. AAACP2567L Assessee by .. Shri Mayur Kishnadwala, AR Revenue by .. Shri N.P. Singh, CIT DR Date of hearing .. 23-01-2017 Date of pronouncement .. 29-03-2017 O R D E R PER MAHAVIR SINGH, JM:
These appeals by the assessee are arising out of the different orders of CIT(A), Central-IV, Mumbai, in appeal No. CIT(A)/C-IV/IT-204 & 612/2006-07 dated 01-10-2007 & 15-10-2007. The Assessments were framed by ACIT, CC- 24 & 26, Mumbai for the A.Y. 2003-04 & 2004-05 vide orders dated 30-03-2006 & 29-12-2006 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first common issue in this two appeals of assessee is as regards to the order of CIT(A) confirming the action of AO in denying deduction under section 80IA(4) of the Act in respect of income derived from the activity of development of various eligible infrastructural facilities. For this assessee has raised identical grounds and the ground as raised in AY 2004-05 reads as under: -
“1. In the facts and circumstances of the case and in law, the Learned CIT (A) erred in confirming the order of the assessing officer (AO), in denying deduction of Rs.5.65Cr. claimed under section 801A(4) in respect of income derived from the activity of development of various eligible infrastructural facilities.
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2 In the facts and circumstances of the case and in law, the Learned CIT (A) erred in confirming the order of the AO in allocating certain expenses incurred by the assessee to the projects eligible for deduction u/s 801A(4) thereby reducing the claim of such deduction.”
Briefly stated facts are that the assessee company has claimed deduction under section 80IA (4) of the Act on the ground that it has carried out development of infrastructural work. The assessee has claimed deduction in respect of projects undertaken at Srisailam, Udumpur and Parbati for assessment year 2003-04 and in respect of Koyna, Srisailam, Udampur and Parbati for AY 2004-05. The assessee before the lower authorities claimed deduction under section 80IA(4) of the Act on the basis that the assessee's status as a developer of projects has been approved and endorsed by the ITAT in its own case. One of the projects under consideration was under the direct consideration of the ITAT as above and the order of the ITAT is binding and must be given effect to. It was claimed that the assessee is a developer of eligible infrastructure facilities, in respect to which deduction u/s. 801A(4) of the Act has been claimed. The development of the projects has been brought about by use of the assessee's resources and technical knowhow. Such resources included mobilization of manpower, consultants, sub-contractors, plant and machinery, vehicles, earth moving equipment and funds for equipment and working capital dedicated to such projects. The projects are highly technical and their development has huge inherent risk, which involved :-
i. The assessee was required to maintain its works for a period of 12 months after project completion, which involves heavy expenses in case of any problems. Fault correction is an extremely difficult and expensive proposition.
ii. The development work has to be completed within time inspite of the geological risks.
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iii. The project work is dangerous and involves the risk of loss of machinery, material and life to the appellant.
In view of the above the assessee placed reliance on the dictionary meanings of the words developer, develop and development in the Random House and Websters Dictionaries, as also in the Law Lexicon dictionary, to support its contention that it alone can be regarded as the developer of the facility. The assessee before lower authorities submitted that it is the developer who brought about the ready facility which was hitherto not available. In its development efforts it has enabled the respective authority to harness the true potential of the natural resources, such that there is a ready facility available to the community for common good and use. Such development was accomplished pursuant to methodology and risk possessed by it and that between the parties to the contract, they were the only ones who knew how to build the facility.
At the outset, the learned Counsel for the assessee stated that the assessee becomes an intervener in the Special Bench of ITAT on the issue of claim of deduction under section 80IA(4) of the Act in the special Bench case of BT Patil and Sons Belgaum construction Private Limited in ITA NO. 1408 and 1409/PN/2003 dated 26-10-2009. Further, the Tribunal in the case of assessee’s sister concern Patel KNR JV v. ACIT & another sister concerns case of KNV Patel JV v. ACIT order dated 18-07-2010 held that the assessee is not entitled of deduction under section 80IA(4) of the Act in respect of income derived from the activity of development of eligible infrastructural facility for the reason that it is merely a contractor and not a developer. Subsequently, the matter was referred to larger Bench and larger Bench order was challenged before Hon'ble Bombay High Court in appeal No. 1600 & 1601/2011 under section 260A of the Act and Hon'ble High Court vide order dated 11-02-2014 directed the Tribunal to decide the issue following the decision of Hon’ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Limited (2010) 322 ITR 323. The Tribunal in the case of assessee’s sister concern in Patel KNR JV v. ACIT in ITA No. 7155/Mum/2008 for the AY 2005-06 and in another sister concern KNV Patel JV v. ACIT in ITA No. 7156/Mum/2008 for AY 2005-06 has considered the Page 3 of 20
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issue and by following the decision of Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd (supra) allowed the claim in favour of assessee vide Para 5 which reads as under: -
“5. We have heard the rival submission and perused the material and find that it is a remand matter wherein the Hon'ble High Court has directed the Tribunal to decide the issue considering the available material. We find that in the case of Patel KNR, JV (supra), the Tribunal has deliberated upon the issue after recording the basic facts as under:
“3. Briefly stated relevant facts of the case are that the assessee is a Joint Venture(JV) between Patel Engineering Ltd. and KNR Constructions Ltd. and is engaged in business of Construction of Road, Highways and other infrastructure projects. Assessee filed the return of income declaring the total income of Rs. Nil after "claiming deduction u/s. 801A ( 4) on one project namely AS-18 " of Rs.9,95,41,994/- which was restricted to gross total income of Rs. 3,02,81,419/-. Assessment was completed under 143(3) of the Act determining the total income at Rs.3,02,81,419/-. In the assessment, AO disallowed the - assessee's -claim of deduction u/s 80IA(4) by holding that NHAI supplies funds, technical knowhow, technical parameters and even the work of the "assessee is under the supervision of NHAI, hence, the assessee is only 'works contractor’ for the purpose of only execution of the works. AO also held that the assessee is only as 'works contractor' and not as 'the developer and as such, the assessee could not substantiate its claim therefore, the claim of the assessee was not Page 4 of 20
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accepted. In support of his decision, AO relied on the decision of the Larger Bench of the ITAT in the case of M/s. B.T. Patil & Sons Belgaum Construction Pvt Ltd reported in 126TTJ (Mum) TM wherein the assessee was one of the “intervener" and it was held that, executing a mere works contract is not entitled to deduction u/s 80IA(4). Further, AO restricted the TDS credit to Rs. 5,41,78,411/-, which is proportionate to the contract receipts offered by the assessee in the year under consideration . AO invoked the provisions of section 199 of the Act in this regard. Aggrieved with the decision of the AO, assessee filed an appeal before the first appellate authority. 4. During the proceedings before the first appellate authority, assessee made elaborate submissions by mentioning that both the denial of deduction u/s.80IA(4) of the Act and restriction of TDs credit is not proper. Before the CIT(A), assessee relied on various decisions i.e., the judgment of the Jurisdictional High Court in the case of ABG Heavy Industries Ltd. W reported in 322 ITR 323 (BOM); order of the ITAT, Hyderabad "Bench in the case of GVPR Engineers Ltd vs. ACIT [21 Taxmann.com 246] (Mum); Laxmi Civil Engg. P. Ltd vs. Addl. CIT (ITA No.766/PN/09, 254/PN/08, 431/PN/07). It was demonstrated before the CIT(A) that the Larger Bench decision in the case of B.T. Patil & Sons Belgaum Constructions (P) Ltd (supra), is not good law in view of the subsequent developments on that order. CIT (A) considered the same and passed a speaking order along with the appeal of the assessee on both the issues. While giving the decision, CIT (A) discussed the Page 5 of 20
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relevant provisions of section 80IA( 4) and the definition of "Infrastructure" and mentioned that the provisions are progressively liberalized to hold that even the developer is eligible for deduction under these provisions. He also discussed the meaning of 'contractor" and "developer' and elaborated the scope of contract. Para 2.15 of the CIT(A)'s order is relevant 'in this regard. There was a discussion in his order on the various clauses of the contract to conclude that the assessee has all the responsibility in, executing the contract works. Further, the CIT(A) analyzed the way the AO rejected the applicability of the binding judgment of the Hon'ble High Court in the case of ABG Heavy Industries Ltd (supra).' Further, he also analyzed the applicability of the decision of various Benches of the Tribunal. In para 2.30 of the impugned order, the CIT(A) held that the Larger Bench decision in the case of B.T. Patil & Sons Belgaum ,Construction Pvt. Ltd. (supra), is no longer a good law considering the binding judgment of the' Hon’ble High Court in the case of ABG, Heavy Industries Ltd. (supra) and other decisions of the Tribunal. Further, he analyzed: another judgment of the ITAT, Hyderabad Bench in the case of M/s. KMC Constructions Ltd vs. CIT, 21 Taxmann.com 138 (Hyderabad), dated 16.3.2012 which belongs to the subsequent period to the cited Larger Bench decision 'in 'the case of B.T. Patil & Sons Belgaum Construction Pvt Ltd (supra). In fact the CIT(A) extracted the para 46 to 44 of the said order of the Tribunal in the, case of M/s. KMC Constructions Ltd (supra) and directed the AO to allow the deduction claimed u/s. 80IA( 4) of the Page 6 of 20
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Act. para 2.31 of the impugned order isrelevant in this regard. 'The ratio of the said decision is that the assessee, who is engaged in this kind ,of contract work involving the NHAI projects is not merely a works contractor and he is a developer who is eligible for deduction u/s 80IA( 4) of the Act. It 'is the finding of the CIT (A) that the contracts executed by the M/s. KMC Constructions Ltd, (supra) involving NHAI and the scope of the works are similar to that of the works ,executed by the assessee for NHAI. CIT(A) analyzed the scope of the contract work before giving relief to the assessee.”
The Tribunal decided the issue as under :-
“7. We have heard both the parties on the issue of allowability of deduction u/s. 80IA(4) of the Act to the assessee who executed the contract granted by the NHAI. It is the finding of the Hyderabad Bench of the Tribunal in the case of' M/s KMC Constructions Ltd (supra) that the contractor, who undertakes for road Widening of the National Highways from 2 lines to 4 lines, is eligible for deduction u/s 80IA(4) of the Act. The assessees of this kind are deemed fulfilling the conditions specified in the said sub-section (4) of Section 80IA of the Act. It is also demonstrated before us that the Larger Bench decision in the case of B.T, Patil & Sons Belgaum Construction Pvt Ltd (supra) is no longer a valid law as the said judgment was reversed after hearing the case in compliance with the directions of the Hon'ble Bombay High Court. Therefore, we are of the opinion that the decision of the CIT(A) on this
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issue is fair and reasonable and it does not call for any interference. Accordingly, ground no.1 is allowed in favour of the assessee.”
Respectfully following the above order for 2008-09 we decide the effective Ground of appeal in favour of the assessee.”
Now, we have also gone through the judgment of Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd. (supra) wherein Hon’ble High Court has considered the issue of contractor vis-à-vis the developer for claiming of deduction under section 80IA(4) of the Act by deliberating as under: -
“23. While dealing with this submission, we note that neither in the memo of appeal nor in the submissions before us has any effort been made to suggest on the part of the Revenue that the circulars of the Board are not binding on the Revenue. Nor for that matter was it the submission of the Revenue that the circulars issued by the Board from time to time were in violation of or contrary to legal provisions. Plainly, right from 1996 the Central Board of Direct Taxes was seized with the question, as to whether infrastructure facilities developed under a BOLT project would qualify for exemption under section 80-IA of the Act. The first circular in that regard that was issued on January 23, 1996, specifically dealt with whether section 80-IA(4A) of the Act would be applicable to a BOLT scheme involving an infrastructure facility for the Indian Railways. The circular clarified that an infrastructure facility set up on a BOLT basis for Railways would qualify for a deduction. That was followed by the two circulars of the Board dated June 23, 2000 and December 16, 2005. The first of those circulars recognizes that structures for storage, loading and unloading, etc., at a port built under a BOT and BOLT scheme would qualify for a deduction.
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Now, there is no question of an enterprise operating a facility in a BOLT Scheme because such a scheme contemplates that the enterprise would build, own, lease and eventually transfer the facility to the authority for whom the facility is constructed. The subsequent circular dated December 16, 2005 once again clarified the position of the Central Board of Direct Taxes that structures which have been built, inter alia, under a BOLT scheme up to the assessment year 2001-02 would qualify for a deduction under section 80-IA of the Act. In fact from the assessment year 2002-03, the process was further liberalized, consistent with the basic purpose and object of granting the concession. In this background, particularly in the context of the objective sought to be achieved and in the absence of any challenge on the part of the Revenue on the applicability of the binding circulars of the Central Board of Direct Taxes, we are of the view that the condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of the Central Board of Direct Taxes. The fact that in such a scheme, an enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. The court cannot be unmindful in the present case of the Page 9 of 20
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underlying objects and reasons for a grant of deduction to an enterprise engaged in the development of an infrastructure facility. The provision was intended to give an incentive to investment for infrastructural growth in the country. In Bajaj Tempo Vs. CIT [1992] 196 ITR 188 the Supreme Court emphasized that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. In the present case, the administrative circulars issued by the Central Board of Direct Taxes proceeded on that basis by adopting a liberal view of the scope and ambit of the provisions of section 80-IA of the Act. Parliamentary intervention endorsed the administrative practice. A provision inserted by the Legislature to supply an obvious omission and to make a section workable has in certain circumstances been regarded as retrospective particularly when it was intended to remedy unintended consequences. Allied Motors P. Limited Vs. CIT [1997] 224 ITR 677 (SC) and CIT Vs. Alom Extrusions Limited [2009] 319 ITR 306 (SC). The Tribunal having only followed these provisions, we do not find any just reason to interfere in our appellate jurisdiction.
Another submission which was urged on behalf of the 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 and maintaining the infrastructure facility on or after April 1, 1995. The same requirement is embodied in sub-clause (c) of clause (i) of sub-section (4) of the amended provisions of section 80- IA. On this basis, it was urged that since the assessee was not operating and maintaining the facility, he did not fulfil 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 Page 10 of 20
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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 April 1, 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 April 1, 1995. After section 80-IA 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 April 1, 1995. The requirement that the operation and maintenance of the infrastructure facility should commence after April 1, 1995 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 reacting 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 April 1, 1995. In the present case, the assessee clearly fulfilled this condition.
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In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The subsequent amendment of section 80-IA(4A) of the Act to clarify that the provision would apply to an enterprise engaged in (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by the Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to section 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.”
We have gone through the facts and circumstances of the present case and notice that the assessee on a turnkey basis, engaged the contract for development of the civil and hydro- mechanical works for the project LOT at a contract value is Rs. 322.90 crores. The Contractor has to decide the work programme and methods for timely completion of the work. The materials, design and workmanship should satisfy the standards, specifications etc. The Bid Security of Rs.1crore must be accompanied with each bid, which can lapse under certain conditions. The Contractor has to arrange for all construction equipments and the entire Work Contract shall have to be completed in all respects within 60 months from the date of award of work. The contractor has to make arrangements for the full anticipated requirements of construction power by installing diesel generating sets at his option mini/micro hydel plant and operate these sets for his requirements of power at no extra cost to the corporation. The assessee claimed that there is a risk of flash floods and there are geological risks. The contractor shall remain solely responsible for and shall obtain all permits, licenses, approvals and authorizations. The contractor shall be and shall remain solely Page 12 of 20
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responsible and liable for the quality, proper and expeditious execution and performance of the works and for due performance and observance of all the conditions of the Contract in all respects. The contractor shall employ on the site in connection with the execution of works and performance only such technical personnel as are skilled and experienced in their respective callings. The contractor shall take full responsibility for the care of the works from the date of award until completion of the works and shall be liable for any loss or damage to the works. The contractor shall be liable for insurance of the works and indemnification of any loss in respect of all injuries, losses or damages to the person or property of NHPC, its other business associates and third parties. damages to all structures and properties of NHPC or others on the site or of third parties. The contractor shall be responsible for loss or damage to the works. The contract shall be responsible and bear the risk of the form and nature of the site, including the sub surface conditions and other conditions the hydrological, geological and climatic conditions. The contractor shall be deemed to have carefully examined the site surrounding to satisfy itself to the nature and conditions of the railways, roads, bridges and culverts, means of transport and means of communications available. The contractor shall be responsible to perform, execute and maintain the Works and provide all labour including supervision thereof, materials, construction equipment and all other thing whether of a temporary or a permanent nature. Contractor shall be responsible for obtaining approvals from the authorities for transportation of the Plant & Equipment to the site. The contractor shall indemnify NHPC from and against any claim for damage to roads, bridges or any other traffic facilities that may be caused by the transport of the plant and equipment to the site. The contractor shall take full responsibility for the adequacy, stability and safety of all its operations, including site operations and methods of construction and providing/arranging adequate security and its subcontractor's personnel and their families, property either owned by it in trust, work in progress and installation facilities etc. in the project area. The contractor shall be responsible for all arrangements for water including pumping of all water requirements for all his work sites and colonies. The contractor shall be responsible for obtaining all Page 13 of 20
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licenses, permits, consent, right of way approvals etc. for carrying out his obligations under this contract. All internal roads leading to various construction sites shall be handed over to the contractor on as is where is' basis and it shall be responsible for up-keeping and maintenance of these roads. The contractor shall provide at its own cost all temporary pathways/roads required at site or in quarries or borrow areas. The contractor shall save harmless and indemnify NHPC at all times from and against all claims and proceedings for or on account of use of or infringement of any patent rights, design, trademark or name or other protected rights in respect of whole or part of the work. The contractor shall save harmless and indemnify NHPC in respect of all claims, proceedings damages, costs, charges and expenses whatsoever arising out of or in relation to any such matters in so far as the contractor is responsible therefore. The contractor shall indemnify NHPC against any damage to any of the highways or bridges. The contractor shall indemnify NHPC and its staff against all proceedings made against them. The contractor shall be responsible for finalizing plant, equipments, etc. to form part of permanent works. The contractor shall be responsible for programming and scheduling of the work. The time allowed for execution of the Works is the essence of the Contract. The Defects Liability Period is twelve months following the date of Completion of the work. The contractor has to provide performance security equivalent to 10% of contract Price for his proper performance of the contract. In addition to this, the contractor, within 28 days of signing of contract shall provide additional performance security equivalent to 4% of contract price for proper completion of Works by way of unconditional bank guarantee. The interest bearing mobilisation advance equivalent to 10% of contract value given to the contractor is against a bank guarantee. The interest bearing Machinery advance given to the contractor as against hypothecation of such machinery in favour of NHPC. All progressive invoices paid by NHPC are treated as interim payments till the final certificate is issued. Costs, charges, damages, or expenses of any nature for which the Contractor is liable under the contract shall be deducted from payments of the Contract Price and/or shall be recoverable by invoking/enforcing one or more of the bank guarantees furnished by the Page 14 of 20
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contractor. The contractor shall provide and install all necessary constructional plant, equipment and machinery required for the execution of the works at his cost and shall use such methods and appliances for the purpose of all the operations connected with the works which shall ensure the completion of works within the specified time. The contractor, at his risk, has to finalise the general layout plan of constructional plant and equipment and submit detailed drawings thereof. The contractor is liable for liquidated damages on account of defaults committed by him. The contractor is liable to NHPC upto an amount equivalent to the contract price. The contractor is responsible for maintaining the ecological balance and shall be liable for any violations thereof. Detailed drawings have to be submitted by the contractor. All construction plant and materials have to be arranged by the contractor and it is responsible for manufacture, procurement, quality assurance, installation, pre-commissioning, delivery of the plant and equipment and its installation, completion, commissioning and performance testing of facilities in accordance with the plans, procedures, specifications, drawings, codes etc. Construction plant and machinery and equipments brought on site by the contractor cannot be removed from the site by the contractor without the permission of NHPC. The contractor shall execute the basic and detailed design and the engineering work in compliance with the provisions of the contract I good engineering practices and shall be responsible for per ferial discrepancies, errors, omissions in the specifications, drawings and other documents. The contractor has to establish laboratory I testing facility at the site to facilitate testing and inspection. The contractor has to supply operation and maintenance manuals together with the drawings of the facilities as built.
In view of these facts, and the Tribunal consistently in assessee’s own case for earlier years held in assessee’s favour on this issue allowing deduction u/s 80IA(4) of the Act holding the assessee as developer of infrastructural facility being eligible project, respectfully following the same we also allow the claim of the assessee in both the years. This issue is also covered by the judgment of the Hon’ble Bombay High Court in the case of ABG Heavy
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Industries Ltd. (supra). Accordingly, the common issue of the assessee’s appeals is allowed.
The next issue in ITA No.7283/Mum/2007 for AY 2004-05 is as regards to the order of CIT(A) confirming the action of the AO in not granting for TDS deducted from advances received by the assessee. For this assessee has raised following ground No.3: -
“3. In facts and circumstances of the case and in law, the CIT(A) erred in confirming the order of the AO in not granting credit for Tax Deducted at Source of Rs. 94,47,863/- deducted from the advances received by the Assessee.”
Briefly stated facts are that the assessee claimed that TDS of Rs. 64,95,566/- was deducted advances on contract and further TDS of Rs. 29,52,297/- pertains to advances against material and work. The AO noted that this advance was not credited to the P&L account and accordingly, in view of Section 199 of the Act, the assessee is not eligible for credit of this TDS because he has not booked income in the P&L account. Aggrieved assessee carried the matter before CIT(A), who also confirm the action of the AO by observing as under: -
“I have carefully considered the arguments put forth by the appellant and I am not persuaded by them. A reading of section 199(2) shows that there is no infirmity in the order of the Assessing Officer. The provision of section 199 is very clear regarding allowability of credit for the tax deducted at source and the credit is allowable only in such assessment year in which the income on which tax has been deducted at source is taxable. Therefore, the contention of the appellant that credit for the entire amount of TDS should be allowed in that assessment year in which even a part of such income is offered for tax is not in accordance with law. Reliance is also placed on Page 16 of 20
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the following two decisions i.e. Madras High Court decision reported in 149 ITR 748 and the decision of Privy Counsel in 6 ITR 2006. In both these judgements it was held that the credit for tax deducted at source is allowable only in the year in which such income on which tax has been deducted at source has been offered for taxation. In view of the above observations, the ground of appeal is dismissed.”
Aggrieved, now assessee is in second appeal before Tribunal on this issue.
We find the plea of the assessee is quite reasonable but the AO will verify the factum of income declared as whether it is included as part of the income in the year under consideration and after verification allow the claim of the assessee. Accordingly, this issue is remanded back to the file of the AO for verification purpose only. This issue of assessee’s appeal is partly allowed for statistical purposes.
The next common issue in ITA Nos.7282 & 7283/Mum/2007 is as regards to the CIT(A) in not directing the AO to refund tax along with interest. For this assessee has raised following ground No. 8 in AY 2004-05: -
“In the facts and circumstances of the case and in law, the learned CIT(A) erred in not directing the AO to refund taxes paid with suitable interest on the above referred sum of Rs.8,27,61,976/-.”
After hearing rival contentions and going through the facts of the case, we direct the AO to allow the claim of the assessee as per the provisions of the Act.
The next common issue in ITA No. 7282/Mum/2007 is as regards to the treatment of assessee’s share of income from joint venture LGE &C- Patel JV. It was claimed that the profit has already been taxed in the assessment of LGE&C- Patel JV(AOP), hence, taxes are not to be chargeable on such profit while assessing the income of the assessee. The ITAT of Ahmedabad Bench in ITA No. 3178 to 3180/Ahed/2007 for AYrs 2003-04 to AY 2005-06 vide order dated Page 17 of 20
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16-04-2010 held that the entire income after 2-09-2002 would be assessed in the hands of PEL as no AOP continues after 2-09-2002 and accordingly, the credit for TDS and interest on such income to be granted to the assessee. This fact is noted in Para 35 to 38 as under: -
“35. Ground No.5 relates to recovery of Tax or interest from the AOP. After hearing the parties, we are of the considered view that tax and interest relating to period up to 2-9-2002 or arising on account of income earned by the AOP up to 2-9-2002, can be recovered by the Revenue as per law and both the members of the JV would be jointly and severally liable. However, the question of levy and recovery of tax and interest in respect of any income of JV after 2-9-2002 would not arise as in our considered view no income would accrue or arise to A.O.P. after 2-9-2002 in respect of the work carried out BY PEL.
Both the parties informed the Bench that even after 2-9-2002 Joint Venture has declared income in respect of the work carried out after 2-9-2002 till 31-3- 2003 pertaining to the assessment year 2003- 04. The Ld. AR for the assessee submitted that it is by mistake that income earned by PEL has been brought to tax in the hands of AOP even though no AOP in law ceased to exist after 2-9-2002. If an error is committed by the joint venture in declaring the income earned by PEL as its own income then that error should not prevent the Revenue authorities or Appellate Authorities to decide the right hand in which such income should have been assessed. Even where an income is assessed in wrong hands then it does not prevent the authorities or the Court to tax it in the hands of the right person where such income is assessable. The Ld. AR referred to the decision of Hon’ble Supreme Court in the case of ITO vs. Atchaih Page 18 of 20
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(CH) (1996) 218 ITR 239 (SC) for the proposition that even where an income is assessed in the hands of a member of AOP, it will not prevent the income to be assessed in the hands of AOP. Reverse analogy is also true. The Ld. AR also submitted that no real income had accrued to the joint venture and therefore, no income is assessable in its hand by virtue of agreement dt. 2-9- 2002. Accrual of income is shifted in the hands of PEL. Therefore, real income has accrued in the hands of PEL and not in the hands of joint venture.
The Ld. D.R on the other hand argued that once assessee has taken a stand that in the A.Y. 2003-04 that income earned by PEL is in fact the income of Joint venture and accordingly, it has been so declared in the hands of AOP then there is no reason to take a different stand in subsequent year and therefore, tax and interest can be recovered from joint venture in respect of income earned/declared by it after 2-9-2002 also.
In our considered view income after 2-9-2002 really belonged to PEL in respect of the work carried out by it after 2-9-2002. Therefore, even if joint venture has declared income from work carried out after 2-9-2002 till 31-3-2003 as its income, it does not prevent the revenue from taxing it in the hands of PEL as it is a right person in whose hands income, after supplementary agreement was executed, could be taxed. We have already held that no AOP continued to be in existence after 2-9-2002 as one member has lost interest in earning income for itself. Unless both the parties have common interest in earning income, no AOP can be said to be in existence. In view of this, if any tax or interest has been paid by joint venture during A.Y. 2003-04 or even after 2004-05, the credit of the same should be transferred to PEL where that income
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is assessable. Our view is that credit of TDS can be given only in the hands where income there-from is subjected to tax. If accrual of income in respect of the receipts received de-jure by joint venture is shifted to a member of the joint venture through an overriding title, then credit of TDS in respect of such receipts should be considered in the hands of that member of the joint venture in whose hands such income is found assessable. Ground No.5 is accordingly disposed of in favour of the assessee.”
In view of the above order of Ahmedabad Bench of Tribunal in the case of LGE & C Patel JV (AOP), income has already been assessed in their hand,ss hence no income can be added in the assessee’s case. Accordingly, this issue of the assessee’s appeal is allowed. 15. In the result, both the appeals of assessee are partly allowed. Order pronounced in the open court on 29-03-2017.
Sd/- Sd/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 29-03-2017 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// Assistant Registrar ITAT, MUMBAI
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