ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), HYDERABAD vs. MEGHA ENGINEERING AND INFRASTRUCTURES LIMITED, HYDERABAD
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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” , HYDERABAD
Before: SHRI MANJUNATHA G. HON’BLE & SHRI PRAKASH CHAND YADAV, HON’BLE
आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” , HYDERABAD BEFORE SHRI MANJUNATHA G. HON’BLE ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, HON’BLE JUDICIAL MEMBER ITA No.1499/Hyd/2019 Assessment Year – 2020-21 The Assistant Commissioner of Vs. M/s.Megha Engineering & Infrastructure Ltd. Income Tax, Hyderabad. Central Circle – 2(1), Hyderabad. PAN : AAECM7627A
(Appellant) (Respondent) Assessee by: Shri K.C. Devdas, C.A. Revenue by: Shri B. Bala Krishna, CIT-DR Date of hearing: 09.09.2024 Date of pronouncement: 25.09.2024
O R D E R PER MANJUNATHA G. A.M.
This appeal filed by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals) – 12, Hyderabad passed on 15.07.2019 for the assessment year 2016- 17.
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The grounds raised by the Revenue read as under :
“1) The ld. CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. Whether the ld.CIT(A) is justified in holding that the provisions of Section 80IA(4) of the Act are applicable to constituent of the joint venture / consortia ? 3. The ld. CIT(A) erred in not appreciating the fact that the assessee herein is not a developer but merely a contractor in respect of the projects awarded to the JV / Consortia. 4. The ld.CIT(A) erred in ignoring that the facts of the case are not in conformity with clarificatory amendment to Section 80IA of the Act [Explanation 2 to Section 80IA of the Act introduced vide Finance Act 2017] which was introduced to unambiguously explain that only those enterprise that have entered into development agreement with Central / State / Local Authorities and invested their own funds to develop such facilities will only be eligible for benefit of deduction. 5. Whether the ld. CIT(A) is correct in law in upholding the claim of the assessee u/s 80IA of the Act, which is only a constituent of the joint venture or consortia and do not fulfil the requirements of Section 80IA (4) of the Act and the assessee is not a developer but merely a contractor of the projects awarded to joint venture / consortia? 6. The ld.CIT(A) ought to have appreciated the fact that when huge borrowed interest bearing funds are deployed for earning exempt income restriction of the disallowance u/s 14A to exempt income alone would result in disproportionate reduction of taxable income which is not the intended purpose of Section 14A. 7. The ld. CIT(A) ought to have appreciated the fact that the words used in sub- section 1 of Section 14A are clear and unambiguous that what is not allowable is "expenditure incurred" for EARNING EXEMPT INCOME and, therefore, such disallowance cannot be restricted to EXEMPT INCOME EARNED.”
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2.1. The additional ground filed by the Revenue reads as under : “The above issue is fully covered in revenue’s favour by recent Hon'ble Apex Court decision in the case of Checkmate Service P. Ltd. Vs. CIT (143 taxman.com 178) (SC) / 2023 which had held that the employer has to deposit employee’s contribution on or before the due date. Hence, the Assessing Officer has made the addition of Rs.1,00,39,226/- on account of late payment of the employee’s contribution as per the provisions of Act. It is pertinent to mention that the same issue involved in this judgement, so may please be followed in the present case for the sake of judicial consistency.”
Facts of the case, in brief, are that the appellant, M/s. Megha Engineering and Infrastructure Company Limited is an infrastructure company engaged in the business of execution of various development projects like irrigation projects, drinking water supply schemes, hydropower stations, construction of roads and railway lines, etc. The appellant company filed its return of income for the assessment year 2016-17 on 28-11-2016 declaring total income of Rs.331,48,64,440/-, after claiming deduction of Rs.929,64,73,229/- under section 80IA(4) of the Income Tax Act, 1961. The case was selected for scrutiny assessment and during the course of assessment proceedings, the AO noticed that the assessee has claimed deduction under section 80IA(4), in respect of the profits derived from development of infrastructure projects and thus, called upon the assessee to file
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necessary details, including details of projects and nature of projects executed by the assessee and also relevant agreements entered into with Central or State government. In response, the assessee has furnished the project wise details and also relevant agreements entered into with various authorities, including Central and State government. The AO, after considering relevant information submitted by the assessee and also considering provisions of Section 80IA(4) of the Act, observed that in order to allow deduction under Section 80IA, the assessee has to comply with the conditions laid down under Section 80IA(4) of the Income Tax Act, 1961. The AO has discussed the issue at length in light of provisions of the Act and agreements entered into by the appellant with relevant authorities and noticed that the assessee has executed various projects, which are in the nature of development of infrastructure projects as prescribed under Section 80IA(4) of the Act. The AO had also discussed each project executed by the appellant in light of agreement with relevant authorities and after considering relevant agreements and nature of projects executed by the assessee, observed that the appellant has claimed deduction under Section 80IA(4) of the Act in respect of projects executed by the appellant on its own on the basis of agreements entered into with State or Central Governments and also claimed deduction under Section 80IA(4) of the Act in respect of projects which were awarded to Joint Ventures (hereinafter referred as “JV”) and Consortiums, wherein the assessee was one of the constituent members and the works were carried out by the
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assessee, in proportion to its shares as per the JV / Consortium agreement. However, as per the provisions of Section 80IA(4) of the Act, only the enterprise which enters into an agreement with the Government / Statutory Body is eligible for deduction. In the case of the JV / Consortium, the agreement was entered into by the JV / Consortium, whereas the deduction was claimed by its constituent member, which is in violation of Section 80IA(4) of the Act. Therefore, by taking note of relevant case laws relied upon by the assessee, including the decision of ITAT, Vishakhapatnam Bench, in the case of M/s. Transstory (India) Ltd. Vs. ITO, in ITA No.540/VSP/2009. Although, the Tribunal has held that the appellant, being a constituent member of JV, is also eligible for deduction under Section 80IA(4) of the Act, but fact remains that the Department has not accepted the order of the Tribunal in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra), and further, the appeal has been filed before the Hon’ble High Court against the order of the Tribunal, which is pending for adjudication. Therefore, to keep the issue alive, the claim of deduction under Section 80IA(4) of the Act in respect of projects awarded to JV / Consortium has been disallowed. To sum up, out of the total deductions claimed by the assessee for Rs.929,64,73,229/-, Assessing Officer has disallowed the claim of deduction in respect of 32 projects which were awarded to JVs / Consortium for Rs.380,66,83,335/-.
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Being aggrieved by the assessment order, the assessee preferred appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee submitted that the appellant has satisfied all the conditions prescribed under Section 80IA(4) of the Act, including entering into agreement with Central or State Governments and other statutory bodies for carrying out development works, which are in the nature of infrastructure projects eligible for deduction under Section 80IA(4) of the Act. The counsel for the assessee further submitted that although the work has been awarded to JV, it is only for the purpose of meeting the criteria for undertaking development projects, but otherwise, the JV is only a pass- through entity, and all other activity is carried out by the appellant. The appellant further submitted that the JV is formed to undertake development work in terms of the project to be developed as per the tender document, but after award of tender, the appellant has notified the relevant State or Central Governments, the facet of executing works by the constituent partners in proportion to their share in the JV / Consortium. Further, the JV/ Consortium is only a pass-through entity and whatever bill raised to the State or Central Government is transferred in total to the JV partner and further, the deduction under Section 80IA(4) is only claimed by the constituent partner and not JV. Therefore, merely for the reason that the agreement is in the name of JV, the deduction under Section 80IA(4) of the Act cannot be denied to the assessee, when the assessee has
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satisfied all the conditions, including conditions of entering into agreement with relevant authorities. In this regard, the appellant relied on the decision of ITAT Visakhapatnam Bench in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra).
The ld.CIT(A), after considering relevant submissions of the assessee, as well as the order of the Assessing Officer observed that, as could be seen from the facts brought on record, the appellant company is engaged into infrastructure development activity of various kinds, which are shown to be awarded directly as main developer / builder, while some were awarded to JV's / Consortia but executed by the assessee, as a constituent of the said JV, in proportion to their share. The profits related to the first two types of projects are claimed for deduction under Section 80IA(4) of the Act. The Assessing Officer has not disputed the fact that the assessee is otherwise eligible for deduction under Section 80IA(4) of the Act, upon satisfying all the conditions prescribed therein, except the condition of entering into agreement with relevant Central or State Governments or other statutory bodies. Although, the AO satisfied with the eligibility of the appellant for claiming deduction under Section 80IA(4) of the Act, but disallowed such claim in respect of projects awarded to JV's / Consortium only on the ground that the agreement with relevant Central or State Government is entered into by the JV / Consortia, but not the assessee, ignoring the fact that except signing
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agreement with relevant State Government, all other activities were carried out by the assessee, including designing and development of the project, arranging finance and undertaking risk for the agreed period. Therefore, by following the decision of Income Tax Appellate Tribunal, Visakhapatnam Bench, in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra) and also Income Tax Appellate Tribunal, Lucknow Bench, in the case of PNC Constructions Co. Pvt. Ltd. Vs. DCIT, reported in 37 taxman.com 361, which was further upheld by the Hon'ble Allahabad High Court, reported in 55 taxman.com 21, held that the appellant is eligible for deduction u/s 80IA(4) towards profits derived from infrastructure projects awarded to JV / Consortia, but executed by the appellant. Therefore, directed the AO to delete the additions made towards profits attributable to the projects executed by the appellant, as a constituent of JV / Consortia to an extent of Rs.380.66 crores.
The CIT-DR Shri B. Bala Krishna submitted that, the ld.CIT(A) erred in deleting the addition made by the AO towards profits attributable to the projects executed by the appellant as a constituent of the JV/Consortia, without appreciating the fact that the assessee is not a developer, but merely a contractor in respect of the projects awarded to the JV/Consortia. The ld. D.R. further referring to various contracts awarded by the relevant authorities, submitted that the ld.CIT(A) erred in ignoring the
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facts of the present case, which are not in conformity with the clarificatory amendment to Section 80IA of the Act and the Explanation 2 to Section 80IA introduced by the Finance Act 2017, which was introduced and unambiguously, explained that only those enterprises that have entered into development agreements with the Central / State / local authorities and invested their funds to develop such facilities will only be eligible for the benefit of deduction. The ld.DR referring to the provisions of Section 80IA(4)(1)(b) submitted that, in order to be eligible for deduction under the said section, the enterprise shall enter into an agreement with the Central Government or State Government or a local authority, or any other statutory body for developing, operating, and maintaining a new infrastructure facility. In the present case, the appellant has claimed deduction in respect of profits derived from projects awarded to JV/ Consortia in light of agreement between relevant JVs/ Consortiums, and authorities, only on the ground that the project has been executed by the appellant. However, but fact remains that the exemption provisions should be strictly interpreted as held by ITAT Hyderabad Bench in the case of DCIT Vs. HES Infra Private Limited in ITA No. 184 and 185/Hyd/2018, wherein the Coordinate Bench has followed the decision of Hon'ble Supreme Court in the case Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company reported in (2018), 95 taxmann.com 327 (SC) wherein it has been clearly held that the exemption provisions should be strictly interpreted. Going by the
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above decision, it is undisputedly clear that the appellant not being entered into agreement with State or Central Government cannot claim deduction under Section 80IA(4) of the Act. The ld.CIT(A) without considering all these facts, simply deleted the addition made by the AO. Therefore, he submitted that the order of the ld.CIT(A) should be set aside and the addition made by the AO should be upheld.
The ld.AR Shri K.C. Devdas, C.A., supporting the order of ld.CIT(A), at the outset, submitted that these issues are squarely covered by the decision of ITAT, Hyderabad Bench, in assessee's own case for assessment years 2010-11 to 2015-16 in ITA Nos.607 to 610/Hyd/2016 dt. 15.12.2019, wherein the Tribunal by following the order of ITAT Visakhapatnam in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra), held that the appellant is eligible for deduction under Section 80IA(4) of the Act, towards profits derived from projects awarded to J.Vs / Consortium, but executed by the assessee. He further submitted that the appellant otherwise satisfied all the conditions, including the condition of entering into an agreement as per clause (b) of Section 80IA(4) of the Act, because as per (a), the provisions mandate that the project should be owned by a company registered in India or a consortium of such companies and if you go by the above provision, it is undisputedly clear that in order to claim any deduction, the agreement should be entered into by any company
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or by a consortium of such companies. In the present case, these projects were awarded to the J.Vs / Consortiums in terms of agreement with relevant Central Government or State Government, or local authority. The assessee, being one of the constituent partners of the said J.V / Consortium, has signed the agreement with various authorities and thus, satisfied sub-clause (b) of Section 80IA(4)(1) of the Act. The ld.AR further submitted that the Assessing Officer has not disputed the fact that the assessee is otherwise eligible for deduction under Section 80IA(4) of the Act, having satisfied all the conditions, but denied the deduction only on the ground that the agreement is not in the name of the appellant, ignoring the fact that the appellant, being a constituent partner of the J.V. / Consortium, has entered into agreement with the authorities, and the agreement entered into by JVs is as good as agreements entered into by the assessee. Therefore, he submitted that the assessee is eligible for deduction u/s 80IA(4) of the Act and ld.CIT(A) after considering relevant facts has rightly allowed deduction and their order should be upheld.
Per contra, the ld.CIT-DR submitted that there is no dispute with regard to the fact that the appellant is not entered into agreement on its own, but signed the said agreement as a constituent partner of the JV / Consortia. Further, as per clause (a) of Section 80IA(4)(1) of the Act, it only says that the project should be owned by a company or consortium of such companies,
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but when it comes to clause (b), it talks about entering into agreement with Central or State Government for developing projects. In the present case, there is no dispute with regard to the fact that the appellant has not entered into agreement with any of the Central or State Government or local authority, but executed works in proportionate to their share in respect of JV / Consortia. Therefore, if you strictly directly interpret the provisions of Section 80IA(4)(b), the assessee is not entitled for deduction under Section 80IA(4) of the Act and this fact has been reiterated by the Income Tax Appellate Tribunal, Hyderabad Benches in the case of DCIT Vs. HES Infra Private Limited (supra).
In reply to the ld. CIT-DR, the ld.AR referring to various clauses in Consortium Agreement / JV Agreement between partners submitted that immediately after entering into Consortium Agreement / JV Agreement, the same has been intimated to respective Central or State Government or local authorities on the fact who would execute the project and the same has been accepted by the relevant authorities. Further, in many cases, the appellant, being the constituent partner, executed development projects and also submitted bills to the authorities and the payment has been directly made to the appellant after deducting necessary TDS applicable as per law in the name of the appellant. Further, the JV / Consortia never claimed any deduction under Section 80IA(4) of the Act in respect
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of profits derived from said projects, whereas the appellant being a constituent partner executed the project and claimed deduction under Section 80IA of the Act. Therefore, once the JV / Consortia denied claim under Section 80IA of the Act, then the assessee being a constituent partner of the JV, is eligible for claiming such deduction, having satisfied all the conditions. Therefore, he submitted that the deduction claimed by the assessee in respect of projects awarded to JV / Consortia, but executed by the appellant is in accordance with the law, and thus, the order of the ld.CIT(A) should be upheld.
We have heard both parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the appellant has executed several development projects as enumerated in the assessment order and among the works, some projects were directly awarded to the appellant as main developer / builder, while some projects were awarded to the JVs/Consortium, but executed by assessee company, as constituent partner of the said JV in proportion to their share. It is also not in dispute that the appellant has satisfied all the conditions except clause (b) of Section 80IA(4), as noted by the Assessing Officer. In other words, the AO accepted the fact that the projects executed by the appellant, including those projects which were awarded to JVs/ Consortiums, but executed by the assessee are infrastructure
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projects, as defined under Section 80IA(4) of the Act and thus, on being satisfied with the relevant provisions therein, the assessee is eligible for deduction under Section 80IA(4) of the Act. The only dispute is with regard to not satisfying clause (b) of Section 80IA(4)(1), which states that in order to claim deduction under Section 80IA(4) of the Act, the enterprises shall enter into an agreement with the Central government or State Government or local authority or any authority for developing, operating and maintaining or developing, operating and maintaining a new infrastructure facility. The appellant claims that it has satisfied clause (a) of Section 80IA(4) of the Act, because as a constituent partner of JV /Consortia, it has signed agreement with relevant Central or State Government or local authority for development of infrastructure project. Further, as per clause (a) of Section 80IA(4) of the Act, in order to claim deduction under Section 80IA(4), the enterprise should be owned by a company registered in India or by a consortium of such companies. Further, Clause (a) makes it clear that a company registered in India, or a consortium of such company registered in India should be owned the undertaking and Clause (b) states that such entity should be entered into agreement with the relevant authorities. Going by the above provisions, in our considered view, the assessee being one of the constituent partners of JV / Consortia has signed the agreement with the Central or State Government or local government for development of infrastructure project. Therefore, in our considered view, once the appellant, being a
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constituent partner JV / Consortia has entered into an agreement with relevant authorities, then it is as good as the appellant has entered into agreement in its individual capacity for development of infrastructure project. This fact has been further strengthened by the relevant JV / Consortium agreement between the JV partners, wherein it has been clearly specified that this JV / Consortia has been constituted for the purpose of preparing or submitting qualification document and joint bid for the project. The said agreement further states that in the event of the contract being awarded to the JV / Consortium, being the members of the said JV / Consortium, the development works as contemplated by the above contract shall be executed as per the development and scope of works, but for no other purposes. We further noted that the JV / Consortia agreement between members clearly specify the scope of undertaking, its exclusivity, role and responsibility of the JV partners and risk to be undertaken by each of the JV partners. Further, immediately after JV / Consortium, the same has been informed to relevant authorities and also the plan of action has been submitted to the principles for execution of development projects. Further, in few cases, the appellant, being the constituent partner of the JV has directly submitted bills to the authorities and the principles has directly paid to appellant, instead of JV / Consortia, after deducting the TDS applicable as per law in the name of the appellant. From the above, it is undisputedly clear that although the JV/Consortium is a separate entity for the purpose of assessment, but all other activities,
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including designing, development, and maintenance of the project are undertaken by the assessee. Therefore, we are of the considered view that once the assessee, being a constituent partner of the JV/Consortium, has executed the project and also undertaken relevant risks, including financial risks, the assessee becomes a developer of the infrastructure project and also as a constituent partner of the JV/Consortium, satisfied the condition of entering into an agreement with relevant Central or State government or any authority as specified in clause (b) of Section 80IA(4)(1) of the Act. This is further fortified by the provisions of Section 80IA(4) of the Act and as per the proviso, the deduction is allowed to a successor entity in case one enterprise developed such infrastructure facility and after development, transfer such infrastructure facility to another Enterprise for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with agreement with the Central / State Government or 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. Going by the above provisions, when the law itself allowed the benefit to successor entity in case of transfer, then there is no reason as to why such deduction shall not be allowed to constituent partner JV / Consortium, more particularly, when the facts of said JVs / Consortium clearly established the fact that the appellant has carried out all the
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activities, including design and development of project and maintaining of said project.
The appellant has relied upon the decision of Income Tax Appellate Tribunal, Hyderabad in assessee’s own case for assessment years 2010-11 to 2015-16, in ITA No.607 to 601/Hyd/2016 dt.15.02.2019. We find that the co-ordinate bench of ITAT for earlier years has considered very similar issues and by following the decision of Income Tax Appellate Tribunal, Visakhapatnam in the case of M/s. Transstory (India) Ltd. Vs. ITO (supra) has held that the assessee is entitled for deduction under section 80IA(4) of the Act on the profits earned from the execution of the projects awarded to JV / Consortium. The relevant findings of the Tribunal are as under. “9.2 With regard to other issue, i.e. contracts awarded to JVs and whether the assessee can claim the same as a constituent of the above JVs, the coordinate bench of ITAT, Visakhapatnam in the case of Transstory (India) Ltd. (supra) held that the constituents of JVs are eligible to claim deduction u/s 80IA. For the sake of clarity, we reproduce the findings of the Bench in the said case, as under: "Undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of contract without limitation on resources required for the purpose of fulfilment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent
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of other party. From a careful perusal of this joint venture agreement and the consortium agreement, it is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. In the instant case in case of a joint venture agreement, the assessee was entitled to execute the 40 per cent of total work awarded by the Andhra Pradesh Government to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction under s. 80 - IA(4). These facts clearly indicates that the joint venture was only a de jure contractor but in fact the assessee was a de facto contractor. There is no dispute with regard to the fulfilment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. Joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a joint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was Megha Engg. & Infrastructure Ltd. awarded by the Andhra Pradesh Government and the KSHIP, a body of the State Government of Karnataka to the JV and consortium but the work was executed by the assessee and the other constituents. In case of joint venture agreement, 40 per cent works were executed by the assessee and in case of consortium, the 100 per cent work was executed by the assessee. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. Therefore, the joint venture or the consortium was only a paper entity and has not executed in contract itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions under s. 80 -IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per
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provisions of s. 80-IA(4), the benefit of deduction under this section is to be given only to the enterprise who carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions under s. 80 -IA(4) on the profit earned from the execution of the work awarded to JV and consortium." Respectfully following the above decision, we dismiss the ground raised by the revenue in this regard.”
A similar view has been taken by ITAT, Lucknow Bench in the case of PMC Constructions Co. P. Ltd Vs. DCIT (supra), wherein it has been held that the appellant is eligible for deduction under Section 80IA(4) in respect of the profits derived from the projects awarded to JV / Consortium but executed by the appellant. The decision of the ITAT Lucknow Bench has been upheld by the Hon’ble Allahabad High Court. The sum and substance of the ratios laid down by the various benches of the Tribunal is that when the appellant has satisfied all the conditions prescribed under Section 80IA(4) of the Act, but merely for the reason that the agreement is entered into by JV / Consortium, the deduction under Section 80IA(4) cannot be denied.
Coming back to case laws relied upon by the ld.DR for the Revenue. The ld.DR relied upon the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. HES Infra Pvt. Ltd (supra), We have gone through the decision of ITAT, Hyderabad Bench in the above case, and we find that, the Tribunal has gone
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on sole premise of interpretation of statutory provisions in light of the decision of Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) and held that in case of a person claiming deduction under the provisions of Section 80IA(4), the onus is on the assessee to prove that the assessee has fulfilled all the parameters laid down by the statute for claiming deduction. Since the appellant has not entered into agreement with these Government / statutory authorities, there is a violation as laid down by the statute and the assessee is not entitled to claim deduction. With due respect, we are unable to follow the decision relied upon by the ld.DR for the simple reason that, in the above case, the Tribunal has not discussed whether the appellant is otherwise eligible for deduction under Section 80IA(4) of the Act or not. Secondly, while deciding the issue, the Tribunal has not considered the decision of co-ordinate bench in appellant's own case for earlier years and other decisions rendered by the co- ordinate bench of the Tribunal. Further, the Hon'ble Supreme Court, in a subsequent decision in the case of Government of Kerala and another Vs. Mother Superior Adoration Convent in Civil Appeal No.202 of 2012, after considering its earlier decision in case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) held that the 5-Judge Bench did not refer to line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. The Court further held that they
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cannot agree with Shri Gupta's contention that sub-silentio the line of judgments qua beneficial exemptions has been done away with by this 5-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what it matters logically follow from it. This being the case, it is obvious that the beneficial purpose of exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of those cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand should be eschewed. Going by the subsequent decision of the Hon’ble Supreme Court in the above case, it is undisputedly clear that exemption provisions should be interpreted liberally in order to achieve the objectives of the legislature and going by the above ratio, in our considered view, there is no dispute with regard to the fact in the present case, the appellant is engaged in the business of developing infrastructure project like irrigation project, water supply system, hydropower plants and roads and railway lines and the statute provides for specific exemption under section 80IA(4) of the Act in respect of infrastructure projects, in our considered view, going by the liberal interpretation of the statute, the assessee must be given the benefit of deduction, having been satisfied all the conditions, including the condition of entering into an agreement with the State Government or Central Government or with any local authority, as a constituent partner of the JV/Consortium, more
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particularly, except entering into agreement, all other activities were carried out by the assessee. Further, the earlier order of ITAT in assessee’s own case was dt.15.02.2019 and order of the Hon'ble Apex Court in Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) is dated 31.07.2018. The Co-ordinate Bench of the ITAT had also taken note of the Judgment of the Hon'ble Apex Court in Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) while adjudicating the issue of deduction u/s 80IA(4) of the Act. Therefore, in our considered view, the arguments of the learned counsel for the revenue in light of the order of ITAT in the case of DCIT Vs. HES Infra (P) Ltd., that the earlier order of the Tribunal in assessee’s own case, has not considered the Hon'ble Apex Court’s decision in the case of Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra), is not correct. Therefore, we prefer to follow the decision of ITAT, Hyderabad Bench in assessee’s own case, rather than the decision relied upon by the ld. D.R. in the case of DCIT Vs. HES Infra Pvt. Ltd (supra).
In this view of the matter and considering the facts and circumstances of the case, and also by following the case laws discussed herein above, we are of the considered view that the assessee is eligible for deduction under Section 80IA(4) of the Act towards profits derived from infrastructure project awarded to JV / Consortium, but executed by the appellant. The ld.CIT(A) after
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considering relevant facts, has rightly allowed the deduction under Section 80IA(4) of the Act. Thus, we are inclined to uphold the findings of ld.CIT(A) and reject the grounds taken by the Revenue.
The next issue that came up for our consideration from Ground No. 6 and 7 of Revenue Appeal is disallowance of expenditure related to exempt income under Section 14A read with Rule 8D of I.T. Rules, 1962. The learned counsel for the assessee submitted that the assessee has earned dividend income of Rs. 23,278/- from the investments in mutual funds, whereas the AO has disallowed expenditure relatable to exempt income for Rs.7,80,98,559/-. The ld.CIT(A) restricted the disallowance under Section 14A of the Act to the extent of exempt income earned by the appellant. In our considered view, the reasons given by the ld.CIT(A) to restrict disallowance under Section 14A read with Rule 8D to the extent of exempt income is supported by number of judicial precedents, including the decision of Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. Vs. CIT 372 ITR 694 and also the decision of Hon’ble Supreme Court in the case of CIT Vs. Chettinadu Logistics (P) Ltd. (2013) as reported in (2018) as Taxmann.com 250 (SC) dated 25.03.2015 wherein it has been clearly held that disallowance contemplated under Section 14A read with Rule 8D shall not exceed exempt income. Therefore, we are of the considered view that there is no error in the reasons given by the
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ld.CIT(A) or to restrict the disallowance to exempt income and thus, we are inclined to uphold the findings of ld.CIT(A) and reject the grounds taken by the Revenue.
The next issue that came up for our consideration from additional ground of appeal filed by the Revenue is disallowance under Section 36(1)(va), in respect of belated payment of employee contribution to Provident Fund. The AO has disallowed the belated payment of Employees Contribution Provident Fund as noted in his assessment order at page 43 and disallowed sum of Rs.1,00,39,226/-. The ld.CIT(A) deleted the addition made by the AO by following certain judicial precedents, including the decision of Hon’ble Supreme Court in the case of CIT Vs. Vinay Cements reported in (2007) 213 CTR 268 (SC). The ld. D.R. referring to the subsequent decision of Hon’ble Supreme Court in the case of Checkmate Service P. Ltd. Vs. CIT, reported in (2022) 143 taxmann.com 178 (SC) wherein the issue has been decided in favour of the Revenue and held that belated payment of Employees Contribution to PF and ESI beyond the due dates specified under respective statue is not allowable as deduction under Section 36(1)(va) read with 43B, read with Section 2(24)(x) of the Income Tax Act, 1961.
We find that the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd (supra) has considered the issue and held that in case of belated payment of employee contribution to
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PF and ESI, beyond the due date specified under the respective Act, cannot be allowed as deduction under Section 36(1)(va) read with Section 2(24)(x) and this fact has been accepted by the Ld.A.R. for the assessee. However, the Ld.A.R. for the assessee referred to the due date for payment of PF Contribution and actual date of payment to the concerned authorities in light of subsequent amendment to the provisions of EPF Act, 1952 and the deletion of 5 days grace period provided earlier has been withdrawn from February, 2016 and thus, any contributions made before February, 2016 are allowed as deduction in case such contribution is paid within a grace period. He further referred to the payment considered by the Assessing Officer in Sl.Nos.1, 3, 4 and submitted that in respect of these three items, the appellant has made actual payment within the grace period and in respect of payment referred to in Sl.Nos.2 and 5, he himself admitted that the above two payments are even paid beyond grace period. We find that in case as claimed by the Ld.A.R. for the assessee, the assessee made payment on or before the grace period as provided in the respective statute, then the Assessing Officer may verify the claim of the assessee in light of relevant dates and in case, the AO find that the assessee has paid the amount within grace period, then disallowance should be deleted. Insofar as two payments, the assessee himself admitted that the above two payments are paid beyond the due date and thus, we reverse the findings of the ld.CIT(A) insofar as two items are concerned and addition made by the AO is upheld.
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In the result, the appeal filed by the Revenue is partly allowed. Order pronounced in the Open Court on 25th September, 2024.
Sd/- Sd/- Sd/- (PRAKASH CHAND YADAV) (MANJUNATHA G.) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 25.09.2024. TYNM/sps Sd/- Sd/- Sd/- Copy to: S.No Addresses 1 M/s. Megha Engineering & Infrastructure Ltd., P.No.S-2, TIE, Balanagar, Hyderabad – 500037. P.No.S-2, Technocraft Industrial Estate, Balanagar, Hyderabad. 2 The Assistant Commissioner of Income Tax, Central Circle – 2(1), Hyderabad. 3 Pr.CIT – (Central), Hyderabad. 4 DR, ITAT Hyderabad Benches 5 Guard File By Order
