ITO WD 3(1), THANE vs. NCC SMC UNITY JV, THANE

O R D E R PER BENCH: This appeal of the revenue is directed against the order of CIT(A) dated 4.8.2014 and it relates to the assessment years 2009-10. Only issue in this appeal of revenue is against the order of CIT(A) deleted 2. the disallowance of deduction made by the AO u/s 80IA of the Income Tax act, 1961 (the Act). In this appeal, the revenue has raised following three grounds :

2. The CIT(A)-II, Thane stated that on perusal of submission filed by the 2 6764/M/14 assessee and Hon'ble Bombay High Court decision in the case of CIT vs. ABG Heavy Industries(supra) that the issue is decided in the favour of the assessee. The para 4 of the said order was mentioned by CIT(A) in his order dated 04/08/2014. After going through the above mentioned court decision the CIT(A) stated that "in the view of the above discussion, we hold that the assessee is entitled for deduction under 80lA(4) and the appeal of the assessee for A.Y. 2007-08 related to the decision of larger Bench in the case of B.T. Patal & Sons Belgaum Construction Pvt. Ltd. The Ld. CIT(A) has held that the assessee is not entitled to get deduction u/s 80lA(4). It has already been pointed out that the Larger Bench decisions in the case of B.T. Pate I & Sons Belgaum Construction Pvt. Ltd. Is no more a good law and in the case of that assessee itself, Division Bench has held that the assessee is entitled for deduction u/s 80lA of the IT Act. We have already held that assessee is entitled for deduction u/s 80lA(4) in respect of A.Y. 2004-05 and 2005-06. The decision will be applicable for A.Y. 2007-08 in case of both the assessee. Therefore these appeals of the assesses are also allowed.". Hence the CIT(A)- II, Thane deleted the addition of Rs.1,21,49,869/- added by the AO on disallowance of claim u/s 80 IA( 4) of the assessee.

3. The Ld. CIT(A) erred in deleting the addition made u/s 80IA incorrectly. In the case of ABG Heavy industries Ltd. the venture was fully carried out the by assessee company and the present case the assessee merely a vendor as per terms of the contracts. The primary conditions which has to be fulfilled for claiming deduction u/s 80IA is that the assessee should be developer of an infrastructure facility. The assessee concerned with only laying pipelines of a specific length for water supply project and not any infrastructural development work.

3. Briefly stated facts are that the assessee is a joint venture between Nagarjuna Construction Co.Ltd, SMC Infrastructure Pvt Ltd and Unity Infrastructure Project engaged in the business of civil construction for infrastructure projects. The AO disallowed the deduction claimed by the assessee u/s 80IA of the assessee company for the reasons that the assessee is merely executed „work of contract‟ and the benefit to work contract u/s 80IA is not 3 6764/M/14 available. The CIT(A) after considering the issue allowed the claim of the assessee relying on the decision of the Mumbai Bench of the Tribunal in assessee‟s own case in (AY-2008-09) dated 25.6.2014. Aggrieved by the order of CIT(A) the revenue is in second appeal before the Tribunal.

“10. We have heard both the parties and their contentions have carefully been considered. We have carefully gone through the assessment order for A.Y 2004-05 which is the base year for which the assessee is claiming that it is entitled to get deduction under section 80 IA(4). The first and foremost objections of the AO is that assessee, while executing the project, had acted in the capacity of a contractor, therefore, the deduction cannot be allowed to the assessee as pre-requisite of the section to enable the assessee to claim deduction is that he should be a developer.

10.1 The second contention of AO is that assessee has only built some part of the project and it has neither operated or maintained the infrastructure project which is also a condition precedent to 4 6764/M/14 grant deduction under section 80 IA(4). The AO has rejected the contention of the assessee that its case is squarely covered by decision of ITAT in the case of Patel Engineering Ltd. (supra). As against such case of the AO Ld. CIT(A) has followed mainly the decision of ITAT in the case of Patel Engineering Ltd. (supra) and has allowed relief to the assessee. We have to examine that whether or not assessee is entitled to get deduction under section 80 IA(4) in the light of aforementioned objection of the AO and plea of the assessee. It is the case of the assessee that AO has committed an error in holding that assessee has acted as a contractor in place of the claim of the assessee that it has worked as a developer of the infrastructure project. For raising such contention the assessee has placed reliance not only on the decision in the case of Patel Engineering Ltd. (supra) but also on the decision of Hon‟ble Bombay High Court in the case of ABG Heavy Industries Ltd. (supra). It may be mentioned here that AO has passed the impugned assessment order for A.Y 2004-05 on 31/3/2006 when the benefit of decision of Hon‟ble Bombay High Court in the case of CIT v/s ABG Heavy Industries Ltd. was not available. The assessee in that case did not develop, operate or maintain the entire port but only part of the function of the port was developed and maintained by the assessee. Ld. AO in that case was of the view that the assessee merely engaged in the business of supplying, installing, testing, commissioning and maintaining cranes at the port and was not in the business of developing , maintaining and operating of port. This contention of the assessee is also recorded in para -7 of the decision which has already been reproduced in the above part of this order. (para-7).

10.2 While adjudicating the aforementioned contention of the Revenue , their Lordships in para-16 have observed that such submission cannot be accepted. The expression “development” has not been artificially defined for the purpose of section 80 IA(4) of the Act must, therefore, received its ordinary and natural meaning. Under the terms of the contract between the assessee and JNPT the assessee undertook an obligation to supply, installing, testing, commissioning and maintenance of container handling equipments namely the cranes in question. Their Lordships in para-17 have observed that the obligations which have been assumed by the assessee under the terms of the contract are obligations involving 5 6764/M/14 the development of an infrastructure facility. Section 80 IA(4) of the Act essentially contemplated a deduction in a situation where an enterprise carried on a business of developing, maintaining and operating infrastructure facility. A port was defined to include within the purview of the expression “infrastructure facility”. The obligations, which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes but involved a continuous obligation from the supply of the cranes to the installation, testing, commissioning, operation and maintenance of cranes for a term of 10 years, after which the cranes were to vest in JNPT free of cost. The assessee did not have to develop the entire port in order to qualify for deduction under section 80 IA(4). Parliament did not legislate a condition impossible of compliance. 10.3 If the facts of the present case are to be examined in the light of aforementioned decision of Hon‟ble Bombay High Court, then it can be said that for claiming deduction under section 80 IA(4), it is not necessary for the assessee to develop the entire project in order to qualify for a deduction under section 80 IA(4). If the provisions are so construed then it will be a condition impossible of compliance because of the magnitude of the entire project. For qualifying deduction under section 80 IA(4) what would be necessary will be that the work carried on by the assessee must be an integral part of the project and if it is so, then it cannot be said that assessee is not eligible for deduction under section 80 IA(4) for the reason that the assessee on its own did not develop an infrastructure project. Therefore, observations of the AO that assessee did not develop an infrastructure project and only part of the work was carried out cannot disentitle the assessee to claim the deduction. 10.4. The nature of works carried out by the assessee regarding the project have been stated in para-4 of the assessment order for A.Y.2004-05. It interalia include manufacturing , supplying , lowering, laying, jointing, testing and commissioning of 2200 mm diameter MS Pumping Main with cement mortar. In-lining & out- coating from clear water reservoir at Godakondala to MBR at Gungal and similar activities were carried out in respect of other places which have been specified by the AO. The activity of the assessee is not limited only to construction of the project but as per the tender the assessee had to submit bank guarantee for completion of the 6 6764/M/14 contract and as per clause-88 of the contract the assessee is also liable for liquidated damages and the maximum amount for penalty has been prescribed which is not to exceed 5% of the contract value. There is also description of defect liability period in clause-89 which is the liability of the assessee under the contract for 24 months from the date of successful completion of the work and taken over by Visakhapatnam Municipal Corporation. Keeping in view the entirety of facts and aforementioned decision of Hon‟ble Bombay High Court, it cannot be said that assessee did not act in the capacity of developer and it has already been mentioned that to be entitled to claim deduction under section 80 IA(4) it is not necessary that entire infrastructure project should be developed by the assessee. 10.5 Now the next question will be that whether to claim deduction under section 80 IA(4) it is necessary for an assessee not only to develop the project but also to operate and maintain the infrastructure facility. This issue is also no more res-integra and is covered by the aforementioned decision of Hon‟ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd. (supra). In that case it was the contention of the Revenue that for assessment year 1997- 98 and 1998-99, it was necessary for the assessee to cumulatively fulfill the requirement of developing, operating and maintaining infrastructure facility. It was pleaded by the Revenue that, even if it be held to have developed the facility it cannot be regarded as operating the facility. Their Lordships have referred to such contention of Revenue in para-19 of the decision and they observed that it is not possible to accept such submissions. Their Lordships have observed that it has already been noted that assessee had as a matter of fact developed the facility. Their Lordships after considering the provisions and various circulars of CBDT and also the judicial pronouncements have concluded in para- 22 of the decision that after section 80IA was amended by Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfills certain conditions. For the sake of completeness para- 22 & 23 of the decision is reproduced below:

7 6764/M/14 “22. 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 1-4-1995. The same requirement is embodied in sub-clause (c) of clause (i) of sub- section (4) of the amended provisions of section 80-IA. On this basis, it was urged that since the assessee was not operating and maintaining the facility, he did not fulfill the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this judgment. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1- 4- 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1-4-199.. 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 1-4-1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1- 4-1995 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 reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after 1-4- 1995. In the present case, the assessee clearly fulfilled this condition( emphasis ours).

10.6 According to aforementioned observations of their Lordships, pre or post amendment the requirement of section 80 IA(4) is that deduction will be available an enterprise engaged in (i) developing; or (ii) operating and maintaining or (iii) developing, operating and maintaining the infrastructure facility and such position was to be always construe to hold the field. Therefore, only development of infrastructure project is sufficient to make entitle an enterprise to be eligible for deduction under section 80 IA(4). 10.7 It may also be pointed out that the appeal filed by the Revenue for A.Y 2004-05 was earlier allowed by the Tribunal on the basis of Larger Bench decision in the case of M/s. B.T.Patel & Sons Belgaum Construction Pvt. Ltd.(supra) and it was brought to our notice that in view of the subsequent decision of Hon‟ble Bombay High Court, Larger Bench decision was not followed by the Tribunal and the matter was decided by the Tribunal vide its order dated 28/2/2013 in the case of B.T.Patel & Sons Belgaun Construction Pvt. Ltd.(supra), a copy of this decision was placed on our record. The directions of Hon‟ble Bombay High Court in pursuance to which such order was passed are also described in the order in para-5 and the relevant para -5 is reproduced below: 5. The Hon‟ble Bombay High Court permitted the Counsel of the assessee to with withdraw the said appeals. While passing the order the Hon‟ble Court has kept all the contentions open and further directed the Tribunal to consider the decision of the ABG Heavy Industries and other decisions while passing their order giving effect to the opinion of the Third Member as per the provisions of section 9 6764/M/14 255(4) of the Act. The relevant portion of the said order of Hon‟ble Jurisdictional High Court in of 2011 for a.Y.2000-01 and 1640 of 2011 for A.Y 2001-02 is as under: “1. Since the Tribunal has recalled the impugned order dated 23.03.2011, the appellant is withdrawing its appeal.

10.8 In the order the Tribunal after considering the decision of Hon‟ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd. (supra) has decided the issue in favour of assessee. While deciding the present appeal vide order dated 9/2/2010 it was found by the Tribunal that both sides were in agreement that the facts and circumstances are mutatismutantis similar to those considered by the Larger Bench of the Tribunal in the case of B.T.Patel & Sons Belgaun Construction Pvt. Ltd.(supra). The said order of the Tribunal was recalled only for the reason that the Larger Bench decision in the case of M/s. B.T.Patel & Sons Belgaum Construction Pvt. Ltd.(supra) was no more good law in view of subsequent decision of Hon‟ble Bombay High Court in the case of CIT vs. ABG Heavy Industries (supra). The order in the case of present assessee was not recalled for the reason that there is any difference in the facts and circumstances of the present case and the decision in the case of B.T.Patel & Sons Belgaun Construction Pvt. Ltd.(supra). Now the decision of Larger Bench is no more good law and the Division Bench of the Tribunal in the case of B.T.Patel & Sons Belgaun Construction Pvt. Ltd.(supra) has decided this issue in favour of the assessee following the decision of Hon‟ble Bombay High Court in the case of ABG Heavy Industries Ltd. (supra). Para -4 of the said order is reproduced below: “14. In this background, the assessee could certainly claim the deductions under the provision of Section 80 IA. One has to see the substance and not the Form Essentially, though it was a Joint Venture, it was converted into assessee‟s venture. The Other Venturer withdraw and the entire work was executed by the 10 6764/M/14 assessee though in the name of Joint Venture. The Joint Venture is nothing but the venture of the assessee company and the other person not being a party after drawing the question of Joint Venture does not arise. The Venture was fully carried out by the assessee company. Taking the substance of the transaction, the assessee are entitled to all the profits in respect of the contract executed by them, hence the assessee would certainly be entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions. This view get from decision in the case of ITAT, Indore Bench, in case of Ayush Ajay Constructions Ltd. (supra). Thus, while giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ration of Jurisdictional High Court in the case of ABG Industries Ltd. (supra), the Assessing Officer is direct to allow deduction u/s. 80 IA of the Act to the assessee with regard to the projects in question for both the years. This matter is disposed off accordingly.” Therefore, also the issue is covered in favour of the assessee by the aforementioned decision of Co-ordinate Bench. 10.9 In view of above discussion, we hold that assessee is entitled for deduction under section 80 IA(4) and Departmental appeal for A.Y 2004- 05 and 2005-06 are dismissed.

11 6764/M/14 We find that this issue is now covered by the order of this Tribunal in assessee‟s 5. own case for assessment year 2008-09 in dated 25.6.2014 wherein assessee‟s own case for assessment year 2007-08 was followed by tribunal dated 20.6.2014 in ITA No.7885/Mum/2010. Respectfully following the Tribunal‟s order, we dismiss the appeal of revenue.