ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1) AHMEDABAD, AHMEDABAD vs. RAJKAMAL BUILDERS INFRASTRUCTURE PRIVATE LIMITED, AHMEDABAD

आयकर अपीलीय अिधकरण, अहमदाबाद "ायपीठ “ए“, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ A ” BENCH, AHMEDABAD सु"ी सुिच"ा का"ले, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / 1467/Ahd/2024 िनधा"रण वष" /Assessment Years : 2017-18 & 2018-19 respectively The ACIT Rajkamal Builders बनाम/ Circle-3(1)(1) Infrastrucutre Pvt.Ltd. v/s. Ahmedabad – 380 015 54, Park Hill Nr.Heaven Park Ramdevnagar, Ahmedabad (Gujarat) – 380 015 "थायी लेखा सं./PAN: AABCR 0326 A अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Mehul K. Patel, AR Revenue by : Shri Ritesh Parmar, CIT-DR सुनवाई की तारीख/Date of Hearing : 25/10/2024 घोषणा की तारीख /Date of Pronouncement: /10/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:

These two appeals filed by the Revenue are directed against the separate orders of the Commissioner of Income Tax (Appeals), NFAC Delhi, [hereinafter referred to as “CIT(A)”] both dated 17/06/2024, for the Assessment Year (AY) 2017-18 and AY 2018-19, wherein the CIT(A) allowed the assessee’s claim for deduction under Section 80IA(4) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]. The Assessing Officer [hereinafter referred to as “AO”], in his orders under Section 143(3), dated & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 2 27/11/2019 (for AY 2017-18) and 21/04/2021 (for AY 2018-19), had disallowed the assessee’s claim. Since the facts and circumstances of both the assessment years are identical, involving the same nature of projects and disallowance by the AO, these appeals are being disposed of together by this common order for the sake of convenience.

Facts of the case:

Particulars AY 2017-18 AY 2018-19 Date of Order (AO) 27/11/2019 21/04/2021 Section under which 143(3) 143(3) read with AO's order was Section 144B passed Date of Filing ITR 01/11/2017 31/10/2018 Returned Income Rs.7,36,99,490/- Rs.13,45,84,200/- Deduction Claimed Rs.5,03,55,641/- Rs.8,17,69,563/- under Section 80IA Disallowance under Rs.5,03,55,641/- Rs.8,17,69,563/- Section 80IA (AO) Including Set of losses claimed for Rs. 49,39,271/- & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively Other Disallowances 1. PF Contribution: Double Disallowance (AO) Rs.3,06,690/- of PF: Rs.16,78,098/- 2. Interest on Refunds: Rs.7,08,170/- Assessed Income Rs.12,50,69,991/- Rs.21,80,31,863/- (AO) CIT(A) Decision on Allowed in favor of the Allowed in favor of the Section 80IA assessee assessee CIT(A) Decision on Upheld PF Directed AO to rectify Other Disallowances Contribution double PF disallowance Disallowance of Rs.3,06,690/- Final Decision of Partly Allowed Partly Allowed CIT(A)

In – A.Y. 2018-19 a. The Ld. CIT(A) has erred in law and on facts in justifying that the nature of business of the assessee is of "Developer" and allowing claim of deduction u/s. 80IA of the IT Act? & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 4 b. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of deduction claimed u/s. 80IAof the Act of Rs.8,17,69,563/- and not considering the findings of the AO? c. The appellant craves leave to add, alter and /or to amend all or any the ground before the final hearing of the appeal.

5.1. The AO concluded that the assessee was operating as a works contractor rather than a developer. According to the AO, the projects executed by the assessee involved contracts awarded by government & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively authorities for the construction of roads, irrigation systems, and other infrastructure projects. These were considered civil construction contracts, and the AO believed that the assessee did not qualify for the Section 80IA of the Act deduction based on its role as a contractor. The AO heavily relied on the Explanation added to Section 80IA(13) of the Act by the Finance (No. 2) Act, 2009, with retrospective effect from 01.04.2000. This explanation clarified that entities engaged in works contracts awarded by the government or other authorities were not eligible for deductions under Section 80IA of the Act. The AO interpreted this provision to mean that the assessee, being a contractor, was not entitled to the deduction.

5.2. The CIT(A) observed that the facts and issues pertaining to the assessee’s claim for deduction under Section 80IA of the Act for the year under consideration are identical to those in AY 2016-17, where the same sites were involved, and no new sites were introduced during the current year. The CIT(A) carefully reviewed the facts and details on record and noted that they are akin to the material considered in AY 2016-17. The CIT(A) relied upon the decision of this bench in assessee’s own case in and others (ITA NO. 2202/Ahd/2015 for A.Y. 2016-17), dated 13.05.2022, which allowed the deduction under Section 80IA of the Act on similar grounds. The CIT(A) relied on this binding decision and referenced the Order Giving Effect (OGE) dated 31.01.2023, where the AO gave effect to the ITAT's decision for AY 2016-17. Given the similarity of facts and the absence of any contrary orders, the CIT(A) followed the precedent set by the ITAT and held that the assessee's claim for deduction under Section 80IA of the Act for the current year should also be allowed. & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 6 5.3. We have gone through the order(s) of the AO and the CIT(A) and noted that the details of deduction claimed by the assessee for A.Y. 2017-18 u/s. 80IA of the Act are as follows: No. Name of Work/Site Contract Awarding Authority 1 50 MLD WTP Dhodka Site Ex. Engr. (Water Works Project), Work Vadodara Mahanagar Seva Sadan 2 Baroda Site Ring Road Work Ex. Engr. R&B Dept. Vadodara 3 Gajarwadi Sewage Treatment Ex. Engr. Mahanagar Seva Sadan, Plant Vadodara 4 Hirabaug BRTS Road Site Addl. City Engr., Surat Municipal Corporation 5 Motera Sewage Pumping Spl. City Engr., Ahmedabad Station Municipal Corporation 6 Rajkot STP 56 MLD Addl. City Engr., Rajkot Municipal Corporation 7 Rajkot STP 70 MLD Gauridad Addl. City Engr., Rajkot Municipal Corporation 8 Shashtri Bridge Baroda Work Ex. Engr. (Bridge Project), Vadodara 9 STP Gandhinagar Work Ex. Engr., Patnagar Yojana Vibhag-3, Gandhinagar 10 43 MLD Sewage Treatment Ex. Engr. (JANURM), Vadodara Plant, Kapurai 11 STP Patan 25 MLD Gujarat Urban Development Co. Ltd. 12 Uttkal Nagar Bridge Work Addl. City Engr., Surat Municipal Corporation 13 Viramgam Nilki Railway Ex. Engr., R&B Division, Crossing Bridge Work Ahmedabad 5.4. More particularly, we note that the assessee has submitted before CIT(A) a comparative statement of deduction claimed u/s 80IA of the Act for A.Y. 2017-18 which is reproduced here for the sake of clarity and record:

ITA Nos.1466 & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 7 No. Name of Site Amount U/s Amount U/s Amount 80IA 80IA Claimed by Allowed by Allowed by the ITAT (AY ITAT (AY Appellant 2015-16) (Rs.) 2016-17) (Rs.) (AY 2017-18) (Rs.) 1 50MLD WTP Dhodka 1,53,85,543 1,32,95,141 -57,158 Site Work 2 Akota Bridge Site 49,84,301 -5,428 - Work 3 Akota Road Site Work 66,58,384 -32,193 - 4 Baroda Site Ring -1,24,288 - -1,21,334 Road Work 5 BRTS Surat Road 2,49,47 ,987 -2,72,900 - Project 6 Delhi gate over bridge -62,07,067 - - at Surat 7 Gajarawadi Sewage - - 1,05,151 Treatment Plant 8 Hirabaug BRTS Road 1,05,52,636 87,21,143 67,85,948 site 9 IPCL Fly over bridge - -2,30,341 - 10 Motera Sewage -2,30,331 -20,29,881 -30,90,841 Pumping Station 11 Rajkot STP 56MLD -98,224 1,19,72,185 3,49,17,888 Raiyadhar 12 Rajkot STP 70MLD -3,43,73,125 -10,08,958 - Guaridad 13 Shashtri Bridge - 42,36,469 16,74,160 Baroda Work 14 Soma Talav Over -2,62,142 -4,839 - Bridge Approach Road 15 STP Gandhinagar - -1,65,909 - work 16 43 MLD Sewage 26,84,292 -12,26,408 - Treatment Plant, Kapurai 17 STP Patan 25 MLD 1,03,46,440 24,37,565 21,49,328 & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 18 STP Vasana 106 MLD 7,75,084 -1,75,852 - 19 Utkal Nagar Bridge 73,78,060 6,22,475 -16,69,938 Work 20 Viramgam Nikli - - 47,23,167 Railway Crossing Bridge Work 21 Pratapnagar Over -27,765 - - Bridge TOTAL 80IA 8,90,88,333 5,31,52,885 5,03,55,641 CLAIMED 5.5. During the course of hearing before us, similar comparative statement for the A.Y. 2018-19 was also submitted which is also reproduced here for the sake of clarity and record:

No. Name of Site Amount U/s Amount U/s Amount 80IA Allowed 80IA Claimed by by ITAT (AY Allowed by the 2015-16) (Rs.) ITAT (AY Appellant 2016-17) (AY 2018- (Rs.) 19) (Rs.) 1 50MLD WTP Dhodka 1,53,85,543 1,32,95,141 43,28,934 Site Work 2 Akota Bridge Site 49,84,301 -5,428 - Work 3 Akota Road Site Work 66,58,434 -32,193 - 4 Baroda Site Ring Road -1,24,288 - - Work 5 BRTS Surat Road 2,49,47,987 -2,72,900 - Project 6 Delhi Gate Over -62,07,607 - - Bridge at Surat 7 Gajarawadi Sewage - - - Treatment Plant 8 Hirabaug BRTS Road 1,05,52,636 87,21,143 24,44,926 Site 9 IPCL Fly Over Bridge 53,75,614 62,61,908 - & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 10 Motera Sewage -2,30,331 -20,29,281 - Pumping Station 11 Rajkot STP 56MLD -98,224 1,19,72,185 4,02,32,222 Raiyadhar 12 Rajkot STP 70MLD -3,43,73,125 -10,08,958 2,10,88,301 Guaridad 13 Shashtri Bridge 42,36,469 - 3,80,260 Baroda Work 14 Soma Talav Over -2,62,142 -4,839 - Bridge Approach Road 15 STP Gandhinagar - -1,65,909 34,68,938 Work 16 43 MLD Sewage 26,84,292 -12,26,408 35,94,588 Treatment Plant, Kapurai 17 STP Patan 25 MLD 1,03,46,440 24,37,565 32,15,468 18 STP Vasana 106 MLD 7,75,024 -1,75,858 - 19 Utkal Nagar Bridge 73,78,060 62,28,475 30,15,926 Work 20 Viramgam Nikli - - - Railway Crossing Bridge Work 21 Pratapnagar Over -27,765 - - Bridge TOTAL 80IA 8,90,88,333 5,31,52,885 8,17,69,563 CLAIMED 5.6. We also note the findings of the co-ordinate bench in assessee’s own case of earlier years where it was found that the assessee took significant financial and operational risks, including arranging for its own finance, purchasing materials, deploying its own manpower, and handling the entire scope of infrastructure development projects, which goes beyond the role of a mere works contractor. The Co-ordinate Bench relied on the ruling in the case of Radhe Developers v. CIT [(2012) 341 ITR 403 (Guj)], which clarified that ITA Nos.1466 & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively a developer's eligibility for deductions under Section 80IA of the Act should not depend on whether they own the land or are merely executing a contract. The critical factor is the assumption of risks and responsibilities, which in this case was demonstrated by the assessee. It was observed that the assessee undertook full responsibility for the infrastructure projects, including financing, technical planning, and execution. It arranged for necessary materials, deployed labour, and even provided safety measures at the sites. This level of responsibility and financial involvement qualified the assessee as a developer.

5.7. From the tables above, it is evident that the nature of the projects for which deductions under section 80IA of the Act were claimed in the earlier years (AY 2015-16 and AY 2016-17) remains consistent with the projects claimed in AY 2017-18 and AY 2018-19. The sites for which deductions were allowed previously are largely the same, demonstrating a pattern in the type of infrastructure and public utility projects, such as sewage treatment plants, road projects, and bridges, for which the assessee continues to claim deductions. This consistency supports the contention that the assessee is claiming deductions for similar types of eligible infrastructure projects, indicating adherence to the criteria under section 80IA of the Act across multiple assessment years.

5.8. The Co-ordinate Bench also dealt with the Explanation to Section 80IA(13) of the Act. The Explanation to Section 80IA(13) of the Act, introduced by the Finance Act, 2009, aimed to disallow deductions for entities executing works contracts. The AO had invoked this provision to deny the deduction. However, the Co-ordinate Bench found that this explanation was & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively inapplicable because the assessee was not merely a contractor, but a developer undertaking comprehensive projects with financial and technical responsibilities. The Co-ordinate Bench concluded that the explanation was not intended to exclude entities like the assessee that undertook the entire development of infrastructure facilities.

5.9. We also note that the Hon’ble Jurisdictional High Court in case of The PCIT (Central), Ahmedabad vs. Montecarlo Construction Ltd. (Tax Appeal No. 786 of 2023) has dismissed the appeal of Revenue. While dismissing the appeal of Revenue the Hon’ble High Court reiterated that the critical distinction between a developer and a works contractor lies in the nature of responsibilities and risks undertaken by the entity. The court emphasized that an entity acting as a developer assumes both managerial and financial risks in the project, including aspects such as design, procurement, and execution, as well as bearing responsibility for timely completion and operational management of the infrastructure. The Hon’ble Court upheld the Tribunal’s findings that Montecarlo Construction Ltd. took on substantial financial risks for the development of infrastructure facilities, including arranging finances, purchasing materials, managing labor, and ensuring project execution. The responsibility for mobilization of resources and project financing was a key factor in distinguishing the assessee as a developer. The court clarified that even if the projects were funded by the Government through periodic payments, the overall responsibility and risk borne by the assessee in managing the project qualified it as a developer under Section 80IA(4) of the Act. The Hon’ble High Court also relied on judicial precedents, particularly the judgements in the case of Radhe Developers v. CIT [(2012) 341 ITR 403 (Guj)] and ABG Heavy Industries Ltd. v. CIT [(2010) 189 & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 12 Taxmann 54 (Bom HC)], which held that entities engaged in comprehensive infrastructure development can claim deductions under Section 80IA(4) of the Act, even if they are labelled as contractors in agreements. The key criterion is the assumption of financial and operational risks. The Hon’ble High Court also ruled the inapplicability of Explanation to Section 80IA(13) of the Act stating that this explanation did not apply in this case, as the assessee's activities went beyond merely executing a works contract and the assessee was involved in the comprehensive development of infrastructure, including the design, construction, and management of the projects, and thus could not be classified as a works contractor.

5.10. Given the consistent judicial pronouncements, including the Gujarat High Court's rulings in Radhe Developers and Montecarlo Construction, and the reliance on the decision of the Co-ordinate Bench of the ITAT, we find no reason to interfere with the decision of the CIT(A). The assessee’s activities and responsibilities clearly establish it as a developer, and the deduction under Section 80IA(4) of the Actwas rightly allowed by the CIT(A). Accordingly, the appeal of the Revenue is dismissed, and the order of the CIT(A) is upheld.

6.1. The assessee argued that the overall computation of profits and losses for the infrastructure units was done in accordance with the provisions of the Income Tax Act, and the set-off of losses was factored into the gross total income before claiming the deduction under Section 80IA of the Act. The assessee emphasized that the losses were from certain specific projects, but the total profits from the infrastructure business were positive, justifying the deduction under Section 80IA of the Act without any further adjustment.

6.2. The CIT(A) examined the details of the losses and concluded that the computation of profits and losses from the infrastructure facilities was correct. The CIT(A) was satisfied that the assessee had already accounted for the set-off of losses in the calculation of its gross total income. The CIT(A) relied on the decision of the Co-ordinate Bench in assessee’s own case of earlier year. The Co-ordinate Bench relied on the judicial precedent set by the Supreme Court in the case of Synco Industries Ltd. v. Assessing Officer [(2008) 299 ITR 444 (SC)], where it was held that losses must indeed be set off against profits when computing the deduction under Section 80A(2) of the & 1467/Ahd/2024 ACIT vs. Rajkamal Builders Infrastructure Pvt.Ltd. Asst. Years : 2017-18 & 2018-19 respectively 14 Act. Since the overall profits remained positive even after adjusting for these losses, the CIT(A) held that the deduction under Section 80IA of the Act was allowable in full.

6.2. In light of the above analysis and the fact that the assessee has appropriately set off the losses as per the requirements of Section 80A(2) of the Act, we find no reason to interfere with the findings of the CIT(A). The deduction under Section 80IA of the Act was correctly allowed in full, after adjusting for the losses from loss-making units. Therefore, Ground (c) raised by the Revenue is dismissed, and the decision of the CIT(A) is upheld.