DCIT CC- 1(3), AAYKAR BHAWAN vs. MONTECARLO LIMITED, MONTECARLO HOUSE, SINDHU BHAWA

आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

Asst. Year 2018-19 is taken as the lead case. Brief facts of the case are that the assessee, is a private limited company, engaged in the business of development of infrastructure facilities namely development of Roads, Bridges, Irrigation canals, etc. For the Asst. Year 2018-19 assessee filed its return of income on 30-09-2018 declaring total income of Rs.11,14,19,610/- after claiming the deduction u/s 80IA(4) of the Act for an amount of Rs.153,66,29,467/-. The infrastructure developments carried out by the assessee from 8 Road projects, 4 Canal irrigation projects and 1 water supply project were commenced from the earlier assessment years itself. The past history in respect of claim made by the assessee u/s. 80IA(4) of the Act and decision of various authorities are as follows:

Assessment Assessing CIT(A) ITAT Final Remark Year Officer A.Y. 2016-17 Allowed by Not Applicable Not Applicable Allowed by Assessing Assessing Officer Officer

A.Y. 2015-16 Not claimed on account of carrying forward Not Applicable cumulative losses u/s 80IA(4)

A.Y. 2014-15 Not claimed on account of carrying forward Not Applicable cumulative losses u/s 80IA(4)

A.Y. 2013-14 Disallowed Fully Allowed Dismissed on Allowed by account of low CIT(A) tax effect

A.Y. 2012-13 Not claimed on Not Applicable account of carrying forwa rd cumulative losses u/s 80IA & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 3 DCIT Vs Montecarlo Constructjion Ltd.

A.Y. 2011-12 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2010-11 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2009-10 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2008-09 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2007-08 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2006-07 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2005-06 Disallowed Fully allowed Pending Allowed by CIT(A) A.Y. 2004-05 Disallowed Fully allowed Pending Allowed by CIT(A)

2.1. However, during the assessment proceedings, the AO observed that the assessee has not fulfilled the criteria of claiming the deduction specified u/s.80IA(4) of the Act and accordingly held that the assessee company has not derived any income from developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. The assessee company has only derived income as per contract receipt and is not a developer but a ‘works contractors’, as per explanation inserted to section 80IA(13) of the Act, consequently the assessee is not eligible for deduction u/s 80IA(4) of the Act. Thus the AO denied the deduction claimed by the assessee u/s. 80IA(4) of the Act and added to the total income of the assessee.

“7.4 It is observed that the projects on which appellant has claimed deduction u/s 80IA(4) in current year was projects in AY 2017-18 and such claim was allowed by CIT(A). The AO has not brought any change in facts in year under consideration with that of A.Y.2017- 18. It is observed that ld CIT(A) while allowing claim of deduction u/s 80IA(4) has held appellant as developer of infrastructure facilities and is not a work contractor and therefore is eligible for the benefit of the deduction u/s 80IA(4). Considering detailed finding made in preceding paras in appellant's own case, it is held that appellant company is eligible and entitled for claim of deduction u/s.80IA(4) of the Act. The AO is directed to allow the claim u/s 80IA(4) as made in the return of income for the year under appeal. The disallowance made by AO for Rs1,53,66,29,467/- is deleted subject to observation made herein below. The related grounds of appeal are allowed.”

4. Aggrieved against the appellate order Revenue is in appeal before us raising the following Grounds of Appeal:

“1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the deduction us 801A(4) of the Act for an amount of Rs. 153,66,29,467/- which violates the explanation below section (13) to Section 801A as the assessee has worked as a contractor not developer.

1.1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that after the amended provisions of the section 80-IA, a person who enters into a contract will not be eligible for the tax benefit w/s 80-IA of the Act

1.2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that the company is not in the business of development of the Infrastructure project but is merely executing the various well-defined civil construction & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 5 DCIT Vs Montecarlo Constructjion Ltd. activities as per the specifications, designs and plans provided by the developers of the infrastructure project.

3. In the facts and circumstances of the case, Ld. CIT(A) erred in deleting the disallowance of Rs.37,28,56,145/- on account of loss claimed by assessee with respect to Singhara Project.

4. In the facts and circumstances of the case, Ld. CIT(A) erred in deleting the disallowance of Rs.50,28,970/- made u/s.35AD of the Act, with respect to Gorakhpur Road Project.

5. In the facts and circumstances of the case, Ld. CIT(A) erred in deleting the disallowance of Rs.3,98,872/- u/s. 40(a) (la) of the Act with respect to Kota Project.”

“3.5. The Revenue being aggrieved by the order of the CIT (Appeal) preferred the appeal before the Tribunal contending that the income derived from the use of infrastructure facility developed by the assessee is only eligible for reduction under Section 80IA(4) of the Act but in the facts of the case, the contract work was awarded to the assessee through the biding process where the lowest contract value was quoted by the assessee after considering the element of profit. It was therefore contended that the assessee was acting as a works contractor and income was derived by way of developing the infrastructure facility and not from the use of development facility.

3.6. It was further contended before the Tribunal that the purpose of the deduction under Section 80IA(4) of the Act was that the private players of the parties will bring the investment for the development of the infrastructure facility and later on the facility will be exploited for generating the income which is only eligible for the purpose of deduction under Section 80IA(4) of the Act. It was therefore contended that for the such purpose, various concepts has Built, Own Operate and Transfer (BOOT) and Built, Own, Lease and Transfer (BOLT) and Built, Operate and Transfer (BOT) was introduced. It was therefore submitted that no initial investment made by the assessee in the projects and the projects were funded by the employer. It was also pointed out that the assessee made investment which are in the nature of earnest money, performance & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 7 DCIT Vs Montecarlo Constructjion Ltd. guarantee and mobilization advance but such concepts are also applicable in case of the works contract.

3.7. The Tribunal after considering the submissions of the assessee and after analysing the facts of the case arrived at the following conclusion:

“11.16 On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. As such, the assessee was to make detailed drawings, design calculations/fabrication etc. at its own cost. Further, the assessee is also responsible for arranging methods of the execution of work along with detailed drawings, sketches, furnishing the details of sufficient plants, equipment, and labor. The assessee has to arrange the land for a temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. The assessee was duty bound to protect the environment on and off the staff site and avoid the damage or nuisance etc. to the persons or to the property of the public. The assessee was to maintain at its own cost sufficient experienced supervisory staff required for the work and arrangement of their housing. The assessee was to have the field laboratory for the purpose of testing materials. The assessee has to arrange electric power and water supply. The assessee was also under the obligation to provide traffic safety arrangements like sign board, speed limit speed breakers, diversion board, etc. Besides the above, the assessee was to pay the liquidated damages in case of delay in the completion of project and other defaults.

11.17 The purpose for which the provisions of section 80IA(4) were brought under the statute were achieved in the given facts and circumstances. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the tender document as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the employer and indemnify at the same time for any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose, the MPRDCL retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of a defect, if any. Thus, it cannot be said that the & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 8 DCIT Vs Montecarlo Constructjion Ltd. assessee had not taken any risk in the given facts and circumstances especially when the assessee has undertaken the project as a whole for the development of the road right from the beginning till the end. Thus, on perusal of the terms and conditions in the tender documents furnished by the assessee, it is clear that the assessee was not a works contractor simply but a developer and hence, the explanation to section 80- IA(13) does not apply to the assessee.”

3.8. The Tribunal also dealt with the contention raised on behalf of the Revenue with regard to the issue of award of contract by the MPRDCL, a nodal agency being wholly owned undertaking of the Government of Madhya Pradesh as such contention was raised that the assessee was only awarded the works contract and therefore no development was undertaken by the assessee. The Tribunal observed as under:

“11.25. The next aspect of the case is that the impugned project for the road development as discussed above was awarded by the MPRDCL- a nodal agency being a wholly owned undertaking of the Government of Madhya Pradesh. MPRDCL in its books of accounts will not record the payment made to the assessee in the form of expenses. It is because MPRDCL against such expenditure has not shown any income. It also appears that MPRDCL is not claiming any deduction under section 80IA(4) of the Act. At the time of hearing, a question was raised to the learned DR but he failed to provide any information with respect to the deduction claimed by MADC u/s 801A(4) of the Act. Thus, the question arises who will claim the deduction under section 80IA(4) of the Act. As such, we are of the view that the provisions of section 80IA(4) should not be read in a way to make it redundant or irrelevant. Accordingly, we are inclined to grant the benefit to the assessee under the provisions of section 80IA(4) of the Act.”

3.9. With regard to the contention raised by the Revenue to the effect that the explanation to below Subsection 13 of Section 80IA of the Act is applicable and in response to such contention, the Tribunal analysed the scope of the explanation to below Subsection 13 of Section 80IA of the Act as under:

“11.6. Subsequently, an Explanation to section 80-IA of the Act was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but the same was made applicable with & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 9 DCIT Vs Montecarlo Constructjion Ltd. retrospective effect i.e. 1-4-2000. This explanation denies the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. At this juncture, it is pertinent to refer the provisions of the Explanation attached below section 80- IA(13) of the Act as reproduced below:

"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1)."”

3.10. Thus there are concurrent findings of fact arrived at by the CIT (Appeal) as well as the Tribunal that the assessee has undertaken the development of infrastructure facility and is eligible to claim the deduction under Section 80IA(4) of the Act.

3.11. Section 80IA of the Act provides for deduction from the gross total income of the assessee which includes any profit and gains derived by an undertaking or an enterprise from any business referred to in Subsection 4 of the Act as eligible business by providing deduction of an amount equal to the 100% of the profit and gains derived from such business for 10 consecutive assessment years. Subsection 4 of Section 80IA of the Act reads as under:-

“(4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :—

(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 10 DCIT Vs Montecarlo Constructjion Ltd.

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:”

3.12. Explanation below Subsection 13 of Section 80IA of the Act was introduced by the Finance (No.2) of the Act, 2009 with effect from 01.04.2000, reads as under:

"[Explanation. For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).]"

Both the explanations basically emphasizes on the non allowability of deduction u/s 801A(4) to an enterprise merely executing "works contract" awarded by what so ever person including the Central or State Government. Accordingly any person who executes the Infrastructure l'acility related work in capacity of a "Developer" shall only be allowed deduction u/s 801A(4) of the Act.

Therefore, for claiming the deduction u/ s 801A(4) after the insertion of above explanation, the Assessee has to pass the test of "being Developer of infrastructure facilities", accordingly the Assessee was asked to prove & establish its capacity of "Developer of infrastructure facilities", accordingly the Assessee has made a detailed submission narrating the following facts & points to prove & establish its capacity as a "Developer of infrastructure facilities"

3.13.Sub-clause 1 of Sub-section 4 of Section 80IA of the Act provides that Section 80IA applies to any enterprise carrying on the business of “(1) developing, or (2) operating and maintaining or (3) developing operating and maintaining” any infrastructure facilities which fulfills the condition prescribed therein. In the facts of the case as held by the CIT (Appeals) as well as the Tribunal on giving a factual finding to the effect that the assessee has undertaken a work of development of infrastructure facilities by execution of the contract awarded to it as per the terms of the contract as enumerated by the CIT (Appeal) as under:-

“To examine whether the project assigned to this Appellant was in the capacity of a "Contractor" or the Appellant has executed the & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 11 DCIT Vs Montecarlo Constructjion Ltd. work as a "Developer" with respect to the ROAD PROJECTS, I have perused the terms of some of the agreements. My attention has been drawn on agreements with "Madhya Pradesh Road Development Corporation Limited", from which the Appellant have been awarded two Road Projects, wherein the scope of the work has been defined as follows:-

Sr. Approx. Scope of No. Name of Road Length in Bid/Development kms. work 1 Package-1: Chindwara- 103.3 Amarwar- Rehabilitation, Nrasinghpur” Road Widening, Project: SH 47 Upgradation & Strengthening 2 Package-14: “Lakhnadon-Mandla- Dindori” Road Project: SH & 40

18 The Appellant has drawn my attention to the relevant clauses of the Tender Documents in support of its contention of being "Developer of the Infrastructure Facilities"

3.14. The CIT (Appeal) has further examined as to whether the project assigned to the assessee was in capacity of a contractor or the same was executed as a developer with respect to the canal projects, agreements were entered into by the assessee was analysed and tendered documents containing the terms and conditions of the project were taken into consideration with respect to the following aspects as to the entire investment in the project was to be made by the assessee. Interim payment to the tune of estimated contract value in respect of the development work done for each month after retention and other adjustments were to be made, security deposit was to be paid by the assessee, there was a penalty for delay, procurement of the material was the responsibility of the assessee, procurement of land for camp, for shop, labour camp etc. also the employment of qualified engineers, action and compensation in respect of bad work, defect liability of the accidents to persons in relation to Workman Compensation Act, indemnity insurance of the workmen employed. The CIT (Appeal) and the Tribunal considering such aspects of the tendered agreement, concurrently held that the assessee has entered & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 12 DCIT Vs Montecarlo Constructjion Ltd. into a development of infrastructure facility agreement and not the works contract.

6.1. Our attention was further drawn to the Apex Court judgment on a similar Road Infrastructure Project, dismissing Revenue’s SLP on the ground Rule of Consistency is to be followed. The assessee could not be treated as a mere Works Contractor, since the assessee was granted deduction u/s.80IA of the Act in the past assessment year also, as in the case of PCIT -Vs- MBL Infrastructure Ltd. reported in [2023] 155 taxmann.com 657 [SC] wherein it was held as follows:

“Section 80IA, read with section 263, of the income-tax Act, 1961- Deductions-Profit and gains from infrastructure undertakings (illustrations)-Assessment year 2012-13-Assessee company, engaged in road infrastructure development and maintenance business, had entered into agreements with a highway department and claimed deductions under section 80-IA - Assessing Officer Initially allowed deduction However, Commissioner invoked revisional jurisdiction under section 263, asserting that assessee was mere a work contractor and Assessing Officer had not correctly applied law on issue of deduction under section 80-1A which made assessment order erroneous and prejudicial to interest of revenue. On appeal, Tribunal made a thorough examination of factual contentions and noted that assessee had not only employed plant and machinery and other assets along with staff but also it had been bearing all risks involved in said infrastructure projects and therefore assessee could not be treated a mere work contractors-it accordingly, quashed order passed under section 263. On appeal, High Court noted that revenue had not disputed that no disallowance was made in previous two assessment years as well as subsequent two assessment years, and further, in absence of any distinguished feature in nature of contract, Rule of consistency had to be applied and deduction under section 80-IA was & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 13 DCIT Vs Montecarlo Constructjion Ltd. to be allowed in relevant assessment year also - Whether there was no infirmity in impugned order and therefore, special leave petition was to be dismissed-Held yes [Paras 2 and 3] [in favour of assessee].”

6.2. In view of the binding judgment of the Jurisdictional High Court, that too in assessee’s own case, the Ground No.1 raised by the Revenue with respect to the admissibility of the claim of the assessee under section 80-IA (4) of the Act is hereby dismissed.

8.1. The facts of the case is that Singhara project was awarded by NHAI for the four laning of Singhara to Binjhal Section from 311 Km to 414 Kms in the State of Odisha vide Letter of Allotment dated 29-03-2017. During the course of assessment proceedings as well as appellate proceedings, the assessee has claimed that though the Letter of Allotment was awarded in 2017, appointed date for the project was 28-09-2018. The assessee has explained the modus operandi of infrastructure projects, wherein contract is allotted to Assessee only after detailed verification of financial bid quoted by the successful bidder [assessee company] and after & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 14 DCIT Vs Montecarlo Constructjion Ltd. making comparison with other competitive bidders. Subsequent to such process Letter of Award is given to highest bidder company by NHAI. In the normal parlance, the appointed date is only after 80% right of land for road is acquired by Government. During the course of assessment proceedings, the Ld. A.O. found that assessee has incurred expenditure of Rs.37,28,56,145/- during the period of issuance of Letter of Award but before receipt of appointed date. As the assessee has not recognized any income of the project during the Asst. Year, thus the Ld. AO treated such expenditure as part of inventory and made disallowance. Whereas the assessee claims that it had incurred such expenditure to avoid any delay in the project. The assessee has claimed that if in any scenario, Assessee company is unable to get appointment of commencement of work and for any reason such work is not allotted to it, it has to bear such expenditure as it cannot get reimbursement of expenditures from NHAI. On this basis, the assessee company has claimed such expenditure as revenue expenditure. However, the ld AO has not treated the expenditure as non-genuine, accepting the expenses relating to the business only, but made disallowance mainly on the ground that the expenditure is allowable in the year in which income was offered to tax. Thereby the Ld AO disallowed the claim of loss of Rs.37,28,56,145/- and added to the total income of the assessee.

Letter of Award on 29th March, 2017, appointed date of the project was 28/09/2018. As explained by appellant appointed date means date of commencement of the project and within prescribed period. Assessee has to complete the project as awarded to it. When any Assessee receive Letter of Award, appointed date is not fixed. The appointed date of the project is mainly decided when NHAI acquires substantial land or right in the land required for the project. In the Government contracts timing for completion of project is essential and if certain project is not completed within the prescribed period, Assessee has to suffer significant losses and to avoid such losses, Assessee has commenced the work related to the project once it received Letter of Award. While making the addition, the AO has failed to appreciate important aspect of the project that in any scenario if appointed date of the project is not fixed or appellant was not finally awarded the project, any expenditure incurred prior to such appointed date is business loss of appellant. This expenditure is voluntarily incurred by Assessee for smooth functioning of its business. The Assessee has taken commercial decision to commence the work related to project before the appointed date so that project is completed within the prescribed time and related benefit of early completion accrues to it. Once expenditure incurred by Assessee is business expenditure and borne by Assessee irrespective of income earned by Assessee, such expenditure is allowable revenue expenditure in the year in which it is incurred. Such expenditure is required to be borne by Assessee even though at subsequent period Assessee has not earned any income of such project which is nothing but sunk cost attributable to projects awarded during the course of business. So far as observation of AO that declaration of appointed date is mere formality under the Concession Agreement executed with NHAI and merely because appointed date is not declared does not mean that already awarded project will be withdrawn, it is relevant to refer to following clause of agreement executed with NHAI:

4.5. Deemed Termination upon delay Without prejudice to the provisions of Clauses 4.2 and 4.3, and subject to the provisions of Clause 9.2, the Parties expressly agree that in the event the Appointed Date does not occur, for any reason whatsoever, before the 1st (first) anniversary of the date of this Agreement or the extended period provided in accordance with this Agreement, all rights, privileges, claims and entitlements of the Concessionaire under or arising out of this Agreement shall be deemed to have been waived by, and to have ceased with the concurrence of the Concessionaire, and the Concession Agreement shall be deemed to have been terminated by mutual agreement of the Parties. Provided, however, that in the event the non-occurrence of the Appointed Date is for reasons attributable to the Concessionaire, the Performance Security and the Additional Performance Security, if of the Concessionaire shall be encashed and appropriated by the Authority as Damages thereof.

& 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 16 DCIT Vs Montecarlo Constructjion Ltd.

The agreement executed clearly prescribes that once Assessee has received Letter of Award it does not mean that date of appointment would be given to the Assessee. There are various conditions for termination of the contract and according to the same, any right or claim accruing to appellant would be waived. This also support the contention of appellant that expenditure claimed by it is a revenue expenditure. As per provision 37 of the Act any expenditure incurred for the purpose of business is allowable expenditure if it does not fall within any exception provided therein. The expenditure incurred by Assessee is not capital expenditure or any prohibited expenditure hence such expenditure is required to be allowed in the year under consideration.

12.3 It is observed that as ICDS 3 and ICDS 4, contract revenue is required to be recognised when there is reasonable certainty of its ultimate collection. During the year under consideration as appointed date for the project was not fixed and there is no certainty of collection of any income from the project in the year under consideration, appellant has not recognised any income from Singhara project. Even if income is not recognised, it does not mean that any expenditure incurred by Assessee can be denied on this ground, as allowability of expenditure has to be seen from commercial expediency of incurring such expenditure and once such expenditure is not directly linked to any revenue and is required to be incurred irrespective of earning of income, such expenditure is allowable expenditure. It is observed that business of the Assessee Company has already commenced in earlier years and during the year under consideration, Assessee has carried out work related to one of the projects awarded by NHAI hence such expenditure is part of business operation of appellant and even cannot be treated as capital expenditure.

12.4 It is observed that Assessee Company is a limited company and rate of taxation for the current year and subsequent year is the same. When the Assessee is liable for tax at maximum rate of tax any expenditure cannot be disallowed on the ground that such expenditure is allowable in subsequent Assessment Year. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Excel Industries Ltd [2013] 38 taxmann.com 100 (SC) in which it is held as under:

"32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any lax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 17 DCIT Vs Montecarlo Constructjion Ltd. fruitless (on merits) but also that it may not have added anything much to the public coffers.

12.5 Considering the facts elaborately discussed herein above, the addition made by AO for Rs.37,28,56,145/- is deleted. This ground of appeal is allowed.”

10. Ld. CIT-DR appearing for the Revenue submitted that the appointed date of Project by the Local Authority namely 28.09.2018 which falls under the Asst. Year 2019-20. When no income is shown in the present asst. year, the question of expenses not allowable during the Asst. Year 2018-19. Further the ratio of Supreme Court Judgment in the case of Excel Industries will not be applicable to the present case, since deemed income was the issue before the Hon’ble Supreme Court. Therefore the disallowance made by the Assessing Officer is sustainable in law.

11. Per contra Ld. Counsels appearing for the assessee submitted that the genuineness of the expenses was not doubted by the authorities below. The above expenses incurred in current financial year out of commercial expediency to complete the work within the time stipulated under the contract. This disallowance made by the Ld AO is a Revenue neutral, as the assessee is a company and assessed to tax at the same rate for all the previous and subsequent assessment years.

12. We have given our thoughtful consideration and also perused the materials available on records. We are in full agreement with the findings rendered by the Ld CIT[A] further the assessee is & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 18 DCIT Vs Montecarlo Constructjion Ltd. engaged in development of infrastructures namely Roads, Canals, Bridges right from the inception on various projects through out the Country by bidding through Auctions [which are discussed paragraph 2 of this order]. Thus it is undisputed fact that the expenditure incurred by the assessee company is neither capital expenditure nor any prohibited expenditure as prescribed under section 37 of the Act, hence such expenditure is required to be allowed as deductible expenses in the year under consideration. Further if income is not recognized during the year, it does not mean that any expenditure incurred by Assessee can be denied, as allowability of expenditure has to be seen from commercial expediency of incurring such expenditure and once such expenditure is not directly linked to any revenue and is required to be incurred irrespective of earning of income, such expenditure is allowable expenditure. It is undisputed that business of the Assessee has already commenced in earlier years and during the year under consideration. The Assessee company has carried out development work related to one or more of the projects awarded by NHAI and other Authorities, hence such expenditure is part of business operation of assessee company and cannot be treated as capital expenditure. Thus the disallowance made by the Ld AO is a Revenue neutral following the ratio of Supreme Court Judgment in the case of Excel Industries, as the assessee is a company and assessed to tax at the same rate for all the previous and subsequent assessment years. Therefore the addition of Rs.37,28,56,145/- made by the AO is rightly deleted by Ld CIT[A], which does not require any interference. Thus the Ground No.3 & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 19 DCIT Vs Montecarlo Constructjion Ltd. raised by the Revenue is devoid of merits and hereby dismissed.

13. Ground No. 4, Ld. CIT(A) erred in deleting the disallowance of Rs.50,28,970/- made u/s.35AD of the Act, with respect to Gorakhpur Road Project. Brief facts is the Assessee claimed deduction of Rs.50,28,970/= u/s. 35AD[1] of the Act. The Ld AO noted that the contract was not awarded to the assessee company but the same was awarded to Monte Carlo Ltd - Backbone Enterprises Ltd Gorakhpur JV [MCL-BEL Gorakhpur JV] which is a separate entity, hence the conditions laid down u/s. 35AD[2] is not complied with. In reply the assessee submitted that it is a common practice in Government contracts for various reasons including leveraging local expertise, benefiting from the partner’s experience, pooling resources, increasing capacity to meet qualification criteria, sharing risks and costs, assessing new knowledge and expertise, technology and finance. In this case a Joint venture [JV] was formed between the assessee Monte Carlo Ltd [MCL] and Backbone Enterprises Limited [BEL] and subsequently a Supplementary Agreement was made which allowed the assessee to carry out the entire project. The Joint Venture and Consortium were established solely for the purpose of acquiring the contract from the Government body and the JV did not actually carry out the any work awarded to it. The Joint Venture Agreement and Consortium Agreement stipulated that the assessee company was to execute the awarded work. While the assessee raised bills for the work performed on behalf of the JV and consortium, the JV and consortium subsequently raised bills of the same amount to the & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 20 DCIT Vs Montecarlo Constructjion Ltd. Government. Any payment received by the JV was then transferred to the assessee. In essence the JV and consortium were merely nominal entity and did not execute the contract itself. Thus the JV did not derive any income from the work performed by the assessee company nor did it claim any deductions u/s. 35AD of the act. The facts of the matter are identical with Fatuah-Harnaut-Barh Road Project and therefore requested to allow the deduction u/s. 35AD of the Act claimed by the Assessee.

13.1. The Ld AO held that in the instant case the project was awarded to JV and not to the Assessee, therefore the assessee is not eligible to claim deduction u/s.35AD of the Act and disallowed the deduction of Rs.50,28,917/= and added to the total income of the assessee.

13.2. On appeal, Ld CIT[A] allowed the claim by allowing such deduction by another JV project with Fatuah-Harnaut-Barh Road Project and deleted the addition by observing as follows: “… 13.2. On Careful consider of entire facts it is observed that as per the provisions of section 35AD the deduction benefits are applicable only to the enterprise that carries out the classified business. Thus it can be concluded that in practical terms the contract was awarded to the constituent of the Joint Venture that is the appellant though the Joint Venture and the work was executed by the appellant. It is observed that AO has denied deduction under 80IA for one of the projects being Fatha Harnath Baat Road Project and similar ground that project was not awarded to Appellant but it was awarded to JV where assessee is one of the consortium partners. Such addition has been elaborately dealt with by the undersigned in the preceding paras wherein it is held that for all practical purposes the work is executed by the appellant and not by JV. The formation of JV was as per peculiar recruitment of sanctioning of the project but real work & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 21 DCIT Vs Montecarlo Constructjion Ltd. was executed by the appellant and no income has been offered to tax by such JV nor any deduction under section 35AD has been claimed by such JV. While adjudicating the issue reliance was placed on relevant judicial pronouncements discussed therein, which are equally applicable in present case. Considering all these facts and relying upon the ratio lay down by decisions referred supra, it is held that appellant is entitled for deduction u/s.35AD for above referred project more particularly when corresponding receipt of the project is offered to tax by the appellant and not disputed by the AO. Thus the audition made by AO for Rs.50,28,970/ is deleted.”

15.1 In the case of Transstory (India) Ltd. vs. ITO (2011) 16 taxmann.com 24 Visakhapatnam Bench held as follows: “Undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution the joint venture or the consortium, it had been made clear that work/project awarded to the joint & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 23 DCIT Vs Montecarlo Constructjion Ltd. venture would be executed by the joint-venture or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party would be responsible for the provisions of agreement 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 would bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party would assign its rights and obligations to any other party without written consent of other party. After perusal of joint venture agreement and the consortium agreement, it was evidently clear that the joint venture and the consortium were formed only with an object to bid contract. Once the project or contract was awarded to the joint venture or the consortium, it was to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. 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 was an independent identity and had 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 it claim any exemption/deduction under section 80-IA(4). These facts clearly indicated that the joint venture was only a de jure contractor but in fact the assessee was a de facto contractor. [Para 8]

The dispute is with regard to the identity of a person to whom the benefit of deduction under section 80- IA(4) could be allowed. The benefit of exemption/deduction under the provisions of section 80-IA(4) is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfilment of certain conditions. One of the conditions is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any centre or any state Act. The other condition is that it has entered into an agreement with the Central Government or a State Government or local authorities or any other statutory body for developing, operating and maintaining or developing, operating & maintaining a new infrastructure facility. There & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 24 DCIT Vs Montecarlo Constructjion Ltd. was 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 was not entitled for deduction. A reading of the provisions of sub-section (4) of 80-IA reveals that the benefit of deductions is to be given to on enterprise who carry on the aforesaid classified business. The legislature has also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body for its execution by its constituents. If the constituents did not want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption under section 80-IA(4). [Para 10]

The 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. Whatever bills were raised by the assessee for the work executed on J.V. 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 had not executed any contract itself. They had also not offered any income out of the work executed by its constituents, nor did they claim any deductions under section 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 provisions of section 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 was entitled for the deductions & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 25 DCIT Vs Montecarlo Constructjion Ltd. under section 80-IA(4) on the profit earned from the execution of the work awarded to JV and consortium. [Para 11]

In the result, the appeal of the assessee was to be allowed.”

15.2 In the case of DCIT vs. M/s. KNR Constructions Ltd. Hyderabad Bench of the Tribunal vide order dated 23-04-2021 in & 191/Hyd/2018 held as follows:

“All the above decisions unanimously hold the view that orders of ITAT are binding on the Revenue Authorities under its jurisdiction and in this case, the decision of the ITAT, Vishakapatnam, is held to be binding on the AO under reference, unless the said order is stayed or suspended by a Superior Court or a different view is taken by the another Tribunal in the said jurisdiction. In this case, it was not the case of the AO to show that the decision of I TAT, Vishakapatnain, in the case of Transtroy India Ltd (supra), as relied by the assessee, is not binding on him. Apart from relying on the order of ITAT, Visakhapatnam in case of Transtroy (India) Ltd, (supra), whose decision is very much binding on the AO, the assessee made citation of the decision of ITAT, Agra, in the case of PNC Constructions Co. Ltd Vs OCIT reported in 144 ITO 577, where the assessee was constituent in JV with M/s.NCC and project agreements were between the State Government and JV/Consortia, the deduction claimed by assessee as constituent of JV/Consortia, was held to be allowable.

5.3.3 Thus, based on the ratio of the judicial decisions cited, it is reasonable to hold that the AO is not justified in denying the deduction u/s.80IA(4) on the profits of JVs to the assessee, as a constituent of the said JVs, disregarding the decision of ITAT, Vishakapatnam, which was not stayed in its operation and as such is binding on the AO. It is not correct on the part of the AO to not implement the said order, merely on the ground that such decision was not accepted by department. B Further, the order of Allahabad High Court upheld the allowance of claim of deduction u/s.80IA(4), on the profits from the Joint Ventures, in & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 26 DCIT Vs Montecarlo Constructjion Ltd. the hands of the constituents. Thus, on similarity of facts, the AO is directed to allow the total amount of Rs.22,29,91,198/-, claimed as deduction u/s.801A(4) for the year, including the deduction of Rs.1,55,09,903/-, claimed on profits of JVs, as a constituent, as claimed in return of income. Accordingly, this ground of appeal is treated as ALLOWED."

15.3 Hon’ble Supreme Court in the case of PCIT vs. Backbone Projects Ltd. dismissed the SLP filed by Revenue observing as under: “Section 4 of the Income-tax Act, 1961 - Association of person - Chargeable as (Joint venture) - Assessment years 2008-09 and 2009-10 - Assessee was a joint venture constituted through a joint venture agreement, holding a separate permanent account number and having status of AOP - AO finalised assessment in case of assessee under section 143(3) treating assessee as an AOP and making addition by adopting net profit ratio at 11.59 per cent of gross receipt - Commissioner (Appeals) deleted addition made by Assessing Officer - Tribunal concurred with findings recorded by Commissioner (Appeals) and found that AOP was formed only to secure work and after that there was no involvement of such AOP in execution of work as entire work was executed by members of joint venture as agreed between them - Commissioner (Appeals) as well as Tribunal found that members of joint venture had duly shown income in their returns of income and paid tax thereon - Joint venture and members of joint venture were being taxed at maximum marginal rate, and hence, no loss had been caused to revenue - Moreover, Tribunal found that requirements of CBDT circular No. 7/2016 were duly satisfied in case of assessee and hence, once amount had been offered to tax by its members, assessee- AOP could not be saddled with liability to pay tax in respect of same amount - High Court by impugned order held that concurrent findings had been recorded by Tribunal after appreciating material on record, hence, it was not possible to state that impugned order passed by Tribunal suffered from any legal infirmity so as to warrant interference-Whether & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 27 DCIT Vs Montecarlo Constructjion Ltd.

Special Leave Petition filed against said impugned order was to be dismissed-Held, yes [para 2] [in favour of assessee]”

Ground No. 5: CIT(A) erred in deleting the disallowance made u/s. 40(a)(ia) of Rs. 3,98,872/-.

16.1 Ld. CIT-DR appearing for the Revenue has no serious submission on the above ground. Per contra, Ld. counsels for the assessee relied upon CBDT Circular No. 37/2006 and requested to & 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 28 DCIT Vs Montecarlo Constructjion Ltd. allow the higher claim of deduction u/s.80IA on the addition made u/s.40(a)(ia) of the Act. We find merits in the claim of the assessee, which is supported by the CBDT Circular No. 37/2016 and therefore the direction given by ld. CIT(A) to A.O. verify the claim does not require any interference. Thus, we do not find any merits in the ground raised by the Revenue and ground no. 5 raised by the Revenue is hereby dismissed.

ITA No. 599/Ahd/2023 A.Y. 2020-21

raised by Revenue are as under:-

1. On the facts and in the circumstances of the case and in law the ld CIT(A) has erred in allowing the deduction us 801A(4) of the Act for on amount of Rs.9,50,68,235/- which violates the explanation below section (13) to Section 80IA as the assessee has worked as a contractor not developer.

1.1. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in not appreciating the fact that after the amended provisions of the section 80-IA, a person who enters into a contract will not be eligible for the tax benefit u/s 80-1A of the Act

1.2. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in not appreciating the fact that the company is not in the business of development of the infrastructure project but is merely executing the various well- defined civil construction activities as per the specifications, designs and plans provided by the developers of the Infrastructure project.

& 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 29 DCIT Vs Montecarlo Constructjion Ltd.

2 On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in allowing enhanced deduction us 801A(4) of the Act on the additional income relying upon the Circular of CBDT and earlier decisions without appreciating the fact that in the present case no link has been established that this enhanced profit as a result of survey operation is a part of eligible business profit and the fact that these profits were not reported in audited books"

3. The Ld. CIT(A) erred in facts and law by deleting disallowance of education cess of Rs 2,53,75,097/- which is invariably part of the income tax.”

& 599/Ahd/2019 A.Ys. 2018-19 & 2020-21 Page No 30 DCIT Vs Montecarlo Constructjion Ltd.