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2017 (1) TMI 1830 - AT - Income TaxDeduction u/s. 80IA - Assessee company a developer OR contractor - As argued assessee company has not made an agreement with Central or State Government, local authorities or any other statutory body for the purpose of developing infrastructure facility as required under the law and relied on the CBDT circular no. 717 issued in August, 1995, and came to a conclusion that due to financial, managerial hardship of the Government by applying commercial principles in operation of infrastructure facilities for massive expansion and qualitative improvement in infrastructure of the company - HELD THAT - AO main contention that the assessee is only the contractor and not a developer but the person who develops the infrastructure facilities pursuant to contract with the State Government shall be considered as developer. We found the co-ordinate bench decision of East Coast Constructions 2011 (9) TMI 1091 - ITAT CHENNAI and BT Patil 2013 (11) TMI 197 - ITAT PUNE and Om Metal Infra Projects ( 2008 (12) TMI 744 - ITAT JAIPUR ) and ABG Heavy Industries Ltd. 2010 (2) TMI 108 - BOMBAY HIGH COURT has considered similar activities performed by the assessee company is developing infrastructure i.e., conceptualization of designs, Level of investment should be considered to be called as developer. We found that the assessee company undertakes the entire responsibility from concept to Commissioning of developing the entire facility. Based on customer specifications, conceives the designs and technical plans, chooses the technology required for treatment of the effluents and executes the project through a skilled team of more than 250 - 300 engineers. The work performed includes the basic design of the plant, detailed engineering, procurement of equipment and components, delivery of supplies at site, civil construction of the structure, installation of equipment at site, interfacing through piping and cables, testing and commissioning and subsequent O M. Thus assessee has demonstrated the investments of the company in project from the assessment year 200-03 to 2007-08 consisting of Receivables, margin money with the bank, and Bank guarantees for performance guarantee. These financial aspects prove that the assessee company has funded finances in infrastructure and execution of projects. We are of the opinion that the assessee has complied the conditions u/s. 80IA(4) of the Act and demonstrated the funding of the projects with financial statements. Decided in favour of assessee. Forex exchange loss - Whether foreign currency is held as a capital asset or as fixed capital such profit or loss would be of capital nature? - HELD THAT - We find the loss due to forex exchange difference as on the date of balance sheet is expenditure falls u/s. 37(1) of the Act. The outstanding liability relating to the import of raw material based on closing rate of foreign exchange and if any difference by loss or gain arising on conversion liability should be routed through profit and loss account. Hence, we do not find any infirmity in the order of the CIT(A) and upheld the same and dismiss the ground of the Revenue. In the result, the Revenue appeal is dismissed.
Issues Involved:
1. Eligibility for deduction under Section 80IA of the Income Tax Act. 2. Disallowance of forex exchange losses. Detailed Analysis: Issue 1: Eligibility for Deduction under Section 80IA Grounds Raised by Revenue: - The CIT(A) erred in deleting the disallowance of deduction u/s. 80IA. - The CIT(A) failed to appreciate that the assessee is a mere contractor and not a developer of infrastructure facilities. - The CIT(A) did not consider that some works executed were expansions of existing infrastructure, which do not qualify for deduction. - The assessee does not own the entire plant and machinery for execution, having subcontracted the work, making it ineligible for deduction. Findings: - The assessee company is engaged in engineering design and execution of turnkey infrastructure projects. - The AO disallowed the deduction u/s. 80IA on the grounds that the assessee was a contractor, not a developer, and did not enter into agreements with government bodies as required. - The CIT(A) held that the assessee qualifies as a developer under Section 80IA, relying on judicial precedents and the legislative history of Section 80IA. - The CIT(A) noted that the assessee undertakes substantial investments, employs skilled personnel, and develops infrastructure facilities, thus meeting the criteria for deduction. - The CIT(A) distinguished between a contractor and a developer, emphasizing that merely being termed a contractor in agreements does not preclude the assessee from being a developer. - The CIT(A) referred to the Bombay Tribunal decision in Patel Engineering Vs. DCIT, which clarified that a contractor can also be a developer if they develop infrastructure facilities as per agreements with government bodies. - The CIT(A) found that the assessee satisfied the conditions of Section 80IA(4)(i) and allowed the deduction, except for the Allandur project due to lack of clarity on subcontracting. Tribunal’s Decision: - The Tribunal upheld the CIT(A)’s decision, agreeing that the assessee qualifies as a developer and is eligible for deduction under Section 80IA. - The Tribunal noted that the assessee demonstrated substantial investments and involvement in the development of infrastructure projects. - The Tribunal relied on several judicial precedents, including the Bombay High Court decision in CIT Vs. ABG Heavy Industries and the Tribunal’s own decision in East Coast Constructions, to support its conclusion. Issue 2: Disallowance of Forex Exchange Losses Grounds Raised by Revenue: - The CIT(A) erred in deleting the disallowance of Rs. 45,00,613/- made towards forex exchange losses. - The AO disallowed the forex exchange loss as the assessee failed to prove it was incurred in the regular business transaction. Findings: - The CIT(A) allowed the forex exchange loss, relying on the Supreme Court decisions in Sutlej Cotton Mills Ltd. and Woodward Governors India Pvt. Ltd. - The CIT(A) held that the forex exchange loss was related to business transactions and thus allowable as business expenditure. Tribunal’s Decision: - The Tribunal upheld the CIT(A)’s decision, agreeing that the forex exchange loss is allowable as business expenditure. - The Tribunal noted that the loss due to forex exchange difference as on the date of the balance sheet falls under Section 37(1) of the Act. Conclusion: - The appeals of the Revenue were dismissed, and the CIT(A)’s orders allowing the deduction under Section 80IA and the forex exchange losses were upheld. Order Pronounced: - The order was pronounced on Wednesday, the 25th day of January, 2017 at Chennai.
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