2023 (1) TMI 605 - AT - Income Tax

Deduction u/s 80IA - Denial of claim by treating the assessee as a work contractor and not developer by the Revenue - whether the assessee is a developer or a contractor as the assessee merely executed the contract for the various sites awarded by the various entities as of the ultimate view of the Revenue? - HELD THAT - We have carefully considered the different clauses prescribed in the tender notice in respect of the project of construction of Bridge with Approaches Across Damanganga River connecting Nani-Daman Moti- Daman, U.T. of Daman from National Highway Division, Bharuch-A.Y. 2007-08. It appears that the Contractor must have necessary experience, facilities, ability, financial resources, specified turnover, specific experience in construction of Bridges, Qualified Key personnel, plant machinery equipments etc. to perform the work. The general specifications are given by the respective Authorities. However, the specific drawings designs are recommended by the Contractor which shall be approved by the Competent Authority and shall form part of the accepted Tender.The assessee has appointed Shah Associates, an experienced designer in the field for designing this project. The assessee has to arrange the necessary requirement of Water, Electricity Connection, Cement and other required qualitative materials, labour, supervision, erection, maintenance, insurance, at its own cost. It is evident from Clause 3 of Tender ( Bill of Quantities) The tender clause further stipulates that the Retention money shall be deducted @ 10% from current bills and shall be released 50% on completion of the Works and remaining 50% after the end of the Defect liability period. As to whether the assessee can be termed as developer or a contractor as contended by the Revenue in its written submissions, we find, in fact, it only attempts to give a general meaning of the term contractor and developer . In the cases in hand, we find that in terms of tender documents, audited accounts and facts on record suggest that the assessee has fully undertaken the work of development of various infrastructure projects as a whole by undertaking the risk responsibility, arranged own finances, materials, personnel, labour, machinery, other equipments etc. and thereby fulfilled the test of being a developer as per the principles laid down by Hon ble Gujarat High Court in the case of Radhe Developers, 2011 (12) TMI 248 - GUJARAT HIGH COURT The tender work under consideration are not for a specific work, rather they are for development facility as a whole. The responsibility is fully assigned to the developer for execution and completion of the work. Various stipulations contained in the Tender documents demonstrate various risks undertaken by the assessee for execution of the project work awarded by the competent authority in terms of financial resources, manpower deployment, both technical and administrative expertise, drawing and designing of the project specifications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because if some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will deprive the assessee from claiming deduction u/s.80IA(4) - As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under section 80IA(4) - the issue of claim of deduction under section 80IA(4) of the Act is allowed in favour of the assessee and against the Revenue. Denial of claim of the assessee u/s 80IA including the claim in respect of other income - bank interest on bank guarantee - HELD THAT - This issue covered in favour of the assessee by the judgment passed in case of Rajkamal Builders Infrastructure P. Ltd. 2022 (5) TMI 773 - ITAT AHMEDABAD allow this bank interest on bank guarantee for the deduction made under Section 80IA. Sale of scrap of business items - This issue is found to be covered in the case of DCIT vs. Harjivandas Juthabhai Saveri Anr. 1999 (12) TMI 5 - GUJARAT HIGH COURT granting relief to the assessee. Profit on sale of Assets, VAT Refund - Jabalpur Bridge Site, release of Retained Income - Sabarmati Bridge, refund from Sales Tax, Arbitration Claim - Anantpur ROB Kota Site and recovery against stolen Steel at site are found to have direct nexus with the appellant s business and hence, these are eligible income under Section 80IA(4) of the Act as claimed by the appellant. These are also applied mutatis mutandis in the respective appeals filed by the appellant. Penalty u/s 271(1)(c) - We upheld the order passed by the CIT(A) in holding that the penalty is not sustainable as the claim made by the assessee was a bonafide one. Moreso, the appeal preferred by the assessee in the year under consideration has been allowed by us. Therefore, the penalty proceeding automatically becomes infructuous. Thus, the appeal preferred by the Revenue is found to be devoid of any merit and, thus, dismissed

Summary

Issues Involved:

1. Denial of claim of deduction under Section 80IA of the Act by treating the assessee as a 'work contractor' and not 'developer' by the Revenue.
2. Additional ground for A.Ys. 2007-08, 2008-09 & 2009-10 regarding rejection of deduction under Section 80IA(iv) of the Act.
3. Claim of deduction in respect of repairs expenses for A.Y. 2009-10.
4. Rejection of claim under Section 36(1)(va) i.e., Employees' PF & Welfare Fund for A.Y. 2006-07.
5. Quashing of penalty under Section 271(1)(c) of the Act for A.Y. 2012-13.

Issue-wise Detailed Analysis:

1. Denial of claim of deduction under Section 80IA of the Act by treating the assessee as a 'work contractor' and not 'developer' by the Revenue:

The assessee, a Private Limited Company, engaged in the business of constructing infrastructure projects like bridges, flyovers, etc., claimed deduction under Section 80IA(4) of the Act. The Revenue denied this claim, treating the assessee as a 'work contractor' rather than a 'developer'. The Tribunal examined the nature of the contracts and the role of the assessee. It found that the assessee was involved in the development of infrastructure projects, taking on financial risks, arranging finances, and handling the entire project from design to completion. The Tribunal relied on various judicial precedents, including the Radhe Developers case, to conclude that the assessee fulfilled the conditions of being a 'developer' and was entitled to the deduction under Section 80IA(4).

2. Additional ground for A.Ys. 2007-08, 2008-09 & 2009-10 regarding rejection of deduction under Section 80IA(iv) of the Act:

The assessee raised an additional ground regarding the denial of deduction for other income of Rs.42,62,716/- under Section 80IA(iv). The Tribunal admitted this ground, noting that the issue was germane to the assessee's business and the facts were already on record. The Tribunal found that the other income had a direct nexus with the business activities and was eligible for deduction under Section 80IA(4).

3. Claim of deduction in respect of repairs expenses for A.Y. 2009-10:

The assessee did not press this ground during the hearing. Therefore, the Tribunal dismissed this ground as not pressed.

4. Rejection of claim under Section 36(1)(va) i.e., Employees' PF & Welfare Fund for A.Y. 2006-07:

The assessee did not press this ground during the hearing. Therefore, the Tribunal dismissed this ground as not pressed.

5. Quashing of penalty under Section 271(1)(c) of the Act for A.Y. 2012-13:

The Revenue challenged the CIT(A)'s order quashing the penalty under Section 271(1)(c). The Tribunal upheld the CIT(A)'s decision, noting that the assessee's claim was bona fide, and all particulars were fully disclosed. The Tribunal referred to the Supreme Court's decision in Reliance Petro Products Pvt. Ltd., which held that merely because a claim was not accepted by the Revenue, it would not attract penalty under Section 271(1)(c). The Tribunal found that the penalty was not sustainable as the assessee's claim was bona fide and allowed the appeal in favor of the assessee.

Conclusion:

The Tribunal allowed the assessee's appeals regarding the deduction under Section 80IA(4), finding that the assessee was a 'developer' and not merely a 'contractor'. It also allowed the additional ground for other income and quashed the penalty under Section 271(1)(c). The grounds related to repair expenses and Employees' PF & Welfare Fund were dismissed as not pressed. The Revenue's appeal was dismissed, and the assessee's appeals were allowed.