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TMI Blog2013 (6) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... nd completed the work having been converted into a company under Part IX of the Companies Act whereby the latter acquired all the assets, rights and liabilities of the erstwhile firm, assessee-company fulfilled all the conditions laid down in s. 80-IA(4)(i) and is entitled to claim. Thus in the present case the annual report of the assessee company that does not speak that the assessee is a developer. Moreover, the AO has not brought on record any material to suggest that the assessee is not a developer. The deduction is available to the infrastructure facilities and the assessee has to develop infrastructure and not to operate the same. The assessee having fulfilled all the conditions as laid down in section 80-IA therefore, is eligible for deduction. In favour of assessee. Quota written off - revenue v/s capital - Held that:- Said quota is a license quota which is a tradable commodity and which has to be utilized within a period of three years and third year was ending in 2004 falling in the impugned year, since the assessee’s export business is of ready made garments and the balance lying in the Quota account has been written off, the assessee had purchased Quota which was fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) has failed to appreciated that the Ld. Assessing Officer has disallowed the claim on wrong interpretation of the provisions of law. 3. That the Assessee fulfills all the conditions as required under law with regard to deduction u/s 80IA of the Act. 4. That the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate that developing, operating and maintenance are distinct and if the Assessee is doing business in any of these areas, is entitled to the deductions. 5. That the assessee prays that addition of Rs. 56,61,450/- be deleted and claim u/s 80IA allowed. 6. The Assessee craves leave to add or amend the Grounds of Appeal. 3. In ITA No.434(Asr)/2009 for the A.Y. 2004-05, the assessee has raised following grounds of appeal: 1. That that the Ld. Commissioner of Income Tax (Appeals) has crossly erred in law and on facts of the case in confirming the order of the Assessing Officer with regard to the calm u/s 80IA of the Act. 2. That the Ld. Commissioner of Income Tax (Appeals) has failed to appreciated that the Ld. Assessing Officer has disallowed the claim on wrong interpretation of the provisions of law. 3. That the Assessee fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) has erred in law and on facts of the case in not accepting the claim of the assessee u/s 80IA of the Income Tax Act. 1.3. That the assessee complies with all the provisions of section 80IA and therefore was entitled to be deduction claimed. 1.4. It is prayed that the claim of Rs. 1,40,44,096/- u/s 80IA be allowed. 2. The assessee craves leave to add or amend the grounds of appeal." 6. Since the issue involved in all the appeals is identical and therefore, all the appeals are being decided by this consolidated order, except ground Nos. 2 3 in ITA No.416(Asr)/2012 for the assessment year 2005-06 on account of Quota written off and amount written off by assessee, being a disallowance confirmed by the ld. CIT(A), which grounds shall be decided separately in this order itself. 7. First of all, we take up appeal in ITA No.433(Asr)/2009 for the A.Y. 2003-04. The brief facts out of the order of the A.O. are reproduced for the sake of clarity as under: During the course of assessment proceedings, it was seen that assessee had claimed deduction u/s 80IA(4). The deduction u/s 80IA is admissible to those assessee who develop, operate and main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pair and maintenance of all the above mentioned facilities. The only agency which provides all these facilities is Airport Authority of India. Thus the deduction u/s 80IA(4) is admissible to Airport Authority of India only. Above mentioned facilities are only a few mentioned facilities which are required to develop, operate and maintain an airport. Deduction u/s 80IA can be admissible only when assessee is capable of providing all the facilities as discussed above. Hence a person who extends the runway by a few yards cannot be eligible for deduction u/s 80IA(4). Therefore, taking into consideration all these facts of the case, the claim of the assessee company is not justified and hence cannot be allowed. Accordingly same is rejected. Penalty proceedings u/s 271 (1)(c) read with explanation (1) are also being initiated. 8. Before the Ld. CIT(A), the assessee submitted the explanation which was forwarded to the A.O. for comments. The A.O. submitted the remand report which is reproduced at page 5 to 8 of CIT(A) s order. The Ld. CIT(A) after considering the submissions made by the assessee available in his order and the remand report of the A.O. and counter comments of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there should be a direct agreement between the transferee enterprises and the specified authority. The reliance was placed on the decision of ITAT Indore Bench in the case of Ayush Ajay Construction Ltd. vs. ITO reported in 79 ITD 213, available at PB 42 to 52, ITAT Jodhpur Bench in the case of Chetak Enterprises (P) Ltd. vs. ACIT reported in 95 ITD 1, copy of order available at PB 65 to 74 and decision of ITAT Hyderabad Bench, in the case of Ocean Sparkle Ltd. vs. DCIT reported in (2006) 99 TTJ (Hyd) 582, copy of order available at PB 101 to 118. 12. It was also argued by the Ld. counsel for the assessee in connection with Assessment Year 2004-2005, that there were two projects undertaken by the assessee, one was construction of runway of Airport at Agartala and second was construction of Bridges of Railways at Chambal. The AO while completing the assessment in connection with Assessment Year 2004-2005, allowed the deduction in the case of project of construction of Bridges of Railways considering the appellant as developer under the same and similar circumstances and did not allow deduction in the case of Airport. The relevant extract from Paras-4 5 of the order of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e operational after 01.04.1995, is entitled to the deduction claimed having satisfied of conditions envisaged u/s 80IA(4) of the Act. 14. The Ld. DR, on the other hand, relied upon the orders of both the authorities below. 15. We have heard the rival contentions and perused the facts of the case. The facts in the present case are that the assessee company was allotted a contract for execution of the work by the Airport Authority of India vide letter dated 22.06.2001. The assessee was required to undertake the work of extension of runway with shoulders, turning paid, stop way, construction of isolation bay, box culvert, perimeter road and allied works in Agartala Airport. The assessee claims that it has maintained separate books of account and earned a net profit of RS.56,61,450/- for which deduction u/s 80IA of the Act has been claimed. As per the provisions of section 80IA(4), the deduction is admissible to the assessee who has fulfilled all the conditions as laid down therein. As per amendment made to section 80IA(4)(c) by the Finance Act, 2001, w.e.f. assessment year 2002-03, infrastructure facility means: a. a road including toll road, bridge or a rail system; b. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtends the runway by a few yards cannot be eligible for deduction u/s 80IA(4) of the Income Tax Act, The only agency which provides all these facilities is Airport Authority of India. Thus, the deduction u/s 80IA(4) is admissible to Airport Authority of India only. Since the mandatory conditions as required under the provision of S. 80IA(4) of the I.T. Act, 1961, cannot be said to have been fulfilled in the case of the appellant company. The Ld. CIT(A) was in agreement with the observations of the AO, as contained in his assessment order dated 14.03.2006 and his remand report dated 13.07.2009 and accordingly upheld the action of the AO in disallowing the appellant company claim of deduction u/s 80IA of the I.T. Act, 1961.Ld. CIT(A) accordingly held that the AO is justified in disallowing the appellant company s claim of deduction u/s 80IA of the I.T. Act, 1961, amounting to Rs. 56,61,450/- and added the same to the income of the assessee company. 15.3 It is pertinent to mention here that the AO in the remand report has reported in last para at page 2 of the report that deduction u/s 80IA is admissible to the assessee who develop, operate or maintain the Airport. As per findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible- Obligations which have been assumed by the assessee under the terms of the contract are obligations involving the development of an infrastructure facility- Said cranes are to vest in JNPT free of cost after the term of ten years- JNPT has certified that the facility provided by the assessee was an integral part of the port-Assessee has developed the facility on BOLT basis under the contract with JNPT- Finding of the Tribunal that the assessee has developed the infrastructural facility and that it was engaged in operating the cranes is based on the material on record- Fact that the assessee was also maintaining the cranes is not disputed- An assessee did not have to develop the entire port in order to qualify for a deduction under s. 80-IA- Condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility- Since, in the instant case, the facility commenced after 1st April, 1995, the requirement of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Therefore, from asst. yr. 2000-01, deduction is available if the assessee carries on the business of any one of the abovementioned three types of activities, and accordingly also when the assessee is carrying on the activity of only developing. When an assessee is only developing an infrastructure facility/project and is not maintaining nor operating it, obviously, such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realise its cost? If the infrastructure facility is, just after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the Maharashtra Government or APSEB has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developer. The assessee, presently under consideration before us, has developed infrastructure facility as per agreement with Maharashtra State Government/APSEB, Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer; nor will it debar the assessee from claiming deduction under Section 80-IA(4). 15.7. The reliance is also placed on the decision of ITAT, Delhi Bench, in the case of Intercontinetal Consultants Technocrats (P) Ltd. (supra), available at PB 76 to 83 and head notes are reproduced for the sake of clarity as under: Expression execution of housing project would include all necessary activities such as engineering supervision for construction work and therefore assessee having been awarded contract for engineering supervision in construction of national highway along with award of contract to another contractor for supply of material, equipment and labour, was entitled to deduction under s. 80HHBA; moreso, when such deduction was allowed in earlier years and deduction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly a contractor but that does not derogate the assessee from being a developer as well- Term contractor is not essentially contradictory to the term developer - Therefore, merely because assessee is referred to as contractor in the agreement for development of infrastructure facility or some basic specifications are laid down, would not debar the assessee from claiming deduction under s. 80-IA(4)- Hence, assessee is entitled to deduction under s. 80-IA. 15.9. The reliance is also placed by the ld. counsel for the assessee on the decision of ITAT, Hyderabad Bench, in the case of Koya And Co.Construction (P.) Ltd. (supra) available at PB 84 to 100, and the relevant head notes of the decision are reproduced for the sake of clarity as under: Deduction under s. 80IA- Contractor vis- -vis Developer- Eligibility - Lower authorities denied deduction to the assessee under s. 80IA(4) on the ground that assessee did not undertake infrastructure activities and it does not own the infrastructure itself and the assessee is only a contractor carrying on construction of the infrastructure, therefore not eligible for deduction under s. 80IA(4)- Held, s. 80-IA contemplates a deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the infrastructure facility while VIDC was merely the sponsor of the project- Term contractor is not essentially contradictory to the term developer - Sec. 80-IA(4) itself provides that the assessee should develop the infrastructure facility as per the agreement with the Government- Even the insertion of Expln. 2 to s. 80-IA vide Finance Act, 2007, has not altered this situation- Said amendment does not apply to works contract entered into by the government with an enterprise- This amendment merely aims at denying deduction to the sub-contractor who executes a works contract with the enterprise- Further contention of the Revenue that the developer who does not operate and maintain the infrastructure facilities is not eligible for deduction also cannot be accepted- Words of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining have been introduced in s. 80-IA(4)(i) from asst. yr. 2002-03 only to remove the ambiguity - Insertion of the word or was clarificatory in nature-Thus, it cannot be held that the enterprise carrying on business of developing infrastructure facility was eligible for deduction only on the profit earned from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduction if the transfer had not taken place- Proviso to s. 80-IA(4) does not require that there should be a direct agreement between the transferee enterprise and the specified authority- Ownership or ports do not vest even with the developers of the port since waterfront is the sovereign right of the Government only and thus there is no question of transfer of ownership to the specified authority-Although the assessee-transferee may not have undertaken the entire operation and maintenance of the port infrastructure, the services rendered by it were an integral and inseparable part of operation and maintenance of the port infrastructure and therefore, assessee has complied with the requisite conditions specified under the proviso-Assessee s claim for deduction is restricted only to its performance of job- Therefore, assessee was eligible for deduction under s. 80-IA in terms of proviso to s. 80-IA(4). 15.14. As regards the annual report of the assessee company that does not speak that the assessee is a developer. Moreover, the AO has not brought on record any material to suggest that the assessee is not a developer. The deduction is available to the infrastructure facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted in the letter of the counsel dated 26/11/2007 and also to explain as to why it should be allowed as revenue expenditure. On 07/12/2007, Sh. Omesh Gupta filed the explanation through his letter dated 07/12/2007. In the said letter the following submissions have been made :- The assessee purchased Kota in the financial year 2000-01 for manufacture and export of the readymade Garments. It may be submitted that Quota Licence is tradable. The assessee exported Garments against this purchase of Quota license during the financial year 2000-01 and 2001-02. The Kota has to be utilized within a period of three years i.e. it had to be utilized in the year 2004. Thereafter, it has no value. As the assessee had stopped the business of export of Garments and the period has expired during the financial year under assessment, the balance amount lying in Quota account was written off. In this regard reference is invited to the decision of the Hon'ble Madras High Court in the case of CIT Vs. TEX TOOL COMPANY LIMITED 135 ITR 200. In this case the assessee was importing certain items and paid premium was forfeited on account of non-utilization. The assessee had written off the said los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expenditure is on the capital account or on revenue, one must considered the expenditure in relation to the business The question to be considered in this connection are: For what was the money laid out?, Was it to acquire an assets of an enduring nature for the benefit of the business, or was it an outgoing for doing of the business? If money be lost in the first circumstances, it is a loss of capital, but if lost in the second circumstances, it is revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses . The purchase of quota was in the nature of an advance payment and was laid out to acquire an asset of an enduring nature for the benefit of the business and, therefore, it bears the character of an investment. In the judgment referred to above, the Hon'ble Supreme Court has given illustration of the case of Charles Marsden and Sons Limited Vs. Commissioner of Inland Revenue. The ratio of the decision in this case is applicable to the case of the assessee. In view of the above discussions, the loss of Rs. 7,85,590/- on account of Quota writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. Even if, we agree to the findings of the authorities below, the assessee had obtained enduring benefit for three years, the same cannot be a conclusive test to be applied blindly and mechanically. Since the assessee had incurred expenditure, which advantage consists facilitation of trading operations of the assessee for enabling the assessee to make the export. Our views find support from the decision of the Hon ble Supreme Court of India in the case of Empire Jute Co. Ltd. vs. CIT reported In 124 ITR 1, head note of which for the sake of clarity is reproduced as under: The appellant, a company carrying on the business of manufacture of jute, was a member of the Indian Jute Mills Association, which was formed with the objects of, inter alia, protecting the trade of its members, imposing restrictive conditions on the conduct of the trade and adjusting the production of the mills of its members. A working time agreement was entered into between the members restricting the number of working hours per week for which the mills were entitled to work their looms. Clause 4 of the working time agreement provided that no signatory shall work for more than 45 hours per week. Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operation or working of the looms which constituted the profit-making apparatus of the appellant and was expenditure laid out as part of the process of profit earning. It was an outlay of a business in order to carry it on and to earn a profit out of this expense as an expense of carrying it on; it was part of the cost of operating the profit earning apparatus and was clearly in the nature of revenue expenditure. BY THE COURT ; (i) It is not a universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. (ii) There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may none the less, be an revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances are being written off. Vide letter dated 07.12.2007 the assessee has submitted that the said loss is deductible u/s 37 and u/s 28 of the I.T. Act, 1961. It has been submitted that during his business the assessee is obliged to give advances to labour and supplier of materials. A part of the said amount is sometimes left over and is no recoverable, hence it is written off being business clause. The assessee has relied on the decisions of the Hon'ble Supreme Court in CIT Vs. Mysore Sugar Company Ltd. 46 ITR 649 and Hon'ble Madras High Court in CIT Vs. Crescent Films Pvt. Ltd. 248 ITR 670. The submissions of the assessee have been considered. The ratio of the decision in the cases relied upon are not applicable to the case of the assessee. In the case of Mysore Sugar Company Ltd. the advance payment was made for making a forward arrangement for the next year crops and the payment of the amount was the advance payment of the price. In the case of CIT Vs. Crescent Films Pvt. Ltd. the loss was on account of money advanced to produce to complete film for which the assessee has acquired distribution rights. In both the cases, the reasons for loss are clearly brought out. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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