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TMI Blog2011 (2) TMI 1500X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicated that the assessee company was not a developer, but merely a work contractor, ignoring the difference between a turn key contract and a works contract . 4. The learned CIT ought to have held on facts that the appellant developed the entire water supply scheme from concept and design to ultimate commissioning and handing over he facility to the Government authority. 5. He ought to have held that in respect of water supply scheme SSNNL was not a developer at all, but only an implementing agency. 6. The learned CIT erred in confusing between the payment for turnkey contract and payment for equipment and in any case even 50% investment was a large amount. 7. The learned CIT erred in holding that the order when passed was perfectly legal and in accordance with law became erroneous by the amendment in law when the very applicability of the amendment was in dispute. 8. The learned CIT ought to have held that SSNNL was a public undertaking wholly owned by the Government and thus was a statutory body being a body corporate governed by the statute on Companies. 9. Reasons assigned are wrong, insufficient and contrary to facts and law . 3. In this case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest paid. The assessee was asked as to why the interest should not be apportioned to the Infra structure project. The assesee has submitted a note on the issue and the major observations are as under: a) Assessee has a separate division under the name style Project Division which looks after the various projects under taken by the company. Sales of project division for the year are at ₹ 224,08,93,622/-. Sales related to Infra Structure Project are at ₹ 76,55,17,092/- which are made to SARDAR SAROVAR PROJECT. b) Assessee has received advance ofRs.35.99 crores (Approx) from the authorities of SARDAR SAROVAR PROJECT as advance against the project. The said advance is received once the contract was awarded to the company and is used in honoring the payments related to the said contract. The advance does not bear any interest payable to Sardar Sarovar authorities. c) According to the assessee as per the accounting guide lines for calculation of interest, the interest is calculated on the Capital Employed concept. Based on this the capital employed for the said project is calculated at Rs. Nil as on 31st March 2003. In light of this calculation assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculations and may vary from case to case, year to year. I have perused the submissions made by the assessee. It is seen from the profit loss account of the assessee that interest of ₹ 7,49,54,531/- is debited to Profit Loss account. I am of the view that as the assessee has debited interest to Profit loss account, certain portion of the same has to be allocated to the profit loss account of the infra structure project as interest related to the infrastructure activity. Assesses arguments in this respect are not acceptable in view of the fact that the assessee has not been able to substantiate that the utilization of funds was only for the purposes of the Infra structure project. It is also seen from the details filed that the assessee's administrative office is at Pune from where the services for technical administrative matters are being provided and paid for. The assessee has not maintained any specific account distinguishing the payments made for the project including the employee related expenses. The actual project location is far off from Pune i.e. near Ahmedabad. It will not be proper to ignore the interest apportionment unless the assessee is able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and operating and maintaining the equipment for a limited period for ensuring satisfactory performance. The CIT further found that the assessee was not a developer but only a works contractor and hence was not entitled for deduction u/s 80-IA of the Act. 6. Accordingly a show cause notice u/s 263 of the Act was issued on 19-12-2007 giving the assessee an opportunity of being heard before revising the assessment order u/s 263 of the Act as it was felt that the order passed u/s 143(3) of the Act was erroneous in so far as it was prejudicial to the interests of revenue on the issue of allowance of deduction u/s 80-IA of the Act. In response to the said show cause notice, the assessee filed written submissions and also filed a copy of Memorandum of Association of SSNNL, some technical drawings, purchase orders and other documents to contend that the assessee company was the developer of he project right from its inception upto the commissioning and the satisfactory performance of the project thereafter. 7. The CIT after taking into consideration the written submissions and arguments raised on behalf of the assessee held as under : 5. I have considered the submissions of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer which he was duty bound to examine and carry out the necessary enquiries before accepting the claim of allowance u/s .80lA of the IT Act. 7. The developer of the infrastructure facility or was merely acting as a contractor on behalf of SSNNL to execute the project. It is not in dispute that SSNNL is an implementing agency and is also an assessable entity under the Income Tax Act. It is the claim of the assessee that SSNNL have given a certificate that they had not claimed any benefit u/s 80lA of the IT Act for the A.Y.2003-04 to A.Y.2007-08. However, this fact alone does not entitle the assessee to otherwise claim such deduction u/s 80lA of the IT Act as there is no concept of disclaimer for such allowance by the contractor in favour of the contractee. As per the provisions of section 80lA, one of conditions to be examined is whether the assessee company had entered into a contract with the Central Govt. or a State Govt. or a local authority or any other statutory body for developing the new infrastructure facility. The Assessing Officer has not at all examined as to under which category the contractor namely SSNNL would fall. Whether it is a local authority or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer before allowing the claim. The Assessing Officer shall examine all the aspects of the contract as also the issues which are to be decided as discussed above and afford the assessee an opportunity of being heard. Assessment order for A.Y.2003-04 is therefore set aside and restored back to the file of the Assessing Officer to examine the limited issue of allowance u/s 80lA of the IT Act. He shall do this after giving the assessee reasonable opportunity of being heard. 8. Before us, the learned AR drew our attention to reply to show cause notice u/s 263 of the Act which reads as under: 1. We are in receipt of the above notice indicating that the deduction under Section 80 IA of the Act has been wrongly allowed to us. A view seems to have been taken that in respect of Saurashtra Branch Cannel Water Supply Scheme (Sardar Sarovar Project), we have merely carried out a Works Contract and that we are neither the owner nor developer of the project. 2. Firstly we wish to respectfully point out that it is not the requirement of Law that the developer must also be the owner of the infrastructure project. In this connection it may be noted that after the amendment in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid in advance and the next installment received by the assessee based on the completion of the successful trials. The large investment for the intervening period is made by KBL and it has directly participated in the development of the infrastructural facility. It is only to discourage mere contractors without investment of their own from claiming such deductions that the exception was inserted. This is made clear in the Memorandum explaining the provisions of the Finance Bill 2007. We wish to emphasize that KBL is in the business of water supply and management on a very large scale, executing several other projects including Sourashtra Branch Canal . 6. Terms of payments: We wish to highlight the terms of payment for the project as under: Nature of payment Terms of payment Advance received 15% Amount to receive based on dispatch of equipment to the party 50% Based on the material receipt at the sight 15% Retention amount a) Based on erection of equipments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Sardar Sarovar Project . A copy of purchase order issued in favor of M/s. Termomeccanica Pompe, Italy dated 19th December 2001 is enclosed herewith as an example where in the company has acquired the technology for manufacture of CV Pump components. (Refer Annexure No.2 - Page No.4 to 9).We further wish to communicate that we have availed technology services I spares from Thermomecanica, Italy of ₹ 49 crores approx. over last three years for the purposes of executing the infrastructure projects and transfer of knowledge / technology for manufacture I installation of specified components. c) We also wish to high light that the company has made research on Siphon System by making transparent Froude Scalar Model of the discharge duct and the results obtained were applied in the execution of the Sardar Sarovar Project . We wish to communicate that this Siphon System as introduced by KBL was not a part of order to be executed for Sardar Sarovar Project but is done by the company with its own research at KIRLOSKARWADI Factory as the company always aim at conservation of energy end to end solution for customers which has the lowest life cycle cost. Though the SIPHO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DIGEST under the aegis UNESCO. A copy of the award is enclosed herewith which is self explanatory. ( Refer annexure No.7 - Page No.44). In a similar case, in case of Godavari Project awarded by Government of Andhra Pradesh (Rs.123 Crores approx), which -: involves 7 (Seven) pumping stations, had an electrical installation capacity of 61 MW, the company has rearrange the locations and has reduced the pumping stations to 4 (Four) and could do the job with 52 MW electrical installation capacity, there by achieving huge reduction in energy consumption. f) These issues are addressed to show that the assessee is just not doing a Works contract but is also responsible for the basic engineering, procurement construction of the infra structure ., project. 8. We entirely agree with your Honor that allowance under Section 80 -IA was not intended to be granted to a contractor or a sub contractor who was merely executing a works contract. The scope of our work, the investments made in technology men, responsibilities undertaken and the volume of operations involved will clearly show that we are not merely executing a works contract but developing the entire scheme on a turnke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutes the development work i. e. carries out the civil construction work, he will be eligible for the tax benefit under section 80- IA. In contrast to this, a person who enters into a contract with another person {i.e. undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for the tax benefit under section 80-IA. In our opinion as per the explanation the benefit will not be granted to a sub contractor but will be granted to an Enterprise to whom the contract is awarded or only to contractor. It appears that the explanation is introduced to over come the decision of Income Tax Appellate Tribunal in case of Patel Engineering Limited . 10. We also wish to draw your attention to a communication received from SARDAR SAROVAR NARMADA NIGAM LIMITED dated 31st January 2008 where the SSNNL authorities have certified that they have awarded the project to KBL for developing the infrastructure facility. Further ;I SSNNL has stated that the Saurashtra Branch Canal Pumping Scheme is being developed by KBL on a turn key basis and will be handed over to SSNNL on a successful commissioning. SSNNL has also certified that KBL is also res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy, the CIT was not justified in invoking provisions u/s 263 of the Act. 11. The learned AR also relied on a decision of ITAT Mumbai F Bench in the case of ACIT Vs. Bharat Udyog Ltd. (2009) 123 TTJ (Mumbai) 689, with regards to deduction u/s 80-IA, income derived from development of infrastructural facility, it was observed that after the amendment of section 80- IA(4) with effect from 1-4-2000, the deduction has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-clause (c) of cl. (i) of sec. 80-IA(4) is applicable to an enterprise which is engaged in operating and maintaining the infrastructure facility on or after 1-4-1995, and not to the case of an enterprise which is engaged in mere development of infrastructure facility and not its operation and maintenance . Therefore, the question of operating and maintaining of infrastructure facility by such enterprise before or after any cut off date cannot arise. In case, the contention of the Revenue is accepted no enterprise carrying on the business of only developing the infrastr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to deduction u/s 80-IA of the Act. The claim for such allowance was made for development of infra structure project executed by it under the name and style of Saurashtra Branch Canal Water Supply/Pumping Scheme . According to the CIT the assessee company only executed the work contract and the assessee was neither the owner of the project nor developer of the project. According to the CIT first part of the project was for design manufacture and supply of equipment and the second contract was for execution of commissioning of the equipment supplied and operating and maintaining the equipment for a limited period for ensuring satisfactory performance. The CIT concluded that the assessee was not a developer but only a works contractor and hence was not entitled for deduction u/s 80-IA of the Act. The stand of the assessee has been that it is not the requirement of law that developer must also be the owner of infrastructure project. After the amendment in sub-section 4 by inserting the word OR in clause (i) an enterprise carrying on the business of only developing an infrastructure facility is also entitled to the benefit of the section. According to the assessee, he execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive effect from 1-4-2000 which 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) It was substituted by the Finance (No. 2) Act 2009 with retrospective effect from 1-4-2000. Prior to its substitution, Explanation, as inserted by the Finance Act, 2007 with retrospective effect from 1-4-2000, read as under: Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise as the case may be 16. Thus, the above amendment to the Explanation to section 80-IA was made by the Finance (No. 2) Act 2009 while the assessment order passed on 28-3-2006 and the order of the CIT was passed on 13-3-2008. In this situation, the retrospective insertion of the Explanation to section 80-IA and amendment thereof with retrospective ef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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