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TMI Blog2017 (4) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... nd maintenance thereof in the hands of RTPL is eligible for deduction. Ostensibly, there is no case of double deduction of the same amount as incorrectly argued on behalf of the Revenue. To reiterate, while the assessee herein is seeking claim of deduction on profit from one part of the activity, RTPL has claimed deduction on other part of the profit from other set of activities. Therefore, no conflict appears to arising as a result of the decision of the Coordinate Bench of the Tribunal in RTPL. In this view of the matter, the claim of the assessee towards deduction under s.80IA(4) of the Act on receipts against its efforts for development of the infrastructure facility deserves to be accepted. Accordingly claim of deduction u/s.80IA(4) of the Act in the hands of assessee is allowed on merits. Whether the loss incurred by the assessee as a result of relinquishment of project is in the nature of trading loss and allowable as a business expenditure or otherwise? - Held that:- The road project was meant for the purposes of generating revenue by collecting toll charges. The toll charges were to be collected by utilizing the road project for certain specific period. Thus, the potential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. 3. We shall first take up ITA No.2485/Ahd/2010 - AY 2003-04 as a lead case for the purpose of determination of issues involved. 4. In its main ground of appeal, the assessee has assailed the order of the CIT(A) wherein the action of the Assessing Officer (AO) in disallowing the deduction of ₹ 13,71,617/- claimed by the assessee under s.80IA of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was confirmed. The assessee also raised 'additional grounds' of appeal in terms of Rule 11 of the ITAT Rules, 1963 whereby the validity of reopening of assessment by the AO was also put under challenge. 4.1 The original ground and the additional ground raised by the assessee is extracted hereunder:- Original Ground The Learned CIT(A) has grossly erred in law and on facts in confirming action of the Assessing Officer in disallowing the deduction of ₹ 13,71,617/- claimed u/s.80IA of the Act and originally allowed to the assessee in order u/s.143(3) of the Act. Additional Ground Ld. CIT(A) erred in law and on facts in confirming the validity of the reopening of the assessment by AO on the basis of observation of Hon'ble ITAT in order of third party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve received information from another AO at Jaipur having jurisdiction over a concern namely, M/s.Rameshwaram Tolls Pvt.Ltd. ("RTPL") alleging that the assessee herein Nila Bauart Engineering Ltd. (NBEL) has transferred its infrastructure facility (Sirohi Road Project) to RTPL with effect from 18/11/2001 relevant to AYs 2002-03, 2003-04 & 2004- 05. Based on information supplied, the AO herein observed that RTPL has also parallely claimed deduction under s.80IA(4) of the Act on this infrastructure facility. The AO accordingly found that both the assessee as well as RTPL are claiming exemption on this facility simultaneously which is patently wrong. The AO noted that ITAT Jaipur Bench while deciding the appeal in the case of RTPL held that RTPL was entitled to deduction under s.80IB and not the assessee. The Ld.AR in this context reiterated with force that the claim of deduction was specifically examined by the AO in the course of the original assessment proceedings and a portion of the total claim was disallowed after examining the claim of deduction in detail. The Ld.AR accordingly submitted that the AO having examined the issue of claim of deduction as stated aforesaid could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause No.13 of the agreement with Government of Rajasthan. The Ld.AR pointed out that RTPL could not be construed as the owner of the infrastructure facility in view of the term of agreement between the assessee and RTPL. It was argued that it is the assessee which has entered into an agreement with Government of Rajasthan. The RTPL has been merely assigned work of collection of Toll and they are merely rendering the aforesaid services for and on behalf of the assessee. The agreement with RTPL as Toll collection agent was initially entered for one year in the first instance and thereafter renewed year-after-year keeping in mind their satisfactory performance. The Ld.AR thus submitted that the assessee enjoys complete command over the infrastructure facility without any demur. Moreover, the land for labour colony, staff quarters and other expenses have been borne by the assessee. The Ld.AR also added that certain operative expenses have also been incurred by the assessee towards the aforesaid infrastructure facility which proves their case for eligibility of deduction under s.80IA(4) as a rightful claimant. The Ld.AR accordingly contended that merely on the basis of certain observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that deduction has been claimed and allowed in the hands of third party namely - RTPL. In these circumstances, it cannot be said that AO had formed an opinion that it was the assessee and not the third party which was eligible for deduction under s.80IA(4) of the Act. In the absence of opinion formed in this regard at the first instance, there is no case for any change of opinion. Thus, the plea raised on behalf of assessee finds no resonance on this score. It is apparent that the AO has accepted the claim of aforesaid deduction in sync with the scope of assessment without examining the eligibility or otherwise in the hands of some other party. When seen in perspective, fresh material/information coming to the possession of the AO which seeks to unearth vital information towards double claim of deduction based on opinion of final fact finding authority would give prima-facie cause to believe that chargeable income has escaped assessment. In the circumstances, the formation of belief on escapement of chargeable income is clearly held in good faith and not merely a pretense. The information in the form of order of ITAT on the same infrastructure facility clearly establishes ration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld belief of escapement. This view has been endorsed by Hon'ble Supreme Court consistently noted above. The right to opportunity by assessee would arise only in the course of assessment where it is naturally open to assessee to rebut the initial belief of the AO. The plea of the assessee thus is without any force. 10.4. No other ground has been marshaled to impeach the validity of action under s.147 of the Act on behalf of the assessee. We thus find no case for alleged transgression of authority conferred upon AO under s.147 of the Act. 10.5. Consequently, the additional ground raised by the challenging the validity of reopening is dismissed. 11. We shall now address the main ground raised by the assessee towards eligibility of claim of deduction under s.80IA(4) of the Act on merits. 11.1. The substantive plea on behalf of the assessee is that the assessee was entrusted with the construction of infrastructure facilities (Sirohi Road Project) on build, operate and transfer basis (BOT basis) at its own cost in the state of Rajasthan. The assessee has developed finance for construction of the project and built it through its own resources and was entitled for recovery of investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under s.80IA of the Act being developer of the infrastructure facility. However, the ITAT on interpretation of contractual agreement of RTPL with assessee came to the conclusion that RTPL was ultimately entrusted with the requisite work of operating and maintaining the infrastructure facility. The ITAT thus held after examining terms of agreement between the RTPL that the assessee that the agreement executed between the assessee and RTPL was not only for execution of work of collection of Toll only. In the light of various clauses of the agreement between the parties, it was held that transfer of rights was available to the assessee herein after developing the facilities for collection of toll. Thus, operation of facility as well as maintenance thereof stood transferred to RTPL. The ITAT found that the transfer of right of operation and maintenance of facility was complete and in fact carried by RTPL. The ITAT in conclusion held that RTPL was rightful claimant of the deduction under s.80IA(4) of the Act. 11.5. It will be apt to reproduce the appropriate portion of the order of the ITAT Jaipur in ITA No.464/JP/2008 dealing with the issue in favour of RTPL. "For a ready referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway [, inland port or navigational channel in the sea];] (ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, [2005].] Explanation.-For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park [or special economic zone]notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, [2006]: [Provided that in a case where an undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant and such Indian company is notified before the 31st day of December, 2005 by the Central Government for the purposes of this clause; (b) such undertaking begins to generate or transmit or distribute power before the 31st day of March, [2011];] There is no doubt as per the terms of agreement between the assessee and NBEL that the assessee was appointed for operating and maintaining including collection of tolls as the collecting agent from traffic plying on the Sirohi-Anadara-Reodr-Mandar Road for the prescribed distance. Hence, in our view, the AO was wrongly assumed that the agreement executed between the developer and the assessee was for execution of work collection tolls only. As per language used in the agreement it is a case of transfer of rights available to the transferor i.e. NBEL after developing, the facilities for collection of tolls (which is the only work of operating of facility) as well as maintaining the facility, for both the purposes in all respect and in accordance with the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lysis of the decision of the Coordinate Bench of ITAT Jaipur, we are not impressed with the case made out by the Revenue on merits. It is essentially the case of the Revenue that deduction under s.80IA(4) of the Act has been claimed and allowed in the hands of RTPL in view of the decision of the ITAT Jaipur and thus the deduction on the same infrastructure facility cannot be extended in the hands of the assessee herein. In this regard, as we understand, the assessee has developed the infrastructure facility and presumably transferred the operation and maintenance of the aforesaid infrastructure facility to RTPL at a pre-determined cost as found by ITAT in the case of RTPL. Thus, while the assessee is entitled to draw benefit from the infrastructure facility to the extent of agreed amount as per the agreement between the assessee and RTPL, the other party namely RTPL will be entitled to avail the benefit of the infrastructure facility over and above the cost incurred by them towards transfer as per the agreement. There does not appear to be any overlapping of claim of deduction. In this situation, the quantum of deduction by respective parties are mutually exclusive and not in confl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s.80IA(4) of the Act on receipts against its efforts for development of the infrastructure facility deserves to be accepted. Accordingly claim of deduction u/s.80IA(4) of the Act in the hands of assessee is allowed on merits. 12. As a result, ground of appeal towards deduction under s.80IA(4) on merits is allowed, while additional grounds of appeal challenging the jurisdiction is dismissed. 13. In the result appeal of the assessee in ITA No.2485/Ahd/2010 for AY 2003-04 is partly allowed. ITA No.2486/Ahd/2010 - AY 2004-05 - Assessee's appeal 14. In this appeal, the assessee is aggrieved by - (i) alleged illegal action of the AO in invoking the section 147 of the Act based on change of opinion in terms of additional ground filed. (ii) denial of deduction of ₹ 30,49,558/- under s.80IA(4) of the Act. (iii) disallowance of claim of ₹ 45,29,321/- claimed as business loss on account Jhalawar-Indore Road Project. 15. Both the sides consented that facts and issue in this appeal are identical in material aspect in so far as ground Nos.(i) and (ii) summarized above are concerned. Thus, our observations in ITA No.2485/Ahd/2010 for AY 2003-04 above shall apply mutat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the Government of Rajasthan issued Letter of Intent (LOI) for carrying out work of improvement of Jhalawar-Indore State Highway on BOT basis. The total cost of project was nearly ₹ 715 lacs for the concessional period of 129 months. After the LOI, the agreement was made. The main object of the project was to connect the state of Madhya Pradesh and Rajasthan. The work was commenced pursuant to the arrangement and a sizable amount was spent. Meanwhile, in the ensuing period, SICOM Ltd. cancelled the loan originally granted to the assessee. The funds for the project could not be arranged and therefore the project could not be completed and got delayed. Due to the aforesaid problems, the project was severally affected and was rendered unviable. Thus, after the reassessment of the situation, the assessee had no option but to drop the project in its business interest. The Ld.AR contended that expenditure incurred for the project was, nevertheless, in connection with the acquisition of a trading right i.e. the right to collect the toll charges for a specific period and the expenditure was not incurred for any acquisition of asset. The assessee were never to become the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquishment of project is in the nature of trading loss and allowable as a business expenditure or otherwise. In the background of the facts, elaborately noted above, we find that there is a direct and proximate nexus between the business operation and the loss which is incidental to it. The Jhalawar-Indore Road Project could not be completed due to commercial impediments as pointed out on behalf of the assessee and therefore the project was abandoned. The expenditure incurred on the efforts made in the project was claimed as business expenditure. The key facts relevant for determination of the issue are that by virtue of the agreement with the state, the assessee was not vested with the ownership right of the asset in any manner. The assessee was entitled to use the road for collection of toll charges to recoup the expenditure incurred. Thus, the expenditure incurred was inherently trading in nature which was permissible for set off as business expenditure against the trading income on matching principle basis. As noted, the project could not be completed and hence the loss incurred thus far was saddled on the assessee. Under the circumstances, the loss incurred for improvement of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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