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TMI Blog2020 (3) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... ture facility as defined under section 80IA(4). Therefore, an entity which developed such a facility is eligible to claim deduction, provided, he fulfills the conditions of section 80IA(4)(i) - In the fact of the present case, if neither the assessee nor GIL are held as ineligible then no one else could get the benefit of section 80IA and the very object for which the provision has been brought would fail. Unless the entity coming forward to make the investment in developing infrastructure facility is granted the statutory deduction no one will come forward to make huge investment for development of infrastructure facility which ultimately leads to development of country‟s economic condition. Including the decision of the Tribunal in assessee‟s own case as referred to elsewhere in the order, we hold that the assessee is eligible to claim deduction under section 80IA - AO is directed to verify the correctness of assessee‟s computation of deduction under section 80IA and allow the same. Further, to ensure that deduction for the same infrastructure facility is not allowed to both the assessee and Gil, the Assessing Officer is directed to verify the relevant facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals). Even, otherwise also, the tax effect on the amount disputed by the Revenue in the present appeal is below the monetary limit of ₹ 50 lakh applicable to appeals before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, he submitted, none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./142/2007 ITJ (Pt) dated 20th August 2018, would apply to Revenue‟s appeal. For that reason also, Revenue‟s appeal is not maintainable. Validity of assessment framed u/s 153A as well as disallowance of deduction claimed under section 80IA - HELD THAT:- Admittedly, on the date of search, the assessment proceedings for all these assessment years were in progress, hence, abated. Assessing Officer is not required to confine himself only to incriminating materials for making any addition. As per the ratio laid down by the Hon'ble Jurisdictional High Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. [ 2015 (5) TMI 656 - BOMBAY HIGH COURT] in case of abated assessment proceeding, the Assessing Officer retains the power to examine all the issues irrespective of their linkage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017, ITA no.6521/Mum./2017 Shri Saktijit Dey, Judicial Member And Shri G. Manjunatha, Accountant Member For the Assessee : Shri Farookh V. Irani For the Revenue : Shri Vinod Modi ORDER PER BENCH This bunch consists of seven sets of cross appeals as well as cross objections filed by the assessee which arise out of appeals filed by the Revenue. All the appeals and cross objections are against a common order dated 30th August 2017, passed by the learned Commissioner of Income Tax (Appeals) 47, Mumbai, pertaining to the assessment years 2005 06, 2006 07, 2007 08, 2008 09, 2009 10, 2010 11 and 2011 12. 2. Since all these appeals and cross objections pertain to the same assessee involving common issues arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals and cross objections were heard together and are being disposed off by way of this consolidated order. ITA no.6518/Mum./2017 Assessee s Appeal A.Y. 2008 09 3. In grounds no.1 to 5, the assessee has challenged the validity of the assessment framed under section 143(3) r/w section 153A of the Income Tax Act, 1961 (for short the Act ). W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce before the higher appellate authorities and was successful. 5. Be that as it may, subsequently, a search and seizure operation under section 132 of the Act was conducted in case of Gammon India Ltd. and other group companies on 8th July 2010. The assessee was also covered under such search and seizure operation. In pursuance to the notice issued under section 153A of the Act, the assessee filed its return of income declaring total income at ₹ 6,72,99,474, after claiming deduction under section 80IA of the Act for an amount of ₹ 9,27,62,638. The Assessing Officer ultimately completed the assessment disallowing assessee‟s claim of deduction under section 80IA of the Act on identical reasoning on the basis of which similar claim made by the assessee was disallowed in the original assessment proceedings. Further, the Assessing Officer also made couple of other disallowances. Against the assessment order so passed, the assessee preferred appeal before the first appellate authority. 6. Before learned Commissioner (Appeals), the assessee raised an additional ground challenging the validity of the assessment made under section 143(3) r/w section 153A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of infrastructure as provided under section 80IA(4) of the Act for the aforesaid BOT Project. He submitted, in consideration for developing, operating and maintaining the road NHAI has paid a fixed sum of annuity of ₹ 1,000 crore over the concession period of 17 and 1/2 years. He submitted, the NHAI after considering competitive bids received from various parties had ultimately accepted the bid offered by a consortium between Gammon India Ltd. and Punj Lloyd Ltd. He submitted, as per the terms of the work allotment letter of NHAI, there was a mandatory requirement that the successful bidder will have to incorporate a company as a special purpose vehicle (SPV) to implement the project. In this context, the leaned Sr. Counsel drew our attention to the letter of allotment dated 5th September 2001, issued by NHAI, a copy of which is at Page 120 of the paper book. He further submitted, NHAI had also put a condition that the SPV formed for the purpose of developing the project should not undertake any other business activity except the BOT project. He submitted, complying with the condition imposed by the NHAI in the letter of allotment the assessee company was incorporated to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer while completing the assessment under section 143(3) of the Act. He submitted, in assessment years 2007 08 and 2008 09, the Assessing Officer disallowed assessee‟s claim of deduction under section 80IA of the Act on the reasoning that the assessee has not developed a new infrastructure facility, but has only widened the existing road. However, while deciding the issue in appeal, learned Commissioner (Appeals) allowed assessee‟s claim by holding that widening of an existing road would also be eligible for deduction under section 80IA of the Act, as it amounts to development, operation and maintenance of an infrastructure facility. He submitted, the aforesaid decision of the first appellate authority was also upheld by the Tribunal while deciding the appeals filed by the Revenue. The leaned Sr. Counsel submitted, while completing the assessment for the impugned assessment year under section 143(3) r/w section 153A of the Act, the Assessing Officer has repeated the disallowance under section 80IA of the Act on the very same reasoning on which it was disallowed in the original assessment order. He submitted, in the course of search and seizure operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not emanate from any incriminating material found during the search and seizure operation. He submitted, once assessee‟s claim of deduction under section 80IA of the Act has been accepted by the Tribunal in assessment years 2007 08 and 2008 09, it cannot be reviewed and learned Commissioner (Appeals) cannot disallow assessee‟s claim of deduction under section 80IA of the Act on the teeth of the orders passed by the Tribunal. 8. Thus, he submitted, exercise of power under section 153A of the Act to make disallowance under section 80IA of the Act is wholly without jurisdiction, hence, untenable. As regards the merits of the issue, the leaned Counsel submitted, the allegation of the learned Commissioner (Appeals) that the assessee is merely a paper entity is completely contrary and inconsistent with his own finding elsewhere in the order. He submitted, though, the assessee has offered the annuity income received from NHAI in terms of concession agreement, learned Commissioner (Appeals) has not directed for excluding the annuity income while computing income of the assessee. He submitted, learned Commissioner (Appeals) has also not disturbed various expenditures incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for development of project as the entire project was financed by the assessee. He submitted, even after the search operation was conducted, in assessee‟s own case for the assessment year 2012 13 learned Commissioner (Appeals) has allowed deduction claimed under section 80IA of the Act. Further, he submitted, the fact that the assessee company was purchased by a Singapore based company in financial year 2015 16, demolishes the finding of learned Commissioner (Appeals) that the assessee is a merely paper company. He submitted, though, the issue was otherwise concluded by the decision of the Tribunal in assessment years 2007 08 and 2008 09, only to get over the orders passed by the Tribunal, learned Commissioner (Appeals) has disallowed assessee‟s claim of deduction under section 80IA of the Act on a completely different reasoning without any material basis. Thus, he submitted, assessee‟s claim of deduction under section 80IA should be allowed. In support of his contention, leaned Sr. Counsel relied upon the following decisions: i) Radhaswamy Satsangh v/s CIT, [2992] 193 ITR 221 (SC); and ii) CIT v/s Paul Bros., [2995] 216 ITR 548 (Bom.). 9. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts with the GIL i.e., EPC and O M contracts under which the entire work relating to development, operation and maintenance of the BOT Project was handed over to GIL on purely back to back basis. He submitted, all the responsibilities and liabilities under concession agreement as conferred on the assessee company were shifted to GIL under the EPC and O M contracts. Further, he submitted, the pricing of the EPC contract with the GIL is not transparent as the assessee has deflated the price to increase its profitability. He submitted, except making financial investment, the assessee is not contractually exposed to any risk or liability. The learned Departmental Representative submitted, unless the person claiming deduction under section 80IA of the Act himself carries out any one of the activities as provided under section 80IA(4)(i) of the Act, it will not qualify for deduction. He submitted, in the facts of the present case, admittedly, the assessee has not carried out even a single activity relating to either development or operation or maintenance of the infrastructure facility. The entire work was carried out by GIL. The assessee merely received the annuity income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while accepting assessee‟s claim and the Tribunal also upheld the aforesaid decision of learned Commissioner (Appeals). 11. The issue which needs examination is, what is the incriminating material found as a result of search conducted in case of the assessee, that could have enabled the Assessing Officer to again re visit the issue of deduction claimed under section 80IA of the Act in the search assessment. On a perusal of the assessment order passed under section 143(3) r/w section 153A of the Act, it is very much evident that the Assessing Officer has not referred to any incriminating material insofar as it relates to development of the BOT Project or assessee‟s claim of deduction under section 80ITA of the Act. In fact, while dealing with the specific issue relating to assessee‟s claim of deduction under section 80IA of the Act, the Assessing Officer has very clearly relied upon the reasoning on the basis of which similar disallowance was made in the original assessment orders passed under section 143(3) of the Act for the assessment years 2007 08 and 2008 09. In fact, adopting the very same reasoning in the earlier assessment orders, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, learned Commissioner (Appeals) has referred to a report of the Freschmann Prabhu India Pvt. Ltd., relating to actual cost of the project as a new material available to the Assessing Officer. However, the assessee‟s contention that the said report is not an incriminating material found as a result of search, but was submitted by the assessee itself remains uncontroverted. Thus, from the aforesaid facts, it becomes clear that no incriminating material relating to the assessee was found as a result of search. Further, learned Commissioner (Appeals) while justifying the initiation of proceeding under section 153A of the Act, has observed that the incriminating finding by him that the assessee is a paper company is directly related to assessee‟s claim of section 80IA of the Act and these are new facts on record which are never examined earlier, hence, empowers the Assessing Officer to examine the claim of deduction under section 80IA of the Act. Thus, the observations made by learned Commissioner (Appeals), as discussed above, clearly establishes the fact that in the course of search and seizure operation conducted in assessee‟s case no incriminating m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready been knocked off by learned Commissioner (Appeals) and the Tribunal, it cannot be revived again in the search assessment proceeding. 15. As it appears, knowing fully well that the reasoning on the basis of which the Assessing Officer has disallowed assessee‟s claim of deduction under section 80IA of the Act would not be sustainable in view of Tribunal‟s decision on such issue in assessee‟s own case, learned Commissioner (Appeals) has attempted to introduce the theory of paper entity‟ to disallow assessee‟s claim of deduction under section 80IA of the Act by referring to incriminating material which, in reality, never existed. Therefore, we are unable to uphold the decision of learned Commissioner (Appeals) on the issue of validity of assessment made under section 153A of the Act. Accordingly, we hold that the additions made in the assessment order which are not on the basis of any incriminating material found as a result of search are not sustainable. 16. Having held so, we could have restrained ourselves from deciding the issue on merits. However, since the issue arises in other assessment years as well where the assessments have abated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost is required to insure the project during the period of implementation. The work of GIL is limited to carrying out the development as well as operation and maintenance of the infrastructure project as per the price fixed under the contracts. Thus, the status of GIL is that of a contractor. Whereas, the assessee as per the terms of the concession agreement is the developer of the infrastructure facility. It is relevant to observe, the concession agreement was executed on 30th October 2001. Whereas, the EPC contract was entered into on 13th February 2002. Thus, both these contracts were much prior to assessment year 2006 07, wherein, for the first time assessee claimed deduction under section 80IA of the Act. It is also a fact on record that in the course of assessment proceeding in assessment year 2006 07, the Assessing Officer after examining assessee‟s claim allowed the deduction under section 80IA of the Act. Though, in assessment years 2007 08 and 2008 09 while completing the assessments under section 143(3) of the Act, the Assessing Officer disallowed the deduction under section 80IA of the Act on the ground that it is not a new infrastructure facility, however, both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as per the facts on record, it is the assessee who is only claiming deduction under section 80IA of the Act. Further, the allegation of learned Commissioner (Appeals) that the assessee is a mere paper company is unacceptable considering the fact that an agency of the Central Government has entered into a contract with the assessee. Even, the annuity income received by the assessee from NHAI has been assessed at the hands of the assessee. Expenditure claimed including finance cost, depreciation, etc. have also been allowed. Thus, it is very much clear that the assessee is a genuine company doing business and cannot be regarded as a paper entity. The most crucial factor which needs to be kept in mind is, assessee‟s claim of deduction under section 80IA of the Act in respect of the same infrastructure facility was allowed by learned Commissioner (Appeals) in the assessment years 2007 08 and 2008 09 and the Tribunal also approved it. It is worth mentioning, while deciding identical issue in assessment year 2012 13, which is after the date of search and seizure operation, learned Commissioner (Appeals) following the decision of the Tribunal has allowed assessee‟s claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the Tribunal in ITA no.5149 7430/Mum./2007, dated 27th April 2011. The provision of section 80IA(4) of the Act certainly does not give an impression that the assessee has to do the developing, operating and maintaining the infrastructure facility all by itself without engaging any contractor. This, in our view, cannot be the meaning of section 80IA(4) of the Act. This is why, while dealing with the issue earlier, though, the fact of EPC and O M contracts were very much in the knowledge of the Assessing Officer as well as the appellate authorities, they never questioned assessee‟s status as the developer of the infrastructure facility and the disallowance of deduction under section 80IA of the Act was made only on the reasoning that the infrastructure facility is not a new one. Therefore, when the status of the assessee has been accepted as a developer, even by the Assessing Officer in the impugned assessment order, learned Commissioner (Appeals) cannot change the status purely on the basis of conjecture and surmises without any contrary material available on record. In fact, learned Commissioner (Appeals) has not referred to even a single piece of material w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has capitalized a sum of ₹ 226 crore towards EPC charges. Comparing the EPC contract cost awarded by the assessee to GIL with contract cost awarded by an associate as well as the independent engineer‟s report, the Assessing Officer disallowed capitalization of excess cost amounting to ₹ 5.47 crore. Consequently, he disallowed corresponding depreciation on such cost worked out at ₹ 39,87,630. The assessee contested the aforesaid disallowance before the first appellate authority. 22. After considering the submissions of the assessee in the context of the facts and material on record, learned Commissioner (Appeals) held that the Assessing Officer has no power to substitute the actual cost of the project recorded in the books of account with an estimated cost without rejecting the books of account. Accordingly, he deleted the disallowance of depreciation made by the Assessing Officer. However, relying upon CBDT Circular no.9/2014, dated 23rd April 2014, he held that the project cost has to be amortized over the concession period and the depreciation claimed by the assessee has to be disallowed. Accordingly, he disallowed the depreciation claimed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exempt income by way of dividend, the Assessing Officer held that disallowance under section 14A of the Act has to be made in accordance with rule 8D. Noticing that the assessee itself has worked out the disallowance under section 14A of the Act in the original return of income at ₹ 2,36,81,525, the Assessing Officer made the disallowance of the very same amount while computing income under the normal provisions. Further, he made similar disallowance while computing book profit under section 115JB of the Act. The assessee challenged the aforesaid disallowance before the first appellate authority. 28. After considering the submissions of the assessee in the context of the facts and material on record, learned Commissioner (Appeals) found that the issue relating to the disallowance under section 14A of the Act, was already a subject matter in the original assessment proceedings. Therefore, he held that it cannot be a subject matter of dispute in the assessment proceedings under section 153A of the Act, as no incriminating material was found. Accordingly, applying the ratio laid down by the Hon'ble Jurisdictional High Court in Continental Warehouse Corporation (Nhava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid contract cost to the GIL at a higher rate, invoked the provisions of section 40A(2) of the Act and disallowed a part of depreciation expenditure corresponding to the excess cost capitalized by the assessee. 35. Learned Commissioner (Appeals) while dealing with the issue has deleted the disallowance on the reasoning that the cost of contract as entered in the books of account cannot be substituted with an estimated cost without rejecting the books of account. 36. Having considered the rival submissions and perused the relevant facts and material on record, we do not find any infirmity in the aforesaid decision of learned Commissioner (Appeals). Before invoking the provisions of section 40A(2)(b) of the Act, the Assessing Officer has to establish through cogent material that the price paid by the assessee is not at arm's length. In the facts of the present case, as rightly observed by the learned Commissioner (Appeals), the Assessing Officer has substituted the price of contract with an estimated cost. Therefore, we do not find any reason to interfere with the decision of the learned Commissioner (Appeals). Even, otherwise also, the tax effect on the amount disputed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds raised by the assessee are allowed. 47. In ground no.10, the assessee has challenged the disallowance of depreciation claimed on right to collect annuity. 48. This ground is identical to ground no.10, raised by the assessee in its appeal being ITA no.6518/Mum./2017. In view of our decision therein, we delete the disallowance made by the Assessing Officer and confirmed by learned Commissioner (Appeals). The ground raised by the assessee is allowed. 49. In ground no.11, the assessee has challenged the disallowance of expenditure under section 14A of the Act. 50. This ground is identical to ground no.11, raised by the assessee in its appeal being ITA no.6518/Mum./2017. Following our decision therein, the ground raised by the assessee is dismissed. 51. In the result, appeal is partly allowed. ITA no.6486/Mum./2017 Revenue s Appeal A.Y. 2006 07 52. In grounds no.1 and 2, the Revenue has challenged the deletion of disallowance of deprecation by invoking the provisions of section 40A(2) of the Act. 53. This issue is identical to the issue raised by the Revenue in its appeal being ITA no.6587/Mum./2017. Following our decision therein, the ground raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment framed under section 153A of the Act, admittedly, on the date of search, the assessment proceedings for all these assessment years were in progress, hence, abated. Therefore, the Assessing Officer is not required to confine himself only to incriminating materials for making any addition. As per the ratio laid down by the Hon'ble Jurisdictional High Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. (supra) in case of abated assessment proceeding, the Assessing Officer retains the power to examine all the issues irrespective of their linkage to any incriminating material found during the search. Therefore, we are unable to accept the grounds raised by the assessee challenging the validity of the assessment orders passed under section 153A of the Act. However, on merits, we allow assessee‟s claim of deduction under section 80IA of the Act by following our decision while deciding similar issue raised by the assessee in its appeal being ITA no.6518/Mum./ 2017. Accordingly, grounds no.1 to 5, are dismissed. Whereas, grounds no.6 to 9, are allowed. 68. In ground no.10, the assessee has claimed depreciation on right to collect annuity by treating it as an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Revenue in its appeal being ITA no.6487/Mum./ 2017, we have upheld the decision of learned Commissioner (Appeals) in deleting such disallowance. Facts being identical, following our decision therein, we uphold the order of learned Commissioner (Appeals) on the issue. Grounds are dismissed. 74. The next common issue which arises in assessment years 2009 10 and 2010 11, relates to the deletion of disallowance made under section 14A of the Act while computing book profit under section 115JB of the Act. 75. In view of our decision in ground no.11, raised by the assessee in its appeal being ITA no.6519/Mum./2017 and ITA no.6520/Mum./2017 we uphold the decision of learned Commissioner (Appeals) on the issue. Grounds raised are dismissed. 76. In the result, appeals are dismissed. Cross Objection no.67/Mum./2019 Cross Objection no.64/Mum./2019 Cross Objection no.65/Mum./2019 Cross Objection no.66/Mum./2019 Cross Objection no.68/Mum./2019 Cross Objection no.69/Mum./2019 Cross Objection no.70/Mum./2019 77. In view of our decision in the cross appeals decided in the earlier part of this order, all these cross objections have b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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