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TMI Blog2023 (9) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... claim under the Act but disallowed on account of interest paid to Citycorp Finance Ltd. u/s 40(a)(ia) of the Act and added to the total income of the assessee out of interest payment GSHP-9A contract work which clearly establishes due application of mind by the Ld. AO. Moreso, the issues in question, as raised by the Ld. PCIT has already been explained by the assessee. The assessee further clarified that the assessee made substantial investment for developing the infrastructure facility with supporting financial documents. It was further mentioned that the entire investments were made by the appellant and no subsidy and/or assistance from any other prescribed authority was received; the explanation rendered by the assessee. There is no iota of doubt that the AO has made a detailed enquiry in the case of the assessee in the scrutiny proceeding, particularly, in regard to the issue raised by the Ld. PCIT in the order impugned. Upon making the exhaustive enquiry and excessive documents so placed by the assessee before the Ld. AO, the return of income filed by the assessee had been accepted. We would like to mention that though the PCIT sought to justify his point of view in hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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, the assessee is referred to as contractor or just because 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) of the Act. 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 confers right of eligibility to the assessee to claim benefits under section 80IA(4) of the Act. Decided in favour of assessee. - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In that view of the matter, the order passed by the AO dated 31.03.2009 under Section 143(3) r.w.s. 147 of the Act was found to be erroneous and prejudicial to the interest of the Revenue. By the said notice dated 01.03.2011, the appellant was granted opportunity to reply the same. The assessee, thereafter, on 15.03.2011 replied to the said show cause issued by the Ld. PCIT. The main contention of the assessee, as it reflects from the said reply dated 15.03.0211 appearing at Page No.57 of the paper book filed before us is reproduced hereinbelow: The Original return of income is furnished on 30/12/2006 declaring total income of Rs. NIL. The revised return of income was furnished on 19/02/2007 declaring total income of Rs. NIL. The original order was passed u/s. 143(3) on 10/04/2008 determining total income at Rs. NIL. Thereafter the case was reopened us. 147 of the I.T. Act, 1961 and order u/s. 143(3) r.ws. 147 of the IT Act, 1961 was passed on 31/03/2009 determining the total income at Rs. NIL. The A.O. as per para 4 of the above order dated 31/03/2009 issued a show cause notice dated 20/03/2009 for the compliance of following issues. 1) Status of the assessee claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the Ld. AO in the re-assessment proceeding itself which is clearly evident from the order passed by the Ld. AO under Section 143(3) r.w.s. 147 of the Act. The relevant portion whereof is as follows: 4. The assessee derived income from Road construction work secured from the National High way Authority. On verification of the revised return of income filed by the assesses on 19-2-2007, it is found that the assessee has furnished audit report in form No. 10CCB. Notice under section 143(2) was issued and served upon the assessee. In response to the above notice, Shri Samtaji Rajput accountant in the company of Shri Bakul I. Shah , C A., duly authorized attended from time to time and discussed. On scrutiny of the details, the following issues emerged which requires to be decide and a show cause notice dt. 20-03-2009 was issued to call for the compliance on the issues. (1) Status of the assessee claimed as Joint Venture. (2) Claim of deduction under section 80-IA(4) of the Income Tax Act, 1961. (3) Disallowance of interest expenses under section 40A(ia) of Income Tax Act 1961 (4) Exemption on Receipt of Insurance claim under Income tax Act, 1961. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d TDS provisions are not applicable. The assessee failed to the financial institute and TDS provisions are not applicable. The assessee failed to furnish any supporting evidence to prove that it is financial institute and TDS provisions are not applicable. In view of the above, the interest payment of Rs. 48,983/- has been disallowed u/s 40A(ia) and added to the total income of the assessee out of interest payment GSHP/9A contract work. (4) Exemption claimed on receipt of Insurance claim. The assessee furnished the evidence in support of its claim for Insurance claim received of Rs. 33,93,158/-. The same evidence are . and accordingly, no addition is made on this count. After discussion and keeping in mind the submission of the assessee total income is recomputed as under: GSHP-9A. Net profit as per Profit and Loss A/c Rs. 1,95,64,706 Add: Disallowables: (i) Out of interest expenses u/s 40A(ia) Rs. 48,983. Rs. 1,96,13,689 RJ-1. Net profit as per Profit and Loss A/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee out of interest payment GSHP-9A contract work which clearly establishes due application of mind by the Ld. AO. Moreso, the issues in question, as raised by the Ld. PCIT has already been explained by the assessee. 8. The assessee further clarified that the assessee made substantial investment for developing the infrastructure facility with supporting financial documents. It was further mentioned that the entire investments were made by the appellant and no subsidy and/or assistance from any other prescribed authority was received; the explanation rendered by the assessee appearing at Page Nos. 50 51 of the paper book is reproduced hereinbelow: 6. The developing facility of the respective work is carried out by our selves only. Substantial investment is made by us for developing the infrastructure facility. The following figures are self explanatory with regard to our investment in fixed assets alone. Adition during F.Y.: 2005-06 9A : 1,2462,504/- RJ-1 : 12,38,918/- Rs. 1,37,01,422/- Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scheme envisaged in the Act. 11. We hope, your honour would be satisfied with this explanation and requested your honour to allow the claim u/s. 80IA as per the return. However, in case your honour require some further information or details, kindly let us know and we will comply with your requirements promptly, on hearing from your office. 9. We further find that while quashing the order passed by the Ld. AO under Section 143(3) r.w.s. 147 of the Act, the Ld. PCIT held the assessee, a contractor, executed work contract awarded by Centre/State Government and accordingly not found eligible for deduction under Section 80IA(4) of the Act and on the issue, the Ld. PCIT relied upon the judgment passed by the ITAT, Pune Bench in case of B. T. Patil Sons Belgaum Constructions (P.) Ltd. vs. ACIT in ITA Nos. 1408 1409 (Pune) of 2003. However, judgment passed in the matter of B. T. Patil Sons Belgaum Constructions (P.) Ltd. (supra) is now cannot be said to be a good law in view of the order passed in the matter of CIT vs. ABG Heavy Industries Ltd., reported in [2010] 189 Taxman 54 (Bombay) by the Hon ble Bombay High Court, a copy whereof has already been filed before us. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0IB of the Act itself generation of profits from infrastructural activity that attracts incentives under the said provisions, and not ownership in the business. The relevant observations are as under: 12. While dealing with the matter, the Hon ble Jurisdictional High Court pleased to rely upon the judgment passed by the Hon ble Supreme Court in case of Liberty India vs. CIT, reported in [2009] 317 ITR 213 (SC). It was held that in order to be eligible for deduction of profits from industrial undertaking under Section 80I, 80IA, 80IB of the Act itself generation of profits from infrastructural activity that attracts incentives under the said provisions and not ownership in the business. It is the main contention of the assessee that the verification of the issues upon considering the evidence adduced by the assessee had already been done by the Ld. AO in the reassessment proceeding under Section 147 of the Act and the stood settled. Further that, no new material has been brought on record by Revenue which shows that the order passed by the Ld. AO was erroneous and prejudicial to the interest of Revenue. In this regard, we have relied upon the judgment passed by the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint of view in holding the order passed by the Ld. AO erroneous so as to prejudicial to the interest of the Revenue due to lack of enquiry, such finding is totally found to be non-application of mind and a colorable exercise of power. We find that in this case proper and adequate enquiry has been conducted by the Ld. AO. Thus, the order passed by the Ld. PCIT quashing the order passed by the Ld. AO holding it erroneous and prejudicial to the interest of the Revenue due to lack of adequate enquiry is not sustainable in the eye of law. In that view of the matter, under the particular facts and circumstances of the case, when record reveals sufficient enquiry has been conducted by the Ld. AO in coming to a conclusion and completing the assessment, the impugned order purportedly invoking the provision of Section 263 of the Act in a mechanical and stereo type manner without taking into consideration the factual matrix of the matter, is found to be not sustainable in law and thus quashed. ITA No. 3266/Ahd/2011 A.Y. 2008-09 (Revenue s appeal) 15. Allowing the disallowance of claim of deduction of Rs. 18,52,57,748/- under Section 80IA(4) of the Act is subject matter before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Kerala State Industrial Development Corpn Ltd Vs CIT 259 ITR 51(SC) 5. Bajaj Tempo Ltd Vs CIT 196 ITR 188(SC) 6. Gujarat Industrial Development Corporation and Others Vs CIT 227 ITR 414(SC) 7. CIT Vs Strawboard Manufacturing Co Ltd 177 ITR 431(SC) 17. However, the Ld. AO was of the view that the assessee is not a developer rather a work contractor and therefore not entitled to claim under Section 80IA(4) of the Act as for the year under consideration. The explanation so rendered by the assessee was found to be not acceptable and the deduction under Section 80IA(4) of the Act was found to be inadmissible on the sole ground that the assessee is a contractor and engaged in the contract business. The claim of the assessee, thus, denied by the Ld. AO which was. in turn, reversed by the Ld. CIT(A) being a developer of infrastructure projects. Hence, the appeal preferred by the Revenue. 18. The Ld. DR supported the order passed by the Ld. AO and vehemently argued that the assessee is not a developer but a work contractor and the relief granted to the assessee wrongly by the Ld. CIT(A) finding him eligible for exemption for the eligible unit under Section 80IA(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject including housing or other activities being an integral part of the highway project, (c) The issue has been examined by the Board. It has been decided that widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 801A(4)(i). However, simply relaying of an existing road would not be classifiable as a new infrastructure facility for this purpose. (v) It is the contention of the department that the assessee being engaged only as a works contractor under contracts awarded to it by Govt. it has carried only works contract and hence it was covered by the newly inverted Explanation which disentitled it from the deduction under sub-section (4). However, considering the nature of the business of the assessee in proper perspective, this contention of the AO is wrong. The business carried on by the assessee has many elements of the nature of developing (emphasis supplied) of new infrastructure facility in view of the facts on record which are uncontroverted and more so when same kind of nature of business was carried on by the assessee in earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee this year notwithstanding the insertion of the explanation. (x) The learned Assessing Officer is in error in relying upon the withdrawal of claim under section 80IA(4) of the Act for the A.Y. 2009- 10. The fact is that the appellant has cautiously undertaken this exercise and also clearly stated in the Special Civil Application before the Hon'ble Gujarat High Court that if the appellant succeeds, it shall claim the same on settled position of law after the disposal of the petition by the Hon'ble High Court of Gujarat. Therefore, there is no question of any inaccurate claim or wrong claim under section 80IA(4) of the Act by the appellant. (xi) That the assessee also carried on activities by way of developing of infrastructure facility is also patent from its financial statements. The assessee has made huge investments of own as well as borrowed funds and has invested the same in all kinds of resources for its business, namely plant and machineries, structures sites, working capital, human resources, technical expertise etc. The assessee possesses its own technical knowledge of how to develop and lay roads, dams, bridges etc. and it has its own technical a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velop infrastructure facility only under a government mandate which is given in the form of a contract. Once there is a contract for a new facility, there are bound to be obligations under the contract which include obligations of, inter alia, observing the specifications of the infrastructure facility, Hence, although there may be such pre-decided specifications in the contract, the execution thereof for building and creating the infrastructure leaves much. scope and freedom to the person carrying out the contract, by way of its planning designing know-how, funds, risks, human resources etc., all of which are carried out at the sole risk of the assessee. (xiii) The Explanation to any section has to sub-serve the main provisions of the statute and it cannot be read to curtail it or override it, as held by the Supreme Court in many cases such as Sunderram Pillai AIR 1985 (SC) 582. Therefore, if the assessee continues to be eligible under the substantive provisions of sub-section (4) as having acted as a developer, the Explanation cannot take away the benefit of the Section. That the assessee has been held to be eligible for deduction in past not merely because of the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment as all the condition laid down by the IT Act have L fulfilled. Till date, majority assessments were finalized u/s 143 (3) of t T Act and assessee's claim u/s 801A (4) accepted. (xvi) The decision of the Mumbai Bench in the case of BT, Patil (supra) cited and relied upon by the department does not operate ag the appellant in the present case because the facts of that case show the assessee therein was employed as a sub-contractor by an contractor to carry out civil work and it was the other contractor had entered into the contracts with the Govt. and it is in view particular facts of that case that the tribunal came to the conclusion the assessee in that case not being a developer, it was covered Explanation as inserted by Finance No.2 Act, 2009 whereas present case, the facts as also the accepted history shows the appellant is not only a works contractor but is also a develop hence the insertion of the said Explanation does not make any difference to the claim of the appellant (xvii) At regards other conditions for eligibility u/s. 80-IA(4) which aspect has been held against the assessee by the department, that once the assesses becomes an eligible undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out works contract only Your honour can find that in the present case, the facts relating to nature of trainees are not shown to be different than those already examined by the department earlier. That being the case, even if the impugned Explanation is to be considered for the year under present appeal, your honour will find that the explanation clearly refers to the business in the nature of works contract. This clearly implies that the explanation is limited in its scoper and as the nature of business of the present assessee, both in view of the facts for the year under appeal as also for the view already taken by department in similar cases for earlier year, the assessee being developer of infrastructure facility. The deduction under sub-section (4) cannot be on the ground of said Explanation. The factual position regarding nature of business being same as in earlier years even it has not been controverted by the department. Hence, in assessee's view, although it is held that the principle of resjudicata does not apply to proceedings, at the same time, the equally well-established rule of consistency also cannot be overlooked. In the case of Radasoami Satsang vs CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. appellant required furnish guarantees including maintenance of infrastructure facilities. All factors combined clearly go showe that appellant also assumed considerable risk the capacity businessman and the such as undertaken, although wonder a contract mandated by Section, would require skills planning of work, employing technical know-how execute the work face the consequences of attendant risks. Further, the risks upon the assessee and upon Govt, these elements are generally missing case a sub-contractor. Here, the appellant engaged performing its functions further, in case of Om Metals Infra projects Ltd CIT-J, Jaipur ITAT, held that if assessee mobilizing people, plants, technical expertise etc., the assessee can be said be developer and the assessee be denied deduction from the profits of developing infrastructure facility though it may not operate or maintain the same, particularly in view of the insertion of the word or in Sec. 80-IA(4). (xx) The learned Assessing Officer has further erred in not following the binding decision of Hon'ble Rajkot Bench of Tribunal in the case of Tormat Bel (JV), KCL Rajkot in ITA No. 111/RJT2010 dated 23.09.2010 (Copy encloged) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but various judicial pronouncements examined the issue and held that the term has wider meaning so as to state that if the activities carried out by the assessee involve development of project, engagement of various agencies, undertaking risk element, raises own finances and invests its own funds in the construction of the project, then the case of the assessee falls within the meaning of expression developer . A perusal of the tender documents clearly shows that the assessee has to arrange own finances, purchase own plant machinery and purchase all materials at own cost, deploy qualified personnel for construction and development of infra projects. The authorities gave only general specifications for the project. However, for the specific drawings designs recommended by the assessee, the same has to be approved by the competent authority and becomes part of the tender. Further that once the tender is awarded, the assessee has to pay earnest money, security deposits, performance guarantee by placing fixed deposits with banks. The assessee is also liable for liquidated damages/penalty, free maintenance and repair during defect liability period. During the construction of projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 . GVPR Engineers Ltd. [2012] 21 taxmann.com 25 (Hyd ITAT) 10. B.T. Patil Sons Belgaum Construction P.Ltd. [2013] 34 taxmann.com 97 (Pune ITAT) 21. It also appears that the assessee filed further submission before the First Appellate Authority with following certain details: i. Consolidated contract account, P L account and balance sheet for the year 2008-09 establishing the fact that members have made substantial investment amounting to Rs. 10,89,18,709/- in carrying out the business of development of infrastructure facility. ii. Form No.10CCB claiming deduction under Section 80IA(4) of the Act along with copy of work duly exhibited. 22. At this juncture, therefore, deliberation is required on the main issue as to whether the assessee is entitled to the deduction claimed under section 80IA(4) of the Act even after the Explanation inserted after sub-section 13 of section 80IA of the Act by the Finance (No.2) Act 2009 w.e.f. 1-4-2000. The Explanation reads as follows: 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 subsection (4) which is in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section was first introduced by the Finance Act 1991 for providing deduction to industrial undertaking. The purpose of providing such deduction was modernisation and expansion of industrial undertaking. iii. However the provisions of this section was amended by Finance Act, 1995 for the reason that the legislature realised that the modernisation of industrial undertaking requires development of infrastructure facility. This fact can be verified from the memorandum (Circular No. 717, dated 14-8-1995) explaining the amendment in the section as reproduced below: 34.1 34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement is infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame . In many countries the BOT (build-operate-transfer) or the BOOT (build-ownoperate- transfer) concepts have been utilised for developing new infrastructure. Finance Act, 1995 34.3 Applying commercial principles in the operation of infrastructure facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticipation in these developmental projects offered various business, models like BOOT, BOLT BOT. BOOT means Build Own Operate Transfer Under this scheme the private participant will get an opportunity to own and operate the facility for some time and during this period the developer can commercially exploit the facility so developed. After the specified period the facility would be transferred to the Government. BOLT means Build Own Lease Transfer The Private participant will lease the facility to the Government and the Government will pay the lease charges for a specific period and on the completion of the lease period the facility is transferred to the Government. BOT means Build Operate Transfer Under this scheme the private participant will not be owning the facility. The private participant would be entitled to operate the facility for a specific period during which the revenues from the operation would be shared between the private participant and the Government or the Government will be paid lease charges by the private participant. On completion of the specified time the facility will be transferred to the Government. vii. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract, even if by way of ordinary parlance, such enterprises may also perceive their business as that of development. The legislature has, thus, made a conscious distinction between a business of development as envisaged by the Section 80IA and a business of construction/works contract that might have some semblance of development in the ordinary parlance. It, therefore, cannot be overemphasised that for an enterprise to be eligible for admissibility of deduction u/s 80IA, a non-negotiable precondition is participation in the project as a developer assuming investment risk and entrepreneurial risk. In other words, investment risk is the litmus test for discerning the eligibility of a developer as envisaged in the scheme of Section 80IA vis- -vis a developer understood in common parlance. xi. The clarificatory amendment of 2009 The amendment of 2007 intended to plug the possibility of misuse by assesses who entered into a mere works contract with the undertaking or enterprise. However, the misuse of the deduction still continued by the undertaking or enterprise which were awarded the works contract directly by the contractee governments. In order to prohibit this misuse of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexpired period during which the transferor Enterprise would have been entitled to claim the deduction. Therefore, the infrastructure facility has to be developed on BOT, BOOT or BOLT or similar arrangement where the investee Enterprise bears the financial and investment risks. The nature of contracts entered by the assessee company does not reflect that it has brought investment and bear the financial and investment risk. It only bears the contractual risks which is true for any construction contracts. The above legislative intent has been clarified many times by Parliament as per clarificatory amendments made in 2007 and 2009. 26. Thus, the sum and substance of the prayer of the department is this that the assessee cannot be found to be eligible for deduction as he worked as a mere contractor and not a developer within the meaning and scope of Section 80IA(4) of the Act., particularly, for the fact that the assessee appointed various sub-contractors as per Annexure B to 3CD report for TDS deducted and paid showing deduction as per the rate applicable to sub-contractor. The income from contract activities are shown on percentage of bill basis and the fixed asset d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with due care and diligence, design (to the extent provided by the Contractor), execute and complete the Works and remedy any defects therein in accordance with the provisions of the contract The contractor shall provide all superintendence, labour, materials, plant, contractor's equipments and all other things, whether of a temporary or permanent nature at its own cost. The same is appearing from Clause 8.1 of Tender documents at Page 119 of PB-II filed before us. Site 1: Audited Accounts P L account- Page 25 of PB-I. Total ContractExpenses incurred during the year are of Rs. 62,85,43,029/- and creditors for goods are of Rs 3,09,53,357/-. The same is appearing from Schedule B of Balance Sheet at Page Nos.29 30 of PB-I filed before us. Site 2: Audited Accounts P L account- Page 34 of PB-I Total Contract Expenses incurred during the year are of Rs 3,63,03,463/- and creditors for goods are of Rs 38,89,015/-, the same is appearing from Schedule B of Balance Sheet at Page Nos. 38 of PB-I filed before us. The various materials, Plants, Samples etc. are got to be tested by the Contractor at its own cost from time to time as appearing from Clauses 36.1 to 36.3 of Tender doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 47.1 of Tender documents from Page 104 133 of PB-II filed before us. xi. DEFECT LIABILITY PERIOD 365 days free maintenance and guarantee period from the certified date of completion of work The same is appearing from Appendix to Bid, clause 9 clause 49.1 of Tender documents at Page 104 Page 134 of PB-11 filed before us. xii. TERMS OF ADVANCE PAYMENT/ MOBILIZATION ADVANCE Advance payment/ mobilisation advance will be given, which will be interest bearing up to 5% of the contract price at commencement of work, and payment of additional interest bearing advance up to 5% of the contract price after the contractor has achieved a financial progress of 10% of the contract price and the rate of interest shall be 10% per annum. The same is appearing from Appendix to Bid. Clause 11 at Page 104 of PB-II filed before us. xiii. TERMS OF PAYMENTS: The Contractor shall submit monthly statements of estimated value of work completed, and it will be subject to final Certification, determination and approval by the Engineer and that too after deductions like payments, retention, other recoveries, taxes etc. The same is appearing from clause 60.1 602 of Tender docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted to the assessee for A.Y. 2007-08 on 13.04.2009 by the Ld. AO by and under assessment made under Section 143(3) of the Act. Relevant to mention that all the orders passed in assessee s own case as mentioned hereinabove have been perused by us as been duly furnished by the appellant before us. 31. As to whether the assessee can be termed as developer or a contractor as contended by the Revenue in its 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, 341 ITR 403 (Guj). It is imperative upon us to take note of the relevant portion of the above judgments for better understanding of the issue on hand. 34. We have repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrated hereinabove and therefore, there is hardly any basis for assuming that it is merely a contractor executing a works contract. The difference between a developer and a contractor has to be properly analyzed and understood. This issue has come up before the Hon'ble ITAT, Amritsar Bench in the case of M/s. TRG Industries P. Ltd. in ITA Nos. 433 etc./Asr/2009. The Tribunal after relying various case laws has laid down the following parameters when to treat an assessee as a developer or contractor: (i) The assessee does not have to develop the entire infrastructure facility to qualify for deduction u/s. 80-IA(4) and if only a part of the infrastructure facility is developed, the assessee would be eligible for deduction. (ii) The three requirements of section 80-IA(4) viz. development, operation and maintenance are not cumulative. Thus, an enterprise which only develops facility would also be entitled to the benefit of section 80-IA(4). (iii) Merely because the assessee is referred to as a contractor in the agreement, it would not debar it from claiming deduction. (iv) Direct agreement between the transferee-assessee and the specified authority is not a mandato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cility, he did not fulfil the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this judgment. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1-4-1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1-4-1995. After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are : (i) Ownership of the enterprise by a Company registered in India or by a consortium; (ii) An agreement with the Central or State Government, local authority or statutory body; (iii) The start of operation and maintenance of the infrastructure facility on or after 1-4-1995. The requirement that the operation and maintenance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the ratio laid down by the Hon ble Delhi High Court in the case of CIT vs. VRM India Ltd., reported in [2015] 57 taxmann.com 325 (Delhi). While dealing with this particular aspect of the matter the Hon ble Court has been pleased to observe as follows: 15. Since the assessee developed an infrastructure facility/project and was not required to maintain or operate, it was entitled to cost, plus the margin of income or profit; not to expect this treatment would render one who develops an infrastructure facility project, unable to realise its cost. If the infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, the mere circumstance that the Indian Railways or DDA paid for development of a housing project carried out by the assessee, did not mean that the assessee did not develop the residential complex. If the revenue's interpretation is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IB (10). The conclusions of the ITAT in this context were rendered after a detailed analysis of the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures at sites, working capital, human resources, technical expertise etc.; it has technical knowledge of developing and laying roads, dams, bridges etc; it cannot be held that appellant acted as only works contractor, the issue involved in the case relied on by the AO was whether sub-contractor was eligible for deduction u/s. 801A(4); the facts of the appellant's case are different in the sense that it is not sub-contractor but the main contractor, the decision of the Rajkot Tribunal in the case of Tarmat Bel (JV)KCL, Rajkot in ITA No.1111/Rjt/2010 dated 23-9-2010 supports appellant's case; in the 3 preceding years deduction u's.801A(4) was allowed to the appellant in the orders passed u/s. 143(3); Pune Tribunal's decision dt. 08-06- 2011 in ITA No.766/PN/09 in the case of Laxmi Civil Engineering Pvt.Ltd. Vs. Addl.CIT(which in turn relied on the decision of Bombay High Court in the case of ABG Hany Engineering Ltd. 37 DTR 233) also supports the appellant's case. 3.5 As seen from the assessment order, the deduction was disallowed for the first time in the year under consideration mainly relying on the Third member decision of Mumbai tribunal cited at 126 TT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the above discussion and perusal of various clauses of Tender documents and case laws relied upon by both the parties, it reveals that 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, the assessee is referred to as contractor or just because 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) of the Act. As such, looking to the over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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