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TMI Blog2012 (12) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the disallowance of deduction under section 80IA of the I.T. Act without appreciating the fact that the assessee is not eligible for deduction under section 80IA in most of the infrastructure projects where the assessee is merely a work contractor and not a developer. (ii) The appellant prays the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. (iii) The appellant craves to amend or alter any ground and/or add new grounds which may be necessary. 4. The following grounds have been raised by the assessee in the Cross Objections (COs), filed : 1. The Learned Commissioner of Income Tax (A) erred in sustaining the order under section 153A of the Act without appreciating the fact that there was no evidence or material found in the course of search action in respect of the year under consideration and hence, the assessment order passed invoking the provisions of section 153A of the Act is bad in law and liable to be quashed. 2. The Learned Commissioner of Income Tax (A) failed to appreciate that no material or evidence was found in the course of search action and hence, the underlying purpose of making assessment under section 153A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical expertise through its own human, financial material resources. Being in development of infrastructure facilities the assessee uses its own assets which include sophisticated earth excavation machineries, tower cranes, stocks of steel, cement and banking and financial facilities such as FDRs, bank guarantees and credit facilities and advances to its contractors and credits to government departments. According to the AR, the assessee is also exposed on its own, towards various risks and responsibilities such as completion of contracts within stipulated time, maintenance, delayed payments and bad debts, litigation and geological risks. 11. The assessee was subjected to action under section 132 of the Income Tax Act, 1961, on 17.02.2005. In the course of search, the revenue seized certain documents relating to the projects undertaken by the assessee. As a consequence thereof, the assessee made an offer of Rs. 1.95 crores, under section 132(4) of the Income Tax Act, pertaining to assessment year 2005-06, wherein the assessee added back to its income, sundry creditors, which were more then three years, under section 41(1). Except for this, according to the AR, no incriminating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in Clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub section pending on the date of initiation of the search under section 132 or making or requisition under section 132A, as the case may be, shall abate . 14. The AR, in his arguments referred to the provisions, and demonstrated that the legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law . 16. More recently, Hon ble Delhi High Court in the case of L R Gupta vs UOI reported in 194 ITR 32 explained the meaning of undisclosed income. The AR, through the synopsis submitted that CBDT being aware of the complexities for assessment of undisclosed income, issued Circular no. 7, dated 05.09.2003, reported in 263 ITR 106 (St) which clarified what is abatement and pointed out that the circular clarifies that abatement is only for pending assessment as on the date of search, which reads as under, Para 65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate . Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act shall apply to the assessment or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to reopen the assessment under Section 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A With all the stop having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. 21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income . 19. In continuation, the AR referred to the decision of coordinate Bench at Mumbai in the case of Saf Yeast Co. Pvt. Ltd. vs ACIT in ITA no. 1074/Pu/2007 and ITA no. 5182/Mum/2007, dated 03.10.2010, wherein, the ITAT quashed the assessment for the reasons given in para 20 its order, after applying the ratio arrived at by the Special Bench, concluded (as extracted), 20. Applying the ratio of the above decisions to the facts of the present case, xxxxxxxxxxxxx. The position thus emerging is that where assessment proceedings are pending completion when the search is initiated, the pending assessment proceeding stood abated by virtue of the second proviso to section 153A of the Act. Instead of complying with the requirements of section 153A of the Act, the A.O. proceeded with the pending assessment proceeding for the A.Y. 2004-05 and passed the impugned assessment order during the pendency of the assessment under section 153A of the Act which is a nullity and a such the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , because, only pending proceedings on the date of search, can get abated. The AR cited the case of Uttra S Shorewal, placed in the unreported portion in 48 SOT 6, wherein the additions made by the AO were deleted by the CIT(A). Additions made in the 153A proceedings were held to be not valid. The relevant observation is, The intention of section 153A is not to disturb matters that have reached finality between the parties. It is true that the provisions of section apply notwithstanding anything contained in section 147 and section 148. But that only conveys the limited idea that once a search takes place, it is open to the Assessing Officer to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted and in exercising such power, the Assessing Officer was not bound to take recourse to section 147 or section 148. But this is only for the purpose of initiating proceedings for assessment under section 153A It does not mean that matters that have already been decided between the parties and had reached finality can be disturbed and brought back to assessment. If such a power is give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merged into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B . 53. The question now is, what is the scope of assessment or reassessment of total income under section 153A(1)(b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut jurisdiction and, hence, the same is quashed. 25. The AR, in continuation of his argument that when the proceedings had reached the stage of finality, those proceedings cannot be abated as per 2nd Proviso, pointed out that in so far as the proceedings for assessment year 2004-05 were concerned, even they could be taken to be finalized, as the AO had not issued any notice to regularize the assessment, either 142(1) or 143(2), to make the assessment proceedings pending on the date of search. 26. The AR, therefore concluded that so far as proceedings under section 153A was concerned, the proceedings could not be held to be legal, because (i) no incriminating material and/or document was found, which could indicate some income having been unearthed and (ii) deny the deduction under section 80IA(4), holding that the assessee was only a contractor and not a developer of infrastructure. The AR submitted that this reason cannot be a good enough reason to invoke the provisions of section 153A, as this is only a legal argument, which by itself, cannot construe to be an incriminating material. The AR, therefore prayed that the proceedings under section 153A for assessment years 2000-01 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been dealt in subsequent paras. (b) Sub-section 801A(4) specifies the entities which are entitled for deduction under section. 801A. In clause (i) while stating that any enterprise carrying business of (i) developing or (ii) operating and maintaining or (iii) developing operating and maintaining infrastructure facility, it has been clearly laid down that such enterprise shall fulfill all the conditions laid down in sub clause (a) (b) and (c). Sub clause (c) puts a condition that the enterprise has started or starts operating and maintaining the infrastructure facility on or after first day of April 1995. Thus, the plain language of provisions of sec. 80IA(2) and 4(i)(c) makes it very dear that the deduction to an enterprise is available under this section only when enterprise developers and begins to operate or maintain the infrastructure facility . 29. The DR submitted that no doubt that there were no incriminating documents per se, but a wrong claim of a deduction would definitely construe to be an incriminating information/document, he observes, Whereas assessee satisfies the conditions referred by it in its reply reproduced in para 3.1(B) (c) and (f) without any doubt. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me or item of income and where there is no material whatsoever, the case fell within the ratio of All Cargo (SB) (supra), wherein it was held that in case there is a proceeding pending, that shall be abated and provisions of section 153A shall prevail and assessment, in the normal course shall be taken, but where the proceedings had culminated and they have reached the stage of finality, the provisions of section 153A shall only become applicable if there is any evidence/material found, indicating concealment/items of income. 33. The AR further referred to the decision of CIT vs Smt. Shaila Agarwal, reported in 346 ITR 130 (All), wherein, it is held, Section 153A of the Income-tax Act, 1961, provides that where notice under this section is issued as a result of any search under section 132, assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to under section 153, pending on the date of initiation of search under section 132 or requisition under section 132A shall abate. The words pending on the date of initiation of search under section 132 or making of requisition under section 132A, as the case may be , ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 153A, i.e. to assess income which was not disclosed or would not have been disclosed, failed, and thus the assessment made as if it were regular scrutiny assessment was beyond jurisdiction. 37. The search operations were carried out on the assessee s business premises the residential premises of its Directors on 17.02.2005. As a consequence of which, the AO initiated proceeding under section 153A for assessment year 2000-01 to assessment year 2004-05. From the arguments advanced by the AR and which were not controverted by the DR before us and by the department in the proceedings before the revenue authorities are : a) during search operations no incriminating document was found and seized, which could indicate any undisclosed income b) the only addition made by the AO was on account of withdrawal of deduction under section 80IA(4). 38. Based on these two issues, we have to first ascertain the validity of the jurisdiction cast by the legislature on the AO for the issue of notice under section 153A and then revert our attention to the validity of the additions made therein. 39. Section 153A was introduced in the statute w.e.f. 01.06.2005, wherein the section starts with the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll become subject matter of assessment under section 153A. The AO shall get the free hand, through abatement, only on the proceedings that are/is pending. It is, in these abated proceedings, AO can frame the assessment(s) afresh. But in a case or in a circumstances where the proceedings have reached finality, assessment under section 153A read with 143(3) has to be made as was originally made/assessed and in case where certain incriminating documents have been found indicating undisclosed income, then the addition shall only be restricted to those documents/incriminating material, and clubbed only to the assessment framed originally, as the law does not permit the AO to disturb already concluded issues, whether it pertained to any income or expenditure or deduction, as also observed by the Hon ble Delhi High Court in the case of Anil Kumar Bhatia, 18. A perusal of Section 153A shows that it starts with a non obstante clause relating to normal assessment, procedure which is covered by Sections 139, 147, 148, 149, 151 and 153 in respect of searches made after 31.5.2003. These Sections, the applicability of which has been excluded, relate to returns, assessment and reassessment provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under section 153A, however, the Assessing Officer has been given the power to assessee or reassess the total income of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment .years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is to be sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search. For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that where assessment or reassessment proceedings are pending completion when the search is initiated or requisition is made they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included but in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee s total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to fallow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer the question, as to what shall be the assessment of total income, where there is/are no pending proceedings and no incriminating material, we have to trace out the logical conclusion, by harmonising the legislative intendments and the judicial decisions, as held by the Hon ble Supreme Court of India in the case of K P Varghese (supra), wherein it was observed, so as to achieve the obvious intention of the Legislature and produce a rational construction. When we look into the decision of the Hon ble Delhi High Court in Anil Kumar Bhatia (supra), we find that the Hon ble Court has pointed out that in case where there is no abatement, total income has to be determined by clubbing together the income already determined in the original assessment order and the income that escaped assessment (situation 2A in the graphic). In the circumstance, what we are dealing in instantly, there are finalized assessment proceedings and no incriminating material indicating any escaped income (situation 2B in the graphic). Taking a cue from the decision of Hon ble Delhi High Court in the case of Anil Kumar Bhatia (supra) we can tread on the same premise and hold that on clubbing, what remains is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are still pending before him, as the legislature has only mentioned the words assessee or reassess, which power is only vested with the AO, therefore, no other proceeding can get abated, which includes appeal, revision or rectification (as per Circular no. 7 (supra)). 48. Now we have to tread into a situation where on the date of initiation of search under section 132 or requisition of books, no proceeding(s) is pending, but in the search, material is found indicating incriminating material. In this situation, the AO embarks on a jurisdiction, wherein he has to club the two sets of incomes, i.e. returned income and the unearthed income and arrive at the total income. 49. There is another circumstance, wherein, in the search operation, no incriminating material is found and there are no proceedings pending before the AO. In this scenario, as per the provisions of section 153A(1), the AO has to issue notices under section 153A, asking the searched person to file its returns. Since there are no proceedings which are pending before him, 2nd Proviso stops the AO to proceed further, because proceedings cannot be abated and since there is no material, no further jurisdiction is embarke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed income. On the contrary, we find that even the withdrawal of impugned deduction is only based on the changed interpretation of the AO, i.e. whether the assessee was really a contractor or was the assessee really the developer of infrastructure, and working for and on behalf of the government. Still looking from the point of view of the AO, as to how the deduction could be denied, we, do not find either any change in the relevant provision allowing deduction, nor was there any change in the factual circumstance, which could have lead to a distinguishable circumstance, or anything else, which the assessee did not bring on record in the computation of income, filed for the various years under consideration or that the claim made by the assessee was illegal or the claim was wrong. 54. When we read section 153A along with the observations made in Anil Kumar Bhatia (supra) and in All Cargo (supra), we are of the opinion that the AO was correct in law to issue the notices under section 153A for the years under consideration, as he was bound to in respect of all the concerned assessment years. We cannot agree with the arguments of the AR that the proceedings under section 153A have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the relevant assessment years, i.e. assessment years 2000-01 to 2005-06, which the assessee filed, and the assessment proceedings were undertaken. 61. In the assessment proceedings, undertaken by the AO, the AO asked the assessee, as to how the assessee fulfilled the basic condition of being a developer of infrastructure facilities, and if it is unable to fulfill the basic conditions, why the deduction under section 80IA(4) should not be denied/disallowed, which the assessee had been claiming year to year. 62. In reply to the show cause, the assessee replied, 3.1 The assessee furnished a note for justification of his claim in which, after reproducing provisions of sec.801A(1) and (4) of the I.T. Act, he has submitted the following arguments in support of its claim (A) On the basis of section, the assessee has concluded that following are the conditions which need to be satisfied - (a) Profits and Gains must be derived by the undertaking or enterprise from the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. (b) The enterprise carrying on the above business must be owned by a company registered in India or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final condition is the meaning assigned to the term infrastructure facility in the Explanation under clause (c) of sub-s. (4)(i) of section 80IA of the Act. As per the facts stated, the Assessee has entered into agreements for development of roads, bridges, water transmission system, railway-stations, etc. and thus, the projects developed or undertaken for development falls within the scope of the meaning assigned to infrastructure facility. Hence, in the case of the Assessee, this test also gets satisfied. Accordingly, it has claimed that it is entitled for benefit of deduction. The assessee has also submitted a note on the business process. Xxxx xxxxx xxxxx xxxxx The scope and effect of the introduction of the said section has been explained by the Department Circular No.717 dated 14/8/1995 reported in 215 JTR (St.) 70 i.e. Explanatory notes on provisions relating to direct taxes. The explanatory note is given in para 34.2 of the said circular wherein it is stated as under- 34.2 Industrial modernization requires a massive expansion of; and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, high ways, airports, ports an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore merely because the Maharashtra Government or APSEB has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise carrying on the business of only developing the infrastructure facility, would be entitled to deduction under s. 80-IA(4). If a person who only developed the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. When the legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e. to the person who is carrying on the activity of only developing infrastructure facility. clause (c), which reads, It has started or starts operating and maintaining the Infrastructure facility on or after 1st day of Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was also asked to clarify its role in conceptualization and designing, of the facilities. It was also brought to the notice of the assessee that TDS is being made on payments corresponding to the contracts executed by it. (b) It is merely constructing the facility not subsequently maintaining or operating the facility. In view of the provisions of section 801A(2) and subsection 4(i)(c), it appears that the deduction is available only when the assessee is operating and maintaining the infrastructure which it has not done. (c) In respect of A.Yrs. 2000-01 and 2001-02, another condition for entitlement of the above deduction is that transfer of such facility to Central Government, State Government, Local Authority etc within a stipulated period. Since it has not owned any right in the property, that is why it cannot be said it has transferred it back to Government . 65. The AO further observes that the assessee cannot be allowed the deduction because being a developer is not enough, the other requirements such as operating and maintaining and handing it back to the government are also embedded in the section, which the assessee had not done. Besides the fact that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The CIT(A) observed that it was the assessee who deployed its technical personnel who undertook studies on site and took all the responsibilities from the start of the project till its completion. He also observed only the conception of the idea and selection and ownership of site, where the particular project had to be developed, did not make the government, the developer. The CIT(A) agreed with the argument of the assessee that the impugned section did not use the expression developer or contractor and so far as the section was concerned, which reads as, 80IA(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. The term used in the section is therefore undertaking or enterprise which refers to the assessee. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitles the appellant to claim deduction under section 80-IA . 71. The CIT(A), after examining the legal aspect, examined the facts of the assessee claim, wherein, the assessee produced before the CIT(A), Year-wise split up of investment was given relating to the entire block period, which was examined. It is seen that the investments are in (a) fixed assets including sophisticated earth excavation machineries and tower cranes, etc. (b) investment by way of fixed deposits and advances to contractors and credits to the government department, (c) stock of cement/steel etc. Corresponding project receipts were also submitted and an analysis shows that the ratio of project receipts to total investments varied between 52% to 118%. Further, an analysis of the contract entered into by the appellant it was revealed that the appellant was exposed to various kinds of risks namely - (a) completion of contract within stipulated period, (b) risk of maintenance, (c) risk of delayed payments or bad debts, (d) arbitration litigation risk arid (e) geological risks. Hence, the factual position, which emerges, is that not only was the appellant also making its own investments in the development of inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found from the searched premises, which had the direct bearing on the allowability of the deduction under section 80IA, the AO was fully justified in invoking the provisions under section 153A, which was in line with the SB decision of All Cargo (supra), as also as per the decision of Hon ble Delhi High Court in the case of Anil Kumar Bhatia (supra). 74. The DR, therefore, concluded that the CIT(A) erred in allowing the deduction under section 80IA/80IA(4). 75. The AR, appearing for the assessee submitted that the issue was squarely covered by the decisions of Patel Engineering (supra) and Anil Kumar Bhatia (supra). The AR further pointed out that similar circumstance arose in the case before coordinate Bench at Pune in Mahalaxmi Construction Corp Ltd. vs ACIT in ITA no. 433/Pn/2007, wherein, in para 9, it is observed, We find from the decision of Hon ble Bombay High Court in aforesaid case of CIT vs. ABG Heavy Industries Ltd Ors (supra) that even in the case before the Hon ble High Court, the assessee acted as a contractor for Government agency, was held eligible for the purposes of claim of deduction under section 80-IA(4) of the Income Tax Act. As per the said decision of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad notes), The assessee-company entered into contracts with the Government to develop infrastructure facility. The Government handed over the possession of the projects site to the assessee and it was the assessee s responsibility to do all the acts till the developed infrastructure facility was handed over to the Government. Thereafter, the assessee had to undertake maintenance of said infrastructure for a period of 12 to 24 months. The assessee claimed deduction under section 80-IA. The Assessing Officer disallowed the same on the ground that the assessee had not developed any new infrastructure facility as required under section 80-IA(4)(i)(b) but had only taken up works contract for renovation and modernization of existing Network/infrastructure facility. The Assessing Officer also observed that the assessee entered into contract for building or constructing the whole part of the project for which the entire investments were made by the Government and the assessee was paid on running bill to bill basis and there was no stipulation in any of the contract that the facility built would be transferred or handed over back to the owner/employer. Being so, such contracts were held not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The next question to be answered is whether the assessee is a developer or mere works contractor. The revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and it is not eligible for deduction under section 80-IA(4). Whether the assessee is a developer or works contractor purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. The Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee s responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80-IA(4). The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. As per the provisions of section 80-IA, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word contractor is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word contractor is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. Section 80-IA intends to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation to section 80-IA (13), those work are not entitled for deduction under section 80-IA. The profit from the contracts which involve design, development, operating and maintenance, financial involvement, and defect correction and liability period is to be computed by the Assessing Officer on pro rata basis of turnover. The Assessing Officer is directed to examine the records accordingly and grant deduction on eligible turnover as directed above . 78. He further pointed out that so far as the allowance of deduction to the infrastructure development is concerned, the legislature has itself made the distinction, for the purposes of section 80IA(4), the words used are any enterprise , whereas in section 80IAB, the words used are an assessee, being a developer . . The AR, therefore, submitted that the AO here erred in disallowing the deduction. 79. In the rejoinder, the DR pointed out that the assessee had voluntarily accepted the provisions of section 194C to be applied on it, therefore, the assessee has itself accepted itself to be a contractor and in any case, since the decision of ABG Heavy Industries Ltd. has not gone into the distinction of developer and contractor, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. For the purposes of this clause, infrastructure facility means (a) a road including toll road, a bridge or a rail system; (b) a highway project 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; . .. 81. As seen, sub section (4) talks about any enterprise. When we trace the heading of the section, it reads, Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. . This heading itself clarifies that if an industrial undertaking is in the business of infrastructure development, that industrial undertaking qualifies to claim the deduction under section 80IA. Sub sections (1) to (3) to section 80IA, through operation of law is available to industrial undertaking, but there is a slight departure in sub section (4) of section 80IA, which is the impugned section before us. It has to be noticed that it is available to any enterprise, which means, it can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out by the AO, there is nothing, which could substantiate the disallowance. In the entire proceedings upto the hearing before us, the department has not even said that there was either no agreement between the assessee and the state government or there is any change in the agreement entered into by the assessee and the government department. In fact the DPB filed by the department, at pages 48 to 72, we find there are letters exchanged, written by the assessee and various government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee for Rs. 2,61,62,400, against the tendered cost. This proves beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the government, besides placing its own funds at risk and peril. These seized documents and placed in the DPB, also negate the arguments of the DR, with regard to documents no. 18 19, referred to earlier, wherein the DR had strenuously argued that the assessee was a co-contractor. 84. The other argument by the AO and the DR had been that the assessee accepted itself to be contractor, by accepting the tax to be deducted und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that it had offered Rs 1.95 crores on account of cessation of liabilities under section 41(1). Since the liabilities pertained to both types of projects, i.e. 80IA and non 80IA and there being a possibility that same creditors may have supplied the materials which was utilized both for 80IA and non 80IA, arrive at accurate figures particularly to the supplier for both the types of projects was a virtual impossibility. Therefore, the assessee has bifurcated the cessation of liabilities on the basis of proportion of the turnover. 95. The AO rejected the claim of the assessee to include proportionate portion of cessation of liabilities to the income for determination of deduction under section 80IA(4). 96. Aggrieved, the assessee approached the CIT(A), who just accepted that the assessee was eligible to deduction under section 80IA(4) and then accepted the rational bifurcation of the liabilities written back on the proportion of turnovers of 80IA projects non- 80IA projects and he directed the AO to allow the liabilities written back to be added for the computation of deduction under section 80IA(4). 97. Aggrieved, the department is in appeal before the ITAT on this ground. 98. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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