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TMI Blog2024 (12) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Further, it shall enter into agreement with the Central Government or a State Government or any local authority or any other statutory body for developing or, operating and maintaining or developing, operating and maintaining any infrastructure facility. Finally, it should start operating and maintaining the infrastructure facility on or after the 1st day of April of 1995. Only dispute is with regard to entering into an agreement with the Central Government or a State Government or any local authority or any other statutory body - Considering the nature and size of the infrastructure facility, the developer i.e., Government of Andhra Pradesh, Irrigation and C.A.D. Department itself has provided for sub-contracting up to 50% of the work to the other eligible contractors upon satisfying the eligibility criteria and having required experience and strength to carry out the development work, which is provided in Clause 43 of the Agreement between the JV and the Government of Andhra Pradesh. Since the condition of sub-contracting portion of work to other contractor is ingrained in the agreement between the JV and Government of Andhra Pradesh itself, in our considered view, the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HIGH COURT] Thus, once the successor entity is eligible to claim deduction under Section 80IA, then there is no question of denying the said benefit to any enterprise, which is a joint partner of said infrastructure facility. Since the appellant is one of the partners of the development of irrigation project, in our considered view, the appellant is entitled for deduction u/s 80IA(4) of the Act. Also relying on Megha Engineering and Infrastructure Ltd. [ 2024 (9) TMI 1662 - ITAT HYDERABAD] we are of the considered view that the appellant is entitled for deduction u/s 80IA(4) towards profits derived from development of infrastructure facility. Decided in favour of assessee. - Shri Manjunatha G. Hon ble Accountant Member And Shri K. Narasimha Chary, Hon ble Judicial Member For the Assessee : Shri K.C.Devdas, CA For the Revenue : Shri B. Bala Krishna, CIT-DR ORDER PER MANJUNATHA G. A.M. The appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals) 12, Hyderabad - dated 28.02.2024, for the assessment year 2017-18. 2. The grounds raised by the assessee read as under : 1. The Hon'ble CIT(A) erred both in fact and the law in confirming the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, claimed that deduction towards profit derived from eligible project under Section 80IA(4) of the Act, is in accordance with law. 4. The AO, after considering the submissions of the assessee and also taken note of the Joint Venture Agreement dated 02-01-2009, Work Order dt.02.12.2018 issued by Government of Andhra Pradesh, Irrigation and C.A.D Department to M/s. HCC-MEIL-BHEL (JV), observed that the appellant company is not eligible for claiming deduction under Section 80IA(4) of the Act, because three conditions provided therein are not satisfied. The AO further observed that the agreement dated 02.12.2008 is between Government of Andhra Pradesh and M/s. HCC-MEIL-BHEL(JV), and as per the said agreement, the project Pranahitha Chevella Lift Irrigation Scheme, Link IV, Package No.10, has been awarded to the JV, but not to the assessee. Further, as per the said agreement, the civil work in the project is to be executed by M/s.HCC, and the mechanical work in the project is to be executed by M/s. MEIL and M/s. BHEL. The civil work of M/s. M/s.HCC has been further sub-contracted to the assessee on back-to-back basis vide Work Order No.14020223 dated 22-03-2017, on which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Financial Year 2016-17, we made a Turnover of Rs. 237,33, 13,092/- against the said Work Order The above project is eligible for deduction under Chapter VI- A (80IA) as it was a government irrigation project and falls within the definition of works specified in Sec.80 IA. 3.2 As per the Joint Venture agreement dated 02/0112009, it is noticed that HCC, MEIL and BHEL has entered into a Joint Venture Agreement by the name HCC-MEIL-BHEL(JV) to bid for the Project Pranahitha-Chevella Lift irrigation Scheme link IV Package No. 10 issued by the Govt. of Andhra Pradesh. As per the said Agreement, the Civil work in project are to be executed by HCC and the mechanical works in the project is to executed by MEIL and BHEL, The civil work of HCC has further been sub-contacted to the assessee on back to back basis vide Work Order No, 14020223 dated 22/03/2017 on which the assessee has claimed deduction under section 80IA(4) of the Act. 3.3 For the sake of clarity, Section 80IA(4) is reproduced as under. This section applies to- (i). any enterprise carrying in the business [of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No.06/2008-09 dated 02/12/2008. Hence, as per the provisions of section 80IA(4) of the Act, the Joint Venture being a separate entity i.e. Association of Person (AOP) for the purpose of Income tax is only eligible for claiming deduction under section 80IA(4) of the Act. Even HCC, MEIL and BHEL in their individual capacity are not eligible for claiming the said deduction. Since the assessee has obtained sub-contract from HCC, it is not eligible for claiming deduction under section 80IA(4) of the Act. Hence, the deduction claimed by the assessee under section 80IA(4) of the Act of Rs. 51,05,42,962/- is disallowed and added back. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the LD.CIT(A). Before the LD.CIT(A), the assessee reiterated its arguments made before the AO and submitted that, it has satisfied all the three conditions provided under Section 80IA(4) of the Act, for claiming deduction towards profits derived from eligible project. The appellant further contended that the work has been awarded to M/s. HCC-MEIL-BHEL (JV) in terms of agreement dated 02-12-2008, but the civil work in the project to be carried out by M/s.HCC has been sub-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement dated 02-01-2009 and Work Order dated 02-12-2008. The appellant has got sub-contract work from M/s. HCC by way of work order dated 22.03.2017. Therefore, sub-contract agreement between the appellant and M/s. HCC cannot be construed as agreement between Central Government or State Government or local authority or any statutory body, as required under Section 80IA(4) of the Act. Therefore, the LD.CIT(A) rejected the arguments of the assessee and sustained addition made by the AO. The relevant findings of the LD.CIT(A) are as under : 6.3.8 I have considered the assessment order, submissions of the appellant, remand report of the AO and comments of the appellant on the remand report. It is seen that the Assessing Officer has made the addition of Rs. 51,05,42,962/- on account of disallowance of deduction claimed by the appellant u/s 80IA(4) of the Act. With regard to this addition, the following observations are made: (i). The deduction u/s 80IA(4) of the Act is available to any enterprise who carry on business [of (i]. developing or (ii). Operating and maintaining or (ii). Developing, operating maintaining) any infrastructure facility and fulfills all the following three conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case. In view of the discussion above, it is clear that neither Central Government nor state Government nor any local body has awarded any contract to the appellant to qualify it as a developer which is a mandatory condition as per section 80lA(4) of the Act. The appellant has worked as subcontractor and not developer, for execution of the project Pranahitha-Chavella Lift Irrigation Scheme link-IV Package No. 10 and therefore, the deduction available under section 80IA is not applicable in the case of the appellant. The above view has been upheld by Hon'ble Jurisdictional ITAT, Hyderabad in the case of DCIT, Central Ctrcle-2(1) Vs. M/s. HES Infra Private Limited in ITA Nos 184 185/Hyd/2018 dated 31/08/2023, wherein it was held that when the agreement is not entered between the assessee and the Government / Statutory Government. there is a violation laid down by the statute and therefore, the assessee is not entitled to claim deduction u/s 80IA(4) of the Act . The relevant portion of said decision is reproduced as under: 13. We have heard the rival submissions and perused the material on record. Section 80IA(4) provides as under: (4) This section applies to-- (i) any ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there exists unsatisfactory state of law in relation to interpretation of exemption clauses. Various Benches which decided the question of interpretation of taxing statute on one hand and exemption notification on the other, have broadly assumed (we are justified to say this) that the position is well settled in the interpretation of a taxing statute: It is the law that any ambiguity in a taxing statute should ensure to the benefit of the subject/assessee, but any ambiguity in the exemption notification must be exemption clause of and such exemption should Conferred in favour of revenue be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the cl imants satisfy all the Conditions precedent for availing exemption. Presumably for this reason the Bench which decided Surendra Cotton 0il Mills Case (supra) observed that there exists unsatisfactory state of law and the Bench which referred the matter initially, seriously doubted the conclusion in Sun Export Case (supra) that the ambiguity in an exemption notification should interpreted in favour of the assessee. 41. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings are distinguished in view of above decision of Hon'ble ITAT, Hyderabad. In view of the above observations, the addition of Rs. 51,05,42,962/- made on account of disallowance u/s 80IA(4) is hereby confirmed. Accordingly, the ground no.4 of the appeal is dismissed. 7. Aggrieved by the order of LD.CIT(A), the assessee is now in appeal before the Tribunal. 8. The Learned Counsel for the assessee, Shri K.C. Devdas, C.A., submitted that, the LD.CIT(A) has erred both in facts and in law in confirming the disallowance of deduction under Section 80IA(4) of the Act, made by the AO, without appreciating the fact that the appellant is eligible for claiming deduction under Section 80IA of the Act, on profits derived from development of infrastructure project. The learned counsel for the assessee referring to the provisions of Section 80IA(4) of the Act, submitted that, the appellant undertook the construction, operation, and maintenance of irrigation project designed to provide irrigation for approximately 30,000 acres of land. Although, the appellant did not enter into direct agreement with the Government of Andhra Pradesh, but in terms of clauses of agreement between the JV and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, he submitted that the LD.CIT(A) without appreciating the relevant facts, simply sustained the addition made by the AO only on the ground that the appellant has not satisfied the condition of entering into agreement with specified authority. The learned counsel for the assessee further submitted that, the sole basis for the LD.CIT(A) to sustain addition made by the AO towards disallowance of deduction under Section 80IA of the Act is that he had followed the decision in ITAT in the case of DCIT Vs. M/s.HES Infra Private Limited (supra), however, the fact remains that the said order of the Tribunal did not consider the issue of Section 80IA(4) of the Act, in light of the provisions of the Act, and the facts of the case, but bases its decision only on the basis of the decision of Hon'ble Supreme Court in the case of Commissioner of Customs (Import) Vs. M/s. Dilip Kumar and Company and others reported in (2018) 95 taxmann.com 327 (SC) on the interpretation of taxing statutes. But the fact remains that, the Co-ordinate Bench of the Tribunal had considered an identical issue and also by referring to the decision in the case of DCIT Vs. M/s.HES Infra Private Limited (supra) and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor, but not a principal contractor to the infrastructure facility. The LD.CIT(A), after considering the relevant facts, has rightly sustained the addition made by the AO towards disallowance of deduction u/s 80IA(4) of the Act, and thus, the order of the LD.CIT(A) should be upheld. 11. We have heard both parties, perused the material available on record and gone through the orders of the authorities below. We have also carefully considered the relevant case laws relied upon by the AO and LD.CIT(A) in support of their reasoning and also case laws relied upon by the assessee in support of their contentions. The AO disallowed deduction claimed under Section 80IA(4) towards profits derived from infrastructure project Pranahita Chevella Lift Irrigation Scheme, Link-IV, Package No. 10, on the ground that the appellant had not entered into any agreement with Central Government or State Government or local authority or any statutory body and which is a pre-condition for claiming deduction under the said provisions of the Act. It was the contention of the assessee before the AO that the appellant is a developer of infrastructure facility, as defined under Section 80IA(4) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India or by a consortium of such companies. In fact, the appellant is owned by an Indian company. The only dispute is with regard to entering into an agreement with the Central Government or a State Government or any local authority or any other statutory body. In fact, the AO never disputed the fact that the Enterprise is owned by an Indian company and also satisfied the other conditions, however, disputed the condition of entering into an agreement with the Central Government or a State Government or any local authority or any other statutory body. According to the AO, the appellant has not satisfied the condition of entering into agreement with the Central Government or a State Government or any local authority or any other statutory body for developing infrastructure facility. In other words, the AO never disputed the fact that deduction claimed towards profit derived from development of infrastructure facility is eligible for claiming deduction under Section 80 IA(4) of the Act. According to the AO, the appellant is only a sub-contractor, who executed civil contract work for M/s. HCC, in terms of Work Order No.14020223 dated 22-03-2017. Therefore, the Assessing Officer rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary for us to examine the eligibility of the appellant to claim deduction under Section 80IA of the Act, in light of the infrastructure project developed by the Government of Andhra Pradesh, Irrigation and C.A.D. Department, the JV agreement between the constituent partners dated 02-12-2009, bid document for the Project Pranahitha Chevella Lift Irrigation Scheme, issued by the Government of Andhra Pradesh and the Work Order issued by M/s.HCC to the appellant company. 14. The project Pranahitha Chevella Lift Irrigation Scheme is a huge irrigation Scheme developed by the Government of Andhra Pradesh for lifting 88.24 TMC of water from Mid Manair to new reservoir at Ananthagiri Village, Illanthakunta Mandal, Karimnagar District by water conveyor system with all associated components to irrigate an ayacut of 30,000 acres. The total size of the contract value as per revised estimate was Rs. 2715 crores. If you go by the type of infrastructure project undertaken by the JV partners and the size of the contract value, it is impossible for a single person to execute such a huge infrastructure facility, within a short time. Therefore, considering the nature and size of the infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under Section 80IA(4) of the Act. Further, if you go by the scope of the project work, as defined in the BID document, it is a huge irrigation project for drawing 88.24 TMC water from Mid Manair Reservoir in 120 days with a static head of about 88 mtrs lift in single stage at Anantagiri Village and the project requires large-scale civil, mechanical, and electrical works. Therefore, going by the nature of the project and size, in our considered view, the appellant has undertaken all the entrepreneurial and investment risk that any developer would have undertaken. The appellant has also undertaken the risks of the project. There was no reduction in quantum or quality of risk undertaken by the appellant in whatsoever manner, as the project was undertaken from a JV partner on back-to-back basis. A look at the business profile of the appellant clearly demonstrates that entrepreneurial and investment risk undertaken by the appellant in this venture. For example, the appellant has undertaken the following activities including, investigation of land and deciding the location of facilities, project design associated risks, defect liability risk of 24 months after project completion, inhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening of an existing road would be eligible for deduction under Section 80IA(4) of the Act. This also shows that it was never in contemplation of Legislature to assign a literal and constricted meaning to development vis- -vis a simple contract. Therefore, from the intention of the legislation and clarifications issued by the CBDT, it is absolutely clear that the sole motive of the provisions of Section 80IA of the Act, is to provide deduction towards profit derived by the enterprise from development of an infrastructure facility and further, by way of proviso to Section 80IA(4), the Legislature has provided deduction for remaining period to any enterprise, who succeeds the project by way of amalgamation or transfer, etc. Therefore, in our considered view, once the successor entity is eligible to claim deduction under Section 80IA, then there is no question of denying the said benefit to any enterprise, which is a joint partner of said infrastructure facility. Since the appellant is one of the partners of the development of irrigation project, in our considered view, the appellant is entitled for deduction under Section 80IA(4) of the Act. 17. The appellant has relied upon the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee himself did not enter into any such contract with the Railways or with the Central Government. 9. The learned Tribunal, however, in our opinion, rightly applied the Proviso to Section 80IA(4) of the Act and held that since the assessee was recognised as contractor for these railway sidings, which undoubtedly fell under the definition of infrastructure facility, it was entitled to the said benefit under Section 80IA of the Act. The grounds on which the Assessing Authority denied the said benefit to the assessee ignoring the effect of Provisos to Section 80IA(4), therefore, could not be sustained. The Tribunal, in our opinion, has rightly held that the law does not require that there should be a direct agreement between the transferee enterprise and the specified authority availing the benefit under Section 80IA of the Act. There is no dispute before us that the assessee was duly recognised as transferee or assignee of the principal contractor M/s. ST-CMS Electric Company Private Limited and was duly so recognised by the Railways to operate and maintain the said railway sidings at Vadalur and Uthangal Mangalam Railway Stations. The findings of fact with regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Central government or State Government or local authority or any authority for developing, operating and maintaining or developing, operating and maintaining a new infrastructure facility. The appellant claims that it has satisfied clause (a) of Section 80IA(4) of the Act, because as a constituent partner of JV /Consortia, it has signed agreement with relevant Central or State Government or local authority for development of infrastructure project. Further, as per clause (a) of Section 80IA(4) of the Act, in order to claim deduction under Section 80IA(4), the enterprise should be owned by a company registered in India or by a consortium of such companies. Further, Clause (a) makes it clear that a company registered in India, or a consortium of such company registered in India should be owned the undertaking and Clause (b) states that such entity should be entered into agreement with the relevant authorities. Going by the above provisions, in our considered view, the assessee being one of the constituent partners of JV / Consortia has signed the agreement with the Central or State Government or local government for development of infrastructure project. Therefore, in our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the deduction is allowed to a successor entity in case one enterprise developed such infrastructure facility and after development, transfer such infrastructure facility to another Enterprise for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with agreement with the Central / State Government or local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period. Going by the above provisions, when the law itself allowed the benefit to successor entity in case of transfer, then there is no reason as to why such deduction shall not be allowed to constituent partner JV / Consortium, more particularly, when the facts of said JVs / Consortium clearly established the fact that the appellant has carried out all the activities, including design and development of project and maintaining of said project. 11. The appellant has relied upon the decision of Income Tax Appellate Tribunal, Hyderabad in assessee s own case for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction under s. 80 - IA(4). These facts clearly indicates that the joint venture was only a de jure contractor but in fact the assessee was a de facto contractor. There is no dispute with regard to the fulfilment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. Joint venture and the consortium was formed only to obtain the contract from the Government body and they in fact did not execute the work awarded to it. In a joint venture agreement or a consortium agreement, it was agreed that the awarded work had to be executed by the joint venturers or parties to the agreement in an agreed manner. The work was Megha Engg. Infrastruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinate Bench of the Tribunal by following the decision of Hon'ble Supreme Court in the case of Commissioner of Customs (Import) Vs. M/s. Dilip Kumar and Company and others (supra), rejected the claim of the appellant deduction under Section 80IA of the Act, for not satisfying the condition of entering into agreement with specified authority. We find that the Co-ordinate Bench of the Tribunal of ITAT in the case of ACIT Vs. Megha Engineering and Infrastructure Ltd, (supra) has considered the decision relied upon by the ld.DR in the case of DCIT Vs. M/s. HES Infra Pvt. Ltd. (supra) and upon giving reasons, distinguished the decision of the co-ordinate Bench of the Tribunal in the case of DCIT Vs. HES Infra Pvt. Ltd. (supra) and relevant findings of the Tribunal are as under : 13. Coming back to case laws relied upon by the ld.DR for the Revenue. The ld.DR relied upon the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. HES Infra Pvt. Ltd (supra), We have gone through the decision of ITAT, Hyderabad Bench in the above case, and we find that, the Tribunal has gone on sole premise of interpretation of statutory provisions in light of the decision of Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liberally in order to achieve the objectives of the legislature and going by the above ratio, in our considered view, there is no dispute with regard to the fact in the present case, the appellant is engaged in the business of developing infrastructure project like irrigation project, water supply system, hydropower plants and roads and railway lines and the statute provides for specific exemption under section 80IA(4) of the Act in respect of infrastructure projects, in our considered view, going by the liberal interpretation of the statute, the assessee must be given the benefit of deduction, having been satisfied all the conditions, including the condition of entering into an agreement with the State Government or Central Government or with any local authority, as a constituent partner of the JV/Consortium, more particularly, except entering into agreement, all other activities were carried out by the assessee. Further, the earlier order of ITAT in assessee s own case was dt.15.02.2019 and order of the Hon'ble Apex Court in Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company (supra) is dated 31.07.2018. The Co-ordinate Bench of the ITAT had also taken n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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