AVADH NIPL (JV),RAJKOT V. DCIT, CIRCLE-1(1), RAJKOT, RAJKOT

ITA 419/RJT/2024

AI Insights

The case involves M/s Avadh NIPL (JV), a partnership firm engaged in civil construction, which appealed against the orders of the Commissioner of Income Tax (Appeals) sustaining disallowances of deductions claimed under Section 80IA(4) for the Assessment Years 2013-14 and 2014-15. The primary contention was whether the assessee, engaged in contracts with government bodies, qualifies as a 'developer' under Section 80IA(4) or merely a 'works contractor'. The Tribunal examined the nature of the contracts and the operational independence of the assessee, ultimately deciding in favor of the assessee based on the developer classification.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26333 (ITAT-RAJKOT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Other Referred Cases: ITA No.219/Rjt/2016, CIT vs. Ansal Housing & Construction Ltd., Tata Communications Internet Services Ltd. Vs ITO, ACIT Vs Bharat Udhyog Ltd., CIT Vs. ABG Heavy Industries Ltd., PCIT Vs Montecarlo Construction Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIMANYU SINGH YADAV
• Assessee Lawyers: MEHUL RANPURA
• Keywords: Business income; Retrospective amendment; Rule of consistency
• Section: 143(3); 142(1); 143(2); 263; 13; 72; 80IA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH (SMC), RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 419 & 420/RJT/2024 Assessment Years: (2013-14 & 2014-15) (Hybrid Hearing) M/s Avadh NIPL (JV), Plot No. 57, Avadh House, Rajnagar Chowk, Pandit Dindayal Marg, Rajkot-360004. Vs. The D.C.I.T., Circle-1(1), Rajkot. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAQFA 7091 P (Appellant) (Respondent) Appellant by Shri Mehul Ranpura, A.R. Respondent by Shri Abhimanyu Singh Yadav, Sr. DR Date of Hearing 14/10/2024 Date of Pronouncement 30 /12/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeals are filed by the assessee, pertaining to Assessment Year (AY) 2013-14 & 2014-15, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), Addl./JCIT(A)-12, Mumbai [in short “the Ld. CIT(A)], both dated 16/04/2024, which in turn arise out of separate assessment orders passed by Assessing Officer (in short ‘the AO”) u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 13/01/2016 and 09/12/2016 respectively. 2. In both these appeals, identical issues are involved, therefore with the consent of parties, both these appeals are clubbed and heard together and are decided by the consolidated order to avoid the conflicting ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 2 decision. Facts as well as grounds of appeal raised in ITA No. 419/Rjt/2024 for the A.Y. 2013-14 have been taken into consideration for deciding these two appeals en masse. 3.Grounds of appeal raised by the assessee in ITA No. 419/Rjt/2024 in A.Y. 2013-14 , are as under: “1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The ld. Addl./JCIT(A), Mumbai (hereinafter referred to as the CIT(A)] erred on facts as also in law in sustaining disallowance of deduction of Rs. 30,38,713/- claimed u/s 80IA of the Income Tax Act, 1961 (hereinafter referred as to the “Act”] made by the Assessing Officer on the alleged ground that the appellant is not eligible for deduction u/s 80IA(4), as the appellant failed to fulfill conditions specified u/s 80IA(4) of the Act. The order passed by ld. CIT(A) is totally unjustified on facts as also in law and claim of deduction u/s 80IA(4) may kindly be directed to be allowed. 3. Ld. CIT(A) erred on facts as also in law in not considering the finding of order of AY 2011-12 passed by Hon’ble CIT(A), NFAC, Delhi where the appeal filed on the identical grounds has been substantially decided in favour of the appellant. On this ground also the order passed is bad in law and unjustified. The claim of deduction u/s 80IA(4) may kindly be directed to be allowed. 4. Ld. CIT(A) erred on facts as also in law in not following the rule of consistency, when the projects were same, circumstances were same, appellate authority is bound to follow the decision of predecessor, which the ld. CIT(A) failed to follow and therefore the appellate order is bad in law and may kindly be quashed. The deduction claimed by the appellant may kindly be allowed. 5. Your Honour’s appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.” 4.Facts in brief are that return of income showing NIL income was filed on 24.09.2013. The assessee- firm is engaged in the business of Civil construction. The case was selected for scrutiny through CASS. Notice u/s. 143(2) dated 03.09.2014 was issued and served on the assessee on ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 3 24.09.2013 by the ITO, Ward-1 (4), Rajkot. The accounts of the assessee are audited and Audit Reports dated 05.09.2013 in Form No. 3CB and copy of audited accounts were filed during the assessment proceedings. Subsequently notice u/s. 142(1) dated 19.08.2015 was issued and served upon the assessee calling for various details relevant to the assessment in the case of the assessee- firm. In response to said notices, the assessee firm attended from time to time and furnished the details called for. During the course of proceedings, the assessee also filed written submissions dated 1.1.09.2015, 07.10.2015 & 31.12.2015. 5. On perusal of details called for during the course of assessment, it is seen that the receipts in the case of assessee mainly consist of works contract with the Govt. / Semi-Govt, Bodies. On perusal of computation of income filed alongwith the return of income, it is noticed that the assessee has claimed a deduction of a sum of Rs.30,38,713/- u/s 80IA(4) of the Act, on the profit derived from such contracts executed. In view of the provisions of section 80IA(4) of the Act, the deduction is allowable to any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities. As per explanation to section 80IA(13), which has been substituted by the Finance (No.2) Act, 2009 w.e.f. 01.04.2000, the deduction u/s.80IA(4) of the Act shall not be allowed to the persons who are doing business in the nature of works contracts awarded by any person (including the Central & State Govt.). On the basis of details collected during the course of assessment it is seen that the receipts are mainly from works contract with Valsad (R & B) Division, Valsad which is a Government Body. On further perusal of copies of RA bills of the contract, it is noticed that the same are in ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 4 respect of construction of bridge across Nagrol Crick. It is further seen that the assessee has been awarded contract for the completion of the work by the R & B Division of the Government for which the assessee has been raising the bills. Therefore, the work done by the assessee is a works contracts with the Government and it cannot be said that the assessee has been carrying on the business of developing or operating and maintaining or developing operating and maintaining any infrastructure facility. Thus, it is abundantly clear that the assessee has been executing the works contracts from the Govt. / semi Govt. Bodies. In view of the above provisions of the Act, it is evident that undertakings or enterprise carrying out work as per work contract awarded by any person (including the Central or State Government) shall not be eligible for claiming deduction within the meaning of section 801A(4) of the Act. The details of work carried out by the assessee were called for during the course of assessment proceedings and on verification of the details, it can be seen that the assessee has been executing works contracts for which it has received contract amounts through R.A.( running account) bills and therefore, it cannot be said that it has entered into any kind of agreement with the Central or State Govt. or a local authority or any other statutory body for developing a new infrastructure facility. Further, the deduction under section 80IA(4) is available to a developer of the infrastructure facilities as provided within the meaning of the said section and not to the contractors who simply execute work as per work contract received from either Central Govt. or State Govt. or any other agency. The Explanation, below sub section (13) of section 801A, as inserted by the Finance Act, 2009 with retrospective effect from 01.04.2000, has only clarified that the deduction is not available to business referred to in ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 5 sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an enterprise referred to in sub-section (1). The argument as to whether a contractor is a 'developer’ within the meaning of the above provision of the Act has only been put to rest by providing an explicit clarification which leaves no scope for any ambiguity as regard the issue that the contractors are not 'developers' within the meaning of sub- section (1) of section 801A and hence, they are not eligible for deduction in respect of their business income from executing work orders as per contract with either Central Govt. or State Govt. or any other agency. The explanation does not in any manner provide for restricting or altering the meaning of the said provision. Rather, the position which was earlier apparent on a careful look of the provisions of sub-section (4) has now been made available even at the cursory look through the Explanation by clarifying the hitherto intention of the legislature that no person executing the works contract shall be eligible for deduction u/s. 80IA, even if it is an enterprise or undertaking as referred to in subsection (1). The language of this Explanation makes it crystal clear that the benefit under sub-section (4) cannot be provided to a business which is in the nature of works contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in sub-section (1). From the memorandum explaining the rationale behind the substitution of Explanation, it can easily be seen that the legislature clarified its intention beyond any doubt that the deduction cannot be allowed in relation to a business which is in the nature of works contract. In consideration of the above discussion and in view of the provision of section 80IA of the Act as applicable for the year under consideration, ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 6 the assessing officer held that the assessee is not eligible for deduction u/s,80IA(4) out of its business income under the provisions of the said section. Hence, the deduction claimed by the assessee in the return of income under section 80IA(4] of the Act is not allowable. The assessee was therefore, requested vide letter.no. DCIT/C-1(1)/Show cause/Avadh-NIPL/2015-16 dated 15-12-2015 to show cause as to why claim made by it for deduction u/s.80IA(4) of the Act at Rs.30,38,713/- should not be disallowed and added to its total income. 6 In response to the notice of the Assessing Officer, the assessee submitted reply dated 31/12/2015 before assessing officer, which is reproduced in the assessment order at page No. 4 to 9. 7. However, the Assessing Officer rejected the contention of assessee and held that the assessee is not a developer, however, the assessee is carrying out work-contract awarded by the government which does not amount to an independent contractor. Since the assessee is involved in works contract, therefore, the assessee cannot claim deduction under Section 80IA(4) of the Act and hence, the Assessing Officer disallowed deduction to the tune of Rs. 30,38,713/-. 8.Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of Assessing Officer stating that the assessee was a works contractor and not a developer. 9.Aggrieved by the order of ld. CIT(A), the assessee is in appeal before this Tribunal. ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 7 10.The Ld. Counsel for the assessee submitted that the assessee is a developer and that is why, the department has allowed his appeal in the subsequent year. No doubt, the assessee does work as per specification given by the government, however, the assessee worked independently and takes his common decision and purchased its own raw material to construct the bridge. Therefore, the ld. Counsel for the assessee submitted that the assessee makes agreement with the Central Government, such agreement is a contract. The Ld. Counsel also submitted that in the normal parlance, every agreement is a contract, therefore, the assessee in appropriate cases, deposits earnest money with the government and when the work is over/completed, then such earnest money is refunded to the assessee. Moreover, the assessee`s case is squirely covered by the judgement of the ITAT Rajkot Bench, vide, ITA No.219/Rjt/2016, on the same issue. Since the assessee, fulfils all the conditions to be a contractor, therefore, appeal of the assessee is allowed. 11. On the other hand, the Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue submitted that the assessee under consideration, is a works contractor and not a developer, because the essential condition of the contract is missing in the agreement, which is between the assessee and the government to construct a bridge, therefore, the assessee should be treated like a works contractor and not a developer/contractor. Apart from this, the ld. Sr.DR for the revenue relied on the findings of the Assessing Officer. ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 8 12. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I find merit in the submissions of ld. Counsel for the assessee to the effect that the assessee`s case is squirely covered by the judgement of the ITAT Rajkot Bench, vide, ITA No.219/Rjt/2016, on the same issue. Therefore, I cannot take a different view, then the view taken by the Coordinate Bench of ITAT Rajkot, in the assessee`s case(supra). The findings of the Co-ordinate Bench in assessee`s case are as follows: 8. We have heard the rival contentions of both the parties and gone through the necessary records available before us. From the preceding discussion, we note that the learned Principal CIT has held the order of the AO as erroneous insofar prejudicial to the interest of revenue on the ground that the assessee is acting as a works contractor and not the developer. The view of the learned PCIT was based on the fact that there was no agreement between the assessee and the Government of Gujarat which is one of the prerequisite for claiming the deduction under section 80IA(4) of the Act. 8.1 Admittedly, the project was awarded by the Government of Gujarat office of Executive Engineer, Valsad (Road and Building Department) in the name of M/s AIPL vide letter dated 12th June 2009. The copy of the said letter is placed on pages 69 to 70 of the paper book and translated copy at pages 28 to 29 in the synopsis of argument. However, we note that there was change in the contract subsequently. There was the clarification issued by the above mentioned office vide letter dated 27th August 2009 that the contract awarded in the name of M/s AIPL shall be considered in the name of the assessee. The copy of the said clarification letter is placed on pages 71 to 72 of the paper book and translated copy at pages 32 to 33 in the synopsis of argument which reads as under: With reference to above mentioned subject the tender for above work has been jointly submitted by your company along with “NARNARAYAN ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 9 INFRASTRUCTURE PRIVATE LIMITED-GANDHINAGAR” in the name of Joint Venture. In view of the above, following correction in Paragraph No.1 of the letter referred in (1) above, to be read as under, which shall form part of agreement. 1. Referred work will be considered as approved in the name of “AVADH- NIPL (JV)” instead of M/s. AVADH INFRASTRUCTURE PRIVATE LIMITED. In relation to this all the previous correspondence will be considered as done in the name of “AVADH NIPL (JC)” 8.2 In view of the above, there remains no ambiguity that there was the agreement between the assessee and the Government of Gujarat, Road & Building department. It is also pertinent to note that this fact was brought to the notice to the learned principal CIT during the proceedings by the assessee. The relevant contention of the assessee before the learned principal CIT reads as under: It is pertinent to note that initially the letter of contract was issued in the name of Lead Partner of joint venture i.e Avadh Infrastructure Pvt. Ltd. Subsequently, the concerned Govt. Department vide their letter dated 27th August 2009, clarified that the contract shall be considered as issued in the name of “Avadh NIPL(JV)” only and reference to Avadh Infrastructure Pvt. Ltd. Should be considered as meant for Avadh NIPL(JV) only. 8.3 However, we note that the learned Principal CIT in his order has not assailed the contention raised by the assessee before him. Thus, in the given facts and circumstances, there is no violation by the assessee of the provisions specified under section 80IA(4) of the Act to the extent as discussed above. 8.4 Moving further, we find that there was no charge of the learned Principal CIT suggesting that the activities performed by the assessee were in the nature of works contract except the allegation that there was no agreement between the assessee and the Government of Gujarat, Road & Building Department. As such, in the absence of agreement between the assessee and the Government of Gujarat, Road & Building Department, the Principal CIT assumed that the assessee was acting as the works ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 10 contractor. However, the finding of the learned Principal CIT is not correct in the light of the above discussion. 8.5 Without prejudice to the above, we also note that the issue whether the assessee is acting as a works contractor or a developer as provided under explanation to section 80IA(4) of the Act is the debatable issue. Thus, once the AO has taken a view that the assessee is eligible for deduction 80IA(4) of the Act, the view taken by the AO is one of the possible view. Thus on this reason as well the order of the AO cannot be termed as erroneous insofar prejudicial to the interest of revenue. 8.6 We have perused the notice issued by the AO under section 142(1) of the Act raising the queries to the assessee on the allowability of the deduction under section 80IA(4) of the Act. The copy of the notice is placed on pages 136 to 138 and 142 to 143 of the paper book and the relevant question reads as under: 19. On verification of the statement of income, it is noticed that you have claim deduction u/s.80IA of the I.T Act. The deduction u/s.80IA is available to the assessee who undertakes the work of developing or operating and maintaining or developing, operating & maintaining any infrastructure which fulfills the conditions mentioned in the Sub-section (4) of Section 80IA. Further, the meaning of the infrastructure facilities for the Please furnish copy of R.A. bill and copy of agreement showing terms and conditions of work done by you. 8.7 The above query was answered by the assessee vide letter dated 19th July 2013 and 14th August 2013 which reads as under: During the year under consideration Construction of the Bridge as mentioned above has done whereby firm earned the profit of Rs.60,91,542/- Copy of R.A Bills & agreement is attached herewith. 8.8 On the basis of above reasoning, we hold that the issue whether the assessee is acting as work contractor or developer is a debatable issue and therefore the deduction claimed by the assessee under section 80IA(4) of the Act cannot be revised under the provisions of section 263 of the Act in the given facts and circumstances. In holding so we draw support and guidance from the order of Hon’ble Delhi High Court in case of CIT vs. ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 11 Ansal Housing & Construction Ltd. reported in 45 taxmann.com 223 which also upheld by the Hon’ble supreme court by accepting SLP and granting leave reported in [2014] 51 taxmann.com 376 (SC) where the Hon’ble court held as under: The determination of the question as to when the undertaking commenced development and construction, in the absence of any statutory prescription, has to be decided in a pragmatic and reasonable way. It would have been an entirely different issue had there been a statutory prescription of what would be the date of commencement of construction or development. It is certainly a debatable issue on which more than one plausible view is reasonably possible and merely because the Assessing Officer has taken one plausible view, it cannot be said that the assessment is erroneous or prejudicial to the interest of the revenue. [Para 14] 8.9 In the backdrop of the above stated discussion, we hold that the order passed by the learned Principal CIT is not sustainable and liable to be quashed. Thus we hold accordingly. Hence the ground of appeal of the assessee is allowed. 9. In the result, the appeal of the assessee is allowed. 13. I also find that assessee`s issue under consideration, is also covered by the following judgements: (i) Tata Communications Internet Services Ltd. Vs ITO (2010) 120 TTJ 509 (Delhi Trib) (ii) ACIT Vs Bharat Udhyog Ltd. (2008) 118 TTJ 336 (Mumbai Trib) (iii) CIT Vs. ABG Heavy Industries Ltd. (2010) 322 ITR 323 (Mum HC) ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 12 (iv) PCIT Vs Montecarlo Construction Ltd. (2024) 161 taxmann.com 222. 14. I note that the assessee under consideration is running its business by way of a partnership firm and the partnership firm makes contract with the government to construct the bridge etc. While doing construction work, the assessee takes his own decision and uses its own materials and work is completed by the assessee as per the specification given by the government, therefore, the assessee under consideration fulfills all the conditions of the Contractor. I also note that Hon’ble Jurisdictional Gujarat High Court, in assessee’s case for AY 2010-11 vide civil appeal no. 9474 of 2016 allowed the appeal of the assessee, on same identical facts. Therefore, respectfully following the judgement of the coordinate bench in assesses case and other judgements of Hon`able High Court (supra), I allow the appeal of the assessee. 15.In the result, both these appeals of the assessee are allowed. Order is pronounced on 30/12/2024 in the open court. Sd/- (Dr. A.L. SAINI) ACCOUNTANT MEMBER Rajkot *Ranjan Ǒदनांक/ Date: 30/12/2024 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Rajkot ITA 419 & 420/Rjt/2024 M/s Avadh NIPL(JV) Vs DCIT Page | 13 "