Dy.CIT, Circle-2(1), Hyderabad V. M/s KMC Constructions Limited, Hyderabad

ITA 1627/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77829 (ITAT-HYDERABAD)
• Duration Of Justice: 44 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2014
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 1627, 1628, 1629, 1630, 1631, 1632, 1633 & 1634 /HYD/2013 A.YRS.:2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10&2010-11 DY. COMMISSIONER OF INCOME-TAX, APP ELLANT CIRCLE 2(1), HYDERABAD. VS. M/S KMC CONSTRUCTIONS LTD., RESPONDEN T HYDERABAD. PAN AABCK 6483B APPELLANT BY : SHRI D. SUDHAKAR RAO RESPONDENT BY : SHRI S. RAMA RAO DATE OF HEARING : 02/04/2014 DATE OF PRONOUNCEMENT : 02/04/2014 ORDER PER CHANDRA POOJARI, A.M.: ALL THESE PERTAINING TO ONE ASSESSEE PREFERRED BY T HE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF CIT(A)-III HYDERABAD, FOR THE ASSESSMENT YEARS 2003-04 TO 2010-11. SINCE COMMON I SSUE IS INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HE ARD TOGETHER, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. THE REVENUE HAS RAISED COMMON GROUNDS IN ALL THE APPEALS UNDER CONSIDERATION, WHICH ARE AS FOLLOWS: 1. THE CIT(A) ERRED ON FACTS AND IN LAW IN GRANTING RELIEF TO THE ASSESSEE U/S 80IA. 2. THE CIT(A) ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT ALL THE CONTRACTS ENTERED INTO BY THE ASSESSEE ARE IN THE NATURE OF WORKS CONTRACTS AND HENCE DEDUCTION U/S 80IA IS NOT PERMISSIBLE. ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 2 3. THE CIT(A) ERRED ON FACTS AND IN LAW IN LAYING D OWN PARAMETERS OF ELIGIBILITY FOR CONTRACTS WHERE AS SU CH PARAMETERS DO NOT EXIST IN THE ACT AND ALL THE CONTRACTS OF TH E ASSESSEE ARE SIMPLE WORKS CONTRACTS. 3. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM AY 2003-04 IN ITA NO. 1627/HYD/2013. 4. THERE IS ONLY ONE ISSUE, IN THE PRESENT APPEALS , RELATES TO THE NON-ALLOWANCE OF DEDUCTION U/S 80IA(4) BY THE AO. 5. BEFORE THE CIT(A), THE ASSESSEE ARGUED THAT THE ITAT, HYDERABAD IN ASSESSEES OWN CASE IN ITA NO. 996/HYD /2003 AND OTHERS HAD DECIDED THAT 19 PROJECTS LISTED ON PAGES 11 TO 13 OF THE APPELLANT ORDER ARE ELIGIBLE FOR DEDUCTION U/S 80IA (4). IT HAS ALSO BEEN HELD BY THE ITAT THAT WITH RESPECT TO THESE PROJECT S THE ASSESSEE IS A DEVELOPER AND NOT ONLY A WORKS CONTRACTOR WITH RESP ECT TO OTHER PROJECTS, IT WAS SUBMITTED BY THE ASSESSEE THAT THO SE PROJECTS WERE ALSO SIMILAR TO THE ONES IN WHICH THE ITAT HAD HELD THE ASSESSEE TO BE A DEVELOPER. THEREFORE, IT WAS ARGUED BY THE ASS ESSEE THAT DEDUCTION U/S 80IA(4) SHOULD BE ALLOWED TO IT ESPEC IALLY IN VIEW OF THE BINDING DECISIONS OF THE ITAT. 6. ON APPEAL OF SET ASIDE ASSESSMENT TO THE CIT(A) IN THE SECOND ROUND OF LITIGATION, THE CIT(A) PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN ITA NOS. 558/HYD/2006, 1027/HYD2/007 AN D 1223/HYD/2007 FOR AY 2003-04 TO 2005-06 AND OTHERS, ORDER DATED 16/03/2012 AS WELL AS THE DECISION IN MA NOS. 64 TO 68/HYD/2013 ARISING OUT OF APPEALS IN ITA NO. 558/HYD/06, 1223/ HYD/2007, 1027/HYD/2007, 338/HYD/2009 & 84/HYD/2010 AND EXTRA CTED THE RELEVANT FINDINGS OF THE ITAT IN HIS ORDER, WHICH A RE AS FOLLOWS: 44. WE HAVE CONSIDERED THE ELABORATE SUBMISSIONS MA DE BY BOTH THE PARTIES AND ALSO PERUSED THE MATERIALS AVA ILABLE ON RECORD. WE HAVE ALSO GONE THROUGH ALL THE CASE LAWS CITED BY BOTH THE PARTIES. WE FIND THAT THE PROVISIONS OF SE CTION 80IA(4) ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 3 OF THE ACT WHEN INTRODUCED AFRESH BY THE FINANCE AC T, 1999, THE PROVISIONS UNDER SECTION 80IA(4A) OF THE ACT WERE D ELETED FROM THE ACT. THE DEDUCTION AVAILABLE FOR ANY ENTERPRISE EARLIER UNDER SECTION 80IA (4A) ARE ALSO MADE AVAILABLE UNDER SEC TION 80IA (4) ITSELF. FURTHER, THE VERY FACT THAT THE LEGISLA TURE MENTIONED THE WORDS (I) 'DEVELOPING' OR (II) 'OPERATING AND M AINTAINING' OR (III) 'DEVELOPING, OPERATING AND MAINTAINING' CLEAR LY INDICATES THAT ANY ENTERPRISE WHICH CARRIED ON ANY OF THESE T HREE ACTIVITIES WOULD BECOME ELIGIBLE FOR DEDUCTION. THE REFORE, THERE IS NO AMBIGUITY IN THE INCOME-TAX ACT. WE FIND THAT WHERE AN ASSESSEE INCURS EXPENDITURE ON ITS OWN FOR PURCHASE OF MATERIALS AND TOWARDS LABOUR CHARGES AND ITSELF EXE CUTES THE DEVELOPMENT WORK I.E., CARRIES OUT THE CIVIL CONSTR UCTION WORK, IT WILL BE ELIGIBLE FOR TAX BENEFIT UNDER SECTION 80 I A OF THE ACT. IN CONTRAST TO THIS, A ASSESSEE, WHO ENTERS INTO A CON TRACT WITH ANOTHER PERSON INCLUDING GOVERNMENT OR AN UNDERTAKI NG OR ENTERPRISE REFERRED TO IN SECTION 80 IA OF THE ACT, FOR EXECUTING WORKS CONTRACT, WILL NOT BE ELIGIBLE FOR THE TAX BE NEFIT UNDER SECTION 80 IA OF THE ACT. WE FIND THAT THE WORD 'OW NED' IN SUB- CLAUSE (A) OF CLAUSE (1) OF SUB SECTION (4) OF SECT ION 80IA OF THE ACT REFER TO THE ENTERPRISE. BY READING OF THE SECT ION, IT IS CLEAR THAT THE ENTERPRISES CARRYING ON DEVELOPMENT OF INF RASTRUCTURE DEVELOPMENT SHOULD BE OWNED BY THE COMPANY AND NOT THAT THE INFRASTRUCTURE FACILITY SHOULD BE OWNED BY A COMPAN Y. THE PROVISIONS ARE MADE APPLICABLE TO THE PERSON TO WHO M SUCH ENTERPRISE BELONGS TO IS EXPLAINED IN SUB-CLAUSE (A ). THEREFORE, THE WORD 'OWNERSHIP' IS ATTRIBUTABLE ONLY TO THE EN TERPRISE CARRYING ON THE BUSINESS WHICH WOULD MEAN THAT ONLY COMPANIES ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA(4) AN D NOT ANY OTHER PERSON LIKE INDIVIDUAL, HUF, FIRM ETC. 45. WE ALSO FIND THAT ACCORDING TO SUB-CLAUSE (A), CLAUSE (I) OF SUB SECTION (4) OF SECTION 80-IA THE WORD 'IT' DENO TES THE ENTERPRISE CARRYING ON THE BUSINESS. THE WORD 'IT' CANNOT BE RELATED TO THE INFRASTRUCTURE FACILITY, PARTICULARL Y IN VIEW OF THE FACT THAT INFRASTRUCTURE FACILITY INCLUDES RAIL SYS TEM, HIGHWAY PROJECT, WATER TREATMENT SYSTEM, IRRIGATION PROJECT , A PORT, AN AIRPORT OR AN INLAND PORT WHICH CANNOT BE OWNED BY ANY ONE. EVEN OTHERWISE, THE WORD 'IT' IS USED TO DENOTE AN ENTERPRISE. THEREFORE, THERE IS NO REQUIREMENT THAT THE ASSESSE E SHOULD HAVE BEEN THE OWNER OF THE INFRASTRUCTURE FACILITY. 46. THE NEXT QUESTION IS TO BE ANSWERED IS WHETHER THE ASSESSEE IS A DEVELOPER OR MERE WORKS CONTRACTOR. T HE REVENUE RELIED ON THE AMENDMENTS BROUGHT IN BY THE FINANCE ACT 2007 AND 2009 TO MENTION THAT THE ACTIVITY UNDE RTAKEN BY THE ASSESSEE IS AKIN TO WORKS CONTRACT AND HE IS NO T ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA (4) OF THE ACT. WHETHE R THE ASSESSEE IS A DEVELOPER OR WORKS CONTRACTOR IS PURE LY DEPENDS ON THE NATURE OF THE WORK UNDERTAKEN BY THE ASSESSE E. EACH OF ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 4 THE WORK UNDERTAKEN HAS TO BE ANALYZED AND A CONCLU SION HAS TO BE DRAWN ABOUT THE NATURE OF THE WORK UNDERTAKEN BY THE ASSESSEE. THE AGREEMENT ENTERED INTO WITH THE GOVER NMENT OR THE GOVERNMENT BODY MAY BE A MERE WORKS CONTRACT OR FOR DEVELOPMENT OF INFRASTRUCTURE. IT IS TO BE SEEN FRO M THE AGREEMENTS ENTERED INTO BY THE ASSESSEE AND THE GOV ERNMENT. WE FIND THAT THE GOVERNMENT/GOVERNMENT BODY HANDED OVER THE POSSESSION OF THE PREMISES OR THE EXISTING ROAD TO THE ASSESSEE TILL THE DEVELOPMENT OF INFRASTRUCTURE FACILITY. IT IS THE ASSESSEE'S RESPONSIBILITY TO DO ANY ACT TILL THE POSSESSION OF PROPERTY IS HANDED OVER TO THE GOVERNMENT. IF THE EXISTING ROAD IS TO BE DEVELOPED INTO A FOUR LANE ROAD, THE FIRST PHASE IS TO TAKE OVER THE EXISTING AND DEVELOPED ROAD. SECONDLY, THE ASSE SSEE HAS TO ARRANGE FOR THE TRAFFIC AND SHALL FACILITATE THE PE OPLE TO USE THE FACILITY EVEN WHILE THE PROCESS OF DEVELOPMENT IS I N PROGRESS. ANY LOSS TO THE PUBLIC CAUSED IN THE PROCESS WOULD BE THE RESPONSIBILITY OF THE ASSESSEE. THE ASSESSEE HAS TO DEVELOP THE INFRASTRUCTURE FACILITY. IN THE PROCESS, ALL THE WO RKS ARE TO BE EXECUTED BY THE ASSESSEE. IT MAY BE LAYING OF A DRA INAGE SYSTEM; MAY BE CONSTRUCTION OF A PROJECT; PROVISION OF WAY FOR THE CATTLE AND BULLOCK CARTS IN THE VILLAGE; PROVIS ION FOR TRAFFIC WITHOUT ANY HINDRANCE, THE ASSESSEE'S DUTY IS TO DE VELOP INFRASTRUCTURE WHETHER IT INVOLVES CONSTRUCTION OF A PARTICULAR ITEM AS AGREED TO IN THE AGREEMENT OR NOT. THE AGRE EMENT IS NOT FOR A SPECIFIC WORK, IT IS FOR DEVELOPMENT OF FACIL ITY AS A WHOLE. THE ASSESSEE IS NOT ENTRUSTED WITH ANY SPECIFIC WOR K TO BE DONE BY THE ASSESSEE. THE MATERIAL REQUIRED IS TO BE BRO UGHT IN BY THE ASSESSEE BY STICKING TO THE QUALITY AND QUANTIT Y IRRESPECTIVE OF THE COST OF SUCH MATERIAL. THE GOVERNMENT DOES N OT PROVIDE ANY MATERIAL TO THE ASSESSEE. IT PROVIDES THE WORKS IN PACKAGES AND NOT AS A WORKS CONTRACT. THE ASSESSEE UTILIZES ITS FUNDS, ITS EXPERTISE, ITS EMPLOYEES AND TAKES THE RESPONSIBILI TY OF DEVELOPING THE INFRASTRUCTURE FACILITY. THE LOSSES SUFFERED EITHER BY THE GOVT. OR THE PEOPLE IN THE PROCESS OF SUCH D EVELOPMENT WOULD BE THAT OF THE ASSESSEE. THE ASSESSEE HANDS O VER THE DEVELOPED INFRASTRUCTURE FACILITY TO THE GOVERNMENT ON COMPLETION OF THE DEVELOPMENT. THEREAFTER, THE ASSE SSEE HAS TO UNDERTAKE MAINTENANCE OF THE SAID INFRASTRUCTURE FO R A PERIOD OF 12 TO 48 MONTHS. DURING THIS PERIOD, IF ANY DAMAGES ARE OCCURRED IT SHALL BE THE RESPONSIBILITY OF THE ASSE SSEE. FURTHER, DURING THIS PERIOD, THE ENTIRE INFRASTRUCTURE SHALL HAVE TO BE MAINTAINED BY THE ASSESSEE ALONE WITHOUT HINDRANCE TO THE REGULAR TRAFFIC. THEREFORE, IT IS CLEAR THAT FROM A N UN-DEVELOPED AREA, INFRASTRUCTURE IS DEVELOPED AND HANDED OVER T O THE GOVERNMENT AND AS EXPLAINED BY THE CBDT VIDE ITS CI RCULAR DATED 18-05-2010, SUCH ACTIVITY IS ELIGIBLE FOR DED UCTION UNDER SECTION 80IA(4) OF THE ACT. THIS CANNOT BE CONSIDER ED AS A MERE WORKS CONTRACT BUT HAS TO BE CONSIDERED AS A DEVELO PMENT OF INFRASTRUCTURE FACILITY. THEREFORE, THE ASSESSEE IS A DEVELOPER AND NOT A WORKS CONTRACTOR AS PRESUMED BY THE REVEN UE. THE ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 5 CIRCULAR ISSUED BY THE BOARD, RELIED ON BY LEARNED COUNSEL FOR THE ASSESSEE, CLEARLY INDICATE THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA(4) OF THE ACT. THE DEP ARTMENT IS NOT CORRECT IN HOLDING THAT THE ASSESSEE IS A MERE CONTRACTOR OF THE WORK AND NOT A DEVELOPER. 47. WE ALSO FIND THAT AS PER THE PROVISIONS OF THE SECTION 80IA OF THE ACT, A PERSON BEING A COMPANY HAS TO ENTER I NTO AN AGREEMENT WITH THE GOVERNMENT. SUCH AN AGREEMENT IS A CONTRACT AND FOR THE PURPOSE OF THE AGREEMENT A PER SON MAY BE CALLED AS A CONTRACTOR AS HE ENTERED INTO A CONTRAC T. BUT THE WORD 'CONTRACTOR' IS USED TO DENOTE A PERSON ENTERI NG INTO AN AGREEMENT FOR UNDERTAKING THE DEVELOPMENT OF INFRAS TRUCTURE FACILITY. EVERY AGREEMENT ENTERED INTO IS A CONTRAC T. THE WORD 'CONTRACTOR' IS USED TO DENOTE THE PERSON WHO ENTER S INTO SUCH CONTRACT. EVEN A PERSON WHO ENTERS INTO A CONTRACT FOR DEVELOPMENT OF INFRASTRUCTURE FACILITY IS A CONTRAC TOR. THEREFORE, THE CONTRACTOR AND THE DEVELOPER CANNOT BE VIEWED D IFFERENTLY. EVERY CONTRACTOR MAY NOT BE A DEVELOPER BUT EVERY D EVELOPER DEVELOPING INFRASTRUCTURE FACILITY ON BEHALF OF THE GOVERNMENT IS A CONTRACTOR. THEREFORE, THE FIRST APPELLATE AUTHOR ITY RIGHTLY HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IA (4) FOR THE ASSESSMENT YEARS 2000-01, 2001-02 AND 2 002-03. 48. WE FIND THAT THE DECISION RELIED ON BY THE LEAR NED COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT VS. LAXMI CIVIL ENGINEERING WORKS [ITA NO. 766/PUN/09 DATED 8.6.2011] SQUARELY APPLICABLE TO THE ISSUE UNDER DISPUTE WHICH IS IN FAVOUR OF TH E ASSESSEE WHEREIN IT WAS HELD THAT MERE DEVELOPMENT OF INFRAS TRUCTURE FACILITY IS AN ELIGIBLE ACTIVITY FOR CLAIMING DEDUC TION UNDER SECTION 80IA OF THE ACT AFTER CONSIDERING THE JUDGE MENT OF THE MUMBAI HIGH COURT IN THE CASE OF ABG HEAVY ENGINEER ING [SUPRA].THE CASE OF ABG IS NOT THE PURE DEVELOPER W HEREAS, IN THE PRESENT CASE, THE ASSESSEE IS THE PURE DEVELOPE R. WE ALSO FIND THAT SECTION 80IA OF THE ACT, INTENDED TO COVE R 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 SUCH E NTITIES. THE CBDT, ON SEVERAL OCCASIONS, CLARIFIED THAT PURE DEV ELOPER SHOULD ALSO BE ELIGIBLE TO CLAIM DEDUCTION UNDER SE CTION 80IA OF THE ACT, WHICH ULTIMATELY CULMINATED INTO AMENDMENT UNDER SECTION 80IA OF THE ACT, IN THE FINANCE ACT 2001, T O GIVE EFFECT TO THE AFORESAID CIRCULARS ISSUED BY THE CBDT. WE A LSO FIND THAT, TO AVOID MISUSE OF THE AFORESAID AMENDMENT, A N EXPLANATION WAS INSERTED IN SECTION 80IA OF THE ACT , IN THE FINANCE ACT-2007 AND 2009, TO CLARIFY THAT MERE WOR KS CONTRACT WOULD NOT BE ELIGIBLE FOR DEDUCTIONS UNDER SECTION 80IA OF THE ACT. BUT, CERTAINLY, THE EXPLANATION CANNOT BE READ TO DO AWAY WITH THE ELIGIBILITY OF THE DEVELOPER; OTHERWISE, T HE PARLIAMENT WOULD HAVE SIMPLY REVERSED THE AMENDMENT MADE IN TH E ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 6 FINANCE ACT, 2001. THUS, THE AFORESAID EXPLANATION WAS INSERTED, CERTAINLY, TO DENY THE TAX HOLIDAY TO THE ENTITIES WHO DOES ONLY MERE WORKS CONTACT OR SUB-CONTRACT AS DIS TINCT FROM THE DEVELOPER. THIS IS CLEAR FROM THE EXPRESS INTEN SION OF THE PARLIAMENT WHILE INTRODUCING THE EXPLANATION. THE E XPLANATORY MEMORANDUM TO FINANCE ACT 2007 STATES THAT THE PURP OSE OF THE TAX BENEFIT HAS ALL ALONG BEEN TO ENCOURAGE INV ESTMENT IN DEVELOPMENT OF INFRASTRUCTURE SECTOR AND NOT FOR TH E PERSONS WHO MERELY EXECUTE THE CIVIL CONSTRUCTION WORK. IT CATEGORICALLY STATES THAT THE DEDUCTION UNDER SECTION 80IA OF THE ACT IS AVAILABLE TO DEVELOPERS WHO UNDERTAKES ENTREPRENEUR IAL AND INVESTMENT RISK AND NOT FOR THE CONTRACTORS, WHO UN DERTAKES ONLY BUSINESS RISK. WE HAVE CAREFULLY GONE THROUGH THE V ARIOUS ACTIVITIES CARRIED ON BY THE ASSESSEE. AN ANALYSIS OF THE WORKS UNDERTAKEN BY THE ASSESSEE CLEARLY INDICATES THAT I T CARRIED ON THE ACTIVITIES OF DEVELOPMENT OF INFRASTRUCTURE FAC ILITY. FOR CLARITY WE REPRODUCE ONE OF THE PROJECTED UNDERTAKEN BY THE ASSESSEE. NATURE OF WORK : WIDENING TO FOUR LANES AND STRENGT HENING OF EXISTING TWO LANE CARRIAGEWAY IN KM. 27.80 TO KM. 6 1.00 JAGATPUR-CHANDIKHOL SECTION OF NATIONAL HIGHWAY NO. 5 IN THE STATE OF ORISSA. THE SAID WORK IS FINANCED BY: OVERSEAS ECONOMIC CO- OPERATION FUND, FINANCED BY JAPAN TO THE GOVERNMENT OF INDIA. THE GOVERNMENT OF INDIA AUTHORIZED TO GET THEWORK DONE BY INVITATION OF TENDER. THE SOURCE OF FUNDS AS MENTIONED IN THE TENDER (HER EIN DOCUMENT AFTER REFERRED TO AS THE FUND): THE GOVER NMENT OF INDIA HAS RECEIVED A LOAN FUNDS AS FROM THE OVERSEA S ECONOMIC COOPERATION MENTIONED IN THE FUND TOWARDS THE COST OF WIDENING TO FOUR TENDER (HEREIN LANES AND STRENGTHE NING OF EXISTING TWO LANE DOCUMENT AFTER CARRIAGEWAY IN KM. 27.80 TO KM 61.00 IN REFERRED TO AS 'THE JAGATPUR-CHANDIKHOL SECTION OF NH-5 IN THE FUND') STATE OF ORISSA, AND INTENDS TO APPLY PART OF THE PROCEEDS OF THIS LOAN TO ELIGIBLE PAYMENTS UNDE R THE CONTRACT (HEREINAFTER REFERRED TO AS THE 'CONTRACT) FOR WHICH THE NOTICE INVITING TENDERS HAS BEEN ISSUED BY THE EMPL OYER, AS AUTHORIZED BY THE GOVERNMENT OF INDIA. PAYMENT BY T HE OVERSEAS ECONOMIC CO-OPERATION FUND(OECF) WILL BE M ADE ONLY AT THE REQUEST OF THE GOVERNMENT OF INDIA AND UPON APPROVAL BY THE BANK IN ACCORDANCE WITH THE TERMS A ND CONDITIONS OF THE LOAN AGREEMENT. EXCEPT AS THE BAN K MAY SPECIFICALLY OTHERWISE AGREE, NO PARTY OTHER THAN T HE BORROWER SHALL DERIVE ANY RIGHTS FROM THE LOAN AGREEMENT OR HAVE ANY CLAIM TO THE LOAN PROCEEDS. SCOPE OF WORK THE WORK BROADLY COMPRISES OF ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 7 A) CONSTRUCTION OF ADDITIONAL TWO LANE CARRIAGEWAY BY THE SIDE OF EXISTING TWO LANE ROAD IN KM 27.80 TO 61.00 B) STRENGTHENING OF EXISTING PAVEMENT BY PROVIDING BITUMINOUS STRENGTHENING OVERLAYS C) PROVISION OF CENTRAL MEDIAN, PAVEMENT SHOULDERS AND SERVICE ROADS. D) IMPROVEMENT OF JUNCTIONS/ GEOMETRICS, PAVEMENT P ROFILE CORRECTION, LANE MARKING AND PROVIDING ROAD SIGNAGE S. E) REPAIR/REHABILITATION OF EXISTING BRIDGES. F) CONSTRUCTION/RECONSTRUCTION OF BRIDGES. G) IMPROVEMENT OF DRAINAGE SYSTEM, WIDENING/PROVIDI NG CULVERTS, CATTLE CROSSINGS ETC. H) OTHER MISCELLANEOUS ITEMS PERTINENT TO THE PROJE CT. I) MAINTENANCE OF THE SAID INFRASTRUCTURE FOR A PER IOD OF 48 MONTHS (DURING THE PERIOD OF DEVELOPMENT OF 36 MONT HS AND DEFECT LIABILITY PERIOD OF 12 MONTHS) 49. FOR THIS PURPOSE, THE POSSESSION OF THE SITE IS HANDED OVER TO THE ASSESSEE BY THE GOVERNMENT. THE ASSESSEE TAK ES POSSESSION AND ACCESS TO THE PROPERTY AND THEREAFTE R IT SHALL BE THE RESPONSIBILITY OF THE ASSESSEE TO DEVELOP THE S AID AREA INTO MORE USEFUL INFRASTRUCTURE FACILITY. IN THE PROCESS , EVERY ACT REQUIRED (WHETHER MENTIONED IN THE AGREEMENT OR NOT ) IN CONVERTING THE AREA INTO MORE USEFUL ONE SHALL BE T HAT OF THE ASSESSEE. THE ASSESSEE HAS TO UNDERTAKE THE RESPONS IBILITY OF MAINTENANCE OF THE EXISTING TRAFFIC AND THERE SHOUL D NOT BE INCONVENIENCE TO THE REGULAR TRAFFIC. THE DEVELOPED AREA AFTER COMPLETION OF THE DEVELOPMENT OF INFRASTRUCTURE IS HANDED OVER TO THE GOVERNMENT. AFTER HANDING OVER, THE ASSESSEE SHALL MAINTAIN THE NFRASTRUCTURE FOR A PERIOD OF 48 MONTH S AND ANY DEFECTS ARE TO BE RECTIFIED. 50. FROM THE ABOVE FACTS IT IS CLEAR THAT THE ASSES SEE IS CONVERTING THE AREA ENTRUSTED TO IT INTO MORE USEFU L AND MORE PROFITABLE AREA AND HANDING OVER THE DEVELOPED ONE TO THE GOVERNMENT/GOVERNMENT BODIES. THEREFORE, THE ACTIVI TY OF THE ASSESSEE IS ' TO DEVELOP' AN EXISTING TWO LANE ROAD INTO FOUR LANE ROAD THEREBY MAKING THE ROAD MORE USEFUL AND P ROFITABLE. 51. WITHOUT ANY DOUBT, THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY DEMONSTRATED BEFORE US THAT THE ASSESSEE AT PRESENT HAS UNDERTAKEN HUGE RISKS IN TERMS OF DEPLOYMENT OF TECHNICAL PERSONNEL, PLANT AND MACHINERY, TECHNICAL KNOW-HOW, EXPERTISE AND FINANCIAL RESOURCES. 52. THEREFORE, IN OUR CONSIDERED VIEW, THE ASSESSEE SHOULD NOT BE DENIED THE DEDUCTION UNDER SECTION 80IA OF THE A CT AS THE CONTRACTS INVOLVE DEVELOPMENT/CONSTRUCTION, OPERATI NG/ MAINTENANCE, FINANCIAL INVOLVEMENT, AND DEFECT CORR ECTION AND LIABILITY PERIOD, THEN SUCH CONTRACTS CANNOT BE CAL LED AS SIMPLE ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 8 WORKS CONTRACT. IN OUR OPINION THE CONTRACTS WHICH CONTAIN ABOVE FEATURES ARE TO BE SEGREGATED AND ON THESE CO NTRACTS DEDUCTION U/S. 80-IA HAS TO BE GRANTED AND THE OTHE R AGREEMENTS WHICH ARE IN THE NATURE OF PURE WORKS CO NTRACTS HIT BY THE EXPLANATION TO SECTION 80IA(13), THOSE WORKS ARE NOT ENTITLE FOR DEDUCTION U/S 80IA OF THE ACT. THE PROF IT FROM SUCH IS TO BE COMPUTED BY ASSESSING OFFICER ON PRO-RATA BAS IS OF TURNOVER. THE ASSESSING OFFICER IS DIRECTED TO EXAM INE ACCORDINGLY AND GRANT DEDUCTION ON ELIGIBLE TURNOVE R AS DIRECTED ABOVE. IT IS NEEDLESS TO SAY THAT DEDUCTION U/S 80I A WAS GRANTED IN SIMILAR CASE BY THE CHENNAI BENCH OF THE TRIBUNA L AND DEDUCTION U/S. 80IA WAS GRANTED IN THE CASE OF M/S. CHETTINAD LIGNITE TRANSPORT SERVICES (P) LTD., IN ITA NO. 228 7/MDS/06 ORDER DATED 27TH JULY, 2007 FOR THE ASSESSMENT YEAR 2004-05. LATER IN ITA NO. 1179/MDS/08 VIDE ORDER DATED 26TH FEBRUARY, 2010 THE TRIBUNAL HAS TAKEN THE SAME VIEW BY INTER- ALIA HOLDING AS FOLLOWS: '7. MOREOVER, THE REASONS FOR INTRODUCING THE EXPLA NATION WERE CLARIFIED AS PROVIDING A TAX BENEFIT BECAUSE MODERNISATION REQUIRES A MASSIVE EXPANSION AND QUALITATIVE IMPROVEMENT IN INFRASTRUCTURES LIKE EXPRESSWAYS, HIGHWAYS, AIRPORTS, PORTS AND RAPID UR BAN RAIL TRANSPORT SYSTEMS. FOR THAT PURPOSE, PRIVATE S ECTOR PARTICIPATION BY WAY OF INVESTMENT IN DEVELOPMENT O F THE INFRASTRUCTURE SECTOR AND NOT FOR THE PERSONS WHO M ERELY EXECUTE THE CIVIL CONSTRUCTION WORK OR ANY OTHER WO RK CONTRACT HAS BEEN ENCOURAGED BY GIVING TAX BENEFITS . THUS THE PROVISIONS OF SECTION 80IA SHALL NOT APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO W ITH THE UNDERTAKING OR ENTERPRISE REFERRED TO IN THE SE CTION BUT WHERE A PERSON MAKES THE INVESTMENT AND HIMSELF EXECUTES THE DEVELOPMENT WORK, HE CARRIES OUT THE C IVIL CONSTRUCTION WORK, HE WILL BE ELIGIBLE FOR THE TAX BENEFIT UNDER SECTION 80IA.' 53. THE ABOVE ORDER WAS FOLLOWED IN SUBSEQUENT ASSE SSMENT YEARS 2007-2008 & 2008-09 IN ITA NOS. 1312 & 1313/M DS/2011 VIDE ORDER DATED 18.11.2011 IN THE CASE OF THE SAME ASSESSEE. 55. FURTHER, WE MAKE IT CLEAR THAT WHERE THE ASSESS EE HAS CARRIED OUT THE DEVELOPMENT OF INFRASTRUCTURE WORK IN CONSORTIUM OR JOINTLY WITH ANY OTHER AGENCY AND NOT AS A SUB- CONTRACTOR, THEN ALSO THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IA OF THE ACT. THE SAME PRINCIPLE IS APPLICABLE I N RESPECT OF WORK ALLOTTED BY GOVERNMENT CORPORATION TO THE ASSE SEE. BEING SO, WE ARE INCLINED TO PARTLY ALLOW THE GROUND RELA TING TO CLAIMING OF DEDUCTION U/S. 80IA.OF THE ACT. ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 9 56. IN THE RESULT, DEPARTMENTAL APPEALS IN I.T.A. N O. 233/HYD/01, 969/HYD/02, 617/HYD/03 AND 1079/HYD/03 ARE DISMISSED. THE 57 I.T.A. NO. 84/HYD/2010 & ORS. 6.1 THE CIT(A) FURTHER EXTRACTED THE FINDINGS OF TH E TRIBUNAL PASSED IN MAS NO. 64/HYD/2013 AND OTHERS FILED BY THE ASSE SSEE, VIDE ORDER DATED 04/07/2013, WHICH ARE AS UNDER: 5. WE HEARD BOTH THE PARTIES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. FOR THE ASSESSMENT YEARS UNDER APPEAL, THE ASSESSEE CAME IN APPEAL BEFORE THE TRIBUNAL, CH ALLENGING THE ACTION OF THE REVENUE AUTHORITIES IN DENYING TH E DEDUCTION UNDER S.80IA(4) OF THE ACT. THE TRIBUNAL AFTER CONS IDERING THE SUBMISSIONS OF THE LEARNED COUNSEL IN THE LIGHT OF THE GROUNDS RAISED BEFORE THE TRIBUNAL, AND APPRAISING THE VARI OUS DATA FURNISHED BEFORE THE TRIBUNAL IN THE PAPER-BOOK, CA ME TO THE CONCLUSION THAT THE ASSESSEE IS A DEVELOPER AND IS ENTITLED FOR DEDUCTION UNDER S.80IA(4) OF THE ACT. 6. ONCE THE TRIBUNAL HAS SET ASIDE THE ORDERS IMPUG NED IN THE APPEALS BEFORE IT ON THE ABOVE ISSUE AND RESTORED T HE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE ABOVE FI NDINGS, THE DUTY OF ASSESSING OFFICER IS TO PASS ORDERS GIVING EFFECT TO THE ORDER OF THE TRIBUNAL. THE FINDINGS OF THE TRIBUNAL , EXTRACTED ABOVE, ARE UNAMBIGUOUS, CLEAR AND CATEGORICAL IN AS MUCH AS IT HAS SPECIFICALLY DIRECTED THAT THE ASSESSEE SHOULD NOT BE DENIED DEDUCTION UNDER S.80IA OF THE ACT AS THE CONTRACTS INVOLVES, DEVELOPMENT, OPERATING, MAINTENANCE, FINANCIAL INVO LVEMENT, AND DEFECT CORRECTION AND LIABILITY PERIOD, THEN SU CH CONTRACTS CANNOT BE CALLED AS SIMPLE WORKS CONTRACT. IN OUR O PINION THE CONTRACTS WHICH CONTAIN THE ABOVE FEATURES TO BE SE GREGATED AND ON THIS DEDUCTION U/S. 80IA HAS TO BE GRANTED A ND THE OTHER AGREEMENTS WHICH ARE PURE WORKS CONTRACTS HIT BY TH E EXPLANATION SECTION 80IA(13), THOSE WORK ARE NOT EN TITLED FOR DEDUCTION U/S. 80IA OF THE ACT. 6.2 FOLLOWING THE AFORESAID FINDINGS OF THE TRIBUNA L IN ASSESSEES CASE, THE CIT(A) HELD AS FOLLOWS: 4.6 I FIND THAT THE AO WAS DUTY BOUND TO FOLLOW THO SE ORDERS OF THE HONBLE ITAT, WHEREAS SHE HAD DISALLOWED THE SAID DEDUCTION ON ALL THE CONTRACTS INCLUDING THOSE CONT RACTS WHERE THE HONBLE ITAT HAD SPECIFICALLY CONSIDERED ALL TH E ISSUES AND HAD DIRECTED THAT WITH RESPECT TO THOSE CONTRACTS D EDUCTION U/S 80IA(4) WAS TO BE ALLOWED. THESE CONTRACTS ARE PROV IDED AT PAGE NUMBERS 11 TO 13 OF THE ORDER OF THE HONBLE I TAT REFERRED TO SUPRA. THE AO IS DIRECTED TO ALLOW DEDUCTION U/S 80IA(4) WITH RESPECT TO CONTRACTS WHICH HAVE BEEN SPECIFICALLY A DJUDICATED UPON BY THE HONBLE ITAT IN THEIR ORDER REFERRED TO SUPRA. WITH ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 10 RESPECT TO OTHER PROJECTS, THE AO SHALL ABIDE BY TH E DECISION OF THE HONBLE ITAT IN THE CURRENT YEAR ALSO AND FOR E ACH PROJECT SHE WILL EXAMINE THE FIVE FEATURES LISTED SUPRA. WH EREVER THE FIVE FEATURES ARE PRESENT, FOR THAT CONTRACT DEDUCT ION U/S 80IA(4) SHALL BE ALLOWED. SHE WILL PASS A SPEAKING ORDER WH EREIN IT WILL BE CLEARLY STATED WHETHER THE FIVE FEATURES ARE PRE SENT OR NOT PRESENT. WHERE THE FIVE FEATURES ARE NOT PRESENT, D EDUCTION SHALL NOT BE ALLOWED. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. I N OUR OPINION, THE GRIEVANCE OF THE DEPARTMENT IS MISCONCEIVED AS THE ISSUE IN DISPUTE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN EARLIER ORDER IN ITA NOS. 558/HYD/2006 AND OTHERS CITED SUPRA. FURTHER, IT WA S ALSO CLARIFIED BY THE TRIBUNAL IN THE ORDER PASSED IN MA NOS. 64 TO 6 8/HYD/2013 VIDE ORDER DATED 04/07/2013 (SUPRA) THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IA(4). BEING SO, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) IN ALL THE APPEALS UNDER CONSIDERATIO N AND DISMISS THE GROUNDS RAISED BY THE REVENUE IN ALL THE APPEALS. 9. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E DISMISSED. PRONOUNCED IN THE OPEN COURT ON 02/04/2014 UPON CONCLUSION OF HEARING. SD/- SD/- (SAKTIJIT DEY) (CHANDRA P OOJARI) JUDICIAL MEMBER ACCOUNTANT M EMBER HYDERABAD, DATED: 02/04/2014 KV ITA NOS. 1627 TO 1634/HYD/13 M/S KMC CONSTRUCTIONS LTD. 11 COPY TO:- 1) DCIT, CIRCLE 2(1), 8 TH FLOOR, B-BLOCK, IT TOWERS, HYDERABAD. 2) M/S KMC CONSTRUCTIONS LTD., KMC NO. 555, ARORA COLONY, ROAD NO. 3, BANJARA HILLS, HYDERABAD 500 034. 3) THE CIT(A)-III HYDERABAD 4) THE CIT-II HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A. T., HYDERABAD.