K PACK SYSTEMS P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 5699/MUM/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0208 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAI PRATAP SINGH
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Business income; Opportunity of being heard
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.5699/MUM/2012, (A.Y. 2009-10) M/S. K PACK SYSTEMS P. LTD., 17-B, DENA BANK BUILDING NO.2, 3 RD FLOOR,FORT, MUMBAI 400001 PAN: AAACK 1770E ...... APPELL ANT VS. DY.COMMISSIONER OF INCOME TAX, 5(2), MUMBAI 400 020 ..... RESPONDENT APPELLANT BY : DR. K. SHIVRAM RESPONDENT BY : SHRI AJAI PRATAP SIN GH DATE OF HEARING : 29/05/2017 DATE OF PRONOUNCEMENT : 18/08/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-9, MUMBAI DATED 06/07/2012, WHICH I N TURN, ARISES OUT OF ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTI ON 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 07/12/201 1. IN THIS YEAR, THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJU DICE TO ONE ANOTHER 1) THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN DISALLOWING RS. 443121/- OF INTEREST MADE TO VARIOUS BANKS FOR BUSINESS PURPOSES AND WHICH WERE COMPENSATORY IN NATURE. 2 ITA NO.5699/MUM/2012, (A.Y. 2009-10) 2)THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF THE D EDUCTION CLAIMED U/S 80IA(4) OF RS. 10340105/-. 3)THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN STATING THAT THE DEDUCTION U/S 80IA(4) MAY BE CLAIMED BY THE ASSESSE E FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FRO M THE YEAR IN WHICH ENTERPRISE DEVELOPS AND BEGIN TO OPERATE ANY INFRASTRUCTURAL F ACILITY. WHEREAS SUCH DEDUCTION IS ALLOWED FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF TWENTY YEARS IN CASE OF 'WATER TREATMENT SYSTEM' AS PER PROVISO TO SECTION 80IA (2) R.W. EXPLANATION TO SECTION 80IA(4). 4) THE LEARNED CIT(A) HAD ERRED IN STATING THAT TH E APPELLANT CARRIED OUT WORK IN THE NATURE OF 'CONTRACTOR' AND NOT IN THE NATURE OF 'DEVELOPER'. 5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT APPRECIATING ALL THE FACTS THAT WERE FILED BEFORE H IM AS WELL AS BEFORE THE ASSESSING OFFICER. 6) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN IGNORING VARIOUS JUDICIAL PRONOUNCEMENTS WHICH ALSO SUPPORT THE STAND TAKEN BY THE ASSESSEE. 7) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS ERRED IN NOT ALLOWING PROPER & SUFFICIENT OPPORTUNITY OF BEING HEARD. 8) EACH OF THE ABOVE GROUNDS BE CONSIDERED AS S EPARATE FROM THE OTHER GROUNDS. 9) THE APPELLANT PRAYS THAT: I) DEDUCTION OF CLAIM OF INTEREST PAID ON CRED IT CARD LOANS BE ALLOWED AT II) DEDUCTION U/S 80IA(4) BE ALLOWED OF RS. 10 340105/-; III) RECOVERY OF DEMAND IN DISPUTE MAY BE STAYE D; IV) PERSONAL AND EARLY HEARING MAY BE GRANTED; V) ANY OTHER RELIEF YOUR HONOURS MAY DEEM FIT. 2. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT IN THE RETURN OF INCOME ASSESSEE CLAIMED A DEDUCTION UNDER SECTION 80 IA(4) OF THE A CT ON THE GROUND THAT IT IS IN THE BUSINESS OF DEVELOPING INFRASTRUCTURE FACILI TY PRESCRIBED IN SECTION 80- IA OF THE ACT AND, THEREFORE, PROFITS OF SUCH BUSIN ESS WERE ELIGIBLE FOR THE BENEFITS OF SECTION 80 IA OF THE ACT. BEFORE THE A SSESSING OFFICER, ASSESSEE 3 ITA NO.5699/MUM/2012, (A.Y. 2009-10) POINTED OUT THAT IT WAS IN THE BUSINESS OF SELLING WATER TREATMENT SYSTEMS FOR AFFLUENT WASTE WATER FROM MANUFACTURING PROCESS IN VARIOUS INDUSTRIES. ACCORDING TO THE ASSESSEE, IT OBTAINED ORDERS FROM THE CUSTOMERS AND SUPPLIED THE WATER TREATMENT SYSTEM AND IT WAS SUPP ORTED BY TECHNOLOGY BACK-UP PROVIDED BY K-PACK INTERNATIONAL BV, HOLLAN D. IN SO FAR AS THE YEAR UNDER CONSIDERATION IS CONCERNED, ASSESSEE POINTED OUT THAT IT HAD DEVELOPED NEW INFRASTRUCTURE FACILITY OF WATER TREA TMENT PLANT OF INDIAN OIL CORPORATION LTD.,(IN SHORT IOC), A GOVERNMENT COMPA NY AND A STATUTORY BODY ESTABLISHED UNDER THE ACT OF PARLIAMENT. THE ASSESSEE CLAIMED TO HAVE DEVELOPED THE INFRASTRUCTURE FACILITY FOR IOC AT IT S SITES AT GUWAHATI AND DIGBOI IN ASSAM. THE ASSESSEE ALSO FURNISHED THE R ESPECTIVE PURCHASE ORDERS AND THE AGREEMENT WITH IOC. IT WAS CLAIMED THAT IN TERMS OF THE ARRANGEMENT WITH IOC, ASSESSEE WAS RESPONSIBLE FOR DESIGNING, SUPPLYING, INSTALLATION AND COMMISSIONING OF DISSOLVED AIR F LOATATION (DAF) UNIT AND OIL SKIMMERS. THE ASSESSEE POINTED OUT THAT IOC HA D FLOATED A TENDER AND ASSESSEE WAS A SUCCESSFUL BIDDER. THE ASSESSEE CLAI MED THAT IT HAD DESIGNED WATER TREATMENT PLANT AS PER TECHNICAL SPECIFICATIO NS BASED ON THE SITE VISIT, ETC., PROCURED CRITICAL ITEMS FROM THE LIST OF APPR OVED SUPPLIERS AS PER TERMS OF THE AGREEMENT; IT GOT THE WATER TREATMENT PLANT FABRICATED AS PER THE DESIGN DEVELOPED BY IT; THAT UNDER ITS SUPERVISION, THE ENTIRE MANUFACTURING, INSPECTION, PACKING, DISPATCH PROCESS WAS CARRIED OUT AT FABRICATORS PLACE, ETC. FURTHER, ASSESSEE SUPERVISED THE INSTALLATIO N AND COMMISSIONING AT THE IOC SITES AND ALSO PROVIDED TRAINING AS WELL AS INS TRUCTION MANUAL TO IOC FOR OPERATING THE SYSTEM. 4 ITA NO.5699/MUM/2012, (A.Y. 2009-10) 3. THE ASSESSING OFFICER FOUND FAULT WITH ASSESSEE S CLAIM FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT, PRIMARILY ON THE GR OUND THAT ACTIVITIES CARRIED OUT BY THE ASSESSEE DID NOT FALL FOR CONSIDERATION UNDER SECTION 80 IA OF THE ACT. NOTABLY, SECTION 80 IA(4)(I) OF THE ACT, WH ICH IS RELEVANT FOR THE PRESENT PURPOSE, PRESCRIBES THAT THE BENEFITS OF SECTION 80 IA ARE AVAILABLE TO ANY ENTERPRISE WHICH IS CARRYING ON THE BUSINESS OF (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY. FURTHERMORE, ASSESSING OF FICER ALSO REFERRED TO THE EXPLANATION BELOW SECTION 80 IA(13) OF THE ACT , WH ICH PRESCRIBES THAT NOTHING CONTAINED IN SECTION 80 IA SHALL APPLY IN R ELATION TO A BUSINESS REFERRED TO IN SUB-SECTION (4), WHICH IS IN THE NAT URE OF A WORKS CONTRACT. 3.1 THE ASSESSING OFFICER WAS OF THE VIEW THAT IN T HE PROCESS OF INSTALLATION OF WATER TREATMENT PLANT BY IOC, THE A SSESSEES ROLE WAS LIMITED ONLY TO THE EXTENT OF DESIGNING OF THE SYSTEM AND S UPERVISION/INSTALLATION OF THE SYSTEM. ACCORDING TO ASSESSING OFFICER THE WATE R TREATMENT PLANT SUPPLIED TO IOC WAS MERELY DESIGNED BY THE ASSESS EE COMPANY AS PER THE REQUIREMENT OF M/S. INDIAN OIL CORPORATION AND THE CONTRACT WAS SUB CONTRACTED TO THE FABRICATOR FOR FABRICATION OF WAT ER TREATMENT SYSTEM AND ONCE THE WATER TREATMENT SYSTEM WAS MANUFACTURED BY THE FABRICATOR, THE ASSESSEE MERELY SUPERVISED ITS INSTALLATION. ON T HE BASIS OF THE AFORESAID, THE ASSESSING OFFICER CONCLUDED THAT ASSESSEE WAS N OT A DEVELOPER OF ANY INFRASTRUCTURE FACILITY, WHICH WAS A PRIMARY CONDIT ION FOR ALLOWABILITY OF DEDUCTION UNDER SECTION 80 IA(4) OF THE ACT. THE A SSESSING OFFICER INFERRED THAT ASSESSEE HAD MERELY ACTED AS A CONTRACTOR FOR DEVELOPMENT OF WATER TREATMENT SYSTEM FOR IOC AND, THEREFORE, EXPLANATIO N BELOW SECTION 80 5 ITA NO.5699/MUM/2012, (A.Y. 2009-10) IA(13) OF THE ACT DISENTITLES THE ASSESSEE FOR THE CLAIM OF DEDUCTION, AS ASSESSEE ONLY EXECUTED A WORKS CONTRACT. THE AFO RESAID CASE SET-UP BY THE ASSESSING OFFICER HAS ALSO BEEN AFFIRMED BY THE CI T(A). EVEN BEFORE US, THE CASE OF THE REVENUE IS THAT ASSESSEE HAS CARRIED OU T THE WORK FOR IOC AS A CONTRACTOR AND NOT IN THE NATURE OF DEVELOPER S O AS TO BE ELIGIBLE FOR THE BENEFITS OF SECTION 80 IA(4) OF THE ACT. 4. ON THE OTHER HAND, THE LD.REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY POINTED OUT THAT ASSESSEE HAS THE EXPERTISE OF DEVE LOPING WATER TREATMENT SYSTEMS SUITABLE FOR CHEMICAL INDUSTRIES, FERTILIZE R INDUSTRY AND REFINERIES AND THAT EVEN WITH REGARD TO THE TENDER AWARDED BY IOC, ASSESSEE HAD DESIGNED, DEVELOPED, DELIVERED, INSTALLED AND COMMISSIONED TH E DAF UNIT AND OIL SKIMMERS ( WHICH ARE COMMONLY KNOWN AS WATER TREAT MENT SYSTEM) FOR IOC. AT THE TIME OF HEARING, THE LD.REPRESENTATIVE FOR T HE ASSESSEE HAS REFERRED TO THE TENDER DOCUMENTS AND THE TERMS OF AGREEMENT WITH IOC, WHICH ARE PLACED IN THE PAPER BOOK AT PAGES 127 TO 592 TO DEM ONSTRATE THAT THE TOTAL SCOPE OF WORK AWARDED TO THE ASSESSEE AMOUNTED TO D EVELOPMENT OF AN INFRASTRUCTURE FACILITY. THE LD.REPRESENTATIVE FOR THE ASSESSEE HAS MADE REFERENCES TO VARIOUS PAGES OF THE VOLUMINOUS PAPER BOOK FILED AND THE SAME CAN BE TABULATED AS UNDER:- SR.NO DESCRIPTION OF RESPONSIBILITIES OF APPELLANT REFERENCE PAPER BOOK PAGES NO'S. 1 SCOPE OF DESIGN FOR DAF UNIT 319 - 324 2 SCOPE OF SUPPLY SERVICES INCLUDED 326 - 350 CIVIL ENGINEERING - LAYOUT PLAN , FOUNDATION DESIGN ETC DETA ILED ENGINEERING INSPECTION INSTALLATION / SUPERVISION OF INSTALLATION SUPERVISION OF PRE - COMMISSIONING, TESTING AND COMMISSIONING MATERIAL SAFETY 6 ITA NO.5699/MUM/2012, (A.Y. 2009-10) STATUTORY APPROVAL TECHNICAL REQUIREMENT ELECTRICAL REQUIREMENT INSTRUMENT REQUIREME NT PIPING REQUIREMENT UNIT LAYOUT CRITERIA SPECIAL REQUIREMENT PAINTING AND PROTECTION STRUCTURE AND SUPPORT EQUIPMENT PIPING INSPECTION AND TESTING COMMISSIONING PREPARATION OF CHECKLIST BEFORE START UP MECHANICAL COMPLETI ON PRE - COMMISSIONING ACCEPTANCE TEST AND PERFORMANCE GRANTEE OPERABILITY TEST ACCEPTANCE TEST COMMISSIONING RELIABILITY RUN PERFORMANCE GUARANTEE TEST TRAINING 3 TECHNICAL ASPECTS PROVIDED BY APPELLANT E.G PROPOSE D LAYOUT OF THE UNIT, DESIGNS FOR THE PROPOSED FACILITY, SPECIFICATIO N OF EQUIPMENT'S, PIPING MATERIALS , PUMPS ETC REQUIRED, DATA SHEET FOR CABL ING, ETC AS A PART OF BIDDING PROCESS 179 - 180 4 MINUTES OF MEETING BETWEEN IOCL AND K - PACK DT. 15 - 16 - 17 JULY 2008 - IT EM 15 - ALL CIVIL FOUNDATION DESIGN , DRAWINGS SHALL B E PROVIDED BY K- PACK, ITEM 16 - O & M [ OPERATION AND MAINTENANCE] MANUAL TO B E PROVIDED BY K- PACK IN ADVANCE BEFORE COMMISSIONING 238 - 239 5 MINUTES OF MEETING BETWEEN IOCL AND K - PACK DT.2.6 - JUNE 2 008 - ' ALL PIPES HAVE TO PRE-FABRICATED AT K-PACK W ORKSHOP , ONLY MINOR FABRICATION AND MODIFICATION WORK TO BE DONE AT SITE 241 - 241 6 MINUTES OF MEETING BETWEEN IOCL AND K - PACK DT. 12 - AUG2009 - DISCUSSION ON SUPPLY OF DAF SYSTEM BY K-PACK TO IOCL 253 - 253 1. DAF SYSTEM HAS BEEN RUN WITH CLEAR WATER AND W ITH EFFLUENT WATER 2. (IV) AFTER RECEIPT, ALL MATERIAL AT SITE K-PACK SHALL DE PUTE THEIR COMMISSIONING PERSONNEL FOR TRIAL RUN AND FOR PERFO RMANCE OF ENTIRE SYSTEM 4. CONTROL PHILOSOPHY OF P CONTROL PENAL........... .. TO BE SUBMITTED BY K- PACK 7 DETAILED RESPONSIBILITIES AND SCOPE OF WORK OF APPE LLANT FOR DEVELOPMENT OF WATER TREATMENT SYSTEMS 319-378 7 ITA NO.5699/MUM/2012, (A.Y. 2009-10) 8 DETAILED SCOPE OF WORK OF APPELLANT - SPECIFICATION OF DESIGN, SUPPLY, INSTALLATION AND COMMISSIONING OF WATER TREATMENT S YSTEMS (OIL SKIMMER) 487-488 9 BANK GUARANTEE GIVEN BY APPELLANT FOR RS.L1,14,7507 - FOR THE SATISFACTORY PERFORMANCE OF WATER TREATMENT SYSTEM AND FOR DEFEC T LIABILITY OF THE APPELLANT 212-215 10 BANK GUARANTEE FOR EARNEST MONEY DEPOSIT OF RS 3,50 ,000/-AGAINST TENDER NO.RGRMM6P140 468-469 11 PERFORMANCE BANK GUARANTEE DT. 20 MARCH 2009 EXPIRY DATE 06 DEC. 2010 289-289 12 INDEMNITY BOND EXECUTED BY APPELLANT AND CIVIL CONT RACTOR APPOINTED BY APPELLANT TO JOINTLY UNDERTAKE AND INDEMNIFY IOCL A ND ITS EMPLOYEES AGAINST ANY LIABILITIES ARISING FROM VARIOUS LABOUR LAWS , MOTOR VEHICLE ACT, ETC. 531 13 ENTIRE FINANCIAL RISK WAS BORNE BY THE APPELLANT BY UTILISING ITS OWN WORKING CAPITAL FACILITIES FROM BANK FOR PROCUREMENT OF MAT ERIALS, PAYMENT TO ITS STAFF, INTEREST COST ON BORROWINGS, AS VERY NEGLIGIBLE A MOUNT WAS RECEIVED AS ADVANCE FROM IOCL . 7 14 PURCHASE ORDER OF DAF AND OIL SKIMMER, SHOWING SALE S TAX PAID, PROVING THAT THE SAID TRANSACTION BETWEEN THE APPELLANT AND IOCL IS A SALE. 216 & 409 ON THE BASIS OF THE AFORESAID REFERENCE TO THE DOC UMENTS PLACED IN THE PAPER BOOK, THE ATTEMPT OF THE ASSESSEE HAS BEEN TO SHOW THAT IT WAS THE DUTY OF THE ASSESSEE TO CARRY OUT ALL TASKS FOR T HE IOC I.E RIGHT FROM DESIGNING WATER TREATMENT SYSTEM, ITS DELIVERY, SA LE, SUPERVISING INSTALLATION, COMMISSIONING AND TRAINING OF PERSON NEL OF IOC. IT WAS, THUS, SOUGHT TO BE CONTENDED THAT ASSESSEE DID NOT ACT MERELY AS A CONTRACTOR, BUT THE SCOPE OF WORK EXECUTED BY IT SHOWED THAT I T HAS ACTED AS A DEVELOPER AND, THEREFORE, PROFIT FROM SUCH ACTIV ITY IS ELIGIBLE FOR THE BENEFITS OF SECTION 80 IA(4) OF THE ACT. 5. IN THE COURSE OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABG HEAVY INDUSTRIES LTD.,322 I TR 323(BOM) FOR THE PROPOSITION THAT CARRYING ON OF ALL THE ACTIVITIES OF DEVELOPING, OPERATING AND MAINTENANCE OF AN INFRASTRUCTURE FACILITY WAS NOT A MUST, AND THAT EVEN IF THE ASSESSEE WAS CARRYING ON THE BUSINESS OF ONLY DEVE LOPING THE INFRASTRUCTURE 8 ITA NO.5699/MUM/2012, (A.Y. 2009-10) FACILITY, IT WOULD BE ENOUGH FOR THE CLAIM OF DEDUC TION UNDER SECTION 80 IA(4) OF THE ACT. IN THIS CONTEXT, RELIANCE WAS ALSO PLA CED ON THE DECISION OF PUNE TRIBUNAL IN THE CASE OF LAXMI CIVIL ENGINEERING PVT . LTD.VS.ACIT,ITA NO.766/PN/09. 6. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE HAS REITERATED THE STAND OF THE ASSESSING OFFICER AND POINTED OUT THAT MERE DESIGNING OF THE WATER TREATMENT SYSTEM WOULD NOT ENTITLE THE AS SESSEE TO BE TREATED AS A DEVELOPER FOR THE PURPOSES OF SECTION 80 IA(4) OF THE ACT, AND THAT ASSESSEE ACTED ONLY AS A CONTRACTOR. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE CRUX OF THE CONTROVERSY IN THIS APPEAL REVOLVES AROUND THE ISSU E AS TO WHETHER ASSESSEE CAN BE SAID TO BE CARRYING ON THE BUSINESS OF (I) D EVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY AS ENVISAGED IN SECTION 80 IA(4)(I) OF THE ACT. THE PHRASEOLOGY OF SECTION 80 IA(4)(I) OF THE ACT CLEAR LY SHOWS THAT EVEN IF AN ENTERPRISE CARRIES ON ONLY THE BUSINESS OF DEVELOPM ENT OF PRESCRIBED INFRASTRUCTURE FACILITY, IT IS ELIGIBLE FOR THE BE NEFITS OF SECTION 80 IA OF THE ACT AND THAT THERE IS NO NECESSITY OF OPERATING AND MAI NTAINING THE INFRASTRUCTURE FACILITY ALSO. THE AFORESAID PROPOS ITION IS SUPPORTED BY THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF ABG HEAVY INDUSTRIES LTD.(SUPRA)ALSO. IN THE INSTANT, CASE S ET-UP BY THE ASSESSEE IS THAT IT HAS DEVELOPED DAF UNIT AND OIL SKIMMERS(WATER TR EATMENT SYSTEMS) FOR IOC AT THEIR GUWAHATI AND DIGBOI REFINERIES AND T HE SAME BEING A PRESCRIBED INFRASTRUCTURE FACILITY, THE PROFITS FRO M SUCH ACTIVITY QUALIFY FOR THE BENEFITS OF SECTION 80 IA(4) OF THE ACT. IN SUPPOR T, ASSESSEE HAS CONTENDED 9 ITA NO.5699/MUM/2012, (A.Y. 2009-10) THAT IT PARTICIPATED IN THE TENDER FLOATED BY IOC FOR DESIGN, SUPPLY, INSTALLATION AND COMMISSIONING OF DAF UNIT AND OIL SKIMMERS AND THAT IT WAS AWARDED THE INFRASTRUCTURE PROJECTS TO SET-UP THE A FORESAID WATER TREATMENT SYSTEM. THE SCOPE OF WORK OF THE ASSESSEE INCLUDED THE DESIGNING, ENGINEERING, SUPPLYING, TRANSPORTING, SUPERVISING T HE INSTALLATION, COMMISSIONING, ETC. OF THE WATER TREATMENT SYSTEM. ON THE CONTRARY, THE STAND OF THE ASSESSING OFFICER AS WELL AS THE CIT(A ) IS THAT THE WORK UNDERTAKEN BY THE ASSESSEE WAS IN THE NATURE OF A WORKS CONTRACT, WHICH IS DONE BY A CONTRACTOR AND CANNOT BE EQUATED TO WORK OF DEVELOPMENT, AS ENVISAGED IN SECTION 80IA(4)(I) OF THE ACT. THUS, THE MOOT POINT TO BE EXAMINED IN THIS CASE IS WHETHER ASSESSEE HAS IND EED UNDERTAKEN THE WORK OF DEVELOPMENT OF INFRASTRUCTURE FACILITY OR NOT? ON THIS ASPECT, AT THE VERY OUTSET, IN OUR VIEW, THE STAND OF THE ASSESSING OFF ICER APPEARS TO BE PRIMA- FACIE MISDIRECTED. IN PARA 5.8 OF THE ASSESSMENT ORDER, THE CONCLUSION DRAWN IS THAT THE ROLE OF THE ASSESSEE WAS LIMITED ONLY TO THE EXTENT OF DESIGNING OF THE SYSTEM AND SUPERVISION/INSTALLATIO N OF THE SYSTEM . QUITE CLEARLY, EVEN THE ASSESSING OFFICER CONCEDES THAT A SSESSEE HAD DESIGNED THE WATER TREATMENT SYSTEM AND, THEREFORE, IT COULD NOT BE STRAIGHTWAY SAID THAT ASSESSEE WAS NOT A DEVELOPER, BUT A CONTRACTOR ONLY BECAUSE A CONTRACTOR CAN NEVER BE EXPECTED TO DESIGN A FACILITY. BE THA T AS IT MAY, IT WOULD BE APPROPRIATE TO TOUCH UPON THE SCOPE OF WORK UNDERTA KEN BY THE ASSESSEE IN TERMS OF THE TENDER AGREEMENT WITH IOC TO EXAMINE W HETHER ASSESSEE ACTED AS A DEVELOPER OR NOT. NOTABLY, TWO CONTRACTS WER E AWARDED BY IOC TO THE ASSESSEE FOR SETTING-UP OF INFRASTRUCTURE PROJECTS FOR DAF UNITS/OIL SKIMMERS 10 ITA NO.5699/MUM/2012, (A.Y. 2009-10) (WATER TREATMENT SYSTEM). AT PAGES 263 TO 264 OF THE PAPER BOOK ARE THE RELEVANT PAGES OF THE CONTRACT FOR THE DIGBOI SITE, WHICH CLEARLY ENVISAGES ASSESSEES SCOPE OF WORK AS DESIGN, ENGINEERING, SU PPLY, TRANSPORTATION, SUPERVISION, INSTALLATION, COMMISSIONING, GUARANTEE ING AND TRAINING OF IOCS MAINTENANCE AND OPERATING PERSONNEL FOR THE DAF SYS TEM. SIMILARLY FOR THE GUWAHATI PROJECT, THE RELEVANT EXTRACT OF THE CONTR ACT IS AT PAGES 413 TO 414 OF THE PAPER BOOK, WHICH ALSO ELUCIDATES ASSESSSEE S SCOPE OF WORK AS DESIGN, SUPPLY, INSTALLATION AND COMMISSIONING OF O IL SKIMMER. 7.1 THE ASSESSING OFFICER REFUSED TO ACCEPT THE ST ATUS OF THE ASSESSEE AS DEVELOPER ON THE GROUND THAT IT WAS NOT DOING THE M ANUFACTURING ACTIVITY, AND IT GOT THE WATER TREATMENT SYSTEMS FABRICATED F ROM OTHER PARTIES. IN THIS CONTEXT, IT IS UNDENIABLE THAT THE RESPONSIBILITY O F FABRICATION OF THE WATER TREATMENT SYSTEM WAS OF THE ASSESSEE ITSELF. IN FA CT IN THE SCOPE OF WORK FOR DESIGN OF THE UNIT, IT IS PRESCRIBED THAT ASSESSEE WOULD BE RESPONSIBLE FOR DESIGNING, ENGINEERING AS WELL AS FABRICATION OF TH E SYSTEM. AT PAGE 319 OF THE PAPER BOOK CLAUSE -2 OF PART-I OF THE SCOPE OF WORK FOR DAF UNIT, IT IS CLEARLY PRESCRIBED THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE NOT ONLY TO DESIGN, DESIGN AND FABRICATE THE SYSTEM BUT ALSO EN SURE TROUBLE FREE OPERATION . THEREFORE, EVEN IF ASSESSEE UNDERTOOK THE FABRI CATION OF WATER TREATMENT SYSTEM THROUGH ANOTHER AGENCY, BUT THE RE SPONSIBILITY OF ENSURING ITS TROUBLE FREE OPERATION STILL RESTED ON THE ASSESSEE ITSELF. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ASSESSEE WAS NOT RESPONSIBLE FOR THE DESIGN, ENGINEERING OR TROUBLE FREE OPERATION OF TH E SYSTEM. IN FACT, ASSESSEE CLEARLY BROUGHT OUT BEFORE THE ASSESSING O FFICER, AND SUCH SUBMISSIONS HAVE BEEN REPRODUCED IN THE ASSESSMENT ORDER, THAT THE WATER 11 ITA NO.5699/MUM/2012, (A.Y. 2009-10) TREATMENT SYSTEM WAS GOT FABRICATED BY THE ASSESSEE AS PER ITS DESIGN AND UNDER ITS SUPERVISION. NOT ONLY WAS THE MANUFACTUR ING SUPERVISED BY THE ASSESSEE BUT ALSO INSPECTION, PACKING AND DESPATCH FROM THE PLACE OF THE FABRICATOR. THIS FACTUAL MATRIX WAS BEFORE THE ASS ESSING OFFICER AND THE SAME HAS NOT BEEN NEGATED AT ANY STAGE. THEREFORE, IN OUR VIEW, IT WAS INAPPROPRIATE FOR THE ASSESSING OFFICER TO LOOK AT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE AS BEING SANS THAT OF A DEVELOPER. IN THIS CONTEXT, CIT(A) IN PARA 5.3.3 OF HIS ORDER HAS ALSO REFERRED TO CERTAI N CLAUSES AGREEMENT/CONTRACT WITH IOC TO SHOW THAT ASSESSEE W AS ONLY EXECUTING A SPECIFIED WORK CONTRACT. ONE OF THE POINTS, RAISED BY THE CIT(A) IS WITH REGARD TO THE SCOPE OF WORK AND SUPPLY OF DAF UNIT. THE C IT(A) REFERRED TO CLAUSE 3.1.1.9 TO SAY THAT THE RESPONSIBILITY OF CONSTRUCT ION OF THE FOUNDATION WORK FOR INSTALLATION OF THE DFA UNIT WAS THAT OF THE IO C AND NOT THE ASSESSEE. IN THIS CONTEXT, WE HAVE EXAMINED THE RELEVANT CLAUSE, WHICH IS PLACED AT PAGE 330 OF THE PAPER BOOK AND NOTE THAT THE CIT(A) HAS NOT READ IT IN ITS ENTIRETY. NO DOUBT, IT WAS THE OBLIGATION OF THE IOC TO CARRY OUT NECESSARY FOUNDATION WORK FOR INSTALLATION OF THE DAF UNIT BUT SUCH WORK WAS TO BE UNDERTAKEN BY IOC ON THE BASIS OF THE DRAWINGS SUPPLIED BY THE VENDOR I.E. ASSESSEE. SIMILAR ASPECTS HAVE BEEN NOTED BY THE CIT(A) IN RE SPECT OF ELECTRICAL EQUIPMENTS, ETC. TO POINT OUT THAT THE SAME WAS OUT SIDE THE SCOPE OF WORK OF THE ASSESSEE. IN OUR CONSIDERED OPINION, THE RE LEVANT CLAUSES CLEARLY BRING OUT THAT EVEN THE SCOPE OF WORK TO BE UNDERTAKEN BY IOC WERE TO BE UNDERTAKEN AS PER DRAWING/SPECIFICATIONS PROVIDED B Y THE ASSESSEE. THEREFORE, IN OUR VIEW, THE CIT(A) HAS ALSO MISDIRE CTED HIMSELF IN INFERRING THAT ASSESSEE WAS MERELY EXECUTING A WORKS CONTRACT AS A CONTRACTOR AND NOT AS A DEVELOPER. AT THIS STAGE, WE MAY ALSO MAKE A REFERENCE TO CLAUSE 3.7 12 ITA NO.5699/MUM/2012, (A.Y. 2009-10) OF THE PART III OF CONTRACT FOR SUPPLY OF DFA UNI T, WHICH IS CONTAINED IN PAGE 343 OF THE PAPER BOOK DEALING WITH POST WARRANTY MA INTENANCE CONTRACT. THE SAID CLAUSE PRESCRIBES THAT ASSESSEE WAS OBLIGA TED TO MAKE A SEPARATE OFFER TO IOC FOR POST-WARRANTY MAINTENANCE OF THE S YSTEM SUPPLIED BY THE ASSESSEE. THE SAID CLAUSE ITSELF INDICATES THAT AS SESSEE NOT ONLY DESIGNED, ENGINEERED, GOT IT FABRICATED AND SUPPLIED THE CONT RACT AS A DEVELOPER AND WAS ALSO PROVIDING WARRANTY; AND, IN THE POST-WARRA NTY PERIOD, A SEPARATE OFFER WAS TO BE MADE. THEREFORE, FACTUALLY SPEAKIN G, WE ARE UNABLE TO CONCUR WITH THE LOWER AUTHORITIES THAT ASSESSEE WAS MERELY A CONTRACTOR AND NOT A DEVELOPER SO FAR AS IT RELATES TO THE W ATER TREATMENT SYSTEMS SUPPLIED TO THE IOC. IN THIS VIEW OF THE MATTER, I N OUR VIEW, ASSESSEE QUALIFIES FOR THE BENEFITS OF SECTION 80 IA OF THE ACT. 7.2 BEFORE PARTING, WE MAY ALSO REFER TO ANOTHER PO SITION TAKEN BY THE CIT(A) THAT ASSESSEE HAS NOT CLAIMED THE DEDUCTION IN THE EARLIER YEARS AND, THEREFORE, IT IS INELIGIBLE FOR THE SAID DEDUCTION IN THE INSTANT YEAR. ON THIS ASPECT, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS POINTED OUT THAT IN THE EARLIER YEARS ASSESSEE WAS SUPPLYING THE WATER TREA TMENT EQUIPMENT TO CONCERNS, SUCH AS THERMAX, L&T, ETC. AND THAT IT W AS ONLY FOR THE FIRST TIME IN ASSESSMENT YEAR 2008-09 THAT IT WAS AWARDED THE TEN DER BY IOC. IT WAS, THEREFORE, IN THIS CONTEXT, THE CLAIM HAS BEEN MADE IN THE INSTANT YEAR. THE LD. REPRESENTATIVE FOR THE ASSESSEE ALSO POINTED OU T THAT THE TIME PERIOD PRESCRIBED FOR THE DEDUCTION UNDER SECTION 80 IA( 4) OF THE ACT IS 20 YEARS AND IN THAT CONTEXT IT IS ELIGIBLE FOR THE CLAIM OF DEDUCTION IN ASSESSMENT YEAR 2009-10, SINCE THE FIRST YEAR WAS ASSESSMENT YEAR 1 992-93; INASMUCH AS, ASSESSEE WAS INCORPORATED ON 09/10/1991. IN OUR CO NSIDERED OPINION, THE 13 ITA NO.5699/MUM/2012, (A.Y. 2009-10) AFORESAID ASSERTIONS MADE OUT BY THE ASSESSEE CLEAR LY BELIE THE OBSERVATIONS MADE BY THE CIT(A) AND ON THIS GROUND ALSO WE FIND NO REASON TO UPHOLD THE STAND OF THE CIT(A). THEREFORE, IN CONCLUSION WE S ET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80 IA(4) OF THE ACT. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 8. THE OTHER ISSUE IN THIS APPEAL RELATES TO A DISA LLOWANCE OF RS.4,43,121/- BEING INTEREST FOR DELAY IN MAKING PA YMENT DUE FOR THE CREDIT CARD FACILITY. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE ON THE GROUND THAT THE INTEREST FOR LATE PAYMENT WAS PENAL IN NAT URE AND, THEREFORE, EXPLANATION TO SECTION 37(1) OF THE ACT WAS ATTRACT ED. THE CIT(A) NOTED THAT THE DELAY RELATED TO A PRIOR PERIOD AND, THEREFORE, THE SAME WAS DISALLOWABLE. AGAINST THE ACTION OF THE CIT(A) IN SUSTAINING THE ADDITION, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8.1 AFTER HEARING THE RIVAL STANDS, IT IS QUITE CL EAR THAT SO FAR AS THE USE OF THE CREDIT CARD IS CONCERNED, THERE IS NO DISPUTE T HAT THE SAME HAS BEEN DONE IN THE COURSE OF ASSESSEES BUSINESS. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN TEREST LIABILITY WAS RAISED ON THE ASSESSEE BY THE CREDIT CARD COMPANY WHICH WA S SETTLED BY THE ASSESSEE IN THE INSTANT YEAR AND, THEREFORE, THE IN TEREST LIABILITY IN QUESTION CRYSTALLIZED DURING THE YEAR ITSELF. THE LD. REPRE SENTATIVE FOR THE ASSESSEE HAS ALSO REFERRED TO PAGE 123 TO 125 OF THE PAPER B OOK, WHEREIN IS PLACED THE COMMUNICATION WITH BOBCARDS LTD. ALONG WITH THE PROOF FOR PAYMENT TOWARDS FULL AND FINAL SETTLEMENT OF THE DUES OF TH E CREDIT CARDS. THE AFORESAID FACT POSITION IS NOT IN DISPUTE AND, THER EFORE, IN OUR VIEW, THE 14 ITA NO.5699/MUM/2012, (A.Y. 2009-10) IMPUGNED EXPENDITURE COULD NOT BE TREATED AS A PRIO R PERIOD EXPENDITURE, RATHER THE SAID EXPENDITURE HAS CLEARLY CRYSTALLIZE D DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, DESERVES TO BE ALLOWE D IN COMPUTING THE BUSINESS INCOME. WE ORDER ACCORDINGLY. THUS, ASSE SSEE SUCCEEDS ON THIS ASPECT ALSO. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 18/08/2017 SD/- SD/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 18/08/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI