Appeal Details
Counselvise Citation
[2022] 105 COUNSELVISE.COM (IT) 9658 (ITAT-INDORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 5 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-01-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Assessment Year
2015-2016
Appeal Filed On
12-08-2019
Judgement Text
अपील य अ धकरण, इ दौर यायपीठ, इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI RAJPAL YADAV HON'BLE VICE PRESIDENT AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA No.782/Ind/2018 & ITA No. 819 & 820/Ind/2019 & ITA No.197/Ind/2020 Assessment Year:2014-15 to 2017-18 M/s. Dilip Buildcon Ltd. Bhopal बनाम/ Vs. DCIT, Central-1, Bhopal (Appellant) (Respondent ) P.A. No.AACCD6124B ITA No.816/Ind/2018 & ITA No. 881 & 882/Ind/2019 & ITA No.290/Ind/2020 Assessment Year:2014-15 to 2017-18 DCIT, Central-1, Bhopal बनाम/ Vs. M/s. Dilip Buildcon Ltd. Bhopal (Appellant) (Respondent ) P.A. No.AACCD6124B M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 2 Revenue by Shri P.K. Mitra, CIT-DR Respondent by S/Shri Vijay Mehta & Hitesh Chimnani, ARs Date of Hearing: 10.11.2021 Date of Pronouncement: 27.012022 आदेश / O R D E R PER MANISH BORAD: The above captioned Cross appeals for A.Ys. 2014-15 to 2017-18 are directed against the order of Ld. Commissioner of Income Tax(Appeals), (in short ‘CIT(A)’), Bhopal dated 30.07.2018, 28.06.2019, 28.06.2019 & 30.06.2020 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 28.12.2016, 07.12.2018, 09.12.2018 & 08.12.2019 framed by ACIT/DCIT-Central-1 Bhopal. Revenue has raised following grounds of appeal for A.Y. 2014-15 : On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.97,09,02,604/- made by the AO on account of disallowance of deduction u/s 80IA(4) of the Income Tax Act, 1961. Assessee has raised following grounds of appeal for A.Y.2014-15: The following grounds of appeal are without prejudice to one another. 1.On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of the Ld. AO in making disallowance of Rs. 22,57,23,589/- on account of claim of addition depreciation u/ s 32(1)(iia) of the Income Tax Act,1961 as per the grounds stated in the order or otherwise. 2.On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in confirming the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 3 action of the Ld. AO in making disallowance of Rs. 24,90,01,000/ - on account of claim of investment allowance u/ s 32AC of the Income Tax Act, 1961 as per the grounds stated in the order or otherwise. 3.On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in not directing Ld. AO in extending benefit of deduction u/ s 80IA(4) on the amount of additional depreciation u/ s 32(1)(iia) of the Income Tax Act,1961 and investment allowance u/s 32AC disallowed and confirmed by him, as per the grounds stated in the order or otherwise. The appellant prays this Hon'ble Tribunal to delete the addition/ disallowances made by the Ld. Assessing Officer, which is confirmed by the Ld. Commissioner of Income Tax (Appeals). Revenue has raised following grounds of appeal for A.Y.2015-16: On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.67,37,77,768/- made by the AO on account of disallowance of deduction u/s 80IA(4) of the Income Tax Act, 1961. Assessee has raised following grounds of appeal for A.Y.2015-16: The following grounds of appeal are without prejudice to one another. 1. On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of the Ld. AO in reopening the assessment u/s 147 by issue of notice dated 22.12.2017 u/s 148 which is merely due to change of opinion and therefore, the re-opening is bad in law. 2. On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of the Ld. AO in making disallowance of Rs. 98,41,52,223/- on account of claim of addition depreciation u/s 32(1)(iia) of the Income Tax Act, 1961 as per the grounds stated in the order or otherwise. 3. On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in not directing Ld. AO in making disallowance of Rs.97,51,19,828/- on account of claim of investment allowance u/s 32AC of the Income Tax Act 1961, as per the grounds stated in the order or otherwise. The appellant prays this Hon'ble Tribunal to delete the addition/ disallowances made by the Ld. Assessing Officer, which is M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 4 confirmed by the Ld. Commissioner of Income Tax (Appeals). Revenue has raised following grounds of appeal for A.Y.2016-17: On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.801,05,46,419/- made by the AO on account of disallowance of deduction u/s 80IA(4) of the Income Tax Act, 1961. Assessee has raised following grounds of appeal for A.Y.2016-17: The following grounds of appeal are without prejudice to one another. 1. On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in not directing Ld. AO in making disallowance of Rs.101,97,09,965/- on account of addition deprecation u/s 32(1)(iia) of the Income Tax Act 1961, as per the grounds stated in the order or otherwise. The appellant prays this Hon'ble Tribunal to delete the addition/ disallowances made by the Ld. Assessing Officer, which is confirmed by the Ld. Commissioner of Income Tax (Appeals). Revenue has raised following grounds of appeal for A.Y.2017-18: On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.9,09,14,28,003/- made by the AO on account of disallowance of deduction u/s 80IA(4) of the Income Tax Act, 1961. (the assessee has claimed deduction amounting to Rs.9,09,14,28,003/- but the same was restricted by the assessing officer to Rs.404,12,33,449/- being the profit computed by the assessee, as per section 80IA of the Income Tax Act, 1961). Assessee has raised following grounds of appeal for A.Y.2017-18: The following grounds of appeal are without prejudice to one another. 1. On the facts and circumstances of the case and in law Ld. Commissioner of Income Tax (Appeals) erred in not directing Ld. AO in making disallowance of Rs.78,94,26,650/- on account of addition deprecation u/s 32(1)(iia) of the Income Tax Act 1961, as per the grounds stated in the order or otherwise. The appellant prays this Hon'ble Tribunal to delete the addition/ disallowances made by the Ld. Assessing Officer, which is confirmed by the Ld. Commissioner of Income Tax (Appeals). M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 5 2. As the issues raised are mostly common and relates to same assessee, at the request of all the parties, these appeals were heard together and the same are being disposed of by this common order for sake of convenience and brevity. 3. On perusal of grounds we notice that for AY. 2014-15 to 2017- 18 revenue's common grievance is against the finding of Id. CIT(A) allowing the deduction u/s 80(IA)(4) of the Act whereas in assessee's appeal for these four years common grievance is mainly that the Id. CIT(A) erred in not treating the assessee a manufacturer and not allowing the deduction for additional depreciation u/s 32(1 )(iia) of the Act and not allowing deduction for investment allowance u/s 32AC of the Act. Since the issues are same except the change of figure we will take the facts of the case for AY. 2014-15 for adjudicating all the issues raised in the captioned cross appeals and our decision shall apply mutatis mutandis on the issues raised in the cross appeals for the remaining A. Ys. 2015-16 to 2017-18. 4. Brief facts of the case as culled out from the records are that the assessee is a limited company engaged in the business of construction of infrastructure projects including highways and Toll Roads. Return of income for A.Y. 2014-15 filed on 29.11.2014 declaring total income of Rs.97,54,11,640/- after claiming deduction u/s 80(IA)(4) of the Act at Rs.97,09,02,640/-. Case selected for scrutiny through CASS followed by serving of M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 6 notices u/s 143(2) & 142(1) of the Act. Various aspect of the case were discussed and submissions given by the assessee were examined. First issue raised by the ld. Assessing Officer (in short Ld.AO) was regarding claim of deduction u/s 80(IA)(4) of the Act. Assessed filed detailed submission along with placing reliance on various decisions stating that the assessee is a “developer” and not “works contractor” and is eligible for deduction u/s 80(IA)(4) of the Act which is duly supported by audit report. Ld. AO however, was not satisfied for the following reasons as mentioned in the assessment order:- 4.4 The submissions of the assessee have been considered but the same is not acceptable. From the assessee’s submission it can be observed that:- a) A tender of work contract is floated by the concerned department and work contractor submits their rates. b) Work contract is provided in form of work order. c) The specification of the work is mentioned in the work order. Contractor only executes the work order. The work done by him is inspected by an engineer of the concerned State or Central Department. d) Time to time payments are made based on the bills evaluated by Engineer only after the satisfaction that work is being executed as per the contract. e) A tender and work order is provided only in case of a work contract. f) As per column number 10(a) form 3CD Report (Audit Report), the assessee company is engaged in the business of Civil Contractor. Even the Audit Report of the assessee confirms that it is contractor. g) Deduction u/s 80IA is allowable only in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructural development etc. Assessee is merely executing a works contract awarded by State and Central Government. h) The deduction u/s 80IA is no longer meant for contractors – be it the work for up-gradation or new construction work. The amendment to section 80IA(4) which reads as under, makes the position very clear: “Explanation. For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 7 Government) and executed by the undertaking or enterprise referred to in sub-section (1).]” i) The provision is to provide incentives to those who are developing, maintaining and operating new infrastructural facilities (including roads) such as the work taken by any enterprise under BOT (Built Operate & Transfer) Scheme. The available facts clearly show that the assessee did not carry out any work under BOT so as to make it eligible for 80IA deductions. The assessee is primarily engaged in the execution of works contracts (road construction) mainly for PWD, Madhya Pradesh. j) In BOT works, the government or its agencies do not provide the funds. Rather, the required funds are met by the enterprise itself and in that situation the enterprise is authorized to charge ‘toll tax’ while maintaining and operating such roads until certain period (as per the agreement with the Government) to recover its cost. The said income earned is subject to deduction u/s 80IA for specified number of years. The ownership over such projects is thereafter transferred to the Government after the said period. Thus, the deduction is not available to the work contracts as executed by Assessee Company. k) There is no mobilization of fund by assessee rather it is totally depending on the government/ Contract fund. The assessee is receiving mobilization advance and year-wise works contract receipts. l) The project is allotted in the name of SPV while deduction is claimed by the assessee company. 5. Based on the above observations Ld. AO was of the view that the assessee has been awarded works contract by central/State Government and assessee has to only execute the same and does not have any choice to build infrastructure facility as all the specifications are provided by the awarder and assessee has to follow them without any change and therefore, the assesse is “works contractor” and not a “developer” and thus, not eligible for deduction uls 80(IA)(4) of the Act. 6. Second issue raised by the Ld. AO was regarding the claim of depreciation made by the assessee uls 32(1)(iia) of the Act and M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 8 Investment allowance uls 32AC of the Act Ld. AO observed that additional depreciation and investments allowance can be claimed only if the assessee is a manufacturer of any article or thing. Ld. AO relying on the judgment of Hon'ble Supreme Court in the case of CIT vs. N.C. Butharaja & CO. 1993 204 ITR 412 came to conclusion that construction of road is not a activity of manufacturing and since the assessee is in the business of construction of road and is not a manufacturer it cannot claim the deductions available only to manufacturers and therefore disallowed the additional depreciation uls 32(1)(ia) of the Act Rs. 22,57,23,589/and also disallowed Investment allowance claiming uls 32AC of the Act at Rs.24,90,01,000/-. Accordingly after making above stated disallowance income assessed at Rs.2,42,10,38,833/-. 7. Aggrieved assessee preferred an appeal before ld. CIT(A) against the disallowances made by the ld. AO. Ld. CIT(A) based on the examination of facts, settled judicial precedents and the detailed finding of Income Tax Settlement Commission in assessee's own case for A.y. 2008-09 to 2013-14 held that the assessee is a developer and is eligible for deduction uls 80(IA)(4) of the act. So far as the disallowance for additional depreciation and investment allowance Ld. CIT(A) confirmed the finding of Ld. AO in view of the judgment of Hon'ble Supreme Court in the case of N.C. Budharaja & CO. (supra). 8. Aggrieved assessee and revenue both are in appeal before this M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 9 Tribunal. Revenue has challenged the Ld. CIT(A) finding allowing deduction u/s 80(IA)(4) of the Act and assessee has challenged the finding of ld. CIT(A) for not treating it as a manufacturer and not allowing the deduction of depreciation and investment allowance. The total addition in dispute for A.Y. 2014-15 to 2017-18 can be summarize in the following manner: A.Y. Assessee ITA No. Additional Depreciation Investment Allowance Department ITA No. 80-IA(4) Benefit eligible 80-IA Utilised 2014-15 782/Ind/18 22,57,23,589 24,90,00,667 816/Ind/18 97,09,02,604 97,09,02,604 2015-16 819/Ind /19 98,41,52,223 97,51,19,828 881/Ind /19 67,37,77,768 - 2016-17 820/Ind/19 1,02,40,00,000 - 882/ Ind/19 8,01,05,46,419 1,94,12,24,374 2017-18 197/Ind/20 78,94,26,650 - 290/Ind/20 9,05,14,28,003 4,04,12,33,449 TOTAL 3,02,33,02,462 1,22,41,20,495 18,70,66,54,794 6,95,33,60,427 9. We will first take up revenue’s appeal for A.Y. 2014-15 to 2017- 18,, commonly raising a ground that ld. CIT(A) erred in granting deduction u/s 80(IA)(4) of the Act ignoring the fact that the assessee company is a “works contractor” and not a “developer” and is not eligible for deduction u/s 80(IA)(4) of the Act. 10. Brief facts related to this issue are that the assessee is a large private sector road focused Engineering Procurement Construction (EPC) company and is engaged in the business of developing infrastructure facilities that includes toll roads. For this purpose, State Government or statutory bodies (state public sector corporations, NHAI, local authority) issues Request for Proposal (‘RFP’) inviting bids from developers of roads under Design Build, M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 10 Operate, Finance and Transfer (‘DBFOT’) basis or Build, Own, Operate and Transfer (‘BOOT’) or Build, Operate and Transfer (‘BOT’) basis or Engineer Procurement Construction Basis (EPC). The appellant company procures the tender documents, bids for these development projects, and winning the bid, it is issued Letter of Intents (‘LOI’) which are then accepted by the assessee. Since the LOIs that are awarded in the name of the assessee and accepted by it this constitutes a binding agreement between the assessee and State Government / statutory body. In BOT projects, as per mandate given in the contract, the assessee has to form a fully owned SPV specific to each project for better & efficient implementation/execution of the project. The detailed modus operandi of the business of the assessee has been discussed elaborately by the CIT(A) at para 6.1 of the appellate order. During the year under consideration, the assessee has claimed deduction u/s 80IA(4) on the profits earned on the eligible road projects amounting to Rs.97,09,02,604/-. The said deduction was disallowed by the Ld. AO in the assessment order wherein he held that the assessee is merely executing government contract in the capacity of a work contractor and not developer. AO further observed that no risk is undertaken by the assessee and therefore, it cannot be termed as developer as envisaged u/s 80IA(4) of the Act. In the appellate order, Ld. CIT(A) has elaborately discussed the merits of the case and also considered various projects undertaken by the assessee and the investments which needs to be made by the assessee, activities to be undertaken, the risk of M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 11 the assessee during the course of carrying out the project and subsequently. Ld. CIT(A) has also referred to various judicial pronouncements which are squarely applicable on the fact of the case in order to arrive at the finding that the assessee has fulfilled all the conditions required for claiming deduction u/s 80(IA)(4) of the Act. Based on the detailed observation Ld. CIT(A) also held that the assessee is a “developer” and not a “works contractor”. Reliance was also placed on the detailed finding of Income Tax Settlement Commission in assessee’s own case for A.Y. 2018-19 for A.Y. 2014-15 holding that the assessee is a developer and deduction u/s 80(IA)(4) of the Act. 11. Ld. DR vehemently argued supporting the order of the Ld. AO stating that the assessee is a “works contractor” and not a “developer”. The project is allotted in the name of special purpose vehicle while deduction is claimed by the assessee. There is no mobilization of funds by the assessee. Works contract is provided in the form of work order and the assessee is only executing the work order which is inspected by the engineer of the concerned State or Central Government Department. Assessee is only executing work contract as per the form of tender by the Government and on its own assessee has no planning of developing any infrastructure facility Placing reliance on the judgment of Hon'ble Gujarat High Court in the case of Katira Construction Ltd. reported in 31 taxmann.com 250(Guj) it was stated that the assessee is a works contractor and is not eligible M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 12 for deduction u/s 80(IA)(4) of the Act. 12. Per contra Ld. counsel for the assessee heavily relied on the detailed finding of Ld. CIT(A) and also referred to the project undertaken by the assessee. Financial and technical risk taken by the assessee for carrying out the projects are proves that the assessee is a “developer” not “works contractor”. Assessee has duly fulfilled all the condition for claiming deduction u/s 80(IB)(4) of the act and it is consistently been claiming this deduction for past many years. Ld. counsel for the assessee also stated that the issue is squarely covered in favour of the assessee by the judgment of Hon'ble jurisdictional High Court vide writ petition No.6721/2017 dated 10.07.2019 wherein Hon'ble Court has confirmed the finding of Income Tax Settlement Commission holding that the assessee is a developer and not a works contractor which is eligible for deduction u/s 80(IA)(4) of the Act. Reliance was also placed on the decision of the Rajkot Bench of I.T.A.T. in the case of Katira Construction Ltd. order dated 30.07.2020 reported in 119 taxmann.com 489 adjudicating similar issue as that of assessee holding that even after the amendment by the Finance Act 2007 and the Finance Act 2009, the contractor performing the work in the nature of a developer-cum-contractor assuming risk and responsibility shall be eligible for deduction u/s 80(IA)(4) of the Act in respect of the eligible infrastructure facility. Ld. counsel for the assessee prayed that the finding of Ld. CIT(A) allowing the deduction u/s 80(IA)(4) of the Act to the assessee should be M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 13 confirmed. 13. We have heard rival contentions and perused the records placed before us. Revenue’s sole grievance for A.Y. 2014-15 is that Ld. CIT(A) erred in treating the assessee as a “developer” and allowing the claim of deduction u/s 80(IA)(4) of the Act. We observe that the assesse is engaged in the business of developing infrastructure facility including Highways and Toll roads and it is carrying out various projects of the Central and State Government. The appellant company procures the tender documents, bids for these development projects and on winning the bid, is issued ‘letter of intents’ (LOI) which thus constitutes the binding agreement between the assessee and the State Government/statutory body, National Highways Authority of India and others. In Build Operate and Transfer (in short BOT) projects, as per mandate gives in the contract, the assessee has to form a fully owned SPV( Special Purpose Vehicle) for each project in order to execute the projects efficiently. 13.1. We notice that ld. CIT(A) has given a detail finding of fact taking note of projects undertaken by assessee and also considered the settled judicial precedents. The modus operendi of the business has been discussed in the impugned order and the same is important to deal with the issue raised before us. Modus operendi of business: The process of bidding of BOT (Annuity) is in PPP model, the concessionaire is selected through the two-stage bidding process. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 14 In the first stage, the interested parties are invited to furnish their technical and financial strength. The pre-qualified parties are then invited to submit the financial bid, which is the cost of construction, operation, and maintenance of the facilities, and a percentage of returns thereon quoted on a semi-annual basis throughout the concession period. The contract is awarded to the bidder with the lowest quote of the annuity, through forming a separate Special Purpose Vehicle (SPV), incorporated under Indian Companies Act, 2013. The granting authority pays the concessionaire annuities on each annuity payment date as per the annuity payment schedule, after adjusting for non-availability of the lane and delay or early achievement of commercial date. It has been submitted that appellant has executed the projects on Design- Build-Finance-Operate-Transfer (DBFOT) basis which is a project delivery method which involves Designing and Building the infrastructure, Operating them for a specific time period and Transferring the ownership of the project to the Government after specific time frame. Under D.F.B.O.T. there are Four Different Models: a. Toll Model b. Annuity Model c. Toll + Annuity Model d. Annuity + Grant (Hybrid Annuity Model) In toll road model projects, executed under concession agreements with counterparties (such as the National Highways Authority, or NHAI or state govt. authority), the special purpose vehicle (SPV, set up for executing the project) undertakes construction of the road and gets the right to collect tolls (which are driven by traffic and the toll rates) on that particular stretch over the concession period. It has an obligation to maintain the road quality during the concession period. In annuity road model projects, the SPV constructs the road and receives the right to receive fixed payments from the NHAI or state government authorities throughout the concession period (except initial construction period). It has an obligation to maintain the road quality. However, unlike in toll road projects, the demand risk is mitigated due to the availability of a steady stream of assured payments from the concessioning authority. In annuity + toll road model projects, the SPV constructs the road and receives the right to receive fixed payments from the NHAI or state government authorities along with right to collect tolls (which are driven by traffic and the toll rates) throughout the concession period. It has an obligation to maintain the road quality. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 15 Hybrid annuity model is a new variant, which combines the features of annuity and EPC nature of work. Of late, the focus has shifted to hybrid annuity projects where the concessionaire receives payments during the project implementation phase to fund a certain percentage of the project cost, and also receives annuity payments during the operational phase, which are inflation-adjusted. Out of the above four models, the appellant is mostly having Annuity, Toll+Annuity and Hybrid Annuity Model in their road project bucket. Below showing the process chart of DBFOT process :- Government opens offer for bidding for the Road Projects Under BOT DBL bids for the BOT DBL wins the Project DBL Forms an new SPV (100% subsidiary of DBL) as per pre- requisite condition of tender SPV enters into concession agreement with the government SPV appoints DBL as EPC for construction of road Dilip Buildcon Limited Bidder LOA Guarantor Risk Taker Executor SPV funds its project through bank finance which is sanctioned on the basis of DBL financials & with the corporate guarantee of DBL. Engineering Procurement and Construction (EPC) - Engineering Procurement and Construction is a contract where contractor is paid for a work with at agreed milestone based payment for carrying out an engineering project. The responsibility of Engineering (Design), Procurement (material labour/services of design specified quality) and construction is with the contractor. EPC contractor is made responsible for all the activities from design, procurement, construction to commissioning and hand over the project to owner. The EPC contractor takes the risk & responsibility of completing the project at a given cost and time frame and acts as a single point of interface between the promoter and all other agencies connected with the project. EPC contracts vary on the basis of the assignment of responsibility and related penalties. EPC project is financed by the contractor’s own funds or what he will raise upfront based on the contractor’s core competence and financial strength. The project owner or employer will look to the EPC contractor as the single point of contact for all facets of the project, from basic design through commissioning and start-up of the facility. EPC projects offer a mutually beneficial and exciting form of project delivery for both the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 16 owner and the contractor. But, with the EPC contract come many new risks that are often severe due to the complex nature and high cost frequently associated with this type of project. Understanding these risks and some of the other unique characteristics of EPC contracting its critical to a successful project where both the owner and the contractor obtain the high rewards for the risk. Some important features that differentiate risk in an EPC contract as compared to regular contracts can be seen below: a. Risks traditionally assumed by the owner in design-bid-build and design build contracts may no longer fall under the owner’s umbrella of responsibility in EPC contract. For example, the contractor may be required to assume the risk of unforeseen site conditions and may be responsible for events that would traditionally be viewed as force majeure (i.e. beyond the control of either party). b. The greatest risk for the contractor in entering into the EPC contract is not necessarily anything inherent in the EPC form of contracting. c. In general terms, EPC contract is turnkey, but not all turnkey contracts are EPC. Thus, an EPC contractor undertakes the entire risk of developing a particular project. 13.2. We observe that Ld. CIT(A) has elaborately discussed the projects undertaken by the assessee during the year under consideration at para 6.2 of the impugned order. Ld. CIT(A) has observed that the assessee has under taken the financial risk, technical risk, sourcing of man power and material, designing and planning of the project, liability of project and post project damages, safety risks, etc. which is not undertaken by a simple work contractor. Further, at para 6.2.1, Ld. CIT(A) has discussed the agreement of a project wherein he has specifically pointed as to how the assessee has undertaken various risks which qualifies it to be a developer. Further, at para 6.2.2, Ld. CIT(A) has enlisted the break-up of the projects on which the assessee has claimed deduction u/s 80IA(4). M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 17 13.3. Further, at para 6.6 of the order, Ld. CIT(A) has discussed the characteristics of the work performed by the assessee in respect of various projects and has observed that entire financial risk including providing performance guarantee, technical risk of making and adhering to the design, employing its own machines and technical staff in the process of development of road, suffers from the liability of any future defect and in all, undertakes to responsibility of completing the entire development of road as a project. 13.4. Further, Ld. CIT(A) has enlisted the contention of the AO taken in the assessment order at para 6.3 of the order. The same are enlisted hereunder for ready reference:- (i) Tender was floated by concerned department, assessee submitted its rates, received work order having specification of work and executed work order which was inspected from time to time by an engineer of concerned State/Central govt. department. (ii) Assessee was not developing any infrastructure facility on its own as BOT but executing work contract floated in the form of tender by the Government. Benefit of 80IA(4) is available to the enterprises engaged in work under BOT (Built, Operate and Transfer)for which funds were arranged by the Appellant himself. (iii) Assessee did not mobilize its own funds but totally depending upon Government/Contract fund and receiving mobilization advance and year wise works contract receipts. Time to time payments are made based on bills evaluated by Engineers after satisfaction of work done. (iv) As per column 10(a) form 3CD Report (Audit Report), the company has been shown as engaged in the business of Civil Contractor. Therefore as per Explanation to section 80IA(4) of the Act, assessee is not eligible for M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 18 deduction u/s 80IA(4) of the Act being engaged in executing ‘works contract’. (v) That the assessee does not have any choice to build the infrastructure facility. All the specifications are provided by the department and assessee has no planning to develop any infrastructure facility and assessee is executing only a work contract. (vi) As per ld. A.O. said project/projects were allotted in the name of SPV (Special Purpose Vehicle) and not in the name of assessee company, so deduction claimed u/s 80IA (4) is not allowable to the assessee. 13.5. In respect of the above contentions of the Ld. AO, Ld. CIT (A) has countered each of the contentions in details at para 7 of the appellate order. With respect to the Ld. AO’s contention that the assessee is a contractor since it receives contract from the government, CIT(A) has held that the word “contractor” and the developer cannot be viewed differently in a very narrow manner. Every contractor may not be a “developer” but every developer developing infrastructure facility on behalf of the Government is a “contractor”. 13.6. With respect to Ld. AO’s contention that assessee has not undertaken any financial or technical risk, Ld. CIT(A) observed that the assessee has to take the entire financial risk while performing the contract in respect of road project and any loss due to lesser revenue earning has to be borne by it. As far as technical risk is concerned, after receipt of work order, assessee has to conduct a detailed survey and afterwards has to submit design/drawings of all structures, culverts, pavements and bridges M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 19 etc. After checking done by approved engineers, these drawings/designs are submitted to competent authority for approval. 13.7. With respect to Ld. AO’s contention that assessee has undertaken projects as contractor and not developer, Ld. CIT(A) elaborated the distinction between a contractor and developer at page no. 73 of the appellate order. After considering the difference, Ld. CIT(A) has pointed the relevant clause of the agreement entered into by the assessee at page nos. 74-80 and has held that the assessee is duly eligible as developed. Ld. CIT(A) has elaborately discussed the agreement entered into by the assessee in respect of project ‘Bankalfata Dogawa’ wherein it has discussed the responsibilities of the assessee with respect to damages for delay, employment of trained personnel, performance security, providing emergency medical aid, providing insurances, performing defect liability. Further, Ld. CIT(A) has also observed that the assessee is liable to undertake financial risk by providing financial closure and performance security and is liable to undertake technical risk by providing drawing of the projects after conducting survey. 13.8. Further, with respect to the Ld. AO’s contention of awarding of contract in the name of SPV, Ld. CIT(A) observed that SPV is formed only to obtain contract from government body or to comply to requirement of government directives and SPV is only a de-jure contractor and assessee was a de facto contractor wherein SPV are M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 20 just ‘pass through entity’ created to comply the government directives and SPVs are fully owned subsidiary of appellant. The entire work is then conducted by the assessee under a back to back agreement. 13.9. In the impugned order of Ld. CIT(A) has observed that the assessee has under taken the financial risk, technical risk, sourcing of man power and material, designing and planning of the project, liability of project and post project damages, safety risks, etc. which is not undertaken by a simple work contractor.In this regard, it is relevant to consider page 73 of the appellate order Ld. CIT(A) has enlisted the difference between a developer and contractor which is as under:- S.No Developer of Infrastructure facility Works contractor 1. A developer tends to be speculative in profit margin due to the all associates risk. Contractor is likely to operate on fixed profit margins. 2. Developer stake on the RISK such as personal guarantees, accountable for raising and managing all funds needed, responsible for all aspects of the project to stay on track and complete on-time including hiring and executing contracts with required number of professionals. Due to the specific nature of work the same risk is not associated with contractor. 3. Government hands over the possession of the premises/site of the project for development of infrastructure facility till it is handed over back to government after completion of project. In case of a contractor no such handover is made. 4. In short developer assumes financial and technical risk and undertakes liability of liquidated damages. A contractor never assumes financial and technical risk nor he undertakes liability of liquidated damages. 5. Developer has to mobilize fund, deploy required man power, plant-machinery, material and other required resources to execute the infrastructure development. The contractor gets the required material and resources from the employer. He needs to work only on the specific work assigned. 6. A developer is responsible for the design and specification of the project. Developer develops the plan, he In case of contractor the design and specification of the project is handed over by the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 21 blueprints every stage of the project, he also ensures that the plan meets the code then he proposes it to the client/employer. authority/employer/owner. 7. A developer is responsible for maintaining the facility without hindrance to regular traffic. A contractor is not responsible for the maintenance of the facility. 8. The developer is liable for defect correction during the defect liability period. During the period if any damage occurs it shall be the liability/responsibility of the developer to repair it. The contractor is not liable for such defect correction. 9. Any escalation in cost is the responsibility of the Developer. The contractor works on fixed profit percentage. 10. The developer never operates for a specific work but for the development of facility as a whole. The contractor operates for a specific work. 14. After considering the above differences, CIT(A) has observed the various clauses of the agreement entered into by the assesse for the project ‘Bankalfata Dogawa’ and has observed that the work undertaken by the assesse clearly falls under the developer and not contractor. The analysis of the various clauses of the agreement is as under:- S.No Clause Important condition of the clause Clause of Agreement Reference in paper book 1 Scope of project The scope of the project (the “Scope of the Project”) shall means and include, during the concession period: (a) Construction of the project highway on the site set forth in schedule-A and as specified in schedule B together with provision of project facilities as specified in Sechedule-C. and in conformity with the Specifications and standards set forth in Schedule-D (b) Operation and maintenance of the project highway in accordance with te provisions o this agreement; and (c) Performance and fulfillment of all Article 2 at internal page 10 of the agreement 84 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 22 other obligations of the concessionaire in accordance with the provision of this agreement and matters incidential thereto or necessary for the performance of any or all the obligations of the concessionaire under this agreement. 2 Grant of Concession 3.1.2 Subject to and in accordance with the provision of this agreement the concession hereby granted shall oblige or entitle (as the case may be) the concessionaire t (a) Right of Way, access and license to the site for the purpose of and to the extent conferred by the provision of this agreement; (b) Finance and construct the project Highway; (c) Subject to Clause 3.1.2(d), manage, operate and maintain the project highway ad regulate the use thereof by third parties; (d) allow and assist the authority or authority’s contractor(s) in demanding, collecting and appropriating fee from vehicles and users liable for payment of fee for using the any vehicle if the fee due is not paid; (e) perform and fulfill all of the concessionaire’s obligations under and in accordance with this Agreement; (f) bear and pay all costs, expenses and charges in connection with or incidental to the performance of the obligations of the concessionaire under this Agreement; and (g) neither assign, transfer or sublet or create any lien or Encumbrance on this agreement, or the concession hereby granted or on the whole or any part of the project highway nor transfer, lease or part possession thereof, save and execute as expressly permitted by this agreement or the substitution agreement. Article 3 at internal page 11 of the agreement 85 3 Damages for delay In the event the (i) the concessionaire does not procure fulfillment of any or all the condition precedent set forth in clause 4.1.3 within a period of 180 (one hundred eighty) days from the date of this agreement and (ii) the delay has Article 4.3 at internal page 15-16 of the agreement 89-90 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 23 not occurred as a result of failure to fulfill the obligations under Clause 4.1.2 or other breach of this agreement by MPRDC or due to force majeure, the concessionaire shall pay to MPRDC damages in an amount calculated at the rate of 0.2% (zero point two per cent) of the performance security for each days delay until the fulfillment of such conditions precedent subject to a maximum of 20% (twenty per cent) of the performance security 4 Obligation of the Concessionaire “The concessionaire shall at its own cost and expenses in addition to and not in derogation of its obligations elsewhere set out in this agreement: (a) Make or cause to made necessary applications to the relevant government instrumentalities with such particulars and details as may be required for obtaining applicable permits (other than those set forth in clause 4.1.2) and obtain and keep in force and effect such applicable permits in conformity with the applicable laws (b) Procure as required the appropriate proprietary rights licenses agreement and permissions for materials methods process an systems used or incorporated into the project highways (c) Perform and fulfill its obligations under the financing agreements (d) Make reasonable efforts to maintain harmony and good industrial relations among the personnel employed by it or its contractors in connection with te performance of its obligations under this agreement; (e) Make reasonable effort to facilitate the acquisition of land required for the purpose of the agreement (f) Ensure and procure that its contractors comply with al applicable permits and applicable laws in the performance by the of any of the concessionaire obligations under this agreement (g) Not do or omit to do any act deed or thing which may in any manner Article 5 at internal page 17-18 of the agreement 91-92 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 24 be volatile of any of the provision of this agreement (h) Support cooperate with and facilities MPRDC in the implementation and operations of the project in accordance with the provisions of this agreement and (i) Transfer the project highway to MPRDC upon termination of the agreement in accordance with the provision thereof. 5 Employment of trained personnel’s “The Concessionaire shall ensure that the personal engaged by it in the performance of its obligation under this agreement are at all time properly trained for their respective functions” Article 5.5 at internal page 22 of the agreement 96 6 Performance Security “9.1.1 The Concessionaire shall, for the performance of its obligation hereunder during the Construction period, provide to MPRDC no later than 180 days from the data of this agreement, an irrevocable and unconditional guarantee from a Bank for a sum equivalent to Rs.5.00 Crs in the form set forth in Schedule F......” Article 9 at internal page 33 of the agreement 107 7 Construction of the project highway (Drawings) “12.3(a) The Concessionaire shall prepare and submit, with reasonable promptness and in such sequence as is consistent with the Principal Completion Schedule, three copies of all Drawings to the Independent Engineer for review. Article 12.3 at internal page 45 of the agreement 119 8 Emergency Medical Aid 21.1 Medical Aid Posts For providing emergency medical aid during the operation period, as set forth in this agreement, the concessionaire shall assist the state government or a substitute thereof to be post (the “Medical Aid Post”) at each of the Toll Plazas with round-the-clock ambulance services for victims of accidents on the project highway. 21.2 Buildings foe medical Aid Posts. The concessionaire shall, at its cost and in accordance with the type designs prescribed for such buildings by the State Medical department (or substitute thereof to be designated by MPRDC), construct an aid post building and 2 (two) residential quarters, and hand them over to MPRDC, no later than 30(thirty) days prior to scheduled Article 21 at internal page 79 of the agreement 153 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 25 Intermediate-laning/ Two- laning plus date. The Medical Aid Post(s) shall be deemed to be part of the site and shall vest in MPRDC. 21.3 Recurring expenditure on Medical Aid Posts. On or before COD, the concessionaire shall provide to the state Medical Department or a substitute thereof to be designated by MPRDC one ambulance in good working condition along with chauffeurs for round the clock ambulance services as set forth in clause 21.1 and meet the operating costs of such ambulance including the salaries and allowances of the chauffeurs. The concessionaire shall also reimburse to the State medical Department (or a substitute thereof to be designated by MPRDC) the actual expenditure incurred by it in each accounting year on the medical equipment, and the pay and allowances of up to 2 (two) medical personnel deployed exclusively for the Medical Aid Posts and ambulance, and shall maintain the Medical Aid Post building in accordance with good industry practice. For the avoidance of doubt, it is agreed that the concessionaire shall not be liable for any other expenditure incurred by the State medical Department or a substitute thereof to be designated by MPRDC. 9 Annuity Subject to the provision of this agreement, the concessionaire upon achieving COD for the project highway and in consideration of the concessionaire accepting the concession and undertaking to perform and discharge its obligations in accordance with the terms, conditions and covenants set forth in this agreement authority agrees and undertakes to pay to the concessionaire for each annuity payment period on each annuity payment date as set forth in schedule- Y (Annuity7 payment schedule), the sum of Rs. 9.90 crores (rupees nine corer ninety lacs only)(the Annuity) as set forth in its bid. Article 27 at internal page 88 of the agreement 162 10 Insurance 32.1 Insurance during concession Article 32 at 173 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 26 during Concession period period The Concessionaire shall effect and maintain at its own cost, during the construction period and Operation period, such insurances for the maximum sums as may be required under the Financing Agreements and applicable laws, and such insurance as may be necessary or prudent in accordance with Good Industry Practice.” internal page 99 of the agreement 11 Defects and Liability after termination “39.1 Liability for defects after termination The Concessionaire shall be responsible for all defects and deficiencies in the Project Highway for a period of 120 days (One hundred and twenty) days after the termination, and it shall have the obligation to repair and rectify, at its own cost, all defects and deficiencies observed by the Independent Engineer in the Project Highway during the aforesaid period. ...” Article 39 at internal page 129 of the agreement 203 12 Escrow Account 31.1.1 The concessionaire shall, prior to the appointed date, open and establish an escrow account with bank (the “Escrow bank”) in accordance with this agreement read with the escrow agreement. 31.1.2 The nature and scope of the escrow account are fully described in the agreement (the escrow agreement) to be entered into amongst the concessionaire, MPRDC, the escrow Bank and the senior lenders through the lenders representative which shall be substantially in the form set forth in schedule-S. 31.2 Deposits into Escrow account The concessionaire shall deposit or cause to be deposited the following inflows and receipts into the escrow account (a) All funds constituting the financial package (b) All annuities and any other revenues from or in respect of the project highways, including the proceeds of any rental, deposits, capital receipts or insurance claims and (c) All payments by MPRDC Article 31 at internal page 96 of the agreement 170 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 27 including annuity after deduction of any outstanding concession fee. 13 Financial close The responsibility of financial closure is performed by the appellant within 180 days Article 24 at internal page 83 of the agreement 157 14 Termination for Concessionaire default Save as otherwise provided in this agreement, I the event that any of the defaults specified below shall have occurred, and the concessionaire fails to cure the default within the cure period set forth below, or where no cure period is specified, then within a cure period of 60(sixty) days, the concessionaire shall be deemed to be in default of this agreement. Article 37.1 at internal page 117 of the agreement 191 15 Liability and Indemnity 42.2.1 without limiting the generality of clause 42.1, the concessionaire shall fully indemnify, hold harmless and defend MPRDC and MPRDC indemnified persons from and against any and all loss/or damage..” Article 42.2 at internal page 136 of the agreement 210 16 Right and title over the site 43.1 Licensee rights For the purpose of this agreement, the concessionaire shall have rights to the use of the site as sole licensee subject to and in accordance with this agreement, and to this end, it may regulate the entry and use of the project highway by third parties in accordance with and subject to the provisions of this agreement. Article 43.1 at internal page 141 of the agreement 215 17 Compensation for breach of agreement 35.1 compensation for default by the concessionaire Subject to the provisions of clause 35.6, in the event of the concessionaire being in material default or breach of this agreement, it shall pay to MPRDC by way of compensation, all direct cost suffered or incurred by MPRDC as a consequence of such material default or breach, within 30 (thirty) days of receipt of the demand supported by necessary particulars thereof; provided that no compensation shall be payable under this clause 35.1 for any material breach or default in respect of which damages are expressly specified and payable under this agreement or for any concessional losses incurred by MPRDC. 35.2 Compensation for default by Article 35 at internal page 112- 113 of the agreement 186-187 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 28 MPRDC 35.3 Extension of concession period 18 Force Majeure As used in this agreement, the expression “Force majeure” or “Force majeure event” shall mean occurrence in India of any or all of Non-political event, indirect political event and political event as defined in clause 34.2, 34.3 and 34.4 respectively, if it affects the performance by the party claiming the benefit of force majeure (the Affected party) of its obligations under this agreement and which act or event (i) is beyond the reasonable control of the affected party and (ii) the affected party could not have prevented or overcome by exercise of due diligence and following good industry practice and (iii) has material adverse effect on the affected party. Article 34 at internal page 105 of the agreement 179 15. From perusal of above clauses we notice the assessee has to take the entire risks while performing the contract in respect of road project and any loss due to lesser revenue earning has to be borne by it. We find that the assessee is liable to undertake financial risk by providing financial closure and performance security. It is submitted that against the total project cost, assessee received a very meager amount of 8.84% as mobilization advance from the owner of project and has to invest its own funds and borrowed funds. Assessee performed the entire responsibility of financial closure. Assessee has incurred huge amount as interest expenditure of Rs. 46.34 crores which shows that it has to deploy huge borrowed funds which is not a salient feature akin to a ‘contractor’. Besides this, assessee has also assumed performance guarantee by placing security deposit of certain percentage of contract value and providing retention money. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 29 16. As far as technical risk is concerned, after receipt work order, assessee has to conduct a detailed survey and afterwards has to submit design/drawings of all structures, culverts, pavements and bridges etc. After checking done by approved engineers, these drawings/designs are submitted to competent authority for approval. For this purpose, appellant has to employ certain numbers of personnel’s having desired qualification and experience and during the AY 2014-15, assessee incurred an amount of Rs. 7,51,21,147/- on technical staff. 17. Further, there are responsibilities of the assessee with respect to damages for delay, employment of trained personnel, performance security, providing emergency medical aid, providing insurances, performing defect liability. Also, the assessee has to assume all kind of risk to property, human life, personal injury/death etc during the execution of contract. Besides this, assessee was not provided any material, manpower or equipment and assessee on its own has to arrange for material, manpower, equipment, machinery etc. Thus, it show that assessee is a “developer” and not merely a “works contractor”, we find support from following decisions:- (a) GVPR Engineers Ltd & Others vs. ACIT 51 SOT 207 (Hyd): (b) M/s. Unity Infraprojects Ltd vs DCIT., ITA No. 3355/Mum/2013 dated 06.02.2015 (c) NCC-SMC (JV) vs ACIT, ITA No. 4842/Mum/2006, ITA No. 514/Mum/2009, ITA No. 7885/Mum/2010 & ITA No. 283/Mum/2011 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 30 (d) (d) B.T. Patil & Sons Belgaum Constructions Pvt. Ltd vs. ACIT, ITA.No.1408 & 1409/PN/2003 dated 28.02.2013: (e) CIT vs. ABG Heavy Industries Ltd. [2010] 189 TAXMAN 54 (BOM): (f) Om Metals Infra Projects Ltd vs. CIT, MANU/IJ/0018/2008 [ITAT Jaipur]: (g) M/s. Koya and CO. Construction Pvt Ltd. ITA No. 1843/HYD/2012: (h) M/s KMC Construction Ltd (2012) Taxmann.com 138 (Hyd) (i) M/s Adhunik Infrastructure (P)Ltd v/s JCIT Range 10, Kolkata ITA No 1281/Kol/2015 (AY 2010-11) dated 23.05.2018. (j) M/s Khajurho Builders and Construction Co Ltd v/s CIT ITA No 111/Agra/2013 (AY 2008-09) dated 01.02.2006: (k) Bhinmal Contractor property and land developers Pvt Ltd v/s ACIT (2018) 93 taxmann.com 296 (Mumbai-Trib). (l) PNC Construction Co Ltd v/s DCIT (2013) 37 taxmann.com 361 (Agra-trib). (m) ACIT v/s HO Hup Simplex JV (2018) 92 taxmann.com 106 (Kolkata-trib). (n) KMC constructions Ltd v/s ACIT circle 2(2) (2012) 21 taxmann.com 138 (Hyderabad). 18. Further, with respect to the AO’s contention of awarding of contract in the name of SPV, CIT(A) observed that SPV was formed only to obtain contract from government body or to comply to requirement of government directives, Ld. CIT(A) has rightly held that SPV is only a de-jure contractor and assessee was a de facto contractor wherein SPV are just ‘pass through entity’ created to comply the government directives and SPVs are fully owned subsidiary of appellant. The entire work is then conducted by the assessee under a back to back agreement. In this regard, Ld. CIT(A) drew support from the following order to support. a. ACIT v. JSR Constructions (P) Ltd. (ITA No. 898 / Bang / 2009). M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 31 b. CIT v/s PNC Construction Co Ltd (2015) 55 taxmann.com 21 (Allahabad) c. Ayush Ajay Construction Ltd. vs. ITO (79 ITD 213) d. Chetak Enterprises Pvt. Ltd. vs. ACIT (95 ITD 1) e. Transitory (India) Ltd v/s ITO, ward 2(2), Guntur (2011) 134 ITD 269 19. Further, CIT (A) has distinguished the decision relied upon by the AO in para 10.1 and 10.2 of the appellate order and has held that the same are not applicable to the facts of the appellant’s case. Here, it is important to note that decision rendered in the case of Katira Construction Ltd. reported in 31 taxmann.com 250 (Guj.) and relied upon by the Ld. AO, Hon'ble’ High Court did not laid any law in respect of merits of the deduction u/s 80IA(4). Further, it is submitted that subsequent to the order of the AO and CIT(A), Rajkot Bench of Tribunal has allowed deduction u/s 80IA(4) in the case of Katira Construction Ltd. vide order dated 30.07.2020 reported in 119 taxmann.com 489. Relevant finding of the Rajkot Bench of I.T.A.T. is mentioned below:- 13. The next controversy arises whether the assessee is acting as a developer or a work contractor in the projects of road development as per explanation 13 attached below section 80-IA (13) of the Act. At this juncture, it is pertinent to refer the provisions of the Explanation attached below section 80-IA of the Act as reproduced below: "For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in 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 the undertaking or enterprise referred to in sub-section (1). " 13.1 The aforesaid Explanation to section 80-IA was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but the same was made applicable with retrospective effect i.e. 1- M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 32 4-2000. This explanation restricts the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. For this purpose, first of all it is imperative to appreciate the difference between a 'developer' and a 'contractor'. Generally in common parlance a person is referred as 'developer' who undertakes the project to develop and construct on its own responsibility and takes all the risks of the development. These responsibilities and risk can be categorized as under: (a) That in a development contract" responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the developer exercise complete realm over the land or the project. However, in some case there can be a situation that the developer has to take the approval of the design from the Government/ contractee but that will not change the status of the developer as works contractor. (b) That the first phase for the developers is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. (c) That a developer has to execute managerial responsibility by engaging the requisite qualified/ skilled/ semi-skilled staff and the labourers including the other supporting staff. As the developer under takes the complete responsibility of the manpower to be used in developing the infrastructure facility. (d) The assessee has to utilize its expertise, experience including its technical knowhow in the development of the project. (e) That a developer has to execute financial responsibility. A developer is therefore expected to arrange finances either by private placement or from financial institutions for the proper development of the project at its own risk. Thus the developers is the one who undertakes entrepreneurial and investment risk besides the business risk. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 33 (f) That a developer is required to bring the qualitative material. The Government does not provide any material to the assessee. (g) That a developer is required to bring plant and machineries to be utilized in the project. (h) Any loss caused to the public or the Government in the process of developing the project would be the responsibility of the developer. The Government shall not take any responsibility for any such kind of loss except where it is responsible. (i) That a developer stands as guarantor for the project developed by it and in the event of any defect it, he shall provide the remedy for the same. (j) That a developer shall be exposed to the penalty if it contravenes the any of the clause appearing in the contract awarded by the Government. Thus, the developer is responsible to complete the construction in a specified manner failing which it would be responsible for the consequences of delay/any other fault attributable to it. (k) That a developer shall undertake to maintain safety, security and protection of the environment. (l) That a developer shall provide and maintain at his own cost all lights, guards, fencing, warning signs and watching, when or where necessary. These are few broad sample qualities/ parameters of a developer through which the character of a developer can be defined. ITA no.88-89/Rjt/2015 &555/Rjt/2012 Asstt. Years 2005-06, 2010-11 & 2009-10 13.2 On the other hand, a 'contractor' is a person who undertakes work on a contract basis. He does not assume risks and responsibilities like that of a developer. He merely carries out the work as has been instructed to him by the contractee. Moreover, in case of such work the contractor gets fixed amount of revenue for executing such work and is not entitled to any share of profit from revenue generated by the developer/land owner. 13.3 To summarize, the developer acts as a principal whereas the contractor acts as an agent in performing the functions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 34 infrastructure facility whereas the contractors are those persons who merely execute part of these functions on behalf of developer and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under section 80-IA of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer. 13.4 In view of the above, we note that it is possible to ascertain whether a civil construction work is assigned on development basis or contract basis only on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract. In the backdrop of the above discussion, we proceed to analyze the facts of the present case to find out whether the assessee is acting as a developer or contractor with respect to the following project: 13.5 Project Name : Strengthening to N.H.-8A (Extn) Km. 190/0 to 205/00 section:- Nalia-Narayansarovar Road. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The contract shall be for the whole works as describedin Sub-Clause 1.1, based on priced Bill of Quantities submitted by the Bidder. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The Bidder shall furnish, as part of his Bid, a Bid security in the amount as shown in column 4 of the table of IFB for this particular work. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX Within 21 days of receipt of the Letter of Acceptance, the successful Bidder shall deliver to the Employer a Performance Security in any of the forms given below for an amount equivalent to 5% of the Contract price. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The Contractor shall employ the key personnel named in the Schedule of Key Personnel as referred to in the Contract data to carry out the functions stated in the Scheduled or other personnel approved by the Engineer. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX All risks of loss of or damage to physical property M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 35 and of personal injury and death which arise during and in consequence of the performance of the Contract other than the excepted risks are the responsibility of the Contractor. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The Employer shall give possession of all parts of the Site to the Contractor. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The Contractor shall be responsible for the safety of all activities on the Site. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The contractor shall be responsible to make good and remedy at his own expenses any defect which may develop or may be noticed before the period mentioned hereunder from the certified date of completion. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX The Contractor shall pay liquidated damages to the Employer at the rate per day stated in the Contract Data for each day that the Completion Date is later than the Intended Completion Date. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX 13.6 On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the assessee in the tender documents as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Government and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose the Government retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk. Thus on perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor but a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. 13.7 Going forward, we find in this context, the Hon'ble Pune Tribunal in the case of B.T. Patil& Sons Belgaum Constructions (P.) Ltd. [2013] 34 taxmann.com 97/59 SOT 61 (URO) after referring to decision of the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 36 Hon'ble Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd . [2010] 322 ITR 323/189 Taxman 54 has laid down certain parameters for contractors to be eligible for deduction. The said parameters for a contractor to be eligible for deduction are as follows:-- (a) Undertaking financial risk by making investment. (b) Shouldering technical risk. (c) Liable for liquidated damages. (d) Employment of technical and administrative qualified team. If above parameters are satisfied, the contractors would be held eligible for the deduction under section 80-IA. Thus, the above parameters may act as guiding factors to decide whether a contractor may be considered as a deemed developer eligible for deduction under section 80-IA(4) of the Act. 13.8 Further, in case of Asstt. CIT v. Pratibha Industries Ltd. [2012] 28 taxmann.com 246/[2013] 141 ITD 151 (Mum.), the Hon'ble Mumbai Tribunal held that where the assessee had invested his own funds, it would be assumed that the assessee was acting as a developer and not as a contractor. Relevant extract of the above decision is reproduced as under : "83 ** ** ** There are letters exchanged, written by the assessee and various Government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee, against the tendered cost, which proved beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the Government, besides placing its own funds at risk and peril." 13.9 Reference is also invited to the decision of the Hon'ble Hyderabad Tribunal in the case of Sushee Hi Tech Constructions (P.) Ltd. v. Dy. CIT [2013] 33 taxmann.com 236/58 SOT 111 (URO) wherein it has been held that where contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contracts so as to deny deduction under section 80-IA(4) to assessee. Such contracts are eligible for deduction under section 80-IA and same is applicable in case of work allotted by Government corporation/Government bodies also. 13.10 We also extend the support and guidance from order of Mumbai Tribunal in the case of Bhinmal Contractors Property and Land M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 37 Developers (P.) Ltd. Vs. ACIT/DCIT reported in 93 taxmann.com 296 wherein it was held that merely because, in the TDS certificate tax at source was deducted u/s. 194C being applicable to a contractor cannot be the reason for treating a genuine developer as a contractor. The same cannot detract the assessee from the position of being a developer; nor should it debar the assessee from claiming deduction under section 80- IA(4). Therefore, the assessee, who is only engaged in developing the infrastructural facility, i.e., road, is entitled to the benefits of the deduction under section 80-IA(4) of the Act. 13.11 Further, it may be worthwhile to mention that judiciary has time and again held that beneficial provision, as in the instant case, should be given liberal interpretation so as to benefit the assessee. The cardinal rule for interpretation of any provision relating to exemption, allowance, deduction, rebate or relief is that they should be interpreted liberally and broadly so as to advance the object sought to be achieved and not frustrate it. Thus, even on this count, it can be said that the contractors performing function of a developer shall be given benefit of deduction under section 80-IA(4) of the Act. In this regard, we find draw support and guidance from the judgment of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd (supra) wherein it was held as under: A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. Since a provision intended for promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the section and not to frustrate it. Under clause (i) of sub- section (2) of section 15C formation of the undertaking by splitting up or reconstruction of an existing business by transfer to the undertaking of building, raw material or plant used in any previous business results in denial of the benefit contemplated under sub-section ( 1). 13.12 It is also pertinent to note that the Hon'ble Gujarat High Court in the own case of the assessee (supra) has decided the issue of the applicability of the explanation attached below section 80-IA (13) whether such explanation was applicable retrospectively in the case on hand. The assessee challenged the vires of Explanation inserted below sub-section (13) of section 80-IA of the Income-tax Act, 1961 by Finance (No. 2) Act of 2009 with retrospective effect from 1-4-2000. By adding the impugned Explanation, the Legislature provided that nothing contained in the section shall apply in relation to a business referred to in sub- section (4) which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise. The central question is, whether in the present case, the explanation below M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 38 sub-section (13) to section 80-IA introduced by the Finance Act No.2 of 2009 with effect from 1.4.2000 transgresses the legislative competence of the Parliament. The Hon'ble court decided the issue in favour of the revenue that such explanation brought with retrospective effect from 01- 04-2000 by the Finance Act No. 2 of 2009 was very well within the competence of the Parliament. As such, there was no issue whether the assessee is acting as a developer or works contractor. Therefore, in our considered view no reference can be made to such judgment for deciding the issue on hand whether the assessee is acting as a developer or the works contractor. 13.13 The case laws quoted by the ld. DR of the Hon'ble Supreme Court as discussed above were rendered in the context of sales tax/ service tax much before the insertion of section 80-IA of the Act whereas the issue before us relates to the provisions of income tax. Furthermore, there was no issue in the cases cited by the learned DR whether the assessee is acting as a developer or as contractor for claiming the deduction under section 80-IA (4) of the Act. Similarly, in the case of Gmr Tambaram tindivanam (supra) there was issue of relating to the fact whether the assessee carried out the activity of infrastructure facility which is not the issue in the case on hand. Likewise, the issue in the case of Yojaka Marine Pvt. Ltd. (supra), the issue was in relation to the applicability of the explanation below to below 80-IA (13) of the Act which is not the issue before us. Accordingly we hold that, the case law cited by the learned DR or distinguishable from the present facts of the case. 13.14 In view of the above discussion, it may be concluded that even after the amendment by the Finance Act, 2007 and the Finance Act, 2009, the contractors performing the work in the nature of a developer- cum-contractor and assuming risks and responsibilities shall be eligible for deduction under section 80-IA in respect of the eligible infrastructural facilities. Hence the ground of appeal of the assessee is allowed. 20. Further, it is also relevant to consider the findings of Income Tax Settlement Commission which has also extensively discussed the issue of deduction u/s 80IA(4) in their order dated 29.09.2016 and has allowed the same for AY 2008-09 and 2013-14. The above decision of Income Tax Settlement Commission has been upheld by the Hon’ble Madhya Pradesh High Court vide order WP no. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 39 6727/2017 dated 10.07.2019. The relevant finding of ITSC which has been confirmed by the Hon'ble jurisdictional High Court are reproduced below:- “13. Claim of deduction u/s. 80IA(4) of the Act. 13.1 In the report under Rule 9 Pr. CIT has submitted that the Appellant company has claimed deduction u/s 80IA(4) of the I.T. Act at Rs. 3,38,99,126/-for the A. Y. 2008-2009 and Rs.136,15,63,006/- for the A.Y. 2013-14. According to the Pr. CIT, the Appellant group is not eligible for claim u/s 80IA of the Act and has claimed false exemption in respect of its profit derived from works contract with a view to evade tax. The reasons for not allowing the deduction under section 80IA (4) have been summarized as under: a) Deduction u/s 80IA is allowable only in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructural development etc. Appellant has been merely executing a works contract awarded by State and Central Government. c) The deduction u/s 80IA is no longer meantfor contractor beit the work f or up-gradation or new construction work. The amendment to section 801A(4) which reads as under, makes the position very clear : 'Explanation : For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in 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 the undertaking or enterprise referred to in sub-section (1).]' d) Theprovision is to provide incentives to those whoare developing, maint aining and operating new infrastructural facilities (including roads) such as the work taken by any enterprise under BOT (Built Operate & Transfer) Scheme. The available facts clearly show that the Appellant did not carry out any work under BOT so as to make it eligible for 80IA deductions. The Appellant is primarily engaged in the execution of works contracts (road construction) mainly for PWD, Madhya Pradesh. e) In BOT works, the government or its agencies do not provide the funds. Rather, the required funds are met by the enterprise itself and in that situation the .enterprise is authorized to charge 'toll tax' while maintaining and operating such roads until certain period (as per the agreement with the Government) to recover its cost. The said income earned is subject to deduction u/s 80IA for specified number of years. The ownership over such projects is thereafter transferred to the Government after the said period. Thus, the deduction is not available to the work contracts as executed by Appellant company. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 40 f) There is no mobilization of fund by Appellant rather it is totally depending on the government/ Contract fund. The Appellant is receiving mobilization advance and year*-wise works contract receipts. g)The Appellant has filed the return of income for A.Y. 2013-14 on 31.03.2014 i.e. much later than the time limit allowed in section 139(1) of the Act. h) It is important to mention here that, since, the Appellant was not eligible for deduction u/s 80IA(4), therefore, while filing return u/s 153A for A.Y. 2008-09, the Appellant itself withdrew this claim to deduction u/s 80IA(4). However, in its application before the Commission, the Appellant has again claimed deduction u/s 80IA(4)stating that it is eligible for said deduction. 13.2 In the light of above facts and discussion, Pr. CIT concluded that the Appellant is not eligible for deduction u/s 80IA for AY 2008- 09 amounting to Rs 3,38,99,126/- and 2013-14 amounting to Rs. 136,15,63,006/-. Therefore, he recommended additions of Rs.3,38,99,126/-and Rs. 136,15,63,006/- to the total income of the Appellant for A Y. 2008-09 and 2013-14 respectfully. At the same time Pr CIT sought permission to have the matter examined u/s 245D (3). 13.3 In reply, the Appellant has stated that it had claimed the deduction under section 80IA of the Act on its eligible profits in the return of income filed u/s 139(1) of the Act for the A.Y. 2008-09. Subsequently, the Appellant had withdrawn the claim of deduction under 80IA in the return of income filed u/s 153A of the Act for the A.Y . 2008-09. However, the Appellant has been advised that it is eligible to claim deduction u/s 80IA on the profits derived from the road development project undertaken during FY 2007-08 (relevant to the A.Y. 2008-09) and accordingly, the deduction was claimed in the application made to the ITSC in this regard. 13.3.1 The Appellant has submitted a list of projects awarded by Govt. of Maharashtra, Gujarat& Madhya Pradesh which contains 10 projects in A.Y. 200B·09 and 8 projects in A.Y. 2013-l4.It is claimed that Government has awarded wholesome project and not just works contract. The Appellant has to develop the infrastructure facility, in the process, all the works are to be executed by the Appellant. The agreement is not for any specific work to be done by the Appellant. The Appellant is eligible to claim deduction under section 80IA of the Act on the profit derived from the various road development projects undertaken by the Appellant during the FY 2007-08 and FY 2012-13 as it has satisfied all the conditions mentioned under section 80IA( 4) of the Act i.e.: (i) The Appellant is a company registered under Indian Companies Act, 2013. (ii) The Appellant has entered into the agreement with the road development authorities, an undertaking under the Central/State Government. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 41 (iii) The road development work carried out by the Appellant is covered within the meaning of infrastructure facility defined under explanation to 80IA(4) of the Act. (iv) The Appellant has started infrastructural facility work on/after 01 April,l995. 13.4 Findings of the Commission: The arguments proposed by the Pr. CIT and the presentation of the AR during hearings and the written submissions are considered. Two assessment years are involved wherein the Appellant placed its claim of deduction u/s 80IA, namely; AY(s) 2008-09 and 2013- 14. The amounts in question are Rs. 3,38,99,126/-for the A.Y. 2008- 09 and Rs. 136,15,63 ,006/- for the A.Y. 2013-14. As can be seen, deduction u/s 80IA has been provided subject to fulfillment of certain conditions. The relevant provisions in the Act attributable to the facts of the case are examined first: Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub- section (4) or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines : Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub- section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted. ...................................................................................................................... .................... (4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 42 any infrastructure facility which fulfils all the following conditions, namely :— (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, 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 during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation.—For the purposes of this clause, "infrastructure facility" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea; ...................................................................................................................... ................. Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in 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 the undertaking or enterprise referred to in sub-section (1). 13.5 The critical conditions for availing the deduction can be summarized: B: Basic eligibility criterion is the assessee must be an enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) any infrastructure facility with conditions such as; an entity owned by a company registered in India or by a M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 43 consortium of such companies or by authority or a board or a corporation etc. under the State or Central Act. There has to be an agreement with the Central Government or a State Government or a local authority or any other statutory body to carry out the specified infrastructural facility- developing or operating and maintaining or developing, operating and maintaining the new infrastructure facility. The said infrastructure would be a road including toll road, a bridge: or a rail system, or a highway project including housing or other activities being an integral part of such highway project or a water supply project, water treatment plant, irrigation project, sanitation and sewerage system or solid waste management system. It can also a port, airport, inland waterways. 13.6 It is relevant to take a quick glimpse of the tax incentives under new framework of infrastructure development through PPP route in the State Highways sector. Extract of the documents of Planning Commission would provide useful insight on the infrastructure projects. 1) The Eleventh Five Year Plan document articulated the need for adequate cost effective and quality infrastructure as a pre-requisite for sustaining the growth momentum since inadequate infrastructure has been recognized as a major constraint of India's grown potential 2) Accordingly, the Eleventh Five Year Plan has set an ambitious target of increasing the total investment in infrastructure from about 5 per cent of GDP in the Tenth Five Year Plan to 9 per cent of GDP by the terminal year (2011-12) of the Eleventh Plan. In absolute terms, this implies an increase from Rs. 9,06,074 crore in the Tenth Plan to Rs. 20,54,2015 crore during Eleventh Plan. 3) Traditionally, infrastructure has funded through public investment. However, in view of scarcity of budgetary resources and lack of capacity within the government to implement these ambitious programmes, the strategy of the government relies significantly on promoting investment through a combination of public investment and private participation.(parenthesis added). 4) As reliance on PPP for building and operating infrastructure projects grows across sectors, it is essential to establish institutional structures necessary for managing this paradigm shift. Since PPP projects are aimed at providing efficient services at competitive costs, their essence lies in ensuring that these objectives are fully realized It is equally important to protect the public exchequer from any unintended misuse or claims from concessionaires. The Guidelines for Monitoring of PPP Projects have, therefore, been issued with the objective of enabling project authorities to evolve institutional arrangements for monitoring and supervision of their respective projects. PPP projects normally empower the concessionaire to use public assets for building infrastructure projects and also to levy and collect user charges for the use of such public assets. In effect, PPP infrastructure projects are public projects in which private capital is being M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 44 deployed for the benefit of the economy and the users. In case services of requisite standards are not provided to the public, it would give rise to legitimate criticism of the Government which always remains responsible and accountable for delivery of services to the users. It is, therefore, essential for the Government to ensure that the services being delivered to the users meet the agreed time, cost, quantity and quality standards. For this purpose, it would be necessary to create a well defined institutional for overseeing and monitoring contract performance. (Model Concession Agreement provided and monitoring mechanism). 5) The National Highway Development Programme (NHDP) covering a total length of 45,974 km with an investment of Rs. 2,20,000 crore upto 2012 is at different stages of planning and implementation. Out of 45,974 km envisaged under NHDP, the projects to be undertaken through PPP would cover 39,694 km. Upto April 2010, a total of 144 projects with investment of Rs. 90,717 crore have been awarded for implementation through PPP concessions. 6) The Ministry of Road Transport & Highways (MORTH) has set a target of building 20 km of highways per day. In 2009-10, projects covering a length of 3,360 kms were awarded. MORTH has kept a target for award of about 9,000 km in 2010-11. 7) Augmentation of State Highways is vital for the growth of the highway network across states. The total investment in state roads during the Tenth Plan period (2002-07) was Rs. 67,416 crore. This is projected to increase toRs. 1,41,855 crore in the Eleventh Plan period (2007-12). 8) While significant progress has been made in initiating an expanded National Highway Development Programme (NHDP) in which about 85 per cent of the programme is proposed to be undertaken through Public Private Partnership (PPP), there is a growing realization that similar State Highways Development Programmes would be critical for accelerating growth of the states. The Eleventh Plan emphasizes the PPP approach for meeting the large financing requirements of state highways. Several state governments such as Gujarat, Madhya Pradesh, Rajasthan, Andhra Pradesh, Karnataka and Maharashtra have taken significant initiatives to strengthen and upgrade the state highways through PPP. 9) Policy initiatives to promote private participation- The Central Government has been supporting the efforts of the state governments by providing financial assistance for PPP projects and by publishing standard documents based on best practices. A Model Concession Agreement for State Highways has been published by the Planning Commission and has been successfully adopted by many states. Model bidding documents such as Model Request for Qualification (RFQ) and Model Request for Proposal (RFP) have also been standardized and published with a view to ensuring a transparent and fair selection process. Model bidding documents for selection of technical, financial and legal consultants have also been published with a view to enabling the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 45 selection of experienced and qualified consulting firms for structuring PPP projects. 10) Central assistance upto 20 per cent of the project cost is available under the VGF schemefor financing the state sector road projects. In addition, the Central Government has set up the India Infrastructure Finance Corporation Ltd for providing long term debt upto 20 per cent of the capital costs of the project. C:There are new restrictive conditions being added.Deduction u/s 80IA is allowable only in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructural development etc.The deduction u/s 80IA is not extended to "works contractors" . The amendment to section 80IA(4) has provided as under (inserted by Finance Act, 2009 with retrospective effect from 1.4.2000): 'Explanation: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in 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 the undertaking or enterprise referred to in sub-section (1) .]' D: The provision is to give incentives to those who are developing, maintaining and operating new infrastructural facilities (including roads) such as the work taken by any enterprise under BOT (Built Operate & Transfer) Scheme. In BOT works, the government or its agencies do not provide the funds. Rather, the required funds are met by the enterprise itself and in that situation the enterprise is authorized to charge 'toll tax' while maintaining and operating such roads until certain period (as per the agreement with the Government) to recover its cost. Basic criteria of eligibility: The next issue is to examine whether the Appellant satisfies the eligibility criteria whether the Appellant company, M/s DilipBuildcon Limited is engaged in infrastructural development' in its capacity as infrastructure facility developer recognized as such by the authority not as a mere works contractor building road, building/ bridge building etc. and the work components could be (a)developing or (b) operating and maintaining or (c) developing, operating and maintaining the infrastructure facility (emphasis added). It will be relevant to separately deal with the components of work undertaken in respective period relevant to AY 2008-09 and 2013-14. AY 2008-09 Name(s) of Projects Project awarded by Nature of works 1 Biaora PKG 3014, Biaora PK No. 3053, Sehore PK No. 3554, Biaora PMGSY 3056] M.P. Rural development Authority for Pradhan Mantri Gramin Sadak Yojna (PMGSY)- commonly known as PM's Quadrilateral Highway projects. ADB Project construction and maintenance of rural road - 5 years tenure. 2 Habibganj Naka (C.RECPT) PWD, Bhopal, MP Construction of 4 loan road 4.40km distance 3 Devanpura - PWD, Bhopal, MP Construction of road M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 46 13.7 In none of these projects, intervention of "'Special Purpose Vehicle" (SPV) is existent in the scope for the simple reason that the concept of infrastructure through PPP route was not yet formalized at this point in time. Revenue gathering mechanism embedded in "BOT", "BOOT" and the governing mechanism under SPV are the later version of infrastructure development framework of the Government of India. AY 2013-14 Nazirabad project Nazeerabad to Devpura including 57 culverts 4 Laharpur-Khejda PWD MaintenanceDiv-2 Construction of road from Laharpur to Khejdaparihar including 8 culverts in km 1 to 14/8-13.8 km 5 Rajgarh BODA Pachore PWD Rajgarh Construction and upgradation of BodaPachore road-9.4 kms 6 Rajgarh CIT portion Biaora PWD Rajgarh Construction and upgradation of road under CRF Biaora city portion NH- 3, NH-4 Rly station approach road , BiaoraSulthalia By Pass Road-8.4kms 7 Vidisha-Lateri - Mundela PWD Vidisha Construction of road-23.80 kms 8 VID. SironjiBerasia A117 PWD Sironj Widening and strengthening of Sinrong-Berasiya road 9 Neemuch-Singroli NeemuchSingroli Construction of 80.6 km on Neemuch-Singroli-Bengu- Chittorgarh road 10 Biaora PMGSY - Package No.3052 MP Rural road Development Authority for PMGSY ADB Project-construction and maintenance of rural road Name(s) of Projects Project awarded by Nature of works 1 Mundi-Punasa-Sanawad Road [80IA impact: Rs. 40,70,51,063/-] MP Road Development Corporation Ltd Construction, up-gradation and widening of the existing carriage way to intermediate 2 lane with/without paved shoulders standard with construction of new pavement, construction of bridges, culverts, road intersections, interchanges, drains etc and the operation and maintenance thereof on Design, Build, Finance, Operate and Transfer (DBFOT) for toll plus Annuity basis. SPV developed to facilitate as per GOI framework. 2 Nadiad Modasa Road [80IA impact Rs. Road Building division, Gujarat Construction and development of the 2 lane project highway in the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 47 13.8 As regards intervention of the SPV in the scope of work under Concessionaire Agreements as per the framework of Planning Commission (Govt. of India) a brief 12,45,28,592/-] state of Gujarat on Design, Build, Operate and Transfer on Annuity basis. Regulated through SPV as per GOI framework. 3 Sardarpur Badnawar Road [ 80IA Impact Rs. 12,72,51,916] MP Road Development Corporation Ltd Construction, up-gradation and widening of the existing carriage way to intermediate 2 lane with rehab of major and minor bridges culverts, road intersections, interchanges, drains etc and the operation and maintenance thereof on Design, Build, Finance, Operate and Transfer (DBFOT) for toll plus Annuity basis. Regulated through SPV as per GOI framework. 4 Siwani- Sultanganj Road [80IA impact Rs. 20,15,82,388] MP Road Development Corporation Ltd Construction, up-gradation and widening of the existing carriage way to intermediate 2 lane with rehabilitation bridges, culverts, road intersections, interchanges, drains etc and the operation and maintenance thereof on Design, Build, Finance, Operate and Transfer (DBFOT) for toll plus Annuity basis. SPV set up to regulate maintenance and toll revenue generation. 5 Sitamau- Basai Suwasara road [80IA impact Rs. 25,28,550,762] MP Road Development Corporation Ltd -do- 6 Uchera Nagaod Road [80IA impact Rs.20,07,93,303] MP Road Development Corporation Ltd -do- 7 Tendukheda Taroshi Damoh road [80IA impact Rs. 96,15,900] PWD, Bhopal Construction of TendukhedaTaroshiDamoh road including construction of new road/parallel road, bituminous pavements, construction of junctions and intersections. No BOT toll plus annuity plan and no SPV. 8 Board office to Indira Gandhi Square Road [80IA impact Rs. 3,78,89,079] Bhopal Municipal Corporation Widening /modification of roads to create multiple lanes in the existing right of way including utilities and services. No Annuity plan for Toll plus revenue generation. No SPV M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 48 highlight of such SPV structure is given. This information is critically important to examine or confirm the eligibility criterion to fit the requirement:- SPV Share holding patterns on 9.9.2016 1 DBL Uchera Nagod Tollways Ltd ( No. of shares 32000000) M/s DBL:31999900 Dilip Suryavanshi:30 Seema Suryavanshi:30 Devendra Jain as nominee of DBL :20 M/s Dilip Mass Comm:10 M/s High Fly Airlines nominee of DBL:10 M/s Suryavanshi Minerals Pvt Ltd :10 2 DBL Sitamau-Suwasara Tollways Ltd (7750000 shares) M/s DBL:7749900 Dilip Suryavanshi:30 Seema Suryavanshi:30 Devendra Jain as nominee of DBL :20 M/s Dilip Mass Comm:10 M/s High Fly Airlines nominee of DBL:10 M/s Suryavanshi Minerals Pvt Ltd :10 3 DBL Mundi Sanawad Tollways Ltd (1000000 shares) M/s DBL:999900 Dilip Suryavanshi:30 Seema Suryavanshi:30 Devendra Jain as nominee of DBL :20 M/s Dilip Mass Comm:10 M/s High Fly Airlines nominee of DBL:10 M/s Suryavanshi Minerals Pvt Ltd :10 4 DBL Silwani Sultanganj Tollways (1000000 shares) M/s DBL:999900 Dilip Suryavanshi:30 Seema Suryavanshi:30 Devendra Jain as nominee of DBL :20 M/s Dilip Mass Comm:10 M/s High Fly Airlines nominee of DBL:10 M/s Suryavanshi Minerals Pvt Ltd :10 5 DBL Sardarpur Badnawar Tollways Limited (250000 shares) M/s DBL:249900 Dilip Suryavanshi:30 Seema Suryavanshi:30 Devendra Jain as nominee of DBL :20 M/s Dilip Mass Comm:10 M/s High Fly Airlines nominee of DBL:10 M/s Suryavanshi Minerals Pvt Ltd :10 6 DBL Nadiad Modasa Tollways Limited (28655000) M/s DBL:28654900 Dilip Suryavanshi:30 Seema Suryavanshi:30 Devendra Jain as nominee of DBL :20 M/s Dilip Mass Comm:10 M/s High Fly Airlines nominee of DBL:10 M/s Suryavanshi Minerals Pvt Ltd :10 l3.9 As can be seen, deductions u/s Sec 80IA in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. are duly governed by provisions highlighted in sub, section ( 4). In order to avail this special development oriented tax incentive an enterprise carrying on business has to engage in, namely: M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 49 (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils specified conditions. What is recognized as 'infrastructure facility' is also explained to mean (a)a road including toll road, a bridge or a rail system;(b) a highway project including housing or other activities being an integral part of the highway project; (c)a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterways, inland post or navigation channel in the sea. In addition, Central Board of Direct Taxes has issued Circular No.4 of 2010 dated 18th May, 2010. In this circular, a clarification was given with regard to the treatment to be given to work or project involving- (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an internal part of the highway project. The CBDT Circular states: "The issue has been examined by the Board. It has been decided that widening of an existing road by constructing additional lanes as a part of highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 80IA(i). However simply relaying of an existing road would not be classified as a new infrastructural facility for this purpose". 13.10 In addition, the AR, in the course of hearing drew the attention of the Bench of certain decided cases to support the claim of the Appellant, such as, CIT vs ABG Heavy Industries Limited (2010) 322 ITR 323 (Bom), the SLP of the Department being dismissed before the Supreme Court. Beside cases of ITAT decisions in B.T. Patil& Sons Belgaum Constructions (P), GVPR Engineers Ltd, Unity Infra Projects, Patel Engineering Ltd. and Sugam Constructions (P) Ltd.. Having regard to these inputs, the 6 projects related to the A.Y. 2013-14 that the Appellant handled through the channel of SPV(s) as 'concessionaire' acting in representative capacity in PPP mode in accordance with the framework of the Government of India entirely is deemed to have fulfilled the eligibility test to avail the tax incentive u/s 80IA. The intervention of SPV in the project is in compliance to the Government framework and the intervention of SPV institution would not discriminate the merit of the claim as well. The Appellant also placed on record a communication that the claim of incentive deduction has been made only in its hands and that the SPV do not make any separate claim as much. At the same time the 6 SPV(s)'s potential claim for benefit, if any, is neutralized. Regarding the remaining two projects of Tenukheda-Taroshi-Damoh Road Project and Board Office to Indira Gandhi Square Road project, they are M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 50 falling in the category of development of the road with no BOT/BOOT or toll collection yet they also qualify the eligibility in view of the provision of the Act, CBDT Circular No.4 and the cited decisions. 13.11 As regards the claim relevant to A.Y. 2008-09, of the 13 projects all are awarded by the State Govt. authorities- PWD etc. Perusal of the related documents and the scope of road construction undertaken, they can be regarded as the infrastructure facility. As already indicated above, these projects do not involve operating and maintenance scope of work in PPP model, yet they are infrastructure facilities in the light of the provisions of the Act, the CBDT Circular etc. 13.12 Before departing it is also pertinent to briefly deal with the issue incorporated in the explanation retrospectively legislated w.e.f. 01.04.2000 as highlighted at case of 'C' in para 13.6. Here, the 'works contract' referred herein would not be applicable to the present facts of the case as all the listed projects are directly handled by the Appellant in the capacity of infrastructure developer. 13.13 Thus, after considering the all relevant facts, material and circumstances of the cases, the Bench is of the considered view that the profit derived in the business of providing infrastructure facilities undertaken by the Appellant as deemed concessionaire and infrastructure developer shall qualify for deduction u/s 80IA of the IT Act, 1961 subject to proper calculation. 21. We, therefore, in view of the discussions made hereinabove find that for the purpose of claiming deduction u/s 80(IA)(4) of the Act assessee is to be considered as a “developer” and not a “works contractor” and we also find that assessee is consistently claiming this deduction on an yearly basis and is fulfilling all the conditions required for claiming deduction u/s 80(IA)(4) of the Act. Our view is also supported by the judgment of Hon'ble jurisdictional High Court in assessee’s own case vide writ petition No.6727/2017 dated 10.07.2019 wherein Hon'ble Court has confirmed the finding of Income Tax Settlement Commission given in its order dated 28.09.2016 for A.Y. 2007-08 to 2013-14 wherein Income Tax Settlement Commission after discussing in detail the modus M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 51 operendi of the assessee company, projects undertaken, financial and technical risk involved held that the profit derive in the assessee’s business of providing infrastructure facilities as deemed concessionaire and infrastructure developer qualifies for deduction u/s 80(IA)(4) of the Act. We, therefore, find no infirmity in the finding of Ld. CIT(A) holding that assessee is a developer eligible for deduction u/s 80(IA)(4) of the Act given after considering the settled judicial precedents and the facts of the case. Therefore, the claim made by the assessee u/s 80(IA)(4) of the act is allowed. Ground no.1 raised by the revenue for A.Y. 2014-15 is dismissed. 22. As regards the remaining appeal of the revenue for A.Y. 2015- 16 to 2017-18 similar issue of allowing of deduction u/s 80(IA)(4) of the Act has been challenged. There is no dispute that there is no change in facts in these three assement years as those dealt by us while dealing with revenue’s appeal for A.Y. 2014-15. We, therefore, applying our decision for A.Y. 2014-15 mutatis mutandis on the appeals of the revenue for A.Y. 2015-16 to 2017-18 hold that the assessee has rightly claimed the deduction u/s U/s 80(IA)(4) of the Act by working in the capacity of a “developer”. Thus, no interference is called for in the finding of ld. CIT(A) on this issue on allowability of deduction u/s 80(IA)(4) of the Act for A.Y. 2015-16 to 2017-18. All the grounds raised by the revenue A.Y. 2015-16 to 2017-18 are dismissed. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 52 We will now take up assessee’s appeal in ITANo.782/Ind/2018 for A.Y.2014-15 23. Ground No.1 & 2 relates to deduction of additional depreciation claimed u/s 32(1)(iia) and investment allowance claimed u/s 32AC. During the year under consideration, the appellant has claimed additional depreciation u/s 32(1)(iia) of the Act on the various vehicles such as dumpers and tippers which are used in the activity of road construction activity amounting to Rs.22,57,23,569/-. Further, the appellant has also claimed investment allowance u/s 32AC on the investment made in the various vehicles used in the activity of road construction activity amounting to Rs.24,90,01,000/-. In the assessment order, Ld. A.O. disallowed the above claim made by the appellant stating that the activity of the appellant cannot be termed as manufacture or production as required by the provisions of section 32(1)(iia) and 32AC of the Income Tax Act, 1961 by relying heavily upon the judgment of Hon'ble Supreme Court in the case of NC Budhraja reported in [1980] 204 ITR 412. In the appellate proceedings, CIT (A) confirmed the findings of the AO and held that though the assessee satisfies the remaining conditions of the provisions of the Act, it doesn’t qualify as manufacturing or producing any article or thing since it is constructing roads. Ld. CIT (A) has also relied upon the judgment of Hon'ble Supreme Court in the case of N.C. Bhudhraja & Co.(supra) and various other decisions to show that the assessee cannot be termed as manufacturer. Aggrieved assessee is now in appeal before this Tribunal. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 53 23.1. Ld. counsel for the assessee in support of its contention that the assessee is a manufacturer and is eligible to claim deduction of additional depreciation u/s 32(1)(iia) of the Act and investment allowance u/s 32AC of the Act, firstly referring to the relevant provisions indicated towards pre-requisite conditions which need to be fulfilled for claiming the said deduction. Referring to the judgment of Hon'ble Supreme court in the case of N.C. Budharaja & CO. (supra) it was stated that this judgment relates to assessment year 1974-75 and 1975-76. The definition of the word ‘manufacturer’ was not defined at that point of time. Through finance (No.2) Act of 2009 section 2(29BA) of the act was inserted to define the word ‘manufacturer’. Referring to this definition it was submitted that in the judgment of N.C. Bhudharaja & Co. (supra) the discsuion was restricted to the word article or thing. However, with the insertion of section 2(29BA) of the Act the word object has been included which is much wider than article or thing. 23.2. To support the contention that the definition of manufacturer as provided in section 2(29BA) of the Act should be strictly followed for examining the activity being in the nature of manufacturer, reliance was placed on following decisions: 1.Bhaskar Narayan Hardikar and Anr. Vs. S.G. Daithankar and Ors. Reported in AIR 1971 Bom 188 2.Suresh Lohiya vs. State of Maharashtra and Anr. (SC)dated 23.08.1996 3.PCIT vs. Lakesh Handa reported in [2017] 399 ITR 305 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 54 4.Prestige Engineering India Ltd. vs. CCE reported in 1994 SCC (6) 465 5. Smt. Kasturi (Dead) By L.Rs vs Gaon Sabha reported in 1989 SCR (3) 591 23.3. Further Ld. counsel for the assessee mentioned about steps used in the manufacturing process for making various sizes of bolder, manufacturing process of making bituminous concrete(Bituminous mix), manufacturing process of making concrete mix. Ld. counsel for the assessee also distinguished the facts of the case with that all facts examined by the Hon'ble Supreme Court in the case of N.C. Bhudharaja & Co. (Supra) and further added that subsequent to these judgments several changes have under gone in the Income Tax Act. As per 5 th Schedule of the Act list of article or thing also includes “Boilers and steam generating plants”, in 13 th Schedule of the list of article or thing also includes thermal power plant and therefore the activities of the assessee includes manufacturing of roads. It was also submitted that the assesse manufacturer Ready Mix Concrete (RMC) in the process of construction of reads and in view of the judgment of Hon'ble Bombay High Court in the case of CIT vs. Emirates Commercial Bank Ltd. (2003) 262 ITR 55. Judgment of Hon'ble Kerala High Court in the case of Cherian Varkey Construction CO.(P.) Ltd. vs. UOI (2018) 406 ITR 262, it was submitted that the procedure of making of RMC by the assessee comes under the purview of manufacturing. Further it was stated that as held in the case of Texas Instruments (India) P. Ltd. vs. ACIT M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 55 (2020) 115 taxmann.com 154. If the assessee is engaged in the business of manufacturing, it is not necessary that the plant and machinery should be used for the purpose of manufacturing and additional depreciation would be allowed even to those plant and machinery which are not used for manufacturing process. Further in view of the finding of Ld. CIT(A) as para 8.14 of the appellate order that the assessee has withdrawn its claim of additional depreciation in its petition for A.Y. 2013-14 before Income Tax Settlement Commission, it is submitted that the proceedings before ITSC are in the nature of arbitration and it cannot laid down precedents. Therefore, the contentions of the Ld. CIT(A) is misplaced. Moreover no finding on the merits of the issue has been given by the Settlement Commission. 23.4. Per contra ld. DR apart from placing reliance on the finding of the Ld. AO as well as detailed finding of Ld. CIT(A) further placed reliance on the judgment of Hon'ble Supreme Court in the case of N.C. Bhudharaja & Co. (supra) and submitted that the assessee is work contractor engaged in construction of roads and this activity cannot be regarded as manufacturing activity and therefore assessee’s claim for additional depreciation and investment allowance should be denied. 24. We have heard rival contentions and perused the records placed before us. Through ground no.1 & 2 of the assessee’s appeal for A.Y. 2014-15 assessee has challenged the finding of Ld. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 56 CIT(A) confirming the action of the Ld. AO denying the claim of additional depreciation u/s 32(1)(iia) and for investment allowance u/s 32AC of the Act at Rs.22,57,23,569/- & Rs.24,90,01,000/- respectively. Similar issue has also been raised by the assessee for A.Y. 2015-16 to 2017-18. From perusal of the impugned order of ld. CIT(A) we notice that Ld. CIT(A) has confirmed the finding of Ld. AO that in view of the judgment of Hon'ble Supreme Court in the case of N.C. Bhudhraja & Co. (supra) the activities of constructing road cannot be treated as a manufacturing activity and since the assessee is not a manufacturer which is a precondition for claiming deduction u/s 32(1)(iia) of the Act and 32AC of the Act, it cannot claim deduction for additional depreciation and investment allowance. Now the issue which needs to be adjudicated is that “whether activity carried out by the assessee are in the nature of manufacturing activities in other words whether assessee is a manufacturer”. 24.1 Before coming to the merits of the case, it is necessary to consider the relevant provisions of section 32(1)(iia) and 32AC as per the Act which are as under:- “32(1)(iia) in the case of any new machinery or plant (other than ships and aircrafts) which has been acquired and installed after the 31st March 2005 by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii).” Provided that no deduction shall be allowed in respect of – (a) any machinery or plant which, before its installation by the assessee, was used either with or outside India by any other person; or M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 57 (b) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (c) any office appliances or road transport vehicles; or (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profit and gains of business or profession” of any one previous year.” 32AC. (1)“Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,— (a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and (b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a).” 24.2. Thus, the pre-requisites for claiming additional depreciation under Sec.32(1)(iia) of the Act are the following: (i) A new machinery or plant (other than ships and aircrafts) must be acquired and installed after 31 st March 2005; (ii) The assessee who has acquired such new machinery or plant must be engaged in the business of manufacture or production of any article or thing or in the business generation or generation and distribution of power; (iii) Such new machinery or plant should not be disqualified under the proviso to Section 32(i)(iia) of the Act. 24.3. Further, the pre-requisites for claiming additional depreciation under Sec.32AC of the Act are the following: M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 58 (i) A new machinery or plant must be acquired and installed during FY 2013-14 (ii) The assessee who has acquired such new machinery or plant must be engaged in the business of manufacture or production of any article or thing or in the business generation or generation and distribution of power; (iii) Such investment in new machinery or plant should be in excess of Rs.100 Crs. 24.4. Accordingly, as per both the provisions of section 32(1)(iia) and 32AC, the appellant should acquire a new plant or machinery and appellant should be engaged in the activity of manufacture or production. As already discussed, the other conditions of the provisions have been fulfilled by the assessee which has not been disputed by Ld. AO or Ld. CIT(A) except being eligible as manufacturer. 24.5. We notice that assessee is in the business of constructing concrete roads or bituminous roads. The Ld. AO as well as Ld. CIT (A) have heavily relied upon the decision of Supreme Court in the case of NC Budhraja & Co. (supra). The said case was related to assessment year 1974-75 and 1975-76. However, it is relevant to note that at the time when the above decision was pronounced by the Hon’ble Supreme Court, the expression “manufacture” was not defined in the Act. Subsequently, Finance (No.2) Act of 2009 defined the expression “manufacture” in the following words in Sec.2(29BA) of the Act. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 59 “(29BA) “manufacture” with its grammatical variations, means a change in a non-living physical object or article or thing – (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use, or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.” 24.6 The Memorandum explaining the provisions in Finance (No.2) Bill, 2009 which is placed at page nos.104 of the legal paper book, explain the background to this amendment in the following words: “Definition of the term ‘manufacture’ – A number of tax concessions under the Income-tax Act are provided for encouraging manufacture of articles or things. However, the term ‘manufacture’ has not been defined in the statute. Therefore, it has been the subject-matter of dispute and resultant judicial review in a number of cases. In order to remove any kind of ambiguity which may still persist in this regard, it is proposed to insert a new clause (29BA) in section 2 so as to provide that ‘manufacture’, with all its grammatical variations, shall mean a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new object or article or thing with a different chemical composition or integral structure. This amendment will take retrospective effect from the 1 st day of April, 2009 and will, accordingly, apply in relation to assessment year 2009-10 and subsequent years.” 24.7. It is abundantly clear from the Memorandum explaining the background to the insertion of the definition that the legislature recognized that a number of tax concessions under the Act, were provided for encouraging “manufacture”. However, in a number of cases the expression “manufacture” has been the subject matter of dispute and judicial review and that with a view to removing any M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 60 kind of ambiguity, the legislature has thought it fit to insert a definition to the said expression. 24.8 On perusal of the definition as per section 2(29BA), the legislature has inserted ‘object’ which was not there in the various provisions of the Act considered by the Supreme Court in NC Budhraja & CO. (supra) since they were restricted to ‘article or thing’. It is submitted that ‘object’ is much wider than an article or thing. Accordingly, it is submitted that post the insertion of the above definition, the case of the assessee falls under the sub clause (b) of section 2(29BA). 24.9. It is also important to note that the legislature has intentionally excluded the items which do not fall under the definition of the term manufacture. This is clear from the fact that it has specifically excluded ‘living object’ from the above definition. However, no such exclusion has been made in respect of immovable objects. Therefore, it is clear that manufacturing of an object includes movable as well as immovable objects which are non-living in nature. 24.10. Therefore, now the question arises as to whether we should go by the definition as provided under the Act or as per normal logic as held by Supreme Court in the case of NC Budhraja & Co. (supra) since there was no definition of manufacture earlier in the Act. In this regard, reliance is placed on the decision of Bombay High Court in the case of Bhaskar Narayan Hardikar and Anr. Vs. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 61 S.G. Daithankar and Ors. Reported in AIR 1971 Bom 188 which is placed at page nos. 27-37 of the paperbook. The relevant portion of the order is reproduced hereunder:- “12. The term "total number of Councillors" has been used in the Act at several place and would be found in Sections 81(2), 81 (9) (a) (i) and (ii) 81 (15), 19(2), 63 (1) 65(2) and proviso to Section 167 of the Act. As against this, there are other terms used in the different other sections, for example, in Section 81 (11) proviso, the decisions are to be taken by a majority of votes of the Councillors present and voting and at other places the word "Councillors" has been used: for example, in Section 56 (2) and 81(14) of the Act. When the Act defines a particular term it is that definition which has to be taken for that term wherever it occurs in the Act and it would not be permissible to construe the said term in any other manner. .............. 13. .............. In the absence of such a definition, it would have been possible to give the meaning suggested by the respondents, wherever the phrase "total number of Councillors" has been used, but we have here a separate and distinct definition of composite phrase "total number of Councillors" and it is that definition of that composite term as a whole that has to be taken into consideration wherever that phrase has been used in the Act and it would not be permissible to substitute in this phrase the definition of the word "Councillor' given in Section 2 (7) of the Act for the word "Councillor" in Section 2 (49) or at other places in that Act where the phrase "total number of Councillors" has been used. To do so, would amount to ignoring the definition of the phrase "total number of Councillors" given in Section 2 949) altogether. Likewise,if the meaning as contended on behalf of the respondents was to be given then it would have been necessary at all to define the phrase "in relation to a Council" and secondly, to state further to mean "the total number of the elected, co- opted and nominated Councillors" be cause the word "Councillor" has already been given that meaning in Section 2 (7) of the Act. (Emphasis provided by us) 24.11. Further, we find that Hon'ble Supreme Court in the case of Suresh Lohiya vs. State of Maharashtra and Anr. dated 23.08.1996 which is placed at page nos. 38-41 of the paper book had held as follows:- M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 62 “7. The legislature having defined "forest-produce", it is not permissible to us to read in the definition something which is not there. We are conscious of the fact that forest wealth is required to be preserved; but, it is not open to us to legislate, as what a court can do in a matter like at hand is to iron out cresses; it cannot weave a new texture. If there be any lacuna in the definition it is really for the legislature to take care of the same. 8. ...............May it be stated that where a word or an expression is defined by the legislature, courts have to look to that definition; the general understanding of it can not be determinative. So, what has been stated in Strouds' Judicial Dictionary regarding a "produce" can not be decisive. Therefore, where a product from bamboo is commercially different from it and in common parlance taken as a distinct product, the same would not be encompassed within the expression "forest-produce" as defined in section 2 (4) of the Act, despite it being inclusive in nature. that bamboo mat is taken as a product distinct from bamboo in the commercial world, has not been disputed before us and rightly.” (Emphasis provided by us) 24.12. Now, it is important to consider the decision of Jammu & Kashmir High Court in the case of PCIT vs. Lakesh Handa reported in [2017] 399 ITR 305 wherein Hon'ble Court has observed that the definition of manufacturing has been inserted by the legislature which was not there earlier and therefore, earlier decision cannot be relied. (The copy of the decision is placed at page nos. 42-47 of the paper book). The relevant portion of the order is reproduced hereunder:- “10. Mr Kawoosa had cited the decision of the Supreme Court in CIT v. Gem India Manufacturing Co. [2001] 249 ITR 307/117 Taxman 368, which was a case where cutting and polishing of diamonds was held as not amounting to manufacture for the purposes of deduction under Section 80-I of the Income Tax Act, 1961. However, the facts of that case are different from the facts of the present case and from the processes employed in the present case. Moreover the definition of manufacture, as appearing in the Act at present, was not there at that time. The Supreme Court held that polished diamond, as compared to the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 63 uncut or raw diamond, was not a new article or thing. That case is distinguishable as it was not a case where raw diamonds were being processed to result in diamond jewel.” (Emphasis provided by us) 24.13. We find that the above decision has considered the definition of manufacture as per the IT Act and therefore, the same has direct bearing on the present case of the assessee. 24.14 Further, similar issue has been dealt by Hon'ble Supreme Court in the case of Prestige Engineering India Ltd. vs. CCE reported in 1994 SCC (6) 465 (placed at page nos. 48-63 of the paper book). The relevant portion of the order is reproduced hereunder:- “16.In our opinion, while the Calcutta and Gujarat High Courts have by and large understood the notification correctly, their reasoning is vitiated by their omission to understand the expression 'manufacture' in the sense it is defined in the Act. Both the High Courts have understood the expression, manufacture' in its ordinary/normal sense (as pointed out by this Court in Delhi Cloth and General Mills Ltd.5). Indeed, they have not even referred to the definition in Section 2(f) of the Act. Once an expression is defined in the Act, that expression wherever it occurs in the Act, rules or notifications issued thereunder, should be understood in the same sense. Indubitably, the definition of 'manufacture' in Section 2(f) endows a wider content to the expression; several processes which would not ordinarily be understood as amounting to manufacturing are specifically included within its ambit. Clauses (i) and (ii) of the definition make this aspect clear beyond any doubt. In this connection, it must be remembered that even the un-amended definition of 'manufacture' included within the ambit of the definition several processes and activities which would not otherwise have amounted to manufacture. The un-amended definition contained as many as eight Sub-clauses. Sub- clause (iv), for example, stated that in relation to goods comprised in Item No. 18-A of the First Schedule, the expression ,manufacture' includes sizing, beaming, warping, wrapping, winding and reeling or any one or more or these processes or the conversion of any form of the said goods into another form of such goods. (Item 18-A of the First Schedule pertained to "cotton yarn - all sorts".)” (Emphasis provided by us) M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 64 24.15. Further, similar issue has also been dealt by Hon'ble Supreme Court in the case of Smt. Kasturi (Dead) By L.Rs vs Gaon Sabha reported in 1989 SCR (3) 591 ( placed at page nos. 64-69 of the paper book). The relevant portion of the order is reproduced hereunder:- "page 5............The Court also referred to the definition of land in Punjab Alienation of Land Act, 1900. In the presence of a definition in the Act under consideration, we find no justification to refer to definitions in different statutes for finding out whether the disputed property was land. Appellant's counsel also placed reliance on the decision of a Full Bench of the same High Court in the case of Ra- jinder Prasad & Anr. v. The Punjab State & Ors., AIR 1966 (53) Punjab 185. Here again the question for consideration was whether gair mumkin land was land within the Punjab Security of Land Tenures Act. For the reason indicated above, we do not think that the appellant is entitled to any support from the Full Bench Judgment. Lastly, reliance was placed on the decision of this Court in Munshi Ram & Ors. v. Financial Commissioner, Haryana & Ors., [1979] 1 SCC 471. The Court was considering the true meaning of 'permissible area' under the Punjab Security of Land Tenures Act and for that purpose the meaning of land was being examined; whether banjar Jadid should be excluded with reference to the meaning of land under the East Punjab Displaced Persons (Land Settlement) Act and the Punjab Tenancy Act was being debated before the Court. We do not think in view of the statutory definition any digration is necessary. It is impermissible to rely on definitions containing meanings different from the definition under the Act for a proper resolution of the dispute. The High Court, in our opinion, came to the correct conclusion when it held that the disput- ed property constituted land under the Act and became liable to vest in the Gaon Sabha under the Act. The judgment of the High Court, therefore, is upheld and the appeal is dis- missed. In the peculiar facts of this case, the parties are directed to bear their respective costs in this Court. (Emphasis provided by us) 24.16. Accordingly, on perusal of the above judicial precedents, it is clear that the definition provided in the Act should be strictly M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 65 followed. Thus, the case of the assessee should be decided based on the definition of manufacturing as provided in section 2(29BA) inserted w.e.f. 2009. 24.17. Now, it is pertinent to consider the construction process of the assessee and how it falls under the definition of manufacturing. The definition of manufacturing as provided u/s 2(29BA) of the Act is as under:- “(29BA) “manufacture” with its grammatical variations, means a change in a non-living physical object or article or thing – (b) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use, or (c) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.” 25. The main portion of the above definition contains “a change in a non-living physical object” which only implies that what is excluded from the definition is any change in a living object. The sub clause (a) of the definition requires that such a change in a non-living physical object should result “in transformation of the object” “into a new and distinct object having a different name, character and use. The sub clause (b) of the definition requires that such change would bring into existence a ‘new and distinct object’ with a ‘different chemical composition or integral structure’. The word “non-living” evidently excludes “living” elements. The word “physical” is defined in the Oxford English Dictionary as “of matter, material”. The Oxford English Dictionary also defines the M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 66 term “Object” as “thing placed before eyes or presented to sense, material thing, thing observed with optical instrument or represented in picture.” 25.1. A harmonious reading of the above expressions indicate that a change in any non-living material(s) resulting in its transformation into a new and distinct material, having a different name, character and use would fall within the definition of “manufacture” under Section 2(29BA) of the Act. Similarly, a change in any non-living material resulting into brining a new distinct object with a different chemical composition or integral structure will fall under the definition of manufacture. In the case of the assessee, big boulders (non-living material) are crushed into small stones and chips of various forms and sizes. This activity itself amounts to “manufacture” as the boulders, by the process of crushing, are changed into small stones and chips, which results into bringing into existence a new and distinct product having a different integral structure. These small stones and chips are, thereafter, mixed with other material, such as, cement and laid on a stretch of land. The land is thereafter covered with bitumen or concrete mix and is known as a road. The step wise details is provided as under:- Step-1 Manufacturing Process for Making Various Sizes of Bolder a. Bolders obtain from mines transport to the crusher with the help of Tippers. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 67 b. Boulder get dumped in feeding bunker from the mining site then it goes to Jaw Crusher or Primary crusher and after that materials get convey towards cone crusher which is also called secondary crusher. c. The material from Crusher get deposited to the screener of variable size screens as per requirement and from there oversized materials again come back towards cone crusher through conveyor belt. d. The name of the various sizes of bolder for making the Bituminous Concrete/Concrete Mix is Granular Sub Base (GSB), Wet Mix Macadam (WMM), Aggregate. e. Apart from the above sizes, crushed sand/crusher dust is also produced by the crusher The above final product is used for making bitumen road or concrete road which is described as under:- Step-2 Manufacturing Process of Making Bituminous Concrete (Bituminous Mix) a. Aggregate and Crusher sand Feeding to Conveyor Belt b. Pass through Heating Zone c. Mixing with Bitumin in Hot Drum Mixer d. Dispatch through Tipper to laying Site e. Lay by Electronic Sensor Paver f. Compaction to be done by rollers Step-2 Manufacturing Process of Making Concrete Mix a. Aggregate, Crusher Sand, Cement, Admixture and Water Feeding to Mixer Plant b. All material mix in mixer plant as per requirement resulting into Concrete Mix/Ready Mix Concrete(RMC). M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 68 c. Concrete Mix/Ready Mix Concrete(RMC) dispatched to site through transit mixture/tippers d. Lay by Slip Form Paver e. Compaction to be done by Rollers 25.2. Thus, the “non-living physical object” comprising of boulders is changed into small stones and chips with the help of plant and machinery and ultimately result in bringing into existence “a new and distinct object” commonly known as ‘road’ which has “a different integral structure”. Thus prima facie the construction of road falls under the definition of manufacturing as per the Act. 25.3. In any case, Hon’ble Supreme Court, in CIT vs. N.C. Budharaja & Co., was concerned with two groups of appeals that involved interpretation of:- (a) the expression “manufacture or produce articles” appearing in Section 80HH and Sec.84 of the Act; and (b) the words “construction, manufacture or production of any article or thing” appearing in Section 32A of the Act. 25.4. In the first group of appeals, the Hon’ble Supreme Court was concerned with the interpretation of the expression “manufacture or produce articles” appearing both in Sections 80HH and 84 of the Act as below:- “This section applies to any industrial undertaking which fulfils all the following conditions, viz. ‘It has begun or begins to manufacture or produce articles........’ In the above definition, only ‘article’ were included. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 69 25.5. In the second group of appeals, the Hon’ble Supreme Court was concerned with the words “construction, manufacture or production of any article or thing” appearing in Section 32A of the Act. In the above definition, only ‘article or thing’ were included. Hon'ble Supreme Court considered the various schedules of the Income Tax Act as referred to in the above provisions and observed that all the items listed in the schedule are movable items and no immovable items were present in the schedule. On the basis of such observation, Hon'ble Court held that construction of a dam, a bridge, a building, a road, etc. cannot be treated as manufacture. The above were immovable in nature and Hon'ble Supreme Court arrived at a conclusion by relying on the various schedules present in the Income Tax Act at that point of time, even though the definition of a ‘thing’ as per dictionary included immovable thing. The relevant portion of the order is reproduced hereunder:- 18. Mr. Murthy, the learned counsel for the revenue, disputes the correctness of the assessee's submission. According to him, sub-section (2) of section 32A must be interpreted and understood in the following manner: Clause (a) speaks of acquisition of a new ship or aircraft while clause (b) speaks of new machinery or plant installed (i) for the purposes of business of generation or distribution of electricity or any other form of power, (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing, and (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing; if an assessee installs any new machinery or plant for the construction of ships, it can claim investment allowance only under clause (b) (iii); it cannot claim it under clause (a) for the reason that sub-clause (i) is confined only to an assessee who acquires, i.e., who purchases a new ship or a new aircraft after the specified date and the investment allowance is granted on the actual cost of ship or aircraft; the meaning of the word 'construction' as well as the word 'thing' must be determined having regard to the context in which the said words M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 70 occur, viz., machinery or plant installed in an industrial undertaking for production of any article or thing; the word 'construction' in the sub- clause is, thus, akin to manufacture or production; similarly the expression 'thing' is used as Interchangeable with the expression 'article'; a perusal of the list in the Eleventh Schedule reinforces this submission inasmuch as the articles and things mentioned in the Eleventh Schedule are all movables; it would not be correct to associate the word 'construction' with the word 'thing'; the appropriate way to read them is in the order in which they occur in the sub-clause - says the learned counsel. 19. Though at first sight, the use of the words 'construction' and 'thing' appear to lend some substance to the contention of the learned counsel for the assessee, a deeper scrutiny - and in particular the legislative history of the relevant provisions militates against the acceptance of his submission. Sub-clauses (ii) and ( iii) of clause (b) of sub-section (2) of section 32A were substituted by the Finance (No. 2) Act, 1977 with effect from 1-4-1978. Prior to the said amendment, the sub-clauses read as follows: "(ii) for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Ninth Schedule; or (iii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things." 20. The unamended sub-clause ( ii), which corresponds to present sub- clause (iii), was, thus, confined to the 'articles and things' in the Ninth Schedule. The Ninth Schedule, since omitted, contained as many as 33 items. Item 15 therein related to 'ships'. All the items referred only to movables; none of them refers to an immovable object like a building, factory or bridge. Since the appropriate word in the case of ships is 'construction'- in common parlance one speaks of construction of ships and not manufacture of ships - the Legislature used the expression 'construction' in unamended sub-clause (ii). The said sub-clause also referred to 'articles or things', which is the heading of the Ninth Schedule. After amendment, sub-clause (ii), which became sub-clause (iii) underwent a certain change. Not only were the words 'in any other industrial undertaking' added at the beginning of the sub-clause, the applicability of the sub-clause was extended to all articles and things except those articles and things mentioned in the Eleventh Schedule. The heading of Eleventh Schedule is again 'List of articles or things', but the list does not include 'ships'. In other words, sub-clause (iii) , after amendment, continues to apply to ships. Ships are among the articles or things to which the present sub-clause (iii) applies. And that is precisely M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 71 the reason the word 'construction' is retained in amended sub-clause (iii) - the sub-clause corresponding to un-amended sub-clause (ii). So far as the use of the word 'thing' is concerned, it has no special significance inasmuch as both the Ninth Schedule and the Eleventh Schedule contain a list of articles or things. Both the Ninth Schedule, to- which alone the un-amended sub-clause(ii) applied as well as the Eleventh Schedule, the articles and things wherein are excluded from the purview of amended sub-clause (iii), refer only to movable objects - called articles or things. In this background, it is not possible or permissible to read the word 'construction' as referring to construction of dams, bridges, buildings, roads or canals. The association of words in former sub-clause (ii) and the present sub-clause (iii) is also not without significance. The words are: 'construction, manufacture or production of any one or more of the articles and things' and 'construction, manufacture or production of any articles and things' respectively. It is equally evident that in these sub- clauses as well as in the Ninth Schedule and Eleventh Schedule, the words 'articles' and 'things' are used interchangeably. In the scheme and context of the provision, it would not be right to isolate the word 'thing', ascertain its meaning with reference to Law Lexicons and attach to it a meaning which it was never intended to bear. A statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context and -as in this case - to the legislative history of the provision. We are, therefore, of the opinion that sub-clause (iii)of clause (b) of sub-section (2) of section 32A does not comprehend within its ambit construction of a dam, a bridge, a building, a road, a canal and other similar constructions.” (Emphasis provided by us) 25.6. However, post the decision of the Hon'ble Supreme Court, the law has undergone several changes. The schedules which were relied upon by the Hon'ble Court have also undergone changes wherein various immovable items have also been included. As per Fifth Schedule of the Act specifying the list of article or thing on which section 33 applies also includes ‘Boilers and Steam generating plants’ at serial no 5. The relevant portion of the schedule is reproduced hereunder for ready reference:- “[THE FIFTH SCHEDULE M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 72 [[See section 33(1)(b)(B)(i)]] LIST OF ARTICLES AND THINGS (1) .......... (2) ........... (3) .............. (4) ........... (5) Boilers and steam generating plants.............” 25.7. Similarly, As per the Thirteenth Schedule of the Act specifying the list of article or thing which section 80IB(4) and 80IC(2) applies also includes ‘Thermal Power plant’ at Part B serial no 2. The relevant portion of the schedule is reproduced hereunder for ready reference:- “ [[THE THIRTEENTH SCHEDULE [[See sections 80-IB(4) and 80-IC(2)]] LIST OF ARTICLES OR THINGS Part B For the State of Himachal Pradesh and the State of Uttaranchal S. No. Activity or article or thing Excise classification Sub-class under National Industrial Classification (NIC), 1998 1. ......... ........... .......... 2. Thermal Power Plant (coal/oil based) 40102 or 40103 25.8. It is pertinent to note that the Hon'ble Supreme Court while considering the schedules in the above decision had also considered the ‘list of article or things’ as per the various schedules. Similarly, the above schedules as reproduced above, also defines the ‘list of article or things’. Therefore Hon'ble’ M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 73 Supreme Court judgment in the case NC Budhraja & Co. (supra) cannot be made applicable to the present case for this reason also, since the very basis of the decision has undergone changes. Thus, we are of the view that a road would be included as an ‘object’ which has a wider meaning than “article or thing” and since the assessee constructs road, it should be considered as a “manufacturer”. 25.9. Further as regards the alternate argument made by Ld. counsel for the assessee being manufacturer of Ready Mix Concrete we find that the assessee manufactures Ready Mix Concrete (RMC) in the process of construction of roads. This product is an intermediary product in the entire construction process of the assessee. It is the contention of the assessee that it is eligible as a manufacturer wherein it makes RMC for its road construction business. Now, it is pertinent to consider the question whether making of an intermediary product can be termed as manufacturing even though the assessee’s broader business is not considered as manufacturing. In this regard, it is necessary to first consider the findings of the Hon'ble Supreme Court in the case of NC Budhraja & Co. (supra) wherein the said question was considered. The relevant portion of the order is reproduced hereunder:- “7. It may be that the petitioner is himself manufacturing some of the articles like gates, windows and doors which go into the construction of a dam but that makes little difference to the principle. The petitioner is not claiming the deduction provided by section 80HH on the value of the said M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 74 manufactured articles but on the total value of the dam as such. In such a situation, it is immaterial whether the manufactured articles which go into the construction of a dam are manufactured by him or purchased by him from another person. We need not express any opinion on the question what would be the position, if the petitioner had claimed the benefit of section 80HH on the value of the articles manufactured or produced by him which articles have, gone into/been consumed in the construction of the dam.” (Emphasis provided by us) 25.10. In the decision of Bombay High Court in the case of CIT vs. Emirates Commercial Bank Ltd. reported in (2003) 262 ITR 55 wherein similar issue of intermediary product has been considered. The relevant portion is reproduced hereunder:- "Question III : Whether the Tribunal was right in allowing deduction under section 32A in respect of the computers installed in the office premises ?" Arguments on question No. III : 2. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, submitted that in this case, the assessee had claimed deduction of Rs. 7.50 lakhs on account of investment allowance under section 32A of the Income-tax Act for new computers installed in the office premises. He contended that these computers were like calculating machines and, therefore, they were in the nature of office appliances and that they did not constitute plant or machinery under section 32A(2)(b)( iii). He contended that these computers merely aided in the proper functioning of the office and, therefore, they were in the nature of office appliances and, therefore, the assessee was not entitled to deduction under section 32A(2)(b)( iii). He contended that in order to attract section 32A(2)(b)(iii ), there should be existence of plant or machinery in an industrial undertaking for the purposes of the business of manufacture or production of any article or thing. It was argued that the assessee was in banking business. That, it was not an industrial undertaking as it was not in the business of manufacturing articles or things. ................. 3. On the other hand, Mr. Pardiwalla, learned counsel appearing on behalf of the assessee, submitted that the assessee is a non-resident banking company, having its head office at Abu Dhabi. He contended that the branch office of the bank is in Bombay and, during the assessment year in question, the assessee acquired mainstream computers which were utilised in banking business for preparation of accounts, analysis, M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 75 balance-sheets and bank statements. That, these computers were used to process the customers' data and the output which resulted from these computers consisted of management information reports. He contended that even a bank could constitute an industrial undertaking under section 32A(2)(b)( iii) in the sense that although it is rendering service still, in the course of its business, it produces articles and things. That, inputs were processed by the computers and transformed into different outputs. ............ Findings on question No. III : 4. We find merit in the arguments advanced on behalf of the assessee on this point. .........................We do not find any merit in the argument of the Department that these two judgments do not apply because, in those cases, the assessee was in the business of data processing. The nature of the services rendered by the bank to its customers does involve the work of data processing. It is on the basis of this data processing that the information is provided to its customers by the bank. It is on the basis of this data processing that the balance-sheets are prepared. It is on the basis of this data processing done by the computers that the management information reports come out. Answer : In the circumstances, we answer the above question No. III in the affirmative, i.e., in favour of the assessee and against the Department. 25.11. Further, Hon'ble Kerala High Court in the case of Cherian Varkey Construction Co. (P.) Ltd. vs. UOI reported in (2018) 406 ITR 262 adjudicating identical issue of production of RMC, held it to be a manufacturing process even though the assessee was engaged in construction business. It is important to note that the above decision has duly considered the judgment of Hon'ble Supreme Court in the case of NC Budhraja & Co.(supra) and has allowed the appeal. Relevant portion is reproduced hereunder :- 4. Though there is a question raised of reassessment being on a mere change of opinion, it was not pressed when the matter was argued. The three questions raised before us, as available in the income-tax appeal are extracted herein below: M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 76 "(1) Whether on the facts and circumstances of the case, the honourable Tribunal and authorities below erred in holding that there is no 'manufacture in the production of ready mix concrete when the RMC itself is an excisable commodity/goods on which credit is also available for inputs ? (2) Whether on the facts and circumstances of the case, the honourable Tribunal and authorities below erred in holding that the appellant is not entitled for any additional depreciation under section 32(1)(iia) for the machinery used for manufacturing ready mix concrete ?...... 7. The learned standing counsel for the Government of India (Taxes) would however point out that the assessee is principally engaged in the business of construction work and even if the assessee is involved in an additional manufacturing activity, it cannot qualify for exemption under section 32(1)(iia). The decision in N. C. Budharaja and Co. is relied on to contend that construction activity cannot be termed to be a manufacture nor can any incidental manufacture fall within the claim for additional depreciation in so far as the construction activity itself not being an activity of manufacture or production, as has been categorically held by the hon'ble Supreme Court. The learned standing counsel would also rely on the decisions of the Delhi High Court in CIT v. Minocha Brothers P. Ltd. [1986] 60 ITR 134 (Delhi) and Bhagat Construction Co. Pvt. Ltd. v. CIT [1998] 232 ITR 722 (Delhi). 8. At the outset, we are called upon to answer the question of law arising & from the majority decision; whether the making of RMC can be termed to be manufacture and it qualifies as a thing or article. Both the Tribunal Members, who found that the product of RMC does not involve a manufacture, relied on N. C. Budharaja and Co. We have carefully gone through the decision and would specifically refer, initially, to the facts in the case from among the batch, which was decided first and the principle followed in the latter ones. Therein the question was the benefit provided under section 80HH of the Income-tax Act, 1961, which speaks of deduction in respect of profits and gains from newly established industrial undertakings and hotel business in backward areas. The assessee was carrying on the construction of a dam in a backward area. It was claimed that the assessee was carrying on an industrial undertaking and also involved in the manufacture and production of articles. The specific contention raised was that the construction work would also qualify to be termed as a manufacture. 12.Even while respectfully bowing don to the dictum, we are of the opinion that there is a slight distinction in the present case. The assessee M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 77 herein does not claim that its construction activity leads to a manufacture or production turning out an article or thing. The RMC used in the construction is a manufactured product is the specific contention taken by the assessee. We have to notice that in the case of N. C. Budharaja and Co. also, there was a contention that in the process of construction of dam, there were fixtures like gates, windows and door frames, which were made by the assessee themselves and hence there is a manufacture of an article or a thing. The above contention was answered in the following manner (page 424 of 204 ITR): "It may be that the respondent is himself manufacturing some of the articles like gates, windows and doors which go into the construction of a dam but that makes little difference to the principle. The petitioner is not claiming the deduction provided by section 80HH on the value of the said manufactured articles but on the total value of the dam as such. In such a situation, it is immaterial whether the manufactured articles which go into the construction of a dam are manufactured by him or purchased by him from another person. We need not express any opinion on the question what would be the position if the respondent had claimed the benefit of section 80HH on the value of the articles manufactured or produced by him which articles have gone into/consumed in the construction of the dam." 13. The hon'ble Supreme Court left open the issue, whether a deduction claimed on the value of the articles manufactured would be allowable as a deduction or not. Section 80HH allowed a deduction to the extent of twenty per cent. of the profits and gains derived from an industrial under taking newly established in a backward area. To avail such exemption, there were conditions prescribed which, inter alia, included that the asses see commenced manufacture or production of articles, after and prior to specified dates. The assessee therein having claimed the deduction on the entire income on the construction of a dam, claiming it to be a manufacture or production, the hon'ble Supreme Court found that it is not allowable since a dam cannot be termed an article. The mere fact that there was a manufacturing activity carried on, allied to the construction activity, would not enable the assessee to claim deduction under section 80HH, since the deduction is of a percentage of the entire profits and gains and not limited to that of the manufacturing activity. In the other cases also the deduction was claimed on the ground of the construction of foundation of structures, dams and canals being covered under sections 84 and 32A, respectively. This is the distinction we deduce in so far as the decision in N. C. Budharaja and Co. 16. We cannot on a reading of the provision find that the additional depreciation permissible to the extent of 20 per cent. of the actual cost of M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 78 plant and machinery, would be permissible only in the case of an assessee engaged principally in the business of manufacturing or production. We would be doing violence to the provision if we hold so since then we would be introducing the word "principally" to read the provision as "an assessee engaged in the business principally of manufacture or production of any article or thing". The dominant test has no application from the plain meaning of the words employed. Whatever be the business of the assessee, if the assessee is involved in a manufacture or production of articles or thing; then a claim under section 32(1)(iia) would be permissible to the extent allowed as depreciation.” 25.12. In light of the above decision we find that the assessee is engaged in the business of manufacturing of RMC. Now we need to consider as to which plant and machinery would be eligible for additional depreciation and investment allowance. In this regard, it is necessary to consider the recent decision of Bangalore Tribunal in the case of Texas Instruments (India) (P.) Ltd. vs. Addl. CIT reported in [2020] 115 taxmann.com 154 wherein it was held that if the assessee is engaged in the business of manufacturing, it is not necessary that the plant and machinery should be used for the purpose of manufacturing and additional deprecation would be allowed even to those plant and machinery which are not used for manufacturing process. Relevant portion of the decision is reproduced hereunder:- “19. A bare reading of the aforesaid provisions shows that the new machinery or plant should be used by an assessee engaged in the business of manufacture or production of any article or thing and the new machinery or plant need not be used in manufacture or production of any article or thing. The learned counsel has before us relied on the decision of the Hon'ble Madras High Court High Court in the case of CIT v. VTM Ltd. [2010] 187 Taxman 319/[2009] 319 ITR 336 (Mad.) wherein the assessee-company was engaged in the business of manufacture of textile goods. During the relevant assessment year, it had set up a wind mill for M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 79 generation of power and claimed additional depreciation thereon under section 32(1)(iia). The Assessing Officer disallowed the claim on the ground that the assessee was engaged only in the manufacture of textile goods and the setting up of a wind mill had absolutely no connection with the manufacture of textile goods. However, the Commissioner (Appeals) as well as the Tribunal allowed the assessee's claim of additional depreciation. On appeal to the High Court, the Hon'ble High Court held that for application of section 32(1)(iia ) what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant, which has been set up, should have been acquired and installed after 31-3-2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed after 31-3-2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a windmill had nothing to do with the manufacture of textile goods was totally not germane to the specific provision contained in section 32(1)(iia ). In the light of the aforesaid decision, we are of the view that one of the basis on which the revenue authorities disallowed the claim of the Assessee for disallowance of additional depreciation cannot be sustained.” 26. Thus we find that once the assessee is engaged in manufacturing of an article, thing or object, even for any part of the business, every plant and machinery employed by the assessee whether directly used for the process of manufacturing or not, would be eligible for additional deprecation u/s 32(1)(iia). Identical language has been used in the provision of section 32AC providing investment allowance. 27. Further, Ld. CIT(A) has mentioned at para 8.14 of the appellate order that the assessee has withdrawn its claim of additional deprecation in its petition for AY 2013-14 filed before Hon’ble Income Tax Settlement Commission and therefore, the assessee M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 80 has already conceded that the claim is not allowable. In this regard, we find force in the submission of Ld. counsel for the assessee that the proceedings before Hon’ble Income Tax Settlement Commission are settlement proceedings in the nature of arbitration and it cannot laid down a precedent and therefore, the above contention of the CIT(A) is misplaced. Moreover, no finding on the merits of the issue has been given by the Settlement Commission. 28. Further, we notice in the impugned order, Ld. CIT (A) has relied upon various decisions in order to show that the assessee is not engaged in the business of manufacturing. In this regard, we find that most of the decisions relied upon by the CIT (A) are prior to insertion of definition of manufacture u/s 2(29BA) of the Act. Further, regarding other decision relied by Ld. CIT(A) of Mumbai Tribunal in the case of M/s. Stefon Construction (P) Ltd. reported in 65 taxmann.com 140 (placed at page nos. 109 to 113 of the legal paper book). On perusal of the same, it is clear that therein the assessee has relied upon the definition of manufacture which has been inserted by the legislature. However, the said definition has nowhere been considered by the Tribunal in the said decision. Thus, the said decision cannot be relied upon. Accordingly, the decision rendered by the CIT(A) is not based on correct legal footing. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 81 29. We, therefore, in view of the above discussion placing reliance on various judgments and decisions and in view of the definition of the word manufacturer defined in section 2(29BA) of the Act hold that: i. In view of the process involved in construction of road the activity carried out is a manufacturing activity. In others words assessee is a “manufacturer” ii. As the assessee is a manufacturer it is entitled to claim deduction for additional depreciation u/s 32(1)(iia) of the Act and also entitled for deduction for investment allowance u/s 32AC of the Act. iii. The assessee is also a manufacturer of Ready Mix Concrete which in itself is a manufacturing activity and since it is a part of assessee’s business, in view of the settled judicial precedents the assessee is eligible for claiming additional depreciation for those plant and machinery which have not been used is manufacturing process. iv. The judgment of Hon'ble Supreme Court in the case of N.C. Bhudharaja & Co. (supra) is not applicable on the fact of the assessee because in this judgment facts for A.Y. 1974- 75 and 1975-76 were considered but subsequently many amendments have been made in the Income Tax Act and most importantly through Finance Act 2009 definition of the word manufacturer was inserted by way of inserting new clause (29BA) in section 2 and in this definition the word ‘object’ was also included. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 82 30. We, thus, set aside the finding of Ld. CIT(A) and allow the assessee claim made for additional depreciation u/s 32(1)(iia) of the Act and claim of the investment allowance u/s 32AC of the Act. Ground nos. 1& 2 raised by the assessee for A.Y. 2014-15 are allowed. 31. Apropos to Ground no.3 of assessee appeal for A.Y.2014-15 the assesse stated that the ld. CIT(A) erred in not directing the Ld. AO in extending benefit of deduction u/s 80(IA)(4) of the Act on the amount of additional depreciation u/s 32(1)(iia) of the Act and investment allowance u/s 32AC of the Act disallowed. 32. We find that since we have already dismissed the revenue’s appeal and confirmed the finding of Ld. CIT(A) allowing the benefit of deduction u/s 80(IA)(4) of the Act and have also allowed the assessee’s appeal ground no.1 & 2 holding that the assessee is a manufacturer and deduction for additional depreciation u/s 32 (1)(iia) of the Act and investment allowance u/s 32AC of the Act is to be allowed, ground no.3 of the assessee’s appeal becomes infructuous. Even otherwise if the assessee is qualified for claiming deduction u/s 80(IA)(4) of the Act then in view of CBDT, Circular 37/2016 dated 02.11.2016 if there is any disallowance of any expenditure during the course of assessment proceedings then for the purpose of giving effect to deduction u/s 80(IA)(4) of the Act, profit so qualifying shall increase by the amount of expenditure so disallowed and thus the assessee will be entitled to higher amount of deduction u/s 80(IA)(4) of the Act. Thus, ground no.3 of the assessee’s appeal is allowed. M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 83 Now we take assessee’s appeal for A.Y. 2015-16 in ITANo.819/Ind/2019 33. Ground No.1 challenging the legality of the assessment proceedings is not pressed and therefore the same is dismissed as not pressed. 34. Ground No.2 & 3 related to disallowance for additional depreciation u/s 80(IA)(4) of the Act and investment allowance u/s 32AC of the Act. Since we have already dealt with this issue while deciding the assessee’s appeal for A.Y. 2014-15 holding that the assessee is a manufacturer and eligible for additional depreciation and investment allowance the same decision is applied mutatis mutandis to ground no.2 & 3. We, accordingly reverse the finding of Ld. CIT(A) and allow ground no.2 & 3 raised by the assessee. Now we taken up assessee’s appeal for A.Y. 2016-17 in ITANo.820/Ind/2019 35. Sole ground raised is regarding to disallowance of additional depreciation u/s 32(1)(iia) of the Act. In view of our decision for A.Y.2014-15 wherein we have adjudicated very same issue in the case of assessee, we therefore, hold that assessee is a manufacturer and should be allowed deduction for additional depreciation u/s 32(1)(iia) for A.Y. 2016-17. Thus ground no.1 raised by the assessee is allowed. Now we take up assessee’s appeal for A.Y.2017-18 in ITANo.197/Ind/2020 M/s. Dilip Buildcon Ltd. ITA No.782/ind/2018 & others 84 36. Sole ground raised is regarding to disallowance of additional depreciation u/s 32(1)(iia) of the Act. In view of our decision for A.Y.2014-15 wherein we have adjudicated very same issue in the case of assessee, we therefore, hold that assessee is a manufacturer and should be allowed deduction for additional depreciation u/s 32(1)(iia) for A.Y. 2017-18. Thus ground no.1 raised by the assessee is allowed. 37. In the result, revenue’s appeal for A.Ys. 2014-15 to 2017-18 in ITANo.816/Ind/2018, ITANos.881 & 882/Ind/2019 & ITANo.290/Ind/2020 are dismissed, assessee’s appeal for A.Ys. 2014-15, 2016-17 & 2017-18 in ITANo.782/Ind/2018, ITANo.820/Ind/2019 & ITANo.197/Ind/2020 are allowed and for A.Y. 2015-16 in ITANo.819/Ind/2019 is partly allowed. Order pronounced as per Rule 34 of I.T.A.T., Rules 1963 on . 27.01.2022. Sd/- (RAJPAL YADAV) Sd/- (MANISH BORAD) VICE PRESIDENT ACCOUNTANT MEMBER Indore; दनांक Dated : 27/01/2022 Patel/PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Assistant Registrar, Indore
Other Referred Cases
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Consultation on Entity Formation
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Startup Dissolution Resolution
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