ACIT, Bangalore V. M/s JSR Constructions (P) Ltd., Bangalore

ITA 898/BANG/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1437 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO CITI
• Section: 143(3); 115JB

Judgement Text

PAGE 1 OF 8 ITA NO.898/BANG/2009 1 IN THE INOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE DR. O K NARAYANAN, VICE PRESIDENT AND SMT. P MADHAVI DEVI, J.M. ITA NO.898/BANG/2009 (ASST. YEAR 2005-06) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-11(5), BANGALORE-1. -APPELLANT VS M/S JSR CONSTRUCTIONS (P) LTD., 3415, 2 ND CROSS, INDIRANAGAR II STAGE, BANGALORE-38. - RESPONDENT APPELLANT BY : SHRI G V GOPALA RAO, CIT-I RESPONDENT BY : SHRI S PARTHASARATHI, ADVOCATE O R D E R PER P MADHAVI DEVI : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE CIT-I, BANGALORE DATED 30.06.2009 FOR THE ASST. YEAR 2005-06. 2. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN DELETING THE ENTIRE DISALLOWANCE M ADE BY THE AO OF THE DEDUCTION OF RS.2,25,13,170/- CLAIMED BY THE ASSESSEE U/S 80IA OF THE I T ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY, ENGAGED IN THE BUSINESS OF CIVIL ENGINEERING WORKS AND CONSTRUCTION PAGE 2 OF 8 ITA NO.898/BANG/2009 2 OF NATIONAL HIGHWAYS, FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING NIL INCOME AND CLAIMING DEDUCTION OF RS.2 ,25,13,170/- U/S 80IA OF THE I T ACT. THE ASSESSEE COMPANY HAD A LSO SHOWN A BOOK PROFIT OF RS.3,64,09,495/- U/S 115JB OF THE AC T. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, FROM THE PROFITS AND LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INC OME, THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN THE TOTAL CONT RACT RECEIPTS AT RS.50,71,06,783/- WHEREAS AS PER THE TDS CERTIFI CATES, THE TOTAL CONTRACT RECEIPTS WORKS OUT TO RS.50,72,62,95 9/-. THUS, THERE IS A DIFFERENCE OF RS.1,56,176/- BETWEEN THE TOTAL CONTRACT RECEIPTS AS PER THE TDS CERTIFICATES AND AS SHOWN I N THE PROFIT AND LOSS ACCOUNT. HE FURTHER OBSERVED THAT THE ASSESSE E HAS UNDERTAKEN SUB-CONTRACT WORKS FROM M/S ECSB-JSR CON STRUCTIONS (JV) PRIVATE LIMITED AND RECEIVED INCOME OF RS.26,5 5,66,961/- (AS PER THE TDS CERTIFICATES) AND HAS RECEIVED THE REMA INING BALANCE OF RS.24,16,95,998/- FROM THE OTHER CONTRACT WORKS UNDERTAKEN BY THE ASSESSEE COMPANY. HE OBSERVED THAT THE DEDUCTIO N U/S 80IA OF THE ACT WOULD NOT BE AVAILABLE TO A PERSON WHO E XECUTES A WORKS CONTRACT ENTERED INTO WITH AN UNDERTAKING OR ENTERP RISE AS THE CASE MAY BE. AS THE ASSESSEE HAS UNDERTAKEN THE SUB-CONT RACT WORKS WITH THE JOINT VENTURE OF M/S ECSB-JSR CONSTRUCTIO N PRIVATE LIMITED, HE HELD THAT THE ASSESSEE COMPANY IS NOT EL IGIBLE TO CLAIM DEDUCTION U/S 80IA OF THE ACT. HE FURTHER OBSERVED THAT THE WORKS CONTRACT UNDERTAKEN BY THE ASSESSEE COMPANY ARE NOT NEW, BUT IT IS THE SAME CONTRACT UNDERTAKEN AS IN EARLIE R YEARS INCLUDING SUB-CONTRACT WORKS FROM ITS SISTER CONCERN. HE TH EREFORE PAGE 3 OF 8 ITA NO.898/BANG/2009 3 DISALLOWED THE ENTIRE CLAIM OF DEDUCTION OF RS.2,25 ,13,170/- U/S 80IA OF THE ACT AND ASSESSED THE SAME AS THE BUSINE SS INCOME OF THE ASSESSEE COMPANY. 4. AGGRIEVED BY THE DISALLOWANCES AND THE CONSEQUEN T ADDITIONS MADE BY THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) STATING THAT THE ASSESSEE IS A MEMBER OF A TWO ENTITY CONSORTIUM (THE OTHER MEMBER BEING ECSB) WHICH WAS AWARDED THE CONTRACT BY NHAI AND THE CONSORTIUM HAD SUB-CONTRACT ED THE MAIN CONTRACT ON A BACK-TO-BACK BASIS TO THE JOINT VENTU RE ECSB-JSR CONSTRUCTIONS PVT. LTD., WHICH IN TURN HAD SUB-CONT RACTED THE ENTIRE NHAI WORK TO THE ASSESSEE ON A BACK-TO-BACK BASIS T RANSFERRING TO THE ASSESSEE ALL DUTIES AND RESPONSIBILITIES IN RES PECT OF THE WORK IMPOSED ON THE CONSORTIUM BY THE NHAI THROUGH THE MA IN CONTRACT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS ENTITLE D TO RECEIVE THE ENTIRE CONTRACT AMOUNT OF RS.104.90 CRORES EXCEPT F OR 3.5% OF THE CONTRACT AMOUNTS PAYABLE TO ECSB-JSR CONSTRUCTIONS PVT. LTD. THE ASSESSEE HAD ALSO FURTHER EMPHASIZED THAT THE EXPEN DITURE INCURRED ON CONSTRUCTION MACHINERY ALONE WAS AROUND RS.23 CRORES AS ON 31.3.2005 WHICH SHOWS THAT THE ASSESSEE HAS D ONE THE ENTIRE WORK AND CANNOT BE TREATED AS A WORKS CONTRACTOR SI MPLICITER. THE ASSESSEE HAD ALSO DRAWN THE ATTENTION OF THE CIT(A) TO THE EXPLANATORY MEMORANDUM TO THE FINANCE BILL, 2007 REP ORTED IN 289 ITR 312 (ST.) WHEREIN CLARIFICATION REGARDING DEVE LOPER WITH REFERENCE TO INFRASTRUCTURE FACILITY, INDUSTRIAL PAR K ETC. FOR THE PURPOSE OF SECTION 80IA OF THE ACT WAS GIVEN STATIN G THAT WHEN A PAGE 4 OF 8 ITA NO.898/BANG/2009 4 PERSON MAKES THE INVESTMENT AND HIMSELF EXECUTES TH E DEVELOPMENT WORK, I.E. CARRIES OUT THE CIVIL CONSTRUCTION WORK, HE WILL BE ELIGIBLE FOR TAX BENEFIT U/S 80IA OF THE ACT. 5. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AT LENGTH AND ALSO AFTER GOING INTO THE JOINT VENTURE AGREEME NTS AND THE CONSORTIUM AGREEMENT BETWEEN M/S ECSB AND THE ASSES SEE AND THE OTHER AGREEMENTS, SUCH AS, THE AGREEMENT WITH NATIO NAL HIGHWAY AUTHORITY OF INDIA ETC., THE CIT(A) OBSERVED THAT TH E CONSORTIUM WAS INCORPORATED IN KUALA LUMPUR, MALAYSIA ON 13 TH JANUARY, 2001 AS BOTH THE COMPANIES WERE HAVING THE TECHNOLOGY EXPERI ENCE AND EXPERTISE IN EXECUTING BUILDING AND CIVIL ENGINEERI NG WORKS DEPLOYING MODERN PLANT AND MACHINERY AND MANAGEMENT OF QUALITY CONTROL. THE PURPOSE OF THE JV WAS TO JOINTLY PREPARE AND SUB MIT THE PRE- QUALIFICATION AND TENDER TO NHAI FOR THE CONSTRUCTI ON AND COMPLETION OF THE PROJECTS IN VARIOUS STATES OF IND IA. THE PARTIES HAD ALSO AGREED THAT THEY WOULD JOINTLY UNDERTAKE AND BE RESPONSIBLE FOR THE CONSTRUCTION AND COMPLETION OF THE PROJECTS IN ACCORDANCE WITH THE CONTRACT AGREEMENTS. THE CIT(A ) OBSERVED THAT THE NHAI HAS AWARDED THE CONTRACT TO THE CONSO RTIUM ON 12/10/2001 FOR EXECUTION OF CIVIL WORKS IN RAJASTHA N STATE FOR A CONTRACT PRICE OF RS.104.90 CRORES AND A LETTER OF AWARD DATED 5.9.2001 WAS ISSUED CONFIRMING THAT THE NET ACCEPTE D BID WAS RS.104.90 CRORES AFTER REBATE ETC. FOR EXECUTION, C OMPLETION AND MAINTENANCE OF THE ABOVE WORKS. THEREAFTER, THE CO MPANY CALLED M/S ESCB-JSR CONSTRUCTIONS (JV) PVT. LTD. WAS INCOR PORATED ON PAGE 5 OF 8 ITA NO.898/BANG/2009 5 9.11.2001 AS ASCERTAINED FROM THE CERTIFICATE OF IN CORPORATION FROM THE ASST. REGISTRAR OF COMPANIES, BANGALORE, K ARNATAKA AND THIS COMPANY FURTHER ENTERED INTO A SUB-CONTRACT WIT H THE ASSESSEE COMPANY AND AWARDED 100% FULL SCOPE OF WORKS AS DEF INED IN THE MAIN CONTRACT. 6. AFTER APPRECIATING THE ABOVE EVIDENCE, THE CIT( A) CAME TO THE CONCLUSION THAT THE ASSESSEE WAS A MEMB ER OF THE CONSORTIUM THAT BID FOR AND WAS AWARDED THE CONTRAC T IN QUESTION AND IT IS ONLY THEREAFTER THAT THE JV COMPANY HAD COM E INTO EXISTENCE AND THE SUB-CONTRACT WAS ENTERED INTO. T HUS, ACCORDING TO HIM, THE ASSESSEE HAS FULFILLED THE CONDITIONS P RESCRIBED U/S 80IA OF THE I T ACT AND THE ASSESSEE IS ELIGIBLE FO R DEDUCTION THEREUNDER. AS REGARDS THE AOS OBSERVATION THAT T HE CONTRACT IS NOT NEW, HE OBSERVED THAT THE TERM NEW IS MEANT T O ENSURE THAT THE DEDUCTION IS AVAILABLE TO ENTITIES THAT ARE CON TRIBUTING BY ADDING TO THE COUNTRYS INFRASTRUCTURE AND IT CANNOT BE TAKEN TO MEAN THAT IN ORDER TO AVAIL THE DEDUCTION, THE ASSE SSEE NEED TO ENTER INTO NEW AGREEMENT EVERY YEAR AS INFRASTRUCTURE PROJECTS BY THEIR VERY NATURE, GENERALLY HAVE IMPLEMENTATION CYCL ES THAT ARE LONGER THAN A YEAR. THUS, THE CIT(A) DIRECTED THE A O TO ALLOW DEDUCTION AS CLAIMED BY THE ASSESSEE. 7. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. PAGE 6 OF 8 ITA NO.898/BANG/2009 6 8. AT THE TIME OF HEARING, THE LEARNED DR WHILE RE LYING ON THE ORDER OF THE AO, SUBMITTED THAT THE ASSESSEE BY ITS OWN LETTER DATED 27.12.2007 HAD AGREED FOR THE DISALLOWANCE TO THE EXTENT OF RS.1,17,80,542/- FOR THE REASON THAT IT HAD CLAIMED DEDUCTION ON THE SUB-CONTRACT WORKS UNDERTAKEN FROM ITS SISTER C ONCERN AND THEREFORE, THE CIT(A) OUGHT TO HAVE UPHELD THE DISA LLOWANCE ATLEAST TO THE EXTENT OF RS.1,17,80,542/-. 9. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND ALSO DR EW OUR ATTENTION TO ALL THE AGREEMENTS FILED BY THE ASSESSE E BEFORE THE CIT(A)N TO SUBSTANTIATE ITS CLAIM THAT IT WAS A MEM BER ENTITY OF THE CONSORTIUM, WHICH WAS AWARDED THE CONTRACT BY NH AI AND THAT IT IS ELIGIBLE FOR DEDUCTION U/S 80-IA OF THE ACT. 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THE RIVAL CONTENTIONS, WE FIND THAT THE DEDUCTION U /S 80IA IS AVAILABLE IN RESPECT OF PROFIT AND GAINS FROM THE I NDUSTRIAL UNDERTAKING OR ENTERPRISES ENGAGED IN INFRASTRUCTUR E DEVELOPMENT ETC. THE ONLY REASON FOR THE DISALLOWANCE BY THE AO IS THAT THE ASSESSEE HAS UNDERTAKEN THE SUB-CONTRACT WORKS AND HAS ALSO NOT UNDERTAKEN THE NEW CONTRACTS DURING THE RELEVANT AS ST. YEAR. WE FIND THAT THE ASSESSEE HAS FILED SUFFICIENT EVIDENC E BEFORE THE CIT(A) TO PROVE HIS CASE THAT IT IS PARTY TO THE CON SORTIUM, WHICH WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION A ND WAS ALSO AWARDED THE CONTRACT BY THE NHAI. IT WAS ALSO PROVE D THAT THE PAGE 7 OF 8 ITA NO.898/BANG/2009 7 ASSESSEE HAS INVESTED THE ENTIRE CAPITAL FOR COMPLE TION OF THE CONTRACT AND SO IT WAS ENTITLED TO RECEIVE THE ENTI RE CONTRACT RECEIPTS. IN SUCH A CASE, WE ARE SATISFIED THAT TH E ASSESSEE HAS ITSELF CARRIED ON THE WORKS CONTRACT AND WAS NOT A SUB-CONTRACTOR CARRYING ON THE WORKS CONTRACT. FURTHER, AS RIGHTLY HELD BY THE CIT(A), EVERY YEAR THE ASSESSEE CANNOT BE EXPECTED TO ENTER INTO A NEW CONTRACT FOR THE REASON THAT THE INFRASTRUCTURE PROJECT ARE BY THE VERY NATURE CARRIED ON OVER A PERIOD OF TIME AND CANNOT BE COMPLETED WITHIN A YEAR. THE MAIN AIM OF ALLOWING T HE DEDUCTION U/S 80IA IS FOR IMPROVING THE INFRASTRUCTURE FACILITIES IN THE COUNTRY. IN VIEW OF THE SAME, WE ARE OF THE OPINION THAT THE CIT(A) HAS PROPERLY APPRECIATED THE EVIDENCE BEFORE ALLOWING TH E CLAIM OF THE ASSESSEE AND THERE IS NO REASON TO INTERFERE WITH T HE SAME. 11. AS REGARDS THE ALTERNATIVE PRAYER OF THE LEARNE D DR THAT THE DISALLOWANCE SHOULD BE CONFIRMED ATLEAST T O THE EXTENT OF RS.1,17,80,542/-, AS PER THE ASSESSEES SWORN STATE MENT, WE FIND THAT MERELY BECAUSE THE ASSESSEE HAS ADMITTED FOR SU CH DISALLOWANCE, IT NEED NOT BE DISALLOWED IF IT IS AL LOWABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN ACCORDAN CE WITH LAW. IN THE CASE BEFORE US, IT HAS BEEN FAIRLY ESTABLISHE D THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IA OF THE A CT FOR THE ENTIRE AMOUNT. THEREFORE, THE ALTERNATIVE PLEA IS ALSO NOT TO BE ALLOWED. PAGE 8 OF 8 ITA NO.898/BANG/2009 8 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED ON TUESDAY, THE 29 TH DAY OF MARCH, 2011 AT BANGALORE. SD/- SD/- (DR. O K NARAYANAN) (P MADHAVI DE VI) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) THE CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. MSP/24.3. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.