M/s Taher Ali Industries &Projects (P)Ltd.,, Hyderabad v. ACIT, Hyderabad

ITA 1482/HYD/2008 | 2005-2006
Pronouncement Date: 21-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 148222514 RSA 2008
Assessee PAN ITACT1961B
Bench Hyderabad
Appeal Number ITA 1482/HYD/2008
Duration Of Justice 2 year(s) 3 month(s) 25 day(s)
Appellant M/s Taher Ali Industries &Projects (P)Ltd.,, Hyderabad
Respondent ACIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 21-01-2011
Date Of Final Hearing 02-09-2010
Next Hearing Date 02-09-2010
Assessment Year 2005-2006
Appeal Filed On 26-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI AKBE R BASHA ACCOUNTANT MEMBER . ITA NO.720/HYD/07 : ASSESSMENT YEAR 2003-04 ITA NO.807/HYD/09 : ASSESSMENT YEAR 2006-07 ITA NO.843/HYD/08 : ASSESSMENT YEAR 2004-05 ITANO.1482/HYD/08 : ASSESSMENT YEAR 2005-06 M/S. TAHER ALI INDUSTRIES & PROJECTS PVT. LTD. HYDERABAD. HYDERABAD. (PAN:AABCT 4110 E) VS ACIT CIR-2(3) HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SYED TAUSIF ALI RESPONDENT BY : SMT. VASUNDHARA SINHA O R D E R PER AKBER BASHA ACCOUNTANT MEMBER: THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST SEPARATE ORDERS OF CIT (APPEALS)-VI HYDERABAD AND THE Y PERTAIN TO THE ASSESSMENT YEARS 2003-04 TO 2006-07. SINCE COMMON ISSUES AR E INVOLVED IN THESE APPEALS THESE ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. AS FACTS ARE IDENTICAL IN ALL THESE FOUR APPEALS FOR THE SAKE OF B REVITY WE DEAL WITH THE FACTS MENTIONED IN ITA NO.720/HYD/2007 FOR THE ASSE SSMENT YEAR 2003-04. ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PIPES THE M AJOR PART OF THE WORK WAS CLAIMED TO HAVE BEEN EXECUTED WITH COLLABORATI ON WITH ANOTHER COMPANY M/S IVRCL. IN THE COURSE OF SCRUTINY ASSESSMENT PRO CEEDINGS THE ASSESSING OFFICER HAD DETECTED THAT THE COMPANY HAD DE BITED HUGE EXPENSES TOWARDS SITE EXPENSES FOR RS.31 04 857/- LINE AND JOINTING EXPENSES FOR RS.1 26 63 674/- LABOUR PAYMENTS FOR RS.1 19 50 576/- FOR WHICH PROPER VOUCHERS WERE NOT MADE AVAILABLE TO T HE ASSESSING OFFICER. MOST OF THE PAYMENTS WERE MADE IN CASH ONLY. THE ASSESSING OFFICER ALSO WAS OF THE VIEW THAT THE MARGINS OF PROFIT FROM THE EXECUTION OF CIVIL WORKS RELATING TO THE MANUFACTURE AND LAYING OF PIPES WERE QUITE LOW AS COMPARED TO SIMILAR CONTRACTUAL PROFITS OF ABOUT 8 % OVER GROSS TURNOVER APPLICABLE TO VARIOUS CONTRACTORS. TAKING INTO CONSIDERATION THE SUM TOTAL OF THE ABOVE STATED FINDINGS SUCH AS CLAIMING OF HUGE EXPENSES NOT SUPPORTED BY EXTERNAL VOUCHERS/PAYMENT BY CASH/LOW MARGIN OF PROFIT THE ASSESSING OFFICER HAD MADE DISALLOWA NCE OF RS.50 LAKHS TO THE RETURNED PROFIT AND GAINS OF BUSINESS. TH E ASSESSING OFFICER HAD ALSO FOUND THAT THE COMPANY HAD CLAIMED DEPRECIATIO N OF RS.41.15 LAKHS ON SUCH LEASED MACHINERY WORTH RS.1 64 60 003/-. D URING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD DETECTED THA T SUCH MACHINERY WERE OBTAINED ON LEASE BASIS FROM M/S. IVRCL ON PAYMENT OF EMI OF RS.14.19 LAKHS. WHILE CROSS VERIFYING THE MATTER WITH IVRCL THE ASSESSING OFFICER HAD OBSERVED THAT IVRCL HAD CATEGORICALLY STATED THAT THE OWNERSHIP OF SUCH LEASED MACHINERY CONTINUES TO BE VEST ED WITH IVRCL ONLY ON WHICH IVRCL CLAIMED DEPRECIATION UNDER IT RULES. FOR THE ABOVE REASONS THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION ON THIS ASSET AND ALLOWED THE LEASE RENTALS PAID BY THE COMPANY TO IVRCL FOR THEIR PLANT AND MACHINERY. AGAINST THE OR DER OF THE ASSESSING OFFICER THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). ON APPEAL THE ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 3 CIT (A) HELD THAT ON A PROPER APPRECIATION OF THE MA TERIALS AVAILABLE ON ASSESSMENT RECORDS THE ASSESSING OFFICER IS CONSIDERED JUSTIFIE D FOR MAKING AN ESTIMATED DISALLOWANCE OF RS.50 LAKHS OUT OF V ARIOUS CLAIMS OF EXPENSES MADE IN THE PROFIT AND LOSS ACCOUNT AND FURTH ER HELD THAT HIS FINDINGS REGARDING DEPRECIATION ON LEASE ASSETS AND PAYME NT OF LEASE RENTAL ARE CONSIDERED TO BE JUSTIFIED UNDER FACTS AND T HE CIRCUMSTANCES OF THE CASE. IN VIEW OF THE ABOVE HE CONFIRMED THE ACTIONS OF THE ASSESSING OFFICER ON BOTH THE ISSUES. FURTHER AGGRIEVED T HE ASSESSEE IS IN APPEAL BEFORE US. 3. THE AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBM ITTED THAT THE FIRST APPELLATE AUTHORITYS ORDER IS BASED ON SUSPICION SURMISES AND CONJECTURES AND NOT ON ANY TANGIBLE EVIDENCE AND A S SUCH DESERVES TO BE SET ASIDE. IT IS FURTHER SUBMITTED THAT THE FIRST APPELLATE AUTHORITY IS ABDICATING ITS RESPONSIBILITIES BY ACCEPTING ALL THE AL LEGATIONS OF THE ASSESSING AUTHORITY WITHOUT ASKING ENOUGH QUESTIONS AND H ENCE HE HAS NOT PASSED ANY SPEAKING ORDER IN THE CASE OF THE ASSESSEE WHICH IS A PRIVATE LIMITED COMPANY AND IS IN HE BUSINESS OF EXECUTIO N OF TURNKEY WATER SUPPLY AND SEWERAGE PROJECTS FOR CENTRAL AND STA TE GOVERNMENT ETC. WHICH IS CONGLOMERATE IN NATURE AND THE SCOPE OF WO RK COMPRISES OF MANUFACTURE SUPPLY LAYING JOINTING TESTING AND COMMISSIONING OF WATER SUPPLY PIPE LINE AND INCLUDES WARRANTY DURING DEFECT LIABILITY PERIOD OF TWO YEARS. THEREFORE THE WORK INVOLVED I S MANUFACTURE OF PIPES AND ALSO LAYING OF PIPE LINE WHICH IS LABOUR ORIE NTED AND THE ASSESSEE WAS MAINTAINING THE BOOKS OF ACCOUNT IN ACCORDANCE WI TH THE PROVISIONS OF THE COMPANIES ACT 1956 WHICH WERE DULY AU DITED. THE BOOKS OF ACCOUNT WERE DULY SUPPORTED WITH DOCUMENTARY EV IDENCE NAMELY VOUCHERS LEGAL DEEDS COPY OF ACCOUNTS ETC. IT IS F URTHER SUBMITTED THAT IN PARA-5 OF THE IMPUGNED ASSESSMENT ORDE R THE ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 4 ASSESSING OFFICER SEEKS TO MAKE AN ADDITION OF RS.50 LACS BY CONTENDING THAT THE ASSESSEE DEBITED HUGE EXPENDITURE TOWARDS SITE EXPENSES AT RS.31 04 857 LAYING AND JOINTING OF RS.1 26 63 674 L ABOUR PAYMENT OF RS.1 19 50 576 FOR WHICH PROPER VOUCHERS ARE NOT AVAILA BLE AND MOST OF THE PAYMENTS BY CASH AND NO PROPER EXTERNAL VOUCHERS ARE NOT AVAILABLE. FURTHER THE ASSESSEE DEBITED RS.12 97 079 TOWARDS SUPERVISION CHARGES ON CEMENT AND HT WIRE VEDARANYAM RS.2 5 12 038 TOWARDS SITES SUPERVISION CHARGES VEDARANYAM AND RS.75 11 4 37 TOWARDS LAYING AND JOINTING TRANSPORTATION SITE EXPE NSES ETC. FOR THIS EXPENDITURE THE ONLY EVIDENCE AVAILABLE WITH THE ASSE SSEE IS AN ACCOUNT COPY OF M/S IVRCL. THE LEDGER ACCOUNT IS NOT ALWAYS THE PROOF OF REVENUE EXPENDITURE AND THE AMOUNTS DEBITED UNDER CAP ITAL ACCOUNT ALSO REFLECTS IN THE LEDGER ACCOUNT. THE ASSESSEE COULD NOT ABSOLVE ITS DUTY SIMPLY BY STATING THAT THE AMOUNT WAS PAID BY M/S IVRCL SINCE THE ASSESSEES CLAIM OF DEDUCTION IT IS THE DUTY OF THE ASSESSEE T O PROVE THE GENUINENESS OF THE SAME. IN THE ABSENCE OF THE SUPPORTIN G VOUCHERS THE ASSESSING OFFICER UNABLE TO CERTIFY THE CORRECTNESS OF E XPENDITURE DEBITED. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT MOST OF THE CASH VOUCHERS ARE SUPPORTED BY EXTERNAL EVIDE NCES AND FURTHER THE ABOVE EXPENSES INCLUDES PAYMENTS MADE VIDE ACCOUNT PAYEE CHEQUES ALSO. WITH REGARD TO THE AMOUNTS DEBITED BY M/ S IVRCL THE ASSESSEE CONTENDS THAT RS.12 97 079 PERTAINS TO THE SERVICE CHARGES ON CEMENT AND HT WIRE WHICH IS SUPPORTED BY MOBILIZATION AD VANCE AGREEMENT AND THE ASSESSEE CONTENDS THAT THE SAME IS WITH R EGARD TO SITE SUPERVISION CHARGES WHICH IS SUPPORTED BY MOBILIZATIO N ADVANCE AGREEMENT AND ALSO HE STATEMENT OF M/S IVRCL AND WITH REGARD TO RS.75 11 437 THE ASSESSEE CONTENDS THAT THE SAID AMOUNT PE RTAINS TO THE AMOUNT OF INTEREST CHARGES BY M/S IVRCL FOR REIMBUR SEMENT OF THEIR BANK INTEREST. FURTHER IN THIS REGARD THE ASSESSEE WOULD LIKE TO CLARIFY ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 5 THAT M/S IVRCL HAS DEBITED AN AMOUNT OF RS.1 27 76 96 9 WHEREAS SINCE THERE IS DISPUTE WITH REGARD TO A SUM OF RS.52 65 532 THE ASSESSEE HAS CONSIDERED ONLY UNDISPUTED AMOUNT OF RS.75 11 437. THE SAID EXPENDITURE IS SUPPORTED BY A DETAILED STATEMENT AND A DEBIT NOTE DATED 2-6-2003 ISSUED BY M/S IVRCL. IT IS STRONGLY CONTENDED T HAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL TO SHOW THA T THE PROVISIONS OF SECTION 40A(3) OF INCOME-TAX ACT 1961 IS APP LICABLE NOR THE ASSESSING OFFICER HAS BROUGHT ANY MATERIAL TO SHOW TH AT THE PROVISIONS OF SECTION 145 OF THE INCOME-TAX ACT 1961 WER E APPLICABLE AND IN SUCH A SITUATION THE ASSESSING OFFICER IS NOT AUTHORI ZED TO RESORT TO ANY ARBITRARILY ESTIMATED ADDITIONS BUT TO COMPLETE THE ASSESSMENT AFTER COMPUTING THE INCOME IN ACCORDANCE WITH THE BOOKS O F ACCOUNTS. TO SUBSTANTIATE THEIR STAND THE ASSESSEE WOULD LIKE TO REL Y ON THE LAW LAID DOWN N CASE OF ITO VS. SMT. PARYIN BARI WHEREIN T HE ITAT ALLAHABAD BENCH IN ITA NOS. 2137 TO 2139/ALL/1989 INV OLVING THE ASSESSMENT YEARS 1984-85 TO 1986-87 HAS DELETED THE ADDIT ION ON THE FOLLOWING OBSERVATION AS THE ASSESSING OFFICER HAS NOT POI NTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS NOR THE ASSESSING OFFICER BRO UGHT ANY MATERIAL TO SHOW THAT THE PROVISIONS OF SECTION 145(1) F THE ACT WERE APPLICABLE AND IN SUCH A SITUATION IT WAS NOT EXPECTE D FROM THE ASSESSING OFFICER TO RESORT TO ANY ESTIMATE BUT TO COMPLETE THE A SSESSMENT AFTER COMPUTING THE INCOME IN ACCORDANCE WITH THE BOOKS OF ACCOU NT. IN SUPPORT OF HIS CONTENTIONS HE RELIED ON THE FOLLOWING CASE LAW. I) SRI HAR SARUP COLD STORAGE AND GENERAL MILLS VS. I TO (1988) 27 ITD 1 (DELHI) II) ANAND PICURE PALACE VS. ITO (ITA NO.2088/HYD/1985) III) SHIV ENGINEERING WORKS VS. ITO (53 TAXMAN (MAG) 109 ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 6 IV) JAIPUR AND SHEIKHAR CHAND JAIN AND SONS VS. IAC (45 TAXMAN (MAG) 82 (DELHI) WITH REGARD TO THE ACCOUNT COPY OF M/S IVRCL THE ASSESSE E CONTENDED THAT THE SAID ACCOUNT COPY IS SELF EXPLANATORY AND IS BASE D ON THE AGREEMENT BETWEEN THE ASSESSEE AD M/S IVRCL AND AS SUCH DOE S NOT LEAVE ANY ROOM FOR AMBIGUITY IN RESPECT OF CAPITAL AND REVENUE EXPENDITURE. IN THIS REGARD THE ASSESSEE CONTENDED THAT AS THE ACCOUNT COPY IS BASED ON VERIFIABLE FACTS AND THE SAME CAN BE CONSID ERED AS EVIDENCE FOR THE PURPOSE OF SECTION 143 OF IT ACT 1961 B ECAUSE SECTION 143 DOES NOT DEFINE WORD MATERIAL THE ASSESSING OFFICER NOT BEING A COURT CAN RELY UPON THE MATERIAL WHICH MAY NOT STRICTLY BE EVIDENCE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT FOR THE PURPO SES OF MAKING AN ORDER OF ASSESSMENT. IN SUPPORT THE ABOVE CONTENTION TH E AUTHORIZED REPRESENTATIVE OF THE ASSESSEE RELIED ON JUDGMENT OF DELHI HIGH COURT IN THE CASE OF ADDL. CIT VS. JAY ENGINEERING WORKS LTD. REPORTED IN 113 ITR 389 FOR THE PROPOSITION THAT WHILE MAKING AN ASSESSM ENT THE ASSESSING OFFICER DOES NOT ACT MERELY ON WHAT IS TECHNICALL Y DESCRIBED AS EVIDENCE IN THE INDIAN EVIDENCE ACT UNDER SECTION 142 AND 143 OF THE ACT THE ASSESSING OFFICER MAY ALSO ACT ON THE MATERIAL GAT HERED BY HIM AND THE WORD MATERIAL SHOWS THAT THE ASSESSING OFFICER IS NOT FETTERED BY THE TECHNICAL RULES OF EVIDENCE AND THE LIKE AND THA T HE MAY ACT ON MATERIAL WHICH MAY NOT STRICTLY SPEAKING BE ACCEPTED AS EVIDENCE IN COURT OF LAW. IT IS FURTHER SUBMITTED THAT FOR MAKIN G ASSESSMENT THE ASSESSING OFFICER IS VESTED WITH WIDEST POWER TO OBTAIN MA TERIAL FOR MAKING ASSESSMENT. WHEREAS ON BARE READING OF THE IMPUG NED ORDER IT CAN BE CONSTRUED THAT THE ASSESSING OFFICER DID NOT CONDUCT A NY INDEPENDENT ENQUIRY RELATING TO THE ENTRIES REFLECTED IN THE ACCOUNT COPY OF M/S. IVRCL AND IT MERELY BASED ON THE STATEMENT GIV EN BY SOME ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 7 PERSON FROM M/S. IVRCL. IT IS FURTHER CONTENDED THAT I F HE WOULD HAVE TAKEN INDEPENDENT ENQUIRY BY REFERRING THE MATTER W ITH THE OFFICER IN CHARGE OF CHENNAI BRANCH OF M/S IVRCL THE CONTROVERSY COU LD HAVE BEEN AVOIDED AND THE REVENUE HAS FAILED TO DISCHARGE ITS DUT IES AND HAS JUST ARBITRARILY MADE ADDITION WHICH IS NOT SUSTAINABLE IN LAW. WITH REGARD TO THE DISALLOWANCE OF DEPRECIATION ON ASSETS IT IS SUBMITTE D THAT VIEW PARA 6 OF THE IMPUGNED ORDER THE ASSESSING OFFICER HAS TRIED TO MIS-INTERPRET THE CLARIFICATION BY NOT DISCLOSING THE CONTENTS OF DEED FOR LEASE OF MACHINERY ENTERED INTO BETWEEN THE ASSESSEE AND M/S IVRC L AND THERE BY ACCOMMODATING THE UNJUSTIFIED FINDINGS AND CONSEQUENTL Y VIDE PARA 6.1 THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION AND WHILE DISALLOWING DEPRECIATION THE ASSESSING OFFICER HAS MERELY RELIED ON HE CATEGORICAL STATEMENT GIVEN BY M/S IVRCL IN WHICH M/S IV RCL STATED THAT THEY HAVE NOT TRANSFERRED THE ASSET IN FAVOUR OF THE ASSESSEE AND CONTINUE TO CLAIM DEPRECIATION. WHEREAS THE ASSESSING OFFI CER HAS FAILED TO UNDERSTAND THE TRANSACTION WAS PERTAINING TO THE LEA SE OF PLANT AND MACHINERY IN ITS PROPER PERSPECTIVE BY APPLICATION OF TH E PROVISIONS OF STATUTE IN RESPECT OF THE DEFINITION OF OWNER SO AS T O REACH TO ITS JUSTIFIED CONCLUSION KEEPING WITH THE OBJECT OF THE STAT UTORY PROVISIONS AND CONSEQUENTLY KEEPING WITH EQUITY. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT M/S. IVRCL INFRASTRUCTURE & PRO JECTS LIMITED ENTERED INTO JOINT VENTURE WITH M/S TAHER A LI INDUSTRIES & PROJECTS (P) LTD. TO QUALIFY THEMSELVES AND TO QUOTE FO R CLEAR WATER SUPPLY SCHEME TO 222 HABITATIONS IN MUTHUPETTAI UNION THIRUVARUR MUNICIPALITY ETC. AND BULK PROVISION TO 306 WAY SIDE HABITATIONS IN VEDARANYAM OF TAMILNADU WATER SUPPLY DRAINAGE BOARD AND OTHER PROJECTS SUBMITTED TENDER FOR EXECUTION OF THE PROJECT AND HAVING BEEN SUCCESSFUL IN THE TENDER M/S IVRCL WAS AWARDED THE WORK O RDER FOR EXECUTION OF THE PROJECT. IT IS SUBMITTED THAT BOTH T HE PARTIES DISCUSSED ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 8 THE WAYS AND MEANS OF EXECUTING THE PROJECT AS PER THE CO NTRACT AWARDED TO IVRCL AND CONCLUDED THAT PIPE MANUFACTURING FACILITY SHOULD BE ERECTED NEARER TO THE PROJECT SITE BY THE ASSESSEE TO S AVE ON COST OF TRANSPORTATION AND ACCORDINGLY AT THE REQUEST OF THE A SSESSEE M/S IVRCL AGREED TO ACQUIRE MACHINERY VALUED AT RS.1 45 70 000 IN ITS NAME AND ERECT THE SAME IN THE FACTORY PREMISES OF THE A SSESSEE VIDE MOBILIZATION ADVANCE AGREEMENT DATED 30-3-2001 BETWE EN BOTH THE PARTIES. IT WAS MUTUALLY AGREED BY BOTH THE PARTIES T HAT THE MACHINERY ERECTED AT THE FACTORY PREMISES OF THE ASSESSEE IS GIVEN ON LEASE BY M/S IVRCL TO THE ASSESSEE. THE PROVISIONS RELATING TO THE TR ANSFER OF OWNERSHIP WERE EMBODIED IN CLAUSE-7 OF THE DEED FOR L EASE OF MACHINERY WHICH PROVIDES THAT THE MACHINERY LEASED OUT SHALL BE TRANSFERRED TO THE ASSESSEE ON PAYMENT OF RS.10 00 000 AF TER COMPLETION OF THE LEASE PERIOD AND REGULAR PAYMENT OF LEASE RENTALS. THERE IS NO DISPUTE AS TO THE COMPLETION OF THE LEASE PE RIOD AND REGULAR PAYMENT OF LEASE RENTALS AND FURTHER PAYMENT OF RS.10. 00 LAKHS WHEREAS THE DEPRECIATION IS DENIED ONLY ON THE BASIS O F THE CATEGORICAL STATEMENT GIVEN BY M/S IVRCL AND AS SUCH THE ASSESSEE STRONG LY CONTENDS THAT AS THE ASSESSEE HAS ESTABLISHED ITS RIGHTS THE OWNERSHIP IN RESPECT OF SAID PLANT AND MACHINERY AND THE ASSESSEE WAS THE OWNER OF THE PLANT FOR THE PURPOSE OF ITS BUSINESS THUS THE ING REDIENTS OF OWNERSHIP AND USER OF PLANT IN BUSINESS AS REQUIRED UNDE R SECTION 32 OF THE ACT HAVING BEEN FULFILLED THE ASSESSEE WAS ENTITLED T O DEPRECIATION AVAILABLE TO IT UNDER SECTION 32 OF THE ACT. 4. ON THE OTHER HAND THE LEARNED DEPARTMENTAL RE PRESENTATIVE WHILE SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES S UBMITTED THAT TAKING INTO CONSIDERATION OF THE FINDINGS OF THE ASSESSING OFFICER THE ASSESSEE CLAIMED HUGE EXPENSES WHICH IS NOT SUPPORTED BY EXTE RNAL ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 9 VOUCHERS AND PAYMENTS ARE MADE BY CASH AND HENCE THE LOWE R AUTHORITIES ARE RIGHT IN DISALLOWING EXPENDITURE TO T HE TUNE OF RS.50 LAKHS. WITH REGARD TO THE CLAIM OF DEPRECIATION BY THE ASSESSEE IT IS SUBMITTED THAT THE LOWER AUTHORITIES RIGHTLY DISALLOWE D THE CLAIM OF DEPRECIATION AS ASSETS CONTINUES TO BE OWNED BY M/S IVRCL AND M/S IVRCL CLAIMED DEPRECIATION ON THE SAID ASSETS. HENCE THE ASSESSEE IS NOT ENTITLED FOR ANY DEPRECIATION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WITH REGARD TO THE DI SALLOWANCE OF EXPENDITURE AMOUNTING TO RS.50 LAKHS WE FIND THAT TH E DEPARTMENT FOUND THAT MOST OF THE PAYMENTS PAID BY THE ASSESSEE ARE BY CASH AND NO PROPER EXTERNAL VOUCHERS ARE AVAILABLE FOR SUCH PAYM ENTS. IT IS CLAIM OF THE ASSESSEE THAT CERTAIN EXPENDITURE WAS INCURRED BY M /S IVRCL ON BEHALF OF THE ASSESSEE AND THE SAME WAS DEBITED TO THE A CCOUNT OF THE ASSESSEE AS REFLECTED IN THE LEDGER ACCOUNT. THE ASSESSEE NOT P RODUCED ANY PRIMARY EVIDENCE IN SUPPORT OF ITS CLAIM. THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE EXCEPT FILING ACCOUNT COPY OF M/S I VRCL. THE ACCOUNT COPY OF THE IVRCL CANNOT BE TAKEN AS PROOF OF PA YMENT OF EXPENDITURE. IN SOME INSTANCES THE ASSESSING OFFICER NOTICE D THAT THE AMOUNTS DEBITED IN THE CAPITAL ACCOUNTS ALSO REFLECTED IN THE LEDGER ACCOUNT. THE DEPARTMENT RIGHTLY OBSERVED THAT THE ASSESSE E COULD NOT ABSOLVE HIS DUTY SIMPLY BY STATING THAT THE AMOUNT WAS PAID BY THE IVRCL. SINCE THE ASSESSEE COMPANY CLAIMED THE EXPENDITURE IN OUR CONSIDERED VIEW IT IS THE DUTY OF THE ASSESSEE COMPANY TO PROVE THE GENUINENESS OF THE SAME. IN THE ABSENCE OF THE SUPPORTIN G EVIDENCE THE DEPARTMENT RIGHTLY NOT CERTIFIED THE CORRECTNESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY. THE DECISION RELIED ON BY THE LEARNED COUNSEL ARE ALL DISTINGUISHABLE ON FACTS OF THE INSTANT CASE. AS ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 10 MOST OF THE PAYMENTS ARE MADE BY THE CASH AND AS MOST OF THE EXPENDITURE WAS NOT PROPERLY SUPPORTED BY VOUCHERS THE LOWER AUTHORITIES ARE RIGHTLY DISALLOWED THE EXPENDITURE AM OUNTING TO RS.50 LAKHS ON ADHOC BASIS AND ADDED THE SAME TO THE INCOME RETURNED. IN VIEW OF THE ABOVE WE DO NOT SEE ANY INFIRMITY IN TH E ORDERS OF THE LOWER AUTHORITIES AND THE SAME ARE UPHELD. WITH REGARD TO THE DISALLOWANCE OF DEPRECIATION OF RS.41 15 000/- ON CERTAIN LEASED MA CHINERY WE FIND THAT THE ASSETS WERE TAKEN FROM IVRCL ON LEASE BASIS. W E FIND THAT THE ASSESSING OFFICER MADE AN ENQUIRY WITH IVRCL AND FOUND T HAT THE IVRCL STILL CLAIMING DEPRECIATION ON THE ASSETS IN QUESTION WHI CH IS EVIDENCED BY THE LETTER DATED 17-2-2006 BY IVRCL. SINCE THE I VRCL NOT TRANSFERRED THE ASSET TO THE ASSESSEE COMPANY AND THEY CONTI NUE TO CLAIM DEPRECIATION THE LOWER AUTHORITIES ARE RIGHT IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED FOR ANY DEPRECIATION AND RIGHTLY ALLOWED THE LEASE RENTALS PAID BY THE ASSESSEE AS REVENUE EXPENDITURE . HENCE IN OUR OPINION THERE SHOULD NOT ANY GRIEVANCE TO THE AS SESSEE IN THIS REGARD. IN VIEW OF THE ABOVE WE DO NOT SEE ANY IN FIRMITY IN THE ORDERS OF THE LOWER AUTHORITIES AND THE SAME ARE UPHELD. HENCE WE REJECT GROUNDS TAKEN BY THE ASSESSEE ON BOTH THE ISSUES. 6. NOW WE WILL TAKE UP THE APPEAL OF THE ASSESSEE IN ITANO.843/HYD/08.THE ISSUES INVOLVED IN THIS APPEAL ARE (I) RELATING TO DISALLOWANCE OF DEPRECIATION ON THE LEASED ASSETS (II) A DDITION ON ACCOUNT OF UN-VOUCHED EXPENDITURE AT RS. 30 LAKHS AND ( II) DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA CLAIMED BY THE ASSESSEE. WE HAVE ALREADY CONSIDERED THE FIRST TWO ISSUES IN ITA NO.720/HYD/ 2007 (SUPRA) IN PARA NO.5 OF THIS ORDER AND ACCORDINGLY WE REJECT T HE GROUNDS RAISED BY THE ASSESSEE ON BOTH THE ISSUES A] WITH REGARD TO DISAL LOWANCE OF ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 11 DEPRECIATION AND B] ADDITION ON ACCOUNT OF UN-VOUCHED E XPENDITURE OF RS. 30 LAKHS. 7. THE OTHER ISSUE REMAINS TO BE ADJUDICATED UPON IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA CLAIMED BY THE ASSESSEE. BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE CLAIMED THE BENEFIT OF A DEDUCTION UNDER SECTION 8 0-IA OF THE ACT UPON WHICH THE MAJOR DISPUTE IN THE APPEALS CENTERS AND THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS (A) ME RELY ENGAGED IN THE BUSINESS OF BUILDING INFRASTRUCTURE AND NON-INFRA STRUCTURE PROJECTS (B) FURTHER IN NONE OF THE PROJECTS THE ASSESSEE HAS UNDERTAKEN THE OPERATION AND MAINTENANCE OF PROJECTS B UILT. MOREOVER THE ASSESSEE WAS NOT GIVEN THE CONTRACT FOR BUILDING THE E NTIRE FACILITY AND THE ENTIRE CAPITAL INVESTMENT WAS MADE BY THE GOV ERNMENT/LOCAL AUTHORITY OR STATUTORY BODY WHO AWARDED THE CONTRACTS T O THE ASSESSEE AND (C) THE ASSESSEE WAS INVOLVED IN ONLY REPAIRING AND IMPROVING THE ALREADY EXISTING INFRASTRUCTURAL FACILITY EG. WIDENIN G AND STRENGTHENING OF EXISTING ROADS AUGMENTATION OF WATER SUPPLY REVAMP ING OF EXISTING SEWERAGE SYSTEM ETC. AND HENCE IT CANNOT BE SAID THAT T HE AFORESAID CONTRACTS WERE FOR THE DEVELOPMENT OF A NEW INFRASTRUCTU RE FACILITY (D) IT IS EVIDENCE FROM THE COPIES OF AGREEMENTS FILED BY HE ASSE SSEE THAT NONE OF THE INFRASTRUCTURE PROJECT BUILT BY IT WAS OPE RATED BY IT. AFTER THE CONSTRUCTION OF THE WHOLE OR PART OF THE PROJECT T HE SAME WAS TRANSFERRED TO THE RESPECTIVE GOVERNMENT/LOCAL AUTHORIT Y OR STATUTORY BODY. LASTLY THE ASSESSING OFFICER HAS CONTENDED THAT OF THE PROJECTS EXECUTED DURING THE YEAR SOME OF THE WORKS HAVE BEEN TAKEN BY THE ASSESSEE ON SUB-CONTRACT BASIS CERTAIN PROJECTS WERE AWARDED TO THE JOINT VENTURE IN WHICH THE ASSESSEE IS ONE OF THE PARTNER AND SUBSEQUENT TO THE ALLOTMENTS OF THE CONTRACT TO THE JOINT VENTUR E THE ASSESSEE HAS ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 12 ENTERED INTO SEPARATE CONTRACT AGREEMENT WITH THE JOIN T VENTURE FOR EXECUTING SOME OF THE WORKS WHICH CONSTRUES SUB-CONTRACT. FI NALLY THE ASSESSING OFFICER HAS LISTED CERTAIN CLAUSES AND HAD CONCLUDED T HAT THE ASSESSEE CANNOT BE HELD TO BE DEVELOPING ANY INFRASTRUCTU RAL FACILITY AND HE CAN ONLY SAID TO BE BUILDING AN INFRASTRUCTURAL FACIL ITY. THE AGREEMENTS ENTERED BY THE ASSESSEE WERE FOR BUILDING OR CONSTRUCTING THE WHOLE OR PART OF THE PROJECTS IN WHICH THE ENTIRE INVESTMENT WAS MADE BY THE GOVERNMENT THERE IS NO STIPULATION IN AN Y OF THE CONTRACTS THAT THE FACILITY BUILT WILL BE TRANSFERRED OR HANDED OVER BACK TO THE OWNER/EMPLOYER. ACCORDINGLY HE DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT MADE BY THE ASSESSEE. AGGRI EVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE WENT IN APPEA L BEFORE THE CIT (A). ON APPEAL THE CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED FURTHER THE ASSESSEE IS IN APPEAL BEF ORE US. 8. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITT ED THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS BASELESS UNJ USTIFIED AND MANIPULATED TO ACCOMMODATE HIS UNJUSTIFIED FINDINGS DU E TO THE FOLLOWING REASONS:- A) THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT O F THE INFRASTRUCTURE FACILITY AND THAT TOO IN ITS ENTIR ETY AND FURTHER INCLUDING OPERATION AND MAINTENANCE RANGING FOR A PER IOD OF 2 YEARS TO 5 YEARS SINCE THE OBLIGATIONS WHICH THE ASSESSEE ASSUM ED UNDER THE TERMS OF THE CONTRACT WERE NOT MERELY FOR ER ECTION AND INSTALLATION I.E. BUILDING OF WATER SUPPLY AND SEWERA GE PIPELINE BUT INVOLVED A CONTINUOUS OBLIGATION RIGHT FROM THE M ANUFACTURE SUPPLY OF PIPES TO THE INSTALLATION TESTING COMMISSIONIN G OPERATION AND MAINTENANCE OF THE PIPELINE FOR A TERM OF 2 YEARS TO ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 13 5 YEARS AFTER WHICH THE WATER SUPPLY AND SANITATION PRO JECT WAS TO VEST IN THE CLIENT FREE OF COST. B) THE ASSESSING OFFICER HAS FAILED TO PROVIDE THE DETAIL S OF THE CONTRACTS WHICH DO NOT INVOLVE OPERATION AND MAINTENANCE . IN OTHER WORDS THE ASSESSING OFFICER IS BEATING ROUND THE BU SH WHEREAS THE FACT IS ALL THE CONTRACTS WHICH THE ASSESSEE HAS CONSIDERED FOR CLAIMING THE BENEFIT INCLUDES OPERATION AND MAINTENANCE. HOWEVER FROM THE ASSESSMENT YEAR 2002-03 ONWARDS THE CONDITION REQUIRING THAT THE FACILITY SHOUL D HAVE BEEN COMPLETED UNDER A BOT OR BOLT SCHEME AND THAT THERE SHO ULD BE AN AGREEMENT FOR TRANSFER OF FACILITY TO THE COMPETENT AUTHORITY ON THE EXPIRY OF THE STIPULATED PERIOD WAS DELETED. TH E SAID FACT IS ADMITTED BY THE ASSESSING OFFICER IN PARA 47.4 OF THE I MPUGNED ASSESSMENT ORDER PERTAINING TO THE ASSESSMENT YEAR 2006-07 THE CONDITION THAT SUCH INFRASTRUCTURE FACILITY SHALL BE TRA NSFERRED TO THE CENTRAL GOVERNMENT STATE GOVERNMENT OR LOCAL AU THORITY HAS ALSO BEEN REMOVED. HOWEVER THE AGREEMENT WITH SUCH AUTHORITIES FOR CREATION OF SUCH INFRASTRUCTURE WILL HAV E TO BE ENTERED INTO. WITH REGARD TO THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE WAS NOT GIVEN THE CONTRACT FOR B UILDING THE ENTIRE FACILITY THE ASSESSEE CONTENDS THAT THE ASSESSING OFFICER HAS HIMSELF ADMITTED IN PARA XV(D) OF THE IMPUGNED ASSE SSMENT ORDER PERTAINING TO THE ASSESSMENT YEAR 2006-07 THAT AF TER THE CONSTRUCTION OF THE WHOLE OR PART OF THE PROJECT THE SA ME WAS TRANSFERRED TO THE RESPECTIVE GOVERNMENT BODIES. ACCORDI NG TO THE ASSESSEE THE WHOLE OF THE PROJECTS REFER TO THE PROJECT WH ICH ARE CONSIDERED FOR CLAIMING 80-IA(4) OF IT ACT AND HENCE THE ASSESSING OFFICER HAS INTENTIONALLY NOT CATEGORIZED THE SAME AND THE ASSESSEE CONTENDS THAT HUGE INVESTMENTS HAS BEEN MADE BY HIM ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 14 TOWARDS VARIOUS ACTIVITIES OF DEVELOPMENT. IN OTHER WO RDS THERE WAS HUGE FINANCIAL INVOLVEMENT ON ACCOUNT OF MOBILIZATI ON OF EQUIPMENT AND SYNTHESIZING PEOPLE PLANS TECHNICAL EX PERTISE SUPERVISION CO-ORDINATION AND CONTROL ETC. WORKING CAPI TAL ARRANGEMENTS ISSUANCE OF BANK GUARANTEE TOWARDS EMD MOBILIZATION ADVANCE AND PERFORMANCE GUARANTEE. IN ADDITION THE ASSESSEE HAS FURTHER CONTENDED THAT DEVELOPING AN INFRASTR UCTURE FACILITY INVOLVES UNDERTAKING HUGE RISKS ARE INVOLVED. THE SAID RISKS ARE THAT THE ASSESSEE IS REQUIRED TO OPERATE AND MAINTA IN THE PROJECT IT DEVELOPED FOR A PERIOD RANGING FROM 2 YEA RS TO 5 YEARS AFTER COMPLETION THEREOF IN CASE OF ALL THE PROJECTS. A S SUCH THE ASSESSEE IS FACED WITH THE RISK OF INCURRING HEAVY EXPENSES D URING THIS PERIOD IN CASE ANY PROBLEM AROSE AND IT IS NOTEWOR THY THAT FAULT CORRECTION IN CASE OF AN UNDERGROUND PIPELINE IS E XTREMELY DIFFICULT AND EXPENSIVE PROPOSITION. AS SUCH THE DEVELO PMENT RISK IS ESSENTIALLY WITH THE ASSESSEE. THERE IS INHERENT R ISK OF DELAYED PAYMENT ARBITRATION AND LITIGATION. THE DE VELOPMENT WORK HAS TO BE COMPLETED AS PER THE AGREEMENT WITHIN TIME I N SPITE OF THE GEOLOGICAL RISK AND THE DEVELOPERS ENTER INTO AGRE EMENT FOR DEVELOPMENT OF FACILITIES IRRESPECTIVE OF GEOLOGICAL COND ITIONS SPECIFIED IN THE CONTRACT DOCUMENT. MANY A TIMES ACTUAL R OCK CONDITIONS IN UNDERGROUND WORKS VARY FROM THOSE SPECIFIED UNDER THE CONTRACT. IN SPITE OF THIS DEVELOPER IS REQUIRED T O PERFORM AND COMPLETE THE PROJECT AT ITS COSTS AND RISKS. SOME OF THE GEOLOGICAL RISKS ARE ALSO INVOLVED. HENCE IT IS CONTENDED THAT IN VIEW OF GEOLOGICAL RISKS THE GOVERNMENT IS SAVED OF THESE RESPON SIBILITIES AND RISKS AND THEREFORE IT IS THE ASSESSEE WHO HAS DEVELOPE D THE INFRASTRUCTURE FACILITY. THE CONTENTION OF THE ASSESSING OFFICER THAT THE CONTRACTS OF ASSESSEE WERE NOT FOR DEVELOPMENT OF NEW ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 15 INFRASTRUCTURE FACILITY IS BASELESS FALSE AND WITHOUT AN Y IOTA OF EVIDENCE PUT ON MATERIAL RECORD. THE FACT IS ALL THE P ROJECTS DEVELOPED BY THE ASSESSEE AND CLAIMED BENEFIT OF SECTION 80-IA(4) OF IT ACT IS NEW SCHEMES OF THE GOVERNMENT TO PROVIDE D RINKING WATER SUPPLY FOR CONSUMPTION OF HUMAN IRRIGATION PRO JECTS AND SANITATION SCHEMES. THE LIST AND DETAILS OF THE PROJECTS ARE ALREADY ON RECORD AND IT ONCE AGAIN ENCLOSED AS ANNEXURE -A WHICH IS SELF EXPLANATORY. MOREOVER THE ASSESSING OFFICER HAS H IMSELF ADMITTED UNDER PARA-XV(D) OF THE IMPUGNED ASSESSMENT OR DER PERTAINING TO ASSESSMENT YEAR 2006-07 THAT AFTER THE CO NSTRUCTION FOR THE WHOLE OR PART OF THE PROJECT THE SAME WAS TRAN SFERRED TO THE RESPECTIVE GOVERNMENT BODIES WHEREAS IT IS STRONGL Y CONTENDED BY THE ASSESSEE THAT THE PROJECT WHICH IS PARTLY DEVELOPED IS NOT CONSIDERED FOR THE BENEFIT OF SECTION 8 0-IA OF THE ACT. DUE TO THE ABOVE REASONS THE ASSESSING OFFICER HAS NO T PROVIDED THE NAME AND OTHER DETAILS OF THE PROJECT TO SUBSTANTIATE HIS ABOVE STAND. THE ASSESSING OFFICER HAS ALLEGED THAT NO NE OF THE INFRASTRUCTURE BUILT BY THE ASSESSEE WAS OPERATED BY I T SINCE AFTER THE CONSTRUCTION OF THE WHOLE OR PART OF THE PRO JECT THE SOME WAS TRANSFERRED TO THE RESPECTIVE GOVERNMENT BODIES WHER EAS IN THIS REGARD THE ASSESSEE WOULD LIKE TO CONTEND THAT THE ASSESSING OFFICER HAS HIMSELF QUOTED UNDER PARA 47.4 OF THE IMPU GNED ASSESSMENT ORDER PERTAINING TO THE ASSESSMENT YEAR 2006-07 THAT THE CONDITION THAT SUCH INFRASTRUCTURE FACILITY SHALL BE TRANSFERRED TO THE CENTRAL GOVERNMENT STATE GOVERNMENT OR LOCA L AUTHORITY HAS ALSO BEEN REMOVED. HOWEVER THE AGREEMENT WITH SUCH AUTHORITY FOR CREATION OF SUCH INFRASTRUCTURE WILL HAVE TO BE ENTERED INTO AND EVEN OTHER WISE THE ASSESSEE HAS ENTERED INTO THE AGREEMENT FOR MANUFACTURE SUPPLY INSTALLATION TESTIN G ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 16 COMMISSIONING AND OPERATION AND MAINTENANCE FOR A PERIO D OF TWO YEARS TO 5 YEARS. IN ADDITION THE ASSESSING OFFICER HAS WRONGLY CONTENDED UNDER PARA-XVI OF THE IMPUGNED ORDER PERTA INING TO THE ASSESSMENT YEAR 2006-07 THAT OF THOSE PROJECTS SOME OF THE WORKS HAVE BEEN TAKEN BY THE ASSESSEE ON SUB-CONTRACT BASIS AND THE ASSESSEE HIMSELF HAS ADMITTED THAT HE IS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 80-IA FOR PROFITS ON THESE SUB-CON TRACTS. SIMILARLY CERTAIN PROJECTS WERE AWARDED TO THE JOINT VENTURES IN WHICH THE ASSESSEE IS ONE OF THE PARTNERS. SUBSEQUENT TO T HE ALLOTMENT OF THE CONTRACT TO THE JOINT VENTURE THE A SSESSEE HAS ENTERED INTO SEPARATE CONTRACT AGREEMENT WITH THE JOIN T VENTURE FOR EXECUTING SOME OF THE WORKS. WHEREAS THAT FACT IS T HAT THE ASSESSEE HAS NOT CLAIMED THE BENEFIT OF SECTION 80 IA(4) OF THE ACT IN RESPECT OF SUB-CONTRACTS AND FURTHER THERE IS NO SUB CO NTRACT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE JOINT V ENTURE AND THEREFORE THE ASSESSING OFFICER HAS FAILED TO PRODUCE ON R ECORD THE COPY OF SUBCONTRACT AGREEMENT WHICH CONSTRUES THAT THE ASSE SSING OFFICER HAS ARRIVED AT THIS CONCLUSION ON CONJECTURE AND S URMISES AND NOT ON ANY TANGIBLE EVIDENCE. LASTLY THE ASSESSING OFFICER UNDER PARA-XVI OF THE IMPUGNED ASSESSMENT ORDER PERTAIN ING TO THE ASSESSMENT YEAR 2006-07 HAS RELIED UPON ON SOME CLAUSES OF THE AGREEMENTS TO SUBSTANTIATE THAT THE ASSESSEE IS NOT A DEVELOPER OF INFRASTRUCTURE FACILITY WHICH ACCORDING TO THE ASSESSEE IS INCORRECT. ONE OF THE CLAUSES STATES AS THAT IN CONSIDERA TION OF THE PAYMENT MADE BY THE EMPLOYER TO THE CONTRACTOR T HE CONTRACTOR HEREBY COVENANTS WITH THE EMPLOYER TO EXECUTE COMPLETE AND MAINTAIN THE WORKS. THIS CLEARLY SHOWS THA T THE ASSESSEE IS A CONTRACTOR BEING EMPLOYED FOR EXECUTING THE W ORKS. IF THE ABOVE CLAUSE IS READ ALONG WITH PARA XV(D) OF T HE IMPUGNED ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 17 ASSESSMENT ORDER PERTAINING TO THE ASSESSMENT YEAR 2006-07 IT IS EVIDENT FROM THE COPIES OF AGREEMENTS FILED BY THE ASSE SSEE THAT NONE OF THE INFRASTRUCTURE PROJECT BUILT BY IT WAS OPER ATED BY IT. AFTER THE CONSTRUCTION OF THE WHOLE OR PART OF THE PR OJECT THE SAME WAS TRANSFERRED TO THE RESPECTIVE GOVERNMENT BODIES AND IT CAN BE CONSTRUED THAT THE ASSESSEE COVENANT WITH THE CLIENT TO EXE CUTE THE WHOLE OF THE PROJECT COMPLETE AND MAINTAIN THE SAM E. IN OTHER WORDS THE ASSESSEE DEVELOPS OPERATES AND MAINTAINS THE INFRASTRUCTURE FACILITY WHICH IS ADMITTED BY THE ASSESSING OFFICER HIMSELF. THE SAID CLAUSE ENVISAGES THE METHOD OF RECOUPM ENT WHEREAS SECTION 80-IA OF THE ACT ITSELF PROVIDES THAT THE ASSESSEE SHOULD DEVELOP THE INFRASTRUCTURE FACILITY AS PER THE AGREEMENT WHICH CENTRAL GOVERNMENT STATE GOVERNMENT OR A LOCAL A UTHORITY. SO ENTERING INTO A LAWFUL AGREEMENT AND THEREBY GET TING THE RECOUPMENT OF THE INVESTMENT THROUGH MEASUREMENTS IN NO WAY IS A BAR TO THE ONE BEING A DEVELOPER. THE ASSESSING OFFICER IS HAVING WRONG PERCEPTION WITH REGARD TO TDS PROVISION S SINCE ACCORDING TO HIM IN THE CASE OF A TRANSFER OF AN INFRAST RUCTURAL FACILITY THE CONSIDERATION IS NOT A CONTRACT AMOUNT TO A TTRACT TDS THE AMOUNT PAID IS A SALE CONSIDERATIONS WHICH IS INCORRE CT SINCE THE TDS IS MANDATORY IN CASE THE RECOUPMENT OF INVESTMEN T IS OTHER THAN BY WAY OF TOLL. MERELY BECAUSE IN THE AGRE EMENT FOR DEVELOPMENT OF INFRASTRUCTURE FACILITY ASSESSEE IS REFERRED TO AS CONTRACTOR OR BECAUSE SAME BASIC CLAUSES ARE LAID DOWN INCLUDI NG ADVANCES AGAINST BANK GUARANTEE FORCE IT DOES NOT DETR ACT THE ASSESSEE FROM THE POSITION OF BEING A DEVELOPER NOR WIL L IT DEBAR THE ASSESSEE FROM CLAIMING DEDUCTIONS UNDER SECTION 80-IA OF THE ACT. FINALLY THE ASSESSING OFFICER HAS CONCLUDED THAT THE ASSESSEE IS ONLY EXECUTING CONTRACTS AWARDED BASED ON DESIGNS SUPPLI ED BY ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 18 THE GOVERNMENT HENCE HE CAN ONLY BE SAID TO BE BUILDIN G AN INFRASTRUCTURAL FACILITY FURTHER THE AGREEMENTS ENTERE D INTO BY THE ASSESSEE WERE FOR BUILDING OR CONSTRUCTING THE WHOLE OR PA RT OF THE PROJECTS IN WHICH THE ENTIRE INVESTMENT WAS MADE BY THE GOVERNMENT AND THE ASSESSEE WAS PAID ON RUNNING BILL. HE NCE THERE WAS NO STIPULATION IN ANY OF THE CONTRACTS THAT TH E FACILITY BUILT WILL BE TRANSFERRED OR HANDED BACK TO THE OWNER /EMPLOYER AND HENCE BENEFIT OF SECTION 80-IA OF THE ACT BEING DEN IED. THE ASSESSEE CONTENDS THAT SECTION 80IA (4) IT SELF PROVIDES THAT THE ASSESSEE SHOULD DEVELOP THE INFRASTRUCTURE FACILITY AS PER THE AGREEMENT WITH THE GOVERNMENT. FOR FACILITY LIKE WA TER SUPPLY IRRIGATION OR ROAD PROJECT RAIL SYSTEM THE SPECIFICATION CAN ONLY THROUGH A FACILITY SPECIFIC TENDER. THE SPECIFICATIONS E NSURE THAT THE DEVELOPMENT CARRIED OUT BY THE ASSESSEE FITS INTO TH E OVER ALL REQUIREMENT FLOATED BY THE GOVERNMENT FOR A PARTICUL AR INFRASTRUCTURE. FOR EXAMPLE THE GOVERNMENT HAS CERT AIN SPECIFICATION IN MIND IN RESPECT OF FULL LENGTH WATER SUP PLY OR IRRIGATION SYSTEM AND THESE HAVE TO BE SPECIFIED TO EACH SEGMENT DEVELOPER AND MOREOVER THE OBLIGATIONS WHICH THE ASSESSEE ASSUMED UNDER THE TERMS OF CONTRACTS ARE NOT MERELY FOR SU PPLY AND INSTALLATION OF THE PIPELINE BUT INVOLVED A CONT INUOUS OBLIGATION RIGHT FROM THE MANUFACTURE SUPPLY TO THE INSTALLATION TESTING COMMISSIONING AND OPERATION AND MAINTENANCE OF THE ENTIRE SEGMENT DEVELOP[ED. WHEN AN ASSESSEE IS DEVELOPIN G OPERATING AND MAINTAINING AN INFRASTRUCTURE FACILITY A ND RECOUPMENT OF ITS INVESTMENT IS THROUGH PAYMENT BY GOVE RNMENT BODIES OBVIOUSLY SUCH AN ASSESSEE WILL BE PAID FOR THE COST INCURRED BY IT OTHERWISE HOW WILL THE ASSESSEE WHO DEVE LOPS OPERATE AND MAINTAIN THE FACILITY AND THEREAFTER VEST THE FACILITY TO ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 19 THE GOVERNMENT FREE OF COST REALIZES ITS COST: WHEN THE LEGISLATURE HAS PROVIDED THAT THE INCOME OF THE DEVELOPER OF INFR ASTRUCTURE PROJECT WOULD BE ELIGIBLE FOR DEDUCTION IT PRE-SUPPO SES THAT THERE CAN BE INCOME TO THE DEVELOPER OBVIOUS AS IT IS A DEVEL OPER WOULD HAVE INCOME ONLY IF HE IS PAID FOR DEVELOPMENT OF INF RASTRUCTURE FACILITY. 9. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND SUBM ITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF LARGER BENCH OF ITAT MUMBAI IN THE CASE OF B.T. PATIL AND SONS BELGAU M CONSTRUCTION PVT. LTD. VS. ACIT IN ITA NO.1408/PN/2003 DATED 26- 10-2009. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LARG ER BENCH OF ITAT MUMBAI IN THE CASE OF B.T. PATIL AND SONS (SUPRA) WHER EIN IT WAS DECIDED THAT THE USE OF WORD DEVELOPING IN JUXTAPOSI TION TO INFRASTRUCTURE FACILITY IN SECTION 80-IA (4) OF THE ACT INDICATES THAT WHAT IS ELIGIBLE FOR DEDUCTION UNDER THIS SUB-SECTION IS THE PR OFITS AND GAINS DERIVED FROM THE DEVELOPMENT OF INFRASTRUCTURE FACILIT Y AND NOT SOMETHING DE HORS IT. SO IN ORDER TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT THE DEVELOPMENT SHOULD BE THAT OF THE INFRASTRUCTURE FACILITY AS A WHOLE AND NOT A PARTICULAR PART OF IT. IT MAY BE POSSIBLE THAT SOME PART OF THE DEVELOPMENT WORK IS ASSIGN ED BY THE DEVELOPER TO SOME CONTRACTOR FOR DOING IT ON HIS BEHAL F AND THAT WILL NOT PUT THE DOER OF SUCH WORK INTO THE SHOES OF A DEVELOPE R. THEREFORE A MERE CONTRACTOR CANNOT BE CONFERRED WITH THE BENEFIT AS PROVIDED IN SECTION 80-IA OF THE ACT. IN THE CASE UNDER CONSIDERATION THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED OUT SEVERAL CONTRA DICTIONS ON ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 20 FACTS STATED IN THE ORDER OF THE ASSESSING OFFICER IN HIS A RGUMENTS/WRITTEN SUBMISSIONS AS MENTIONED ABOVE. IT IS ALSO SUBMITTED THA T THE ASSESSEE COMPANY HAS NOT CLAIMED DEDUCTION UNDER SECTION 80 IA OF THE ACT ON THE PROFITS FOR THE PROJECTS UNDERTAKEN BY THE ASSESSEE ON SUB-CONTRACT BASIS. BUT IT IS THE CONTENTION OF THE DEPARTMENT THA T THE ASSESSEE IS ONLY A CIVIL CONTRACTOR AND NOT THE DEVELOPER. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE LATEST DECISION OF THE LAR GER BENCH OF THE TRIBUNAL IN THE CASE OF B.T. PATIL [SUPRA] WE F EEL IT PROPER AND JUST TO REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICE R FOR FRESH CONSIDERATION AFTER GIVING A PROPER AND SUFFICIENT OPP ORTUNITY TO THE ASSESSEE OF BEING HEARD. IN VIEW OF THE ABOVE THE GRO UND RAISED BY THE ASSESSEE ON THIS ISSUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 11. AS FAR AS ITA NO.807/HYD/09 IS CONCERNED WE FIND THAT THE GROUNDS RAISED BY THE ASSESSEE ARE SIMILAR AND IDENTICAL TO THE GROUNDS RAISED IN ITA NOS.720/HYD/07 AND 843/HYD/08 AS MENTIONED ABOVE. FOR THE REASONS MENTIONED ABOVE WE REJECT THE GROUND RAISE D BY THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON TH E LEASED ASSETS AND WE TREAT THE GROUND RAISED BY THE ASSESSEE AS ALL OWED FOR STATISTICAL PURPOSE ON THE ISSUE RELATING TO CLAIM OF DED UCTION UNDER SECTION 80 IA OF THE ACT MADE BY THE ASSESSEE. 12. AS FAR AS ITA NO.1482/HYD/08 IS CONCERNED WE FIND THAT THE GROUNDS RAISED BY THE ASSESSEE ARE SIMILAR AND IDENTICA L TO THE GROUNDS RAISED IN ITA NOS.720/HYD/07 AND 843/HYD/08 AS ME NTIONED ABOVE. FOR THE REASONS MENTIONED ABOVE WE REJECT THE GROUND RAISED BY THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF DEPRECIATI ON ON THE LEASED ASSETS AND WE TREAT THE GROUND RAISED BY THE ASSESSE E AS ALLOWED ITA720/HYD/07 AND 3 OTHERS TAHER ALI INDUSTRIES & PROJECTS P. LTD. HYD. ================================= 21 FOR STATISTICAL PURPOSE ON THE ISSUE RELATING TO CLAIM OF DEDUCTION UNDER SECTION 80 IA OF THE ACT MADE BY THE ASSESSEE. 13. THE COMMON GROUND RAISED IN ALL THE APPEALS FILED BY THE ASSESSEE IS WITH REGARD TO THE APPLICATION OF INTEREST UND ER SECTION 234 B OF THE ACT. SINCE INTEREST CHARGED UNDER SECTION 234 B O F THE ACT IS MERELY CONSEQUENTIAL IN NATURE THE GROUND IS DISPOSED O FF ACCORDINGLY. 14. IN THE RESULT ALL THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE AS IND ICATED ABOVE EXCEPT ITA NO.720/HYD/07 FOR ASSESSMENT YEAR 2003-04 WHI CH IS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON 21- 01-2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 21 01-2011. COPY FORWARDED TO: 1. M/S. TAHER ALI INDUSTRIES & PROJECTS PVT. LTD. FLAT NO.102 103 PAVANI AVENUE RAJ BHAVAN ROAD SOMAJIGUDA HYDERABAD. 2. 3. 4. ACIT CIRCLE-2(3) HYDERABAD. CIT (A)-IV HYDERABAD. CIT A P HYDERABAD. 5. THE D.R. ITAT HYDERABAD JMR*