SMC INFRASTRUCTURES P.LTD, MUMBAI v. ADDL CIT RG 3, THANE

ITA 5503/MUM/2011 | 2008-2009
Pronouncement Date: 14-11-2014 | Result: Allowed

Appeal Details

RSA Number 550319914 RSA 2011
Assessee PAN AACCS3437L
Bench Mumbai
Appeal Number ITA 5503/MUM/2011
Duration Of Justice 3 year(s) 3 month(s) 18 day(s)
Appellant SMC INFRASTRUCTURES P.LTD, MUMBAI
Respondent ADDL CIT RG 3, THANE
Appeal Type Income Tax Appeal
Pronouncement Date 14-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 14-11-2014
Date Of Final Hearing 25-09-2014
Next Hearing Date 25-09-2014
Assessment Year 2008-2009
Appeal Filed On 26-07-2011
Judgment Text
H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE S HRI R.C. SHARMA A CCOUNTANT MEMBER & SHRI SANJAY GARG J UDICIAL MEMBER I.T.A. NO. 5503 /MUM/ 2011 ( ASSES SMENT YEAR : 20 0 8 - 20 09 SMC INFRASTRUCTURES PVT. LTD. 101 AKRUTI SMC KHOPAT THANE (W) PIN 400 601. VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 3 VARDAN WAGALE ESTATE THANE. PAN : AACCS 3437 L ( APPELLANT ) .. ( RESPONDENT ) A PPELLANT BY SHRI SHRI NEELKANT KHANDELWAL R E SPONDENT BY : SHRI K.C. PATNAIK & SHRI ASGHAR JAIN DATE OF HEARING : 25 - 09 - 2014 / DA TE OF PRONOUNCEMENT : 14 - 11 - 2014 [ O R D E R PER R.C. SHARMA A .M . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER CIT(A) - 1 THANE DATED 31 - 03 - 2011 FOR ASSESSMENT YEAR 2008 - 09 IN THE MATTER OF ORDER PASSED U/S143(3) OF THE I NCOME TAX ACT 1961 WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN : - I) CONFIRMING DISALLOWANCE OF RS. 73 40 116 U/S 14A II) CONFIRMING DISALLOWANCE OF RS. 22 81 807 U/S 36(1)(III) TOWARDS NOTIONAL INTEREST ON ADVANCES TO RELATED PARTY III) CONFIRMING DISALLOWANCE OF RS. 4 14 29 298 U/S 80IA OF THE INCOME TAX ACT 1961 ITA 550 3/MUM/2011 2 IV) IN LEVYING INTEREST U/S 234B & 234C OF THE INCOME TAX ACT 1961. 2. RIVAL CONTENTIONS H AVE BEEN HEARD AND PERUSED THE RECORDS. SO FAR AS GROUND WITH REGARD TO THE CLAIM OF DEDUCTION U/S 80IA OF THE INCOME TAX ACT 1961 IS CONCERNED THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO. 4842/MUM/2006 ITA NO. 514/MUM/2009 ITA NO. 7885/MUM/2010 & ITA NO. 283/MUM/2011 ORDER DATED 20 - 6 - 2014. 3. THE TRIBUNAL VIDE ITS ORDER DATED 2 5 TH JUNE 2014 FOR A.YS 2004 - 05 2005 - 06 AND 2007 - 08 AFTER FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABG HEAVY INDUS TRIES LTD. 189 TAXMANN 54 HELD THAT THE ASSESSEE WAS ENTITLED FOR CLAIM OF DEDUCTION U/S 80IA(4) OF THE ACT. THE PRECISE OBSERVATION OF THE TRIBUNAL WAS UNDER: - 10. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER FOR A.Y 2004 - 05 WHICH IS THE BASE YEAR FOR WHICH THE ASSESSEE IS CLAIMING THAT IT IS ENTITLED TO GET DEDUCTION UNDER SECTION 80 IA(4). THE FIRST AND FOREMOST OBJECTION OF THE AO IS THAT ASSESSEE WHILE EXECUTING THE PROJECT HAD ACTED IN THE CAPACITY OF A CONTRACTOR THEREFORE THE DEDUCTION CANNOT BE ALLOWED TO THE ASSESSEE AS PRE - REQUISITE OF THE SECTION TO ENABLE THE ASSESSEE TO CLAIM DEDUCTION IS THAT HE SHOULD BE A DEVELOPER. 10.1 THE SECON D CONTENTION OF AO IS THAT ASSESSEE HAS ONLY BUILT SOME PART OF THE PROJECT AND IT HAS NEITHER OPERATED OR MAINTAINED THE INFRASTRUCTURE PROJECT WHICH IS ALSO A CONDITION PRECEDENT TO GRANT DEDUCTION UNDER SECTION 80 IA(4). THE AO HAS REJECTED THE CONTE NTION OF THE ASSESSEE THAT ITS CASE IS SQUARELY COVERED BY DECISION OF ITAT IN THE CASE OF PATEL ENGINEERING LTD. (SUPRA). AS AGAINST SUCH CASE OF THE AO LD. CIT(A) HAS FOLLOWED MAINLY THE DECISION OF ITAT IN THE CASE OF PATEL ENGINEERING LTD. (SUPRA) A ND HAS ALLOWED RELIEF TO THE ASSESSEE. WE HAVE TO EXAMINE THAT WHETHER OR NOT ASSESSEE IS ENTITLED TO GET DEDUCTION UNDER SECTION 80 IA(4) IN THE LIGHT OF AFOREMENTIONED OBJECTION OF THE AO AND PLEA OF THE ASSESSEE. IT IS THE CASE OF THE ASSESSEE THAT AO HAS COMMITTED AN ERROR IN HOLDING THAT ASSESSEE HAS ACTED AS A CONTRACTOR IN PLACE OF THE CLAIM OF THE ASSESSEE THAT IT HAS WORKED AS A DEVELOPER OF THE INFRASTRUCTURE PROJECT. FOR RAISING SUCH CONTENTION THE ASSESSEE HAS PLACED RELIANCE NOT ONLY ON THE DECISION IN THE CASE OF PATEL ENGINEERING LTD. (SUPRA) BUT ALSO ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ABG HEAVY INDUSTRIES LTD. (SUPRA). IT MAY BE MENTIONED HERE THAT AO HAS PASSED THE IMPUGNED ASSESSMENT ORDER ITA 550 3/MUM/2011 3 FOR A.Y 2004 - 05 ON 31 /3/2006 WHEN THE BENEFIT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S ABG HEAVY INDUSTRIES LTD. WAS NOT AVAILABLE. THE ASSESSEE IN THAT CASE DID NOT DEVELOP OPERATE OR MAINTAIN THE ENTIRE PORT BUT ONLY PART OF THE FUNCTION OF T HE PORT WAS DEVELOPED AND MAINTAINED BY THE ASSESSEE. LD. AO IN THAT CASE WAS OF THE VIEW THAT THE ASSESSEE MERELY ENGAGED IN THE BUSINESS OF SUPPLYING INSTALLING TESTING COMMISSIONING AND MAINTAINING CRANES AT THE PORT AND WAS NOT IN THE BUSINESS OF D EVELOPING MAINTAINING AND OPERATING OF PORT. THIS CONTENTION OF THE ASSESSEE IS ALSO RECORDED IN PARA - 7 OF THE DECISION WHICH HAS ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER. (PARA - 7). 10.2 WHILE ADJUDICATING THE AFOREMENTIONED CONTENTIO N OF THE REVENUE THEIR LORDSHIPS IN PARA - 16 HAVE OBSERVED THAT SUCH SUBMISSION CANNOT BE ACCEPTED. THE EXPRESSION DEVELOPMENT HAS NOT BEEN ARTIFICIALLY DEFINED FOR THE PURPOSE OF SECTION 80 IA(4) OF THE ACT MUST THEREFORE RECEIVED ITS ORDINARY AND N ATURAL MEANING. UNDER THE TERMS OF THE CONTRACT BETWEEN THE ASSESSEE AND JNPT THE ASSESSEE UNDERTOOK AN OBLIGATION TO SUPPLY INSTALLING TESTING COMMISSIONING AND MAINTENANCE OF CONTAINER HANDLING EQUIPMENTS NAMELY THE CRANES IN QUESTION. THEIR LORDSH IPS IN PARA - 17 HAVE OBSERVED THAT THE OBLIGATIONS WHICH HAVE BEEN ASSUMED BY THE ASSESSEE UNDER THE TERMS OF THE CONTRACT ARE OBLIGATIONS INVOLVING THE DEVELOPMENT OF AN INFRASTRUCTURE FACILITY. SECTION 80 IA(4) OF THE ACT ESSENTIALLY CONTEMPLATED A DED UCTION IN A SITUATION WHERE AN ENTERPRISE CARRIED ON A BUSINESS OF DEVELOPING MAINTAINING AND OPERATING INFRASTRUCTURE FACILITY. A PORT WAS DEFINED TO INCLUDE WITHIN THE PURVIEW OF THE EXPRESSION INFRASTRUCTURE FACILITY. THE OBLIGATIONS WHICH THE AS SESSEE ASSUMED UNDER THE TERMS OF THE CONTRACT WERE NOT MERELY FOR SUPPLY AND INSTALLATION OF THE CRANES BUT INVOLVED A CONTINUOUS OBLIGATION FROM THE SUPPLY OF THE CRANES TO THE INSTALLATION TESTING COMMISSIONING OPERATION AND MAINTENANCE OF CRANES FO R A TERM OF 10 YEARS AFTER WHICH THE CRANES WERE TO VEST IN JNPT FREE OF COST. THE ASSESSEE DID NOT HAVE TO DEVELOP THE ENTIRE PORT IN ORDER TO QUALIFY FOR DEDUCTION UNDER SECTION 80 IA(4). PARLIAMENT DID NOT LEGISLATE A CONDITION IMPOSSIBLE OF COMPL IANCE. 10.3 IF THE FACTS OF THE PRESENT CASE ARE TO BE EXAMINED IN THE LIGHT OF AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT THEN IT CAN BE SAID THAT FOR CLAIMING DEDUCTION UNDER SECTION 80 IA(4) IT IS NOT NECESSARY FOR THE ASSESSEE TO DEVELOP THE ENTIRE PROJECT IN ORDER TO QUALIFY FOR A DEDUCTION UNDER SECTION 80 IA(4). IF THE PROVISIONS ARE SO CONSTRUED THEN IT WILL BE A CONDITION IMPOSSIBLE OF COMPLIANCE BECAUSE OF THE MAGNITUDE OF THE ENTIRE PROJECT. FOR QUALIFYING DEDUCTION UNDER SECTION 80 IA(4) WHAT WOULD BE NECESSARY WILL BE THAT THE WORK CARRIED ON BY THE ASSESSEE MUST BE AN INTEGRAL PART OF THE PROJECT AND IF IT IS SO THEN IT CANNOT BE SAID THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA(4) FOR THE REASON T HAT THE ASSESSEE ON ITS OWN DID NOT DEVELOP AN INFRASTRUCTURE PROJECT. THEREFORE OBSERVATIONS OF THE AO THAT ASSESSEE DID NOT DEVELOP AN INFRASTRUCTURE PROJECT AND ONLY PART OF THE WORK WAS CARRIED OUT CANNOT DISENTITLE THE ASSESSEE TO CLAIM THE DEDUC TION. ITA 550 3/MUM/2011 4 10.4. THE NATURE OF WORKS CARRIED OUT BY THE ASSESSEE REGARDING THE PROJECT HAVE BEEN STATED IN PARA - 4 OF THE ASSESSMENT ORDER FOR A.Y.2004 - 05. IT INTER - ALIA INCLUDE MANUFACTURING SUPPLYING LOWERING LAYING JOINTING TESTING AND COMMIS SIONING OF 2200 MM DIAMETER MS PUMPING MAIN WITH CEMENT MORTAR. IN - LINING & OUT - COATING FROM CLEAR WATER RESERVOIR AT GODAKONDALA TO MBR AT GUNGAL AND SIMILAR ACTIVITIES WERE CARRIED OUT IN RESPECT OF OTHER PLACES WHICH HAVE BEEN SPECIFIED BY THE AO. THE ACTIVITY OF THE ASSESSEE IS NOT LIMITED ONLY TO CONSTRUCTION OF THE PROJECT BUT AS PER THE TENDER THE ASSESSEE HAD TO SUBMIT BANK GUARANTEE FOR COMPLETION OF THE CONTRACT AND AS PER CLAUSE - 88 OF THE CONTRACT THE ASSESSEE IS ALSO LIABLE FOR LIQUI DATED DAMAGES AND THE MAXIMUM AMOUNT FOR PENALTY HAS BEEN PRESCRIBED WHICH IS NOT TO EXCEED 5% OF THE CONTRACT VALUE. THERE IS ALSO DESCRIPTION OF DEFECT LIABILITY PERIOD IN CLAUSE - 89 WHICH IS THE LIABILITY OF THE ASSESSEE UNDER THE CONTRACT FOR 24 MONTHS FROM THE DATE OF SUCCESSFUL COMPLETION OF THE WORK AND TAKEN OVER BY VISAKHAPATNAM MUNICIPAL CORPORATION. KEEPING IN VIEW THE ENTIRETY OF FACTS AND AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT IT CANNOT BE SAID THAT ASSESSEE DID N OT ACT IN THE CAPACITY OF DEVELOPER AND IT HAS ALREADY BEEN MENTIONED THAT TO BE ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80 IA(4) IT IS NOT NECESSARY THAT ENTIRE INFRASTRUCTURE PROJECT SHOULD BE DEVELOPED BY THE ASSESSEE. 10.5 NOW THE NEXT QUESTI ON WILL BE THAT WHETHER TO CLAIM DEDUCTION UNDER SECTION 80 IA(4) IT IS NECESSARY FOR AN ASSESSEE NOT ONLY TO DEVELOP THE PROJECT BUT ALSO TO OPERATE AND MAINTAIN THE INFRASTRUCTURE FACILITY. THIS ISSUE IS ALSO NO MORE RES - INTEGRA AND IS COVERED BY THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABG HEAVY INDUSTRIES LTD. (SUPRA). IN THAT CASE IT WAS THE CONTENTION OF THE REVENUE THAT FOR ASSESSMENT YEAR 1997 - 98 AND 1998 - 99 IT WAS NECESSARY FOR THE ASSESSEE TO CUMULATIV ELY FULFILL THE REQUIREMENT OF DEVELOPING OPERATING AND MAINTAINING INFRASTRUCTURE FACILITY. IT WAS PLEADED BY THE REVENUE THAT EVEN IF IT BE HELD TO HAVE DEVELOPED THE FACILITY IT CANNOT BE REGARDED AS OPERATING THE FACILITY. THEIR LORDSHIPS HAVE REFERRED TO SUCH CONTENTION OF REVENUE IN PARA - 19 OF THE DECISION AND THEY OBSERVED THAT IT IS NOT POSSIBLE TO ACCEPT SUCH SUBMISSIONS. THEIR LORDSHIPS HAVE OBSERVED THAT IT HAS ALREADY BEEN NOTED THAT ASSESSEE HAD AS A MATTER OF FACT DEVELOPED TH E FACILITY. THEIR LORDSHIPS AFTER CONSIDERING THE PROVISIONS AND VARIOUS CIRCULARS OF CBDT AND ALSO THE JUDICIAL PRONOUNCEMENTS HAVE CONCLUDED IN PARA - 22 OF THE DECISION THAT AFTER SECTION 80IA WAS AMENDED BY FINANCE ACT 2001 THE SECTION APPLIES TO AN ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING; OR (II) OPERATING AND MAINTAINING; OR (III) DEVELOPING OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILLS CERTAIN CONDITIONS. FOR THE SAKE OF COMPLETENESS PARA - 22 & 23 OF THE DECIS ION IS REPRODUCED BELOW: 22. ANOTHER SUBMISSION WHICH WAS URGED ON BEHALF OF THE REVENUE IS THAT UNDER CLAUSE (III) OF SUB - SECTION (4A) OF SECTION 80 - IA ONE OF THE CONDITIONS IMPOSED WAS THAT THE ENTERPRISE MUST START OPERATING AND MAINTAINING THE INFRA STRUCTURE FACILITY ON OR AFTER 1 - 4 - 1995. THE SAME REQUIREMENT IS EMBODIED IN SUB - CLAUSE (C) OF CLAUSE (I) OF SUB - SECTION (4) OF THE AMENDED PROVISIONS OF SECTION 80 - IA. ON THIS BASIS IT WAS URGED ITA 550 3/MUM/2011 5 THAT SINCE THE ASSESSEE WAS NOT OPERATING AND MAINTAININ G THE FACILITY HE DID NOT FULFILL THE CONDITION. THIS SUBMISSION IS FALLACIOUS BOTH IN FACT AND IN LAW. AS A MATTER OF FACT THE TRIBUNAL HAS ENTERED A FINDING THAT THE ASSESSEE WAS OPERATING THE FACILITY AND THIS FINDING HAS BEEN CONFIRMED EARLIER IN THI S JUDGMENT. THAT THE ASSESSEE WAS MAINTAINING THE FACILITY IS NOT IN DISPUTE. THE FACILITY WAS COMMENCED AFTER 1 - 4 - 1995. THEREFORE THE REQUIREMENT WAS MET IN FACT. MOREOVER AS A MATTER OF LAW WHAT THE CONDITION ESSENTIALLY MEANS IS THAT THE INFRASTRUCT URE FACILITY SHOULD HAVE BEEN OPERATIONAL AFTER 1 - 4 - 199.. AFTER SECTION 80 - IA WAS AMENDED BY THE FINANCE ACT OF 2001 THE SECTION APPLIES TO AN ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING; OR(II)OPERATING AND MAINTAINING OR (III) DEVELOPIN G OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILS CERTAIN CONDITIONS. THOSE CONDITIONS ARE (I) OWNERSHIP OF THE ENTERPRISE BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM; (II) AN AGREEMENT WITH THE CENTRAL OR STATE GOVERNMENT LOC AL AUTHORITY OR STATUTORY BODY; AND (III) THE START OF OPERATION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY ON OR AFTER 1 - 4 - 1995. THE REQUIREMENT THAT THE OPERATION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY SHOULD COMMENCE AFTER 1 - 4 - 1995 HAS TO BE HARMONIOUSLY CONSTRUED WITH THE MAIN PROVISION UNDER WHICH A DEDUCTION IS AVAILABLE TO AN ASSESSEE WHO DEVELOPS; OR OPERATES AND MAINTAINS; OR DEVELOPS OPERATES AND MAINTAINS AN INFRASTRUCTURE FACILITY. UNLESS BOTH THE PROVISIONS ARE HARMONIOUSLY CONS TRUED THE OBJECT AND INTENT UNDERLYING THE AMENDMENT OF THE PROVISION BY THE FINANCE ACT OF 2001 WOULD BE DEFEATED. A HARMONIOUS READING OF THE PROVISION IN ITS ENTIRETY WOULD LEAD TO THE CONCLUSION THAT THE DEDUCTION IS AVAILABLE TO AN ENTERPRISE WHICH (I) DEVELOPS; OR (II) OPERATES AND MAINTAINS; OR (III) DEVELOPS MAINTAINS AND OPERATES THAT INFRASTRUCTURE FACILITY. HOWEVER THE COMMENCEMENT OF THE OPERATION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY SHOULD BE AFTER 1 - 4 - 1995. IN THE PRESENT CA SE THE ASSESSEE CLEARLY FULFILLED THIS CONDITION ( EMPHASIS OURS) . 23. IN THE VIEW WHICH WE HAVE TAKEN ALL THE ASSESSMENT YEARS IN QUESTION TO WHICH THIS BATCH OF APPEALS RELATES WOULD BE GOVERNED BY THE SAME PRINCIPLE. THE SUBSEQUENT AMENDMENT OF SEC TION 80 - IA(4A) OF THE ACT TO CLARIFY THAT THE PROVISION WOULD APPLY TO AN ENTERPRISE ENGAGED IN (I) DEVELOPING; OR (II) OPERATING AND MAINTAINING; OR (III) DEVELOPING OPERATING AND MAINTAINING AN INFRASTRUCTURE FACILITY WAS REFLECTIVE OF A POSITION WHICH WAS ALWAYS CONSTRUED TO HOLD THE FIELD. BEFORE THE AMENDMENT THAT WAS BROUGHT ABOUT BY PARLIAMENT BY THE FINANCE ACT OF 2001 WE HAVE ALREADY NOTED THAT THE CONSISTENT LINE OF CIRCULARS OF THE BOARD POSTULATED THE SAME POSITION. THE AMENDMENT MADE BY PARL IAMENT TO SECTION 80 - IA(4) OF THE ACT SET THE MATTER BEYOND ANY CONTROVERSY BY STIPULATING THAT THE THREE CONDITIONS FOR DEVELOPMENT OPERATION AND MAINTENANCE WERE NOT INTENDED TO BE CUMULATIVE IN NATURE . ITA 550 3/MUM/2011 6 10.6 ACCORDING TO AFOREMENTIONED OBSERVATIONS OF THEIR LORDSHIPS PRE OR POST AMENDMENT THE REQUIREMENT OF SECTION 80 IA(4) IS THAT DEDUCTION WILL BE AVAILABLE AN ENTERPRISE ENGAGED IN (I) DEVELOPING; OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING OPERATING AND MAINTAINING THE INFR ASTRUCTURE FACILITY AND SUCH POSITION WAS TO BE ALWAYS CONSTRUE TO HOLD THE FIELD. THEREFORE ONLY DEVELOPMENT OF INFRASTRUCTURE PROJECT IS SUFFICIENT TO MAKE ENTITLE AN ENTERPRISE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA(4). 10.7 IT MAY ALSO BE POINTED OUT THAT THE APPEAL FILED BY THE REVENUE FOR A.Y 2004 - 05 WAS EARLIER ALLOWED BY THE TRIBUNAL ON THE BASIS OF LARGER BENCH DECISION IN THE CASE OF M/S. B.T.PATEL & SONS BELGAUM CONSTRUCTION PVT. LTD.(SUPRA) AND IT WAS BROUGHT TO OUR NOTICE THAT IN VIEW OF THE SUBSEQUENT DECISION OF HONBLE BOMBAY HIGH COURT LARGER BENCH DECISION WAS NOT FOLLOWED BY THE TRIBUNAL AND THE MATTER WAS DECIDED BY THE TRIBUNAL VIDE ITS ORDER DATED 28/2/2013 IN THE CASE OF B.T.PATEL & SONS BELGAUN CONSTRUCTION PVT. LTD .(SUPRA) A COPY OF THIS DECISION WAS PLACED ON OUR RECORD. THE DIRECTIONS OF HONBLE BOMBAY HIGH COURT IN PURSUANCE TO WHICH SUCH ORDER WAS PASSED ARE ALSO DESCRIBED IN THE ORDER IN PARA - 5 AND THE RELEVANT PARA - 5 IS REPRODUCED BELOW: 5. THE HONBL E BOMBAY HIGH COURT PERMITTED THE COUNSEL OF THE ASSESSEE TO WITH WITHDRAW THE SAID APPEALS. WHILE PASSING THE ORDER THE HONBLE COURT HAS KEPT ALL THE CONTENTIONS OPEN AND FURTHER DIRECTED THE TRIBUNAL TO CONSIDER THE DECISION OF THE ABG HEAVY INDUSTRI ES AND OTHER DECISIONS WHILE PASSING THEIR ORDER GIVING EFFECT TO THE OPINION OF THE THIRD MEMBER AS PER THE PROVISIONS OF SECTION 255(4) OF THE ACT. THE RELEVANT PORTION OF THE SAID ORDER OF HONBLE JURISDICTIONAL HIGH COURT IN ITA NO.1307 OF 2011 FOR A .Y.2000 - 01 AND 1640 OF 2011 FOR A.Y 2001 - 02 IS AS UNDER: 1. SINCE THE TRIBUNAL HAS RECALLED THE IMPUGNED ORDER DATED 23.03.2011 THE APPELLANT IS WITHDRAWING ITS APPEAL. 2. FURTHER WHILE CONSIDERING THE MATTER AFRESH THE TRIBUNAL WILL TAKE INTO CO NSIDERATION ALL DECISIONS INCLUDING THE DECISION OF THIS COURT IN THE MATTER OF CIT V. ABG HEAVY INDUSTRIES LTD. REPORTED IN 322 ITR 323. ALL CONTENTIONS ARE KEPT OPEN. 3. THE APPEAL IS DISMISSED OF IN ABOVE TERMS. 10.8 IN THE ORDER THE TRIBUNA L AFTER CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABG HEAVY INDUSTRIES LTD. (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. WHILE DECIDING THE PRESENT APPEAL VIDE ORDER DATED 9/2/2010 IT WAS FOUND BY THE TR IBUNAL THAT BOTH SIDES WERE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES ARE MUTATIS - MUTANTIS SIMILAR TO THOSE CONSIDERED BY THE LARGER BENCH OF THE TRIBUNAL IN THE CASE OF B.T.PATEL & SONS BELGAUN CONSTRUCTION PVT. LTD.(SUPRA). THE SAID ITA 550 3/MUM/2011 7 ORDER OF TH E TRIBUNAL WAS RECALLED ONLY FOR THE REASON THAT THE LARGER BENCH DECISION IN THE CASE OF M/S. B.T.PATEL & SONS BELGAUM CONSTRUCTION PVT. LTD.(SUPRA) WAS NO MORE GOOD LAW IN VIEW OF SUBSEQUENT DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ABG HEAVY INDUSTRIES (SUPRA). THE ORDER IN THE CASE OF PRESENT ASSESSEE WAS NOT RECALLED FOR THE REASON THAT THERE IS ANY DIFFERENCE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE DECISION IN THE CASE OF B.T.PATEL & SONS BELGAUN CONSTRUCTION P VT. LTD.(SUPRA). NOW THE DECISION OF LARGER BENCH IS NO MORE GOOD LAW AND THE DIVISION BENCH OF THE TRIBUNAL IN THE CASE OF B.T.PATEL & SONS BELGAUN CONSTRUCTION PVT. LTD.(SUPRA) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF ABG HEAVY INDUSTRIES LTD. (SUPRA). PARA - 4 OF THE SAID ORDER IS REPRODUCED BELOW: 14. IN THIS BACKGROUND THE ASSESSEE COULD CERTAINLY CLAIM THE DEDUCTIONS UNDER THE PROVISION OF SECTION 80 IA. ONE HAS TO SEE THE SUBSTANCE AND NOT THE FORM ESSENTIALLY THOUGH IT WAS A JOINT VENTURE IT WAS CONVERTED INTO ASSESSEES VENTURE. THE OTHER VENTURER WITHDRAW AND THE ENTIRE WORK WAS EXECUTED BY THE ASSESSEE THOUGH IN THE NAME OF JOINT VENTURE. THE JOINT VENTURE IS NOTHING BUT THE VENTURE OF THE ASSESSEE COMPANY AND THE OTHER PERSON NOT BEING A PARTY AFTER DRAWING THE QUESTION OF JOINT VENTURE DOES NOT ARISE. THE VENTURE WAS FULLY CARRIED OUT BY THE ASSESSEE COMPANY. TAKING THE SUBSTANCE OF THE TRANSACTION THE ASSESSEE ARE ENTITLED TO ALL THE PROFITS IN RESPECT OF THE CONTRACT EXECUTED BY THEM HENCE THE ASSESSEE WOULD CERTAINLY BE ENTITLED TO DEDUCTION UNDER THE PROVISIONS OF 80IA AS THEY HAVE FULFILLED ALL THE OTHER CONDITIONS. THIS VIEW GET FROM DECISION I N THE CASE OF ITAT INDORE BENCH IN CASE OF AYUSH AJAY CONSTRUCTIONS LTD. (SUPRA). THUS WHILE GIVING EFFECT TO THE OPINION OF THIRD MEMBER U/S.255(4) OF THE ACT WE TAKE VIEW IN CONFORMITY WITH ORDER OF JURISDICTIONAL HIGH COURT IN CASE OF ABG HEAVY I NDUSTRIES LTD. (SUPRA) AVAILABLE AT THIS TIME THOUGH CONTRARY TO THE OPINION EXPRESSED BY THE THIRD MEMBER. SO IN VIEW OF ABOVE DISCUSSION FOLLOWING THE RATION OF JURISDICTIONAL HIGH COURT IN THE CASE OF ABG INDUSTRIES LTD. (SUPRA) THE ASSESSING OFF ICER IS DIRECT TO ALLOW DEDUCTION U/S. 80 IA OF THE ACT TO THE ASSESSEE WITH REGARD TO THE PROJECTS IN QUESTION FOR BOTH THE YEARS. THIS MATTER IS DISPOSED OFF ACCORDINGLY. THEREFORE ALSO THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AF OREMENTIONED DECISION OF CO - ORDINATE BENCH. 10.9 IN VIEW OF ABOVE DISCUSSION WE HOLD THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 IA(4) AND DEPARTMENTAL APPEAL FOR A.Y 2004 - 05 AND 2005 - 06 ARE DISMISSED. 11. SO FAR AS IT RELATE TO APPEALS OF THE ASSESSEES FOR A.Y 2007 - 08 IT HAS ALREADY BEEN MENTIONED THAT FOLLOWING THE AFOREMENTIONED DECISION OF LARGER ITA 550 3/MUM/2011 8 BENCH IN THE CASE OF B.T.PATEL & SONS BELGAUN CONSTRUCTION PVT. LTD. (SUPRA) LD. CIT(A) HAS HELD THAT ASSESSEE IS NOT ENTITLED TO GET DEDUCTION UNDER SECTION 80 IA(4). IT HAS ALREADY BEEN POINTED OUT THAT THE LARGER BENCH DECISION IN THE CASE OF B.T.PATEL & SONS BELGAUN CONSTRUCTION PVT. LTD. (SUPRA) IS NO MORE A GOOD LAW AND IN THE CASE OF THAT ASSESSEE ITSELF DIVISION BENCH HAS HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 IA(4) OF THE ACT. WE HAVE ALREADY HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 IA(4) IN RESPECT OF A.Y. 2004 - 05 AND 2005 - 06. THAT DECISION WILL BE APPLICABLE FOR A.Y 2007 - 08 IN CA SE OF BOTH THE ASSESEES. THEREFORE THESE APPEALS OF THE ASSESSEES ARE ALSO ALLOWED. 4 . WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE/ASSOCIATED CONCERNS CASE AS REPRODUCED ABOVE AND FOUND THAT ISSUE 80IA(4) WAS DEC IDED BY THE TRIBUNAL. THE FACTS AND CIRCUMSTANCES IN THE CASE DURING THE YEAR UNDER CONSIDERATION ARE EXACTLY SAME. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL WE DIRECT THE A.O. TO ALLOW THE CLAIM FOR DEDUCTION U/S 80IA(4) OF THE ACT. 5 . T HE ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF RS. 73 40 116/ - U/S 14A OF THE ACT. 6 . WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOUND FROM THE RECORD THAT THE A.O. HAS MADE A PROPORTIONATE DISALLOWANCE OF A SUM OF RS. 73 40 116/ - OUT OF INTEREST E XPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. OBSERVATION OF A.O. WAS THAT ASSESSEE HAD ADVANCED MONEY TO ITS JOINT VENTURES WITHOUT CHARGING ANY INTEREST AND THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 51 01 008/ - BEING SHARE OF PROFIT RECEIVE D FROM VARIOUS JOINT VENTURES WHICH IS EXEMPT FROM TAX U/S 10(2 4 ) OF THE ACT. 7 . IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE GIVEN CASE INASMUCH AS ASSESS EES SHARE CAPITAL AND RESERVES AND SURPLUS AGGREGATING RS. 47 12 58 552/ - ARE FAR IN EXCESS OF THE INVESTMENT THAT HAVE BEEN MADE IN JOINT VENTURE ENTITIES THAT AGGREGATE RS. 15 42 04 123/ - . THUS THE PRESUMPTION IS THAT INTEREST FREE FUNDS HAVE BEEN UTILI ZED FOR MAKING THE SAID ITA 550 3/MUM/2011 9 INVESTMENTS IN JOINT VENTURES THAT HAVE RESULTED IN EARNING OF EXEMPT INCOME. RELIANCE WAS PLACED ON THE DECISION HONBLE JURISIDICTIONAL HIGH COURT IN THE CASE HDFC BANK LTD. IN INCOME TAX APPEAL NO. 330 OF 2012 ORDER DATED 23 - 7 - 2 014. 8 . RELIANCE WAS ALSO PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF BINAYAK TEX PROCESSORS LTD. WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE WHERE THE ASSESSEE IS ABLE TO S HOW NEAR PROXIMITY OF AVAILABILITY OF OWN FUNDS MAY BE EXACTLY NOT ON DATE OF INVESTMENT OR ADVANCEMENT OF LOAN BUT IN A VERY NEAR FUTURE DATE OR WITHIN A REASONABLE SHORT PERIOD OF TIME EVEN THEN PRESUMPTION WILL BE MADE THAT INVESTMENT WAS MADE BY ASSE SSEE FROM HIS OWN FUNDS OR IN ANTICIPATION OF AVAILABILITY OF ITS OWN FUNDS WITHIN A SHORT PERIOD OF TIME. CONSIDERING THE SAID PROPOSITION THE FACTS OF THE CASE ON HAND IS ON A MUCH STRONGER FOOTING INASMUCH AS THE ASSESSEE HAS INTEREST FREE FUNDS IN T HE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS WHICH ARE FAR IN EXCESS OF THE INVESTMENT MADE IN THE JOINT VENTURE ENTITIES AS AT THE COMMENCEMENT OF THE PREVIOUS YEAR UNDER REFERENCE AND THEREFORE NEED NOT EVEN HAVE TO SEE THE AVAILABILITY OF OWN FUNDS WITHIN A SHORT PERIOD OF TIME AND OTHER CONDITIONS. 9 . RELIANCE WAS ALSO ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. 32 TAXMANN.COM 370 GUJARAT STATE FERTILISERS & CHEMICALS LTD. 36 TAXMANN.COM 230 AND GUJARAT STATE FERTILISERS & CHEMICALS LTD. 36 TAXMANN.COM 557 . HE FURTHER DRAWN OUR ATTENTION TO THE AUDITED P&L ACCOUNT OF THE COMPANY TO INDICATE THAT CASH PROFIT OF THE ASSESSEE COMPANY WAS IN EXCESS OF THE INVESTMENTS MADE IN JVS AS ON THE CUT - OFF DATE. 10. WE HAVE CONSIDERED THE RIVAL CONTENTION AND DELIBERATED UPON THE JUDICIAL PRONOUNCEMENTS CITED. WE FOUND THAT THERE WAS A CASH PROFIT OF RS. ITA 550 3/MUM/2011 10 14.62 CRORES AGAINST WHICH INVESTMENT IN JVS WAS RS. 8.27 CRORES AFTER EXCLUDING INVESTMENT IN AKURTI - SMC JV FOR WHIC H SEPARATE DISALLOWANCE HAS BEEN CONSIDERED BY THE A.O. 11. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT/LOA NS TAKEN THEN PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. RECENTLY THE HONBLE BOMBAY HIGH COURT AGAIN FOLL OWED THE SAME PRINCIPLE IN THE CASE OF HDFC IN INCOME TAX APPEAL NO. 330 OF 2012 VIDE ORDER DATED 23 RD JULY 2014. APPLYING THE PROPOSITION OF LAW LAID DOWN IN THE JUDICIAL PRONOUNCEMENTS WE FOUND THAT IN THE INSTANT CASE CASE PROFIT WAS MUCH MORE THAN T HE INVESTMENT IN THE JOINT VENTURE COMPANY THEREFORE THE DISALLOWANCE MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT WAS NOT JUSTIFIED. ACCORDINGLY THE A.O. DIRECTED TO DELETE THE SAME. 12 . THE A.O. HAS ALSO DISALLOWED AN AMOUNT OF RS. 22 81 807/ - U/S 36(1)(III) OF THE ACT. THE A.O. HAS DISCUSSED THIS ISSUE AT PAGE 8 & 9. THE A.O. HAS MADE A PROPORTIONATE DISALLOWANCE OF A SUM OF RS. 22 81 807/ - OUT OF TOTAL INTEREST EXPENDITURE THAT HAS BEEN DEBITED TO THE PROFIT AND LOS S ACCOUNT FOR THE REASON THAT THE ASSESSEE HAS GIVEN INTEREST - FREE FUNDS TO SUBSIDIARY COMPANY NAMELY CHAFAL DEVELOPERS PRIVATE LTD. (CHAFAL). THE IMPUGNED DISALLOWANCE IS AFTER TAKING INTO CONSIDERATION THE COST OF BORROWED FUNDS TO THE ASSESSEE. T HAT CH AFAL DEVELOPERS PVT. LTD. IS A 74 % SUBSIDIAR Y OF THE ASSESSEE. M/S CHAFAL DEVELOPERS PVT. LTD. WAS PROMOTED BY THE ASSESSEE COMPANY SPECIFICALLY FOR THE PURPOSE OF IMPLEMENTING THE PROJECT AWARDED BY THE GOVERNMENT OF MAHARASHTRA HENCE IT WAS SUBMITTED THAT THE MONIES ADVANCED WAS FOR BUSINESS EXPEDIENCY AND NO DISALLOWANCE CAN BE ITA 550 3/MUM/2011 11 MADE U/S 36(1)(III) OF THE ACT. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA CHEMICALS LTD. REPORTED IN 256 ITR 395. 1 3 . IT WAS FURTHER SUBMITTED THAT OUTSTANDING BALANCE IN THE ACCOUNT OF CHAFAL DEVELOPERS PVT. LTD. AS AT THE BEGINNING OF THE YEAR WAS RS. 510 LACS AND AT THE END OF THE YEAR WAS R S. 479 LACS. AS PER THE LD. COUNSEL FOR THE ASSESSEE NO DISALLOWANCE OF INTEREST WAS MADE IN THE EARLIER YEARS AND SINCE THE AMOUNT IN THE OUTSTANDING ACCOUNT OF SAFAL DEVELOPERS PVT. LTD. DURING THE YEAR HAS REDUCED NO FRESH ADVANCE WAS GIVEN DURING THE YEAR NO DISALLOWANCE COULD BE MADE U/S 36(1)(III) OF THE ACT AND FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORP. REPORTED IN 298 ITR 298. 1 4 . ATTENTION WAS ALSO INVITED BY THE LD. COUNSEL FOR THE ASSESSEE TO THE FACT THAT CHAFAL IS A SUBSIDIARY COMPANY OF THE ASSESSEE COMPANY (HOLDING 74.5% OF THE TOTAL SHAREHOLDING) PROMOTED BY THE ASSESSEE COMPANY SPECIFICALLY FOR THE PURPOSE OF IMPLEMENTING THE PROJECT OF THE GOM AND HENCE THE MONIES ADVANCED IS FOR BUSINESS EXPEDIENCY AND HENCE ALLOWABLE. FURTHER THE ULTIMATE RESPONSIBILITY OF IMPLEMENTATION OF THE PROJECT WAS ON THE ASSESSEE AND HENCE THE MONIES ADVANCED TO CHAFAL ARE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 15. AFTER VERIFYING THE BALANCE SHEET OF THE COMPANY WE FOUND THAT THE CASH PRO FIT OF THE ASSESSEE COMPANY THAT HAVE BEEN EARNED DURING THE YEAR AS REDUCED BY THE AMOUNT OF INVESTMENT IN JOINT VENTURE COMPANY WAS IN EXCESS TO THE MONIES ADVANCED TO CHAFAL AS ON THE CUT - OFF DATE THEREFORE IT CAN BE SAFELY PRESUMED THAT ADVANCE HAVE BEEN GIVEN AGAINST PROFITS OF THE YEAR AND NOT OUT OF INTEREST BEARING FUNDS. THIS VIEW HAS BEEN SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & ITA 550 3/MUM/2011 12 POWER LTD. (SUPRA). FACT THAT NO FURTHER ADVANCE WAS GIVEN DURING T HE YEAR AND NO DISALLOWANCE WAS MADE IN THE PRECEDING YEAR ALSO SUPPORTS THE CASE OF THE ASSESSEE. ACCORDINGLY WE DO NOT FIND ANY MERIT IN THE ACTION OF THE A.O. IN DISALLOWING THE INTEREST U/S 36(1)(III) OF THE ACT. 16. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON 14 TH NOVEMBER 2014. 14/11/2014 SD/ - SD/ - ( SANJAY GARG ) ( R.C. SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 14/11/2014 RK SR. PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 3 MUMBAI 4. / CIT II MUMBAI 5. / DR ITAT MUMBA I H BENCH 6. GUARD FILE . / BY ORDER //TRUE COPY// ( DY./ASSTT. REGISTRAR) / ITAT MUMBAI