• Jul
  • 18
  • 2013

Order passed u/s. 263 not sustainable if AO chosen one of the two views in respect of the claim of deduction u/s. 80IA(4)

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A perusal of the provisions of section 80IA(4) of the Act shows that in the explanation ‘infrastructure facility’ has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads.

If, we are to accept the contention of the Ld. CIT that the provisions of section 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the benefit to BOT contracts then, the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BOT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 80IA of the Act shows that the term ‘works contract’ is not defined in the said section. However, the terms ‘works’ and ‘contract’ is defined in the provisions of section 194C of the Act.

If a particular word or term is not defined in the specific section then, one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing or supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word ‘works contract’ for the purpose of the Act due to the exclusion provided in the meaning of ‘work’ in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 80IA(4) of the Act. On this ground also, we are of the view that the Ld. CIT’s order passed u/s. 263 of the Act is unsustainable and is liable to be quashed and we do so. Here, we may specifically mention that in view of the fact that the explanation to section 80IA(4) of the Act which has been substituted by the Finance, Act, 2009 with retrospective effect of 01.04.2000 is attempting to take away the statutory benefit granted to the assessee u/s. 80IA(4) of the Act without making any amendment to the explanation to section 80IA(4) of the Act, the said explanation substituted by the Finance Act, 2009 w.e.f. 01.04.2000 being an hindrance to the statutory deduction available to the assessee under the provisions of section 80IA(4), the said explanation would have to stand down in view of the decision of the Hon’ble Supreme Court in the case of S. Sundaram Pillai, referred to supra. Consequently, on this ground also the order passed u/s. 263 of the Act by the Ld. CIT for AY 2006-07 and 2007-08 stands quashed. Appeals of the assessee are allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL

BENCH, CUTTTACK

ITA Nos.142 & 143/CTK/2010

Assessment Years: 2006-07 to & 2007-08

ITA Nos.483 & 484/CTK/2011

Assessment Years: 2006-07 to & 2007-08

ARSS INFRASTRUCTURE PROJECTS LTD

Vs

ASSISTANT COMMISSIONER OF INCOME TAX

CIRCLE-2(1), BHUBANESWAR

Dated: June 13, 2013

ORDER

Per Bench:

ITA Nos. 142 & 143/CTK/2010 filed by the assessee against the separate orders of CIT, Bhubaneswar passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act) in Memo Nos. CIT/BBSR/Tech./263/13/2009-10/9089-91 and CIT/BBSR/Tech./263/13/2009-10/9086-77 both dated 18/23.03.2010 respectively. ITA Nos., 483 & 484/CTK/2011 filed by the assessee against the separate orders of CIT(A)-II, Bhubaneswar passed in Appeal No.0019/10-11 and 0155/09-10 both dated 14.09.2011 respectively.

2. S/Shri P. S. Panda and K. Agarwalla, ARs appeared for the assessee and Shri P. K. Dash, CIT, DR appeared for the revenue.

3. In both the appeals i.e. ITA Nos. 142 & 143/CTK/2010, the only issue is against the action of the Ld. CIT, Bhubaneswar in invoking his powers u/s. 263 of the Act to revise the assessment order passed u/s. 143(3) of the Act allowing the assessee’s claim of deduction u/s. 80IA(4) of the Act. It was submitted by the Ld. AR that for the AY 2006-07, the original assessment order came to be passed u/s. 143(3) of the Act on 12.11.2008 and for AY 2007-08 on 02.12.2009. It was the submission that in the course of the original assessment, the AO had called for the explanation of the assessee along with proof in respect of its claim of deduction u/s. 80IA(4) of the Act. It was the submission that the assessee had replied vide its letter dated 12.11.2009 and 18.08.2008. It was the submission that discussion on the same had also been done in the course of the assessment as was evidenced in the order sheet noting. The Ld. AR drew our attention to pages 15 to 18 of the paper book and pages 34 to 42 of the paper book, which were the copies of the replies filed by the assessee before the AO in the course of the original assessment u/s. 143(3) of the Act for both the assessment years. He also drew our attention to the order sheet noting at pages 36 to 39 of the paper book. The Ld. AR further drew our attention to page 17 of the paper book, which was a copy of the requisition made by the AO vide his letter dated nil wherein the AO has directed the assessee to provide the details for examination the basis of the claim of deduction u/s. 80IA of the Act along with proof. It was the submission that the AO having verified the claim of deduction u/s. 80IA(4) of the Act and had allowed the assessee’s claim of deduction u/s. 80IA(4) of the Act. The Ld. AR further drew our attention to the show cause notice issued u/s. 263 by the CIT, Bhubaneswar. In the said notice, Ld. CIT had invoked his powers u/s. 263 of the Act asking the assessee to show cause as to why deduction u/s. 80IA(4) of the Act was not liable to be withdrawn, as it was noticed that the assessee had not fulfilled all the conditions laid down u/s. 80IA(4) of the Act.

4. At this point, it was noticed by the Bench that the show cause notice was not signed by the Ld. CIT, Bhubaneswar but has been signed by the Income-tax Officer (Tech.) for the Ld. CIT, Bhubaneswar. When the Ld. CIT, DR was confronted as to why the show cause notice should not be quashed, it was submitted by the Ld. CIT, DR that in the Act no where it was provided that a show cause notice is to issue by the Ld. CIT u/s. 263 of the Act. It was the submission that the assessee should be informed of the proposal and the issue on which the Ld. CIT proposed to invoke his powers u/s. 263 of the Act. He also relied on the decision of the Hon’ble Delhi High Court in the case of Asish Rajpal reported in 320 ITR 674 (Del.).

5. It was further submitted by the Ld. AR that the Ld. CIT had passed his order u/s. 263 of the Act wherein in para 4 of his order the Ld. CIT had held that the assessee was doing a work contract and was consequently not eligible for the deduction u/s. 80IA(4) of the Act. It was further submission that the Ld. CIT had invoked the provisions of explanation to section 80IA which had been substituted by the Finance Act 2009 with retrospective effect from 01.04.2000. It was the submission that when the AO had passed his assessment order for AY 2007-08 the explanation was available in the statute still the AO had drawn a conclusion that the work done by the assessee was development of an infrastructure facility and was entitled to the deduction u/s. 80IA(4) of the Act. It was the submission that the AO had formed an opinion on the basis of the explanation given by the assessee and this information having not been shown to be wrong, a change of opinion by the Ld. CIT did not give the Ld. CIT the powers to invoke the provisions of section 263 to revise the assessment. The Ld. AR drew our attention to the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Gokuldas Exports & Ors. reported in (2011) 333 ITR 214 (Kar.) wherein it has been held that where two views are possible and one view has been adopted by the AO then the existence of another view alone would not be sufficient to exercise the powers u/s. 263 of the Act by the CIT. It was the submission that the AO had after examination drawn a conclusion that the assessee was entitled to the deduction u/s. 80IA(4) of the Act and this being one of the two views possible the Ld. CIT should not invoke his powers u/s. 263 just because he was of the opinion that another view was possible.

6. It was the submission that the assessee is doing the business of laying of railway tracks, bridges thereof as also building roads. It was the submission that as per the Explanation to section 80IA(4), the assessee was doing the business of developing infrastructure facilities. It was the submission that the assessee is using its own material and not the materials supplied by the Government or its customers. It was the further submission that the assessee was doing the work of development according to the requirements or specifications of the government or its customers. It was the submission that during the relevant assessment years under appeal, the assessee was doing only development of infrastructure facility as prescribed in the explanation to section 80IA(4) of the Act. The Ld. AR further submitted that the explanation to section 80IA of the Act wherein it has been declared that the said section would not apply in relation to the business referred to in sub-section (4) of section 80IA of the Act, which is in the nature of works contract could not survive in view of the fact that the Hon’ble Supreme Court has categorically held that an explanation added to a statutory provision is not a substantive provision and it cannot take away a statutory right with which any person under a statute has been cloaked or set at naught the working of the provision nor cause hindrance in the interpretation of the same. He relied on the decision of the Hon’ble Supreme Court in the case of S. Sundaram Pillai & Ors reported in AIR (1985) SC 582. It was the submission that the development work done by the assessee is works contract liable for deduction of TDS and that was why the TDS has also been deducted. Before us, it was the submission that the assessee was rightly held to be eligible for deduction u/s. 80IA(4) of the Act by the AO and consequently, order of the Ld. CIT passed u/s. 263 of the Act was liable to be quashed.

7. In reply, the Ld. CIT, DR submitted that the Act had been amended and the explanation has been introduced whereby works contract was held to be not eligible for deduction u/s. 80IA(4) of the Act. It was the submission that works contract for the said explanation meant any work taken on contract. It was the submission that the legislative intent was to give benefit only to Build, Operate and Transfer contracts (BOT). It was the submission that in view of the explanation to section 80IA of the Act, the AO had no option but to follow the provisions of section as controlled by the explanation to sec. 80IA. It was the submission that as this was not done by the AO, the order was erroneous and prejudicial to the interest of revenue and the order of the Ld. CIT in revising the order u/s. 263 of the Act was liable to be upheld.

8. We have heard rival submissions. At the out set, it may be mentioned here that the submissions by the Ld. CIT, DR that the Act does not provide in the provisions of section 263 that it is the CIT who has to give sign the show cause notice is accepted. This is because as per the provisions of section 263 the assessee needs only to be given intimation as to the issues on which the Ld. CIT is proposing to revise the order passed by the AO. The view that a show cause notice need not to be signed by the Ld. CIT u/s. 263 is supported by the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Asish Rajpal reported in (2010) 320 ITR 674 as also the Hon’ble Supreme Court in the case of reported in CIT Vs. Electro House (1971) 82 ITR 824 and in the case of reported in Gita Devi Aggarwal Vs. CIT (1970) 76 ITR 496.

9. Now, coming to the merits as also the submissions as made by the assessee. Admittedly, the AO in the course of original assessment proceedings u/s. 143(3) of the Act has called for the explanation of the assessee as also directed the assessee to prove its claim for deduction u/s. 80IA(4) of the Act. The assessee has responded to the AO. The AO after considering the explanation and the proofs as produced by the assessee found that the assessee was eligible for deduction u/s. 80IA(4) of the Act. A perusal of the order of the Ld. CIT u/s. 263 of the Act does not any where show as to what is the specific error that the AO has committed when granting the assessee the deduction u/s. 80IA(4) of the Act. It is true that the Ld. CIT has referred to the provisions of explanation substituted by the Finance Act, 2009 with retrospective effect from 01.04.2000. However, this explanation was available to the AO when the assessment for AY 2007-08 was being completed. Still the AO held that the assessee was entitled to the deduction u/s. 80IA(4) of the Act. The said explanation admittedly was not available when the assessment for AY 2006-07 was being completed u/s. 143(3) of the Act. For AY 2006-07, the order passed u/s. 263 of the Act could not be used for making order treating an assessment order erroneous on account of a subsequent amendment or substitution done to the provision. Under this circumstances, as it is noticed that the AO has chosen one of the two views in respect of the claim of deduction u/s. 80IA(4) of the Act and in view of the decision of the Hon’ble Karnataka High Court in the case of Gokuldas Exports & Ors., referred to supra, we are of the considered view that the order passed u/s. 263 of the Act is not sustainable in law and consequently, the same stands annulled. This view of ours also find support from the decision of the Hon’ble Bombay High Court in the case of Ranka Jewellers Vs. Addl. CIT (2010) 328 ITR 148 = (2010-TIOL-231-HC-MUM-IT).

10. Now coming to the merits of the deduction u/s. 80IA(4) of the Act. A perusal of the provisions of section 80IA(4) of the Act shows that in the explanation ‘infrastructure facility’ has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of the Ld. CIT that the provisions of section 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the benefit to BOT contracts then, the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BOT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 80IA of the Act shows that the term ‘works contract’ is not defined in the said section. However, the terms ‘works’ and ‘contract’ is defined in the provisions of section 194C of the Act. If a particular word or term is not defined in the specific section then, one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing or supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word ‘works contract’ for the purpose of the Act due to the exclusion provided in the meaning of ‘work’ in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 80IA(4) of the Act. On this ground also, we are of the view that the Ld. CIT’s order passed u/s. 263 of the Act is unsustainable and is liable to be quashed and we do so. Here, we may specifically mention that in view of the fact that the explanation to section 80IA(4) of the Act which has been substituted by the Finance, Act, 2009 with retrospective effect of 01.04.2000 is attempting to take away the statutory benefit granted to the assessee u/s. 80IA(4) of the Act without making any amendment to the explanation to section 80IA(4) of the Act, the said explanation substituted by the Finance Act, 2009 w.e.f. 01.04.2000 being an hindrance to the statutory deduction available to the assessee under the provisions of section 80IA(4), the said explanation would have to stand down in view of the decision of the Hon’ble Supreme Court in the case of S. Sundaram Pillai, referred to supra. Consequently, on this ground also the order passed u/s. 263 of the Act by the Ld. CIT for AY 2006-07 and 2007-08 stands quashed. Appeals of the assessee are allowed.

11. As we have allowed the assessee’s appeal in ITA Nos. 142 and 143/CTK/2010 the appeals filed by the assessee in ITA Nos. 483 & 484/CTK/2011 which has its foundation on the order giving effect to the order passed u/s. 263 of the Act by the Ld. CIT, which have been quashed in the appeals of the assessee in ITA No. 142 & 143/CTK/2010, the same stand allowed. The ITA No. 483 & 484/CTK/2011 is consequential in nature and stand allowed.

12. In the result, appeals of the assessee stand allowed.

13. Order is dictated and pronounced in the open court.


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