Substance over form governs eligibility for tax deductions; a sub-contractor may qualify as a developer under Section 80IA(4) if the true nature of the transaction supports it.

आदेश/ORDER

PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

These two appeals are filed by the Assessee as against two separate appellate orders dated 31.05.2009 and 15-12-2011 passed by the Commissioner of Income Tax (Appeals)-XV, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2007-08 and 2008- 09. Since common issue is involved in both the appeals, for the sake of convenience the same are disposed of by this common order.

2. Brief facts of the case is that the appellant is a Joint Venture undertaking constituted by two companies M/s. Dineshchandra R Agarwal Infracon Pvt. Ltd. and M/s. M.S. Khurana Engineering Ltd. under the name of DRAIPAL-MSKEL and is engaged in the business of execution of construction contracts. National Highway Authority of India [for short NHAI] awarded to a Chinese company M/s. Longjian Road & Bridge Ltd. [hereinafter referred as Main Contractor] to execute work of Rehabilitation and Upgrading of Bhiladi-Jetpur Road Section of NH-8B. The appellant was awarded part of the contract as a Sub-contractor to the Main Contractor (namely Longjian Road & Bridge Ltd.) which was awarded for laying the road in a particular section of Bhiladi-Jetpur Road section NH- 8B, Km. 52.50 to 117.00. The Running Account Bills were presented to NHAI under the signature of 'Longjian' as Contractor and the assessee as sub-contractor.

2.1. For the asst. year 2007-08, the assessee filed its Return of Income on 07.09.2007 claiming NIL income after claiming deduction of Rs.2,42,98,174/- under section 80IA[4] of the Act. The AO issued a show cause to the assessee asking why should the claim made u/s.80IA(4) of the Act not be disallowed in view of Explanation inserted to section 80IA by Finance Act 2009 w.r.e.f. 1.4.2000. On appellant’s reply, the AO denied the deduction stating that the assessee had failed to satisfy the condition laid down in sub-clause (i)(b) of explanation to section 80IA(4) of the Act, according to which the deduction is available to an enterprise carrying on the business of developing or operating or operating and maintaining a new infrastructure facility. In his view the assessee is merely a sub-contractor not a developer and it is covered by the Explanation inserted in section 80IA(4) (below section 80IA(13). Thus the Ld AO completed the regular assessment determining the income at Rs 2,61,21,380/= by making disallowance of deduction claimed u/s.80IA of Rs.2,42,98,174/= and also disallowance u/s.40(a)(ia) of Rs.18,23,203 and demanded tax thereon.

3. Aggrieved against the assessment order, assessee filed an appeal before the Commissioner [Appeals]. During the appellate proceeding the assessee claimed that 80IA deduction is available to an assessee being an undertaking engaged in the business of developing, maintaining and operating any infrastructure facilities, that this deduction is available way back from A.Y. 1996-97, whereas the Explanation has been recently brought in the statute, because of which the assessee should not suffer. That the retrospective amendment is unduly oppressive and in gross violation of fundamental rights, and that the deduction should be allowed to the appellant because it is a developer. The Ld CIT[A] considered the submissions of the assessee and dismissed the claim by observing as follows:

“… 7. Facts on record show that the appellant which is a Joint Venture undertaking constituted by two companies Dineshchandra R Agarwal Infracon Pvt. Ltd. and M.S.Khurana Engineering Ltd. under the name of DRAIPAL-