C.N. PRASAD

1. This appeal is filed by the assessee against the order dated 30.04.2021 passed by National e-Assessment Centre, Delhi for the AY 2016-17 u/s. 143(3) read with section 144C(13) read with section 144B pursuant to the directions of the DRP u/s. 144C(5) of the Act dated 08.03.2021. The assessee in its appeal raised the following grounds of appeal:

1. "That on the facts and in law the National e-Assessment Centre (hereinafter referred to as the "AO") has erred in assessing the total income of the appellant at Rs. 152,93,13,095/- as against a returned total income of Rs. NIL/-.

2. That on facts and in law in the final order of assessment, the AO has erred in computing the Gross Total Income without taking into effect income declared by the appellant in the Revised Return of Income (filed on 31.03.2018), despite the fact that in the draft order of assessment Gross Total Income was computed after giving effect to the Revised Return of Income.

3. That on facts and in law the AO/DRP have erred in disallowing deduction u/s. 80IA(4)(i) claimed by the appellant in the revised return of income.

3.1 That on facts and in law the AO/DRP have erred in holding that:

(a) Contractees, who have allotted work of infrastructural facility to the appellant, are not recognized u/s. 80IA(4)(i)(b), and

(b) Appellant is merely a contractor and not a "developer".

4. That on facts and in law the TPO/DRP have erred in making/upholding Transfer

(a) Adjustment of Rs. 1,01,87,884/- on account of alleged interest receivable on advance given to M/s. BSC C&C JV Nepal Pvt. Ltd.

(b) Adjustment of Rs. 37,71,124/- on account of interest paid to Mr. B. Krishnalah.

4.1 That on facts and in law the TPO/DRP has erred in not appreciating that there is no advance given by the appellant to M/s. BSC JV Nepal Pvt. Ltd. and hence there is no "transaction" for receiving interest from the AE.

4.2 That on facts and in law the TPO/DRP have erred in holding/upholding that "transaction" for interest receivable/payable is a separate "transaction" requiring independent benchmarking.

5. That on the facts and in law the TPO/DRP have erred in benchmarking alleged "transaction" for interest receivable and "transaction" for interest payable applying:

(i) CUP of SBI Prime Lending Rate, and

(ii) Mark-up of 300 basis points

6. That on facts and in law the TPO/DRP have erred in rejecting the comparable CUP selected by the appellant for benchmarking "transaction" for interest payable to Mr. B. Krishnalah.

7. That on facts and in law the DRP has erred in holding that the appellant has not demonstrated the commercial expediency of availing loan from Mr. B. Krishnaiah.

8. That on facts and in law the AO/DRP has erred in making a disallowance of Rs. 3,55,46,576/- on account of late deposit of EPF Contribution of employees without appreciating the fact that the same was deposited by the appellant before the due date of filing the Income-tax Return.

9. That on facts and in law the AO has erred in making a disallowance of Rs. 2,33,25,511/- on account of retention money released by the Employer of the appellant without appreciating that disallowance to this effect has already been made by the appellant in the Revised Return of Income."

2. The Ld. Counsel for the assessee at the outset submitted that ground no. 1 is general in nature. Ld. Counsel submits that in ground no. 2 the assessee is agitating the action of the Assessing Officer in not considering the revised return of income filed on 31.03.2018 for the purpose of computing the income of the assessee for the assessment year under consideration while passing the assessment order u/s. 143(2) r.w.s. 144C(13) of the Act. The ld. Counsel submits that assessee has filed its original return of income on 30.11.2016 declaring total income of Rs. 145.64 crores. Thereafter, a revised return of income was filed on 31.03.2018 declaring NIL income after claiming deduction u/s. 80IA of the Act. Ld. Counsel submits that the draft assessment order was passed by the Assessing Officer on 31.12.2019 after taking into consideration the revised return of income filed by the assessee. The Ld. Counsel submits that the Assessing Officer while passing the final assessment order on 30.04.2021 u/s. 143(3) r.w.s. 144C(13) of the Act he has started the final computation of income shown in the original return of income as against the income shown by the assessee in the revised return of income. Ld. Counsel therefore submits that direction may be given to the Assessing Officer to correctly compute the total income after taking into consideration the revised return of income filed by the assessee.

3. Heard both the parties and perused the copies of returns placed in the paper book. On perusal of the draft assessment order, we noticed that the Assessing Officer had already taken cognizance of the revised return filed by the assessee on 31.03.2018 and this return was picked up for scrutiny while passing the final assessment order on 30.04.2021. The Assessing Officer started the computation of income by taking the income declared in the original return filed by the assessee instead of the income declared in the revised return. The Assessing Officer is directed to act upon the revised return filed by the assessee and compute the income accordingly for the assessment year under consideration. Ground no. 2 is allowed for statistical purpose and Ground No. 1 being general ground the same is not required to adjudicate.

4. Ground no. 3 of grounds of appeal of the assessee is in respect of disallowance of deduction claimed u/s. 80IA of the Act.

5. Briefly stated the facts are that the assessee BSC C&C Joint Venture (JV) is a Joint Venture between two Infrastructure Companies namely BSCPL Infrastructure Ltd. and C&C Constructions Ltd. The assessee JV is involved in construction of roads, toll roads, highways and urban infrastructure including water, sanitation and sewage, power/telecom transmission towers, commercial buildings, etc. The assessee filed its original return of income on 30.11.2016 declaring total income of Rs. 145,64,82,000/-. Subsequently, assessee filed revised return of income on 31.03.2018 declaring NIL income after claiming deduction of Rs. 192,72,50,469/- u/s. 80IA of the Act. However, the Assessee restricted the deduction to Rs. 92,16,78,586/- to the extent of the profits available.

6. The claim of the assessee for deduction u/s. 80IA of the Act was proposed to deny by the Assessing Officer in the draft assessment order on the ground that the assessee has not fulfilled the conditions specified in sub-section (4) of Section 80IA of the Act. According to the Assessing Officer requirement of Section 80IA(4)(i)(b) is that contractee companies should have entered into an agreement with the Central Government or State Government or a local authority or any other statutory body but in the case of the assessee the following six projects executed by the contractee companies or neither Central Government nor State Government or a local authority nor any other statutory body and therefore, the assessee is not entitled for deduction u/s. 80IA of the Act:

1. DFCC Mohania

2. Danapur ROB

3. Subansari

4. Ganga Bridge Digha

5. Ganga Bridge Sonepur

6. Muzaffarpur ROB

7. The Assessing Officer is of the view that the Assessee JV is a Contractor of Mokama-Munger Project by virtue of an Engineering Procurement and Construction (EPC) agreement entered into by a Mokama-Munger Pvt. Ltd. which is the Project Company with Assessee JV as an EPC Contractor. The Assessing Officer observed that it is the Project Company i.e. Mokama-Munger Highway Ltd., which has been awarded the contract by NHAI and thereafter, the Project Company has entered into an agreement with the assessee as an EPC Contractor for carrying out the contract work awarded by NHAI and, therefore, the basic condition of sub-section (4) of Section 80IA is not fulfilled.

8. Further the Assessing Officer was also of the view that the assessee is only a contractor and not a developer as the developer is expected to arrange finances and also to undertake risk. According to the Assessing Officer, assessee cannot be held to be a developer and, therefore, deduction claimed u/s. 80IA was denied. The assessee approached the DRP and made its elaborate submissions. However, the DRP noted that the analysis as well as the conclusions drawn by the Assessing Officer is based on perusal of contract agreements and its details and, therefore, did not find any reason to interfere with the conclusions drawn by the Assessing Officer.

9. The Ld. Counsel for the assessee before us referring to the provisions of clause (b) of sub-section (4) of Section 80IA of the Act submits that any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility and has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility is entitled for deduction u/s. 80IA of the Act. The Ld. Counsel submits that the objection of the Assessing Officer is that since the Assessee has not entered into an agreement with either Central Government or a State Government or a local authority or any other statutory body the assessee is not entitled for deduction u/s. 80IA of the Act.

10. The Ld. Counsel for the assessee submitted that the AO has objected with regard to the deduction claimed u/s. 80IA of the Act by the assessee on contracts awarded by Dedicated Freight Corridor Corporation Limited (DFCCIL), IRCON International Ltd. (IRCON) and Power Grid Corporation of India Ltd. (PGCIL). Ld. Counsel for the assessee referring to pages 504 to 508 which is the annual report for the FY 2015-16 of the Indian Railways submits that DFCCIL and IRCON are under the Ministry of Railways. The Ld. Counsel submits that the complete organization structure of Ministry of Railways is explained in the annual report. Ministry of Railways has four major parts Zonal Railways (open lines), production units, other units and CPSC/CORP. CPSC/CORP includes DFCCIL & IRCON. The Ld. Counsel for the assessee further submits that the DFCCIL is a special purpose vehicle set up under the administrative control of Ministry of Railways to undertake planning and development mobilization of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. The Ld. Counsel submitted that IRCON International Ltd. is formerly known as Indian Railways Construction Company Ltd., Yamini Ratna and Schedule 'A' PSU which was incorporated mainly for the purpose of construction and development of Railway Infrastructure in India and abroad with Indian Railways ex-parties. Ld. Counsel submits that the company diversified in other areas and considering its major share of business from projects abroad its name was changed to IRCON International Limited in 1994. The Ld. Counsel submits that the copy of agreement with the IRCON International clearly shows that the tender documents were issued by the Ministry of Railways. IRCON International has executed the contracts under the Ministry of Railways.

11. The Ld. Counsel for the assessee further submits that PGCIL is part of Ministry of Power as depicted in the organization structure as is evident from annual report for the FY 2015-16 of Ministry of Power. The annual report observes the purpose of incorporating PGCIL and has been a notified central transmission utility since 1998. It is responsible for integrated development of Interstate transmission system in the Country for evacuation of power from central sector projects, system strengthening scheme, etc. and for implementation of transmission projects assigned to it. Therefore, the Ld. Counsel submits that the above Companies (PCUs & PSCs) are incorporated by Central/State Governments as special purpose vehicle to undertake specific jobs of respective Ministries.

11.1. The Ld. Counsel for the assessee further submits that the provisions of Section 80IA incentive wise rapid development of infrastructural projects in India and, therefore, a liberal interpretation has to be given to the condition stipulated in Section 80IA(4)(i). It is submitted that the literal/strict interpretation of Section 80IA(4)(i)(b) as done by the AO will yield manifestly absurd results and this kind of interpretation has not been approved by the High Courts in the following cases:

1. CIT Vs. Ranjit Projects Pvt. Ltd. 408 ITR 274 [LQ/GujHC/2018/517] SLP filed by the Revenue dismissed by the Hon'ble Supreme Court reported in 263 Taxman 363 [LQ/SC/2019/532] ;

2. CIT Vs. Chettinad Lignite Transport Services Pvt. Ltd.413 ITR 162 and

3. CIT Vs. Chettinad Lignite Transport Services Pvt. Ltd.415 ITR 107.

12. The Ld. Counsel further placing reliance on the following decisions submits that deduction u/s. 80IA of the Act was allowed for the entities where the contracts were awarded by PSCs/PSCs:

1. Well Spun Purchase Vs. ITO (ITA No. 1864/Hd./2013 & ITA No. 225/Hd./2014) for M.P. Rajya Setu Nirman Nigam Ltd.;

2. ACIT Vs. Patel Engineering Ltd. (ITA No. 6605/Mum/2013) (National Hydro Electric Power Corporation Ltd. for Teesta Lower Dam Project);

3. Simplex Power Projects Ltd. Vs. CIT (ITA No. 250/Kol./2012) (IRCON International Ltd., Konkan Railways Corporation Ltd. for ROB Projects).

13. Therefore, the Ld. Counsel for the assessee submits that the assessee company duly qualifies for deduction u/s. 80IA of the Act on the projects awarded by these Corporations such as DFCCIL, IRCON International and PGCIL.

14. The Ld. Counsel for the assessee further in respect of Mokama-Munger Project submitted that National Highway Authority of India (NHAI) had awarded the Project to the assessee JV vide Letter of Award (LOA) dated 19.05.2010 which is placed at page 733 of the Paper Book. The Ld. Counsel submits that Mokama-Munger Highway Ltd. was incorporated as a pre condition of NHAI as specified in the LOA. After incorporation of Mokama-Munger Highway Ltd. the concession agreement was made with NHAI and the assessee had entered into an agreement with Mokama-Munger Highway Ltd. to carry out the whole of the project as per LOA. Therefore, the assessee is eligible for deduction u/s. 80IA(4) in view of various decisions relied on earlier.

15. The Ld. DR strongly placed reliance on the orders of the authorities below. The Ld. DR further submits that all the Contractors who have been awarded the projects are only Companies and they are not statutory bodies as held by the AO/DRP and, therefore, the deduction u/s. 80IA(4) has rightly been denied to the assessee.

16. Heard rival contentions, perused the orders of the authorities below and the material placed before us. On perusal of the draft assessment order, we observe that the reason for denying the deduction claimed u/s. 80IA(4) by the AO was that the agreement for development of projects has to be entered into by a Company registered in India or by a consortium of such Companies with Central Government or State Government or a local authority or any other statutory body. However, DFCCIL, PGCIL and IRCON have not come into existence because of any law connected by any legislature and, therefore, they are not statutory bodies but are only Companies owned by the Government. Thus, the AO was of the view that the basic condition for claiming deduction u/s. 80IA(4) in respect of six projects which was awarded by DFCCIL, PGCIL and IRCON are not fulfilled as these contractee companies are neither Central Government nor State Government nor a local authority nor any other statutory body.

17. The AO further observed that insofar as Mokama-Munger Project is concerned the assessee JV entered EPC agreement with Mokama-Munger Highway Ltd. which is a Company registered under the provisions of Companies Act and Mokama-Munger Highway Ltd. obtained contract from NHAI, the assessee is an EPC Contractor for carrying out the contract work awarded by NHAI to the Project Company namely Mokama-Munger Highway Ltd. and, therefore, fails to fulfill the basic condition of sub-section (4) of Section 80IA.

18. The AO was also of the view that the assessee is not a developer but only a contractor and, therefore, not entitled to claim deduction u/s. 80IA(4) of the Act.

19. Before the DRP the assessee filed elaborate submissions contending that DFCCIL and IRCON are under the Ministry of Railways and PGCIL comes under the Ministry of Power and, therefore, these Companies are incorporated by Central/State Governments as special purpose vehicle to undertake specific job of respective Ministries. It was contended before the DRP that DFCCIL and PGCIL are public sector undertakings and, therefore, the assessee is eligible for deduction u/s. 80IA on the contracts awarded by these Corporations. Following are the objections filed by the assessee before the DRP in respect of the deduction claimed u/s. 80IA of the Act:

"It is submitted that any contract awarded by PSUs duly qualify for deduction u/s. 80IA of the Act.

Following is the list of Employers, on whose contracts the assessee has claimed deduction:

1. Chief Engineers, PWD (Roads), Meghalaya, Shillong

2. Dedicated Freight Corridor Corporation Ltd. (DFCC)

3. Ircon International Ltd. (IRCON)

4. Power Grid Corporation of India Ltd. (PGCIL)

The Ld. AO has objected with regard to the deductions claimed u/s. 80IA by the applicant on contracts awarded by DFCC, IRCON, PGCIL.

DFCC & IRCON are under the Ministry of Railways.

Organisational Structure of Ministry of Railways: We are submitting herewith relevant pages of the Annual Report for the FY 2015-16 of Indian Railways. It explains complete Organisation Structure of Ministry of Railways. Your Honour would observe that Ministry of Railways has four major parts - Zonal Railways (Open Lines), Production Units, Other Units and CPSE/CORP. CPSE/CORP includes DFCCIL & IRCON. Your Honour would further observe the purpose of incorporating the above said two companies as detailed below:

Ircon International Limited (IRCON)

Ircon International Limited (formally known as Indian Railway Construction Company Limited), a Mini Ratna and Schedule A'

PSU, was incorporated on 28th April, 1976, mainly for the purpose of construction and development of Railway infrastructure in India and abroad with Indian Railways' ex-parties. The company diversified in other areas and considering its major share of business from projects abroad, its name was changed to "Ircon International Limited" w.e.f 17th October 1995.

Dedicated Freight Corridor Corporation of India Limited (DFCCIL)

Dedicated Freight Corridor Corporation of India (DFCCIL) is a Special Purpose Vehicle set up under the administrative control of Ministry of Railways to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. DFCCIL was incorporated on 30th October 2006 under Indian Companies Act 1956.

Your Honours may also observe from the copy of the agreement with IRCON International (submitted separately) that the Tender Documents were issued by the Ministry of Railways. IRCON International has executed the contracts under the Ministry of Railways.

Organisational Structure of Ministry of Power:

We are also submitting herewith relevant pages of the Annual Report for the FY 2015-16 of Ministry of Power. It explains complete Organisation Structure of Ministry of Power. Your Honour would observe that Power Grid Corporation of India Ltd. is a part of Ministry of Power as depicted in the Organisation Structure.

Your Honour would further observe the purpose of incorporating the above said PGCIL as detailed below:

Power Grid Corporation of India Limited (FGCIL)

Power Grid Corporation of India Limited (POWERGRID) was incorporated on October 23, 1989 & has been the notified Central Transmission Utility since 1998. The Corporation is responsible for integrated development of inter-state transmission system in the country for evacuation of power from central sector projects, system strengthening scheme etc., and for implementation transmission projects assigned to it. Power System Operation Corporation Limited (POSOCO), a full owned subsidiary of POWERGRID, is responsible for Grid management through Regional & National Load Despatch Centre.

Your Honours would observe that the above said companies (PSUs & PSEs) are incorporated by Central/State Governments as Special Purpose Vehicle to undertake specific jobs of respective Ministries. Purposes of incorporating these PSUs/PSEs are the specific purposes. These are incorporated for better management, control and progress and to undertake diverse activities with maximum control and maximum output. Particular Ministry and its Officers cannot look after whole of operations in India as India is a vast country. All jobs of a particular Ministry are divided into parts and are assigned to separate Units/Enterprises. These separate Units/Enterprises have total control over specific activity and work for the maximum output and benefit. Hence, these cannot be treated as separate entity from Centre/State Governments as these are the special purpose entity incorporated by Centre/State Government.

Moreover, it is submitted the provisions of section 80IA incentives rapid development of infrastructural projects in India. A liberal interpretation has to be accorded to the condition stipulated in section 80IA(4)(i). -Higher courts have repeatedly held that a strict construction of requirements stipulated in section 80IA(4)(i) will yield manifestly absurd results. In this regard kind reference of your goodself is invited to the decision of Hon'ble Gujrat High Court in case of CIT vs Ranjit Projects (P) Ltd. reported in (2019) 104 taxmann.com 391 (Guj). In this case it has been held by Hon'ble High Court as under:

"13. The above statutory provisions and the relevant facts arising in the present case and noted above would leave little doubt in one's mind that GSRDC was a nodal agency constituted by the State Government for the purpose of executing road development projects through private participation and was a Government agency as defined in section 2(e) of the Act of 1999. Significant factors in the present case are that the road widening project was cleared by the Government, land for such purpose was allotted by the Government. The concession agreement which GSRDC executed was approved by the Government. It was under the Government Resolution that the assessee would collect toll upon completion of such project. Upon the completion of the project period, the entire infrastructure so developed would vest in the Government. Signatory to the applicant may be GSRDC for all practical purposes and in essence, it was the agreement between the assessee and the State Government. We are conscious that condition (b) of sub-section (4) of section 80IA requires the assessee to have entered into agreement with the Central Government or a State Government or a local authority or any other statutory authority. However, rigid interpretation of this provision as canvassed by the Revenue would only result into the assessees involved in genuine infrastructure development projects for and on behalf of the Government or local authorities would be denied the deduction merely on the ground that the State Government had created a nodal agency for working out the finer details and nitty-gritty of such infrastructure development.

The purpose of creating such nodal agencies as well as the legislative intent of granting deduction to the assessee engaged in developing, maintaining or operating any infrastructure projects for Central or State Government or local or statutory authorities would frustrate. "

It is relevant to note that above decision of Hon'ble Gujrat High Court has also been upheld by the Hon'ble Apex Court vide order dated 05th March 2019 in 263 Taxman 3(SC). Similar findings have also been given by Hon'ble Madras High Court in following cases:

• CIT vs Chettinad Lignite Transport Services (P) Limited reported in 413 ITR 162(Mad), and

• CIT vs Chettinad Lignite Transport Services (P) Limited reported in 415 ITR 107(Mad)

Board's Circular No. : 733

Further, we would also like to draw Your Honour's kind attention to Circular No. : 733 dated 3rd January, 1996 of CBDT. In the said Circular, Hon'ble CBDT had stated that projects awarded by Indian Railways under BOLT (Build-Own-Leased-Transfer) in addition to the projects awarded under BOT & BOOT system will also qualify for deduction u/s. 80IA of the Act. Text of the said Circular is as follows:

"Whether Build-Own-Lease-Transfer (BOLT) Scheme of Indian Railways shall be eligible for benefit under section 80IA, since it is not legally possible for any enterprise other than Indian Railways to maintain and operate Railway System

1. The Finance Act, 1995 has introduced sub-section (4A) in section 80IA of the Income-tax Act, 1961 providing for a five-year tax holiday and a deduction of 30 per cent in the subsequent five years within a period of twelve assessment years beginning with the assessment year in which an enterprise (which may be owned by a company or a Consortium of companies) begins operating and maintaining an infrastructure facility on Build-Operate-Transfer (BOT) or on Build-Own-Operate-Transfer (BOOT) basis, subject to certain conditions specified in that sub-section.

One of the conditions to be fulfilled by the enterprise is that it should develop, maintain and operate a new infrastructure facility which shall be transferred to the Central Government, etc., within the period stipulated in the agreement. The definition of infrastructure as per sub-section (12) of section 80IA includes a rail system also.

2. The Indian Railways have formulated a Build-Own-Lease-Transfer (BOLT) Scheme, whereunder a private enterprise will provide the necessary and crucial components of a Railway system, own them for a stipulated period but will not maintain or operate the same. Instead, the enterprise will lease the asset (only necessary and crucial components of a Railway System) back to Indian Railways for maintenance and operation, and shall ultimately transfer it to Indian Railways.

3. This is to clarify that, the said (BOLT) Scheme of the Indian Railways shall be eligible for the benefit of section 80IA of the Income-tax Act, 1961, since it is not legally possible for any enterprise other than the Indian Railways to maintain and operate a Railway System. However, this concession shall be applicable only to an infrastructure facility meant for development of Rail System and not to any other infrastructure facility including Rolling Stocks."

Circular : No. 733, dated 3-1-1996.

Your Honour would observe from the above that Hon'ble CBDT has allowed deduction u/s. 80IA on the projects awarded by Indian Railway under BOLT System other than BOT & BOOT Systems.

This clearly shows the intent of the legislature that projects awarded by PSUs/PSEs duly qualify for deduction u/s. 80IA as these PSUs & PSEs are incorporated by Central/State Governments for carrying out the projects of the Government. Central/State Governments or Statutory Bodies do not award any contract directly in India. They award the contracts through these Corporations only.

Legal matrix:

We are also enclosing herewith following case laws, where the contracts were awarded by PSU/PSE and the deduction u/s. 80IA of the Act was allowed:

1. ITAT Ahmedabad in the case of Welspun Projects Vs. ITO (ITA No. 1864/Ahd/2013 & 225/Ahd/2014) for name of employers - M.P. Rajya Setu Nirman Nigam Limited.

2. ITAT Mumbai in the case of ACIT Vs. Patel Engineering Ltd. (ITA No. 6605/Mum/2013) for name of employers -National Hydroelectric Power Corporation Limited for Teesta Lower Dam Project.

3. ITAT Calcutta in the case of Simplex Projects Ltd. Vs. CIT (ITA No. 250/Kol/2012) where the employer was IRCON International Limited, Konkan Railway Corporation Ltd. for ROB Projects.

Hence, it is submitted that the assessee company duly qualifies for deduction u/s. 80IA of the Act on the projects awarded by these Corporation such as PGCIL, DFCC & IRCON.

Hence, it is submitted that the applicant may kindly be allowed deduction u/s. 80IA on the projects awarded by PGCIL, DFCC & IRCON.

It is prayed accordingly.

Re: Ground of Objection No. 5.1

Ld. AO further held that the project Mokama-Munger was awarded by an Indian Company - Mokama Munger Highway Ltd. (Para 9.4 of the order) and hence, deduction under section 80IA is not available on the same.

For the same, it is submitted that NHAI had awarded the above said project to the consortium of BSCPL Infrastructure Ltd. and C&C Constructions Ltd. (i.e. BSC C&C JV, the applicant) vide LOA dated 19.05.2010. Copy of the same is attached herewith for your kind perusal. The above said company - Mokama Munger Highway Ltd. was incorporated as a pre-condition of NHAI as specified in the said LOA. Kindly see the highlighted portion of above LOA.

After incorporation of the above said company, the concession agreement was made with NHAI and the applicant had entered into an agreement with the above said company to carry out the whole of the project. Ratio propounded and upheld by Apex Court in case of Ranjit Project's case (supra) is squarely applicable to the present situation.

In view of above, it is submitted that since NHAI had awarded the contract to the applicant, it cannot be held that the above said agreement was entered into with an Indian Company. The said Indian Company is a pre-condition imposed by NHAI and hence, the deduction u/s. 80IA of the Act may kindly not be denied to the applicant.

It is prayed accordingly.

Re: Ground of Objection No. 5.2

The Ld. AO further held that the applicant is not a developer and is rather a contractor.

The Ld. AO referred to the agreement with Chief Engineer, PWD (Roads), Meghalaya, Shillong and cited some clauses with regard to payments to be received by the applicant on monthly basis alongwith Advance Payments and Secured Advance (Para 9.5 of the order) and has stated that as per judicial understanding a Developer is not expected to raise bills at every step of construction and is expected to charge the cost of construction plus mark-up of his profit; a developer is expected to arrange his own finances and to undertake the risk.

In this regard, our humble submissions are as under:

It is submitted that the Ld. AO has stated that as per judicial understanding a Developer is not accepted to raise bills at every step and has to arrange his own finances. However, the Ld. AO has not quoted any case law to support his contention. The applicant during assessment proceedings had quoted a number of case laws which goes against the ground taken by the Ld. AO.

Payments received from the Contractee:

Ld. AO has held that a developer is not expected to raise bills on every step and recover its cost of construction. While alleging as such the Ld. AO has failed to appreciate the scheme of section 80IA(4) wherein benefit is provided on basis of nature of work done and not on basis/mechanism of remuneration derived.

It is submitted that the assessee has to recover its cost of development from the Government, otherwise, the entire cost of development will be a loss in its hands. Thus, if deduction u/s. 80IA is denied on the ground that the assessee had received payments from Government, then an assessee who is only a "developer" (and not an operator) will never be entitled to deduction u/s. 80IA, which is clearly not the intention of legislature. Thus, merely because the assessee was paid by the Government for development work, it cannot be denied deduction under section 80IA(4) of the Act. Reliance in this regard is placed on the following decisions:

a) Mumbai Tribunal in the case of AC IT v. Bharat Udyog Ltd. reported in (2009) 313 ITR 0168 held that:

"The interpretation of revenue is absurd also in view of the rational of the provisions of section 80IA(4)(i). From the assessment year 2000-01, deduction is available if the assessee carries on the business of any one of the abovementioned three types of activities. When an assessee is only developing an infrastructure facility/project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it: otherwise, how will the person, who develops the infrastructure facility project, realise its cost If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferor has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80IA(4), which is not the intention of the law. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility: When the Legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it pre-supposes that there can be income to developer, i.e., to the version who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll therefrom, has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity, that is, activity eligible for deduction under section 80IA inasmuch as mere 'development' as such and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80IA. Therefore, merely because the present assessee was paid bu the Government, for development work, it cannot be denied deduction under section 80IA(4-).A person, who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer". On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer; nor will it debar the assessee from claiming deduction under section 80IA(4)."
b) Indore Tribunal in the case of Sanee Infrastructure Pvt. Ltd. vs. ACIT reported in 138 ITD 433 held that:

"12. Now coming to the main objection of the ld. CIT DR to the effect that the assessee was a Contractor and not developer in view of the fact that the assessee was paid by the Government in respect of the work undertaken by it and assessee has not invested his own funds for completing the Project nor assessee has recovered the same through operating the facility thereafter. As per our considered view, after amendment by the Finance Act, 2002 for claim of deduction u/s. 80IA(4) infrastructure facility is only required to be developed and there is no condition that assessee should also operate the same. Thus, after amendment, when the assessee is not required to operate the facility, the payment for development of such infrastructure is required to be made by the Government only. However, as per pre-amended law when the assessee was not only required to develop but also required to operate and maintain the infrastructure facility, there was collection of revenue through toll tax by which assessee could have recovered not only its cost part but also profit thereon. After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed bu it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions for claim of deduction u/s. 80IA(4) when the Government has made payment to the assessee in respect of the project of infrastructure development undertaken bu it in terms of respective agreement entered into with Government.
Thus from the above, it is clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s. 80IA of the Act.

Deduction Section 80IA(4):

The assessee is eligible for deduction under section 80IA which has been explained as below:

Section 80IA provides that deduction as per clause (4) to Section 80IA of the Act is available to an enterprise:

a> which is developing or operating and maintaining or developing, operating and maintaining any infrastructure facility,

b> has entered into an agreement with Central Government, State Government and or local authority or Statutory body on or after 01.04.1995 for developing a new infrastructure facility,

c> "infrastructure facility" means a road, toll road, bridge, rail system etc.,

d> Further, the explanation to the said section also states that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1) 80IA of the Act.

The above said four conditions has been explained below:

A. As submitted applicant is a "developer" of infrastructural projects. Statute provides benefit of deduction u/s. 80IA(4) to a person who is either (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility. On the other hand Explanation to section 80IA restricts the benefit of deduction under section 80IA(4) of the Act to a person who executes a project which is in the nature of works contract. Rajkot ITAT in case of Kataria Constructions Limited reported in 185 ITD 173 (Rajkot) has examined the scope of terms "developer", "contractor" and "work contract" vis-a-vis section 80IA(4) as under:

".......For this purpose, first of all it is imperative to appreciate the difference between a 'developer' and a 'contractor'. Generally in common parlance a person is referred as 'developer' who undertakes the project to develop and construct on its own responsibility and takes all the risks of the development. These responsibilities and risk can be categorized as under:

(a) That in a development contract" responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the developer exercise complete realm over the land or the project. However, in some case there can be a situation that the developer has to take the approval of the design from the Government/contractee but that will not change the status of the developer as works contractor.

(b) That the first phase for the developers is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress.

(c) That a developer has to execute managerial responsibility by engaging the requisite qualified/skilled/semi-skilled staff and the labourers including the other supporting staff As the developer under takes the complete responsibility of the manpower to be used in developing the infrastructure facility.

(d) The assessee has to utilize its expertise, experience including its technical knowhow in the development of the project.

(e) That a developer has to execute financial responsibility. A developer is therefore expected to arrange finances either by private placement or from financial institutions for the proper development of the project at its own risk. Thus the developers are the one who undertakes entrepreneurial and investment risk besides the business risk.

(f) That a developer is required to bring the qualitative material The Government does not provide any material to the assessee.

(g) That a developer is required to bring plant and machineries to be utilized in the project.

(h) Any loss caused to the public or the Government in the process of developing the project would be the responsibility of the developer. The Government shall not take any responsibility for any such kind of loss except where it is responsible.

(i) That a developer stands as guarantor for the project developed by it and in the event of any defect it, he shall provide the remedy for the same.

(j) That a developer shall be exposed to the penalty if it contravenes the any of the clause appearing in the contract awarded by the Government. Thus, the developer is responsible to complete the construction in a specified manner failing which it would be responsible for the consequences of delay/any other fault attributable to it.-

(k) That a developer shall undertake to maintain safety, security and protection of the environment..

(I) That a developer shall provide and maintain at his own cost all lights, guards, fencing, warning signs and watching, when or where necessary.

These are few broad sample qualities/parameters of a developer through which the character of a developer can be defined.

13.2 On the other hand, a 'contractor' is a person who undertakes work on a contract basis. He does not assume risks and responsibilities like that of a developer. He merely carries out the work as has been instructed to him by the contractee. Moreover, in case of such work the contractor gets fixed amount of revenue for executing such work and is not entitled to any share of profit from revenue generated by the developer/land owner.

13.3 To summarize, the developer acts as a principal whereas the contractor acts as an agent in performing the Junctions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility the infrastructure facility whereas the contractors are those persons who merely execute part of these functions on behalf of developer and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under section 80IA of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer.

13.4 In view of the above, we note that it is possible to ascertain whether a civil construction work is assigned on development basis or contract basis only on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract......."

True test therefore is who is carrying on Entrepreneur Risk. The above proposition has also echoed by the decision of Kolkatta ITAT in case of ACIT vs Ho Hup Simplex reported in (2018) 92 taxmann.com 106(Kol) and it is held as under:

"6.15 We find that like any other entrepreneur who employs his material, plant, machinery, labour etc in a project and undertakes risk, the assessee was also exposed to a substantial amount of risk by virtue of engaging his establishment in the infrastructure projects. In addition, the assessee was exposed to risk of non-completion of work within time, any damage caused to the works, site etc. increase in prices of materials, labour etc. beyond what the Government had agreed to compensate as per the agreement.

6.16 From the facts stated above, it is clear that the assessee was a developer and not a mere works contractor. Thus, it is clearly outside the purview of the Explanation to section 80IA(13) of the Act."

Kind reference is also invited to the decision of another Kolkatta ITAT decision in case of BMW Industries Ltd. reported in 162 ITD 650(Kol) where in again it is held as under:

"21. The CIT has also observed that the Assessee was only a contractor and not a developer because he was carrying out work as per the contracts awarded by the Executive Engineer. As rightly pointed out by the learned counsel for the Assessee, the question as to whether the Assessee as per the question as to whether the Assessee is 'developer' or 'contractor' has to be tested in the light of the subsequent decisions rendered on the issue by the Hon'ble Bombay High Court in the case of ABG Heavy Industries (supra) and the order of the Division Bench of ITAT giving effect to the larger bench (third member) decision in the case of B.T. Patil & Sons(supra). According to these decisions what is to be seen is as to whether the assessee has shouldered out Investment & Technical risk in respect of the work executed and it is liable for liquidated damages if it failed to fulfill the obligation laid down in the agreement. The liability that was assumed by the assessee under terms of the contract would be obligations involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons. If the above conditions are satisfied, then it would not be correct to say that assessee is merely a contractor and not a developer. Without giving adverse finding on the above tests, the CIT could not conclude that the order of the AO was erroneous and prejudicial to the interest of the revenue."
It will therefore be relevant to see whether the applicant has acted as an entrepreneur who has employed his material, plant, machinery, labour etc in a project and undertaken risk. This has been narrated in detail in Point No. C below of each project.

B. The assessee should enter into an agreement with Central Government, State Government and or local authority or Statutory body on or after 01.04.1995. As explained in Ground of Objection No. 5 even contracts entered into with PSUs/PSEs, fully owned by the Governments, are also covered.

C. The agreement should be for development of a new infrastructure facility. New infrastructure facility also includes widening/improvement/upgradation of existing infrastructure. In this regard, we need to point out that the Central Board of Direct Taxes in its Circular No. 4/2010 issued on 18.05.2010 has clarified that the work of widening of an existing road by constructing additional lanes as a part of Highway project would be recorded as a new infrastructure facility for the purpose of Section 80IA(4)(i) of the Act. The said Circular is reproduced below for the sake of convenience:

"CIRCULAR NO. 4. OF 2010 DT. 18TH MAY, 2010

Widening of existing road-Definition of a new infrastructure facility- Clarification regarding 18/05/2010

DEDUCTIONS SECTION 80IA(4)

References have been received by the Board as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) of the Income-tax Act, 1961.

Section 80IA(4)(i) provides for a deduction to an undertaking engaged in developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility subject to satisfaction of the conditions laid down in the section. The Explanation to sub-section 80IA(4)(i) states that for the purpose of this clause, infrastructure facility means inter alia:-

"(a) a road including toll road, a bridge or a rail system;

(b) a highway project including housing or other activities being an integral part of the highway project;

The issue has been examined by the Board. It has been decided that widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 80IA(4)(i). However, simply relaying of an existing road would not be classifiable as a new infrastructure facility for this purpose.

Thus as per the Circular issued by the CBDT, it is settled that widening of existing roads by construction of additional lanes of a highway shall be considered to be new infrastructure facility for the purpose of Section 80IA(4)(i) of the Act.

D. As provided in Explanation to Section 80IA(4)(i), Infrastructure Facility includes a road including toll road, a bridge or a rail system; a highway project including housing or other activities being an integral part of the highway project; a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; a port, airport, inland waterway, inland port or navigational channel in the sea.

Before detailing the fulfillment of the above said conditions, we are giving hereby flow chart of getting construction contracts from NHAI, PWD, IRCON, DFCC, PGCIL etc.:

FLOW CHART FOR OBTAINING CONSTRUCTION CONTRACTS:

• Different Ministries such as Road & Transport Ministry, Railway Ministry, Power Ministry etc. decide about the development of infrastructure facility as per their yearly plan and as provided in the budget every year.

• According to the plan, these Ministries give work to different PSUs/PSEs or other autonomous bodies -PWD, NHAI or other PSUs.

• These PSUs/PSEs/Autonomous Bodies float the Tender on the leading newspaper and on their website.

• Interested parties collect the tender documents from the concerned offices. This tender documents contains, specifications, standards (including what type of material to be used), schedule, drawings of the entire project.

• The department will also provide the Estimated Project Cost (bench mark).

• The interested parties send their survey team to inspect the entire stretch of the project and compare with the drawings provided by the department.

• Accordingly, the Contractor submits the Tender and the work will be awarded to the lowest bidder.

• The lowest bidder will receive the LOI (Letter of Intent) from the Department and the bidder will send the confirmation.

• The Department and the bidder will execute the Contract Agreement and the bidder would give performance bank guarantee within the stipulated time mentioned in the Agreement.

• As per the agreement terms the bidder will get mobilisation advance on submission of bank guarantee.

• The bidder will start the work and submit the monthly work bill and the department will release the amount after verification of the work done and deduct the statutory deduction.

• Independent Engineer/Authority Engineer will issue the Completion Certificate after successful completion of the Work and Defects Liability Period will start from Completion Certificate date.

APPLICATION OF THE ABOVE SAID CONDITIONS TO THE PROJECTS EXCUTED BY THE APPLICANT:

It is submitted that applicant has complied with all the above conditions as enumerated in Section 80(IA) of the Act. For ease of ready reference the same has been demonstrated for two of our projects below.

It is clarified that all other projects have also been executed in a like manner and there is parity of facts.

i. SHILLONG PROJECT:

A> FIRST CONDITION - The Project has been awarded by State Government:

It is submitted that the project in this case was awarded by The Chief Engineer, P.W.D., Highway, Meghalaya. State Government has awarded the Project. Hence, the applicant has fulfilled first condition that the project was awarded by Central/State Government/local authority/Statutory Body.

B> SECOND CONDITION - The Project should be for development of a new infrastructure facility and infrastructure facility includes road, bridge, railway system etc.

Your Honours would observe from the following clauses that the assessee was engaged in the development of a new infrastructure facility which includes road, bridges etc:

Project: 2 laning of Nongstoin-Shillong section of NH-44 and Nongstoin- Rongjeng-Tura Road, in the state of Meghalaya under Phase-'A' of SARDP- NE- Job No. SARDP-NE-NH-44 & SR-MG-PWD-2010-11-172.

Detailed Project Description: Clause 9 of the Contract Data contains detailed project description as follows.

"9. Work consists of Earthwork, GSB, WMM, DBM, BC, Bridges, Culverts, Retaining/Breast Wall, Road Sign etc.

The work shall, inter-alia, include the following, as specified or as directed.

(A) Road Works

Site clearance; setting-out and layout; widening of existing carriageway and strengthening including camber corrections; construction of new roads/parallel service roads: bituminous pavements remodelling/construction of junctions, intersections, bus bays, lay byes; supplying and placing of drainage channels, flume, guard posts and guard other related items; construction/extensions of cross drainage works, bridges, approaches and other related stones; road marking, road signs and kilometre/hectometer stones; protective works for roads/bridges; all aspects of quality assurance of various components of the works; rectification of the defects in the completed works during the Defects Liability Period; submission of "As built" drawings and any other related documents; and other item of work as may be required to be carried out for completing the works in accordance with the drawings and provisions of the contact to ensure safety.

(B) Bridge Works

Dite clearance; setting out, provision of foundations, piers abutment and bearings; prestressed/reinforced cement concrete superstructure; wearing coat, hand railings, expansion joint, approach slabs, drainage spouts/down take pipes, arrangement for fixing light posts, water mains, utilities etc; provision of suitably designed protective works; providing wing/return walls; provision of road markings, road signs etc; all aspects of quality assurance; clearing the site and handling over the works on completion; rectification of the defects during the Defects Liability Period and submission of "As-built" drawings and other related documents; and other items of work as may be required to be carried out for completing the works in accordance with the drawings and the provisions of the contract and to Insure safety.

The above said detailed project description duly includes widening of the existing carriageway and construction of new roads/parallel road which establishes development of "New Infrastructure Facility" since as per Board's Circular widening of the existing roads by constructing additional lane would be development of New Infrastructure Facility.

THIRD CONDITION - The assessee is a developer of New Infrastructure Facility.

Following clauses of the Contract Agreement would substantiate that the applicant is Developer of a New Infrastructure facility and not a mere contractor as the applicant has undertaken both managerial as well as financial responsibility; it is under an obligation to design the project; it is fully responsible for development or completion of the project; it has undertaken complete risk of the project; it has employed manpower, machinery and has also arranged finances.

Responsibilities of the Contractor include following;

GENERAL CONDITIONS OF THE CONTRACT

Materials: Materials are all supplies, including consumables, used by the contractor for incorporation in the work.

Plant: Plant is any integral part of the Works which is to have a mechanical, electrical, electronic or chemical or biological function.

"9 Personnel

9.1 Contractor shall employ the key personnel named in the Schedule Key Personnel as referred to in the Contract Data to carry out the functions stated in the Schedule or other personnel approved by the Engineer. The Engineer will approve any proposed replacement of key personnel only if their qualifications abilities and relevant experience are substantially equal to or better than those of the personnel listed in the Schedule.

12 Contractor's Risks

12.1 All risks of loss of or damage to physical property and of personal injury and death which arise during and in consequence of the performance of the Contract other than the excepted risks are the responsibility of the Contractor.

13 Insurance

13.1 The Contractor shall provide in the joint names of the Employer and the Contractor, insurance cover from the Start Date to the end of the Defect Liability Period in the amounts and deductibles stated in the Contract Data for the following events which are due to the Contractor's Risks:

(a) loss of or damage to the Works, Plant and Materials;

(b) loss of or damage to Equipment;

(c) loss of or damage of property (except the Works, Plant, Materials and Equipments) in connection with the Contract; and

(d) personal injury or death.

21 Possession of the Site

21.1 The Employer shall give possession of all parts of the Site to the Contractor. If possession of apart is not given by the date stated in the Contract Data the Employer is deemed to have delayed the start of the relevant activities and this will be Compensation Event.

27 Programme

27.1 Within the time stated in the Contract Data the Contractor shall submit to the Engineer for approval a Programme showing the general methods, arrangements, order, and timing for all the activities in the Works along with monthly cash flow forecast.

32 Early Warning

32.1 The Contractor is to warn the Engineer at the earliest opportunity of specific likely future events or circumstances that may adversely affect the quality of the work, increase the Contract Price or delay the execution of works. The Engineer may require the Contractor to provide an estimate of the expected effect of the future event or circumstance on the Contract Price and Completion Date. The estimate is to be provided by the Contractor as soon as reasonable possible.

49 Liquidated Damages

49.1 The Contractor shall pay liquidated damages to the Employer at the r rate per day stated in the Contract Data for each day that the Completion Date is later than the Intended Completion Date (for the whole of the works or the milestone as stated in the contract data). The total amount of liquidated damages shall not exceed the amount defined in the Contract Data. The Employer may deduct liquidated damages from payments due to the Contractor. Payment of liquidated damages does not affect the Contractor's liabilities.

52 Securities

52.1 The Performance Security (including additional security for unbalanced bids) shall be provided to the Employer no later than the date specified in the Letter of Acceptance and shall be issued in an amount and form and by a bank or surety acceptable to the Employer and denominated in Indian Rupees. The Performance Security shall be valid until a date 28 days from the date of expiry of Defect Liability Period and the additional security for unbalanced bids shall be valid until a date 28 days from the date of issue of the certificate of completion.

54 Cost of Repairs

54.1 Loss or damage to the Works or Materials to be incorporated in the Works between the Start Date and the end of the Defects Correction period shall be remedied by the Contractor at the Contractor's cost if the loss or damage arises from the Contractor's acts or omissions.

SPECIAL CONDITIONS OF CONTRACT

1. LABOUR

The Contractor shall, unless otherwise provided in the Contract, make his own arrangements for the engagement of all staff and labour, local or other, and for their payment, housing, feeding and transport.

2. COMPLIANCE WITH LABOUR REGULATIONS:

During the continuance of the contract, the Contractor and his sub-contractors shall abide at all times by all existing labour enactments and rules made there under, regulations, notifications and bye laws of the State or Central Government or local authority and any other labour law.

ADDITIONAL SPECIAL CONDITION

1. From the date of taking over of site by contractor till the completion of the whole work. the entire responsibility for maintenance of the road portion including the portions where the work is not vet started (in addition to the maintenance of the already executed works) shall lie with the contractor. In case the contractor fails to carry out the maintenance works, he will be notified by the Executive Engineer to execute the same. If the contractor still then fails to carry out the same within 7 days from the date of receiving instruction etc. from the Executive Engineer in writing, the Executive Engineer will be done the work and the cost thereof will be recovered from the contractor's next bill for the works. The maintenance Road as required in the place of work is to be carried out as per the existing provisions of the road i.e. WBM/BUSG/PC/SC as may be applicable as per the director of the Engineer-in-charge.

D> FOURTH CONDITION; Above responsibilities and duties duly substantiate that the assessee is not a simplicitor contractor rather the assessee is developer of the project.

Your Honours would observe from the above said details that the Shillong Project duly complies with the conditions laid down for claiming deduction u/s. 80IA as follows:

i> The Project has been awarded by the State Government of Meghalaya;

ii> The Project is for development of "New Infrastructure facility" as the project is for widening of the existing carriageway;

iii> The Project was awarded after 01.04.1995;

iv> The applicant has to execute the whole of the project

v> The above said terms and conditions duly establish that total risk of the project is on the applicant; and is responsible for both managerial and financial responsibility; has duly given performance guarantee to the Employer; has bigger role than a Contractor, the applicant has to amend errors which may arise therein; it has to make own arrangement for plant, labour and material and hence, the applicant is a Developer.

2. DFCC Mohania:

A> FIRST CONDITION - The Project has been awarded by the Central Government:

It is submitted that the project in this case was awarded by Dedicated Freight Corridor Corporation of India Limited (A Government of India Enterprise). Kindly see underlined portion. Government of India has awarded the Project. Hence, the applicant has fulfilled first condition that the project was awarded by Central/State Government/local authority/Statutory Body.

B> SECOND CONDITION - The Project should be for development of a new infrastructure facility and infrastructure facility includes road, bridge, railway system etc.

Your Honours would observe from the following clauses that the assessee was engaged in the development of a new infrastructure facility which includes road, bridges railway system etc. Kindly see underlined portion of Letter of Acceptance which provides details of the project to be executed:

"Design and Construction of formation including blanketing, Major Bridges, Minor Bridges, RUBs, ROBs, Supply and Spreading of Ballast and other related infrastructural works for Dedicated Freight Corridor from Chainage 14.108 Km (from New Karvandiya) to Chainage 119.437 (New Ganj Khwaja) (Approx. 105 KMs) on Mughalsarai- Sone Nagar Section of Eastern Corridor

DFCC has constructed a new railway line for transportation of goods. The above said project description duly includes construction of blankets, bridges, RUBs (Rail Under Bridge), ROBs (Rail Over Bridge) and spreading of Ballast, which is basic infrastructure facility for laying Railway Tracks, which establishes development of "New Infrastructure Facility".

C> THIRD CONDITION - The assessee is a developer of New Infrastructure Facility.

Following clauses of the Contract Agreement would substantiate that the applicant is Developer of a New Infrastructure facility and not a mere contractor as the applicant has undertaken both managerial as well as financial responsibility; it is under an obligation to design the project; it is fully responsible for development or completion of the project; it has undertaken complete risk of the project; it has employed manpower, machinery and has also arranged finances.

Responsibilities of the Contractor include following:

Kindly see following Clauses of the Agreement for assessee's obligations with respect to the Project, which provides as follows:

1.1.6.4 Materials

1.1.6.4 "Materials" means things of all kinds (other than Plant) to be provided and incorporated in the Permanent Works by the Contractor, including the supply-only items (if any), which are to be supplied by the Contractee as specified in the Contract.

4.1 Contractor's General Obligations

4.1.1 The Contractor shall design including checking and validating of designs and drawings provided by the Employer (to the extent- specified in the Contract), execute and complete the Works wholly in accordance with the Contract and fit for the purposes for which they are intended, as defined in the Contract. The Works shall include any work which is necessary to satisfy the Employer's requirements, the Contractor's proposal and schedules or is implied by the Contract, or arises from any obligation of the Contractor and all works not mentioned specifically in the Contract but which may be inferred to be necessary for stability or completion or safe, reliable and efficient operation of the Works. The Contractor shall remedy any defects in the Works, as directed by the, Engineer.

4.1.2 The Contractor shall design, manufacture, procure, supply, execute, install, complete, test (including Integrated Testing) and commission the Works, including providing Construction and/or Manufacture Documents within the Time for Completion and shall remedy the defects within the Contract Period. The contractor shall provide all superintendence, labour, Plant, Materials, Contractor's Equipment, Temporary Works and all other things, whether of a temporary or permanent nature required in and for such design, procure, manufacture, execution, installation, completion, testing (including Integrated Testing) and commissioning and remedying all defects.

4.1.3 Before commencing design, the Contractor shall satisfy himself regarding the Employer's Requirements (including designs, criteria, specifications and calculations, if any and the items of reference mentioned in thereof. The Contractor shall give notice to Engineer of any error, fault or other defect in the Employer's requirements or such items of reference. After receipt of such notice, the Engineer shall determine whether shall be applied and shall notify the Contractor accordingly.

4.1.4 The Contractor shall be responsible for the adequacy, stability and safety of all site operations and of all methods of construction, manufacture and all Works irrespective of any approval or consent of the Engineer. The Contractor shall, whenever required by the Engineer, submit details of the arrangement and methods which the contractor proposes to adopt for the execution of the works. No significant alteration to these arrangements and methods shall be made without this having previously been notified to the Engineer.

4.4 Provision of Efficient and Competent Staff

The Contractor shall employ and keep on the works at all times efficient and competent staff to give necessary directives to his workers for execution of works in a safe and proper manner. If the Engineer asked the Contractor to remove a person of his work force stating the reasons, the contractor shall ensure that the person leaves the site within several days and has no further connection with the work in the Contract.

4.5.2 Performance Security

4.5.2.1 Amount of Performance Security

Within 15 days of receipt of the Letter of Acceptance, the successful bidder shall furnish Performance Security in the form of a bank guarantee from a Nationalized/Scheduled Commercial bank in India for an amount equal to eight percent (8%) of the Contract Value. The prescribed form annexed as of these conditions shall be used for Bank Guarantee. The Bank Guarantee shall be valid up to 6 months beyond the "Defect Liability Period".

Failure of the successful Tenderer/Bidder to furnish the required Performance Security shall be a ground for the annulment of the award of Contract and forfeiture of the Bid Security.

4.5.3 Security Deposit

The Bid Security' deposited by the contractor with a tender will be retained by employer as part of security' of the due and faithful fulfillment of the contract by the contractor and in addition, 2% will be deducted and retained from each on-account bills progressively so that overall retained security amount is 2% (two percent) of contract value, including the bid security.

4.15 Programmes

The Contractor shall submit a detailed programme to the Engineer after receipt of the Letter of Acceptance not later than 28 days from the date of receipt of Letter of Acceptance. The Contractor shall also submit a revised programme whenever the Engineer finds that the previous programme is inconsistent with actual progress or with the Contractor's obligations.

4.16 Contractor's Equipment

4.16.1 All Contractor's Equipment and Temporary Works provided by the Contractor shall, when brought on to the site, be deemed to be exclusively intended for execution of the Works and not be removed without the consent in writing of the Engineer. Such consent shall not be unreasonably withheld or delayed. The Contractor shall be responsible for all Contractor's Equipment. When brought on to the Site, Contractor's Equipment shall be deemed to be exclusively intended for the execution of the Works. The Contractor shall not remove from the Site any major items of Contractor's Equipment without the consent of the Engineer. However, consent shall not be required for vehicles transporting Goods or Contractor's Personnel off Site. Contractor's Equipment which is owned by the Contractor (either directly or indirectly) shall be deemed to be the property of the Employer with effect from its arrival on the Site. This vesting of property shall not:

a. Affect the responsibility or liability of the Employer,

b. Prejudice the right of the Contractor to the sole use of the vested Contractor's Equipment for the purpose of the Works; or

c. Affect the Contractor's responsibility' to operate and maintain Contractor's Equipment.

4.16.2 Upon completion of the Works the Contractor shall remove from the Site all the said Constructional Plant and his unused materials.

4.17 Safety of Works

The Contractor shall throughout the execution of the Works including the carrying out of any testing, commissioning (including integrated testing and commissioning) or remedying of any defect:

a. Take full responsibility for the adequacy, stability, safety and security of the Works, Plant, Contractor's Equipment, Temporary Works, operations on Site and methods of manufacture, installation, construction and transportation;

b. Have full regard for the safety of all persons on or in the vicinity of the Site (including without limitation persons to whom access to the site has been allowed by the Contractor), comply with all relevant safety regulations, including provision of safety gear, and in so far as the Contractor is in occupation or otherwise is using areas of the Site, keep the Site and the Works (so far as the same are not completed and occupied by the Employer) in an orderly state appropriate to the avoidance of injury to all persons and shall keep the Employer indemnified against all injuries to such persons;

c. Provide and maintain all lights, guards, fences and warning signs and watchmen when and where necessary or required by the Engineer or by laws or by any relevant authority for the purpose of the Works and for the safety and convenience of the public and all persons on or in the vicinity the Site; and

d. Where any work would otherwise be carried out in darkness, ensure that all parts of the Site where work is being carried out are so lighted as to ensure the safety of all persons on or in the vicinity of the Site and of such work.

4.18 Electricity, Water and Gas

4.18 The Contractor shall be responsible for making his own arrangements at his own cost to obtain supply of water, electricity or gas for the Works. The Employer where feasible may at its discretion assist the Contractor in this respect.

6. Design

6.1.1 The Contractor shall design and provide all necessary specifications for the Works in accordance with the site plans and Employer's requirements.' Any design detail, plan, drawing, specifications, notes, annotations and information required shall be provided in such sufficient format, details, extent, size and scale and within such time as may be required to ensure effective execution of Works and/or as otherwise required by the Engineer.

17.0 Engagement of Staff & Labour

17.1 The Contractor shall make his own arrangements for the engagement of staff and labour at his own cost. The Contractor's key staff shall be approved by the Employer before starting working on site. The Employer may require to interview and test the proposed staff before approval.

D> FOURTH CONDITION: Above responsibilities and duties alongwith other Clauses of the Agreement duly substantiate that the assessee is not a simplicitor contractor rather the assessee is a developer of the project who has taken complete responsibility and risk for the said DFCC Project.

Your Honours would observe from the above said details that the DFCC Project duly complies with the conditions laid down for claiming deduction u/s. 80IA as follows:

i> The Project has been awarded by the DFCCIL (A Government of India Enterprise);

ii> The Project is for development of "New Infrastructure facility" as the Government is constructing a new Freight Corridor to provide a safe and sufficient freight transport system;

iii> The Project was awarded after 01.04.1995;

iv> The applicant has to execute the given project wholly and exclusively.

v> The above said terms and conditions duly establish that total risk of the project is on the applicant; and is responsible for both managerial and financial responsibility; has duly given performance guarantee to the Employer; has bigger role than a Contractor, the applicant has to amend errors which may arise therein; it has to make own arrangement for plant, labour and material and hence, the applicant is a Developer."

20. None of these objections of the assessee were considered by the Ld. DRP in its order. The Ld. DRP felt that it does not find any reason to interfere with the conclusions drawn by the Assessing Officer observing as under:

"3.1.5.2 "Vide submission Appendix-2 pages 30 to 62 the assessee has given detailed submission and the panel has carefully considered the submission of the assessee as well as the observations of the AO in the draft order. The Panel observes that the AO has given a detailed discussion on the above disallowance vide para 9.2 and 9.4 of the draft order. The AO has gone through the details of the contract agreement for each of the above 6 projects and after analyzing the contract agreement as well as the payment conditions came to the conclusion that the assessee cannot be held to be a Developer. As deduction u/s. 80IA(4) of the Act is admissible only for developing and maintaining infrastructure facilities, and the fact that the assessee is not a Developer, the AO disallowed the deduction claimed u/s. 80IA(4) of the Act. The Panel notes that the analysis as well as the conclusions drawn by the AO is based on perusal of contract agreements and its details. Hence, the Panel does not find any reason to interfere with the conclusion drawn by the AO in this regard. Ground number 5 is rejected."

21. We observe that the assessee filed all the agreements entered into by it in respect of various projects with various undertakings for developing the infrastructural projects and made elaborate submissions as to why the assessee fulfills the conditions specified in Section 80IA(4) of the Act. The assessee contended that the Corporations with which it had entered into agreements are public sector undertakings of State/Central Governments, therefore, fulfills the basic condition u/s. 80IA(4) of the Act. The assessee also explained the various clauses of the agreements entered with various entities to prove that assessee is a developer and not merely a contractor. The basic objection of the AO in denying the claim u/s. 80IA was that the enterprise with which the assessee entered into agreement for developing the projects are not statutory bodies. However, the submissions and evidences placed on record suggest that these Companies/Entities were formed under various Ministries of Government of India and, therefore, the contention of the AO that the basic condition of provisions of Section 80IA(4) of the Act was not fulfilled by the assessee is not correct.

22. The second contention of the AO is that the assessee has entered into EPC agreement with Mokama-Munger Highway Ltd. which in turn had obtained a contract from NHAI and, therefore, the assessee is only an EPC contractor for carrying out work awarded by NHAI to Mokama-Munger Highway Ltd. and, therefore, the basic condition of sub-section (4) of Section 80IA is not fulfilled.

23. On perusal of the Letter of Authority (LOA) dated 19.05.2010 which is placed at page 733 of the PB it is observed that the NHAI accepted the assessee JV as a successful builder for developing two Layning with paved shoulders of Mokama-Munger section of NH80 in the State of Bihar on BOT basis under NHDP-III. The LOA clearly specifies that assessee JV shall promote and incorporate the concessionary as a Limited Liability Company under the Companies Act as the NTT which shall undertake and perform the obligations and exercise the rights of the builder under LOA including the obligation to enter into the concession agreement pursuant to the LOA for executing the project. This clearly shows that Mokama-Munger Highway Ltd. was incorporated as a pre condition for execution of the project as per the terms of LOA issued by NHAI to the assessee JV. Therefore, since NHAI through LOA has put a condition for incorporation of Limited Liability Company under the Companies Act for the purpose of undertaking and performing the obligation and exercise the rights of the builder under LOA and also to enter concession agreement pursuant to LOA for executing the project we are of the view that the assessee fulfills the basic condition under sub-section (4) of Section 80IA of the Act.

24. Coming to the last contention of the AO that the assessee is not a developer but only a contractor we find no substance in the contention of the AO. Various clauses in the agreement entered into by the assessee for execution of infra projects clearly shows that the assessee is the complete risk bearer, liable for liquidated damages in case of delay in execution of the projects. Some of the clauses in the agreement entered into by the assessee with the Chief Engineer PWD Highway, Meghalaya State Government are as follows:

"9. Personnel

9.1 Contractor shall employ the key personnel named in the Schedule Key Personnel as referred to in the Contract Data to carry out the functions stated in the Schedule or other personnel approved by the Engineer. The Engineer will approve any proposed replacement of key personnel only if their qualifications abilities and relevant experience are substantially equal to or better than those of the personnel listed in the Schedule.

12. Contractor's Risks

12.1 All risks of loss of or damage to physical property and of personal injury and death which arise during and in consequence of the performance of the Contract other than the excepted risks are the responsibility of the Contractor.

13. Insurance

13.1 The Contractor shall provide in the joint names of the Employer and the Contractor, insurance cover from the Start Date to the end of the Defect Liability Period in the amounts and deductibles stated in the Contract Data for the following events which are due to the Contractor's Risks:

(a) loss of or damage to the Works, Plant and Materials;

(b) loss of or damage to Equipment;

(c) loss of or damage of property (except the Works, Plant, Materials and Equipments) in connection with the Contract; and

(d) personal injury or death.

21. Possession of the Site

21.1 The Employer shall give possession of all parts of the Site to the Contractor. If possession of apart is not given by the date stated in the Contract Data the Employer is deemed to have delayed the start of the relevant activities and this will be Compensation Event.

27. Programme

27.1 Within the time stated in the Contract Data the Contractor shall submit to the Engineer for approval a Programme showing the general methods, arrangements, order, and timing for all the activities in the Works along with monthly cash flow forecast.

32. Early Warning

32.1 The Contractor is to warn the Engineer at the earliest opportunity of specific likely future events or circumstances that may adversely affect the quality of the work, increase the Contract Price or delay the execution of works. The Engineer may require the Contractor to provide an estimate of the expected effect of the future event or circumstance on the Contract Price and Completion Date. The estimate is to be provided by the Contractor as soon as reasonable possible.

49. Liquidated Damages

49.1 The Contractor shall pay liquidated damages to the Employer at the r rate per day stated in the Contract Data for each day that the Completion Date is later than the Intended Completion Date (for the whole of the works or the milestone as stated in the contract data). The total amount of liquidated damages shall not exceed the amount defined in the Contract Data. The Employer may deduct liquidated damages from payments due to the Contractor. Payment of liquidated damages does not affect the Contractor's liabilities.

52. Securities

52.1 The Performance Security (including additional security for unbalanced bids) shall be provided to the Employer no later than the date specified in the Letter of Acceptance and shall be issued in an amount and form and by a bank or surety acceptable to the Employer and denominated in Indian Rupees. The Performance Security shall be valid until a date 28 days from the date of expiry of Defect Liability Period and the additional security for unbalanced bids shall be valid until a date 28 days from the date of issue of the certificate of completion.

54. Cost of Repairs

54.1 Loss or damage to the Works or Materials to be incorporated in the Works between the Start Date and the end of the Defects Correction period shall be remedied by the Contractor at the Contractor's cost if the loss or damage arises from the Contractor's acts or omissions.

SPECIAL CONDITIONS OF CONTRACT

1. LABOUR

The Contractor shall, unless otherwise provided in the Contract, make his own arrangements for the engagement of all staff and labour, local or other, and for their payment, housing, feeding and transport.

2. COMPLIANCE WITH LABOUR REGULATIONS:

During the continuance of the contract, the Contractor and his sub-contractors shall abide at all times by all existing labour enactments and rules made there under, regulations, notifications and bye laws of the State or Central Government or local authority and any other labour law.

ADDITIONAL SPECIAL CONDITION

1. From the date of taking over of site by contractor till the completion of the whole work. the entire responsibility for maintenance of the road portion including the portions where the work is not vet started (in addition to the maintenance of the already executed works) shall lie with the contractor. In case the contractor fails to carry out the maintenance works, he will be notified by the Executive Engineer to execute the same. If the contractor still then fails to carry out the same within 7 days from the date of receiving instruction etc. from the Executive Engineer in writing, the Executive Engineer will be done the work and the cost thereof will be recovered from the contractor's next bill for the works. The maintenance Road as required in the place of work is to be carried out as per the existing provisions of the road i.e. WBM/BUSG/PC/SC as may be applicable as per the director of the Engineer-in-charge.

D> FOURTH CONDITION; Above responsibilities and duties duly substantiate that the assessee is not a simplicitor contractor rather the assessee is developer of the project."

25. The above clauses of the agreement clearly shows that the assessee is liable for all risks for loss, damage to physical property, personal death insurance in consequence of performance of contract liable for liquidated damages to the employer due to delay in execution of contract, liable for cost of repairs for the loss or damages to the works or materials. Assessee is responsible for whole work from the date of takeover of the site till completion responsibility for maintenance of the road portion including the portions where the work is not started. All these clauses goes to show that the assessee is not a simplicitor contractor rather the assessee is a developer of the project. Therefore, the contention of the AO that the assessee is not a developer but only a contractor is misconceived.

26. In view of the above, we hold that the assessee is entitled for deduction u/s. 80IA(4) in respect of projects executed by the assessee and awarded by DFCCIL, IRCON, PGCIL. Ground no. 3 and 3.1 of grounds of appeal of the assessee are allowed.

27. Ground nos. 4 to 7 of grounds of appeal of the assessee is in respect of Transfer Pricing Adjustment of Rs. 1,01,87,884/- made by the AO/TPO on account of interest receivables on advance given to M/s. BSE C&C JV Nepal Pvt. Ltd. and TP Adjustment of Rs. 37,71,124/- on account of interest paid to Mr. B. Krishnaiah.

28. The Ld. Counsel for the assessee submits that there is no justification in making TP Adjustment in respect of interest receivables on the advance given to AE of the assessee JV and placed reliance on the submissions made before the DRP. Ld. Counsel also placed reliance on the decision of Hon'ble Delhi High Court in the case of PCIT Vs. Kusum Healthcare Pvt. Ltd. (398 ITR 66) [LQ/DelHC/2017/854] .

29. The Ld. DR strongly placed reliance on the orders of the TPO/DRP.

30. Heard rival submissions, perused the orders of the authorities below. The TPO observed that as per the balance sheet assessee had given advance of Rs. 8,14,37,921/- to BSE C&C JV Nepal Pvt. Ltd. which is an Associate Enterprise and required the assessee to show cause why it should not be treated as a separate transaction and ALP of interest chargeable be determined. Assessee submitted that it had charged no interest on such advance receivables as the AE Company is being established by JV Partners in the 50:50 ratio by BSE PL & C&C to provide working capital requirement for crusher unit which was set up in Nepal to provide aggregate as product from boulders as the cost of production in Nepal is quite lower than in India. Therefore, since both the JV Partners are the shareholders in BSE and C&C JV Nepal are the shareholders in such company in equal proportion charging any interest from its own pocket do not have any commercial expediency and, therefore, there is no transaction of any interest which require any benchmarking. However, the TPO in view of the Explanation 1 to Section 92B introduced by the Finance Act, 2012 w.e.f. AY 2012-13 and also relying on the decision of the Delhi High Court in the case of Mkensay Knowledge Center India Pvt. Ltd. Vs. PCIT (96 taxmann.com 237) [LQ/AERA/2018/2 ;] ">96 taxmann.com 237) [LQ/AERA/2018/2 ;] [LQ/AERA/2018/2 ;] and applying the principles of the decision in the case of CIT Vs. Cotton Naturals India Pvt. Ltd. (55 taxmann.com 523) the Arm's Length Price of interest on advance given to BSC & C&C Nepal Pvt. Ltd. was determined at 12.51% (9.51% + 300 basis points) and accordingly made adjustment of Rs. 1,01,87,884/-.

31. Before the DRP the assessee made the following submissions along with additional evidences:

"9. Factual and Legal arguments against the addition proposed by the Assessing Officer.

a) At the outset it is stated that sum of Rs. 8,14,37,921/- is NOT AN AMOUNT ADVANCED by the applicant. In this regard it is submitted that M/s. BSC C&C Joint Venture (JV) {hereinafter referred to as 'assessee' or 'applicant'} is a joint venture between two companies - BSCPL Infrastructure Ltd. and C&C Construction Ltd. Both the JV Partners are having 50% share in the assessee JV.

b) Both the JV partners had established a company in Nepal during the year 2007 - BSC C&C JV Nepal Pvt. Ltd. having equal share of 50% in the capital of the company.

c) The Nepal company was established to supply Aggregate to the applicant for its Bihar Projects as it was very cost effective to make aggregate and Nepal and transport it to the construction units in Bihar.

d) Due to terrorism in Nepal, production activities in Nepal was closed down and its all the assets consisting mainly of Crusher Unit were transferred to the construction sites in Bihar. We are enclosing herewith copies of ledger accounts of our construction sites in Bihar, where the assets/LCs issued by JV Partners were transferred.

This is an additional evidence for which separate request has been made for its admission as these documents could not be submitted before AO due to paucity of time.

Your Honours would observe from the above said ledger accounts that earlier there was a credit balance. After transfer of LCs issued by JV Partners, the amount due to Nepal Unit was converted to a debit balance. This debit balance was shown as receivable in the books of the applicant company.

e) Your goodself would observe that the applicant company has not given any advance to its foreign AE. This is only the transfer of LCs issued by JV Partners on account of closure of business activities in Nepal which has turned credit balance to a debit balance. We are also enclosing year-wise detail of Credit and Debit Balances of M/s. BSC C&C Nepal Pvt. Limited (Site-wise) for your kind perusal.

This is an additional evidence for which separate request has been made for its admission as these documents could not be submitted before AO due to paucity of time.

From details submitted your goodself will appreciate that the account balance of M/s. BSC C&C Nepal Pvt. Limited got converted from a debit to credit in FY 2011-12. Thereafter in FYs 2012-13 to 2015-16 the account remained as debit due of Rs. 8.14 crores. In assessments for these years it has never been the case of tax department that the debit balance is either "money advanced" or "sum receivable". The fact that amount shown as debit was not "money advanced" or "sum receivable" is further cemented by the fact that the Debit Balance was subsequently also written off in FY 2017-18.

f) Further, it is submitted that applicant is a joint venture between two companies - BSCPL Infrastructure Ltd. and C&C Construction Ltd. having 50% equal share in the profits & loss of the applicant. The foreign AE - BSC C&C JV Nepal Pvt. Ltd. also has two shareholders - BSCPL Infrastructure Ltd. and C&C Constructions Limited having equal share of 50% in the capital of the company. All the transfers made upon closure of the Nepal Company was on account of the JV Partners. Only the transfer of assets (mainly the Crusher) was to the specific work-site of the applicant. Transfer of LCs was on account of the JV Partners as JV Partners own/liable for the said LCs. LCs were issued by the JV Partners and not by the applicant.

The balance shown as a debit to the Nepal Company is actually to be transferred to JV Partners who have Capital Balance in the applicant JV. The applicant JV is not liable for the liabilities and also cannot release the receivables of Nepal Company. It is only the JV Partners, who are equal shareholders in the Nepal Company, are liable for all the liabilities including LCs and are authorised to realise the assets of the Nepal Company.

g) Hence, charging any interest from its own pocket does not have any commercial expediency. In support kind reference of your goodself is invited to the decision of Hon'ble ITAT in case of Nimbus Communications Ltd. reported in MANU/IU/0126/2016 : 16 ITR (Trib) 477 (Mum) wherein it was held as under:

"5. A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been made by the debtor. It is not, however, necessary that a payment is to be made as soon as it becomes due. Many factors, including terms of payment and normal business practices, influence the fact of payment in respect of a commercial I transaction. Unlike a loan or borrowing, it is not an independent transaction which can be viewed on standalone basis. What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into. The payment terms are an integral part of any commercial transaction, and the transaction value takes into account the terms of payment, such as permissible credit period, as well. The residuary clause in the definition of 'international transaction', i.e., any other transaction having a bearing on the proof its, incomes, losses or assets of such enterprises, does not apply to a continuing debit balance, on the given facts of the case, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee. In view of these discussions, in our considered view, a continuing debit balance per se, in the account of the associated enterprises, does not amount to an international transaction under section 92B in respect of which ALP adjustments can be made. The factum of payment has to be considered vis-a-vis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transaction in respect of which payment is, according to the revenue authorities, delayed. In any event, even when an ALP is made in respect excessive credit period allowed under the CUP method, stated by the TPO, the comparable has to be dues recoverable from a debtor and not a borrower. It appears that the TPO has adopted interest at the rate of 2.19 per cent LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues. Even assuming that the continuing debit balances of associated enterprises can be treated as 'international transactions' under section 92B, the light course of applying the CUP method, in the case of non-charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee has charged interest on over dues with independent enterprises (internal CUP) or with the cases in which other enterprises have charged interest, in respect of over dues in respect of similar business transactions, with independent enterprises (external CUP). No such exercise has been carried out in this case, nor is it shown, as is- the condition precedent for bringing. this continuing debit balance in the ambit of 'international transaction', that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee."
h) Further, without prejudice to the above, it is submitted that interest, if any, chargeable on the advance given, should be at LIBOR since it is an international transaction. The foreign AE, if it has to pay, would pay at the applicable LIBOR rate.

In view of above submissions, it is submitted that the debit balance of Nepal company in the books of the applicant is not an advanced given rather it is a net-off balance on account of transfer of LCs issued by JV Partners which ultimately is to be debited to the Partners of the applicant since they have incorporated the Nepal Company in equal ratio and hence, no adjustment on account of interest on the debit balance of Nepal Company should be made to the returned income of the applicant."

32. As could be seen from the above, the assessee contended before the DRP that the ledger accounts in earlier years showed credit balance and after transfer of LCs issued by JV Partners the amount due to Nepal Unit was converted to a debit balance and this was shown as receivable in the books of the assessee company. It was contended that the assessee company has not given any advance to its foreign AE and this is only transfer of LCs issued by JV Partners on account of closure of business activities in Nepal which has turned into credit balance to a debit balance and the assessee furnished year wise details of credit and debit balances of BSC C&C Nepal Pvt. Ltd. as additional evidences. It was also contended that the account balances of BSC C&C Nepal Pvt. Ltd. got converted from a debit to credit in FY 2011-12. Thereafter, in financial years 2012-13 to 2015-16 the account remained as debit due of Rs. 8.14 crores. It was contended that in the assessments for these years it has never been the case of the Department that the debit balance is either "money advanced" or "sum receivable". It was also stated that the amount shown as debit was not money advanced or sum receivable and was subsequently written off in 2017-18 to prove the contention that it is neither money advanced nor sum receivable.

33. At this stage the observations of the Hon'ble Delhi High Court in the case of PCIT Vs. Kusum Healthcare (P) Ltd. (398 ITR 66) [LQ/DelHC/2017/854] are very much relevant and they are as follows:

"10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign associated enterprises would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way."
34. As could be seen from the above observations of the Hon'ble Delhi High Court that every item of "receivables" appearing in accounts of entity which may have dealings with foreign AE would not automatically be characterized as an International Transaction. It is also observed that there has to be a proper enquiry by the TPO by analyzing the statistics for a period of time to discern a pattern which would indicate that vis-a-vis the "receivables" for the supplies made to an AE, the arrangement reflects an International Transaction intended to benefit the AE in some way.

35. On perusal of the TPO's order, we find that no such exercise has been carried out by the TPO in benchmarking the interest on "receivables". Further, we observed from the order of the DRP none of the submissions or additional evidences were considered nor is there any finding by the DRP though the assessee has produced additional evidences before the DRP and made its submissions which were not made before the Assessing Officer.

36. Therefore, in the interest of justice, we are of the view that this matter should go back to the AO/TPO for deciding this issue afresh in the light of the submissions the additional evidences produced by the assessee and also keeping in view the observations of the above Hon'ble Delhi High Court. Thus, we restore this issue to the file of the AO/TPO for denovo adjudication in accordance with law. This ground is allowed for statistical purpose.

37. Coming to the TP adjustment made on account of interest paid to Mr. B. Krishnaiah the assessee contended before the TPO that it had taken unsecured loan from Mr. B. Krishnaiah as bank do not provide working capital loans to a JV Company, hence for its working capital requirements the assessee arranged unsecured loan from Mr. B. Krishnaiah for interest @24% p.a. under compelling circumstances and has paid interest of Rs. 78,77,022/-. It was submitted that the unsecured loan at an interest rate of 24% p.a. is not excessive and unreasonable. It was also further contended that Transfer Pricing provisions are enacted with the object to prevent shifted of profit by declaring lower receipts or higher payments. In the present situation, Mr. B. Krishnaiah is a tax resident of India and is liable to tax at maximum marginal rate and, therefore, it cannot be assumed by any stretch of imagination that the transaction between Assessee and Mr. B. Krishnaiah are not executed on Arm's Length basis and thereby eroding countries tax base and the aforesaid transaction is tax neutral. It was further contended that the assessee JV has taken secured term loan from SREI Equipment Finance Ltd. against machinery @18% which are compounded monthly as the principle amount is repaid on monthly basis. It was contended that the unsecured loans @24% on simple interest are much cheaper than secured loans compounded monthly @18% interest rate. In case of defaults in repayment of secured loans the assessee may face legal action and penal interest which is around 36.5% p.a., whereas for unsecured loans taken from related parties the assessee is always ease to repay the loan and can repay as and when it has surplus funds.

38. However, the TPO made TP adjustment of Rs. 37,71,124/- being Arm's length Price of interest on loan received from Mr. B. Krishnaiah observing that Arm's Length Price of specified domestic transactions need to be determined as per Section 92 and 92C from the AY 2013-14 w.e.f. the AY 2013-14 and the best barometer for interest in Indian market is based on SBI + reasonable markup. The TPO observed that the average base rate during the relevant financial year was 9.51% and a markup of 300 points would be most reasonable and accordingly the rate of interest was arrived at 12.51% (9.51% + 300 points).

39. Before the DRP the assessee reiterated the submissions made before the TPO. The DRP sustained the TP adjustment made by the TPO. The Ld. Counsel placed reliance on the submissions made before the DRP. Ld. DR supports the orders of the TPO/DRP.

40. Heard rival contentions, perused the orders of the authorities below. On perusal of the DRP's order the DRP observed that the assessee failed to demonstrate the commercial expediency which mandated the loan from Mr. B. Krishnaiah, Chairman of BSE PL Infrastructure Ltd. which is one of the partners of the assessee's JV, the related party had higher rate than the market price. The contention of the assessee was that the bankers do not provide loans for working capital requirements and this was not denied either by TPO or by the DRP. When once the bankers do not provide loans towards working capital requirements to the JV Companies the interest rate cannot be compared to the base rate of State Bank of India. At the same time, we are in agreement with the TPO that Arm's Length Price of specified domestic transactions need to be determined as per Section 92 & 92C of the Act w.e.f. the AY 2013-14. However, the TPO did not bring in any comparables for benchmarking the ALP interest on loan received from Mr. B. Krishnaiah. We further find that the TPO has not examined the CUP submitted by the assessee in its transfer pricing study. Therefore, in the interest of justice, we restore this issue also to the file of the AO/TPO to determine the ALP of the interest on the loan taken from B. Krishnaiah by bringing on record the comparables in similar circumstances and after analyzing the CUP adopted by the assessee in benchmarking the ALP on the interest paid to B. Krishnaiah and also keeping in view the observations of the Hon'ble Delhi High Court in the case of PCIT Vs. Kusum Healthcare (P) Ltd. (supra) as extracted above after providing adequate opportunity of being heard to the assessee. This ground is allowed for statistical purpose.

41. Ground no. 8 of grounds of appeal of the assessee is in respect of disallowance on account of late deposit of Employees contribution to Provident Fund account which was deposited beyond the due date specified in the PF Act but before the due date of filing the Income tax return. We find that this issue is decided against the assessee by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT in Civil Appeal No. 2833/2016 dated 12.10.2022. Respectfully following the said decision, we uphold the disallowance of Rs. 3,55,46,576/- made on account of late deposit of EPF contribution. This ground is dismissed.

42. Coming to the last ground No. 9 of appeal in respect of disallowance of Rs. 2,33,25,511/- on account of retention money released by the employer of the assessee the Ld. Counsel for the assessee submits that this amount has already been disallowed by the assessee in its revised return of income filed on 31.03.2018 and if the AO makes the final computation of total income taking into account the income shown in the revised return no separate disallowance is called for.

43. The Ld. DR submits that the DRP has already given a direction in its order to verify the contention of the assessee and allow deduction as claimed in accordance with provisions of law.

44. Considering the rival contentions, we direct the AO to verify the claim of the assessee with reference to the revised return of income filed and in case if the Assessee had already considered the retention money of Rs. 2,33,25,511/- for disallowance in its revised return no separate disallowance once again is called for. AO is thus directed to verify the claim of the assessee and act accordingly. This ground is allowed for statistical purpose.

45. In the result, the appeal of the assessee is partly allowed as indicated above.