2008 (12) TMI 744 - AT - Income Tax

Validity of order of revision u/s 263 - CIT held assessment order allowing deduction u/s 80IA(4) as erroneous and prejudicial to the interest of revenue - assessee has earned profit from the Goshi Khurd Project wherein dam gates have been constructed and installed by the assessee - during the AY 2003-04 claiming deduction u/s 80IA(4) - in AY 2004-05 in respect to the profit earned assessee filed its return of income which was accepted by the AO. CIT was however of the different opinion that as per the provisions of section 80IA(4) for the relevant previous year the enterprises or undertaking carrying on the business of Developing the Infrastructure facility was eligible for deduction but only the profit earned from Operating and maintaining the infrastructure facility was exempt and not the profit derived from Developing the infrastructure facility . HELD THAT - The Mumbai Bench of the Tribunal in the case of PATEL ENGG. LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLES 24 26. 2004 (6) TMI 245 - ITAT BOMBAY-F relied upon by the AO vide para 8 thereof under almost similar facts and circumstances has held that the assessee therein was the developer or infrastructure project and eligible for deduction under section 80IA. As per the Law Dictionary the term development is bringing into being converting natural resources like land into a specific purpose by building extensively realizing and making real the potential of natural resources and bring to a more advanced or effective stage etc. The contention of the ld. D/R is concerned regarding that the assessee is not the developer of irrigation project since u/s 80IA(4) developer who do not operate and maintain the infrastructure facilities are not eligible for the deduction we do not agree with. Since in our view the word OR has been inserted in section 80IA(4)(i) as any enterprise carrying on the business of - (i) developing or (ii) operating and maintaining or (iii) developing operating and maintaining any infrastructure facility has been introduced by the legislature from assessment year 2002-03 only to remove the ambiguity. Hence the insertion of word OR was clarificatory in nature. In our view AO has also rightly followed the decision of the Tribunal. The assessment order therefore cannot be held as erroneous merely because the ld. CIT nurturing a different view on the issue. Hence the mid assessment orders on the issue which is not erroneous even if it is prejudicial to the interest of revenue cannot be made a subject matter of revision u/s 263. There is also no substance in the contention of the id. D/R that the assessment orders on the issue have only been set aside by the ld. CIT vide the impugned order and the assessee will be at liberty to avail the opportunity to present its case on the issue before the AO in a fresh assessment so directed by the ld. CIT because it cannot be a acceptable reason for justification of invocation of provisions of section 263. The requirement for invocation of the provisions of section 263 is that the assessment order on the issue must be erroneous in so far as it is prejudicial to the interest of revenue and mere mentioning of the said two ingredients will not extend any jurisdiction to the ld. CIT to invoke the supervisory provisions u/s 263. Therefore we are of the view that the assessment orders in question on the issue were neither erroneous nor prejudicial to the interest of revenue hence the ld. CIT was not justified in setting aside the same. The assessment orders on the issue for the assessment years under consideration are restored while setting aside the revisional order u/s 263 in question. The issue is decided in favour of the assesses Grounds raising the issue are accordingly allowed - In the result appeals are allowed.

Summary

Issues Involved:
1. Validity of the order of revision under section 263 of the IT Act.
2. Eligibility for deduction under section 80IA(4) for the Goshi Khurd Project.
3. Interpretation of the term "Developer" and its applicability to the assessee.
4. Impact of the amendment by Finance Act, 2007 with retrospective effect from 1.4.2000.

Detailed Analysis:

1. Validity of the Order of Revision under Section 263:
The assessee questioned the validity of the order of revision under section 263, where the Commissioner of Income Tax (CIT) held the assessment order allowing deduction under section 80IA(4) on the Goshi Khurd Project as erroneous and prejudicial to the interest of revenue. The CIT's contention was that the assessment order had merged with the appellate order dated 17.12.2007, and thus, could not be revised.

2. Eligibility for Deduction under Section 80IA(4):
The assessee claimed deductions under section 80IA(4) for the profit earned from the Goshi Khurd Project during the assessment years 2003-04 and 2004-05. The CIT argued that the provisions of section 80IA(4) only allowed deductions for profits earned from "operating and maintaining" the infrastructure facility, not from "developing" it. The CIT also referred to the amendment introduced by Finance Act, 2007, which clarified that the section does not apply to persons executing works contracts.

3. Interpretation of the Term "Developer":
The CIT held that the assessee was merely a contractor and not a developer of the irrigation project. The assessee countered that it was an enterprise and undertaking, not a contractor, and hence, the amendment by Finance Act, 2007, did not affect its eligibility for deduction. The assessee argued that the term "developer" includes entities involved in developing, operating, and maintaining infrastructure facilities, as per section 80IA(4).

4. Impact of the Amendment by Finance Act, 2007:
The CIT relied on the amendment by Finance Act, 2007, which added an explanation to section 80IA(4) with retrospective effect from 1.4.2000, stating that the section does not apply to persons executing works contracts. The assessee argued that this amendment applied to sub-contractors, not to enterprises directly contracting with the government for developing infrastructure facilities.

Judgment:

Issue 1: Validity of the Order of Revision under Section 263
The tribunal examined the eligibility of the assessee for claiming deduction under section 80IA(4) and found that the AO had considered all relevant issues and allowed the deduction based on the prevailing law. The tribunal held that the revisional order under section 263 was not justified as the assessment order was neither erroneous nor prejudicial to the interest of revenue. The tribunal restored the assessment orders for the relevant years.

Issue 2: Eligibility for Deduction under Section 80IA(4)
The tribunal noted that the provisions of section 80IA(4) had been gradually liberalized, and from the assessment year 2002-03, the deduction was available for enterprises involved in "developing," "operating and maintaining," or "developing, operating and maintaining" infrastructure facilities. The tribunal found that the assessee was involved in developing the Goshi Khurd Project and was eligible for deduction under section 80IA(4).

Issue 3: Interpretation of the Term "Developer"
The tribunal disagreed with the CIT's view that the assessee was merely a contractor. It held that the term "developer" includes entities involved in developing infrastructure facilities, and the assessee met this criterion. The tribunal referred to the decision in Patel Engineering Co. Ltd. vs. ACIT, where it was held that a contractor could also be a developer if it met the requirements of section 80IA(4).

Issue 4: Impact of the Amendment by Finance Act, 2007
The tribunal held that the amendment by Finance Act, 2007, did not apply to the assessee as it was not a sub-contractor but an enterprise directly contracting with the government. The tribunal noted that the amendment aimed to deny deductions to sub-contractors, not to enterprises like the assessee.

Conclusion:
The tribunal allowed the appeals, setting aside the revisional order under section 263 and restoring the assessment orders for the relevant years. The tribunal held that the assessee was eligible for deduction under section 80IA(4) for the Goshi Khurd Project, as it was a developer of the infrastructure facility. The tribunal also clarified that the amendment by Finance Act, 2007, did not affect the assessee's eligibility for deduction.