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2014 (9) TMI 1065 - AT - Income TaxDenial of deduction u/s 80IA in respect of infrastructure facility developed for M/s Sardar Sarovar Narmada Nigam Limited (SSNNL) - Revenue contends that assessee has entered into a works contract agreement with SSNNL which is not an entity specified in sub-clause (b) of section 80IA(4)(i) - Held that:- The tests laid down by the Hon’ble Supreme Court in the case of Som Prakash Rekhi (supra) are fulfilled in the present case and it would be appropriate to deduce that SSNNL is an instrumentality or an agency of the State. Therefore, SSNNL is to be understood as an entity akin to those specified in sub-clause (b) of clause (i) to sub-section (4) of section 80IA of the Act. Therefore, the objection of the Revenue that SSNNL was a company incorporated under the provisions of the Companies Act, 1956 and is therefore outside the purview of section 80IA(4)(i) of the Act is unfounded. In-fact, the Hon’ble Supreme Court in the case of Som Prakash Rekhi (1980 (11) TMI 113 - SUPREME COURT OF INDIA) specifically observed that merely because an entity is created under a statute and not created by a statute is not an important criteria. The test relating to the purpose, State control and functions performed are more important and determinative of the issue. Such tests, in our view, are clearly applicable in the case of SSNNL, and it is to be understood as an entity specified in section 80IA(4)(i)(b) of the Act.In the light of the aforesaid discussion, in our view, SSNNL being a mere extended arm of the Government of Gujarat carrying out governmental functions can be understood as an entity qualifying for consideration u/s 80IA(4)(i)(b) of the Act. The objection of the Revenue in this context is thus rejected. Whether assessee was not a ‘developer’ so as to be eligible for deduction u/s 80IA(4) of the Act? - Held that:- . In the present case, the assessee has used own-developed technology and its own resources to conceptualize, design, erect, commission, test and operate the ‘Saurashtra Branch Canal Pumping Scheme’. Therefore, in our view, assessee is to be understood as a ‘developer’, and distinct from a ‘contractor’ qua the impugned contract awarded by SSNNL. The judgement of the Hon’ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., (2010 (2) TMI 108 - BOMBAY HIGH COURT ), clearly supports the plea of the assessee of being a developer. Nojustification to deny the claim of deduction u/s 80IA(4) of the Act merely because the cost of the project executed by the assessee was not fully funded by the assessee itself.n view of the aforesaid discussion, we therefore hold that assessee is eligible for the claim of deduction u/s 80IA of the Act amounting to ₹ 40,02,10,981/- in respect of the profits derived from development of infrastructure facility for SSNNL. The order of the CIT(A) is set-aside and the Assessing Officer is directed to allow the deduction. Disallowance of Provision for Pension scheme for employees - Held that:- The Hon’ble Supreme Court in the case of Bharat Earth Movers vs. CIT, (2000 (8) TMI 4 - SUPREME Court) has held that the liability was not a contingent liability. In this view of the matter, we are of the opinion that this issue is required to be remitted back to the file of the Assessing Officer for ascertaining the reasonableness of the provision made by the company for meeting the incremental liability of this year incurred by it under pension scheme; proportionate with the entitlement earned by the employees in question, subject to any ceiling if any prescribed in the said scheme as applicable on the relevant period. The Assessing Officer is directed to decide the issue afresh after providing adequate opportunity of being heard to the assessee. Thus, the said Ground of Appeal is allowed for statistical purposes. Restricting the deduction u/s 80IA of the Act for the Godavari Lift Irrigation Scheme developed by the assessee for the Government of Andhra Pradesh - Held that:- CIT(A) made no mistake in disregarding the action of the Assessing Officer scaling down the deduction u/s 80IA of the Act to the extent of ₹ 6,63,61,181/- in respect of profits earned from Godavari project. In so far as the assessee’s eligibility for the claim of deduction u/s 80IA of the Act with respect to the Godavari project is concerned there is no dispute. We are in agreement with the CIT(A) that the profit shown by the assessee in its books of account relating to the Godavari project has been disregarded by the Assessing Officer on mere conjectures and surmises. No doubt, the profit ratio in case of the Godavari project is higher in comparison to other projects undertaken by the assessee in different assessment years. So however, such a difference can only be a basis to further verify the factual aspects, but the difference in profit-ratio by itself, cannot be a ground to disbelieve the same. The Assessing Officer has not brought out any cogent material or evidence to say that the profits declared by the assessee, based on the audited books of account suffer from any infirmity. Therefore, action of the CIT(A) deleting the disallowance of ₹ 6,63,61,181/- out of deduction u/s 80IA of the Act is hereby affirmed. Allowance of Provision for warranty - Held that:- It was a common point between the parties that the Provision for warranty cannot be considered as a contingent liability following the judgement of the Hon’ble Supreme Court in the case of Rotork Control India P. Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA ). The CIT(A), in our view, has correctly decided the issue in the light of the judgement of the Hon’ble Supreme Court, which we hereby affirm
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