TMI Blog2008 (12) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, material available on record and the decision relied upon while considering the arguments advanced by the parties. 3. The relevant facts are that during the assessment year 2003-04 claiming deduction under section 80IA(4) at ₹ 94,39,081/- and in assessment year 2004-05 at ₹ 2,38,27,475/- in respect to the profit earned from the Goshi Khurd Project, the assessee filed its return of income, which was accepted by the AO. The assessee has earned profit from the Goshi Khurd Project wherein dam gates have been constructed and installed by the assessee. The ld, 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 . He was of the view that the assessee company is only a contractor carrying out specific work with respect to the irrigation project and is not the Developer of irrigation project. He referred the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers in contract with the undertaking or enterprises, whereas assessee company has taken the direct contract from Maharashtra Government as such assessee is itself the enterprise and undertaking, hence the Explanation added will not affect the eligibility of deduction under section 80IA(4) in the case of assessee and based on the law at the time of assessment the claim was allowed and in said legal position there is no change. The ld. CIT has now withdrawn the claimed allowed relief. The ld. A/R submitted that the ld. CIT has referred the assessment order for the assessment year 2006-07 to come to the conclusion that assessee is not a developer but a contractor in view of the Explanation introduced to section 80IA(4) vide amendment by the Finance Act, 2007 with retrospective effect from 1.4.2000. The ld. A/R referred page 24 of the Paper book Vol. I wherein the position of section 80IA(4)(i) has been narrated during the assessment years 2001-02 to 06-07. The ld. A/R thereafter referred page 277 of the paper book Vol. III wherein comparative statements of deduction under section 80IA(4(a) of the Act has been narrated during the assessment years 1995-96 to 2000-01. He also referred pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloper and maintenance and operation. The ld. A/R submitted that the term development is having higher degree of involvement than maintenance and operation. The word contractor is not opposite to developer . A contractor is a person who accepts the terms and conditions of working and a developer is a person who executes the contract. 6. The ld. A/R also referred page 273 of the Paper Book-III i.e. copy of page 312 (Statute) of ITR Vol. 289 wherein clarification regarding Developer with reference to infrastructure facility, industrial park etc. for the purpose of section 80IA has been made. In this statute it has been proposed to clarify that the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus in case when a person makes the investment and himself executes the development work i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80IA. In contrast to this, a person who enters into a contract with another person (i.e. undertaking or enterprises referred to in section 80IA) for executing works contract, will not be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the part of the AO to hold that the Developer is the person who conceives the project. It is not a case of double deduction by different agencies but to the extent of work performed by each agency. Dam Gate shall mean functional requirement of the project, in developing of which the assessee has executed a vital part of the project. The ld. A/R submitted that the ld, CIT has invoked the provisions of section 263 solely on the basis of objections of audit party as evidenced from pages 5 to 23 of the Paper Book-I i.e. copy of audit query from the Office of the Accountant General (Comm.) and receipt audit). Rajasthan, Jaipur dated 19.9.2006, Assessing Officer's reply in response to the said audit query. The ld. A/R while concluding his arguments again placed heavy reliance on the decision of Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. vs. ACIT (supra) recently followed by the same bench in the case of ACIT vs. Bharat Udyog Ltd, 24 SOT 412 (Mumbai). 7. The ld. D/R on the other hand tried to justify the order under section 263 of the Act in question. He submitted that the contentions of the assessee are not sustainable in law and the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Mahavar Traders, 220 ITR 167 (M.P). 8. On the merits of the case, the ld. D/R submitted that the issue has been discussed at length in the assessment order of the assessee for assessment year 2005-06 passed on 27.12.2007, which has been mentioned by the ld. CIT in his order under section 263. The assessee is not the developer of the infrastructure project, which has been explained at length by the AO in the assessment order for assessment year 2005-06 placed at page 35 of the Paper Book filed by the department that M/s. Vidharbha Irrigation Development Corporation, Nagpur is the developer of the Project and the assessee is a mere contractor performing specific work for the Corporation. Without prejudice to the above submissions that the assessee is not the developer of the Irrigation Project, it is further submitted that under section 80IA(4), developers who do not operate and maintain the infrastructure facilities are not eligible for the deduction. For the relevant previous year the enterprise or undertaking carrying on the business of developing the infrastructure facility was eligible for the deduction but only those profits which were derived from operating and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ambit of infrastructure facility as defined by the Explanation to clause (c) of section 80IB(4)(i). In view of the above submissions, it is clear that assessee is not eligible for the deduction under section 80IA(4) and therefore the assessment order passed by the AO under section 143(3) for assessment year 2003-04 and 2004-05 are erroneous and prejudicial to the interest of revenue and the ld. CIT has correctly exercised the jurisdiction under section 263 in setting aside these orders for fresh consideration on the claim of this deduction by the assessee. The ld. D/R also placed reliance on the decision of Special Bench of the Tribunal stated to be on an identical issue in the case of IVRCL Infrastructure and Projects Ltd, vs. ACT, Circle 2(1), Hyderabad, ITA No. 1237/Hyd/2004 (assessment year 2001-02) dated 25.4.2008. 9. In rejoinder, the ld. A/R submitted that ld. CIT in the order dated 28.3.2008 under consideration has no where directed the AO to make fresh order in the light of the discussions in this order after giving due opportunity to the assessee in respect of the claim of deduction under section 80IA(4). 10. After considering the above submissions the issue em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) This view has been clarified by the Explanation inserted by the Finance Act, 2007. 11. The ld. CIT also disagreed with the assessee that decision of Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. vs. ACIT (supra) covers the issue. He observed that the citation is misplaced as this decision relates to assessment year 2000-01, wherein the provisions of section 80IA(4) were different. The ld. CIT noted further that this decision has not been accepted by the department as appeal has been preferred by the department before the Hon'ble Mumbai High Court, which is pending. There is no dispute that under the provisions of section 263 the ld. CIT has been empowered with supervisory jurisdiction and it is not an arbitrary or unchartered power for invoking these provisions under section 263 of the Act. For application of provisions u/s 263, two conditions are required to be fulfilled. Firstly, the order of the AO sought to be revised is erroneous and secondly, such order is prejudicial to the interest of revenue. Erroneous assessment refers to an assessment that deviates from the Jaw, or, one, which has been passed by the AO without making any enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solid waste management system were also included in infrastructure facility. In assessment year 2002-03 the word or was introduced in between like:- (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility. In assessment years 2003-04 to 06-07 there was no change in the said provision. In the assessment year 2006-07 in clause (a) to that section i.e. one of the other conditions required to be fulfilled for claiming the deduction the wordings it is owned by a company registered in India or by consortium of such companies were extended by adding wordings .......Or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act . By the Finance Act, 2007, an Explanation was introduced at the bottom of the section 80IA with retrospective effect from 1.4.2000. Vide this Explanation meant for removal of doubt, it has been declared that nothing contained in this section shall apply to a person who, executes a works contract entered into with the undertaking or enterprises, as the case may be. Referring this Explanation, the submission of the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esources, 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. For a ready reference, we are reproducing here under para 47 of the said decision in the case of Patel Engineering Co. Ltd.:- There has also been the contention of the Revenue that the assessee is a contractor, executing civil contract and so it cannot be the developer as such. However, we are unable to agree with this contention of the Revenue. 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 of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor bus 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 lawful agreement and thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the ld. A/R that assessee is a developer and is not a sub-contractor, who as per the Explanation inserted in the section vide Finance Act, 2007 is not eligible to claim deduction. 11.1. So far as the contention of the ld. D/R is concerned regarding that the assessee is not the developer of irrigation project since under section 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. This amended provisions of section were very much in operation in the assessment years 2003-04 and 2004-05 under consideration. The plea of the ld. CIT that as per the provisions of section 80IA(4), for the relevant previous year, the enterprise carrying on business of developing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the relevant material on record. From the perusal of record, we find that in the Srisailam Project, the assessee company has constructed an underground tunnel to provide water supply by connecting the river Krishna to the power house. The assessee has also constructed underground specialized structures such as surge chamber, draft tube tunnels, tail race tunnel which takes the water back to the river for use for irrigation, etc. Similarly, for Koyna Project, the assessee constructed inlet tunnel for water supply upto the point of power house. The above construction work would, in our considered opinion, amount to development, as a new facility has been developed. In fact, we may note that the Revenue authorities too have not denied the factum of development having taken place; however, the contention of the Revenue has been that the developer is not the assessee but the Government of Maharashtra in respect of Koyna Project and PSEB in respect of the Srisailam project, because, the investments have been made by them. 45. In the circumstances, as per the contentions raised before us orally as also in writing by the two rival representatives, the moot question that poses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding deduction under section 80-IA to the person, who only develops or who only maintains and aperates an infrastructure facility. 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 presupposes that there can be income to developer, i.e., to the person 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, we note that 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 80-IA inasmuch as mere development as such and unassocia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are similar to the fact of the present case and the only difference is that in the present case the Government authority is Vidharbha Irrigation Development Corporation. On perusal of the assessment orders in question, we find that the AO has given categorical finding on the issue after discussing the same in detail as evident from contents of pages 12 to 18 of the assessment order. In our view, he has also rightly followed the decision of the Tribunal on an identical issue under the similar facts and circumstances in the case of Patel Engineering Co. Ltd. vs. ACIT (supra) relied upon by the ACIT before him in support of their submissions. 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 under section 263 of the Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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