Om Metals Infraprojects Ltd., Om Tower, M.I Road, Jaipur () v. The Addl. Cit, Range-2, Jaipur ().

R.K Gupta, J.M:— This is an appeal by assessee against the order of ld. CIT(A) relating to assessment year 2007-2008.

2. First issue in the appeal of the assessee is against rejecting the claim of deduction under section 80IA(4) on income of Goshi Khurd Project by Rs. 16,89,16,692/-.

3. The brief facts of the case are that the assessee is a Public Limited Company and claimed deduction of Rs. 16,89,16,692/- under section 80IA(4) in respect of Goshi Khurd Project, which is an irrigation project promoted by Government of Maharashtra. The project envisages construction of earthen Dam to provide irrigation to certain parts of Maharashtra and also provide drinking water. The project was implemented by Govt. of Maharashtra undertaking, namely Vidarbha Irrigation Dev. Corporation, Nagpur. The different contractors have been awarded specific works with regard to execution of this project by the Corporation in a joint venture.

3.1 The AO observed that by Finance Act, 2007 an explanation was added with retrospective effect making it clear that the provisions of section 80IA(4) will not apply to a person who executes a works contract entered into the undertaking or the enterprise, as the case may be. Further, by Finance Act, 2009 an explanation was added with retrospective effect from 1.4.2000 and, therefore, the same was applicable during the year under consideration i.e Assessment Year 2007-2008. It was made clear that nothing contained in section 80IA(4) shall apply which is in the nature of a works contract awarded by any person (including the Central or State Govt.) and executed by the undertaking or enterprise. As the assessee was awarded a works contract by the State Govt. of Maharashtra which is part of total works of construction, development and operation of irrigation project, the claim of assessee was just not found tenable and accordingly claim of deduction of Rs. 16,89,16,692/- under section 80IA(4) was rejected.

3.2 It was contended before ld. CIT(A) that the project is an irrigation infrastructural development project of the company on which deduction was allowed u/s. 80IA(4) in assessment years 2003-2004 to 2006-2007 and allowability was upheld by Hon'ble ITAT. It is continuously 5th year of the same project. That the AO is not justified in disallowing the claim as after the amendment in section 80IA(4) for assessment year 2003-2004 activity done by the company was eligible for deduction under section 80IA(4). Reliance was placed on the decision reported in 84 TTJ (Mum) 646 in the case of Patel Engineering Co. Ltd. v. DCIT. The amendment makes it clear that any enterprises carrying on the business of either developing or operating and maintaining or developing, operating and maintaining any infrastructural facility than the deduction was allowable. That the assessee is the developer of the project as it has done the work of designing, fabrication, transportation, supply, erection and commissioning of Gates. These activities also qualify the assessee for maintaining of infrastructure. The contract between the assessee and Vidarbha Irrigation Dev. Corporation clearly states that the assessee was responsible for operation and maintenance. The payment was receivable by the assessee on the condition that operation and maintenance of the gates were maintained for two years after commissioning and testing of all gates and training of O & M to staff of Vidharbha Irrigation Development Corporation. That the words used by legislature intended to allow deduction to enterprise engaging in all the activities enumerated in section 80IA(4). The Corporation is a monitoring agency and developer is the person who executes the work or develops something on the surface or earth. Thus the developer is the assessee company. As any work done for other agency is always done under a contract, hence to do work with Govt. is to be done on agreed terms and it is called contract. That any person who is engaged in the work will do on contract basis only and, there is no other alternative. All the work of infrastructure belongs to Govt. and hence the real developer is the Pvt. Agency. The Govt. is only a planner and monitoring agency,

3.3 On this issue order passed under section 263 by the CIT, Jaipur was appealed before Hon'ble ITAT, Jaipur who held the order under section 263 null and void. The ITAT held that the company was eligible to claim deduction under section 80IA(4). In Assessment Year 2005-2006 and 2006-2007 in first appeal the appeals were decided in favour of the assessee and which was held up in second appeal also. With this, it was submitted that deduction may be allowed.

4. After taking into consideration the provisions of law amended by Finance Act, 2007 and 2009 and taking into consideration the submissions of the assessee, the ld. CIT(A) found that AO was correct in denying the deduction under section 80IA(4). Accordingly, he upheld the order of AO. While upholding, the following finding have been given by ld. CIT(A):—

“In earlier years the issue was decided in favour of the appellant at both the appellate 4 stages. However, Finance Act, 2009 has made change in the law. By Finance Act, 2009 an explanation was added the end of section 80IA and it was clarified that with reference to sub-section 4 in respect of works contract awarded by Central or State Govt. and executed by the undertaking the provisions of sub-section 4 will not be applicable. The explanation was added retrospectively w.e.f 1.4.2000 and, therefore, where ever there is works contract awarded by Central or State Govt. and executed by the undertaking, benefit of deduction under section 80IA(4) will not be applicable. As the explanation has been inserted retrospectively, in the year under consideration i.e Assessment Year 2007-2008, it will be applicable. In the present case the work was done as per contract awarded by Maharashtra Govt. to the appellant, deduction under section 80IA(4) will not be applicable. The action of AO of withdrawing deduction claimed by the appellant under section 80IA(4) is, therefore, upheld.”

5. The ld. Counsel of the assessee filed brief written submissions and thereafter he explained his written submissions in detail. It was submitted by ld. A/R that the Tribunal has considered the explanation added by the Finance Act, 2007 while disposing off the appeal for assessment year 2006-2007. It was further submitted that in fact the Tribunal has passed a detailed order for assessment years 2003-2004 and 05-06 which has been followed by the Tribunal while disposing the appeal for assessment year 2006-2007. While disposing the appeal for assessment year 2003-2004, the Tribunal has considered the explanation added in section 80IA(4) by Finance Act, 2007 and after taking into consideration the explanation then only the claim of deduction was allowed by the Tribunal. Attention of the Bench was drawn on copies of orders of Tribunal placed in the record. It was further submitted that there is no material difference between the explanation added by Finance Act, 2007 and thereafter amended by Finance Act, 2009. Wording is the same and, therefore, the issue is covered by the decision of Tribunal in case of assessee itself. Regarding the amended explanation added by Finance Act, 2007, it was submitted that as there is no substantial change, only the words added i.e including the Central or State Government. Otherwise, the main provisions in explanation added to section 80IA(4) are same. Attention of the Bench was drawn on both the explanations added under section 80IA(4) (by Finance Act, 2007 and Finance Act, 2009 respectively). Thereafter relevant portion of the order of the Tribunal for assessment year 2003-2004 and 2005-2006 were read by ld. A/R. Thereafter the meaning of ‘contractor’ was explained. Attention of the Bench was drawn on page 44 of the paper book and page 59 of the paper book. It was explained that of course, there is a contract between the assessee and Maharashtra Government but it is to be seen what duty has to be performed by the assessee by that contract. It was explained that the assessee has to develop the design of Gates and many other items which the Government of Maharashtra was not having this type of design. Attention of the Bench was drawn on copy of tender published by the Maharashtra Government and copy of agreement. Attention of the Bench was drawn on relevant clauses of the tender form as well as clauses of the agreement entered into between the assessee and Maharashtra Government to develop the design to make it clear that only developer can develop the design and once it is found that a developer has developed the design then as per provisions of section 80IA(4) the deduction has to be allowed. In the present case the assessee has developed the design and, therefore, the assessee is not merely a contractor but is a developer. Accordingly it was submitted that assessee is entitled for deduction. It was further submitted that the Special Bench in the case of B.T Patil have decided this issue in favour of the department. However, there are so many discrepancies in the order of Special Bench. Relevant discrepancies were explained by the ld. A/R in respect to discrepancies in the order of Special Bench. It was further submitted that the order of Special Bench decision has been over ruled by the Hon'ble Bombay High Court in the case of ABG Heavy Industries. The relevant portion of the decision of Hon'ble Bombay High Court was read by ld. A/R. Accordingly it was submitted that now in view of the decision of Hon'ble Bombay High Court the assessee is entitled for deduction under section 80IA(4). It was further submitted that the Pune Bench of the Tribunal in the case of Laxmi Civil Engineering Pvt. Ltd. has clearly held that the decision of Special Bench has been overruled by the Hon'ble Bombay High Court. It was explained that in fact the Pune Bench in the above case have decided the issue against the assessee. However, on filing Miscellaneous Application that the decision of Special Bench has been overruled and thereafter the said Pune Bench has reversed its own earlier order by holding that the issue has been decided by the Bombay High Court now. It was further stated that the Rajkot Bench of the Tribunal also in case of KCL BEL Tarmat Jv. v. ITO have decided the identical issue in favour of the assessee by taking into consideration the explanation added by Finance Act, 2007 and amended by Finance Act, 2009, copies of these orders were also filed. Copy of Board Circular was also filed. The ratio of the decision of Hon'ble Supreme Court in case of Bajaj Tempo was also relied upon.

6. The ld. CIT D/R on the other hand also filed a copy of brief written note and they were explained also. It was submitted by ld. CIT D/R that the Tribunal while disposing the appeal for assessment years 2003-2004 and 2004-2005 have followed the order of Patel Engineering Co. Ltd. v. ACIT, 94 ITD 411 (Mum.) which has already been reversed by the Special Bench of the Tribunal in the case of B.T Patil. It was submitted that the decision of Hon'ble Bombay High Court in the case of ABG Heavy Industries is not applicable on the facts of the present case as the facts are different in the case in hand. It was further submitted that the Tribunal while disposing the appeal of the assessee for assessment years 2003-2004 to 06-07 have not given any finding in respect of explanation added by Finance Act, 2007 or amended by Finance Act, 2009 as the Tribunal has simply followed the decision of Patel Engineering Co. Ltd. Attention of the Bench was drawn on operative para of the order of the Tribunal for earlier year. Further strong reliance was on the order of AO as well as order of ld. CIT(A). It was further stated that the AO has taken into consideration the amended explanation and the reasons for denying the deduction in earlier year. It was further submitted that assessee is purely a contractor and nothing is doing in respect to developing as the gates are manufactured by the assessee as per contract. Even assessee is not investing its own funds as they were funded by Maharashtra Government. In fact, Maharashtra Government has hired the assessee to supply and fit the gates in the dam. Various other parties were also involved, therefore, it cannot be said that assessee has developed the project and, therefore, AO and ld. CIT(A) were justified in denying the deduction claimed by the assessee. It was further submitted that the assessee was allowed work of fitting the gates and to maintain dam for only two years so that the employees of the Maharashtra Government could be trained, therefore, it cannot be said that assessee has developed any design of the gate and is maintaining for long. The case laws relied upon by the assessee were stated to be distinguishable on facts. It was further submitted that the decision of B.T Patil delivered by the Special Bench of the Tribunal still holds good and is applicable on the facts of the present case. Relevant paras of the Special Bench decision i.e paras 40, 41 and 50 were read by ld. CIT D/R. Attention of the Bench was drawn on page 400 of the decision of Hon'ble Bombay High Court and stated that the facts are totally different. It was further submitted that Jaipur Bench in case of Shiva Construction Co. (Pvt. Ltd.) has disallowed the deduction claimed under section 80IA(4) by following the decision of Special Bench (supra).

7. In reply, the ld. Counsel of the assessee stated that it is wrong to state that the Tribunal has followed Patel Engineering decision and not the explanation added by Finance Act, 2007 has not been considered. Attention of the Bench was drawn on whole of the order of the Tribunal and it was submitted that totality of the decision of the Tribunal has to be taken into consideration and not a part of the decision. It was further submitted that it is wrong to state that the decision of Special Bench in the case of B.T Patel & Sons has not been reversed by the order of Hon'ble High Court as the issue was same and Hon'ble Bombay High Court has held that even a contractor is eligible for deduction. The issue before the Hon'ble Bombay High Court was for supply of crane and it was found by the Hon'ble Bombay High Court that supply of specific crane by that assessee was eligible for deduction under section 80IA(4). The decision of Hon'ble Bombay High Court is of a later date, therefore, it has to be presumed that the decision of Special Bench in the case of B.T Patil & Sons has been taken into consideration. It laws further submitted that even and otherwise the decision of Hon'ble Bombay High Court will prevail upon the decision of Special Bench. It was further submitted that the Tribunal has specifically held while deciding the appeal for assessment years 2003-2004 to 06-07 that assessee is developer and now it cannot be said that assessee is not developer in the year under consideration. Attention of the Bench was drawn on relevant finding of the Tribunal given in the appellate order for assessment years 2003-2004 and 04-05. The ratio of decision of Hon'ble Bombay High Court was again read by ld. A/R and it was stated that this is on the identical facts and, therefore, the same is applicable. In respect to the argument of ld. CIT D/R that no funds have been invested by the assessee, it was submitted that it was totally incorrect. Assessee has invested its own funds and before granting the contract to the assessee, the Maharashtra Government has asked for bank guarantee which has been given by the assessee. Therefore, this is totally wrong that assessee has not invested its own funds. The assessee after completing the project has raised the bill on the Corporation and thereafter after inspecting the work done by the assessee then only payment was cleared by The Corporation to the assessee. Therefore, this is not a case that Corporation invested its own fund and not the assessee.

8. We have heard rival submissions and we have considered them carefully. Though we have noted all the arguments advanced by ld. A/R and ld. CIT D/R, however, we would like to reproduce the written submissions advanced by ld. A/R as well as by ld. CIT D/R here in the order of Tribunal so that no argument of any party could be missed.

Brief submission of the assessee

1. De hors Explanation inserted vide Finance Act, 2009 and Special Bench decision in the case of B.T Patil, the issue has been decided in favour of the assessee by ITAT, in assessee's own case for A.Y 2003-2004 and 2004-2005 (Pg. 1 of 24 of PB-1).

2. Order of ITAT in A.Y 2003-2004 and 2004-2005:

(i) Entire facts including various clauses of agreement with VIDCN have been considered in detail by the Hon'ble Bench (Pg. 6 of PB 1, para 6).

(ii) Argument of the ld. DR, based on Explanation inserted vide Finance Act, 2007, considered by Hon'ble Bench (Pg. 10 of PB-1).

(iii) On merit, issue considered in detail by the Hon'ble Bench and it has been held that assessee is a developer of the infrastructural facility (Pg. 14 to 16 of PB-1).

(iv) Specific observations made by Hon'ble Bench regarding functions performed by the assessee and it has been concluded that in spite of Explanation inserted vide Finance Act, 2007, assessee is a developer and not contractor (Pg. 18 of PB-1).

3. This has been followed by subsequent Bench of ITAT in assessee's own case for A.Y 2005-2006 and 2006-2007 (Pg. 25 to 38 of PB-1).

4. Entire agreement with VIDCN is filed at PB-1 (Pg. 39 to 125) and PB-2 (Pg. 126 to 319). The terms and conditions of this agreement would clearly suggest that assessee has been involved from the stage of designing up to maintenance. All these terms have been considered by the Hon'ble Bench in A.Y 2003-2004 and assessee has been held to be developer.

5. Decision of the Hon'ble Special Bench in the case of B.T Patil, rendered after considering subsequent insertion of Explanation vide Finance Act, 2009 would not affect eligibility of assessee to claim deduction under section 80IA(4) of the Act. The decision of the Special Bench (Pg. 322 to 389 of PB-3) has been analysed as under:

(a) Para 1 to 30 (Pg. 355 to 372 of PB-3) refers to other incidental issues and arguments of the parties.

(b) Para 31 and 32 are preface.

(c) In paras 33 to 36, the Tribunal has held that deduction cannot be given to ‘developer’ for A.Ys 2000-2001 and 2001-2002. This has been held in view of provision existed before A.Y 2003-2004 (Pg. 320 of PB-3). However, in para 36, the Tribunal has clarified that deduction would be available to the developer with effect from A.Y 2002-2003. Hence, this part is not relevant as the present case pertains to A.Y 2007-2008. In any case, this proposition has been later on reversed by the Bombay High Court in the case of ABG Heavy Industries (para 25 of Pg 405 of PB-3).

(d) In paras 37 to 43, the Tribunal has held that the assessee in that case is not a developer but merely a contractor. This is factual finding and in the present case the question has to be decided based on the facts of the case.

- In earlier years, the assessee has been held to be developer and not merely contractor.

- The Tribunal in those years has considered 2007 Explanation and thereafter has held that the assessee is not merely contractor.

- The issue is squarely covered in favour of assessee vide the decision of the Rajkot Bench of the Tribunal in the case of KCL BEL Tarmat J. v. ITO for A.Y 2007-2008 in ITA No. 1112.RJT/2010 (Pg. 406 to 416 of PB-3). This decision has been rendered after considering the Special Bench decision in the case of B.T Patil.

- Further, it has been held by the Hon'ble Bombay High Court (subsequent to Mumbai Special Bench decision) in the case of ABG Heavy Industries that providing crane to port would also amount to activity of developers (para 7, 8, 18 on Pg. 395 to 401 of PB-3).

(e) In paras 44 and 45, the Tribunal has held that infrastructure facility should be owned by the assessee. This is incorrect interpretation - very evident from the section itself - and in any case, subsequent decision of the Bombay High Court has correctly interpreted this provision. (Para 9 on Pg. 396 and para 24 on Pg. 405 of PB-3). Apart from this, the observations made in above paras by the Hon'ble Special Bench are in contradiction with observations made in para 49 of the same order.

(f) In para 46, the Tribunal has held that the assessee has not entered into any agreement for transfer of facility. For the year under consideration, there is no such condition and, hence, this becomes irrelevant.

(g) Paras 47 and 48, talks about the maintenance and operation of the facility. In light of the fact that a person who is merely a developer would also be entitled to deduction (pease see sub-para (c) hereinabove), this issue becomes irrelevant.

(h) In para 49, the Tribunal has held that the word ‘it’ has been used interchangeably - this is incorrect and in any case subsequently disapproved by the High Court in the case of ABG Heavy Industries - Apart from this, this observation is contradictory to para 45.

(i) In para 50, the Tribunal has held that the ‘whole’ does not include ‘part’. This has been subsequently reversed by the Bombay High Court in ABG Heavy Industries. (Para 19 of Pg. 401 of PB-3). Apart from this, it has been held by the Supreme Court in the case of Gujarat Industrial Development Corporation v. Commissioner Of Income Tax . (227 ITR 414)(Pg. 417 of PB-3) that assessee developing ‘industrial areas’ satisfies requirement of ‘development of cities, towns and villages’. Development of core component or substantial component of facility should be held sufficient for the requirement of development of facility. Reliance is also placed upon the above referred decision of Bombay High Court wherein, after relying upon the decision of Supreme Court in the case of Bajaj Tempo (196 ITR 188), it has been held that provisions granting incentives are to be construed liberally. Apart from this CBDT Circular No. 4/2010 dated 18.05.2010 (Pg. 424 of PB 3) itself suggest that widening of existing road would be eligible for deduction. Admittedly, widening of road does not amount to development of whole facility.

(j) In paras 51 to 57, the Tribunal has considered 2007 as well as 2009 Explanation. In the assessee's case after considering 2007 Explanation, it has been held that assessee is not a contractor. 2009 Explanation is very much similar to 2007 Explanation and hence, in substance, there is no change in facts or law from the decision of Tribunal in A.Y 2003-2004 and 2004-2005.

- In any case, as stated hereinabove, the question as to whether the assessee is a developer or a contractor is purely a question of fact and has to be decided on the basis of facts of each case. In the present case, this issue has already been decided in favour of the assessee by this very Bench of the Tribunal.

- Interestingly, in the above referred decision of Bombay High Court, rendered much after the retrospective Explanation of 2009 brought on the statute book, it has been held that a person providing crane to the port authority is a ‘developer’. (Para 7, 8 on Pg. 395, para 18 on Pg. 400). The law laid down by Bombay High Court by their judgment dated 29.03.2011, much after Finance Act, 2009, has to be considered as the final word as of now. Reliance is placed, in this regard, on the recent Special Bench decision in the case of Tata Communications Ltd. [130 ITD 19 (Mum)(B)](Pg. 425 of PB 3).

- Further, it is submitted that the Explanation inserted in the year 2007 and amended thereafter in the year 2009 should be interpreted keeping in mind the legislative intent as manifest in the memorandum explaining the provisions. It has been stated in the CBDT Circular (289 ITR (St.) 312), explaining 2007 Explanation as under:

“The tax benefit was introduced for the reason that industrial modernization requires a massive expansion of and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract.

Accordingly, it is proposed to clarify that the provisions of section 80-IA 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 a case where 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 80-IA. In contrast to this, a person who enters into a contract with another person [i.e, undertaking or enterprise referred to in section 80-IA] for executing works contract, will not be eligible for the tax benefit under section 80-IA.”

- Further, it has been stated in CBDT Circular (314 ITR (St.) 200) explaining provisions of 209 Explanation, that the amendment is clarificatory and carried out with a view to prevent misuse of the provision.

- Thus, keeping in mind the Legislative intent, it can be said that the Explanation merely debars those assessees who are carrying on insignificant or non-core activity without taking any risk or reward of the development.”

Written submission of ld. CIT D/R:

May it please your Honours:

In respect of the above appeal the following written arguments are submitted in addition to the verbal arguments to be taken during the course of hearing:

This appeal has been filed by the assessee against an order of ld. CIT(A) passed under section 250 on 13.04.2010

Ground No. 1: In this ground the assessee has challenged the decision of ld. CIT(A) in confirming the disallowance of deduction u/s. 80 IA(4) of the I.T Act 1961 amounting to Rs. 16,89,16,692/-.

1 The facts of this deduction u/s. 80IA(4) claimed by the assessee are discussed in para 2.1 of the order of the A.O at page no. 2. In the return of income filed the assessee claimed a deduction of Rs. 16,89,16,692/- u/s. 80 IA(4) in respect of Goshi Khurd Project. The Goshi Khurd Project is an irrigation project promoted by the Govt. of Maharashtra. This irrigation Project is being constructed on river Bannganga in Bhandara district of Maharashtra state. The project envisages construction of earthen dam of 11.35 km. this dam is being constructed for providing irrigation to Bhandara, Nagpur and Chandrapur districts of Maharashtra and also provides drinking water to various places. The construction of the project started in the year 1981 and is proposed to be completed by 2008. The project is being implemented by the Vidharbha Irrigation Development Corporation, Nagpur (a Govt. of Maharashtra undertaking)(hereinafter referred to as VIDC). Different contractors have been awarded specific works with regard to the execution of this project by VIDC. The construction of the earthen dam is being done by Pradhan Construction Co., Pune, the construction of the earthen dam is being done by H.C.C Ltd., Mumbai, the construction of RBC and LBC is being done by Sanchit Construction Co. and Y.R Reddy Construction Co. respectively. The work of designing, manufacture, supply and erection of 33 radial gates with hoist, embedded parts and ancillary equipments for spillway gates was awarded to the assessee in joint venture with Subhash Projects and Marketing Ltd. on 28.09.2001 for contract amount of Rs. 135.85 crores. This joint venture was dissolved and now the work is solely done by the assessee.

Thus, it can be seen that the ‘developer’ of the Goshi Khurd Project is Vidharbha Irrigation Development Corporation (VIDC), Nagpur (a Govt. of Maharashtra undertaking) and assessee is only one of the many contractors to whom specific work of erection of radial gates has been assigned. Thus, the assessee is merely a works contractor for the ‘developer’ VIDC, Nagpur. This fact becomes clear from page 39 of the paper book of the assessee also wherein in line no. 2 it is clearly mentioned that the assessee is a contractor.

By the Finance Act, 2009, the following Explanation was added with retrospective effect from 1.04.2000 and therefore, the same has to be read into the provisions for section 80IA for A.Y 07-08:

“after sub-section (13) for the Explanation, the following Explanation shall be substituted and shall be deemed to have been substituted with effect from the 1 day of April, 2000, namely:— Explanation: For the removal of doubts it is hereby declared 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 Govt.) and executed by the undertaking or enterprise referred to in sub-section (1)”.

In view of this provision introduced with retrospective effect from 1.04.2000, it is clear that the business of the assessee related to Goshi Khurd Project being in the nature of works contract awarded by VIDC (an undertaking of Maharashtra Govt.) will not be eligible for deduction u/s. 80IA(4).

2 In the grounds of appeal the assessee has also referred to the decisions of the Hon'ble ITAT, Jaipur Bench in the case of the assessee for A.Y 2003-2004 to 2006-2007. It has been claimed that in these A.Ys Hon'ble ITAT has allowed the deduction u/s. 80IA(4) on the income of the Goshi Khurd Project by treating it as infrastructural development project of the assessee company.

In this respect it is submitted that this issue of allowability of deduction u/s. 80IA(4) was decided by Hon'ble ITAT for A.Ys 2003-2004 & 2004-2005 vide a common order dated 31.12.2008 The issue was decided for A.Ys 2005-2006 & 2006-2007 vide a common order of Hon'ble ITAT dated 24.07.2009 On examination of the order of A.Ys 2005-2006 & 2006-2007, it is seen that it is based on the decision of Hon'ble ITAT for A.Ys 2003-2004 and 2004-2005 as the decision has been reproduced in para 5 of this order on page 4. For A.Y 2003-2004 and 2004-2005, Hon'ble Tribunal has discussed its decision in para 10. It is seen that Hon'ble Tribunal has given its decision on the basis of decision of Hon'ble Mumbai Bench of ITAT in the case of Patel Engineering Co. Ltd. v. ACIT 94 ITD 411 and has extensively reproduced this decision in its order on page 17 to 22. Thus, it can been seen that these two decisions of Hon'ble ITAT, Jaipur are based on the decision of the Hon'ble Mumbai Tribunal in the case of Patel Engineering Co. Ltd. (supra). However, now this very decision of Patel Engineering Co. Ltd. has been overruled by Larger Bench of ITAT Mumbai in the case of B.T Patil & Sons Belgaum Construction Pvt. Ltd. vide an order dated 26.10.2009 The Larger Bench of the Tribunal have discussed the case at great length and have also considered the decision of Tribunal in the case of Patel Engineering Ltd. and found that this decision is not in accordance with law. Accordingly, the Larger Bench held that deduction u/s. 80IA(4) cannot be allowed in case of civil contractors engaged in the construction of various projects of Govt. of Maharashtra, Govt. of Karnataka and various local authorities. In the present case also the assessee is executing contract work in respect of the Goshi Khurd Project developed by VIDC, Nagpur, an undertaking of Maharashtra Govt. Therefore, the case of the assessee is also covered by the decision of B.T Patil & Sons Belgaum Construction Pvt. Ltd. Hence, ld. CIT(A) has correctly upheld the disallowance of deduction of Rs. 16,89,16,692/- claimed by the assessee u/s. 80 IA(4) in respect of works executed by it for Goshi Khurd Project.

3. It may not be out of context to mention here that Hon'ble ITAT Jaipur Bench itself has taken note on the decision of Larger Bench, Mumbai in the case of B.T Patil & Sons and has given a decision in favour of the revenue in ITA No. 676.JP/2009, A.Y 2006-2007 in the case of DCIT Cir. 1, Ajmer v. Shiva Construction Pvt. Ltd., Ajmer in its order dated 11.06.2010

Ground No. 2 & 3: In respect of these grounds, the decision of ld. CIT(A) is relied on.

(Sunil Mathur)

Dated: 13.07.2011CIT DR(1), ITAT, JAIPUR.

9. We have heard rival submissions and considered them carefully. We have also perused the material along with the various case laws on which attention of the Bench was drawn and reliance was placed by the respective parties. The case of the department is that the explanation added to section 80IA(4) by Finance Act, 2007 with retrospective effect from 1.4.2000 and thereafter amended by Finance Act, 2009 with retrospective effect from 1.4.2000 is applicable. Since the explanation to section 80IA(4) has been added and as per explanation if any work is allotted to an assessee on contract basis then no deduction under section 80IA(4) is allowable. In view of the department the assessee is a contractor who entered into contract with Vidharbha Irrigation Development Corporation, Nagpur (a Govt. of Maharashtra Undertaking) (hereinafter referred to as VIDC) to execute specific work of erection of radial gates. The assignment of the work is on contract basis, therefore, assessee is a contractor and deduction is not allowable. Whereas, assessee's case is that assessee is a developer and Tribunal in case of assessee itself while deciding the appeals for assessment; years 2003-2004 to 06-07 has held that the assessee is a developer and once assessee has been found as a developer then in the year under consideration a different view cannot be taken. It is the case of the assessee also that even explanation added to section 80IA(4) has been considered by the Tribunal while disposing the appeals for assessment years 2003-2004 and 04-05 also and there is no material difference in the amended explanation by Finance Act, 2009 as words Central or State Govt. has been added, otherwise, the language is the same.

9.1 Before proceeding further, we would like to mention here the explanation added by Finance Act, 2007 and amended by Finance Act, 2009.

Finance Act, 2007:

Explanation: “For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be.”

Finance Act, 2009:

Explanation: “For the removal of doubts, it is hereby declared 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).

10. Now we would like to examine the decision of the Tribunal for assessment years 2003-2004 to 06-07, copy of which is placed on record.

11. The Tribunal decided the appeal of the assessee in ITA Nos. 722 & 723.JP/2008 for assessment year 2003-2004 and 2004-2005 vide its order dated 31.12.2008, copy of the same is placed at paper book-I at pages 1 to 24. The AO disallowed the claim of deduction under section 80IA(4) at Rs. 94,39,081/- for assessment year 2003-2004 and Rs. 2,38,27,475/- for assessment year 2004-2005 in respect of the same project i.e Goshi Khurd Project. The AO allowed the claim of deduction to the assessee while passing assessment order under section 143(3). Thereafter, on examining the assessment record, the ld. CIT initiated proceedings under section 263 and set aside the order of AO. While setting aside the order of AO, the ld. CIT opined that the enterprises 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. The ld. CIT referred the amendment introduced by Finance Act, 2007 with retrospective effect from 1.4.2000 wherein position has been cleared in the Explanation that nothing contained in this section shall apply to a person who executes works contract entered into with the undertaking or the enterprises, as the case may be. Accordingly, a show cause notice was issued under section 263. Assessee filed detailed written submission along with the decision of Tribunal in case of Patel Engineering Co., 84 TTJ 646 (Mum.). However, the ld. CIT was not satisfied as the decision of Patel Engineering Co. was before the Explanation added to section 80IA(4) by the Finance Act, 2007. Accordingly the order of the AO was set aside and the AO was directed to re-compute the income accordingly. Assessee preferred appeal before the Tribunal against the order under section 263 passed by ld. CIT. Detailed written submissions were filed. The amended provisions of section 80IA(4) by Finance Act, 2007 with retrospective effect from 1.4.2000 were explained. Attention of the Bench was drawn on the clauses of agreement as well as the design developed by the assessee and accordingly it was submitted that the assessee is not merely a contractor but it is a developer. Reliance was placed again on the decision of Patel Engineering Co. Ltd. by which definition of ‘developer’ and ‘contractor’ was discussed and thereafter the issue was decided by the Mumbai Bench of the Tribunal in favour of assessee. Reliance was placed on various cases mentioned in the order of the Tribunal at pages 4 & 5. In para 5 of the order of the Tribunal, the Tribunal has discussed the work done by the assessee in respect to development of the design in the Goshi Khurd Project, a Government of Maharashtra Undertaking, who invited the tender with general and technical specifications of work. It has been clearly mentioned in the clauses of agreement that the assessee has to develop the design of gates and then has to fix as per assignment given to the assessee and thereafter maintain the same for two years. It was explained 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. In para 6 of the order of the Tribunal the submissions of the assessee regarding Developer with reference to infrastructure facility, industrial park etc. for the purpose of section 80IA has been explained. It was explained that in this statute it has been proposed to clarify that the provisions of section 80IA shall not apply to a person who executes a work 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. Thereafter it has been explained how the assessee is a ‘developer’ by developing the design of the gate and thereafter to fix those gates as per assignment. The decision was relied upon in case of Bharat Udyog Ltd., 24 SOT 412 (Mumbai).

12. On the other hand, the ld. D/R on behalf of the department has supported the order of ld. CIT. It was stated that ld. CIT has given the direction to the AO to make a fresh order in the light of discussion in his order after giving due opportunity to the assessee in respect of claim of deduction under section 80IA(4). Therefore, it was submitted that it is clear that ld. CIT in the impugned order has not directed the disallowance of deduction under section 80IA(4) but has merely directed the AO to make a fresh assessment after considering the various facts of the case and provisions of law particularly the retrospective amendment brought into the said section by the Finance Act, 2007 with retrospective effect. Reliance was placed on various case laws by ld. CIT D/R.

13. On merits also, the arguments were advanced on behalf of the department and it was submitted that the issue as to whether the contractors associated with the infrastructure project were eligible for the deduction or not had become debatable and in order to put such debates to rest, by the Finance Act, 2007, an Explanation was added with retrospective effect from 1.4.2000 and, therefore, the same has to be read into the above provisions during assessment years 2003-2004 and 2004-2005.

14. Regarding the decision of Mumbai Bench of the Tribunal in case of Patel Engineering Co. Ltd., it was submitted that after the amended provisions of law the decision of Hon'ble Bombay High Court does not hold good. Thereafter the Tribunal after discussing the argument of both the sides and taking into consideration the amended provisions of section 80IA(4) and also taking into consideration the decision of the Tribunal in case of Patel Engineering Co. Ltd. (supra) held that assessee is a developer and therefore entitled to deduction under section 80IA(4). The following findings have been given by the Tribunal recorded in paras 10 & 11 at pages 12 to 24:—

“10. After considering the above submissions the issue emerges for our adjudication is as to whether the assessment order was erroneous in so far as it is prejudicial to the interest of the revenue as; held by the ld. CIT. For deciding this issue, we have to examine the eligibility of assessee for claiming deduction under section 80IA during the years under consideration. The assessee has claimed to have developed two projects i.e Goshi Khurd Project under an agreement with Vidharbha Irrigation Development Corporation (a Government of Maharashtra Undertaking) and the Vijaywada Project under an agreement with the Government of Andhra Pradesh (Irrigation and Command Area Development Department). Regarding the allowability of deduction under section 80IA(4) on the above projects and other deductions, the AO sought directions under section 144A of the Act from ld. Additional CIT, which was responded in details. The AO has reproduced these directions of ld. Additional CIT at page 3 of the assessment order. After discussing the issue at pages 18 & 19 of the assessment order, the AO disallowed the claimed deduction under section 80IA(4) in respect of Vijaywada Project on the basis that no new infrastructure facility had been developed. No grievance has been expressed by the assessee in this regard before the Tribunal. The sole grievance of the assessee before us is setting aside under the revisional order the claim of deduction under section 80IA(4) on Goshi Khurd Project allowed by the AO after discussing the issue in detail at pages 12 to 18 of the assessment order.

10.1 On perusal of revisional order under section 263 in question, we find that reasons for treating the assessment orders for the years under consideration on the issue as erroneous so far as it is prejudicial to the interest of revenue and setting aside of these orders remained as under:—

(i) As per the provisions of section 80IA(4), for the relevant previous year, the enterprise carrying on business of developing the infrastructure facility was eligible for deduction only on the profit earned from “operating and maintaining” the infrastructure facility;

(ii) The enterprise was not eligible for deduction on the profit derived from “developing” the infrastructure facility;

(iii) The company is only a contractor carrying out a specific work with respect to the irrigation project and is not the developer of the irrigation project; and

(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. v. ACIT (supra) covers the issue. He observed that the citation is misplaced as this decision relates to assessment year 2000-2001, 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 law, or, one, which has been passed by the AO without making any enquiry, or, in undue haste. An order cannot be termed as “erroneous” unless it is not in accordance with law or it has been passed without making any enquiry. An assessment order cannot be treated as erroneous by the ld. Commissioner simply because he is nurturing different view on the issue than that of the AO. If an order is “erroneous” but not prejudicial to the interest of the revenue, then also, the power of suo muto revision cannot be exercised. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed, or that by the application of relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. The Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd., 203 ITR 108 (Bom.) has been pleased to hold that a decision of the AO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion on an issue. Under this background, we have to now examine as to whether the assessment orders were erroneous in so far as it is prejudicial to the interest of the revenue justifying the revisional action under section 263 of the Act in question by the ld. CIT. In this regard we first prefer to examine the eligibility of assessee to claim deduction under section 80IA(4) of the Act. In this regard we have to examine also as to how the provisions of section 80IA(4) in assessment year 2003-2004 are different from those in assessment year 2000-2001 and how that difference adversely affects the claim of deduction of the assessee as per the comparative chart of the provisions of section 80IA(4), placed at page 24 of the Paper Book-I and page 277 of the Paper Book-III. It emerges that the journey of this provision started from the assessment year 1995-1996 onwards. The comparative chart also suggest that the provisions have been gradually liberalized with every amendment. In the assessment year 2001-2002 the deduction under section 80IA(4)(i), subject to fulfillment of prescribed other conditions was available to any enterprise carrying on the business of (i) “developing”, (ii) “maintaining and operating” or (iii) “developing, maintaining and operating” any infrastructure facility. As per clause (c) to this section water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system were also included in infrastructure facility. In assessment year 2002-2003 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 2003-2004 to 06-07 there was no change in the said provision. In the assessment year 2006-2007 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. D/R remained that assessee is not the developer of infrastructure project and actually Vidharbha Irrigation Development Corporation, Nagpur is the developer of the project and assessee is a mere contractor performing specific work for the Corporation. We do not agree with this plea of the ld. D/R as if the same is accepted, then the very purpose of legislature to extend incentive for development of infrastructure will be frustrated. As per dictionary and judicial meaning of the words “develop”, “developer” and “development” as per the material placed on record on behalf of the assessee it comes out that “developer” means a person who makes the things happen. It is the assessee in the present case who mobilizing and synthesizing people, plans, technical expertise, supervision, co-ordination and control etc. develop and create the infrastructure facility and Vidharbha Irrigation Development Corporation, Nagpur (a Government of Maharashtra Undertaking) as evident from the contents of the tender floated by them placed at pages 58 to 250 of the Paper Book-II, is merely the sponsor of the project. The term “contractor” is not essentially contradictory to the term “developer”. On the contrary, the section 80IA(4) itself provides that the assessee should develop the infrastructure facility as per the agreement with the Government. In our view even the insertion of Explanation 2 to section 80IA vide Finance Act, 2007, as discussed above, has not altered this situation. The said amendment does not apply to a works contract entered into by the Government and the enterprise. It only applies to a work contract entered into between the enterprise and other party “the sub-contractor”. This amendment merely aims at denying deduction to the sub-contractor who executes a works contract with the enterprise. In fact, the insertion of the Explanation supports the case of the assessee that the enterprise earning profit from the project as a infrastructure developer-contractor. The Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. v. ACIT (supra) 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. 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 contactor, 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 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. The assessee, presently under consideration before us, has developed infrastructure facility as per agreement with Maharashtra State Government/APSEB. 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). Discussed/considered as above, we hold that the assessee having carried out the work of constructing the above mentioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities and in turn is entitled and entitled justifiably, to claim deduction under section 80IA(4).”

This action itself considers development of water supply and irrigation project as infrastructure facility. The work which the assessee has performed, in our view, is undoubtedly specialized work for which contract was entered into. In the present case the assessee has manufactured and installed dam gates, radical gates, stop lock as per the specifications agreed upon in the contract involving huge amount. The assessee had established workshop for manufacturing of gate panels, hydraulic girders, checkered plates, drain hoist and embedded parts etc. After manufacturing these items by the assessee these were assembled and installed at dam site. For manufacturing of these articles, there is a requirement of well equipped mechanized work shop and employment of experts. The term “contractor” is not essentially contradictory to the term “developer”. On the contrary, the said section itself provides that the assessee should develop the infrastructure facility as per the agreement with the Government. One of the other conditions in the section is that the enterprise should enter into an agreement with the Central Government or State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining” a new infrastructure facility. Thus there has to be an agreement between the enterprise developer and the Government. We thus find substance in the 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 2002-2003 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 2003-2004 and 2004-2005 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 infrastructure facility was eligible for deduction only on the profit earned from “operating and maintaining” the infrastructure facility and that the enterprise was not eligible for deduction on the profit derived from “developing” the infrastructure facility is over lapping is not acceptable. The ld. CIT, in our view, has mis-read the provision by forming a view that a person who earns profit from projects secured under a works contract is not eligible for deduction under section 80IA(4). A perusal of the said section, however, indicates that there is no such mandate in the section. The term “contractor” is not essentially contradictory to the term “developer”. On the contrary, the said section itself provides that the assessee should develop the infrastructure facility as per the agreement with the Government. For facility like water supply or irrigation or road project, rail system, the specification can be only through a facility specific tender. The specifications ensure that the development carried out by the assessee fits into the over all requirement floated by the Government for a particular inrastructure. For example, the Government has certain specifications in mind in respect of full length water supply or irrigation system and these have to be specified to each segment developer. Having gone through the decision cited by the parties, we find that the decision of Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. (supra) fully covers the issue raised herein, as there is no major change in the provisions of this section. From the assessment year 2000-2001 to which that decision belongs to and in the assessment years 2003-2004 and 2004-2005 under consideration rather insertion of the word “OR” in between “developing”, “operating and “maintaining” and “developing, operating and maintaining” any infrastructure facility during the years under consideration in the provisions has brought the assessee in a better position devoid of any ambiguity to claim the deduction. Paras 44, 45 and 46 of the said decision in the case of Patel Engineering Co. Ltd. (supra) supports the case of assessee accepting which, in our view the AO had rightly allowed the claimed deduction to the assessee while placing reliance on the said decision. For a ready reference these paras are being reproduced hereunder:—

“44. We have considered the rival contentions as 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 itself for our consideration is as to whether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant and no less beneficial, to refer to the legislative history of section 80-IA. As we have noted earlier, the amendment in section 80-IA was brought about by Finance Act, 1955 w.e.f 1st April, 1996. By virtue of this amendment, exemption under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Thus to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e, (i) to develop, (ii) to maintain and (iii) to operate. After the modification effected by Finance Act, 1999, w.e.f 1st April, 2000, deduction under section 80IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Therefore, from assessment year 2000-2001, deduction is available if the assessee carries on the business of any one of the above mentioned three types of activities and accordingly also when the assessee is carrying on the activity of only developing. 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, realize its cost? If the infrastructure facility is, just after its development, ransferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the Maharashtra Government or APSEB 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).

46. We have noticed above that the amendment brought in by the Finance Act, 1999 was with the sole intention/purpose of providing deduction under section 80-IA to the person, who only develops or who only maintains and operates 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 unassociated/unaccompanied with ‘operate’ and ‘maintenance’ also falls within such business activity as is eligible for deduction under section 80IA. In the case of such a construction activity, which does not involve the ‘operate’ aspect, the question of an assessee engaged in such activity (of ‘BT’ carrying on only ‘development’) to recover his costs of construction of his own from the infrastructure project/facility itself does not arise and so for the recoupment of the costs, the same have to be paid whether through running bills or otherwise; and considering the largeness/hugeness of the total financial investment involved, some advance if paid at some point of time, will not, in our view, change the basic nature/feature of the assessee's business activity. Therefore, merely because the present assessee was paid by the Government, for development work, it cannot be denied deduction under section 80-IA(4) of the Act. The illustration of the artist, given by the assessee's counsel during the course of his arguments, is aptly illustrative and befitting. If an artist is asked to paint a beautiful picture and for such painting, payment is made by another person, the creator of the painting will be the artist and not the person who paid for it. We have also noted that the national water policy document furnished by the assessee, on p. 225 of its paper book-1, indicates the purpose of private sector participation. It states that private sector participation may help in introducing innovative ideas, generating financial resources and introducing corporate management and improving service efficiency and accountability to users. It is revealed from record and has also not been disputed by the Revenue that both the projects executed by the assessee were highly technical and specialized, as also extremely tricky and did involve huge risks as well. It is also revealed from record that for executing such projects, the assessee has deployed people, plant and machinery, technical expertise, know-how and the financial resources as has also been the specific contention of the learned Authorized Representative of assessee as noted by us above.”

The Tribunal in that decision has specifically rejected the contention of the revenue that the developer is not the assessee but the Government of Maharashtra and APSEB, the fact of that case 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. v. 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 said 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 ld. 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 of the Act. The requirement, as discussed above, for invocation of the provisions of section 263 of the Act 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 under section 263 of the Act. The decision of the Special Bench of the Tribunal in the case of IVRCL Infrastructure & Projects Ltd. v. ACIT (supra) relied upon by the ld. D/R is also not helpful to the revenue because issue has not been decided in that case for want of verification of some additional evidence and thus matter was set aside to the file of the AO to decide the issue afresh in the light of fresh evidence. Under these facts and circumstances, 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 under section 263 in question. The issue is decided in favour of the assessee. Grounds raising the issue are accordingly allowed.”

This order has been followed by the Tribunal while deciding the appeals for assessment years 2005-2006 and 06-07 decided in ITA No. 1438 and 1439.JP/2008 vide order dated 24.7.2009

14.1 After going through the amended provisions of section 80IA(4) with retrospective effect from 1.4.2000 and taking into consideration the decision of Tribunal for A.Ys 2003-2004 to 06-07 it is seen that the Tribunal while disposing the appeals of the assessee has taken into consideration the Explanation added to section 80IA. The ld. CIT D/R has stated that the Explanation added to section 80IA has not been taken into consideration but the Tribunal has decided the issue following the decision of Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. (supra), in our view the contention of ld. CIT D/R is not correct. Whole of the finding of the Tribunal has to be taken into consideration and not only the ratio of the decision of Tribunal which has been taken into consideration by the Bench. The Tribunal has taken into consideration the Explanation added to section 80IA as well as the decision of the Tribunal in the case of Patel Engineering Co. Ltd. The decision of the Tribunal in case of Patel Engineering Co. Ltd. was taken into consideration by the Bench for the purpose of drawing inference that whether assessee is a ‘contractor’ or a ‘developer’. On the facts of the case involved in case of Patel Engineering Co. Ltd. as compared to the facts of the case in hand, the Tribunal drew a conclusion that facts are similar and, therefore, the assessee is a developer. The Explanation added to section 80IA do not bar the deduction in case of a developer as it bars the deduction in the case of contractor only. The Tribunal has given a categorical finding that assessee is a Developer.

14.2 Once in a particular year an assessee has been declared as a Developer then on the same set of facts the assessee cannot be held as a Contractor in a subsequent year. Therefore, the contention of ld. A/R that once assessee has been held as a Developer then in next year or the year under consideration it cannot be held as a Contractor, is acceptable.

14.3 We have seen the Explanation added to section 80IA by Finance Act, 2007 and amended by Finance Act 2009 and found that there is no material difference in the language of Explanation added by Finance Act, 2007 and amended by Finance Act, 2009. There is only difference of words i.e the Central or State Government were included by the Finance Act, 2009. Otherwise, the language is same. The language of the Explanation says that if the Enterprise is a contractor then deduction under section 80IA(4) will not be allowable. Since the Tribunal has already held that assessee is not merely a contractor but a developer, therefore, the Explanation added by Finance Act, 2007 or amended by Finance Act, 2009 shall have no effect on the allowability of deduction in the case of assessee.

15. For the sake of further clarification, we would like to see the main clauses of the tender and agreement wherein it has been provided that assessee has to develop the design of the gate as the VIDC is not having such infrastructure or knowledge of the designs. A copy of the detailed tender notice/information and instructions for tenderers has been placed in the paper book-I at pages 41 to 75. Clause (f) of the detailed Tender Notice at page 4 reads as under:—

“(f) “Contractor” shall mean the person, firm or company who enters into contract, with the Corporation & shall include their executors, administrators, successors and submitted assignees.”

At page 61 of the Paper Book-I and internal page 21 of the detailed Tender Notice the clause 1.4 reads as under:—

“1.4 The spillway crest gates of Gosikhurd Project are very large with submerged trunions and the design, manufacture, erection, operation & maintenance know-how is not readily available. It is therefore necessary to develop such know-how for such large gates, which will dictate to rope in all these know-how from various experts and consultants in these fields by inviting the public offers in this week.

It is absolutely necessary to have a liaison in design manufacture, erection, operation & maintenance as well these activities are innovative and, therefore, an integral package for this work is need of this work.

The entire package received from consultants/agencies/experts can be studied and evaluated, to the required needs with its appropriate weightage to suit the project requirements and this work will be done through field officers with the help of Central Design Organisation, Nasik and “Panel of Experts” already appointed by Vidarbha Irrigation Development Corporation.”

General conditions of the contract have also been provided in the detailed Tender Notice which starts from internal page 39. Clause 2.6 is about Performance Security. By this clause successful Bidder shall have to furnish a performance security, equivalent to 10% of the contract amount as specified. Thereafter, in sub-clause (a) of clause 2.6 it has been provided that the Bank Guarantee or Irrevocable Letter of Credit issued by a Nationalized/Scheduled Bank located in State of Maharashtra has to be provided. At internal page 67 the payment schedule has been prescribed in para 3.9.3 and a specific payment has been given @ 2% on account of design development and 4.5% is for operation and maintenance for subsequent three years after 1st year of reservoir filling and it is also proposed that this payment shall be released on quarterly basis. At page 128 to 269 of Paper Book-II the detailed technical specification has been placed. These detailed technical specifications are after accepting the tender by the Maharashtra Government. Clause 11.1.0 at internal pages 135 (page 261) of Paper Book-II read as under:—

“11.1.0 RESPONSIBILITY FOR DESIGN

The drawings show general arrangement data for the equipment called for. The Contractor shall prepare his own detailed designs and drawings and shall submit the same alongwith the design computations for the approval of the Engineer-in-Charge before proceeding with the fabrications of the equipment. The Contractor shall be fully responsible for the correctness and adequacy of the design. The Contractor shall prepare all necessary shop drawings covering the materials and equipment to be furnished under these specifications and shall be responsible for the correct fitting of the parts.”

At page 285 of the Paper Book - II and internal page 15 which is of Bid Schedule and conditions of contract, it has been provided by Clause No. 8 that—

“No payment shall be made for any work estimated to cost less than rupees one thousand till after the whole of work shall have been completed and a certificate of completion given.”

15.1 After going through clauses of agreement and the clauses of tender notice, it is amply proved that VIDC is not having ‘Know How’ of design and, therefore, a specific clause was put in the Tender Notice that the contract awardee has to develop the design and has to be approved by the Engineer-in-Charge of the VIDC and thereafter the manufacturing of Gate has to be started.

15.2 There is a Security Guarantee clause also and there is a Payment clause also and in final schedule of the Contract awarded to the assessee again this clause has been provided as tabulated above.

15.3 Payment Schedule has also been provided. It shows that first assessee has to file the tender as per specifications of the VIDC, then there is acceptance of tender and after accepting the tender on behalf of the awardee, 10% of the cost of contract as security has to be provided by way of Bank Guarantee. In this, a specific clause is there that 2% of the payment will be given on account of development of design. It means the awardee has to develop the design itself. If there was no development of design or there was no need of development of design then there could not have been payment on account of development of design. Tender specifications specifically provide the cost of design which is 2%. There is also clause of payment on account of maintenance and running and from all these clauses it is established that assessee is not merely a contractor but a Developer also and as per Explanation added to section 80IA the Developer is not barred for deduction under section 80IA(4). Therefore, in our view the assessee is entitled for deduction under section 80IA(4) as assessee is a Developer.

16. The ld. CIT D/R has relied on the decision of Special Bench in the case of B.T Patil & Sons and on the decision of Jaipur Bench of the Tribunal in the case of Shiva Construction Pvt. Ltd. decided in ITA No. 676.JP/2009 dated 11.6.2010 by which the deduction under section 80IA(4) was denied following the decision of Special Bench in case of B.T Patil & Sons (supra). This decision of Special Bench in the case of B.T Patil & Sons has been over ruled now by the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd. (ABG), 322 ITR 323. Therefore, the decision of B.T Patil & Sons and the decision of the Jaipur Bench of the Tribunal in the case of Shiva Construction Pvt. Ltd. does not hold good now.

16.1 The ld. D/R has stated that the fact before the Hon'ble Bombay High Court and the facts before the Special Bench were different. However, we have gone through the order of Special Bench in case of B.T Patil & Sons and the Hon'ble Bombay High Court in case of ABG. We find that the issue before the Hon'ble Bombay High Court was in respect to deduction under section 80IA(4) and the Hon'ble Bombay High Court has clearly held that ABG is a developer and entitled for deduction under section 80IA(4). This decision of Hon'ble Bombay High Court has been rendered on 29.3.2011 i.e after the Explanation added to section 80IA(4) by Finance Act, 2007 and amended by Finance Act, 2009.

16.2 In this case the assessee ABG was awarded a contract for supplying, installation, testing, commissioning and maintenance of container handling equipment on lease for a period of 10 years for loading and unloading of containers at the port and that the cranes that were to be supplied by the assessee formed a integral part of the port. The AO denied deduction under section 80 IA(4) on account of cranes supplied by the assessee. The Tribunal allowed the issue in favour of the assessee and thereafter the Hon'ble Bombay High Court following the decision of Hon'ble Supreme Court in the case of Bajaj Tempo, 188 ITR 23 held that assessee is entitled for deduction under section 80-IA(4) on account of supply of cranes. It has been specifically held by Hon'ble High Court that assessee developed the facility on BOLT basis under contract with JNPT. On the fulfillment of the lease of ten years, there was a vesting in the JNPT free of cost. The finding that the assessee has developed the infrastructure facility and that it was engaged in operating the cranes was, therefore, based on the material on record. The fact that the assessee was also maintaining the cranes was not disputed. Therefore, the assessee was entitled to the special deduction under section 80 IA(4). The view of the AO that assessee was merely engaged in the business of supply/installing/testing/commissioning and maintaining cranes at the port was not in the business of developing, maintaining, operating a port was found inapplicable by the Hon'ble High Court as the Hon'ble High Court has held that assessee is a developer. The issue has been discussed at great length by the Hon'ble High Court and the factual finding has been given in para 25 which reads as under:—

“In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The subsequent amendment of section 80-IA(4A) of the Act to clarify that the provision would apply to an enterprise engaged in (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by the Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to section 80-IA(4) of the Act set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature.”

From the above observation of Hon'ble High Court, it is clearly and amply proved that if out of three conditions one is satisfied even then the assessee is entitled for deduction. Supposing an enterprise is a developer and not doing the work of operation and maintenance even then enterprise is entitled for deduction under section 80 IA(4). Therefore, it is incorrect to say that the decision of B.T Patil & Sons has not been over ruled by the Hon'ble Bombay High Court. The same issue was before the Special Bench. The issue was in respect to deduction under section 80IA(4) and before the Hon'ble High Court the issue was in respect to deduction under section 80 IA(4). The Special Bench in that particular case i.e in case of B.T Patil & Sons has held that assessee is not entitled for deduction for assessment years 2000-2001 and 01-02. However, it has been stated that after assessment year 2000-2001 the case has to be seen on the fact of that case. For these two years, the Special Bench has held that the assessee was contractor and, therefore, not eligible for deduction under section 80 IA(4). Whereas the Hon'ble Bombay High Court has clearly held that ABG is a developer who is supplying the cranes at port for handling of shipments and, therefore, the assessee is entitled for deduction under section 80IA(4) being a developer.

17. Here, in the present case the facts are on more stronger footing as assessee has to develop the design of gates of dam and thereafter they have to fix the gates in the dam and they have to operate and look after the maintenance also for two years. Therefore, in our humble view the assessee is entitled for deduction under section 80 IA(4) even after the decision of Special Bench in case of B.T Patil & Sons.

17.1 The ld. CIT D/R has argued that the assessee is not a developer as he is just a contractor because he prepares the Gates as per design given by the Corporation and thereafter it fits the gate and operates only for two years meaning thereby he is just fitting the gates and operating for two years just to train the staff of the Corporation.

17.2 We have analyzed this argument also and found that this argument does not have any weight. First of all it is seen that as per clauses of detailed tender notice and agreement schedule the assessee has to develop the design as the Corporation does not have know how of design of Gates on its own. Thereafter the assessee fits the gate and operate and maintain for two years to train the staff of the Corporation. This very fact proves that the design is developed by the assessee and developed design has to be performed on the site by giving training to the staff to operate and to maintain the gates fitted in the dam. This proves that the very design was not available with the Corporation and assessee has developed its own design and operating and maintaining for two years so that the staff of the Corporation can learn the operation and maintenance of the same. From this fact it is proved beyond doubt that assessee is a developer and operating and maintaining the specified gates designed by the assessee.

17.3 The ld. D/R has also taken a ground that assessee has not invested its own funds as they were taken from the VIDC. We have discussed various clauses of detailed Tender Notice and thereafter schedule of contract and found that on allotting the contract to the assessee, the assessee has to give a security of 10% equal to the cost of contract before starting the work on the contract awarded to the assessee. Thereafter the assessee has invested its own money in developing the design of Gates and manufacturing the Gates after approval of the Engineer-in-Charge of the VIDC and thereafter erecting the Gates for approval of performance of Gates and then has raised its bill for making the payment. After getting satisfied, then only payment is to be approved and made. Therefore, this is not a case of financing the project by the Corporation or reimbursement of expenses by the Corporation. It is the investment of the assessee only and, therefore, the argument of ld. D/R does not have weight on this point also.

17.4 The ld. Counsel has explained the various paras of Special Bench decision and showed that some of the paras are contradictory with each other and has also explained various discrepancies. We are not here to see the contradiction or discrepancies in the decision of Special Bench. Therefore, we are not inclined to comment on those contradictions and the discrepancies pointed out by the ld. A/R, as we have to see the ratio of the decision and the ratio of the decision was against the assessee. If the decision of Hon'ble Bombay High Court is not there then perhaps the decision of Special Bench may have much weight for deciding the issue here in hand. However, now as the decision of Special Bench has been over ruled by Hon'ble Bombay High Court, therefore, we find that even on legal aspect the assessee is entitled for deduction under section 80IA(4) as we have held that assessee is a developer.

17.5 We further noted that the Rajkot Bench of the Tribunal in the case of KCL BEL Tarmat Jv. v. ITO decided in ITA No. 1112.RJT/2010 for assessment year 2007-2008 vide its order dated 23.9.2010 have held that the assessee is entitled for deduction under section 80 IA(4). While deciding the issue in favour of the assessee, the Rajkot Bench has taken into consideration the decision of Special Bench in case of B.T Patil & Sons, 126 TTJ 577 and other decisions. The Tribunal has also taken into consideration the Explanation added to section 80IA(4) by Finance Act, 2007 and amended by Finance Act, 2009 while deciding the issue in favour of the assessee. While deciding the appeal, the Tribunal has also taken into consideration the decision of Jaipur Bench in case of assessee for A.Y 2003-2004 and 2004-2005 and at page 10 has observed that in case of Om Metals Infra Projects Ltd. (supra) it is held that if it is the assessee mobilizing people, plants, technical expertise etc., the assessee can be said to be a developer and that the assessee cannot be denied deduction from the profits of developing the infrastructure facility though it may not operate or maintain the same, particularly in view of the insertion of the word “or” in section 80IA(4). The decision of Hon'ble Supreme Court in the case of Gujarat Industrial Development Corporation, 227 ITR 414 (SC) (at page 417) was also taken into consideration, copy of the decision of the Tribunal as well as the decision of Hon'ble Supreme Court are placed in the Paper Book at pages 406 to 423.

17.3 In case of Gujarat Industrial Development Corporation, 227 ITR 414 (SC), the Hon'ble Supreme Court has observed that the word “development” in section 10(20A) of the I.T Act should be understood in its wide sense. There is no warrant to exclude all development programmes relating to any industry from the purview of the word “development” in the said clause. There is no indication in the Act that development envisaged therein should be confirmed to non-industrial activities. Development of a place can be accelerated through varieties of schemes and establishment of industries is one of the modes of developing an area.

17.4 It has been further observed that one of the reasons for incorporating a specific provision for exemption from income-tax such as section 10(20A) is to protect public bodies created under law for achieving the purpose of developing urban or rural areas for public good. When the object is such, an interpretation which would preserve it should be accepted even if the provision is capable of more than one interpretation. Thereafter, the Hon'ble Apex Court by reversing the decision of Hon'ble High Court has held that the scheme of the Gujarat Industrial Development Act, 1962, indicated that a Corporation set up thereunder was to chalk out plans for development of industrial areas and industrial estates in different places which might be located in cities, towns or villages. Such schemes normally involved planning and development of such areas. Therefore, the authorities constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes should not be subjected to the liability to pay income-tax. Therefore, the State Industrial Development corporation was entitled to exemption from tax under section 10(20A) of the I.T Act.

17.5 In this case the AO disallowed the claim of exemption under section 10(20A) of the Act. The AAC allowed the claim of the assessee. However, the Tribunal reversed the order of Appellate Assistant Commissioner and the Hon'ble High Court confirmed the order of the Tribunal on the ground that though industrial activity was one of the facets of general development, since development of an area would require roads, buildings, sanitation, parks, spots, educational institutions and several other amenities, a city or town or village could be well developed without any industry. This finding of Hon'ble Gujarat High Court has been rejected by the Hon'ble Apex Court as above.

17.6 After going through the decision of Hon'ble Apex Court it is seen that the Hon'ble Apex Court has allowed the exemption to the State Industrial Development Corporation by holding that the industries doing the work of development of an area. The ratio of the decision can be applied on the facts of the present case also as the interpretation of provisions of Explanation to section 80IA has to be seen in a broader spectrum. Interpretation of Explanation should be interpreted in a harmonious way and not on a rigid way. The assessee is developing the design of Gates and thereafter Gates are erected on the gates of dam and they are operated and maintained by the assessee for two years. Therefore, in our view, in view of the ratio of Hon'ble Supreme Court also the claim of the assessee is allowable.

18. We further noted that the Pune Bench of the Tribunal in the case of Laxmi Civil Engg. Pvt. Ltd. in ITA No. 766.PN/2009 and Others, has decided the issue in favour of the assessee by following the decision of Hon'ble Bombay High Court in the case of ABG (supra). The decision of Special Bench in case of B.T Patil & Sons was cited before the Pune Bench and it was held that the decision of Special Bench has been reversed by the Hon'ble Bombay High Court in the case of ABG and, therefore, the assessee is entitled for deduction under section 80IA(4). In this case also the department disallowed deduction under section 80IA(4) by holding that assessee is a contractor and failed to comply with all the conditions specified in sub clause of section 80 IA(4). Thereafter matter reached to the Tribunal and the Tribunal taking into consideration the decision of Special Bench in case of B.T Patil & Sons and the decision of Hon'ble Bombay High Court in case of ABG held that the assessee is a developer and entitled for deduction under section 80IA(4). This decision was rendered on 8.6.2011 which is after the Explanation added by Finance Act, 2007 and amended by Finance Act, 2009.

19. We have also considered the Board Circular also and found that the Board circular also does not say that the enterprises who are developer are not eligible for deduction under section 80IA(4) even after the Explanation added by Finance Act, 2007 and amended by Finance Act, 2009. The contents of Board circular have been reproduced somewhere above in this order while taking into consideration the written submissions of the ld. A/R.

19.1 In view of all these facts and circumstances and in view of the various judicial pronouncements discussed above, we are of the considered view that assessee is a developer and eligible for deduction under section 80IA(4) even after Explanation added in section 80IA(4) by Finance Act, 2007 and amended by Finance Act, 2009 with retrospective effect from 1.4.2000 Accordingly we allow this ground of the assessee and direct the department to allow the deduction claimed under section 80IA(4) to the assessee.

20. Ground No. 2 relates to confirming the disallowance of Rs. 1,00,000/- on account of traveling expenses and Rs. 1,00,000/- on account of telephone expenses and Ground No. 3 relates to confirming the disallowance of Rs. 1,22,000/- being prior period expenses.

21. Rs. 1,00,000/- each on account of traveling expenses and telephone expenses were disallowed by the AO out of total expenses of Rs. 1,56,76,474/- on account of traveling expenses and Rs. 48,69,874/- on account of telephone expenses respectively. The ld. CIT(A) confirmed these disallowances.

22. After considering the orders of the AO and ld. CIT(A) we find that AO has disallowed these expenses of Rs. 1,00,000/- each on account of traveling expenses and telephone expenses on the ground that assessee could not prove that entire expenses were for the purpose of business only. How the expenses are not for business purposes, AO has not brought any material on record. The expenses incurred by assessee are huge i.e Rs. 1.56 crores or odd on account of traveling expenses and Rs. 48.69 lacs or odd on account of telephone expenses. Full details were filed. Therefore, without any material, adhoc disallowance of Rs. 1,00,000/- each, in our view is without any basis. Therefore, we allow both these grounds of the assessee by deleting the addition of Rs. 1,00,000/- each on account of telephone and traveling expenses.

23. Regarding disallowance of expenses being prior period expenses, the assessee was called for details with evidence in support of the claim. However, assessee did not produce any evidence in support of his claim. Therefore, the expenditures were disallowed by AO and confirmed by ld. CIT(A).

24. After considering the submissions, we find no infirmity in the finding of ld. CIT(A) as no details have been furnished in respect to prior period expenses that whether they were claimed in earlier year. Therefore, without going into detail further, we confirm the order of ld. CIT(A) in this respect.

25. In the result, appeal of the assessee is allowed in part.