TaxTMI 
TaxTMI 
2008 (12) TMI 744
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.... 2,38,27,475/- in respect to the profit earned from the Goshi Khurd Project, the assessee filed its return of income, which was accepted by the AO. The assessee has earned profit from the Goshi Khurd Project wherein dam gates have been constructed and installed by the assessee. The ld, CIT was however, of the different opinion that as per the provisions of section 80IA(4) for the relevant previous year, the enterprises or undertaking carrying on the business of "Developing the Infrastructure facility" was eligible for deduction but only the profit earned from "Operating and maintaining the infrastructure facility" was exempt and not the profit derived from "Developing the infrastructure facility". He was of the view that the assessee company is only a contractor carrying out specific work with respect to the irrigation project and is not the "Developer" of irrigation project. He referred the 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....
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....see and based on the law at the time of assessment the claim was allowed and in said legal position there is no change. The ld. CIT has now withdrawn the claimed allowed relief. The ld. A/R submitted that the ld. CIT has referred the assessment order for the assessment year 2006-07 to come to the conclusion that assessee is not a developer but a contractor in view of the Explanation introduced to section 80IA(4) vide amendment by the Finance Act, 2007 with retrospective effect from 1.4.2000. The ld. A/R referred page 24 of the Paper book Vol. I wherein the position of section 80IA(4)(i) has been narrated during the assessment years 2001-02 to 06-07. The ld. A/R thereafter referred page 277 of the paper book Vol. III wherein comparative statements of deduction under section 80IA(4(a) of the Act has been narrated during the assessment years 1995-96 to 2000-01. He also referred page 276 of the paper book Vol. III wherein comparative statements of deduction under section 80IA(4)(i) during the assessment years 2001-02 to 06-07 has been narrated. As per him, section 80IA(4)(c) of the Act defines the starting period, once assessee is entitled under section 80IA(i). The clause (c) Iays the....
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....6. The ld. A/R also referred page 273 of the Paper Book-III i.e. copy of page 312 (Statute) of ITR Vol. 289 wherein clarification regarding Developer with reference to infrastructure facility, industrial park etc. for the purpose of section 80IA has been made. In this statute it has been proposed to clarify that the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus in case when a person makes the investment and himself executes the development work i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80IA. In contrast to this, a person who enters into a contract with another person (i.e. undertaking or enterprises referred to in section 80IA) for executing works contract, will not be eligible for the tax benefit under section 80IA. He has also referred Circular No. 717 dated 6.2.1995 published in 212 ITR (St.) 336, placed at page 274 of the Paper Book-Ill wherein it has been mentioned that industrial modernization requires a massive extension and qualitative improvement in infrastructure. Our country is deficient in infr....
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.... ld. A/R submitted that the ld, CIT has invoked the provisions of section 263 solely on the basis of objections of audit party as evidenced from pages 5 to 23 of the Paper Book-I i.e. copy of audit query from the Office of the Accountant General (Comm.) and receipt audit). Rajasthan, Jaipur dated 19.9.2006, Assessing Officer's reply in response to the said audit query. The ld. A/R while concluding his arguments again placed heavy reliance on the decision of Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. vs. ACIT (supra) recently followed by the same bench in the case of ACIT vs. Bharat Udyog Ltd, 24 SOT 412 (Mumbai). 7. The ld. D/R on the other hand tried to justify the order under section 263 of the Act in question. He submitted that the contentions of the assessee are not sustainable in law and the assessee's appeal deserves to be rejected. There is a prima facie case for invoking the provisions of section 263 of the IT Act, 1961 as the order is prima facie erroneous and prejudicial to the interest of revenue. The ld. CIT in the impugned order has only set aside the matter to the AO for passing fresh order after considering all the facts and provi....
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....ich has been explained at length by the AO in the assessment order for assessment year 2005-06 placed at page 35 of the Paper Book filed by the department that M/s. Vidharbha Irrigation Development Corporation, Nagpur is the developer of the Project and the assessee is a mere contractor performing specific work for the Corporation. Without prejudice to the above submissions that the assessee is not the developer of the Irrigation Project, it is further submitted that under section 80IA(4), "developers" who do not "operate and maintain" the infrastructure facilities are not eligible for the deduction. For the relevant previous year the enterprise or undertaking carrying on the business of "developing" the infrastructure facility was eligible for the deduction but only those profits which were derived from "operating and maintaining" the infrastructure facility were exempt and not the profits derived from merely "developing" the infrastructure facility. He 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 Ex....
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....he interest of revenue and the ld. CIT has correctly exercised the jurisdiction under section 263 in setting aside these orders for fresh consideration on the claim of this deduction by the assessee. The ld. D/R also placed reliance on the decision of Special Bench of the Tribunal stated to be on an identical issue in the case of IVRCL Infrastructure and Projects Ltd, vs. ACT, Circle 2(1), Hyderabad, ITA No. 1237/Hyd/2004 (assessment year 2001-02) dated 25.4.2008. 9. In rejoinder, the ld. A/R submitted that ld. CIT in the order dated 28.3.2008 under consideration has no where directed the AO to make fresh order in the light of the discussions in this order after giving due opportunity to the assessee in respect of the claim of deduction under section 80IA(4). 10. After considering the above submissions the issue 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 project....
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....tion 80IA(4) were different. The ld. CIT noted further that this decision has not been accepted by the department as appeal has been preferred by the department before the Hon'ble Mumbai High Court, which is pending. There is no dispute that under the provisions of section 263 the ld. CIT has been empowered with supervisory jurisdiction and it is not an arbitrary or unchartered power for invoking these provisions under section 263 of the Act. For application of provisions u/s 263, two conditions are required to be fulfilled. Firstly, the order of the AO sought to be revised is erroneous and secondly, such order is prejudicial to the interest of revenue. "Erroneous assessment" refers to an assessment that deviates from the Jaw, or, one, which has been passed by the AO without making any enquiry, 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 ....
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.... 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 M/s. 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 infrastruct....
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....t and so it cannot be the developer as such. However, we are unable to agree with this contention of the Revenue. A person, who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor bus that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer". On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into lawful agreement and 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....
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.... eligible for the deduction, we do not agree with. Since in our view the word "OR" has been inserted in section 80IA(4)(i) as any enterprise carrying on the business of:- (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility has been introduced by the legislature from assessment year 2002-03 only to remove the ambiguity. Hence the insertion of word "OR"was clarificatory in nature. This amended provisions of section were very much in operation in the assessment years 2003-04 and 2004-05 under consideration. The plea of the ld. CIT that as per the provisions of section 80IA(4), for the relevant previous year, the enterprise carrying on business of developing the 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 eligib....
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....yna 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....
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....at 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....