TaxTMI 
TaxTMI 
2017 (12) TMI 1204
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....ort u/s.80IA (7) in respect of Captive Power Plant 1 & 2, Rail System, Water Supply and Treatment system along with audited accounts of respective undertakings. The case was selected for scrutiny and during the assessment proceedings further details were sought by Ld Addl. CIT, Range-11, Bangalore. Vide submission dated 24.8.2010, the assessee submitted explanation with regards to eligibility and computation of eligible profits attributable for various undertakings in respect of deduction u/s.80IA as claimed supported with relevant documents. 3. The original returns for AY 2009-10 and AY 2010-11 were also filed by the assesse company on 25.09.09 and 28.09.2010 respectively. 4. Subsequently, a search & seizure action u/s.132 of the Act was carried out in assessee's case on 16.03.2011 and therefore the pending assessment of AY 2008-09 was abated. The case was centralized with DCIT, CC-46, Mumbai and all the case records were transferred from Bangalore to Mumbai Central Range. Assessee was issued notices u/s 153A in response to which fresh returns u/s.153A for AY 2005-06 to AY 2010-11 were filed on 29.12.2011. The assessee also filed ROI for AY 2011-12 on 30.11.2011. 5. The c....
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....2017 disallowing deduction U/s.80IA on income from Railway siding and water supply system. 8. The assessee being aggrieved by the order of the Ld PCIT and accordingly the following issues were arised for adjudication before us in the present appeals: (i) Whether learned PCIT has erred in invoking jurisdiction U/s 263 of the Act and holding that the assessment orders passed by the AO are erroneous and prejudicial to the interests of the revenue. (ii)(a) Whether the learned PCIT erred in passing order under Section 263 of the Act in violation of the principle of natural justice. (b) Whether the learned PCIT erred in not sharing with Appellant the copies of relevant correspondences and documents, which form the basis of initiation of proceedings and passing of order under Section 263 of the Act, and in not allowing the Appellant to cross-examine the persons whose views were relied upon by him in the impugned procedure, and offer its comments on the same. (iii) Whether the learned PCIT has erred in disallowing the deduction under Section 80IA of the Act claimed by the Appellant in respect of income derived from its 'Rail System' and 'Water....
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....4) in respect of each eligible undertaking for AY 2008-09 alongwith relevant supporting documents. (c) Ld. AO vide notice dated 14.03.2013, asked the assessee company "to furnish computation of profit eligible for deduction u/s.80IA in respect of each undertaking" for AY 2005-06 to AY 2011-12. In response to this query raised u/.142(1) of the Act, the assessee company vide letter dated 21.03.2013 submitted the required documents and information including computation of profits, audit reports in Form 1OCCB and other supporting documents in respect of each undertaking for each assessment year. (d) After examining the eligibility and computation of allowable deduction on the basis of details and documents available on record and produced during the assessment proceedings, assessing officer vide notice dated 20.01.2014, further asked the assessee to "Segregate all the related party transactions with respect of transactions qualified for section 80IA deduction and those not qualified for the same." In response to this query u/s.142(1), assessee vide Letter dated 28.02.2014 submitted details and documents pertaining to: (i) Captive Power Undertaking viz product....
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....e Act, on income earned from Railway System, water Supply and treatment Plant and the violation of principles of natural justice, submitted that as regards the claim for the deduction on the Railway System assessee has developed a Rail System for which it has entered into agreement with South Western Railway vide letter dated 29.01.2007. Therefore, assessee was eligible for deduction u/s.80IA of the Act and the then Ld. AO has rightly allowed the same after making elaborate enquiries and in consonance with a binding precedent of jurisdictional ITAT decision in case of Ultra Tech Cement Ltd for A Y 2004-05 to 2005-06 on identical facts and law. 13. Learned Counsel for the assessee submitted that Ld PCIT has pointed out that to claim deduction U/s 80IA(4) of the Act, assessee should have an agreement with the Govt. to develop, Operate and maintain any infrastructure facility and in the case of assessee there is no operation and maintenance of the Railway sidings. In this regard, Learned Counsel for the assessee submitted that finding of the Ld. PCIT is not correct as the assessee has developed and also maintaining the Railway sidings as mentioned in clause 8(b) of the agreement, w....
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....o the assessee, such disallowance cannot be sustained as held by the Apex Court in case of Kishinchand Chellaram (125 ITR 713)(SC). He submits that this proposition also accepted by the Jurisdictional High Court in the case of H R Mehta v. ACIT (387 ITR 561). 16. With respect to the Rail System, Learned Counsel for the assessee further submits that, as apparent from the show cause notice issued u/s.263 by Ld. PCIT, the Ld CIT(A)-5 has concluded that: a. As per para 2.3(i) of the show cause notice, Rail System developed by the assessee company is simply "Private facility". b. As per para 2,3(ii) of the show cause notice, agreement were not for developing, operating and maintaining any Rail System. c. As per para. 2.3(v) of the show cause notice, shunting of wagons cannot be termed as operation or (of) any Rail System. 17. Dealing specifically with the reasons mentioned by the learned CIT(A) in the case of Ultratech Cements the Learned Counsel for the assessee submitted that, the word "Private Facility" does not find mention in the statue. He submits that it is trite law that law has to be read as such and no import or deletion is permissible. Therefo....
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....rs and liberties, over and in connection with the siding or any extension part thereof, namely -(a)To use the siding or any extension part thereof for any purposes of the Railway Administration free of charge or any remuneration to the Applicant in respect of such use" 20. Referring to the above clause he submits that the above mentioned clause clearly provides unhindered right to the Railway administration to use the siding i.e. Rail System developed by the assessee company for any purpose free of charge. Thus, it is submitted that assessee company has fulfilled all the requirements of law to claim the deduction u/s.80IA(4) of the Act and the then Ld. AO had allowed the same after verification of facts, judicial pronouncements and application of mind. 21. Without prejudice to above the Learned Counsel for the assessee submits that the main basis i.e. CIT(A) order of Ultratech Cement Ltd, for AY 2009-10 & 2010-11 based on which Ld PCIT has initiated proceedings U/s 263 on this issue, has already dealt with by The Hon'ble Mumbai Tribunal vide order Vide order ITA No. 5065/Mum/2014 dated 05/04/2017, copy of which is submitted. Referring to the said order of the Hon'ble ....
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....nment, water resources Department vide order dated 21/23.07.2004. Copies of these agreement are placed at Page Nos. 92 to 107 of the paper book. 24. Learned Counsel for the assessee submits that, in the show cause notice issued u/s.263 of the Act, it is stated that as far as the issue of Water Pipe Line is concerned, no investigation has been made by the Ld. AO, whether assessee company has entered into any agreement with Central or State Government or any of its body for the development of infrastructural facility and whether it is a public facility. In this regard, he submits that assessee company has signed an agreement with Govt. of Karnataka. The said agreement has been signed by Executive Engineer, No, 1, T. R. Division, Munirabad on behalf of Governor of Karnataka on 01.06.2006. In normal course or in ideal conditions, it was the obligation of the state Government to provide water to any factory established in a state but as the state could not provide the same, owing to the lack of infrastructure i.e. water supply at the place, where factory is located, assessee company undertook this job. He submits that incentive mentioned in the provisions of section 80IA have been pr....
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....essee submits that, it is pertinent to note that in the show cause notice, Ld PCIT has raised three issues about irregular disallowance of deduction U/s 80IA, wherein in addition to Railway & Water system, he also show caused that deduction claimed on captive consumption power plant should not be disallowed as the same is set up for own use. However after considering the reply of assessee Ld.PCIT did not disallowed deduction U/s 80IA(4) on captive power plant. The same ratio applies in case of water system also and when he has allowed deduction on captive power plant he should have also allowed deduction on water system as the basis of show cause was same in both the issues. 28. Learned Counsel for the assessee further submitted that, the reliance of Ld PCIT on the order of AO for subsequent year cannot be basis for disallowance of deduction U/s 80IA in these years. In the said order Ld AO failed to consider the fact that in explanation (a) to section 80IA(4) wherein the word infrastructure facility is being defined, the later part of it i.e." or any other public facility of a similar nature as may be notified by the Board in this behalf in the official gazette" have been remove....
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....ay System and Water Supply System claim was rightly disallowed by the Ld. PCIT. He strongly supported the order of the Ld. PCIT passed u/s. 263 of the Act. 32. We have heard the rival submissions, perused the orders of the authorities below and the materials placed before us. In this case, order u/s. 263 was passed by the Ld. PCIT holding that assessee is not entitled for deduction u/s. 80IA in respect of the Railway System and water supply system holding that they are not infrastructure projects. In coming to such conclusion Ld. PCIT basically relied on the proceedings in the case of M/s.Ultratech Cements Limited for the Assessment Year 2009-10 and 2010-11 by the CIT -5, Mumbai wherein a view has been taken that the claim for deduction u/s. 80IA on profit of Railway System was denied. The Ld.PCIT relying on the findings given in M/s.Ultratech Cements Limited for the Assessment Year 2009-10 and 2010-11 and by stating that the CIT in that case had passed detailed order after making enquiries from the Railway Department confirming the disallowance. Therefore, Ld. PCIT is of the view that in view of the investigations made in the case of M/s.Ultratech Cements Limited and since it w....
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....the three issues, but the deductions have been allowed after investigation and making disallowance u/s. 80IA. 34. As can be seen in respect of income on sale of CER that Ld AO has made requisite enquiries on all the issues, there cannot be an occasion to invoke jurisdiction u/s 263 for lack of enquiry by AO. It has been held by Hon'ble ITAT Delhi Bench in the case of Salora International Ltd vs Addl CIT [2 SOT 705] that merely because from a perfectionist point of view, it is felt that some more enquiries and verifications could have been made by assessing officer while making assessment/ assessment order cannot be declared be erroneous and prejudicial to the interest of Revenue. 35. Moreover, there are various judgements wherein it has been held that the setting aside for reassessment u/s.263 of the Act of any order merely on account of a difference of opinion is not permissible. What has already been examined and decided cannot be revisited in these proceedings. When the Ld. AO has taken one of the two views permissible in law and which the Commissioner does not agree with and which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the....
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....re us in the context of factual matrix of the case. 34. Grievance of both the assessee and revenue revolves around assessee's eligibility for claim of deduction u/s.80IA (4) of the Income Tax Act. From the record we found that assessee UltraTech Cement Ltd ('UTCL') has acquired the cement business of Larsen & Toubro Limited (L&T') along with the Rail systems at Hirmi, Tadipatri, Arrokonam and Durgapur in the FY 2003-04. These Railway systems were developed on or after 01/04/1995 by the L&T. year wise details of the aforesaid rail systems are as follows: Unit I Rail system Undertakings Year of Commencement of operations (A. Y.) Initial year of claim (A.Y.) Rail system at Hirmi in the state of Chhattisgarh 2000-01 2004-05 Rail system at Tadipatri in the state of Andhra Pradesh 1999-00 2007-08 Rail system at Arakkonam in the state of Tamil Nadu 2001-02 2007-08 Rail System at Durgapur in the state of West Bengal 2002-03 2008-09 35. M/s. L&T had entered into agreements with the Railway authorities to develop, operate and Maintain the Rail systems which infact the company has done from initial day. This agreeme....
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....egarded as required agreements between the Govt and the assessee. In this respect the assessee submitted as under before the lower authorities. a) as per section 80- IA( 4 )(i)(b) the agreement has to be entered with the Central Govt or a State Govt or a Local Authority or any other statutory body for (i) developing or (ii) Operating and Maintaining or (iii) Developing, Operating and Maintaining the infrastructure facility. Indian Railways is the statutory body under the Indian Railways Act. b) The provision of Sec.80-IA (8) contemplates a situation where goods or services are transferred by an eligible undertaking and vice versa. Undoubtedly therefore, the section itself envisages situations of captive consumption. c) Further as mentioned in clause 15 of the agreement, the rail systems developed by the appellant can be made available to any third party with the prior approval of the Indian Railways. 36. It was therefore contended that the agreements as entered into by the assessee with Indian Railways are as envisaged u/s 80IA(4)(i) and in no case it can be inferred that they are not the required agreements under section 80-IA. 37. The ....
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....he total estimated cost of the work consisting of the estimated costs of work done by the party and those by the railway administration .... " c) Clause no. 7(a) - Permanent way materials - "The applicant will provide and deliver at site the permanent way and other materials (which includes Girders, Rails, Sleepers, fastenings, points, crossings, fencings, signals and overhead structures and any other things connected therewith for electric tractions and other machinery and equipments necessary for working of the sidings) in accordance with the Railway administration's standards and specifications. All charges incurred in laying and fitting the permanent way materials and all other equipments which may be provided shall entirely be borne by the applicant." d) Clause No. 17 - Working of the Siding - wherein it is mentioned that " ... the applicant shall provide labour for and bear the cost of all Operations on the siding. The applicant shall be responsible for the strict compliance by himself and his employees and agents of all rules, regulations and standing orders made by the railway administration from time to time for the working of sidings and for all acci....
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....e BOLT scheme were also eligible for benefit u/s 80-IA. In case of the assessee, the clarification of benefits u/s. 80-IA being available to those rail systems who do not 'operate and maintain' the systems clearly establishes that, enterprises who in fact operate and maintain the rail systems were certainly eligible for tax holiday benefits. As the assessee has entered into agreements with the railway authorities to develop, operate & maintain the rail systems, which in fact the company has done from the initial day. There was indeed an 'infrastructure' facility eligible for deduction u/s 80lA. We also found that the Hon'ble ITAT in assessee's own case for AY 2006-07, has categorically allowed the deduction u/s. 80-IA for its rail system after dealing with the Circular No. 733 dtd 3.1.1996. 43. The Rail systems of assessee at Hirmi, Tadipatri, Arakkonam and at Durgapur were developed under the Agreements entered into with Indian Railways and the assessee is allowed to Operate and Maintain in accordance with terms and conditions of the Agreements, under the supervision and as per guidelines of Indian Railways only. The copies of agreements between M/....
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....o case it can be inferred that they are not the required agreements under section 80-IA. 47. We also found that no siding charges are levied by Indian Railways for the rail systems developed by the assessee. The assessee has developed, operates and maintains the rail systems. The systems are being operated by the assessee as permitted under the agreements entered into with Indian Railways and under the rules and regulations of Indian Railways from time to time. The entire cost was borne by the assessee and is appearing in the balance sheet of the assessee as placed on record. We have also verified the same and found it correct. 48. Contention of revenue authorities that Railways had constructed the rail system is not factually correct. In fact, M/s L& T had entered into agreement with the appropriate rail authorities to Develop its rail systems. M/s. L&T had constructed the rail system by awarding contract to the private parties for construction of rail sidings (including upto the nearest rail head) under the supervision of Indian Railways approved agency, and the entire cost for construction/ development paid to the aforesaid agency and supervision charges paid t....
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.... damage that may be ensured or be caused by reasons of negligence or non-observance of such rules, regulations and orders .... " Further, the appellant carries out all the operations for smooth movement of its goods, viz. Shunting of the Wagons, placing of the wagons at appropriate locations, Loading / Unloading of Wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, Weighing of Wagons on Motion Weigh Bridges, Maintaining signaling systems, Wagons, Couplings, Rake formation for dispatch, hauling of Wagons through its own locomotives, etc. Further, in Clause No. 14 - Traffic on Siding - it is mentioned that " .... applicant undertakes to shunt the wagons from such point to his premises and back with his own labour and the railway administration would not be responsible for any delay, loss and damages caused in consequence of the failure of the applicant to arrange for such shunting." Thus, the rail system is being operated by the appellant and the cost of above operations is borne by appellant. e) Clause No. 8(b) - Wherein it is mentioned that, Maintenance and other Charges for the p....
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....P Kapadia & Co. Chartered Accountants, alongwith Balance Sheet, P&L Account, Schedules forming part of Balance sheet and P&L Account. We have also checked the amount eligible for deduction as furnished in form 10 CCB and found the same as correct. 56. With regard to CIT(A)'s observation in the A.Y.2010-11 at page 42 to the effect that the so called 'Rail System' of the assessee company are simply a private siding and not any infrastructure facility of Public Utility therefore the infrastructure of such private sidings should be treated as "Private Facility", we observe that Section 801A(4) of the Income Tax Act, 1961 does not require the infrastructure facility to be a public facility for allowing deduction under section 801A. The explanation to section 801A(4) defines the term 'infrastructure facility' to mean a road including toll road, a bridge or a rail system without anything further. We observe that the CIT(A) has been referring to the pre-amended definition of the term 'infrastructure facility' which was applicable till AY 2001-02. The assessee company began its claim of deduction from AY 2004-05 when the definition was simplified with no ind....
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....ction and operation of the railway siding was not merely for the purpose of the business of the assessee, but was with a long term perspective to create an infrastructure facility which could, at a future point of time and in case a need arise, potentially confer benefit to the public at large. The agreement with the Railway authorities, provided that the facility so created could be made available to others with the discretion and prior permission of the railway authorities thereby rendering the facility open for general public at large. Hence, such a facility is in fact a public utility. 59. With regard to CIT(A)s conclusion for the A.Y 2010-11 at page 42, to the effect that the agreements entered between the assessee Company & Railway Department, contained the terms & conditions for construction of Private Sidings and that cannot be treated as any agreement for development, operation & maintenance of any Rail system, we observe that as per section 80-IA(4)(i)(b), an assessee has to enter into an agreement with the Central Government or a State Government or a Local Authority or any other statutory body for (i) developing or (ii) Operating and Maintaining or (iii) Develo....
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....ping, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 63. As per materials placed on record, all the railway systems are established and owned by the assessee which is a Company as defined under the Income tax Act. This is an undisputed fact and there is no adverse remark by the AO or CIT(A) in this regard. 64. As per clause (b)of Section 80IA (4)(i) an agreement has to be entered with the Central Government or a 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 the infrastructure facility. The Indian Railways, with whom the assessee has entered into an agreement, is the statutory body designated under the Indian Railways Act. 65. We also observe that the agreements entered into by the assessee are for the development, operation and maintenance of the Railway siding. Thus this fulfills the requirement in clause (b). 66. .... 67. .... 68. With regard to CIT(A)'s observation tha....
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.... 76. .... 77. .... 78. In this regard, we observe that the railway systems of the assessee has been rendering following services to the cement division: * shunting of the wagons, * placing of the wagons at appropriate locations, * loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, * weighing of wagons on Motion Weigh Bridges, * wagon couplings and de-couplings, * rake formation for dispatch, * hauling of wagons through its own locomotives within the factory premises 79. All the aforesaid services are carried out by the railway system inside the factory premises. Further even the maintenance of the Rail system such as alignment of track & gauge maintenance, patching of ballast, maintenance of railway track sleepers, signaling points and railway gate crossing from private siding to connecting point of nearest railway station is done by the railway system. Thus, the revenue of the railway undertaking is the sum aggregate of the above services rendered by it to the cement division. For the pur....
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.... High Court in case of Katira Construction Limited v. UOI (352 ITR 513), wherein Court held as under:- "32. It is true that with effect from 1-4-2002 some significant changes were made in the said provisions. Three of these changes which are material were: (i) that sub-section (4) of section 80-IA now required the enterprise to carry on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. This was in contrast to the previous requirement of all three conditions being cumulatively satisfied; (ii) that the explanation of the term 'infrastructure facility' was changed to besides others, a road including toll road instead of hitherto existing expression 'road', and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with. 33. These changes, however, would not alter the situation vis-a-vis the impugned amendment. These legislative changes did enlarge the scope of the deduction and in a sense, made it available to ce....
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.... such subsequent assessment year(s). For this purpose reliance is placed on the decision of the Hon'ble ITAT of Jaipur in the case of ACIT v. Shiv Agrevo Limited (34 SOT 1). In this case, the assessee-company, whose main object was extraction of seeds for obtaining edible oils and refining thereof, set up a new industrial undertaking for the extraction and refining of edible oil. It claimed to have temporarily commenced the activity on and from 1-1-1997 on a trial run; however, the systematic activity of refining commenced only in the previous year relating to the assessment year 1998-99. After the final completion of the project, the assessee-company applied directly for a permanent registration certificate of its status as a small scale industry (SSI) under section 11-B of the Industrial Development Regulation Act, 1951 (IRDA) to the prescribed authority, who granted the certificate dated 30-3-1998, which was a conclusive and final proof of such a status under the provisions of IRDA. The return of income filed earlier by the assessee for the assessment year 1999-2000 as subsequently revised, wherein a claim of deduction under section 80-IA was made. The Assessing Officer disa....
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....r of option has to be treated as initial assessment year for the purpose of Section 80IA. 92. It is pertinent to mention here that once the deduction for the very first is allowed then in subsequent year the deduction cannot be disallowed on the same ground. Hon'ble High Court decision in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj), has pointed out that once deduction is allowed in the first year, revenue has no power to deny the deduction in subsequent assessment years as provided under the Act. 93. Even the Supreme Court in case of Bajaj Tempo's case (196 ITR 188) held that a provision in the taxing statute for promoting growth and development is to be construed liberally and hence, even the restriction contained in such a provision has to be construed so as to advance the objective of the provision and not to frustrate it. 94. The CIT(A) has also raised an objection to the effect that since L & T was not eligible for deduction u/s.80IA on operation of those rail system, then whether the assessee company, which inherited the cement business [i.e. cement plants together with said rail system] of the L&....
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....ment are exactly identical to the agreement entered into by M/s.Ultratech Cements Limited for the railway siding in its premises. On analyzing the agreement and clauses thereon and the provisions of the Act it has been held by the Coordinate Bench in the case of M/s.Ultratech Cements Limited (supra) that the Railway System operated by the assessee is an infrastructure facility and entitled for the deduction u/s. 80IA of the Act. 39. We further find that revenue's appeal against the decision of Hon'ble ITAT in the case of M/s. Ultratech Cement Ltd. for A.Y. 2006-07 in ITA.No.6070 of 2010, has been admitted by Hon'ble Bombay High Court vide order dated 02.04.2014 on limited issue of as to whether railway siding can be treated as profit Centre or cost Centre for the purpose of determination of eligible profit. As regards revenue's ground of appeal against very availability of deduction u/s. 80IA in respect of railway siding the Hon'ble High Court rejected the same holding as under: "After hearing the counsel at some length and perusing with their assistance the order passed by the Commissioner of Income Tax (Appeals) and the income Tax Appellate Tribunal, we ar....