2011 (2) TMI 1500 - AT - Income Tax

Summary

Issues Involved:

1. Erroneous or prejudicial assessment order.
2. Re-examination of allowance under Section 80-IA.
3. Determination of the assessee as a developer or a works contractor.
4. Interpretation of the term "developer" and the impact of retrospective amendments.
5. CIT's authority to invoke Section 263 based on retrospective amendments.

Detailed Analysis:

1. Erroneous or Prejudicial Assessment Order:
The CIT held that the assessment order was erroneous and prejudicial to the interests of the revenue, as the Assessing Officer (AO) did not properly examine the assessee's claim for deduction under Section 80-IA. The AO had allowed the deduction without sufficient inquiry into whether the assessee was merely executing a works contract or developing an infrastructure project.

2. Re-examination of Allowance Under Section 80-IA:
The CIT directed the AO to re-examine the allowance under Section 80-IA. The AO initially allowed a deduction of Rs. 5,49,16,262 out of the claimed Rs. 6,49,54,397 after disallowing interest. The CIT found that the AO did not properly investigate whether the assessee was entitled to the deduction, given the retrospective amendment to Section 80-IA, which excluded works contracts from eligibility.

3. Determination of the Assessee as a Developer or a Works Contractor:
The CIT found that the assessee was executing a works contract rather than developing an infrastructure project. The assessee argued that it developed the entire "Saurashtra Branch Canal Water Supply/Pumping Scheme" on a turnkey basis, which involved substantial investment and technological innovation. The CIT, however, concluded that the assessee was not the developer but a contractor for SSNNL, which was the actual developer.

4. Interpretation of the Term "Developer" and the Impact of Retrospective Amendments:
The assessee contended that the term "developer" should be interpreted liberally and that it was not necessary for the developer to own the infrastructure project. The retrospective amendment to Section 80-IA, which excluded works contracts, was a key point of contention. The assessee argued that at the time of the original assessment, two views were possible regarding the interpretation of "developer," and the subsequent amendment should not render the AO's order erroneous.

5. CIT's Authority to Invoke Section 263 Based on Retrospective Amendments:
The CIT invoked Section 263, arguing that the AO's order was erroneous due to the retrospective amendment. The assessee relied on the Supreme Court's decision in CIT Vs. Max India Ltd., which held that an assessment order could not be considered erroneous if two views were possible at the time of the original assessment. The Tribunal agreed with the assessee, stating that the AO's view was one of the possible interpretations at the time, and the retrospective amendment did not justify the invocation of Section 263.

Conclusion:
The Tribunal set aside the CIT's order invoking Section 263 for both assessment years 2003-04 and 2004-05. It held that the AO had taken one of the possible views available at the time of the original assessment, and the retrospective amendment did not render the AO's order erroneous or prejudicial to the interests of the revenue. The appeals of the assessee were allowed.