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TMI Blog2023 (2) TMI 1390X X X X Extracts X X X X X X X X Extracts X X X X ..... d all of them together for the purpose of the adjudication. First, we take up ITA 939/AHD/2011, an appeal by the Revenue pertaining to the AY 2008-09 2. The Revenue has raised the following grounds of appeal: 1. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in deleting to disallowance of Rs. 33,63,180/- made by the Assessing Officer u/s. 14A of the Act. 2. The Ld.CIT(A), Ahmedabad erred in law and on facts in deleting to disallowance of Rs. 47,96,578/- made by the Assessing Officer u/s. 35D. 3. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in deleting to disallowance of Rs. 8,22,39,101/- made by the Assessing Officer out of excess claim of deduction u/s. 80iA(4) of the Act. 4. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in directing to re-compute the eligible deduction u/s. 80IA(4) after allocating the net interest among the different units and allow such deduction. 5. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in deleting the interest u/s. 234B of the Act. 6. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax(A)XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 7. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to income which does not form part-of the total income under this Act:] [Provided Chat nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] 2. The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form pan of the total income under this Act. 3. The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the-total income under this Act] Sub section (2] of section 14A provides that AO shall determine the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction recorded by the AO in the assessment order for applying provision of section 14A(2), the disallowance made under Rule 8D (2)(iii) is not justified. Taking in to consideration the totality of the facts and circumstances of the case and the (written submission filed by the appellant in the course of assessment proceedings and also during the appellate proceedings and also the case laws cited, I hold that the AO is not justified in disallowing an amount of Rs. 37,63,180/-. Accordingly, the disallowance of Rs. 37,63,180/- is deleted. 6. The Ld. DR before us contended that the assessee has earned exempted income and therefore the disallowance needs to be made by the assessee of the expenses incurred in connection with such exempted income. However, the assessee has not made any disallowance of the expense against the exempted income. Thus, the AO has rightly made the disallowance under the provisions of section 14A read with rule 8D of Income Tax Rules. 7. On the contrary, the Ld. AR before us submitted that the assessee has not incurred any expense against the exempted income. Therefore, the question of making the disallowance under the provisions of section 14-A read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Delhi High Court in case of Joint Investments (P.) Ltd. v. CIT reported in 372 ITR 694 holding that disallowance of expenditure in terms of section 14A read with Rule 8D cannot exceed the exempt income itself. Our High Court has also adopted the similar view in case of Commissioner of Income Tax v. Corrtech Energy Pvt Ltd. reported in 372 ITR 97. 8.2 In view of the above, and after considering the facts in totality we hold that the disallowance has to be made as per the provisions of law and in the manner as discussed above against the exempted income in the given facts and circumstances. Hence, the ground of appeal of the Revenue is allowed. 9. The issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) erred in delete the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 10. During the assessment proceeding, the AO was found that the assessee has claimed deduction of Rs. 47,96,578/- on account of preliminary expenses amortized for the issue of QIP shares. The assessee, during the assessment proceedings, was asked to furnish the details of preliminary expenses and also justify its claim. 10.1 In response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The appellant is a banking company. It filed its revised return of income for the AY 201011 on March 30, 2012 declaring total income at Rs. 7,90,10,18,157/-. As mentioned earlier, the question involved in this appeal is whether QIB can be regarded as "public" and whether the offer made to them can be regarded as "offer made to public" for the purpose of section 35D of the Act. In Deccan Chronicle Holdings Ltd. (supra), the Tribunal has held as under: "6. With respect to ground No. 4 for the assessment year 2008-09, we find that the Assessing Officer has not disallowed for the assessment years 2006-07 and 2007-08. However, the Assessing Officer has disallowed the expenditure on the issue of qualified institutional buyers for the assessment year 2008-09 which has been allowed by the Commissioner of Income-tax (Appeals) holding as under: "5. I have gone through the factual and legal contentions of the appellant in support of its argument that the deduction was claimed under section 35D read with section 37 i.e., both under sections 35D and 37. I agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable in one year under section 37, the same was treated as deferred revenue expenditure and claimed over five years, starting from the assessment year 200708. The concept of deferred revenue expenditure is now legally recognised by various judicial authorities and in fact, this was upheld even in the case of the appellant by my predecessor, while deciding the appeal for assessment year 2006-07. In view of the above facts, I hold that the expenditure of Rs. 2,07,00,112 claimed for assessment year 2008-09 is allowable under sections 35D and 37. As the claim of this expenditure under section 35D read with section 37 is in order, the disallowance on this account is deleted." 7. We find that during the year 2007-08, the company incurred debenture expenses of Rs. 2.07 crores and QIB issue expenditure of Rs. 8.28 crores, both totalling to Rs. 10.35 crores. The expenditure referred to above of Rs. 10.35 crores was adjusted against the share premium account as per the provision of the Companies Act. However, the expenditure being deferred revenue expenditure falls within the ambit of section 35D read with section 37 of the Income-tax Act which is eligible to be charged to profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and in case of continuous listing agreement respectively. In this context, we may refer to section 2(d) of SCRR defining the term "public". It (public) is defined to mean any person other than the promoter, promoter group, subsidiaries and associates of the company. Thus any person other than these four qualify to be considered as public. As can be seen from the list of QIBs to whom shares are issued, the shares are not issued to any of the aforesaid category. Thus QIBs, not being promoters, promoter group, subsidiaries and associates of the company would qualify as "public". As specified in clause 40A(ii) of the listing agreement, public shareholding can be increased by any of the modes specified therein to comply with Rule 19(2) and 19A of SCRR. One such note is the issue of IIP in accordance with Chapter VIIIA of the SEBI-ICDR. Chapter VIIIA has been included to provide for fresh issue of shares to comply with minimum shareholding requirement in Rule 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public offer made only to QIBs. These regulations provide that when a company has a public shareholding lower than the requirements specified, then the company may issue I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80IA(4) of the Act, an enterprise which is engaged in carrying out only the work of development is eligible for deduction. The word developer has not been defined under this Act. However, several judicial authority has defined the developer as the one who makes the things happen by mobilizing plan, technical expertise, fund, manpower, supervision and control etc. It also mobilized and synthesized people, plan, technical expertise, supervision and by employing all these resources create new infrastructure facility being two lane road and irrigation project being canal which was not available to the community as a whole for its use. 19.2 It was also submitted that if an enterprise is only carrying out the work of development of infrastructure facility, will obviously receive payment from the Government/local authority/statutory body with which it entered into agreement for development. Otherwise, the entire cost of development of new infrastructure facility will become loss as the developer is not in operation and maintenance of such facility after its being developed. Therefore, only source of income for developer who is not into the operation of such facility is the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of explanation below to section 80IA(13) of the Act as amended by Finance (No-2) Act 2009 is applicable to the assessee and disallowed the claim of the deduction under section 80IA(4) by observing as under: The judgments relied upon by the assessee are not applicable to the facts and law for the current year. The position in law has changed with the amendment introduced to the explanation below section 80IA(13) by the Finance (No 2) Act, 2009, which is reproduced here in above. In view of the amended provisions, the assessee's entire claim is liable to be disallowed. There is no dispute over the fact that the assessee company had entered into the agreement with the Central and the State Government. The various projects of construction of Higways and roads etc. executed by the assessee, which the assessee claims to be development of infrastructure facility is in reality pursuant to the contract entered into between the assessee company and the central or State Government. The work for execution of the projects was awarded to the assessee company by the Central or State Government because of such agreement. As the profits are derived from execution of the infrastructure pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income, the amount of eligible deduction u/s. 80IA(4) is worked out at Rs. 7,89,41,856/- keeping in view the provisions of section 80IA(4) r.w.s 80IA(5), r.w.s 80AB as well as 80B(5). Thus the deduction if at all the assessee is held to be entitled to as a result of any future appellate order is limited to Rs. 7,89,41,856/- as against the claim of Rs. 8,22,39,101/- as made in the return of income. 21. Aggrieved, assessee carried the issue before the learned CIT(A). The assessee before the learned CIT(A) reiterated its submission made during the assessment proceeding. 22. However, the assessee in respect of interest income excluded by AO from the amount of deduction claimed under section 80-IA(4) of the Act submitted before the Ld. CIT(A) that interest income is related to business of the assessee. The assessee further explained the source of interest income as detailed below: * Interest received from Sardar Sarovar Narmada Nigam limited 22.1 During the year, the assessee has received interest income of Rs. 5,79,061/- form SSNL on fixed deposits. The assessee was required to make fixed deposit with SSNL in order to secure the business. Therefore, interest received on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (13) of section 801A has no applicability to the present case. Further the relevant paras of the Rajkot ITAT judgment in the case of M/S TARMAT BEL (JV.) KCL, RAJKOT V/S ITO in 1TA No. llll/ RJT/2010 are as under: The Explanation does not in any way create an artificial fiction about the nature of business of the undertaking but ii only states that no deduction shall be admissible in the case where an assessee carries on business in the nature of a works contract. This clearly means that if the nature of business is not just a works contract but something more, the assessee cannot be hit by'the rigours of the Explanation, As far as the assessee and its facts on record of Revenue are concerned, the nature of business carried on by it, albeit under a contract with the State Govt.,.is not just of a works contract but it also has many shades, colors, hues'and trappings of developing of new infrastructure facility and tor this reason itself, the deduction cannot be denied to Uie assessee this year notwithstanding the insertion of the ] float ion. That the assessee also carried on activities by way of developing of infrastructure ity is also patent from its financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the infrastructure facility must have been developed or developed, operated and maintained by-entering into a contract with the Govt. Therefore, contract with the Govt. is a sine qua nan for becoming eligible for the deduction. 'Therefore, contracting by itself cannot make the assesses a works contractor. In our country, all lands and infrastructure other than those privately owned, belong to the State and hence one can develop infrastructure facility only under a government mandate which is given in the form of a contract. Once there is a contract for a new facility, there are bound to be obligations under the contract which include obligations of, inter alia, observing the specifications of the infrastructure facility. Hence, although there may be such pre-decided specifications in the contract, the execution thereof for building and creating the infrastructure leaves much scope and freedom to the person carrying out the contract, by way of its planning, designing, know-how, funds, risks, human resources etc, all of which are carried out at the sole risk of the assessee, The Explanation to ;iny section has to sub-serve the main provisions of the statute and it cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that facts in the case of B.T Patil & sons are quite different. In that case, the assessee was employed as a- subcontractor to carry out civil work and that a portion of the contract was assigned to that assessee who carried out the assigned work in the capacity of a subcontractor. In the case of the present assessee, the facts are totally different. The appellant itself is the developer. It is not a subcontractor. Therefore, the ratio of the judgment in the case of B.T. PATIL & SONS Belgaum Construction PvtLtd is not applicable to the present case. But the ratio of the judgment of the ITAT in the case of M/S TARMAT BEL [JV.) KCL, RAJKOT V/S ITO in ITA No. llll/ R|T/2010 cited supra is squarely applicable to the facts of the appellant's case. In view of the facts and circumstances of the case as mentioned above and keeping in view the principle of consistency and also the fact that the appellant being a developer of infrastructure facilities in its own rights and the business of the appellant in respect of. which deduction u/s 80IA(4] had been claimed is not in the nature of a work contract, I am inclined to hold that the appellant is entitled to deduction u/s 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in allocating interest on the basis of gross figure amongst various units. I, therefore, direct the A.Q. to allocate only net interest amongst various units of the appellant and recalculate the claim of appellant u/s. 80IA(4) r.w.s. (5) and allow accordingly." Following the appellate order in the appellant's case for A.Y.2007-08 cited as above, this ground is accordingly decided in favour of the assessee and the AO is directed to recompute the eligible deduction u/s 8QIA(4] after allocating the net interest among the different units and allow such deduction. 24. Being aggrieved by the finding of the learned CIT(A) both the Revenue and the assessee are in appeal and cross objection before us. The Revenue is in appeal against the deduction allowed under section 80IA(4) of the Act and direction to exclude the net interest income while calculating deduction under section 80IA(4) of the Act only whereas the assessee is in cross objection against the direction of the ld. CIT-A for the allocation of head office expenses against the income eligible for deduction under section 80IA of the Act. The relevant ground of cross objection of the assessee in CO No. 100/AHD/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken any entrepreneurial risk. The liability of the assessee was limited to the extent of the forfeiture of earnest money deposit and performance guarantee which in any way is also attached with the very nature of works contract. Furthermore, the assessee was not significantly involved in the planning and designing of the project. 26. On the contrary, the learned AR before us filed a paper book running from pages 1 to 202, supplementary paper of 1 to 259 pages along with the copies of the agreement/tender documents which are available on record. It was contended by the learned AR that the assessee was the project in charge for the entire infrastructure facility. It cannot be said that the assessee was only performing part of the infrastructure facility. For this purpose, the learned AR drew attention on various clauses of the project appearing in the contract awarded to the assessee and demonstrated that the assessee has undertaken numerous responsibilities right from the designing of the project and handing over the project to the contractee. The assessee was at the risk of timely delivery of the project, implementation to the labour laws applicable to the project, procurement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure. Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, it is proposed to allow a five year tax holiday for any enterprise which builds, maintains and operates any infrastructure facility such as roads, highways, or expressways or new bridges, airports, ports and rapid rail transport system on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise must have entered into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). " 27.7 The explanation reproduced above denies the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. 28. Coming to the facts of the case on hand, we note that the only thrust of the revenue for denying the benefit to the assessee under the provisions of section 80IA(4) of the Act was revolving around the explanation as discussed above brought under the statute. However, the revenue in the earlier assessment years has admitted the assessee is a developer and allowed the benefit of deduction as envisaged under the provisions of section 80IA(4) of the Act. On perusal of the order of the AO, it is observed that the AO has not provided any basis to arrive at the conclusion that the assessee was acting as the works contractor in pursuance to the explanation below section 80IA (13) of the Act. As such, the AO based on the explanation below section 80IA (13) of the Act held the assessee as the works contractor and denied the benefit of deduction as discussed above. 28.1 To our understanding, the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. (g) That a developer is required to bring plant and machineries to be utilized in the project. (h) Any loss caused to the public or the Government in the process of developing the project, it would be the responsibility of the developer. The Government shall not take any responsibility for any such kind of loss except where it is responsible. (i) That a developer stands as guarantor for the project developed by it and in the event of any defect in the project, he shall provide the remedy for the same. (j) That a developer shall be exposed to the penalty if it contravenes any of the clauses appearing in the contract awarded by the Government. Thus, the developer is responsible to complete the construction in a specified manner failing which it would be responsible for the consequences of delay/any other fault attributable to it. (k) That a developer shall undertake to maintain safety, security and protection of the environment. (l) That a developer shall provide and maintain at his own cost, all lights, guards, fencing, warning signs and watching, when or where necessary. 28.2 These are few broad sample qualities/ parameters of a developer through which the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 300384/- 4 Chirayadungri 1664250/- 5 Jabalpur- MPRDCL 17120983/- 6 Anantpur 3400154/- 7 KBC 356957/- 8 to 29 Other Projects NIL Total 82239101/- 28.7 On sample basis, we analyze the relevant clauses of the tender documents placed in the supplementary paper book in respect of the project namely Multimodal International Hub Airport at Nagpur (Mihan) Project Complex which are detailed as under: (A) Instruction to Bidders i) As per point No. 6 on page No. 7 of instruction to bidder, the contractor was advised to visit and examine the site of work to obtain information such as availability of labour, materials, fuel, water, electricity and such similar information, which are necessary for the preparation/ making of the bid for the tender. ii) As per point No. 12 on page No. 9 of Instruction to bidder explained that the bid price shall include all cost like labor, materials, plant, equipment's etc. (B) Condition of Particular Application i) As per Clause No. 1.8.1 on page No. 30, it was mentioned that contractor shall prepare as built drawings using the auto CAD in respect of project work in pursuance to the specification to be provided by the contractee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion etc. to the contractor for obtaining the power supply, water supply etc. But the employer shall not be responsible for any delay in obtaining the power/water connections. Non availability of electric power and water supply will not be considered as delay in progress. iii) Contractor shall also provide the traffic safety arrangement like sign board, speed limit speed breakers, diversion board, etc. (D) Contract data i) In the Contract data, it was provided that for biding the tender, the Contractor must have necessary experience, facilities, ability, financial resources, specified turnover, specific experience in the construction of Bridges, Qualified Key personnel, plant & machinery & equipment etc. to perform the work. Likewise, the turnover of the contractor should be Rs. 2000 millions, liquid assets of Rs. 10 Crore. The bidder must have the bid capacity more than estimated cost put in the tender. ii) As per clause No. 4.2.1 at page No. 178, the Contractor has to pay Performance Security Deposit at 5% of contract Amount in two parts being 50% within 15 days of letter issued by the MADC for acceptance of the offer and remaining 50% shall be recovered from the Bills pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ambedkar International Airport, Nagpur b) Terrain Almost plain terrain, MSL varying from approx. 292 to 309. The average MSL being 300 c) Range of relative humidity Max: 100% Min: 7% Mean: 49% d) Hottest and coldest month & temperature Hottest month/Temperature: May/47 degrees Coldest month/Temperature: Dec./7.2 degrees e) Rainfall Season June to September f) Annual Rainfall Average annual rainfall 1047.56 mm g) Water table 3 to 4 m below G.L 3.0 Brief Description of work Internal road network in action area-of new project comprises a) Arterial Road Approx. Length (Pavement wideth: 6 x 3.50 m) 6 KM b) Sub-Arterial Road Approx. Length (Pavement width : 4 x 3.50m) 24 KM c) Other Road Approx. Length (Pavement Width: 3 x 3.50m) 6 KM d) Other Road (Pavement Width: 2 x 4.0 m) 15 KM Total 51 KM 29. On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. As such, the assessee was to make video movie, photographs, detailed drawings, design calculations/fabrication etc. at its own cost. Further, the assessee is also responsible to arrange method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, the tender document as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Government and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose, the MADC retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk in the given facts and circumstances especially when the assessee has undertaken the project as a whole for the development of the road right from the beginning till the end. Thus, on perusal of the terms and conditions in the tender documents furnished by the assessee, it is clear that the assessee was not a works contractor simply but a developer and hence, the explanation to section 80-IA(13) does not apply to the assessee. 29.2 Going forward, we find in this context, the Hon'ble Pune Tribunal in the case of B.T. Patil & Sons Belgaum Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources. Hence, undoubtedly entering into lawful agreements and thereby becoming a contractor should, in no way, be a bar to the one being a developer since the role of a developer is larger than that of a contractor. As such it follows from the above that the assessee, who is engaged in developing the infrastructural facility, is rightfully entitled to the benefits of deduction u/s. 80IA(4) of the Act" 29.6 Moving ahead, we note that the AO before rejecting the claim of the assessee was to dwell up-on concept of developer viz a viz the works contractor before making reliance on the explanation to section 80IA(13) of the Act. But he has not done so. In the light of the above discussion, we find that order of the AO suffers from certain defects as detailed below: i. No discussion about the developer and the contractor. ii. No reference made to the agreement of the projects executed by the assessee to work-out the scope of work. iii. No discussion that the earlier year the assessee was admitted as the developer, so what were the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue that the assessee has undertaken the projects for the development of infrastructure facility. Accordingly, we are of the view that the ITAT cannot expand the scope of the dispute which was not arising from the order of the authorities below. In holding so, we draw support and guidance from the judgement of Hon'ble High Court of Allahabad in the case of S.P. Kochhar Vs ITO reported in 145 ITR 255 wherein it was held as detailed under: The powers of the Tribunal in dealing with appeals are expressed in the widest possible terms and are similar to the powers of an appellate court under Civil Procedure Code. The Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The word 'thereon' is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal constitute the jurisdiction of the Tribunal. It can only adjudicate upon such grounds and not beyond them. It is not open to the Tribunal to adjudicate or give a finding on a question which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the explanation below to section 80IA(13) should be read in such a way that the object of the provisions of section 80IA (4) of the Act should not be defeated. As discussed above, the sole purpose of the benefit of deduction under section 80IA(4)of the Act was to bring the development in the area of infrastructure facilities for which the country was in deficient. Thus, if the literal meaning is drawn from the word of the developer and accordingly the deduction of the benefit given under section 80 IA of the Act is denied, then the object for which the provisions of section were brought under the statute will be defeated. Therefore, the provisions of section 80IA(4) of the Act should be read in such a way that the object of the statute should not be defeated. 30. The next fact of the case is that the impugned project for the road development as discussed above was awarded by the MADC- a nodal agency being an undertaking of the Government of Maharashtra. MADC in its books of accounts will not record the payment made to the assessee in the form of expenses. It is because MADC against such expenditure has not shown any income. It appears that MADC is not claiming any deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, however, other judicial pronouncements of the Hon'ble Supreme Court suggesting that though the rule that an explanation is meant only for filling a gap in the statute or removing any ambiguity or clearing a mischief, such rule of normal application is not unknown to exceptions. 30.4 From the above, it is transpired that the condition of being developer of the infrastructure facility was already embedded under the provisions of section 80IA of the Act. In holding so, we draw support and guidance from the judgment of Hon'ble Gujarat High Court in the case of M/s Katira construction Vs Union of India reported in 31 taxmann.com 250 wherein it was held as under: "In our, opinion, what the explanation aims to achieve is to clarify that deduction under section 80IA(4) of the Act would not be available in case of execution of works contract. The fact that such interpretation of the existing provisions of sub-section (4) of section 80IA of the Act, even without the aid of the explanation was possible, in our opinion, is not disputable. As noted, sub-section (4) of section 80IA even after the amendment in the year 2002 envisaged deduction in case of developing or operating and maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assess ment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. " 30.7 In view of the above discussion, we are inclined to hold that once the revenue admitted assessee as developer under the same facts and circumstances, then in subsequent year on same fact and circumstances principal of consistency should be applied. 30.8 Regarding, the contention of the learned DR that the assessee for claiming the deduction under section 80IA(4) of the Act must derive income from the use of such infrastructure facility, the argument of the learned DR to our mind is totally misplaced. It is for the reason that the role of the assessee in the given case is limited to the extent of developing the infrastructure facility. Under the old provisions of the Act, it contained the concept of built, operate, maintained, transfer, wherein the assessee after d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money from the Government against the development of the road and therefore the assessee is not eligible for deduction under section 80IA(4) of the Act is again misplaced in our considered opinion. The Hon'ble Delhi High Court in the case of CIT Vs. VRM India Ltd reported in 57 taxmann.com 325 wherein it was held as under: "Since the assessee developed an infrastructure facility/project and was not required to maintain or operate, it was entitled to cost, plus the margin of income or profit; not to expect this treatment would render one who develops an infrastructure facility project, unable to realise its cost. If the infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, the mere circumstance that the Indian Railways or DDA paid for development of a housing project carried out by the assessee, did not mean that the assessee did not develop the residential complex. If the revenue's interpretation is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IB (10). The conclusions of the ITAT in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ardar Sarovar Narmada Nigam Ltd. 2 Interest received from Banks against Fixed Deposits 1,98,73,519 Fixed Deposit from Margin Money for issuance of Guarantees by Bank for obtaining the tender, performance guarantee & mobilization advances 3 Interest on Income Tax refund 33,05,232 Interest received from Income Tax Department on refund passed 4 Interest from Party 6,07,861 Interest on advances given to party Total 2,43,65,673 34. Admittedly, the AO disallowed the deduction claimed by the assessee u/s 80IA(4) of the Act but further mentioned in assessment order that if the appellate authority allows the claim of the assessee u/s 80IA(4) of the Act, then while computing such deduction gross interest income should be excluded. However, the Ld. CIT-A directed that only net interest income should be excluded. 35. From the preceding discussion, we note that the limited issue before us is whether gross interest income or net interest income should be excluded while computing the eligible income u/s 80IA(4) of the Act. 36. At the outset, we note that the issue has been squarely covered by the judgment of ITAT Mumbai in the case of Yes Bank Vs DCIT reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to Section 80HHC. 11. For this interpretation of Explanation (baa) to Section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the netinterest or net rent, which has been included in the profits of business of the assessee as computed under the head "Profits and Gains of Business or Profession", is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. 13. The view that we have taken of Explanation (baa) to Section 80HHC is also the view of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) and the Tribunal in the present case has followed the judgment of the Delhi High Court. On appeal being filed by the Revenue against the order of the Tribunal, the High Court has set aside the order of the Tribunal and directed the Assessing Officer to dispose of the issue in accordance with the judgment of the Bombay High Court in Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue whether ninety per cent deduction is to be made from the gross or netincome of any of the receipts mentioned in clause (1) of the Explanation (baa). 15. The Bombay High Court has also relied on the Memorandum explaining the clauses of the Finance Bill, 1991 contained in the circular dated 19.12.1991 of the Central Board of Direct Taxes to come to the conclusion that the Parliament intended to exclude items which were unrelated to the export turnover from the computation of deduction and while excluding such items which are unrelated to export for the purpose of Section 80HHC, Parliament has taken due note of the fact that the exporter assessee would have incurred such expenditure in earning the profits and to avoid a distorted figure of export profits, ninety per cent of the receipts like brokerage, commission, interest, rent, charges are sought to be excluded from the profits of the business. In our considered opinion, it was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section 80HHC was clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of M/s. ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax that ninety per cent of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads 'Profits and Gains of Business or Profession' is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. Since, the view taken by the High Court in the impugned order is consistent with our aforesaid view, we find no merit in this appeal and we accordingly dismiss the same. There shall be no order as to costs.' 37. Further, we place our reliance on the judgment of Hon'ble Supreme Court in case of PCIT Vs. Gujarat Paghuthan Energy Corporation (P) ltd. reported in 105 taxmann.com 84 where the SLP of the Revenue was dismissed as detailed under: "2. Third question pertains to netting of the interest for disallowance under Section 80IA of the Act. In this respect, we notice that in the decision of the Supreme Court in case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax reported in [2012] 343 ITR 89 (SC) such issue in the context of deduction under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rastructure project undertaken by the assessee. We find that before the lower authorities the assessee has explained regarding interest income earned by it from the fixed deposits, security deposits, margin-money and from the bond, with the banks and other institutions, as per the terms and conditions of the contract agreement with the Government authorities. Furnishing of fixed deposits for bank guarantees, security deposits etc. are the pre-condition for awarding the project work by the competent authority, and therefore, these are necessity of regular course of business and has direct nexus with the activities. Jurisdictional High Court in the case of Empire Pumps P. Ltd (supra) held that interest income having direct nexus with its business, was to be considered as income 'derived from' business. Thus, deduction under section 80I of the Act was allowed on such income. Yet in another decision by jurisdictional High Court in the case of CIT Vs. Shah Alloys Ltd. (supra) has held that interest received on margin money placed for business purpose cannot be treated as income from other sources and is, therefore, eligible for deduction under section 80IA of the Act. Further, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. In other words, the expenses must be incurred, for and on behalf of the concerned undertaking. The expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. 40.2 The Hon'ble Supreme Court held in the case of CIT vs. Sterling Foods reported in 237 ITR 579, that there must be for the application of the words "derived from" a direct nexus between the profits and gains and an industrial undertaking. Sections 80-I and 80-IA also use the expression "derived from". If there must be a direct nexus between the profits and gains and an industrial undertaking, it must follow equally that there must be a direct nexus between an industrial undertaking and the expenses which are sought to be apportioned/attributable to it. Expenses which do not relate to an industrial undertaking/unit under consideration and they relate to other units or to the head office of the assessee, cannot be taken into consideration while com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r detailed discussion, please refer the aforementioned paragraph of this order. Hence, the objection raised by the assessee is hereby rejected. 48. The issue raised by the assessee in objection No. 2 is that the Ld. CIT(A) erred in confirming the allocation of head office expenses while computing the deduction u/s 80IA(4) of the Act. 49. At the outset, we note that the issue raised by the assessee has been adjudicated along with Revenue's ground No. 3 of the appeal bearing ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs No. 40 of this order. For detail discussion, please refer the aforementioned paragraph of this order. Hence the objection raised by the assessee is hereby allowed. 50. The other issued raised by the assessee in objection No. 3 is either general or consequential or premature to decide, hence, the same is dismissed being infructuous. 51. In the result, the CO of the assessee is partly allowed. Now coming to ITA(SS) No. 363/AHD/2018 an appeal by the Assessee for the AY 2009-10 52. The assessee has raised the following grounds of appeal: 1. The Learned CIT(A) erred in law and on the facts of the case in confirming 25% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en on sub-contract basis to M/s Kataria Hume Pipe which purchases the materials from these parties and assessee makes payment to these parties. The assessee also produced Shri Himmatbhai Kataria & Vijaybhai Kataria, partner of kataria hume pipe to examine the transaction. The assessee furnished the detail of payment to these parties and also furnished the details of items and quantity of materials purchased. 54.4 However, the AO rejected the contention of the assessee by observing that the statements were recorded on oath by the sale tax department where the alleged parties admitted that they are indulged in providing the accommodation entry. One of the party namely M/s Krish Enterprises admitted that it has given sales bill on commission basis @10-20 paisa. Further, he admitted that the cheques were credited to bank and cash was withdrawn from bank which was returned to the parties after deducting his commission. The assessee failed to prove with sufficient corroborative evidence that the transaction entered into with the stated suppliers are genuine. Accordingly, the AO treated the purchase from the above stated parties as bogus purchase and added to the total income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved by the order of the Ld. CIT(A), assessee is an appeal before us. 58. The ld. AR before us contended that estimating the profit at the rate of 25% on the alleged bogus purchases is very unreasonable and thus he made submission that 8% disallowance of such purchase will be just and fair. 58.1 On the contrary, the learned DR vehemently supported the order of the AO. 59. We have herd the rival contentions and perused the materials available on record. It is observed that assessee in the year under consideration has claimed the purchase of Rs. 2,10,354/- from NB Enterprises. During the assessment proceedings, the AO has received information from Maharashtra Sale Tax Department that M/s N.B. Creation is indulged in the providing the hawala bills and no actual sale/purchase transaction has taken place. Accordingly, the AO treated the same as income of the assessee. However, the Ld. CIT(A) restricted the addition to the extent of 25% of the bogus purchases. 59.1 Nevertheless, we note that the courts have taken a view that in case of non- existent parties from whom the purchases are shown to have been made, the most logical approach would be that only part of such purchases can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 25% of the disallowance made by the AO for alleged bogus purchases without appreciating the factual aspect and ignoring all the possible manifested evidences submitted before the AO as well as CIT(A). It is therefore prayed that addition/ disallowance confirmed by the C1T(A) may please be deleted. 2. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. ' 3. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 61. The only issue raised by the assessee in grounds of appeal is that the Ld. CIT(A) is erred in confirming 25% disallowance of alleged bogus purchase. 62. At the outset, we note that the identical issue has been raised by the assessee in ground No. 1 of its appeal in IT(SS) No. 363/Ahd/2011 for the AY 2009-10 where we have decided the issue vide paragraphs nos. 59 to 60 of this order. For detailed discussion, please refer the aforem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in IT(SS) No. 363/Ahd/2011 for AY 2009-10 where we have decided the issue vide paragraphs nos. 59 to 60 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence the ground of appeal of the Revenue is hereby dismissed. 69. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) is erred in deleting the addition of Rs. 25,93,620/-made by AO u/s 14A of the Act. 70. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs No. 8 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is allowed. 71. The issue raised by the Revenue in ground No. 4 is that the Ld. CIT(A) erred in deleting the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 72. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 16-17 of this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of Explanation below subsection ()3) of section 801A introduced by Finance Act, 2009 with retrospective effect from 01.04.2000 the assessee was not eligible for deduction u/s 80IA(4) of the Act. The Ld. CIT (A) has erred in law and on facts in deleting addition of Rs. l,28,59,4587- out of total addition of Rs. l,71,45,9447- made on account of Bogus Purchases from four parties. The Ld. CIT (A) has erred in law and on facts in deleting addition of Rs. 2,10,49,0157- made on account of disallowance of claim of deduction of expenditure on option premium on Employees Stock Option Plan (ESOP). 4) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs. 47,96,5787- made u/s 35D of the I.T.Act. 5) If is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent. 77. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in deleting the disallowance of deduction made by the AO under section 80-IA(4) of the Act. 78. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 3 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany debited Rs. 2,10,49,015/- on account of loss on premium on shares issued under Employees Stock Option Scheme. The same amount was disallowed and included in the total income in the return filed on 26.09.201 1. However, the appellant filed revised return on 29.12.2005 wherein the appellant excluded this amount from the total income. It is seen i that the appellant company had granted option for 25,00,000/- equity shares of Rs. 1/- each at price of 1 Rs. 50/- per share to the employees eligible under Employees Stock Option Scheme. During the year, the company issued options for grant of 24,42,000 shares out of which 58,000 options have not been exercised. The appellant booked expenses on account of Employees Stock Option Scheme amounting to Rs. 2,10,49,010/- being the difference between market price of the share on the date of grant of such option and the price such option was vested to the employees. 10.2 Allotment of shares by the company only alters the capital structure of the company and hence does not alter the profitability of the company in any manner. Thus, granting of options under the Employees Stock Option Scheme (ESOS) does not affect the profitability of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Biocon Ltd. vs. DCIT (LTU) (supra) where it has been held that ESOP compensation expenditure is not a notional expenditure but an allowable expenditure under Section 37(1) of the Act. It has further been held by the Special Bench that object of issuing of shares at a lower issue price than the market price to the employees under ESOP must be taken into consideration and thereby it cannot be treated as short receipt of securities premium but a cost on account of compensation to the employees. Thus, principally the claim on account of deduction of ESOP compensation is allowable. Hence, the ground of appeal raised by the Revenue is hereby dismissed. 88. The issue raised by the Revenue in ground No. 4 is that the Ld. CIT(A) erred in deleting the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 89. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 16-17 of this order. For detail discussion, please refer the aforementioned paragraph of this order. Hence the ground of appeal of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 95. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) erred in deleting the addition of Rs. 4,02,46,403/-made by AO on account of ESOP. 96. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in IT(SS) No. 393/Ahd/2011 for AY 2011-12 where we have decided the issue vide paragraphs No. 87 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 96.1 In the result, the appeal of the Revenue is hereby rejected. Now coming ITA No. 1919/AHD/2016 an appeal by the Revenue for the AY 2013-14 97. The Revenue has raised the following grounds of appeal: 1. Whether on the facts of the case and in law the Ld.CIT(Appeal) erred in allowing the claim of deduction u/s. 80IA(4) of the Act amounting to Rs. 77,16,77,736/- 2. Whether on the facts of the case and in law CIT(A) erred in allowing the deduction on option premium on Employees Stock Option (ESOP) for Rs. 3,77,68,000/- 98. The issue raised by the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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