9911796707
TMI Blog2023 (2) TMI 1390X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of accounts. The books of accounts are generally audited and therefore the services of the auditors also utilized inrelation to the investment made by the company. Thus, the argument of the learned AR is not acceptable that there was no expense incurred with respect to the impugned investments. Accordingly, we hold that the disallowance made by the AO on account of administrative expenses in pursuance of the provisions of rule 8D is correct and as per the provisions of law. The investments which have yielded the dividend income in the year under consideration should only be considered for the purpose of making the disallowance under section 14A read with rule 8D of Income Tax Rule. We draw support and guidance from the judgement of Vision Finstock Ltd. [2017 (7) TMI 1277 - GUJARAT HIGH COURT] - Decided against assessee. Addition on account of preliminary expenses u/s 35D - AO was found that the assessee has claimed deduction on account of preliminary expenses amortized for the issue of QIP shares - HELD THAT:- As relying on Metrocom Industries Ltd. [2016 (7) TMI 1374 - GUJARAT HIGH COURT] we hold that the expenses claimed by the assessee are eligible u/s 35D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed expenses with the eligible unit, the AO cannot allocate such expenses. Hence, the CO of the assessee is allowed. Estimation of income - bogus purchase - CIT(A) confirming/restricting 25% disallowance - HELD THAT:- As 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 be disallowed, in the cases where the corresponding sales are treated as genuine, or alternatively the profit embedded in such sales can only be brought to tax. Therefore, what can be taxed in such transactions is profit element embedded in such alleged non genuine purchases and the entire or peak amount of such purchases cannot be treated as bogus. Thus, we find that it is fair and just to restrict the addition to an extent being 12.5% of the bogus purchases. See case of Ratangiri Stainless(p) Ltd. [2017 (4) TMI 402 - ITAT MUMBAI] Addition on account of ESOP expenses - assessee has issued 25,00,000 equity shares at a price of Rs. 50/- per share to the eligible employee of the company as per the ESOP scheme - AO disallowed the same by observing that expenses on ESOP debited to Profit & loss accounts is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is therefore, prayed that the order of the Ld. Commissioner of Income tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored. 3. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 36,63,180/- made under section 14A of the Act. 4. The facts in brief are that the assessee is a public company and engaged in the business of construction of road, canals, mining works etc. The AO during the assessment proceeding found that the assessee claimed exemption of dividend income of Rs. 1,29,82,706/- under section 10(34) of the Act. However, no corresponding expense was disallowed by assessee as prescribed under the provision of section 14A r.w.r. 8D of Income Tax Rules. Thus, the AO invoked the provisions of section 14A r.w.r. 8D of Income Tax Rules and made the disallowance of Rs. 36,63,180/- as per clause (iii) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amount of expenditure incurred in relation to exempted income in accordance with the methods prescribed i.e. Rule 8D of the Income Tax Rules 1962, if the assessing officer having I 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 the present case, the appellant has not claimed any expenditure in relation to exempted income. The AO had accepted the fact that there is no direct expenditure in relation to exempted income. Having accepted the position that the appellant has not incurred any direct expenditure on account of interest etc., for the purposeof making investments in the shares subsidiary companies, the AO is not justified in invoking the provisions of section 14A (2) of the Income tax act and thereby making disallowance of Rs. 36,63,180/- by resorting to Rule 8D of the Income Tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance 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 with rule 8D does not arise. 7.1 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favorable to them. 8. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has made disallowance of administrative expenses under section 14A r.w.r. 8D(2)(iii) of Income tax rule for Rs. 36,63,180/- which was deleted by the learned CIT(A). Admittedly, the assessee has made huge investments and has earned exempted income to the tune of Rs. 1,29,82,706/- only. The decision for making the investments in the shares is a very complex decision which are generally taken by the top management. Likewise, a lot of research is done before taking the decision for making the investments which is generally carried out by the staff. Similarly, in a board meeting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, 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 to such notice, the assessee submitted that during the year under consideration it had made an issue of Qualified Institutional Placements (QIP) which falls under sub clause (iv) to clause (c) of sub-section (2) of section 35D of the Act. Accordingly, the assessee worked out the deduction u/s 35D of the Act as detailed under: F.Y. 2007-08 STATEMENT SHOWING AMOUNT ALLOWABLE U/S 35 D OF THE INCOME TAX ACT 1961. 1. Cost of Project as per Placement document 920000000 5% of cost of project i.e 5% of Rs. 9200-00 (14 Cr) 46000000 A QIP Expenses as per P & L Account. 23982891 B As B is less than A above, the disallowable expense of U/S 35 D of the Act is 21/5 of the said is to be allowable QIP expenses for Assessment Year 2008-09 is 23982891 Hence, Total Expenses allowable u/s. 35 D for the Assessment Year 2008-09 is : 4796578 10.2 However, the AO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the argument of the appellant that the language used in section 35D is so plain and unambiguous that the only condition laid down in that section is that the issue should be offered for public subscription and the mode of placement is immaterial. Thus, the only issue for consideration is whether QIB can be called 'public' or not. After a careful and comprehensive consideration of the relevant provisions of the Company Law, Securities Contract (Regulation) Rules, SEBI Guidelines/Instructions, I am of the considered opinion that QIBs constitute 'public' and accordingly, the subscription made by the amount to public subscription. In this view of the matter and also considering the facts with regard to the utility of funds raised through QIB issue, I hold that the issue expenditure, to the extent attributable to the funds utilised for extension of the appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 loss account. Accordingly as per the provisions of section 35D of the Income-tax Act, one-fifth of the QIB issue expenditure i.e. Rs. 207 lakhs was written off. Qualified Institutional Buyers (QIBs) are a class of investors as a part of the large investor community and the companies sought for QIB issues because the funds can be raised within a short span. This is an extremely important investment for larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or debentures of the company are allowable. Reliance is placed on CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the merits of the issue, the QIB expenditure can be treated as revenue expenditure and eligible for deduction under section 35D of the Income-tax Act is confirmed. Hence on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh 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 IPP to QIBs and raise the public shareholding to the required levels. It thus implies that QIBs form part of public. Further, even Reg. 82 which gives conditions for QIP, provides that the same must be in compliance with the requirements of public shareholding. That "a section of public qualifies as public" has been clarified in Nitta Gelatine India Ltd. (supra) and Andhra Chamber of Commerce (supra). 7. Facts being identical, we follow the order of the Tribunal in the case of Deccan Chronicle Holdings Ltd. (supra) and in view of the discussion hereinabove at para 6.2, hold that the appellant is eligible for deduction u/s 35D of the Act. Thus, we set aside the order of the Ld. CIT(A) and allow the 1st, 2nd and 3rd ground filed by the assessee. 17.1 In view of the above and respectfully following the ratio laid down by the Hon'ble Gujarat High Court in the case cited above, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment. 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 amount received from the authority with whom agreement to develop was entered with. Further, entering into agreement with Government/local authority/statutory body for development of infrastructure facility is pre-condition to claim deduction under section 80IA(4) of the Act. As per the provisions of Indian Contract Act 1872, any person entered into agreement with another person to do or refrain from doing something for a consideration is a contractor. Therefore, assessee entered into agreement with Government/local authority for developing infrastructure is a contractor and accordingly referred as contractor in the said agreement. But that does not degrade it from being developer of infrastructure facility. The fact that TDS under section 194C of the Act, as applicable to a contractor, deducted on account of payment made by the said authority for carrying out the work of development of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suant 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 project work as per agreement entered into between the assessee company and the Central/State Government, the assessee is not entitled to deduction u/s. 80OA(4). The case laws relied upon by the assessee are of no avail for the reason that those judgments had been rendered on different facts prior to the amendment to the explanation below sub section (13) of section 80IA vide Finance (No 2) Act, 2009. In view of the changed position of the law as stated above, the assessee's claim for deduction u/s. 80IA(4) is not in conformity with the provisions of the Act and thereon the same is disallowed and added back to the income for the sum of Rs. 8,22,39,101/- 5.6 Without prejudice to the above, If at all, as a result of any appellate order in future it is held that the assessee is entitled to deduction u/s 80IA(4) without applying the section 80IA(5), the deduction on account of section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: * 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 such deposit is business income and not the income from other sources. * Interest received from Bank against fixed deposit 22.2 The assessee was required to provide bank guarantee immediately after the acceptance of tender for the performance of work. Thus, the assessee to obtain such ank guarantee required to keep certain amount in fixed deposit with the bank. Therefore, the interest income of Rs. 1,98,73,519/- is connected with the business of the assessee. 22.3 Without prejudice to the above, the assessee also submitted that if the interest income is excluded while computing the deduction u/s 80IA(4) of the Act, then it is to be only net interest income that needs to be considered. 23. The learned CIT(A) after considering the facts in totality allowed the claim of assessee for deduction under section 80IA(4) with certain direction. The relevant finding of the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs 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 financial statements. The assessee has made huge vestments of own as well as borrowed funds and "has invested the same in all kinds of resources for its business, namely plant and machineries, structures at sites, working capital, human resources, technical expertise etc. The assessee possesses its own technical knowledge of how to develop and lay roads, dams, bridges etc. and it has its own technical as well as managerial pool of manpower for the same. Proofs regarding technical and financial capacity of the contractor are required to be furnished to the Govt. In some cases/ even the design of the infrastructure project is first prepared by the assessee and then submitted to the Govt. The assessee has purchased and employed its own materials for development and construction of the infrastructure facility. Sub-letting is also not permitted. Although, it was required to act under a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be rend to curtail it or override ii. as held by the Supreme Court in many cases such as Sunderram Pillar AIR 1985 (SC] 582 Therefore, if the assessee continues lo be eligible under the substantive provisions of sub-section (4) as having acted as a developer, the Explanation cannot take away the benefit of the Section. That the assessee has been held in he eligible for deduction in past not merely because of the absence of the impugned. Explanation in earlier years but also because its business has been held to be that of a developer of infrastructure. There being no material change in the nature of business, the insertion of a Explanation cannot take away the benefit otherwise available to it. Moreover, the Explanation cannot be applied to every type of contract, otherwise it will lead to absurdity and irrationality, more so when all infrastructure basically belongs to Govt. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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 80IA(4) in respect of the income derived by its from the eligible units. Respectfully following the judgment of the ITAT in the case of M/S TARMAT BEL ()V.) KCL, RAJKOT V/S ITO in ITA No. llll/ RJT/2010, it is held that the AO is not justified in denying the appellant the benefit of deduction u/s 80IA(4). Therefore, the AO is directed to allow the deduction u/s 80IA(4) in respect of the income derived by the appellant from the units eligible for such deduction. Accordingly the disallowance of Rs. 8,22,39,101/- is hereby ordered to be deleted. As regards ground No. 5(a]) &(b])regarding allocation of common expenditure of head office, it is found that the issue has been decided against the assessee vide the appellate orders in the appellant's own case for A.Y. 2006-07 (Appeal No. CIT(A) XIV/AC. Cir 8/360/2007-08 dated 13.4.2009) and for A.Y.2007-08 (Appeal No. CIT(A) XIV/Addle CIT R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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/2011 reads as under: That, on facts and in law, the learned CIT(A) has grievously erred in confirming the action of learned AO in re-computing deduction u/s. 80IA(4) of the Act by allocating expenditure of head office etc. to different eligible units. 25. The learned DR before us has filed written submissions running from pages 1 to 17 wherein it was contended that the income derived from the use of infrastructure facility developed by the assessee is only eligible for deduction under section 80 IA(4) of the Act. But in the present case, the contract work was awarded to the assessee through the bidding process where the lowest contract value was quoted by the assessee after considering the element of profit. Thus the assessee was acting as a works contractor and the income was derived by way of developing the infrastructure facility and not from the use of development facility. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the materials, establishment of the laboratories, furnishing the bank guarantee, responsibility of the project of the handing over. The complete chart of the responsibilities undertaken by the assessee with respect to various projects were provided by the learned AR for the assessee which are available on record. Accordingly, the learned AR submitted that the assessee by deploying its resources, skills, expertise has actually acted as the developer of the project. It was also submitted that the initial funding was made by the assessee which was subsequently received from the contractee upon raising the invoices as per the terms of the contract. The assessee was to furnish the performance guarantee of the infrastructure facility and in the event of any defect, the assessee was to face the consequences. Thus, it cannot be said that the assessee was just executing the work contract of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the agreement between the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them. 27.3 Hence, the legislature inserted sub-section 4A to section 80-IA of the Act w.e.f. 1st April 1996 for providing the deduction to the enterprises or undertakings engaged in the business of development and operating & maintaining of infrastructure facility. 27.4 Further, w.e.f. 1st April 2000 the subsection-4A was re-numbered as subsection- 4 of section 80IA of the Act. Subsequently, the major changes were brought in the Finance Act 2001 w.e.f. 1st April 2002, where the requirement for developing and operating & maintaining of infrastructure facility simultaneously was done away. Now the deduction under section 80-IA(4)(i) is also available to assessee who is engaged only in development of inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 Revenue before invoking the explanation below to section 80IA(13) of the Act was to appreciate the difference between a 'developer' and a 'works contractor'. Generally, in common parlance a person is referred as 'developer' who undertakes the project to develop and construct at its own responsibility and takes all the risks of the development. These responsibilities and risk can be categorized as under: (a) That in a development contract, responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed, the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intain 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 character of a developer can be defined. 28.3 On the other hand, a 'contractor' is a person who undertakes work on a contract basis. He does not assume risks and responsibilities like that of a developer. He merely carries out the work as has been instructed to him by the contractee. Moreover, in case of such work, the contractor gets fixed amount of revenue to the extent of the work executed by it and is not entitled to any share of profit from the revenue generated by the developer from the infrastructure facility. 28.4 To summarize, the developer acts as a principal whereas the contractor acts as an agent in performing the functions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility whereas the contractors are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ii) As per Clause No. 1.8.2 on page No. 31, it was mentioned that contractor shall be responsible for the preparations, at its own cost, of all detailed working drawings, design, calculations and fabrication drawings for temporary work as well as bar bending schedule for reinforcement, materials list for structural fabrication. However, all such details will be approved by the authorized Engineer. iii) As per Clause No. 4.9 on page No. 35 and 37, the contractor shall submit the method for the execution of work along with detailed drawings, sketches and Contractor shall furnish the details of sufficient plants, equipment and labor which are necessary to maintain the progress schedule. iv) As per Clause No. 4.13 on page No. 38, the contractor, at his own cost, shall arrange the land for temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 payable to the contractor. iii) As per clause No 8.7.1 & 2 at page No 179, the Contractor shall pay liquidated damages to the Employer for non-achievement of milestone within stipulated time. iv) However, such liquidated damages are subject to maximum 10% of the contract value. Once the liquidated damages reach at 10% contract value, the contract would be terminated and all the deposits of the contractor will be forfeited & the balance work shall be got done at the contractor risk and cost. v) As per clause No 14.2, the Contractor shall be paid Advance payment/ mobilization advance and machinery advance only against the provision by the Contractor of an unconditional Bank Guarantee. Such advance shall carry the interest at the rate of 9% PA which shall be recovered from the running bills of the contractor. (E) Scope of work The brief introduction for the scope of work stands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the execution of work along with detailed drawings, sketches, furnish the details of sufficient plants, equipment and labor. The assessee has to arrange the land for temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. The assessee was duty bound to protect the environment on and off of the staff site and avoid the damage or nuisance etc. to the persons or to the property of the public. The assessee was to maintain at its own cost sufficient experienced supervisory staff required for the work and arrangement of their housing. The assessee was to have the field laboratory for the purpose of testing of materials. The contractor shall inspect the project in every 3 months during the 1st year after completion of the work and carry minimum 2 inspections per year for the remaining years of defect liability period. The assessee has to arrange electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished 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 Constructions (P.) Ltd. [2013] 34 taxmann.com 97/59 SOT 61 (URO) after referring to decision of the Hon'ble Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54 has laid down certain parameters for contractors to be eligible for deduction. The said parameters for a contractor to be eligible for deduction are as follows:- (a) Undertaking financial risk by making investment. (b) Shouldering technical risk. (c) Liable for liquidated damages. (d) Employment of technical and administrative qualified team. 29.3 If above parameters are satisfied, the contractors would be held eligible for the deduction under section 80-IA of the Act. Thus, the above parameters may act as guiding factors to decide whether a contractor may be considered as a deemed developer eligible for deduction under section 80-IA(4) of the Act. Admittedly, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fects 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 distinguishing features to hold the assessee as works contractor in the year under consideration. iv. No defect was pointed out in the form 10CCB filed by the assessee. 29.7 In the absence of necessary specific details in the assessment order, it seems to us that the AO without application of mind has arrived to the conclusion that the assessee is acting as a works contractor only after making reference to the explanation to section 80IA(13) of the Act. 29.8 Going further, it is the settled position of law that the role of the ITAT is to address the dispute arising from the order of the authorities below. In other words, the ITAT is not expected to travel beyond the allegations/findings framed by the AO/ Ld. CIT(A) as the case may be against which either the assessee or the revenue is in appeal. Likewise, At the time of hearing, a question was posed to the learned counsel of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 does not constitute the subject-matter of the appeal as constituted by the original grounds of the appeal and such additional grounds as may be raised by the leave of the Tribunal. Further, the words, 'pass such orders thereon as it thinks fit' include all the powers except the power of enhancement which is conferred upon the AAC by section 251. The distinction that the AAC is competent to examine all matters covered by the assessment order while the Tribunal is to confine itself to the subject-matter of the appeal is also to be kept in view. 29.12 In view of the above, it can safely be concluded that the assessee has undertaken projects which are in the nature of infrastructure facility as admitted by the authorities below in the capacity of the developer. Accordingly, we concur with the findings of the Ld. CIT(A) that the assessee has undertaken the projects of infrastruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under section 80IA(4) of the Act. At the time of hearing, a questioned was raised to the learned DR but he failed to provide any information in respect to deduction claimed by MADC u/s 80IA(4) of the Act. Thus the question arises who will claim the deduction under section 80IA(4) of the Act. As such, we are of the view that the provisions of the section 80IA(4) should not be read in a way to make it redundant or irrelevant. Accordingly, we are inclined to grant the benefit to the assessee under the provisions of section 80IA(4) of the Act, 30.1 Moving forward, there is no dispute to the fact that the benefit of deduction under section 80IA(4) of the Act was denied to the assessee merely based on the explanation brought under the statute below subsection (13) of section 80 (IA) of the Act which has been elaborated in the preceding paragraph. At this juncture, let us understand the role ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isting 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 maintaining or developing, operating and maintaining any infrastructure facility. Even without the aid of the explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. Particularly, bearing in mind the observations made by this Court in the case of Radhe Developers (supra), there would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility." 30.5 If that be so, it is pertinent to note that in the earlier years involving identical facts and circumstances, the Revenue has accepted the assessee as developer and accordingly the deduction under section 80IA(4) of the Act was allowed. This fact can be observed from the submissions made before the learned CIT(A) by the assessee which are reproduced as under: The principle of consistency stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 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 developing the road used to operate those roads and used to collect tax from the vehicles using the infrastructure facility to compensate its investment. But all these requirements have been done away by the revenue as elaborated above. In holding so, we draw support and guidance from the judgment of the Hon'ble Bombay High Court in case of CITVs. GB Heavy Industries Ltd. reported in 322 ITR 323 wherein it was held as under: "Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1-4-1995. After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are : (i) Owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 context were rendered after a detailed analysis of the facts and the contracts entered into by the assessee with IRWO and DDA. The narrow ground on which the AO concluded that the projects were "owned" by IRWO or DDA and that the assessee was only a works contracts, was unwarranted." 30.11 We, therefore, do not have any doubt in regard to the admissibility of the claim made by the assessee and to entertain the same by giving relief to that effect. 31. Further the Ld. DR vehemently argued on the judgment of jurisdictional High Court in the case of Katira Construction Vs Union of India reported in 352 ITR 513 wherein the said matter was decided against the assessee. In our considered view, the matter before the Jurisdiction High court was that of constitutional validity of the insertion of explanation as mentioned hereinabove and decided the same in favour of the revenue to this eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 117 taxmann.com 974 where it was held as under: 'So far as the issue with regard to netting of interest is concerned, the same will be now governed by the decision of the Apex Court in the case of ACG Associated Capsules (P.) Ltd. (supra), wherein it is observed as under:- 'Before we deal with the contentions of learned counsel for the parties, we may extract Explanation (baa) to Section 80HHC of the Act. "Explanation:- For the purposes of this section,- (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by- (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture 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 80HHC of the Act, we rely on the judgment of the Constitution Bench of this Court in Distributors (Baroda) P. Ltd. v. Union of India and Others (supra). Section 80M of the Act provided for deduction in respect of certain inter corporate dividends and it provided in sub-section (1) of Section 80M that "where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to" a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed 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 of Income-Tax v. Asian Star Co. Ltd. (supra). We must, thus, examine whether reasons given by the High Court in its judgment in Commissioner of IncomeTax v. Asian Star Co. Ltd. (supra) were correct in law. 14. On a perusal of the judgment of the High Court in Commissioner of Income Tax v. Asian Star Co. Ltd. (supra), we find that the reason which weighed with the High Court for taking a different view, is that rent, commission, interest and brokerage do not possess any nexus with export turnover and, therefore, the inclusion of such items in the profits of the business would result in a distortion of the figure of export profits. The High Court has relied on a decision of this Court in Commissioner of Income-Tax v. K. Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which the issue raised before this Court was entirely different from the issue raised in this case. In that case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 nature included in such profits computed under the head profits and gains of business of an assessee could be deducted under clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee. 16. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs. CIVIL APPEAL No. 4534 OF 2008 This is an appeal against the order dated 19.01.2007 of the Delhi High Court in I.T.A. No. 541 of 2006. 2. The facts of this case very briefly are that Bharat Rasayan Limited (for short 'the assessee') filed a return of income tax claiming a deduction of Rs. 72,76,405/-under Section 80HHC o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins 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 Section 80HHC of the Act has been settled. It is held that it would only be the net of the interest excluding the expenditure incurred in earning such interest income which should be excluded for the purpose of under Section 80 HHC of the Act. To our mind, same would apply even when the revenue desirous to exclude certain interest income from the deduction available under Section 80IA of the Act. In our view, the Tribunal committed no error." 3. In the result, Tax Appeal is dismissed. 37.1 The ITAT Ahmedabad Bench in the recent case of M/s Vijay M. Mistry Construction Pvt. Ltd. in ITA Nos. 2938/Ahd/2011 & 8 Ors. for A.Ys. 2007-08 to 2013-14 & 2016-17 has held as under: 36. So far as the bank interest on bank guarantee is concerned, the same is found to be covered in favour of the assessee by the judgment passed in case of Rajkamal Builders Infrastructure P. Ltd. vs. DCIT in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, various higher judicial authorities have held that profits of the business of the undertaking include other incidental incomes derived from the business of the undertaking. This being the position of law, we have no hesitation in accepting the claim of the assessee that the income earned from the deposits is business income is eligible for deduction under section 80IA of the Act. Accordingly, this common ground raised in the appeals under consideration is allowed in favour of the assessee and against the Revenue." We do not find any reason to deviate from the stand taken by the Co-ordinate Bench in identical facts and circumstances of the case. We, therefore, respectfully relying on the same, allow this bank interest on bank guarantee to the tune of Rs. 11,46,733/- for the deduction made under Section 80IA of the Act. This ground of appeal will apply mutatis mutandis in the appeal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 computing the deduction under the said provisions. 40.3 There is no specific finding by the AO and the Ld. CIT(A) about the nexus of allocated expenses with the eligible unit. In the absence of any nexus between the allocated expenses with the eligible unit, the AO cannot allocate such expenses. Hence, the CO of the assessee is allowed. 41. The issue raised by the Revenue vide ground No. 4 is that the learned CIT(A) erred in directing to re-compute the eligible deduction u/s 80IA of the Act after allocating net interest among the different units. 42. At the outset, we note that the issue raised by the Revenue has been adjudicated along with Revenue ground No. 3 of its appeal where we have decided the issue vide paragraphs nos. 33 to 37 of this order. For detail discussion, please refer the aforementioned paragraph of the order. Hence the ground of appeal raised by the Revenue is here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 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. 53. The 1st 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. 54. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee. 55. Aggrieved assessee preferred an appeal before the Ld. CIT(A). 56. The assessee before the Ld. CIT(A) reiterated the submission. The Ld. CIT(A) after considering the submission of the assessee partially allowed the appeal of the assessee by observing that the assessee is engaged in the business of construction work for NHAI and similar government authorities. These organizations do not make payment to contractor without verification of work. These organizations have system to check, certifying, cross checking of the extent of the work with the quality of work. In the present case the work was also completed by the assessee and final payment also has been released. 56.1 Further, in this situation where the work has been completed and the party which is supposed to have done work is found to be bogus, If the purchase amount is fully disallowed, then the there is a contradic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 be disallowed, in the cases where the corresponding sales are treated as genuine, or alternatively the profit embedded in such sales can only be brought to tax. Therefore, what can be taxed in such transactions is profit element embedded in such alleged non genuine purchases and the entire or peak amount of such purchases cannot be treated as bogus. 59.2 In the back drop of enquiries conducted by the AO and also various submission placed by the appellant, we find that it is fair and just to restrict the addition to an extent of Rs. 26,294/-being 12.5% of the bogus purchases. In holding so, we draw support and guidance from the judgment of Hon'ble ITAT Mumbai in the case of Ratangiri Stainless(p) Ltd. Vs. ITO reported in 80 taxmann.com 265 wherein it was held as under: "In our considered view and based on facts and circumstances of the case as discussed by us in details above, end o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 aforementioned paragraph of this order. Hence, the ground of appeal of the assessee is hereby partly allowed. 63. The other issues raised by the assessee in ground Nos. 2 to 4 are either general or consequential or premature to decide. Hence, the same are dismissed being infructuous. 63.1 In the result, appeal of the assessee is partly allowed. Now coming to ITA(SS) No. 392/AHD/2011, an appeal by the Revenue for the AY 2010-11 64. The Revenue has raised the following grounds of appeal: 1) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs. l 7,08,93,901/- u/s 801A(4) of the Act, as in view of Explanation below sub-section (13) 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. 2) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs. 27, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 73. The other issues raised by the Revenue in ground Nos. 5 to 6 are either general or consequential or premature to decide. Hence, the same are dismissed being infructuous. In the result appeal of the Revenue is hereby partly allowed. Now coming to ITA(SS) No. 365/AHD/2011 an appeal by the Assessee for the AY 2011-12 74. 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 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 CIT(A) may p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round 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 decided the issue vide paragraphs nos. 27 to 32 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby allowed. 79. The issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) erred in deleting the addition of Rs. 1,28,59,458/- out of total addition of Rs. 1,71,45,944/- made by AO on account of bogus purchases. 80. 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 AY 2009-10 where we have decided the issue vide paragraphs Nos. 59 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. 81. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) erred in deleting the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested 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 company in any manner, hi this regard, reliance is placed on ASI5 (2005) wherein it has been mentioned that profit or loss arising out of granting Employees Stock Option Scheme (ESOS) to employees has to be made out of reserves and surplus of the company and no amount is required to be debited to the profit and loss account of the company. In view of the above, the profit or loss generated due to granting of options under Employees Stock Option Scheme to eligible employees only alters the capital structure of the company and hence is either a capital profit or capital loss. Thus, it would not affect the profit or loss account of the company. 10.3 However, the Special Bench of the ITAT Bangalore in the case of Eicon Ltd. vs. DCIT reported in [2013] 35 taxman.com 335 (Bangalore - Trib.) (SB) has held that loss arising out of the difference between market price of the share on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entical 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 Revenue is hereby rejected. In the result, the appeal of the Revenue is dismissed. Now coming to ITA No. 589/AHD/2016, an appeal by the Revenue for the AY 2012-13 90. The Revenue has raised the following grounds of appeal: "The Ld. CIT(A) has erred in law and/or on facts in allowing the deduction u/s. 80IA(4) of the Act to the extent of Rs. 3,79,46,675/-without appreciating the fact that the company has not fulfilled the conditions mentioned in section 80IA(4) of the Act and hence not eligible to get deduction u/s. 80IA(4) of the Act." 2. "The Ld. CIT(A) has erred in law and/or on facts in deleting the addition of Rs. 47,96,578/- on account of disallowance u/s. 35D of the Act without appreciating the fact that the said expenditure actually pertains to qualified institutional placements (QIP) which is not eligible for deduction u/s. 35D of the Act." 3. "The Ld. CIT(A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 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. 99. 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 decided the issue vide paragraphs nos. 27 to 32 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. 100. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) erred in deleting the addition of Rs. 3,77,68,000/-made by AO on account of ESOP. 101. 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)A No. 393/Ahd/2011 for AY 201112 where we have decided the issue vide paragraphs nos. 87 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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