Montecarlo Construction Pvt.Ltd., Ahmedabad V. The Income tax Officer, Ward-4(4), Ahmedabad

ITA 31/AHD/2010

AI Insights

The case involves multiple appeals by both the Revenue and the assessee, Montecarlo Construction Ltd., concerning the eligibility for deductions under section 80IA(4) of the Income Tax Act, 1961, for various assessment years. The primary contention was whether the assessee should be classified as a contractor or a developer of infrastructure facilities. The Tribunal examined the nature of the contracts, the role of the assessee in these contracts, and the legal definitions and requirements under section 80IA(4). The Tribunal found that the assessee acted as a developer, not merely a contractor, and thus was eligible for the deductions claimed. Additionally, the Tribunal addressed issues related to the estimation of gross profit and the treatment of interest income, ultimately supporting the assessee's positions on these matters.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134514 (ITAT-AHMEDABAD)
• Duration Of Justice: 13 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 28-03-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 03-01-2010
• Other Referred Cases: PATEL ENGINEERING LTD V/S DCIT, M/S PHOENIX PROJECTS PVT. LTD V/S CIT, M/S CLASSIC NETWOK LTD V/S CIT, M/s OM METALS INFRAPROJECTS LTD, DCIT/ACIT Circle -2, Jamnagar v/s M/S TACON INFRASTRUCTURE PVT. LTD, Assistant Commissioner of Income Tax v/s Bharat Udyog Ltd., ABG Heavy Industries v. CIT, Radhe Developers v. CIT, Sugam Construction Pvt Limited v. CIT, Kachwala Gems v. Jt. CIT, Brij Bhushan Lal Parduman Kumar v. CIT, Simplex Infrastucture Ltd Ltd v. Asstt. CIT, M/s Katira construction Vs Union of India, M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. v/s DCIT, M/s Sadbhav Engineering v. CIT, CIT Vs. Gujarat State Road Transport Corporation, CIT Vs. ACG Associated Capsules (P.) Ltd, CIT Vs. Asian Star Co. Ltd., CIT Vs. VRM India Ltd, CIT Vs. Bharat Udyog Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Retrospective amendment; Competent authority; TDS; Set aside
• Section: 131; 132; 271(1)(c); 144; 43B; 139; 143(3); 80HHC; 133A; 194C; 250; 80IA; 13; 153; 145(3)

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI TR SENTHIL KUMAR, JUDICIAL MEMBER Sr.No. ITA/IT(SS)A(Nos) Asstt. Year Name of Appellant Name of Respondent 1. ITA No.1892/Ahd/2013 2008-09 A.C.I.T, Central Circle-1(1), Ahmedabad Montecarlo Construction Ltd., 706, Shilp Building, 7 th floor, Nr. Muncipal Market, C.G. Road, Navrangpura, Ahmedabad. PAN : AAACM7958A 2. ITA No.1544/Ahd/2008 2005-06 I.T.O. Ward-4(4), Ahmedabad Montecarlo Construction Ltd., Ahmedabad. PAN : AAACM7958A 3. ITA No.31/Ahd/2010 2006-07 Montecarlo Construction Ltd., Ahmedabad. PAN : AAACM7958A I.T.O. Ward-4(4), Ahmedabad 4. ITA No.2144/Ahd/2010 2007-08 Montecarlo Construction Ltd., Ahmedabad. PAN : AAACM7958A I.T.O. Ward-4(4), Ahmedabad 5-7. IT(SS)A No.366 to 368/Ahd/2013 2009-10 to 2011-12 Montecarlo Construction Ltd., Ahmedabad. PAN : AAACM7958A A.C.I.T, Central Circle-1(1), Ahmedabad. 8-10 IT(SS)A No.386 to 388/Ahd/2013 2009-10 to 2011-12 A.C.I.T, Central Circle-1(1), Ahmedabad. Montecarlo Construction Ltd., Ahmedabad. PAN : AAACM7958A ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 2 (Applicant) (Responent) Revenue by : Shri Samir Sharma, CIT. D.R and Shri Atul Pandey, Sr. DR Assessee by : Shri Tushar Hemani, Sr. Advocate with Shri Mehul Patel & Shri Parimalsinh B. Parmar, A.Rs सुनवाई कᳱ तारीख/Date of Hearing : 29/03/2023 घोषणा कᳱ तारीख /Date of Pronouncement: 28/06/2023 आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The above captioned appeals have been filed by the assessee and the Revenue against the separate orders of the ld. Commissioner of Income-Tax (Appeals) arising in the matter of assessment order passed under section 143(3) of the Income tax Act 1961 (in short the ‘Act’) involving respective Assessment Years. First, we take up ITA No. 1892/AHD/2013, 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), has erred in law and on facts in holding that the assessee is not a contractor, but developer of infrastructure facilities and is eligible for deduction u/s.80IA(4) of the I.T Act, 1961. 2. The Ld.CIT(A), has erred in law and on facts in deleting the disallowance of Rs.6,20,01,678/- made u/s.80IA(4) of the I.T Act, 1961. 3. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 3. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in allowing the deduction to the assessee u/s 80IA (4) of the Act. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 3 4. The assessee, a private limited company, is engaged in the business of construction activity and development of infrastructure and other projects i.e., irrigation canal, road construction. The assessee has filed its return of income on 20-08-2009 and declared total income of Rs. 25,15,950/- after claiming the deduction u/s 80IA(4) of the Act for an amount of Rs. 6,20,01,678/- only. The assessee has claimed the deduction u/s 80IA(4) of the Act during the year on the following projects. S.NO. PROJECT NAME AMOUNT CLAIMED U/S 80IA(4) PROJECT AWARDED BY 1 CONSTRUCTION OF CHINDWARA- AMARWAR-NARSINGHPUR ROAD 4,96,50,980/- MADHYA PRADESH ROAD DEVELOPMENT CORPORATION LIMITED BHOPAL. 2 CONSTRUCTION OF CANAL SERVICE ROAD TO KUTCHCHH BRANCH CANAL CH. 112.500 TO 122.219. 31,20,355/- SARDAR SAROVAR NARMADA NIGAM LIMITED, BHACHAU, KUCHCHH. 3 UPGRADATION REHABILIATION AND STENGTHENING OF PACKAGE- 14, LAKHNADAN-,MANDIA-DINDORI (SH-10) ROAD PROJECT. 80,35,352/- MADHYA PRADESH ROAD DEVELOPMENT CORPORATION LIMITED BHOPAL. 4 CONSTRUCTION OF SAURASHTRA BRANCH CANAL CH 50.00 TO 59.700 KM 20,155/- SARDAR SAROVAR NARMADA NIGAM LIMITED, SURENDERNAGAR. 5 CONSTRUCTION OF EARTH WORK 84 TO 97 KM OF RANI AVANTIBAI SAGAR CANAL PROJECT. 11,74,837/- EXUCUTIVE ENGINEER RANI AVANTIBAI SAGAR CANAL DIVISION NO 1 AND 2 MADHYA PRADESH 4.1 However, the AO observed that the assessee has not fulfilled the criteria of claiming the deduction specified under section 80IA(4) of the Act, and accordingly an explanation was sought from the assessee about the same. 4.2 In response to the same, the assessee has submitted that it has claimed the deduction under section 80IA(4) of the Act after meeting out the conditions of the provisions of section 80IA(4) of the Act, like the assessee is a company incorporated under the companies Act, assessee is engaged in the business of developing the infrastructure facility i.e construction of road, irrigation of project, ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 4 assessee has entered into an agreement with the central Govt, state Govt, local authority, or any statutory body for developing the infrastructure project. It started operating & maintaining the infrastructure facility after 01-04-1995. 4.3 The assessee further submitted that it had invested its own fund, used substantial plant & machinery, and deployed substantial number of employees to substantiate the test of risk factor involved in the projects. The assessee further placed its reliance on the following judgments to demonstrate its claim u/s 80IA(4) of the Act. (1) PATEL ENGINEERING LTD V/S DCIT reported in 94 ITD 411 (Mum.) (ii)M/S PHOENIX PROJECTS PVT. LTD V/S CIT in ITA No. 145 / RJT / 8 (iii)M/S CLASSIC NETWOK LTD V/S CIT in ITA no.168/ RJT/ 08. (iv)M/s OM METALS INFRAPROJECTS LTD in ITA No.722 & 723/JP/2008 (v) DCIT/ACIT Circle -2, Jamnagar v/s M/S TACON INFRASTRUCTURE PVT. LTD No.s 153/ RJT/2007, 365/ RJT /2007, 366/ RJT/2007, 341/ RJT/ 2008 & 342/ RJT/2008. (vi) Assistant Commissioner of Income Tax v/s Bharat Udyog Ltd. reported in (2008) 24 SOT 412. 4.4 However, the AO rejected the contention of the assessee by observing that the assessee company entered into agreement with Sardar Sorovarnarmada Nigam limited, Madhya Pradesh Road development corporation limited and Rani Avantibai Sagar Canal Division No. 2 Gotegaon, which are registered under the companies Act. Therefore, these companies are the developers, and the assessee company is only a sub-contractor. Further, these companies cannot be construed as central Govt or state Govt or local Authority, or any statutory body. The case laws on which the assessee company has placed its reliance are factually different from the facts of the present case. The AO, further on perusal of the work awarded letter issued by the party and contract agreement with them, observed that assessee company has to complete the project within a stipulated time like 21 months and 24 months as per the agreement. The assessee company has agreed to render the services mentioned in the tender and provide its services as required for the project. The assessee company has not invested any money in the project. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 5 Therefore, the ownership of the project does not lie with the assessee company. The real ownership lies with the Madhya Pradesh Road Corporation Limited and Sardar Sarovar Narmada Nigam limited. The assessee company has not derived any income from developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. The assessee company has only derived income as per contract receipt. In addition to above, the AO also observed that: 1) The assessee company failed to prove that it is a developer and not a work contractor. 2) The assessee company has also got sale tax registration as a work contractor. 3) The assessee company is not engaged in the business of development of infrastructure facility but engaged in the business of civil construction and executing the work as per the specification, designs, and plans provided by the developers of the infrastructure project. Thus, actual developers are SSNNL, Rani Avantibai sagar canal division 2 and Madhya Pradesh Road corporation limited. 4) The assessee company is neither operating and maintaining an infrastructure facility on BOT nor BOOT basis. Hence, the company is not entitled to get deduction u/s 80IA of the Act. 5) The assessee company has received payment after deduction of TDS @ 2% on the bill. Therefore, the amount paid to the company falls under the head payment to the contractor. 6) The assessee company failed to prove that investment, risk and reward is belonging to it for the development of project, which is basic requirement of developers. However, the assessee has incurred the operative investment, and taken risk and reward for the execution of work/ civil contract delegated to it. The major risk for the development of the project belongs to the developers. 7) Further, as per explanation inserted below to 80IA(13) of the Act, the assessee is a work contractor and not eligible for deduction u/s 80IA(4) of ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 6 the Act. The assessee has not taken any financial stake or made investment in the project in the capacity of the Developer entitling it eligible for deduction u/s 80IA of the Act. 8) The Assessee company has not claimed the similar deduction in the FY 2002-03 despite of same contract with similar facts and circumstances. 4.5 In view of the above, the AO denied the deduction claimed by the assessee under section 80IA of the Act and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and submitted that it is a company incorporated under the companies Act 1956. The business activity of it, is governed by the object clause of memorandum of association where it is mentioned that the assessee is engaged in construction of irrigation, canal and road development being infrastructure facility. It met all the conditions prescribed under section 80-IA(4) of the Act i.e. it is an enterprise carrying on business of development of infrastructure facility, irrigation project, the enterprise owned by an Indian company, has entered into an agreement with State Government/Statutory body for development of new infrastructure and handed over the projects to such authority after development. It started maintaining the infrastructure facility on or after 01/04/1995. 5.1 The assessee further submitted that as per the amended provisions of 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 authorities have 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 irrigation project which was not available to the community as a whole for its use. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 7 5.2 It was also submitted that an enterprise, 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, the only source of income for developers 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 entering into agreement with another person to do or refrain from doing something for a consideration is a contractor. Therefore, the assessee who entered into an 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 infrastructure facility will not change its status from being developer. The assessee in this regard placed its reliance on several judicial pronouncements. 5.3 The assessee further contended that the explanation below sub-section (13) of 80IA of the Act inserted by Finance Act 2007 and subsequently amended by Finance Act 2009 was introduced with a view to prevent the benefit of section 80IA(4) of the Act to the person who merely executes the work contract for which the agreement was entered with industrial undertaking or enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. The provisions of explanation below section 80IA(13) of the Act cannot be made applicable to the assessee who made investment and carried out development work by itself. There were several cases ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 8 where different Tribunals even after introduction of explanation below section 80IA(13) of the Act have held that the assessee who carried out the work of development of infrastructure facility are eligible for deduction under section 80IA(4) of the Act. 5.4 The assessee also contented that it has made substantial investment in Plant & machinery, man & material, thought and concepts, design, planning etc. for the development of the infrastructure projects. The assessee has invested in fixed assets of Rs. 1222.30 lacs and further during the year it has invested the sum of Rs. 232.50 lacs in fixed assets. 5.5 The assessee further submitted that it had not claimed the deduction u/s 80IA(4) of the Act in earlier year, solely for the reason that the chartered accountant who was attending to the income tax matters, either out of ignorance or through inadvertence did not bring it to the notice of it (the assessee) about the beneficiary provisions of the section 80IA of the Act and its eligibility to claim deduction under that section. When it came to the notice to the assessee company, then the deduction was claimed in the return of income filed for the FY 2004-05. Further, not claiming the deduction in earlier year does not per se dis- entitle the company from making such a claim in the assessment year under consideration. 5.6 The assessee also submitted that it has entered into an agreement with Sardar Sarovar Narmada Nigam Limited for construction of an irrigation project. Sardar Sarovar Narmada Nigam Limited is a public sector undertaking which is 100% owned by the Govt of Gujarat and it is created by a special law of the State Government. Therefore, it is a state Govt undertaking. Likewise, Madhya Pradesh Road Development Corporation limited is 100% owned by the Govt. of Madhya Pradesh. Therefore, it is a state Govt undertaking. Further, Rani Avanti Sagar canal division 2 Gotegaon is a public sector undertaking which is 100% owned by ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 9 the Govt of Madhya Pradesh. Therefore, the division-2 is also a state Govt. undertaking. 5.7 The assessee in view of the above submitted that it is eligible for claiming deduction under section 80IA(4) of the Act on 100% of profit computed in accordance with the provision of Income Tax Act by treating such entity/ industrial undertaking as the only business of the assessee. 6. The learned CIT(A) after considering the facts in totality allowed the claim of assessee for deduction under section 80IA(4) of the Act. The relevant finding of the learned CIT(A) is extracted as under: 40. Considering the above discussion wherein it is amplified by quoting various clauses of agreements entered between the appellant and the respective State Government bodies, it becomes clear that the appellant cannot be merely considered as a contractor. The perusal of scope of work, the designing responsibility of the appellant, mobilization of funds and the construction material, the inherent risk because of improbable factors determining the execution of the project indicate that the appellant cannot be considered as a contractor. It may be clarified that a contractor is a person who does only civil construction and once the job of civil construction is over, his contract is over and the agreement ends. The contractor works as per the design and specification given and he does not involve much of his own money but raises the bill for his civil construction work time to time to collect the expenditure incurred. On the other hand, a developer is a person who takes full responsibility to develop the project by involving his managerial as well as financial responsibilities. Essentially, a developer has to design the project as per the specifications given to whom and thereafter has to execute the construction work in the capacity of a contractor. During the period of execution of project, the developer temporarily become the owner of the site on which the project is executed. In real terms, the ownership always remains with the Government. On the other hand, from the perusal of various clauses of agreement that the appellant cannot be merely termed as a contractor in the facts of this case. I am also of the view that merely the fact that the appellant is termed as 'contractor' in the various agreements and also the fact that TDS is made u/s. 194C, one cannot infer that the appellant as contractor. the issue of ownership as pointed out by the AO has already been settled by the Hon'ble ITAT, Ahmedabad that it is not envisaged in the section that the appellant should be the owner of the infrastructural project 41. Accordingly, Having regard to the facts and circumstances of the case and the ratio of judicial pronouncements cited supra and also the judgment of Bombay high Court in the case of ABG Heavy Industries, judgment of Gujarat High Court in the case of Radhe Developers and the judgment of the ITAT Ahmedabad in the case of Sugam Construction Pvt Limited, and also the Circular number 4, cited supra, I am of the view that the Appellant. Company is a developer of infrastructure facilities and is eligible for deduction u/s 801A(4) of the Act. The Disallowance made by the AO of the appellant's claim for deduction u/s 801A(4) amounting to Rs.6,20,01,678/- is therefore not sustainable. The same is hereby ordered to be deleted and the claim of deduction by the Appellant is hereby allowed. 42. The appeal is thus allowed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 10 7. Being aggrieved by the finding of the learned CIT(A), the Revenue is in appeal before us. 8. The Ld. DR before us 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 purpose of the benefit of the deduction under section 80 IA(4) of the Act was that the private players/ parties will bring the investment for the development of the infrastructure facility and later on that facility will be exploited for generating the income which is only eligible for the purpose of the deduction under section 80-IA(4) of the Act. In other words, the income should not arise to the assessee merely by executing the works contract. For this purpose, various concepts were introduced such as BOOT (Built own operate and transfer), BOLT (Built own lease and transfer) BOT (Built operate and transfer). It was also submitted by the learned DR that there was no initial investment made by the assessee in the project as the projects were funded by the employer. It was also pointed out that the assessee has made investments which are in the nature of earnest money, performance guarantee and mobilization advance but the same concepts are also applicable in case of the works contract. Thus, based on the investment made by the assessee as discussed above cannot be concluded that the assessee is a developer. In all the contract undertaken by the assessee, there was no investment risk, rather the element of profit embedded in the projects was very much apparent. As such the assessee has not undertaken 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 ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 11 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. 9. On the contrary, the learned AR before us filed a paper book running from pages 1 to 483 and synopsis of arguments and contended 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 of the materials, establishment of the laboratories, furnishing the bank guarantee, responsibility of the project hand 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 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 infrastructure facility in the capacity of the job worker. The learned AR before us has filed the contract copies and has drawn our attention to various clauses of the contract appearing therein. The learned AR vehemently supported the order of the learned CIT-A. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 12 10. Both the ld. DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 11. 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 denied the deduction claimed by the assessee under section 80-IA(4) of the Act on the reason that the work awarded being irrigation project and construction/ development of Road is in the nature of execution of work contract and hit by the provisions of explanation to below section 80IA(13) of the Act. Further, the AO alleged that ownership of the project does not lie with the assessee and the assessee was not engaged in developing, operating, or operating or maintaining the infrastructure facility. Assessee has entered into a contract with the company incorporated under the Company Act and not with the Central Govt, State Govt, Local Authority or Statutory Body as mandated under the provisions of the Act. 11.1 Before we dwell upon the issue involved in the case on hand, it is pertinent to refer to the history of the provisions of section 80IA(4) of the Act. Section 80-IA was first introduced by the Finance Act 1991 for providing a deduction from tax to the industrial undertaking. The purpose of providing such deduction was for the modernization and expansion of industrial undertaking. 11.2 However, the provision of this section was amended by the Finance Act 1995 because the legislature realized that the modernization of industrial undertaking requires development of infrastructure facilities. This fact can be verified from the memorandum explaining the amendment in the section as reproduced below: Industrial moderanisation requires a massive expansion of, and qualitative 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. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 13 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 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. 11.3 Hence, the legislature inserted sub-section 4A to section 80-IA of the Act w.e.f. 1 st April 1996 for providing the deduction to the enterprises or undertakings engaged in the business of development and operating & maintaining of infrastructure facility. 11.4 Further, w.e.f. 1 st April 2000 sub-section-4A was re-numbered as sub- section- 4 of section 80IA of the Act. Subsequently, the major changes were brought by the Finance Act 2001 w.e.f. 1 st April 2002, when the requirement for developing and operating & maintaining infrastructure facility simultaneously was done away. As such, the deduction under section 80-IA(4)(i) of the Act is also available to assessee who is engaged only in development of infrastructure facility or only engaged in operation & maintenance of infrastructure facility or engaged in both developing, operating, and maintaining any infrastructure facility. The amended provision of section 80-IA(4)(i) of the Act reads as under: (4) This section applies to— (i ) any enterprise carrying on the business 91 [of (i) developing or ( ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :— 11.5 A plain reading of the above provision reveals that under the amended provisions of section 80-IA(4) of the Act, the assessee is entitled to such benefit, even if it is engaged only in developing the infrastructure facilities. 11.6 Subsequently, an Explanation to section 80-IA of the Act was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 14 the same was made applicable with retrospective effect i.e. 1-4-2000. This explanation 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. At this juncture, it is pertinent to refer the provisions of the Explanation attached below section 80-IA(13) of the Act as reproduced below: "For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). " 11.7 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. 11.8 Coming to the facts of the case on hand, we note that the one of the 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 fact that the assessee is not a developer of infrastructure facility. It is only engaged in the business of work contract awarded to it. The AO also invoked the explanation below to sub section 13 of section 80IA of the Act. Likewise, the assessee has not entered into any contract with Central/ State Government or local authority as specified under section 80IA of the Act. All the allegations of the AO for denying the benefit of deduction under section 80-IA of the Act have been elaborated in the preceding paragraphs. 11.9 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 to 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: ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 15 (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 developer exercise complete realm over the land or the project. However, in some case there can be a situation that the assessee has to take the approval of the design from the Government/ contractee but that will not change the status of the developer as works contractor. (b) That the first phase for the developer is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the developer shall facilitate the people to use the available existing facility even while the process of development is in progress. (c) That a developer has to discharge managerial responsibility by engaging the requisite qualified/ skilled/ semi-skilled staff and the labourers including the other supporting staff. As such, the developer undertakes the complete responsibility of the manpower to be used in developing the infrastructure facility. (d) The assessee has to utilize its expertise, experience including its technical knowhow in the development of the project. (e) That a developer has to undertake financial responsibility. A developer is therefore expected to arrange finance either by private placement or from financial institution for the proper development of the project at its ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 16 own risk. Thus, the developer is the one who undertakes entrepreneurial and investment risk besides the business risk. (f) That a developer is required to bring the qualitative materials. The Government does not provide any material to the assessee. (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. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 17 11.10 These are few broad sample qualities/ parameters of a developer through which the character of a developer can be defined. 11.11 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 the case of such work, the contractor gets a 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. 11.12 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 those persons who merely execute part of these functions on behalf of developer and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under section 80-IA(4) of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer. 11.13 Now, the controversy arises that how to find out whether the assessee is acting as a developer or works contractor in the light of the provisions of explanation to section 80IA(13) of the Act. To our mind, it is possible to ascertain by finding out whether a civil construction/ infrastructure work is assigned on development basis or works contract basis within the parameters as discussed above. Further, these parameters can be analyzed only based on the terms and conditions of the agreement. 11.14 In the backdrop of the above stated discussion, we proceed to analyze the facts of the present case to find out whether the assessee is acting as a developer ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 18 or works contractor. The assessee in the year under consideration has undertaken certain projects and claimed a deduction under section 80IA of the Act. The details of all the projects whether eligible for deduction or not under section 80IA(4) of the Act along with the amount of deduction under section 80IA(4) of the Act stand as under: S. No. NAME OF THE PROJECT AMOUNT ELIGIBLE U/S 80IA 1 CONSTRUCTION OF CHINDWARA-AMARWAR- NARSINGHPUR ROAD 4,96,50,980/- 2 CONSTRUCTION OF CANAL SERVICE ROAD TO KUTCHCHH BRANCH CANAL CH. 112.500 TO 122.219. 31,20,355/- 3 UPGRADATION REHABILIATION AND STENGTHENING OF PACKAGE-14, LAKHNADAN- ,MANDIA-DINDORI (SH-10) ROAD PROJECT. 80,35,352/- 4 CONSTRUCTION OF SAURASHTRA BRANCH CANAL CH 50.00 TO 59.700 KM 20,155/- 5 CONSTRUCTION OF EARTH WORK 84 TO 97 KM OF RANI AVANTIBAI SAGAR CANAL PROJECT. 11,74,837/- 11.15 On sample basis, we analyze the relevant clauses of the tender documents placed in the paper book NO. II in respect of the project namely UPGRADATION REHABILIATION AND STENGTHENING OF PACKAGE-14, LAKHNADAN-,MANDIA- DINDORI (SH-10) ROAD PROJECT which cast certain responsibilities/ accountabilities upon the assessee. The details of the same stand as under: (A) Site Data i) As per point No. 7.2 on page No. 266 of the paper book, containing instruction to bidder, it was advised to the bidder to visit and examine the site of work to obtain for itself on its own responsibility all information that may be necessary for preparing the bid and entering a contract for construction of the work. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 19 ii) As per clause No 4.10 on page No. 356, the contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the tender or works to the same extent. The contractor shall be deemed to have inspected and examined the site, and its surroundings. The contractor shall have to be satisfied before submitting the tenders on all the relevant matters including: i. The form and nature of site, including sub-surface condition, ii. The hydrological and climatic conditions, iii. The extent and nature of works necessary for the execution and completion of the work and the remedy of any defects. iv. The laws, procedures, and labour practices of the country and v. The contractor’s requirements for access, accommodation, facilities, personnel, power, transport, water, and other services. (B) Design and execute the work i) It can be verified from the contract agreement that the assessee was liable to the drawing and design of the project. ii) As per Clause No. 4.1 on page No. 352 , it was mentioned that contractor shall design (to the extent specified in the contract), execute and complete the work in accordance with the contract and with the engineer’s instructions, and shall provide remedy any defects in the works. As per Clause No. 4.1 on page No. 433, it was mentioned that contractor shall be responsible for the detailed design of major/ medium bridges or shall get proof checked from the competent authority. (C) Performance Security clause 4.2 page No. 353 i) The contractor shall deliver the Performance security within 28 days after receiving the letter of acceptance which is valid and enforceable ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 20 until the contractor has executed and completed the work and remedied any defects. (D) Setting Out, clause 4.2 Page No. 355 i) Contractor shall set out the works in relation to original points, lines and levels of reference specified in the contract or notified engineer. The contractor shall be responsible for the correct positioning of all parts of the work and shall rectify any error in the positions, levels, dimensions, or alignment of the work. (E) Safety Procedures clause 4.8 Page No. 355 Contractor Shall: i) Comply with all safety regulations. ii) Take care of the safety of all people entitled to be on the site. iii) Use reasonable efforts to keep the site and work clear of unnecessary obstruction to avoid danger to these persons. iv) Provide fencing, lighting, guarding, and watching of the work until the completion and taking over the project by the employer. v) Provide the temporary works (including roadways, footways, guard, and fences) which may be necessary, because of the execution of the works for the use and protection of the public and of owners and occupiers of adjacent land. (F) Access Route clause 4.15 The contractor shall also provide the traffic safety arrangements like sign board, speed limit, speed breakers, diversion board, etc. (G) Transportation of Goods clause 4.16 ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 21 The Contractor shall be responsible for packing, loading, transporting receiving, unloading, storing, and protecting all goods and other things required for the works. (H) Protection of the environment clause 4.18 The contractor shall protect the environment on and off the staff site and avoid the damage or nuisance etc. to the persons or to the property of the public. (I) Electricity, Water, and Gas clause no. 4.19 The contractor shall be responsible for the provision of all power, water, and other services that he may require for his construction activities and to the extent defined in the specifications for the test. However, the contractor shall be entitled to use the supply of power, water, and other services available on site at the specified rate. (J) Employer’s Equipment and free issue Material clause no. 4.20 page No. 434 No equipment or material shall be issued to the contractor by the employer for the execution of works. (K) Engagement of Staff and labour clause no. 6.1 The contractor shall make arrangement for the engagement of all staff, labour local or otherwise and for the payment, feeding, transport and appropriate housing. (L) Delay damages clause no 8.7 ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 22 If the contractor fails to complete the project within the time specified in the contract agreement, then the contractor shall pay the delay damages to the employer for this default. The damages will be decided as per contract data. (M) Completion of outstanding works and remedying defects clause no 11.1 & 2 page no. 375 The contractor shall execute all the work required to remedy defects or damage, as may be notified by the employer at the risk and cost to the contractor. (N) Advance Payment clause no 14.2 page no 388 The employer shall make an advance payment as an interest free loan from the mobilization and cash flow support when the contractor submits a guarantee. (O) Issue of Interim Payment Certificate clause no. 14.2 page no. 391 No amount will be certified or paid until the employer has received and approved the performance security. Thereafter the engineer shall, within 28 days after receiving a statement and supporting documents, deliver to the employer and to the contractor interim payment certificate after determining the fair amount dues. (P) Payment of retention money clause no 14.9 page no 392 When the Taking-Over Certificate has been issued for the Works, the first half of the Retention Money shall be certified by the Engineer for payment to the Contractor. If a Taking-Over Certificate is issued for a Section or part of the Works, a proportion of the Retention Money shall be certified and paid. This proportion shall be half (50%) of the proportion calculated by dividing the estimated contract value of the Section or part, by the estimated final Contract Price. Promptly after the latest of the expiry dates of the Defects Notification Periods, the outstanding balance of the Retention Money shall be certified by the Engineer for payment to the Contractor. If a Taking-Over Certificate was issued for a Section, proportion of the ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 23 second half of the Retention Money shall be certified and paid Promptly after the expiry date of the Defects Notification Period for the Section. This proportion shall be half (50%) of the proportion calculated by dividing the estimated 2000tract value of the Section by the estimated final Contract Price. 11.16 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 detailed drawings, design calculations/fabrication etc. at its own cost. Further, the assessee is also responsible for arranging methods of the execution of work along with detailed drawings, sketches, furnishing the details of sufficient plants, equipment, and labor. The assessee has to arrange the land for a 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 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 materials. The assessee has to arrange electric power and water supply. The assessee was also under the obligation to provide traffic safety arrangements like sign board, speed limit speed breakers, diversion board, etc. Besides the above, the assessee was to pay the liquidated damages in case of delay in the completion of project and other defaults. 11.17 The purpose for which the provisions of section 80IA (4) were brought under the statute were achieved in the given facts and circumstances. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. 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 employer and indemnify at the same time for 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 MPRDCL retained the money payable to the assessee as a ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 24 measure to ensure the quality of the work and to make liable the assessee in the event of a defect, if any. Thus, it cannot be said that the assessee had not taken 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. 11.18 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. 11.19 If the 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 assessee was providing and undertaking the risk for carrying out the activity of development of the infrastructure facility in the manner as discussed above. The assessee was also taking technical risk, subject to liquidated damages, providing technical manpower. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 25 11.20 Further, in case of Asstt. CIT v. Pratibha Industries Ltd. [2012] 28 taxmann.com 246/[2013] 141 ITD 151 (Mum.), the Hon'ble Mumbai Tribunal held that where the assessee had invested his own fund, it would be assumed that the assessee was acting as a developer and not as a contractor. Relevant extract of the above decision is reproduced as under: There are letters exchanged, written by the assessee and various Government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee, against the tendered cost, which proved beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the Government, besides placing its own funds at risk and peril." 11.21 Further, we draw support by placing our reliance on the Judgment of Hon’ble ITAT Kolkata in case of Asstt. CIT v. Simplex Infrastucture Ltd Ltd. I.T.A. No. 01/Kol/2020 vide order dated 10/03/2021 wherein it was held s under: “It is noted that in a development contract, responsibility is fully assigned to the developer for execution and completion of work. It is evident that the assessee, vide the agreements, has clearly demonstrated the various risks undertaken by it. In all the agreements, relevant portions of which are reproduced supra, the assessee 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” 11.22 In view of the above, it can safely be concluded that the assessee has undertaken projects which are in the nature of infrastructure facilities in the capacity of the developer as admitted by the ld. CIT-A. Accordingly, we concur with the findings of the Ld. CIT(A) that the assessee has undertaken the projects of infrastructure facility as envisaged under the provisions of section 80 IA(4A) of the Act in the capacity of the developer. 11.23 Moving further, we note that there is no ambiguity to the fact that the word developer and the works contract has nowhere been defined under the provisions of the Act. For this purpose, the rules as applicable to the interpretation of the ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 26 statute should be applied. One of the rules of interpretation is to analyze the provision in the light of the object for which it was brought under the statute. In holding so we rely on the judgement of Hon’ble High Supreme Court in the case of New India Assurance Company Ltd vs Nusli Neville Wadia And Another in civil appeal no 5879 of 2007 vide order dated 31-12-2007 wherein it was held as under: “With a view to read the provisions of the Act in a proper and effective manner, we are of the opinion that literal interpretation, if given, may give rise to an anomaly or absurdity which must be avoided. So as to enable a superior court to interpret a statute in a reasonable manner, the court must place itself in the chair of a reasonable legislator/ author. So done, the rules of purposive construction have to be resorted to which would require the construction of the Act in such a manner so as to see that the object of the Act fulfilled; which in turn would lead the beneficiary under the statutory scheme to fulfill its constitutional obligations as held by the court inter alia in Ashoka Marketing Ltd.” 11.24 In view of the above, 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. 11.25 The next aspect of the case is that the impugned project for the road development as discussed above was awarded by the MPRDCL- a nodal agency being a wholly owned undertaking of the Government of Madhya Pradesh. MPRDCL in its books of accounts will not record the payment made to the assessee in the form of expenses. It is because MPRDCL against such expenditure has not shown any income. It also appears that MPRDCL is not claiming any deduction under section 80IA(4) of the Act. At the time of hearing, a question was raised to the learned DR but he failed to provide any information with respect to the deduction claimed by MADC u/s 80IA(4) of the Act. Thus, the question arises ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 27 who will claim the deduction under section 80IA(4) of the Act. As such, we are of the view that the provisions of 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. 11.26 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 based on the explanation brought under the statute below sub-section (13) of section 80 (IA) of the Act which has been elaborated in the preceding paragraph. At this juncture, let us understand the role of the explanation explaining the provisions of the Act. In our considered opinion ordinarily, an explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may be possible from the existing provisions. Normally, therefore, an explanation would not expand the scope of the main provision and the purpose of the explanation would be to fill a gap left in the statute, to suppress a mischief, to clear a doubt or as is often said to make explicit what was implicit. Further, the object of an explanation to a statutory provision is – (a) To explain the meaning and intendment of the Act itself, (b) Where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to sub-serve, (c) To provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) An Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 28 11.27 There are, 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. 11.28 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) ofthe 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 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, bearingin mind the observations made by this Court in the case of Radhe Developers (supra), there would certainlybe a demarcation between developing the facility and execution of works contract awarded by an agencyengaged in developing such facility.” 11.29 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 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: ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 29 “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) Ownership of the enterprise by a Company registered in India or by a consortium; (ii) An agreement with the Central or State Government, local authority or statutory body; and (iii) The start of operation and maintenance of the infrastructure facility on or after 1- 4-1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1-4-1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after 1-4-1995. In the present case, the assessee clearly fulfilled this condition” 11.30 In view of the above discussion, we are inclined to hold that the assessee who is only engaged in the activity of development of infrastructure facility is eligible to claim the deduction u/s 80IA(4) of the Act. 11.31 Likewise, the contention of the learned DR that the assessee was in receipt of 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 has 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 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.” ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 30 11.32 We, therefore, do not have any doubt regarding the admissibility of the claim made by the assessee and entertain the same by giving relief to that effect. 11.33 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 effect that such explanation brought with retrospective effect from 01.04.2000 by the Finance Act No. 2 of 2009 was very well within the competence of Parliament. As such there was no issue raised whether the assessee is acting as a developer or contractor before the Hon'ble Jurisdictional High Court neither, the said issue has been decided in the said judgement. 11.34 The organizations which have awarded the contract are 100% owned by the State Government and therefore it cannot be said that these are private parties. As such the organization awarded the contract to the assessee are the arms of the State Government. 11.35 At the time of hearing, both the learned DR and the AR before us submitted `that projects in respect of which the deduction was claimed by the assessee were of identical nature. Therefore, we have analyzed one contract/agreement with the government on sample basis. However, the findings given with respect to the contract elaborated above shall also be applied in all the contracts which were subject to the deduction under section 80-IA(4) of the Act. In view of the above, the grounds of appeal of the Revenue with respect to the admissibility of the claim of the assessee under section 80-IA (4) of the Act are hereby dismissed. 11.36 In the result, the appeal of revenue is hereby dismissed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 31 Coming to ITA No. 1544/AHD/2008, an appeal by the revenue for the AY 2005-06 12. The Revenue has raised the following grounds of appeals: 1. The Ld.CIT(A) has erred in law and on the facts of the case in holding that the assessee is entitled to deduction u/s 801A. The Ld. CIT(A) has failed to appreciate that the assessee has only done contract work and is not a developer of infrastructure facility. Further, the Ld. CIT(A) has failed to appreciate that the assessee has done contract work for the Sardar Sarovar Narmada Nigam Ltd., which is a company incorporated under the Companies Act, 1956 and which can not be held to be a Statutory Body. 2. The Ld. CIT(A) has erred in law and on the facts of the case in directing to exclude only net interest income from the eligible profit for calculation of deduction u/s 801A. 3. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of employees contribution to the Provident Fund at Rs. 1,01,354/- u/s 36(1)(va). 4. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld.CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above effect. 13. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in holding that the assessee is entitled to deduction u/s 80IA (4) of the Act. 14. At the outset, we note that the issue raised by the revenue in its ground of appeal for the AY 2005-06 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment year 2005-06. The appeal of the revenue for the AY 2008-09 has been decided by us vide paragraph No.11 of this order in favour of the assessee and against revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2005-06. Hence, the grounds of appeals filed by the revenue is hereby dismissed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 32 15. The next issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) erred in directing to exclude only net interest income from the eligible profit for calculation of deduction u/s 80IA of the Act. 16. The issue is whether interest income is to be excluded on gross basis or net basis while the computing the deduction u/s 80IA(4) of the Act. The assessee while computing the deduction u/s 80IA (4) of the Act has considered the interest income from the eligible business as detailed below: During the assessment year under consideration appellant had received interest income as under: Sr.No. Particulars Amount 1. Suravdi site Interest Income 2,29,555/- 2 Bachai Site Interest Income 3,00,098/- Total 5,29,653/- 16.1 Admittedly, the AO disallowed the deduction claimed by the assessee u/s 80IA(4) of the Act with respect to the interest income 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. 16.2 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. 17. 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:— ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 33 '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 profits of any branch, office, warehouse or any other establishment of the assessee situate outside India". 9. Explanation (baa) extracted above states that "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 the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head "Profits and Gains of Business or Profession" in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head "Profits and Gains of Business or Profession" from which deductions are to made under clauses (1) and (2) of Explanation (baa). 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "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 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 the legislature and so construed the words "such income by way of dividends" in sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 34 (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 12.If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D 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 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 Income- Tax 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 assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC (3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clauses (1) of the Explanation (baa) to Section 80HHC. This Court held that the processing charges was included in the gross total income from cashew business and hence in terms of Explanation (baa), ninety per cent of the gross total income arising from processing charges had to be deducted under Explanation (baa) to arrive at the profits of the business. In this case, this Court held that the processing charges received by the assessee were part of the business turnover and accordingly the income arising therefrom should have been included in the profits and gains of business of the assessee ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 35 and ninety per cent of this income also would have to be deducted under Explanation (baa) under Section 80HHC of the Act. In this case, this Court was not deciding the 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 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 of the Act. In the assessment order, the Assessing Officer held that ninety per cent of the gross interest has to be excluded from the profits of the business of the assessee under Explanation (baa) to Section 80HHC of the Act and deducted ninety per cent of the gross interest of Rs. 50,26,284/- from the profits of the business of the assessee. The assessee preferred an appeal contending that only ninety per cent of the net nterestshould have been deducted from the profits of the business of the assessee under Explanation (baa) to Section 80HHC, but the Commissioner of Income Tax (Appeals) rejected this contention of the assessee. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short 'the Tribunal') and the Tribunal allowed the appeal of the assessee and held that the assessee was entitled to deduct the expenses from the interest received and only ninety per cent of the net amount of interest could be excluded under Explanation (baa) to Section 80HHC and remitted the matter to the Assessing Officer to examine whether there is factually an excess between the interest paid and interest received and take a fresh decision. The Revenue filed an appeal against the order of the Tribunal before the High Court, but by the impugned order the High Court following its decision in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) sustained the order of the Tribunal and dismissed the appeal. 3. We have held in our judgment in the 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 netinterest, 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.' ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 36 17.1 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 Section 80HHC of the Act has been settled. It is held that it would only be the net of the interestexcluding the expenditure incurred in earning such interestincome 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 interestincome 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. 17.2 Likewise, 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 Nos. 118/Ahd/2019 & Ors. While granting relief to the assessee, the Co-ordinate bench has been pleased to observe as follows: "46. Before us, the counsel for the assessee reiterated submissions as were made before the lower authorities. The counsel further submitted that the interest income is earned only on fixed deposits for obtaining bank guarantee and security deposit to be placed mandatorily as per the tender when work was awarded. Hence, such interest income is business income and eligible for deduction under section 80IA(4) of the Act. In support of his contentions, the counsel relied upon the following decisions: i) AVM Cine Products Vs. DCIT, (2021) 123 taxamnn.com 41 (Mad); ii) CIT Vs. Alloys Ltd. (2017) 84 taxmann.com 256 (Guj) iii) Empire Pumps P. Ltd. Vs. ACIT, (2015) 54 taxmann.com 317 (Guj) 47. For countering the above submissions of the assessee, the DR supported orders of the Revenue authorities, which was based on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. 48. We have considered submissions of both the parties; perused relevant orders and case laws cited by the parties. We have already hold the assessee a developer and eligible for deduction under section 80IA(4) of the Act. We further note that the amount of Rs 8,61,827 has been received by the assessee as other income which appears from the records is nothing but the claim approved and received by the assessee for the assessment year 2004-05 in respect of the infrastructure 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- ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 37 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, 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 preferred by the assessee for A.Ys. 2008-09 & 2009-10. ITA Nos. 2938/Ahd/2011 & 8 Ors. (Vijay M. Mistry Construction Pvt. Ltd.) A.Ys.- 2007-08 to 2013-14 & 2016-17. 17.3 In view of the above and respectfully following the ratio laid down by the Hon’ble Courts, we hold that only net interest income should be excluded while computing the eligible income u/s 80IA(4) of the Act. Hence, the ground of appeal of the Revenue is hereby dismissed. 18. The next issue raised by the Revenue in ground no. 3 is that the Ld. CIT-A erred in deleting the disallowance of employee contribution to the provident fund at Rs. 1,01,354/- under section 36(1)(va) r.w.s. 2(24)(x) of the Act. 19. On perusal of the Form 3CD report, the AO observed that the assessee has made late payments to ESI on behalf of the employee contribution amounting to Rs. 1,01,354/- as prescribed under the relevant Act. The details of the late payments made are as under: SNO MONTH DUE DATE DATE OF PAYMENT AMOUNT 1 AUGUST 20-09-2004 21-09-2004 16,373/- 2 JANUARY 20-02-2005 21-02-2005 42,679/- 3 FEBRUARY 20-03-2005 24-03-2005 42,302/- 1,01,354/- ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 38 19.1 Therefore, the AO was of the view that as per the provision of section 36(1)(va) if the sum of employee contribution was not paid to the relevant fund on/before the due date as prescribed under the relevant Act then the sum would be treated as income of the assessee under section 2(24)(x) of the Income Tax Act. The AO therefore disallowed the sum of Rs. 1,01,354/- under section 36(1)(va) and added to the total income of the assessee under section 2(24(x) of the Act. 20. Aggrieved assessee preferred an appeal before the Ld. CIT-A. The assessee before the Ld. CIT-A submits that it agreed before the AO for the addition due to wrong understanding of the provisions of law. 21. The assessee further submits that even though such sum of employee contribution paid towards ESIC was after the due date as specified under the relevant Act, but it should be noted that the payment was made before the due date of filing the return of income. The assessee in support of its contention referred to the provision of section 43B of the Act. 21.1 The assessee also submitted that the provisions of section 43B of the Act speak about only employer’s contribution, but it also covers employee’s contribution. Therefore, the sum of employee contribution towards ESI should not be disallowed if the sum is paid before the due date of filing the return of Income as specified under section 139 of the Act. 22. The Ld. CIT-A accepted the contention of the assessee by observing that the assessee paid the sum of employee’s contribution towards ESIC on/before the due date in accordance with the provisions of section 43B of the Act. 23. Being aggrieved by the order of the Ld. CIT-A, the Revenue is an appeal before us. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 39 24. The Ld. DR before us vehemently supported the order of the AO. On the other hand, The Ld. AR for the assessee before us filed a paper running from pages 1 to 98 and agreed that the judgment of Hon’ble Gujarat High Court in the case CIT v/s Gujarat State Road Transport Corporation reported in 366 ITR 170 is squarely applicable if the payment of employee contribution towards ESI/PF is paid after the due date of the relevant Act then the sum which has been paid after due date should be disallowed as per the provisions of section 36(1)(va) of the Act. 25. We have heard the rival contentions of both the parties and perused the materials available on record. The issue arises before us whether the payment of employee’s contribution made by the assessee is eligible for deduction towards ESI if paid after the due date as specified under the relevant Act. In this regard, we note that the assessee has made the payment of the employee’s contribution beyond the due date as specified under the relevant Act. Therefore, the same cannot be allowed as deduction. We also note that the identical issue has been decided vide order dated 15 th Oct, 2018 by the Hon’ble Gujarat High Court in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. v/s DCIT in Tax Appeal No. 1256 of 2018 against the assessee. The head note reads as under: “Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) Held that:- Provision requires an employer before paying the employee his wages to deduct the employee’s contribution along with the employer’s own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. If not so paid then no deduction 36(1)(va)” 25.1 From the above, it is very clear that the deduction for the payment made under section 36(1)(va) would be allowed in respect of employee’s contribution towards ESI if such payment is made on/before due date as specified under the relevant Act. Thus, the payment made by the assessee on account of employee contribution towards ESI after the due date stands disallowed in view of the judgment in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 40 v/s DCIT (Supra). We uphold the order of the AO. Hence, the ground of appeal of the Revenue is allowed. 25.2 In result, the appeal of revenue is partly allowed. Coming to ITA No. 31/AHD/2010, an appeal by the assessee for the AY 2006-07. 26. The assessee has raised the following ground of appeals: 1. That on facts and in law, the learned CIT(A), has grievously erred in confirming the disallowance of claim of deduction u/s.80IA (4) of the Act of Rs.1,45,69,085/- 2. That the learned CIT9A), has grievously erred in confirming the charging of interest u/s.234D of the Act. 3. The appellant craves leave to add, alter, amend any ground of appeal. 27. The issue raised by the assessee vide ground No. 1 is that the learned CIT(A) erred in confirming the disallowance of claim of deduction u/s 80IA(4) Of the Act. 28 At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2006-07 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment year 2006-07. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 13 of this order in favour of the assessee and against revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2006-07. Hence, the ground of appeal filed by the assessee is hereby allowed. 29. The ground No. 2 of assessee’s appeal is consequential in nature and does not require any separate adjudication. Hence, the same is dismissed as infructuous. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 41 29.1 In the result, the appeal of assessee is partly allowed. Coming to ITA No. 2144/AHD/2010, an appeal by the assessee for the AY 2007-08 30. The assessee has raised the following grounds of appeal: 1. That on facts and in law the learned Commissioner of Income-tax (Appeals) has grievously erred in confirming the disallowance of claim of deduction under section 801A (4) Rs. 58,82, 937/-. 2. That on facts and in law the learned CIT (Appeals) has grievously erred in holding that the assessee is a "work contractor" and not a "developer" of infrastructure facility within the meaning of section 801A (4) of the Act. 3. That on facts and in law the learned CIT (Appeals) has grievously erred in giving only consequential relief in respect interest under section 234D of the Act of Rs.30,367/- instead of deleting the same as prayed for. 4. The appellant craves leave to add, alter, amend any ground of appeal. 31. The issue raised by the assessee vide ground No. 1 and 2 is that the learned CIT(A) erred in confirming the disallowance of deduction claimed u/s 80IA(4) of the Act. 32. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2007-08 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment year 2007-08. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 13 of this order in favour of the assessee and against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2007-08. Hence, the grounds of appeal filed by the assessee are hereby allowed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 42 33. The ground No. 3 of assessee’s appeal is consequential in nature and does not require any separate adjudication. Hence the same is dismissed as infructuous. 33.1 In the result, the appeal of assessee is hereby partly allowed. Coming to ITA No. 366/AHD/2013, an appeal by the assessee for the AY 2009-10. 34. 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 action of the AO in rejecting the books of accounts by neither assigning any defect in the accounts of the Assessee nor issuing specific show cause notice for the same and arbitrarily rejecting the book results with capricious observation that books of accounts of the Assessee does not reflect true and reliable affairs of the company. 2. The order passed by the learned CIT(A) is against law and facts of the appellant's case, in as much as CIT(A) was not justified in again estimating the GP rate at 19.5% merely reducing the percentage of GP as estimate by the AO in utter disregard to the fact that the GP disclosed by the appellant in the audit books of account is just and fair and represented the true profits of the Business. 3. The order passed by the learned CIT(A) is against law and facts of the appellant's case in estimating the GP rate at 19.5% and retaining addition on account of enhanced Gross Profit on the basis of pure guess & without reference to any evidence or materials at all including industry comparable. 4. The order passed by the learned CIT(A) is against law and facts on the file in estimating the GP rate at 19.5% by arbitrarily adopting a highest GP rate of one comparable Company and failing to notice the lower GP rate of the other industry comparable as cited by the Appellant. is therefore that the GP addition confirmed by be deleted. 5. The Id. 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. 6. 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(1)(c) of the Act. 7. 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. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 43 35. The interconnected issue raised by the assessee is that the Ld. CIT(A) erred in estimating the GP at 19.5% without appreciating the fact that GP declared by the assessee in its audited books of accounts represent the true and fair profit of the business. 36. A search operation was carried out u/s 132 of the Act in the case of Sadbhav Group cases as well as in the case of assessee on 05-10-2010. During the search, the AO gathered that the assessee company has booked bogus expenses through the various Kolkata based shell companies. The details of the Kolkata based companies along with the amount paid by assessee to them are contained on page 3 of the assessment order. 36.1 Simultaneously, a survey proceeding was also carried out on all the alleged shell companies. In such proceeding various information were also gathered detailed as under: 1) The assessee has deducted TDS on the payment made to these Kolkata based shell companies @ 0.01% to 0.05% in the name of the expense incurred in their name. 2) Further, the Balance sheet was downloaded from the MCA portal of the above-mentioned shell companies which also indicate that they were just entry providers. No fixed asset was shown in its balance sheets. 3) Further, on verification of the bank account of these shell companies, it is found that there were frequent and immediate transfer of amounts through numerous debits & credits with minimal bank balances. 4) Further, these shell companies did not file income tax returns regularly and properly. However, whenever any return was filed, the income was declared at NIL or very normal income or loss. 5) Further, during the survey proceedings, no book of accounts, voucher, RA bills was found at the business place. Likewise, the business places of these companies were very small. There were small rooms, no space for maintaining the books of accounts of these shell companies. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 44 6) During survey proceedings, various companies were not found at registered places of business. 7) During the survey proceedings, the statement of directors of the shell companies, employee who were working on the project site of assessee company and other persons have been recorded. Such statements indicate that the assessee company was not allotted any work on sub- contract basis. 8) To verify the claim of the assessee that it has made payment to Kolkata based companies in respect of subcontract work awarded to them, a survey u/s 133A of Income tax act has been carried out at three premises. During the survey proceedings, it was ascertained that M/s STUP consultant Pvt ltd was appointed as independent inspection agency by the Jharkhand road project implementation company limited who in turn report to JRPICPL. Statements were recorded u/s 131 of the I.T. Act from the team leader and deputy team leader of STUP Consultant Private ltd. They stated that contract work has been done by the assessee company and no subcontract work was done by them. Statement of various employees were also recorded who also stated that earthwork was being done by the assessee itself. 9) Further, the AO was issued a letter vide dated 28-10-2010 to inquire about the engagement of alleged subcontractors in respect of project awarded by the JRPICL to the assessee. In response to such letter JRPICL has denied the engagement of alleged sub-contractors. 10) In addition to the above, the AO also noticed that the profit earned by the assessee from the project where the assessee has done work through the alleged contractor is higher than the profit earned by assessee from the other project. However, it should be vise- versa. It means that the books of account of the assessee company are not correct and complete. Therefore, ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 45 based on defective accounts, it is not possible to assess the correct income of the assessee. 36.2 Thus, the AO in view of the above rejected the books of accounts of the assessee and further observed that on verification of the comparable cases furnished during the assessment proceedings that the average GP of comparable is 13.55%. However, the comparable furnished by the assessee having higher turnover in comparison of the assessee, were rejected. 36.3 Further, the assessee has shown average GP @18.53% for the three assessment years i.e 2009-10, 2010-11, 2011-12. However, such GP declared by the assessee company is after taking into consideration of the suspicious expenses booked by it as discussed above. Therefore, the actual GP must be more than the average GP offered by the assessee company. Thus, the AO estimated the GP @21% of the turnover and added additional gross profit of Rs. 8,28,60,099.00 to the total income of the assessee. 37. Aggrieved assessee preferred an appeal before the Ld. CIT(A). 38. The assessee before the Ld. CIT(A) submitted that action of the AO for the rejection of books of account is arbitrary and observation of AO that the books of account of the assessee company is not reflecting true and fair affairs of the company is wrong. 38.1 The action of AO for estimation of gross profit after disregarding the gross profit declared by assessee is unjust & unreasonable which is further based on pure guess and without reference to any evidence or material at all including industry comparable. 38.2 The assessee further submitted that it has maintained the regular books of accounts and complied the provisions of Companies Act as well as Income Tax ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 46 Act. The average GP Ratio declared by the assessee during 3 assessment years 2009-10 to 2011-12 is at 18.53% detailed as under: Analysis of the profitability of the Appellant as a whole for these three years Assessment Year 2009-10 2010-11 2011-12 Average Ratio as per the Book Results shown by the Appellant G.P % 17.43 18.95 19.20 18.53 N.P% 5.44 4.86 7.73 6.01 38.3 The assessee before the Ld. CIT(A) further submitted that assessee is being regularly assessed to tax since past 7 assessment years and even more. All these assessments have been subject matter of scrutiny assessments and some of the cases are yet pending before the ITAT. However, in all the cases, the books of accounts of the assessee were accepted without any rejection u/s 145(3) of the Act. The details of GP ration declared by the assessee during the AYs 2004-05 to 2011-12 is detailed as under and up to AY 2008-09 no addition was made by the AO on account of GP addition. Following is the summary of the Gross Profit earned by the Assessee is the Seven Assessment Years i.e AY 2005-06 to AY 2011-12 to which the Assessee was subject to the Assessment u/s.143(3) r.w.s 153 pursuant to Search u/s.132 of the Act. Assessment year Gross Profit percentage declared by the Assessee in Books Gross Profit percentage as Assessee by the AO Variation made by the AO in GP 2005-06 13.45% 13.45% NIL 2006-07 15.81% 15.81% NIL 2007-08 21.40% 21.40% NIL 2008-09 18.79% 18.79% NIL 2009-10 17.43% 21.00% 3.57% 2010-11 18.95% 21.00% 2.05% 2011-12 19.20% 21.00% 1.80% 38.4 The assessee also submitted that the same AO has accepted the books of accounts for the same assessment year in the case of M/s Sadbhav Engineering who was also subject to search and engaged in the same line of business. The GP declared by M/s Sadbhav engineering during the AYs 2006-07 to AY 2011-12 as detailed under: ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 47 Gross Profit Ratio of Sadbhav Engineering Limited Sr.No. Assessment Year % of Gross Proift 1. 2006-07 20.00% 2. 2007-08 18.43% 3. 2008-09 15.35% 4. 2009-10 17.17% 5. 2010-11 20.38% 6. 2011-12 19.76% 38.5 On comparison of average GP declared by M/s Sadbhav engineer and average GP declared by the assessee, it is evident that the assessee company has declared higher GP ratio. The assessee further submitted that once the books of accounts were rejected then the profit has to be estimated on the basis of proper materials available on record. The assessee further submits the comparable GP ratio of the certain companies for the AYs 2009-10 to AY 2011-12 which is recorded on page 40-41 of the ld. CIT-A order. 38.6 The Ld. CIT(A) after considering the submission of the assessee partially allowed the appeal of the assessee by reducing the GP rate up to 19.5% of the turnover. 39. Being aggrieved by the order of the Ld. CIT(A), both the assessee and Revenue are in appeal before us. The assessee is in appeal against the GP addition determined by the ld. CIT-A whereas the Revenue is in appeal against the direction of the ld. CIT-A for the reduction of GP determined by the AO. The ground of appeal of the Revenue in ITA No. 386/AHD/2013 stands as under: (1) The Ld. CIT(A) has erred in law and in facts in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of the turn over adopted by the Assessing Officer. 40. The Ld. AR before us filed a paper book running from pages 1 to 243 and reiterated the submissions made before the authorities below. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 48 41. On the contrary, the Ld. DR before us reiterated the findings of the lower authorities. Both the ld. AR and DR before us vehemently supported the order of the authorities below to extent favourable to them. 42. 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 rejected the books of accounts after invoking the provisions of section 145(3) of the Act and estimated the net profit at 21% gross receipt which was scaled down by the learned CIT(A) to 19.5% of the gross turnover. Before us, the assessee has not challenged the action of the authorities below with respect to the rejection of the books of accounts made by them under the provisions of section 145(3) of the Act. In simple words the decision of the authorities below for rejecting the books of accounts has reached to the finality and no interference to this effect is required to be made. .42.1 It is the trite law that once the books of accounts have been rejected, the only resort available to the revenue is to determine the income of the assessee in the manner provided under section 144 the Act to the best of the judgment. The Hon'ble Supreme Court in Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 Taxman 71 held that rejection of books of account under section 145 justified and best judgment assessment under section 144 of the Act needed. 42.2 The Hon'ble Bombay High Court in Bastiram Narayandas v. CIT [1994] 210 ITR 438/74 Taxman 454 held that rejection of books of account justified under section 145 and best judgment assessment under section 144 needed. 42.3 The next controversy arises how to make the best judgement in the manner provided under section 144 of the Act after rejecting the accounts under the provisions of section 145(3) of the Act. When the books are rejected, a lump sum addition is made to the original return of income. Such addition may be based on estimate of turnover and profit rate or disallowance of claims, expenditure, etc. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 49 as held by the Hon’ble Supreme court in case of CIT v. Pilliah & Sons [1967] 63 ITR 411(SC). 42.4 Further in the case of Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, the Supreme Court had this to say : " . . .the authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case......."(p. 530) 42.5 From the above discussion, it can be opined that best judgment assessments cannot be based on wild guess, rather it should be based on some materials available on hand relating to the assessee which should be taken into account and that too after providing the opportunity of being heard to the assessee as well as considering the provisions of the Act and Rules of Income Tax Rules. After rejecting book results, the Assessing Officer has to determine the income in reasonable and scientific manner after considering the results/ performance of the earlier years or some comparable cases. In holding so, we referred the judgment of co-ordinate bench of Jodhpur Tribunal in case of Sriram Jhanwarlal v. ITO [2005] 98 TTJ (Jodh.) 639. The relevant observation is extracted as under: After rejecting the book results, the AO does not get unfettered powers to make assessment at any income. He is supposed to be guided either by the previous results of the assessee or some comparable cases. In the instant case, the AO has allowed deduction of direct expenses at 75 per cent of the gross receipts without any cogent material. His ad hoc estimate of expenses divorced from the relevant facts cannot be upheld. 42.6 Now coming to the facts of the present case, first, we note that the foundation of rejecting the books of accounts and estimating the gross profit of the assessee was based on the fact that the assessee has made purchases from the shell companies. However, we note that there was no purchase made by the assessee from the so-called alleged shell companies and therefore we are of the view that no addition is warranted in the year under consideration. As such the gross profit declared by the assessee in the books of accounts should be accepted ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 50 as it is. Thus, the ground of appeal of the assessee for the AY 2009-10 is allowed and ground of appeal of the Revenue is dismissed. 42.7 For the assessment year 2010-11, we note that the AO has estimated the Gross Profit @ 21% of gross receipt on ad-hoc basis. The assessee before the learned CIT(A) furnished the list of comparable companies along its GP ratio for the relevant assessment year. The learned CIT(A) observed that the comparable companies furnished by the assessee are public companies whereas the assessee company is a closely held company where the profit is generally higher. Further, the learned CIT(A) found that higher GP ration declared by the comparable furnished by the assessee is 19.40% of the turnover. Thereafter, the learned CIT(A) estimated the Gross profit at 19.50% of gross receipt. The learned AR for the assessee vehemently contended that the profit declared by the assessee over the period and accepted by the revenue should be taken for estimating the profit for the year under consideration. We find force in the argument of the learned AR for the assessee, as in our considered view, the estimation made by the lower authorities was not based in scientific manner. The learned CIT(A) while estimating the profit has only considered one year rate of profit and one comparable ignoring the profit accepted in the own case of the assessee in earlier years and other comparable provided by the assessee. In our considered the view, the average profit declared by the assessee in the last immediate three preceding year can be adopted as the parameter for determining the income of the assessee after rejecting the books of accounts. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of Kiran industries Pvt Ltd (supra) Tax Aappeal No. 449 of 2011 where it was held as under: Having perused the documents on record with the assistance of the learned counsel for the revenue, we notice that the Tribunal had though confirmed the view of the revenue authorities with respect to the rejection of the books of accounts of the assessee did not accept the re-computation of higher rate of gross profit on the premise that the average gross profit rate of last three years immediately preceding the year under consideration came to 14.79%. On such basis, the Tribunal found that the claim of gross profit rate @ 15.27% cannot be stated to be low. On such basis, the assesee’s appeal was allowed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 51 We are of the opinion that the findings of the Tribunal are based on evidence on record and are purely factual in nature. The Tribunal after taking into account relevant materials, came to the conclusion that a certain rate of gross profit presented by the assessee was acceptable. 42.8 The average profit of the assessee in the last three years i.e. A.Y. 2007-08 to A.Y. 2009-10 stands at 19.30% (21.40 + 18.82 + 17.43) whereas the original Gross profit of A.Y. 2010-11 is declared at 18.95% of the gross turnover. On perusal of the order of the authorities below, nothing was found out whether there was any change in the facts and circumstances of the year under consideration viz a viz in the earlier years. There was no change in the business activity of the assessee. Accordingly, we workout the differential amount of gross profit at .35% (average gross profit of last 3 years @ 19.35% – current year GP @ 18.95) of the turnover and direct the AO to make an addition of Rs. 68,36,22056.00 being .35% of Rs. 201,06,53,107.00 only. Thus, the ground of appeal of the assessee for the AY 2010-11 is partly allowed and ground of appeal of the Revenue is dismissed. 42.9 Likewise, for the AY 2011-12 we note that the average gross profit of the assessee in the last three years i.e. A.Y. 2008-09 to A.Y. 2010-11 stands at 18.52% (18.82 + 17.43 + 19.30) whereas the original Gross profit of A.Y. 2011-12 is declared at 18.95% of the gross turnover. Thus, it is seen that the assessee has declared greater gross profit than of the earlier years. Accordingly, we are of the view that no addition is warranted in the given facts and circumstances. Thus, the ground of appeal of the assessee for the AY 2011-12 is allowed and ground of appeal of the Revenue is dismissed. 43. The next issue raised by assessee is that the learned CIT(A) has erred in confirming the action of AO in initiating penalty proceedings u/s 271(1)(c) of the Act. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 52 44. The issue raised by assessee is premature in nature and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 44.1 In result the appeal of assessee is hereby partly allowed. Coming to ITA No. 386/AHD/2013, an appeal by the Revenue for the AY 2009-10. 45. The revenue has raised the following grounds of appeal. (1) The Ld. CIT(A) has erred in law and in facts in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of the turn over adopted by the Assessing Officer. (2) The Ld. CIT(A) has erred in law on in facts in deleting the disallowance of deduction of Rs. 9,44,90.563/- u/s. 80IA(4) of the IT Act. (3) On the facts and in the circumstances of the case and in law the CIT(A) ought to have upheld the order of the AO. (4) It 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. 46. The first issue raised by revenue is that the learned CIT(A) has erred in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of turnover adopted by AO. 47. At the outset, we note that the ground raised by the Revenue has been adjudicated along with assessee’s ground of appeal in ITA No 366/AHD/2013 for the AY 2009-10. The ground of appeal of the assessee and Revenue have been decided by us vide paragraph No. 42 of this order. The ground of appeal of the assessee was allowed whereas the ground of appeal of the Revenue was dismissed. For detail discussion, please refer to the paragraph. Hence, the ground of appeal of the Revenue is hereby dismissed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 53 48. The Next issue raised by the Revenue vide ground No. 2 6is that the learned CIT(A) erred in holding that the assessee is entitled to deduction u/s 80IA (4) of the Act. 49. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment year 2009-10. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2009-10. Hence, the ground of appeal filed by the revenue is hereby dismissed. 50. In the result, the appeal of revenue is dismissed. Coming to ITA No. 367/AHD/2013, an appeal by the assessee for the AY 2010-11. 51. 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 action of the AO in rejecting the books of accounts by neither assigning any defect in the accounts of the Assessee nor issuing specific show cause notice for the same and arbitrarily rejecting the book results with capricious observation that books of accounts of the Assessee does not reflect true and reliable affairs of the company. 2. The order passed by the learned CIT(A) is against law and facts of the appellant's case, in as much as CIT(A) was not justified in again estimating the GP rate at 19.5% merely reducing the percentage of GP as estimate by the AO in utter disregard to the fact that the GP disclosed by the appellant in the audit books of account is just and fair and represented the true profits of the Business. 3. The order passed by the learned CIT(A) is against law and facts of the appellant's case in estimating the GP rate at 19.5% and retaining addition on account of enhanced Gross Profit on the basis of pure guess & without reference to any evidence or materials at all including industry comparable. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 54 4. The order by the learned CIT(A) is against law and facts on the file in estimating the GP rate at 19.5% by arbitrarily adopting a highest GP rate of one comparable Company and failing to notice the lower GP rate of the other industry comparable as cited by the Appellant. It is therefore prayed that the GP addition confirmed by the CIT(A) please be deleted. 5. The ld. 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. 6. 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(1)(c) of the Act. 7. 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. 52. The interconnected ground raised by the assessee is that the Ld. CIT(A) erred in estimating the GP at 19.5% without appreciating the fact that GP declared by the assessee in its audited books of accounts represent the true and fair profit of the business. 53. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2010-11 has been decided along with the issue raised by the assessee in ITA No. 366/AHD/2013 for the AY 2009-10. The appeal of the assessee for the A.Y. 2009-10 has been decided by us vide paragraph No. 42 of this order partly in favour of the assessee. Hence, the ground of appeal filed by the assessee for the AY 2010-11 is hereby partly allowed. 54. The next issue raised by assessee is that the learned CIT(A) has erred in confirming the action of AO in initiating penalty proceedings u/s 271(1)(c) of the Act. 55. The issue raised by assessee is premature at this stage and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 56. In the result, the appeal of assessee is hereby partly allowed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 55 Coming to ITA No. 387/AHD/2013, an appeal by the revenue for the AY 2010-11. 57. The revenue has raised the following grounds of appeal. (1) The Ld. CIT(A) has erred in law and in facts in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of the turn over by the Assessing Officer. (2) The Ld. CIT(a) has erred in law on it facts in deleting the disallowance of deduction of Rs. 141615019/- u/s. 801A (4) of the IT Act. (3) On the facts and in the circumstances of the case and in law the CIT(A) has ought to have upheld the order of the AO. (4) It 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. 58. The first issue raised by revenue is that the learned CIT(A) has erred in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of turnover adopted by AO. 59. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2010-11 has been decided along with the issue raised by the assessee in ITA No. 366/AHD/2013 for the AY 2009-10. The ground of appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 42 of this order against the Revenue. Hence, the ground of appeal filed by the Revenue for the AY 2010-11 is hereby dismissed. 60. The Next issue raised by the Revenue vide ground No. 2 is that the learned CIT(A) erred in holding that the assessee is entitled to deduction u/s 80IA (4) of the Act. 61. At the outset, we note that the issue raised by the revenue in its ground of appeal for the AY 2010-11 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 56 given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment years 2010-11. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2010-11. Hence, the ground of appeal filed by the revenue is hereby dismissed. 61.1 In the result, the appeal of revenue is dismissed. Coming to IT(SS)A No. 368/AHD/2013, an appeal by the assessee for the AY 2011-12. 62. 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 action of the AO in rejecting the books of accounts by neither assigning any defect in the accounts of the Assessee nor issuing specific show cause notice for the same and arbitrarily rejecting the book results with capricious observation that books of accounts of the Assessee does not reflect true and reliable affairs of the company. 2. The order passed by the learned CIT(A) is against law and facts of the appellant's case, in as much as CIT(A) was not justified in again estimating the GP rate at 19.5% merely reducing the percentage of GP as estimate by the AO in utter disregard to the fact that the GP disclosed by the appellant in the audit books of account is just and fair and represented the true profits of the Business. 3. The order passed by learned CIT(A) is against law and facts of the appellant's case in estimating the GP rate at 19.5% and retaining addition on account of enhanced Gross Profit on the basis of pure guess & without reference to any evidence or materials at all including industry comparable. 4. The order passed by the learned CIT(A) is against law and facts on the file in estimating the GP rate at 19.5% by arbitrarily adopting a highest GP rate of one comparable Company and failing to notice the lower GP rate of the other industry comparable as cited by the Appellant. It is therefore prayed that the GP addition confirmed by the CIT(A) please be deleted. 5. The 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. 6. The ld. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(1)(c) of the Act. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 57 7. 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. 63. The interconnected ground raised by the assessee is that the Ld. CIT(A) erred in estimating the GP at 19.5% without appreciating the fact that GP declared by the assessee in its audited books of accounts represents the true and fair profit of the business. 64. At the outset, we note that the issue raised by the assessee in its ground of appeal for the AY 2011-12 has been decided along with the issue raised by the assessee in ITA No. 366/AHD/2013 for the AY 2009-10. The ground of appeal of the assessee for the A.Y. 2009-10 has been decided by us vide paragraph No. 42 of this order in favour of the assessee. Hence, the ground of appeal filed by the assessee for the AY 2011-12 is hereby allowed. 65. The next issue raised by assessee is that the learned CIT(A) has erred in confirming the action of AO in initiating penalty proceedings u/s 271(1)(c) of the Act. 66. The issue raised by assessee is premature at this stage and does not require any separate adjudication. Hence, the same is dismissed as infructuous. 67. In the result, the appeal of assessee is hereby partly allowed. Coming to IT(SS)A No. 388/AHD/2013, an appeal by the revenue for the AY 2011-12. 68. The Revenue has raised the following grounds of appeal. (1) The Ld. CIT(A) has erred in law and in facts in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of the turn over by the Assessing Officer. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 58 (2) The Ld. CIT(a) has erred in law on it facts in deleting the disallowance of deduction of Rs. 141615019/- u/s. 801A (4) of the IT Act. (3) On the facts and in the circumstances of the case and in law the CIT(A) has ought to have upheld the order of the AO. (4) It 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. 69. The first issue raised by revenue is that the learned CIT(A) has erred in restricting the estimation of GP at 19.50% against the estimation of the GP at the rate of 21% of turnover adopted by AO. 70. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2011-12 has been decided along with the issue raised by the assessee in ITA No. 366/AHD/2013 for the AY 2009-10. The ground of appeal of the Revenue for the A.Y. 2009-10 has been decided by us vide paragraph No. 42 of this order against the Revenue. Hence, the ground of appeal filed by the Revenue for the AY 2011-12 is hereby dismissed. 71. The Next issue raised by the Revenue vide ground No. 2 is that the learned CIT(A) erred in holding that the assessee is entitled to deduction u/s 80IA (4) of the Act. 72. At the outset, we note that the issue raised by the revenue in its ground of appeal for the AY 2011-12 is identical to the issue raised by the revenue in ITA No. 1892/AHD/2013 for the assessment year 2008-09. Therefore, the findings given in ITA No. 1892/AHD/2013 shall also be applicable for the assessment years 2011-12. The appeal of the revenue for the A.Y. 2008-09 has been decided by us vide paragraph No. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2008-09 shall also be applied for the assessment year 2011-12. Hence, the ground of appeal filed by the revenue is hereby dismissed. ITA No.1892/Ahd/2013 and 9 others A.Y. 2008-09 59 73. In the result, the appeal of revenue is dismissed. 74. In the combined results, the outcome of the appeals of the assessee and Revenue are as follows: Sr. No. ITA No. Asstt. Year Appeal filed by Result 1. ITA No.1892/Ahd/2013 2008-09 Department Dismissed 2. ITA No.1544/Ahd/2008 2005-06 Department Partly Allowed 3. ITA No.31/Ahd/2010 2006-07 Assessee Partly Allowed 4. ITA No.2144/Ahd/2010 2007-08 Assessee Partly Allowed 5-7 IT(SS)ANo.366 to 368/Ahd/2013 2009-10 to 2011-12 Assessee Partly Allowed 8-10 IT(SS)A No.386 to 388/Ahd/2013 2009-10 to 2011-12 Department Dismissed Order pronounced in the Court on 28/06/2023 at Ahmedabad. Sd/- Sd/- (T.R SENTHIL KUMAR) JUDICIAL MEMBER (WASEEM AHMED) ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 28/06/2023 Manish