Sadbhav Engineering Ltd., Ahmedabad V. The ACIT, Central Circle-1(1), Ahmedabad

ITSSA 363/AHD/2013

AI Insights

The case involves multiple appeals and cross-objections filed by the Revenue and the assessee, Sadbhav Engineering Limited, against the orders of the Commissioner of Income Tax (Appeals), Ahmedabad. The disputes primarily centered around the deductions claimed under section 80IA(4) of the Income Tax Act, 1961, the treatment of certain purchases as bogus, and the expenses related to the Employees Stock Option Plan (ESOP). The Tribunal examined each issue in detail, considering the legal provisions, the facts presented, and the precedents set by previous judgments. The Tribunal's decision aimed to balance the application of tax laws with the principles of fairness and equity in taxation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135681 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 23-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 26-12-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 17-09-2013
• Other Referred Cases: Vision Finstock Ltd. vs. CIT, Commissioner of Income Tax vs. Corrtech Energy Pvt Ltd, Deccan Chronicle Holdings Ltd. vs. CIT, M/S TARMAT BEL (JV.) KCL, RAJKOT V/S ITO, B.T. PATIL & SONS Belgaum Construction Pvt Ltd V/S ACIT, M/s Katira construction Vs Union of India, CIT Vs. Gujarat Paghuthan Energy Corporation (P) ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Business income; Business expenditure; Rule of consistency; Earning of tax free income; Retrospective amendment; Revised return; Revenue expenditure; TDS; Rule 8D; Set aside
• Section: 147; 37; 143(3); 80HHC; 153A; 14A; 37(1); 194C; 250; 80IA; 274; 207

Judgement Text

आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER (Applicant) (Respondent) Revenue by : Shri Vijay Kumar jaiswal, C.I.T. D.R Assessee by : Shri Dhinal Shah, A.R Sl. No(s) IT(SS)A No./C.O Asset. Year(s) Appeal(s) by Appellant vs. Respondent Appellant Respondent 1-2 ITA No.939/Ahd/2011 With C.O No.100/Ahd/2011 2008-09 A.C.I.T., (OSD) Circle-8, Ahmedabad. Sadbhav Enginnering Limited, Sadbhav House, Opp. Law garden Police Chowky, Ellisbridge, Ahmedabad PAN: AADCS0858E 3-4 IT(SS)A No.392- 393/Ahd/2013 2010-11 2011-12 A.C.I.T., Central Circle- 1(1), Ahmedabad. Sadbhav Engineering Limited, Ahmedabad. PAN: AADCS0852Q 5-7. IT(SS)A No.363 to 365/Ahd/2013 2009-10 To 2011- 2012 Sadbhav Engineering Limited, Ahmedabad. PAN: AADCS0852Q A.C.I.T. Central Circle-1(1) Ahmedabad 8-9 ITA No.589/Ahd/2016 No.1919/Ahd/2016 2012- 2013 & 2013-14 D.C.I.T. Central Circle-1(1), Ahmedabad. Sadbhav Engineering Limited, Ahmedabad. PAN: AADCS0852Q ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 2 सुनवाई क तारीख/Date of Hearing : 27/12/2022 घोषणा क तारीख /Date of Pronouncement: 24/02/2023 आदेश आदेशआदेश आदेश/O R D E R PER BENCH: The captioned appeals and CO have been filed at the instance of Revenue and the assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals), Ahmedabad, arising in the matter of assessment order passed under s. 153A r.w.s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the respective Assessment Years as mentioned in the cause title. The issue Raised by the Revenue and the assessee are common and interconnected in all the captioned appeals. Therefore, for the sake of brevity and convenience, we have clubbed all of them together for the purpose of the adjudication. First, we take up ITA 939/AHD/2011, an appeal by the Revenue pertaining to the AY 2008-09 2. The Revenue has raised the following grounds of appeal: 1. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in deleting to disallowance of Rs.33,63,180/- made by the Assessing Officer u/s.14A of the Act. 2. The Ld.CIT(A), Ahmedabad erred in law and on facts in deleting to disallowance of Rs.47,96,578/- made by the Assessing Officer u/s.35D. 3. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in deleting to disallowance of Rs.8,22,39,101/- made by the Assessing Officer out of excess claim of deduction u/s.80iA(4) of the Act. 4. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in directing to re-compute the eligible deduction u/s.80IA(4) after allocating the net interest among the different units and allow such deduction. 5. The Ld.CIT(A)-XIV, Ahmedabad erred in law and on facts in deleting the interest u/s.234B of the Act. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 3 6. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax(A)- XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 7. It is therefore, prayed that the order of the Ld. Commissioner of Income tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored. 3. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 36,63,180/- made under section 14A of the Act. 4. The facts in brief are that the assessee is a public company and engaged in the business of construction of road, canals, mining works etc. The AO during the assessment proceeding found that the assessee claimed exemption of dividend income of Rs. 1,29,82,706/- under section 10(34) of the Act. However, no corresponding expense was disallowed by assessee as prescribed under the provision of section 14A r.w.r. 8D of Income Tax Rules. Thus, the AO invoked the provisions of section 14A r.w.r. 8D of Income Tax Rules and made the disallowance of Rs. 36,63,180/- as per clause (iii) of rule 8D(2) of Income Tax Rules towards the administrative expenses. 5. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition made by AO by observing: I have given careful consideration to the contentions raised by the appellant and have also gone through the assessment order and the reasons recorded by the AO for making the impugned assessment order. At paragraph 4.3 of the assessment order, the AO has observed that “the assessee’s explanation with regard to the source of the fund for the investment in the mutual fund and also in the shares of the subsidiary companies is acceptable so far as direct interest expenditure is concerned. The appellant's stand before the appellate proceedings as also during the assessment, proceedings is that it has not incurred any expenditure in relation to the exempted income, that the investments in the Mutual funds and also in the shares of the subsidiary companies were made out of its own funds and no interest bearing borrowed funds had been utilized for such investments. The assessing officer had virtually accepted this factual position which is manifested by paragraph 4.3 of the assessment order. The relevant provisions of section 14A are reproduced as under: 14A. Expenditure incurred in relation to income not includible in total income. (1) For the purposes of computing the total income under this Chapter no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part-of the total income under this Act:] [Provided Chat nothing contained ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 4 in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form pan of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the-total income under this Act] Sub section (2] of section 14A provides that AO shall determine the amount of expenditure incurred in relation to exempted income in accordance with the methods prescribed i.e. Rule 8D of the Income Tax Rules 1962, if the assessing officer having I regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. In the present case, the appellant has not claimed any expenditure in relation to exempted income. The AO had accepted the fact that there is no direct expenditure in relation to exempted income. Having accepted the position that the appellant has not incurred any direct expenditure on account of interest etc., for the purposeof making investments in the shares subsidiary companies, the AO is not justified in invoking the provisions of section 14A (2) of the Income tax act and thereby making disallowance of Rs. 36,63,180/- by resorting to Rule 8D of the Income Tax Rules 1962. The appellant had submitted that the investments in the shares of the subsidiary companies had not been made with any motive for earning the dividend income which is exempt from tax. The appellant had categorically stated that there is not even any remote possibility of earning any exempt dividend income from the investments made in the shares of the subsidiary companies because these subsidiary companies had entered into agreement with the financial institutions namely State Bank of India which contains restrictive covenants for declaration of dividend during the period when the loans availed by the company remains unpaid. The AO has not disputed this fact. The appellant has further stated that the investments in the share capital of the subsidiary companies had resulted in substantial generation of taxable income for the appellant company through the joint operation of the subsidiary companies. Details of such income which are not exempt has been furnished and mentioned at page 10 of the assessment order under appeal. Further there is no mention in the para 4 of the assessment order under appeal, anything to indicate that the assessing officer was not satisfied with the correctness of the claim of the appellant. Rule 8D of the Income Tax Rules will come into play where the assessing officer is not satisfied with the correctness of the claim of expenditure made by the assessee or the claim made by the assessee that no expenditure has been incurred. in the absence of any satisfaction recorded by the AO in the assessment order for applying provision of section 14A(2), the disallowance made under Rule 8D (2)(iii) is not justified. Taking in to consideration the totality of the facts and circumstances of the case and the (written submission filed by the appellant in the course of assessment proceedings and also during the appellate proceedings and also the case laws cited, I hold that the AO is ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 5 not justified in disallowing an amount of Rs.37,63,180/-. Accordingly, the disallowance of Rs.37,63,180/- is deleted. 6. The Ld. DR before us contended that the assesse has earned exempted income and therefore the disallowance needs to be made by the assesse of the expenses incurred in connection with such exempted income. However, the assesse has not made any disallowance of the expense against the exempted income. Thus, the AO has rightly made the disallowance under the provisions of section 14A read with rule 8D of Income Tax Rules. 7. On the contrary, the Ld. AR before us submitted that the assesse has not incurred any expense against the exempted income. Therefore, the question of making the disallowance under the provisions of section 14-A read with rule 8D does not arise. 7.1 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favorable to them. 8. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has made disallowance of administrative expenses under section 14A r.w.r. 8D(2)(iii) of Income tax rule for Rs. 36,63,180/- which was deleted by the learned CIT(A). Admittedly, the assessee has made huge investments and has earned exempted income to the tune of Rs. 1,29,82,706/- only. The decision for making the investments in the shares is a very complex decision which are generally taken by the top management. Likewise, a lot of research is done before taking the decision for making the investments which is generally carried out by the staff. Similarly, in a board meeting the expenses on refreshment, travelling, patrol and stationary are generally incurred. The services of the accountants are also used to record the necessary transactions in the books of accounts. The books of accounts are generally audited and therefore the services of the auditors also utilized in- ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 6 relation to the investment made by the company. Thus, the argument of the learned AR is not acceptable that there was no expense incurred with respect to the impugned investments. Accordingly, we hold that the disallowance made by the AO on account of administrative expenses in pursuance of the provisions of rule 8D is correct and as per the provisions of law. 8.1 Before parting, it is necessary to note that the investments which have yielded the dividend income in the year under consideration should only be considered for the purpose of making the disallowance under section 14A read with rule 8D of Income Tax Rule. In holding so, we draw support and guidance from the judgement of Hon’ble Gujarat High Court in case of Vision Finstock Ltd. in Tax Appeal No. 486 of 2017 dated 31 st July 2017 where it was held as under: 2. From the record it emerges that, during the period relevant to the assessment year 2008-09, the assessee had earned exempt income of Rs.55,604/-. As against that, the Assessing Officer had worked out the disallowance of expenditure under section 14A of the Act read with Rule 8D to Rs. 1,02,82,049/-. The Tribunal, while restricting the disallowance to Rs. 55,604/-, relied on the decision of Delhi High Court in case of Joint Investments (P.) Ltd. v. CIT reported in 372 ITR 694 holding that disallowance of expenditure in terms of section 14A read with Rule 8D cannot exceed the exempt income itself. Our High Court has also adopted the similar view in case of Commissioner of Income Tax v. Corrtech Energy Pvt Ltd. reported in 372 ITR 97. 8.2 In view of the above, and after considering the facts in totality we hold that the disallowance has to be made as per the provisions of law and in the manner as discussed above against the exempted income in the given facts and circumstances. Hence, the ground of appeal of the Revenue is allowed. 9. The issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) erred in delete the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 10. During the assessment proceeding, the AO was found that the assessee has claimed deduction of Rs. 47,96,578/- on account of preliminary expenses amortized for the issue of QIP shares. The assessee, during the assessment ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 7 proceedings, was asked to furnish the details of preliminary expenses and also justify its claim. 10.1 In response to such notice, the assessee submitted that during the year under consideration it had made an issue of Qualified Institutional Placements (QIP) which falls under sub clause (iv) to clause © of sub-section (2) of section 35D of the Act. Accordingly, the assessee worked out the deduction u/s 35D of the Act as detailed under: F.Y. 2007-08 STATEMENT SHOWING AMOUNT ALLOWABLE U/S 35 D OF THE INCOME TAX ACT 1961. 1.Cost of Project as per Placement document 920000000 5% of cost of project i.e 5% of Rs.9200-00 (14 Cr) QIP Expenses as per P & L Account. 46000000 23982891 A B As B is less than A above, the disallowable expense of U/S 35 D of the Act is 21/5 of the said is to be allowable QIP expenses for Assessment Year 2008-09 is Hence, Total Expenses allowable u/s.35 D for the Assessment Year 2008-09 is : 23982891 4796578 10.2 However, the AO was not satisfied with the contention of the assessee and accordingly he made the disallowance of Rs. 47,96,578 by adding to the total income of the assessee. 11. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and reiterated the submission as made before the AO during the assessment proceedings. The assessee further contended that if the expenses on the issue of QIP cannot be equated with the issue of shares then in such case, the expense incurred by the assessee for the purpose of raising the funds for business, should be treated as business expenses. Thus, it should be allowed the full deduction in the year under consideration. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 8 12. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing that assessee is eligible for claiming the deduction u/s 35D(2)(c)(iv) of the Act. 13. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 14. The Ld. DR before us reiterated the findings contained in the order of the AO. 15. On the contrary, the Ld. AR before us vehemently supported the order of the learned CIT-A. 16. We have heard the rival contentions of both the parties and perused the materials available on record including the case laws cited before us. 17. At the outset, we note that the issue discussed above has been squarely covered by the judgment of Hon’ble Gujarat High Court in the case of CIT Vs Metrocom Industries Ltd. reported in 389 ITR 181 where it was held as under: “We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The appellant is a banking company. It filed its revised return of income for the AY 2010- 11 on March 30, 2012 declaring total income at Rs. 7,90,10,18,157/-. As mentioned earlier, the question involved in this appeal is whether QIB can be regarded as "public" and whether the offer made to them can be regarded as "offer made to public" for the purpose of section 35D of the Act. In Deccan Chronicle Holdings Ltd. (supra), the Tribunal has held as under: "6. With respect to ground No. 4 for the assessment year 2008-09, we find that the Assessing Officer has not disallowed for the assessment years 2006-07 and 2007-08. However, the Assessing Officer has disallowed the expenditure on the issue of qualified institutional buyers for the assessment year 2008-09 which has been allowed by the Commissioner of Income-tax (Appeals) holding as under: "5. I have gone through the factual and legal contentions of the appellant in support of its argument that the deduction was claimed under section 35D read with section 37 i.e., both ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 9 under sections 35D and 37. I agree with the argument of the appellant that the language used in section 35D is so plain and unambiguous that the only condition laid down in that section is that the issue should be offered for public subscription and the mode of placement is immaterial. Thus, the only issue for consideration is whether QIB can be called 'public' or not. After a careful and comprehensive consideration of the relevant provisions of the Company Law, Securities Contract (Regulation) Rules, SEBI Guidelines/Instructions, I am of the considered opinion that QIBs constitute 'public' and accordingly, the subscription made by the amount to public subscription. In this view of the matter and also considering the facts with regard to the utility of funds raised through QIB issue, I hold that the issue expenditure, to the extent attributable to the funds utilised for extension of the appellant's undertakings, is eligible for deduction under section 35D. So far as the remaining funds, utilised for modernisation and working capital requirements of the appellant's business are concerned, I have considered both factual and legal submissions of the applicant, in support of its contention that the expenditure was in the nature of revenue expenditure since the primary object and intent of raising these funds was to meet the operational requirements, in order to run the business more efficiently and profitably. The Hon'ble High Court of Delhi, after analysing plethora of case law on this subject, had laid down certain broad guidelines, in the case of CIT v. J.K. Synthetics Ltd. [2009] 309 ITR 371 (Delhi), to decide whether a particular expenditure is capital or revenue in nature. Tested against these broad legal principles, I am of the opinion that there is considerable force in the arguments of the appellant-company that the expenditure claimed by it clearly falls in the revenue field. These guidelines were impliedly approved by the Hon'ble Supreme Court, in view of the fact that the special leave petition filed against this decision was dismissed. There is also merit in the argument of the appellant-company that the facts of its case are distinguishable from those in the case of Brooke Bond, for the detailed reasons submitted by it, and therefore its claim cannot be denied by relying on that decision. It was further claimed that though the entire expenditure was allowable in one year under section 37, the same was treated as deferred revenue expenditure and claimed over five years, starting from the assessment year 2007- 08. The concept of deferred revenue expenditure is now legally recognised by various judicial authorities and in fact, this was upheld even in the case of the appellant by my predecessor, while deciding the appeal for assessment year 2006-07. In view of the above facts, I hold that the expenditure of Rs. 2,07,00,112 claimed for assessment year 2008-09 is allowable under sections 35D and 37. As the claim of this expenditure under section 35D read with section 37 is in order, the disallowance on this account is deleted." 7. We find that during the year 2007-08, the company incurred debenture expenses of Rs. 2.07 crores and QIB issue expenditure of Rs. 8.28 crores, both totalling to Rs. 10.35 crores. The expenditure referred to above of Rs. 10.35 crores was adjusted against the share premium account as per the provision of the Companies Act. However, the expenditure being deferred revenue expenditure falls within the ambit of section 35D read with section 37 of the Income-tax Act which is eligible to be charged to profit and loss account. Accordingly as per the provisions of section 35D of the Income-tax Act, one-fifth of the QIB issue expenditure i.e., Rs. 207 lakhs was written off. Qualified Institutional Buyers (QIBs) are a class of investors as a part of the large investor community and the companies sought for QIB issues because the funds can be raised within a short span. This is an extremely important investment for larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or debentures of the company are allowable. Reliance is placed on CIT v. Shree Synthetics Ltd. [1986] 162 ITR 819 (MP). Hence on the merits of the issue, the QIB expenditure can be treated as revenue expenditure and eligible for deduction under section 35D of the Income-tax Act is confirmed. Hence on merits of the issue as well as the fact that the same issue has been allowed in the earlier years and the Department cannot come upon in appeals in the subsequent years would be the reason to dismiss the Departmental appeal. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 10 We confirm the order of the Commissioner of Income-tax (Appeals) with respect to qualifiedinstitutional buyers expenses and dismiss the Departmental appeal on this issue. In the result, the Departmental appeal for the assessment years 2007-08 and 2008- 09 are dismissed. 6.1 A perusal of the above order of the Tribunal clearly indicates that the present issue is directly covered in favour of the appellant. 6.2 Further, we find that the appellant being a listed company is bound by "Listing Agreement", which provides for the disclosure requirements for the share holding pattern of a listed company. As can be seen there from, there are only two categories of shareholders- "promoter/promoter group" and "public". For the definition of these terms in clause 35, reference is made to clause 40A of the Listing Agreement. As can be seen therefrom, Mutual Funds/Financial Institutions which are QIBs are classified under "public shareholding". The terms are defined in clause 40A of the SEBI Listing Agreement. Further, the listing agreement takes us to Securities Contracts (Regulation) Rules, 1957 (in short "SCRR"). Also Rule 19(2)(b) and Rule 19A of the SCRR provide that companies are required to maintain minimum public shareholding of 25% in case of first time listing and in case of continuous listing agreement respectively. In this context, we may refer to section 2(d) of SCRR defining the term "public". It (public) is defined to mean any person other than the promoter, promoter group, subsidiaries and associates of the company. Thus any person other than these four qualify to be considered as public. As can be seen from the list of QIBs to whom shares are issued, the shares are not issued to any of the aforesaid category. Thus QIBs, not being promoters, promoter group, subsidiaries and associates of the company would qualify as "public". As specified in clause 40A(ii) of the listing agreement, public shareholding can be increased by any of the modes specified therein to comply with Rule 19(2) and 19A of SCRR. One such note is the issue of IIP in accordance with Chapter VIIIA of the SEBI-ICDR. Chapter VIIIA has been included to provide for fresh issue of shares to comply with minimum shareholding requirement in Rule 19(2) and 19A of SCRR. Reg. 91B defines IPP as a further public offer made only to QIBs. These regulations provide that when a company has a public shareholding lower than the requirements specified, then the company may issue IPP to QIBs and raise the public shareholding to the required levels. It thus implies that QIBs form part of public. Further, even Reg. 82 which gives conditions for QIP, provides that the same must be in compliance with the requirements of public shareholding. That "a section of public qualifies as public" has been clarified in Nitta Gelatine India Ltd. (supra) and Andhra Chamber of Commerce (supra). 7. Facts being identical, we follow the order of the Tribunal in the case of Deccan Chronicle Holdings Ltd. (supra) and in view of the discussion hereinabove at para 6.2, hold that the appellant is eligible for deduction u/s 35D of the Act. Thus, we set aside the order of the Ld. CIT(A) and allow the 1st, 2nd and 3rd ground filed by the assessee. 17.1 In view of the above and respectfully following the ratio laid down by the Hon’ble Gujarat High Court in the case cited above, we hold that the expenses claimed by the assessee are eligible u/s 35D of the Act. Hence, the ground of appeal of the Revenue is hereby dismissed. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 11 18. The issue raised by the Revenue vide ground No. 3 is that the learned CIT(A) erred in deleting the disallowance of deduction of Rs. 8,22,39,101.00 made by the AO under section 80-IA(4) of the Act. 19. The assessee in the present case claimed to be engaged in the activity of infrastructure development and construction of road and irrigation project. The assessee in the year under consideration claimed deduction of Rs. 8,22,39,101/- under section 80IA(4) of the Act being 100% of the profit derived from the Industrial Unit engaged in the activity of infrastructure development. The assessee during the assessment proceedings submitted that 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, construction of road and 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. The assessee also submitted that it has maintained separate books of accounts for the undertaking carrying out the work of infrastructure development which have been duly audited by the independent chartered accountant. 19.1 The assessee further submitted that as per the amended provision 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 authority has defined the developer as the one who makes the things happen by mobilizing plan, technical expertise, fund, manpower, supervision and control etc. It also mobilized and synthesized people, plan, technical expertise, supervision and by employing all these resources create new infrastructure facility being two lane road and irrigation project being canal which was not available to the community as a whole for its use. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 12 19.2 It was also submitted that if an enterprise is only carrying out the work of development of infrastructure facility, will obviously receive payment from the Government/local authority/statutory body with which it entered into agreement for development. Otherwise, the entire cost of development of new infrastructure facility will become loss as the developer is not in operation and maintenance of such facility after its being developed. Therefore, only source of income for developer who is not into the operation of such facility is the amount received from the authority with whom agreement to develop was entered with. Further, entering into agreement with Government/local authority/statutory body for development of infrastructure facility is pre-condition to claim deduction under section 80IA(4) of the Act. As per the provisions of Indian Contract Act 1872, any person entered into agreement with another person to do or refrain from doing something for a consideration is a contractor. Therefore, assessee entered into agreement with Government/local authority for developing infrastructure is a contractor and accordingly referred as contractor in the said agreement. But that does not degrade it from being developer of infrastructure facility. The fact that TDS under section 194C of the Act, as applicable to a contractor, deducted on account of payment made by the said authority for carrying out the work of development of infrastructure facility will not change its status as developer. The assessee in this regard placed its reliance on several judicial pronouncements. 19.3 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 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.939/AHD/2011 (with eight others) A.Y. 2008-09 13 where different Tribunals even after introduction of explanation below section 80IA(13) of the Act have held that the assessee who carried the work of development of infrastructure facility are eligible for deduction under section 80IA(4) of the Act. 19.4 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 the such entity/ industrial undertaking as the only business of the assesse. 20. However, the AO was dissatisfied with submission of the assessee on the reasoning that the provision of explanation below to section 80IA(13) of the Act as amended by Finance (No-2) Act 2009 is applicable to the assessee and disallowed the claim of the deduction under section 80IA(4) by observing as under: The judgments relied upon by the assessee are not applicable to the facts and law for the current year. The position in law has changed with the amendment introduced to the explanation below section 80IA(13) by the Finance (No 2) Act, 2009, which is reproduced here in above. In view of the amended provisions, the assessee’s entire claim is liable to be disallowed. There is no dispute over the fact that the assessee company had entered into the agreement with the Central and the State Government. The various projects of construction of Higways and roads etc. executed by the assessee, which the assessee claims to be development of infrastructure facility is in reality pursuant to the contract entered into between the assessee company and the central or State Government. The work for execution of the projects was awarded to the assessee company by the Central or State Government because of such agreement. As the profits are derived from execution of the infrastructure project work as per agreement entered into between the assessee company and the Central/State Government, the assessee is not entitled to deduction u/s.80OA(4). The case laws relied upon by the assessee are of no avail for the reason that those judgments had been rendered on different facts prior to the amendment to the explanation below sub section (13) of section 80IA vide Finance (No 2) Act, 2009. In view of the changed position of the law as stated above, the assessee’s claim for deduction u/s.80IA(4) is not in conformity with the provisions of the Act and thereon the same is disallowed and added back to the income for the sum of Rs.8,22,39,101/- 5.6 Without prejudice to the above, If at all, as a result of any appellate order in future it is held that the assessee is entitled to deduction u/s 80IA(4) without applying the section 80IA(5), the deduction on account of section 80IA(4) works out to Rs. 8,17,95,544/- (detailed working is given in Annexure-l, of this order). However, the final amount of deduction in respect of the assessee would be restricted to Rs. 7,89,41,856/- ONLY(detailed working is given in Column No. 6, Annexure-ll of this order), which is derived as a result of the provisions of section 80IA(4) r.w.s. 80IA(5), r.w.s. 80AB as well as 80B(5) became operative simultaneously in the case. In view of the discussion as ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 14 above, the lower of the two computations i.e. the deduction of Rs. Rs. 7,89,41,856/- would only become allowable to the assessee. 5.7 However, the assessee's contention with respect to allocation of gross interest expenses etc. while computing the eligible deduction u/s 80IA(4) and also the netting of interest etc. looses grounds for the reason that the claim for deduction u/s 80IA(4) itself has been disallowed in full. Moreover, as a result of any appellate order in future, if it is held that the assessee is entitled to deduction u/s 80IA{4), then while determining such eligible deduction, allocation of interest expenses as has been done in the preceding assessment years would be made. Similarly income by way of interest would also not be eligible for deduction u/s 80IA(4). If at all the assessee, as a result of any appellate order in future is held to be entitled to deduction u/s 80!A(4), then for the purpose of computation of such deduction, the income by way of interest is to be excluded. After excluding the gross interest income, the amount of eligible deduction u/s. 80IA(4) is worked out at Rs.7,89,41,856/- keeping in view the provisions of section 80IA(4) r.w.s 80IA(5), r.w.s 80AB as well as 80B(5). Thus the deduction if at all the assessee is held to be entitled to as a result of any future appellate order is limited to Rs.7,89,41,856/- as against the claim of Rs.8,22,39,101/- as made in the return of income. 21. Aggrieved, assessee carried the issue before the learned CIT(A). The assessee before the learned CIT(A) reiterated its submission made during the assessment proceeding. 22. However, the assessee in respect of interest income excluded by AO from the amount of deduction claimed under section 80-IA(4) of the Act submitted before the Ld. CIT(A) that interest income is related to business of the assessee. The assessee further explained the source of interest income as detailed below: • Interest received from Sardar Sarovar Narmada Nigam limited 22.1 During the year, the assessee has received interest income of Rs. 5,79,061/- form SSNL on fixed deposits. The assessee was required to make fixed deposit with SSNL in order to secure the business. Therefore, interest received on such deposit is business income and not the income from other sources. • Interest received from Bank against fixed deposit 22.2 The assessee was required to provide bank guarantee immediately after the acceptance of tender for the performance of work. Thus, the assesse to obtain such ank guarantee required to keep certain amount in fixed deposit with the ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 15 bank. Therefore, the interest income of Rs. 1,98,73,519/- is connected with the business of the assessee. 22.3 Without prejudice to the above, the assessee also submitted that if the interest income is excluded while computing the deduction u/s 80IA(4) of the Act, then it is to be only net interest income that needs to be considered. 23. The learned CIT(A) after considering the facts in totality allowed the claim of assessee for deduction under section 80IA(4) with certain direction. The relevant finding of the learned CIT(A) is extracted as under: I have meticulously perused the relevant paras or the assessment order under appeal and have also carefully gone through the submissions of the appellant. The substance of the submission of the appellant is that it is a Developer of infrastructure facilities and it has fulfilled all the conditions prescribed u/s 80IA(4) and therefore its claim for deduction under that section is perfectly legitimate, that in all the scrutiny assessments ; made for the earlier assessment years upto A.Y.2007-08, it's claim for deduction u/s 80IA(4) had .been allowed by different authorities in different assessment years that even after the amendment introduced in the Explanation below sub-section (13) of section 80IA by the Finance Act (No.2) 2009, the appellant is entitled to deduction u/s 8QIA(4), for the reason that the business referred to in sub-section (4) of section 80IA, in so far as the appellant assessee is concerned is not in the nature of a Works Contract. The appellant had brought on record that it is an engaged in the business of development of infrastructure facilities. This fact has been duly accepted by the Income Tax department in the scrutiny assessment made for and from A.Y. 2002-03 to 2007-08. In all these Assessment Years, the appellants claim for deduction u/s 801 A(4) of the Act had been allowed by the department year after year, after making some minor adjustments. The appellant had vividly brought out that even the amended explanation below sub- section (13) of section 801A has no applicability to the present case. Further the relevant paras of the Rajkot ITAT judgment in the case of M/S TARMAT BEL (JV.) KCL, RAJKOT V/S ITO in 1TA No. llll/ RJT/2010 are as under: The Explanation does not in any way create an artificial fiction about the nature of business of the undertaking but ii only states that no deduction shall be admissible in the case where an assessee carries on business in the nature of a works contract. This clearly means that if the nature of business is not just a works contract but something more, the assessee cannot be hit by'the rigours of the Explanation, As far as the assessee and its facts on record of Revenue are concerned, the nature of business carried on by it, albeit under a contract with the State Govt.,.is not just of a works contract but it also has many shades, colors, hues'and trappings of developing of new infrastructure facility and tor this reason itself, the deduction cannot be denied to Uie assessee this year notwithstanding the insertion of the ] float ion. That the assessee also carried on activities by way ofdeveloping of infrastructure ity is also patent from its financial statements. The assessee has made huge vestments of own as ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 16 well as borrowed funds and "has invested the same in all kinds of resources for its business, namely plant and machineries, structures at sites, working capital, human resources, technical expertise etc. The assessee possesses its own technical knowledge of how to develop and lay roads, dams, bridges etc. and it has its own technical as well as managerial pool of manpower for the same. Proofs regarding technical and financial capacity of the contractor are required to be furnished to the Govt. In some cases/ even the design of the infrastructure project is first prepared by the assessee and then submitted to the Govt. The assessee has purchased and employed its own materials for development and construction of the infrastructure facility. Sub-letting is also not permitted. Although, it was required to act under a contract, it has done so as it is required to honour a contractual obligation with the Govt., but at the same time, neither the contract nor the Govt, imparted the technical know-how or resources to the assessee. as all these factors of business development have been factually imparted and "looked after by the assessee itself under its own acumen as an entrepreneur. The entire planning of its business as also the work has been done by the assessee and not by the Govt. The specifications of the work may have been prescribed in the contract in advance, but however building of infrastructure facilities requires the assessee itself to possess technical and engineering know-how- as to how to lay roads etc. The assessee also purchased many materials of construction which went into the infrastructure built by it. If the person awarding the contracts, and entering into of contracts is required by the section itself, lays down certain conditions and specifications in the contract as the principal, the existence of pre-decided contractual specifications cannot be held as a factor against the assessee becoming a developer. According to the A.R.. all these aspect put together clearly show that the assessee was not merely a works contractor but-was also a developer. Merely because the assessee has acted under -a Govt. contract, it cannot be denied deduction nor can it be held that it has acted only as a works contractor. This is more so because one of the fundamental pre-conditions of Sec. SO-IA(4) is that the infrastructure facility must have been developed or developed, operated and maintained by-entering into a contract with the Govt. Therefore, contract with the Govt. is a sine qua nan for becoming eligible for the deduction. 'Therefore, contracting by itself cannot make the assesses a works contractor. In our country, all lands and infrastructure other than those privately owned, belong to the State and hence one can develop infrastructure facility only under a government mandate which is given in the form of a contract. Once there is a contract for a new facility, there are bound to be obligations under the contract which include obligations of, inter alia, observing the specifications of the infrastructure facility. Hence, although there may be such pre-decided specifications in the contract, the execution thereof for building and creating the infrastructure leaves much scope and freedom to the person carrying out the contract, by way of its planning, designing, know-how, funds, risks, human resources etc,, all of which are carried out at the sole risk of the assessee, The Explanation to ;iny section has to sub-serve the main provisions of the statute and it cannot be rend to curtail it or override ii. as held by the Supreme Court in many cases such as Sunderram Pillar AIR 1985 (SC] 582 Therefore, if the assessee continues lo be eligible under the substantive provisions of sub-section (4) as having acted as a developer, the Explanation cannot take away the benefit of the Section. That the assessee has been held in he eligible for deduction in past not merely because of the absence of the impugned. Explanation in earlier years but also because its business has been held to be that of a developer of infrastructure. There being no material change in the nature of business, the insertion of a Explanation cannot take away the benefit otherwise available to it. Moreover, the Explanation cannot be applied to every type of contract, otherwise it will lead to absurdity and irrationality, more so when all infrastructure basically belongs to Govt. and without contracts being awarded by the Govt. no infrastructure facility can be created under the private participation policy adopted by the Govts. In current times India. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 17 In view of the factual and legal position as stated above, the appellant having fulfilled all the conditions prescribed under the Act, is legitimately entitled to the deduction u/s 80IA(4) of the Act even after the emended explanation introduced by the Finance (No.2) Act 2009. At this juncture, it is of advantage to refer to the recent judgment and order of the Honorable Income Tax Appellate Tribunal in the case of M/S TARMAT BEL (JV.) KCL, RAJKOT V/S ITO in ITA No. llll/ RJT/2010. This judgment was delivered on 23-09-2010. The ITAT had in that case categorically held that the explanation does not in any way create artificial fiction about the nature of the business undertaking, but it only states that no deduction shall be admissible in the case where an assessee carries on the business in the nature of sub contract. In the present case of the appellant it is an undisputed fact that it is an undertaking \ engaged in development of infrastructure facilities on its own. It is not a subcontractor. ) The ratio of the said judgment is squarely applicable to the appellant's case. ^^/^ It is significant to mention here that in the case cited supra, the ITAT had considered the judgment of the ITAT Mumbai bench in the case of B.T. PATIL & SONS Belgaum Construction Pvt Ltd V/S ACIT reported in 126 TT) 577. The ITAT observed that facts in the case of B.T Patil & sons are quite different. In that case, the assessee was employed as a- subcontractor to carry out civil work and that a portion of the contract was assigned to that assessee who carried out the assigned work in the capacity of a subcontractor. In the case of the present assessee, the facts are totally different. The appellant itself is the developer. It is not a subcontractor. Therefore, the ratio of the judgment in the case of B.T. PATIL & SONS Belgaum Construction PvtLtd is not applicable to the present case. But the ratio of the judgment of the ITAT in the case of M/S TARMAT BEL [JV.) KCL, RAJKOT V/S ITO in ITA No. llll/ R|T/2010 cited supra is squarely applicable to the facts of the appellant's case. In view of the facts and circumstances of the case as mentioned above and keeping in view the principle of consistency and also the fact that the appellant being a developer of infrastructure facilities in its own rights and the business of the appellant in respect of. which deduction u/s 80!A(4] had been claimed is not in the nature of a work contract, I am inclined to hold that the appellant is entitled to deduction u/s 80IA(4) in respect of the income derived by its from the eligible units. Respectfully following the judgment of the ITAT in the case of M/S TARMAT BEL ()V.) KCL, RAJKOT V/S ITO in ITA No. llll/ RJT/2010, it is held that the AO is not justified in denying the appellant the benefit of deduction u/s 80IA(4). Therefore, the AO is directed to allow the deduction u/s 80IA(4) in respect of the income derived by the appellant from the units eligible for such deduction. Accordingly the disallowance of Rs. 8,22,39,101/- is hereby ordered to be deleted. As regards ground no. 5(a]) &(b])regarding allocation of common expenditure of head office, it is found that the issue has been decided against the assessee vide the appellate orders in the appellant's own case for A.Y.2006-07 (Appeal No. CIT(A) XIV/AC.Cir8/360/2007-08 dated 13.4.2009) and for A.Y.2007-08 (Appeal No. CIT(A) XIV/Addle CITRange8/317/2008*09 dated 13.4.2009) hence this ground is rejected. As regards ground no.5(c), which is relating to allocation of entire amount of interest without considering the interest received, I find that this issue is also covered by the appellate order in the appellants own case.for A.Y.2007-08. The relevant portion of the order of my predecessor at pages 8&9 is reproduced as under: ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 18 "5.51 have considered the facts of the case and the submissions as advanced by theA.R. of the appellant along with various case laws as relied upon. The claim of the appellant that only net interest should be considered in my view is acceptable. The nexus between the interest earned and the interest expenditure claimed by the appellant has been established by the appellant. Hence, the decision in the case of AC IT Vs. Latsons Enterprise, 82 1048 (Del) would be applicable. In the decision in the case of Commissioner of Income Tax vis. Shree Ram Honda Power Equip. & others reported in 207 CTR 689, wherein it was held that only the-net interest i.e. gross interest received minus the expenditure incurred on payment of interest only is to be reduced from the profits of the business. ! also find that Hon'ble Orissa High Court in the case ofTata Sponge & Iron Co. 292 ITR 175 has taken similar view that interest income has to be netted up with the interest expenses. Considering the facts regarding the nexus of interest bearing funds being used for making Fixed Deposits, 1 hold that the A.Q. is not justified in allocating interest on the basis of gross figure amongst various units. I, therefore, direct the A.Q. to allocate only net interest amongst various units of the appellant and recalculate the claim of appellant u/s. 80IA(4) r.w.s. (5) and allow accordingly." Following the appellate order in the appellant's case for A.Y.2007-08 cited as above, this ground is accordingly decided in favour of the assessee and the AO is directed to re- compute the eligible deduction u/s 8QIA(4] after allocating the net interest among the different units and allow such deduction. 24. Being aggrieved by the finding of the learned CIT(A) both the Revenue and the assessee are in appeal and cross objection before us. The Revenue is in appeal against the deduction allowed under section 80IA(4) of the Act and direction to exclude the net interest income while calculating deduction under section 80IA(4) of the Act only whereas the assessee is in cross objection against the direction of the ld. CIT-A for the allocation of head office expenses against the income eligible for deduction under section 80IA of the Act. The relevant ground of cross objection of the assessee in CO No. 100/AHD/2011 reads as under: That, on facts and in law, the learned CIT(A) has grievously erred in confirming the action of learned AO in re-computing deduction u/s.80IA(4) of the Act by allocating expenditure of head office etc. to different eligible units. 25. The learned DR before us has filed written submissions running from pages 1 to 17 wherein it was contended that the income derived from the use of infrastructure facility developed by the assesse 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 assesse 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 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 19 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 assesse 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). 25.1 It was also submitted by the learned DR that there was no initial investment made by the assesse in the project as the project was funded by the contractee. The Learned DR in his written submission has also distinguished the orders relied by the learned CIT-A while allowing the appeal in favour of the assessee. 25.2 The learned DR further submitted that the assesse has made investments which are in the nature of earnest money, performance guarantee and mobilization advance but the same were concepts are also applicable in case of the works contract. Thus, based on the investment made by the assesse as discussed above cannot be concluded that the assesse is a developer. 25.3 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 assesse has not undertaken any entrepreneurial risk. The liability of the assesse was limited to the extent of the forfeiture of earnest money deposit and performance guarantee which in any way is also attached with the very nature of works contract. Furthermore, the assessee was not significantly involved in the planning and designing of the project. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 20 26. On the contrary, the learned AR before us filed a paper book running from pages 1 to 202, supplementary paper of 1 to 259 pages along with the copies of the agreement/tender documents which are available on record. It was contended by the learned AR that the assessee was the project in charge for the entire infrastructure facility. It cannot be said that the assessee was only performing part of the infrastructure facility. For this purpose, the learned AR drew attention on various clauses of the project appearing in the contract awarded to the assessee and demonstrated that the assessee has undertaken numerous responsibilities right from the designing of the project and handing over the project to the contractee. The assessee was at the risk of timely delivery of the project, implementation to the labour laws applicable to the project, procurement of the materials, establishment of the laboratories, furnishing the bank guarantee, responsibility of the project of the handing over. The complete chart of the responsibilities undertaken by the assessee with respect to various projects were provided by the learned AR for the assessee which are available on record. Accordingly, the learned AR submitted that the assessee by deploying its resources, skills, expertise has actually acted as the developer of the project. It was also submitted that the initial funding was made by the assessee which was subsequently received from the contractee upon raising the invoices as per the terms of the contract. The assessee was to furnish the performance guarantee of the infrastructure facility and in the event of any defect, the assessee was to face the consequences. Thus, it cannot be said that the assessee was just executing the work contract of infrastructure facility in the capacity of the job worker. The learned DR 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. 27. 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 under section 80-IA(4) of the Act to the ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 21 assessee for the reason that the work awarded being road development to it (the assessee) is in the nature of execution of work contract and hit by the provisions of explanation to below section 80IA(13) of the Act. 27.1 Before we go to address the issue involved in the case on hand, it is pertinent to refer the history of the provisions of section 80IA(4) of the Act. The section 80-IA was first introduced by the Finance Act 1991 for providing the deduction to the industrial undertaking. The purpose of providing such deduction was for the modernization and expansion of industrial undertaking. 27.2 However, the provision of this section was amended by Finance Act 1995 for the reason that 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. 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. 27.3 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. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 22 27.4 Further, w.e.f. 1 st April 2000 the subsection-4A was re-numbered as sub- section- 4 of section 80IA of the Act. Subsequently, the major changes were brought in the Finance Act 2001 w.e.f. 1 st April 2002, where the requirement for developing and operating & maintaining of infrastructure facility simultaneously was done away. Now the deduction under section 80-IA(4)(i) is also available to assessee who is engaged only in development of 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 :— 27.5 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 for such benefit, even if it is engaged only in developing the infrastructure facilities. 27.6 Subsequently, an Explanation to section 80-IA was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but the same was made applicable with retrospective effect i.e. 1-4-2000. This explanation restricts 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). " ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 23 27.7 The explanation reproduced above denies the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. 28. Coming to the facts of the case on hand, we note that the only thrust of the revenue for denying the benefit to the assessee under the provisions of section 80IA(4) of the Act was revolving around the explanation as discussed above brought under the statute. However, the revenue in the earlier assessment years has admitted the assessee is a developer and allowed the benefit of deduction as envisaged under the provisions of section 80IA(4) of the Act. On perusal of the order of the AO, it is observed that the AO has not provided any basis to arrive at the conclusion that the assessee was acting as the works contractor in pursuance to the explanation below section 80IA (13) of the Act. As such, the AO based on the explanation below section 80IA (13) of the Act held the assessee as the works contractor and denied the benefit of deduction as discussed above. 28.1 To our understanding, the Revenue before invoking the explanation below to section 80IA(13) of the Act was to appreciate the difference between a 'developer' and a 'works contractor'. Generally, in common parlance a person is referred as 'developer' who undertakes the project to develop and construct at its own responsibility and takes all the risks of the development. These responsibilities and risk can be categorized as under: (a) That in a development contract, responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed, the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the developer exercise complete realm over the land or the project. However, in some case there can be ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 24 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 execute 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 finances either by private placement or from financial institutions for the proper development of the project at its 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. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 25 (h) Any loss caused to the public or the Government in the process of developing the project, it would be the responsibility of the developer. The Government shall not take any responsibility for any such kind of loss except where it is responsible. (i) That a developer stands as guarantor for the project developed by it and in the event of any defect in the project, he shall provide the remedy for the same. (j) That a developer shall be exposed to the penalty if it contravenes any of the clauses appearing in the contract awarded by the Government. Thus, the developer is responsible to complete the construction in a specified manner failing which it would be responsible for the consequences of delay/any other fault attributable to it. (k) That a developer shall undertake to maintain safety, security and protection of the environment. (l) That a developer shall provide and maintain at his own cost, all lights, guards, fencing, warning signs and watching, when or where necessary. 28.2 These are few broad sample qualities/ parameters of a developer through which the character of a developer can be defined. 28.3 On the other hand, a 'contractor' is a person who undertakes work on a contract basis. He does not assume risks and responsibilities like that of a developer. He merely carries out the work as has been instructed to him by the contractee. Moreover, in case of such work, the contractor gets fixed amount of revenue to the extent of the work executed by it and is not entitled to any share ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 26 of profit from the revenue generated by the developer from the infrastructure facility. 28.4 To summarize, the developer acts as a principal whereas the contractor acts as an agent in performing the functions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility whereas the contractors are 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. 28.5 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 whether a civil construction work is assigned on development basis or works contract basis within the parameters as discussed above. Further, these parameters can be analyzed only on the basis of the terms and conditions of the agreement. 28.6 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 or works contractor. The assessee in the year under consideration has undertaken certain projects. The assessee with respect to some of the projects claimed deduction under 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 Mihan 2929974/- 2 Malvan 56466399/- ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 27 3 Sujlam Suflam 300384/- 4 Chirayadungri 1664250/- 5 Jabalpur- MPRDCL 17120983/- 6 Anantpur 3400154/- 7 KBC 356957/- 8 to 29 Other Projects NIL Total 82239101/- 28.7 On sample basis, we analyze the relevant clauses of the tender documents placed in the supplementary paper book in respect of the project namely Multi- Model International Hub Airport at Nagpur (Mihan) Project Complex which are detailed as under: (A) Instruction to Bidders i) As per point No. 6 on page No. 7 of instruction to bidder, the contractor was advised to visit and examine the site of work to obtain information such as availability of labour, materials, fuel, water, electricity and such similar information, which are necessary for the preparation/ making of the bid for the tender. ii) As per point No. 12 on page No. 9 of Instruction to bidder explained that the bid price shall include all cost like labor, materials, plant, equipment’s etc. (B) Condition of Particular Application i) As per Clause No. 1.8.1 on page No. 30, it was mentioned that contractor shall prepare as built drawings using the auto CAD in respect of project work in pursuance to the specification to be provided by the contractee. ii) As per Clause No. 1.8.2 on page No. 31, it was mentioned that contractor shall be responsible for the preparations, at its own cost, of all detailed working drawings, design, calculations and fabrication drawings for temporary work as well ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 28 as bar bending schedule for reinforcement, materials list for structural fabrication. However, all such details will be approved by the authorized Engineer. iii) As per Clause No. 4.9 on page No. 35 and 37, the contractor shall submit the method for the execution of work along with detailed drawings, sketches and Contractor shall furnish the details of sufficient plants, equipment and labor which are necessary to maintain the progress schedule. iv) As per Clause No. 4.13 on page No. 38, the contractor, at his own cost, shall arrange the land for temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. v) As per Clause No. 4.18 on page No. 38, the contractor shall protect the environment on and off of the staff site and avoid the damage or nuisance etc. to the persons or to the property of the public. vi) As per Clause No. 6.1 on page No. 39, the contractor shall maintain at its own cost sufficient experienced supervisory staff required for the work and arrangement of their housing. vii) As per Clause No. 6.2 on page No. 39, the contractor shall employ the sufficient number of staff directly or through subcontracts. viii) As per Clause No. 7.4 on page No. 42, the contractor shall establish the field laboratory for the purpose of testing of materials. viii) As per Clause No. 8.7 on page No. 45, the contractor shall pay the liquidated damages in case of completion of project after the date of intended completion of project. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 29 ix) As per Clause No. 11.1 on page No. 47, the contractor shall inspect the project in every 3 months during the 1 st year after completion of the work and carry minimum 2 inspections per year for the remaining years of defect liability period. (C) Special conditions of the Contract i) Special Conditions specified in the tender are that Contractor shall make his own arrangement for cement, however the quality of cement should be approved by the engineer. ii) Contractor shall arrange Electric power supply, and water supply required for the construction and the labors. However, the employer will issue necessary certificate, letter of recommendation etc. to the contractor for obtaining the power supply, water supply etc. But the employer shall not be responsible for any delay in obtaining the power/water connections. Non availability of electric power and water supply will not be considered as delay in progress. iii) Contractor shall also provide the traffic safety arrangement like sign board, speed limit speed breakers, diversion board, etc. (D) Contract data i) In the Contract data, it was provided that for biding the tender, the Contractor must have necessary experience, facilities, ability, financial resources, specified turnover, specific experience in the construction of Bridges, Qualified Key personnel, plant & machinery & equipment etc. to perform the work. Likewise, the turnover of the contractor should be Rs. 2000 millions, liquid assets of Rs. 10 Crore. The bidder must have the bid capacity more than estimated cost put in the tender. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 30 ii) As per clause No. 4.2.1 at page No. 178, the Contractor has to pay Performance Security Deposit at 5% of contract Amount in two parts being 50% within 15 days of letter issued by the MADC for acceptance of the offer and remaining 50% shall be recovered from the Bills payable to the contractor. iii) As per clause No 8.7.1 & 2 at page No 179, the Contractor shall pay liquidated damages to the Employer for non-achievement of milestone within stipulated time. iv) However, such liquidated damages are subject to maximum 10% of the contract value. Once the liquidated damages reach at 10% contract value, the contract would be terminated and all the deposits of the contractor will be forfeited & the balance work shall be got done at the contractor risk and cost. v) As per clause No 14.2, the Contractor shall be paid Advance payment/ mobilization advance and machinery advance only against the provision by the Contractor of an unconditional Bank Guarantee. Such advance shall carry the interest at the rate of 9% PA which shall be recovered from the running bills of the contractor. (E) Scope of work The brief introduction for the scope of work stands as under: Maharashtra Airport Development Company Ltd, (MADC) is an undertaking of the Government of Maharashtra (GoM) and has been incorporated as limited company under the Indian Companies Act 1956. The Govt. of Maharashtra has appointed MADC as the nodal agency to undertake the planning and development of Multi-Modal International Hub Airport at Nagpur (MIHAN) of International standards. Techno Economic Feasibility Study (TEFS) for the MIHAN project with the help of the consortium of international consultants led by M/s L&T Ramboll Consulting Engineers Ltd, Chennai is already completed. As per the recommendations of consultants and approved by the GoM, the area adjacent to, / Airport is to be developed as SEZ containing various economic "activities which ' will back up the airport project and contribute to the development of Vidarbha region of Maharashtra and the central part of the country. The Master Plan of;' MIHAN project has identified different specialty sectors in the SEZ area as well/ as proposed road and rail terminal and the residential area outside but adjoining SEZ. The master plan also defines the broad road network of different hierarchy (2/3/4/6 Lane) in the project area. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 31 Site Location & Metrological Data a) Approximate location with nearest station and airport Approx location: In village Kalkuhi, Telhara, Dahegaon & Khapri (Rly.) Nearest Railway Station: Khapri (Rly) Approx distance from Khapri Railway station : 1.0 KMS Nearest Airport: Dr. Ambedkar International Airport, Nagpur b) Terrain Almost plain terrain, MSL varying from approx. 292 to 309. The average MSL being 300 c) Range of relative humidity Max: 100% Min: 7% Mean: 49% d) Hottest and coldest month & temperature Hottest month/Temperature: May/47 degrees Coldest month/Temperature: Dec./7.2 degrees e) Rainfall Season June to September f) Annual Rainfall Average annual rainfall 1047.56 mm g) Water table 3 to 4 m below G.L 3.0 Brief Description of work Internal road network in action area-of new project comprises a) Arterial Road(Pavement wideth: 6 x 3.50 m) 6 KM Approx. Length b) Sub-Arterial Road (Pavement width : 4 x 3.50m) 24 KM Approx. Length c) Other Road )Pavement Width: 3 x 3.50m) 6 KM Approx. Length d) Other Road (Pavement Width: 2 x 4.0 m) 15 KM Total 51 KM 29. On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. As such, the assessee was to make video movie, photographs, detailed drawings, design calculations/fabrication etc. at its own cost. Further, the assessee is also responsible to arrange method of the execution of work along with detailed drawings, sketches, furnish the details of sufficient plants, equipment and labor. The assessee has to arrange the land for temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. The assessee was duty bound to protect the environment on and off of the staff site and avoid the damage or ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 32 nuisance etc. to the persons or to the property of the public. The assessee was to maintain at its own cost sufficient experienced supervisory staff required for the work and arrangement of their housing. The assessee was to have the field laboratory for the purpose of testing of materials. The contractor shall inspect the project in every 3 months during the 1 st year after completion of the work and carry minimum 2 inspections per year for the remaining years of defect liability period. The assessee has to arrange electric power and water supply. The assessee was also under the obligation to provide the traffic safety arrangement like sign board, speed limit speed breakers, diversion board, etc. Besides the above, the assessee was to pay the liquidated damages in case of completion of project after the date of intended completion of project and other defaults. The assessee was also raised the invoices for the cutting of the trees and earthwork which can be verified from the bills placed on pages 198 to 215 of the tender documents. 29.1 It is also important to note that the MADC of Maharashtra Government was coming up for the establishment of the Airport at Nagpur with international standards. The area adjacent to the airport was to be developed as SEZ which will provide the backup to the airport project. Similarly, it was also the part of the project to develop the roads, rail terminals and the residential area outside but with adjoining SEZ. As such, the construction of the road being the infrastructure facility was part of the masterplan of MIHAN project. Admittedly, the success of the impugned project (MIHAN) was possible after having the necessary infrastructure facilities. Thus, the purpose for which the provisions of section 80IA (4) were brought under the statute were getting 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 Government and indemnify at the same time of ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 33 any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose, the MADC retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk in the given facts and circumstances especially when the assessee has undertaken the project as a whole for the development of the road right from the beginning till the end. Thus, on perusal of the terms and conditions in the tender documents furnished by the assessee, it is clear that the assessee was not a works contractor simply but a developer and hence, the explanation to section 80-IA(13) does not apply to the assessee. 29.2 Going forward, we find in this context, the Hon'ble Pune Tribunal in the case of B.T. Patil& Sons Belgaum Constructions (P.) Ltd. [2013] 34 taxmann.com 97/59 SOT 61 (URO) after referring to decision of the Hon'ble Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54 has laid down certain parameters for contractors to be eligible for deduction. The said parameters for a contractor to be eligible for deduction are as follows:— (a) Undertaking financial risk by making investment. (b) Shouldering technical risk. (c) Liable for liquidated damages. (d) Employment of technical and administrative qualified team. 29.3 If above parameters are satisfied, the contractors would be held eligible for the deduction under section 80-IA of the Act. Thus, the above parameters may act as guiding factors to decide whether a contractor may be considered as a deemed developer eligible for deduction under section 80-IA(4) of the Act. Admittedly, the ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 34 assessee was providing and undertaking the risk for carrying out the activity of development of the infrastructure facility in the manner as discussed above. 29.4 Further in case of Asst. 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." 29.5 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” 29.6 Moving ahead, we note that the AO before rejecting the claim of the assessee was to dwell up-on concept of developer viz a viz the works contractor before making reliance on the explanation to section 80IA(13) of the Act. But he has not done so. In the light of the above discussion, we find that order of the AO suffers from certain defects as detailed below: ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 35 i. No discussion about the developer and the contractor. ii. No reference made to the agreement of the projects executed by the assessee to work-out the scope of work. iii. No discussion that the earlier year the assessee was admitted as the developer, so what were the distinguishing features to hold the assessee as works contractor in the year under consideration. iv. No defect was pointed out in the form 10CCB filed by the assessee. 29.7 In the absence of necessary specific details in the assessment order, it seems to us that the AO without application of mind has arrived to the conclusion that the assessee is acting as a works contractor only after making reference to the explanation to section 80IA(13) of the Act. 29.8 Going further, it is the settled position of law that the role of the ITAT is to address the dispute arising from the order of the authorities below. In other words, the ITAT is not expected to travel beyond the allegations/findings framed by the AO/ Ld. CIT(A) as the case may be against which either the assessee or the revenue is in appeal. Likewise, At the time of hearing, a question was posed to the learned counsel of the assessee and the learned DR of the revenue to clarify whether the assessee has undertaken the projects as discussed above which are in the nature of infrastructure facility. In this connection, it is pertinent to refer the relevant extract of the assessment order as reproduced below: There is no dispute over the fact that the assessee company had entered into the agreement with the Central and State government. The various projects of construction of Highways and roads etc. executed by the assessee, which the assessee claims to be development of infrastructure facility is in reality pursuant to the contract entered into between the assessee company and the central or State Government. 29.9 Likewise, the learned CIT(A) in his order has made the observation as detailed below: In view of the facts and circumstances of the case as mentioned above and keeping in view the principle of consistency and also the fact that the appellant being a developer of infrastructure facilities in its own right and the business of the appellant in respect of which deduction u/s.80IA(4) had been claimed is not in the nature of a work. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 36 29.10 The above observation made by the learned CIT(A) has nowhere been challenged by the revenue in the ground of appeal which have been reproduced above. 29.11 The co-joint reading of the above facts reveals that there was no issue with respect to the fact whether the assessee has not taken the project of infrastructure facility, rather it was admitted by the revenue that the assessee has undertaken the projects for the development of infrastructure facility. Accordingly, we are of the view that the ITAT cannot expand the scope of the dispute which was not arising from the order of the authorities below. In holding so, we draw support and guidance from the judgement of Hon’ble High Court of Allahabad in the case of S.P. Kochhar Vs ITO reported in 145 ITR 255 wherein it was held as detailed under: The powers of the Tribunal in dealing with appeals are expressed in the widest possible terms and are similar to the powers of an appellate court under Civil Procedure Code. The Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The word 'thereon' is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal constitute the jurisdiction of the Tribunal. It can only adjudicate upon such grounds and not beyond them. It is not open to the Tribunal to adjudicate or give a finding on a question which does not constitute the subject-matter of the appeal as constituted by the original grounds of the appeal and such additional grounds as may be raised by the leave of the Tribunal. Further, the words, 'pass such orders thereon as it thinks fit' include all the powers except the power of enhancement which is conferred upon the AAC by section 251. The distinction that the AAC is competent to examine all matters covered by the assessment order while the Tribunal is to confine itself to the subject-matter of the appeal is also to be kept in view. 29.12 In view of the above, it can safely be concluded that the assessee has undertaken projects which are in the nature of infrastructure facility as admitted by the authorities below in the capacity of the developer. Accordingly, we concur with the findings of the Ld. CIT(A) that the assessee has undertaken the projects of infrastructure facility as envisaged under the provisions of section 80 IA(4A) of the Act in the capacity of the developer. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 37 29.13 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 statute should be applied. One of the rule 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.” 29.14 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. 30. The next fact of the case is that the impugned project for the road development as discussed above was awarded by the MADC- a nodal agency being an undertaking of the Government of Maharashtra. MADC in its books of accounts will not record the payment made to the assessee in the form of expenses. It is because MADC against such expenditure has not shown any income. It appears that MADC is not claiming any deduction under section 80IA(4) ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 38 of the Act. At the time of hearing, a questioned was raised to the learned DR but he failed to provide any information in respect to deduction claimed by MADC u/s 80IA(4) of the Act. Thus the question arises who will claim the deduction under section 80IA(4) of the Act. As such, we are of the view that the provisions of the section 80IA(4) should not be read in a way to make it redundant or irrelevant. Accordingly, we are inclined to grant the benefit to the assessee under the provisions of section 80IA(4) of the Act, 30.1 Moving forward, there is no dispute to the fact that the benefit of deduction under section 80IA(4) of the Act was denied to the assessee merely based on the explanation brought under the statute below subsection (13) of section 80 (IA) of the Act which has been elaborated in the preceding paragraph. At this juncture, let us understand the role of the explanation explaining the provisions of the Act. 30.2 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 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 39 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. 30.3 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. 30.4 From the above, it is transpired that the condition of being developer of the infrastructure facility was already embedded under the provisions of section 80IA of the Act. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in the case of M/s Katira construction Vs Union of India reported in 31 taxmann.com 250 wherein it was held as under: “In our, opinion, what the explanation aims to achieve is to clarify that deduction under section 80IA(4) 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.” 30.5 If that be so, it is pertinent to note that in the earlier years involving identical facts and circumstances, the Revenue has accepted the assessee as developer and accordingly the deduction under section 80IA(4) of the Act was allowed. This fact can be observed from the submissions made before the learned CIT(A) by the assessee which are reproduced as under: The principle of consistency stipulated that, revenue cannot be permitted to raise an issue in isolation only for one year and that too in the case of one assessee while accepting the ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 40 funding on the same issue in the case of other Assessee’s and also for other years in the case of the same assessee. The appellant would like to state that since A.Y. 2003-04 onwards till A.Y. 2007-08, consistently claim u/s.80IA(4) of the Act was allowed by Predecessor A.O’s the Rang CIT’s reviewed the allowability thereof, the AG Auditors and the Honourable CIT(A)’s all the independent not disputed the allowability of claim of the appellant and upheld the claim u/s.80IA(4) of the Act. In view of the above undisputed facts, the allowability of the claim u/s.80IA(4) of the Act had already been decided and upheld by the higher authorities in the preceding years together. Hence, the Ld.AO. can only be legally allowed to verify the quantum of the claim, not the eligibility at all. 30.6 The above submission of the assessee has nowhere been controverted/doubted by the Revenue. Thus, it can be presumed that the assessee was acting as a developer in the earlier years in respect of identical projects. Accordingly, we are of the view that the principles of consistency should be adopted in the given facts of the case. The Hon’ble Supreme Court in the case of Radhasoami satsung Vs CIT reported in 193 ITR 321 wherein it has held as under: “We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assess ment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. “ 30.7 In view of the above discussion, we are inclined to hold that once the revenue admitted assessee as developer under the same facts and circumstances, then in subsequent year on same fact and circumstances principal of consistency should be applied. 30.8 Regarding, the contention of the learned DR that the assessee for claiming the deduction under section 80IA(4) of the Act must derive income from the use of such infrastructure facility, the argument of the learned DR to our mind is totally misplaced. It is for the reason that the role of the assessee in the given case is limited to the extent of developing the infrastructure facility. Under the old provisions of the Act, it contained the concept of built, operate, maintained, ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 41 transfer, wherein the assessee after developing the road used to operate those roads and used to collect tax from the vehicles using the infrastructure facility to compensate its investment. But all these requirements have been done away by the revenue as elaborated above. In holding so, we draw support and guidance from the judgment of the Hon’ble Bombay High Court in case of CITVs. GB Heavy Industries Ltd. reported in 322 ITR 323 wherein it was held as under: “Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1-4-1995. After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are : (i) 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” 30.9 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. 30.10 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 wherein it was held as under: “Since the assessee developed an infrastructure facility/project and was not required to maintain or operate, it was entitled to cost, plus the margin of income or profit; not to expect this treatment would render one who develops an infrastructure facility project, unable to realise its cost. If the infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, the ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 42 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.” 30.11 We, therefore, do not have any doubt in regard to the admissibility of the claim made by the assessee and to entertain the same by giving relief to that effect. 31. Further the Ld. DR vehemently argued on the judgment of jurisdictional High Court in the case of Katira Construction Vs Union of India reported in 352 ITR 513 wherein the said matter was decided against the assessee. In our considered view, the matter before the Jurisdiction High court was that of constitutional validity of the insertion of explanation as mentioned hereinabove and decided the same in favour of the revenue to this 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. 32. At the time of hearing, both the learned DR and the AR before us has 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 reasons given in the contract before us shall also be applied in all the contracts which was 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 assesse under section 80-IA (4) of the Act are hereby dismissed. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 43 33. Now coming to the issue 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 Remarks 1. Interest on SSNNL Fizws Deposits 5,79,061 Against work received from Sardar Sarovar Narmada Nigam Ltd. 2 Interest received from Banks against Fixed Deposits 1,98,73,519 Fixed Deposit from Margin Money for issuance of Guarantees by Bank for obtaining the tender, performance guarantee & mobilization advances 3 Interest on Income Tax refund 33,05,232 Interest received from Income Tax Department on refund passed 4 Interest from Party 6,07,861 Interest on advances given to party Total 2,43,65,673 34. Admittedly, the AO disallowed the deduction claimed by the assessee u/s 80IA(4) of the Act but further mentioned in assessment order that if the appellate authority allows the claim of the assessee u/s 80IA(4) of the Act, then while computing such deduction gross interest income should be excluded. However, the Ld. CIT-A directed that only net interest income should be excluded. 35. From the preceding discussion, we note that the limited issue before us is whether gross interest income or net interest income should be excluded while computing the eligible income u/s 80IA(4) of the Act. 36. At the outset, we note that the issue has been squarely covered by the judgment of ITAT Mumbai in the case of Yes Bank Vs DCIT reported in 117 taxmann.com 974 where it was held as under: ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 44 ‘So far as the issue with regard to netting of interest is concerned, the same will be now governed by the decision of the Apex Court in the case of ACG Associated Capsules (P.) Ltd. (supra), wherein it is observed as under:— 'Before we deal with the contentions of learned counsel for the parties, we may extract Explanation (baa) to Section 80HHC of the Act. "Explanation:- For the purposes of this section,- (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by- (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the 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 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 45 "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 (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 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 46 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 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 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 47 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.' 37. Further, we place our reliance on the judgment of Hon’ble Supreme Court in case of PCIT Vs. Gujarat Paghuthan Energy Corporation (P) ltd. reported in 105 taxmann.com 84 where the SLP of the Revenue was dismissed as detailed under: "2. Third question pertains to netting of the interest for disallowance under Section 80IA of the Act. In this respect, we notice that in the decision of the Supreme Court in case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax reported in [2012] 343 ITR 89 (SC) such issue in the context of deduction under 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. 37.1 The ITAT Ahmedabad Bench in the recent case of M/s Vijay M. Mistry Construction Pvt. Ltd. in ITA Nos. 2938/Ahd/2011 & 8 Ors. for A.Ys. 2007-08 to 2013-14 & 2016-17 has held as under: 36. So far as the bank interest on bank guarantee is concerned, the same is found to be covered in favour of the assessee by the judgment passed in case of Rajkamal Builders Infrastructure P. Ltd. vs. DCIT in ITA 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: ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 48 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-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. 37.2 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 the computing the eligible income u/s 80IA(4) of the Act. Hence, the ground of appeal of the Revenue is hereby dismissed. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 49 38. The AO during the assessment proceedings allocated common expenses of the head office to the eligible unit while computing the eligible profit u/s 80IA (4) of the act which was also confirmed by the CIT(A) by placing reliance on his predecessor order for the AY 2006-07. 39. Now aggrieved assessee preferred CO before us on the grounds raised as under: 2. That, on facts and in law, the learned CIT(A) has grievously erred in confirming the action of learned AO in re-computing deduction u/s.80IA(4) of the Act by allocating expenditure of head office etc to different eligible units. 40. There is no dispute that the assessee is entitled to the benefits of the provisions of sections 80IA of the Act. The provisions of section 80-IA of the Act provides that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount specified therein. 40.1 While computing the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. In other words, the expenses must be incurred, for and on behalf of the concerned undertaking. The expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. 40.2 The Hon’ble Supreme Court held in the case of CIT vs. Sterling Foods reported in 237 ITR 579, that there must be for the application of the words "derived from" a direct nexus between the profits and gains and an industrial undertaking. Sections 80-I and 80-IA also use the expression "derived from". If there must be a direct nexus between the profits and gains and an industrial undertaking, it must follow equally that there must be a direct nexus between an industrial undertaking and the expenses which are sought to be ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 50 apportioned/attributable to it. Expenses which do not relate to an industrial undertaking/unit under consideration and they relate to other units or to the head office of the assessee, cannot be taken into consideration while computing the deduction under the said provisions. 40.3 There is no specific finding by the AO and the Ld. CIT(A) about the nexus of allocated expenses with the eligible unit. In the absence of any nexus between the allocated expenses with the eligible unit, the AO cannot allocate such expenses. Hence, the CO of the assessee is allowed. 41. The issue raised by the Revenue vide ground No. 4 is that the learned CIT(A) erred in directing to re-compute the eligible deduction u/s 80IA of the Act after allocating net interest among the different units. 42. At the outset, we note that the issue raised by the Revenue has been adjudicated along with Revenue ground no. 3 of its appeal where we have decided the issue vide paragraphs nos. 33 to 37 of this order. For detail discussion, please refer the aforementioned paragraph of the order. Hence the ground of appeal raised by the Revenue is hereby rejected 43. The other issued raised by the Revenue in ground Nos. 5 to 7 either general or consequential or premature to decide hence the same are dismissed being infructuous. 44. In the result, appeal of the Revenue is partly allowed Now coming to the CO of the assessee 100/AHD/2011, AY 2008-09 45. The assessee has raised the following objection in CO 100/AHD/2011 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 51 1. That on facts and in law, the learned Commissioner of Income-tax, (Appeals) has grievously erred in rejecting the alternate plea for allowance of entire expenditure of Rs.2,39,82,891/- as business expenditure instead of allowance of amortized expenditure u/s.35D of the Act. 2. That, on facts and in law, the learned CIT(A) has grievously erred in confirming the action of learned AO in re-computing deduction u/s.80IA(4) of the Act by allocating expenditure of head office etc to different eligible units. 3. The appellant craves leave to add, alter, amend any of the grounds of appeal at or before the date of hearing. 46. The issue raised by the assessee in objection no. 1 is that the Ld. CIT(A) erred in rejecting the alternate plea for allowance of entire expenses of Rs. 2,39,82,891/- as a business expenses instead of expenses allowed u/s 35D of the Act. 47. At the outset, we note that the issue raised by the assessee has been adjudicated along with Revenue’s ground No. 2 of the appeal bearing ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs no. 17 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the objection raised by the assessee is hereby rejected. 48. The issue raised by the assessee in objection no. 2 is that the Ld. CIT(A) erred in confirming the allocation of head office expenses while computing the deduction u/s 80IA(4) of the Act. 49. At the outset, we note that the issue raised by the assessee has been adjudicated along with Revenue’s ground No. 3 of the appeal bearing ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs no. 40 of this order. For detail discussion, please refer the aforementioned paragraph of this order. Hence the objection raised by the assessee is hereby allowed. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 52 50. The other issu.ed raised by the assessee in objection no. 3 is either general or consequential or premature to decide, hence, the same is dismissed being infructuous. 51. In the result, the CO of the assessee is partly allowed. Now coming to ITA(SS) No. 363/AHD/2018 an appeal by the Assessee for the AY 2009-10 52. The assessee has raised the following grounds of appeal: 1. The Learned CIT(A) erred in law and on the facts of the case in confirming 25% of the disallowance made by the AO for alleged bogus purchases without appreciating the factual aspect and ignoring all the possible manifested evidences submitted before the AO as well as CIT(A). It is therefore prayed that addition/ disallowance confirmed by the C1T(A) may please be deleted. 2. The Id. CIT(A) has erred in law and on facts in confirming the- action of Id. AO in charging interest u/s 234B/C/D of the Act. 3. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 53. The 1 st issue raised by the assessee in grounds of appeal is that the Ld. CIT(A) is erred in confirming 25% disallowance of alleged bogus purchase. 54. Based on the information received from the Maharashtra Sales Tax Department, it was alleged that the assessee has claimed the bogus purchases amounting to Rs. 2,10,30,907/- from the certain parties during the AY 2009-10, 2010-11 and 2011-12 as detailed below: Name of the Party PAN F.Y. Amount(Rs.) DHRUV SALES CORPORATION AHYPD6115E 2009-10 20,58,436 DHRUV SALES CORPORATION AHYPD6115E 2010-11 36,76,537 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 53 KRISH CORPORATION AWAPS3678L 2010-11 44,62,457 N B ENTERPRISES AAYPL7154J 2008-09 2,10,354 NAMAN ENTERPRISES AQEPK5024G 2009-10 94,461 NAVDEEP TRADING CORPN. AAAPV4487A 2009-10 2,76,848 NAVDEEP TRADING CORPN. AAAPV44B7A 2010-11 90,06,950 SHUBHLAXMI SALES CORP. TOTAL AAVPS1333B 2009-10 12,44,864' 2,10,30,907 54.1 These parties in their statements before the Sale Tax Department admitted that they are engaged in providing only accommodation entries and they have never supplied any materials in actuality. Accordingly, the assessee was asked to explain the same along with questionnaire. 54.2 In response to such notice, the assessee submitted that the purchases made by are genuine which has been made for the purpose of consumption in the business. Further, it is not aware that the parties mentioned in the SCN that they are indulged in providing accommodation entry. 54.3 Assessee is engaged in the business of development of infrastructure facility i.e. construction of national highways, roads, irrigation canal etc. A portion of this work was given on sub-contract basis to M/s Kataria Hume Pipe which purchases the materials from these parties and assessee makes payment to these parties. The assessee also produced Shri Himmatbhai Kataria & Vijaybhai Kataria, partner of kataria hume pipe to examine the transaction. The assessee furnished the detail of payment to these parties and also furnished the details of items and quantity of materials purchased. 54.4 However, the AO rejected the contention of the assessee by observing that the statements were recorded on oath by the sale tax department where the ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 54 alleged parties admitted that they are indulged in providing the accommodation entry. One of the party namely M/s Krish Enterprises admitted that it has given sales bill on commission basis @10-20 paisa. Further, he admitted that the cheques were credited to bank and cash was withdrawn from bank which was returned to the parties after deducting his commission. The assessee failed to prove with sufficient corroborative evidence that the transaction entered into with the stated suppliers are genuine. Accordingly, the AO treated the purchase from the above stated parties as bogus purchase and added to the total income of the assessee. 55. Aggrieved assessee preferred an appeal before the Ld. CIT(A). 56. The assessee before the Ld. CIT(A) reiterated the submission. The Ld. CIT(A) after considering the submission of the assessee partially allowed the appeal of the assessee by observing that the assessee is engaged in the business of construction work for NHAI and similar government authorities. These organizations do not make payment to contractor without verification of work. These organizations have system to check, certifying, cross checking of the extent of the work with the quality of work. In the present case the work was also completed by the assessee and final payment also has been released. 56.1 Further, in this situation where the work has been completed and the party which is supposed to have done work is found to be bogus, If the purchase amount is fully disallowed, then the there is a contradiction in assumption that receipt amount is treated as income and purchase disallowed. Therefore, it means that the turnover of the assessee is treated as income. Nevertheless, the ld. CIT-A confirmed the order of the AO in part by observing as under: 8.9 This situation has been analyzed by the Gujarat High Court in the case of N.K. Proteins Ltd. vs. DCIT reported in [2004] 4 SOT 479 (AHD.) and also in the case of Sanjay Oilcake Industries vs. CIT reported in [2009] 316 ITR 274 (MAD.) wherein after examining the situation the Gujarat High Court has held that in such situation making a disallowance of 25% only of purchases is justified. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 55 8.10 The disallowance of the entire purchases was made by the same Assessing Officer i.e. DCIT, Central Circle-l(l), Ahmedabad in the case of Jagdamba Ginning Factory A.Y.2008-09 on account of bogus purchases made. The said disallowance @100% had been confirmed by the undersigned in Appeal No. CIT(A)-L'CC.1(1)/169/2010-11 dated 21.12.2012 on an appeal to the ITAT in ITA No317/Ahd/2013 held that disallowance @25% only should be made. 8.11 In view of the above facts and following judicial discipline it is held that the action of the Assessing Officer in disallowing the entire payment made to above mentioned parties may not be justified because it is evident that the work has been completed. Thus, the Assessing Officer is directed to make the addition of 25% of the payments claimed to have been made to the above mentioned party . 57. Being aggrieved by the order of the Ld. CIT(A), assessee is an appeal before us. 58. The ld. AR before us contended that estimating the profit at the rate of 25% on the alleged bogus purchases is very unreasonable and thus he made submission that 8% disallowance of such purchase will be just and fair. 58.1 On the contrary, the learned DR vehemently supported the order of the AO. 59. We have herd the rival contentions and perused the materials available on record. It is observed that assessee in the year under consideration has claimed the purchase of Rs. 2,10,354/- from NB Enterprises. During the assessment proceedings, the AO has received information from Maharashtra Sale Tax Department that M/s N.B. Creation is indulged in the providing the hawala bills and no actual sale/purchase transaction has taken place. Accordingly, the AO treated the same as income of the assessee. However, the Ld. CIT(A) restricted the addition to the extent of 25% of the bogus purchases. 59.1 Nevertheless, we note that the courts have taken a view that in case of non- existent parties from whom the purchases are shown to have been made, the most logical approach would be that only part of such purchases can be disallowed, in the cases where the corresponding sales are treated as genuine, or ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 56 alternatively the profit embedded in such sales can only be brought to tax. Therefore, what can be taxed in such transactions is profit element embedded in such alleged non genuine purchases and the entire or peak amount of such purchases cannot be treated as bogus. 59.2 In the back drop of enquiries conducted by the AO and also various submission placed by the appellant, we find that it is fair and just to restrict the addition to an extent of Rs. 26,294/-being 12.5% of the bogus purchases. In holding so, we draw support and guidance from the judgment of Hon’ble ITAT Mumbai in the case of Ratangiri Stainless(p) Ltd. Vs. ITO reported in 80 taxmann.com 265 wherein it was held as under: “In our considered view and based on facts and circumstances of the case as discussed by us in details above, end of justice will be met in this case if GP ratio of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un-rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view factual matrix of the case, while the assessee shall be granted credit of GP ratio declared on these bogus purchases in the return of income filed with the Revenue 59.3 Therefore, we direct the AO to restrict the addition as stated above, thus, the ground raised by the assessee is treated as partly allowed. 60. The other issues raised by the assessee in ground No. 2 to 4 are either general or consequential or premature to decide. Hence the same are dismissed being infructuous. 60.1 In the result, the appeal of the assessee is partly allowed. Now coming ITA(SS) No. 364/AHD/2011, an appeal by the Assessee for the AY 2010-11 ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 57 1. The Learned CIT(A) erred in law and on the facts of the case in confirming 25% of the disallowance made by the AO for alleged bogus purchases without appreciating the factual aspect and ignoring all the possible manifested evidences submitted before the AO as well as CIT(A). It is therefore prayed that addition/ disallowance confirmed by the C1T(A) may please be deleted. 2. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. ' 3. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 61. The only issue raised by the assessee in grounds of appeal is that the Ld. CIT(A) is erred in confirming 25% disallowance of alleged bogus purchase. 62. At the outset, we note that the identical issue has been raised by the assessee in ground No. 1 of its appeal in IT(SS) No. 363/Ahd/2011 for the AY 2009-10 where we have decided the issue vide paragraphs nos. 59 to 60 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the assessee is hereby partly allowed. 63. The other issues raised by the assessee in ground Nos. 2 to 4 are either general or consequential or premature to decide. Hence, the same are dismissed being infructuous. 63.1 In the result, appeal of the assessee is partly allowed. Now coming to ITA(SS) No. 392/AHD/2011, an appeal by the Revenue for the AY 2010-11 64. The Revenue has raised the following grounds of appeal: 1) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.l 7,08,93,901/- u/s 801A(4) of the Act, as in view of Explanation below sub-section (13) of section 801A introduced by Finance Act, 2009 with retrospective effect from 01.04.2000 the assessee was not eligible for deduction u/s 80IA(4) of the Act. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 58 2) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.27,55,956/- out of total addition of Rs.36,74,609/- made on account of Bogus Purchases from four parties. 3) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.25,93,620/- made u/s 14A of the I.T.Act read with Rule 8D of the I.T.Rules. 4) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.47,96,578/- made u/s 35D of the I.T.Act. 5) 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.. 6) 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. 65. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in deleting the disallowance of deduction made by the AO under section 80-IA(4) of the Act. 66. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 3 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 27 to 32 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 67. The issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) is erred in deleting the addition of Rs. 27,55,956 out of total addition of Rs. 36,74,609/- made by AO on account of bogus purchase. 68. At the outset, we note that the identical issue has been raised by the assessee in ground No. 1 of its appeal in IT(SS) No. 363/Ahd/2011 for AY 2009-10 where we have decided the issue vide paragraphs nos. 59 to 60 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence the ground of appeal of the Revenue is hereby dismissed. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 59 69. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) is erred in deleting the addition of Rs. 25,93,620/-made by AO u/s 14A of the Act. 70. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs no. 8 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is allowed. 71. The issue raised by the Revenue in ground no. 4 is that the Ld. CIT(A) erred in deleting the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 72. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 16-17 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 73. The other issues raised by the Revenue in ground Nos. 5 to 6 are either general or consequential or premature to decide. Hence, the same are dismissed being infructuous. In the result appeal of the Revenue is hereby partly allowed. Now coming to ITA(SS) No. 365/AHD/2011 an appeal by the Assessee for the AY 2011-12 74. The assessee has raised the following grounds of appeal: 1. The Learned CIT(A) erred in law and on the facts of the case in confirming 25% of the disallowance made by the AO for alleged bogus purchases without appreciating the factual ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 60 aspect and ignoring all the possible manifested evidences submitted before the AO as well as CIT(A). It is therefore prayed that addition/ disallowance confirmed by the CIT(A) may please be deleted. 2. The Id. C1T(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. 3. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 74.1 The only issue raised by the assessee in grounds of appeal is that the Ld. CIT(A) is erred in confirming the 25% disallowance of alleged bogus purchase. 74.2 At the outset, we note that the identical issue has been raised by the assessee in ground No. 1 of its appeal in IT(SS) No. 363/Ahd/2011 for AY 2009-10 where we have decided the issue vide paragraphs nos. 59 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the assessee is hereby partly allowed. 75. The other issue raised by the assessee in ground Nos. 2 to 4 are either general or consequential or premature to decide. Hence, the same are dismissed being infructuous. In the result appeal of the assessee is partly allowed. Now coming to ITA(SS) No. 393/AHD/2011, an appeal by the Revenue for the AY 2011-12. 76. The Revenue has raised the following grounds of appeal: The Ld. CIT (A) has erred in law and on facts in deleting addition of Js. 6,9 7,30,9907- u7s 80IA(4) of the Act, as in view of Explanation below subsection ()3) of section 801A introduced by Finance Act, 2009 with retrospective effect from 01.04.2000 the assessee was not eligible for deduction u/s 80IA(4) of the Act. The Ld. CIT (A) has erred in law and on facts in deleting addition of Rs.l,28,59,4587- out of total addition of Rs.l,71,45,9447- made on account of Bogus Purchases from four parties. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 61 The Ld. CIT (A) has erred in law and on facts in deleting addition of Rs.2,10,49,0157- made on account of disallowance of claim of deduction of expenditure on option premium on Employees Stock Option Plan (ESOP). 4) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.47,96,5787- made u/s 35D of the I.T.Act. 5) If is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent. 77. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in deleting the disallowance of deduction made by the AO under section 80-IA(4) of the Act. 78. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 3 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 27 to 32 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby allowed. 79. The issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) erred in deleting the addition of Rs. 1,28,59,458/- out of total addition of Rs. 1,71,45,944/- made by AO on account of bogus purchases. 80. At the outset, we note that the identical issue has been raised by the assessee in ground No. 1 of its appeal in IT(SS) No. 363/Ahd/2011 for AY 2009-10 where we have decided the issue vide paragraphs Nos. 59 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby dismissed. 81. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) erred in deleting the addition of Rs. 2,10,49,015/-made by AO on account of ESOP expenses. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 62 82. During the year under consideration, the assessee has issued 25,00,000 equity shares at a price of Rs. 50/- per share to the eligible employee of the company as per the ESOP scheme. 82.1 During the year under consideration, the company has vested the option of 25,00,000 shares out of which 58,000 options have not been exercised. Accordingly, the assessee company booked the expenses on ESOP amounting to Rs. 2,10,49,015/- which is the difference between the market price of shares on the date of grant of option and price at which the options are vested to the employees. However, the assessee disallowed such expenses in its original return of income but it had revised its return subsequently and claimed the same expense as deduction. 82.2 However, the AO disallowed the same by observing that expenses on ESOP debited to Profit & loss accounts is not an expenditure incurred wholly and exclusively for the purpose of the business and therefore, the same is not allowable. Further, the claim made by the assessee is also not in the nature of business loss and therefore the claim of assessee is not allowable u/s 28 of the Act. 83. Aggrieved assessee preferred an appeal before the Ld. CIT(A) who deleted the addition made by AO by observing as under: 10. I have gone through the assessment order and submission of the A.R. of the appellant carefully. The controverted facts on this issue are as under: 10.1 The assessee company debited Rs.2,10,49,015/- on account of loss on premium on shares issued under Employees Stock Option Scheme. The same amount was disallowed and included in the total income in the return filed on 26.09.201 1. However, the appellant filed revised return on 29.12.2005 wherein the appellant excluded this amount from the total income. It is seen i that the appellant company had granted option for 25,00,000/- equity shares of Rs.1/- each at price of 1 Rs.50/- per share to the employees eligible under Employees Stock Option Scheme. During the year, the company issued options for grant of 24,42,000 shares out of which 58,000 options have not been exercised. The appellant booked expenses on account of Employees Stock Option Scheme amounting to Rs.2,10,49,010/- being the difference between market price of the share on the date of grant of such option and the price such option was vested to the employees. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 63 10.2 Allotment of shares by the company only alters the capital structure of the company and hence does not alter the profitability of the company in any manner. Thus, granting of options under the Employees Stock Option Scheme (ESOS) does not affect the profitability of the company in any manner, hi this regard, reliance is placed on ASI5 (2005) wherein it has been mentioned that profit or loss arising out of granting Employees Stock Option Scheme (ESOS) to employees has to be made out of reserves and surplus of the company and no amount is required to be debited to the profit and loss account of the company. In view of the above, the profit or loss generated due to granting of options under Employees Stock Option Scheme to eligible employees only alters the capital structure of the company and hence is either a capital profit or capital loss. Thus, it would not affect the profit or loss account of the company. 10.3 However, the Special Bench of the ITAT Bangalore in the case of Eicon Ltd. vs. DCIT reported in [2013] 35 taxman.com 335 (Bangalore - Trib.) (SB) has held that loss arising out of the difference between market price of the share on the date of grant of such option and the price such option was vested to the employees under Employees Stock Option Scheme is allowable u/s.37(l)of the IT Act, 1961. No other contrary decision of any High Court is available. In view of the judicial discipline, the decision of the Special Bench of the ITAT has to be followed by appellate authorities. In view of the above, the amount of Rs.2,10,49,010/- being the loss on account of the difference between market price of the share on the date of grant of such option and the price such option was vested to the employees under Employees Stock Option Scheme isallowableu/s.37(l)oftbeITAct, 1961. 84. Being aggrieved by the order of Ld. CIT(A), the Revenue is an appeal before us. 85. The LD. DR before us reiterated the findings contained in the assessment order. 86. On the other hand, the Ld. AR contended that ESOP are the expenses of the assessee which are adjusted against the reserve and surplus and therefore the same should be allowed as deduction. The learned AR before us vehemently supported the order of the ld. CIT-A. 87. We have heard both the respective parties, we have also perused the relevant materials available on record including the order passed by the Special Bench of ITAT in the matter of Biocon Limited vs. DCIT (LTU), reported in (2013) 35 taxmann.com 335 (Bangalore Trib. – SB). We have further perused the order passed by the Ld. CIT(A). In this regard, we have carefully considered the order passed by the Special Bench in the case of Biocon Ltd. vs. DCIT (LTU) (supra) ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 64 where it has been held that ESOP compensation expenditure is not a notional expenditure but an allowable expenditure under Section 37(1) of the Act. It has further been held by the Special Bench that object of issuing of shares at a lower issue price than the market price to the employees under ESOP must be taken into consideration and thereby it cannot be treated as short receipt of securities premium but a cost on account of compensation to the employees. Thus, principally the claim on account of deduction of ESOP compensation is allowable. Hence, the ground of appeal raised by the Revenue is hereby dismissed. 88. The issue raised by the Revenue in ground no. 4 is that the Ld. CIT(A) erred in deleting the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 89. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 16-17 of this order. For detail discussion, please refer the aforementioned paragraph of this order. Hence the ground of appeal of the Revenue is hereby rejected. In the result, the appeal of the Revenue is dismissed. Now coming to ITA No. 589/AHD/2016, an appeal by the Revenue for the AY 2012-13 90. The Revenue has raised the following grounds of appeal: "The Ld. CIT(A) has erred in law and/or on facts in allowing the deduction u/s.80IA(4) of the Act to the extent of Rs.3,79,46,675/-without appreciating the fact that the company has not fulfilled the conditions mentioned in section 80IA(4) of the Act and hence not eligible to get deduction u/s. 80IA(4) of the Act." 2. "The Ld. CIT(A) has erred in law and/or on facts in deleting the addition of Rs.47,96,578/- on account of disallowance u/s.35D of the Act without appreciating the fact ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 65 that the said expenditure actually pertains to qualified institutional placements (QIP) which is not eligible for deduction u/s.35D of the Act." 3. "The Ld. CIT(A) has erred in law and/or on facts in deleting th addition made of Rs.4,02,46,403/- on account of premium of ESC while here is no specific section under which ESOP expenditure allowable under I T Act." 4. 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." ' 5. 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. 91. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in deleting the disallowance of deduction made by the AO under section 80-IA(4) of the Act. 92. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 3 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 27 to 32 of this order in favour of the assessee and against the Revenue. For detail discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 93. The issue raised by the Revenue in ground No. 2 is that the Ld. CIT(A) erred in deleting the addition made by AO of Rs. 47,96,578/- on account of preliminary expenses u/s 35D of the Act. 94. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 16-17 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 66 95. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) erred in deleting the addition of Rs. 4,02,46,403/-made by AO on account of ESOP. 96. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in IT(SS) No. 393/Ahd/2011 for AY 2011-12 where we have decided the issue vide paragraphs no. 87 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 96.1 In the result, the appeal of the Revenue is hereby rejected. Now coming ITA No. 1919/AHD/2016 an appeal by the Revenue for the AY 2013-14 97. The Revenue has raised the following grounds of appeal: 1. Whether on the facts of the case and in law the Ld.CIT(Appeal) erred in allowing the claim of deduction u/s.80IA(4) of the Act amounting to Rs.77,16,77,736/- 2. Whether on the facts of the case and in law CIT(A) erred in allowing the deduction on option premium on Employees Stock Option (ESOP) for Rs.3,77,68,000/- 98. The issue raised by the Revenue vide ground No. 1 is that the learned CIT(A) erred in deleting the disallowance of deduction made by the AO under section 80-IA(4) of the Act. 99. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 3 of its appeal in ITA No. 939/Ahd/2011 for AY 2008-09 where we have decided the issue vide paragraphs nos. 27 to 32 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence the ground of appeal of the Revenue is hereby rejected. ITA no.939/AHD/2011 (with eight others) A.Y. 2008-09 67 100. The issue raised by the Revenue in ground No. 3 is that the Ld. CIT(A) erred in deleting the addition of Rs. 3,77,68,000/-made by AO on account of ESOP. 101. At the outset, we note that the identical issue has been raised by the Revenue in ground No. 1 of its appeal in IT(SS)A No. 393/Ahd/2011 for AY 2011- 12 where we have decided the issue vide paragraphs nos. 87 of this order. For detailed discussion, please refer the aforementioned paragraph of this order. Hence, the ground of appeal of the Revenue is hereby rejected. 102. In the result, the appeal of the revenue is dismissed. 103. The combined results of all the appeals are as follows: Order pronounced in the Court on 24/02/2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/02/2023 Manish Sl. No(s) IT(SS)A No./C.O Asset. Year(s) Result 1-2 ITA No.939/Ahd/2011 With C.O No.100/Ahd/2011 2008-09 Appeal filed by the Revenue and C.O filed by the assessee are partly allowed. 3-4 IT(SS)A No.392- 393/Ahd/2013 2010-11 2011-12 Appeal filed by the Revenue bearing IT(SS)A No.392/Ahd/2013 for A.Y. 2010-11 is partly allowed whereas appeal of the Revenue bearing IT(SS)A No.393/Ahd/2013 for 2011-12 is dismissed. 5-7. IT(SS)A No.363 to 365/Ahd/2013 2009-10 to 2011-12 All the three appeal of the assessee are partly allowed 8-9 ITA No.589/Ahd/2016 No.1919/Ahd/2016 2012-13 & 2013-14 Both the appeals of the Revenue are dismissed.