M/S- RAWAT BALAJI (JOINT VENTURE),JHARSUGUDA vs. PRILNCIPAL, CIT, SAMBALPUR

At the outset, we found that these three appeals are barred by limitation of 20 days. Separate Condonation applications along with affidavits have been filed by the assessee in all the three appeals. The ld. Counsel of the assessee submitted that that the delay may be condoned and all the three appeals be taken up for adjudication. Ld CIT DR did not object to the contention of ld. AR of the assessee.

After hearing the rival submissions and perusing the condonation application and affidavit furnished by the assessee in all the three appeals, we are satisfied that the assessee was prevented by sufficient cause for not filing these appeals within the stipulated period causing delay of 20 days. We, therefore, condone the delay and admit all the three appeals for adjudication.

Since similar and identical issues involved in all the three appeals of the assessees, therefore they are heard altogether and disposed off by this consolidated order en masse.

Ld. Assessee‟s Representative (AR) drew our attention towards two paper books of the assessee spread over 475 pages and written submissions/synopsis spread over Pages 181 to 281 of Paper Book No.

Ld. AR submitted that ITA No.195/CTK/2019 may be taken as lead case for adjudication of all the three appeals. Ld. CIT-DR also consented to take up the said case as lead case for arguments. Now, with the consent of both the parties, we shall take the appeal of the assessee in ITA No.195/CTK/2019 in the case of M/s Shree Balaji Engicons Pvt. Ltd. as a 3 ITA Nos.193-195/CTK/2019 lead case, wherein the assessee has raised the following grounds of appeal :-

Facts in brief are that the assessee is a private limited company engaged in the business of construction of roads, buildings, civil structural works, other works contract services and allied activities under various Government and Non-Government departments and filed its return of income for A.Y.2014-2015 on 27.11.2014 disclosing total income at Rs.8,54,76,430/-. The case of the assessee for the Assessment Year under consideration was thereafter selected for scrutiny under CASS. Thereafter statutory notices u/s.143(3) & 142(1) of the Act along with questionnaire were issued and served on the assessee company for its compliance. Ld. AR further submitted that the claim of deduction pertaining u/s.80IA(4) of the Act was allowed by the AO after due verification and examination.

Subsequently, the ld Pr. CIT invoking the powers conferred on him u/s.263 of the Act called for the assessment record and after examination of the same, found that the AO has not considered the Explanation inserted below to Section 80-IA(13) of the Act while framing the assessment, therefore, the Pr.CIT held that the assessment order passed by the AO is erroneous and prejudicial to the interest of revenue. Accordingly, the Pr.CIT directed the AO to modify the assessment order by making disallowance of claimed deduction u/s.80-IA(4) of the Act read with Explanation inserted below to Section 80-IA(13) of the Act.

Against the said revisionary order, the assessee is in appeal before the Tribunal.

The ld. Assessee‟s Representative (AR) drew our attention towards written submissions of the assessee filed on 13.10.2021 in the form of Paper Book-II and especially took us to Part-I of the written submissions placed at pages 183 to 240 of said paper book. For the sake of brevity and completeness of this order, we find it appropriate to reproduce the relevant submissions, which read as follows :- 1.1] The appellant in this ground of appeal has challenged the action of the Ld. PCIT in directing the Ld. AO to make disallowance of Rs.5,53,35,272/- u/s 80-IA(4) read with explanation inserted below section 80-IA(13) of the Act. 1.2.1] The Ld. PCIT in Para 15 to 17 of the show cause notice issued xx] s 263 of the Act dealt with the issue of disallowance ix] s 80-IA of the Act and gist of his observations was as under: (a) The company executed works contract with different organizations including South Eastern Railways, East Coast Railway, South-East Central Railway, Roads and Buildings Department of Govt. of Odisha, BSNL and other corporates etc.

Another submission which was urged on behalf of the revenue is that under clause [iii] of sub-section(4A) of section 80-lA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1-4-1995. The same requirement is embodied in sub-clause(c) of clause (i) of sub- section (4) of the amended provisions of section 80-IA. On this basis, it was urged that since the assessee was not operating and maintaining the facility, he did not fulfill the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this judgment. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1-4-1995. Therefore, the requirement was met in fact. 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-lA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or {H! operating and maintaining; or (ii) 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 of2001 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.

In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The 'subsequent amendment of section 80- IA(4A) of the Act to clarify that the provision would apply to an enterprise engaged in (i) developing; or (ii) operating and maintaining; or (iii) developing. operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by the Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to section 80-IA(4) of the Act set the matter beyond any controversy by 18 ITA Nos.193-195/CTK/2019 stipulating that the three conditions for development. operation and maintenance were not intended to be cumulative in nature." (Emphasis Supplied] • The Hon'ble ITAT Rajkot Bench in the case of Katira Construction Ltd. v. ACIT reported in [2020] 119 taxmann.com 489 (Rajkot - Trib.) vide order dated 30.07.2020held that: "12.4 Further w.e.f 1st Apn12000 the sub-section-4A was re- numbered as sub- section- 4 of section 80lA of the Act. Subsequently, the major changes were brought in the Finance Act 2001 w.e.f. 1st April 2002. where the requirement for developing and operating & maintaining of infrastructure facility simultaneously was done away. Now the deduction under section 80-IA(4)(i) is also available to assessee who is engaged only in development of infrastructure facility or only engaged in operation & maintenance of infrastructure facility or engaged in both developing, operating and maintaining any infrastructure facility.

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. Thus if the contention of the AO is believed to be true that the deduction is available to the assessee only after infrastructure started or starts operating then the assessee who only develop the infrastructure facility will not be entitled for the deduction under section 80-lA (4) of the Act as he will never operate and maintain such infrastructure facility. Furthermore, the assessee who will start operating and maintaining such infrastructure facility after its development by developer would be eligible for such deduction and not the developer. It is because the assessee who has developed and the assessee who is operating & maintaining the infrastructure facility cannot claim the deduction simultaneously for the same project.

7 Thus the interpretation that the deduction shall be allowed only with respect to the infrastructure facility upon the commencement of operation and maintenance, does not hold good, particularly in a situation where the assessee is engaged only in the development of infrastructure facility." (Emphasis Supplied) The Hon'ble ITAT Indore Bench in the case of Sanee Infrastructure (P.) Ltd. v. ACIT,3(1), Bhopal reported in [2012] 23 taxmann.com 345 (Indore) held that: "10 Thus, as per the amended law, development of infrastructure facility is sufficient for claim of deduction u/s 80IA(4) w.e.f. assessment year 2002-03. The relevant assessment year under consideration is also assessment year 2002-03 for which amended provisions of law is applicable. " (Emphasis Supplied)

Now coming to the merits of the deduction u/s. 80IA(4) of the Act. A perusal of the provisions of section 80IA(4) of the Act shows that in the explanation ~infrastructure facility' has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly- the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to 20 ITA Nos.193-195/CTK/2019 accept the contention of the Ld. CIT that the provisions of section 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the. benefit to BOT contracts then the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BOT contract in respect of the railway system can never exist. (Emphasis Supplied) • On perusal of the findings laid down in the judicial precedents cited supra, it becomes crystal clear that an assessee w.e.f. A.Y. 2002-03 became entitled for claiming benefit under this section even if it was engaged only in developing the infrastructure facilities. However, the example cited by the Ld. PCIT regarding building of a stretch of highway with own money without payment by government and then maintaining it through a revenue model like toll collection is an example which would have hold good if the case of the appellant pertained to the period prior to A.Y. 2002-03 wherein an assessee was required to develop, operate and maintain an infrastructure facility simultaneously in order to be eligible for claiming deduction u/s 80-IA of the Act i.e. only the contracts awarded as per the Build-Operate, Transfer (BOT) Model were eligible for deduction under this section for the period prior to A.Y. 2002-03. • It is an uncontroverted fact that case of the appellant pertains to A.Y. 2014-15 wherein an assessee is eligible to claim the benefit of deduction under this section even if it is engaged only in development of infrastructure facilities. Therefore, the finding that the appellant received payment from Government instead of maintaining the infrastructural facility through a revenue model like toll collection is totally extraneous since such law was not even in the statute book since several years'. • The above-discussed reasonings of the Ld. PCIT while disallowing the claim of deduction u/s.80-IA of the Act clearly exhibit that the Ld. PClT failed to appreciate and understand the correct position of law as on the date of his order which goes to the very root of the matter and undermines the validity of the disallowance directed to be made ii]« 80-IA of the Act. In view of the discussion in the preceding paragraphs of this submission, it is quite clear that the appellant was engaged in development of infrastructural facilities against which it also received payments from Government which does not disentitle it in any way from claiming the benefit of deduction u/s 80-IA(4) of the Act. (iv) It is evident that the assessee company was only a "contractor" since the Auditor has also treated the assessee as a "Civil Contractor" in auditor's report in Form No. 3CD and not as an entity engaged in any of the activities mentioned in section 80-1A(4)(i) of the Act. (Refer Para 76 on Page No. 58-59 of the Ld. PCIT's order) Corresponding explanations/justification:

Now coming to the merits of the deduction u/ s. 80lA(4) of the Act. A perusal of the provisions of section 80lA(4) of the Act shows that in the explanation 'infrastructure facility' has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of the Ld. CIT that the provisions of section 80IA(4) of the Act after the substitution of the explanation to section 80lA of the Act was introduced was only for the purpose of giving the benefit to BOT contracts then, the explanation to section 80lA(4) of the Act becomes otiose. This is as explanation to section 80lA(4) of the Act specifically provides for the road to include a toll road, a bridge or a reil system. BOT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 80IA of the Act shows that the term works contract is not defined in the said section. However, the terms works' and 'contract 'is defined in the provisions of section 194C of the Act. If a particular word or term is not defined in the specific section then, one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing or supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word works contract' for the purpose of the Act due to the exclusion provided in the meaning of work' in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AD was right in law in granting the assessee the benefit of deduction uls. 80IA(4} of the Act. On this ground also, we

Briefly reiterating the above written submissions, the ld. AR further drew our attention towards impugned assessment order for A.Y.2014- 2015 and submitted that the AO has passed order u/s.143(3) of the Act by considering all the issues. Ld. AR further pointed out that the clarification No.22 issued regarding developer with reference to infrastructure facility, industrial park, etc. for the purposes of section 80-IA of the Act issued by the Income Tax Department clarifying the purpose of amendment by Finance Act, 2007 and subsequently Finance Act, 2009, it is clear that in a case where a person makes the investment and himself executes the development work i.e. carries out the civil construction work in the capacity of developer-cum-contractor, he will be eligible for tax benefit under section 80-IA of the Act. The ld. AR submitted that the purpose behind the amendment inserted by Finance Act, 2007 & 2009 was to debar the works contractors from the benefit of section 80IA of the Act, who merely executes work contracts and simultaneously it was also an intention of the legislature to encourage private investors for making investment in the infrastructure development of country, therefore, the benefit was continued to be allowed for the assessees, who are in the business of development of infrastructure facility in the capacity of developer-cum-contractor.

1 Ld. AR also submitted that the ITAT Cuttack Bench in the case of ARSS Infrastructure Projects Ltd. Vs. ACIT, ITA Nos.142 & 143/CTK/2010 and other connected appeals, order dated 13.06.2013 in para 10, has categorically held that when the assessee is doing contract work but that 32 ITA Nos.193-195/CTK/2019 work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers/contractee, then the same would not fall within the meaning of the word 'works contract' for the purpose of section 80IA(4) the Act due to the exclusion provided in the meaning of 'work' in section 194C of the Act. Ld. AR further pointed out that in para 10 the Tribunal also held that the issues raised by the ld. Pr.CIT that the assessee is not doing development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer/contractee being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders, therefore, in view of the clarificatory note to clause 22, the assessee is a developer because in a case where the person makes the investment and himself executes the development work i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80-IA(4) of the Act.

It was further submitted by the ld. AR that the AO during assessment proceedings issued a show cause notice along with questionnaire to the assessee wherein question No.17, the AO specifically asked about the claim of deduction of assessee u/s.80-IA(4) clause (i) of the Act which was dated 29.11.2016, which was duly replied by the assessee. Thereafter the AO allowed the claim of deduction

Ld. AR further drawing our attention towards written submissions made before the ld. Pr.CIT in response to notice u/s.263 of the Act, which have been reproduced by the ld. Pr.CIT in para 63 of his order and submitted that as per the order of ITAT Kolkata Bench in the case of Adhunik Infrastructure (P) Ltd. Vs. JCIT, ITA No.1281/Kol/2015, order dated 23.05.2018, wherein it was held that the deduction u/s.80-IA(4) of the Act cannot be denied merely because assessee was paid by Government for development work. Ld. AR also relied on the decision of Hon‟ble Bombay High Court in the case of CIT Vs. ABG Heavy Industries Limited (2010) 322 ITR 323 (Bom). The ld. AR submitted that the assessee is not a mere contractor for execution of work but a “developer” within the meaning of the provisions of Section 80-IA of the Act. The term “contractor” is not essentially contradictory to the term “developer” and s.80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government, Railways department or a local authority and, therefore, entering into a lawful agreement and thereby becoming a contractor should, in no way,

Drawing our attention towards balance sheet as on 31.03.2014, ld. AR submitted that the assessee has undertaken investment risk, financial risk, entrepreneur risk and business risk while discharging function in the capacity of developer and contractor, which is clearly discernible from the balance sheet wherein the financial assets of more than 42 crores have been utilized by the assessee for its business of developer –cum- contractor. Further drawing our attention towards profit and loss account as on 31.03.2014, ld. AR submitted that as per Schedule 25 to the audited books of accounts, the cost of material consumed during the relevant financial period comes to Rs.102,48,61,659/- and the assessee has purchased material during the relevant period of Rs.106,25,62,108/- for the purpose of its business on functioning as developer-cum-contractor, therefore, the assessee cannot be put in the category mere works contractor, who discharges/functions as per directions of the contractee by providing labour and other supports without taking any investment risk, financial risk, entrepreneur risk or any other business risk. This fact has never been disputed by the department or there is no adverse observations by the ld. Pr.CIT in the impugned order in this regard. Ld. AR also pointed out that the assessee has submitted project operation

Referring to clause No.(a) of clause (i) of sub-section (4) of Section 80IA of the Act, ld. AR submitted that this section applies to any enterprises carrying out business of (i) developing or (ii) operating (ii) operating and maintaining or (ill) developing operating and maintaining any infrastructure facility which fulfils all the following conditions, i.e.(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act," Ld. AR submitted that this provisions provides any other body established or constitute under any Central Government or a State Government or a local authority or any other statutory provisions of any Act or law enacted by Central Government or State Government such as joint venture entity, then it is also entitled for deduction u/s.80IA(4) of the Act and same situation is in other two cases i.e. ITA Nos.193&194/CTK/2019, wherein under joint venture agreements these entities have been created by group of companies, and they received their share from respective joint venture entity, therefore, on the strength of allegation of sub-contract given by 37 ITA Nos.193-195/CTK/2019 them or executed by them, they cannot be debarred by availing benefit u/s.80IA(4) of the Act. Ld. AR also submitted that no outsider sub- contractor has been assigned the development work by the company and developing of infrastructural facility has been assigned to the members of the consortium only and, thus, the assessee in lieu of requirement for qualifying the position of a developer left aside the position of work contract, therefore, it is eligible for deduction u/s.80IA(4) of the Act, and, thus, the ld. Pr.CIT was not correct in revising the assessment order by invoking provisions of Section 263 of the Act on the strength of Explanation below section 80IA(13) of the Act.

1 The ld. AR also pointed out that the ld. Pr.CIT has placed heavy reliance on the decision of Hon‟ble Bombay High Court in the case of AVG Industries ltd. (supra) for levelling the assessee as works contractor but this reliance is misplaced as in this order itself the Hon‟ble High Court in paras 22 & 23, after analyzing the legal position held that the amendment made by the Parliament to Section 80IA(4) of the Act by Finance Act, 2001 said the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were intended to be cumulative in nature and assessee is doing work of development of infrastructure, which is wider than the term of works contract, thus, the assessee is very well entitled to be held the position of developer-cum-contractor and entitled for deduction u/s.80IA(4) of the Act, therefore, orders of ld. Pr.CIT may kindly be set aside being unsustainable.

The ld. AR drew our attention towards pages 183 to 240 of assessee‟s paper book and submitted on merits by way of judgments of Hon‟ble Supreme Court, Hon‟ble various High Courts and the orders of the coordinate bench of the Tribunal, it is amply clear that the assessee was very well entitled deduction u/s.80IA(4) of the Act, being a developer- cum-contractor and it cannot be leveled as a contractor only executing the work contract in view of the factual matrix of the case. Ld. AR submitted that the developer is a person who designs and creates new products. He is the one who conceives the project. He may execute the entire project himself or assign some parts of it to others to be executed under his guidance for development of infrastructure facility. On the contrary. the works contractor is the one who is assigned a particular job to be accomplished on the behalf of the developer by way of supplying labour and other site-supports without any investment or financial or entrepreneur risk. There may in certain circumstances be overlapping in the work of developer and works-contractor, but the line of demarcation between the two is thick and unbreachable. When the person acting as developer, who designs the project, also executes the construction work, he works in the capacity of contractor too. But when he assigns the job of construction to someone else, he remains the developer simpliciter, whereas the person to whom the job of construction is assigned, becomes the contractor. The role of developer is much larger than that of the works contractor. As every developer-cum-contractor is first a contractor, who carries out work of development of infrastructural facility but every works

Ld. AR also submitted that before the ld. Pr.CIT during the course of revisionary proceedings u/s.263 of the Act, it was submitted that the assessee brought in his own material according to the specification of the employer, skilled man power, technical expertise for the execution and timely completion of the work, responsibility of development, to rectify and/or indemnify against damages and had undertaken entrepreneurial and investment risks while carrying out the infrastructure development facilities. It was further submitted that all the agreements entered into by the assessee carried such clauses which proved that the appellant was taking all sorts of risk whether it be entrepreneurial risk, investment risk or business risk. The appellant also submitted a detail risk analysis table in respect of one of these agreements entered into with the employer which is also reproduced hereinabove so as to prove that the appellant complied with all the conditions of being a developer and was not a mere works contractor.

Ld. AR further submitted that the assessee company as per detailed risk analysis placed at pages 212 to 215 of the assessee‟s paper book, it is clear that that the assessee not only undertakes the entrepreneur risk, financial risk and investment risk, which are the well

Ld. AR also pointed out that the assessee was assigned full responsibility to do all acts for execution and completion of work right from the beginning till handing over of the project to the contractee. The contract was not for a specific work but for development of the infrastructural facility as a whole. The contract also bound the assessee for change of scope of work in respect of any deviation/modification/extra work as envisaged during the execution of the project. It was also submitted by ld. AR that the assessee was assigned with the responsibility of development of the infrastructural facility as a whole and the fact that the assessee deployed its resources (material, machinery, labour etc.) in the construction work and that the assessee was liable to indemnify the employer/contractee for any losses/ damage caused to any property/life in the course of execution of work, which clearly shows the various risks undertaken by the assessee, which is also amply demonstrated vide the various clauses contained in the agreements executed by the assessee.

Ld. AR also vehemently submitted that the ld. Pr.CIT, at pages 52 & 53 in para 69, wrongly noted that assessee's auditor issued certificates in Form No. 10CCB, certifying the assessee as a "developer" eligible for deduction under the said section in contravention of the express provisions of the Act. In fact, even in previous two assessment years i.e. A.Y. 2012-13 & 2013-14, the A.O. had disallowed the assessee's similar claim of deduction u/s 80-IA(4) of the Act, and, thus, the AO should have disallowed the similar claim for present A.Y.2014-2015 also. On these

Ld. AR also submitted that under the Income Tax Act, each assessment year is a different year and each assessment is separate and independent, therefore, the AO is duty bound to consider the allowability of claim of assessee in the assessment year under consideration before him based on facts and circumstances and prevalent law on year-to-year basis. The fact that the erstwhile AO disallowed the appellant's similar

Ld. AR further submitted that observations at para 75 page 58 of the ld. Pr.CIT‟s order u/s.263 of the Act are perverse and unsustainable, being completely ignorant of the fact that every person who enters into an agreement with Government for development of infrastructural facility will necessarily be a contractor. It is an undisputed fact that even a person

Ld. AR also placed reliance on various decisions including the decision of Hon‟ble Bombay High Court in the case of ABG Heavy Industries Ltd. [2010] 322 ITR 323 (Bombay), order of the ITAT Rajkot Bench in the case of Katira Construction Ltd., [2019] 119 taxmann.com 489 (Rajkot-Trib), order dated 30.07.2020, order of the Indore Bench of the Tribunal in the case of Sanee Infrastructure (P.) Ltd. [2012] 23 taxmann.com 345 (Indore), order of the ITAT Kolkata Bench of the Tribunal in the case of SPML Infra Ltd., TS-6009-ITAT-2016 (Kolkata)-O and the order of the Cuttack Bench of the Tribunal in the case of ARSS Infrastructure Projects Ltd., ITA Nos.142&143/CTK/2020. Ld. AR further submitted that on the strength of the above noted judicial precedence, it is crystal clear that the assessee an assessee w.e.f. A.Y. 2002-03 became

Drawing our attention towards para 77 of the impugned order of ld. Pr.CIT, ld. AR submitted that the observation of the ld. Pr.CIT are based on wrong interpretation and understanding of law. Agreements for executing normal "works contract" entered into with Govt. departments cannot be equated with the "agreements" for the purpose of the section 80-IA(4)(i)(b) of the Act, which are limited only to (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructural facility. Otherwise, the whole purpose of having the Explanation below section 80-IA(13) of the Act would be defeated. It was also observed by the ld. Pr.CIT that since the assessee company did not enter into any agreement for simultaneously building, operating or maintaining any infrastructure facility"; it was not eligible to claim the benefit of deduction u/s 80- IA(4) of the Act.

In this respect, the ld. AR vehemently objected to the above- mentioned observations of the Ld. PCIT and submitted that this requirement was law which was changed by the Finance Act 2001 w.e.f.

Ld. AR further drew our attention towards para 78 of the impugned order and submitted that the Pr.CIT also observed that the assessee was undertaking several risks by referring to some of the clauses of the agreement is devoid of merit for the simple reason that these standard clauses appear in all Govt. contracts. When work is awarded by Govt. Departments and payment is made out of exchequer, it is but natural that the Principal i.e. the Govt. would secure the quality of the work and adherence to time schedule by imposing certain conditions on the contractor with regard to the quality of material to be utilized, the quality of personnel to be engaged to oversee the work, the liability for damages during the period of execution of the work etc. These conditions are imposed on every contractor by the Govt. Departments. Ld. AR pointed out that the reasoning recorded by the Pr.CIT rejecting the claim of deduction u/s.80IA(4) of the Act merely for the reason all the Government

Referring to para 81 to 83 of the impugned order, ld. AR submitted that the ld. Pr.CIT wrongly observed that the assessee did not fall in the category of "work" defined in Explanation (iv) to section 194C of the Act and therefore, the assessee would not get hit by the provisions of Explanation appearing below 80-IA(13) of the Act, has no merit. It is evident that the definition of "work" appearing in Explanation (iv) to section 194C of the Act is an "inclusive" definition, meaning thereby that the above definition is not "exhaustive". In other words, the word "work" would take in its ambit whatever falls within the natural, grammatical and ordinary meaning of "work" and in addition to that, other activities, which in the normal course would not mean "work", would also be treated as such by virtue of this "inclusive" definition. It was also submitted by ld. AR that no material was supplied by the employer to the appellant and that the appellant was solely responsible to mobilize and procure all the material and other resources as per the specification of the employer and accordingly, it was contended that the assessee was not a works contractor as defined u/s 194C of the Act. Ld. AR has placed reliance on the order of the ITAT Kolkata Bench “C” in the case of Adhunik Infrastructure (P) Ltd., ITA No.1281/Kol/2018 and the decision of the 51 ITA Nos.193-195/CTK/2019 (supra) and submitted that the work contract means supply of labour to carry out work and a work contract constitutes a contract under which the contractor is merely employing his efforts or labour and under such contract, the contractee provides the material and other requisites (complete infrastructure) needed to carry out the desired work to the contractor who by applying his labour to the said material turns the material into a desired product. But in the present case, the assessee did not merely employed the labour, but while executing the contract it provided with the material and other requisites machinery/equipment etc. by way of huge investments in purchase of said items, which ( complete infrastructure) needed to carry out the desired work. Hence, it can be conclusively held that work related to development of infrastructural facility undertaken by the appellant did not partake merely the nature of "works contract" by any stretch of imagination but the same was in the capacity of developer-cum-contractor. Hence, these reasonings of the ld.Pr.ClT also do not hold good.

Also drawing our attention towards para 84 to 86 of the impugned order, ld. AR submitted that the ld. Pr.CIT did not properly appreciate the case laws and judgment cited by ld. AR during the course of revisionary proceedings and tried to distinguish those judicial precedents by merely stating that the assessee was only a contractor and not a developer and that the decision was rendered prior to Explanation substituted by Finance (No. 2) Act, 2009 and accordingly, the Ld. Pr.CIT observed that the ratio of those decisions was not be applicable to the present case. Ld. AR

Ld. AR lastly drawing our attention towards para 87 & 88 of the order of the Pr.CIT submitted that keeping in view the factual and legal matrix of the case, ld. Pr.CIT was wrong in observing that the AO had wrongly allowed the benefit of Section 80IA(4) of the Act, which is clear violation of the Explanation substituted by Finance (No.2) Act, 2009 below section 80IA(13) and the contents of Circular No.5/2010 dated 03.06.2010. Ld. AR also submitted that these observations of the Pr.CIT are not correct, justified and sustainable because the assessee has rightly claimed deduction u/s.80IA(4) as per the amendment to the said Section since it was engaged in development of infrastructural facilities performing the work in the nature of a developer-cum-contractor. Ld. AR submitted that the Explanation substituted by Finance (No.2) Act, 2009 below Section 80IA(13) of the Act containing the Circular No.5/2010 dated 03.06.2010 debarred an assessee/entity carrying out the nature of the “work contract” from claiming benefit under this section. In fact, it was the 53 ITA Nos.193-195/CTK/2019 Ld. PCIT who ignored and misinterpreted the clear wordings of the section and opined that only the contractors executing work under the "Build-Operate-Transfer (BOT)" model would be eligible for deduction u/s 80-IA(4) of the Act. Ld. AR also submitted that the cardinal rule relating to exemption, allowance, deduction, rebate or relief is that they should be interpreted liberally and broadly so as to advance the object sought to be achieved and not frustrate it. Ld. AR submitted that unfortunately the ld. PCIT himself acknowledged the fact that liberal interpretation has to be given to a provision grating incentive. Thus, even on this count, the appellant performing function of a developer was eligible to claim the benefit of deduction under section 80-IA(4) of the Act. Therefore, on merits, the order passed by the Pr.CIT is not sustainable and, thus, bad in law. Thus, the deduction claimed by the assessee was within the four corners of law in light of the facts involved in the present case which were duly supported with the findings reiterated in the numerous judicial precedents cited during the course of revisionary proceedings and appellate proceedings before the Tribunal. Therefore, the order passed by the ld. Pr.CIT based on incorrect application of law which made the order erroneous and liable to be set-aside on this count itself.

The ld. AR of the assessee also placed reliance on the following judicial precedents in support of its contention: i) The Pr. CIT, Surat-2 v. Sbreeji Prints (P) Ltd reported in [2021] 130 taxmann.com 294 (SC); ii) CIT (Central) v. Max India Ltd reported in [2008] 166 Taxman 188 (SC); iii) CIT, Gujarat-II v. Kwality Steel Suppliers Complex reported in [2017] 84 taxmann.com 234 (SC)

It was also contended by the ld. AR that it is also worth noting that the reliance placed by the Ld. PCIT on the decision of the Hon'ble Juri ictional Bench of ITAT in the case of Cuttack Development Authority Vs. CIT, Cuttack [ITA No. 361/CTK/2014] wherein action of the Pr. ClT u/s 263 of the Act was upheld, was totally misplaced since facts of that case and facts of the present case are clearly distinguishable. In that case of Cuttack Development Authority, the AO did not examine the issue and did not conduct any enquiries while framing the assessment order u/s 143(3) of the Act whereas in the facts of the present case, the Ld. AO raised a specific query by way of notice u/s.142(1) of the Act along with 55 ITA Nos.193-195/CTK/2019 questionnaire requiring the assessee to furnish supporting documentary evidences so as to substantiate the deduction claimed by it u/s 80-IA(4) of the Act and the Ld. AO allowed the said claim of deduction, only after scrutinizing, examining and verifying all the relevant material placed on record including the documentary evidences/ books of accounts/reports in Form 10CCB and other papers produced during the course of assessment proceedings. Hence, findings of the Juri ictional Bench of ITAT in the case of Cuttack Development Authority Vs. ClT, Cuttack shall not be applicable to the facts of the present case.

Further, the Ld. AR of the assessee submitted that Pr.CIT time and again re-iterated in his order that order passed by the Ld. AO shall be deemed to be erroneous and prejudicial to the interests of the revenue since" the order was passed without making inquiries or verification which should have been made as per Explanation-2 (a) to section 263(1) of the Act. In this respect, ld. AR submitted that the above-stated allegation of the Ld. PCIT does not hold water for the simple reason that the Ld. AO passed assessment order only after conducting detailed inquires with respect to the reasons for selection of the case for scrutiny including the impugned claim of the assessee. Even otherwise, Explanation 2 to section 263(1) of the Act was inserted w.e.f. 01.06.2015 and it should apply prospectively from A.Y. 2016-2017 onwards and not retrospectively i.e. Explanation 2 to section 263(1) of the Act shall not apply to the proceedings for the year under consideration i.e. for A.Y. 2014-15. The 56 ITA Nos.193-195/CTK/2019 above-stated proposition has been affirmed in the following judicial precedents: i) M/s Indus Best Hospitality & Realtors Pvt. Ltd. Vs. Pr. CIT-6} Mumbai [ITA No. 3125/Mum/2017j ii) AV Industries v. ACIT [ITA No. 3469/Mum/2010j iii) Metacaps Engineering and Mahendra Constructions Co. (JV) v. CIT [ITA No.2895/Mum/2014j iv) Reliance Money Infrastructure Ltd. v. PCIT [ITA No. 3259/Mum/2017j v) Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015] vi) Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017]

Replying to the above, ld. Departmental Representative (CIT-DR) also drew our attention to the assessment order passed by the AO for A.Y.2014-2015 in the case of M/s SBEPL-GRIL (JV) in ITA No.194/CTK/2019 and submitted that the nature of business of the Joint Venture company has been stated to be “works contract”. He further drew our attention towards para 3,6 & 10 of the impugned order passed by ld. Pr.CIT in that case and submitted that it was clearly found that the assessee is a Joint Venture(JV) of Shree Balaji Engicon Pvt. Ltd. (SBEPL) and G.R.Infra Projects Ltd.(GRIL), having profit sharing ratio of 70% and 30% respectively. In Form No.3CD, at Sl.No.7(a) of Part-B, the Auditor had specifically mentioned the nature of business or profession carried out by the JV during the previous year was “works contract”. Further, in the said Audit Report in Form No.3CD (Sl.No.26 of Part-B), the Auditor had certified that section-wise details of deductions, if any, admissible under Chapter VIA of the Act at Nil. Ld. CITDR also submitted that in this case, the assessee had claimed entire amount of profit from works contract as deduction u/s.80-IA(4) of the Act which was not admissible as 57 ITA Nos.193-195/CTK/2019 per Explanation inserted below Section 80-IA(13) of the Act, which has been reproduced by the ld. Pr.CIT in para 6 of the impugned order. Ld. CITDR further drew our attention towards para 10 & 11 of the order of the ld. Pr.CIT and submitted that the assessee is a joint venture and the actual work had been executed by the assessee‟s member company i.e. M/s Shree Balaji Engicons (P) Ltd. as a sub-contractor and the assessee is not a developer but Government of India, Railways department and Government of Odisha are developers of the infrastructure facility, therefore, the assessee cannot not be, by no means of imagination, could have claimed to be a developer of the project, thus, was not entitled deduction u/s.80-IA(4) of the Act.

Ld. CITDR further drew our attention towards audit report of M/s SBEPL Grill (Joint Venture) pertaining to ITA No.194/CTK/2019, available at pages 32 to 51 of assessee‟s Paper Book-1 and submitted that in this case, the assessee has not taken any financial risk and this company has granted sub-contract for execution of work to a group company, thus, there was no purchases of raw materials, no increasing of any expenses of labour, technical and other operation work, therefore, this company was executing merely work contract in a capacity of contractor and not a developer. Ld. CITDR also drew our attention towards column 28 at page 39 of audit report in the case of SBEPL Grill (Joint Venture) and submitted that the assessee himself writes its status as work contractors and came out of the obligation of day-to-day for the items utilized for the execution of work, hence, it was submitted that it is not possible to furnish the quantity

Ld.CIT-DR also submitted that the tax audit report of Shree Balaji Engicons Pvt. Ltd. has not been filed in the paper book and separate books of accounts have not been maintained by the assessee. Ld. CITDR also drew our attention towards pages 77 to 180 of the assessee‟s paper book and submitted that the audit report u/s.80-IA dated 10.11.2014 was not filed along with paper book filed before the Tribunal. Ld. CITDR also submitted that when there is no drawing, design, no planning has been done by the assessee, simply contract work has been executed as per the direction of the contractee, therefore, the present assessee cannot be said to be developer-cum-contractor for the purpose of deduction u/s.80IA(4) of the Act. Ld. CITDR also placed reliance on the decisions of Hon‟ble Madras High Court in the case of Covanta Samaipatti Operating (P) Ltd., 93 taxmann.com 38 (Madras) & ITAT Mumbai in the case of M/s Marriot International Licensing Company BV, 35 taxmann.com 400

Placing rejoinder to the above, the ld. AR submitted that the facts of business model followed by these assessees of ITA No.193 & 194/CTK/2019, upto some extent, are distinct and different from the facts of the case in ITA No.195/CTK/2019, therefore, the ld. CIT-DR ought to have argued the stand of revenue on the basis of facts of ITA No.195/CTK/2019 and not on the strength of other two appeals as the assessee in ITA No.195/CTK/2019 i.e. in the case of Shree Balaji Engicon Pvt. Ltd. is a company, who executed the work itself and earned the profit, therefore, it was entitled for deduction u/s.80IA(4) of the Act. Regarding another two appeals i.e. ITA Nos.193&194/CTK/2019, the assessee has claimed deduction u/s.80IA(4) of the Act with regard to the income earned

Ld. AR further submitted that the ld. Pr.CIT was not justified and correct in invoking the provisions of Section 263 of the Act and holding that the assessment order passed by the AO was erroneous and 61 ITA Nos.193-195/CTK/2019 prejudicial to the interest of revenue. Ld. AR drew our attention towards written submissions dated 13.10.2021 of assessee at pages 257 to 281 of assessee‟s paper book No.2, which are as under :- 3] GROUND NO. 1 - CHALLENGING THE ACTION OF THE LD. PCIT IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT AND HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE LD. AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE 3.1] The appellant in this ground of appeal has challenged the action of the Ld. PCIT in invoking the provisions of section 263 of the Act and holding that the assessment order passed by the Ld. AO was erroneous and prejudicial to the interest of revenue more so when the assessment order was neither erroneous nor prejudicial to the interest of revenue. 3.2.1] A bare reading of section 263(1) of the Act makes it clear that the pre-requisite to exercise of juri iction by the Commissioner suo motu under it, is that the order of the AO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the AO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. 3.2.2] It is well settled that an order can be termed as 'erroneous' if the order is not in accordance with the law or if it has been passed by the AO without making any enquiry in undue haste. Further, an order can be termed as 'prejudicial to the interests of the revenue' if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. 3.2.3] Accordingly, there must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an. erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the revenue, for example, when an AO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Aa has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law.

Large other expenses claimed in the Profit & Loss a/c

Unsecured loans from persons who have not filed their return of income (Form 3CD) S. Higher turnover reported in Service Tax Return compared to ITR

Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR

Mismatch between income/ receipt credited to Profit & Loss account considered under other heads of income and Income from heads of income other than business/ profession etc. 3.4.1 As regards the issue of large deduction claimed under Chapter VI-A is concerned, it was one of the several issues for selection of case of the appellant for scrutiny since the appellant claimed deduction of Rs. 5,53,35,272/ - u/s 80-IA of the Act in its income-tax return for the A.Y. 2014-15. Accordingly, the Ld. AO during the course of assessment proceedings vide Query No. 17 of the notice dated 21.11.2016 specifically required the appellant to furnish supporting documentary evidences so as to substantiate the deduction claimed by it u/s 80-IA of the Act. The screenshot of the relevant extract of the notice issued by the Ld. AO during the course of assessment proceedings is reproduced hereunder for the ready reference of the Hon'ble Bench:

It is seen from the records that you have claimed deduction of Rs.5,53,35,272/- u/s.80-IA (under Chapter-VIA. In this connection, please refer to clause (i), sub-section (4) of section 80-IA which reads as under : Sub-section 4 : This section applies to- (i) any enterprise carrying on the business [of (i) developing or operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies [ or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act. (b) It has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;]

In response to the said notices, Sri Mahendra Kumar Kedia, FCA and the authorised representative (A/R) appeared and represented the case on behalf of the assessee. Relevant details/documents asked for during the course of assessment proceedings were furnished and verified with reference to the books of account and other relevant documents/papers produced and the case was heard and discussed. 3.4.4] The above-narrated sequence of events clearly demonstrate that the Ld. AO raised a specific query during the course of assessment proceedings regarding the eligibility of the appellant to claim deduction u/ s 80-IA of the Act and it was only after scrutinizing all the relevant placed on record including the documentary evidences/ books of accounts/ reports in Form 10CCB and other papers produced during the course of assessment proceedings, that the Ld. AO allowed the deduction claimed by the appellant u/s 80-IA of the Act. 3.4.5] Further, as elaborately discussed in the previous paragraphs of this submission, the appellant satisfied all the conditions prescribed u/s SO-IA(4) of the Act for claiming benefit of deduction therein. It was also categorically explained that the appellant was a 'contractor-cum-developer engaged in development of infrastructural facilities' and was not merely a 'contractor engaged in works contract' and henceforth, deduction claimed by the appellant u/s SO-lA of the Act was within the four corners of law in view of the facts involved in the present case duly corroborated with the findings re-iterated in the numerous judicial precedents cited during the course of revisionary proceedings and appellate proceedings before the Hon'ble Bench. Hence, it is well established that the view taken by the Ld. AO regarding the eligibility of deduction claimed by the appellant u/s 80-lA of the Act was a plausible view which is supported by existing and prevailing jurisprudence in similar and identical facts and such view which could not have been interfered with by the Ld. PClT by exercising his revisionary powers uls 263 of the Act. 3.4.6] Rather, it seems that the juri iction exercised by the Ld. PCIT u/s.263 of the Act was illegal and void-ab-initio for 'Various reasons discussed hereunder:

Now, coming to the merits as also the submissions as made by the assessee. Admittedly, the AO in the course of original assessment proceedings u/s. 143(3) of the Act has called for the explanation of the assessee as also directed the assessee to prove its claim for deduction u/s. 80IA(4) of the Act. The assessee has responded to the AO. The AO after considering the explanation and the proofs as produced by the assessee found that the assessee was eligible for deduction u/s. 80IA(4} of the Act. A perusal of the order of the Ld. CIT u /s. 263 of the Act does not any where show as to what is the specific error that the AO has committed when granting the assessee the deduction u/s. 80IA(4} of the Act. It is true that the Ld. CIT has referred to the provisions of explanation

The CIT has also observed that the Assessee was only a contractor and not a developer because he was carrying out work as per the contracts awarded by the Executive Engineer. As rightly pointed out by the learned counsel for the Assessee, the question as to whether the Assessee as per the question as to whether the Assessee is 'developer' or 'contractor' has to be tested in the light of the subsequent decisions rendered on the issue by the Hon'ble Bombay High Court in the case of ABG Heavy Industries (supra) and the order of the Division Bench of ITAT giving effect to the larger bench (third member) decision in the case of B. T. Patil & Sons {supra}. According to these decisions what is to be seen is as to whether the assessee has shouldered out Investment & technical risk in respect of the work executed and it is liable for liquidated damages if it failed to fulfill the obligation laid down in the agreement. The liability that was assumed by the assessee under terms of the contract would be obligations involving the development of an infrastructure facility. The assessee has also' in its employment technically and administratively qualified team of persons. If the above conditions are satisfied then it would not be correct to say that assessee is merely a contractor and not a developer. Without giving adverse finding on the above tests, the CIT could not conclude that the order of the AO was erroneous and prejudicial to the interest of the revenue.

Proceedings were initiated u re. 263 of the Act for AY 2010- 2011 identical grounds but no order u/s. 263 of the Act was ultimately passed. The grounds on which the CIT sought to invoke juri iction ur». 263 of the Act are quiet vague. Considering all the above aspects of the case, we are of the view that the conclusions

The admitted facts of the case are that the A.O. while making original assessment has issued a query letter dated 01.11.2010 wherein Clause 6 of the letter asked assessee to justify the exemption claimed under Section80IA of the Act. The assessee furnished t4G reply to the letter the AO. in original assessment noted the contention which has been reproduced above in Id. A.R. submission the AO. noted that the assessee has engaged in road construction work during the year under consideration. The assessee has claimed under Section 80IA of the Act. The reply of the assessee placed on record. The A. O. found the assessee has fulfilled all conditions as per. prescribed under Section 80IA(4) of the Act for which the assessee is eligible for the deduction of its profit earned from the construction activities. The assessee received total contract receipt of Rs.Rs.5,15,41,796/- during the year. He further noted that these receipts includes a sum of Rs.21,54,000/-received from M/s Deep Vijay Builders on which deduction u/s 80lA of the Act was not allowable. Thus, A.O. further noted that the assessee did not furnish separate calculation of profit from this activity hence the AO. estimated the amount of profit applying 5% and calculated Rs.1,07,250/- and treated as income from the contract with M/s. Deep Jai Builders and deduction under Section 80lA was not allowed. Further, the A.O. while calculating interest income under Section 80lA disallowed the interest income of Rs.10,679,23/- as it is not eligible for deduction under section 80lA of the Act. The A. O. held that interest income was not considered by the A. 0. while allowing deduction under Section 80lA of the Act. The A.O. accordingly made computation of total income which is reproduced as above.

The CIT while exercising power under Section 263 of the Act has formed an opinion considering the explanation below to Section 8OlA and was of the opinion that the assessee is not eligible for deduction under Section 8OlA. It is also relevant to note that according to CIT, the A.D. did not carry out adequate enquiries for the purpose of invoking Section 263. ft is necessary to hold by the CI'T that the assessment order passed by the A. O. was erroneous

Similar is the position in respect of unsecured loan and deposits. The A.O has made specific queries. The assessee submitted that the relevant records the A.O. verifying the same and came to the conclusion that the loan and advances shown by the assessee was in accordance with law. When the A. O. is satisfied then it is not necessary to discuss such matter in the order. The assessee has established that the assessee has furnished relevant documents in reply to the queries raised by the assessee. The view taken by the A.O. is after considering the material and submission of the assessee. The order of the A.O. cannot be said to be erroneous. CIT merely want further verification or according to him adequate verification. Such verification does not cover to exercise the power under Section 263 of the Act.

In the light of above discussion, we find that the order of A.O. is not erroneous and this basic condition for invoking section 263 of the Act has not been satisfied. Therefore the order of the CIT is not in accordance with law. We. therefore. set aside the order of the CIT. [Emphasis Supplied] Relevant extracts from few of the other landmark judicial precedents which have dealt with the issue of juri iction of CIT u/s 73 ITA Nos.193-195/CTK/2019 263 of the Act are also reproduced hereunder for the ready reference of the Hon'ble Bench: • The Hon'ble ITAT Mumbai Bench 'F' in the case of Sir Dorabji Tata Trust v. DCIT, (Exemption) Circle 2(1), Mumbai reported in [2021] 188 ITD 38 (Mumbai - Trib.) vide order dated 28.12.2020 has discussed the issue of revisionary powers of CIT u/ s 263 of the Act at length and has categorically held that: "20 . Undoubtedly, the expression used in Explanation 2 to Section 263 is "when Commissioner is of the view "but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny- and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. lf we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right· of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling the courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right-public or private-of a citizen. (L Hirday Nereinv. ITO (1970} 78 ITR 26 (SC). As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise their powers, to help anyone, when circumstances so justify' or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the 74 ITA Nos.193-195/CTK/2019 ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made ft. The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be.

That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills ((1896) 2 Ch 279,], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) "is not bound to be a 75 ITA Nos.193-195/CTK/2019 detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound. " Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the Assessing Officer is taken bona fide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case of Mala bar Industrial Co Ltd. v. CIT (2000) 109 Taxman 66/243ITR 83, Hon 'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. " The test for what the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in aerial-life situation. It is also important to bear in mind the fact that lack of bona fide s or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some" strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. [Emphasis Supplied) The Hon'ble Supreme Court of India in its landmark judgment in the case of Malabar Industrial Co. Ltd. v. CIT reported in [2000] 243 ITR 83 (SC) after considering the decisions in the case of Rampyari Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) has held that:

A bare reading of this provision makes it clear that the pre- requisite to exercise of juri iction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is 76 ITA Nos.193-195/CTK/2019 prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous and it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263{l}.

There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dewjee Dadabhov & Co. v. S.P. Jain [1957) 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pei [1975) 98ITR 422, the High Court of Bombay in CIT v. Gabrie1 India Ltd. [1993) 203 ITR208 and the High Court of Gujarat in CIT v. Smt. Mina1ben S. Parikh [1995) 215 ITR 81/ 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue.

The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67ITR 84 (SC) and in Smt. Tare Devi Aggarwal v. CIT [1973] 88ITR 323 (SC)." [Emphasis Supplied] • The Hon'ble Supreme Court of India in the case of CIT, Mumbai v. Amitabh Bachchan reported in [2016] 384 ITR 200 (SC) has held that:

There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be 77 ITA Nos.193-195/CTK/2019 interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisiona1 power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from …… [Emphasis Supplied] • The Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. reported in [1993] 203 ITR 108 (Bombay) has categorically held that: (10. The power of suo motu revision under sub-sectif1n (1) is in the nature of supervisory juri iction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of re vision under this sub-section, viz., (i) the order is erroneous;(ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions 'erroneous', 'erroneous assessment' and 'erroneous' judgment' have been defined in Black's Law Dictionary • According to the definition/erroneous', means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is juri ictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law upon mistaken view of law, or upon erroneous application of legal principles '.

From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualise where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner, he would have estimated the income at a figure higher than the one determined by the ITO That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and 78 ITA Nos.193-195/CTK/2019 arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly; if an order is erroneous but not prejudicial to the interests of the revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.

We, therefore, hold that in order to exercise power under sub- section (1) of section 263 there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the revenue. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objective factors were available from the records called for and examined by such authority " [Emphasis Supplied] • The Ld. PCIT in his order stated that the Hon'ble Delhi High Court in the case of ITO v. D.G. Housing Projects Ltd. reported in [2012] 343 ITR 329 (Delhi) distinguished the earlier judgment of the Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. reported in [2011] 332 ITR 167 (Delhi). However, this finding of the Ld. PCIT is not factually correct and the decision of the Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. still holds goods wherein a distinction was laid down between 'lack of inquiry' and 'inadequate inquiry' and it was held as under:

We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income- tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'tack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of 'tack of inquiry", that such a course of action would be open. " [Emphasis Supplied] • The Hon'ble Delhi High Court in the case of DIT v. Jyoti Foundation reported in [2013] 357 ITR 388 (Delhi) has held that:

Revisionary power under Section 263 of the Act is conferred by the Act on the Commissioner/Director of Income-tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because there visionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. " (Emphasis Supplied) • The Hon'ble Juri ictional Bench of ITAT in the case of Surekha Builders & Developers Pvt. Ltd. Vs. Pr. CIT-l. Bhubaneswar [ITA No. 207/CTK/2018] vide order dated 17.07.2020 wherein one of your honors (Hon'ble Judicial Member) was co- author, quashed the revisional order passed by the Pr. CIT u/s 263 of the Act by observing as under:

It is well settled principle that the Assessing Officer is required to make reasonable, sufficient and adequate enquiry of impugned issues during assessment proceedings and in case of no enquiry or insufficient or inadequate enquiry, Pr.CIT is empowered to revise the order holding the same as erroneous and prejudicial to the interest of the revenue. But if this proposition is evaluated in the facts and circumstances of the present case then, it is clearly discernible that the AO by way of notice u/s.142(l) dated 26.10.2015 and 30.7.2015 called the documents/information from the assessee which includes copy of the audited balance sheet, profit and loss account, Annual report along with details of bank accounts maintained including bank name, branch details and a/c no. supported with bank statements for the financial year 2012-13 relevant to assessment year 2013-14. From the above, we also observe that the Assessing Officer also called the details of party- wise purchase and sales of land/flat, details of project-wise percentage of construction as on 31.3.2013, estimate cost of each projects and estimate sales price thereof and closing stock details with detail valuation and method of valuation, which were submitted by the assessee and this fact has not been negated or disputed by Pr. CIT in the impugned order as well as during the arguments before us by Ld. CIT DR.

In view of copies of notices and replies of the assessee available at APB page 43 to 51, we are satisfied that during assessment proceedings, the AO made proper, sufficient and adequate enquiry on the issues including issue of revenue recognition of the assessee by following percentage completion method, project-wise revenue recognition. Therefore, it is not a case of no enquiry, inadequate enquiry or insufficient enquiry. Therefore, without holding so, the impugned assessment order cannot be tagged or alleged as erroneous and prejudicial to the interest of revenue. [Emphasis Supplied] • The appellant also places reliance on the following judicial precedents in support of its contention: ~ The Pr. CIT, Surat-2 v. Shreeji Prints (P.) Ltd reported in [2021J 130 taxmann.com 294 (SC) ~ CIT (Central) v. Max India Ltd reported in [2008J 166 Taxman 188 (SC) ~ CIT, Gujarat-II v. Kwality Steel Suppliers Complex reported in [2017J 84 taxmann. com 234 (SC) ~ CIT, Central- III v. Nirav Modi reported in [2016J 71 taxmann.com 272 (Bombay) ~ CIT v. Honda Siel Power Products Ltd reported in [2010J 194 Taxman 175 (Delhi)

Ld. AR briefly reiterated the above submissions and submitted that the revisionary authority before invoking the provisions of Section 263 of the Act, is duty bound to reach to a logical conclusion that the assessment order is erroneous and prejudicial to the interest of revenue and in the present case the findings arrived by the ld. Pr.CIT are perverse and based on the misappropriation of facts and mis-interpretation of case laws rendered by the Hon‟ble Supreme Court, Hon‟ble various High Courts and coordinate benches of the Tribunal, therefore, the same is not sustainable. Ld. AR submitted that there must be material available on record called for by the Pr.CIT to satisfy him prima facie that the twin conditions have been fulfilled and requirement of prejudicial to the interest of revenue has to be read in conjecture that an erroneous order passed by the AO as every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of revenue. Ld. AR submitted that during the assessment proceedings the AO vide notice dated 21.11.2016, in query No.17 specifically required the assessee to furnish certain documentary evidence so as to substantiate the claim of deduction u/s.80IA(4) of the Act which was properly replied by the assessee along with relevant documentary evidence and other reports including audit report of the auditor. Ld. AR also submitted that the 84 ITA Nos.193-195/CTK/2019 assessee also produced the relevant documents entered into by it with the employees/contractee before the AO so as to substantiate the fact that it was engaged in development of infrastructure facility and was eligible to claim deduction u/s.80IA of the Act after scrutinizing of the relevant materials placed on record including documentary evidence/books of accounts and other papers produced by the assessee, allowed the claim of deduction to the assessee u/s.80IA(4) of the Act. Therefore, the citation relied on by the ld. CITDR rendered by the Hon‟ble High Court of Madhya Pradesh in the case of Deepak Kumar Garg (supra) is not applicable in the present case as in that case the Assessing Officer failed to conduct enquiry for want of time but in the present case the Assessing Officer after due verification and examination of claim of assessee by way of adequate and sufficient enquiry has allowed the claim of assessee.

1 Ld. AR also pointed out that the submission of the assessee on merits clearly substantiate that the assessee satisfies all the conditions prescribed u/s.80IA(4) of the Act for claiming deduction and subsequently substantiated that the assessee was a contractor-cum-developer engaged in the development of infrastructural facility and was not merely a contractor engaged in the work contract, therefore, the claim of deduction u/s.80IA(4) of the Act to the assessee was within the four corners of the law. Ld. AR submitted that when the AO regarding allowability of deduction u/s.80IA(4) of the Act has taken a plausible view which was supported by documentary evidence in the similar and identical facts then

Ld. AR submitted that the submissions made on behalf of the assessee on merits clearly supports the view taken by the AO in allowing deduction u/s.80IA(4) of the Act, therefore, the order passed by the ld. Pr.CIT directing the AO to make disallowance u/s.80IA(4) of the Act deserves to be quashed and set aside being illegal and void ab initio. To support these contentions, ld. AR has placed reliance on various decisions including the order of ITAT Cuttack Bench in the case of ARSS Infrastructure Projects Ltd. (supra) and order of ITAT Kolkata Bench in the case of BMW Industries Ltd. [2017] 162 ITD 650 (Kolkata-Trib), order of ITAT Agra Bench in the case of Shree Narayan Built UP (I) (P) Ltd. [2014] 61 SOT 79 (Agra-Trib)(URO) and contended that the order of AO is not erroneous and the twin conditions for invoking revisionary action u/s.263 of the Act has not been satisfied, therefore, the order of ld. Pr.CIT is not in accordance with law and, thus, deserves to be set aside.

Ld. AR, pressing into service along with proposition laid down by the Hon‟ble Supreme Court in the case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC), in the case of Amitabh Bachchan [2016] 384 ITR 200 (SC) and in the case of Gabriel India Ltd. [1993] 203 ITR 108 (Bombay) including order of ITAT Mumbai Bench in the case of Sir Dorabji Tata Trust [2021] 188 ITD 38 (Mumbai-Trib), order dated 28.12.2020, submitted that during the assessment proceedings the AO has made proper, sufficient and adequate enquiry on all the issues including the 86 ITA Nos.193-195/CTK/2019 issue of allowability of deduction u/s.80IA(4) of the Act to the assessee after examining all the relevant documents, financial statements, books of accounts and other relevant papers by way of issuing notice along with questionnaires, receiving replies from the assessee, therefore, it is not a case of no enquiry or inadequate enquiry or insufficient enquiry, thus, without holding so the assessment order cannot be treated as erroneous and prejudicial to the interest of revenue. Therefore, the findings of the ld. Pr.CIT are not valid and unsustainable.

On careful consideration of above rival submissions and thoughtful perusal of the material placed on record and case laws cited by both the parties, first of all, we may point out that the Explanation below Section 80IA(13) of the Act was inserted by the Finance Act, 2007 and subsequently it was again amended by way of inserting some words and specifying that the provisions of Section 80IA shall not apply in relation to a business referred to sub-section (4) which is in the nature of work contract awarded by any person including the Central Government or State Government and executed by the undertaking or enterprises was referred in sub-section (1) and this amendment was made applicable with retrospective effect i.e. 01.04.2000, this explanation restricts the benefit of deduction u/s.80IA(4) of the Act to a person who executes a project, which is in the nature of works contract. For proper understanding of said Explanation, it is required to consider the difference between a developer- cum-contractor and work contractor. In a common meaning a person is referred as developer-cum-contractor who undertakes a project to 87 ITA Nos.193-195/CTK/2019 develop and conduct on own responsibility and takes all the risk including investment risk, financial risk, entrepreneur risk and all kinds of business risk, such responsibilities and risks can be summarized as under :- (i) That in a development contract" responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the developer exercise complete realm over the land or the project. However, in some case there can be a situation that the developer 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. (ii) That the first phase for the developers is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee 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 the developer under takes 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 execute 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 developers is the one who undertakes entrepreneurial and investment risk besides the business risk. (f) That a developer is required to bring the qualitative material. The Government does not provide any material to the assessee. (g) That a developer is required to bring plant and machineries to be utilized in the project. (h) Any loss caused to the public or the Government in the process of developing the project would be the responsibility of the 88 ITA Nos.193-195/CTK/2019 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 it, he shall provide the remedy for the same. (j) That a developer shall be exposed to the penalty if it contravenes the any of the clause 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.

In our humble understanding keeping view the nature of business as elaborated by the assessee and not controverted by the revenue, we clearly observe that the assessee obtained work by way of tenders wherein he submitted all technical bids in the form of details and working process that the assessee brought in his own material according to the specification of the employer/contractee, skilled man power, technical expertise for the execution and timely completion of the work, responsibility of development, to rectify and/or indemnify against damages and had undertaken entrepreneurial and investment risks while carrying out the infrastructure development facilities. From the copies of the agreement and the nature of work as explained by the assessee before the ld. Pr.CIT in the tabular form by referring requirements of contractee and consequent liabilities and responsibilities of the assessee, we also clearly observe that the assessee was required to furnish details of technical personnel, plant and machinery, past experience of similar work,

In our humble understanding, Explanation below section 80IA(13) was inserted to prevent misuse and abuse of tax incentives and the purpose of same was explained in the explanatory clause 22 to the amendment which clarifies that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. The purpose of legislature behind insertion of Explanation below Section 80IA(13) of the Act was to clarify that mere works contract would not be eligible for deduction u/s.80IA of the Act and to disqualify the entities, who does only mere works contract or sub-contract as distinct from the work of a developer- cum-contractor. From the explanatory memorandum, the intention of Parliament is loud and clear that the purpose of tax benefit is to encourage investment in development of infrastructural sector and not for the persons who merely execute the civil construction work. In explanatory clause 22, it was categorically explained that the deduction u/s.80IA(4) of the Act will be available to the developers, who undertakes

In view of foregoing discussion, we are of the considered view that the ld. AR has successfully demonstrated by way of all relevant details and documents that the assessee at present, has undertaken huge risk in terms of deployment of technical persons, plant and machinery, technical knowhow, expertise managerial and financial resources which qualifies the assessee as developer-cum-contractor and the assessee is not merely a contractor who undertakes work contracts only. The financial statements, balance sheet and profit and loss account, clearly demonstrate that the assessee has used its own machinery and equipment of more than Rs.42 crores and has purchased and consumed materials of more than Rs.102 crores, purchased from various vendors during the relevant financial period, which was not provided by the contractee, these factual position has not been controverted by the ld. Pr.CIT in any manner, therefore, we safely presume that the assessee is not merely a contractor discharging works contract but it is a developer- cum-contractor, thus, rider created by the Explanation below Section 80IA(13) of the Act, which clearly provides that the entity doing work contract will not be eligible for benefit of deduction but the assessee cannot be put in the basket of work contractor and keeping in view wider scope of his work and various business risks such as entrepreneur,

From the relevant parts of the impugned revisionary order u/s.263 of the Act, we observe that the ld. Pr.CIT has made vehement emphasis on the precondition for allowability u/s.80IA(4) of the Act that the assessee is required to act as a developer, who is also operating and maintaining infrastructural facilities and has also placed reliance on the judgment of the Hon‟ble High Court of Bombay in the case of AVG Heavy Industries Ltd. (supra), On careful and respectful perusal of the judgment of Hon‟ble Bombay High Court particularly from paras 22 and 23, it is amply clear that after the amendment to clause (i) of the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the “or” between three activities were not there, after the amendment the word “or” has been inserted w.e.f.1-4-2002 by Finance Act 2001. The relevant paras 22 & 23 of the judgment of Hon‟ble Bombay High Court (supra) are thus, :-

Another submission which was urged on behalf of the Revenue is that under clause (iii) of sub-section (4A) of Section 80IA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April 1995. The same requirement is embodied in sub-clause (c) of clause (i) of sub-section (4) of the amended provisions of Section 80IA. On this basis, it was urged that since the assessee was not operating and maintaining the facility, he did not fulfill the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this 92 ITA Nos.193-195/CTK/2019 judgment. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April 1995. After Section 80IA 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 fulfills 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 1st April 1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1st April 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 1st April 1995. In the present case, the assessee clearly fulfilled this condition.

In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The subsequent amendment of Section 80IA (4A) of the Act to clarify that the provision would apply to an enterprise engaged in (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to Section 80IA (4) of the Act set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature.

Therefore, in view of above observations in the judgment of the Hon‟ble Bombay High Court in the case of AVG Heavy Industries Ltd. (supra), we clearly and respectfully note that the amendment by 93 ITA Nos.193-195/CTK/2019 Parliament to section 80IA(4) of the Act settled the issue by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature and the provision would apply to an enterprise engaged in (i) developing; (or) (ii) operating and maintaining ; (or) (iii) developing, operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the filed. In view of above discussion and after careful consideration of business and contract work undertaken by the present assessee, out of which impugned income, on which deduction/s.80IA(4) has been allowed by the AO, was accrued to the assessee from the business activity conducted or undertaken in the capacity of developer- cum-work contractor and not in the capacity of merely a work contractor. Therefore, in view of above factual matrix of the case, we reach to a logical conclusion that the assessee is a developer-cum-contractor and was engaged in the work of developing infrastructure facilities, thus, complying with the condition (i) of section 80IA(4) of the Act would be eligible for deduction u/s.80IA(4) of the Act and, thus, the assessment order granting deduction u/s.80IA(4) of the Act cannot be tagged or alleged as erroneous and prejudicial to the interest of revenue. This view taken by the Hon‟ble Bombay High Court has also followed by the ITAT Rajkot Bench in the case of Katira Constructions Ltd. (supra), ITAT Indore bench in the case of Sanee Infrastructure Pvt. Ltd.(supra), and the order of ITAT Kolkata Bench in the case of SPML Infra ltd. (supra).

1 We are of the considered opinion that the assessee did not merely employ its labour while executing the project but it was also provided with the material and other requisites of technical and financial support by the contractee to carry out the desired work, therefore, we reached to a logical conclusion that the work relating to development of infrastructure facility did not partake the character of merely work contract and at the same time we are of the fortified opinion that the development work of infrastructure facility had been undertaken by the assessee out of which impugned amount of profit accrued to the assessee, hence, the ld. Pr.CIT was not justified and correct in distinguishing the judgment of Hon‟ble High Court of Bombay in the case of AVG Industries (supra) and other related judgment on this issue.

2 The ld. AR has also placed strong reliance on the order of ITAT Kolkata Bench in the case of ACIT Vs. Ho Hup Simplex JV [2018] 92 taxmann.com 108 (Kolkata-Trib.). In this case, the assessee was awarded a contract to construct Road by NHAI and it was to procure raw material, make arrangements for power, water, plant machinery etc., and conduct all other activities needed for construction, assessee was a developer and not a mere works contractor and, accordingly was held eligible for deduction u/s.80IA of the Act and similar facts exist in the present case and, thus, this proposition also supports the ground of assessee on merits.

3 The ld. CITDR has placed vehement reliance on the decision of Hon‟ble Madras High Court in the case of Covanta Samalpatti Operating

4 The ld. CITDR has also placed reliance on the order of ITAT Delhi Bench in the case of Parnika Commercial & Estates (P) Ltd [2016] 72 taxmann.com 177 (Delhi-Trib.), where the Assessing Officer rejected the claim of deduction under section 80-IA(4) of assessee, engaged in Civil Contract Work, on ground that it was not engaged in eligible business as per section 80-IA(4), but before denying claim of assessee, AO did not make thorough enquiry in matter regarding nature of agreements, terms of payments, maintenance of account books with respect to project separately, etc., and matter was restored to the file of AO for readjudication after allowing due opportunity of hearing to the assessee but in the present case such position does not exit as the assessee by way of relevant documentary evidence, accounts, copies of the contract agreements and other facts has successfully demonstrated that the 96 ITA Nos.193-195/CTK/2019 impugned income was earned to it from the business activity conducted in the capacity of developer-cum-contractor, therefore, benefit of this citation in favour of revenue is not available.

5 We find it relevant to go through the memorandum explaining the provisions in the Finance Bill 2007, which clearly lays out that the purpose of extending tax benefit u/s.80IA of the Act was to encourage investments from the private sector, hence, work contracts i.e. contracts involving merely labour or mere execution of construction work without making investment have been kept outside the purview of the provision of the section 80IA(4) of the Act. At the same time, from the said memorandum which reproduced below, clearly explains the purpose of tax benefit for encouraging private sector participation by way of investment in developing of the infrastructure sector and not to the persons who merely executes the civil construction work or any other works contract. The memorandum has been reported in (2007) 289 ITR(St.) 292 at page 312, which reads as under :- "Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not (or the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment

6 The above noted factual matrix, placed before the bench by way of relevant documentary evidence, copies of the contract development agreements and other legal propositions and citations on the issue pertaining to present assessee M/s Balaji Engicon Pvt. Ltd. (ITA No.195/CTK/2019) have not been controverted by the ld. CITDR. Therefore, we hold that the AO was right in allowing the claim of assessee u/s.80IA(4) of the Act after due examination and verification of the relevant materials, documents, copies of the contract and evidence etc., thus, on merits the assessment order cannot be alleged as erroneous and prejudicial to the interest of revenue.

Now, we further proceed to adjudicate the grounds of assessee on merits in ITA Nos.193&194/CTK/2019. Ld. AR has relied on the provision of sub-clause (a) of clause (i) of sub-section 4 of Section 80IA of the Act and has submitted that sub-section (4) applies to an entity which is owned by a company registered in India or by consortium of such company. He further explained that in these two appeals, the assessee the assessee has claimed deduction u/s.80IA(4) of the Act with regard to the income earned from the Joint Venture entity which was created by the respective assessees for the purpose of executing development-cum-contract work,

Now, we proceed to adjudicate the legal contentions and objections raised by both the sides, it is a well settled legal position for invoking revisionary powers u/s.263 of the Act the ld. Pr.CIT has to be satisfied of two conditions namely, the order of the AO sought to revive is erroneous and prejudicial the interest of revenue and if any one of these conditions is absent then the revisionary powers u/s. 263 of the Act cannot be invoked to revive the assessment order. In the present case from the contentions of the ld. AR as explained by way of supporting documentary evidence we are convinced that the Assessing Officer has made adequate and sufficient enquiry on all the relevant issue including allowability of deduction u/s.80IA(4) of the Act. Therefore, the order cannot be alleged as erroneous and prejudicial to the interest of revenue.

So far as applicability of Explanation 2 to Section 263 of the Act is concerned, this issue was put up for adjudication before the coordinate bench of the Tribunal at Mumbai in the case of M/s Indus Best Hospitality

In this regard, we observe that the aforesaid judgments have been later considered by Hon'ble Mumbai Tribunal in several other cases. Further, in the recent judgments, the Hon'ble Tribunal has taken a view that the provisions to Explanation 2 to s. 263 of the Act introduced by the Finance Act, 2015 is prospective in nature and would not apply to the year under consideration as follows: (a) AV Industries v. ACIT [ITA No. 3469/Mum/2010] dated 06.11.2015. (b) Metacaps Engineering and Mahendra Constructions Co. (JV) v. CIT [ITA No. 2895/Mum/2014] dated 11.09.2017 (c) Reliance Money Infrastructure Ltd. v. PCIT [ITA No. 3259/Mum/2017] dated 06.10.2017. (d) Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015] dated 09.09.2016 (e) Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017] dated 29.11.2017. 51. Respectfully following the order of ITAT Mumbai in the case of M/s Indus Best Hospitality & Realtors Pvt. Ltd. (supra), we are compelled to hold that Explanation 2 to s.263 of the Act introduced by the Finance Act, 2015 is prospective in nature and would not apply to the year under consideration i.e. A.Y.2014-2015. Therefore, we decline to accept the contention of ld. CITDR that the impugned order of ld. Pr.CIT is sustainable in view of Explanation 2 to sub-section (1) of Section 263 of the Act.

The ld. AR has placed reliance on the recent order of ITAT Mumbai 38 and submitted that the revisionary powers u/s.263 of the Act cannot be 101 ITA Nos.193-195/CTK/2019 exercised in an arbitrary manner. In this order, we observe that the Tribunal held that when a public authority has the power to do something in the aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant and as a coronary to this legal position, when a public has a power to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. The Tribunal also held that it is also important to bearing in mind the fact that lack of bonafide or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. In the present case, we are unable to see any omission or negligence on the part of the AO while allowing the claim of assessee u/s.80IA(4) of the Act, therefore, the powers u/s.263 of the Act cannot be exercised to review such order.

In the case of Malabar Industries Company Limited (supra), after considering its earlier judgments in the case of Rampyari Devi Saraogi and Tara Devi Agarwal (supra), the Hon‟ble Supreme Court held that, „the phrase „prejudicial to the interests of the revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and 102 ITA Nos.193-195/CTK/2019 it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. In the present case, as we have discussed above the view on the allowaibility of deduction u/s.80IA(4) of the Act, taken by the AO is correct and plausible, therefore, that view cannot be revised by invoking powers u/s.263 of the Act merely because the ld. Pr.CIT was not agreed to the view taken by the AO. Similar situation is discernible from the impugned revisionary order.

The Hon‟ble Supreme Court in the case of CIT Vs. Amitabh Bachchan [2016] 384 ITR 200 (SC), at para 21, has held that there can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two view are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. In the present case, as we have noted above the view taken by the AO on merits is plausible and sustainable as per the provisions of law and scheme of Section 80IA(4) of the Act, therefore, revisionary powers cannot be exercised. In the present case also in view of foregoing discussion, we have concluded that we are unable to see an ambiguity,

The ld. AR also placed reliance on the decision of Hon‟ble Bombay High Court in the case of Gabriel India 203 ITR 108 (Bom), decision of Hon‟ble Delhi High Court in the case of D.G.Housing Project Ltd. 343 ITR 329 (Delhi), wherein it was held that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open.” Same view has been reiterated by Hon‟ble Delhi High Court in the case of DIT Vs. Jyoti Foundation, [2013] 357 ITR 388. As we have noted above, the Assessing Officer has done sufficient and adequate enquiry before allowing claim of the assessee u/s.80IA(4) of the Act, therefore, these citations support the legal ground of assessee.

In view of above, we are satisfied that during assessment proceedings, the AO made proper, sufficient and adequate enquiry on the issue of allowability of deduction u/s.80IA(4) of the Act. Therefore, it is not a case of no enquiry, inadequate enquiry or insufficient enquiry. Therefore, without holding so, the impugned assessment order cannot be 104 ITA Nos.193-195/CTK/2019 tagged or alleged as erroneous and prejudicial to the interest of revenue. Therefore, we reached to a logical conclusion that the impugned revisionary order u/s.263 of the Act has not been passed by assuming valid juri iction to invoke such provision against such assessee, thus, the same is not valid and sustainable neither on merits nor on legal footings. We hold so and, thus, partly set aside the impugned order of the ld. Pr.CIT upto the extent of making disallowance u/s.80IA(4) of the Act.

On the basis of foregoing discussion, we reached to a logical conclusion that the conclusion arrived at by the ld. Pr.CIT on the issue of allowability of deduction u/s.80IA(4) of the Act pertaining to the impugned assessment year relevant to ITA No.195/CTK/2019 cannot be held as valid and, thus, the same is unsustainable. Regarding other two appeals i.e. ITA Nos.193&194/CTK/2019, we are of the considered view that on the identical facts and circumstances, these two assessees have undertaken work in the capacity of developer-cum-contractor creating consortium and by using their own skilled and technical staff, equipment, machinery, investment and financial resources and work has been executed by the member of consortium/special purpose vehicles by using the all means and resources of members of consortium. Ld. Pr.CIT has not demonstrated or controverted that these entities have not executed the development work contract in the capacity of developer-cum- contractor. The assessee has subsequently demonstrated that the work was executed by the member of consortium, material was purchased by them, plant and machinery owned by the members of consortium was 105 ITA Nos.193-195/CTK/2019 used and investment and financial risk was also undertaken by the members of consortium and the work was neither sublet nor sub- contracted to any outsider third party or entity. We have noted above that the income earned by a consortium on such companies is also entitled for deduction/s.80IA(4) of the Act, therefore, the grounds of assessee raised in ITA Nos.193&194/2019 are also allowed by applying the conclusion drawn in ITA No.195/CTK/2019 on merits as well as on legal ground with regard to allowing the claim of the assessee u/s.80IA(4) of the Act. Ground No.2 of assessee in ITA No.195/CTK/2019 :

On the issue of invoking revisionary powers u/s.263 of the Act by the ld. Pr.CIT on the issue of disallowance u/s.14A of the Act, ld. AR submitted that it was mandatory for the AO to form a satisfaction prior to the invocation of the provisions of Section 14A of the Act read with rules 8D of the I.T.Rules and ld. Pr.CIT could not have substituted the satisfaction of the ld. AO. Ld. AR also pointed out that there was not even an iota of evidence that any expenditure debited in the Statement of Profit & Loss was related to earning of exempt income interest free funds were higher than the investments made and it shall therefore be presumed that investments were made out of interest free funds and not out of interest bearing funds. Ld. AR also submitted that no exempt income was received/receivable in respect of investment made in the shares of group companies, therefore, no disallowance should have been made u/s.14A read with rule 8D. The relevant written submissions of the assessee, in 106 ITA Nos.193-195/CTK/2019 this regard, are available at pages 241 to 256 of the assessee‟s paper book dated 13.10.2021, which read as follows :-

1] The appellant in this ground of appeal has challenged the action of the Ld. PClT in directing the Ld. AO to make disallowance of Rs.14,76,976/- u/s 14A of the Act.

2] The Ld. PCIT in Para 12 to 14 of the show cause notice issued u/s.263 of the Act dealt with the issue of disallowance u/s 14A of the Act and observed that the appellant made investment in Joint Venture (JV) of Rs.2,42,09,412/ - and investment in equity shares of different companies of Rs.4,88,40,000/-. The Ld. PClT then observed that the Ld. AO did not examine the issue of disallowance as per the provisions of section 14A of the Act read with Rule 80 of the Rules during the course of assessment proceedings and if he had done so, an amount of Rs. 36,00,478/ - would have been disallowed u/s.14A of the Act. Hence, the Ld. PClT opined that the Ld. AO's failure to examine the issue from the angle of section 14A of the Act rendered the assessment order prima-facie erroneous in so far as it is prejudicial to the interest of revenue.

3] In response to the show cause notice issued vi] s 263 of the Act, the appellant duly furnished its submission along with the requisite explanations wherein it was categorically submitted that no disallowance was called for u/s.14A of the Act. The gist of the submission made by the appellant before the Ld. PClT has also been discussed in Para 46 on inner Page No. 32-34 of the order passed by the Ld. PClT.

4] However, the Ld. PClT did not completely accept the contentions put forth by the appellant citing various reasons/ case laws for his disagreement and he accordingly directed the Ld. AO to make disallowance of Rs. 14,76,976/- u/s 14A of the Act which was worked out as under:

1] However, with due respect, it is being submitted that action of the Ld. PClT in directing the Ld. AO to make disallowance of Rs. 14,76,976/- u/s 14A of the Act is legally unsustainable for the below-mentioned reasons: (i) It was mandatory for the Ld. AO to form a satisfaction prior to invoking the provisions of section 14A of the Act read with Rule 80 of the Rules and the satisfaction of the Ld. PClT could not have substituted the satisfaction of the Ld. AO (ii) There was not even an iota of evidence that any expenditure debited in the Statement of Profit & Loss was related to earning of exempt income. (iii) Interest free funds were higher than the investments made and it shall therefore be presumed that investments were made out of interest free funds and not out of interest bearing funds (iv) No exempt income was received/ receivable in respect of investment made in the shares of group companies 2,5.2] The submission of the appellant apropos each of these reasons is discussed hereunder for the ready reference of the Hon'ble Bench: (i) It was mandatory for the Ld. AO to form a satisfaction prior to invoking the provisions of section 14A of the Act read with Rule 8D of the Rules and the satisfaction of the Ld. PClT could not have substituted the satisfaction of the Ld. AO

We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule BD of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule BD or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A{2} and (3) read with Rule BD of the Rules or a best judgment determination, as earlier prevailing, would become applicable. " [Emphasis Supplied] • The Hon'ble Delhi High Court in the case of Pr. CIT-9 v. Vedanta Ltd. reported in [2019] 102 taxmann.com 95 (Delhi) has categorically held that:

It is apparent that the Assessing Officer without examining, commenting and rejecting the disallowance made by the respondent-assessee had applied Rule 8D as compulsory and universally applicable rule where the 'aseessee has earned exempt income. However, Rule 8D cannot be invoked and applied unless the Assessing Officer records his dissatisfaction regarding correctness of the claim made by the assessee in relation to expenditure incurred to earn exempt income. This is the mandate and pre-condition imposed by sub-section (2) to Section 14A of the Act. Rule 8D is in the nature of best judgment determination i.e. determination in default and on rejection of the explanation of the assessee in relation to expenditure incurred to earn exempt income. Rule 8D is not applicable by default but only if and when the Assessing Officer records his satisfaction and rejects the explanation of the assessee regarding the disallowance of expenditure. In the present case the assessment order proceeds on a wrong assumption that Rule BD would applies to all cases and is mandatory. Finding of the Tribunal affirming the order of the Commissioner of Income Tax(Appeals) is in accordance with the law. " [Emphasis Supplied}

In the first instance, it needs to be recognised that as per section 14A(l) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee "in relation to income which does not form part of the total income under this Act". Automatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income. then such an expenditure would obviously be treated as not related to the income that is exempted from tax. and such expenditure would be allowed as business expenditure. To put it differently. such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income. (Emphasis Supplied] • The Hon'ble Bombay High Court in the case of CIT v. Sociedade De Fomento Industrial (P.) Ltd. reported in [2020] 429 ITR 358 (Bombay) vide order dated 06.11.2020 has held that:

Here, on facts, the Tribunal noted that the AD only discussed the provisions of section 14A(l) but has not justified how the expenditure the Assessee incurred during the relevant year related

We may further reiterate that before rejecting the disallowance computed by the Assessee, the Assessing Officer must give a clear finding with reference to the Assessee's accounts as to how the other expenditure claimed by the Assessee out of the non-exempt income is related to the exempt income.

So, we see no valid reasons to upset the Tribunal's well- reasoned judgment on this substantial question of law. (Emphasis Supplied) • The appellant also places reliance on the following judicial precedents in support of its contention: Pr. CIT v. Infosys BPO Ltd. reported in (2021j 123 taxmann.com 216 (Karnataka) CIT, Chennai v. Celebrity Fashion Ltd. reported in (2020j 428 ITR 470 (Madras) • In view of the settled legal position enunciated in the judicial precedents cited supra, it becomes crystal clear that the Ld. PClT prior to invoking the provisions of section 14A of the Act ought to have demonstrated as to how the expenses claimed by the appellant out of the non-exempt income were related to earning of exempt income. However, no such exercise was undertaken by the Ld. PClT and the Ld. PClT simply jumped to Rule BD of the Rules and worked out the disallowance u/s 14A of the Act. Hence, action of the Ld. PClT in directing the Ld. AO to make disallowance u/s 14A of the Act is not justifiable on this count also. (iii) Interest free funds were higher than the investments made and it shall therefore be presumed that investments were made out of interest free funds and not out of interest bearing funds • Detail of investment of Rs. 4,88,40,000/ - made in the equity shares of group companies and shown under 'Note 13 - Non

Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessees.in bonds/shares using interest free funds, under Section 14A of the Act. In other words, if investments in securities is made out of common funds and the assessee has available, non-interest- bearing funds larger than the investments made in tax- free securities then in such cases, disallowance under Section 14A cannot be made.

The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees. [Emphasis Supplied]

Thus, it is evident that the capital and reserves of the company are far in excess of the investment made. Therefore, the presumption arises that such investments have been made from capital and reserves of the company and from non-interest bearing funds and not out of borrowed funds to warrant any disallowance while computing the income. [See: Reliance Utilities and Power Ltd.(supra) and Lalsons Enterprises (supra). It is also pertinent to mention here that the Assessing Officer has not recorded the satisfaction that assessee had incurred expenditure to earn exempt income as envisaged under rule 8D(1) of the Rules. There is no positive material to show that the assessee had incurred such expenditure to earn exempt income. The Commissioner of Income- tax (Appeals) and the tribunal therefore, have rightly deleted the disallowance under section 14A read with rule 8D of the Rules. The Circular No. 5/2014 dated 11-2-2014 has no application to the facts of the case as the Assessment Year in question is 2009-10. In view of preceding analysis, the substantial question of law framed by a bench of this court is answered against the revenue and in favour of the assessee. (Emphasis Supplied] • The appellant also places reliance on the following judicial precedents in support of its contention: Pr. CIT-IV. Ahmedabad v. Sintex Industries Ltd. reported in (2018J 93 taxmann.com 24 (Se) & Pr. CIT-4 v. Sintex Industries Ltd. reported in (2017J 82 taxmann.com 171 (Gujarat) Pr. CIT (Central) v. Ashok Apperels (P) Ltd. reported in (2020J 423ITR 412 (Bombay) Pr. CIT-7 v. Premier Finance & Trading Co. Ltd. reported in (2019J 104 taxmann. com 97 (Bombay) Pr. CIT v. Sbepoorji Pellonji & Co. Ltd. reported in (2020J 423 ITR 220 (Bombay) CIT-Ill, Pune v. Shereda Erectors (P) Ltd. reported in (2016J 76 taxmann.com 107 (Bombay) Pr. CIT, Vedodere-I v. Gujeret Fluorochemicels Ltd. reported in (2021J 431 ITR 160 (Gujarat)

In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words. Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. » [Emphasis Supplied) • The Hon'ble Madras High Court in the case of Redington (India) Ltd. v. Addl. CIT, Co. Range-V, Chennai reported in [2017] 392 ITR 633 (Madras) has held that:

The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income. there cannot be a disallowance of expenditure in relation to such assumed income. Madras Industrial Investment Corpn. Ltd. v. CIT (1997) 225ITR 802/91 Taxman 340 (SC). The language of s.14A(l) should be read in that context and such that it advances the scheme of the Act rather than distort it .

In conclusion, we are of the view that the provisions of s. 14A read with Rule BD of the Rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The questions of law are answered in favour of the assessee and against the department and the appeal allowed. No costs." [Emphasis Supplied) • The appellant also places reliance on the following judicial precedents in support of its contention: ~ Pr. CIT-6 v. Kohinoor Project (P) Ltd. reported in /2020/ 425ITR 700 (Bombay) ~ Pr. CIT v. Red Chillies Entertainment (P) Ltd. reported in /2020/ 116 taxmann.com 770 (Bombay)

16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We. accordingly. hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year." [Emphasis Supplied] • In view of the above discussion and findings re-iterated in the judicial precedents cited supra, it becomes quite clear that the investment made in the shares of group companies did not yield any tax free exempt income to the appellant during the year under consideration and henceforth, there was absolutely no rationale for working out the disallowance u/s. 14A of the Act in respect of investment made in the shares of these group companies. 2.6] In view of the detailed explanations/ justification discussed supra, it becomes crystal clear that the action of the Ld. PCIT in directing the Ld. AO to make disallowance of Rs. 14,76,976/- ix] s 14A of the Act read with Rule 8D of the Rules deserves to be set- aside being illegal and void- ab-initio. The appellant also relied upon findings re-iterated in the numerous judicial precedents cited during the course of revisionary proceedings and appellate proceedings before the Hon 'ble Bench to buttress its contentions that no disallowance ought to have been made u/s 14A of the Act for the A.Y. 2014-15. Hence, it is hereby pleaded that the Hon'ble Bench may kindly consider the contentions put forth by the appellant and may kindly set-aside the order of the Ld. PCIT on this count.

Placing reliance on the decision of Hon‟ble Supreme Court in the case of Godrej & Boyce manufacturing Company Ltd. [2017] 394 ITR 449 (SC) and the decision of Hon‟ble Delhi High Court in the case PCIT Vs.

Further ld. AR drew our attention towards the Note No.13 which is Non-current investment in the audited financial statement of assessee, ld. AR submitted that the interest free funds were higher than the investment made, therefore, it has to be presumed that the investments were made out of the interest free funds and not out of interest bearing funds as per the profit and loss account, which is amply clear that the assessee has not claimed any expenditure or interest towards earning of any exempt income. Ld. AR again point out that no exempt income was received/receivable in respect of shares of group companies or from any other investments in the shares, therefore, in view of the decision of Hon‟ble Delhi High Court in the case of Cheminvest Ltd. [2015] 378 ITR 33 (Delhi), section 14A of the Act will not apply if no exempt income is received or receivable during the relevant previous year and, thus, the AO

Lastly, placing reliance on the decision of ITAT Delhi Special Bench in the case of Vireet Investment (P) Ltd. [2017] 58 ITR (T) 313 (Delhi), ld. AR submitted that the scope of disallowance is very narrow and it was not available for the AO in the present case, therefore, the direction of the ld. PCIT are not sustainable and valid in this regard.

On merits, the ld. AR submitted that interest free funds were higher than the investment made and therefore it has to be presumed that investments were made out of interest free funds and not out of interest bearing funds. The ld. AR further submitted that as regards investment in the joint venture is concerned, it was submitted before the ld. Pr.CIT that amount shown as current investment was against bills raised for contract work, which should have been classified as debtors instead of investment and investment shown in JV also comprised of book profit during the year or in the preceding year by the JV out of own funds of assessee and no borrowed funds were utilized for making investment in the JV. Therefore, the ld. Pr.CIT was not correct in directing the AO to make disallowance u/s.14A of the Act r.w.rule 8D of the I.T.Rules, 1962. 63. Replying to the above, ld. CITDR strongly supported the revisionary order u/s.263 of the Act and submitted that the Assessing Officer has not even examined the issue during the course of assessment proceedings

Placing rejoinder to the above, the ld. AR submitted that there was not even an iota of evidence that any expenditure was debited to the profit and loss account was related to earning exempt income. The ld. AR further submitted that an expenditure would obviously be treated as not related to the income that is exempted from tax and such expenditure would be allowed as business expenditure and no disallowance would be made u/s.14A of the Act. It was also contended that it is not in dispute that the appellate did not incur any expenditure on the investment made on share on three group companies either in the year of investment or during the year under consideration meaning thereby that not a single rupee was incurred by the assessee on account of investment in the said shares from the date of making such investment. All expenses debited in the statement of the profit and loss account had no direct or indirect connection with the investments made by the assessee and all expenses debited therein have been incurred earing income chargeable to tax under the head profit and gains from business or profession. It was also contended that there is no finding by the ld. Pr.CIT that any expenditure was incurred by the assessee directly or indirectly to earn income which was not includible in the total income of the assessee. Therefore, in view of settled legal position and relevant judicial precedents it is clear that the ld. Pr.CIT prior to invoking the provisions of Section 14A of the Act ought to have demonstrated how the expenses claimed by the assessee out of 123 ITA Nos.193-195/CTK/2019 non-exempt income were related to earning of exempt income. In this situation no direction u/s.263 of the Act can be issued to the AO.

On careful and vigilant perusal of the material placed on the record, inter alia, impugned assessment order, impugned revisionary order u/s.263 of the Act and written submission of assessee on legal and merits, we are of the considered opinion that from the assessment order dated 29.12.2016 passed u/s.143(3) of the Act for A.Y.2014-2015, it is vivid that the AO has not raised this issue during the assessment proceedings, therefore, on this issue we are in agreement with the observations of the ld. Pr.CIT that the AO has not even examined the issue at all during the course of assessment proceedings and, thus, upto this extent, the order of ld. Pr.CIT is confirmed. The AO is directed to calculate the disallowance u/s.14A of the Act r.w.rule 8D of the Rules on the investments in shares, from which the assessee has earned exempt income, after affording due opportunity of hearing to the assessee.

In the result, appeal of the assessee in ITA No.195/CTK/2019 is partly allowed and ITA Nos.193&194/CTK/2019 are allowed. Order pronounced as per rule 34(4) of ITAT Rules, 1963 on 23/12/2021, at Cuttack (मिीष बोरड़) (सी.एम.गगा) (C.M.GARG) (MANISH BORAD) ऱेखा सदस्य / ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 23/12/2021 Prakash Kumar Mishra, Sr.P.S.

Pr.CIT, Sambalpur आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR,

ITAT, Cuttack गार्ा पाईल / Guard file. 6. सत्यावऩत प्रनत //// आदेशािुसार/ BY ORDER,