DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1, VADODARA, VADODARA vs. PATEL INFRASTRUCTURE LIMITED, VADODARA

These are four appeals preferred by the same Revenue for the Assessment Year 2015-2016, 2016-2017, 2018-2019 & 2020-2021. Since the appeals involved identical issues, the same were taken up together and are being disposed off by way of a common order.

We would first take ITA No.2376/AHD/2025 preferred by the Revenue against the Order, dated 11/09/2025, passed by the Commissioner Of Income Tax, Appeal(A)-12 Ahmedabad[hereinafter referred to as the ‘CIT(A)’] whereby the Learned CIT(A) had partly allowedthe appeal against the Assessment Order, dated 26/12/2018, passed under ITA No.2376, 2377, 2378 & 2379/AHD/2025 Section 143(3)of the Income Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2015-2016. 3. The Revenue has raised following grounds of appeal:

Being aggrieved, the Assessee preferred appeal before the Learned CIT(A). The Learned CIT(A), vide Order dated 11/09/2025, partly allowed the appeal.

Being aggrieved by the relief granted by the Learned CIT(A), the Revenue has preferred the present appeal before us.

We have heard the rival submissions and perused the material on record.

Ground Nos. 1 and 2 raised by the Revenue pertain to the deletion of disallowance of interest expenses of INR.1,93,60,739/- made under Section 36(1)(iii) of the Act in respect of interest-free advances given to the subsidiary company. We have heard both the sides and have perused the material on record. We note that the Revenue has failed to controvert the factual findings returned by the Learned CIT(A) which are supported by the material on record. From the facts emanating from the records, it is clear that that the interest-free advance was extended to the subsidiary/SPV company, which was incorporated specifically as a Special Purpose Vehicle to execute a government- awarded infrastructure project (rail over bridge on BOT Annuity basis) awarded to the Assessee. Under the terms of the Letter of Award and Concession Agreement, the Assessee was solely responsible for the construction activities, and operational revenues generated therefrom came back to the Assessee. Thus, a clear commercial and business expediency was established in advancing funds to the subsidiary for project execution. Also the Assessing Officer has proceeded on incorrect understanding that the advance of INR.19,57,91,000/- was given during the relevant previous year, whereas the Assessee had given further funds aggregating to INR.4,99,66,700/- during the relevant previous year and to this extent the Assessee has interest free own funds at its disposal. The Learned CIT(A) granted relief to the Assessee by applying the judgment of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. CIT [2007] 158 Taxman 74 (SC) and the Hon'ble Bombay High Court in PCIT v. ESSEL Infra Projects Ltd. [2024] 161 taxmann.com 214 (Bom).

In view of the above settled legal position and factual matrix, we find no infirmity in the order of the Learned CIT(A) deleting the disallowance of interest of INR.1,93,60,739/- under Section 36(1)(iii) of the Act. Ground Nos. 1 and 2 raised by the Revenue are, accordingly, dismissed.

Ground No. 3 raised by the Revenue pertains to restricting the disallowance under Section 14A of the Act read with Rule 8D of the IT Rules to INR.9,000/- being exempt dividend income earned during the relevant previous year. We have heard both the sides on this issue and have perused the material on record. We note that the Learned CIT(A) deleted the disallowance made under Section 14A of the Act to the extent of exempt income of INR.26,09,798/- being Assessee's share of profit from a Joint Venture (PIPL-KCL JV), which is specifically exempt under Section 10(2A) of the Act. The Learned CIT(A) has noted that the Assessee had not made any capital investment in the JV during the year, and the marginal increase in capital balance reflected accrued operational profits. The Pune Bench of the Tribunal has, in the case of Desai Infra Projects (I) (P.) Ltd. v. PCIT [2025] 175 taxmann.com 137 (Pune - Trib.), held that no disallowance under Section 14A of the Act is attracted in respect of share of profit from a Joint Venture exempt under Section 10(2A) of the Act when no investment out of interest- bearing funds was made. Following the aforesaid decision the Learned CIT(A) granted relief to the Assessee. Since the Revenue has failed to distinguish the aforesaid decision followed by the Learned CIT(A) either on facts or in law, we decline to interfere with the order passed by the Learned CIT(A) in this regard. Accordingly, Ground No. 3 raised by the Revenue is dismissed.

In the result, the appeal preferred by the Revenue (ITA No.2376/AHD/2025) for the Assessment Year 2015-2016 is dismissed.

Next we would take ITA No.2376/AHD/2025 preferred by the Revenue against the Order, dated 12/09/2025, whereby the Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 31/12/2019, passed under Section 143(3) of the Act for the Assessment Year 2016-2017. 13. The Revenue has raised following grounds of appeal:

The relevant facts of the case, as emanating from the records, are that for the Assessment Year 2016-2017, the Assessee filed original return of income on 23/11/2016 declaring total income of INR.74,71,61,030/- under Section 139(1) of the Act. Subsequently, on 31/10/2017, the Assessment Year 2015-2016, 2016-2017, 2018-2019 & 2020-2021

The appeal preferred by the Assessee, was partly allowed by the Learned CIT(A) vide Order, dated 12/09/2025. The Learned CIT(A) deleted both the above additions/disallowances.

Being aggrieved by the above relief granted by the Learned CIT(A), the Assessment Year 2015-2016, 2016-2017, 2018-2019 & 2020-2021

We have heard the rival submissions and perused the material on record.

Ground Nos. 1 to 5 raised by the Revenue pertain to the allowability of deduction under Section 80-IA(4) of the Act. These connected grounds pertain to the status of the Assessee as a 'developer' (as opposed to a 'works contractor'), nature of projects being undertaken by the Assessee qualifying as 'new infrastructure facilities' and applicability of provisions contained in Section 80AC of the Act in respect of Section 80IA(4) deduction having been claimed by way of a revised return.

The main contention of the Revenue is that the Assessee is a mere works contractor not eligible to claim deduction under Section 80IA of the Act in view of the provisions contained in Explanation to Section 80IA(13) of the Act. Further, the work undertaken by the Assessee was merely road widening which did not qualify as establishing a new infrastructure facility.

On the other hand, the Assessee asserted its status as a developer assuming entrepreneurial risk, designing, funding, and deploying machinery and technical expertise. It was submitted that in identical facts and circumstances, the Rajkot Bench of the Tribunal had allowed identical claim of the Assessee in ITA No. 627/Rjt/2014, dated 30/07/2020. Reliance was placed upon the order passed by the Learned CIT(A) and the judicial precedents cited therein by the Learned CIT(A).

Upon careful consideration of the facts, we find that the core issue regarding the classification of road widening projects under Section 80IA(4) is governed by CBDT Circular No. 04/2010 dated 18/05/2010, which explicitly clarifies:

In compliance, a report, dated 30/04/2026, was received from Executive Engineer, R&B Division, Bhavnagar wherein it was stated as under: “With reference to the above Subject & reference letter, the Income tax officer, CIT(DR), ITAT-3(1). Ahmedabad, is requesting a report on the direction of the Hon'ble ITAT, Ahmedabad, regarding the Rajkot-Bhavnagar Highway project, to request clarification on two points mentioned below. Sr. Description Clarification Report No. (i) Kindly submit complete The work executed under the description of the nature and Work Order dated 22-09- scope of work allotted in" 2012.The project was a road Rajkot-Bhavnagar Highway" widening project from 10.0 mtr to project along with all the four lanes, which has involved the necessary documents in support engineering design, construction, of your description along with and commissioning of a new and photos of "Before the Work independent carriageway along started" and "After Completion with all associated drainage and of the work" cross-drainage infrastructure. (Cross Section Attached Herewith) Photographs of before work started are not available on record and photographs of after completion of the work are attached herewith.

Taking into consideration the above report and the Circular No. 04/2010 issued by the CBDT, we hold that the Assessee is entitled to claim benefit of Section 80IA(4) of the Act in respect of road widening work which, in the facts and circumstances of the present case, would be regarded as a new infrastructure facility for the purpose of section 80IA(4)(i) of the Act.

On the issue of application of Section 80AC of the Act, we note that the Assessee filed original return of income for the Assessment Year 2016- 2017 within the time specified under Section 139(1) of the Act disclosing fully the revenue receipts and the relevant financial transactions. Subsequently, discovering omission regarding the claim of deduction under Section 80IA(4) of the Act, the Assessee filed a revised return under Section 139(5) of the Act within the statutory time limit, incorporating the said claim. The Assessing Officer disallowed the claim by invoking Section 80AC of the Act taking the view that since the deduction under Section 80IA(4) was not explicitly claimed in the original return filed under Section 139(1) of the Act, the statutory bar under Section 80AC was attracted. In appeal the Learned CIT(A) reversed the decision of the Assessing Officer and allowed the deduction claimed by the Assessee under Section 80IA(4) of the Act. Being aggrieved, the Revenue has carried the issue in appeal before this Tribunal.

Section 80AC of the Act provides that no deduction under profit-linked provisions (including Section 80-IA) shall be allowed unless the return of income is furnished on or before the due date specified under Section 139(1) of the Act. The explicit legislative object of Section 80AC of the Act was to enforce discipline against belated filings under Section 139(4) or claims set up during reassessment/search actions. At the same time we note that Section 139(5) of the Act empowers an assessee to rectify any "omission or wrong statement" by filing a revised return. Once a valid revised return under Section 139(5) of the Act is filed, the same substitutes and replaces the original return for all legal purposes from the date on which the original return was furnished. In our view, in case Section 80AC of the Act is interpreted strictly to mean that the claim must strictly exist only in the original income tax return filed under Section 139(1) of the Act without any scope for revision under Section 139(5) of the Act, it would render Section 139(5) completely redundant for any omission/wrong committed in relation to all Chapter VI-A deductions. Therefore, a distinction is required to be drawn between a bona fide revision and an attempt to claim deduction against undisclosed income. In a case where income or turnover was suppressed in the original return and is subsequently unearthed during assessment, audit, or search, or where no return was filed under Section 139(1) of the Act, Section 80AC may operate as an absolute statutory bar. However, in our view, where there is no such suppression or non-disclosure and the original return of income is filed within the prescribed time under Section 139(1) of the Act, a subsequent revision of return under Section 139(5) of the Act for claiming Chapter VI-A deductions is not bared by Section 80AC of the Act. Our aforesaid view draws strength from the decision of the Pune Bench of the Tribunal in the case of Sharp Designer and Engineers -9, Pune [ITA No.2263/PUN/2014, Assessment Year 2010-2011, Dated 29.01.2018]

In view of the above legal position and factual matrix, we find no infirmity in the findings recorded by the Learned CIT(A) while accepting Assessee’s claim for deduction under Section 80-IA(4) of the Act. Consequently, Ground Nos. 1 to 5 raised by the Revenue are dismissed.

Ground No. 6 raised by the Revenue challenges the Order of the Learned CIT(A) deleting disallowance of interest expenses of INR.2,97,68,487/- disallowed by the Assessing Officer invoking the provisions contained in Section 36(1)(iii) of the Act. We have heard both the sides on this issue and have perused the material on record.

The Assessing Officer had disallowed interest expenditure computed at the rate of 12% per annum on short-term loans and advances of INR.24,80,70,729/- holding that the Assessee failed to prove commercial expediency or business purpose for advancing interest-free funds while incurring interest-bearing borrowings. In appeal, the Learned CIT(A) deleted the disallowance observing that the short-term advances of INR 24,80,70,729/- were mobilization advances and operational payments made in the ordinary course of business to suppliers, sub-contractors, and service providers for procurement of goods, services, and capital goods, and included prepaid expenses of INR 6,11,71,704/-. The Learned CIT(A) held that advance payments to suppliers and sub-contractors represented commercial expediency and standard industry practice in the infrastructure sector. Taking note of the fact that similar advances were allowed in earlier and subsequent assessment years while framing assessment under Section 143(3) of the Act, the Learned CIT(A) deleted the disallowance. In the appellate proceedings before us, the Revenue has failed to bring on record any material on controvert the aforesaid findings returned by the Learned CIT(A). There is nothing on record to infer diversion interest bearing borrowed funds for non-business purposes. Further, in earlier and subsequent assessment years no such disallowance has been made. Therefore, we decline to interfere with the order passed by the Learned CIT(A) deleting the disallowance of INR.2,97,68,487/- under Section Assessment Year 2015-2016, 2016-2017, 2018-2019 & 2020-2021

In result, appeal preferred by the Revenue is dismissed.

We would next take up ITA No.2378/AHD/2025 preferred by the Revenue against the Order, dated 11/09/2025, whereby the Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 06/09/2021, passed under Section 143(3) of the Act for the Assessment Year 2018-2019. 32. The Revenue has raised following grounds of appeal:

Issues raised by the Revenue in Ground No.1, 2 and 3 of the present appeal are identical to Ground No.1 to 5 raised by the Revenue in appeal pertaining to Assessment Year 2016-2017. 34. For the Assessment Year 2018-2019, the Assessing Officer disallowed deduction aggregating to INR.12,22,51,006/- claimed by the Assessee under Section 80IA(4) of the Act, in respect of the Assessment Year 2015-2016, 2016-2017, 2018-2019 & 2020-2021

In appeal the Learned CIT(A) deleted the disallowance giving reasoning identical to the Assessment Year 2016-2017. 36. Being aggrieved the Revenue has carried the issue in appeal before this Tribunal by way of Ground No. 1 to 3 raised in the present appeal.

During the course of hearing both the sides had agreed that our findings/adjudication on corresponding grounds raised in appeal for the Assessment Year 2016-2017 shall apply mutatis-mutandis to Ground No. 1, 2 and 3 raised in the present appeal. Accordingly, in view of the paragraph 18 to 27 above, adopting the reasoning/adjudication given while disposing corresponding grounds in appeal for the Assessment Year 2016-2017 (ITA No.2377/AHD/2025) hereinabove, we decline to interfere with the order passed by the Learned CIT(A) in respect of projects listed at SNo. 1,2,4,5 and 6 in Table in paragraph 34 above. As regards the project listed at SNo. 3 in Table in paragraph 34 above, we direct the Assessing Officer to allow deduction under Section 80IA(4) of the Act in respect of revenues from the project excluding the revenues relating to resurfacing and routine maintenance work. Thus, Ground No.1 to 3 raised by the Revenue are partly allowed.

As regards Ground No.4 raised by the Revenue is concerned, both sides agreed that the same was not adjudicated by the Learned CIT(A), therefore, the issue be restored back to the file of Learned CIT(A). Accordingly, the issue raised in Ground No. 4 pertaining to the disallowance interest expenses of INR.2716470/- is restored to the file of Leaned CIT(A) for adjudication afresh. Thus, Ground No. 4 raised by the Revenue is allowed for statistical purposes.

In result, present appeal preferred by the Revenue is partly allowed.

We would next take up ITA No.2379/AHD/2025 preferred by the Revenue against the Order, dated 12/09/2025, whereby the Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 29/09/2022, passed under Section 143(3) of the Act for the Assessment Year 2020-2021. 41. The Revenue has raised following grounds of appeal:

Issues raised by the Revenue in Ground No.1 to 4 of the present appeal are identical to Ground No.1 to 5 raised by the Revenue in appeal pertaining to Assessment Year 2016-2017. 43. For the Assessment Year 2020-21, the Assessing Officer disallowed deduction aggregating to INR.10,22,89,643/- claimed by the Assessee under Section 80IA(4) of the Act, in respect of the following 3 specific road infrastructure projects on the ground that the Assessee acted as a contractor rather than a developer, thus, adopting the reasoning identical to the Assessment year 2016-2017. S. Name of the Project Appointing Profit / Authority Deduction No. Claimed (INR.) 1 Improvement Rehabilitation, The Chief 3,79,07,759/- Resurfacing & routine Engineer, Mohali Maintenance works of roads of Sangrur-Mansa-Bathinda Road

In appeal the Learned CIT(A) deleted the disallowance giving reasoning identical to the Assessment Year 2016-2017. Assessment Year 2015-2016, 2016-2017, 2018-2019 & 2020-2021

Being aggrieved the Revenue has carried the issue in appeal before this Tribunal by way of Ground No. 1 to 4 raised in the present appeal.

During the course of hearing both the sides had agreed that our findings/adjudication on corresponding grounds raised in appeal for the Assessment Year 2016-2017 shall apply mutatis-mutandis to Ground No. 1 to 4 raised in the present appeal. Accordingly, in view of the paragraph 18 to 27 above, adopting the reasoning/adjudication given while disposing corresponding grounds in appeal for the Assessment Year 2016-2017 (ITA No.2377/AHD/2025) hereinabove, we decline to interfere with the order passed by the Learned CIT(A) in respect of projects listed at SNo. 2 and 3 in Table in paragraph 43 above. As regards the project listed at SNo.1 in Table in paragraph 43 above, we direct the Assessing Officer to allow deduction under Section 80IA(4) of the Act in respect of revenues from the project excluding the revenues relating to resurfacing and routine maintenance work. Thus, Ground No.1 to 4 raised by the Revenue are partly allowed.

In result, present appeal preferred by the Revenue is partly allowed.

In conclusion, the appeal preferred by the Revenue for the Assessment Year 2015-2016 and 2016-2017 are dismissed while appeal for the Assessment Year 2018-2019 and 2020-2021 are partly allowed.

""यथ"/ The Respondent. 3. संबंिधतआयकरआयु"/ Concerned CIT 4. आयकरआयु"(अपील) / The CIT(A) 5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण/ DR, ITAT, 6. गाड"फाईल /Guard file. आदेशानुसार/BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.