D.C.I.T. CENT. CIR. - 7(2), MUMBAI vs. RAJAHMUNDHRY EXPRESSWAY LTD., MUMBAI

PER BENCH

This bunch consists of seven sets of cross appeals as well as cross objections filed by the assessee which arise out of appeals filed by the Revenue. All the appeals and cross objections are against a common order dated 30th August 2017, passed by the learned Commissioner of Income Tax (Appeals)–47, Mumbai, pertaining to the assessment years 2005–06, 2006–07, 2007–08, 2008–09, 2009–10, 2010–11 and 2011–12.

ITA no.6518/Mum./2017 Assessee’s Appeal – A.Y. 2008–09

9 Rajahmundry Expressway Ltd. these grounds are overlapping and interconnected, we propose to deal with and dispose off these grounds together.

10 Rajahmundry Expressway Ltd. time the assessee claimed deduction under section 80IA. in respect of the aforesaid project. The claim for such deduction continued in the subsequent assessment years and for the impugned assessment year, the assessee filed its return of income on 29th September 2008, declaring total income of ` 6,72,99,474, after claiming deduction of ` 11,64,44,163, under section 80IA. The assessment in case of the assessee was completed under section 143(3), vide order dated 30th November 2010 disallowing assessee‟s claim of deduction under section 80IA of the Act on the reasoning that such deduction is allowable only on a new infrastructure project and not on repair widening of an existing road. The assessee contested the disallowance before the higher appellate authorities and was successful.

11 Rajahmundry Expressway Ltd. claim made by the assessee was disallowed in the original assessment proceedings. Further, the Assessing Officer also made couple of other disallowances. Against the assessment order so passed, the assessee preferred appeal before the first appellate authority.

12 Rajahmundry Expressway Ltd. has sub contracted it to Gammon India Ltd. on a back–to–back basis. He observed, the assessee has not carried out any activity to develop the project and the entire development work including design, implementation, etc., was performed by Gammon India Ltd. Thus, he held that the assessee merely is a paper company without having any business activity. Learned Commissioner (Appeals) observed, since Gammon India Ltd. has actually developed the BOT Project, if at all, the deduction under section 80IA of the Act would be available to Gammon India Ltd. and not to the assessee. On the basis of the aforesaid reasoning, learned Commissioner (Appeals) upheld the disallowance of deduction claimed under section 80IA of the Act, though, on a completely different reasoning.

13 Rajahmundry Expressway Ltd. Act for the aforesaid BOT Project. He submitted, in consideration for developing, operating and maintaining the road NHAI has paid a fixed sum of annuity of ` 1,000 crore over the concession period of 17 and 1/2 years. He submitted, the NHAI after considering competitive bids received from various parties had ultimately accepted the bid offered by a consortium between Gammon India Ltd. and Punj Lloyd Ltd. He submitted, as per the terms of the work allotment letter of NHAI, there was a mandatory requirement that the successful bidder will have to incorporate a company as a special purpose vehicle (SPV) to implement the project. In this context, the leaned Sr. Counsel drew our attention to the letter of allotment dated 5th September 2001, issued by NHAI, a copy of which is at Page–120 of the paper book. He further submitted, NHAI had also put a condition that the SPV formed for the purpose of developing the project should not undertake any other business activity except the BOT project. He submitted, complying with the condition imposed by the NHAI in the letter of allotment the assessee company was incorporated to implement the BOT Project. He submitted, after entering into the concession agreement with NHAI, the assessee entered into EPC and O & M contracts with Gammon India Ltd. He submitted, the function, role and responsibility of each party under the concession agreement as well as EPC and O & M contracts is will defined. He submitted, while the assessee is to receive annuity of ` 1,000 crore from NHAI over the

14 Rajahmundry Expressway Ltd. period of concession, the EPC contract is for the value of ` 400 crore which has to be incurred during the development phase of the project and O & M contract is for a value of ` 150 crore which will be amortized over the tenure of concession agreement. He submitted, the assessee has financed the entire BOT project by raising loans and finances from Banks / Financial Institutions. He submitted, in the audited financial statements, the assessee has credited annuity income received from NHAI and debited various expenses incurred by it with respect to the project, which included operation and maintenance cost, finance cost, insurance cost, travelling expenses, professional fee, etc. To substantiate his contention, leaned Counsel drew our attention to the financial statement submitted in paper book. He submitted, though, the project was completed in the financial year 2004–05, the assessee started claiming deduction under section 80IA of the Act from assessment year 2006–07 onwards. He submitted, no deduction was claimed in the assessment year 2005–06, since there was a loss. To emphasize upon the fact that the assessee is the developer of the infrastructure project and is also responsible for operation and maintenance, the leaned Counsel drew our attention to various clauses of the concession agreement. He submitted, as per the terms of the agreement, the assessee is required to develop, operate and maintain the project at its own cost, expenditure and risk. Make financing arrangement as would be necessary to finance the cost of the project

15 Rajahmundry Expressway Ltd. as well as other obligations under the agreement in a timely manner. He submitted, the assessee at its own cost and expenses, purchase and maintain by due reinstatement or otherwise, such insurance as are necessary during the period of implementation of the project. The leaned Counsel submitted, in assessment year 2006–07 assessee‟s claim of deduction under section 80IA of the Act was allowed by the Assessing Officer while completing the assessment under section 143(3) of the Act. He submitted, in assessment years 2007–08 and 2008–09, the Assessing Officer disallowed assessee‟s claim of deduction under section 80IA of the Act on the reasoning that the assessee has not developed a new infrastructure facility, but has only widened the existing road. However, while deciding the issue in appeal, learned Commissioner (Appeals) allowed assessee‟s claim by holding that widening of an existing road would also be eligible for deduction under section 80IA of the Act, as it amounts to development, operation and maintenance of an infrastructure facility. He submitted, the aforesaid decision of the first appellate authority was also upheld by the Tribunal while deciding the appeals filed by the Revenue. The leaned Sr. Counsel submitted, while completing the assessment for the impugned assessment year under section 143(3) r/w section 153A of the Act, the Assessing Officer has repeated the disallowance under section 80IA of the Act on the very same reasoning on which it was disallowed in the original assessment order. He

16 Rajahmundry Expressway Ltd. submitted, in the course of search and seizure operation no incriminating material whatsoever was found from the assessee. He submitted, even the Assessing Officer has not referred to any incriminating material in the assessment order to show that the assessee is merely a paper company. In fact, he submitted, no such allegation was ever made by the Assessing Officer. He submitted, even in the remand report submitted to learned Commissioner (Appeals), the Assessing Officer has neither referred to any incriminating material nor has alleged that the assessee is a mere paper company. He has simply stated that the disallowance of deduction claimed under section 80IA of the Act was made only on the basis of the reasoning on which such disallowance was made in the original assessment order. Thus, the leaned Sr. Counsel submitted, since the impugned assessment year is a case unabated assessment, no addition / disallowance could have been made without any incriminating material concerning such issue. The leaned Sr. Counsel submitted, in such circumstances the ratio laid down by the Hon'ble Jurisdictional High Court in CIT v/s Continental Warehouse Corporation (Nhava Sheva) Ltd., [2015] 374 ITR 645 (Bom.) would squarely apply. He submitted, the allegation of learned Commissioner (Appeals) that there are incriminating materials against the assessee is without any basis as no such material has been brought on record either by the Assessing Officer or by learned Commissioner (Appeals). He submitted, not only all the relevant

17 Rajahmundry Expressway Ltd. material including the concession agreement as well as EPC and O & M contracts were executed long before and available on record before the Assessing Officer, but they have been examined by the Assessing Officer and the appellate authorities while deciding assessee‟s appeals on the very same issue in the assessment years 2007–08 and 2008– 09 arising out of the original assessment proceedings. Thus, he submitted, the issue relating to assessee‟s claim of deduction under section 80IA of the Act having been already examined by the Assessing Officer as well as the appellate authorities earlier, it cannot be re–visited in a proceeding under section 153A of the Act which can only be done on the basis of incriminating material found during the search. Without prejudice, the leaned Sr. Counsel submitted, the allegation of learned Commissioner (Appeals) that the assessee is a paper company also does not emanate from any incriminating material found during the search and seizure operation. He submitted, once assessee‟s claim of deduction under section 80IA of the Act has been accepted by the Tribunal in assessment years 2007–08 and 2008–09, it cannot be reviewed and learned Commissioner (Appeals) cannot disallow assessee‟s claim of deduction under section 80IA of the Act on the teeth of the orders passed by the Tribunal.

18 Rajahmundry Expressway Ltd. without jurisdiction, hence, untenable. As regards the merits of the issue, the leaned Counsel submitted, the allegation of the learned Commissioner (Appeals) that the assessee is merely a paper entity is completely contrary and inconsistent with his own finding elsewhere in the order. He submitted, though, the assessee has offered the annuity income received from NHAI in terms of concession agreement, learned Commissioner (Appeals) has not directed for excluding the annuity income while computing income of the assessee. He submitted, learned Commissioner (Appeals) has also not disturbed various expenditures incurred and claimed by the assessee in respect of BOT project. Additionally, learned Commissioner (Appeals) has also allowed depreciation on the capital expenditure incurred on the project. Learned Counsel submitted, while treating the assessee as a paper entity, learned Commissioner (Appeals) has overlooked the fact that creation of the assessee as a SPV was a mandatory requirement of NHAI. The leaned Counsel submitted, as per the terms of the concession agreement, the entire responsibility, risk and reward of building, operating and maintaining the infrastructure facility is with the assessee. To substantiate the aforesaid claim, leaned Counsel drew our attention to various clauses of the concession agreement. The leaned Counsel submitted, entire finance for the project has been provided by the assessee by incurring loans with interest cost. He submitted, merely because the assessee has entered into the EPC and

19 Rajahmundry Expressway Ltd. O & M contracts with GIL and the construction work was carried out by the GIL, it cannot be said that the assessee is a mere paper entity. He submitted, the very fact that the assessee has earned annuity income and it has been assessed at the hands of the assessee nullifies learned Commissioner (Appeals)‟s finding regarding assessee‟s status as a genuine company. The leaned Counsel submitted, even, acceptance of assessee‟s claim of expenditure shows that the assessee is a genuine company having business activities. The leaned Counsel submitted, very fact that the Tribunal while deciding Revenue‟s appeal in assessment years 2007–08 and 2008–09 arising out of the original assessment proceedings has allowed assessee‟s claim of deduction under section 80IA of the Act vindicates assessee‟s stand that it is a genuine company and has developed the infrastructure facility. Further, he submitted, the allegation of learned Commissioner (Appeals) that GIL has also claimed deduction under section 80IA of the Act for the same infrastructure facility is totally erroneous as the GIL has not claimed any deduction under section 80IA of the Act for the BOT road. Drawing our attention to the provisions of section 80IA(4) of the Act, leaned Counsel submitted, GIL has acted merely as a contractor, hence, is not eligible to claim deduction under section 80IA of the Act. Further, he submitted, the GIL has not employed any finance for development of project as the entire project was financed by the assessee. He submitted, even after the search operation was

20 Rajahmundry Expressway Ltd. conducted, in assessee‟s own case for the assessment year 2012–13 learned Commissioner (Appeals) has allowed deduction claimed under section 80IA of the Act. Further, he submitted, the fact that the assessee company was purchased by a Singapore based company in financial year 2015–16, demolishes the finding of learned Commissioner (Appeals) that the assessee is a merely paper company. He submitted, though, the issue was otherwise concluded by the decision of the Tribunal in assessment years 2007–08 and 2008–09, only to get over the orders passed by the Tribunal, learned Commissioner (Appeals) has disallowed assessee‟s claim of deduction under section 80IA of the Act on a completely different reasoning without any material basis. Thus, he submitted, assessee‟s claim of deduction under section 80IA should be allowed. In support of his contention, leaned Sr. Counsel relied upon the following decisions: –

i) Radhaswamy Satsangh v/s CIT, [2992] 193 ITR 221 (SC); and ii) CIT v/s Paul Bros., [2995] 216 ITR 548 (Bom.).

21 Rajahmundry Expressway Ltd. any development of work at all. Therefore, on the basis of such incriminating material found as a result of search, initiation of proceeding under section 153A of the Act is valid. The learned Departmental Representative submitted, though, in the original assessment order the issue of assessee‟s claim of deduction under section 80IA(4) of the Act was examined and disallowed by the Assessing Officer, however, at that point of time there was no material before the Assessing Officer to reveal that the assessee is a mere paper company and has not developed, operated or maintained the infrastructure facility to become eligible for deduction under section 80IA of the Act. He submitted, learned Commissioner (Appeals) while examining the issue has given a categorical finding that since the disallowance of deduction under section 80IA of the Act is on the basis of incriminating material, the validity of assessment order passed under section 153A of the Act with reference to the said issue cannot be questioned. Thus, he submitted, the ratio laid down by the Hon'ble Jurisdictional Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. (supra) will not be applicable. Without prejudice, the learned Departmental Representative submitted, as per section 80IA(4) of the Act, only if a person is carrying on business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility is eligible to claim deduction. He submitted, in the facts of the present case, the

22 Rajahmundry Expressway Ltd. materials on record show that in response to the bid floated by the Central Government / NHAI, Gammon India Ltd. and Punj Lloyd Ltd., formed a consortium to offer the bid and the assessee was not the bidder. Only after the consortium became successful in the bid, the assessee company was created as a SPV and it entered into a concession agreement with the NHAI. After the execution of the concession agreement, the assessee immediately entered into two separate contracts with the GIL i.e., EPC and O & M contracts under which the entire work relating to development, operation and maintenance of the BOT Project was handed over to GIL on purely back–to–back basis. He submitted, all the responsibilities and liabilities under concession agreement as conferred on the assessee company were shifted to GIL under the EPC and O & M contracts. Further, he submitted, the pricing of the EPC contract with the GIL is not transparent as the assessee has deflated the price to increase its profitability. He submitted, except making financial investment, the assessee is not contractually exposed to any risk or liability. The learned Departmental Representative submitted, unless the person claiming deduction under section 80IA of the Act himself carries out any one of the activities as provided under section 80IA(4)(i) of the Act, it will not qualify for deduction. He submitted, in the facts of the present case, admittedly, the assessee has not carried out even a single activity relating to either development or operation or

23 Rajahmundry Expressway Ltd. maintenance of the infrastructure facility. The entire work was carried out by GIL. The assessee merely received the annuity income from NHAI on the basis of the concession agreement. Therefore, he submitted, the assessee is not eligible to claim deduction under section 80IA of the Act. He submitted, though assessee‟s claim of deduction under section 80IA of the Act was allowed in the proceedings arising out of original assessment orders, however, that was on a completely different reasoning as in those proceedings assessee‟s claim was disallowed on the ground that four laning of the road cannot be considered as a new infrastructure facilities. He submitted, on the basis of material found during the search and seizure operation it came to the notice of the Department that the assessee is neither a developer of the infrastructure facility nor is involved in operation and maintenance of the project. Therefore, assessee‟s claim of deduction was rightly disallowed.

24 Rajahmundry Expressway Ltd. assessee is eligible to claim deduction under section 80IA, on the BOT Project. Before we delve into the issues, at the cost of repetition, we think it appropriate to briefly narrate the relevant facts. Undisputedly, in the return of income filed for the impugned assessment year, the assessee had claimed deduction under section 80IA, in respect of the profit/income earned from the development of the toll (BOT) road forming part of National Highway no.5. The aforesaid claim of the assessee was examined in the course of original assessment proceeding under section 143(3) of the Act. After examining the issue with reference to the relevant materials, the Assessing Officer formed an opinion that the assessee is ineligible to claim deduction under section 80IA of the Act since the four laning of the existing road cannot be considered as a new infrastructure facility. Accordingly, he disallowed assessee‟s claim of deduction. Of course, it is a different matter that the aforesaid decision of the Assessing Officer was reversed by learned Commissioner (Appeals) while accepting assessee‟s claim and the Tribunal also upheld the aforesaid decision of learned Commissioner (Appeals).

25 Rajahmundry Expressway Ltd. assessment. On a perusal of the assessment order passed under section 143(3) r/w section 153A of the Act, it is very much evident that the Assessing Officer has not referred to any incriminating material insofar as it relates to development of the BOT Project or assessee‟s claim of deduction under section 80ITA of the Act. In fact, while dealing with the specific issue relating to assessee‟s claim of deduction under section 80IA of the Act, the Assessing Officer has very clearly relied upon the reasoning on the basis of which similar disallowance was made in the original assessment orders passed under section 143(3) of the Act for the assessment years 2007–08 and 2008–09. In fact, adopting the very same reasoning in the earlier assessment orders, the Assessing Officer disallowed assessee‟s claim on the conclusion that the BOT road developed by the assessee not being a new infrastructure facility, the assessee is not eligible to claim deduction under section 80IA of the Act. There is neither reference to a single incriminating material found as a result of search with regard to assessee‟s claim of deduction under section 80IA of the Act nor there is even a whisper by the Assessing Officer that the assessee is a paper entity. Though, the Assessing Officer was aware of both the concession agreement as well as EPC and O & M contracts, still he never treated the assessee as a paper entity. Nowhere in the assessment order has the Assessing Officer alleged that the assessee has not carried out the development of the BOT Project. In fact,

26 Rajahmundry Expressway Ltd. assessee‟s claim of deduction under section 80IA of the Act was never disallowed by the Assessing Officer on the allegation of not developing, operating and maintaining the infrastructure facility.

27 Rajahmundry Expressway Ltd.

28 Rajahmundry Expressway Ltd. of search. It is learned Commissioner (Appeals), who only has termed the assessee as a paper company on the basis of his own reasoning to deny assessee‟s claim of deduction under section 80IA of the Act. As discussed earlier, nowhere in the impugned assessment order, the Assessing Officer has either referred to any incriminating material or has recorded any finding that the assessee is a paper company and has not developed, operated or maintained the infrastructure facility. This fact is further corroborated from the observations of the Assessing Officer in the remand report submitted to learned Commissioner (Appeals). On a reading of Para–3.11 of the order of learned Commissioner (Appeals), it is evident, the Assessing Officer has very clearly and categorically stated in the remand report that the order passed under section 143(3) r/w section 153A of the Act on the issue of assessee‟s claim of deduction under section 80IA of the Act was only a reiteration of Assessing Officer‟s reasoning while making similar disallowance in the original assessment order passed u/s 143(3).

29 Rajahmundry Expressway Ltd. and stands concluded in the original assessment proceeding. Therefore, in our considered opinion, once assessee‟s claim of deduction under section 80IA of the Act has been examined in the original assessment proceeding, the same could not have been examined again in the proceeding under section 153A of the Act in the absence of any incriminating material found as a result of search. The ratio laid down by the Hon'ble Jurisdictional Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. (supra), therefore, would squarely apply. Therefore, the disallowance of deduction claimed under section 80IA of the Act having already been knocked off by learned Commissioner (Appeals) and the Tribunal, it cannot be revived again in the search assessment proceeding.

30 Rajahmundry Expressway Ltd. that the additions made in the assessment order which are not on the basis of any incriminating material found as a result of search are not sustainable.

31 Rajahmundry Expressway Ltd. Commissioner (Appeals) has tried to make out a case that the assessee is a mere paper company and after getting the work from NHAI has awarded the work to GIL on back–to–back basis without carrying out any work itself. However, facts on record reveal that it is the assessee with whom NHAI has entered into the concession agreement for developing, operating and maintaining the toll Road. A perusal of the concession agreement reveals that the entire responsibility, risk and reward arising out of the BOT Project were with the assessee. Though, assessee was entrusted the job of developing, operating and maintaining the project by the NHAI, however, the concession agreement also provides that the assessee can get the development work done through a contractor by entering into EPC contract. Further, the concession agreement also provided that the assessee can enter into a separate contract for operation and maintenance of the BOT Project. Thus, it is evident, the EPC and O & M contracts entered into by the assessee with GIL are as per the terms of the concession agreement and also with the approval of NHAI. It is also a fact on record that the assessee has financed the entire project by availing loan from financial institutions. Further, as per the concession agreement assessee at its own cost is required to insure the project during the period of implementation. The work of GIL is limited to carrying out the development as well as operation and maintenance of the infrastructure project as per the price fixed under

32 Rajahmundry Expressway Ltd. the contracts. Thus, the status of GIL is that of a contractor. Whereas, the assessee as per the terms of the concession agreement is the developer of the infrastructure facility. It is relevant to observe, the concession agreement was executed on 30th October 2001. Whereas, the EPC contract was entered into on 13th February 2002. Thus, both these contracts were much prior to assessment year 2006–07, wherein, for the first time assessee claimed deduction under section 80IA of the Act. It is also a fact on record that in the course of assessment proceeding in assessment year 2006–07, the Assessing Officer after examining assessee‟s claim allowed the deduction under section 80IA of the Act. Though, in assessment years 2007–08 and 2008–09 while completing the assessments under section 143(3) of the Act, the Assessing Officer disallowed the deduction under section 80IA of the Act on the ground that it is not a new infrastructure facility, however, both the appellate authorities i.e., learned Commissioner (Appeals) and the Tribunal have allowed assessee‟s claim. The facts and materials on the basis of which assessee‟s claim of deduction under section 80IA of the Act was allowed by the appellate authorities have not changed as the concession agreement and the EPC and O & M contracts have remained same. In fact, in the impugned assessment order, the Assessing Officer has examined the EPC contract, however, he has not raised any doubt regarding assessee‟s status as a developer. Learned Commissioner (Appeals) on

33 Rajahmundry Expressway Ltd. the basis of the very same documents has held the assessee as a paper company and not a developer. This is merely for the fact that the assessee has entered into the EPC contract with GIL. In our view, a reading of section 80IA of the Act makes it clear that as per the qualifying conditions, the company eligible for claiming deduction firstly, must have been created by a consortium, secondly, it must have entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility and thirdly, it has started or starts operating and maintaining the infrastructure facility on/or after first day of April 1995. There cannot be any doubt that the assessee has fulfilled the first and third conditions. If, at all, there is some doubt regarding the second condition as to whether the assessee can be regarded as a developer or engaged in operating and maintaining the infrastructure facility. A reading of section 80IA as a whole as well as the concession agreement would make it clear that it is the assessee who has been entrusted the work of developing, maintaining, operating the infrastructure facility. The project has been financed entirely by the assessee. GIL has executed the work merely as a contractor.

34 Rajahmundry Expressway Ltd. 17. Though, learned Commissioner (Appeals) has stated that for the same infrastructure facility both the assessee and the GIL are claiming deduction, however, the aforesaid finding is factually incorrect. In fact, from the material placed on record, it is evident, GIL has withdrew its claim of deduction under section 80IA of the Act after the amendment brought to provision prohibited allowance of deduction to a contractor. Thus, as per the facts on record, it is the assessee who is only claiming deduction under section 80IA of the Act. Further, the allegation of learned Commissioner (Appeals) that the assessee is a mere paper company is unacceptable considering the fact that an agency of the Central Government has entered into a contract with the assessee. Even, the annuity income received by the assessee from NHAI has been assessed at the hands of the assessee. Expenditure claimed including finance cost, depreciation, etc. have also been allowed. Thus, it is very much clear that the assessee is a genuine company doing business and cannot be regarded as a paper entity. The most crucial factor which needs to be kept in mind is, assessee‟s claim of deduction under section 80IA of the Act in respect of the same infrastructure facility was allowed by learned Commissioner (Appeals) in the assessment years 2007–08 and 2008–09 and the Tribunal also approved it. It is worth mentioning, while deciding identical issue in assessment year 2012–13, which is after the date of search and seizure operation, learned Commissioner (Appeals) following the

35 Rajahmundry Expressway Ltd. decision of the Tribunal has allowed assessee‟s claim of deduction under section 80IA of the Act. Thus, it is very much clear that the appellate authorities on verifying identical facts and materials have never considered the assessee as a paper company or it is not a developer of the infrastructure facility, hence, allowed assessee‟s claim of deduction. In our view, when the issue relating to assessee‟s claim of deduction stands concluded by the Tribunal, learned Commissioner (Appeals) cannot take a different view to disallow assessee‟s claim of deduction by treating it as a paper company, that too, without any material basis. For coming to such conclusion, we are supported by the decision of the Hon'ble Jurisdictional High Court in Paul Bros. (supra). 18. The observation of the learned Commissioner (Appeals) that the assessee is a mere paper company and by entering into EPC contract, it has inflated its profit by deflating the value of the contract cannot also be accepted as it is merely on the basis of a presumption. As discussed earlier, vide notification no.266, dated 19th September 2002, the Central Government has granted approval under section 10(23G) of the Act recognizing the assessee as an undertaking wholly engaged in developing, operating and maintaining infrastructure facility. Meaning thereby, the Central Government recognizes the assessee as an eligible undertaking under section 80IA(4) of the Act for developing, operating and maintaining the BOT Toll Road. Therefore,

36 Rajahmundry Expressway Ltd. only because the work has been executed through a contractor, the assessee cannot be treated as a paper company.

37 Rajahmundry Expressway Ltd. authorities, they never questioned assessee‟s status as the developer of the infrastructure facility and the disallowance of deduction under section 80IA of the Act was made only on the reasoning that the infrastructure facility is not a new one. Therefore, when the status of the assessee has been accepted as a developer, even by the Assessing Officer in the impugned assessment order, learned Commissioner (Appeals) cannot change the status purely on the basis of conjecture and surmises without any contrary material available on record. In fact, learned Commissioner (Appeals) has not referred to even a single piece of material which can even remotely suggest that the assessee is a mere paper company and does not qualify the conditions of section 80IA(4) of the Act. There is no doubt that the BOT Toll Road built by the assessee is a infrastructure facility as defined under section 80IA(4) of the Act. Therefore, an entity which developed such a facility is eligible to claim deduction, provided, he fulfills the conditions of section 80IA(4)(i) of the Act. In the fact of the present case, if neither the assessee nor GIL are held as ineligible then no one else could get the benefit of section 80IA of the Act and the very object for which the provision has been brought would fail. Unless the entity coming forward to make the investment in developing infrastructure facility is granted the statutory deduction no one will come forward to make huge investment for development of infrastructure facility which ultimately leads to development of country‟s economic condition.

38 Rajahmundry Expressway Ltd. Therefore, keeping in view all the relevant facts including the decision of the Tribunal in assessee‟s own case as referred to elsewhere in the order, we hold that the assessee is eligible to claim deduction under section 80IA of the Act. Therefore, the Assessing Officer is directed to verify the correctness of assessee‟s computation of deduction under section 80IA and allow the same. Further, to ensure that deduction for the same infrastructure facility is not allowed to both the assessee and Gil, the Assessing Officer is directed to verify the relevant facts and thereafter compute deduction under section 80IA of the Act. These grounds are allowed.

39 Rajahmundry Expressway Ltd. capitalized a sum of ` 226 crore towards EPC charges. Comparing the EPC contract cost awarded by the assessee to GIL with contract cost awarded by an associate as well as the independent engineer‟s report, the Assessing Officer disallowed capitalization of excess cost amounting to ` 5.47 crore. Consequently, he disallowed corresponding depreciation on such cost worked out at ` 39,87,630. The assessee contested the aforesaid disallowance before the first appellate authority.

40 Rajahmundry Expressway Ltd. meaning of section 32(1)(ii). Thus, he submitted, assessee‟s claim of depreciation has to be allowed. In support of such contention, the learned Counsel for the assessee relied upon the following decisions:–

i) ACIT v/s Progressive Construction Ltd., ITA no.1845/Hyd./ 2014, and C.O. no.36/Hyd./2015, dated 14.02.2017 (SB); and ii) ACIT v/s West Gujarat Expressway Ltd., [2015] 154 ITD 103 (Mum.).

41 Rajahmundry Expressway Ltd.

42 Rajahmundry Expressway Ltd. 28. After considering the submissions of the assessee in the context of the facts and material on record, learned Commissioner (Appeals) found that the issue relating to the disallowance under section 14A of the Act, was already a subject matter in the original assessment proceedings. Therefore, he held that it cannot be a subject matter of dispute in the assessment proceedings under section 153A of the Act, as no incriminating material was found. Accordingly, applying the ratio laid down by the Hon'ble Jurisdictional High Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. (supra), he held that since the issue relating to the disallowance of ` 2,36,81,525, made under section 14A of the Act already stands concluded in the original assessment, it cannot be re–visited again. However, applying the same principle, he deleted the disallowance made under section 14A of the Act while computing book profit under section 115JB of the Act.

43 Rajahmundry Expressway Ltd. 31. We have considered rival submissions and perused the material on record. Undisputedly, in the original return of income filed for the assessment year under dispute, the assessee had voluntarily made disallowance of ` 2,36,81,525. It is also a fact on record that before the search and seizure operation took place in case of the assessee assessment for the impugned assessment year was completed under section 143(3) accepting the disallowance made under section 14A of the Act. In the return of income filed in pursuance to the notice issued under section 154A of the Act, the assessee withdrew the disallowance made under section 14A of the Act. In our view, since the issue relating to assessee‟s claim of deduction under section 14A of the Act, already stood concluded by virtue of the original assessment order, no further deliberation on the issue can be made in the impugned assessment order. Therefore, we fully agree with the decision of learned Commissioner (Appeals) on the issue even with regard to deletion of disallowance made while computing book profit under section 115JB of the Act. This ground is dismissed.

ITA no.6487/Mum./2017 Revenue’s Appeal – A.Y. 2008–09

44 Rajahmundry Expressway Ltd. 34. As discussed earlier, while dealing with ground no.10, raised by the assessee in its appeal being ITA no.6518/Mum./2017, the Assessing Officer being of the view that the assessee has paid contract cost to the GIL at a higher rate, invoked the provisions of section 40A(2) of the Act and disallowed a part of depreciation expenditure corresponding to the excess cost capitalized by the assessee.

45 Rajahmundry Expressway Ltd. appeals before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, he submitted, none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./142/2007–ITJ–(Pt) dated 20th August 2018, would apply to Revenue‟s appeal. For that reason also, Revenue‟s appeal is not maintainable.

ITA no.6515/Mum./2017 Assessee’s Appeal – A.Y. 2005–06 38. In grounds no.1 to 4, the assessee has challenged the validity of assessment order passed under section 143(3) r/w section 153A in the absence of any incriminating material found as a result of search.

46 Rajahmundry Expressway Ltd. However, for the sake of completeness, we proceed to decide the ground.

ITA no.6484/Mum./2017 Revenue’s Appeal – A.Y. 2005–06

ITA no.6516/Mum./2017 Assessee’s Appeal – A.Y. 2006–07

47 Rajahmundry Expressway Ltd.

ITA no.6486/Mum./2017 Revenue’s Appeal – A.Y. 2006–07

48 Rajahmundry Expressway Ltd. 53. This issue is identical to the issue raised by the Revenue in its appeal being ITA no.6587/Mum./2017. Following our decision therein, the ground raised by the Revenue is dismissed.

ITA no.6517/Mum./2017 Assessee’s Appeal – A.Y. 2007–08

49 Rajahmundry Expressway Ltd.

ITA no.6485/Mum./2017 Revenue’s Appeal – A.Y. 2007–08 63. The only issue raised by the Revenue is against the deletion of disallowance of deprecation made by invoking the provisions of section 40A(2) of the Act.

50 Rajahmundry Expressway Ltd.

ITA no.6519/Mum./2017 Assessee’s Appeal – A.Y. 2009–10 ITA no.6520/Mum./2017 Assessee’s Appeal – A.Y. 2010–11 ITA no.6521/Mum./2017 Assessee’s Appeal – A.Y. 2011–12

51 Rajahmundry Expressway Ltd. issue raised by the assessee in its appeal being ITA no.6518/Mum./ 2017. Accordingly, grounds no.1 to 5, are dismissed. Whereas, grounds no.6 to 9, are allowed.

52 Rajahmundry Expressway Ltd. no disallowance under section 14A of the Act can be made. The Assessing Officer is directed to verify the relevant facts and if it is found that during the relevant assessment year, the assessee has not earned any exempt income, no disallowance under section 14A of the Act can be made. Otherwise, the disallowance under section 14A r/w rules 8D should be restricted to the exempt income earned during the year. Insofar as the disallowance of expenditure in relation to the exempt income earned for computing the book profit under section 115JB of the Act, though, the Assessing Officer can make such disallowance under Explanation–1(f) to section 115JB(2) of the Act, however, such disallowance has to be restricted to the actual expenditure incurred for earning the exempt income. With these observations, the grounds raised by the assessee are allowed.

ITA no.6488/Mum./2017 Revenue’s Appeal – A.Y. 2009–10 ITA no.6489/Mum./2017 Revenue’s Appeal – A.Y. 2010–11 ITA no.6490/Mum./2017 Revenue’s Appeal – A.Y. 2011–12

53 Rajahmundry Expressway Ltd. issue raised by the Revenue in its appeal being ITA no.6487/Mum./ 2017, we have upheld the decision of learned Commissioner (Appeals) in deleting such disallowance. Facts being identical, following our decision therein, we uphold the order of learned Commissioner (Appeals) on the issue. Grounds are dismissed.

Cross Objection no.67/Mum./2019 Cross Objection no.64/Mum./2019 Cross Objection no.65/Mum./2019 Cross Objection no.66/Mum./2019 Cross Objection no.68/Mum./2019 Cross Objection no.69/Mum./2019 Cross Objection no.70/Mum./2019

54 Rajahmundry Expressway Ltd. hence, no separate adjudication is required. Accordingly, these cross objections are dismissed.

Sd/- Sd/- G. MANJUNATHA SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, DATED: 04.03.2020

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

Assistant Registrar ITAT, Mumbai