ULTRA TECH CEMENT LTD,MUMBAI vs. ADDL CIT RG 2(2), MUMBAI

1. On the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) has erred in confirming disallowance u/ s 14A of Rs. 6,26,46,484/- on account of interest u/ s 14A read with Rule 8D made by the Learned Assessing Officer.

The following grounds have been taken by Revenue for the A.Y.2010-11 1. "Whether on the facts ana in the circumstances of the .case and in law, the Ld.CIT(A) was justified in holding the sales tax exemption benefits as capital receipts not liable to income tax without appreciating the fact that assessee had not produced any evidence to show that it was -under an obligation to utilize these amount for settings up a new unit in a backward area ignoring the said requirement laid down by the hon'ble Supreme Court in para no. 16 in the case of CIT VS. Ponni Sugars Chemical Limited_(306 ITR.392)

During the course of assessment AO disallowed assessee’s claim of deduction u/s.80IA in respect of profit of rail systems. The assessee made this claim on the ground that it had earned profit by operating its rail systems at Hirmi [Chattisgarh],· Tadipatri [AP],· Arakkonam [Tamilnadu] and Durgapur [West Bengal]. In the context, during the assessment proceedings it was explained that the assessee had inherited those rail systems [along with cement plants-Hirmi Cement Works, A P Cement Works, Arakkonam Cement Works & West Bengal Cement Works] out of demerger from L &T Ltd at all those locations; that the rail systems were set-up by L8:T Ltd [and that way by the assessee company as it had inherited the cement plants from L&T Ltd by way of demerger] to enable the transportation of raw material [coal etc] and finished goods [i.e. cements] at their cement plants through railway wagons, at all the said; four locations. It was explained that prior to putting up those rail systems, the assessee used to transfer the material from the cement plants [at all the four locations] to the nearest railway station and vice-versa on road through trucks. Before the AO the claim of deduction was justified by assessee by taking the plea that the various conditions as prescribed u/s 80IA(4) was met with in as much as it had entered into an agreement with the government through department of 6 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., Railways for developing, maintaining and operating the rail system [infrastructure facility]; and that in pursuance thereof it had developed the integrated rail system in between the plant and the nearest railway track [of Indian Railways] and running it [in between] for movement of the inward and outward material so as to enable it to transport the materials from its plants straightaway to the various destinations and vice-versa at all those four locations; and that by way of such operation of rail systems, it has been able to save the expenses for loading [at those plants] into the trucks, road freight and expenses for unloading and loading the same at the site of nearest Indian railways and that resulted into the. profit of such rail systems.

However, the AO noted that those agreements were for laying out private sidings and not for any rail system [as referred to in explanation (a) to the clause (t) of sub-section (4) section 80IA in reference to the infrastructure facility] as claimed by the assessee that railway had laid down those [sidings] partly on the land belonging to the railways and partly belonging to the assessee company so as to facilitate the transportation of raw materials/cement bags through railway wagons [from / to their plant sites]. The AO also noted that the assessee [rather l & T ltd] had primarily requested the' railway department to extend the sidings [railway tracks] to the site of cement plants of the company so as to enable it to transport its goods [raw material & cement] from/to their plant sites itself [so that it could avoid transportation through the roads till the nearest railway station and loading and unloading etc]; that on such request the railway authorities conducted survey and laid down sidings and charged the assessee for 7 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., laying out the railway track and other related infrastructure. The AO also noted that the wagons were actually run on those sidings by the railway authority and not by the assessee company. The AO also took note that railway authorities had posted its staff for weighing raw material/ cement bags loaded/unloaded by the assessee; and that all activities were directly or indirectly being carried out by the railway authorities and the assessee only reimbursed the expenses or charges levied by the railways in r/o siding maintenance etc as per the agreement. The AO inferred that the so called "rail system" [of the assessee company] is not a self reliant, independent unit; and that it is providing services to the cement plants of the assessee company only. The AO also stated that railway department do not allow operation of the railways by any private enterprise and for that reason it [railway department] had formulated a Build-own-lease-transfer (BOLT) scheme whereby the private enterprises could set-up the necessary and crucial components of a railway system and provide that on lease to Indian Railways for maintenance and operation; and in the context referred to the CBDT circular no 733 dated 03.01.1996 whereby the benefit of Sec. 80IA was also extended to such rail system constructed / developed by the private enterprises as per the said BOLT scheme. By that circular, the Board had also clarified that such concession would be available only to an infrastructure facility meant for development of rail systems and not to any other infrastructural facility including rolling stocks. The AO also observed that the assessee, had not given the said railway system or the crucial component thereof on lease to the railway department [had it been so, the 8 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., profit by way of lease rent from such rail. system would have qualified for deduction u/s 80lA as per the concession given by the aforesaid circular]. Finally, the AO held that assessee was not eligible to claim the deduction u/s 80lA in r/o such rail systems and disallowed the claim accordingly.

In its appellate order CIT(A) noted that the issue has come up first in A.Y. 2004·05. In that year, the assessee had claimed deduction of Rs 15.63 crores in r/o rail system at Hirmi, Raipur District, Chattisgarh. In A.Y. 2005- 06 & 2006-07, the assessee claimed deduction of Rs.16.30 crs & Rs 20.95 crs respectively in r/o that rail system at Hirmi. In A.Y. 2007- 08, the claim was made in r/o two more rail systems [one at Tadipatri in Andhra Pradesh & the other at Arakkonam in Tamil Nadu]. The total claim for that year amounted to Rs 52.38 crs [Rs 21.09 crs -Hirmi; Rs 25.56 crs -Tadipatri & Rs 5.73 crs -Arakkonam]. In A.Y. 2008-09, the claim extended to one more rail system at Durgapur [West Bengal] and the total claim amounted to Rs 61.56 crs. This claim for AY 2009-10 i.e. for the year under consideration had risen to 73.13 crs.

The rail systems at all these four locations viz. Hirmi, Tadipatri, Arakkonam & Durgapur are said to have commenced the operations in AY 2000-01, AY 1999-00, AY 2001-02 ft AY 2002-03 respectively [ refer assessee's reply dated 06.01.2014] It was further observed by CIT(A) that the L&T Ltd, on whose request the private sidings were set up at all these four locations, never claimed any such deduction u/s 80IA(4). The deductions are being claimed by the assessee company since AY 2004-05, after the various cements plants were transferred to the assessee company 9 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., [in the year 2003-04] as per demerger scheme. In AY 2004-05, claim was made [for the first time] in respect of such Rail System at Hirmi. Then in AY 2007-08, it started claiming deduction in respect of rails systems at Tadipatri and Arakkonam and then in AY 2008-09 for Durgapur also. From AY 2009- 10 and onwards the claim pertains to all the four units.

The CIT(A) further noted that in AY 2004-05 &2005-06, the Hon'ble ITAT vide its order dated 20.08.2009 in ITA No 7735 & 7736/Mum/2007 had decided this issue in the favour of assessee. Later that decision of the tribunal was followed by the ITAT in its [assessee] case in AY 2006-07 [ ITA No 2604/M/09 order dated 31.5.2010] and in AY 2007-08 & 2008-09 [ITA nos 8143/mum/2010 and 1813/Mum12012, order dated 28.02.2014]. The relevant part of the Tribunal's decision in AY 2004-05 is reproduced hereunder:

The Id DR on the other hand placed reliance on the order of the AO and on the other hand the Id counsel of the assessee placed reliance on the order of the CIT(A). Attention of the Bench was drawn on para 5.2 of the order of the AO and then on the provision of Sec 8OIA clause 2 and sub clause 3&4. It was further explained that the assessee can avail benefit of deduction u/s 80IA in 10 years of his choice out of 15 years period. The provisions are very clear. Attention of the Bench was also drawn on the copy of the agreement placed at page .93 of the paper book. It was further submitted that all the conditions of Sec 80IA have been fulfilled. Reliance was placed on the decision reported in 40 ITR 123. It was submitted that the ClT(A) has discussed the issue extensively and the findings of the ld CIT(A)

After having all the above observation, the CIT(A) noted that the issue of the allowability of the assessee's claim u/s 80IA(4) in respect of ' Rail Systems' 13 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., as referred to by the assessee has been examined by him afresh from the point of view of the relevant provisions of the Act and the facts as to whether the 'Rail System' as referred to by the assessee could indeed be treated as the infrastructure facility for which deduction u/s 80lA is intended to by the legislature; and whether the assessee operated that rail system.

The CIT(A) observed that the L & T Ltd., did not claim exemption on operation of those rail systems. Rather the assessee company has started claiming exemption from AY 2004-05 after the ownership over the cement 14 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., plants together with such rail systems were transferred to it following the demerger scheme in FY 2003-04.

The CIT(A) further observed that the provision of railway track, signals, level crossings etc are the essential components of a rail system but that in itself would not give rise to any profit. For that movement of traffic [ie. material] is to be made over those railway tracks. The profit would arise by charging the freight thereon.

The CIT(A) further observed that as per' the agreement, the railway track, signals, level crossings etc were laid out on the cost of L&T Ltd. The cost of maintenance was also to be borne by L&T Ltd [and now by the assessee]. On that only expenses are incurred and there would be no profit element. Then the issue arises of running the wagons onto those tracks. As per the agreement, the assessee was not permitted to run the wagon onto those tracks.

As per CIT(A), it is not a case of running of railways [goods train] by L&T Ltd or the assessee company on those private sidings and as such the assessee did not run any rail system onto those private sidings. Therefore, it cannot be said that the assessee company had operated any rail systems at all. Therefore the deduction u/s 80lA would not be available to it onto the profit, if any, from such rail systems.

The CIT(A) also observed that there is very limited profit on operation of such rail system and the claim made by assessee u/s.80IA is exorbitant.

In view of the above discussion, the CIT(A) concluded that assessee’s claim of deduction u/s.80IA is not allowable. However, by observing that the 15 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., Tribunal has allowed the claim of assessee in the AY 2004-05, 2006-07 to 2008-09, to follow the judicial discipline, he followed the order of Tribunal and allowed assessee’s claim in the A.Y.2009-10. However, by stating that new facts have been brought on record in the A.Y.2010-11, he declined claim of deduction u/s. 80IB(4).

With regard to the disallowance, deduction u/s. 80IA(4), Revenue is in appeal before us in the A.Y.2009-10, whereas assessee is in appeal for the A.Y.2010-11.

It was vehemently argued by learned AR that Revenue authorities have not considered the eligibility requirement u/s.80IA as brought by the Finance Act 2001 wherein Finance Act 2001 has deleted the requirement of the assessee to transfer the infrastructure facility to the concern Government authorities within prescribed time. He contended that CIT(A) has wrongly applied the provisions of law as applicable prior to 01/04/2002 while considering the assessee’s claim for deduction for the A.Y.2009-10 and 2010-11 under consideration. Learned A.R threadbare taken us to the objections raised by the CIT(A) and the reply filed by the assessee controverting each and every objection of the CIT(A). Our attention was invited to the amended provisions of Section 80IA(4) which does not require infrastructure facility to be a public facility for allowing deduction u/s. 80IA. Our attention was also invited to the terms and conditions of the agreement entered between the assessee company and the railway department which contained conditions for construction of railway sidings, development of sidings, laying of tracks, signaling system and all the essential components of rail system. The terms of 16 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., the agreement also provided for its operation and maintenance. He vehemently argued that the rail systems were developed in accordance with the agreements entered with the Indian Railways, wherein assessee was allowed to operate and maintain these sidings under supervision and as per the guidelines of Indian Railway. Our attention was invited to the various clauses particularly Class 2, 6, 7(a), 17 and 8(b) which stipulate for construction of railway sidings at the cost of the assessee. Construction work was awarded either to railway or third party contractors based on their expertise and the work was undertaken under the supervision of the Railways. Clause 6 is specifically provided for payment in advance to the railway administration, the total estimated cost of the work done by the party and thus by the railway administration. Clause 7(a) stipulate that assessee will provide and deliver at site the permanent way and other materials in accordance with the railway administration standard and specifications. Clause 17 stipulate that assessee shall provide labour for and bear the cost of all Operations on the siding. Clause 9(b) provides for maintenance and other charges for the operation of the sidings at assessee’s cost and expense to the satisfaction of railway administration.’ 26. Learned AR also argued that all the conditions of Section 80IA(4) was complied with for claiming deductions. Learned AR also invited our attention to the observation of CIT(A) with respect to the freight rate in so far as CIT(A) has wrongly considered the rate for quintals as against per Metric Ton adopted by assessee while computing eligible amount of deduction u/s.80IA (4). It was also contended by learned AR that assessee has started claiming deduction 17 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., for rail system u/s.80IA only from A.Y.2004-05 since it has satisfied all the conditions as prescribed u/s.80IA (4).

With regard to disallowance u/s.14A on account of interest, our attention was invited to the profit earned by the undertaking during the year as well as interest free funds available with the assessee for making investment in tax free securities and it was contended that since investment was out of assessee’s own interest free funds, in terms of decision of Jurisdictional High Court in case of Reliance Utilities and Power Ltd., 313 ITR 340 and HDFC Bank Ltd., 366 ITR 505, no disallowance of interest is warranted. With regard to the disallowance made under Rule 8D(2)(iii) he contended that assessee itself has offered the amount attributable for earning the exempt income, therefore, further disallowance made by Revenue authorities was not justified.

Learned AR also invited our attention to the order of the Tribunal in assessee’s own case for A.Y.2004-05 to 2008-09, wherein Tribunal have after considering in detail allowed the assessee’s claim u/s.80IA with regard to rail system. Sales Tax exemption as capital receipt was also decided by Tribunal in assessee’s own case for the A.Y.2004-05 to 2008-09, relevant decision of the Tribunal was also filed before us.

Learned AR relied on following judicial pronouncements in support of the proposition that benefit allowed in earlier year cannot be denied in subsequent years.

RadhaSoami Satsang v. Commissioner of Income Tax [1992]193 ITR 321 (SC)/[1991] 100 CTR 267 (SC) 2 CIT v. Western Outdoor Interactive (P) Ltd. [349 ITR 309] [BOMBAY] 3 CIT v. Paul Brothers. [216 ITR 548] [BOMBAY] 18 ITA No.5065, 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., 4. Commissioner of Income Tax v. Macbrout Engineering (P.) Ltd. [2014] 52 taxmann.com 219 (Bombay)/[2015] 232 Taxman 406 (Bombay) 5. CIT v. Modi Industries Ltd. [327 ITR 570] [DELHI] 6. Commissioner of Income Tax v. Delhi Press Patra Prakashan Ltd. [2013]355 ITR 14 (Delhi)/[2013] 260 CTR 253 (Delhi) 7. Saurashtra Cement & Chemical Industries Ltd. v. CIT [11 CTR 139] [GUJARAT] 8.Ace Multi Axes System Ltd. V. Deputy Commissioner of Income Tax [2014]367 ITR 266 (Karnataka) 9 ITO vs. Smt. Urmila Bhandari [ITA Nos.766, 2593/Del/2013] 10 Deputy Commissioner of Incme Tax v. Selvel Advertising (P.) Ltd. [2015]37 ITR(T) 611 (Kolkata Trib.) 11. Century Enka Limited vs. Deputy Commissioner of Income Tax [ITA No. 560/Kol/2010] 12.Janak Dehydration (P.) Ltd. v. Assistant Commissioner of Income-Tax [2011] 44 SOT 93 (Ahmedabad)(URO)/[201 0]134 TT J 1 (Ahmedabad)(UO) 13. U.P. State Bridge Corporation Ltd. V. Deputy Commissioner of Income-Tax [2015] 70 SOT 517 (Lucknow Trib.)/[2015] 171 TT J 353 (Lucknow Trib.) 14. Asst. Commissioner of Income - Tax vs. M/s. Apex Packing Products (P) Ltd. (ITA Nos. 145 to 150/PNJ/2013)

On the other hand, it was vehemently argued by learned DR that rail system of the assessee company was simply the profit siding and not any infrastructure facility of public utility, therefore, revenue authorities have correctly declined claim of deduction u/s.80IA(4). She further contended that the agreement entered between assessee company and railway department contained the terms and conditions for construction of private siding which cannot be treated as any agreement for development operation and maintenance of any rail system. She further vehemently argued that assessee has not complied with various conditions given in Section 80IA to arrive at eligibility for deduction. She further invited our attention to the observation made by CIT(A) to the effect that the actual operation of rail system on to the private sidings between the serving railway station and plant 19 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., premises was being done by the Indian Railways and not by the assessee Company, therefore, assessee was not entitled for 80 IA(4). She further alleged that profit computed by assessee for the rail system was very exorbitant and method adopted for computation was also not correct. Our attention was invited to the computation of profit as per table ‘F’of CIT(A)’s order. She further contended that when L & T Ltd., itself was not eligible for deduction u/s.80IA, how assessee company became eligible for the same after demerger and inherited the cement business i.e., cement plants together with the rail systems of the L & T Ltd., She placed reliance on the Circular No.733 dated 03/01/1996 which provided that BOLT scheme of Indian Railway shall be eligible for the benefit u/s.80IA.

With regard to sales tax exemption benefit being treated as capital receipt, she relied on the decision of Jammu and Kashmir High Court in the case of Shree Balaji Alloys 198 Taxman 122, Bombay High Court in case of Chaphallkar Brothers 33 Taxman.com 431. 32. With regard to disallowance made u/s.14, she relied on the findings recorded by lower authorities. 33. We have considered rival contentions, carefully gone through the orders of the authorities below and materials placed before us. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. 34. Grievance of both the assessee and revenue revolves around assessee’s eligibility for claim of deduction u/s.80IA (4) of the Income Tax Act. From the 20 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., record we found that assessee UltraTech Cement Ltd (‘UTCL') has acquired the cement business of Larsen & Toubro Limited (L&T') along with the Rail systems at Hirmi, Tadipatri, Arrokonam and Durgapur in the FY 2003-04. These Railway systems were developed on or after 01/04/1995 by the L&T. year wise details of the aforesaid rail systems are as follows: Unit I Rail system Undertakings Year of Initial year Commence of claim ment of (A.Y.) operations (A. Y.) Rail system at Hirmi in the state of Chhattisgarh 2000-01 2004-05 Rail system at Tadipatri in the state of Andhra 1999-00 2007-08 Pradesh Rail system at Arakkonam in the state of Tamil 2001-02 2007-08 Nadu 2002-03 Rail System at Durgapur in the state of West 2008-09 Bengal

M/s. L&T had entered into agreements with the Railway authorities to develop, operate and Maintain the Rail systems which infact the company has done from initial day. This agreement with the Railway Authorities was not under the BOLT Scheme but infact the assessee was permitted to setup and even operate and maintain the rail system so developed in accordance with terms and conditions of the agreements under the supervision and as per guidelines of Indian Railways. Prior to putting up the rail systems, the assessee used to transfer the material from its plant to the nearest Indian Railways station and vice versa through Road and used to incur road freight and loading & unloading charges at multiple stages. To save these costs and other incidental costs, the assessee decided to develop the rail 21 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., infrastructure from its manufacturing setup till the nearest Indian Railway station. It is Indian Railways who either have the power to develop any railways in India or it can enter into any arrangement with any person for developing and for operating rail systems subject to prior approvals and conditions. Therefore, the assessee accordingly entered into agreement with the Rail authorities to develop, operate and maintain its rail systems. The agreement lays down various conditions to be complied with, before and during the development, maintaining and operating the rail systems. Such rail system can also be made available to any third party with the permission of the Indian Railway. For this purpose, the assessee approached to the Indian Railways for development of Rail systems which Indian railways has agreed to provide permission for laying down the railway sidings (including the rail line upto the nearest rail head) and accordingly the assessee had awarded the contract to the private parties for construction and to the Indian Railway approved agency for supervision and consultancy of the Rail system and had borne the entire cost of development including for incidental expenses paid to all the agencies. The clause in the agreement saying that railway administration is willing to lay the said sidings / construct the siding is meant for Railway administration's permission for allowing the assessee for developing the Rail system as per the norms and supervision of Indian Railways. The revenue authorities alleged that the Railway system have been developed to facilitate the transportation of goods for the assessee from and upto the factory premises, and therefore the Agreements entered into by the assessee with the Indian Railways cannot be regarded as 22 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., required agreements between the Govt and the assessee. In this respect the assessee submitted as under before the lower authorities. a) as per section 80- IA( 4 )(i)(b) the agreement has to be entered with the Central Govt or a State Govt or a Local Authority or any other statutory body for (i) developing or (ii) Operating and Maintaining or (iii) Developing, Operating and Maintaining the infrastructure facility. Indian Railways is the statutory body under the Indian Railways Act. b) The provision of Sec.80-IA (8) contemplates a situation where goods or services are transferred by an eligible undertaking and vice versa. Undoubtedly therefore, the section itself envisages situations of captive consumption. c) Further as mentioned in clause 15 of the agreement, the rail systems developed by the appellant can be made available to any third party with the prior approval of the Indian Railways.

It was therefore contended that the agreements as entered into by the assessee with Indian Railways are as envisaged u/s 80- IA( 4 )(i) and in no case it can be inferred that they are not the required agreements under section 80-IA.

The Govt can also enter into any arrangement with any person for developing and for operating rail systems subject to prior approvals and conditions of the Indian Railways. M/s L& T has accordingly entered into agreement with the appropriate rail authorities to Develop, Operate and Maintain its rail systems. M/s. L& T had awarded contract to the private parties for construction of rail sidings (including upto the nearest rail head) under the supervision of Indian Railways approved agency, and the entire cost for construction / development paid to the aforesaid agency and supervision charges paid to Indian Railways approved agency have been 23 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., borne by the assessee, apart from all costs incurred for all the materials and incidental expenses. It was further explained in terms of clause 14, Wagons are hauled by the Railway Administration from the point marked 'X' or such other points as may be fixed upon by mutual consent of the applicants and railway administration in such manner as shall be determined in each case by the Railway administration. The assessee undertakes to shunt the wagons from such point to his premises and back with his own labour. However", no siding charges are charged by Indian Railways, since it is a private siding. The Clause 16 reads to mean that, charges such as Siding Charges are to be paid 'wherever leviable'. In assessee’s case siding charges are not leviable. 38. The rail systems were developed by assessee under the agreements entered into with Indian Railways and assessee operates and maintains the same in accordance with terms and conditions of the Agreements, under the supervision and as per guidelines of Indian Railways. Relevant clauses of the agreements substantiating the same are as under:- a) Clause No. 2, Agreement to Construct Siding - Wherein it is mentioned that "the Railway administration will at the cost and the expenses of the applicant, in all respect, construct the railway sidings " Further kindly be informed that, for construction of the siding under the supervision of the Railways, the contract for construction and supervision has been awarded by the applicant and the entire cost has been borne by the applicant. b) Clause no. 6 - Payment by Applicant against the total estimated cost - wherein it is mentioned that, "The applicant will pay in advance to the railway administration the total estimated cost of the work consisting of the estimated costs of work done by the party and those by the railway administration .... "

These are other various clauses wherein it is evident that the Development, Operation and Maintenance is done by the assessee and the entire cost for the same is borne by the assessee.

From the record we also found that the assessee has duly submitted for all the rail systems, Form 10CCB, duly certified and audited by M/s. G.P Kapadia & Co., Chartered Accountants along with Balance Sheet, P&L account, Schedules forming part of Balance sheet and P&L Account. 41. However, the AO did not agree with assessee’s contention and held that Rail systems developed by assessee is not eligible for claim of deduction 25 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., u/s.80IA (4). Now, we deal precisely with the observation made by CIT(A) for declining Assessee’s claim of deduction u/s.80IA. 42. With regard to CIT(A)’s observation as to whether rail systems developed by M/s. L& T were in accordance with the Build-Own-Lease-& Transfer (BOLT) scheme of the Indian Railways, we observe that L& T had entered into agreements with the railway authorities to develop, operate & maintain the rail systems, which in fact the company has done from the initial day. The assessee was permitted to setup and even operate & maintain the rail systems so developed. Further, regarding' Circular No. 733 dated 03-01- 1996, we found that the Circular clarifies that tax holiday benefit u/s. 80-IA of the Act was also available to private enterprises which only built and leased out the rail system to the Indian Railways. In spite the absence of activities- 'operate and maintain' the rail systems, such 'infrastructure facilities' were also declared as eligible to claim deduction under the said section. Further, the circular also states that rail systems developed other than under the BOLT scheme were also eligible for benefit u/s 80-IA. In case of the assessee, the clarification of benefits u/s. 80-IA being available to those rail systems who do not 'operate and maintain' the systems clearly establishes that, enterprises who in fact operate and maintain the rail systems were certainly eligible for tax holiday benefits. As the assessee has entered into agreements with the railway authorities to develop, operate & maintain the rail systems, which in fact the company has done from the initial day. There was indeed an 'infrastructure' facility eligible for deduction u/s 80lA. We also found that the Hon'ble ITAT in assessee's own case for AY 2006-07, has 26 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., categorically allowed the deduction u/s. 80-IA for its rail system after dealing with the Circular No. 733 dtd 3.1.1996.

The Rail systems of assessee at Hirmi, Tadipatri, Arakkonam and at Durgapur were developed under the Agreements entered into with Indian Railways and the assessee is allowed to Operate and Maintain in accordance with terms and conditions of the Agreements, under the supervision and as per guidelines of Indian Railways only. The copies of agreements between M/s L& T and Indian Railways for other rail systems i.e. at Tadipatri, Arakkonam and Durgapur are placed on record and we have carefully perused the relevant terms and conditions. The Indian Railways plays role in operations and maintenance of the Rail systems, traffic Management, etc. as mentioned under the various clauses of the Agreements entered into, and the entire cost of such operation and maintenance is borne by the assessee including for the Railway staff being deputed for the purpose.

From the record we found that M/s. L&T had entered into agreements with the Railway authorities to develop, Operate and Maintain the Rail systems which infact the company has done from initial day. This agreement with the Railway Authorities was not under the BOLT Scheme but infact the assessee was permitted to setup and even operate and maintain the rail system so developed in accordance with terms and conditions of the agreements under the supervision and as per guidelines of Indian Railways. As per the relevant provisions of law during relevant period there is no requirement for Rail Infrastructure to be In BOLT scheme, to be eligible for 27 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., claiming deduction under Section SO-lA (4 )(i). Section 80-lA (4 )(i) provides the following conditions to be complied with for claiming deductions; (i) ..... (a) it is owned by a company registered in India ..... (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; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 45. With regard to objection of revenue authorities on applicability of CBDT circular No.733 on BOLT schemes, systems developed under BOLT scheme are also eligible for 80-IA benefit, and in no way restricts the deduction u/s.80-IA to other rail systems. We found that the Hon'ble ITAT in assessee's own case for AY 2006-07, has categorically allowed the deduction u/s. 80-IA for its rail system after dealing with the Circular No. 733 dtd 3.1.1996.

Therefore the agreements as entered into by the assessee with Indian Railways are as envisaged u/s 80- IA( 4 )(i) and in no case it can be inferred that they are not the required agreements under section 80-IA.

We also found that no siding charges are levied by Indian Railways for the rail systems developed by the assessee. The assessee has developed, operates and maintains the rail systems. The systems are being operated by the assessee as permitted under the agreements entered into with Indian Railways and under the rules and regulations of Indian Railways from time to 28 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., time. The entire cost was borne by the assessee and is appearing in the balance sheet of the assessee as placed on record. We have also verified the same and found it correct.

Contention of revenue authorities that Railways had constructed the rail system is not factually correct. In fact, M/s L& T had entered into agreement with the appropriate rail authorities to Develop its rail systems. M/s. L&T had constructed the rail system by awarding contract to the private parties for construction of rail sidings (including upto the nearest rail head) under the supervision of Indian Railways approved agency, and the entire cost for construction/ development paid to the aforesaid agency and supervision charges paid to Indian Railways approved agency have been borne by the assessee, apart from all costs incurred for all the materials and incidental expenses.

From the record we found that the rail systems were developed under the agreements entered into with Indian Railways and assessee operates and maintains the same in accordance with terms and conditions of the Agreements, under the supervision and as per guidelines of Indian Railways. We have carefully gone through the relevant clauses of the agreements substantiating the same which reads as under: a) Clause No. 2, Agreement to Construct Siding - Wherein it is mentioned that "the Railway administration will at the cost and the expenses of the applicant, in all respect, construct the railway sidings " Further kindly be informed that, for construction of the siding under the supervision of the Railways, the contract for construction and supervision has been awarded by the applicant and the entire cost has been borne by the applicant.

The question of allowability of the deduction u/s. 80IA in respect of rail systems has been settled in earlier years by the Hon'ble ITAT in assessee’s own case. The facts and the agreements were also placed before authorities in those years. Therefore, the claim based on same facts needs to be allowed following the principle of Consistency in assessment proceedings. Even though the 'principles of res judicata' do not apply to income tax proceedings and each assessment year being a separate unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to allow the position to be changed in a subsequent year.

We also found that assessee has furnished all the information with regard to No. of Railway Engines / Locomotives and Railway Wagons owned by the assessee before the lower authorities which are as under:-

Unitwise details of amount of claim of deduction u/s.80-IA on the profits of Rail System for AY 04-05 to AY 09-10 is as under:-

We have also verified the calculation of revenue from rail system, filed before the lower authorities and found that the basis adopted for calculating the revenue from rail system is, lower of the Freight chargeable through Road and Rail. The Rail Freight being lower is considered after discounting it further by 50% based on the Circular of Indian railways for the freight chargeable upto the nearest railway station. Freight Rates are considered as per the Freight Rate chart & Freight Circulars issued from time to time by Indian Railways, based on the classification of the goods transported. The Railway freight rates are uniformly charged to everyone by Indian Railways. The copies of Form 10CCB including the Profit and loss account, Balance sheet along with Schedules, giving- therein the basis for calculation of revenue has been submitted before the lower authorities and had been duly examined by us and found to be correct.

We also found that the loading and unloading of goods is being done by the integrated Rail system set up by the assessee and expenses which were incurred earlier for loading and unloading of materials at the plant as well as the nearest Indian Railway station have been avoided and saved and are considered as income of the rail system arising due to setting up of 33 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., such integrated rail system. The assessee has already submitted for all the Rail Systems form 10CCB duly certified and audited by M/s. GP Kapadia & Co. Chartered Accountants, alongwith Balance Sheet, P&L Account, Schedules forming part of Balance sheet and P&L Account. We have also checked the amount eligible for deduction as furnished in form 10 CCB and found the same as correct.

With regard to CIT(A)’s observation in the A.Y.2010-11 at page 42 to the effect that the so called 'Rail System' of the assessee company are simply a private siding and not any infrastructure facility of Public Utility therefore the infrastructure of such private sidings should be treated as "Private Facility”, we observe that Section 801A(4) of the Income Tax Act, 1961 does not require the infrastructure facility to be a public facility for allowing deduction under section 801A. The explanation to section 801A(4) defines the term 'infrastructure facility' to mean a road including toll road, a bridge or a rail system without anything further. We observe that the CIT(A) has been referring to the pre-amended definition of the term 'infrastructure facility' which was applicable till AY 2001-02. The assessee company began its claim of deduction from AY 2004-05 when the definition was simplified with no indication about 'public facility'. Thus CIT(A) was not correct while declining claim of deduction u/s.80IA(4) on this reasoning.

As per our considered view, even assuming that the requirement of public facility is to be fulfilled, it is worth noting that a section of public is also considered to be public. This principle has been laid down by the Hon'ble Supreme Court in the context of a Chamber of Commerce [CIT vs. Andhra 34 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., Chamber of Commerce (1965)] (55 ITR 722) wherein it was ruled that even though the Andhra Chamber of Commerce was established only to serve the traders and businessmen in the State of Andhra Pradesh, such traders and businessmen constituted a section of public and therefore the Chamber existed for a public charitable purpose. In the ultimate analysis of the facts in the case of assessee Company, the benefits of such siding does ensure to the public in general - to the consumers of cement. Any benefit to the business even though it is first enjoyed by the particular trade or establishment eventually is for the general public good. It has to be noted that several industries may come up on both the sides of sidings from the interchange point till factory gate, if anyone of them wants to make use of railway sidings, it is permissible for the Railway Administration to entertain such request and by making use of the exiting siding, can extend or branch off and lay railway tracks to the industry which makes the request and lay siding accordingly. Thus, the railway siding from the point of interchange till factory gate of the assessee has immense potential, with enabling powers to the Railway Administration (which itself is a public department), to be developed into a facility that will ensure to the public at large. The railway sidings are always constructed for captive consumption. Thus, the provisions of section 80IA(4) cannot be read in the manner to make it redundant, when the legislature in all its wisdom intended to give benefit of tax holiday for construction of infrastructure facility in the form of railway which is meant for captive consumption.

With regard to CIT(A)s conclusion for the A.Y 2010-11 at page 42, to the effect that the agreements entered between the assessee Company & Railway Department, contained the terms & conditions for construction of Private Sidings and that cannot be treated as any agreement for development, operation & maintenance of any Rail system, we observe that as per section 80-IA(4)(i)(b), an assessee has to enter 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 the infrastructure facility. The Indian Railways, with whom the assessee has entered into an agreement, is the statutory body designated under the Indian Railways with whom the assessee has entered into an agreement, is the statutory body designated 36 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., under the Indian Railways Act. We found that the agreement does not merely contain the terms and conditions of the construction of railway siding i.e. development of siding (laying of tracks, signal system and all the essential components of Rail Systems) but it also contains the terms and conditions relating to its operation and maintenance as well.

Our attention was also invited to letter No. 99/TC(FM)26/1/Pt-II (Sub Liberalisation of siding 'Rules) of the Railway Boar clarifying that the capital cost of new siding, maintenance cost, cost of Railway staff etc. will be borne by the enterprise only, which also supports our view.

As far as operations is concerned, we found that the assessee carries out all the following operations for smooth movement of its goods, viz. shunting of the wagons, placing of the wagons at appropriate locations, loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, weighing of wagons on Motion Weigh Bridges, wagon couplings and de-couplings, rake formation for dispatch, hauling of wagons through its own locomotives within the factory premises, etc. Thus, the rail system is being operated by the assessee and the cost of above operations is borne by assessee.

With regard to CIT(A)’s conclusion at page 42 of A.Y. 2010-11 to the effect that various conditions given in Section were not met with, we observe as under:- a. Section 80-IA (4)(i) provides the following conditions to be complied with for claiming deductions; 37 ITA No.5065, 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., (i) any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India ..... (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; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:

As per materials placed on record, all the railway systems are established and owned by the assessee which is a Company as defined under the Income tax Act. This is an undisputed fact and there is no adverse remark by the AO or CIT(A) in this regard.

As per clause (b)of Section 80IA (4)(i) an agreement has to be entered 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 the infrastructure facility. The Indian Railways, with whom the assessee has entered into an agreement, is the statutory body designated under the Indian Railways Act. 65. We also observe that the agreements entered into by the assessee are for the development, operation and maintenance of the Railway siding. Thus this fulfills the requirement in clause (b). 66. The last requirement as per clause (c) is regarding commencement of operation and maintenance of facility on or after 1st April 1995. All the railway sidings were developed after April 1995 as can be verified from the date of 38 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., agreements entered into by the assessee with the Railway authorities; which are as under:- Location Authority with which Date of agreement Agreement is entered Hirmi South Eastern Railway March 2000 Tadipatri South central Railway 03-05-1999 Arakkonam Southern Railway 08-01-2001 Durqapur Eastern Railway 18-10-2002

This also is an undisputed fact and there is no adverse remark by the AO or CIT(A) in this regard. In view of above all the conditions specified in section 80IA(4) has been complied with by the assessee entitling it to claim the tax holiday.

With regard to CIT(A)’s observation that the actual operation of Rail System [i.e. running of goods train] onto the private sidings between the serving railway station and plant premises [upto interchange point! exchange yard], was being done by the Indian Railways and not by the assessee Company.

We found that the CIT(A) has equated "running of goods train" with the "operation of Rail System". This is the sole basis on which he has arrived at his conclusion that since the assessee is not running the goods train it is not 39 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., operation of Rail System and hence not eligible for claiming deduction under section 80IA(4). 70. As per our considered view, the operation of Rail System is not simply running of goods train. Operation of Railway Systems comprises of various activities viz. shunting of the wagons, placing of the wagons at appropriate locations, loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, weighing of wagons on Motion Weigh Bridges, wagon couplings and de-couplings, rake formation for dispatch, hauling of wagons through its own locomotives within the factory premises, etc. Thus, the rail system is being operated by the assessee and the cost of above operations is borne by assessee. 71. With regard to allegation of the CIT(A) that the assessee has never claimed that it is hauling the wagons on the entire siding, we found that hauling of wagons is only one of the activity in the entire operation of the rail system. Under the Railways Act, 1989 nobody other than railway administration is allowed to haul wagons of the railway tracks. As per materials placed on record, all the activities relating to the operation of rail system except hauling of wagons till the interchange point, is done by the assessee and the entire cost for the same is borne by it. 72. From the record we also found that even the maintenance of the Rail system such as alignment of track & gauge maintenance, patching of ballast, maintenance of railway track sleepers, signalling points and railway gate 40 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., crossing from private siding to connecting point of nearest railway station is done by the assessee.

Thus the operation of rail is not merely hauling of wagons but comprises of various activities all of which is carried on by the assessee Company.

With regard to CIT(A)’s observation that all the four cement plants [having private sidings] were notified as independent booking station and the freight was charged by the railway department for the entire distance including the portion of private sidings [upto interchange point / exchange yard], we observe that this is a fact which is undisputed by the assessee and nothing turns out of it.

CIT(A) also alleged that the notional profit computed for so called rail system has been very exorbitant and the method is also not correct. It need to be computed in the manner as explained in para 3.2.14 [with reference to table F] above. If that is done, there would hardly be any profit to those rail systems.

In this regard, we found that prior to setting up of railway siding, the assessee used to transport its goods through road to the nearest railway station. Only the few components of the cost of road transportation, which the cement division of the assessee was hitherto incurring for transportation of materials to and from the factory premises, is adopted as the basis of calculating the revenue of the railway undertaking. The revenue is, however, computed for the actual services rendered by the railway undertaking to the cement division.

In this regard, we observe that the railway systems of the assessee has been rendering following services to the cement division: • shunting of the wagons, • placing of the wagons at appropriate locations, • loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, • weighing of wagons on Motion Weigh Bridges, • wagon couplings and de-couplings, • rake formation for dispatch, • hauling of wagons through its own locomotives within the factory premises

All the aforesaid services are carried out by the railway system inside the factory premises. Further even the maintenance of the Rail system such as alignment of track & gauge maintenance, patching of ballast, maintenance of railway track sleepers, signaling points and railway gate crossing from private siding to connecting point of nearest railway station is done by the railway system. Thus, the revenue of the railway undertaking is the sum aggregate of the above services rendered by it to the cement division. For the purpose of computation, the railway undertaking has adopted the minimum freight rate (further discounted at 50%) which the Indian railways charges for the 42 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., transportation of these materials. Since this is the easiest available comparable, it has been adopted by assessee for calculating one of the component of its "revenue".

We further found that an amount towards loading and unloading charges is added to the above revenue for inward and outward movement of goods which is also carried out by the rail undertaking. The basis, for computing this component of revenue is the loading and unloading cost which the cement division was hitherto incurring during transportation through roadways. The question of reducing the freight payments to the Railways does not arise since this cost is incurred by the cement division and not by the railway undertaking. 81. In view of the above discussion, the explanation given by the CIT(A) and the tabular representation of the computation of revenue of rail system in Table F, has no relevance since it is merely based on his incorrect assumption. 82. Further, we found that observation of CIT(A) with respect to the freight rate is also not correct in so far as for comparison, he has considered the rate per quintal as against per Metric Ton adopted by the assessee which can be observed from the calculation submitted by assessee before the lower authorities. Without any evidence in hands, the CIT(A) has merely stated that crucial facts were not disclosed by the assessee without referring to any specific facts which were not disclosed. Perhaps he is indicating about the operations of railway siding being carried out by the railways and not by the assessee. However, as aforesaid, he is comparing the operation of railway 43 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., siding with merely hauling of wagons. The operations of railway siding involves various activities other than the hauling of wagons. Mere haulage of wagons cannot be equated with operations of railway siding. We found that assessee has filed reports in Form 10CCB from M/s G.P.Kapadia & Co., Chartered Accountant. The CIT(A) himself has allowed the deduction in AY 2009-10 based on the similar facts available on records but changed his decision merely based on the replies to questionnaire from various Railway Department.

The CIT(A) has also raised a query as to whether the L& T Ltd, which had developed said rail system was eligible for deduction u/s 80lA in respect of profit, if any, otherwise on operation & maintaining that system under the provisions that existed at the relevant time [prior to 01.04.2002] when such infrastructure facility is said to have become operational. As per our considered view one of condition for claiming deduction under the pre- amended section 80IA(4) (i.e. prior to AY 2002-03) stipulated that the assessee should enter into an agreement with the Government (Central or State) or other authorities mentioned therein for (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility. Further, the agreement should also provide for transfer of such infrastructure facility to such authorities within the period stipulated in the agreement. The Central Government realizing the need to encourage investment particularly in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems made certain amendments to 44 ITA No.5065, 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., the conditions for eligibility of claim u/s. 80lA through Finance Act, 2001. Amongst others amendments, the Central Govt. removed the abovementioned condition and accordingly, the amended section 80IA(4) clause (b) stood as under from AY 2002-03 onwards: "(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;"

Thus, the Finance Act, 2001 amongst other conditions, particularly deleted the requirement for an assessee to transfer the infrastructure facility to the concerned government authorities with prescribed time.

In this regard reliance can be placed on the decision of Gujarat High Court in case of Katira Construction Limited v. UOI (352 ITR 513), wherein Court held as under:- "32. It is true that with effect from 1-4-2002 some significant changes were made in the said provisions. Three of these changes which are material were: (i) that sub-section (4) of section 80-IA now required the enterprise to carry on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. This was in contrast to the previous requirement of all three conditions being cumulatively satisfied; (ii) that the explanation of the term 'infrastructure facility' was changed to besides others, a road including toll road instead of hitherto existing expression 'road', and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with. 33. These changes, however, would not alter the situation vis-a-vis the impugned amendment. These legislative changes did enlarge the scope of the deduction and in a sense, made it available to certain assessees who would not have been, but for the changes eligible for such deduction "

Thus, under the amended conditions of the section 80-IA(4) i.e. post AY 2002-03, L&T as well as UTCL were eligible for claiming deduction u/s 801A. As per section 80IA(2), the deduction is available at the option of the assessee, for any ten consecutive assessment years out of twenty years beginning from the year in which the undertaking or enterprise develop and operate any infrastructure facility. The assessee has started claiming deduction post AY 2004-05 and is within the period of available twenty years. Under section 80IB, u/s 80lC, 80ID and 80lE, the first year in which the production is started is taken as initial previous year whereas, after the amendment in provisions of section 80lA w.e.f. 01.04.2000 the initial assessment year is at the option of the assessee to avail the benefit.

In view of the amended provisions of Section 80-IA, the year in which the claim is first made i.e. initial assessment year, must apply for determination of eligibility of the claim. In respect of AY 2004-05 onwards including assessment year 2009-10 and 2010-11, since the condition relating to 46 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., transfer of such facility to Central Govt. was no longer a pre-requisite for eligibility of claim u/s 80-IA(4)(b), the assessee has correctly made the claim.

In view of the above, we can safely conclude that even if an assessee does not fulfill all the requisite conditions for availing the tax holiday benefit in the year in which the new infrastructure facility is set up or has commenced operation, but in a subsequent year, all the requisite conditions for availing such benefit are fulfilled, the assessee would be entitled to avail the tax holiday benefit in respect of such subsequent assessment year(s). For this purpose reliance is placed on the decision of the Hon'ble ITAT of Jaipur in the case of ACIT v. Shiv Agrevo Limited (34 SOT 1). In this case, the assessee- company, whose main object was extraction of seeds for obtaining edible oils and refining thereof, set up a new industrial undertaking for the extraction and refining of edible oil. It claimed to have temporarily commenced the activity on and from 1-1-1997 on a trial run; however, the systematic activity of refining commenced only in the previous year relating to the assessment year 1998-99. After the final completion of the project, the assessee-company applied directly for a permanent registration certificate of its status as a small scale industry (SSI) under section 11-B of the Industrial Development Regulation Act, 1951 (IRDA) to the prescribed authority, who granted the certificate dated 30-3-1998, which was a conclusive and final proof of such a status under the provisions of IRDA. The return of income filed earlier by the assessee for the assessment year 1999-2000 as subsequently revised, wherein a claim of deduction under section 80-IA was made. The Assessing Officer disallowed the claim of the assessee, on the ground that the assessee 47 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., started production from the assessment year 1997-98 itself, the year in which the assessee was not a small scale industry, and, therefore, the assessee did not fulfill the condition of section 80-IA in the initial year. On appeal, the Commissioner (Appeals), allowed the assessee's claim under section 80-1A. On Revenues appeal, the ITAT held that for claiming deduction under section 80-IA, it has to be determined at end of relevant previous year that as to whether assessee is registered as SSI and there is no condition in Act that an industrial undertaking should fulfill all conditions as laid down under section 80-IA in very initial year itself and not thereafter.

Even as per fiction created by section 80IA(5), the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the "initial assessment year". Prior to 1-4-2000, section 80IA(12) defined the "initial assessment year" for various types of eligible assessees. However, after the amendment by the Finance Act, 1999, the definition of "initial assessment year" has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in section 80IA(2) from which it chooses its' 10 years of deduction out of 20 years, then only deduction u/s 80lA can be determined.

ITAT Chennai Bench have dealt with similar issue in case of Mohan Breweries 116 ITTD 241 which pertains to AY 2004-05 (i.e., after the amendment of S. 80-IA by the Finance Act 1999), the Chennai Tribunal has held that the initial assessment year is the first year of claim and S. 80-IA itself becomes applicable only when the assessee makes the claim for the 48 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., first time and not before that. Hon'ble Madras High Court has upheld the judgment of Chennai Tribunal and concurred with the view that Section does not mandate that first year of 10 consecutive assessment years should be always first year of set-up of enterprise. The High Court has held that as initial year is not defined in Section 80lA as compared to Section 80IB where it is specifically provided that the year of commencement of business will be the initial year for the purpose of claiming the deduction, the year of option has to be treated as initial assessment year for the purpose of Section 80IA.

It is pertinent to mention here that once the deduction for the very first is allowed then in subsequent year the deduction cannot be disallowed on the same ground. Hon'ble High Court decision in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj), has pointed out that once deduction is allowed in the first year, revenue has no power to deny the deduction in subsequent assessment years as provided under the Act.

Even the Supreme Court in case of Bajaj Tempo's case (196 ITR 188) held that a provision in the taxing statute for promoting growth and development is to be construed liberally and hence, even the restriction contained in such a provision has to be construed so as to advance the objective of the provision and not to frustrate it.

The CIT(A) has also raised an objection to the effect that since L & T was not eligible for deduction u/s.80IA on operation of those rail system, then whether the assessee company, which inherited the cement business [i.e. cement plants together with said rail system] of the L& T Ltd in the FY 2003-04 on account of demerger, could be treated as eligible to the 49 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., deduction under the aforesaid section in respect of profit, if any, of those rail system for the later years. In this regard we observe that assessee has inherited the cement business from L&T Ltd., in FY 2003-04 on account of merger. Post merger it started claiming deduction for Rail system u/s. 80-IA from Assessment year 2004-05 onwards as it satisfied all the conditions as prescribed u/s 80IA(4). Section 80IA(12) provided that in the scheme of amalgamation or merger, the deduction is available to the amalgamated / resulting company. The relevant provision of sec. 80IA(12) reproduced hereunder:- "Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger. (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.

Section 80IA(2) further provides that the deduction is available at the option of the assessee for any ten consecutive assessment years out of twenty years beginning from the year in which the undertaking or enterprise develop and operate any infrastructure facility. UTCL has started to claim deduction within the prescribed period of twenty years. The claim is thus legitimately made by assessee complying the requirements mentioned under section 801A.

AO has also disallowed exemption of sales tax benefit received by the assessee by treating the same as revenue receipt. We found that as per schemes of various State Governments, the assessee was exempted to pay sales tax on sale of finished goods in respect of some of its manufacturing units. In the P&L A/c the entire sale proceeds was credited and deduction of Rs 128,15,74,995/- [i.e. the amount which was exempted to be paid as' sales tax on the sales made. during the year] thereof was claimed. In the assessment proceedings, it was submitted that the said amount [by way of exemption/remission of sales tax]' was a subsidy and was in the nature of capital receipt in view of the decision of Hon'ble ITAT Mumbai bench in its own case for A.Yrs 2004-05 to 2006-07 and the decision of CIT(A) in A.Y. 2007-08. The assessee also relied onto the decisions in cases of Sahani Steels [228 ITR 253 (SC). Reliance Industries Ltd [88 ITD 273 (ITAT, Spl. Bench Mumbai)], Ponni Sugars Chemicals Ltd [2008 TIDL 174-SC-IT]. However, the AO observed that as per the relevant sales tax incentive schemes the assessee was not required to charge any sales tax from its customers and/or to pay any purchase tax on its purchase for a particular period, subject to overall limit based on capital invested; that the State-Government had not 51 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., given any amount of subsidy either in cash or-in kind to the assessee to enable them to establish plant; that the primary object of the Government in granting sales tax exemption was to attract investment 'by giving them a competitive edge and develop industries in backward areas.

By the impugned order CIT(A) allowed assessee’s claim by observing that the Tribunal have decided to issue in favour of the assessee vide order dated 20/08/2009 in the case of assessee for A. Y. 2004-05 to 2005-06 in ITA Nos. 7735 & 7736/Mum/2007. For ready reference, the relevant para 5.1, 5.2 & 6 of that order is re-produced hereunder: "5. 1 The scheme under which the assessee claimed exemption benefit of sales tax was similar to the scheme in the case of Reliance Industries. The Hon’ble President: constituted a Special Bench on the sole reason that the different view has been taken in the case of Bajaj Auto Ltd (supra) and subsequent other decisions. Thereafter, the Special Bench in the case of Reliance Industries was constituted who examined the Maharashtra Sales tax scheme and Gujarat Sales tax scheme and came to the conclusion that the benefit of sales tax exemption as per Maharashtra Sales tax scheme is capital receipt not liable to tax. This decision of the Special Bench has now been affirmed by the Hon'ble Bombay High Court in the case of Reliance Industries (supra) and held that 'the object of the subsidy was to set up a new unit in backward area to generate employment'. The subsidy was held as capital receipt; accordingly, the decision of the Special Bench was confirmed. While confirming, the decision of the Supreme Court in the case of Ponni Sugars & Chemicals Ltd in 306 ITR 392 was also taken into consideration by the Hon’ble Bombay High Court. 5.2 We further noted that in similar circumstances the other Bench of the Tribunal in the case of Maharashtra Oil Extraction P Ltd in 7618/Mum/2005 for A. Y. 2003-04 following the decision in the case of Reliance Industries has allowed the claim of the assessee. Similarly in the case of Zenith Fibres Ltd in 2009- TOIL-468 the Tribunal has allowed the claim of the assessee.

Since the facts are similar in the present case, therefore in view of the above decisions of the Tribunal and the decision of the Hon'ble Bombay High Court we hold that sales tax exemption benefit is on account of capital receipt not liable to tax. Accordingly, this ground for both these years is allowed.

The facts and circumstances during the years under consideration i.e., 2009-10 & 2010-11 are exactly same, therefore, respectfully following the series of the order of the Tribunal in assessee’s own case, we do not find any infirmity in the order of CIT(A) for holding that subsidiary was capital in nature therefore, not liable to tax as revenue receipt.

In the Assessment Year 2009-10, the assessee is also aggrieved for disallowance of interest expenditure on exempt income u/s.14A. Our attention was invited to the cash flow statement as placed at page 70 of the Annual Report according to which there was net cash surplus of Rs.1457.57 crores from operating activities. Attention was also invited to the investment made by assessee during the year in units of mutual funds amounting to Rs.817.83 crores, the income from which is exempt from tax. Contention of learned AR was that this investment was out of cash surplus of Rs.1457.57 crores generated during the year. As per the working submitted before the revenue authorities, it was contended that investment in mutual funds was out of cash surplus generated by the assessee. As per learned A.R, following the order of Jurisdictional High Court in case of Reliance Utilities 53 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., and Power Ltd., and HDFC Bank, no disallowance of interest u/s.14 r.w.r 8D of the IT Act is warranted.

We have considered rival contentions and carefully gone through the orders of the authorities below. In view of the decision of the jurisdictional High Court as referred above, no disallowance is warranted on account of interest as the assessee has sufficient interest free funds available with it. Learned AR has also invited our attention to the cash flow statement placed in the paper book to indicate that cash surplus was much more than the fund invested for earning exempt income, therefore, with a limited issue of verifying the cash surplus available vis-à-vis amount invested in tax free securities, we restore the matter back to the file of the AO. If the AO finds that cash surplus so generated is more than the amount of investment in tax free securities / units of mutual funds, no disallowance on account of interest is warranted under Rule 8D 2(ii). We direct accordingly.

The assessee is also aggrieved for disallowance of expenditure other than interest amounting to Rs.2,65,70,329 alleged to be incurred on exempt income u/s.14A. Contention of learned AR was that assessee has already offered for disallowance of indirect expenditure of Rs.55,40,932/- being very reasonable and attributable to earning of exempt income. However, without giving any cogent reason, the AO has not accepted the same. It was further contended that CIT(A) has not taken into account the decision of Tribunal in assessee’s own case for the AY 2007-08 and 2008-09, wherein Tribunal has upheld the reasonableness of other expenditure as offered by the assessee.

Similarly in the A.Y.2010-11, assessee is aggrieved for disallowance made u/s.14A amounting to Rs.13,85,61,471/- on account of interest and sum of Rs.4,92,15,823/- on account of administrative expenses.

We have considered rival contentions and found from record that during the previous year, the assessee company had invested Rs.617.19 Cr. in units of Mutual funds, of which the investments from which the income is 55 7614,5107 &7631/Mum/2014 M/s. Ultratech Cement Ltd., exempt from tax is Rs.407.19 Cr., out of the cash surplus of Rs.1571.93 Cr. generated during the year. Instead of keeping the cash generated during the year from operations idle, the same was invested temporarily in units of Mutual Funds. It was also shown to us that on none of the occasions CC facility of the assessee was utilized for making investments in units of mutual funds, income of which is exempted. Since assessee has invested the funds out of own funds temporarily available having no interest cost, no disallowance of interest is warranted in view of the decision of the Jurisdictional High Court in case of Reliance Utilities and Power Ltd., 313 ITR 340 and HDFC Bank Ltd., 366 ITR 505. Our attention was also drawn to the detailed working submitted before the Revenue authorities alongwith the statement of bank accounts and cash flow showing daily movements and fund from which investments were made to demonstrate that there is no element of borrowed funds in the aforesaid investment made during the year in investment of mutual funds. Keeping in view the totality of facts and circumstances of the case and in the interest of justice and fair play, we restore this issue back to the file of the AO to verify the availability of cash surplus of Rs.1571.93 crores generated during the year and which was invested in the units of mutual funds. If the AO found that assessee has generated cash surplus of 1571.93 crores, no disallowance on account of interest expenditure should be made in so far as cash surplus is much more than the investment so made in the units of mutual funds. We direct accordingly.