THE ASSISTANT COMMISSIONER OF INCOME-TAX-2(1)BHILAI, BHILAI(CG) vs. M/S SMS SHIVNATH INFRASSTRUCTURE PVT LTD., DURG, DURG(CG)

ननधााररती की ओर से /Assessee by : Shri Kapil Hirani, Adv. & Mukesh Agrawal, CA राजस्व की ओर से /Revenue by : Shri Debashis Lahiri, CIT-DR सुनिाई की तारीख / Date of Hearing : 04/01/2023 घोषणा की तारीख/Date of Pronouncement : 27/03/2023 आदेश / O R D E R

Per Arun Khodpia, AM :

1. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT (A) was justified in deleting the disallowance 2 ITA No.87/RPR/2017 & ITA No.107/RPR/2016 of Rs. 13,90,58,404/- made by the AO out of eligible income U/S 80lA of the Act?" 2. "Whether on points of law and on facts & circumstances of the case, the Ld.CIT(A) was justified in deleting the disallowance of proportionate interest on non-interest bearing inter corporate deposits to a group of concern namely M/s SMS Tolls and Developers Ltd., out of the interest bearing loans from banks, which is in violation of legal provisions U/S 36(l)(iii) of the IT Act?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld.CIT(A) having concurrent power of the AO as per the due provisions of law U/S 250(4) of the IT Act, was justified in giving the finding that, the impugned disallowance of Rs. 13,90,58,404/- is eligible for deduction U/S 80IA of the Act which is contrary to the finding of the AO, that the addition made by the assessee to the income eligible for deduction U/S 80IA of the Act on account of disallowance of interest have been so far arranged, that the profit of eligible business is arrived at in a quantum, more than the profit derived in the ordinary course of such eligible business?" 4. "The order of Ld.CIT(A) is erroneous both in law and on facts". 5. "Any other ground that may be adduced at the time of hearing".

3. Brief facts of the case are that, the assessee company has filed its return of income for AY 2012-13 on 28.09.2012 declaring income of Rs. 1,13,53,104/-. The company is engaged in the business of infrastructure development on BOT basis and has built and is operating Durg by-pass road on National Highway No.7. Profit of this activity is eligible for deduction u/s. 80IA of the I T Act, the same has been claimed since A Y 2007-08 and allowed in all the years till date. During the financial year 2010-11 the assessee company took a term loan from State Bank of Hyderabad and part of this loan was diverted for non business purpose i.e, for granting of inter corporate deposit of Rs. 107.70 crore to an associate company namely SMS Tolls and Developers Ltd. Since the loan to the above extent was not utilized for eligible business while computing 3 & ITA No.107/RPR/2016 the income from eligible business for the purpose of computation of taxable income under normal provisions of Income tax Act as well as u/s. 115JB of the I T Act assessee suo-moto worked out interest attributable to above lCD of Rs. 107.70 crores at Rs. 13,90,58,404/- and added it back to the taxable income of the assessee company and computed taxable income accordingly. In the assessment order passed u/s. 143(3) of the IT Act the AO held that interest expenditure of Rs. 13,90,58,404/- is not considerable for eligible business for the purpose of deduction u/s. 80lA of the IT Act because the assessee has diverted the fund to its associated concern as interest free loan to give benefit to the associate concern with the intention that any enhancement in income arising to the assessee by way of disallowance of interest will be available as deduction u/s. 80lA and no tax needs to be paid on such additional income. Therefore, the addition on account of disallowance of interest of Rs. 13,90,58,404/- was made to the profit of business eligible for deduction u/s. 80IA was withdrawn and deduction u/s. 80IA to the extent has been disallowed.

4. Aggrieved with the observations of the Ld AO on this issue in the assessment order, the assessee preferred an appeal before the CIT(A), wherein the grievance of the assessee regarding addition on account of disregarding the suo-motu disallowance of interest attributable to ICD to associate concern, resulting in reduction of claim of deduction u/s 80IA was decided and allowed in favour of the assessee by Ld the CIT(A).

4 & ITA No.107/RPR/2016 5. Dissatisfied with the decision of the Ld CIT(A) now, the department is in further appeal before the Tribunal to challenge the findings of the Ld CIT(A) on this issue.

6. At the outset, Ld.CITDR submitted that funds raised by way of a loan by the assessee from the bank were diverted to the associate concern M/s Tolls & Developers Ltd. (SMS Tolls), but to avail the benefit of deduction u/s 80IA the portion of the interest attributable on the bank loan used for granting of ICD of Rs. 107.70 Crore for which no interest was either stipulated or being charged was added back to the income by the assessee suo moto. According to Ld CITDR, Ld CIT(A) was wrong in not considering the correct view taken by the AO that the interest on borrowed loan which was not used for the business is not an allowable expenditure and is required to be disallowed and added to the income of the appellant. The Appellant had devised the transaction in such a way that profit of eligible business for deduction under provisions of section 80IA(10) of the Act arise more than the profit derived in the ordinary course of such eligible business. Ld CIT(A) had not appreciated the facts of the case in correct perspective and thus have reached on a wrong and unjust finding by allowing the assessee’s excessive claim of Rs. 13,90,58,404/- towards deduction u/s 80IA. Ld CITDR vehemently supported the order of Ld AO and prayed to restore the same on this issue by reversing the finding of the Ld CIT(A).

5 & ITA No.107/RPR/2016 7. On the other hand, ld. AR of the assessee submitted that Ld CIT(A) has understood the issue very logically and decide the same rationally in justified manner. Submissions of the Ld AR are as under:-

1. 1. That the Appellant is a private limited company engaged in the business of Construction, management and operation of Durg bypass project on Build, Operate and Transfer (BOT) basis awarded to it by NHAI. The Appellant is assessed to tax vide PAN: AADCS2258Q and has been regularly filing its returns of income on time. The books of accounts of the Appellant are duly audited under the'provisions of The Companies Act, 1956 as well as under section 44AB of the Income Tax Act, 1961 ("Act").

2. The Appellant filed its original return of income for the AY under appeal electronically on 28.9.2012 declaring income of Rs. 1,13,05,394. Copy of acknowledgement of ITR as well as computation of income enclosed at pages 39-42 of the paper book filed by the Assessee. The declared income comprised of income from capital gains and income from other sources. Apart from the said incomes, the Assessee also had Income under the head business and profession amounting to Rs. 23,88,87,498 which was fully claimed as deduction U/s 80lA of the Income Tax Act, 1961 ("Act"). Tax was paid U/s 115JB of the Act.

3. The Assessee had during the immediately preceding year had utilized bank loan for granting Inter Corporate Deposit ("ICD") of Rs. 1,07,70,00,000 to its sister concern on which no interest was charged by the Assessee. The Assessee accordingly, suo moto added back in its computation of income the interest of Rs. 13,90,58,404 being interest paid on bank loan utilized for grant of ICD as the said interest did not pertain to the eligible business of the Assessee, profits of which are deductible under section 80lA as per the provisions of section 80lA of the Act. (Copy of computation of income at pages 40-42 of the paper book).

4. The amount of profit from eligible business as per the provisions of section 80lA was accordingly computed vide various adjustments made to the net profit as per Profit & Loss Account (P&L) in the computation of income and the resultant net profit from business, which is the eligible business, was computed at Rs. 23,88,87,498/-, 100% of which was deductible under section 80lA and was accordingly claimed in the return of income.

5. It is noteworthy to mention here that the claim of deduction under section 80IA is not in dispute and the Assessee has been claiming deduction under section 80lA for the past many years as well which has also been allowed by the Department on same facts of the case.

6. The case of the Appellant was selected for scrutiny. The Appellant during the course of assessment proceedings provided all the details as desired by the Assessing Officer ("AO") including furnishing of statutory form 10CCB in support of deduction claimed U/s 80lA as well as the computation of book profits U/s 115JB of the Act. The assessment was completed U/s .143(3) of the Act by making an addition of Rs. 13,90,58,404 representing the amount of interest paid to bank and which 6 & ITA No.107/RPR/2016 is attribute to the loan amount utilised for giving interest-free ICD loan to the sister concern by the Assessee on the ground as under: Therefore addition on account of this allowance of interest of Rs. 13,90,58,404 made to the profit of business eligible for deduction under section 80lA is withdrawn from profit of eligible business in view of sub- section 10 read with sub-section 1 of section 80lA of the I. T Act and added to the total income not eligible for deduction under section 801A. Accordingly, deduction of Rs. 9,98,29,094 (Rs. 23,88,87,498 - Rs. 13,90,58,404) is allow under section 80lA of the IT Act as against claim of Rs.23, 88, 87,498. -Emphasis Supplied out of para 7 of the Assessment order. Relevant portion at page 37 of paper book. Copy of assessment order on pages 32 - 38 of paper book.

7. The Assessee being aggrieved by the additions so made by the AO preferred first appeal before the CIT(A) - 11, Raipur who vide order dated 28.2.2017 allowed the appeal of the Assessee and deleted the addition made by the AO. Copy of order passed by the CIT(A) enclosed at pages 1-14 of the paper book.

8. The CIT(A) while allowing the appeal of the Assessee reproduced the submission made by the Assessee during the course of appeal proceedings at pages 5-10 of the order of the CIT(A) and accepting the arguments of the Assessee held at paragraph 1.8 of the order at page 11 of the paper book as under: 1.8 I have considered the grounds of appeal, gone through the order of the AO and perused the submissions of the Appellant. From a plain reading of the provision of section 80lA it becomes clear that all incomes which are not derived from eligible business should be excluded from the profit and similarly all expenses which are not incurred in connection with earning of eligible income should also be ignored and disallowed. I find that while computing the income eligible for deduction under section 80lA the Appellant has followed the above principles laid down by law. The expenses on interest on loans which were diverted to the sister concern have been disallowed and added back to the net profit as shown in the profit and loss account since the expenses are not eligible to income of eligible business. I am of the view that the Appellant has complied with the provisions of section 80lA while computing the income eligible for deduction and claim to the same under section 801A. The judicial pronouncements relied upon by the Appellant quoted in the submissions also make clear that the expenses which are not relating to eligible business and are not allowable under section 30 to 430 of the Act are to be excluded for the purpose of computation of income eligible for deduction under 80lA of the Act. The Appellant also brought to my notice that the observations of the AO pertaining to notional interest of Rs. 13,90,58,404 which should be treated as income from other sources is misplaced. The Appellant argued that the said amount is not to notional interest but the actual interest paid by the Appellant to the bank on loans borrowed. It was submitted that this was an actual expenditure and taxing the same could be tax on expenditure.

7 & ITA No.107/RPR/2016 9. The CIT(A) further observed that while the contentions of the Assessee have force, the AO has not brought on record any credible instances in support of his observations of the business arrangement being such between the Assessee and the associate concern that produces more than ordinary profits which might be expected to arise in such eligible business.

10. The CIT(A) also at paragraph 2.1 of the order referred to the order of the PC IT passed under section 263 for the immediately preceding previous year i.e AY 2011-12 wherein the PCIT despite having initiated 263 proceedings on identical ground which is the subject matter of dispute in the impugned appeal, dropped the same holding that the working of eligible profit u/s 80lA of the Act as done by the Assessee was proper and that there was no loss of revenue.

13. The Assessee supports the order of the CIT(A) which is in accordance with law in view of the following gist of arguments: 13.1. The calculation of profits from eligible business computed as per the provisions of section 80lA are correct which do not deserve to be disturbed as illegally done by the AO. 13.1.1. Section 80(5) of the Act prescribes that for the purpose of determining the quantum of deduction under sub-section (1) of section 801A, the same shall be computed as if such eligible business were the only source of income of the Assessee during the year. 13.1.2. The quantum of deduction allowable under section 80lA being linked to the profit of the eligible business, the said profit has to be accordingly computed as if the eligible business was the only source of income of the Assessee during the year and as such it is to be computed on a standalone basis. 13.1.3. Considering the same, the business of the Assessee to be a standalone business, its profits have to be computed in accordance with the provisions of the Income Tax Act, 1961. While computing the said profits, as the Assessee had not utilized the bank finance to the extent of RS.107.70 Crores, which was given as interest-free ICD to its sister concern and accordingly not utilized for the purpose of the eligible business of the Assessee, the interest pertaining to the same also could 8 & ITA No.107/RPR/2016 not be debited to the profit derived from the eligible business since the loan amount was not utilized for the benefit of the eligible business. 13.1.4. Considering the above, the Assessee added back and disallowed the interest amount of Rs. 13,90,58,404/- pertaining to the interest-free advance given, to the net profit as derived in the profit and loss account of the Assessee to arrive at the correct figure of profit of eligible business. By adding the interest pertaining to the interest free advance, the net profit thus had the effect of only the interest paid pertaining to the bank finance utilized for the purpose of the eligible business of the Assessee and the resultant net profit reflected the correct figure of the profit pertaining to the eligible business of the Assessee. 13.1.5. The resultant profit amounting to Rs. 23,88,87,498 from the eligible business of the Assessee was accordingly claimed deduction under section 80lA of the Act in accordance with the scheme and the provisions of section 801A. 13.1.6. Reliance placed on: 13.1.6.1. CIT Vs. Bannari Ammhn Sugars Ltd. (2019) TaxPub(DT) 1697 (Madras HC) - held that for determining the quantum of deduction under section BOIA, the eligible business should be treated as the only source of income of the Assessee during the previous gear relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination was to be made. 13.2. Section 80IA(5) starting with a non-obstante clause overrides all the other provisions of the Act. 13.2.1. Section 80IA(5) starting with a non-obstante clause, thus overrides all the other provisions of the act and the provisions of section 80IA(5) are thus mandatory in nature. 13.2.2. The Assessee computing its profits of eligible business in accordance with the provisions of section 80IA(5) has thus committed no illegality and the CIT(A) was right in deleting the illegal addition made by the AO. 13.3. The quantum of deduction claimed under section 80lA will be the same even if the transaction of loan is ignored. 13.3.1. Even if the Assessee would not have granted interest-free ICD to its sister concern, then too the quantum of deduction available and allowable to the Assessee would have been the same as claimed by the Assessee in the return of income. 13.3.2. In case the Assessee would not have granted the interest-free ICD to its sister concern, then it would have not availed the loan to the extent of 107.70 Crores / repaid the said loan which was so granted as interest- free loan, and accordingly the Assessee would have paid less interest to the bank. Having paid less interest to the bank and consequently debited lesser interest to the profit and loss account, the net profit as per books of accounts would have been the same (subject to other undisputed adjustments in computation of income) which is Rs. 23,88,87,498 as the profit computed by the Assessee in the computation of income as in that 9 & ITA No.107/RPR/2016 case no interest having been attributable to interest-free loan no adjustment would have been required in the profit as per computation of income and accordingly the quantum of deduction under section 80lA would again have been the same at Rs. 23,88,87,498. 13.3.3. In other words, had the Assessee not given loan of Rs. 107.70 Crore to its associate concern then the Assessee would have probably repaid this loan to the bank / not availed the loan and would have saved interest expenditure of Rs. 13.90 Crores. This would have resulted into the same taxable profit as the Assessee has shown in its return of income. Similarly, the profit eligible for deduction under section 80lA would also have been the same as claimed by the Assessee in its return of income. 13.4. Section 80IA(10) is not applicable to the facts of the case as has been wrongly applied by the AO 13.4.1. In A.T Kearney India Pvt. Ltd. Vs. Additional Commissioner of Income Tax (2014) 60 (11) ITCL 521 (Delhi 'I' - ITAT), it was held that the provisions of sub- section (10) of section 80lA is a deeming provisions and it must be strictly construed. The assessing officer must show at the first instance that the course of business between the closely connected persons was arranged so as to produce more than ordinary profits in the hands of a person carrying on the eligible business. 13.4.2. In the present case the Assessee having not charged any interest from its sister concern, it can by no stretch of imagination be held that the course of business between the Assessee and its sister concern has resulted in more than ordinary profits in the hands of a person carrying on the eligible business. 13.4.3. The Assessee having not charged any interest from its sister concern it has not resulted in any profit much less more than ordinary profits making the provisions of section 80IA(10) not applicable to the facts of the case in the impugned appeal. 13.5. No notional interest can be charged on the interest-free advances given. 13.5.1. The AO has grossly erred in reducing the quantum of deduction claimed under section 80lA by the amount of interest paid by the Assessee to the bank attributable to the interest on interest free loan given which has the effect of the AO treating the said interest as notional income of the Assessee which is impermissible under law. 13.5.2. Reliance placed on: 13.5.2.1. Shri Appaswamy Infrastructure Vs. ITO Ward 1(4), Nagpur (ITAT Nagpur) - wherein it has been held that there is no provision in law for charging notional interest. Copy of the said judgement has already been placed before the Hon'ble Tribunal during the course of hearing. 13.6. Expenses not attributable to the eligible business are to be excluded by computing the profits of the eligible business under section 80IA. 13.6.1. The Hon'ble Bombay High Court in Zandu Pharmaceuticals Works Ltd. Vs. CIT (2013) 350 ITR 366 has held that while computing deduction under section 80lA, expenses that do not relate to industrial undertaking 10 & ITA No.107/RPR/2016 under consideration, cannot be taken into consideration. There must be a direct nexus between an industrial undertaking and the expenses, which are sought to be apportioned or attributed to eligible undertaking. 13.6.2. In another judgement the full bench of the Hon'ble Bombay High Court in Plastiblends India Ltd. Vs. Addl. CIT (2009) 227 CTR 1 held that the purpose of deduction under section 801A, the gross total income has to be computed inter alia, by deducting the deduction allowable under section 30 to 430. 13.6.3. The above judgements make clear that all expenses which are not relating to eligible business and which are not allowable under section 30 to 430 of the Income Tax Act, 1961 are to be excluded for the purpose of computation of income eligible for deduction under section 80lA of the Act. 13.6.4. The Assessee thus rightly added back the interest paid and debited to profit and loss account and the books of accounts to the extent of Rs. 13,90,58,404 in its computation of income being a disallowable expenditure which was not pertaining to the eligible business and as such was to be excluded while computing the profits of eligible , business as per the provisions of section 801A. 13.6.5. The action of the Assessee was thus as per the scheme of section 80lA and the addition made by the AD was rightly deleted by the CIT(A). 13.7. Similar working by the Assessee has been allowed by the AO in the immediately preceding previous year which has further been confirmed is allowable in section 263 proceedings. 13.7.1. The interest free ICD of RS.107.70 Crores was granted by the Assessee in the immediately preceding year i.e AY 2011-12 and not in the current year. 13.7.2. Accordingly, even in AY 2011-12, the Assessee had added back the proportionate interest attributable to the interest-free advances given to its book profit in the computation of income to arrive at the eligible profit under section 801A. 13.7.3. The said calculation was approved by the AO in scrutiny proceedings completed under section 143(3) of the Act. 13.7.4. The PCIT then proposed section 263 proceedings proposing to bring to tax the said interest added back to the profit in the profit and loss account but during the course of section 263 proceedings dropped the same holding that the same is proper and it does not cause any loss of revenue. 13.7.5. The relevant portion of the CIT order passed under section 263 for AY 2011-12 has been reproduced and formed part of the order of the CIT(A) at para 2.1. 13.7.6. The identical calculations having been already approved by the AD in the immediately preceding previous year as well as confirmed by the PCIT in 263 proceedings, the AD in the current year is precluded to take another view giving due regard to the Doctrine of Consistency.

11 & ITA No.107/RPR/2016 13.7.7. The Hon'ble Bombay High Court in the case of PCIT Vs. Quest Investment Advisors Pvt. Ltd. has held that while "res judicata" does not apply to income-tax matters, the principles of consistency does. If the Revenue has accepted a practice and consistently applied and followed it, the Revenue is bound by it. The Revenue can change the practice only if there is a change in law or change in facts and not otherwise. 13.8. CBDT Circular No. 37/2016 dated 2.11.2016 13.8.1. The Assessee refers and again places reliance on CBDT Circular No. 37/2016 dated 2.11.2016 wherein the Board has, on the basis of various judgements of the Hon'ble Court's have accepted the settled position that disallowance made under section 32, 40(a)(ia), 40A(3), 43B etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed result in enhancement of the profit of the eligible business and that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. The said CBDT circular has been reproduced by the CIT(A) in his order at para 2.2. 13.8.2. Any addition made by the AO has the corresponding effect of equally increasing the deduction allowable under section 80lA thus negating each other. 13.9. The Assessee in light of the above facts and judicial precedents prays before your honour to confirm the order of the CIT(A) and dismiss the appeal of the revenue in the interest of justice. Prayed Accordingly.

8. Having heard the rival contentions, on perusal of the records available, after thoughtfully considering the relevant CBDT circular as well as various judicial pronouncements relied upon by the parties. Our observations are in the following para’s : 9. On perusal of the order of the Ld CIT(A), wherein it has been explained, that how the impugned deduction u/s 80IA is admissible and should be allowed to the assessee. Ld CIT(A) has discussed the provision of section 80IA(10), which the AO has relied upon for making the impugned disallowance. Ld CIT(A) has also considered the findings of Ld PCIT on this issue, while conducting revisionary proceedings u/s 263 for a year just before the relevant AY 2012-13 being AY 2011-12, wherein, under the identical situation, except the figure of the interest suo moto 12 & ITA No.107/RPR/2016 disallowed by the assessee, the proceedings on this issue were dropped after giving a thoughtful consideration to the facts of the issue, inlight of the provisions of section 80IA. Ld PCIT has concluded that “it is a matter of quantum of amount of claim and it does not make a difference in deduction as it is eligible deduction @ 100 % of eligible profit.” thus factually there is no loss of revenue. Ld CIT(A) also considered the directions of CBDT vide its circular no. 37/2016 dated 02.11.2016, wherein it has been clarified that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. With a mindful discussion of the PCIT’s order u/s 263 on the issue in AY 2011-12, a categorical observations and decision of the Ld CIT(A) under para 1.9 to 2.3 of his order are extracted as under: - 1.9 In addition to the above provisions of law in making the disallowances the AO has also relied on the provisions of section 80lA (10) which reads as under.- “ Where it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produced to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the AO shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonable deemed to have been derived there from. “ 2. A plain reading of the above provisions makes it clear that the impugned provisions would become applicable where in the light of the business transactions of the assessee with other persons the transactions are so designed in a manner that produces more than ordinary or usual profits to the assessee. It is a situation where the arrangements of business affairs are done in a manner to gain increased profits through transactions inadmissible in law. It was pointed out by the appellant that in the present appeal the appellant company has not entered into any business transactions with its associate concern and on the lCD of Rs. 107.70 crores given to its associate concern no interest has been received by it and hence 13 & ITA No.107/RPR/2016 the interest paid by the appellant on borrowings from bank for giving such loans has been disallowed from the computation of income u/s. 36(l)(iii) as well as in the working of profit earned from eligible business for claim of deduction u/s. 80lA of the Act. While the contentions of the appellant have force I find that the AO has not brought on record any credible instances in support of his observations on the business arrangement being such between the appellant and the associate concern that produces more than ordinary profits which might be expected to arise in such eligible business. The hon‟ble Chandigarh Tribunal reported in 67 Taxmann.com 152 held that where the AO failed to bring any material on record to show existence of any arrangement for business transacted between two entities section 80IA(10) could not be invoked. The hon‟ble Allahabad High Court in Commissioner of Income Tax Meerut vs. Translam ltd. Reported in 52 taxmann.com 357 (Allahabad) held that where assessee company had maintained separate accounts for each unit and further assessing officer could not prove that business between eligible unit and other units of the assessee were so arranged that business transactions between them produced more profit to eligible business, assessee would be entitled for deduction u/s. 80lA of the Act. 2.1 It was also brought to my notice that for the assessment year 2011-12 in the order u/s. 263 of the Act dated 31.03.2016 of the Principal Commissioner of Income tax-2, Raipur in the appellant‟s own case wherein it was held, Considering the above facts and circumstances of the case written submission of the assessee the relevant provisions of income tax for deduction of 80IA and facts of inter corporate deposits it is observed that there is no loss or irregularity in working of eligible profits of eligible enterprises for deduction u/s. 80IA of the Act 1961. It is a matter of fact that the assessee had given loan of Rs. 107.70 Crore to Mrs. SMS Tolls and Developers Ltd and interest of Rs. 10,28,97,008/- on the said loan has been debited to the P&L Account, which is included in the total interest of Rs. 13,41,37,516/-. Had the assessee not taken loan of Rs. 107.70 crores from the bank in its account, in that case, the interest payable and to be claimed in P&L account would have been less and net eligible profit claim of deduction would have been more to the extent of Rs. 10.29 Crores. Thus factually there is no loss of revenue. It is a matter of quantum of amount of claim and it does not „make a difference in deduction as it is eligible deduction @ 100% of eligible profit of infrastructure Company. “ 2.2 The appellant also relied on circular no. 37/2016 dated 02.11.2016 of the CBDT which reads as under: “The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VIA deductions has been claimed 14 & ITA No.107/RPR/2016 the deduction needs to be allowed on the enhanced its. Some illustrative cases upholding this view are as follows: 9. If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non deduction of TDS under law such disallowance would ultimately increase assessee‟s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction u/s. 80IE of the Act would qualify for deduction u/s. 80IB of the Act. This view was taken by the courts in the following cases: Income tax Officer -Ward 5(1) vs. Kevel Construction, Tax Appeal no. 443 of 2012 December la, 2012 Gujarat High Court. Commissioner of Income tax IV Nagpur vs. Sunil Vishwambharnath Tiwari IT Appeal no. 20f2011, September 11.2015, Bombay High Court. ii. If deduction u/s. 40A(3) of the Act is not allowed the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction u/s. 80-IB of the Act This view was taken by the court in the following case: - Principal CIT, Kanpur vs. Surya Merchants Ltd.” IT Appeal No. 2480f2015, May 03,2016, Allahabad High Court. The above views have attained finality as these judgements of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. Lll. In view of the above, the Board has accepted the settled position that the disallowance made u/s. 32, 40(a) (ia), 40A(3), 43B etc of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed result in enhancement of the profits of the eligible business and that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. 2.3 In view of the above discussions I find that the AO is not justified in denying the claims of the appellant u/s 80lA relating to disallowance of Rs. 13,90,58,404/- u/s. 80lA of the Act which is accordingly allowed and deduction claimed u/s. 80lA for Rs. 23,88,87,498/- is restored. Accordingly grounds no. 1 & 3 are allowed.

10. Further, on perusal of the computation of the total income of the assessee it is observed that the interest attributable to the ICD loan 15 & ITA No.107/RPR/2016 extended by the assessee to its associate concern for Rs. 13,90,58,404/- was added back to the taxable income since the same has no connection with the eligible business of the assessee, this was correct and acceptable as per law. Contention of the AO that this was a colourable devise to enhance the eligible profit of the company, which falls under the ambit of sub-section 10 of section 80IA cannot be accepted or subscribed to, because, if the interest expenditure incurred on funds granted as loan to the associate company are not added back to the taxable income of the company, it would have been a reduction of the taxable income, which would lead to a wrong or inaccurate presentation of the facts by the assessee. This was also according to the instructions issued by CBDT vide its Circular 37/2016 (referred to supra). The same has also confirmed by the PCIT by dropping the revisionary proceedings u/s 263 on this issue. Thus, the contention of the revenue that the deduction claimed by the assessee was excessive by disallowance of the interest to increase the eligible profit u/s 80IA, so as to claim higher amount of deduction u/s 80IA than the same is available ordinarily on eligible business, is unsustainable. Ld CIT(A) had correctly, appropriately and categorically decided the issue, thus we found no infirmity in the order of Ld CIT(A), the same deserves to be upheld and we do so. Thus, we dismiss the appeal of the revenue in ITA No.87/RPR/2017, in terms of our observations as above.

16 & ITA No.107/RPR/2016 ITA No.107/RPR/2016 (AY : 2011-2012): 11. This appeal is filed by the assessee against the order passed by the PCIT-2, Raipur, dated 31.03.2016 for the assessment year 2011-2012, on the following grounds: -

1. That on the facts and in the circumstances of the case the learned CIT has erred in setting aside the assessment order passed u/s 143(3) to examine the applicability of provisions of s.115JB of IT Act.

2. That on the facts of the case order passed by Id. CIT is bad in law because the issue on which Id. CIT has set aside the assessment was not a subject matter of notice issued u/s 263 of I TAct.

3. That any other ground may be raised during the course of hearing of this appeal.

12. Brief Facts of the case as state are, that the Appellant is a private limited company engaged in the business of Construction, management and operation of Durg bypass project on Build, Operate and Transfer (BOT) basis. The Appellant is assessed to tax vide PAN: AADCS2258Q and has been regularly filing its returns of income on time. The books of accounts of the Appellant are duly audited under the provisions of The Companies Act, 1956 as well as under section 44AB of the Income Tax Act, 1961 ("Act").

13. The assessee filed its original return of income for the AY under appeal electronically on 29.9.2011. However, due to some technical fault all the entries in the return were shown as NIL. Accordingly a revised return was filed on the same day declaring a total income of s. 73,66,990/- comprising of interest income and Short Term Capital Gains. Income under the head business and profession was fully claimed as deduction U/s 80lA for Rs. 19,17,84,203/-. Tax was paid U/s 115JB of the Act. The 17 & ITA No.107/RPR/2016 Appellant had during the year utilized bank loan for granting Inter Corporate Deposit ("ICD") of Rs. 1,07,70,00,000/- on which no interest was charged by the Appellant. The Appellant accordingly suo moto added back in its computation of income the interest of Rs. 10,28,97,008/- being interest paid on bank loan utilized for grant of ICD.

14. Subsequently, the case of the Appellant was selected for scrutiny. The Appellant during the course of assessment proceedings provided all the details as desired by the Assessing Officer ("AO") including furnishing of statutory form 10CCB in support of deduction claimed U/s 80lA as well as the computation of book profits U/s 115JB of the Act. The assessment was completed U/s 143(3) accepting the returned income of the Appellant and also the tax calculation U/s 115JB of the Act which is also reproduced in the assessment order.

1. 'The P&L A/c for the said assessment year reveals that the interest of Rs. 10,28,97,008/- on bank loan for granting ICD [inter corporate deposit of Rs. 1,07,70,00,000/- in which interest was neither stipulated nor charged, was added to the net profit of business Vis 80lA of the IT Act. The said amount is not eligible for deduction Vis 80lA and is to be added as income 10,28,97,008/-.

2. The associate concern M/s SMS Toll and Developers Ltd. had 25% share holding in the above company. As the assessee co. accumulated profit of Rs. 8.85 crores, advanced Rs. 107.70 crores to the associate concern. The associate concern had income on deemed dividend of Rs. 8,85,90,903/- during the FY 2010-11 as per section 2(22)(e) of the IT Act. Income escaped assessment Rs. 8,85,90,903/-."

18 & ITA No.107/RPR/2016 In view of the above facts, the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue. In these circumstances, it is proposed to take remedial action under section 263 of the IT Act, 1961. You are, therefore, requested to show cause as to why remedial action U/s 263 should not be taken.

21 & ITA No.107/RPR/2016 Without prejudice, the CIT having set aside the issue of calculation of profits U/s 115JB in light of disallowable interest, being a ground for which no opportunity of being heard being accorded to the Appellant, is violative of the principles of natural justice making the order passed U/s 263 bad in law and liable to be set aside in the interest of justice. The CIT issued notice U/s 263 dt. 29.2.2016 on 2 issues as mentioned above. The Appellant submitted its response to the notice U/s 263 during personal hearing 0",25.3.2016. The CIT then proceeded to raise and adjudicate a new ground pertaining to calculation of profit U/s 115JB in light of disallowable interest without giving any notice to the Appellant and without giving any opportunity of hearing / rebuttal to the Appellant against the same. The CIT unilaterally and thus illegally held that the interest of Rs. 10,28,97,0081- ought to have been added to the calculation of book profit for the purpose of calculation of MAT and accordingly restored the matter to the file of the AO for determination of the same after considering the facts of the case which makes the order passed U/s 263 violative of the principles of natural justice and thus unsustainable under law. Reliance placed on Shriniwas Engineering Auto Components Pvt. Ltd. Vs. Pr. CIT - 3, Pune ITA No. 777/Pun/2018 Prayed Accordingly 20. Ld CIT DR on the other hand vehemently supported the order of Ld PCIT and submitted that Ld PCIT was well within his powers to invoke revisionary proceedings, in the present case since the AO’s order was established to be erroneous in so far as it is prejudicial to the interest of revenue, there for order of the PCIT deserves to be upheld.

22 & ITA No.107/RPR/2016 2. “The associate concern M/s SMS Toll and Developers Ltd. had 25% shareholding in the above company. As the assessee co. accumulated profit of Rs. 8.85 crores, advanced Rs. 107.70 crores to the associate concern. The associate concern had income on deemed dividend of Rs. 8,85,90,903/- during the FY 2010-11 as per section 2(22)(e) of the IT Act. Income escaped assessment Rs. 8,85,90,903/-."