Kirloskar Brother Ltd.,, Pune v. Dy.CIT,Cir 1(1), Pune, Pune

ITA 637/PUN/2008 | 2003-2004
Pronouncement Date: 28-02-2011 | Result: Allowed

Appeal Details

RSA Number 63724514 RSA 2008
Assessee PAN AAACK7300E
Bench Pune
Appeal Number ITA 637/PUN/2008
Duration Of Justice 2 year(s) 9 month(s) 12 day(s)
Appellant Kirloskar Brother Ltd.,, Pune
Respondent Dy.CIT,Cir 1(1), Pune, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-02-2011
Date Of Final Hearing 08-12-2010
Next Hearing Date 08-12-2010
Assessment Year 2003-2004
Appeal Filed On 16-05-2008
Judgment Text
. IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JM AND SHRI G.S. PANNU AM I.T.A. NO. 636 AND 637/PN/2008 A.Y. 2003-04 AND 2004-05 KIRLOSKAR BROTHERS LTD. UDYOG BHAVAN TILAK ROAD PUNE-411 002 PAN AAACK 7300 E APPELLANT VS. ASSTT. CIT CIR. 1(1) PUNE RESPONDENT APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY: SHRI A.S. SINGH ORDER PER SHAILENDRA KUMAR YADAV JM BOTH THESE APPEALS PERTAIN TO THE SAME ASSESSEE FO R A.Y. 2003-04 AND 2004-05 ON SIMILAR ISSUES. THEREFORE T HEY WERE HEARD AND A COMMON ORDER IS BEING PASSED FOR THE SA KE OF CONVENIENCE. 2. APPEAL IN ITA NO. 636/PN/2008 ARISES FROM THE OR DER OF THE CIT-I PUNE DATED 13-3-2008 PASSED U/S 263 OF TH E ACT FOR A.Y. 2003-04 AND 2004-05. THE GROUNDS RAISED IN TH IS APPEAL READ AS UNDER: 1. THE LEARNED CIT ERRED BOTH IN LAW AND ON FACTS IN HOLDING THAT THE IMPUGNED ASSESSMENT ORDER IS IN ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 2 ANY WAY ERRONEOUS OR PREJUDICIAL TO THE INTERESTS O F THE REVENUE. 2. THE LEARNED CIT ERRED IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THE ISSUE OF ALLOWANCE U/S 80-I A AGAIN WHEN THE VIEW TAKEN BY THE ASSESSING OFFICER IN THE ASSESSMENT WAS LEGAL REASONABLE AND PLAUSIBLE VIEW. 3. THE LEARNED CIT ERRED IN OBSERVING THAT FACTS OF T HE CASE CLEARLY INDICATED THAT THE ASSESSEE COMPANY WAS NOT A DEVELOPER BUT MERELY A WORK CONTRACTOR IGNORING THE DIFFERENCE BETWEEN A TURN KEY CONTRACT AND A WORKS CONTRACT. 4. THE LEARNED CIT OUGHT TO HAVE HELD ON FACTS THAT TH E APPELLANT DEVELOPED THE ENTIRE WATER SUPPLY SCHEME FROM CONCEPT AND DESIGN TO ULTIMATE COMMISSIONING AND HANDING OVER HE FACILITY TO THE GOVERNMENT AUTHORITY. 5. HE OUGHT TO HAVE HELD THAT IN RESPECT OF WATER SUPPLY SCHEME SSNNL WAS NOT A DEVELOPER AT ALL BUT ONLY AN IMPLEMENTING AGENCY. 6. THE LEARNED CIT ERRED IN CONFUSING BETWEEN THE PAYMENT FOR TURNKEY CONTRACT AND PAYMENT FOR EQUIPMENT AND IN ANY CASE EVEN 50% INVESTMENT WAS A LARGE AMOUNT. 7. THE LEARNED CIT ERRED IN HOLDING THAT THE ORDER WHEN PASSED WAS PERFECTLY LEGAL AND IN ACCORDANCE WITH LAW BECAME ERRONEOUS BY THE AMENDMENT IN LAW WHEN THE VERY APPLICABILITY OF THE AMENDMENT WAS IN DISPUTE. 8. THE LEARNED CIT OUGHT TO HAVE HELD THAT SSNNL WAS A PUBLIC UNDERTAKING WHOLLY OWNED BY THE GOVERNMENT AND THUS WAS A STATUTORY BODY BEING A BODY CORPORATE GOVERNED BY THE STATUTE ON COMPANIES. 9. REASONS ASSIGNED ARE WRONG INSUFFICIENT AND CONTRARY TO FACTS AND LAW. 3. IN THIS CASE AN ASSESSMENT ORDER U/S 143(3) OF T HE ACT WAS PASSED ON 28-3-2006 ASSESSING TOTAL INCOME AT R S. 8 30 10 300/-. THE ASSESSING OFFICER HAS DISCUSSED AND DECIDED THE ISSUE WITH RESPECT TO CLAIM U/S 80-IA O F THE ACT VIDE PARA 7 OF HIS ORDER AS UNDER: ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 3 THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 6 49 54 397/- AS A DEDUCTION U/S 80-IA OF THE ACT. THE DEDUCTION CLAIMED IS SUPPORTED BY A CERTIFICATE OBT AINED FROM THE AUDITORS IN FORM NO. 10CCB AND THE PROFIT AND LOSS ACCOUNT OF THE INFRA STRUCTURE FACILITY DEVELO PED BY THE ASSESSEE. THE ASSESSEE HAS DEVELOPED A PROJECT UNDERTAKEN BY GOVERNMENT OF GUJARAT UNDER THE NAME & STYLE 'SARDAR SAROVAR PROJECT - SAURASHTRA BRANCH CANNAL PUMPING SCHEME'. THE DETAILS OF SCHEME ARE SUBMITTED BY THE ASSESSEE AND ARE ON RECORD. ACCORD ING TO THE ASSESSEE THE PROJECT HAPPENS TO BE ONE OF TH E LARGEST WATER SUPPLY AND IRRIGATION PROJECT MAKING DRINKING WATER AVAILABLE TO MILLIONS OF PEOPLE OF SAURASHTRA REGION OF GUJARAT. LARGE NUMBER OF VILLA GES WILL BE PROVIDED WATER FOR IRRIGATION AND APPROXIMA TELY FIVE LAKHS HECTORS OF LAND WILL BE IRRIGATED THUS B RINGING GREEN REVOLUTION IN THE STATE OF. GUJARAT. SCOPE OF THE WORK RELATED TO ASSESSEE IS SUBMITTED AND IS ON REC ORD. ASSESSEE HAS A SEPARATE 'PROJECT DIVISION' UNDER WH ICH VARIOUS INFRASTRUCTURAL & WATER PROJECTS ARE TAKEN UP. THE SAID ENTERPRISE HAS UNDERTAKEN THIS WATER SUPPL Y & IRRIGATION PROJECT AS THE SAME HAS BEEN AWARDED TO IT BY STATUTORY BODY FORMED BY THE GOVERNMENT OF GUJARAT. THE PROJECT MAINLY CONSIST OF DEVELOPING FIVE LARGE PUMPING STATIONS DEVELOPING CANALS & OPERATING & MAINTAINING THE WHOLE FACILITY. THE SAID PROJECT IS AWARDED TO THE ASSESSEE IN THE YEAR 2002 HOWEVER TH E ACTUAL WORK & SUPPLIES HAVE COMMENCED IN THE FINANC IAL YEAR UNDER CONSIDERATION. ASSESSEE HAS SUBMITTED THE PROFIT & LOSS ACCOUNT & BALANCE SHEET RELATED TO THE PROJECT. IT IS OBSERVE D FROM THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF THE PROJECT THAT THE ASSESSEE HAS DEBITED THE DIRECT EX PENSES RELATED TO THE PROJECT TO THE PROFIT & LOSS ACCOUNT & 'HAS APPORTIONED THE EXPENSES OF CORPORATE OFFICE IN PROPORTION TO THE SALES OF PROJECT DIVISION AND THE SALES OF THE INFRA STRUCTURE PROJECT. IT IS ALSO OBSERVED THAT THE ASSESSEE HAS NOT APPORTIONED ANY INTEREST TO THE IN FRA STRUCTURE PROJECT THOUGH THE ASSESEE HAS DEBITED AN AMOUNT OF RS. 7 49 54 531/- TO PROFIT & LOSS ACCOUN T AS INTEREST PAID. THE ASSESSEE WAS ASKED AS TO WHY THE INTEREST SHOULD NOT BE APPORTIONED TO THE INFRA STR UCTURE PROJECT. THE ASSESEE HAS SUBMITTED A NOTE ON THE IS SUE AND THE MAJOR OBSERVATIONS ARE AS UNDER: A) ASSESSEE HAS A SEPARATE DIVISION UNDER THE NAME & ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 4 STYLE 'PROJECT DIVISION' WHICH LOOKS AFTER THE VARI OUS PROJECTS UNDER TAKEN BY THE COMPANY. SALES OF PROJE CT DIVISION FOR THE YEAR ARE AT RS. 224 08 93 622/-. S ALES RELATED TO INFRA STRUCTURE PROJECT ARE AT RS.76 55 17 092/- WHICH ARE MADE TO SARDAR SAROVAR PROJECT. B) ASSESSEE HAS RECEIVED ADVANCE OFRS.35.99 CRORES (APPROX) FROM THE AUTHORITIES OF SARDAR SAROVAR PROJECT AS ADVANCE AGAINST THE PROJECT. THE SAID ADVANCE IS RECEIVED ONCE THE CONTRACT WAS AWARDED T O THE COMPANY AND IS USED IN HONORING THE PAYMENTS RELATED TO THE SAID CONTRACT. THE ADVANCE DOES NOT BEAR ANY INTEREST PAYABLE TO SARDAR SAROVAR AUTHORITIES. C) ACCORDING TO THE ASSESSEE AS PER THE ACCOUNTING GUIDE LINES FOR CALCULATION OF INTEREST THE INTERE ST IS CALCULATED ON THE 'CAPITAL EMPLOYED' CONCEPT. BASED ON THIS THE CAPITAL EMPLOYED FOR THE SAID PROJECT IS CALCULATED AT RS. NIL AS ON 31ST MARCH 2003. IN LIG HT OF THIS CALCULATION ASSESSEE HAS NOT APPORTION ANY INT EREST TO PROFIT' & LOSS ACCOUNT PREPARED FOR THE INFRA ST RUCTURE PROJECT. AS PER THE ASSESSEE A CERTIFICATE TO' THE EFFECT THAT NO INTEREST CAN BE APPORTIONED TO THE PROJECT CAN BE OBTAINED FROM THE AUDITORS. HOWEVER AS THE AUDITORS HAVE CERTIFIED THE PROFIT & LOSS ACCOUNT IT SELF N O SEPARATE CERTIFICATE IS OBTAINED AT PRESENT AND THE SAME CAN BE SUBMITTED AS & WHEN REQUIRED. IT IS SUBMITTE D THAT AS SUCH NO INTEREST SHOULD BE APPORTIONED TO THE PROFIT & LOSS ACCOUNT ON THIS COUNT. ASSESSSEE STAT ES THAT IN CASE OF THE SUBJECT PROJECT ALL THE PURCHAS ES ARE DESIGNED FOR PAYMENT ON BACK TO BACK BASIS. FURTHER ACCORDING TO THE ASSESSEE THE SARDAR SAROVAR AUTHORITIES HAVE PROVIDED THE LETTER OF CREDIT TO T HE ASSESSEE AND ALL THE PAYMENTS ARE MADE BY THE AUTHORITIES IMMEDIATELY BASED ON THE SUBMISSION OF THE BILLS BASED ON THE LC EXECUTED. AS SUCH ACCORDING T O THE ASSESSEE INTEREST SHOULD NOT BE APPORTIONED TO THE INFRASTRUCTURE PROJECT. D) WITH OUT PREJUDICE TO ITS CONTENTION THAT NO INT EREST SHOULD BE APPORTIONED TO THE PROFIT & LOSS ACCOUNT OF THE INFRA STRUCTURE PROJECT THE ASSESSEE HAS GIVEN THE NECESSARY DETAILS FOR THE TURNOVER INTEREST DEBITE D TO PROFIT & LOSS ACCOUNT DETAILS OF INTEREST PAID AS REQUESTED DURING THE COURSE OF HEARING. THE DETAILS ARE GIVEN AS UNDER: ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 5 E) SALES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ARE AT RS. 475 69 40 462/- F) SALES OF THE PROJECT (SARDAR SAROVAR) ARE RS. 63 70 66 076/- G) % OF TOTAL SALES TO SARDAR SAROVAR SALES IS 13.3923% H) INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT IS R S. 7 49 54 531/-. ASSESSEE HAS FURTHER SUBMITTED THAT IN CASE THE DEPARTMENT IS NOT INCLINED TO ACCEPT TH E SUBMISSIONS FOR ZERO CAPITAL EMPLOYED FOR THE PROJE CT ASSESSEE SUBMITS THAT THE INTEREST PAID ON FIXED DE POSITS IN LOAN FROM SHARE HOLDERS AND INTEREST PAID ON INTER CORPORATE DEPOSITS SHOULD NOT BE CONSIDERED FOR APPORTIONING THE INTEREST AS NO NEW FUNDS HAVE BEEN PLOUGHED INTO. THE DETAILS OF INTEREST PAID ARE SUB MITTED AND ARE ON RECORD ALTERNATIVELY THE ASSESSEE HAS SUBMITTED THAT THE INTERNAL CALCULATIONS BASED ON WHICH THE CORPORATE OFFICE OF THE ASSESSEE HAS APPORTIONED THE INTEREST TO THE PROJECT DIVISION SHOULD BE CONSIDERED. THE DETAILS ARE SUBMITTED AND ARE ON RECORD. HOWEVER THE SAID CALCULATIONS ARE NOT ACCEPTABLE TO THE UNDERSIGNED AS THESE ARE THE INTERNAL CALCULATIONS AND MAY VARY FROM CASE TO CASE YEAR TO YEAR. I HAVE PERUSED THE SUBMISSIONS MADE BY THE ASSESSEE . IT IS SEEN FROM THE PROFIT & LOSS ACCOUNT OF THE ASSES SEE THAT INTEREST OF RS.7 49 54 531/- IS DEBITED TO PRO FIT & LOSS ACCOUNT. I AM OF THE VIEW THAT AS THE ASSESSEE HAS DEBITED INTEREST TO PROFIT & LOSS ACCOUNT CERTAIN PORTION OF THE SAME HAS TO BE ALLOCATED TO THE PROFIT & LOS S ACCOUNT OF THE INFRA STRUCTURE PROJECT AS INTEREST RELATED TO THE INFRASTRUCTURE ACTIVITY. ASSESSES ARGUMENTS IN THIS RESPECT ARE NOT ACCEPTABLE IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THAT THE UTILIZATION OF FUNDS WAS ONLY FOR THE PURPOSES OF T HE INFRA STRUCTURE PROJECT. IT IS ALSO SEEN FROM THE DETAILS FILED THAT THE ASSESSEE'S ADMINISTRATIVE OFFICE IS AT PUN E FROM ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 6 WHERE THE SERVICES FOR TECHNICAL & ADMINISTRATIVE MATTERS ARE BEING PROVIDED AND PAID FOR. THE ASSESS EE HAS NOT MAINTAINED ANY SPECIFIC ACCOUNT DISTINGUISH ING THE PAYMENTS MADE FOR THE PROJECT INCLUDING THE EMPLOYEE RELATED EXPENSES. THE ACTUAL PROJECT LOCAT ION IS FAR OFF FROM PUNE I.E. NEAR AHMEDABAD. IT WILL NOT BE PROPER TO IGNORE THE INTEREST APPORTIONMENT UNLESS THE ASSESSEE IS ABLE TO PROVE THAT ALL THE PAYMENTS REL ATED TO THE PROJECT ARE INCURRED OUT OF THE ADVANCE RECEIVE D OR PAID FOR ON BACK TO BACK BASIS. NO DOCUMENT IS AVAILABLE ON RECORD TO PROVE THIS. IN LIGHT OF THE DISCUSSIONS MADE ABOVE A PROPORTION ATE INTEREST IN PROPORTION TO THE TOTAL TURNOVER VIZ. A VIZ. TURNOVER OF THE SARDAR SAROVAR PROJECT IS BEING APPORTIONED TO THE INFRA STRUCTURE PROJECT WHICH AMOUNTS TO RS. 1 00 38 135/-. WITH THIS THE CLAIM OF THE ASSESSEE FOR THE SAID DEDUCTION TO RS. 5 49 16 262/. 4. ON PERUSAL OF THE ASSESSMENT ORDER THE CIT FOUN D THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION OF RS. 6 49 54 397/- U/S 80-IA OF THE ACT AND THE ASSESSING OFFICER HAS RESTRICTED THE ALLOWANCE U/S 80-IA TO THE EXTENT OF RS. 5 49 1 6 262/- AFTER DISALLOWING THE INTEREST CLAIM OF RS. 1 38 00 135/-. ON PERUSAL OF THE RECORD IT WAS FOUND BY THE CIT THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80-IA OF THE ACT ON THE GROUND THAT IT HAD DEVELOPED INFRASTRUCTURE PROJECT FOR WHICH THE ASSESSEE HAD CLAIMED TO BE ENTITLED TO ALLOWANC E U/ 80-IA OF THE ACT. THE DOCUMENTS FILED ALONG WITH THE RET URN OF INCOME INCLUDED THE REPORT IN FORM 10CCB OF THE I.T . RULES CERTIFIED BY THE AUDITORS. THE CLAIM FOR SUCH ALLO WANCE WAS MADE FOR THE DEVELOPMENT OF AN INFRASTRUCTURE PROJE CT EXECUTED BY IT UNDER THE NAME AND STYLE OF SAURASH TRA BRANCH CANAL WATER SUPPLY/PUMPING SCHEME. THE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 7 ASSESSEE HAD STARTED EXECUTING THE SAID PROJECT DUR ING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION AND THE TOTAL SALES OF THE UNDERTAKING CARRYING OUT THE INFRASTRUCTURE PROJECT HAD BEEN INDICATED AT RS. 76 55 17 092/- AND THE PROFITS FROM THE ELIGIBLE PR OJECT HAD BEEN WORKED OUT AT RS. 6 49 54 397/- AS MENTIONED A BOVE. 5. ON AN EXAMINATION OF THE FACTS OF THE CASE THE C IT FOUND THAT THE ASSESSEE COMPANY WAS ONLY EXECUTING A WORK S CONTRACT AND THAT THE ASSESSEE COMPANY WAS NEITHER OWNER OF THE PROJECT NOR THE DEVELOPER OF THE PROJECT. IT WA S ALSO FOUND THAT THE DEVELOPER OF THE PROJECT WAS M/S. SARDAR S AROVAR NARMADA NIGAM LTD. (SSNNL FOR SHORT) WHICH WAS A CO MPANY HAVING ITS REGISTERED OFFICE IN THE STATE OF GUJARA T. THE COMPANY SSNNL HAD GIVEN A CONTRACT TO THE ASSESSEE COMPANY IN TWO PARTS. THE FIRST PART OF THE CONTRA CT WAS FOR DESIGN MANUFACTURE AND SUPPLY OF EQUIPMENT AND THE SECOND CONTRACT WAS FOR EXECUTION OF COMMISSIONING OF THE EQUIPMENT SUPPLIED AND OPERATING AND MAINTAINING THE EQUIPMEN T FOR A LIMITED PERIOD FOR ENSURING SATISFACTORY PERFORMANC E. THE CIT FURTHER FOUND THAT THE ASSESSEE WAS NOT A DEVELOPER BUT ONLY A WORKS CONTRACTOR AND HENCE WAS NOT ENTITLED FOR D EDUCTION U/S 80-IA OF THE ACT. 6. ACCORDINGLY A SHOW CAUSE NOTICE U/S 263 OF THE A CT WAS ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 8 ISSUED ON 19-12-2007 GIVING THE ASSESSEE AN OPPORTU NITY OF BEING HEARD BEFORE REVISING THE ASSESSMENT ORDER U/ S 263 OF THE ACT AS IT WAS FELT THAT THE ORDER PASSED U/S 14 3(3) OF THE ACT WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL T O THE INTERESTS OF REVENUE ON THE ISSUE OF ALLOWANCE OF D EDUCTION U/S 80-IA OF THE ACT. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE THE ASSESSEE FILED WRITTEN SUBMISSIONS AND ALSO FILED A COPY OF MEMORANDUM OF ASSOCIATION OF SSNNL SOME TECHNICAL DRAWINGS PURCHASE ORDERS AND OTHER DOCUM ENTS TO CONTEND THAT THE ASSESSEE COMPANY WAS THE DEVELOPER OF HE PROJECT RIGHT FROM ITS INCEPTION UPTO THE COMMISSIO NING AND THE SATISFACTORY PERFORMANCE OF THE PROJECT THEREAF TER. 7. THE CIT AFTER TAKING INTO CONSIDERATION THE WRIT TEN SUBMISSIONS AND ARGUMENTS RAISED ON BEHALF OF THE A SSESSEE HELD AS UNDER : 5. I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE COMPANY. THE MAIN CONTENTIONS OF THE ASSESSEE ARE BASICALLY THREEFOLD: - I) AS PER THE CLAUSE 1 OF MEMORANDUM OF ASSOCIATION OF SSNNL THE SAID COMPANY WAS TO EXECUTE OPERATE AND MANAGE THE SARDAR SAROVAR PROJECT COMPRISING A DAM ACROSS RIVER NARMADA AND SUCH OTHER WORK AS DEFINED IN CLAUSE 1 OF THE MEMORANDUM OF ASSOCIATION. HOWEVER AS PER CLAUSE 10 OF THE MEMORANDUM SSNNL WAS TO PROMOTE SCHEMES FOR IRRIGATION AND WATER SUPPLY IN THE STATE FOR UTILIZATION OF WATER FROM THE SARDAR SAROVAR. THIS PARTICULAR CLAUSE OF THE MEMORANDUM ACCORDING TO THE ASSESSEE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 9 CLEARLY STIPULATES THAT SSNNL WAS NOT DEVELOPING THE SCHEME FOR IRRIGATION AND WATER SUPPLY WHICH IS THE ISSUE UNDER CONSIDERATION BUT WAS ONLY PROMOTING SUCH SCHEME WHICH THE ASSESSEE IMPLEMENTED AND DEVELOPED. II) THE ASSESSEE COMPANY HAD USED ITS OWN FINANCIAL RESOURCES TO UNDERTAKE THIS PROJECT AND HENCE ACCORDING TO THE ASSESSEE MAJOR FUNDING FOR THE DEVELOPMENT OF THE PROJECT CAME FROM THE ASSESSEE COMPANY ITSELF. III) THE ASSESSEE COMPANY HAD DEVELOPED AN INFRASTRUCTURE PROJECT ON TURN KEY BASIS AND NOT ON WORKS CONTRACT BASIS AND HENCE WAS NOT COVERED BY THE EXPLANATION WHICH HAD BEEN INTRODUCED AT THE END OF SECTION 80-IA OF THE IT ACT WITH RETROSPECTIVE EFFECT. 6. THE PERUSAL OF RECORDS AS WELL AS PAPERS FILED BY THE ASSESSEE DO INDICATE THAT UPON BEING AWARDED THE CONTRACT THE ASSESSEE COMPANY HAD RECEIVED ADVANCE TO THE EXTENT OF 15% OF THE PROJECT COST AND WAS THEREAFTER TO RECEIVE 50% OF THE CONTRACTED AMOUNT ON DISPATCH OF EQUIPMENT TO THE PARTY. IT WOULD THEREFORE BE NOT POSSIBLE TO ACCEPT THAT THE ASSESSEE COMPANY HAD FUNDED THE PROJECT WITHOUT ANY ASSISTANCE RECEIVED FROM THE CONTRACTOR COMPANY NAMELY SSNNL. IT IS ALSO SEEN FROM THE DOCUMENTS ATTACHED ALONG WITH THE RETURN OF INCOME THAT AS AND WHEN CONTRACT PAYMENTS WERE MADE TO THE ASSESSEE COMPANY TAXES WERE DEDUCTED AT SOURCE BY THE CONTRACTOR FOR WHICH RELEVANT CERTIFICATES HAVE ALSO BEEN FILED. THE ASSESSEE COMPANY IS ALREADY ENGAGED IN (MANUFACTURE OF PUMPS ETC. AND THE MAJOR COMPONENT OF THE INFRASTRUCTURE PROJECT IS THAT OF EQUIPMENTS WHICH THE ASSESSEE COMPANY WAS ALREADY MANUFACTURING AND THE SUPPLY OF WHICH HAD BEEN SHOWN AS SALES OF EQUIPMENT FOR WHICH CONSIDERATION WAS RECEIVED ON DISPATCH OF 'EQUIPMENTS TO THE CONTRACTOR. THE FACT NEVERTHELESS REMAINS THAT THIS ISSUE IS NOT EXAMINED BY THE ASSESSING OFFICER WHICH HE WAS DUTY BOUND TO EXAMINE AND CARRY OUT THE NECESSARY ENQUIRIES BEFORE ACCEPTING THE CLAIM OF ALLOWANCE U/S .80LA OF THE IT ACT. ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 10 7. THE DEVELOPER OF THE INFRASTRUCTURE FACILITY OR WAS MERELY ACTING AS A CONTRACTOR ON BEHALF OF SSNNL TO EXECUTE THE PROJECT. IT IS NOT IN DISPUTE THAT SSNNL IS AN IMPLEMENTING AGENCY AND IS ALSO AN ASSESSABLE ENTITY UNDER THE INCOME TAX ACT. IT IS THE CLAIM OF THE ASSESSEE THAT SSNNL HAVE GIVEN A CERTIFICATE THAT THEY HAD NOT CLAIMED ANY BENEFIT U/S 80LA OF THE IT ACT FOR THE A.Y.2003-04 TO A.Y.2007-08. HOWEVER THIS FACT ALONE DOES NOT ENTITLE THE ASSESSEE TO OTHERWISE CLAIM SUCH DEDUCTION U/S 80LA OF THE IT ACT AS THERE IS NO CONCEPT OF DISCLAIMER FOR SUCH ALLOWANCE BY THE CONTRACTOR IN FAVOUR OF THE CONTRACTEE. AS PER THE PROVISIONS OF SECTION 80LA ONE OF CONDITIONS TO BE EXAMINED IS WHETHER THE ASSESSEE COMPANY HAD ENTERED INTO A CONTRACT WITH THE CENTRAL GOVT. OR A STATE GOVT. OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY FOR DEVELOPING THE NEW INFRASTRUCTURE FACILITY. THE ASSESSING OFFICER HAS NOT AT ALL EXAMINED AS TO UNDER WHICH CATEGORY THE CONTRACTOR NAMELY SSNNL WOULD FALL. WHETHER IT IS A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER AND UNLESS IT IS ESTABLISHED THAT SSNNL IS A STATUTORY BODY THE ASSESSEE WOULD NOT BE ENTITLED TO THE ALLOWANCE U/S S 80-IA OF THE IT ACT. IN ABSENCE OF SUCH ENQUIRY THE ORDER HAS BECOME ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. 8. THERE HAS BEEN A RETROSPECTIVE AMENDMENT TO SECTION 80LA OF THE IT ACT AND AN EXPLANATION HAD BEEN INCORPORATED AT THE END OF THIS SECTION WHICH IS EFFECTIVE FROM 01.04.2000. THE EXPLANATION READS AS UNDER :- ' FOR THE REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE AS THE CASE MAY BE .. ' 9. THIS INSERTION OF THE EXPLANATION WAS MADE BY THE FINANCE ACT 2007 AND WHEN THE ASSESSING OFFICER HAD PASSED THE ASSESSMENT ORDER SUCH EXPLANATION WAS NOT IN THE STATUTE AND THEREFORE THE ASSESSING OFFICER DID NOT HAVE THE BENEFIT OF ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 11 CONSIDERING THIS EXPLANATION FOR APPLICATION TO THE FACTS OF THE CASE. UNDER THE CIRCUMSTANCES THE RETROSPECTIVE INSERTION OF THE EXPLANATION TO SECTION 80LA HAS RENDERED THE ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. THE HON'BLE SUPREME COURT IN THE CASE OF BOMBAY DYEING AND MANUFACTURING CO. LTD. REPORTED IN 34 ITR 143 HAVE HELD THAT A RETROSPECTIVE AMENDMENT IN THE ACT WOULD EVEN RENDER AN ASSESSMENT ORDER SUFFERING FROM MISTAKE APPARENT FROM RECORD THAT COULD BE RECTIFIED UNDER SECTION 35(NOW SECTION 154 OF THE ACT. BESIDES THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VINCENT ENGINEERING LTD. REPORTED IN 280 ITR 385 HAVE HELD THAT WHERE THE ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS DUE TO A RETROSPECTIVE AMENDMENT SUCH ORDER CAN BE SUBJECTED TO REVISION. 10. TAKEN AN OVER ALL VIEW OF THE MATTER AND THE FACT THAT THE ASSESSING OFFICER DID NOT CARRY OUT NECESSARY ENQUIRIES DESPITE THE DUTY CAST ON HIM AS HELD BY SEVERAL COURTS INCLUDING HON'BLE DELHI HIGH COURT IN THE CASE REPORTED IN 220 ITR 456 AND ALSO THE FACT THAT THE RETROSPECTIVE INSERTION OF THE EXPLANATION IN SECTION 80LA COULD NOT HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER I AM OF THE VIEW THAT THIS ISSUE OF ALLOWANCE U/S 80LA AS CLAIMED FOR BY THE ASSESSEE REQUIRES IN DEPTH EXAMINATION BY THE ASSESSING OFFICER BEFORE ALLOWING THE CLAIM. THE ASSESSING OFFICER SHALL EXAMINE ALL THE ASPECTS OF THE CONTRACT AS ALSO THE ISSUES WHICH ARE TO BE DECIDED AS DISCUSSED ABOVE AND AFFORD THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. ASSESSMENT ORDER FOR A.Y.2003-04 IS THEREFORE SET ASIDE AND RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE LIMITED ISSUE OF ALLOWANCE U/S 80LA OF THE IT ACT. HE SHALL DO THIS AFTER GIVING THE ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD. 8. BEFORE US THE LEARNED AR DREW OUR ATTENTION TO REPLY TO SHOW CAUSE NOTICE U/S 263 OF THE ACT WHICH READS AS UNDER: ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 12 1. WE ARE IN RECEIPT OF THE ABOVE NOTICE INDICATING THAT THE DEDUCTION UNDER SECTION 80 IA OF THE ACT HAS BEEN WRONGLY ALLOWED TO US. A VIEW SEEMS TO HAVE BEEN TAKEN THAT IN RESPECT OF 'SAURASHTRA BRANCH CANNEL WATER SUPPLY SCHEME (SARDAR SAROVAR PROJECT) WE HAVE MERELY CARRIED OUT A 'WORKS CONTRACT' AND THAT WE ARE NEITHER THE OWNER NOR DEVELOPER OF THE PROJECT. 2. FIRSTLY WE WISH TO RESPECTFULLY POINT OUT THAT IT IS NOT THE REQUIREMENT OF LAW THAT THE 'DEVELOPER' MUST ALSO BE THE OWNER OF THE INFRASTRUCTURE PROJECT. IN THIS CONNECTION IT MAY BE NOTED THAT AFTER THE AMENDMENT IN SUB SECTION 4 BY INSERTING THE WORD 'OR' IN CLAUSE (I) AN ENTERPRISE CARRYING ON THE BUSINESS OF ONLY DEVELOPING AN INFRASTRUCTURE FACILITY IS ALSO ENTITLED TO THE BENEFIT OF THE SECTION. WHAT THE SECTION REQUIRES IS THAT THE ENTERPRISE MUST BE OWNED BY THE 'ASSESSEE' AND NOT NECESSARILY THE FACILITY. 3. IT IS RESPECTFULLY SUBMITTED THAT OUR CONTRACT IS NOT FOR EXECUTING A WORKS CONTRACT. IN FACT IT HAS TO BE EMPHASIZED THAT IT IS A 'TURN KEY CONTRACT' MEANING THEREBY THAT THE ENTIRE INFRASTRUCTURE FACILITY WILL BE DEVELOPED AND COMMISSIONED BY US AND THEN ONLY WILL BE TRANSFERRED TO 'SARDAR SAROVAR NARMADA NIGAM LIMITED' (SSNNL). A PERUSAL OF THE CONTRACT WILL SHOW THAT WE HAVE MADE SUBSTANTIAL SALE OF EQUIPMENTS IN THE PROCESS OF SETTING UP THE INFRASTRUCTURAL FACILITY. IT IS REALLY A CASE OF TRANSFER OF A 'TURNKEY PROJECT' AFTER COMPLETION AND SUCCESSFUL COMMISSIONING AND NOT A 'WORKS CONTRACT'. IT WILL BE NOTICED THAT RIGHT FROM CONCEIVING DESIGNING TO ULTIMATE INSTALLATION AND COMMISSIONING EVERYTHING IS BEING DONE BY US. THE PUMPING STATIONS HAVE BEEN ERECTED BY US AND WE ARE LIABLE FOR QUALITY OF EACH PUMP INSTALLED THEREIN. THIS IS NOT A CASE WHERE A PERSON CARRIES OUT SOME WORK ENTRUSTED TO HIM BUT IS A CASE WHERE THE ENTIRE FACILITY IS DESIGNED AND DEVELOPED AND THEN HANDED OVER ON A TURNKEY BASIS. 4. WE INVITE YOUR KIND ATTENTION TO THE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 13 'MEMORANDUM AND ARTICLES OF ASSOCIATION' OF 'SSNNL' (REFER ANNEXURE NO.1 FOR RELEVANT PORTION- PAGE NO. 1 TO $).IT WILL BE NOTICED THAT MAIN OBJECT NO. 1 SPEAKS OF 'TO EXECUTE OPERATE AND MAINTAIN THE 'SARDAR SAROVAR PROJECT' WHICH COMPRISES OF A DAM ACROSS RIVER NARMADA CONSTRUCTION OF POWER HOUSES AND A CANAL SYSTEM EMANATING FROM THE RESERVOIR CALLED THE 'SARDAR SAROVAR'. ON THE OTHER HAND CLAUSE TEN (10) LISTS AS ONE OF THE OBJECTS 'TO PROMOTE SCHEMES FOR IRRIGATION AND WATER SUPPLY IN THE STATE FOR UTILIZATION OF WATER FROM THE SARDAR SAROVAR'. THE WATER SUPPLY SCHEME BEING EXECUTED BY US FALLS UNDER THIS CLAUSE AND HERE THE ENTIRE RESPONSIBILITY OF EXECUTION AND DEVELOPMENT IS WITH US. WE ARE RESPONSIBLE FOR EVERY SINGLE PART OF THE SCHEME AND FACTUALLY THERE IS NO DIFFERENCE BETWEEN 'SSNNL' EXECUTING THE SCHEME OR KBL EXECUTING THE SCHEME. 5. WE ALSO WISH TO COMMUNICATE THAT BEING A TURNKEY PROJECT; WE HAVE MADE SUBSTANTIAL INVESTMENT INITIALLY. THE TERMS OF PAYMENT REFER TO ONLY 10% OF THE PRICE TO BE PAID IN ADVANCE AND THE NEXT INSTALLMENT RECEIVED BY THE ASSESSEE BASED ON THE COMPLETION OF THE SUCCESSFUL TRIALS. THE LARGE INVESTMENT FOR THE INTERVENING PERIOD IS MADE BY 'KBL' AND IT HAS DIRECTLY PARTICIPATED IN THE DEVELOPMENT OF THE INFRASTRUCTURAL FACILITY. IT IS ONLY TO DISCOURAGE MERE CONTRACTORS WITHOUT INVESTMENT OF THEIR OWN FROM CLAIMING SUCH DEDUCTIONS THAT THE EXCEPTION WAS INSERTED. THIS IS MADE CLEAR IN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL 2007. WE WISH TO EMPHASIZE THAT KBL IS IN THE BUSINESS OF WATER SUPPLY AND MANAGEMENT ON A VERY LARGE SCALE EXECUTING SEVERAL OTHER PROJECTS INCLUDING 'SOURASHTRA BRANCH CANAL'. 6. TERMS OF PAYMENTS: WE WISH TO HIGHLIGHT THE TERMS OF PAYMENT FOR THE PROJECT AS UNDER: ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 14 NATURE OF PAYMENT TERMS OF PAYMENT ADVANCE RECEIVED 15% AMOUNT TO RECEIVE BASED ON DISPATCH OF EQUIPMENT TO THE PARTY 50% BASED ON THE MATERIAL RECEIPT AT THE SIGHT 15% RETENTION AMOUNT A) BASED ON ERECTION OF EQUIPMENTS B) COMMISSIONING OF EQUIPMENT C) PERFORMANCE GUARANTEE TEST 10% 5% 5% AS ON THE DATE WE HAVE TO RECEIVE AN AMOUNT OF RS.48 CRORES ( RS. FORTY EIGHT CRORES ) FROM THE SSNNL AUTHORITIES WHICH IS ON ACCOUNT OF 20% OF THE AMOUNT TO RECEIVE REPRESENTING RETENTION AMOUNT FROM THE PARTY. 7. INVESTMENTS: DURING THE LAST TEN YEARS 'KBL' HAS MADE SUBSTANTIAL INVESTMENTS IN TECHNOLOGY & MEN TO MAKE THE COMPANY CAPABLE AND COMPETITIVE TO DEVELOP WATER SUPPLY AND MANAGEMENT SCHEMES WITH A PREFERRED CHOICE OF CUSTOMERS ALLOVER INDIA. WE WISH TO HIGHLIGHT THE INVESTMENTS MADE BY THE COMPANY IN TECHNOLOGY FIELD IN MORE DETAILS AS UNDER: A) IN THE YEAR 1990 COMPANY HAS DEVELOPED A 'PROJECT DIVISION' HEADED BY MR.R K SRIVASTAVA (ACTING AS WORKING DIRECTOR NOW) IN ORDER TO CATER TO VARIOUS INFRASTRUCTURE PROJECTS PUT IN CHANNEL BY THE GOVT. OF INDIA AND VARIOUS STATE AUTHORITIES. FOR THE PURPOSES COMPANY HAS DESIGNED A WING TO LOOK AFTER THE INITIAL DEVELOPMENTS IN THIS REGARD INCLUDING THE APPOINTMENT OF TECHNICAL PEOPLE REQUIRED. COMPANY HAS ALSO PUT IN PLACE THE TECHNICAL WIZARDS IN THE FIELD OF 'RESEARCH & DEVELOPMENT' IN ORDER TO UPGRADE THE TECHNOLOGY TO SUIT THE PRESENT ENGINEERING DEVELOPMENTS. THE COMPANY HAS DEVELOPED A 'HYDRAULIC RESEARCH CENTRE' WITH LATEST MACHINERIES AND TECHNOLOGY AT KIRLOSKARWADI FACTORY TO TEST THE PERFORMANCE OF VARIOUS LARGE PUMPS USED IN THE INFRASTRUCTURE PUMPING SCHEMES. THE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 15 COMPANY HAS INVESTED AN AMOUNT OF RS.46 CRORES APPROX. OVER LAST TEN YEARS WHICH REPRESENTS CAPITAL & REVENUE EXPENDITURE ON RESEARCH & DEVELOPMENT ACTIVITY FOR THE LATEST TECHNOLOGIES TO BE IMPLEMENTED IN EXECUTING THE NEW PROJECTS I PRODUCTS. B) IT WAS NOTICED THAT THE INTERNATIONAL PLAYERS DO USE CONCRETE VOLUTE PUMPS WHICH REDUCES THE COST OF PRODUCTION AND MAINTENANCE THERE OF. THIS TECHNOLOGY WAS IMPORTED BY THE COMPANY FROM M/S. TERMOMECCANICA POMPE ITALY AND IS ABSORBED IN THE COMPANY FOR MANUFACTURE OF PARTS OF THE SAID PUMPS IN THE FIRST STAGE BEING THE PUMP IS OF CONCRETE. THE COMPANY HAS USED THIS TECHNOLOGY FOR THE FIRST TIME IN THE ORDER EXECUTED FOR 'BOMBAY SUB - URBAN ELECTRICITY BOARD DAHANU'. TODAY WE ARE USING THIS TECHNOLOGY IN VARIOUS INFRASTRUCTURE PROJECTS EXECUTED BY THE COMPANY LIKE THE PROJECT DEVELOPED FOR 'SARDAR SAROVAR PROJECT'. A COPY OF PURCHASE ORDER ISSUED IN FAVOR OF M/S. TERMOMECCANICA POMPE ITALY DATED 19 TH DECEMBER 2001 IS ENCLOSED HEREWITH AS AN EXAMPLE WHERE IN THE COMPANY HAS ACQUIRED THE TECHNOLOGY FOR MANUFACTURE OF CV PUMP COMPONENTS. (REFER ANNEXURE NO.2 - PAGE NO.4 TO 9).WE FURTHER WISH TO COMMUNICATE THAT WE HAVE AVAILED TECHNOLOGY SERVICES I SPARES FROM THERMOMECANICA ITALY OF RS.49 CRORES APPROX. OVER LAST THREE YEARS FOR THE PURPOSES OF EXECUTING THE INFRASTRUCTURE PROJECTS AND TRANSFER OF KNOWLEDGE / TECHNOLOGY FOR MANUFACTURE I INSTALLATION OF SPECIFIED COMPONENTS. C) WE ALSO WISH TO HIGH LIGHT THAT THE COMPANY HAS MADE RESEARCH ON 'SIPHON SYSTEM' BY MAKING TRANSPARENT FROUDE SCALAR MODEL OF THE DISCHARGE DUCT AND THE RESULTS OBTAINED WERE APPLIED IN THE' EXECUTION OF THE 'SARDAR SAROVAR PROJECT'. WE WISH TO COMMUNICATE THAT THIS 'SIPHON SYSTEM' AS INTRODUCED BY KBL WAS NOT A PART OF ORDER TO BE EXECUTED FOR 'SARDAR ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 16 SAROVAR PROJECT' BUT IS DONE BY THE COMPANY WITH ITS OWN RESEARCH AT KIRLOSKARWADI FACTORY AS THE COMPANY ALWAYS AIM AT CONSERVATION OF ENERGY & END TO END SOLUTION FOR CUSTOMERS WHICH HAS THE LOWEST LIFE CYCLE COST. THOUGH THE 'SIPHON SYSTEM' AS INTRODUCED BY KBL IS NOT COVERED UNDER THE 'TURN KEY PROJECT' OF SSNNL COMPANY HAS USED THIS TECHNIQUE IN THE EXECUTION OF THE PROJECT RESULTING IN SAVING OF POWER CONSUMPTION TO THE TUNE OF RS.12 CRORES ( RS.TWELVE CRORES) APPROX. PER YEAR TO SSNNL AUTHORITIES. THE UNIQUE SYSTEM USED IN THIS APPLICATION (SIPHON MAKING WHILE STARTING THE PUMP & SIPHON BRAKING IN THE INSTANCE OF POWER FAILURE) IS PATENTED BOTH IN USA & INDIA. WHILE THE US PATENT IS ON HAND THE APPLICATION FOR PATENT IN INDIA IS SUBMITTED AND THE APPROVAL IS AWAITED. WE ARE ENCLOSING HEREWITH A COPY PATENT RECEIVED FROM GOVERNMENT OF USA AND A COPY OF PAPER GIVING INFORMATION ABOUT THE RESEARCH AND EXPERIMENT CARRIED OUT AT OUR KIRLOSKARWADI FACTORY WHICH WAS SUBMITTED AT 3 RD INTERNATIONAL SYMPOSIUM AT 'UNIVERSITY OF PISE' ITALY WHICH IS SELF EXPLANATORY.( R EFER ANNEXURE NO.3 PAGE N. 10 TO 40). D) IN THIS CONNECTION WE ALSO WISH TO DRAW YOUR ATTENTION TO THE 'NATIONAL AWARD FOR EXCELLENCE IN ENERGY MANAGEMENT 2007'AWARDED BY 'CONFEDERATION OF INDIAN INDUSTRY' (CN ) FOR THE SIPHON ACTION USED IN CONCRETE VOLUTE PUMPS INSTALLED AT ' SARDAR SAROVAR NARMADA NIGAM PROJECT' BY THE COMPANY. A PHOTO COPY OF THE AWARD IS ENCLOSED HEREWITH WHICH IS SELF EXPLANATORY. (REFER ANNEXURE NO.4- PAGE NO.41 ). WE ALSO WISH TO DRAW YOUR ATTENTION THAT THE COMPANY HAS RECEIVED 'ENERTIA AWARDS - 2007' FOR SUSTAINABLE ENERGY & POWER IN THE CATEGORY OF 'R&D' PRODUCT AND PROTOTYPE DEVELOPMENT / ADAPTATION SEGMENT 'PUMPS' IN NOVEMBER 2007 FOR ONE OF THE TOP 5 PUMP & PUMPING SCHEME TECHNOLOGY COMPANY IN THE WORLD. THIS AWARD IS ALSO BASED ON THE SPECIFIC ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 17 CASE STUDY OF' SARDAR SAROVAR PROJECT' AND US PATENT AWARDED FOR THE UNIQUE 'SIPHON SYSTEM' DEPLOYED FOR THE PROJECT. (COPY ENCLOSED - REFER ANNEXURE NO. 5- PAGE NO.42). WE ALSO WISH TO HIGHLIGHT THAT THE CHIEF MINISTER OF GUJARAT HAS APPRECIATED THE SERVICES OF THE COMPANY FOR THE INGENIOUS USE OF THE PRINCIPLE OF SIPHON ACTION FOR CONSERVING ENERGY AND WATER IN THE 'SAURASHTRA BRANCH CANAL PUMPING SCHEME' OF SARDAR SAROVAR NARMADA NIGAM LIMITED. A COPY OF THE SAME IS ENCLOSED HEREWITH WHICH IS SELF EXPLANATORY. (REFER ANNEXURE NO.6- PAGE NO.43). WE ALSO WISH TO HIGHLIGHT THAT THE DIRECTOR OF THE COMPANY MR.R. K. SRIVASTAVA WHO HAS MONITORED THIS PROJECT TOTALLY HAS BEEN AWARDED WITH 'LIFE TIME ACHIEVEMENT AWARD' INSTITUTED BY WATER DIGEST UNDER THE AEGIS UNESCO. A COPY OF THE AWARD IS ENCLOSED HEREWITH WHICH IS SELF EXPLANATORY. ( REFER ANNEXURE NO.7 - PAGE NO.44). IN A SIMILAR CASE IN CASE OF 'GODAVARI PROJECT' AWARDED BY GOVERNMENT OF ANDHRA PRADESH (RS.123 CRORES APPROX) WHICH -: INVOLVES 7 (SEVEN) PUMPING STATIONS HAD AN ELECTRICAL INSTALLATION CAPACITY OF 61 MW THE COMPANY HAS REARRANGE THE LOCATIONS AND HAS REDUCED THE PUMPING STATIONS TO 4 (FOUR) AND COULD DO THE JOB WITH 52 MW ELECTRICAL INSTALLATION CAPACITY THERE BY ACHIEVING HUGE REDUCTION IN ENERGY CONSUMPTION. F) THESE ISSUES ARE ADDRESSED TO SHOW THAT THE ASSESSEE IS JUST NOT DOING A 'WORKS CONTRACT' BUT IS ALSO RESPONSIBLE FOR THE BASIC ENGINEERING PROCUREMENT & CONSTRUCTION OF THE INFRA STRUCTURE . PROJECT. 8. WE ENTIRELY AGREE WITH YOUR HONOR THAT ALLOWANCE UNDER SECTION 80 -IA WAS NOT INTENDED TO BE GRANTED TO A CONTRACTOR OR A SUB CONTRACTOR WHO WAS MERELY EXECUTING A WORKS CONTRACT. THE SCOPE OF OUR WORK THE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 18 INVESTMENTS MADE IN TECHNOLOGY & MEN RESPONSIBILITIES UNDERTAKEN AND THE VOLUME OF OPERATIONS INVOLVED WILL CLEARLY SHOW THAT WE ARE NOT MERELY EXECUTING A 'WORKS CONTRACT' BUT DEVELOPING THE ENTIRE SCHEME ON A TURNKEY BASIS. THIS CAN BE VERY WELL BE SEEN FROM THE 'LETTER OF AWARD' RECEIVED FROM THE SSNNL AUTHORITIES D1:1.TED 12 TH SEPTEMBER 2001 WHERE IN THE ' LETTER OF AWARD IS GIVEN FOR EXECUTING THE TURNKEY CONTRACT'. THE SCOPE OF WORK AS OUTLINED IN THE 'LETTER OF AWARD' INCLUDES DESIGN ENGINEERING MANUFACTURING TESTING AND INSPECTION AT MANUFACTURER'S WORKS PACKING AND DISPATCH OF ALL EQUIPMENTS MATERIALS INCLUDING MANDATORY SPARES AND SUPPLY OF SPECIAL TOOLS AND TACKLES FOR 'SOURASHTRA BRANCH CANAL PUMPING SCHEME' A TURNKEY CONTRACT AS PER BID DOCUMENTS. IT WILL ALSO INCLUDE SUCH EQUIPMENTS AND MATERIALS NOT SPECIFICALLY MENTIONED IN THE BID DOCUMENT BUT ARE REQUIRED TO COMPLETE THE SYSTEM AS WELL AS THE SUCCESSFUL EFFICIENT SAFE AND RELIABLE OPERATIONS AND THEY ARE TO BE SUPPLIED WITHOUT ANY EXTRA COST TO 'SSNNL'. 8. IT IS TO BE POINTED OUT THAT WE SATISFY ALL THE OTHER ELIGIBILITY CONDITIONS O F SECTION 80 IA. THE EXPRESSION DEVELOPMENT OR DEVELOPING AND MAINTAINING OCCURRING IN CLAUSE (I) OF SUB SECTION 4 MUST BE GIVEN A LIBERAL MEANING. . IF NARROW INTERPRETATION IS PLACED THEN VIRTUALLY NO INFRASTRUCTURE PROJECT OF A LARGE SIZE WILL CONFER BENEFITS TO THE PRIVATE ENTERPRISES WHICH ARE SUPPOSED TO PARTICIPATE IN DEVELOPMENT OF INFRASTRUCTURE. NO PROJECT WILL BE OWNED ENTIRELY BY THE DEVELOPER. IT IS ONLY WHEN THE PROJECT IS OF SUCH A NATURE THAT ONLY ONE ENTERPRISE CAN CARRY OUT THAT THE DEDUCTION WILL BE AVAILABLE. FOR INSTANCE LAYING OF RAILWAY TRACKS IS PART OF INFRASTRUCTURE FACILITY BUT IT CAN NEVER BE OWNED BY A PRIVATE ENTERPRISE AS UNDER THE 'INDIAN RAILWAYS ACT' THEY MUST NECESSARILY BELONG TO THE INDIAN RAILWAYS .. IN P.R. PRABHAKAR VERSUS CIT 284 ITR PAGE 548 THE SUPREME COURT HELD THAT FOR INCENTIVE SECTIONS ONCE THE ELIGIBILITY CONDITIONS ARE SATISFIED THE SECTIONS MUST BE LIBERALLY CONSTRUED SO AS TO ADVANCE THE OBJECT OF THE SECTIONS WHICH IN OUR CASE IS TO CREATE INFRASTRUCTURE FACILITIES FOR PUBLIC GOOD. ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 19 9. WE WISH TO DRAW YOUR ATTENTION TO THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL 2007. THE RELEVANT CLARIFICATION READS AS UNDER: ACCORDINGLY IT IS PROPOSED TO CLARIFY THAT THE PROVISIONS OF SECTION 80-IA SHALL NOT APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE REFERRED TO IN T HE SECTION. THUS IN A CASE WHERE A PERSON MAKES THE INVESTMENT AND HIMSELF EXECUTES THE DEVELOPMENT WORK I. E. CARRIES OUT THE CIVIL CONSTRUCTION WORK HE WILL BE ELIGIBLE FOR THE TAX BENEFIT UNDER SECTION 80- IA. IN CONTRAST TO THIS A PERSON WHO ENTERS INTO A CONTRACT WITH ANOTHER PERSON {I.E. UNDERTAKING OR ENTERPRISE REFERRED TO IN SECTION 80-IA) FOR EXECU TING WORKS CONTRACT WILL NOT BE ELIGIBLE FOR THE TAX BE NEFIT UNDER SECTION 80-IA. IN OUR OPINION AS PER THE EXPLANATION THE BENEFIT WILL NOT BE GRANTED TO A SUB CONTRACTOR BUT WILL BE GRANTED TO AN 'ENTERPRISE' TO WHOM THE CONTRACT IS AWARDED OR ONLY TO CONTRACTOR. IT APPEARS THAT THE EXPLANATION IS INTRODUCED TO OVER COME THE DECISION OF 'INCOME TAX APPELLATE TRIBUNAL' IN CASE OF 'PATEL ENGINEERING LIMITED'. 10. WE ALSO WISH TO DRAW YOUR ATTENTION TO A COMMUNICATION RECEIVED FROM SARDAR SAROVAR NARMADA NIGAM LIMITED DATED 31 ST JANUARY 2008 WHERE THE SSNNL AUTHORITIES HAVE CERTIFIED THAT THEY HAVE AWARDED THE PROJECT TO KBL FOR DEVELOPING THE INFRASTRUCTURE FACILITY. FURTHER ;I SSNNL HAS STATED THAT THE 'SAURASHTRA BRANCH CANAL PUMPING SCHEME' IS BEING DEVELOPED BY KBL ON A TURN KEY BASIS AND WILL BE HANDED OVER TO SSNNL ON A SUCCESSFUL COMMISSIONING. SSNNL HAS ALSO CERTIFIED THAT KBL IS ALSO RESPONSIBLE FOR A LIMITED PERIOD TO OPERATE AND MAINTAIN THE FACILITY. WE FURTHER WISH TO DRAW YOUR ATTENTION THAT SSNNL AUTHORITIES HAVE CERTIFIED THAT THE HAVE NOT CLAIMED AN BENEFIT U S 80IA OF THE ACT FOR THE ASSESSMENT YEAR 2003-04 TO ASSESSMENT YEAR 2007-08. ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 20 11. WE ARE ALSO ENCLOSING HEREWITH A PAPER CUTTING IN RELATION TO INAUGURATION OF THE SAID TURNKEY PROJECT AS APPEARED IN DAILY 'SAKAL' DATED 21 ST MARCH 2007 WHICH IS SELF EXPLANATORY. THE WRITE UP PROVIDES THE DETAILS OF PROJECT EXECUTED AND ITS BENEFIT AS INFRASTRUCTURE PROJECT TO THE GENERAL PUBLIC AT A LARGE. (REFER ANNEXURE NO.L0 - PAGE NO.49). 12.WE MAY ALSO POINT OUT THAT WHEN THE LEARNED 'ASSESSING OFFICER' PASSED THE ASSESSMENT ORDER THE EXPLANATION WAS. NOT ON THE STATUTE . BOOK AND THIS ORDER OF HIS CANNOT BE TERMED AS ERRONEOUS. EVEN OTHERWISE WHERE TWO VIEWS ARE POSSIBLE ON THE INTERPRETATION THEN THE VIEW FAVOURABLE TO THE ASSESSEE IN SUCH CASES IS REQUIRED TO BE ADOPTED. IN LIGHT OF THE ABOVE SUBMISSIONS AND REASONS WE SUBMIT THAT THE A.OS ORDER IS NOT ERRONEOUS AND THE PROPOSED REVISION PROCEEDINGS MAY KINDLY BE DROPPED. WE REQUEST YOU GIVE US FURTHER HEARINGS IN THE MATTER TO PLEAD THE CASE AND MAKE FURTHER SUBMISSIONS AS NECESSARY. 9. IN THIS REGARD THE LEARNED AR HAS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 (SC) WHEREIN HONBLE SUPREME COURT HELD AS UNDER: WHEN THE CIT PASSED THE IMPUGNED ORDER U/S 263 TWO VIEWS WERE INHERENTLY POSSIBLE ON THE WORD PROFITS OCCURRING IN THE PROVISO TO SEC. 80-HHC(3) AND THEREFORE SUBSEQUENT AMENDMENT OF SECTION 80-HHC MADE IN THE YEAR 2005 THOUGH RETROSPECTIVE DID NOT RENDER THE ORDER OF THE ASSESSING OFFICER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND CIT COULD NOT EXERCISE POWERS U/S 263. ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 21 10. IN THIS BACKGROUND IT WAS SUBMITTED THAT THE CITS ORDER BE SET ASIDE BECAUSE THE ORDER PASSED B Y THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. IT WAS ALS O SUBMITTED THAT AT THE RELEVANT POINT OF TIME TWO VIEWS WERE POSSIBLE ON THE WORD PROFIT OCCURRING IN THE PROVISO TO SECTION 80-HHC(3) AND THEREFORE SUBSEQUENT AMENDMENT OF SECTION 80-HHC MADE IN THE YEAR 2005 THOUGH RETROSPECTIVE DID NOT RENDER THE ORDER OF THE ASSESSING OFFICER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. FOLLOWING S AME ANALOGY THE CIT WAS NOT JUSTIFIED IN INVOKING PROVISIONS U/S 263 OF THE ACT. 11. THE LEARNED AR ALSO RELIED ON A DECISION OF ITA T MUMBAI F BENCH IN THE CASE OF ACIT VS. BHARAT UDYOG LTD. (2009) 123 TTJ (MUMBAI) 689 WITH REGARDS TO DEDUCTION U/S 80-IA INCOME DERIVED FROM DEVELOPMENT OF INFRASTRUCTURAL FACILITY IT WAS OBSERVED THAT AFTER THE AMENDMENT OF SECTION 80- IA(4) WITH EFFECT FROM 1-4-2000 THE DEDUCTION HAS BECOME AVAILABLE TO ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING OR (II) MAINTAINING AND OPERATING OR (III) DEVELOPING MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILITY. SUB-CLAUSE (C) ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 22 OF CL. (I) OF SEC. 80-IA(4) IS APPLICABLE TO AN ENT ERPRISE WHICH IS ENGAGED IN OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER 1-4-1995 AND N OT TO THE CASE OF AN ENTERPRISE WHICH IS ENGAGED IN ME RE DEVELOPMENT OF INFRASTRUCTURE FACILITY AND NOT IT S OPERATION AND MAINTENANCE. THEREFORE THE QUESTION OF OPERATING AND MAINTAINING OF INFRASTRUCTURE FACILITY BY SUCH ENTERPRISE BEFORE O R AFTER ANY CUT OFF DATE CANNOT ARISE. IN CASE THE CONTENTION OF THE REVENUE IS ACCEPTED NO ENTERPRISE CARRYING ON THE BUSINESS OF ONLY DEVELOPING THE INFRASTRUCTURE FACILITY WOULD BE ENTITLED TO DEDUCT ION U/S 80-IA(4) WHEN THE LEGISLATURE HAS PROVIDED THAT THE INCOME OF THE DEVELOPER OF THE INFRASTRUCTURE PROJECT WOULD BE ELIGIBLE FOR DEDUCTION IT PRESUPPOSES THAT THERE CAN BE INCOME TO THE DEVELOPER. OBVIOUSLY A DEVELOPER WOULD HAVE INCOME ONLY IF HE IS PAID FOR DEVELOPMENT OF INFRASTRUCTUR E FACILITY FOR THE SIMPLE REASON THAT HE WOULD NOT HA VE THE RIGHT/AUTHORIZATION TO OPERATE THE INFRASTRUCTU RE FACILITY. THUS BUSINESS ACTIVITY OF THE NATURE OF BUILD AND TRANSFER ALSO FALLS WITHIN THE ACTIVITY ELIGIBLE FOR DEDUCTION U/S 80-IA. THEREFORE MEREL Y BECAUSE THE ASSESSEE WAS PAID BY THE GOVERNMENT FOR DEVELOPMENT WORK IT CANNOT BE DENIED DEDUCTION ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 23 U/S 80-IA. ASSESSEE HAVING ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT AGENCIES FOR DEVELOPMENT OF INFRASTRUCTURE PROJECTS IS OBVIOUSLY A CONTRACTOR BUT THAT DOES NOT DEROGATE THE ASSESSEE FROM BEING A DEVELOPER AS WELL. TERM CONTRACTOR IS NOT REFERRED TO AS CONTRACTOR IN THE AGREEMENT FO R DEVELOPMENT OF INFRASTRUCTURE FACILITY OR SOME BASI C SPECIFICATIONS ARE LAID DOWN WOULD NOT DEBAR THE ASSESSEE FROM CLAIMING DEDUCTION U/S 80-IA(4). HENCE ASSESSEE WAS HELD TO BE ENTITLED TO DEDUCTION U/S 80-IA OF THE ACT. IN THIS BACKGROUND IT WAS SUBMITTED THAT THE ASSESSEE BEING ENGAGED IN DEVELOPMENT ACTIVITY WITH SARDAR SAROVAR NARMADA NIGAM LTD. WITH REGARDS TO ITS TURN KEY CONTRACTS MENTIONED ABOVE THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80-IA OF THE ACT. 12. WE ALSO FIND THAT THE ITAT MUMBAI F BENCH IN THE CASE OF PATEL ENGINEERING LTD. VS. DY. CIT (200 4) 84 TTJ (MUMBAI) 647 WHEREIN THE ASSESSEE CONSTRUCTED UNDERGROUND TUNNEL TO PROVIDE WATER SUPPLY BY CONNECTING RIVER KRISHNA TO POWER HOUSE AS ALSO UNDERGROUND SPECIALIZED STRUCTURES WHICH TAKE THE WATER BACK TO RIVER FOR IRRIGATION. SIMILA RLY FOR K PROJECT ASSESSEE CONSTRUCTED INLET TUNNEL FO R ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 24 WATER SUPPLY UPTO THE POINT OF POWER HOUSE. ABOVE CONSTRUCTION CONSTITUTED DEVELOPMENT OF INFRASTRUCTURE FACILITY FOR THE PURPOSES OF SECTION 80- IA(4) OF THE ACT. IN THIS BACKGROUND IT WAS HELD TH AT FOR THE PURPOSES OF SECTION 80-IA IF ANY PART OF INFRASTRUCTURE DEVELOPED BY THE ASSESSEE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80-IA OF THE ACT. 13. WE FIND THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 80-IA ON THE GROUND THAT IT HAS DEVELOPED INFRASTRUCTURE PROJECT FOR WHICH THE ASSESSEE HAD CLAIMED TO BE ENTITLED TO DEDUCTION U/ S 80-IA OF THE ACT. THE CLAIM FOR SUCH ALLOWANCE WAS MADE FOR DEVELOPMENT OF INFRA STRUCTURE PROJECT EXECUTED BY IT UNDER THE NAME AND STYLE OF SAURASHTRA BRANCH CANAL WATER SUPPLY/PUMPING SCHEME. ACCORDING TO THE CIT THE ASSESSEE COMPANY ONLY EXECUTED THE WORK CONTRACT AND THE ASSESSEE WAS NEITHER THE OWNER OF THE PROJECT NOR DEVELOPER OF THE PROJECT. ACCORDING TO THE CIT FIR ST PART OF THE PROJECT WAS FOR DESIGN MANUFACTURE AND SUPPLY OF EQUIPMENT AND THE SECOND CONTRACT WAS FOR EXECUTION OF COMMISSIONING OF THE EQUIPMENT SUPPLIED AND OPERATING AND MAINTAINING THE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 25 EQUIPMENT FOR A LIMITED PERIOD FOR ENSURING SATISFACTORY PERFORMANCE. THE CIT CONCLUDED THAT THE ASSESSEE WAS NOT A DEVELOPER BUT ONLY A WORKS CONTRACTOR AND HENCE WAS NOT ENTITLED FOR DEDUCTION U/S 80-IA OF THE ACT. THE STAND OF THE ASSESSEE HAS BEEN THAT IT IS NOT THE REQUIREMENT OF LAW THAT DEVELOPER MUST ALSO BE THE OWNER OF INFRASTRUCTURE PROJECT. AFTER THE AMENDMENT IN SUB-SECTION 4 BY INSERTING THE WORD OR IN CLAUSE (I) AN ENTERPRISE CARRYING ON THE BUSINESS OF ONLY DEVELOPING AN INFRASTRUCTURE FACILITY IS ALSO ENTITLED TO THE BEN EFIT OF THE SECTION. ACCORDING TO THE ASSESSEE HE EXECUTE D TURN KEY CONTRACT MEANING THEREBY THAT THE ENTIRE INFRASTRUCTURE FACILITY WILL BE DEVELOPED AND COMMISSIONED BY THE ASSESSEE AND THEN ONLY WILL BE TRANSFERRED TO SARDAR SAROVAR NARMADA NIGAM LTD. THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF SSNNL ALSO MENTIONED TO EXECUTE OPERATE AND MAINTAIN THE SARDAR SAROVAR PROJECT WHICH COMPRISES OF A DAM ACROSS RIVER NARMADA CONSTRUCTION OF POWER HOUSES AND A CANAL SYSTEM EMANATING FROM THE RESERVOIR CALLED THE SARDAR SAROVAR. IT WAS ALSO MENTIONED WITH REGARDS TO PROMOTION OF THE SCHEME THAT IRRIGATION AND WATER SUPPLY IN THE STATE FOR UTILIZATION OF WATER FROM T HE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 26 SARDAR SAROVAR. THE WATER SUPPLY SCHEME BEING EXECUTED BY THE ASSESSEE FALLS UNDER THIS CLAUSE AN D THERE IS ENTIRE RESPONSIBILITY OF EXECUTION AND DEVELOPMENT IS WITH THE ASSESSEE. ACCORDING TO THE ASSESSEE IT HAS MADE SUBSTANTIAL INVESTMENT INITIALLY. THE ASSESSEE IS ALSO CLAIMED TO HAVE MA DE RESEARCH ON SIPHON SYSTEM BY MAKING TRANSPARENT FROUDE SCALAR MODEL OF THE DISCHARGE DUCT AND THE RESULTS OBTAINED WERE APPLIED IN THE EXECUTION OF T HE SARDAR SAROVAR PROJECT. IN SIMILAR SET OF FACTS I N CASE OF GODAVARI PROJECT: AWARDED BY GOVERNMENT OF ANDHRA PRADESH AS INTIMATED BY THE ASSESSEE DEDUCTION U/S 80-IA WAS ALLOWED. 14. ON THE OTHER HAND THE LEARNED DR RELIED ON THE ORDER OF THE CIT AND SUBMITTED THAT THE ORDER OF TH E ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF REVENUE WHILE GRANTING RELIEF IN QUESTI ON. SO CIT WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 263 OF THE ACT. 15. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD WE FIND THAT HONBLE SUPREME COURT IN TH E CASE OF MAX INDIA LTD. (SUPRA) HAS HELD THAT IN CAS E AT THE ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 27 TIME OF PASSING AN ORDER U/S 143(3) TWO VIEWS WERE INHERENTLY POSSIBLE ON THE WORD PROFITS OCCURRING IN THE PROVISO TO SECTION 80-HHC(3) AND THEREFORE SUBSEQU ENT AMENDMENT OF SECTION 80-HHC MADE IN THE YEAR 2005 THOUGH RETROSPECTIVE DID NOT RENDER THE ORDER OF T HE ASSESSING OFFICER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE THE CIT COULD NOT EXERCISE POWERS U /S 263 OF THE ACT. FOLLOWING THE SAME ANALOGY WE FIN D THAT AT THE RELEVANT POINT OF TIME TWO VIEWS WERE POSSI BLE BEFORE RETROSPECTIVE AMENDMENT TO SECTION 80-IA WHE REBY EXPLANATION WAS INSERTED BY THE FINANCE (NO. 2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1-4-2000 WHICH READS AS UNDER: EXPLANATION FOR THE REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO A BUSINESS REFER RED TO IN SUB-SECTION (4) WHICH IS IN THE NATURE OF A WORKS CONTRACT AWARDED BY ANY PERSON (INCLUDING THE CENTRAL OR STATE GOVERNMENT) AND EXECUTED BY THE UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-SECTIO N (1) IT WAS SUBSTITUTED BY THE FINANCE (NO. 2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1-4-2000. PRIOR TO ITS SUBSTITUTION EXPLANATION AS INSERTED BY THE FINAN CE ACT 2007 WITH RETROSPECTIVE EFFECT FROM 1-4-2000 READ AS UNDER: ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 28 EXPLANATION - FOR THE REMOVAL OF DOUBTS IT IS HER EBY DECLARED THAT NOTHING CONTAINED IN THIS SECTION SHA LL APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE AS THE CASE MAY BE 16. THUS THE ABOVE AMENDMENT TO THE EXPLANATION TO SECTION 80-IA WAS MADE BY THE FINANCE (NO. 2) ACT 2 009 WHILE THE ASSESSMENT ORDER PASSED ON 28-3-2006 AND THE ORDER OF THE CIT WAS PASSED ON 13-3-2008. IN THIS SITUATION THE RETROSPECTIVE INSERTION OF THE EXPLA NATION TO SECTION 80-IA AND AMENDMENT THEREOF WITH RETROSPECT IVE EFFECT DOES NOT RENDER THE ASSESSMENT ORDER ERRONEO US IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF REVENUE S O AS TO INVOKE PROVISIONS OF SECTION 263 OF THE ACT AS HEL D BY HONBLE SUPREME COURT IN THE CASE OF MAX INDIA LTD. (SUPRA). HERE WE ARE CONFINED TO THE LIMITED ISSUE OF INVOKING THE PROVISIONS OF SECTION 263. ACCORDING T O US THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS AVAILABLE AT THE RELEVANT POINT OF TIME. IN VIEW OF THIS WE ARE NOT INCLINED TO AGREE WITH THE FINDING OF THE C IT. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT PASSED U /S 263 FOR A.Y. 2003-04. SIMILAR IS THE ISSUE RAISED BY TH E ASSESSEE IN ITS APPEAL IN ITA NO. 637/PN/2008 FOR A .Y. 2004-05. FACTS BEING SIMILAR SO FOLLOWING THE REA SONING GIVEN WHILE DEALING WITH THE APPEAL FOR A.Y. 2003-0 4 THE ORDER PASSED BY THE CIT INVOKING THE PROVISIONS OF SECTION 263 FOR A.Y. 2004-05 IS ALSO SET ASIDE. ITA NO. 636 & 637/PN/2008 KIRLOSKAR BROTHERS A.Y. 2003-04 & 2004-05 29 17. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. 0RDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY 2011. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 28 TH FEBRUARY 2011. ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT I PUNE (4) THE D.R. PUNE BENCH B PUNE TRUE COPY BY ORDER ASSTT. REGISTRAR INCOME-TAX APPELLATE TRIBUNAL PUNE BENCHES PUNE