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M/s. Nagarjuna Construction Company Ltd., Hyderabad Vs. Asst. CIT Central Circle-3 Hyderabad
August, 29th 2012
          IN THE INCOME TAX APPELLATE TRIBUNAL
              HYDERABAD BENCH `B', HYDERABAD

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
         SHRI SAKTIJIT DEY, JUDICIAL MEMBER

              ITA No. 141/Hyd/2007 ­ A.Y. 2003-04
M/s. Nagarjuna                 Vs. Asst. CIT
Construction Company Ltd.,         Central Circle-3
Hyderabad                          Hyderabad
PAN: AAACM7335C
Appellant                            Respondent

             ITA No. 1312/Hyd/2008 ­ A.Y. 2001-02
             ITA No. 1313/Hyd/2008 ­ A.Y. 2004-05
              ITA No. 640/Hyd/2006 ­ A.Y. 2002-03
              ITA No. 465/Hyd/2006 ­ A.Y. 2002-03
M/s. Nagarjuna                 Vs. The Dy. CIT
Construction Company Ltd.,         Central Circle-3
Hyderabad                          Hyderabad
PAN: AAACM7335C
Appellant                            Respondent

                   Appellant by: Sri S. Rama Rao
                 Respondent by: Sri Gnana Prakash

                Date of hearing: 28.06.2012
        Date of pronouncement: 27.08.2012




                             ORDER

PER CHANDRA POOJARI, AM:

      These appeals by the assessee are directed against the
different orders of the CIT(A)-I, Hyderabad.

2.    Except in ITA No. 640/Hyd/2006, the issue in these appeals
is relating to allowability of deduction u/s. 80IA(4)(i) of the
Income-tax Act, 1961. For brevity, as the issues are common in
all the above appeals, except ITA No. 640/Hyd/2006, we consider
the facts as narrated in ITA No. 141/Hyd/2007. The assessee is a
public limited company engaged in development of infrastructure
facilities like water supply projects including construction of
canals, road development including flyovers, bridge construction
                                   2              ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

including reconstruction, etc., for various State Governments and
public sector undertakings and corporations.           The total income
was returned at Rs. 8,87,25,877 whereas the income assessed is
Rs. 14,86,40,590. The assessee had claimed deduction u/s. 80IA
for an amount of Rs. 12,30,33,718 but during the course of
assessment hearing, the assessee restricted the claim to Rs.
5,98,76,713.    The said claim of the assessee u/s. 80IA was
disallowed by the Assessing Officer.       The Assessing Officer after
going through the claim of the assessee, was of the opinion that
the assessee is not entitled for deduction u/s. 80IA of the Act. On
appeal, the CIT(A) confirmed the order of the Assessing Officer.
Against this disallowance, the assessee is in appeal before us in
ITA Nos. 141/Hyd/07. Similar is the grievance                  in assessee
appeals   in      ITA    No.   1312/Hyd/08,        1313/Hyd/08            and
465/Hyd/06.

3.    The learned authorised representative of the assessee drew
our attention to the provisions of section 80 IA (4) of the Act. He
read before us the said section 80 IA(4)(i) of the Act and submitted
that by the Finance Act, 2001 with effect from 1-4-2002 which was
amended as follows:-
       "(i) developing or (ii) operating and maintaining or (iii)
      developing, operating and maintaining a mew
      infrastructure substituted (i) developing (maintaining
      or operating or (iii) developing, maintaining        and
      operating."

4.    He also drew our attention to the Circular No. 14 of 2001
which reads as under:

      Circular No. 14/2001 Explanatory Notes
      Finance Act, 2001 - Explanatory Notes on provisions
      relating to Direct Taxes
      Definition of 'Infrastructure facility' in section 10(23G) to
      be same as that in section BO-IA(4)
                            3              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

17.1 Under the existing provisions contained in clause
(23G) of section 10, any income of an infrastructure
capital fund or an infrastructure capital company by
way of interest, dividend (other than dividends referred
to in section 115-0) and long term capital gains from
investment made by way of equity or long-term finance
in an approved enterprise wholly engaged in the
business of (i) developing, (ii) maintaining and
operating, or (iii) developing, maintaining and operating
an infrastructure facility shall not be included in
computing the total income.

17.2 Fiscal incentives for development of infrastructure
have been provided in the Income-tax Act as a package,
so that tax holiday is allowed under section 80-IA to the
infrastructure enterprise and income from long-term
investment made by the Infrastructure Capital
Company or Infrastructure Capital Fund in the
approved enterprise is exempt under section 10(23G).
Thus, whenever a decision is taken to revise the scope
of fiscal incentives to infrastructure by amending
section 80-1A, necessary amendments are required to
be made in sections 10(23G) as well.

17.3 Thus, as a measure of rationalisation, Finance
Act, 2001, has amended section 10(23G) so as to
provide that income by way of interest, dividend or long
term capital gains of an infrastructure capital fund or
an infrastructure capital company, from investments in
any enterprise or undertaking wholly engaged in the
business referred to in sub-section (4) of section 80-IA
or in a housing project referred to in sub-section (10) of
section 80-18 will not be included in computing the total
income. This will remove the requirement of
consequential amendment in section 10(23G) as a
result of any future change in section Bo-IA regarding
infrastructure.

17.4 This amendment will take effect from 1st April,
2002, and will, accordingly, apply in relation to the
assessment year 2002-03 and subsequent assessment
years.

[Section 5(g)]

Tax holiday for infrastructure rationalised
47.1 Under the provisions of section Bo-IA, roads,
highways, bridges, airports, ports and rail systems are
                            4              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

regarded as infrastructure facility and the enterprises
engaged in developing or operating and maintaining or
developing,     operating     and     maintaining      such
infrastructure are entitled to a tax holiday for five years
and a deduction of 30% of profits for the next five
years. This benefit is applicable in respect of such
specified infrastructural facility becoming operational
on or after 1st April, 1995. The enterprise claiming
such benefit has to enter into an agreement with the
Central or State Government or a local authority or any
other statutory authority, by which the enterprise which
develops such facility, has to transfer such facility to
the Government or public authority after the stipulated
period. In other words, the required condition for
availing of this benefit is that transfer under BOT
(Build, Own, Transfer) or BOOT (Build, Own, Operate
and Transfer) schemes has to be met.

47.2 Investments in infrastructure have to compete with
investment in other sectors to be attractive. There is, in
particular, a need to encourage investment in the area
of surface transport, water supply, water treatment
system, irrigation project, sanitation and sewerage
system or solid waste management systems. With this
in view, section Bo-IA has been amended to relax the
existing two tier benefit to provide a ten year tax
holiday. Keeping in view, their capital intensive nature,
the higher allowances of depreciation in the initial
years to such enterprises and the need for improved
cash flows, an infrastructure facility in the nature of a
road (including a toll road), bridge, rail system,
highway project, water supply project, sanitation,
sewerage and solid waste management system shall
be allowed a ten year tax holiday in place of a two-tier
tax holiday. Such an enterprise may avail of the tax
holiday consecutively for any ten years out of twenty
years beginning from the year in which the undertaking
begins operating the infrastructure facility.

47.3 In the case of other infrastructure, namely, for
airport, port, inland port and inland waterways, section
Bo-IA has been further amended to relax the existing
two tier fiscal incentive. Instead, an identical ten year
tax holiday may be availed of in a block of initial fifteen
years.

47.4 The condition that such infrastructure facility shall
be transferred to the Central Government, State
                                 5              ITA No. 141/Hyd/2007 & Ors.
                                          M/s. Nagarjuna Construction Co. Ltd.
                                         ===========================


      Government or local authority has also been removed.
      However, the agreement with such authorities for
      creation of such infrastructure will have to be entered
      into.

      47.5 Under sub-section (B) of section Bo-IA, where any
      goods are transferred for a consideration to any other
      business of the assessee, the consideration should
      correspond to the market value of such goods. As in
      certain cases, the transfer may relate to services, the
      provision has been accordingly amended to clarify that
      this would include services. Such services may include
      marketable services of operation and maintenance
      (O&M) in case of infrastructure facilities, marketable
      services for distribution of electricity and specified
      marketable services in telecom. Instead of the words
      "industrial undertaking" occurring in section 8O-IA, the
      word "undertaking" has also been substituted in the
      provision for the same reason.

      47.6 These amendments will take effect from the 1st
      day of April, 2002, and will, apply in relation to the
      assessment years 2002-03 and subsequent years.

      On reading the above section and the notes on causes/
      CBDT Circular it is very clear ~ that with effect from 1-
      4-2002 " the enterprises engaged in developing or
      operating and maintaining or developing, operating and
      maintaining such infrastructure are entitled to a tax
      holiday. Earlier to the above substitution there was no
      'or' between the word M developing, (ii) maintaining and
      operating or (iii) developing, maintaining and operating,
      on entering into an agreement with Government would
      be eligible for deduction under section 801A."

5.    From the above, he submitted that the enterprises engaged
in developing or operating and maintaining or developing,
operating and maintaining such infrastructure are entitled to a tax
holiday. Earlier to the above substitution there was no word 'or'
between the word developing, (ii) maintaining and operating or (iii)
developing, maintaining and operating, on entering into an
agreement with Government would be eligible for deduction under
section 801A of the Act. He drew our attention to the decision of
                                   6              ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

the Mumbai ITAT in the case of ACIT vs. Bharat Udyog Limited
(118 ITD 336) wherein held that:-

      "The amendment in section 80-IA was brought about by
      the Finance Act, 1995, with effect from 1-4-1996. By
      virtue of this amendment, the deduction under section
      80-IA was provided to any enterprise carrying on the
      business of developing, maintaining and operating the
      infrastructure facility. Thus, to be eligible for this
      deduction, an assessee was required to carry out all
      the three activities, i.e., (i) to develop, (ii) to maintain
      and (iii) to operate. After the amendment effected in
      section 80-IA by the Finance Act, 1999 with effect from
      1-4-2000, the deduction under section 80-IA(4) became
      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. [Para 7]

      Sub-clause (c) of section 80-IA(4) is applicable to an
      enterprise which is engaged in `operating and
      maintaining' the infrastructure facility on or after 1-4-
      1995. It is not applicable to the case of an enterprise,
      which is engaged in mere `development' of
      infrastructure facility and not its `operation' and
      `maintenance'. Therefore, the question of `operating and
      maintaining' of infrastructure facility by such an
      enterprise before or after any cut off date cannot arise.
      When the Act provides for deduction under section 80-
      IA(4), undisputedly for an enterprise, which is only
      `developing' the infrastructure facility, unaccompanied
      by `operating and maintaining' thereof by such entity,
      there cannot be any question of providing a condition
      for such an enterprise to start operating and
      maintaining the infrastructure facility on or after 1-4-
      1995. Since the assessee was only a developer of the
      infrastructure project and it was not maintaining and
      operating the infrastructure facility, sub-clause (c) of
      sub-section (4) of section 80-IA was not applicable.
      [Para 8]

      Further, from the assessment year 2000-01, deduction
      under section 80-IA(4) is available if the assessee
      carries on the business of any one of the above-
      mentioned three types of activities. When an assessee
      is only developing an infrastructure facility/project and
      is not maintaining nor operating it, obviously such an
                             7              ITA No. 141/Hyd/2007 & Ors.
                                      M/s. Nagarjuna Construction Co. Ltd.
                                     ===========================

assessee would be paid for the cost incurred by it;
otherwise, how would the person, who develops the
infrastructure facility project, realize its cost? If the
infrastructure facility, just after its development, is
transferred to the Government, naturally the cost would
be paid by the Government. If a person who only
develops the infrastructure facility is not paid by the
Government, the entire cost of development would be a
loss in the hands of the developer as he is not operating
the infrastructure facility. 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 developer, i.e.,
to the person who is carrying on the activity of only
developing infrastructure facility. Obvious, as it is, a
developer would have income only if he is paid for
development of infrastructural facility, for the simple
reason that he is not having the right/authorization to
operate the infrastructure facility and to collect toll there
from and has no other source of recoupment of his cost
of development. Therefore, the business activity of the
nature of build and transfer also falls within eligible
construction activity, that is, activity eligible for
deduction under section 80-IA inasmuch as mere
`development'     as    such    and    un-associated/un-
accompanied with `operate' and `maintenance' also
falls within such business activity as is eligible for
deduction under section 80-IA. Therefore, merely
because the assessee was paid by the Government, for
development work, it could not be denied deduction
under section 80-IA (4). A person, who enters into a
contract with another person, would be a contractor no
doubt; and the assessee having entered into an
agreement with the Government agencies for
development of the infrastructure projects, was
obviously a contractor; but that did not derogate the
assessee from being a developer as well. The term
`contractor' is not essentially contradictory to the term
`developer'. On the other hand, rather section 80-IA(4)
itself provides that the assessee should develop the
infrastructure facility as per the agreement with the
Central Government, State Government or a local
authority. So, entering into a lawful agreement and
thereby becoming a contractor should, in no way, be a
bar to the one being a developer. Therefore, merely
because, in the agreement for development of
infrastructure facility, assessee was referred to as
contractor or because some basic specifications were
                                   8              ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

      laid down, it did not detract the assessee from the
      position of being a developer; nor would it debar the
      assessee from claiming deduction under section 80-
      IA(4).[Para 9]

      Therefore, the assessee, who was only engaged in
      developing the infrastructural facility, i.e., road, and not
      engaged in the `operating and maintaining' the said
      facility, was entitled to the benefits of the deduction
      under section 80-IA(4). The provisions of sub-clause (c)
      of clause (i) of section 80-IA (4) were inapplicable to the
      instant case. Hence, the order of the Commissioner
      (Appeals) was correct. [Para 13]"

6.    Further, he drew our attention to the decision of Bombay
High Court in the case of CIT vs. Glenmark Pharmaceuticals
Limited (319 ITR 199), the relevant extract of the head note reads
as under:-
      "By the Finance Act of 2009, which substituted the
      provisions of section 194C, the expression 'work' has
      now been defined in clause (iv ) of the substituted
      Explanation. Clauses (a) to (d ) are the same as clause
      (a ) to (d) of the erstwhile Explanation III. However, the
      Explanation (e ) has now been inserted. [Para 26]

      What has weighed in the introduction of clause (e ) of
      the Explanation was on-going litigation on the question
      as to whether TDS was deductible on outsourcing
      contracts. Clause (e) was introduced "to bring clarity on
      this issue" or, in other words, to remove the ambiguity
      on the question. Clause (e) as introduced contains a
      positive affirmation that the expression 'work' will cover
      manufacturing or supplying a product, according to the
      requirement or specification of a customer, by using
      material purchased from such a customer. Clause (e)
      has placed the position beyond doubt by incorporating
      language to the effect that the expression 'work' shall
      not include manufacture or supply of a product
      according to the requirement or specification of a
      customer by using material which is purchased from a
      person other than such customer. In other words, the
      circumstance that the requirements or specifications are
      provided by the purchaser is not regarded by the
      statute as being dispositive of the question as to
      whether a contract constitutes a contract of work or
      sale. What is of significance is whether material has
                            9              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

been purchased from the customer, who orders the
product. When the material is purchased from the
customer who orders the products, it constitutes a
contract of work, while, on the other hand, where the
manufacturer has sourced the material from a person
other than the customer, it would constitute a sale.
What is significant is that in using the words which
clause (e) uses in the Explanation, the Parliament has
taken note of the position that was reflected in the
circulars issued by the CBDT since 29-5-1972. The
judgment of the Supreme Court in Associated Cement
Co. Ltd. v. CIT [1993J 201 ITR 435/ 67 Taxman 346
gave an expansive definition to the expression 'work'
and rejected the attempt of the assessee in that case to
restrict the expression 'work' to works contract. Both
before and after the judgment of the Supreme Court, the
expansive definition of the expression 'work' co-existed
with the revenue's understanding that a contract for
sale would not be within the purview of section 194C.
The revenue always understood section 194C to mean
that, though a product or thing is manufactured to the
specifications of a customer, the agreement would
constitute a contract for sale, if (i ) the property in the
article or thing passes to the customer upon the
delivery; and (ii) the material that was required was not
sourced from the customer/ purchaser, but was
independently obtained by the manufacturer from a
person other than the customer. The rationale for this
was that where a customer provides the material, what
the manufacturer does is to convert the material into a
product desired by the customer and ownership of the
material being that of the customer, the contract
essentially involves work of labour and not of a sale.
The Parliament recognized the distinction which held
the field, both administratively in the form of circulars
of the CBDT and judicially in the judgments of the
several High Courts. Consequently, the principles
underlying the applicability of section 194C as
construed administratively and judicially in decided
cases, find statutory recognition in the Explanation. The
Explanation, therefore, as the Memorandum explaining
the clauses of the Finance Bill, 2009 states, was in the
nature of a clarification. Where an explanatory
provision is brought to remove an ambiguity or to clear
a doubt, it is reflective of the law as it has always
stood in the past, whereas, in the instant case, an
Explanation is introduced statutorily to adopt an
understanding of the law-both in the form of the
                           10             ITA No. 141/Hyd/2007 & Ors.
                                    M/s. Nagarjuna Construction Co. Ltd.
                                   ===========================

circulars of the CBDT and in judicial decision. The
Parliament must be regarded as having intended to
affirm that intent. In the instant case, the intent has
held the field for over three decades. [Para 28)

The fact that the specifications were provided by the
assessee to the manufacturer/supplier would make no
difference to the legal position. The agreement in the
instant case was on a principal-to-principal basis. The
manufacturer had his own establishment where the
product was manufactured. The material required in
the manufacture of the article or thing was obtained by
the manufacturer from a person other than the
assessee. The property in the articles passed upon the
delivery of the product manufactured. Until delivery, the
assessee had no title to the goods. The goods had an
identifiable existence prior to delivery. [Para 31)

The reason that a specification or requirement is
enunciated by the assessee constitutes a matter of
business expediency. A purchaser who desires to get
the product, which he intends to sell under his brand
name, or trademark, manufactured from a third party
would be interested in ensuring the quality of the
product. The trademark has associated with it an
assurance of the quality of the goods which are
marketed and are traceable to the origin of the goods.
Associated with the trademark is the goodwill and
reputation which is associated with the mark. This is
particularly so in the case of a pharmaceutical product
where the ultimate consumer is legitimately entitled to
ensure that her health is not prejudiced by the
consumption of a product not meeting prescribed
standards. The owner of a mark, therefore, introduces
specifications to ensure that the product meets the
standards justifiably associated with the reputation of
the mark. The specification ensures the observance of
standards. Similarly, a clause relating to exclusivity is
not inconsistent with a transaction of sale. Here again
much depends upon the nature of the product.
Restrictive covenants of this kind are intended to
protect the intellectual and other property rights of a
party which markets its goods by requiring a
manufacturer to observe norms of specifications and
exclusivity.

The law is, therefore, consistent with the transaction
being regarded as a transaction of sale, provided that
                                   11              ITA No. 141/Hyd/2007 & Ors.
                                             M/s. Nagarjuna Construction Co. Ltd.
                                            ===========================

       the requirements of a contract of sale are met. They
       were net in the instant case. The contract entered into
       by the assessee was not a contract for carrying on any
       work within the meaning of section 194C. [Para 32]"

7.     Further, he submitted that in the case of the assessee
agreements entered with the Government authorities and it is not
related a part of the work and work was undertaken on turnkey
basis. The site has been handed over to the assessee for carrying
on the work as per the requirements of the Government and also
operating system for a certain period mentioned therein and
completed the project at the end of the above said period and as
such the assessee is a developer and also operating the system for
a certain period.    According to the counsel for assessee, it has
been developing the infrastructure project relating to water
supplying     scheme      by   designing,     erection,       testing      and
commissioning of project on turnkey basis. Broadly the technical
nature of the work undertaken by the assessee is as follows:

i)     Designing    and   Manufacturing     of    pipes:     The     assessee
       specially designed and manufactured Pre-stressed concrete
       pipes and it has been done in accordance with specific
       requirements.

ii)    Design and manufacturing of pipe fittings or specials.

iii)   Transporting, Laying and Joining of pipes conforming with
       specifications. The activity involves earth work excavation,
       trench excavation, hard rook blasting, lowering and laying of
       pipes, fitting of specials, fitting of rubber rings at the joints,
       testing pipe joints and pipeline.

iii)   Construction of pump house, providing and fitting of pump
       sets. Supply and fitting of submersible pumps, centrifugal
       pumps, turbine pumps, submersible motors, motors for
                                     12               ITA No. 141/Hyd/2007 & Ors.
                                                M/s. Nagarjuna Construction Co. Ltd.
                                               ===========================

      turbines and centrifugal pump sets, transformer, generator,
      panel boards etc.

iv)   Design and construction of raw water pumping stations,
      water treatment plant, treated water pumping station,
      treated water transmission main, construction of surge tank
      and pipe connection arrangement, booster stations, internal
      transmission main and feeder mains, construction of service
      reservoirs and master reservoirs.

v)    Mobilisation of labourers, [preparation of plans technical
      expertise, supervision, co-ordination and control, set                    up
      manufacturing       facility    nearby      the      project      site     to
      manufacture project specific pipes as per the required
      specifications which requires well equipped machines,
      employment    of    skilled     labour     and     technical       experts,
      equipment    to    transport     heavy     pipes      to   laying     sites,
      equipment to lift and lowering of pipes at the excavated
      sites, provide qualified       and experience        engineer for each
      project site etc to bring in to existence an infrastructure
      facility. Manufacturing of pipes to sites, excavation under
      various conditions of soil and rock, lowering and laying of
      pipes, jointing and testing of pipe joint and pipe line as a
      whole, construction of pump houses, storage tank/collection
      well, treatment plants, distribution plants etc and all these
      together develop in to a new infrastructure water supply
      facility.

8.    Accordingly, the assessee is entitled for deduction under
section 80IA of the Act. He submitted that the assessing officer
ignored the fact that in all         the contracts handed over to the
assessee for development of the infrastructure facility.                  In few
cases, after operation for certain period, had to re-hand over back
                                  13             ITA No. 141/Hyd/2007 & Ors.
                                           M/s. Nagarjuna Construction Co. Ltd.
                                          ===========================

the entire site with the infrastructure facility developed to the
owner. He drew our attention to the copies of agreement entered
with the State Government. He submitted that the above
observation of the assessing officer is factually incorrect as it can
be seen from the agreements and contracts the site if handed over
back to the employer after development of the entire facility and in
few cases after operation and maintenance for a period specified
therein.       According to the authorised representative of the
assessee, the assessee has undertaken the construction of the
entire infrastructure facility as envisaged by the Government in
the agreements.      The assessee has entered into agreement with
Government thereby satisfying the conditions envisaged in section
80IA of the Act.      He drew our attention to a sample of the
agreement in which the nature of work is "Surveying, design,
supply, installation, testing and commissioning lift irrigation on
turnkey basis.

9.      He drew our attention to all the various agreements which
were carried out by the assessee in these assessment years. He
submitted that out of the above agreements the contracts which
are undertaken as turnkey projects are entitled for deduction u/s
80IA.

10.     According to the authorised representative, all the contracts
of the site which was handed over by the Government Bodies to
the assessee for development of the infrastructure facility and on
completion, in few cases after operation for certain period, the
entire site with the infrastructure facility developed to the owner.
He submitted that the lower authorities wrongly relied on the
order of the Tribunal in the case of Patel Engineering Limited (94
ITD     411)   wherein   the   Tribunal   has   not     considered        the
retrospective amendment by Finance Act, 2007. According to the
authorised representative, after amendment to section 80IA(4)(i)(b)
                                         14           ITA No. 141/Hyd/2007 & Ors.
                                                M/s. Nagarjuna Construction Co. Ltd.
                                               ===========================

which reads as " 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    (ii)   operating      and
maintaining or (iii) developing, operating and maintaining a new
infrastructure facility; the word `it' means undertaking and
`develop'   is   independent      of     operating   and       maintaining       or
developing, operating and maintaining. For this purpose, he relied
on the order of the ITAT, Mumbai larger third Member Bench in
the case of B.T. Patil & Sons Belgaum Construction Pvt. Ltd. (126
TTJ (Mumbai) 577; 35 SOT 171, 32 DTR 1. He submitted that the
assessee engaged in development of infrastructure facility by way
of constructing irrigation canals and irrigation systems.                 In this
connection, he drew our attention to the order of the Tribunal in
the case of B.T. Patil & Sons cited supra specifically to paras 36 to
41 which reads as follows:-

        "36. Here it is important to mention that the Legislature
        inserted the word 'or' between (i) and (ii) with effect
        from 1-4-2002, which is applicable to assessment year
        2002-03. So with effect from the assessment year
        2002-03, not only the enterprise (i) developing, (ii)
        operating and maintaining the infrastructure facility
        shall be entitled to deduction, but also the enterprise
        which is only (i) developing or (ii) operating and
        maintaining the infrastructure facility. From such year
        onwards the enterprise which only develops the
        infrastructure facility and thereafter transfers it to
        someone else for operating and maintaining on behalf
        of transferee shall also be covered for the purposes of
        granting benefit. The difference in the situation between
        assessment year 2002-03 onwards and prior two years
        is that whereas the operation and maintenance of the
        infrastructure facility on behalf of the enterprise
        developing is necessary in the former period, but in the
        later period, the operation and maintenance shall be on
        behalf of the transferee enterprise itself. Since in the
        years in question, the transfer of the enterprise for
        operation and maintenance has necessarily to be on
        behalf of the enterprise developing the infrastructure
        facility, and for the time being assuming without
        admitting the contention of the Id. AR that the assessee
                            15              ITA No. 141/Hyd/2007 & Ors.
                                      M/s. Nagarjuna Construction Co. Ltd.
                                     ===========================

is developer of infrastructure facility, it does not satisfy
the other condition of its transfer for operating and
maintaining on its behalf for the obvious reason that
there is no transfer at all of any infrastructure facility
from the assessee, much less for operating and
maintaining on its behalf 37. Be that as it may it
remains to be examined as to whether the assessee
can be called as 'developer' within the meaning of
section 80IA(4). The learned counsel submitted that the
work done by the assessee made it a developer entitled
to deduction. Shri Vijay Mehta, the learned counsel for
the intervener contended that the "works contract" has
not been defined in the context of section 8o-IA and,
hence, in the absence of assignment of any definition
by the statute, its meaning should be understood in the
common parlance. According to him, a developer is a
person who develops the facility and such person
mayor may not be a contractor. On the other hand, a
contractor is stated to be a legal term whose rights and
duties vis-a-vis contract are determined by way of legal
document called the contract. He cited an example that
if a contract to construct a highway from Mumbai to
Delhi is given to a person he is contractor as well as
developer. As against that a person who has been
given a contract for painting or beautification is merely
a contractor but not a developer. According to him,
while developing a project, a developer has to make
technological inputs, entrepreneurial inputs, etc.
Besides, there is financial involvement in terms of
deployment of man and machine as well as bank
guarantees. He went on to explain that the developer
undertakes the risk and reward of the project and is
accountable to the authorities for the development work
carried out by him. In his opinion, the assessee in the
present case cannot be characterized anything other
than a developer. 38. In the circumstance, the learned
Departmental Representative submitted that the
construction is a minor part of the development.
According to him, development includes the works to be
done relating to the planning, designing, engineering
and financing, etc., of the project. He relied on the
judgment of the Hon'ble Supreme Court in the case of
Hindustan Aeronautics Ltd. v. State of Orissa [1984) 55
STC 327 in which it has been observed that in a
contract for work, the person producing has no property
in the thing produced as a whole, even if part or whole
of the material used by him may have been his
property earlier. He also relied on another judgment of
                           16              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

the Hon'ble Supreme Court in the case of Tamil Nadu v.
Anandam Vishwanathan [1989) 1 SCC 613 in which it
was held that the nature of contract can be found only
when the intention of parties is found out. The fact that
in the execution of the works contract some material are
used and the property in the goods so used passes to
the other party, the contractor undertaking the work
will not necessarily be deemed, on that account, to sell
the material. It was, therefore, argued that the
developer is a person who brings in additional
resources by way of investment and technical expertise
for developing the infrastructure facilities. Since the
assessee had simply done a part of work of civil
construction relating to the infrastructure facility, he
stated that it is not eligible for deduction.

39. We find it as an undisputed position that the words
'developer' and 'contractor' have not been defined in or
for the purposes of section 80-1A. The primary question
which arises is that how to find out the meaning of a
word or an expression which is not defined in the Act. It
is a settled legal position that ordinarily the meaning or
definition of a word used in one statute cannot per se
be imported into another as has been held by the
Hon'ble Supreme Court in the case of Union of India v.
R.C. Jain [1981]2 SCC 308. Therefore, the meaning of
the words 'developer' and 'contractor', as put forth
before us by the rival parties from other legislations, be
they State or Central enactments, cannot be
automatically applied in the present context. In order to
ascertain the meaning of a word not defined in the Act,
a useful reference can be made to the General Clauses
Act, 1897. If a particular word is not defined in the
relevant statute but has been defined in the General
Clauses Act, such definition throws ample light for
guidance and adoption in the former enactment.
According to section 3 of the General Clauses Act, the
definitions given in this Act shall have applicability in
all the Central Acts unless a contrary definition is
provided of a particular word or expression. On
scanning section 3 of the General Clauses Act, we
observe that neither the word 'contractor' nor 'developer'
has been defined therein. Thus, the General Clauses
Act is also of no assistance in this regard. Going ahead,
when these words are neither defined in the Income-tax
Act, 1961 nor in the General Clauses Act, the next
question is that where from to find the meaning of such
words. There is no need to wander here and there in
                           17              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

search of answer which has been aptly given by the
Hon'ble jurisdictional High Court in the case of
Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 267 ITR
4881 (Bom.) wherein the Hon'ble High Court was
looking into the meaning of the words 'goods' and
'merchandise', which are not defined under section
80HHC in the context of Income-tax Act, 1961. The
Hon'ble High Court held that : "it is well-settled that in
the absence of there being anything contrary to the
context, the language of a statute should be interpreted
according to the plain dictionary meaning of the terms
used therein". Similar view has been expressed by the
Hon'ble Supreme Court in the case of CWT v. Officer-In-
Charge (Court of Wards) [1976]105 ITR 133 in which it
was held that the ordinary dictionary meaning of a
word cannot be disregarded.

40. Coming back to our point of ascertaining the
meaning of the words 'contractor' as well as 'developer',
which have neither been defined in the Act nor in the
General Clauses Act, we fall upon Oxford Advanced
Learner's Dictionary to find out their meaning.
According to this dictionary, . "developer" is a person or
company that designs and creates new products,
whereas "contractor" is a person or a company that has
a contract to do work or provides services or goods to
another. The New Shorter Oxford Dictionary defines the
word "contractor" as :        person who enters into a
contract or agreement. Now chiefly spec. a person or
firm that undertakes work by contract, esp. for building
to specified plans". In the light of the meaning ascribed
to these words by the dictionaries, it is observed that
the developer is a person who designs and creates new
products. He is the one who conceives the project. He
may execute the entire project himself or assign some
parts of it to others. On the contrary, the contractor is
the one who is assigned a particular job to be
accomplished on the behalf of the developer. His duty is
to translate such design into reality. There may, in
certain circumstances, be overlapping in the work of
developer and contractor, but the line of demarcation
between the two is thick and unbreachable. When the
person acting as developer, who designs the project,
also executes the construction work, he works in the
capacity of contractor too. But when he assigns the job
of construction to someone else, he remains the
developer simpliciter, whereas the person to whom the
job of construction is assigned, becomes the contractor.
                                  18             ITA No. 141/Hyd/2007 & Ors.
                                           M/s. Nagarjuna Construction Co. Ltd.
                                          ===========================

      The role of developer is much larger than that of the
      contractor. It is no doubt true that in certain
      circumstances, a developer may also do the work of a
      contractor but a mere contractor per se can never be
      called as a developer, who undertakes to do work
      according to the pre-decided plan.
`
      41. Further it is relevant to note that the word
      "developing" used in sub-section (4) is with reference to
      "infrastructure facility". When we further peruse the
      meaning of the word "infrastructure facility" as per
      Explanation, it is found to have been defined
      exhaustively by referring to a road project, airport, port,
      etc., a highway project, a water supply project and
      irrigation project, etc. Therefore, the use of word
      "developing" in juxtaposition to infrastructure facility
      indicates that what is eligible for deduction under this
      sub-section is the profits and gains derived from the
      development of infrastructure facility and not something
      de hors it. So in order to be eligible for deduction the
      development should be that of the infrastructure facility
      as a whole and not a particular part of it, as has been
      contended by the Id. AR. It may be possible that some
      part of development work is assigned by the developer
      to some contractor for doing it on his behalf. That will
      not put the doer of such work into the shoes of a
      developer.

11.   Further, he relied on the judgment of Bombay High Court in
the case of ABG Heavy Industries Limited 322 ITR 323 (Bom)
wherein held that:

      "Section 80-IA of the Income-tax Act, 1961, was
      introduced to provide an impetus to the growth of
      infrastructure in the nation. A sound infrastructure is a
      sine qua non for economic development. Absence of
      infrastructure poses significant barriers to growth and
      development. A model which relied exclusively on the
      provision of basic infrastructure by the State was found
      to be deficient. Section 80-lA was an instrument of
      legislative policy, conceived with a view to provide an
      impetus to private sector participation in infrastructural
      projects. Contemporaneously, with the provisions which
      were made by Parliament in section 80-IA of the Act,
      explanatory circulars issued in an administrative
      capacity by the Central Board of Direct Taxes held the
      field. These circulars gave expression to the scope and
                            19             ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

ambit of the concession was provided by section 80-lA.
The evolution of section 80-lA would show a
progressive liberalisation of the legislative scheme, in
the interests of aiding the growth of infrastructure. The
administrative circulars issued by the Central Board of
Direct Taxes in implementation of section 80-IA
similarly liberalised the scheme, consistent with the
Act.

The expression "development" has not been artificially
defined for the purposes of section 80-lA of the Act and
must, therefore, receive its ordinary and natural
meaning. An assessee does not have to develop the
entire port in order to qualify for a deduction under
section 80-lA. Parliament did not legislate a condition
impossible of compliance. A port is defined to be an
infrastructure facility and the circular of the Board
clarified that a structure for loading, unloading, storage,
etc., at a port would qualify for deduction under section
80 IA. Parliament amended the provision of section 80
IA of the Act so as to clarify that in order to avail of a
deduction, the assessee (i) develop,(ii) operate and
maintain or (ii) develop, operate and maintain the
facility. The condition as regards development,
operation and maintenance of an infrastructure facility
was contemporaneously construed by the authorities at
all material times, to cover within its purview the
development of an infrastructure facility under a
scheme by which an enterprise would build, own, lease
and eventually transfer the facility. This was perhaps a
practical realisation of the fact that a developer may not
possess the wherewithal, expertise or resources to
operate a facility, once constructed. Parliament
eventually stepped in to clarify that it was not
invariably necessary for a developer to operate and
maintain the facility. In Bajaj Tempo v. CIT [1992]196
ITR 188, the Supreme Court emphasized that a
provision in a taxing statute granting incentives for
promoting growth and development should be
construed liberally. In the present case, the
administrative circulars issued Central Board of Direct
Taxes proceeded on that basis by adopting a liberal
view of the scope and ambit of the provisions of section
80-IA of the Act. Parliamentary intervention endorsed
the administrative practice. After section 80-IA was
amended by the Finance Act of 2001, the section
applies to an enterprise carrying on the business of (i)
developing; or (ii) operating; maintaining; or (iii)
                           20              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

developing,     operating     and      maintaining     any
infrastructure facility which fulfils certain conditions.
Those conditions are ownership of the enterprise by a
company registered in India or by a consortium (ii) an
agreement with the Central or State Government, local
authority of statutory body; and (iii) the start of
operation and maintenance of infrastructure facility on
or after April 1, 1995. The requirement that the
operation and maintenance of the infrastructure facility
should commence after April 1, 1995 has to be
harmoniously construed with the main provision under
which a deduction is available to an assessee who
develops; or 'operates and maintains; or develops,
operates and maintains an infrastructure facility.
Unless both the provisions are harmoniously construed,
the object intent underlying the amendment of the
provision by the Finance Act of 2001 would be
defeated. A harmonious reading of the provision in its
entirety would lead to the conclusion that the deduction
is available to an enterprise which (i) develops; or (ii)
operates and maintains; or (iii) develops maintains and
operates that infrastructure facility. However, the
commencement of the operation and maintenance of the
infrastructure facility should be after April 1, 1995.

The assessee, in terms of the policy of the Government
of India to encourage private sector participation in the
development of infrastructure, bid for and was
awarded a contract for leasing of container handling
cranes at the Jawaharlal Nehru Port Trust (JNPT). In
pursuance of the contract, the assessee deployed rail
mounted quay side cranes, rail mounted gantry cranes
and rubber tired gantry cranes at the container
handling terminal of the JNPT. JNPT had a dedicated
container handling terminal. According to the assessee,
the only activities of the terminal consisted of loading,
unloading and storage of containers. Under contracts
dated September 2, 1994 and October 16, 1995, JNPT
accepted the bid submitted by the assessee for supply,
installation, testing, commissioning and maintenance of
the cranes. By the terms of the agreement, JNPT agreed
to pay lease charges in a total sum of Rs. 215.50 crores
over a period of ten years. The contract envisaged two
options. Under the first option, operation and
maintenance was to be carried out by the assessee.
Under the second option only maintenance was to be
carried out by the assessee. Under the contracts, JNPT
reserved the right to exercise the option to request the
                            21             ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

assessee to carry out both operation and maintenance
during      the lease period or to carry out only
maintenance while operation was done by JNPT. The
contracts stipulated, inter alia, the submission of a
performance guarantee bond representing 10 per cent
of the average annual contract value computed with
reference both to maintenance and operation. The
assessee assumed the responsibility of making the
equipment available for operation for a minimum
number of days as stipulated in the contract and
became liable to pay liquidated damages for non-
availability of the equipment after commissioning. After
the expiry of the lease period of ten years, the assessee
was liable to hand over the equipment to JNPT free of
cost. Under the contract the assessee furnished an
indemnity to JNPT towards damages that may be
sustained to the equipment or to any property of the
port trust or to the lives persons or properties of others.
The assessee assumed other contractual obligations
including amongst them, the liability to insure the
equipment, to indemnify JNPT towards the claims of
workers' compensation and for compliance with labour
legislation. The assessee claimed special deduction
under sec. 80-IA. The Assessing Officer rejected the
claim but the Commissioner (A)) and Tribunal allowed
it. On appeal to the High Court:

        Held, dismissing the appeal, that on May 31,
2004, JNPT issued a certificate confirming the award of
contracts to the assessee on September 2, 1994 and
October, 16, 1995 for supply, installation, testing,
commissioning and maintenance of container handling
equipment on lease for a period of ten years for loading
and unloading of containers at the port and that the
cranes that were to be supplied by the assessee
formed an integral part of the port. JNPT clarified that
the contracts had been executed under the BOLT
scheme and in accordance with its directions; the
cranes would be transferred to the port trust at no cost
on the expiry of a period of ten years of the
commencement of the contract. The obligations which
had been assumed by the assessee under the terms of
the contract were obligations involving the development
of an infrastructure facility. Section 80-IA of the Act
essentially contemplated a deduction in a situation
where an enterprise carried on the business of
developing, maintaining and operating an infrastructure
facility. A port was defined to be included within the
                                 22              ITA No. 141/Hyd/2007 & Ors.
                                           M/s. Nagarjuna Construction Co. Ltd.
                                          ===========================

      purview of the expression "infrastructure facility". The
      obligations which the assessee assumed under the
      terms of the contract were not merely for supply and
      installation of the cranes, but involved a continuous
      obligation right from the supply of the cranes to
      installation, testing, commissioning, operation and
      maintenance of the cranes for a term of ten years after
      which the cranes were to vest in JNPT free of cost. An
      assessee did not have to develop the entire port in
      order to qualify for a deduction under section 80-IA. The
      condition of a certificate from the port authority was
      fulfilled and JNPT certified that the facility provided by
      the assessee was an integral part of the port. The
      assessee developed the facility on a BOLT basis under
      the contract with JNPT. On the fulfilment of the lease of
      ten years, there was a vesting in the JNPT free of cost.
      The finding that the assessee had developed the
      infrastructure facility and that it was engaged in
      operating the cranes was, therefore, based on the
      material on record. The fact that the assessee was also
      maintaining the cranes was not disputed. The facility
      was commenced after April 1, 1995. The assessee was
      entitled to the special deduction under section 80-IA".

12.   The learned counsel for the assessee placed reliance on two
decisions- Mumbai High Court in the case of CIT vs. ABG Heavy
industries Limited 322 ITR 323 and ITAT Pune Bench in the case
of Laxmi Civil Engineering Pvt. Ltd., vs. Addl. CIT Kolhapur
(unreported/ITA No. 766/Pn/09 dated 8-6-2011). It was urged by
the   learned   authorised   representative    that     these     decisions
supported the proposition that (i) the ITAT's decision in the case
of B.T. Patil & Sons, Larger Bench (Mumbai) reported in 126 TTJ
577 is no longer good law, and          (ii) the distinction between
developer and contractor is no longer relevant in the context of
changed law explained by the Mumbai High Court in the case of
ABG Heavy Industries (supra) and followed within its jurisdiction
by the Pune Bench of the ITAT in the case of Laxmi Civil Engg.
(supra). Further, he submitted that order of the Tribunal relied by
the Departmental Representative in ITA No. 2932/Mumbai/2010
relating to the A.Y 2006-07 in the case of The Indian home Pipe
                                         23                 ITA No. 141/Hyd/2007 & Ors.
                                                      M/s. Nagarjuna Construction Co. Ltd.
                                                     ===========================

Company has no application to the facts of assessee case. In the
case before Mumbai Bench, the assessee was supplying, laying of
pipelines and was only a works contract which is evident from
para 3 of that order. On the contrary the assessee is engaged in
development of water supply project as evident from the tender
allotted by various authorities, project has been undertaken on
turnkey       basis.     The   project        also   includes       operation       and
maintenance for a period one year to two year. As the assessee is
engaged in designing, manufacturing of pipes, maintenance,
operating and maintenance of the project and more so the
assessee itself incurred expenditure for procuring men and
materials, machines and the investment is by the assessee itself,
being so it can not be equated with Indian Home pies Company.
Further, in the case of Indian Home pies Company, the Tribunal
has recorded the finding of fact that there is no dispute that the
assessee is covered by the Explanation below the section 80IA(13)
of the Income Tax Act. But in the case of present assessee, it has
been disputed the applicability of Explanation to section 80IA(13) s
the undertaken various contracts on turnkey basis as submitted
in earlier paras.

13.    On the other hand, the learned departmental representative
submitted that the meaning of the word "developer" and the
eligibility   of   the    business       to    claim     deduction        meant       for
`development of infrastructural facilities' within the meaning of
section 80IA has to be seen in the context of the genesis and
legislative history of the section as held by the Supreme Court in
the case of CIT vs. N.C. Buddhiraja (204 ITR 412,433) the
provision as introduced by the Finance Act, 1991 as amended by
Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to
Finance Act 2007 and Finance Act, 2009 and as explained by
Circular 794 dated 9-8-2000 Circular 779 dated 14-9-1999 (240
ITR st. 32), Circular 794 dated 9-8-2000, Circular 779 dated 14-
                                     25                ITA No. 141/Hyd/2007 & Ors.
                                                 M/s. Nagarjuna Construction Co. Ltd.
                                                ===========================

14.   The      particulars furnished in the paper book shows the
rate analysis, Bill of quantities etc., which makes it clear that the
assessee had no autonomy in matters of design and specification
which completely vested with the employer.                   The only lawful
entitlement of the assessee was to be paid for the measurement of
work completed at rates agreed upon.              The partial and sectional
nature of the proposed work is immediately clear from this notice
and it is also apparent from this that the section of the road
proposed for improvement has no independent existence capable
of satisfying the requirement of section 80 IA (2). Therefore, this
project is incapable of commencement of operations by itself, or to
qualify the larger infrastructure facility of which it is a part.

15.   The   DR    submitted     that      the    contractor       was     granted
mobilisation    advance    as   well      as    interest-free      advance       for
machinery purchase, should be required them and it would be
readily apparent from the agreement that there is no element of
entrepreneurial    initiative   or     financial     participation        of    the
contractor in this kind of a project The successful bidder merely
executes a Government contract and gets paid for it at mutually
agreed rates and the nature of responsibilities assumed under the
other contracts as per agreements included in the paper book are
similar. It is further stated that during the hearing, the authorised
representative of the assessee was at pains to emphasise that the
assessee undertook maintenance work and was hence it is to be
treated as a developer. However, it is clear from the document as
furnished in the paper book that the maintenance function was
actually remedying of defects for a prescribed period. No separate
charges have been collected and this cannot be seen as a
maintenance function.

16.   On these facts, having regard to the responsibilities
assumed under the agreement, the assessee cannot be seen as a
                                 26             ITA No. 141/Hyd/2007 & Ors.
                                          M/s. Nagarjuna Construction Co. Ltd.
                                         ===========================

developer; instead he plays the role of an executor/contractor. Be
that as it may, it was urged by the departmental representative in
the reply that the issue whether the assessee was a developer for
the purposes of section 80IA after the changes in law w.e.f. 1-4-
2002 is not material for adjudication of the grounds in the
impugned appellate orders.      This is because in so far as the
contracts in question are in the nature of works contracts, the
explanation inserted below section 80IA (13) with retrospective
effect from 1-4-2000 has over-riding influence and debars the
assessee's claim.   Further it is contended that the introduction of
the explanation below section 80 IA(13) in 2007 with retrospective
effect from 1-4-2000 puts matters beyond doubt. The law on the
subject of application of a retrospective amendment is clear from
the special Bench decision of the Tribunal in the case of Aquarius
Travels P Ltd. Vs. ITO (111 ITD 53). Such provisions should be
applied in pending proceedings, even when they have not been
involved earlier. As matters stand, therefore, the most important
question for examination on facts is whether the business
agreement in question can be termed a works contract or not. If
the answer is in affirmative, nothing else matters because the
Explanation takes over.       If not, the other nuances such a
development/operation etc., and other specified conditions become
relevant. Reliance was placed in this regard on the decision of the
Mumbai High Court in the case of Glenmark Pharma (324 ITR
199, 207) which digests the case law for ascertainment of whether
facts of the agreement would amount to a contract for work or for
sale.

17.     The ld. DR placed reliance on the decision of jurisdictional
High Court in the case of Dr. Mrs. Renuka Datla vs. CIT (240 ITR
463) (AP), that provisions granting exemptions have to be strictly
construed. It was held by the Supreme Court in the case of IPCA
Laboratory Limited vs. DCIT (SC) 266 ITR 521 that when there is
                                27              ITA No. 141/Hyd/2007 & Ors.
                                          M/s. Nagarjuna Construction Co. Ltd.
                                         ===========================

no ambiguity, provisions cannot be interpreted to confer a benefit
upon the assessee. The provision is incapable of application to the
facts of the assessee's case because the assessee is only an
executor of a contract, which is in turn, part of a larger project
undertaken by the Government, or its agency. It has been argued
in rejoinder by the departmental representative that such reliance
is neither correct nor relevant in deciding the issues on hand. In
the case of Laxmi Civil Engg. Pvt. Ltd., the argument of the
assessee that was accepted by the ITAT, Pune Bench is broadly-
the assessee is a contractor, every contractor is a developer as per
the Mumbai High Court decision in the case of ABG Heavy
Industries and a developer need not operate and maintain the
infrastructure facility, as held by the Mumbai High Court in the
case of ABG Heavy Industries.

18.    The DR submitted that the decision of the Pune Bench of the
ITAT    in the case of Laxmi Civil Engg. (supra) is of no help in
deciding the issues in the impugned appeals for the reason that
the terms and conditions of the contracts and the nature of
obligations assumed      there-under, by the business are not
discussed in the said order. This is the factual fulcrum on which
the decision of the ITAT (larger Bench) in B.T. Patil as well as the
Mumbai High Court in ABG case was decided. Without such
detail, there is no point of comparability between the Pune Bench
decision and the other cases. The unanswered questions emerging
there-from are ­

       i)     Can we assume that there was a BOLT contract or
              was it a works contract?
       ii)    Can we assume that the assessee took ownership
              control of the asset created?
       iii)   The circumstances under   which the enterprise in ABG
              Heavy Industries became   akin to a developer, and do
              they obtain in the case   of LCE? Such as 10 year
              ownership; retransfer;     assumption of assured
                                 28             ITA No. 141/Hyd/2007 & Ors.
                                          M/s. Nagarjuna Construction Co. Ltd.
                                         ===========================

            responsibility regarding operational readiness, etc.,
            noticed in ABG Heavy Industries are not noticed in the
            facts of the case as digested by the afore mentioned
            decision of the Pune Bench of the ITAT in the case of
            LCE.
      iv)   The unbundling of conditions of development,
            operation & maintenance, and development operation
            and maintenance, in the sense of making them non
            cumulative by amendment of law effective from 1-4-
            2002 is not the only relevant issue. The larger issue is
            whether the assessee is a developer in the first place.
      v)    In the case of B.T. Patil, the cumulative or non
            cumulative satisfaction of conditions in section
            80IA(4)(i) was never a material fact. This was so not
            only because the impugned appeals related to pre 1-4-
            2002 period, but also because the matter was
            deci9ded on the preliminary issue of whether the
            assessee was a developer or not in the first place.
      vi)   Some of the attributes of a developer were discussed
            in the case of B.T. Patil, none of whom were absent in
            the case of ABG Heavy Industries.

19.   According to the DR, the decision of the Mumbai High
Court, though later in time was different in facts that there was no
occasion even to refer to the ITAT's decision in the case of B.T.
Patil. Therefore, it can be said that the decision of the Mumbai
High Court in the case of ABG Heavy Industries will be binding in
its jurisdiction for infrastructure contract cases, only in so far as
the facts of the case are compatible. For the same reason, there
can be no adverse implication for the precedent value of the B T
Patil case. As submitted hereinabove, on immediate and necessary
consequence of the retrospective amendment introduced by the
Finance Act, 2009 inserting Explanation below section 80 IA(13),
is that any business transacted in terms of a works contract
stands disqualified from seeking deduction under section 80I(A(4).
The decision of the Mumbai High Court in the case of ABG would
have no application from this point of view also.               Since the
agreement in ABG was a BOLT agreement and not a works
contract their Lordships had no occasion to consider the
                                29             ITA No. 141/Hyd/2007 & Ors.
                                         M/s. Nagarjuna Construction Co. Ltd.
                                        ===========================

Explanation introduced in Finance Act, 2009 with effect from 1-4-
2001. Even if it is assumed, hypothetically, that the agreement in
ABG was in the nature of a works contract, or that every
contractor was a developer, the decision of the Mumbai High Court
without considering the Explanation     cannot operate to overrule
the ITAT's decision in the case of B.T. Patil where the Bench of the
Tribunal considered the effect of the explanation and it was
explained by the Hyderabad Bench of the Tribunal in the case of
Hyderabad Chemicals Supplies Limited (ITA No. 352/Hyd/2005
and 6 others appeals dated 21-1-2011, in the context of an
apparent conflict between a Special Bench (Ahmedabad) decision
of the ITAT and Madras High Court at para-15 on page-8 as
follows:-

      "Further, judgment of High Court though not of the
      jurisdictional High Court, prevails over an order of the
      Special Bench even though it is from the jurisdictional
      Bench of the Tribunal, however, where the judgment of
      the non jurisdictional High Court, though the only
      judgment on the point, has been rendered without
      having been informed about certain statutory provisions
      that are directly relevant, it is not to be followed."

20.   Without prejudice to the argument that the stand that the
Mumbai High Court's order in ABG runs on completely different
facts, it is respectfully pointed out that this decision cannot be a
binding precedent, in any case, for the above-cited reason also and
this issue can be seen in another perspective. There is nothing in
the case of ABG Heavy Industries that supports the view that the
`developer' has to e seen de hors the contract and its stipulations.
In the case of ABG Heavy Industries the Revenue took the stand
that the assessee was not a developer because it was only a
supplier of the equipment. This did not find favour because it was
held that the nature of the business had to be seen in terms of the
obligations assumed under the contract which included not only
supply and installation of the cranes but also testing, commitment
                                 30             ITA No. 141/Hyd/2007 & Ors.
                                          M/s. Nagarjuna Construction Co. Ltd.
                                         ===========================

of operational readiness for a period of ten years on the pain of
liquidated damages and eventual re-transfer after such period.             In
the case of ABG Heavy Industries, the creation of certain
standalone parts of the part complex qualified for being termed on
infrastructure project because the Board Circular 793 dated 23-6-
2000 clarified that part of the project would qualify if so certified
by the Port Authorities. The container handling cranes assembly
was certified to be an integral part of the Port Complex by the Port
Authority.   This is contextually very different from parts of the
running length of a highway or irrigation canal being executed on
a rate contract. The Department's argument that the assessee did
not actually operate or maintain the facility in question was not
upheld because the benefits of the section were held to be
available to BOT/BOLT contracts by CBDT Circulars, which were
any way binding on the IT authorities. In the case of the present
case, it is not even claimed by the assessee that the work was
carried out under a BOT/BOLT contract, or that it was not a
works contract.     It is further submitted that the distinction
between business of development operation/maintenance and
development/ operation/ maintenance was removed with the
change in law effective from 1-4-2002, and that this was explained
by the decision of the Mumbai High Court in the case of ABG
Heavy Industries is fallacious for the following reasons:

      "The Mumbai High Court decision was rendered in the
      context of a BOLT contract, which was in any case
      clarified by the Board Circular to qualify for the
      deduction under section 80IA. It was noticed by their
      Lordships that the subsequent changes in the law
      effective from 1-4-2002 merely mirrored this liberalised
      outlook. That is not the same thing as saying that a
      business in the nature of a works contract qualified for
      the deduction in spite of not operating/maintaining the
      facility. The decision of the larger Bench in the case of
      B.T. Patel was not un-ware of the change in law
      effective from 1-45-2002 as would be evident from para
      36 of the order. The change making the conditions of
                                   31             ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

         development/operation/maintenance non cumulative
         was not relevant since the case related to pre 1-4-2002
         period.    In the case of B.T. Patel the larger Bench
         enunciated certain tests to determine whether the
         business was one of a `developer' or a mere
         `contractor'. The briefly stated facts are as follows:

         "The distinction between creation of product vs.
         Rendering of service (para -40), owner vs. Executor of
         owner's plan with reference to project specification
         (para-42), vesting of property, subject to retransfer if
         need be (para 46) and need for interpretation to avoid
         absurd results (para 50)".

21.      The DR submitted that in view of the terms of the relevant
contract, it was possible to give a finding that the business was
not one of `development' per se.        Therefore, the changes in law
after 1-4-2002 were not even called into play in the case of B.T.
Patil.     It is further submitted that the Mumbai High Court's
decision in the case of ABG Heavy Industries not only runs on
different facts, it does not even refer to the case of B T Patil.
Furthermore, the Mumbai High Court's stand that the nature of
the business should be seen in the context of the obligations
assumed under the contract only complements, not contradicts
the larger Bench's distinction between a developer and contractor
simpliciter, as noted hereinabove. It would be wrong and therefore
to suggest that the case of B.T. Patil has been impliedly over-ruled
by the High Court's decision.        The departmental representative
also places reliance on another decision of the Mumbai Bench of
the Tribunal in the case of Indian Hume Pipe Co. Ltd., vs. DCIT
ITA No. 5172/Mum/2008, dated 29-7-2011 for assessment year
2004-05 wherein held that the company was not entitled to
deduction u/s 80IA(4) of the Income Tax Act 1961 as it was only a
works contract and not a development of eligible infrastructure
projects.. This decision pronounced after the Pune Bench decision
in the case of Laxmi Civil Engg.. considers the Tribunal decision of
B.T. Patil as well as its jurisdictional High Court decision in the
                                  32              ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

case of ABG and goes on to hold that the assessee is not entitled
to the deduction under section 80IA (4) in view of the Explanation
introduced with retrospective effect.

22.   We have heard both the parties and perused the material on
record. In our opinion, this issue came for consideration before
this Tribunal in the case of M/s. Koya & Co. Construction (P) Ltd.
v. ACIT, 51 SOT 203 (Hyd) (URO) wherein the Tribunal held as
follows:

      "24. ... We find that the provisions of Section 80IA (4) of
      the Act when introduced afresh by the Finance Act,
      1999, the provisions under section 80IA (4A) of the Act
      were deleted from the Act. The deduction available for
      any enterprise earlier under section 80IA (4A) are also
      made available under Section 80IA (4) itself. Further,
      the very fact that the legislature mentioned the words (i)
      "developing" or (ii) "operating and maintaining" or (iii)
      "developing, operating and maintaining" clearly
      indicates that any enterprise which carried on any of
      these three activities would become eligible for
      deduction. Therefore, there is no ambiguity in the
      Income-Tax Act. We find that where an assessee
      incurred expenditure for purchase of materials himself
      and executes the development work i.e., carries out the
      civil construction work, he will be eligible for tax benefit
      under section 80 IA of the Act. In contrast to this, a
      assessee, who enters into a contract with another
      person including Government or an undertaking or
      enterprise referred to in Section 80 IA of the Act, for
      executing works contract, will not be eligible for the tax
      benefit under section 80 IA of the Act. We find that the
      word "owned" in sub-clause (a) of clause (1) of sub
      section (4) of Section 80IA of the Act refer to the
      enterprise. By reading of the section, it is clears that the
      enterprises carrying on development of infrastructure
      development should be owned by the company and not
      that the infrastructure facility should be owned by a
      company. The provisions are made applicable to the
      person to whom such enterprise belongs to is explained
      in sub-clause (a). Therefore, the word "ownership" is
      attributable only to the enterprise carrying on the
      business which would mean that only companies are
                            33             ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

eligible for deduction under section 80IA (4) and not
any other person like individual, HUF, Firm etc.

25. We also find that according to sub-clause (a), clause
(i) of sub section (4) of Section 80-IA the word "it"
denotes the enterprise carrying on the business. The
word "it" cannot be related to the infrastructure facility,
particularly in view of the fact that infrastructure
facility includes Rail system, Highway project, Water
treatment system, Irrigation project, a Port, an Airport
or an Inland port which cannot be owned by any one.
Even otherwise, the word "it" is used to denote an
enterprise. Therefore, there is no requirement that the
assessee should have been the owner of the
infrastructure facility.

26. The next question is to be answered is whether the
assessee is a developer or mere works contractor. The
Revenue relied on the amendments brought in by the
Finance Act 2007 and 2009 to mention that the activity
undertaken by the assessee is akin to works contract
and he is not eligible for deduction under section 80IA
(4) of the Act. Whether the assessee is a developer or
works contractor is purely depends on the nature of the
work undertaken by the assessee. Each of the work
undertaken has to be analyzed and a conclusion has to
be drawn about the nature of the work undertaken by
the assessee. The agreement entered into with the
Government or the Government body may be a mere
works contract or for development of infrastructure. It is
to be seen from the agreements entered into by the
assessee with the Government. We find that the
Government handed over the possession of the
premises of projects to the assessee for the
development of infrastructure facility. It is the
assessee's responsibility to do all acts till the
possession of property is handed over to the
Government. The first phase is to take over the existing
premises of the projects and thereafter developing the
same into infrastructure facility.        Secondly, the
assessee shall facilitate the people to use the available
existing facility even while the process of development
is in progress. Any loss to the public caused in the
process would be the responsibility of the assessee.
The assessee has to develop the infrastructure facility.
In the process, all the works are to be executed by the
assessee. It may be laying of a drainage system; may
be construction of a project; provision of way for the
                           34             ITA No. 141/Hyd/2007 & Ors.
                                    M/s. Nagarjuna Construction Co. Ltd.
                                   ===========================

cattle and bullock carts in the village; provision for
traffic without any hindrance, the assessee's duty is to
develop infrastructure whether it involves construction
of a particular item as agreed to in the agreement or
not. The agreement is not for a specific work, it is for
development of facility as a whole. The assessee is
not entrusted with any specific work to be done by the
assessee. The material required is to be brought in by
the assessee by sticking to the quality and quantity
irrespective of the cost of such material.            The
Government does not provide any material to the
assessee. It provides the works in packages and not
as a works contract. The assessee utilizes its funds, its
expertise, its employees and takes the responsibility of
developing the infrastructure facility.      The losses
suffered either by the Govt. or the people in the process
of such development would be that of the assessee.
The assessee hands over the developed infrastructure
facility to the Government on completion of the
development.       Thereafter, the assessee has to
undertake maintenance of the said infrastructure for a
period of 12 to 24 months. During this period, if any
damages are occurred it shall be the responsibility of
the assessee. Further, during this period, the entire
infrastructure shall have to be maintained by the
assessee alone without hindrance to the regular traffic.
Therefore, it is clear that from an un-developed area,
infrastructure is developed and handed over to the
Government and as explained by the CBDT vide its
Circular dated 18-05-2010, such activity is eligible for
deduction under section 80IA (4) of the Act. This cannot
be considered as a mere works contract but has to be
considered as a development of infrastructure facility.
Therefore, the assessee is a developer and not a works
contractor as presumed by the Revenue. The circular
issued by the Board, relied on by learned counsel for
the assessee, clearly indicate that the assessee is
eligible for deduction under section 80IA (4) of the Act.
The department is not correct in holding that the
assessee is a mere contractor of the work and not a
developer.

27. We also find that as per the provisions of the
section 80IA of the Act, a person being a company has
to enter into an agreement with the Government or
Government undertakings. Such an agreement is a
contract and for the purpose of the agreement a person
may be called as a contractor as he entered into a
                           35              ITA No. 141/Hyd/2007 & Ors.
                                     M/s. Nagarjuna Construction Co. Ltd.
                                    ===========================

contract. But the word "contractor" is used to denote a
person entering into an agreement for undertaking the
development of infrastructure facility. Every agreement
entered into is a contract.     The word "contractor" is
used to denote the person who enters into such
contract. Even a person who enters into a contract for
development of infrastructure facility is a contractor.
Therefore, the contractor and the developer cannot be
viewed differently. Every contractor may not be a
developer but every developer developing infrastructure
facility on behalf of the Government is a contractor.

28. We find that the decision relied on by the learned
counsel for the assessee in the case of CIT vs. Laxmi
civil Engineering works [supra] squarely applicable to
the issue under dispute which is in favour of the
assessee wherein it was held that mere development of
a infrastructure facility is an eligible activity for
claiming deduction under section 80IA of the Act after
considering the Judgement of the Mumbai High Court in
the case of ABG Heavy Engineering [supra]. The case of
ABG is not the pure developer whereas, in the present
case, the assessee is the pure developer. We also find
that Section 80IA of the Act, intended to cover the
entities carrying out developing, operating and
maintaining the infrastructure facility keeping in mind
the present business models and intend to grant the
incentives to such entities. The CBDT, on several
occasions, clarified that pure developer should also be
eligible to claim deduction under section 80IA of the Act,
which ultimately culminated into Amendment under
section 80IA of the Act, in the Finance Act 2001, to give
effect to the aforesaid circulars issued by the CBDT.
We also find that, to avoid misuse of the aforesaid
amendment, an Explanation was inserted in Section
80IA of the Act, in the Finance Act-2007 and 2009, to
clarify that mere works contract would not be eligible
for deductions under section 80IA of the Act. But,
certainly, the Explanation cannot be read to do away
with the eligibility of the developer; otherwise, the
parliament      would    have    simply   reversed    the
Amendment made in the Finance Act, 2001. Thus, the
aforesaid Explanation was inserted, certainly, to deny
the tax holiday to the entities who does only mere
works contact or sub-contract as distinct from the
developer. This is clear from the express intension of
the parliament while introducing the Explanation. The
explanatory memorandum to Finance Act 2007 states
                             36              ITA No. 141/Hyd/2007 & Ors.
                                       M/s. Nagarjuna Construction Co. Ltd.
                                      ===========================

that the purpose of the tax benefit has all along been to
encourage investment in development of infrastructure
sector and not for the persons who merely execute the
civil construction work. It categorically states that the
deduction under section 80IA of the Act is available to
developers who undertakes entrepreneurial and
investment risk and not for the contractors, who
undertakes only business risk. Without any doubt, the
learned counsel for the assessee clearly demonstrated
before us that the assessee at present has undertaken
huge risks in terms of deployment of technical
personnel, plant and machinery, technical know-how,
expertise and financial resources.

29. As per submission of the assessee's counsel
broadly the technical nature of the work undertaken by
the assessee is as follows:

i)     Designing and Manufacturing of pipes: The
       assessee specially designed and manufactured
       Pre-stressed concrete pipes and it has been done
       in accordance with specific requirements.
ii)    Design and manufacturing of pipe fittings or
       specials
ii)    Transporting, Laying and Joining of pipes
       conforming with specifications. The activity
       involves    earth      work    excavation,       trench
       excavation, hard rook blasting, lowering and
       laying of pipes, fitting of specials, fitting of rubber
       rings at the joints, testing pipe joints and
       pipeline.
iii)   Construction of pump house, providing and fitting
       of pump sets. Supply and fitting of submersible
       pumps, centrifugal pumps, turbine pumps,
       submersible motors, motors for turbines and
       centrifugal pump sets, transformer, generator,
       panel boards etc.
iv)    Design and construction of raw water pumping
       stations, water treatment plant, treated water
       pumping station, treated water transmission
       main, construction of surge tank and pipe
       connection   arrangement,    booster   stations,
       internal transmission main and feeder mains,
       construction of service reservoirs and master
       reservoirs.
                           37             ITA No. 141/Hyd/2007 & Ors.
                                    M/s. Nagarjuna Construction Co. Ltd.
                                   ===========================

v)    Mobilisation of labourers, [preparation of plans
      technical expertise, supervision, co-ordination
      and control, set       up manufacturing facility
      nearby the project site to manufacture project
      specific pipes as per the required specifications
      which requires well equipped machines,
      employment of skilled labour and technical
      experts, equipment to transport heavy pipes to
      laying sites, equipment to lift and lowering of
      pipes at the excavated sites, provide qualified
      and experience engineer for each project site etc
      to bring in to existence an infrastructure facility.
      Manufacturing of pipes to sites, excavation
      under various conditions of soil and rock,
      lowering and laying of pipes, jointing and testing
      of pipe joint and pipe line as a whole,
      construction    of    pump      houses,    storage
      tank/collection      well,   treatment      plants,
      distribution plants etc and all these together
      develop in to a new infrastructure water supply
      facility.

30. Further, the order of Tribunal in the case of B.T.
Patil cited supra is prior to amendment to sec 80IA(4),
after the amendment the section 80IA(4) read as (i)
developing or (ii) operating and maintaining or (iii)
developing,      operating    and   maintaining    any
infrastructure facility, prior to amendment the "or"
between      three activities was not there, after the
amendment "or" has been inserted w.e.f. 1-4-2002 by
Finance Act 2001.

31. Accordingly, the assessee is entitled for deduction
under section 80IA of the Act on the projects which
involve above activities. Therefore, in our considered
view, the assessee should not be denied the deduction
under section 80IA of the Act if the contracts involves
development, operating, maintenance,           financial
involvement, and defect correction and liability period,
then such contracts cannot be called as simple works
contract to deny the deduction u/s 80IA of Act. In our
opinion the contracts which contain above features to
be segregated on this deduction u/s. 80-IA has to be
granted and the other agreements which are pure
works contracts hit by the explanation section 80IA(13),
those work are not entitle for deduction u/s 80IA of the
Act. The profit from the contracts which involves
development,    operating,     maintenance,    financial
                                 38               ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

      involvement, and defect correction and liability period is
      to be computed by assessing officer on pro-rata basis of
      turnover. The assessing officer is directed to examine
      the records accordingly and grant deduction on eligible
      turnover as directed above. It is needless to say that
      similar view has been taken by the Chennai Bench of
      the Tribunal and deduction u/s. 80IA was granted in
      the case of M/s. Chettinad Lignite Transport Services
      (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July,
      2007 for the assessment year 2004-05. Later in ITA
      No. 1179/Mds/08 vide order dated 26th February,
      2010 the Tribunal has taken the same view. ..."

23.   In the case of GVPR Engineers Ltd. v. ACIT, 51 SOT 207
(Hyd) (URO) wherein the Tribunal held that deduction u/s. 80IA is
available to developers who undertake entrepreneurial investment
risk and not for the contractors, who undertake only business
risk. Without any doubt, the assessee clearly demonstrated that
the plant and machinery, technical know-how, expertise and
financial resources.   Therefore, if the contracts involve design,
development, operation & maintenance, financial involvement and
defect correction and liability period, then such contracts cannot
be called as simple works contract, to deny the deduction under
section 80IA.   The contracts which contain above features to be
segregated have to be granted deduction under section 80IA and
the other agreements which are pure works contracts hit by the
Explanation to section 80IA(13) are not entitled for deduction
under section 80IA. The profit from the contracts which involve
design,   development,    operating    &     maintenance,           financial
involvement and defect correction and liability period is to be
computed by the Assessing Officer on pro rata basis of turnover.
The Assessing Officer is directed to examine the records,
accordingly, and grant deduction on eligible turnover.

24.   In the case of KMC Construction Ltd. v. ACIT, 51 SOT 214
(Hyd) (URO) wherein the Tribunal has taken the same view.
                                     39           ITA No. 141/Hyd/2007 & Ors.
                                            M/s. Nagarjuna Construction Co. Ltd.
                                           ===========================

25.     In the case of Sushee Hi-Tech Constructions Pvt. Ltd. vs.
DCIT,    in   ITA   Nos.   269   &    1165/Hyd/2009        and     ITA     No.
1171/Hyd/2010 dated 16th March, 2012 wherein the Tribunal
held as follows:

        " ... The assessee should not be denied the deduction
        under section 80IA of the Act as the contracts involves,
        development, operating,       maintenance,      financial
        involvement, and defect correction and liability period,
        then such contracts cannot be called as simple works
        contract. In our opinion the contracts which contain
        above features to be segregated and on this deduction
        u/s. 80-IA has to be granted and the other agreements
        which are pure works contracts hit by the explanation
        section 80IA(13), those work are not entitle for
        deduction u/s 80IA of the Act. The profit from such
        contracts which involves        development, operating,
        maintenance, financial involvement, and defect
        correction and liability period is to be computed by
        assessing officer on pro-rata basis of turnover. The
        assessing officer is directed to examine and grant
        deduction on eligible turnover as directed above."

26.     In view of the above orders of the Tribunal on similar issue
relating to deduction u/s. 80-IA(4), we are inclined to remit the
issue back to the file of the Assessing Officer to decide the issue in
the light of the above orders

27.     The next for our consideration in ITA No. 465/Hyd/06 is
with regard to claim of bad debts. The assessee claimed bad debts
of Rs. 26,42,293 with regard to advance made to suppliers of
labourers, miscellaneous sub-contractors and suppliers who are
normally local residents of the project site. Further the assessee
claimed deduction in respect of debt of Rs. 1,68,79,143.                  The
CIT(A) while considering the issue relating to the allowability of
bad debts of Rs. 26,42,293 given a finding that the assessee not
discharged the genuineness of the case and also failed to furnish
complete address of debtors, invoice no., amount and date. Being
so, the claim was disallowed.
                                   40                ITA No. 141/Hyd/2007 & Ors.
                                               M/s. Nagarjuna Construction Co. Ltd.
                                              ===========================



28.   Before us the learned AR submitted that these debts were
made in usual course of business of the assessee and all the
requirements of section 36(1)(vii) of the IT Act, 1961 were complied
with and the assessee has written of the amount of Rs. 26,42,293
as bad and it has to be allowed.


29.   On the other hand, the learned DR submitted that the
assessee has not discharged the onus cast upon it to prove that it
is a genuine trade debt as it is given in the course of business of
the assessee.


30.   We have heard both the parties on this issue.                      In our
opinion, the assessee is to claim a bad debt, the debt should arise
in the course of business activity of the assessee, it is to be a bad
debt and that bad debt is to be written off in the books of account
of the assessee. Once it is written off, the claim of the assessee is
to be allowed. Accordingly, we remit back this issue to the file of
the Assessing Officer to examine the issue whether the debt is
written off in the books of account of the assessee as required
under the provisions of section 36(1)(vii) of the IT Act and decide
there upon.


31.   With regard to disallowance of claim of bad debt by
enhancement of assessment by the CIT(A), the learned AR
submitted that the assessee complied with all the requirements of
provision of section 36(1)(vii) of the Act.


32.   The learned DR submitted that the assessee claimed a bad
debt of Rs. 1,68,79,143 and the same was allowed by the
Assessing Officer without verification. Out of the above amount
Rs. 62,19,596 was claimed in respect of Tamil Nadu Housing
                                    41             ITA No. 141/Hyd/2007 & Ors.
                                             M/s. Nagarjuna Construction Co. Ltd.
                                            ===========================

Board (TNHB). The assessee company completed the construction
of 560 flats under agreement with TNHB and it was paid a sum of
Rs. 64,21,67,483. The final bill of Rs. 13,44,482 was not paid by
the TNHB and bank guarantee was invoked to the tune of Rs. 62
lakhs.      Further TNHB demanded payment of Rs. 36,56,954
towards excess payment on 12.8.1997.              Further there was a
demand for payment by TNHB on 18.9.1997 for Rs. 16,99,702.
The dispute was referred to arbitration wherein the assessee
claimed an amount of Rs. 75,44,482 and the TNHB claimed an
amount of Rs. 1,28,94,517. The Tribunal directed the assessee to
pay a sum of Rs. 53,50,035 to TNHB.           The said award was not
accepted by the assessee and the assessee filed an appeal before
the Madras High Court and claimed an amount of Rs. 62,19,596
as bad debt. This was noticed by the CIT(A) and the same was
disallowed by him which resulted in enhancement of income.


33.      We have heard both the parties on this issue. As noticed by
the CIT(A), there was a dispute regarding this issue and the
dispute is pending before the Madras High Court. Further, it is
not possible to claim the debt as bad debt in this assessment year
2002-03 on the basis of Tribunal award dated 10.1.2000 which is
relevant to the assessment year 2000-01. Being so, we do not find
any infirmity in the order of the CIT(A) and the same is confirmed
on this issue.


34.      Now coming to the appeal in ITA No. 640/Hyd/2006, the
issue is relating to levy of penalty u/s. 271(1)(c) of the Income-tax
Act, 1961.

35.      Facts of the issue in brief are that the assessee filed a return
of income for assessment year 2002-03 on 28.8.08 admitting total
income of Rs. 3,17,19,933. The revised return was filed on
24.10.02 admitting income at Rs. 3,31,82,219. The revised return
                                   42            ITA No. 141/Hyd/2007 & Ors.
                                           M/s. Nagarjuna Construction Co. Ltd.
                                          ===========================

was processed u/s. 143(1) on 27.11.2002. The case was selected
for scrutiny and the assessment u/s. 143(3) was completed on
31.3.2005 determining total income at Rs. 3,62,19,230.                   The
assessee filed an appeal before the CIT(A) against the order u/s.
143(3) challenging two additions made by the Assessing Officer.
Disallowance of Rs. 20,89,171 u/s. 43B and disallowance of prior
period expenses of Rs. 9,10,302.        During the course of appeal
proceedings before CIT(A), it was observed that the assessee's
claim of deduction u/s. 80IA amounting to Rs. 10,12,57,865 was
prima facie not in accordance with the relevant provisions of the
Act, though allowed by the Assessing Officer without any
examination. Hence, to verify the assessee's claim, it was asked to
file the details regarding the works undertaken by the assessee.
The CIT(A) given a finding that the assessee is not entitled for
deduction u/s. 80IA.      Thus, he enhanced the assessment                 by
income of Rs. 11,01,19,754 and thereafter initiated the penalty
proceedings u/s. 271(1)(c) of the Act and given a finding that the
assessee made a wrong claim of deduction u/s. 80IA to the tune of
Rs. 13,18,017. According to the CIT(A), the admission of assessee
of having filed inaccurate particulars of income in its return of
income and having considered the income, is after detection made
during the first appellate proceedings.        Accordingly, he levied
penalty of Rs. 4,70,532 u/s. 271(1)(c) of the Act. Against this, the
assessee is in appeal before us.

36.   We have heard both the parties on this issue.              The issue
relating to allowability of deduction u/s. 80IA for this assessment
year 2002-03 is also subject matter of appeal before us in ITA No.
465/Hyd/06. Being so, in earlier paras, we have remitted back
the issue relating to allowability of deduction u/s. 80IA to the file
of the Assessing Officer for fresh consideration.         Hence, at this
stage levy of penalty u/s. 271(1) is premature. Accordingly, we
are of the opinion that levy of penalty at this stage is not justified.
                                       43              ITA No. 141/Hyd/2007 & Ors.
                                                 M/s. Nagarjuna Construction Co. Ltd.
                                                ===========================

Even otherwise, the Supreme Court in the case of CIT vs. Reliance
Petro Products (P) Ltd. (322 ITR 158) held that mere making of the
claim, which is not sustainable in law, by itself, will not amount to
furnishing inaccurate particulars regarding the income of the
assessee. If the contention of the Revenue is accepted then in case
of every Return where the claim made is not accepted by the AO
for any reason, the assessee will invite penalty u/s 271(1)(c). That
is clearly not the intendment of the Legislature.

37.      Accordingly, appeal No. 640/Hyd/2006 by the assessee is
allowed. The other appeals of the assessee in ITA No. 141/Hyd/
2007, 1312/Hyd/2008, 1313/Hyd/2008 and 465/Hyd/2006 are
partly allowed for statistical purposes.



      Order pronounced in the open court on 27th August, 2012.



              Sd/-                                   Sd/-
          (SAKTIJIT DEY)                       (CHANDRA POOJARI)
        JUDICIAL MEMBER                       ACCOUNTANT MEMBER

Hyderabad, dated the 27th August, 2012

Copy forwarded to:

1.    M/s. Nagarjuna Construction Co. Ltd., c/o. Sri Samuel Nagadesi, Chartered
      Accountant, 408, Sri Ramakrishna Towers, Besides Image Hospitals,
      Ameerpet, Hyderabad-500 073.
2.    The Assistant Commissioner of Income-tax, Central Circle-3, Shakhar
      Bhavan, Opp. L.B. Stadium, Hyderabad-500 004.
3.    The Deputy Commissioner of Income-tax, Central Circle-3, Shakhar
      Bhavan, Opp. L.B. Stadium, Hyderabad-500 004.
4.    The Commissioner of Income-tax (Appeals)-I, Hyderabad.
5.    The Commissioner of Income-tax (Central), Hyderabad.
6.    The Departmental Representative, B-Bench, ITAT, Hyderabad.

tprao
 
 
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