R.S. Syal, A.M. - This appeal by the assessee is directed against the order passed by the CIT(A) on 18th Oct., 2004 in relation to the assessment year 2001-2002.

2. First ground deals with the denial of the benefit of deduction claimed by the assessee under section 80-IA of the Income-tax Act, 1961 (hereinafter referred to as ‘Act’), amounting to Rs. 3,32,43,204 which was claimed on the net income shown by virtue of execution of work on Built-Operate-Transfer (BOT) basis.

A. Factual scenario

Facts leading to this dispute are that the assessee filed its return showing income of Rs. 11,13,360. As the income-tax payable on the total income as computed under the Act was less than 7.5 per cent of its book profits, the assessee paid tax @ 7.5 per cent of the book profits under section 115JB of the Act. During the year, the assessee derived income from pavement of road on contract basis, execution of work on BOT basis and providing funds on interest. It had shown toll tax receipts of Rs. 6,93,06,756 from the execution of work on BOT basis and after claiming operating and maintenance expenses at Rs. 3,60,63,552, showed a profit of Rs. 3,32,43,204. This amount was claimed as deductible under section 80-IA(4)(i) of the Act. On being called upon to show the eligibility of deduction, it was stated on behalf of the assessee that the firm M/s. Chetak Enterprises, a partnership firm, which was being assessed to tax for the last several years, continued to remain as a partnership firm upto 28th March, 2000. The said firm was converted into company, namely, M/s. Chetak Enterprises (P.) Ltd., under Part IX of the Companies Act, 1956, and certificate of incorporation was issued by the Registrar of Companies, Jaipur, on 28th March, 2000. Regarding the eligibility for deduction under section 80-IA(4)(i), it was stated that the company had been sanctioned a tender for the construction of road for 10 kms. It was put forth that the designate authority, Chief Engineer (Roads), Rajasthan, Jaipur, sanctioned the tender and made direction to the Ex. Engineer, PWD, Chittorgarh, for the construction of the road effective from 15th Dec., 1999. It was explained that as per the terms and conditions, the time period to hand over the road so constructed was 30 months and 21 days and the assessee was to construct the road and to start collection of toll tax. It was pointed out that the construction of the road was completed on 27th March, 2000, by way of incurring expenditure of Rs. 3,43,24,533, which amount was shown as BOT work-in-progress. Thereafter, the road was inaugurated on 1st April, 2000 and from the same date, the company started collection of toll tax and by the year end, the total collection was at Rs. 6.93 crores against which, operational and maintenance expenses of Rs. 3,60,63,551 were claimed and profit from BOT was shown at Rs. 3.32 crores which was claimed as deduction under section 80-IA(4)(i). Necessary agreements were also filed with the Assessing Officer. The Assessing Officer perused the relevant material and show-caused the assessee as to why the deduction claimed under section 80-IA(4)(i) may not be disallowed as the firm M/s. Chetak Enterprises who obtained the contract and completed the work, ceased to exist on 28th March, 2000 and the said firm did not qualify for the said deduction for non-fulfilment of mandatory requirements. It was claimed by the assessee that M/s. Chetak Enterprises (P.) Ltd., Udaipur, was earlier being assessed to tax in the status of registered firm consisting of four partners, the constitution of which underwent change w.e.f. 1st April, 1999, as a result of which three more partners were admitted to the firm. It was submitted that Shri Hukmichand Jain, the managing partner of the firm, made an agreement dated 1st Dec., 1999 with the Chief Engineer (Road), PWD, Jaipur, for the execution of work on BOT basis. It was claimed that, though this agreement was executed by Shri Hukmichand in the capacity of managing