2023 (9) TMI 940 - AT - Income Tax

Tribunal Decision: Unspent grants not income, project fees apportioned, interest not taxable, all business expenses allowed.

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal. Unspent grants were not treated as income, project development fees were ... Apportionment of Project management fees - Year of assessment - Project developments fees earned by the assessee which it had apportioned over the period of the project, but the AO had treated it as taxable in entirety in the year of receipt - HELD THAT:- Assessee has placed before us copies of the concessionaire agreement entered into between the assessee and one M/s.Khurana Infrastructure & Toll Road Pvt. Ltd., drawing our attention therefrom to the fact that the by virtue of the agreement certain services were the responsibility of the assessee including shifting of services and utilities; clearance for cutting trees and transportation. Therefore, the fact that the assessee was required to render services for smooth conduct of the contract work is not denied. In the light of the same, we are in agreement with the CIT(A) that since the contract work could not be completed within the year, the services to be rendered by the assessee would automatically spill over to the succeeding years of contract period. The project development fee received by the assessee for the same, we hold, has been rightly apportioned over the period of the respective projects. We are in agreement with the ld.counsel for the assessee that since the project development fees apportioned to the subsequent year has also been returned to tax by the assessee in the said years, the department in any case has not been deprived of any tax. The decision of the Hon’ble apex court in the case of Excel Industries [2013 (10) TMI 324 - SUPREME COURT] referred to by the Ld.Counsel for the assessee before us, squarely applies in such circumstances requiring no addition to be made where the question merely relates to year in which income is to be subjected to tax and the Revenue has not been deprived due taxes on the said income . We see no reason to interfere in the order of the ld.CIT(A) deleting the addition made on account of taxing the entire project development fees received by the assessee during the impugned year itself. We may add here that since the Revenue has pleaded that the assessee has claimed benefit of TDS on the entire amount of project development fees received during the year, though the same has not been returned to tax in entirety during the year, we direct the AO to grant benefit of TDS in accordance with law. Claim of expenses with respect to certain projects against which no income was allegedly booked by the assessee - HELD THAT:- The case of the Revenue being that no income has been booked against the same, then the logical course of action was to determine whether the assessee failed to book income against the same or has not treated a particular receipt as income .The entire effort of the Revenue ought to have been to bring the concerned income to tax. In the absence of the same, the Revenue could not have been gone on to disallow the expenses incurred by the assessee, which otherwise admittedly were incurred wholly and exclusively for the purpose of business. For this reason alone, we agree with assessee that the disallowance made by the AO was rightly deleted by the ld.CIT(A). Even otherwise on facts, we find that the ld.CIT(A) has noted, that with respect to the Rajkot-Jamnagar project, the assessee had booked income also. This fact has not been controverted by the Revenue before us. Therefore, the very basis with the AO for disallowing the expenses incurred in relation to Rajkot-Jamnagar project does not survive, and the ld.CIT(A), therefore, we hold, has rightly deleted the disallowance of expenses relating to this project. Vis-à-vis the railway over-bridge(ROB) projects, CIT(A), we hold, rightly appreciated the contentions of the assessee that this work was carried out by the assessee for the benefit of the public at large without any assistance from the Government by way of grants. Revenue has not controverted this contention of the assessee that it carried out these projects without any assistance by way of grants from the Government or without any remuneration for the same. And as has been held by us above, the absence of any income against any expenditure incurred, would not invalidate the claim of expenditure, which otherwise has been undisputedly incurred wholly and exclusively for the purpose of business of the assessee. No reason to interfere in the order of the ld.CIT(A) deleting the disallowance of expenses incurred on projects. Addition made by the AO on account of unutilized grant - HELD THAT:- As in assessee own case for AY 2008-09 ITAT held that the said unspent grant could not be treated as income of the assessee.ITAT noted that in the said decision also the unspent grant, treated as income of the assessee by the AO, was rejected by the ITAT noting that the assessee was a mere nodal agency to implement certain schemes of the Government of Gujarat and the unspent grant remained property of the Government and had to be returned to the Government as and when demanded; that therefore, there was no question of treating the grant as income of the assessee - since the issue stands decided in favour of the assessee in earlier years by the ITAT, we see no reason to interfere in order of the ld.CIT(A), deleting the addition made on account of unspent grant. Addition being interest on deposit from GSFS - HELD THAT:- As evident the interest earned on surplus funds, was not freely available to the assessee so as to utilize it in the manner it desired and make profits out of it. In view of the same, the Gujarat Municipal Finance Board case [1996 (5) TMI 71 - GUJARAT HIGH COURT] will clearly apply to the present case and the interest received on the surplus funds by the assessee, therefore, cannot be treated as income of the assessee.The addition therefore made to the income of the assessee by treating the interest on surplus funds as income of the assessee is directed to be deleted. Ground no.1 of the assesses appeal is allowed. Issues involved:1. Treatment of unspent grants as income.2. Taxation of project development fees.3. Taxability of interest on deposits with GSFS.4. Disallowance of expenses for projects with no corresponding income.Summary:1. Treatment of Unspent Grants as Income:The Assessing Officer (AO) treated unspent grants received by the assessee from the State Government as income. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, and the Tribunal upheld this decision, referencing prior ITAT rulings that unspent grants are not income but remain the property of the government.2. Taxation of Project Development Fees:The AO taxed the entire project development fees in the year of receipt, disagreeing with the assessee's method of spreading it over project periods. The CIT(A) supported the assessee's method, noting that the fees were for services rendered over multiple years. The Tribunal upheld the CIT(A)'s decision, emphasizing that the fees were rightly apportioned over the project period and that the Revenue was not deprived of taxes as the fees were taxed in subsequent years.3. Taxability of Interest on Deposits with GSFS:The AO treated the interest earned on deposits with Gujarat State Financial Services (GSFS) as income. The CIT(A) upheld this addition. However, the Tribunal reversed this decision, relying on precedents from the Gujarat High Court, which held that interest on surplus grants, directed to be deposited by the State Government, does not constitute income for the assessee.4. Disallowance of Expenses for Projects with No Corresponding Income:The AO disallowed expenses for projects without corresponding income. The CIT(A) allowed part of these expenses but upheld disallowance for others, such as the Bhuj-Nakhatrana project. The Tribunal ruled that expenses incurred wholly and exclusively for business purposes should be allowed, regardless of corresponding income, and directed the deletion of the disallowed expenses.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, ensuring that unspent grants were not treated as income, project development fees were correctly apportioned, interest on GSFS deposits was not taxable, and all business-related expenses were allowed irrespective of income generation.