TaxTMI 
TaxTMI 
2021 (1) TMI 26
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....by this consolidated order. 2. The grounds of appeal taken by the Revenue and the assessee in their respective appeals/cross-objections for each of the impugned assessment years are as follows: ITA No. 375/JP/2019 A.Y 2010-11 (Assessee's appeal): "1. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the action of ld. AO in completing the assessment without following the directions of Hon'ble ITAT in properly. Appellant prays order so passed by ld. AO is without jurisdiction and deserves to be held bad in law. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has further erred in confirming the action of ld.AO of treating interest receipts of Rs. 2,40,27,526/- as 'income from other sources' by placing reliance on order passed by him for A.Y. 2012-13 arbitrarily. Appellant prays that all the case laws relied upon by ld.CIT(A) while passing order for A.Y. 2012-13 are distinguishable so far as in all the cited cases, excess funds were parked in FDRs at the behest of assessee, where in the instant case funds were kept in FDRs under business compulsions, thus the order passed by ld.CIT(A) de....
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....as generated on the toll receipts, it is therefore prayed that such business income deserves to be treated as Business income." ITA No. 750/JP/2018 A.Y 2012-13 (Revenue's appeal): "1. Whether in the facts and in the circumstances of the case, the CIT(A) was justified in allowing the claim of depreciation of Rs. 24,06,59,534/- on public roads treating the same as building which is not permissible in law as the ownership right to the public roads does not vest with the assessee for claiming depreciation u/s 32? 2. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of depreciation of Rs. 6,86,787/- @ 60% on EDP equipment treating the same as the computer equipments which was classifiable under the head plant and machinery wherein depreciation is @ 15%? 3. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of deduction u/s 801A of Rs. 29,79,993/- on sale of scrap which is not income from business eligible for deduction u/s 801A? 4. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the disallowance....
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.... in the circumstances of the case, the CIT(A) is justified in allowing the claim of expenditure of Rs. 1,81,229/- on account of payment of PF and ESI contribution beyond the due dates relying upon the High Court's judgments passed in the case of CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd 265 CTR 5999 DTR 131 (Raj.) and CIT vs. JVVNL 265 CTR 62 which is not justifiable as the similar payments should be deposited on the due dates specified by the Govt. for the same purpose?" CO No. 27/JP/2018 A.Y 2013-14 (Assessee's cross objection): "1. On the facts and in the circumstances of the case the Ld. CIT (A) has grossly erred in confirming the action of ld.AO in treating the interest income of Rs. 4,17,41,267/- earned from the business activities of the assessee company as income from other sources without appreciating the nature of income, thus the same deserves to be hold as Business Income. 1.1 That, ld. CIT(A) has further erred in confirming the action of ld.AO in treating interest receipts as "Income from other Sources" by completely ignoring the fact that such interest receipts were incidental to and integral part of business receipts of the assessee in as ....
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....ssee in as much as the source of term deposits on which interest was generated is the toll receipts only and these deposits are on account of temporary surplus of business receipts due to time difference between toll receipts and incurring if expenditure/ liabilities. Therefore, the action of Ld. AO deserves to be held bad in law and the interest received by assessee deserves to be held as its business income." ITA No. 1075/JP/2019 A.Y 2014-15 (Revenue's appeal): "1. On the facts and in the circumstances of the case, whether the Ld. CIT(A) was justified in holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962? 2. On the facts and in the circumstances of the case, whether the Ld CIT(A) was justified in directing the AO to consider income from scrap of sale amounting to Rs. 49,98,366/- for the purpose of allowing deduction u/s 801A of the Act without appreciating that the word "derived from" used in the said decision has narrower connotation and does not include sources of income beyond the first degree as held by the ....
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....AO was unwarranted and deserved to be deleted. 1.2. That, the ld.CIT(A) has further erred in not considering the alternative plea of assessee that if at all disallowance was to be confirmed, the same ought to have been u/s 36(1)(iii) and not u/s 14A of the Income Tax Act, 1961 as interest expenses were not incurred in relation to any exempt income. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has further erred in confirming the action of ld.AO in treating the interest receipts of Rs. 15,52,14,900/- as 'income from other sources' not eligible for deduction u/s 80IA of the Act, by completely ignoring the fact that assessee has already excluded the said income while claiming deduction u/s 80IA thus, further disallowing the same tantamounts to double addition therefore, deserves to be deleted. 3. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in confirming the disallowance to the extent of Rs. 25,00,00,000/- out of disallowance made by ld.AO (by holding the mandatory periodic overlay as contingent liability) of Rs. 36,33,00,000/-. Appellant prays that provision of liability of mandatory periodic ove....
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....mount and the assessee cannot be penalized for such inadvertent error where it has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act. It was accordingly submitted that the modified grounds of appeal may be admitted and necessary relief may be granted to the assessee by directing the Assessing Officer to delete the said disallowance while working out the deduction u/s 80IA of the Act. 7. Per contra, the ld. CIT/DR submitted that it is a settled position that interest receipts should not qualify for deduction u/s 80IA of the Act and the same is the consistent position which has been adopted by the Assessing Officer for all these years. As regards the submission of the ld. AR that the assessee already disallowed the interest receipts for working out the book profit for calculation of deduction u/s 80IA of the Act and there should not be any further disallowance, it was submitted that the said fact need verification and the Revenue has no objection where the matter is set aside to the file of the Assessing Officer for necessary verification. 8. We have heard the rival contentions and perused the material available on record. During the ....
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.... business of the assessee. In support, reliance was placed on Hon'ble Supreme Court decision in case of Liberty India v. CIT [2009] 183 Taxman 349 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). It was accordingly submitted that no deduction may be allowed to the assessee u/s 80IA in respect of income from sale of scrap and insurance receipts as the same are not derived from the business of maintaining and operating the highways. 12. Per contra, the ld. A/R submitted that the scrap has been generated in the normal course of business of operation and maintenance of the toll highway and is a normal business transaction which in any case could not be held as non-business receipt. The scrap include the metal crash barriers, pedestrian guard rails etc. which are fixed on the toll road and got damaged in the accidents which had taken place and being no more worthy of usage as such has become scrap. Had there been no business of operating and maintaining of the toll highway, there would be no question of generation of any such scrap, thus the income from sale of scrap is normal business income and therefore is eligible for deduction u/s 80IA. With regard to the insuranc....
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....ar ground of appeal has held as under:- "14.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT (A) while deciding the issue has given the following finding of fact :- "9.3. I have carefully considered the findings of the AO as also the submission of the appellant. It may be noted that the income from sale of scrap amounting to Rs. 766589/- and receipt on account of unclaimed security deposit amounting to Rs. 140300/- was not considered for deduction u/s 80IB of IT Act by the AO by holding that such income was not from the eligible business. In this connection it may be noted that as regards the sale of scrap the scrap was generated from the normal course of business and it is also fact that as and when the items from which such scrap was generated were purchased, the expenses on such purchases was claimed in the P & L A/c. It may be mentioned that it is not a case of independent purchase and sale of scrap item and it is a case where such scrap items were generated from the same business on which deduction u/s 80IB is claimed. Therefore the receipt of Rs. 766589....
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....ord by the lower authorities to controvert the above submission of the assessee Thus we agree that the above sale of scrap was intimately connected with the business of developing operating and maintaining infrastructure facility and income from such sale goes on to reduce the expenditure of developing the infrastructure facility and truly speaking the same is not an independent income to the assessee. We therefore, delete the disallowance of deduction u/s.80-IA in respect of the sale of scrap and allow this part of the ground of the assessee." 16. In light of aforesaid discussions where the matter has already been examined by the Coordinate Bench in the earlier year in assessee's own case, and the fact that the Revenue has not challenged the same before the Hon'ble High Court, and in absence of any change in the facts and circumstances of the case and following the consistent view taken by other Benches of the Tribunal, we donot see any basis to interfere with the earlier decision taken by the Coordinate Bench in assessee's own case, where one of us was also a party. We accordingly direct the Assessing officer to allow claim of deduction u/s 80IA on such scrap sale receipts for....
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....une of Rs. 11.33 Cr for both the assessment years and disallowed Rs. 25.00 crores in AY 2015-16. Now the department is challenging the relief given by Ld. CIT(A) and the assessee against the addition sustained by the ld CIT(A). 21. In this regard, the ld A/R submitted that Contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain future event such as the outcome of a pending law suit. These liabilities are not recorded in company's accounts and shown below line in the balance sheet as footnote whereas in the instant case, provision has been made to cover up expenses that will have to be necessarily incurred in future. There was no uncertainty as to whether such expenses will be incurred or not, it is just that quantum of expense could not be estimated with 100% accuracy as the same will depend upon extent of deterioration and rapidly of deterioration in the riding quality of pavement. With what rapidity it deteriorates, to what extent and periodicity it requires resurfacing in order to give smooth riding quality to the toll paying road users, is a function of the volume of traffic, the loads carried by the traffic and the d....
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....y and also since it is ascertained liability, the Company has charged the equivalent amount to its Profits and debited it to the P&L Account. Such retention of funds is a business necessity rather than expense for earning other income and thus the provision made towards the surface renewal coat being ascertained liability deserves to be allowed as claimed. It is also a matter of fact that the expenditure towards the second periodic overlay for the first time was provided in AY 2011-12 and the same was allowed as claimed in all the assessment years beginning from A.Y.2011-12 till 2013-14, after making necessary verification in the assessment proceedings concluded u/s 143(3) of the Income Tax Act, 1961. Since facts and the circumstances as existed in earlier assessment years remained the same in the years under appeal thus as principle of consistency, the same should be allowed in both of the assessment years. 24. It was submitted that though each and every assessment year is independent year and principle of res judicata does not apply to assessment proceedings, however some sort of consistency is required while finalizing the assessment to ensure uniformity. The rule of judicial....
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.....Y.2010-11 to F.Y.2013-14 on the basis of estimated expenditure @ Rs. 11,33,00,000/- every year, i.e. aggregating Rs. 45,32,00,000/-. However, in A.Y.2015-16, on the basis of actual examination of sites, actual expenditure was estimated at much higher amount, thus total provision for such outlay in 5th year was revised to Rs. 81,65,00,000/- and accordingly, balance estimated expenditure was claimed in AY 2015-16 which comes to Rs. 36.33 cr. But in FY 2015-16, when the surface renewal coat was carried out, the amount of actual expenditure was incurred at Rs. 1,45,50,86,247/-, i.e. provision already made fell short by Rs. 63,85,86,247/-, which amount was charged to Profit & Loss a/c for the year ending 31.03.2016 and was allowed in the assessment completed u/s 143(3) of the Act. Here it is relevant to state that ld. AO has not allowed the amount of provision made in earlier years which stood disallowed and this has resulted into non-allowance of the expenditure incurred on the periodic overlay to the extent of the disallowance made in AY 2014-15 and 2015-16. 27. In view of above, it was submitted that provision made by assessee is to meet out cost of renewal of pavement to be incu....
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....ssessee, was to be done after every 5th year in view of the Concessionaire Agreement executed with NHAI. The assessee has treated the same as ascertained liability and has claimed the same in its P & L account. In the assessment order, the AO has disallowed the same as the provisions was not made on scientific basis and considered the same as contingent liability. The ld. CIT(A) has deleted the disallowance by considering the provision so made by the assessee as ascertained liability. 32. In this regard, it was submitted that in the case of Rotork Controls India (P.) Ltd. Vs CIT [2009] 180 Taxman 422 (SC), the Hon'ble Apex Court has considered the various judicial pronouncements and held as under: "A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized." 33. It w....
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....t year itself and it cannot be postponed to the 5th year. Further, if in the fifth year, the roughness value is less than 3500 mm/km for that particular stretch of 10 kms which got renewal coat in the earlier year, then as per the above clause (ii), the renewal coat is not required for that stretch of 10 kms in the 5th year. It may be mentioned that in Note 31 to the balance sheet for the year ending on 31.03.2012 i.e. for AY 2012-13 as appearing, it has been stated as under: "31 Provision for Second Periodic wearing course overlay:As per concession Agreement entered into by the company with National Highways Authority of India, Company has to renew bituminous concrete coat of the Road every 5 years. Next such renewal is to be undertaken during financial year 2014-15. As per Accounting Standard - 29(AS 29), "Provisions, Contingent Assets", cost of overlay of Bituminous Concrete to be made in Financial Year 2014-15, as required by Operation and Maintenance Requirements is estimated at Rs. 56.64 Crore and 1/5th of the same i.e. Rs. 11.33 Crore (Previous Year: Rs. 11.33 Crore) is provided for the year." Thus, it appears that while making provision for overlay, the entire l....
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.... and even where the action so taken by the Revenue is upheld, whether it will have any impact on the taxable income in the hands of the assessee. Secondly, the interplay between the principle of consistency and principle of res judicata in the facts and circumstances of the present case. Thirdly, whether the provision so made towards second periodic wearing course overlay of the Toll road is in the nature of ascertained liability or not. 41. It is an admitted and undisputed fact that the assessee is eligible for deduction u/s 80IA(4)(i) of the Act in respect of income derived from operating and maintaining of the highway and the said claim of deduction has been made by the assessee company in its return of income and which has been duly allowed by the Assessing officer for A.Y 2014-15 and A.Y 2015-16. In its profit/loss account, the assessee company has debited a sum of Rs. 11,33,00,000/- towards provision for second periodic wearing course overlay of the BOT road as per clause 4.5.1 of Schedule L of the Concessionaire Agreement executed with NHAI. The Assessing officer has disallowed the same while determining the income under the regular provisions holding that the basis of es....
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....y held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: • Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court.' • Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court. (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assess....
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.... 43. The assessee has provided for the provision for second periodic wearing course overlay for the first time during the financial year 2010- 11 relevant to assessment year 2011-12 and in its financial statements for the year ended on 31.03.2011 has made the following disclosure and the contents thereof reads as under: "Provision for Second Periodic wearing course overlay: As per concession Agreement entered into by the company with National Highways Authority of India, Company has to renew bituminous concrete coat of the Road every 5 years. Next such renewal is to be undertaken during financial year 2014-15. As per Accounting Standard - 29(AS 29), "Provisions, Contingent Assets", cost of overlay of Bituminous Concrete to be made in Financial Year 2014-15, as required by Operation and Maintenance Requirements is estimated at Rs. 56.64 Crore and 1/5th of the same i.e. Rs. 11.33 Crore (Previous Year: Nil) is provided for the year." 44. Similar provision of Rs. 11.33 Crores has been made during each of the subsequent financial years relevant to A.Y 2012-13 and A.Y 2013- 14 and in its return of income for each of these three assessment years, the assessee has claimed th....
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....indings of the Assessing officer, we note that there is no finding recorded by the Assessing officer that the nature of provision so made by the assessee company is different from the past years or not flowing from the requirements of the concessionaire agreement executed with NHAI. Even the report of the independent Consultant was obtained in the first year where it had estimated the total cost of Rs. 56.64 crores which has therefore formed the basis for spreading the total cost equally across five years. We therefore failed to understand that where the provision for periodic wearing course overlay has been accepted all these years as an ascertained liability, then on what basis, the said provision is treated as a contingent liability for A.Y 2014-15 and A.Y 2015-16. Interestingly, even for these two assessment years, while the Assessing officer has treated the provision as a contingent liability while computing income under the regular provisions however at the same time, has not made any adjustment to the book profits towards such provision as "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities" which again bring out th....
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....ing the roughness of the expressway at 2500mm/km is a mandatory clause and the appellant company has to relay the surface every 5 years which is an ascertained liability. The estimation of the liability was made by the expert committee at Rs. 56.64 crores and the provision has rightly been created at Rs. 11.33 crores per annum and has rightly been allowed till A.Y 2013-14. Accordingly, the appellant company is liable to get the benefit of ascertained contingent liability at Rs. 11.33 crores as claimed. Accordingly the addition of Rs. 11.33 crore is deleted and the appellant's ground of appeal on the issue is allowed." 47. We also find that as per the concessionaire agreement executed with NHAI, the assessee company is required to maintain the highway in traffic worthy condition through regular maintenance and preventive maintenance of the highway and it has been provided that MOST Manual for maintenance of roads and IRC-SP-35-1990 guidelines for inspection and maintenance of bridges shall be followed by the assessee company. And as part of the maintenance requirements, periodic maintenance of pavement has been specifically provided and we deem it appropriate to refer to the rele....
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....from IRC/MOST standards and specification for each of the performance indicators covered under pavement condition survey, roughness and BBD reflections and where such criteria is not specified, the assessee company is required to adhere to international standards or sound pavement maintenance practices in consultation with Independent consultant. In respect of riding quality of pavement, it has been specifically provided that the assessee company is required to maintain Surface roughness which shall not exceed 3500 mm/km during the service life of pavement at any time and a renewal coat of 25 mm of bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km. We therefore find that the assessee company has to maintain the pavement riding quality by way of roughness meeting the minimum standards throughout the service life of the pavement and the same is clearly emerging from the operation and maintenance requirements of the concessionaire agreement executed by the assessee company with NHAI and we don't see any infirmity in the findings of the ld CIT(A) wher....
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.... Total Rs. 448,683,375 Estimated Cost of 25mm Thick Bituminous Concrete in 2015 S. No. Description Unit Qty Rate Amount 1 Bituminous Concrete Cum 61270.43 8841 541,691,891 2 Tack Coat Sqm 2450817.29 10.1 24,753,255 Total Rs. 566,445,146 49. We therefore find that the Independent consultant has taking into considerations the standards so set in the concessionaire agreement and the length of the highway has estimated the total cost. The Assessing officer has rejected the said estimation holding that the basis of estimation of such cost of overlay expenses is not done on a scientific basis. We find that once the consultant has taken into consideration the standards of roughness as so specified in the concessionaire agreement which is in turn are based on international and other benchmarks so specified for the pavement riding quality standards, the basis of estimation is clearly based on well laid down standards and the method of evolution of such standards over the period of time and as they stood today is clearly a long drawn process of reasoning an....
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....ision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation." 50. In the instant case, the assessee company has a present obligation arising out of the concessionaire agreement executed with NHAI to maintain the highway in traffic worthy condition through regular and preventive maintenance of the highway and which mandatorily requires it to maintain the pavement riding quality by way of roughness meeting the minimum standards throughout the service life of the pavement, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate has been made based on report of an independent consultant. Our view is further fortified by the decision of the Hon'ble Rajasthan High Court in case of Udaipur Mineral Development Syndicate (P.) Ltd. Vs Deputy Commissioner of Income-tax [2003] 129 Taxman 728 (Rajasthan) wherein the Hon'ble Rajasthan High Court was pleased to held as follows: "5. Heard learned counsel for the parties. The submissions made before the CIT(A) in writing reads as under :- "It is submitted that....
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....esaid discussions and in the entirety of facts and circumstances of the case, the matter is decided in favour of the assessee and against the Revenue. In the result, ground of Revenue's appeal for A.Y 2013-14 and A.Y 2014-15 are dismissed and ground of assessee's appeal for A.Y 2015-16 is allowed. Disallowance u/s 14A/36(1)(iii) for A.Y 2012-13 to A.Y 2015-16 52. This ground is relevant for A.Y 2012-13 & 2013-14 wherein the Revenue is in appeal against the findings of the ld. CIT(A) and for A.Y 2014-15 and 2015-16 where there are cross appeals filed by the Revenue and the assessee against the order ld. CIT(A). 53. Briefly stated facts of the case are that during the F.Y 2011-12 relevant to A.Y 2012-13, the assessee company has made an application for allotment of 13.30% Non-cumulative redeemable preference shares of M/s GVK Airport Developers (P) Ltd., a group company and has paid an amount of Rs. 940.80 crores as shares application money for allotment of 940,800 shares having a face value of Rs. 10,000/- per share. Separately, the assessee company has taken a loan of Rs. 950 crores from IDFC Bank carrying rate of interest of 12.98% on Rs. 650 crores and 12.75% on Rs. 300 ....
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.... exempt income credited to profit and loss account, the disallowance of interest expense in relation to investment in share application money cannot be made. It was submitted that there is no possibility of earning exempt income from share application money and in fact, no income has been received and credited to the profit & loss account in the relevant financial year and therefore, the interest expenditure on account of investment in share application money cannot be added back for the purpose of computing book profits u/s 115JB of the Act. 55. The submission so filed by the assessee were considered but not found acceptable to the Assessing Officer. As per Assessing Officer, the intention of the assessee is clear right from time of making the share application money that it was for the purpose of investment and such investment have been made after discussion and agreement with the investee company which was also a group/fellow subsidiary of the assessee company. The assessee has itself submitted that it has paid interest of Rs. 43,37,48,347/- during the year under consideration on the loan taken from IDFC Bank which has been utilized for making investment in the share applicat....
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....ings, the assessee is not in appeal before us. The Revenue is in appeal before us challenging the action of ld. CIT(A) in deleting the disallowance u/s 14A read with Rule 8D. 57. Further, during the appellate proceedings before the ld CIT(A), the assessee company took an additional ground of appeal challenging the action of the Assessing Officer in making addition of Rs. 43,37,48,247/- to the book profit u/s 115JB explanation (1) clause (f) by invoking the provisions of section 14A of the Act. The ld. CIT(A) admitted the said additional ground of appeal holding that the same was a legal ground and arising from the order of the Assessing officer. The ld CIT(A) held that since the addition made u/s 14A is deleted, the ground has becomes infructuous. 58. In respect of financial year 2012-13 relevant to A.Y 2013-14, similar fact pattern and findings of the Assessing Officer as well as of the ld. CIT(A) exist except for the variation in the quantum of disallowance of interest expense on loan amount utilized towards payment of share application money which stood at Rs. 1,19,06,05,811/- as compared to Rs. 43,37,48,247/- in A.Y 2012-13. The amount continue to remain invested as share....
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.... share application money. The Assessing officer held that a sum of Rs. 1,15,92,95,718/- is directly attributable to the exempt income which was added back invoking provisions of section 14A and the book profits for the purposes of MAT were correspondingly increased with the said amount of Rs. 1,15,92,95,718/- as per provisions of explanation 1(f) to section 115JB(2) of the Act. On appeal, the ld. CIT(A) though considered the decision of his predecessor for A.Y 2012-13 but did not agree to the same and disallowance was sustained u/s 14A of the Act. The ld. CIT(A) stated that during the assessment proceedings, the assessee has taken the plea that the amount raised by way of loan has been invested as strategic investment in the group company. However, during the appellate proceedings, the assessee has claimed that it is a strategic investment to have controlling stakes in the group company to further its own business interest is far from the truth. However, during the appellate proceedings, the assessee has taken an alternate plea that interest expenditure is not related to the business of the company and hence, is disallowable u/s 36(1)(iii) of the Act. It was held by the ld. CIT(A) ....
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.... be made without resorting to the section 14A of the Act. 60. In respect of financial year 2014-15 relevant to A.Y 2015-16, similar fact pattern and findings of the Assessing Officer as well as that of ld CIT(A) exist except for the variation in the quantum of disallowance of interest expense on loan amount utilized which stood at Rs. 1,11,92,41,369/- and the fact that during the financial year, the investee company has finally issued preference shares to the assessee company. However, there is no change in the fact that no dividend income has accrued or received by the assessee company and which has been claimed exempt in the return of income. The AO made the disallowance invoking the provisions of section 14A and also made the corresponding addition to book profits u/s 115JB(2). On appeal, the ld CIT(A) sustained the disallowance u/s 14A and regarding computation of book profits under clause (f) of Explanation 1 to section 115JB(2) held that the same is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Rules 1962. Against the said order of the ld. CIT(A), the assessee is in appeal challenging the sustenance of disallowance u/s 14A....
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....der section 154, for any assessment year beginning on or before the 1st day of April, 2001." 63. It was submitted that the heading of section 14A, i.e. "Expenditure incurred in relation to income not includible in total income" itself presupposes existence of exempt income, and then only a particular expenditure can be treated as incurred "in relation to" such income. It is thus a matter of law and fact both that certain incomes are not to be included while computing the total income as these are exempt under various provisions of the Finance Act. Further, books of accounts are usually prepared and consolidated by the assessee after balancing the entire income earned (whether taxable or non-taxable) and expenditure incurred by it in a particular financial year. However, as per Income Tax Act, expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. Section 14A was, therefore inserted by the Finance Act, 2001 with retrospective effect from 1st April 1962 clarifying that this was the intention of the legislature from the inception of the Income Tax Act. Section 14A deals with expenses incurred by a person to earn exempt income. Such ....
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.... for were of group company, allotment of shares was certain. In this regard, it was submitted that it is undisputed fact that assessee has made investment in "Share application money" against which no shares have been allotted till the balance sheet date. Further, a shareholder is only entitled to receive dividend and not a share applicant. Further, whether an investee Company is a Group company or otherwise, it has a separate legal identity than Investor Company and share applicant remains "applicant" and does not become shareholder, so as to be entitled to claim dividend. In fact, Companies Act does not contain separate provisions in respect of status of share applicant being related concern. Thus, by no stretch of imagination, share application money can be treated equivalent to investment in shares, which would result into exempt income. It is only after allotment of shares that assessee becomes eligible to receive dividend, thus, no disallowance is called until the shares are actually allotted to the assessee and that too only when there is dividend income from such shares. In support, reliance was placed on following decisions: • ACIT vs Acron Developers (P) Ltd.....
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....th retrospective effect from 01.04.1962. The purpose for introduction of section 14A with retrospective effect since inception of the Act was clarified vide Circular No. 14 of 2001 as under: "Certain incomes are not includible while computing the total income, as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non- exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income". Thus, legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be consi....
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....e of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year." 71. We also note that similar view has been taken by the Hon'ble Delhi High Court in its subsequent decision in case of PCIT vs OIL Industries Development Board [2019] 103 taxmann.com 325 (Delhi) wherein it was pleased to held as under: "3. The ITAT relied upon the ruling of this Court in Cheminvest Ltd. v. CIT [2015] 378 ITR 33 which ruled in the absence of any exempt income, disallowance under Section 14-A of the Act of any amount was not permissible. Since the decision in Cheminvest Ltd. (supra) was followed, there is no substantial question of law that requires consideration." And the SLP filed by the Revenue against the said decision of the Hon'ble Delhi High Court has since been dismissed by the Hon'ble Supreme Court in case of PCIT vs OIL Industries Development Board (2019) 262 Taxman 102(SC). Similar view has been taken by the Hon'ble Mumbai High Court in case of PCIT vs Ballarpur Industries Limited (ITA No. 51 of 2016 dated 13.10.2016) wherein the Hon'ble Mumbai ....
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....ey for A.Y 2012-13 to A.Y 2014-15 and even for A.Y 2015-16 where the shares were finally allotted, there was no dividend income which has accrued and claimed exempt, the provisions of section 14A cannot be invoked. In the result, the findings, of the Assessing officer for all the years under consideration as well as of the ld CIT(A) for A.Y 2014-15 & 2015-16, in so far as invocation of section 14A is concerned, are set-aside. 73. Having said that, the fact of the matter remains that the assessee company has taken a loan of Rs. 950 crores from IDFC Bank carrying rate of interest of 12.98% on Rs. 650 crores and 12.75% on Rs. 300 crores and which has been utilized for making the payment towards the share application money of Rs. 940.80 crores. On such borrowings, the assessee has incurred interest expenditure of Rs. 43,37,58,247/- in A.Y 2012-13 and Rs. 1,19,06,05,811/- in A.Y 2013-14. In its return filed for A.Y 2012-13 and A.Y 2013-14, while computing income under the head "Income from business/profession", the assessee company has suo- moto added back the said expenses debited under the head "interest and processing charges on loan taken for investment" and has thus not claimed ....
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....e investment of shares. In the way the interest to the extent paid on the loan taken from IDFC cannot be allowed as business expenditure. I, therefore, direct the Assessing Officer to disallow a sum of Rs. 43,37,48,247/- debited in the profit and loss A/c by invoking the provision of section 36(i)(iii) of the I.T. Act. This ground is therefore dismissed." 74. During the course of hearing, the ld A/R referred to the assessee's submissions dated 21.03.2018 filed before the ld CIT(A) and the contents thereof reads as under: "Without prejudice to our submission made with respect to the addition made u/s 14A on account of interest paid on the funds borrowed from IDFC which were applied in the share application money of M/s GVK Airport Developers Pvt. Ltd., it is further submitted as under: That the amount borrowed was since utilized in the share application money and not for the regular business activity of the assessee company therefore disallowance, if any, made the same should have been done by invoking the provision of section 36(1)(iii) as the interest paid on such advance and claimed in the Profit & Loss Account against the income from toll operation may not b....
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....ir jurisdiction to examine as to how the test of business expediency has been satisfied in the given case more so where the borrowed funds have been advanced to the group company for a reasonable long period of time without anything tangible benefit in return. In the instant case, only explanation which has been given simplicitier is that the investment so made is for strategic purposes and to our mind, the said explanation without elaborating as to how the same is strategic and in furtherance of business interest of the assessee company is not sufficient enough to satisfy the test of business expediency. Therefore, where the interest bearing borrowed funds have been invested in another group company which is not part of regular business activity of the assessee company or in any way in furtherance of its business activity, the ld CIT(A) has rightly invoked the provisions of section 36(1)(iii) of the Act by holding that interest paid on such advances and claimed in the Profit & Loss Account against the income from toll operation may not be considered as laid out for the business purposes of the assessee company. Similar finding has been recorded by the ld CIT(A) for A.Y 2013-14. We....
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.... facts and circumstances of the case and following the decisions referred supra, in the instant case, we set-aside the invocation of provisions of section 14A and uphold the invocation of provisions of section 36(1)(iii) for the purposes of making the disallowance of interest expenses debited in the profit/loss account for each of the respective assessment years i.e, A.Y 2012-13 to A.Y 2015-16 under appeal before us. 79. Now coming to the second issue as to whether resort to disallowances made under section 14A can be made while computing the books profits u/s 115JB of the Act. In the instant case, as we have held that provisions of section 14A cannot be invoked for the impugned assessment years and thus, no disallowance can be made u/s 14A of the Act, the question of resorting to disallowances made under section 14A doesn't arise at first place while computing the books profits u/s 115JB of the Act. 80. Further, we find that the matter is squarely covered in favour of the assessee company by the decision of the Special Bench of the Tribunal in case of Vireet Investments Pvt Ltd (supra) wherein it was held that computation under clause (f) of Explanation 1 to section 11....
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.... assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act." 84. Further, the ld. CIT/DR referred to the Co-ordinate Bench decision in case of ACIT, Kolkata vs Jay Shree Tea & Industries Ltd. (ITA No. 37/Kol/2017 dated 08.06.2018) wherein following the aforesaid decision of the Hon'ble High Court, it was held that though the disallowance made under provisions of section 14A cannot be applied to the provisions of section 115JB of the Act, at the same time, the Assessing Officer is still required to work out the disallowance in terms explanation (1) clause (f) independently after considering the expenses debited in the profit & loss account and the matter was remanded back to the file of AO to work out the disallowances under clause (f) of explanation 1 to section 115JB independently of pr....
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....ion 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962." 7.9 The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. 7.10 However, it is also pertinent to note that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon'ble Calcutta High Court in the case of CIT v. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 [ITAT No.47 of 2014, dated 19-11-14] wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- "We find computation of the amount of expenditure re....
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....ter considering the decision of the Hon'ble Kolkata High Court and taking into consideration the fact that there was no exempt income, it was held that no disallowance was warranted even independently u/s 115JB of the Act and the said decision squarely applies in the instant case and therefore, there should not be any disallowance u/s 115JB on a standalone basis even independent of section 14A of the Act. 87. We have heard the rival contentions and purused the material available on record. The Hon'ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has held that the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act is required to be determined independently as the same is a complete code in itself and considering the said decision, the Coordinate Ahmedabad Benches of the Tribunal in case of Asian Grantio India Ltd (supra) has held that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income, and drawing support from the principles laid down under normal provisions further held that the disallowance of the expenses c....
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....tition and the SLP so filed was dismissed. It was accordingly submitted that the matter has since been settled in favour of the assessee by the decision of the Hon'ble Supreme Court by dismissing the SLP filed by the Department against the order of the Hon'ble Jurisdictional High Court in A.Y 2010-11 in DB No. 142/JP/2017. It was submitted that the order of ld. CIT(A) for each of the years under consideration where he has followed the decision of the Hon'ble Jurisdictional High Court therefore deserve to be upheld and the appeal of the Revenue be dismissed. 91. Per contra, the ld. CIT/DR fairly submitted that the matter is covered in favour of the assessee by the decision of Hon'ble Rajasthan High Court in assessee's own case for the previous years and the SLP filed by the Department has been dismissed. On enquiry by the Bench, it was submitted that there is no review petition which has either been filed or pending for adjudication before the Hon'ble Supreme Court. At the same time, he supported the order and the findings of the Assessing Officer. 92. We have heard the rival contentions and perused the material available on record. The assessee company is engaged in construct....
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....14.6 Thus, on the first issue, we are in complete agreement with the view taken by the tribunal." 93. We therefore, find that the matter has been decided in favour of the assessee by the Hon'ble Rajasthan High Court where the depreciation claim on the Toll road has been held allowable at the rate of 10% as applicable to buildings. Further, the SLP filed by the Department has since been dismissed by the Hon'ble Supreme Court vide its order dated 07.09.2018. Therefore, in view of the admitted and undisputed position that there are no changes in the facts and circumstances of the case and the matter has been decided in favour of the assessee by the decision of the Hon'ble Rajasthan High Court for the earlier years and the SLP against the said decision stood dismissed by the Hon'ble Supreme Court, the matter has attained finality and therefore, should not be a subject matter of any further dispute by the Revenue. The matter is accordingly decided in favour of the assessee and against the Revenue. The grounds of appeal so taken by the Revenue for the respective assessment years are thus dismissed. Depreciation on EDP Equipments u/s 32(1) for A.Y 2011-12 to 2013-14 94. The Reven....
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....tional High Court therefore deserve to be upheld and the appeal of the Revenue be dismissed. 96. Per contra, the ld. CIT/DR fairly submitted that the matter is covered in favour of the assessee by the decision of Hon'ble Rajasthan High Court in assessee's own case for the previous years and the SLP filed by the Department has been dismissed. On specific enquiry by the Bench, it was submitted that there is no review petition which has either been filed or pending for adjudication before the Hon'ble Supreme Court. At the same time, he supported the order and the findings of the Assessing Officer. 97. We have heard the rival contentions and perused the material available on record. We find that the matter is squarely covered by the decision of the Co-ordinate Benches right from A.Y 2006-07 onwards wherein EDP equipment have been held as qualifying for depreciation @ 60% as against 15% applied by the Assessing Officer. Further, the Hon'ble Rajasthan High Court vide its order dated 10.10.2017 while dismissing the appeal filed by the Revenue was pleased to held as under:- "15. Regarding issue no. 2, the contention which has been raised that equipment which are attached wit....
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....erial available on record. The ld. CIT(A) has recorded a finding of fact that the assessee has deposited the employee's contribution towards PF/ESI before the due date of filing the return of income. The said finding of the ld CIT(A) remain undisputed before us. It is therefore an admitted fact that the entire amount was deposited by the assessee before the due date of filing of the return under section 139(1) of the Act, then in such a scenario, the amount cannot be disallowed under section 36(1)(va) of the Act as the due date referred to in section 36(1)(va) of the Act need to be read in conjunction with section 43B(b) of the Act. In case of Rajasthan State Beverages Corporation Ltd (supra), the Hon'ble Rajasthan High Court was pleased to held as under: "5. So far as the question relating to privilege fees amounting to Rs. 26.00 Crores in the instant year as well as the deduction of claim of Rs. 17,80,765/- on account of Provident Fund (PF) and ESI is concerned, this Court has extensively considered the aforesaid two questions in assessee's own case vide judgment and order dt.26.05.2016 referred to (supra) and has held that the privilege fees being a revenue expendit....