TaxTMI 
TaxTMI 
2023 (9) TMI 940
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....y the Roads and Building department of the Government of Gujarat, under the BOT, BOOT or BOLT schemes or any other manner, and also to undertake projects outside Gujarat, develop and provide consultancy and construction services in connection with the infrastructure building activities. The main objects of the company for which it was established as noted in the Memorandum and Association of the company is reproduced hereunder: 3. The assessee was financed for the work to be carried out by it, from various sources, which included grants received from the State Government for the said purpose. In the assessment framed for the impugned year, the Assessing Officer (AO); * treated the unspent grants received by the assessee from the State Government relating to the impugned year as being in the nature of income of the assessee and made addition of the same to the income of the assessee. * Besides, he also noted that the assessee was receiving project development fees for various projects awarded by it to concessionaires. He noted, while framing the assessment, that the assessee had not accounted for the entire project development fees earned/accrued during the impu....
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....in ITA No.136/Ahd/2014. 6. Ground nos.1 & 2, it was common ground, related to the issue of 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 i.e. impugned year, and the ld.CIT(A), however, had upheld the claim of the assessee. The said grounds read as under: "1. The learned CIT(Appeals) has erred in law and on facts in deleting the addition made by the AO on account of project management fees of Rs. 41,12,03,380/- received by the assessee. 2. The Id. CIT(A) has erred in not considering the argument of the AO in as much as the entire TDS has been claimed while the corresponding income has not been offered by ignoring the mandatory provisions of Section 199 read with Rule 37BA(3). 7. The facts relating to the issue are that the assessee-company had received project development fees of Rs. 51.97 crores from three agreements, but had offered only Rs. 10.85 Crs. to be specific, Rs. 10,85,58,620/-, to tax in the impugned year. The details of the same are as under: i) Project Development fees - L&T, Ahmedabad Viramgam Malya 3,60,4....
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....tion to the finding of the ld.CIT(A) in this regard at para 5.1 of his order as under: "5.1 The appellant company has received Project development fee of Rs. 51.97 crores from 3 agreements as under: i. Project Development Fees -L&T, Ahmedabad Viramgam Malya 3,60,40,082 ii. Project Development Fees - L&T Ahmedabad-Halol Godhra 3,70,34,397 iii. Project Development Fees - L&T Ahmedabad-Rajkot Jamnagar 3,54,84,141 Total 10,85,58,620 The appellant company has offered Rs. 10,85,58,620/- (out of 51.97 crores) during the year under consideration for taxation. It has amortized the total amount of Rs. 51.97 crores over the entire period as mentioned in the concessionaire agreement i.e. 30 months. The appellant company has offered for taxation the balance amount of the proceeds received in subsequent years viz. AYs 2011-12 and 2012-13. In this respect, accounting policy following by the appellant is as per Sch.l4-Significant Accounting Policies. The appellant has submitted that it has consistently followed the accounting policy. Further the appellant has to incur expenses in the nature of cutting of trees , shifting of electric line....
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....ng years of contract period. Therefore, the project development fee received by the assessee for the same, we hold, has been rightly apportioned over the period of the respective projects. 13. Even otherwise, 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 (supra), 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 . 14. In view of the above, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made of Rs. 41,12,03,380/- on account of taxing the entire project development fees received by the assessee during the impugned year itself. 15. We may add here that since the Revenue has pleaded that the assessee has claimed benefit of TDS on the enti....
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....ttention to the explanation given to the ld.CIT(A) which was appreciated by the ld.CIT(A) also that in respect of railway over-bridge, i.e. ROB, the same was a small assignment to the assessee and has been undertaken to benefit the public at large and no grant was given by the Government for the same. The assessee, he stated, had to undertake the project for the welfare and benefit of the public at large. The ld.counsel for the assessee contended that it is not necessary that, against every incurrence of expenses there has to be commensurate income accruing to the assessee. He contended that the only condition to be fulfilled was that the expenses ought to have been incurred wholly and exclusively for the purpose of business, for qualifying as eligible business expenses as per section 37(1) of the Act. And that as long as the said conditions were met, the claim could not be denied for the reason that no income had accrued to the assessee against the expenses incurred. He heavily supported the order of the ld.CIT(A). 20. Further, with respect to the Rajkot-Jamanagar project, he drew our attention to the finding of the ld.CIT(A) to the effect that the assessee company had offered ....
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....e payment to such a fund which was openly made by all the millers and which fund was being used for public benefit could not be regarded as being opposed to public policy. Requiring payment to be. made for a just cause which would f.'-.;:. -.. entitle a businessman to obtain a licence or permit cannot he regarded as being against 'S'-vthe public policy. Any contribution made by an assessee to a public welfare fund which is directly, connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1). Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other Fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that m....
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....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 the ld.counsel for the assessee that the disallowance made by the AO was rightly deleted by the ld.CIT(A). 24. 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. 25. Vis-à-vis the railway over-bridge(ROB) projects, the ld.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 publ....
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.... of Sahny Steel & Press Works Ltd. Vs. CIT, 228 ITR 253 held that unspent grant to the tune of Rs. 39,51,15,000/- was to be treated as income of the assessee. 31. We have noted that the identical issue had come up before the ITAT in the case of the assessee itself in Asst.Year 2008-09 wherein , following the order passed by the ITAT in the case of Gujarat Safai Kamdar Vikas Nigam Vs. ACIT, ITA No.3232/Ahd/2008 dated 17.4.2009 and Gujarat State Disaster Management Vs. ACIT in ITA No.949/Ahd/2009 dated 5.6.2009,the ITAT held that the said unspent grant could not be treated as income of the assessee. The 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. 32. In view of the same, since the issue stands decided in favour of the assessee in earlier years by the ITAT, we see no reason to interfe....
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....er of income in the hands of the assessee. In this regard, he placed reliance on the decision of Hon'ble Gujarat High Court in the case of Gujarat Municipal Finance Board Vs. DCIT, 221 ITR 317 and our attention as drawn to the relevant portion of the order as under: Held, allowing the petition that the Board was not established to carry on trade or business and it was not established for one particular facet of development but looking to the Twelfth Schedule of the Constitution and Article 243W, the board acted for the State and on behalf of the State. The State Government had directed the Board to treat the interest as part of its grants-in- aid. Hence, even if there was a receipt, in view of the principles of diversion, this would not amount to income of the Board and therefore, the same was not taxable." 38. Reliance was also placed on the decision of the Hon'ble Gujarat High Court in the case of SAR Infracon P. Ltd., 42 taxmann.com 405 holding that interest earned on Central Government grants which were released, could not be taxed as income of the assessee, if conditions stipulate that interest so earned would form part of Central Government grant. 39. The ld.DR....
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....or the purpose of business it is not necessary that the expenditure must have result into income. No where the Id. AO nor Id. CIT(A) has held that the expenditure are not incurred for the purpose of business. And hence, it is respectfully submitted that the expenditure incurred for the purpose of project should have been allowed as deduction, as the expenditure is incurred for the purpose of business." 46. The issue relates to the expenses incurred on projects against which no income was earned by the assessee. The ld.CIT(A) had upheld the disallowance to the tune of Rs. 1.36 crores which related to the expenses incurred by the assessee on Bhuj-Nakhatrana Project and reasoning with the ld.CIT(A) was that there was no reason as to why the assessee would incur expenses without any commensurate income against the same earned. 47. We have already dealt with this aspect in the Revenue's appeal in ITA No.136/Ahd/2014 above at ground nos.3 & 4, wherein we have held that, as long as fact that the expenses were incurred wholly and exclusively for the purpose of business of the assessee is not disputed, the claim of the assessee cannot be denied for the reason that no income was earned....