TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 151
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.... ON MERIT 2. Addition of Government Grants / Contribution of Rs. 179.08 Crores 2.1 On the facts and circumstances of the case, the said CIT(A) erred in confirming the addition of receipts of Government Grants / Support of Rs. 179.08 Crores based on Note No. 11(4) of Notes to Accounts, ignoring the fact that the said Grants are in the nature of "Capital Contributions" in compliance of Accounting Standard AS-12 as the same was contributed by the Government Authorities for development of road infrastructure in the State of Maharashtra. 2.2 Without Prejudice, the said CIT(A) erred in not reducing the said Grants received from the Government from the capital cost of the Road Projects and not allowing to amortize the net cost which is also clarified by the CBDT Circular no.9/2014 dated 23.04.2014. 3. Addition of Government Grants / Contribution Not Recognised in Books of Rs. 285.13 Crores 3.1 On the facts and circumstances of the case, the said CIT(A) erred in confirming the addition of Government Grants / Support of Rs. 385.13 Crores based on Note No. 11(4) of Notes to Accounts, ignoring the fact that the said Grants were not accounted....
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.... (i) Grants/ support received from government- Rs. 179.08 crores (ii) Grants/support due but not received from government -Rs. 385.13 crores (iii) Toll operation - Mumbai, Pune NH4 - Rs. 25.27 crores (iv) Toll operation - Thane GhodbandarRoad - Rs. 13.80 crores 3. Aggrieved the assessee filed further appeal before the Ld. CIT(A) who dismissed the appeal by confirming the additions made by the AO. Grants/ support received from government - Rs. 179.08 crores 4. In Note No.11(4) to Notes to Accounts the assessee has disclosed the following amounts as grants/ contributions from state government. Grants/contribution till 31.03.2006 - Rs. 1206.90 crores Less : grants/contributions till 31.03.2005 - Rs. 1027.82 crores Grants received during AY 2006-07 - Rs. 179.08 crores 5. The assessee submitted before the AO that the grants received are capital in nature and is a contribution made by the promoters through various government agencies for the development of cities, districts or locations as decided by the government. The assessee further submitted that since the contributions are received from the promoters the same is accounted und....
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....ove a sum of Rs. 17809 lakhs is brought to tax." 5.1. The Ld. CIT(A) confirmed the addition made by the AO. 6. The Ld. AR submitted that the PWD, Government of Maharashtra handed over few incomplete road projects to the assessee vide Government Resolutions (GR) with specific terms of contribution of funds by the state government along with other statutory authorities (page 312 to 363 of paper book). The Ld. AR further submitted that, the assessee accounted the projects taken over from PWD in its books as capital WIP and transfer the cost already incurred by the state government as capital reserve as being promoter's contribution in compliance with AS-12. The Ld. AR also submitted that, the assessee reduces the depreciation on completed projects from capital reserve every year as the assessee is not the owner of the road projects as the same is on Build-Operate-Transfer (BOT) basis. The Ld. AR argued that the contention of the revenue that the grants received after commencement of business are revenue in nature is not correct since the grants are paid by the state government in the capacity as promoter as a contribution towards development of infrastructure. Accordingly, the L....
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....ants provides that - (i) Many government grants are in the nature of promoters' contribution, i.e., they are given with reference to the total investment in an undertaking or by way of contribution towards its total capital outlay and no repayment is ordinarily expected in the case of such grants. These should, therefore, be credited directly to shareholders' funds. (ii) It is inappropriate to recognise government grants in the profit and loss statement, since they are not earned but represent an incentive provided by government without related costs. 9. The ld AR during course of hearing submitted that the grants/contributions received by the assessee being in the nature of promoters contribution is not repayable and is credited to the capital reserve account. Further the depreciation of the projects are credited to the capital reserve since the assessee is not the owner of the projects. From the perusal of these facts we are of the view that the grants/contributions by the state government are in the nature of investments made by the promoter i.e. the state government for infrastructure development and the assessee's role is that of contractor to ....
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....y capital receipt. In our considered view the said ratio should be applicable to the addition made by the AO on accrual basis towards the grants/contributions receivable from the government. Accordingly we hold that the grants /contributions receivable cannot also be treated as the income of the assessee. Accordingly we direct the AO to delete the addition made in this regard. Toll Operation - Mumbai-Pune NH4 and Thane GhodbandarRoad 14. On perusal of clause 20(a) and 20(b) of notes to accounts to annual report the AO notice that the assessee is awarded the contract for collection of toll operation, maintenance and improvement of Mumbai-Pune section of NH-4 with self-finance of contractor along with award of operation maintenance and toll collection rights on NH-4 for 15 years from August, 2004. The AO further noticed that the assessee has received a sum of Rs. 918 crores as net consideration towards the same. The AO also noticed that the assessee has disclosed the following accounting treatment in the books: 1. Rs. 1320.93 crores is shown as advance toll receipts which will be apportioned based on the cash flow for a period of 15 years included in contract. ....
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....Ld. DR further argued that the said method of taxing gross contract value in long term projects in well established and therefore, the lower authorities have correctly made the addition in this case. 18. We heard the parties and perused the material on record. We notice from perusal of the bidder agreement dated 04.08.2004 (page 132 of paper book) that the assessee is awarded the toll operation on maintenance of Mumbai-Pune section of NH-4 for a period of 15 years for a consideration of Rs. 918 crores. We further notice from the Notes to Accounts as extracted above that the assessee has grossed of the amount based on the estimated expenses to be incurred towards the maintenance and improvement of Mumbai-Pune section NH-4. We also notice that the assessee instead of showing the gross revenue and the expenses in the profit and loss account recognised the net consideration as per the agreement as income. The AO while completing the assessment has considered only the income grossed by the assessee but has failed to consider the cost estimated to be incurred towards maintenance and improvement. In view of this factual findings there is merit in the submission of the assessee that the....