ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHAN LTD,,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 668 to 670/JP/2019 fu/kZkj.k o"kZ@Assessment Year : 2011-12 to 2013-14 cuke M/s Road Infrastructure Development The ACIT, Vs. Company of Rajasthan Ltd. Circile-6, 1st Floor, LIC New Investment Building, Jaipur. Bhawani Singh Road, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCR 9953 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri P.P. Pareek (C.A.) jktLo dh vksj ls@ Revenue by : Shri K.C. Gupta (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 13/03/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 31/07/2020 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M. These are three appeals filed by the assessee against the respective orders of ld. CIT(A), Ajmer, dated 25.02.2019 for the assessment years 2011-12, 2012-13 and 2013-14 respectively. These appeals involving common issues were heard together and are being disposed off by this consolidated order.

ITA No. 668/JP/2019

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT “1. That the order passed by the Ld. Assessing Officer and Ld. CIT(Appeals), Ajmer, is bad in law as well as facts. 2. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer has wrongly considered Rs. 1,05,246/- as Income from Other Sources rather than reducing it from the capital cost of construction of roads, as per accepted accounting practices and decision of various authorities including decision of Hon'ble Supreme Court in the case of CIT Vs. Bokaro Steels Ltd. 336 ITR Page 315, as this amount pertains to prior to commercial operation of the road for which the amount was borrowed. 3. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in making disallowance of Rs. 1,00,000/- under Section 14A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at Rs. 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 4. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in considering Rs.1,50,35,287/- as Share Issue Expenses instead of Rs. 1,30,88,710/- and accordingly further erred in considering Rs. 97,95,483/- as Professional and Legal fees for IPO instead of Rs. 1,17,42,030/- 5. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in disallowing Share Issue Expenses of Rs. 1,50,35,287/- and adding back to the income, considering the same as capital expenditure and has also erred in not considering the plea of the Appellant to allow the said expenditure under section 35D of I.T. Act, 1961 . The appellant prays that in case of disallowance as revenue expenditure, then in the given case the conditions of Section 35D are fully satisfied and the appellant is entitled to claim 1/5th of the expenses incurred as revenue. 6. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has erred in disallowing Professional and Legal fees for IPO amounting to Rs. 97,95,483/- and adding back to the income, considering the same as capital expenditure and has also erred in not considering the plea of the Appellant to allow the said expenditure under section 35D of I.T. Act, 1961 .

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT The appellant prays that in case of disallowance as revenue expenditure, then in the given case the conditions of Section 35D are fully satisfied and the appellant is entitled to claim 1/5th of the expenses incurred as revenue. 7. That the ld. Assessing Officer has further erred in calculating the interest payable under Section 244A of the Income Tax Act, 1961 as Rs. 3,86,051/- instead of Rs. 4,41,202/- and ld. CIT(Appeals), Ajmer, has erred in dismissing this ground and not giving relief.” 3. Ground No. 1 is general in nature does not require any separate adjudication.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 6. During the course of hearing, the ld. AR submitted that the assessee had entered into a concessionaire agreement for development of different road stretches popularly known as “Mega Highway” connecting various national highways. Earlier seven road stretches were completed and the assessee is in the process of completing the remaining seven stretches during the year. It is submitted that once the appellant commenced commercial operations of a partial road stretch, the interest expenses on relatable borrowings and interest income on linked STR were taken to the Profit & Loss account and offered under the head income from business and profession. In respect of remaining road stretches which were under construction and upto the date of commercial operations, the total expenditure including the interest paid on borrowed funds net of interest income earned on STR inextricable linked to project cost is capitalized under the head Project work in progress (Capital work in progress ‘CWIP’). However, Learned Assessing Officer has not agreed to the treatment given for the interest earned.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT

course of course of assessment proceedings. It was further submitted that 7 roads stretches were earlier completed and remaining 7 roads stretches were under progress during the year in respect of which details are as under:-

“2. As on 31st March, 2011, the company was under the stage of implementation of 7 Road Projects after completing Seven (7) Mega Project Roads out of Fourteen (14) projects as per details hereunder.

(a) The details of completed seven road stretches are as under:

Date of commencement of Project Name Commercial Operations

(i) Phalodi to Pachpadra (PR-1) 15-Jun-07

(ii) Pachpadra to Ramji Ki Gol (PR-2) 28-Dec-07

(iii) Hanumangarh to Ratangarh (HK-1) 28-Feb-08

(iv) Ratangarh to Kishangarh (HK-2) 28-Feb-08

(v) Lalsot to Kota (LJ-1) 15-12-2008 and 08-11-2009

(vi) Baran to Jhalawar (LJ-2) 15-Apr-08

(vii) Alwar to Sikandra (AS) 31-Aug-08

(b) The details of remaining Seven (7) Road Stretches under progress during the year were as under:

Project Name

(i) Alwar To Bhiwadi (AB)

(ii) Hanumangarh To Sangaria (HS)

(iii) Jhalawar to Jhalawar Road (JJ)

(iv) Arjunsar To Pallu (AP)

(v) Kapren To Mangrol (KM)

(vi) Jhalawar to Ujjain (JU)

(vii) Khushkheda To KasoulaChowk (KK)

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 9. Per contra, the ld. DR has relied on the findings of the lower authorities and submitted that the matter is squarely covered by the decision of the Hon’ble Supreme Court in case of Tuticorin Alkali Chemicals & fertilizers Ltd. vs. CIT and further in absence of any evidence to show that interest was pertaining to the period prior to the period during which commercial production has commenced, the same has rightly been brought to tax by the AO. He accordingly supported the order of the lower authorities.

“2.10 We have heard the rival contentions and pursued the material available on record. We find that both the parties have relied upon the decisions of the Hon'ble Supreme Court and in addition, the assessee 6

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT has relied upon the decisions of Hon'ble Delhi High Court. Therefore, it would be appropriate to first refer to these decisions and some of the other recent decisions of Hon’ble High Courts and Coordinate Bench decisions. 2.11 In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), the Hon'ble Supreme Court held as under:— “The facts of this case were not in dispute. In the usual course, interest received by the company from bank deposits and loans would be taxable as income under the head Income from other sources' under section 56. It was argued on behalf of the company that it had not yet commenced its business and in any event if the income was derived from funds borrowed for setting up the factory of the company, it should be adjusted against the interest payable on the borrowed funds. Neither of the two factors can affect taxability of the income earned by the company the total income of the company is chargeable to tax under section 4. The Total income has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads. In the instant case, the company had chosen not to keep its surplus capital idle, but had decided to invest it fruitfully. The fruits of such investment will clearly be of the revenue nature. If the capital of a company is fruitfully utilised instead of keeping it idle, the income thus generated will be of the revenue nature and not accretion of capital Whether the company raised the capital by issue of shares or debentures or by borrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilising the borrowed funds as its income. 7

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT The company was at liberty to use the interest income as it liked it was under no obligation to utilise this interest income to reduce its liability to pay interest to its creditors. It could re-invest the interest income in land or shares, it could purchase securities, it could buy house property, it could also setup another line of business, it might even pay dividends out of this income to its shareholders. There was no overriding title of anybody diverting the income at source to pay the amount to the creditors of the company. It is well-settled that tax is attracted at the point when the income is earned Taxability of income is not dependent upon its destination or the manner of its utilisation. It has to be seen whether at the point of accrual, the amount is of the revenue nature and if so, the amount will have to be taxed. It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act. Whether a particular receipt is of the nature of income and falls within the charge of section 4 is a question of law which has to be decided by the Court on the basis of the provisions of the Act and the interpretation of the term 'income' given in a large number of decisions of the High Courts, the Privy Council and also this Court. It is well- settled that income attracts tax as soon as it accrues. The application or destination of the income has nothing to do with its accrual or taxability. It is also well-settled that interest income is always of a revenue nature unless it is received by way of damages or compensation.” 2.12 In the case of Bokaro Steel Ltd. (supra), the Hon'ble Supreme Court, after considering the decision of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), held as under:— “The activities of the assessee in connection with first three receipts were directly connected with or were incidental to the work of construction of its plant undertaken by the assessee. Broadly speaking, these pertained to the arrangements made by the assessee with its 8

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT contractors pertaining to the work of construction. To facilitate the work of the contractor, the assessee permitted the contractor to use the premises of the assessee for housing its staff and workers engaged in the construction activity of the assessee's plant. This was clearly to facilitate the work of construction. Had this facility not been provided by the assessee, the contractors would have had to make their own arrangements and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee had provided these facilities. The same was true of the hire charges for plant and machinery which was given by the assessee to the contractor for the assessee's construction work. The receipts in this connection also went to compensate the assessee for the wear and tear on the machinery. The advances which the assessee made to the contractor to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitches as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. In case money is borrowed by a newly-started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the assessee received any amounts which were inextricably linked with the process of setting up its plant and machinery, such receipts would go to reduce the cost of its assets. These were receipts of a capital nature and could not be taxed as income. The same reasoning would apply to royalty received by the assessee- company for stones, etc., excavated from the assessee-company's land. The land had been allowed to be utilised by the contractors for the purpose of excavating stones to be used in the construction work of the assessee's steel plant. The cost of the plant to the extent of such

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT royalty received, was reduced for the assessee. It was, therefore, rightly taken as a capital receipt.” 2.13 That the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), after considering the decisions in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and Bokaro Steel Ltd. (supra) at length, held as under:— “5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra ) is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head 'income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. 5.1 The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set-up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT See Mazagaon Dock Ltd. v. CIT & EPT [1958] 34 ITR 368 (SC), and Narain Swdeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure - then it cannot be held that the income derived by parking the funds temporarily with Tokyo Mitsubishi Bank, will result in the character of the funds being changed, inasmuch as, the interest earned from the bank would have a hue different than that of business and be brought to tax under the head 'income from other sources'. It is well-settled that an income received by the assessee can be taxed under the head "income from other sources" only if it does not fall under any other head of income as provided in section 14 of the Act. The head "income from other sources" is a residuary head of income. See S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) and CIT v. Govinda Choudhury & Sons [1993] 203 ITR 881 (SC). 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra) it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources' . On the other hand in Bokaro Steel Ltd.'s case (supra) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 6. There is another perspective from which the present issue can be examined. Under section 208 of the Companies Act, 1956 a company can pay interest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in sub- sections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 7. In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decision of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra ) in the facts of the present case. In our opinion on account of the finding of fact returned by the CIT(A) that the funds infused in the assessee by the joint venture partner were inextricably linked with the setting up of the plant, the interest earned by the assessee could not be treated as income from other sources. In the result we answer the question as framed in favour of the assessee and against the revenue. These appeals are allowed and the impugned judgment is set aside.” 2.14 That the Hon'ble Delhi High Court in the case of Sasan Power Ltd (supra) following the decision in case of Indian Oil Panipat Power Consortium Ltd. (supra), has held as under: “14. It is clear from the facts stated above that Commissioner of Income Tax (Appeals) and tribunal have specifically held that the interest income was on capital account. We have gone through the grounds of appeal and do not find any reason or justification to upset the said finding. The factual findings recorded by the CIT(Appeals) and tribunal are not under challenge. The CIT(Appeals) and the tribunal have held that in view of the factual position quoted above the decision

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT of the Supreme Court in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 / 102 Taxman 94 was applicable as the Commitment Advance, which had been paid to PFC. This is not a case of surplus funds, which were available and investment were made in fixed deposits to earn interest. The interest paid to the power procurement utilities on commitment advances was capitalized. Interest paid and interest received were inextricably linked and have a commonality about their nature and character. The appellant cannot treat them differently. Commitment Advances and interest paid and received had reference to bidding process and linked to the project/purpose for which the respondent was set up. In view of the factual matrix, interest received on unutilized commitment advances cannot be taxed as revenue income and interest paid on commitment advance treated as a capital expense. This will be contradictory. The entire expenditure for inviting bids etc. and even documentation was paid to PFC. The amounts received from the prospective bidders on account of sale of tender documents was also transferred to PFC. As noticed above, Revenue has not challenged and has accepted the order of the tribunal deleting addition of Rs. 1,35,81,234/-paid by the respondent-assessee to PFC for preparation of tender documents. In view of the factual matrix, the tribunal has rightly followed the ratio in Indian Oil Panipat power Consortium Ltd.'s case (supra).”

“4. We have heard the rival contentions and perused the material available on record. The issue under consideration for the both the years relate to treatment of the interest received prior to commencement of commercial operations of the specified mega road projects. As per the Revenue, the same is to be brought to tax under the head “income from other sources.” As per the assessee, it is in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head “Capital work in

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT progress” and the same cannot be brought to tax under the head “income from other sources.” The said issue has been examined at great length by the Coordinate Bench in its decision referred supra and therein the decision of the Hon’ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers (227 ITR 172) as well as decision in case of Bokaro steel Ltd (236 ITR 316) has been duly considered. The relevant findings of the Coordinate Bench in assessee’s own case in ITA No. 628/JP/2014 for A.Y. 2009-10 dated 11.08.2016 are reproduced as under: “2.18 From the above, it is evident that there are two sets of judgements of Hon’ble Supreme Court, proceedings on different lines of reasonings. The Hon’ble Delhi High court in case of Indian Oil Panipat Consortium Ltd. (supra) has considered and interpreted the decisions of Hon’ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers (supra) as well as Bokaro Steel Ld. (supra). After analyzing both the decisions of Hon’ble Supreme court, it held that ”the test which premeates through the judgement of the Supreme court in Tuticorin Alkali Chemicals & fertilizers Ltd’s case (supra) is that if funds have been borrowed for setting up of a plant and if the funds are ‘surplus’ and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head “Income from other sources”. On the other hand the ratio of the Supreme court judgement in Bokaro Steel Ltd.’s case (supra) to our mind is that if income earned, whether by way of interest or in any other manner on funds which are otherwise ‘inextricably linked” to the setting up of the plant such income is required to be capitalized to be set off against pre-operative expenses .” “2.19 The facts in the instant case are pari materia with the facts of the Indian Oil Panipat (supra) and the ratio decidendi of Hon’ble Delhi High Court in that case will squarely apply to the facts of the assessee. In the instant case, undisputedly, the funds have been borrowed for the specific purpose of execution of the mega road projects and as per the loan agreement executed between the consortium of bankers and the assessee dated 23.11.2005, all the disbursements shall be deposited in the trust and retention account which shall be subject to strict control and verification by the Senior lenders and all disbursements shall be utilised solely for the purposes of implementation of the project and no other purpose. The funds are thus inextricably linked to the setting up of the mega road projects and interest earned on such borrowed funds infused in the business could not be classified as income from other sources. We also note a distinguishing feature in the instant case that

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals & Fertilizers (supra) and the interest has to be used solely for the purposes of implementation of the specified projects only. The impunged interest receipt of Rs. 35,39,479/- on such borrowed funds relates to the mega road projects/stretches which were under construction and the completed road projects/stretches upto the date of commencement of commercial operations. Therefore, the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head “Capital work in progress” and the same cannot be brought to tax under the head “income from other sources”. Hence, ground no. 1 of the assessee is allowed.” 5. Undisputedly, there are no changes in the facts and circumstances of the case. No contrary authority has been brought to our notice subsequent to above decision of the Coordinate Bench or the fact that said decision of the Coordinate Bench has been stayed by the Hon’ble High Court. In view of the similar facts and circumstances of the case and respectfully following the decision of Coordinate Bench in assessee’s own case (supra), we hold that the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head “Capital work in progress” and the same cannot be brought to tax under the head “income from other sources”.

“2. Counsel for the appellant has framed the following substantial question of law:- “Whether in the facts and circumstances of the case and law the ITAT was justified in deleting the addition of Rs. 3,37,76,623/- made by the Assessing Officer on account of income from other sources ignoring the

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT fact that the assessee capitalized the interest income received from the FDR’s thereby reducing the cost of fixed assets.”

“4. We have heard the rival contentions and perused the material available on record. The issue under consideration for the both the years relate to treatment of the interest received prior to commencement of commercial operations of the specified mega road projects. As per the Revenue, the same is to be brought to tax under the head “income from other sources.” As per the assessee, it is in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head “Capital work in progress” and the same cannot be brought to tax under the head “income from other sources.” The said issue has been examined at great length by the Coordinate Bench in its decision referred supra and therein the decision of the Hon’ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers (227 ITR 172) as well as decision in case of Bokaro steel Ltd (236 ITR 316) has been duly considered. The relevant findings of the Coordinate Bench in assessee’s own case in ITA No. 628/JP/2014 for A.Y. 2009-10 dated 11.08.2016 are reproduced as under:

“2.18 From the above, it is evident that there are two sets of judgements of Hon’ble Supreme Court, proceedings on different lines of reasonings. The Hon’ble Delhi High court in case of Indian Oil Panipat Consortium Ltd. (supra) has considered and interpreted the decisions of Hon’ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers (supra) as well as Bokaro Steel Ld. (supra). After analyzing both the decisions of Hon’ble Supreme court, it held that ”the test which premeates through the judgement of the Supreme court in Tuticorin Alkali Chemicals & fertilizers Ltd’s case (supra) is that if funds

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT have been borrowed for setting up of a plant and if the funds are ‘surplus’ and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head “Income from other sources”. On the other hand the ratio of the Supreme court judgement in Bokaro Steel Ltd.’s case (supra) to our mind is that if income earned, whether by way of interest or in any other manner on funds which are otherwise ‘inextricably linked” to the setting up of the plant such income is required to be capitalized to be set off against pre-operative expenses .” “2.19 The facts in the instant case are pari materia with the facts of the Indian Oil Panipat (supra) and the ratio decidendi of Hon’ble Delhi High Court in that case will squarely apply to the facts of the assessee. In the instant case, undisputedly, the funds have been borrowed for the specific purpose of execution of the mega road projects and as per the loan agreement executed between the consortium of bankers and the assessee dated 23.11.2005, all the disbursements shall be deposited in the trust and retention account which shall be subject to strict control and verification by the Senior lenders and all disbursements shall be utilised solely for the purposes of implementation of the project and no other purpose. The funds are thus inextricably linked to the setting up of the mega road projects and interest earned on such borrowed funds infused in the business could not be classified as income from other sources. We also note a distinguishing feature in the instant case that the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals & Fertilizers (supra) and the interest has to be used solely for the purposes of implementation of the specified projects only. The impunged interest receipt of Rs. 35,39,479/- on such borrowed funds relates to the mega road projects/stretches which were under construction and the completed road projects/stretches upto the date of commencement of commercial operations. Therefore, the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head “Capital work in progress” and the same cannot be brought to tax under the head “income from other sources”. Hence, ground no. 1 of the assessee is allowed.” 5. Undisputedly, there are no changes in the facts and circumstances of the case. No contrary authority has been brought to our notice subsequent to above decision of the Coordinate Bench or the

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT fact that said decision of the Coordinate Bench has been stayed by the Hon’ble High Court. In view of the similar facts and circumstances of the case and respectfully following the decision of Coordinate Bench in assessee’s own case (supra), we hold that the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head “Capital work in progress” and the same cannot be brought to tax under the head “income from other sources”.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 5. He further contended that the investment was a surplus amount.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 16. During the course of hearing, the ld. AR submitted that the assessee has made investment in its subsidiary out of its own share capital, there is no borrowed funds which has been invested while subscribing to the share capital of the subsidiary company. Further, referring to the provisions of Section 14A of the Act which talks about disallowance in relation to income which does not part of the total income, it was submitted that the assessee has not earned any tax free income during the year and therefore, the question of disallowance of any expenditure U/s 14A of the Act. In support reliance was placed on the decision of Hon’ble Delhi High Court in case of CIT vs. Holcim India Pvt. Limited and also the decision of Coordinate Bench in case of M/s Rajasthan land Holding Ltd. dated 25.09.2019 which has followed the decision of Hon’ble Delhi High Court in case of Cheminvest Ltd. vs. CIT (2015) 387 ITR 33 and decision of Hon’ble Supreme Court in case of Maxopp Investment Ltd. vs CIT 402 ITR 640. It was accordingly submitted that the assessee has not incurred any expenditure, further no exempt has been earned during the year, hence, the addition made by the Assessing Officer directed to be deleted.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT is directed to be deleted. We find that the similar observations have been made by the Coordinate Bench in case of M/s Rajasthan Land Holding Limited (supra) wherein it was held as under:- “6 We have heard ld. DR and considered the material placed on record as well as orders passed by Revenue authorities. We noticed from the record that the assessee has taken a categorically stand that the AO had erred in mechanically applying section 14A of the I. T. Act read with the provisions of rule 8D and made disallowance u/s 14A of the Act. It was mentioned that no exempt income had been earned by the assessee. Therefore, determination of the amount at Rs. 20,67,741/- u/s 14A r.w.r. 8D of the Income Tax is not justified. We have also gone through the written submissions filed by the assessee before ld. CIT(A) which are at para 4.2 in the order of ld. CIT(A) wherein the assessee had specifically mentioned that the assessee had not earned any exempt income. It is settled proposition of law that in the absence of any exempt income, disallowance u/s 14A of the Act is not warranted. In this aspect, we rely upon the decision of Hon’ble Delhi High Court in case of Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 and the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs ld. LD. CIT, 402 ITR 640. Considering the settled proposition of law, we are of the view that interest of justice would be met if this issue is restored back to the file of AO with a direction to verify as to whether the assessee has earned exempt income during the year under consideration or not and in the case, AO comes to the conclusion that no exempt income was earned by the assessee during the year under consideration then in that eventuality no disallowance u/s 14A of the Act is warranted. With these directions, we allow the ground of appeal for statistical purposes.”

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT

S. No. Particulars FY 2008-09 FY 2009-10 Total I IPO Related expenses : 1,17,42,060 (i) Due Diligence 3645970 5783613 (ii) Professional fees 317900 48000 (iii) Other expense 19,46,577 (considered as part of expenses incurred in relation to share capital by the Ld AO) II Expenses incurred in 1,30,88,710 connection with Share Capital (i) Share Registration Fee 125,88,710 Miscellaneous Exp. (Increase in Authorized Share Capital from Rs. 50 crores to Rs. 200 crores) (ii) Stamp Duty on Share 5,00,000 Certificates GRAND TOTAL 2,48,30,770

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT Rs. 2,48,30,770/- and disallowed both considering the same to be capital in nature. Though the total of both the expenses are same but internal bifurcation is not correct in the assessment order.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT further held by the Assessing Officer that the decision of Hon’ble Madras High Court in case of CIT vs. Kisen Chand Chellaram (India) (P.) Ltd. 5 taxman 58 has since been overruled in the Apex Court verdict in the case of M/s Brooke Bond India Ltd. It was further observed by the Assessing Officer that in spite of the IPO being aborted, as a result of expenditure, it was authorized capital which has increased thereby providing an enduring benefit to the assessee, therefore, the expenditure to the extent of Rs. 1,50,35,287/- related to increase in authorized share capital was disallowed being capital in nature and added to the taxable income of the assessee company, which on appeal, has been confirmed by the ld. CIT(A). Against the said findings, the assessee is in appeal before us.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT nature of expenses like deposition of fee with ROC for increase in shareholders capital and other expenses being stamp duty on issue of share certificates falls within the definition of section 35D eligible for amortization of preliminary expenses.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT w.e.f. 01-4-1971 and the decision of the Hon’ble Supreme Court in the case of Brooke Bond India Ltd Vs CIT related to assessment year 1969-70, which was prior to incorporation of S.35D in the Income Tax Act and this inclusion altered the legal position thus the Brooke Bond case cannot be applicable in the given context, as also held by the Hon’ble Supreme Court in the case of M/s. Shasun Chemicals And Drugs Ltd. Vs. Commissioner Of Income Tax, Chennai [2016] 73 taxmann.com 293 (SC). In the said case it was held that the expenditure incurred on public issue for the purpose of expansion of the company is a capital expenditure, however, the High Court, disallowed the same following the judgment of this Court in the case of Brook Bond India Ltd in spite of the argument raised to the effect that the aforesaid judgment was rendered when Section 35D was not on the statute book and this provision had altered the legal position, the High Court still chose to follow the said judgment. The Apex court held that it is here where the High Court went wrong as the instant case is to be decided keeping in view the provisions of Section 35D of the Act and decided in favour of the assessee holding that the assessee was entitled to the benefit of Section 35D for the Assessments Years in question.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT even where assessee failed to claim the same. The operation para of the judgment is reproduced hereunder :-

"An obligation is imposed on the Income-tax Officer by section 84 of the Income-tax Act, 1961, to grant relief there under and the relief cannot be refused merely because the assessee has omitted to claim the relief, but the mere existence of such an obligation on the Income-tax Officer is not sufficient. Precise factual material and clear data must be contained in the record sufficient to enable the Income-tax Officer to consider whether the relief should be granted under section 84. In the absence of such material, ITA No.7010/2010 no fault can be found with the Income-tax Officer for not making an order under section 84 favouring the assessee."

That in view of the above factual and legal position, the Appellant prays to the Hon’ble Bench to either allow this expenditure as revenue expenditure or direct the Ld. Assessing Officer to consider this claim as per provisions of Section 35D of the Income Tax Act, 1961.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT The assessee company has incurred an amount of Rs 125,88,710/- in connection with increase in the authorized capital and an amount of Rs 5,00,000 in connection with increase in the paid up capital by way of stamp duty charges on share certificates and thus, total expenses of Rs 1,30,88,710 have been incurred by the assessee company. The contention of the assessee company is that the expenditure is in the nature of revenue expenditure and the same should therefore be allowed in the year under consideration. Alternatively, it has been contended that the same should be amortized @ 20% over five years in terms of section 35D of the Act.

“It is, no doubt, true that the distinction between "revenue" and "capital" expenditure is a fine one. Dealing with all those cases which took the view that expenses incurred in obtaining registration of the memorandum of association and articles for enhancing capital, the Kerala High Court held that the fee paid under the Companies Act, 1956, to the Registrar was a revenue expenditure. To the same effect was the view taken by the Madras High Court in CIT v. Kisenchand Chellaram (India) P. Ltd. [1981] 130 ITR 385. In coming to the 28

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT conclusion, the Madras High Court had applied the ratio enunciated by the Hon'ble Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 . The decision of the Madras High Court was followed by the Karnataka High Court in Hindustan Machine Tools Ltd. (No. 3)v. CIT [1989] 175 ITR 220 . In its view as well, the expenditure incurred by way of remitting filing fee to the Registrar of Companies in respect of enhancement of the authorised share capital of the company was allowable as a revenue expenditure.

As already stated above, the Rajasthan High Court has taken a different, view in the case of Aditya Mills [1990] 181 ITR 195.

Learned counsel for the assessee urged for making reference of the aforesaid question to a larger Bench. We do not, however, consider it necessary to do so. The Rajasthan High Court decision in the case of Aditya Mills [1990] 181 ITR 195 is clear and explicit on the point and we are bound by the same. We, consequently, answer the first question in the negative by saying that the fee paid to the Registrar of Companies for raising the authorised capital was not allowable as revenue expenditure.”

"Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 1,50,000 paid to the Registrar of Companies, as filing fee for enhancement of capital, was not revenue expenditure ?"

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT And thereafter, referred to the decision of the various High courts, including the Hon’ble Rajasthan High Court in case of Multi Metals and earlier decision in case of Aditya Mills and has held as under:

“3. The issue has been answered in favour of the assessee and against the revenue by the High Courts of Madras, Karnataka, Andhra Pradesh and Kerala in the following decisions: CIT v. Kisenchand Chellaran (India) (P.) Ltd. [1981] 130 ITR 385 /5 Taxman 58 (Mad.); Warner Hindustan Ltd. v. CIT [1988] 171 ITR 224/ 36 Taxman 106 (AP), Hindustan Machine Tools Ltd. ( No. 3) v. CIT [1989] 175 ITR 220 /[1988] 40 Taxman 43 (Kar.) and Federal Bank Ltd. v. CIT [1989] 180 ITR 241 / 45 Taxman 262 (Ker.). The High Courts of Allahabad, Himachal Pradesh, Delhi, Calcutta, Bombay, Punjab, Gujarat, Andhra Pradesh and Rajasthan have held in favour of the revenue in the following cases: CIT v. Modi Spg. & Wvg. Mills Co. Ltd. [1973] 89 ITR 304 (All.), Mohan Meakin Breweries Ltd. v. CIT (No. 2)[1979] 117 ITR 505/2 Taxman 460 (HP), Bharat Carbon & Ribbon Mfg. Co. Ltd. v. CIT [1981] 127 ITR 239 /[1980] 3 Taxman 568 (Delhi), Brooke Bond India Ltd. v. CIT [1983] 140 ITR 272/[1982] 10 Taxman 18 (Cal.), Bombay Burmah Trading Corpn. Ltd. v. CIT [1984] 145 ITR 793/[1983] 12 Taxman 178 (Bom.), Groz-Beckert Saboo Ltd. v. CIT [1986] 160 ITR 743 / 27 Taxman 138 (Punj. & Har.), Ahmedabad Mfg. & Calico ( P.) Ltd. v. CIT [1986] 162 ITR 800 / 28 Taxman 306 (Guj.), CIT v. Aditya Mills [1990] 181 ITR 195 / 50 Taxman 120 (Raj.), CIT v. Multi Metals Ltd. [1991] 188 ITR 151 (Raj.) and Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 174 ITR 689 / 41 Taxman 7 (AP). We may also state that the Calcutta High Court has affirmed this earlier view in three subsequent decisions reported in Kesoram Industries & Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 (Cal.), Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT (Cal.) and CIT v. Tungabhadra Industries Ltd. [1994] 207 ITR 553 (Cal.) and so also the Gujarat High Court has affirmed its earlier view in Alembic Glass Industries Ltd. v. CIT [1993] 202 ITR 214 (Guj.).

"The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, L.C. in Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned Law Lord stated :

'.....when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital'." (p. 10)

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT is not a strait-jacket formula and the question will have to be determined in the backdrop of facts of each case. The test laid down can at best be a guide for determining whether a particular expenditure forms part of revenue expenditure or capital expenditure. The Madras High Court in Kisenchand Chellaram ( India)( P.) Ltd.'s case (supra) was dealing with a case in which the assessee had paid fees for raising the capital of a company to the Registrar of Companies and had claimed the amount paid as a revenue expenditure. It was held that without capital a company cannot carry on its business and hence, the expenses incurred for increasing the capital were bound up with the functioning and financing of the business. Therefore, the assessee's claim for deduction was allowed. The view taken was that since the amount was wholly and exclusively used for the purpose of the assessee's business, it was allowable as a deduction under section 37(1) of the Act. The Karnataka High Court has followed the view taken by the Madras High Court and so also has the Kerala High Court taken the same view. After considering the test laid down by this Court in Empire Jute Co. Ltd.'s case (supra), the Kerala High Court observed in the case of Federal bank Ltd. ( supra):

"...we are of the view that the expenditure incurred for the enhancement of authorised capital is only for the purpose of bettering or improving an established business and cannot be said to be for the purpose of a new business. Viewed in a business sense, the enhancement of the authorised capital is only to broaden the capital base which will be conducive to the better conduct and efficiency and profitability of the business." (p. 246)

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT contrary view. The Calcutta High Court in Brooke Bond India Ltd.'s case (supra) held that where the object of incurring an expenditure is to affect the capital structure as a result of which certain incidental advantage flows, the expenditure will be of capital nature. It is not the acquisition of a right of a permanent character alone, the creation of which is a condition for the carrying on of the business, that could be rightly treated as an expenditure on the capital account. Capital expenditure can be incurred after a company is floated or it started business, if it resulted in bringing about capital advantage. The Andhra Pradesh High Court had in Warner Hindustan Ltd.'s case (supra), following the decision of the Madras High Court in Kisenchand Chellaram ( India)( P.) Ltd.'s case (supra) , held that the expenditure incurred was connected with the functioning and financing of the assessee's business and, hence, the fees paid could not be treated as on capital account. However, this line of reasoning was departed from in the subsequent decision in Vazir Sultan Tobacco Co. Ltd.'s case (supra) , wherein it was observed that where the object of incurring an expenditure is to affect a capital structure as a result of which certain incidental advantage flows, the expenditure will be of capital nature. In other words, it followed the decision of the Calcutta High Court referred to earlier. It distinguished the earlier decision in Warner Hindustan Ltd.'s case (supra)holding that it was unable to appreciate the reasoning of the Madras High Court which held it to be a revenue expenditure. It, therefore, refused to extend the ratio of the decision in the earlier case of Warner Hindustan Ltd. ( supra)to expenses incurred directly for the purpose. The Gujarat High Court in Ahmedabad Mfg. & Calico ( P.) Ltd.'s case (supra) held that the expenditure incurred being for an enduring benefit in the commercial sense could fall in the capital field. It was held that the shares issued by the company constituted its

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT capital and being an integral part of the permanent structure of the company fell within the realm of capital expenditure. This view was reiterated in the subsequent case of Alembic Glass Industries Ltd. ( supra). The Bombay High Court in Bombay Burmah Trading Corpn. Ltd..'s case (supra) , while dealing with the question whether the fees paid to the Registrar of companies for enhancement of capital could be described as revenue expenditure or capital expenditure, differed with a view taken by the Madras High Court and held that it runs counter to the decision of this Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 and Tata Iron & Steel Co. Ltd., In re [1921] 1 ITC 125 (Bom.), wherein it was expressly pointed out that the expenditure incurred for the issue of preference shares could not be said to be solely incurred for the purposes of the company's business. Briefly put, it was held that it was an expenditure incurred directly for the purposes of expansion of the capital asset and was, therefore, of capital nature.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT

question raised for our determination in the affirmative, i.e., in favour of the revenue and against the assessee.

Project Name (i) Alwar To Bhiwadi (AB) (ii) Hanumangarh To Sangaria (HS) (iii) Jhalawar to Jhalawar Road (JJ) (iv) Arjunsar To Pallu (AP) (v) Kapren To Mangrol (KM) (vi) Jhalawar to Ujjain (JU) (vii) Khushkheda To KasoulaChowk (KK)

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT decision of the Hon’ble Rajasthan High Court in case of CIT vs Multi Metals (supra) and the findings of the Hon’ble High Court read as under:

“Coming to the second question, arguments were addressed before us by the Revenue that sub-section (2)(c)( iv) of section 35D is not applicable to the present case. The said clause reads as under: "35D(2)(c) where the assessee is a company, also expenditure - .... (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;" Rebutting the submission of the Revenue, the assessee argued that the language of section 35D is wide enough to cover a case of payment of fee to the Registrar for raising capital of the assessee-company and the provision should be so interpreted that the same be not against the assessee, particularly when its object was to benefit him. Learned counsel contended that the settled principle is that a provision of law capable of two interpretations should be interpreted in a manner so as to give benefit to the assessee. Sub-section (2)(c)( iii) of section 35D is as under: "35D(2)(c)... (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956)." The provision contained in sub-section (2)(c)( iii) of section 35D was resorted to by learned counsel for the assessee in the alternative in support of his submission, that the expenditure incurred by way of enhancement of capital would be covered by the same. To us, it appears that even if the provision of sub-section (2)(c )(iii) of section 35D is not applicable, the language of sub-section (2)(c)( iv) of

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT section 35D is wide in nature and would include the deductibility of fee paid by the assessee to the Registrar for enhancement of capital. Therefore, the said provision was rightly applied to the present case by the Income-tax Appellate Tribunal. Under these provisions, deduction of expenditure incurred for registration is to be spread over a period of ten years and is not allowable in the year in which the expenses are incurred. To uphold the submission of the Revenue that expenditure incurred for obtaining registration would not be allowable either under sub-section (2)(c)( iii) or sub-section (2)(c)( iv) of section 35D would defeat the obvious intention of the Legislature and would produce a wholly unreasonable result To achieve the obvious intention and produce a reasonable result, we have to hold that under subsection (2)(c)(iv ) of section 35D, the expenditure incurred for obtaining registration would be liable to be deductible. We, consequently, hold that the fee paid to the Registrar of Companies for raising authorised capital of the assessee-company was covered by sub section (2)(c)(iv ) of section 35D of the Income-tax Act.”

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT “13. In the Income Tax Return which was filed for the Assessment Year 1995-96 the assessee had claimed that it had incurred a sum of Rs.45,51,890/- towards the share issue expenses and had claimed 1/10th of the aforesaid share issue expenses under Section 35D of the Act from the Assessment Years 1995-96 to 2004-05. This claim of the assessee was found to be justified and allowable under the aforesaid provisions and on that basis 1/10th share issue expenses was allowed under Section 35D of the Act. When it was again claimed for the Assessment Year 1996-97, though it was disallowed and on directions of the Appellate Authority, the Assessing Officer made physical verification of the factory premises. He was satisfied that there was expansion of the facilities to the industrial undertaking of the assesseee. It is on this satisfaction that for the Assessment Year 1996-97 also the expenses were allowed. Once, this position is accepted and the clock had started running in favour of the assessee, it had to complete the entire period of 10 years and benefit granted in first two years could not have been denied in the subsequent years as the block period was 10 years starting from the Assessment Year 1995-96 to Assessment Year 2004-05. The High Court, however, disallowed the same following the judgment of this Court in the case of Brook Bond India Ltd (supra). In the said case it was held that the expenditure incurred on public issue for the purpose of expansion of the company is a capital expenditure. However, in spite of the argument raised to the effect that the aforesaid judgment was rendered when Section 35D was not on the statute book and this provision had altered the legal position, the High Court still chose to follow the said judgment. It is here where the High Court went wrong as the instant case is to be decided keeping in view the provisions of Section 35D of the Act. In any case, it warrants repetition that in the instant case under the very same provisions

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT benefit is allowed for the first two Assessment Years and, therefore, it could not have been denied in the subsequent block period. We, thus, answer question No. 1 in favour of the assessee holding that the assessee was entitled to the benefit of Section 35D for the Assessments Years in question.”

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT had requested the assessee company to explore alternate means of financing and as part of the same, the assessee company had gone ahead with the IPO process and had taken preliminary steps for bringing out the IPO through a book-building process. Referring to the draft red herring prospectus prepared by M/s Amarchand Mangaldas, the Assessing Officer observed that it is an extremely vital document which provides useful piece of guidance/data that the company has acquired. The Assessing Officer further observed that although the IPO has been aborted by the company whenever the company will subsequently bringing the IPO, this information will be extremely crucial for the company. It was accordingly held that the projects report provides an enduring benefit to the company and the assessee company is not correct in writing off this expenditure merely because the IPO was aborted. Similarly, the due diligence expenditure made by the assessee company is a capital expenditure as the same provided an enduring benefit to the assessee is a capital expenditure as the same provided and an enduring benefit to the assessee. It was further held by the Assessing Officer that the assessee itself has treated the expenditure as capital expenditure and therefore, merely because the IPO got aborted, the assessee is changing the nature of expense from capital to revenue nature.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT accordingly this expenditure was charged off to the Profit & Loss account and claimed in the return of income. The ld. AR relied on the decision of the Hon’ble Delhi High Court in case of Priya Village Roadshows Ltd. v. CIT [2009] 185 TAXMAN 44 (DELHI) wherein it was held that in case of abondment or dropping off certain projects due to non-viability or uncontrollable reasons, the expenditure incurred on such project would be considered as revenue expenditure. Further, reliance was placed on the decision of Hon’ble Bombay High Court in case of Nimbus Communication (in ITA No. 4244/2010 dated 28.01.2010). Further, reliance was placed on the Coordinate Bench decision in case of M/s Parvar Enterprises, Pune vs. ACIT (in ITA No. 1058 & 673/PUN/2016 dated 8.09.2017). Regarding the observation of the Assessing Officer that the draft red herring prospectus is an extremely vital document and has provided enduring benefit to the assessee company, it was submitted that the Draft Red Herring Prospectus is the first requirement of the SEBI and the Companies Act, which is to be filed with the Authorities, which contains certain information in a prescribed format as required by Law before any company intends to go for Public Offer. It also contains the prospective use of public issue money and is more of a historical data of the past performance of the company and the future plan of the company, which requires the subscription through the Public Offer. It was submitted that by no stretch of imagination any document which contains past history and future use of the proceeds is of enduring benefit is beyond any logic as soon as the decision of the competent authority of the Board resolved to abort the public offer, this Draft Red Herring Prospectus becomes totally useless and legally unenforceable and cannot be considered for endeavoring benefit rather it is waste paper. In view of above, the conclusion of Ld. AO that it has an endeavoring benefit is not far from the truth but is just imagination of the Ld. AO that this will have some enduring benefit in times to come without raising the funds from the market. The AO has also observed that earlier it has taken

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT as revenue in the current year, on this it is submitted that when this expenditure was incurred the Company intended to go to public and this would have become the part of public issue expenses covered U/s. 35D, however, due to bad market condition, which is beyond the control of the management, has been correctly write-off in the current year, hence in the substance, the transaction pertain to the current year only. Hence this has been correctly written off.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT subscribe the share and have got eight more road stretches for construction, which is direct evidence of extension of existing business, which is covered as per definition of Section 35D. The Authorised Share Capital of the company was increased from Rs. 50 crores in FY 2007-08 to Rs. 200 crores in FY 2008- 09 and paid up capital increased by Rs. 50 crores in FY 2008-09 to Rs.100 crores. In view of this, the amount incurred falls within the definition of Section 35D and is eligible for amortization in 5 equal installments. Hence if the plea of the Appellant for treating the expenditure as revenue is not allowed then it is requested to consider the same as per provisions of Section 35D of the Income Tax Act, 1961 and allow the amortization of the expense at the rate of 20% per annum for 5 years. The assessee prays that in view of the aforesaid facts, in case of disallowance as revenue expenditure, then in the given case the conditions of Section 35D are fully satisfied and the appellant is entitled to claim 1/5th of the expenses incurred as revenue, even if the same was not claimed in the return of income filed by the appellant. The A.O. is duty bound to give due deductions, exemptions or rebate to the Assessee, if their claim is being disallowed under the section claimed but if that expenditure is allowable/deductible as per other provisions of Act as held by the Hon’ble Supreme Court case of Anchor Pressings(P) Ltd. vs. CIT (Supra)

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT Bhandari & Company, Chartered Accountants (consultants for preparing the financial information), M/s Amarchand Mangaldas (consultants to the Book running lead manager) and M/s Eman Securities Pvt. Ltd.(book running lead manager) and has incurred certain expenses towards their professional, legal/due diligence and relates services amounting to Rs. 1,17,42,060/- and one of the reports/end products of such an exercise is the red herring prospectus which got prepared which is required to be submitted to SEBI for its approval before the announcement of the IPO. It is also a fact that the IPO got aborted due to unfavourable financial conditions. Therefore, the precise question which arise for consideration is whether the professional and legal expenses incurred in connection with raising of funds through an IPO which got aborted can be allowed as a revenue expenditure or not. The Coordinate Bench in case of Nimbus Communications Ltd vs ACIT (ITA No. 2361(Mum) of 2007 dated 28.01.2010) had examined the matter in similar factual background of aborted IPO expenses and has held as under:

“On a careful consideration of the facts and circumstances of the case, as incurring of the expenditure in question was for the purpose of rising capital by way of public issue and as the public issue got aborted, we are of the humble opinion that the expenditure is in the revenue field. For an expenditure to be considered for amortisation under s. 35D, it should be in the capital field. An expenditure which is incurred in the revenue field is allowable under s. 37 of the Act. The AO at para 6 of the assessment order has not come to a conclusion that the expenditure in question has not been incurred. After collecting the details from the assessee, he concluded that there being no change in the subscribed share capital and as the expenditure was not incurred prior to incorporation and as it could not be substantiated that the issue is in connection with the extension of business or setting up of new industrial undertaking, the assessee is not eligible for claim under s.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 35D. The nature of expenses are listed out at para 6 of the assessment order. As there is no controversy on the issue whether the assessee has incurred this expenditure or not and as the nature of expenditure reflects that they are revenue in nature and as the assessee has not got any enduring benefit, we uphold the contention of the assessee and hold that the expenditure is allowable under s. 37.”

“2. The finding of fact recorded by the Income Tax Appellate Tribunal is that there is (no) dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new asset has come into existence and consequently there is no question of the assessee getting any enduring benefit. With the approval of SEBI, the assessee was to increase the share capital and thereby promote its business activity. However, the same got aborted due to reasons beyond its control. In these circumstances, in view of the decision of this Court in the case of Commissioner of Income Tax V/s. M/s. Essar Oil Limited, Income Tax Appeal (L) No. 921 of 2006 decided on 16th October 2008, in our opinion, no fault can be found with the decision of the Income Tax Appellate Tribunal in allowing the aborted share issue expenditure under Section 37 of the Income Tax Act, 1961.”

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT As far as red hearing prospectus is concerned, we find that it is a document which is prepared and submitted to SEBI for its approval seeking permission to raise funds through an IPO and is thus a regulatory requirement which would be required to be submitted every time the company wishes to raise the funds in future and requires to contain latest data, statistics and declarations about the company, its promoters, past filings and financials and utilization of the proceeds of the IPO and therefore, it cannot be said that once such a document is prepared, it can be used subsequently for any future IPO. Therefore, the stand of the Assessing officer that such a document will provide an enduring benefit to the assessee company cannot be accepted. In light of aforesaid discussions and respectfully following the decision of the Hon’ble Bombay High Court in case of Nimbus Communication (supra) and in absence of any contrary authority, the expenses incurred in connection with aborted IPO are allowed as revenue expenditure. The alternate contention regarding amortization u/s 35D has thus becomes infructious and is not adjudicated upon. The matter is thus decided in favour of the assessee and against the Revenue.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT submitted that the Ld CIT(A) also erred in not considering the plea of appellant and observed that withdrawal of interest u/s244A is automatic and consequential to appeal effect. In this regard, it is submitted that the disallowances by the Ld. AO resulted in reducing of loss and did not result in any demand hence the observation of the Ld. CIT(A) regarding withdrawal of interest is erroneous. Thus in view of the above facts, the differential interest on the refund may be directed to the granted to the assessee company.

ITA No. 669/JP/2019

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT the Company for increase in authorized capital as decided by the Rajasthan High Court [Commissioner of Income Tax v. Multi Metals Ltd. reported in 188 ITR 151]. 4. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in making disallowance of Rs. 1,00,000/- under Section 14A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at Rs. 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 53. Both the parties fairly submitted that the facts and circumstances of the present appeal are identical to facts and circumstances in ITA No. 668/JP/19 and thus, similar contentions as raised in aforesaid matter may be considered. Therefore, considering that there are no changes in facts and circumstances as so submitted by both the parties, our findings and directions contained in ITA No. 668/JP/19 shall mutatis mutandis to the present appeal and the same is disposed off accordingly.

ITA No. 670/JP/2019 54. Now, we take up assessee’s appeal for A.Y 2013-14 wherein the assessee has taken following grounds of appeal:-

“1. That the order passed by the Ld. Assessing Officer and Ld. CIT(Appeals), Ajmer, is bad in law as well as facts. 2. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer has wrongly considered Rs. 6,50,762/- as Income from Other Sources rather than reducing it form the capital cost of construction of roads, as per accepted accounting practices and decision of various authorities including decision of Hon'ble Supreme Court in the case of CIT Vs. Bokaro Steels Ltd. 336 ITR Page 315, as this amount pertains to prior to commercial operation of the road for which the amount was borrowed. 3. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in wrongly disallowing the depreciation of

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT Rs. 1,17,59,016/- claimed by the assesse, being depreciation on account of Toll building under the block of Building as per Income Tax Act, 1961. 4. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in law as well as in facts by disallowing the expense claimed of Rs. 15,72,414/- (1/5th expense incurred Rs. 78,62,069/-) by the Company for increase in authorized capital as decided by the Rajasthan High Court [Commissioner of Income Tax v. Multi Metals Ltd. reported in 188 ITR 151]. 5. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in making disallowance of Rs. 1,00,000/- under Section 14A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at Rs. 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 6. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in disallowing the socio-economic expense of Rs. 50,23,041/- under section 37 of Income Tax Act, 1961 and adding back to income, though these expenses are directly connected and incidental to the business of the company, no personal benefit has been derived there from and further such expenditure incurred will not result in any capital asset on long term enduring benefit to the company.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 57. In this regard, the ld AR submitted that in respect of disallowance of depreciation of Rs.1,17,59,016/-, being depreciation on account of Toll Buildings under the block of Building as per Income Tax Act 1961, it is submitted that the Ld. A.O disallowed the depreciation claimed during the year in respect of Buildings (Block-10%) considering the same to be depreciation in case of Toll roads, however the amount of Rs. 150,46,66,419/- comprised of Rs. 149,29,07,403/- being depreciation on account Toll Roads and Rs. 1,17,59,016/- being depreciation on account of Toll Buildings, totaling to Rs. 150,46,66,419/-. The amortization allowed of Rs. 1,05,06,87,579/- was only in respect of Toll roads and did not include Toll Buildings, copy of Annexure A as referred to in the Assessment Order is being enclosed as Annexure II. In this respect, a rectification application was also filed containing all details and supporting documents and workings thereof, however the rectification order is yet to be passed by the Ld. A.O. The aforesaid facts of the case and annexures mentioned therein were also submitted to the Ld. CIT ( Appeals), who has acknowledged the same in para 6.1 of his order. However the Ld. CIT(A) erred in concluding that the assessee has not pressed this ground of appeal, therefore this ground of appeal is dismissed. It was submitted that no such submission or concession was made by the ld AR during the appellate proceedings before the ld CIT(A). It was further submitted that where in the past, depreciation has been allowed on Toll Buildings by the AO, there is no basis to make such disallowance in the year under consideration. It was accordingly submitted that the Ld. AO and Ld. CIT(A) have erred in not appreciating the facts of the case and not allowing the depreciation in case of Toll Buildings, thus the appellant prays for allowance of depreciation in case of Toll Buildings.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 59. We have heard the rival contentions and purused the material available on record. The case of the assessee company is that the amount of Rs. 150,46,66,419/-, being disallowed by the Assessing officer, comprised of Rs. 149,29,07,403/- being depreciation on account of Toll Roads and Rs. 1,17,59,016/- being depreciation on account of Toll Buildings. Further, the amortization of Rs. 1,05,06,87,579/- which has been allowed by the Assessing officer is in respect of Toll roads. Accordingly, the depreciation on Toll Buildings amounting to Rs 1,17,59,016/- has been wrongly disallowed by the Assessing officer which may be allowed. It has also been stated by the ld AR that the amortization in respect of Toll roads over the life of the road projects and depreciation in respect of Toll Building calculated at the rate of 10% is the consistent position adopted by the Revenue in the earlier years. In light of the fact that such Toll building is part of the “building” block of the assets and in the earlier years, the depreciation on such building block including Toll building has been allowed by the Revenue, the Assessing officer is hereby directed to allow the depreciation on Toll building after due verification. In the result, the ground of appeal is allowed.

“7.1 Amount of Rs 5023041/- has been debited in P&L under the head "other expenses" as expenses on ‘Socio Economic’. Vide letter dated 11-11-2016 the assessee was required to give justification for its allowability. In response to the same vide letter dated 7-12-2016 written submission was filed stating as under:-

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT “The Company is engaged in construction of Mega Highway Roads, which involves of displacement of various families, domicile of shops car some other inconveniences to the various villages of nearby areas. As per the Partnership & Development agreement (PDA) executed with the Government of Rajasthan, the Company was authorized to undertake, participate and support environmental, community development/social activities viz. develop schools, creation of some infrastructure facilitie s, welfare of commuters or any other activities by which the common man life is improved or made more convenient, alongside the project road.”

Further operation & maintenance expenses has been defined in the PDA, reads as under:-

7.1 “O&M Expenses” means all costs and expenses, incurred or committed to be made by or on behalf of RIDCOR duly certified by its authors for operations and maintenance of the project assets including without limitation: (a) all payments, costs and charges incurred and/or payable towards efficiently managing and operating the project facility and maintenance thereto including but not limited to normal/routine maintenance, overlays/renewals, replacements, up-gradations, special repairs/ emergency works etc. and such other activities whether anticipates or not………………………………… (i) other miscellaneous expenses arising out of conformity to statutory requirement/ compliance with the provisions of this agreement; and (k) all other expenditures required to be incurred under this agreement or law or clearances necessary for the operations and maintenance of the project accordingly to specifications and standards.” 52

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT Accordingly the company had undertaken the work of HIV-AIDS awareness and prevention program and considered as operation & maintenance cost which was also certified by the independent Author, copy of certificate enclosed as

Annexure-III

Section 37 of Income Tax Act, 1961, Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

Based on above submissions it is to be noted that all the socio economic (R&R) expenses incurred are directly connected and incidental to the business of the company, there is no personal benefit of either of the director or the stakeholder of the company and further and expenditure incurred under this category will not result in any capital asset or long term enduring benefit to the company. Hence, the same is fully covered as per Section 37 of the Income-tax Act, 1961 and shall be allowed fully.

7.2 Reply given by the assessee has been examined but found to be not acceptable for the reason that the provision of section 37(1) requires that any expenditure which has been exclusively incurred for the purposes of business of the assessee, not in the nature of personal expenses and not in the nature of capital expenses is only allowable U/s 37(1) as business expenses.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT Prima facie the expenses claimed are evidently of the nature of application of income/donations. The assessee has claimed these expenses on the basis of social cause or general public good. Against such expenses there is no definite business liability of assessee. The core logic of assessee for allowability of these expenses is that these expenses will improves living of society and, the society will indirect helpful for the business motives of the assessee. If this contention of assessee is accepted than all donations/application of income items will qualify for deduction which is not the intention of sec. 37(1) of the Income Tax Act, From the plain reading of sec. 37(1), the intention of legislature is amply clear. Relevant part of the section is reproduced hereunder:-

“37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

7.3 The adverb ‘wholly in the phrase ‘laid out or expended wholly and exclusively’ has reference to the object or motive of the act behind the expenditure.Unless, such motive is solely, for promoting the business, the expenditure will not qualify for deduction [CIT Vs T.S,Hajee Mossa & Co, (Mad) 153 ITR 428, Mysore Kirloskar Ltd. Vs CIT (Kar) 166 ITR 836] In the instant case the motive of the assessee is not solely for promoting the business but also social cause. Moreover, during the course of assessment proceedings the assessee failed to prove that the said expenditure has been 'wholly' and 'exclusively' for business purpose. The burden to prove that the expenses were laid out wholly arid exclusively for business purpose her upon the assessee [Goodlas Nerolac Plaints Ltd. Vs CIT (Bom) 137 ITR 58]. 54

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 7.4 Here it is also relevant to mention that vide explanation 2 to subsection (1) of Section 37 it has been clarified that for the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the companies Act, 2013 (18 of 2013) 58 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession, amendment is clarificatory in nature.

7.5 The expenditure incurred is not with a view to bring profits or monetary advantage to the assessee Company. Accordingly the said Socio Economic Expenses of Rs. 5023041/- is disallowed and added to the total income of the assessee."

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT computing income of the assessee (Delhi Cloth and General Mills Co. Ltd. Vs. CIT (1999) 240 ITR 9 Del. Further reliance was placed on the decision of Hon’ble Supreme Court in case of CIT Vs. Bharat Carbon & Ribbon Mfg. Co. (P) Ltd., 1999 XII SITC 218 wherein it was held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of accounts be decisive or conclusive in the nature. Further, reliance was placed on CIT Vs Malayalam Plantations Ltd (1960) 53 ITR 140 (SC) and CIT vs Kalyanji Maviji & Co (1980) 122 ITR 49.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT “Obligations of RIDCOR (appellant):

(a) commence, within 90 days of this Agreement, the Improvement Works which may however not include that for landscaping, wayside amenities, user services or such other items as may be decided by RIDCOR;

(b) arrange and procure firm commitments for Financing from Lenders/ Investors and achieve Financial Close within 180 days from the date of signing this Agreement;

(c) undertake to achieve Substantial Completion not later than 24 months from the Improvement Works Commencement Date in accordance with the provisions of Article 4.3 of this Agreement;

(d) organise the supervision, monitoring and control of the Improvement Works and operate, manage and maintain the Facility in accordance with this Agreement;

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT (e) appoint suitable Persons by entering into appropriate contracts for fulfilling its obligations under this Agreement; provided any such subcontracting shall not relieve RIDCOR from any of its obligations in respect of the provision of such obligations under this Agreement. It is clarified that RIDCOR shall remain liable for any acts, omissions or defaults of any sub- contractor;

(f) protect the Project Site from fresh encroachments during the Project Period; in case, RIDCOR is unable to effectively discharge this obligation for reasons beyond its control, then it shall request GoR to provide necessary assistance to mitigate the problem;

(g) ensure that at the end of the Project Period, the Facility is transferred to GoR in fair condition, free of cost and free from all encumbrances, subject to normal wear and tear having regard to their use in accordance with Prudent Utility Practices and the terms and conditions of this Agreement;

(h) report to GoR during the Project Period, such information as GoR may reasonably require to be informed of material matters relating to the Facility and also as per requirements of statutory agencies, as well as legally constituted entities of GoR,

(i) allow representatives duly authorised by relevant Competent Authority reasonable access to the Project Road; provided however that such representatives shall conduct their operations at their own risk, cost and expenses;

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT (j) provide access to records and other relevant information and I supply details as may be reasonably required by the Independent Auditor/Engineer and GoR, when requested;

(k) Subject to the provisions of Article 6 and Article 8.1 RIDCOR shall not cease activities on the facility for a continuous period of more than 60 days;

(l) Subject to provisions of existing law, enforce collection of User Fee at the rates notified from time to time;

(m) Undertake Land Banking in terms of Article 2.1(h), wherever feasible and utilise the proceeds thereof, as certified by independent Auditor, in accordance with this Agreement;

(n) Open maintain Financial Security Support Fund (FSSF), during the Trial Operation Period by crediting the Project Revenues earned during this Period; the monies credited into the Financial Servicing Support Fund shall be available for meeting the Deficit during the Operations Period in terms of Article 2.9;

(o) Due observance of the provisions of the laws of GoR/GoI including rules regulations made thereunder as applicable to the Project including laws relating to environmental and ecological protection and road safety during the Project Period; and

(p) Due observance of the provisions of this Agreement, the Financing Agreements and all other Project Contracts entered into for the purpose of implementation of the Project during the Project Period.”

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 66. It was submitted that it was observed that lot of drivers on the highway were found driving their vehicles with heavy drinks and most of them when checked were found suffering from HIV/AIDS and their further physical activity in the affected area is taking lot of casualties as various people have also got infected by such diseases due to such activity and as a safety measure, the assessee company is running awareness programmes contacting the people, drivers, male/female labourers etc. about its prevention, their treatment and precautions etc. All other activities like putting the Caution Boards not to drink and drive, avoid sex with more than one partner and educating them through plays etc. to stop the increasing tendency of people getting affected by the dangerous diseases increase expenditure which is totally for the business purposes and as has been held in the various judgments by the Hon’ble Higher authorities which we have narrated above and the most important the criteria given by the Hon’ble Gujarat High Court in case of CIT vs Navsari Cotton & Silk Mills Ltd (1982) 135 ITR 546 which has laid down certain principles to allow such expenditure u/s 37 of the Income Tax Act which are positive and negative narrated hereunder and Company is well covered in this positive and negative test and fully eligible for reduction u/s 37(1) of the Income Tax Act and hence it is submitted that the disallowance may be deleted as neither this has a personal nature nor it is irrelevant and extraneous consideration and directly connected with the business carried out by the Company and to comply with the Government of India’s policy for implementing such action on Mega Projects. It is prayed that the disallowance made by the Ld. Assessing Officer may be deleted.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT (A) Positive Tests:

If the expenditure is incurred: Whether Company fulfills tests 1 with a view to bring profits or monetary advantage Yes today or tomorrow; 2 to render the Appellant immune from impending or Yes reasonably apprehended litigation; 3 in order to save losses in foreseeable future Yes 4 for effecting economy in working which may pay Yes dividends today or tomorrow; 5 for increasing efficiency in working Yes 6 for removing inefficiency in the working; Yes 7 where the expenditure incurred is such as a wise, Yes prudent, pragmatic and ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects subjects to the expenditure being genuine and within reasonable limits; 8 where it is incurred solely by way of a civil duty owed Yes by the assessee to the society having regard to the nature of his business which brings him profits but results in some detriment to the public at large either by way of health hazard or ecological pollution or serious inconvenience to the citizens with a view to mitigate the aforesaid evil consequences and consequences of a like nature, subject to its being genuine and within reasonable limits.

B. Negative Tests: If the expenditure is incurred: Whether Company fulfills tests 1 for a mere altruistic consideration; No. 2 mainly in order to satisfy his philanthropic urges; No.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 3 mainly in order to win applause or public No. appreciation; 4 for illegal, immoral or corrupt purposes or by any No. such means or for any such reasons; 5 mainly in order to oblige a relative or an official; No. 6 to earn the goodwill of a political party or a No. politician; 7 to show off or impress others with his affluence or No. for ostentatious purposes. 8 apparently for a factor listed as a positive factor No. but in reality for one 9 of the obnoxious purpose listed as a negative No. factor; 10 on a nebulous plea or pretext but really for one No. or the other of the purposes listed as negative tests; 11 it must not be a bogus, fictitious or sham No. transaction; 12 is must not be unreasonable and out of No. proportion; 13 it must not be an expenditure merely with a No. view to avoid tax liability without any genuine purpose or reason in good faith; and the advantage to be secured by incurring the expenditure must not be of the nature of a remote possible advantage depending on "ifs’ and "buts" and, if at all, to be secured at an uncertain future date which may be considered too remote.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT amount claimed for deduction was factually expended or not, and whether it was wholly and exclusively for the purpose of the business. Once that conclusion is reached in favour of the appellant, deduction of the entire amount should follow as a matter of course (Sanjeevi & Co. Vs. CIT (1966) 62 ITR 156 (Mad)). It is well settled that the deductions allowed in determining the income enumerated in the Income-tax Act are not exhaustive. A business expenditure is a voluntary act on the part of a businessman to spend money for carrying on his business with a view to earning profits as held in case of Kamplapat Motilal V. CIT (1976) 104 ITR 783 (All).

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT Tribunal recently held in case of Jindal Power Ltd. [ACIT Vs. Jindal Power Ltd. I.T.A. No.99/BLPR/2012, Assessment year: 2008-09, order dated June 2016] that:

“The amendment in the scheme of Section 37(1), which has been introduced with effect from 1st April 2015, cannot be construed as to disadvantage to the appellant in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in 2013. Explanation 2 to Section 37(1) is, therefore, inherently incapable of retrospective application any further. In any event, as held by Hon Phillips vs. Eyre [a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.”

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT claimed may be allowed and the addition so made by the lower authorities be deleted.

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT be allowed in the hands of the assessee company as an allowable expenditure and the matter is allowed in favour of the assessee company. In the result, the ground of appeal is allowed.

In the result, the respective appeals filed by the assessee are disposed off in light of aforesaid directions.

Order pronounced in the open Court on 31/07/2020.

Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 31/07/2020. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Road Infrastructure Development Company of Rajasthan Ltd., Jaipur. 2. izR;FkhZ@ The Respondent- ACIT, Circle-6, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 66

ITA No. 668 to 670/JP/2019 M/s Road Infrastructure Dev. Com. of Rajasthan Ltd. vs. ACIT 6. xkMZ QkbZy@ Guard File {ITA No. 668 to 670/JP/2019} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत