THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. M/S CHITTORGARH KOTA TOLLWAY PVT. LTD.

The appellant – revenue, in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), has challenged the order dated 26.04.2019 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (C) (hereinafter referred to as "the Tribunal") in ITA No. 2514/Ahd/2016 by proposing following question, stated to be a substantial question of law: “Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs.4,10,06,609/- made on account of disallowance of Project Facilities Expenses without appreciating that the expenditure is not allowable for the year under consideration?”

The assessment year is 2013-14 and the relevant accounting period is the previous year 2012-13. 2.1 During the course of assessment proceedings, the Assessing Officer, on verification of the ledger account of Project Facilities Expenses, observed that, the assessee had debited an amount of Rs.4,83,71,954/- under the head, Project Metal Crash Barrier Expenses. The assessee was called upon to explain the nature of expenditure debited and as to why the same should not be disallowed. Before the Assessing Officer, the assessee had contended that the construction of metal crash barrier is a contractual obligation and secondly, the project facility does not create any assets or benefit of enduring nature to the assessee. The Assessing Officer was of the view that, in terms of the assessee's own statement, the expenditure claimed was revenue in nature. The Assessing Officer noticed that there was an opening balance of Rs.4,10,06,609/- and during the year, the assessee had incurred expenditure mainly on labour charges of Rs.73,65,345/- and failed to offer any convincing explanation for not claiming such expenditure in the year in which it was incurred. According to the Assessing Officer, as the expenditure of Rs.4,10,06,609/- was incurred in the earlier year, the assessee had not claimed the same with a view to obtain undue benefit of claiming deduction under section 80IA of the Act by maintaining books of account to suit the assessee's claim. He, accordingly, held that the expenditure of Rs.4,10,06,609/- claimed by the assessee was not incurred during the year under consideration and disallowed the same.

2 Being aggrieved, the assessee carried the appeal before the Commissioner (Appeals), who placed reliance upon a decision of this court in the case of Sajani Jewels v. DCIT, rendered on 09.06.2016 in Special Civil Application No. 17935 to 17937 of 2015 as well as in the case of Income Tax Officer v. Keval Construction, (2013) 33 Taxman 277 and held that the issue is tax neutral and allowed the appeal by deleting the addition. Revenue carried the matter in appeal before the Tribunal, but did not succeed.

Mrs. Mauna Bhatt, learned Senior Standing Counsel for the appellant, reiterated the grounds set out in the memorandum of appeal.

A perusal of the order passed by the Commissioner (Appeals) reveals that before the Commissioner (Appeals), the assessee had submitted that it had incurred expenses in financial year 2011-12 and accounted the same as work-in- progress under the head non-current asset, and hence, there is no error or omission in respect of accounting of expenses of Rs.4,10,06,609/-. The said expenses / work-in-progress along with expenses incurred in financial year 2012-13 were charged and claimed as expenditure in the profit and loss account for financial year 2012-13 as the contractual obligation was completed and thus, the expenses are not prior period expenses. It was further contended that the Assessing Officer had not disputed that in principle, the expenditure was deductible, but was only disputing the year in which the deduction was claimed. The assessee had alternatively also contended that the assessee is engaged in the business of operating and maintaining toll road as per the concession agreement with the National Highway Authority of India and it is eligible to get deduction under section 80IA(4) of the Act for profits and gains derived from such eligible business. Therefore, the Assessing Officer cannot restrict the deduction under section 80IA of the Act only to the extent as claimed by the assessee at the time of filing return of income and has erred in not extending the benefit to the assessed income after disallowance / addition made to returned income under the assessment order under section 143(3) of the Act.

1 As can be seen from the order of Commissioner (Appeals), before the Commissioner (Appeals), the assessee had submitted that it had incurred expenses in financial year 2011-12 and accounted the same as work-in-progress under the head, non-current asset and therefore, there is no error or omission in respect of accounting of expenses of Rs.4,10,06,609/-. The Commissioner (Appeals) has placed reliance upon a decision of this court in the case of Sajani Jewels v. DCIT (supra) and held that the issue is tax neutral and that the Assessing Officer has unnecessarily raised the dispute. The Commissioner (Appeals) took a note of the fact that any disallowance of expenditure would increase profit derived from industrial undertaking and as the Assessing Officer has not disputed eligibility of such deduction under section 80IA of the Act, the assessee would be entitled to higher deduction under section 80IA on such enhanced figure. Thus, the entire disallowance made by the Assessing Officer would increase the quantum of deduction under section 80IA of the Act. Consequently, the total income would remain unchanged. He, accordingly, disallowed the addition of Rs.4,10,06,609/- made by the Assessing Officer.

2 The Tribunal, in the impugned order, has agreed with the findings recorded by the Commissioner (Appeals) and dismissed the appeal. 4.3 From the facts, as emerging from the record, it is evident that the sole ground on which the Assessing Officer has sought to disallow the expenditure of Rs.4,10,06,609/- is that, such expenses were incurred in the previous year and not in the current year. It is an admitted position that the assessee was entitled to deduction under section 80IA of the Act. The consequence of disallowance of expenditure by the Assessing Officer is that the eligible income under section 80IA of the Act would get enhanced and the assessee would be entitled to deduction thereof under section 80IA of the Act. The Tribunal was, therefore, justified in coming to the conclusion that the issue was tax neutral and upholding the order passed by the Commissioner (Appeals).

In view of the above, it not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to question of law, much less, a substantial question of law warranting interference. The appeal, therefore, fails and is, accordingly, summarily dismissed. [ Harsha Devani, J. ] [ Sangeeta K. Vishen, J. ] hiren