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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the Revenue is directed against the order of CIT(A) – 3, Hyderabad, dated 15/03/2018 for AY 2013-14.
On perusal of record, we find that there is a delay of 4 days in filing this appeal before us. In this connection, the assessee filed a petition for condonation of said delay in which it was stated that due to procedures in the department the said delay occurred, which may be condoned, as the delay is not intentional and deliberate which is beyond the control. The revenue also filed an affidavit affirming the said reasons. As the revenue was prevented by a reasonable cause, the delay is condoned and the appeal is admitted for adjudication.
Brief facts of the case are, assessee company filed its return of income for the AY 2013-14 on 27/09/2013 declaring income of Rs. Nil. Subsequently, the case was selected for scrutiny under CASS and
2 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. . accordingly notice u/s 143(2) on 02/09/2014 issued to the assessee. Also, notices u/s 142(1) and 143(2) along with questionnaire were also issued on 12/01/2016 and 09/02/2016. In response to the said notices, the AR of the assessee furnished the books of account but not vouchers as called for. After issuing the show cause notice, the assessee had produced the vouchers except for the salaries and wages however, they have produced vouchers for verification.
3.1 While going through the statement of Employees benefits, the AO noticed that the assessee company has claimed salaries for the amount of Rs.3,02,73,760 and the schedule for Toll Operation Maintenance it was at Rs.4,21,66,865/-. The total amount comes to Rs.7,24,40,625/-. The AO observed that out of the above, an amount of Rs.692430/- incurred on travelling by others abroad and for an amount of Rs.13,90,198/- towards Legal and professional charges. Since the assessee failed to explain and no AR of the assessee has appeared at the time of verification of vouchers except an accountant of the assessee company, the AO was of the view that the above expenditures may not be related to the assessee’s business and hence, he disallowed the amount of Rs. 20,82,628/-.
3.2 On verification of the statement of schedule for Routine Maintenance, the AO noticed that the assessee company has claimed an amount of Rs.5,93,30,447/-. When the AO asked the same to explain, in response assessee explained that it is for overlay works and also stated that as per the agreement for every three years they have to lay road on already laid. AO observed that, hence the above expense are nothing but to meet the duty of the assessee company as per the agreement entered into and whatever expenses spent on this overlay works should be treated as capital in nature but not current repairs. If it is current repairs it would be small in nature but not in crores worth unless they lay road and undertook any big work which render the assessee company enduring benefit of business, it is not
3 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. . necessary to spend such a huge amount for administration in addition to the above amount the assessee claimed expenses separately for other departments of company. He, therefore, was of the view that the above amount has to be treated as capital in nature and as per the directions and circular of the Hon'ble Board it also has to be considered for the amortization from this year for the period remaining. In view of the above observations, the AO disallowed the above amount of Rs. 5,93,30,447/- and added to the income of the assessee.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A).
The CIT(A) after considering the submissions of the assessee, deleted the disallowance made by the AO towards travelling and legal & professional charges, by observing as under: (VIII)……………………Facts of the case, grounds of appeal, assessment order and submissions of the appellant were perused. AO while disallowing the total amount of Rs.20,82,628/- had stated that no AR had appeared at the time of verification of vouchers except. an accountant of the appellant company. The appellant's AR has submitted that this was not correct and relevant details including books of account, vouchers and other relevant bills were produced before the Assessing Officer. The appellant further contended that the accountant of the appellant company who was well versed with the company transactions had appeared and explained the details. It was submitted that the vouchers and bills were self- explanatory. The appellant also submitted the relevant books of account and vouchers which were earlier submitted at the assessment stage. From perusal of the details, it is noticed that the vouchers and bills are self-explanatory. While making the disallowance, the Assessing Officer in assessment has also stated that the accountant of the appellant company was present at assessment stage. The disallowance by the Assessing Officer is not based on any tangible Of specific evidences. The disallowance made on account of travelling expenses and professional charges by the Assessing Officer does not hold merit. Hence, Ground Nos.2 and 3 in appeal are allowed.”
4 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. . 5.1 As regards the disallowance of maintenance expenditure, the CIT(A) deleted the same by observing as under:
“IX) …………..Facts of the case, grounds of appeal, assessment order and submissions of the appellant were perused. The appellant company was in the business of construction and maintenance of roads under the BOT scheme with the Madhya Pradesh Road Development Corporation Limited. As per the terms of the concession agreement, it was the responsibility of the appellant company M/s. Rewa Tollway Private Limited, to maintain the road project during the concession period. In this context, the appellant company, incurred operations and maintenance expenses for the purpose of business and for the contractual obligations entered with Madhya Pradesh Rajya Sethu Nirman Nigam Limited (which was a Government of Madhya Pradesh undertaking). It was the responsibility of the appellant company to maintain the roads in terms of the concession agreement. The appellant company had incurred from the year of operations the maintenance expenditure. It was brought to note by the appellant at the time of the appeal that the department had accepted the maintenance expenditure as revenue expenditure. The Assessing Officer had held the expenses incurred to be capit.al in nature and not current expenses. The operational expenses incurred by the appellant based on the contractual agreement were to be treated as revenue expenditure. In this context, the appellant said that this is as per the contractual agreement. The Assessing Officer's observation in para-e of the assessment order that such work should be treated as capital as the amounts are huge sounds strange. The nature of any expenditure is based on the nature of work carried out. by the appellant and not based on the amount of expenditure incurred. The Assessing Officer has not given tangible evidence to substantiate/support the disallowance made by the AO. Keeping in view the various fact.s, issues and circumstances, Grounds Nos.5 and 6 in appeal are allowed.” 6. Aggrieved by the order of CIT(A), the revenue is in appeal before us raising the following grounds of appeal: “1. The Ld. CIT(A) erred both in law and on facts of the case. 2. Whether on the facts and in the circumstances of the case and in law the CIT(A) is correct in allowing the expenditure amounting to Rs. 20,82,628/- as having verified the said bills/ vouchers with respect to such expenditure which might be correct and genuine, the fact remain as to whether such
5 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. . expenditure was met wholly and exclusively for the purpose of business. 3. Whether on the facts and in the circumstances of the case and in law the CIT(A) is correct in allowing the maintenance expenditure amounting to Rs. 5,93,30,447/- by treating it as capital expenditure. 4. Any other ground(s) that may be urged at the time of hearing.”
Ground Nos. 1 & 4 are general in nature, hence, need no adjudication.
Before us, with regard to ground No. 2, ld. DR brought to our notice para 5 of assessment and corresponding para VIII of CIT(A)’s order and submitted that assessee has incurred huge expenditure in foreign travel and legal expenditure as these expenditures are not relevant for the running of the business in tollway.
8.1 With regard to ground No. 3, he brought to our notice para 6 of assessment order and findings of ld. CIT(A) in para IX and submitted that assessee has incurred huge maintenance expenditure and AO has treated the above expenditure as capital in nature. However, he submitted that whether such expenditure was actually incurred or not, is not brought on record by the assessee and finally he supported the order of AO.
The ld. AR, on the other hand, with regard to ground No. 2, brought to our notice various vouchers pertaining to the expenditure incurred on legal and travel by the assessee. Further, he submitted that all these expenditures were actually incurred by the assessee in order to secure bank guarantee and retainer fees for the lawyers, which are essential in this line of business.
6 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. . 9.1 With regard to travel expenditure, he submitted that all these expenses are domestic travel by air and train, which are relevant for the business and incurred for entertainment of visitors and travelling by the company staff.
9.3 With regard to ground No. 3, he brought to our notice the concession agreement entered by the assessee with MP Rajya Setu Nirvana Nigam Ltd. and brought to our notice Clause – 18 i.e. operation and maintenance clause, as per which, assessee has to incur with regard to maintenance expenditure on a periodical basis. He submitted that all these expenditures are explained in detail before the CIT(A) and he supported the order of ld. CIT(A).
Considered the rival submissions and perused the material on record. We notice that AO has disallowed the travel expenditure considering it as foreign travel and legal expenditure as AR of the assessee has not appeared at the time of verification of the vouchers, however, accountant of the assessee was present. Further, the AO observed that whether these expenditures are related to the business or not is not known, since the assessee could not explain before him. In this regard, assessee has submitted detailed payment vouchers and relevant invoices before us in the form of paper book. On verification of these vouchers and bills, we notice that assessee has incurred travel expenditure, which includes travel by train and domestic air fares. All these expenditures are incurred for the purpose of domestic travel and entertainment for the visitors.
10.1 With regard to legal and professional expenditure, (raised in ground No. 2), we notice that assessee has incurred for legal purpose and fees to lawyers and also paid as retainer fees to the different professionals. These are relevant expenditure for the purpose of business and it is the assessee, who will determine what is the relevant legal assistance and it may incur depending upon the nature
7 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. . of legal advice they may require. Therefore, in our considered view, all these expenditures are relevant for the purpose of business. Therefore, we are in agreement with the findings of CIT(A) and accordingly, ground raised by the revenue on this count is dismissed.
10.2 With regard to ground No. 3 regarding maintenance expenditure, we notice that assessee is incurring maintenance expenditure regularly and the assessee has placed P&L account in the paper book, as per which, assessee has incurred 5.93 crores in previous year and in this AY assessee has incurred Rs. 14.7 crore. In this AY, as per the concession agreement entered by the assessee, with the MP Govt., assessee has to maintain roads on periodical basis and at least it has to carry out relaying of roads as per the agreement on regular basis. Further, assessee has incurred expenditure on maintenance over the years and the department has always accepted the same as revenue expenditure and only in this AY, AO has taken it as capital expenditure considering the quantum of expenditure without any basis. Since the assessee is maintaining roads in order to collect tollway fees, it is the responsibility of the assessee to maintain the roads as per the concession agreement. Therefore, this is the regular business expenditure, we are inclined to accept the findings of CIT(A) in this regard. Accordingly, ground No. 3 raised by the revenue on this issue is dismissed.
In the result, appeal of the revenue is dismissed. Pronounced in the open Court on 9th August, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 9th August, 2019 kv
8 ITA No. 1273/Hyd/18 Rewa Tollway Pvt. Ltd., Hyd. .
Copy to:- 1) ITO, Ward – 3(2), 7th Floor, Signature Towers, Kondapur, Hyderabad – 500 004. 2) M/s Rewa Tollway Pvt. Ltd., H.No. 1-89/1, Plot No. 42 & 43, Kavuri Hills, Phase – 1, Madhapur, Hyderabad – 500 081 3) CIT(A) – 3 Hyderabad. 4) Pr. CIT - 3, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File