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Income Tax Appellate Tribunal, HYDERABAD “A” BENCH : HYDERABAD
Before: SHRI LALIET KUMAR & SHRI G. MANJUNATHA
ORDER PER LALIET KUMAR, J.M. The above appeals are filed by the Revenue against the respective orders both dated 03.06.2024 of the learned CIT(A)-National Faceless Appeal Centre [in short “the NFAC”], Delhi, passed u/sec.143(3) of the Income Tax Act, 1961 [in short “the Act”], relating to assessment years
2 ITA.No.872 & 873/Hyd./2024 2017-2018 and 2018-2019. Since common issues are involved in both these appeals, these appeals were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity. First, we take-up appeal ITA.No.872/Hyd./2024 for the A.Y. 2017-2018 as the “lead” appeal and both the parties are agreed to that the decision taken in this appeal be applicable in appeal ITA.No.873/Hyd./ 2024 for the A.Y. 2018-2019.
ITA.No.872/Hyd./2024 – A.Y. 2017-2018 :
Facts of the case, in brief, are that the assessee M/s. Thrissur Expressway Limited, is a Special Purpose Vehicle [“SPV”] in corporated for the purpose of Design, Engineering, Finance, Procurement, Construction, Operation and Maintenance of “6 Laning of Vadakanchery- Thrissur section of NH-47 from 240.00 KM” in the State of Kerala from existing 2 lane on “Design, Fund, Operate and Transfer basis” under concession agreement dated 24.08.2009 with the National Highways Authority of India [in short “NHAI”].
3 ITA.No.872 & 873/Hyd./2024 2.1. For the impugned assessment year 2017-2018, it filed it’s return of income on 29.10.2017 declaring NIL income and claimed refund of Rs.3,70,44,341/- and further filed revised return of income on 10.07.2018 declaring Rs.NIL income by claiming refund of Rs.3,67,35,480/-. The case of the assessee was selected for scrutiny under CASS. The Assessing Officer issued statutory notices u/sec.143(2) and 142(1) to the assessee calling the assessee to furnish various details as per CASS etc., The Authorised Representative of the Assessee appeared before the Assessing Officer from time to time and filed the requisite details. The Assessing Officer also issued show cause notice dated 28.11.2019. In response thereto, the assessee furnished his Escrow Bank Account statement and Non- Escrow Bank Statements both of Axis Bank on 03.12.2019. The Assessing Officer after examining the documents placed on record, noted that the assessee has not produced the books of accounts for the impugned assessment year 2017- 2018 nor submitted that the works have been executed as per the expenses debited to the P & L A/c for the 4 ITA.No.872 & 873/Hyd./2024 assessment year 2017-2018. The learned Assessing Officer, therefore, in absence of books of accounts and supportive evidence in connection with the expenses debited to P & L A/c in the return filed, estimated the income of the assessee @ 8% i.e., at Rs.32,79,23,520/- on the gross receipts declared by the assessee of Rs.409,90,44,000/- and made addition u/sec.28 of the Act.
2.2. On being aggrieved, the assessee carried the matter in appeal before the learned CIT(A) and the learned CIT(A) deleted the addition of Rs.32,79,23,520/- by observing as under :
“AO has misunderstood the cost of construction incurred during the year as receipt which is only a matching entry in Profit and Loss account to balance the expenditure incurred on ongoing road construction work. This amount is only part of cost of work which is to be taken to balance sheet as the accumulating figure to be added to balance of the previous year. When there is no income earned the question of estimating the income does not arise. The entire receipt shown in P& L account is cost of construction of ongoing toll road which will become an asset in books only on completion of work
5 ITA.No.872 & 873/Hyd./2024 which will be finally handed over to the government agency after toll period expires. However during the year under appeal there is no revenue earned by appellant and estimation of income is wrong. Receipt of appellant will start only when commercial operation of toll collection starts, which happened in March, 2022. Accordingly AO is directed to delete this addition of Rs.32,79,23,250/-. These grounds are allowed.”
Aggrieved by the order of the learned CIT(A), the Revenue carried the matter in appeal before the Tribunal and has raised the following grounds :
1. On facts & law, the Ld.CIT(A) erred in admitting new evidences in the form of paper book containing in the submission dated 01.02.2024 under rule 46A of I.T.Rules, 1962 without providing any opportunity to assessing officer.
2. On facts & law of the case, the Ld. CIT(A) erred in allowing the ground of the assessee against the addition made of Rs.32,79,23,520/- being 8% of gross receipts of Rs.409,90,44,000/- as per provisions of section 28 of the 3. Income Tax Act, 1961.
3. On facts & law of the case, the Ld. CIT(A) erred in holding that the total receipt of Rs.409,90,44,000/- as capital receipt instead of revenue receipt.
4. On facts & law, the Ld.CIT(A) erred in not enhancing the income shown by the assessee to the tune of Rs.183.67
6 ITA.No.872 & 873/Hyd./2024 Cr. i.e. grants received from NHAI 179.90 Cr. and Utility Shifting Work Rs.3.76 Cr. 5. Appellant prays for other grounds/grounds that may be urged at the time of hearing.
The Learned DR on the other hand, vehemently relied on the order of the Assessing Officer. He submitted that the Assessing Officer estimated the income of the assessee @ 8% of the gross receipts which is common in line of construction activities and based on judicial precedents and principles. He submitted that during the course of assessment proceedings the assessee did not produce books of accounts and in absence of documentary evidence to verify bills/vouchers and TDS etc., and the variations between the 26AS and P & L A/c gross receipts, the impugned estimation @ 8% made by the Assessing Officer is justified and pleaded that the order of the Assessing Officer be confirmed.
The Learned Counsel for the Assessee, on the other hand, strongly relied on the order of the learned CIT(A). He submitted that the Assessing Officer made the 7 ITA.No.872 & 873/Hyd./2024 impugned estimation @ 8% on account of variations in 26AS and P & L A/c. He submitted that the entire receipt shown in P & L A/c is only a cost of construction of on-going toll road which will become an asset in books only on completion of work and will be handedover to the Government agency after toll period expires. He accordingly submitted that when there is no income earned, the question of estimating the income @ 8% by the Assessing Officer is not justified and in fact, the income does not arise in the hands of the assessee. In support of his contentions, the Learned Counsel for the Assessee relied on the CBDT’s Circular No.09/2014 dated 23rd April, 2014 wherein the CBDT clarified that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable ‘business expenditure’ under the Income Tax Act and that this Circular applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. The Learned Counsel for the 8 ITA.No.872 & 873/Hyd./2024 Assessee accordingly pleaded that the order of the learned CIT(A) is in accordance with the Accounting Standards, as per the Board’s circular and therefore, the order of the learned CIT(A) be sustained and the grounds raised by the Revenue be dismissed in the interest of substantial justice.
We have considered the rival submissions of both the parties, written submissions of the Learned DR, paper books filed by the assessee and perused the material available on record. We find that admittedly there is no dispute between the parties with regard to the assessee’s engagement for execution of construction and maintenance contract of 6 lane Vdakancherry-Thrissur section of NH-47 in Kerala from the existing 2 lane through a concession agreement dated 24.08.2009 with National Highways Authority of India. During the course of assessment proceedings, the Assessing Officer noticed that there were variations between gross receipts as per 26AS vis-à-vis the gross receipts credited to P & L A/c. In view of non- submission of books of accounts, the Assessing Officer proposed to estimate the income of the assessee @ 8% i.e.,
9 ITA.No.872 & 873/Hyd./2024 Rs.32,79,23,520/- on the gross receipts of Rs.409,90,44,000/- and made addition u/sec.28 of the Act. In an appeal before the learned CIT(A), noted that the Assessing Officer has taken the cost of construction as receipt which is a matching entry in P & L A/c to balance the expenditure incurred on on-going road construction work and, therefore, noted that when there is no income earned, the question of estimating the income @ 8% does not arise. He, accordingly, deleted the impugned addition of Rs.32,79,23,250/- made by the Assessing Officer. We find there is a force in the submissions of the Learned Counsel for the Assessee to the effect that the CBDT vide it’s Circular No.09/2014 dated 23.04.2014 made it crystal clear that where an assessee claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier years, the total deduction so claimed for the assessment years prior to the assessment year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ be amortized equally over the remaining
10 ITA.No.872 & 873/Hyd./2024 period of toll concessionaire agreement and that the impugned circular applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. We note that the assessee is not creating any capital asset of it’s own by creating the infrastructure facility i.e., construction of National High Way and the owner is NHAI-Government of India. The assessee was allowed to construct highway and on completion of the work, the assessee is allowed to collect the amount by way of Toll. Therefore, till the completion of the national high way, the assessee could not receive any sum in his hands and as such, it is not a “capital work-in-progress” in the hands of the assessee as no asset is owned by the assessee in it’s name. The capital asset infrastructure facility belongs to the NHAI and the amount is payable by the NHAI to the assessee. The NHAI instead of making payment to the assessee, it has facilitated the assessee to open the toll gate on completion of the work and recover the amount. Therefore, till such time, the amount will be retained as 11 ITA.No.872 & 873/Hyd./2024 business asset in the books of the assessee and the said amount actually cannot be considered as a capital work-in- progress but represents the work in progress of the assessee or deferred revenue expenditure of the assessee and would be debited to the P & L A/c proportionately during the period of operation of the toll gate. Therefore, the Assessing Officer’s presumption that it has to be treated as capital work-in-progress is not correct. We find force in the submissions of the assessee to the effect that the matter in issue in the instant appeal is squarely covered by the aforesaid CBDT Circular dated 23.04.2014. Further, the assessee has shown only the matching entries in the P & L A/c and not derived any income for the impugned assessment year. As rightly noted by the learned CIT(A), when there is no income accrued in the hands of the assessee, then there is no question of estimation of income @ 8% out of total gross receipts in the hands of assessee does not arise. We, therefore, find no infirmity in the order of the learned CIT(A) and accordingly we confirm his order.
12 ITA.No.872 & 873/Hyd./2024 Accordingly, the grounds raised by the Revenue are dismissed.
In the result, ITA.No.872/Hyd./2024 of the Revenue is dismissed.
ITA.No.873/Hyd./2024 – A.Y. 2018-2019 :
In the assessment year 2018-2019 [ITA.No.873/Hyd./2024] the Assessing Officer estimated the income of the assessee @ 8% at Rs.14,36,28,439/- on the gross receipts of Rs.179,53,55,488/- besides making addition of Rs.38,41,46,752/- u/sec.40(a)(ia) and addition of Rs.37,97,29,195/- u/sec.43B of the Act.
Same order to follow for the impugned assessment year 2018-2019 with respect to the estimation of income @ 8% on the gross receipts. The order of the learned CIT(A) in deleting the addition on this ground is confirmed. The grounds raised by the Revenue on this issue is dismissed.
13 ITA.No.872 & 873/Hyd./2024 10. Similarly, the Assessing Officer made an addition of Rs.38,41,46,752/- being 30% of expenses for non- depositing of TDS before due date. The learned CIT(A) noted that the assessee has capitalized all the expenses incurred in construction of high-way and no expenses are claimed during the impugned assessment year 2018-2019 and, therefore, deleted the impugned addition made in the hands of the assessee u/sec.40(a)(ia) of the Act. We find no infirmity in the order of the learned CIT(A) as the assessee has not claimed the revenue expenditure and it is settled position of law that when no expenses debited to the P & L A/c and no deduction claimed by the assessee under the head profits and gains of business or profession, then, no disallowance can be made by invoking the provisions of sec.40(a)(ia) of the Act. We, accordingly, find no infirmity in the order of the learned CIT(A) for and accordingly, confirm the same. The grounds raised by the Revenue on this issue is dismissed.
With regard to disallowance of Rs.37,97,29,195/- made by the Assessing Officer u/sec.43B of the Act, the 14 ITA.No.872 & 873/Hyd./2024 learned CIT(A) noted that it is settled position of law that expenditure can be disallowed only if it is claimed by the assessee. If there is no claim of expenditure, then there should not be any disallowance. Further, the learned CIT(A) noted that the impugned expenses though incurred by the assessee but are not charged to P & L A/c account as all these expenses are transferred to work-in-progress account and no expenses are claimed. In this factual backdrop, we find no infirmity in the order of the learned CIT(A) in deleting the addition of Rs.37,97,29,195/- made u/sec.43B of the Act by the Assessing Officer. Accordingly, the grounds raised by the Revenue on this issue are dismissed.
In the result, ITA.No.873/Hyd./2024 is dismissed.
To sum-up, both the appeals ITA.Nos.872 and 873/Hyd./2024 of the Revenue are dismissed. A copy of this common order be placed in the respective case files.
15 ITA.No.872 & 873/Hyd./2024 Order pronounced in the open Court on 24.02.2025.