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Facts
The assessee company, a Special Purpose Vehicle for NHAI, incurred interest expenditure of Rs. 137.82 crores on borrowings for highway construction. This interest was capitalized as per ICDS-IX. The assessee disallowed this expenditure in its tax audit report. However, the AO/CPC made additions for this interest expenditure, first in the intimation u/s 143(1) and then sustained by the Ld.CIT(A).
Held
The Tribunal held that the assessee had already disallowed the interest expenditure in its tax audit report as per ICDS-IX, and the jurisdictional AO had later deleted this addition through rectification orders u/s 154. Therefore, the additions made by the AO/CPC and sustained by the Ld.CIT(A) were not sustainable as it amounted to double disallowance/addition.
Key Issues
Whether the disallowance of interest expenditure already disallowed by the assessee as per ICDS-IX can be added back by the AO/CPC, leading to double addition, and whether subsequent rectification orders by the AO affect the validity of the CIT(A)'s order.
Sections Cited
145(2), 143(1), 36(1)(iii), 154, 36(1)(viii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: Shri Laliet Kumar & Shri Manjunatha G.
(निर्धारण वर्ा/Assessment Year: 2020-21) SEW Krishnagar Vs. DCIT, Circle-3(1) Baharampore Highways Hyderabad Limited Hyderabad [PAN :AAPCS5143Q] (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri M.V. Prasad & Shri K.Rajendra Kumar, AR रधजस् व द्वधरध/Revenue by: Ms.M.Narmada, CIT-DR सुिवधई की तधरीख/Date of hearing: 21/01/2025 घोर्णध की तधरीख/Date of 21/01/2025 Pronouncement: आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 21.12.2023 of the learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], National Faceless Appeal Centre (NFAC), Hyderabad, pertaining to A.Y.2020-21.
The appeal filed by the assessee is barred by limitation by 9 days. It has moved a condonation petition explaining reasons thereof. We have heard both the parties and having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.
2 ITA 193/Hyd/2024 SEW Krishnagar Baharampore Highways Limited
The brief facts of the case are that the assessee company is a Special Purpose Vehicle, incorporated as per the guidelines of National Highway Authority of India (“NHAI”) is a 100% subsidiary of SWE Transportation Networks Limited. The assessee filed the original return of income for the A.Y.2020-21 on 31.03.2021, declaring current year loss of Rs.1,42,96,785/- and the said return of income has been revised on 31.05.2021 and declared current year loss of Rs.1,42,96,785/-. During the financial year, relevant to the assessment year under consideration, the assessee company entered into a concessionaire agreement dated 16.06.2011 with NHAI to execute work of four laning of Krishnagar Baharampore Sector in NH-34 in the State of West Bengal under NHAI program on Design, Build, Finance, Operate and Transfer on an Annuity basis (BOT Annuity). For construction of highway project, the assessee company had borrowed loans from banks and financial institutions and debited interest to the extent of Rs.137,81,63,643/- to the P&L account for the instant assessment year. Since the borrowings from the banks, financial institutions and NHAI were utilized for the construction of the highway, the finance cost / interest expenditure of Rs.137.82 crores incurred on the said borrowings and debited to the P&L account has been capitalizsed to work-in-progress account, because, the funds as borrowed from the banks and financial institutions are directly attributable to the construction of highway and the same was under construction as per ICDS-IX notified u/s 145(2) of the Income Tax Act, 1961 (“the Act”). This fact has been reported by the tax auditor
3 ITA 193/Hyd/2024 SEW Krishnagar Baharampore Highways Limited in Form 3CD under clause 13(e). Further, the tax auditor also reported interest debited to P&L account once again at clause 21(i) of the Tax Audit Report, as amount admissible under section 36(1)(iii) of the Act. The assessee has disallowed and added back total interest expenditure of Rs.137.87 crores to the total income. The CPC processed the return of income filed by the assessee and issued intimation u/s 143(1) of the Act on 20.12.2021, determining total income at Rs.136,43,98,400/- by making adjustment towards inadmissible expenditure u/s 36(1)(viii) of the Act. The assessee filed rectification petition u/s 154 of the Act and the CPC passed order u/s 154 dated 11.01.2022 and rejected the contentions of the assessee.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee submitted that it has debited total interest expenditure of Rs.137.82 crores in the P&L account and the entire interest expenditure has been disallowed and added back to the total income, in accordance with ICDS-IX notified u/s 145(2) of the Act. However, the AO/CPC once again disallowed and added back the interest expenditure of Rs.137.82 crores u/s 36(1)(iii) of the Act, which amounts to double addition for one expenditure. The assessee further contended that the jurisdictional Assessing Officer passed rectification order u/s 21.08.2023 on application filed by the assessee on 20.01.2023 and deleted the additions made towards disallowance of expenditure of Rs.137.82 crores. The Ld.CIT(A), after considering the relevant submissions of the 4 ITA 193/Hyd/2024 SEW Krishnagar Baharampore Highways Limited assessee, dismissed the appeal of the assessee and upheld the disallowance of interest on borrowed capital of Rs.137.8 crores u/s 36(1)(iii) made in the intimation u/s 143(1) dated 20.12.2021, on the ground that the assessee could not explain the inconsistency in the amount of interest paid in respect of borrowed capital reported in clause 21(i) in Form 3CD and as reported by the tax auditor.
Aggrieved by the Ld.CIT(A) order, the assessee is now in appeal before the Tribunal.
The learned counsel for the assessee submitted that the Ld.CIT(A) erred in sustaining the additions made by the Assessing Officer towards disallowance of interest of Rs.137.82 crores u/s 36(1)(iii) of the Act on the basis of tax audit report issued by the auditor in Form 3CD, even though the assessee has filed relevant evidences and proved that the said interest expenditure has already been disallowed by the assessee in clause 13(e) of the tax audit report, in terms of ICDS-IX, notified u/s 145(2) of the Act. The learned counsel for the assessee, further taken us to the paper book filed by the assessee and explained the issue in light of financial statements for the year ending 31.03.2020 and interest expenditure debited into P&L account, disallowance of total expenditure in the statement of total income as per tax audit report in clause 13(e) in terms of ICDS-IX and also he explained the reporting requirement under clause 21(i) of the tax audit report. Further, the learned counsel for the assessee had also filed copy of 5 ITA 193/Hyd/2024 SEW Krishnagar Baharampore Highways Limited rectification order passed by the JAO deleting the total additions made towards interest expenditure u/s 36(i)(iii) of the Act and submitted that the Assessing Officer has made additions once again for the same amount, which has already been disallowed and added by the assessee to the total income and therefore, the additions made by the Assessing Officer and sustained by the Ld.CIT(A) should be deleted.
The Ld.CIT-DR, on the other hand, supported the order of the Ld.CIT(A).
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee company has debited total interest expenditure of Rs.137,81,63,643/- into the P&L account. It is also an admitted fact that the total interest expenditure debited into P&L account amounting to Rs.137.82 crores has been disallowed and added back to total income in terms of ICDS-IX as notified u/s 145(2) of the Act as per clause 13(e) of the Tax Audit Report. It is also not in dispute that the jurisdictional Assessing Officer has passed order u/s 154 on 18.05.2022 on an application filed by the assessee u/s 154 on 10.02.2022 and allowed relief deleting the interest expenditure u/s 36(1)(iii) to the extent of Rs.100,16,00,589/-. Further, the jurisdictional Assessing Officer has passed one more order u/s 154 of the Act on 21.08.2023 and allowed relief sought by the assessee, by deleting the balance
6 ITA 193/Hyd/2024 SEW Krishnagar Baharampore Highways Limited disallowance of interest expenditure of Rs.37,65,63,103/-. In other words, the total interest expenditure disallowed by the AO/CPC in the order u/s 143(1) has been deleted by the jurisdictional Assessing Officer in the order passed u/s 154 of the Act. This fact has been brought to the notice of the Ld.CIT(A). Therefore, in our considered view, the Ld.CIT(A), having noticed the fact that the jurisdictional Assessing Officer, after verifying the facts with regard to disallowance made by the AO/CPC in the order u/s 143(1) of the Act has deleted the additions towards interest expenditure in the order u/s 154 of the Act, ought to have allowed the appeal filed by the assessee, because from the details filed by the assessee before the Ld.CIT(A), it is undisputedly clear that the AO/CPC has made disallowance towards interest expenditure u/s 36(1)(iii) of the Act on the basis of clause 21(i) of the Tax Audit Report, even though the assessee itself has disallowed the said interest expenditure in total under ICDS-IX and as per clause 13(e) of the Tax Audit Report. Further, as per the explanation furnished by the assessee, in light of relevant evidences, we find that the Assessing Officer/CPC has made additions towards interest expenditure twice, which is evident from the Tax Audit Report issued by the auditor in Form 3CD, where, one interest expenditure has been reported in two places, i.e, one under clause 13(e) under ICDS adjustments and another in clause 21(i) as the ‘amount inadmissible under the proviso to section 36(1)(iii) of the Act’. Since the assessee has filed relevant evidences and proved that the disallowance made by the Assessing Officer towards interest expenditure u/s 36(1)(iii) of the Act has 7 ITA 193/Hyd/2024 SEW Krishnagar Baharampore Highways Limited already been disallowed and added back under ICDS-IX and further the jurisdictional Assessing Officer has already deleted the additions made by the Assessing Officer in the order passed u/s 154, in our considered view, the additions made by the Assessing Officer/CPC and sustained by the Ld.CIT(A) cannot be upheld. Therefore, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the additions made towards disallowance of interest expenditure u/s 36(1)(iii) of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 21st January, 2025.