DCIT, JAIPUR vs. GVK JAIPUR EXPRESSWAY PVT LTD, JAIPUR

Because the revenue was aggrieved from the order of the National Faceless Appeal Centre, Delhi [for short ‘NFAC/CIT(A)’] passed u/s 250 & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. of the Income Tax Act 1961 [for short ‘Act’] dated 02.11.2021 for A.Y. 2016-17 and dated 30.10.2021 for A.Y. 2017-18 has filed appeal before us. Moreover, the assessee has also filed Cross Objections in both the assessment years against the order of ld. CIT(A). Since common issues are involved, all these appeals were heard together and are disposed off by this consolidated order.

“1. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the computation under clause (f) Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with rule 8D of the Income Tax Rules, 1962 ignoring the provision of explanation 1(f) to section 115JB(2) of the Income Tax Act, 1961.

2. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 6,24,000/- made u/s 14A of the IT Act, 1961 in view of the provisions of the section 14A and in the light of CBDT’s Circular No. 5/2014.

3. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 22,74,00,000/- ignoring the fact that the assessee has not furnished any scientific documentary evidences which can fix the liability.”

– A.Y. 2017-18 [Revenue’s appeal] & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. “1.Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 9,42,750/- made u/s 14A of the IT Act, 1961 in view of the provisions of the section 14A and in the light of CBDT’s Circular No. 5/2014.

2. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the computation under clause (f) Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with rule 8D of the Income Tax Rules, 1962 ignoring the provision of explanation 1(f) to section 115JB(2) of the Income Tax Act, 1961.

3. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 27,10,55,267/- ignoring the fact that the assessee has not furnished any scientific documentary evidences which can fix the liability.”

CO No. 01/JPR/2022 – A.Y. 2016-17 [Assessee’s appeal] “1. On the facts and in the circumstances or the case. the ld. CIT(A) has grossly erred in confirming the disallowance of Rs. 4,84,282/- made u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961 of deduction claimed on account of payment of contribution of employees' Provident Fund by brushing aside the submission that as per the provisions of section 43B or the Act, assessee's claim has to be allowed where the contribution is deposited before the due date or filing of return of income. Thus the addition of Rs. 4,84,282/-deserves to be deleted. 1.1 That the Ld. AO has further erred in ignoring the fact that the deduction was claimed on the basis of ruling of jurisdictional High Court prevailing at the time of filing Return of Income. Appellant prays that no liability can be fastened upon the assessee on the basis of subsequent amendment made in statue, therefore consequent disallowance deserves to be deleted.

2. That, the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”

CO No. 02/JPR/2022 – A.Y. 2017-18 [Assessee’s appeal] & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. “1. On the facts and in the circumstances or the case. the ld. CIT(A) has grossly erred in confirming the disallowance of Rs. 7,84,119/- made u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961 of deduction claimed on account of payment of contribution of employees' Provident Fund by brushing aside the submission that as per the provisions of section 43B or the Act, assessee's claim has to be allowed where the contribution is deposited before the due date or filing of return of income. Thus the addition of Rs. 7,84,119/-deserves to be deleted. 1.1 That the Ld. AO has further erred in ignoring the fact that the deduction was claimed on the basis of ruling of jurisdictional High Court prevailing at the time of filing Return of Income. Appellant prays that no liability can be fastened upon the assessee on the basis of subsequent amendment made in statue, therefore consequent disallowance deserves to be deleted.

2. That, the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. 6. The ld. CIT(A) further held that the said disallowance u/s 14A has been deleted the issue of adding the same for the purpose of calculation of profit u/s 115JB does not arise. The ld. CIT(A) has further observed that interest is disallowable u/s 36(1)(iii).

7. looking to the ground that has been raised by the Revenue, it implies that revenue is agitating the issue of not adding back of the disallowed interest amount for the purpose of computation of income u/s 115JB in view of explanation 1(f) of section 115JB(2). However, CIT-DR requested that the aforesaid ground impliedly also object to the decision of CIT(A) of treating the disallowance of interest not to be made u/s 14A and instead the disallowance of interest to be made u/s 36(1)(iii). Thereby consequently the revenue is objecting to the finding of ld. CIT(A) of not considering the aforesaid disallowance for adjustment in view of explanation 1(f) of section 115JB(2). Considering the argument of the Ld. DR and in the broader approach justice the Bench accepted the request of ld. CIT-DR.

8. while arguing ld. CIT-DR strongly relied upon the order of AO and submitted that disallowance of interest so made by AO considering application of section 14A is justified in view of the facts of the case.

“Ground No. 1 & 2 of Department’s appeal in AYs 2016-17 & 17-18 In these grounds of appeal disallowance of interest by invoking the provisions of Section 14A is challenged by department and further, thus a common submissions is made for all these grounds. Department further challenged the action of Ld. CIT(A) of holding that disallowance u/s 14A is not includible in Book profits for the purpose of charging MAT u/s 115JB of the Act. Brief facts are that ld. AO invoked the provision of Section 14A and disallowed the interest paid by the appellant company, on the funds utilized for subscribing to the share capital in various group companies and further included the same in the book profits for computing the MAT u/s 115JB of the Act. Ld. CIT(A) has deleted the disallowance made u/s 14A and further held that the said disallowance is not includible in the book profit for MAT purposes by following the decision of the hon’ble Jaipur bench in the case of assessee itself for preceding assessment years where the hon’ble bench has followed the decision of hon’ble Special bench in the case of Vireet Investment (P) Ltd. reported in 165 ITD

27. (Delhi) andalso by following decisions of Mumbai and Kolkatta high courts. With regard to the Disallowance u/s 14A on other investments made i.e. in the share capital / application made in group companies, it is submitted that assessee company had made investment out of its own funds available in the shape of share capital and reserves and thus toP this extent it could not be said that assessee has utilized interest bearing funds in making investments. Accordingly no disallowance could be made u/s 14A on such investments. The funds available in both the years is tabulated as under: Assessment Average value of APB Share Holders fund APB Years Investment made 2016-17 6,24,00,000.00 34,36 4,40,07,39,695.00 24 2017-18 9,62,75,000.00 15 4,91,11,71,113.00

10. At the outset, kind attention of hon’ble bench is invited to the provisions of section 14A, which read as under: Expenditure incurred in relation to income not includible in total income. 14A. [(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] That the heading of section 14A, i.e. “Expenditure incurred in relation to income not includible in total income” itself presupposes the existence of exempt income, and then only a particular expenditure can be treated as incurred “in relation to” such income. It is a matter of fact that certain incomes are not included while computing the total income as these are exempt under various provisions of the Finance Act. Further, as books of accounts are usually prepared and consolidated by the assessee after balancing the entire income earned (whether taxable or non taxable) and expenditure incurred by it in a particular financial year. However, as per Income Tax Act, expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. Section 14A was, therefore inserted by the Finance Act, 2001 with retrospective effect from 1st April 1962 clarifying that this was the intention of the legislature from the inception of the Income Tax Act. Section 14A deals with expenses incurred by a person to earn exempt income. Such expenses are not deductible while computing total income and are disallowed, as otherwise this would result in double advantage to the assessee. For example when agricultural income itself is exempt from taxation, therefore there is no justification to consider expenditure on agricultural activities in the computation of total income. Thus, provisions of Section 14A are attracted if and only if:

1. 1. The assessee has certain income which is not includible in his total income under any provisions of the Act.

2. The assessee has incurred expenditure in relation to earning of such income which is exempted under the Act. The language of section 14A is not at all ambiguous and in fact very clear and by virtue of the same, only expenditure actually incurred in relation to income & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. not includible in total income shall be disallowed. In no way, it could be interpreted that it seeks to disallow expenses incurred in relation to future exempt income, as it would be completely against the well recognized “matching concept.” The principle that disallowance u/s 14A can be made only when assessee has actually earned exempt income, has been affirmed by catena of judicial pronouncements. In this regard, reliance is placed on: Hon’ble Apex Court in the case of Maxopp Investment Ltd vs. CIT has held thatonly that expenditure which is "in relation to" earning dividends can be disallowed u/s 14A & Rule 8D and further the AO has to record proper satisfaction on why the claim of the assessee as to the quantum of suo moto disallowance is not correct. Hon’ble Delhi High Court judgement in the case of Cheminvest Ltd. Vs. CIT reported in 378 ITR 33, wherein it is held that, no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the appellant. Further in the case of assessee itself in preceding years disallowance made u/s 14A was deleted by the hon’ble ITAT, Jaipur bench, Jaipur for the first time in A.Y. 2010-11(APB 82-98, relevant page 90) against which the department has preferred the appeal before the Hon’ble jurisdictional High Court who in dismissed the departmental appeal and confirmed the order of hon’ble ITAT deleting the disallowance of made u/s 14A vide orders dt. 10.10.2017 (APB 99-173, relevant page 169 para 17). Department has challenged the order of hon’ble High court for AY 2010-11 in DBITA No. 142/2017 by way of SLP filed before the hon’ble Supreme Court was dismissed by hon’ble Apex court vide orders dt. 07.09.2018 (APB 327). Thereafter in subsequent assessment years this issue has been dealt at length by the Hon’ble ITAT Jaipur Bench, Jaipur and vide its common order dated 22.12.2020 has deleted the disallowance made u/s 14A on all the counts, the relevant observations as containing para 70 to 72 are reproduced as under (APB 229-324, relevant page 293-300): 70. We have heard the rival contentions and purused the material available on record. During the F.Y 2011-12 relevant to A.Y 2012-13, the assessee company has made an application for allotment of 13.30% Non-cumulative redeemable preference shares of M/s GVK Airport Developers (P) Ltd., a group company and has paid an amount of Rs. 940.80 crores by way of shares application money. The shares were finally allotted during the financial year 2014-15 relevant to A.Y 2015- 16 and therefore, till such time the shares were not allotted, the amount so paid continues as share application money pending allotment and it cannot be regarded as an investment in shares or any asset which is capable of yielding any dividend income. Given that the shares were allotted only during the financial year 2014-15 relevant to A.Y 2015-16, there was no question of any dividend been declared/accrued and/or received by the assessee company right through the financial years relevant to A.Y 2012-13 to A.Y 2014-15 and even during the financial & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. year 2014-15 relevant to A.Y 2015-16, no dividend was actually declared/accrued and/or received by the assessee company. Accordingly, in the return of income filed for the respective assessment years, it is an admitted and undisputed position that no dividend income has been claimed as exempt from tax. It is a settled legal position that no disallowance can be made u/s 14A in a year where no exempt income has been earned or received by the assessee. The ld AR has relied on the decision of the Hon’ble Delhi High Court in case of Cheminvest Ltd vs CIT (supra) where similar substantial question of law had arisen for consideration as to “Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?" And the Hon’ble Delhi High Court, while disposing off the said ground, was pleased to held as under: “23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”

71. We also note that similar view has been taken by the Hon’ble Delhi High Court in its subsequent decision in case of PCIT vs OIL Industries Development Board [2019] 103 taxmann.com 325 (Delhi) wherein it was pleased to held as under: “3.The ITAT relied upon the ruling of this Court in Cheminvest Ltd. v. CIT [2015] 378 ITR 33 which ruled in the absence of any exempt income, disallowance under Section 14-A of the Act of any amount was not permissible. Since the decision in Cheminvest Ltd. (supra) was followed, there is no substantial question of law that requires consideration.” And the SLP filed by the Revenue against the said decision of the Hon’ble Delhi High Court has since been dismissed by the Hon’ble Supreme Court in case of PCIT vs OIL Industries Development Board (2019) 262 Taxman 102(SC). Similar view has been taken by the Hon’ble Mumbai High Court in case of PCIT vs Ballarpur Industries Limited (ITA No. 51 of 2016 dated 13.10.2016) wherein the Hon’ble Mumbai High Court was pleased to held as under: “On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law. Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs.”

72. We therefore find that there is a convergence of view among the various Hon’ble High Courts on the matter and following the aforesaid decisions of the Hon’ble High Courts, it is a consistent position taken by the various Benches of the Tribunal as well including Jaipur Benches in case of Deepak Vegpro (P) Ltd vs ACIT (supra) and Mumbai Benches in case of DCIT vs JSW Limited (supra) that no disallowance can be made u/s 14A in a year where no exempt income has been earned or received by the assessee Therefore, respectfully following the decisions referred supra, in the instant case, where the facts are on a stronger footing in the sense that there was no investment by way of shares which were capable of even yielding any dividend income and the amount remain invested as share application money for A.Y 2012-13 to A.Y 2014-15 and even for A.Y 2015-16 where the shares were finally allotted, there was no dividend income which has accrued and claimed exempt, the provisions of section 14A cannot be invoked. In the result, the findings, of the Assessing officer for all the years under consideration as well as of the ld CIT(A) for A.Y 2014-15 & 2015-16, in so far as invocation of section 14A is concerned, are set-aside. Since this issue of disallowance of interest u/s 14A of the investment made having no exempt income has already been settled through dismissal of SLP of the revenue by the Hon’ble Supreme Court in the case of assessee itself and the facts and circumstances being identical, it is submitted that no disallowance u/s 14A should be made.

With regard to the inclusion of disallowance u/s 14A into book profit, it is submitted that in A.Y. 2014-15 & 2015-16 in the case of the assessee itself in first appeal proceedings, ld. CIT(A) after relying upon the above judgment of Hon’ble Special Bench of ITAT in the case of Vireet Investments, held that the computation of book profits under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income Tax Rules, 1962. Against such orders, department has preferred appeal before the Hon’ble ITAT, Jaipur Bench, Jaipur who vide its order dated 22.12.2020 has upheld the action of the Ld. CIT(A) by observing in para 87 as under: 87. We have heard the rival contentions and purused the material available on record. The Hon’ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has held that the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act is required to be determined independently as the same is a complete code in itself and considering the said decision, the Coordinate Ahmedabad Benches of the Tribunal in case of Asian Grantio India Ltd (supra) has held that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income, and drawing support from the principles laid down under normal provisions further held that the disallowance of the expenses cannot exceed the exempt income and limited the disallowance of the expenses to the extent of exempt income which was NIL in that case. Following the said proposition, in the instant case as well, given that there is no income which is claimed exempt in any of the years under consideration, no disallowance of the expense is warranted under Section 115JB of the Act even in terms of clause (f) to Explanation-1 of Sec. 115JB of the Act in respect of all the impugned assessment years. Hon’ble Special Bench of ITAT in the case of ACIT vs. Vireet Investment Pvt Ltd 165 ITD 27 (Delhi)had to consider the following two important questions of law: (i) Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profits u/s 115JB of the Act? And (ii) Whether investments which did not yield any exempt income should enter into the computation under Rule 8D while arriving at the average value of investment, income from which does not form part of the total income? HELD by the Special Bench deciding both issues in favour of the assessee: (i) We answer the question referred to us in favour of the assessee by holding that the computation under clause (f) of Explanation 1 to & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962. (ii) Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year. As the issue is settled by the special bench in the case of Vireet Investments Pvt. Ltd. against which no appeal was preferred by the department, and also looking to the fact that in the case of assessee itself, this issue is decided in favour of the assessee by the Hon’ble Jurisdictional ITAT, therefore, it is humbly prayed that the order of ld.CIT(A) deserves to be uphold on these issues. In this regard further reliance is also placed on the following judicial pronouncements: - Essar Teleholdings Pvt. Ltd. 2012 dt. 7.8.2014 (Mumbai H/C) - Bengal Finance and Investments P. Ltd. ITA No. 337/ 2013 (Mumbai H/C) - Bhushan Steels Ltd. ITA No 593 & 594/ 2015 (Delhi H/C)”

70. We have heard the rival contentions and purused the material available on record. During the F.Y 2011-12 relevant to A.Y 2012-13, the assessee company has made an application for allotment of 13.30% Non-cumulative redeemable preference shares of M/s GVK Airport Developers (P) Ltd., a group company and has paid an amount of Rs. 940.80 crores by way of shares application money. The shares were finally allotted during the financial year 2014-15 relevant to A.Y 2015- 16 and therefore, till such time the shares were not allotted, the amount so paid continues as share application money pending allotment and it cannot be regarded as an investment in shares or any asset which is capable of yielding any dividend income. Given that the shares were allotted only during the financial year 2014-15 relevant to A.Y 2015-16, there was no question of any dividend been declared/accrued and/or received by the assessee company right through the financial years relevant to A.Y 2012-13 to A.Y 2014-15 and even during the financial year 2014-15 relevant to A.Y 2015-16, no dividend was actually declared/accrued and/or received by the assessee company. Accordingly, in the return of income filed for the respective assessment years, it is an admitted and undisputed position that no dividend income has been claimed as exempt from tax. It is a settled legal position that no disallowance can be made u/s 14A in a year where no exempt income has been earned or received by the assessee. The ld AR has relied on the decision of the Hon’ble Delhi High Court in case of Cheminvest Ltd vs CIT (supra) where similar substantial question of law had arisen for consideration as to “Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?

And the Hon’ble Delhi High Court, while disposing off the said ground, was pleased to held as under:

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. “23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”

It is thus clear that in the preceding years when assessee company has made investment by way of share application money / shares in M/s GVK Airport Developers Pvt. Ltd., then also the ITAT after considering the detailed facts and circumstances of the case, mainly considering that no exempt income has been derived by the assessee company during the years under consideration and also following the judicial decisions of the High Courts mainly in the case of Cheminvest Ltd. Vs. CIT reported in 378 ITR 33 (Delhi) and PCIT Vs. Oil Industries Development Board & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. reported in 103 taxmann.com 325 (Delhi) wherein it has been held that provisions of section 14A cannot be invoked if there was no dividend income which has accrued and claimed as exempt by the assessee.

Recard reveals that for these both years no dividend income is received by assessee company on the impugned advance. So even if we consider the AO’s view that advances given to M/s Sutara Roads & Infra Ltd. is not merely the advances but it is the investment in shares of M/s GVK Airport Developers Pvt. Ltd. through advances given to M/s Sutara Roads & Infra Ltd., then also following the order of the Coordinate Bench as references above for the preceding years in the case of assessee company itself, the disallowance made by AO u/s 14A is not justified, and thereby action of deriving to delete the addition is in accordance with interpretation of law and we do not find any infirmity in that order.

Even otherwise we would like to add that from the facts noticed from the record, the AO has not been able to establish as to how the advance given to M/s Sutara Roads & Infra Ltd. is not the advance but the investment in equity/share. As argued by the ld. AR that looking to the balance sheet read with note No. 12 and 13, it is clear that till 31.03.2015, the impugned loan was invested in preference share of M/s GVK Airport Developers Pvt. Ltd. whereas in the F.Y. 2015-16 same has been shifted & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. and is reflected as advance to subsidiary - M/s Sutara Roads & Infra Ltd. in the balance sheet of assessee company of year ending 31.03.2016. Thus during the year under consideration since this amount has not been utilized for any investment in shares / equity, there will not be any question of earning any dividend income on such advance and consequently no question arises for any disallowance u/s 14A on the interest paid on such loan. This factual aspect as regard were not controverted. The AO has also referred in the assessment order that during the year this amount of loan has been shown as advance to M/s Sutara Roads & Infra Ltd., but without any reasoned base he has presumed the same not to be actually the advance but the investment. This view of AO is not supported with any evidence and cogent finding and is accordingly rejected.

Thus disallowance of interest on the loan taken earlier, so made by AO u/s 14A is not justified and action of ld. CIT(A) of deleting the same u/s 14A is upheld.

11. Now coming to the issue particularly taken by the department in ground No. 1 for A.Y. 2016-17 (and ground No. 2 for A.Y. 2017-18) that this disallowance so made u/s 14A by the AO should have been considered for computing income u/s 115JB and ld.CIT(A) has erred in

12. We have considered the ground so taken by the department and also perused the relevant part of the order of AO and ld. CIT(A). The ld. CIT(A) has held that impugned disallowance of interest so made u/s 14A considering it to be expenditure required for earning exempt income is unjustified and deleted the same. We have also held in the earlier paras that the disallowance of interest could not have been made u/s 14A and this can be made u/s 36(1)(iii).

Moreover, as relied in the written submission that the issue on that aspect is discussed by the Special Bench in the case of Vireet Investment Pvt. Ltd. In that case the Special Bench has dealt following two important questions of law:

(i) Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profits u/s 115JB of the Act? And & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. (ii) Whether investments which did not yield any exempt income should enter into the computation under Rule 8D while arriving at the average value of investment, income from which does not form part of the total income?

It is HELD by the Special Bench deciding both issues in favour of the assessee: (i) We answer the question referred to us in favour of the assessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962. (ii) Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year.

87. We have heard the rival contentions and perused the material available on record. The Hon’ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has held that the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act is required to be determined independently as the same is a complete code in itself and considering the said decision, the Coordinate Ahmedabad Benches of the Tribunal in case of Asian Grantio India Ltd (supra) has held that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income, and drawing support from the principles laid down under normal provisions further held that the disallowance of the expenses cannot exceed the exempt income and limited the disallowance of the expenses to the extent of exempt income which & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. was NIL in that case. Following the said proposition, in the instant case as well, given that there is no income which is claimed exempt in any of the years under consideration, no disallowance of the expense is warranted under Section 115JB of the Act even in terms of clause (f) to Explanation-1 of Sec. 115JB of the Act in respect of all the impugned assessment years.

As the issue as decided by ITAT jaipur bench in case of the assessee as well as by the special bench in the case of Vireet Investments Pvt. Ltd. we see no reason to deviate from the decision of ITAT in the case of assessee itself in the preceding years. In the light of these facts Accordingly, ground No. 1 for A.Y. 2016-17 and ground No. 2 for A.Y. 2017-18 of the revenue are dismissed.

Ground No. 3 of Department’s appeal in A.Y. 2016-17 & 2017-18 18. Brief facts relating to this ground is that the assessee company has made provisions for the second periodic overlay of Toll road and debited the same in the Profit & Loss account. The AO held that the same is merely a provision and is accordingly a contingent liability and has broadly mentioned same reasoning as given in earlier years.

Department’s Ground of appeal No.3 In these grounds, department has challenged the deletion of the addition of Rs. 22,74,00,000/- in AY 2016-17 and Rs. 27,10,55,267/- in AY 2017-18 on account of overlay expenses claimed in Profit & Loss A/c. Brief facts pertaining to these grounds are that the assessee company has made provisions for the second periodic overlay of the pavement (Toll road) and charged the same from Profit & Loss account. Ld. AO, by alleging that there is no scientific basis for making this provisions and the same is based on conjectures and surmises, held the same as contingent liability and thus made the addition. In first appeal ld. CIT(A) appreciated the fact that as per the concession agreement between the assessee and NHAI, expenditure for keeping the roughness of the expressway at 2500mm/Km is mandatory and the appellant company has to relay the surface every 5 years thus it is an ascertained liability and not contingent liability and also by following the decision of the hon’ble bench in preceding year has deleted the disallowance made in both the years. In this regard it is submitted that as the traffic passes on the pavement, the riding quality of the pavement deteriorates. With rapidity it deteriorates, to what extent and periodicity it requires resurfacing in order to give smooth riding quality to the toll paying road users, is a function of the volume of traffic, the loads carried by the traffic and the damage caused by climatic & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. conditions (extreme temperatures, heavy rains / floods, accidents resulting in spillover of chemical materials etc.). In order to ensure smooth riding quality, the Concession Agreement prescribes certain standards to be maintained by the Company in terms of ‘Surface Roughness’. The prescribed standards require the Company to undertake Surface Renewal Coat to the Pavement as and when the roughness value of the pavement reaches 3500 mm/km to bring it down to 2500 mm/km. Irrespective of the roughness value, Renewal Coat has to be laid at least once every 5 years. Relevant clause 4.5.1 of Schedule-L to the Concession Agreement is reproduced below: (APB 70-80) 4.5.1 Pavement Riding Quality The riding quality of the pavement shall be ensured by satisfying the minimum requirements given herein under. i) Surface roughness of the Project Highway on completion of construction shall be 2500 mm/km as measured by the 5th wheel Bump Integrator. ii) Surface roughness shall not exceed 3500 mm/km during the service life of pavement at any time. A renewal coat of 25 mm of bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km.

Since the timing for renewal of surface and the area is fixed i.e. in every five years and it is mandatory as per the terms of agreement and assessee company has no option but to act according to the agreement, therefore, the expenditure on surface renewal coat is an ascertained liability and accordingly the Company has to accumulate sufficient funds out of the Toll Fee Income collected from road users which primarily causes the damage requiring resurfacing. In order to derive comfort to meet the above expenditure, the Company has to retain sufficient funds within the business. Such retention of funds is a business necessity rather than earning other income. While computing the book profit in terms of section 115JB, the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities are to be added to the profit as per Profit & Loss Account, however, in the case of the assessee since the liability of the surface renewal coat is ascertained feature and cannot be avoided in any circumstances and failing which the assessee would be debarred from its business of maintenance and operating the toll highway, therefore, the provisions of section 115JB, Explanation-1(c) are not applicable in the case of the assessee company and thus the provision made towards the surface renewal coat being ascertained liability deserves to be allowed as claimed.

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. It is further submitted that it cannot be said that it is a simple provision made but rather it is an expenditure which has to be incurred and accordingly assessee company has obtained a report of independent consultant towards the expenses to be incurred on such overlay. Assessee in order to charge the amount pertaining to the year under consideration from the profits has made provision out of the total expenditure proposed to be incurred on third periodic overlay and debited to Profit & Loss Account in order to disclose true and correct profits for the year under consideration. Since it is an ascertained liability, therefore, the same could not be disallowed nor adjustment for the same could be made in the book profits for MAT purposes. It is further submitted that provision towards cost of overlay expenses is related to the business activity of operating and maintaining of the highway and any addition made towards such provision would enhance the taxable profit which is eligible for deduction u/s 80IA(4)(i) of the Act and would thus be a revenue neutral exercise. The Central Board of Direct Taxes issued a Circular No. 37/2016 way back in November 2016 (APB 325-326) wherein CBDT has issued directions that appeal not to be filed and the appeal already filed may be withdrawn/not pressed upon where any expenditure is disallowed, which is related to the business activity against which Chapter VI- A deduction has been claimed and the deduction need to be allowed on the enhanced profits. Thus even if the disallowance is made the same is to be included in the total income of the assessee and eligible for deduction u/s 80IA and accordingly it is a revenue neutral exercise. For making adjustment in the book profit, as submitted above, since it is an ascertained liability, no adjustment is required to be made in this regard as adjustment in the book profit should be made for uncertained liability. It is further submitted that the provision for the first time was made in A.Y. 2011-12 and was allowed in the assessments completed upto A.Y. 2013-14 and for the first time the same was disallowed in A.Y. 2014-15 and onwards. In first appeal, Ld. CIT(A) accepted the contention of the assessee, however, allowed part relief. The Hon’ble ITAT finally vide common orders for various assessment years dated 22.12.2020, has allowed the same as business expenditure eligible for deduction in the respective years where the provisions were made and further held that since it is an ascertained liability, no adjustment should be made in the book profits. The relevant observations of the Hon’ble ITAT as contained in para 49 as under: (APB 277-279) 49.We therefore find that the Independent consultant has taking into considerations the standards so set in the concessionaire agreement and the length of the highway has estimated the total cost. The Assessing officer has rejected the said estimation holding that the basis of estimation of such cost of overlay expenses is not done on a scientific basis. We find that once the consultant has taken into consideration the standards of roughness as so specified in the concessionaire agreement which is in turn are based on international and other benchmarks so specified for the pavement riding quality standards, the basis of estimation is clearly based on well laid down standards and the method of evolution of such standards over the period of & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. time and as they stood today is clearly a long drawn process of reasoning and experimentation which is nothing but scientific in nature. Further, where the Assessing officer is not satisfied with such estimation, he is required to specify the reasons as to why he is not so satisfied and may have referred the matter to another expert for seeking his opinion. Merely stating that he is not satisfied with such report will not satisfy the requirements of law as once the assessee has made a claim supported by report of an Independent Consultant, the onus shifts on the Revenue to disprove the same which in the present case has not been satisfied by the Revenue. During the course of hearing, the ld CIT D/R has stated that the entire length of the highway has been considered for estimating the cost which is not correct interpretation of clause (ii) as some stretches may require renewal coat in the interim period and not towards the end of fifth year. We find that the estimation has been made on the basis that the whole length of the highway shall be required to be maintained with prescribed roughness standard and it is likely that such renewal cost will be done towards the end of year 2015 and accordingly, the estimate has been made and we don’t find any infirmity therein. In case of Rotork Controls India (P) Ltd vs CIT (Supra), the Hon’ble Supreme Court was pleased to held as under: “10. What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized.

11. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

12. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation.” In view of the facts, it is submitted that the issue being identical and there is no change in the facts and circumstances, therefore, orders of ld. CIT(A) deserves to be upheld.”

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd.

45. In light of above, there has to be compelling reasons for a departure from the past settled position wherein the assessee has been held eligible for such claim all these years and such reasons have to be spelt out clearly by the Assessing officer. It has been contended by the ld A/R that during the year under consideration, there is no change in the nature of provision so made by the assessee company which is flowing out of the requirements of the concessionaire agreement executed with NHAI and determined based on an independent consultant report who has been appointed in consultation with NHAI except for the fact that the quantum of provision was revised in the fifth year. Even on perusal of the assessment orders and the findings of the Assessing officer, we note that there is no finding recorded by the Assessing officer that the nature of provision so made by the assesse company is different from the past years or not flowing from the requirements of the concessionaire agreement executed with NHAI. Even the report of the independent Consultant was obtained in the first year where it had estimated the total cost of Rs 56.64 crores which has therefore formed & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. the basis for spreading the total cost equally across five years. We therefore failed to understand that where the provision for periodic wearing course overlay has been accepted all these years as an ascertained liability, then on what basis, the said provision is treated as a contingent liability for A.Y 2014-15 and A.Y 2015-16. Interestingly, even for these two assessment years, while the Assessing officer has treated the provision as a contingent liability whilecomputing income under the regular provisions however at the same time, has not made any adjustment to the book profits towards such provision as “the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities which again bring out the dichotomy and inconsistency in the stand of the Assessing officer for the same assessment year. Therefore, on this ground as well, where there are no changes in the facts and circumstances of the case, following the rule of consistency as upheld by the Courts from time to time, we are of the considered view that there is no basis to interfere with the consistent position which has been accepted in the earlier years that is, to hold that the provision so made is towards an ascertained liability and which is allowable for tax purposes while computing the income under the normal provisions of the Act.

on the issue is allowed.”

47. We also find that as per the concessionaire agreement executed with NHAI, the assessee company is required to maintain the highway in traffic worthy condition through regular maintenance and preventive maintenance of the highway and it has been provided that MOST Manual for maintenance of roads and IRC-SP-35-1990 guidelines for inspection and maintenance of bridges shall be followed by the assessee company. And as part of the maintenance requirements, periodic maintenance of pavement has been specifically provided and we deem it appropriate to refer to the relevant clauses in the concessionaire agreement which read as under: “4.5 Periodic Maintenance of Pavement The framework of activities relating to pavement maintenance and rehabilitation in respect of flexible and rigid pavement are given in the flow charts in Appendix 3.1 and Appendix 3.2 respectively. The Concessionaire shall set forth in the Operations and Maintenance Manual the detailed procedures to be followed under each of these activities, and also choose the operational and performance criteria from the IRC/MOST standards and specifications for each of the performance indicators covered under pavement condition survey, roughness and BBD deflections. Where such criteria is not specified in the standards, the Concessionaire, for the purpose of routine maintenance shall set forth such criteria so as to conform to international standards or sound pavement maintenance practices in consultation with the Independent Consultant for using them as criteria. 4.5.1 Pavement Riding Quality The riding quality of the pavement shall be ensured by satisfying the minimum requirements given herein under. i) Surface roughness of the Project Highway on completion of construction shall be 2500 mm/km as measured by the 5th wheel Bump Integrator.

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. ii) Surface roughness shall not exceed 3500 mm/km during the service life of pavement at any time. A renewal coat of 25 mm of bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km. 4.5.2 Structural Condition of the Pavement i) The structural condition of the flexible pavement of the Project Highway shall be assessed every year by taking Benkelman Beam Deflections and working out characteristic deflections of homogeneous sections of the Project Highway as per IRC-81- 1997. Wherever the characteristic deflection exceeds 0.8 mm a bituminous overlay shall be provided appropriately designed according to IRC-81-1997 or its latest versions or amendments to it. ii) In the case of cement concrete pavement, joints shall be thoroughly inspected every year and the loss of sealing compounds made good.”

4.5.1 Pavement Riding Quality The riding quality of the pavement shall be ensured by satisfying the minimum requirements given herein under. i) Surface roughness of the Project Highway on completion of construction shall be 2500 mm/km as measured by the 5th wheel Bump Integrator. ii) Surface roughness shall not exceed 3500 mm/km during the service life of pavement at any time. A renewal coat of 25 mm of bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km.

As seen from the above, as per clause 4.5.1(ii) of Schedule ‘L’ under the head “Pavement Riding Quality”, the concessioner is required to lay a renewal coat of 25 mm of bituminous concrete at the end of every five years after the initial construction or even earlier than five years, if the roughness value reaches 3500mm per KM, so as to bring it to the initial value of 2500mm per KM. Thus it is a case where the expenditure is & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. required to be incurred on laying the renewal coat which has to be in any case laid by assessee company at the end of every five year [and even before that if the roughness quality has gone down].

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd.

Assessee’s Cross Objection No. 1 & 1.1 for A.Y. 2016-17 & 2017-18 27. In these cross objections, the assessee has challenged the confirmation of disallowance made by ld. CIT(A) u/s 43B r.w.s. 36(1)(va) for the payment of contribution on account of PF made after the due dates in both the assessment years, so made by AO.

Assessee Cross Objections Nos. 1 & 1.1: In these cross objections the assesse has agitated the disallowance made u/s 43B r.w.s. 36(1)(va) for the payment of contribution on account of PF made after the due dates in both the assessment years which stood upheld by the ld. CIT(A). The ld. AO made disallowance of contribution towards PF by alleging that though the same were paid before the due date of filing of I.T. Return, were indeed after the respective due dates as prescribed in the respective Acts. In this regard it is humbly submitted that, it is settled preposition of law that the above contribution though paid after the due dates prescribed in the respective & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. acts, if paid before the filing of return u/s 139(1) of the Act were allowable expenses. It is admitted fact that the payments were made prior to the filing of return of income as is evident from the perusal of the charts given in the assessment orders for both the assessment years. In this regard reliance is placed on decision of Hon’ble Apex Court in the case of Alom Extrusions (2009) 319 ITR 306 wherein it has been held as under: Business expenditure--Deduction on actual payment--Contribution to provident fund--Existing provision creating difficulties--Amendment to remove difficulty--Has retrospective effect--Finance Act, 2003, making amendment but as if with effect from April 1, 2004--To be read as having retrospective effect from April 1, 1988--Income-tax Act, 1961, s. 43B. Interpretation of statutes--Retrospective operation--Provision amended to remove unintended consequences--To be read retrospectively to give effect thereto--Strict construction not preferred where leads to unintended consequences. Attention of your honours is invited to the fact that disallowance of similar nature was made in preceding assessment years also which stood deleted by Hon’ble ITAT, vide its common order dated 22.12.2020 wherein the Hon’ble ITAT in para 102-103 at pages 94-96 has observed as under (APB 322-323):- 102. We have heard the rival contentions and perused the material available on record. The ld. CIT(A) has recorded a finding of fact that the assessee has deposited the employee’s contribution towards PF/ESI beforethe due date of filing the return of income. The said finding of the ld CIT(A) remain undisputed before us. It is therefore an admitted fact that the entire amount was deposited by the assessee before the due date of filing of the return under section 139(1) of the Act, then in such a scenario, the amount cannot be disallowed under section 36(1)(va) of the Act as the due date referred to in section 36(1)(va) of the Act need to be read in conjunction with section 43B(b) of the Act. In case of Rajasthan State Beverages Corporation Ltd (supra), the Hon’ble Rajasthan High Court was pleased to held as under: “5. So far as the question relating to privilege fees amounting to Rs.26.00 Crores in the instant year as well as the deduction of claim of Rs.17,80,765/- on account of Provident Fund (PF) and ESI is concerned, this Court has extensively considered the aforesaid two questions in assessee's own case vide judgment and order dt.26.05.2016 referred to (supra) and has held that the privilege fees being a revenue expenditure, is required to be allowed as a revenue expenditure. This court in the aforesaid case has also allowed the claim of the assessee, in so far as payment of PF & ESI etc. is concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in CIT v. State Bank of Bikaner & Jaipur [2014] 363 ITR 70/43 taxmann.com 411/225 Taxman 6 (Mag.) (Raj.) and CIT v. Jaipur Vidhut Vitaran & 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. Nigam Ltd. [2014] 363 ITR 307/49 taxmann.com 540/[2015] 228 Taxman 214 (Mag.) (Raj.) and accordingly both the questions are covered by the aforesaid judgment and against the revenue.

so taken by the Revenue for the respective assessment years are thus dismissed. Further Hon’ble Special Bench of Chennai in the case of Kwality Milk Food Ltd. Vs. ACIT reported in 284 ITR

89. (AT) has categorically held that the language of the statute must be understood in the sense in which it was understood when it was enacted. The Hon’ble Guahati High Court in the case of CIT Vs. George Williamson Ltd. report in 284 ITR 619 has allowed the substantial question of law in favour of the assessee which includes the payments made u/s 36(1)(va) of the Income Tax Act, 1961. The decision of the Hon’ble Guahati High Court in the case of George Williamson is affirmed by the Hon’ble Supreme Court in the case of CIT Vs. Vinay Cements reported in 213 CTR at Page 268.Thus the question of allowability of employees contribution u/s 36(1)(va) even if deposited after the due date of the respective Act but before the due date of filing of return is decided in favour of assessee by the Hon’ble Apex Court. Recently, Hon’ble Jurisdictional High Court in the following cases has expressed the same view: 265 CTR (Raj.)

59. CIT Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 265 CTR (Raj.)

62. CIT Vs. Jaipur Vidyut Vitran Nigam Ltd. However ld. CIT(A) has not appreciated these facts and confirmed the disallowance by placing reliance on the recent amendment made in the Act. In this regard it is submitted that the hon’ble bench is consistently taking the view that the amendment made is prospective and not applicable retrospectively and deleted the disallowance made in various cases.

& 307/JPR/2021 & CO No. 1& 2/JPR/2022 M/s GVK Jaipur Expressway Pvt. Ltd. In the circumstances it is humbly prayed that the case of the assessee is fully covered by the said decisions of the Hon’ble bench thus the disallowance so confirmed by ld. CIT(A) in both the assessment years deserves to be deleted.”

Considering the facts of the case and legal position as emerging from the various decisions, we upheld the order of ld. CIT(A) of In the result, the appeal of the revenue for the years [A.Y.2016-17 & A.Y.2017-18] are dismissed as well as the cross objections of the assessee for both the years are also dismissed.

Order pronounced in the open Court on 19/08/2025.