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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI NAVEEN CHANDRA,
Per Mahavir Singh, Vice President :
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeal)-32, New Delhi [hereinafter
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. referred to as “Ld. CIT(A)”], in Appeal No. 227/2016-17, dated 24.01.2017 for the Assessment Year 2012-13.
The first issue in this appeal of Revenue is against the order of CIT(A) in deleting the addition made by Assessing Officer (AO), treating the financial assistance as capital in nature and not taxable. The Revenue has raised the following grounds of appeal:
“1. Ld. CIT (A) has erred in law and on facts in allowing relief on account of revenue receipt of Rs. 52.10 Crore and unsubstantiated expenses without appreciation material on records.
2. Ld. CIT (A) has erred in law and on facts in considering the money received from NRDA has capital receipt whereas NRDA has substantially contributed funds for establishment of business of the assessee and, therefore, such money is revenue receipt in the hands of assessee.
3. Ld. CIT (A) has erred in law and on facts in deleting the addition towards disallowance of expenses which the assessee failed to substantiate even though there was no material before the Ld. CIT (A) to prove genuineness and reasonableness of such expenses.
4. The appellant craves leave to add, alter, amend or forego any ground of the appeal raised above at the time of the hearing.”
The brief facts of the case are that the Assessee company is engaged in the business of providing water treatment and supply for human consumption or industrial purposes for residential areas, industries and municipalities, and for that is engaged in the construction/set-up of water treatment plants and distribution
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. systems in the areas where there is need for adequate water supply and disposal of waste water. Assessee entered into the Concessionaire Agreement with Naya Raipur Development Authority ('NRDA') under which it was required to set-up infrastructure for water supply/ treatment system ('the Project') under "Build Operate Transfer" ('BOT') scheme vide agreement dated 5th Nov, 2009 ["the Concessionaire Agreement"]. The salient features of the Concessionaire Agreement are as under:
(a) NRDA, a special development authority established for development and administration of Naya Raipur, invited bids for creating and developing basic infrastructure facilities, being water supply/treatment system in Naya Raipur.
(b) The assessee was awarded the contract on Build, Operate and Transfer (BOT) basis for development and operation of the water supply system, being the "Project".
(c) The main objective of the concession was to first develop a water supply/treatment system along with Project facilities for provision of treated water to the consumers in Naya Raipur area and Page 3 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. thereafter, operation and maintenance of the project facilities along with raising bills on consumers and its collection therefrom; (d) The Agreement was entered into for a period of 8 years commencing from the appointed date (the agreement date, i.e.
05.11.2009) and the date of expiry of the concession period was 04.11.2017 during which the assessee was authorized to design, finance, construct, operate and maintain the Project Facilities; (e) 'Commercial operations date (COD)' as the date on which the Project Engineer issues readiness certificate for Project Facilities; (f) Article 12.1(a) provided that NRDA shall pay to the assessee total amount of Rs.115.60 crores as 'Financial Assistance' for the construction of Project Facilities during the period commencing from appointed date to COD. The payment of financial assistance was linked to, and payable on, achievement of specific milestones, in the manner as prescribed under said Article, which were specifically linked to creation of the facilities for the Project; (g) In consideration of the assessee accepting the concession, the assessee was entitled to receive 'Concession payment' as defined to Page 4 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. mean a sum of Rs.84 lakhs per quarter from COD, as increased on account of collection efficiency in the prescribed manner [Article 12.1(b) of the Agreement].
From the above clauses of Concessionaire Agreement, particularly clause 12.1, NRDA was required to provide financial assistance / grant for the project to the tune of Rs. 115.60 crore to the assessee. The assessee post development of the water treatment infrastructure shall charge remuneration from the NRDA from the date of commencement of commercial operations of the Project facilities known as Commercial Operations Date (COD). During the relevant assessment year under consideration, the Project was in the first stage of its development and was yet to be completed. In terms of the Concessionaire Agreement, NRDA released milestone- based financial assistance payments amounting to Rs. 52.10 crores on which TDS of Rs. 28,90,740/- was deducted. The Assessing Officer assessed the total income at Rs. 1,98,99,414/- while making following adjustments:
“(a) the financial assistance of Rs 52.10 Crores received from NRDA was treated as revenue receipt of the assessee; and Page 5 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. (b) An ad hoc disallowance of 20% was made out of total expenses incurred for the Project and debited in the CWIP account by the assessee.
Aggrieved, the assessee preferred an appeal before the CIT(A).
The CIT(A), vide its order dated 24.01.2017, decided the issue in favour of assessee by holding that the financial assistance was in the nature of capital receipt and not income of the assessee company. He also relied on decisions from subsequent years and consistency adopted by the assessee, which had been accepted by the AO. The CIT(A) finally observed in para 5.3.4 as under:
“5.3.4 I have carefully considered the arguments raised by the appellant and find that the project has not been completed. While it is clarified that each year is an independent year and doctrine of 'Res Judicata' does not apply to income tax proceedings, the fact that in the subsequent years the issue has been accepted by the AO supports the argument of the appellant. The company has rightly reduced the capital work in progress by the amount of financial assistance. Accordingly, this ground is allowed.”
We noted that the Tribunal, in assessee’s own case while adjudicating the issue raised by the Revenue under Section 263 of the Act, in revision proceedings, for the assessment years 2013-14 order dated 28.11.2019, after considering in detail facts and following judgment Page 6 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. of Hon’ble Supreme Court in the case of Sahni Steel & Press Works Ltd. 228 ITR 253 (SC) held that the nature of financial assistance given by NRDA to the assessee is capital in nature and the amount received by the assessee is a capital receipt not chargeable to tax. The Tribunal observed in paras 12 and 13 as follows:
“12. As mentioned elsewhere the bone of contention is the treatment of financial assistance received by the assessee from NRDA. In our considered opinion, taxation of grant/subsidy by whatever name called is determined by the purpose for which the grant/subsidy is granted. This view is fortified by the decision of the Hon'ble Supreme Court in the case of V.S.S.V. Meenakshi Achi 60 ITR 253 in which the Hon'ble Supreme Court held that the character of the subsidy in the hands of the recipient is to be determined having regard to the purpose for which the subsidy has been given. This principle has been reiterated by the Hon'ble Supreme Court in the case of Sahni Steel & Press Works Ltd. 228 ITR 253. wherein the Hon'ble Supreme Court held that the character of a subsidy in the hands of the recipient whether Revenue or Capital is to be determined having regard to the purpose for which the subsidy is given. It was further held that if the purpose of the subsidy is to help the assessee to set up its business or complete a project the subsidy is to be treated as having been received for Capital purposes, whereas if the subsidy is given to the assessee for assisting him in carrying out the business operations and is given only after and conditionally been commencement of production such subsidy is to be treated as assistance for the purpose of the trade and would constitute revenue receipt. This principle was once again reiterated by the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals 306 ITR 392.
Considering the afore-stated ratio laid down by the Hon'ble Supreme Court and considering the nature of financial assistance given by NRDA to the appellant, we are of the considered view that the financial assistance is capital in Page 7 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. nature and the amount received by the appellant is capital receipt." (Emphasis supplied)”
When this was pointed out to the Ld. DR, he could not contradict the above facts. Taking a consistent view, and respectfully following the decision of the Tribunal in assessee own case, we uphold the order of CIT(A) deleting the addition.
Accordingly, this issue in the Revenue’s appeal is dismissed.
The second issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the addition made by AO of the disallowance of expenses, as the assessee failed to substantiate the expenses or prove the genuineness and reasonableness of such expenses. For this, Revenue has raised the following ground no. 3 as under:
“3. Ld. CIT (A) has erred in law and on facts in deleting the addition towards disallowance of expenses which the assessee failed to substantiate even though there was no material before the Ld. CIT (A) to prove genuineness and reasonableness of such expenses.”
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee has shown expenditure of Rs. 62.63 crore under capital work in Page 8 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. progress. The AO noted that the assessee has only furnished bills finally drawn by the associate concern but complete veracity of the expenditure could not be examined and hence he disallowed 20% of the expenses claimed under work in progress, on adhoc basis, amounting to Rs. 12.52 crore. Aggrieved, the assessee preferred an appeal before CIT(A)
The CIT(A) deleted the disallowance by observing in paras 5.4.2 and 5.4.3 as follows:
“5.4.2 The appellant has claimed that the contractor, i.e. the associated concern, is an independent party and the appellant had filed bills raised by the contractor, but could not file the supporting bills of the contractor. Further, it was claimed that in the subsequent 2 years, no such disallowance has been made by the AO. 5.4.3 In my considered view the appellant has discharged its onus by producing the bills from the (sub) contractor. The sub-contractor is responsible for showing the income in its books and to justify the expenses claimed by it. Further, no specific finding has been made in respect of any inflation of bills or shifting of profits. Hence, this ground is allowed.”
Aggrieved, the Revenue has preferred an appeal before Tribunal.
We have heard rival submissions and perused the material available on record including assessment order and the order of CIT(A). In the impugned assessment order, the AO treated the expenditure incurred by the assessee for development of the water Page 9 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. supply/treatment plant as revenue expenditure as the assessee had debited the expenditure to CWIP a/c which was re-classified by the AO to Profit and Loss a/c. Thereafter, the AO, without even pointing out any specific instance of bogus/inflated expenditure, disallowed 20% of the total expenditure by making a bald assertion that complete veracity of expenses cannot be examined and there may be some leakage in the form of excess billing/ bogus expenditure. At the outset, as discussed hereinabove, the treatment undertaken by the assessee was in accordance with the relevant accounting principles and with the CBDT Circular No. 9 of 2014 dated 23.04.2014 which provides that the expenditure incurred for development of the infrastructure facility is to be claimed as deferred revenue expenditure post completion of the project.
Therefore, the adjustment made by the Ld. AO being contrary to the said Circular is bad in law. Further, the assessee submitted the invoices received from the sub-contractor for verification before the AO/ CIT(A). After taking into account all the facts/ evidences, the CIT(A) deleted the ad-hoc disallowance made by the AO by holding that the AO failed to point-out any specific instance of excess/ bogus expenditure and since the assessee had discharged its onus Page 10 of 12
ITA No.-2457/Del/2017 M/s JITF Water Infra (Naya Raipur) Ltd. by providing invoices of sub-contractor, no disallowance of expenditure is warranted in the instant facts. It must further be noted that the sub-contractor is independently assessed under the Act and for the relevant assessment year, the sub-contractor has declared income in the return and paid tax on the same. In view of the above facts and circumstances, we are of the view that there is no need to interfere with the order of CIT(A). Accordingly, the order of learned CIT(A) is upheld.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 10.12.2024