2019 (4) TMI 1855 - AT - Income Tax

Disallowance of Project Facilities Expenses - deduction u/s. 80IA - HELD THAT - On verification of the ledger account of Project Facilities Expense, it is noticed that the assessee has debited under the head Project Metal Crass Barrier Expense. The expenditure incurred for project metal crass barrier is a contractual obligation to be fulfilled by company as per Schedule-B of the concession agreement entered in to with NHAI. Company does not have right of any reimbursement or claim of money from NHAI for the said facilities. As these project facilities are required to be built up on the national highway owned by government, Management is of opinion that these project facilities do not create any assets or benefit of enduring nature and assessee/ appellant made expenses for safety barrier pavement marking, traffic signal etc. as per term and agreement of the contract with the NHAI. A.O. disallowed the claim of the appellant on the ground that above said amount was spent in earlier year and not in the year under consideration. In this case, the rate of tax are same as compared to earlier year and there is no loss to the revenue. Delhi High Court in the case of Vishnu Industrial Gases P. Ltd. vs. CIT 2008 (5) TMI 636 - DELHI HIGH COURT which was followed in the case of CIT vs. Nagri Mills 1957 (9) TMI 30 - Bombay High Court wherein it is held that where the department had not disputed that the expenditure was deductible in principle but was only disputing the year in which the deduction could be allowed. Held, castigating the department, that as the tax rates were the same in both years, the department should not fritter away its energies in raising questions as to the year of deductibility/taxability. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of Project Facility for ?4,10,06,609/-

Analysis:

Issue 1: Disallowance of Project Facility for ?4,10,06,609/-
The appellant, a company providing operation, maintenance, and transfer services to a national highway, debited ?4,83,71,954 under Project Metal Crash Barrier Expense, a contractual obligation as per the agreement with NHAI. The management believed these project facilities did not create enduring assets and treated them as revenue expenditure. The AO disallowed ?4,10,06,609 claiming it was spent in a previous year. The appellant argued the expenditure was necessary as per the contractual obligation and was treated as work in progress in the previous year. The statutory auditor also considered it as current year expenses. The CIT(A) partly allowed the appeal, but the Revenue challenged it. The Tribunal noted the expenditure was incurred as per the agreement with NHAI and dismissed the appeal of the Revenue. Citing a Delhi High Court judgment, the Tribunal emphasized that if the tax rates remained the same, disputes over the year of deductibility should not waste resources, leading to the dismissal of the Revenue's appeal.

This judgment highlights the importance of contractual obligations, treatment of expenses as revenue, and the relevance of tax rates in determining the deductibility of expenses. It emphasizes the need for consistency in tax treatment and the significance of honoring contractual commitments in expense deductions.