2017 (4) TMI 655 - AT - Income Tax

Payment of agency fees - construction of toll rod / Noida DND fly over - Revenue expenditure or capital expenditure - activities of these agents during the post commissioning period - Held that - Agreements to wrongly conclude that since the works assigned to independent Engineer independent Auditor and retainer is related to establishment construction and commissioning of the DND Fly over and to oversee and review position of recovery for the fly over vis-a-vis the cost involved the expenses incurred by the assessee in this regard is capital in nature. In this context it is also worthwhile to mention the fact that the Tax authorities never questioned the deductibility of above expense (i.e. Agency Fee) while dealing with assessee s case in respect of AY 2002-03 to 2005-06 which speaks for inconsistency in the approach and also go to support the claim of the assessee that the expenses in question were allowable revenue expenditure. In view of the above we are of the considered view that the services performed by these agents are revenue in nature and fulfills the conditions prescribed under section 37(1) of the Act. Therefore the agency fees incurred by the assessee during the F.Y. 2005-06 are allowed as revenue expenditure and the addition made by the Assessing Officer has rightly been deleted by the ld. CIT(A) and we find no infirmity in his order. Bonus paid is exclusively has to be dealt by Section 36(1)(ii) of the Act and which does not distinguish between capital and Revenue and therefore has to be allowed. Advance payments received on account of toll and advertisement - Held that - In the instant case the assessee recoqnised advertisement revenue proportionately on the basis of period falling under the particular financial year. So far as toll fee is concerned while issuing new cards (Silver and Gold cards) the assessee collects administration fees security deposit and toll usage fees. While administration fees was recognised as revenue immediately amounts received on account of toll fees from issuance I recharge of Silveri Gold Card was recognised as revenue on the basis of actual number of passages availed by the card users during a particular financial year. We have also noticed that the assessee has been following the same practice consistently since the commencement of its operations and the same had never been questioned by income tax department. Even in the subsequent financial years the assessee has followed the same practice and was allowed by the department. The Assessing Officer ought not to have disturbed the method of accounting adopted by the assessee in one assessment year when the same is accepted in the earlier as well as the subsequent assessment years as any change to the treatment would have a corresponding ripple impact on the other assessment years. Accordingly the grounds of the Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of capital expenditure amounting to ?22,55,046/-.
2. Allowance of depreciation on toll bridge amounting to ?15,84,60,192/-.
3. Ownership of the toll bridge and related depreciation claims.
4. Deletion of "Take Out Assistance Fee" amounting to ?91,21,413/-.
5. Performance-related bonus treated as capital expenditure.
6. Treatment of advance payments and unexpired discounts as income.

Issue-wise Analysis:

1. Deletion of Capital Expenditure:
The Revenue contended that the CIT(A) erred in deleting ?22,55,046/- treated as capital expenditure by the AO. The AO argued that the work of the Independent Engineer and Auditor was related to the establishment, construction, and commissioning of the DND Flyover. However, the CIT(A) observed that the services of these agents were availed to ensure compliance with agreements and were recurring in nature, thus qualifying as revenue expenditure under Section 37(1) of the IT Act. The Tribunal upheld the CIT(A)'s decision, noting that the project was operational since February 2001, and the expenses were necessary for the business's smooth functioning.

2. Allowance of Depreciation on Toll Bridge:
The Revenue challenged the allowance of depreciation of ?15,84,60,192/-, arguing that the toll bridge was not owned by the assessee as per the BOOT agreement. The CIT(A) allowed the claim, and the Tribunal upheld this decision, referencing earlier ITAT rulings in the assessee's favor. The Tribunal noted that the bridge was considered a building under the IT Rules and that the assessee had exclusive rights over it during the concession period, thus qualifying for depreciation.

3. Ownership of the Toll Bridge:
The AO argued that the assessee did not own the toll bridge, as it was constructed on leased land. The CIT(A) and the Tribunal found that the BOOT agreement granted the assessee exclusive rights to develop, establish, construct, operate, and maintain the bridge, effectively making it the owner for depreciation purposes. The Tribunal cited previous ITAT and High Court decisions affirming this interpretation.

4. Deletion of "Take Out Assistance Fee":
The AO disallowed the "Take Out Assistance Fee" of ?91,21,413/-, treating it as capital expenditure. The CIT(A) deleted this addition, and the Tribunal upheld this decision, referencing the Allahabad High Court's rulings in the assessee's favor for earlier assessment years. The Tribunal found no infirmity in the CIT(A)'s order, confirming that the fee was a revenue expenditure.

5. Performance-related Bonus Treated as Capital Expenditure:
The AO disallowed ?1,40,00,000/- paid as a performance-related bonus, treating it as a capital expense related to raising additional capital. The CIT(A) confirmed this disallowance. However, the Tribunal found that the bonus paid to employees was covered under Section 36(1)(ii) of the IT Act, which does not distinguish between capital and revenue expenditure. The Tribunal allowed the expenditure, citing Supreme Court and High Court decisions supporting the deductibility of such payments as employee expenses.

6. Treatment of Advance Payments and Unexpired Discounts as Income:
The AO added ?2,00,57,868/- shown as advance payments and unexpired discounts to the assessee's income, arguing that it was a clear deferment of tax incidence. The CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal noted that the assessee consistently followed the accrual basis of accounting and recognized revenue as per the degree of completion of services, in line with Accounting Standard AS-9. The Tribunal found the AO's approach inconsistent with the accepted accounting practices and previous assessments.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeal, affirming the CIT(A)'s decisions on all contested issues. The Tribunal found no infirmity in the CIT(A)'s orders and upheld the treatment of expenditures and depreciation claims as per the relevant legal provisions and consistent accounting practices.