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2020 (5) TMI 178 - AT - Income TaxCapital grant so received from the Central and State Government - absence of proper reconciliation of utilized grant and when utilized grant was more than 70% of capital cost - HELD THAT - Capital grant is utilized for purchase of buses and other fixed assets for which it has been granted, the same would be in nature of capital grant and not chargeable to tax. Where the capital grant is utilised for meeting the operational expenditure of the assessee company, the AO is well within his right and jurisdiction to examine the taxability thereof as to why the same should not be treated as revenue receipt and brought to tax. In the present case, as we have noted above, the adequate information is not available on record and we therefore deem it appropriate to remand the matter back to the file of the AO to examine the same afresh after providing reasonable opportunity to the assessee company. Further, the Assessing Officer shall be at liberty to examine the claim of the depreciation on the assets so purchased out of the capital grant after considering the provisions of explanation 10 to section 43(1) of the Act. In the result, the ground of the appeal is allowed for statistical purposes. Disallowance u/s 40A(3) in respect of expenses being set off by RSRTC - HELD THAT - Where there is a violation of terms of agreement entered into between RSRTC and the assessee company, the same is a subject matter of contractual dispute which has been highlighted by the auditors in their audit report and it is for the parties to the dispute and the appropriate authorities to take note of the same. How the same has effected the reporting of revenues in the financial statements and offering the same to tax in the return of income has not been stated at all by the AO. Therefore, where there is no finding by the Assessing officer that the revenue so collected has not been offered to tax, there cannot be any basis for making addition in this regard. As it is emerging from the records, RSRTC incurs the expenditure on behalf of the assessee company out of such revenue collection in cash and then, remits the balance amount to the assessee company. On the expenditure so incurred by RSRTC on behalf of the assessee company, the latter has submitted the details of TDS deducted and deposited. CIT(A) has returned a finding that No cash payment in contravention of Section 40A(3) by the appellant has been brought on record by the AO. During the course of hearing, the ld DR has not brought on record anything which controverts such findings. Therefore, where no finding has been given by the Assessing officer in terms of any specific violation of provisions of section 40A(3) read with Rule 6DD, we donot see any infirmity in the action of the ld CIT(A) is deleting the said disallowance. Disallowance u/s 43B - Interest liability had not crystallized in the previous year relevant to A.Y. 2012-13 - HELD THAT - What needs to be seen is whether the interest liability has crystallized during the year or not. Only where it is held that the interest liability has crystallized during the year, the interest expense can be claimed and thereafter, the question of applicability of section 43B arises for consideration. The provisions of section 43B are not in the nature of enabling provisions but are in the nature of disabiling provisions in the sense that firstly, it needs to be determined that the expense should pertain to the relevant financial year in respect of which the assessee has incurred the liability and thereafter, unless such liability is discharged by actual payment, such liability cannot be allowed but will not be allowed in the year of actual payment. In the instant case, the assessee company has not established that the liability towards the interest has crystallized during the year, hence, we donot see any infirmity in the findings of the ld CIT(A) and the same is hereby confirmed.
Issues Involved:
1. Deletion of addition of ?4,40,02,647/- due to absence of proper reconciliation of utilized grant. 2. Deletion of addition of ?20,72,06,324/- made on account of disallowance under Section 40A(3) of the Income Tax Act. 3. Sustenance of disallowance of ?29,10,010/- under Section 43B of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?4,40,02,647/- Due to Absence of Proper Reconciliation of Utilized Grant: The Assessing Officer (AO) observed that the assessee company showed a grant utilized towards the purchase of buses amounting to ?60,73,27,300/- in its balance sheet for the financial year ending 31st March 2012. The assessee company explained that the grants received for non-operational purposes like purchasing buses are treated as capital grants and capitalized in the books. The AO, however, found discrepancies in the utilized grant and treated the excess amount of ?4,40,02,647/- as revenue receipts, adding it to the total income of the assessee. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the financial statements, audited by both a Chartered Accountant and the Comptroller & Auditor General of India (CAG), did not indicate any misappropriation of the grant. Consequently, the CIT(A) deleted the addition. The Tribunal noted that the AO's concern was the reconciliation between the capitalized amount and the utilized grant. The Tribunal remanded the matter back to the AO to re-examine the reconciliation and provide the assessee with a reasonable opportunity to explain the discrepancies. 2. Deletion of Addition of ?20,72,06,324/- Made on Account of Disallowance Under Section 40A(3): The AO observed that a sum of ?20,72,06,324/- collected in cash by RSRTC on behalf of the assessee was not deposited in the designated account, leading to a disallowance under Section 40A(3). The assessee argued that RSRTC was managing the buses and the revenue and expenses were recorded based on monthly statements from RSRTC. The assessee contended that the transactions were genuine and not in violation of Section 40A(3). The CIT(A) deleted the disallowance, noting that the revenue and expenses were recorded based on RSRTC’s statements and no cash payments violating Section 40A(3) were made by the assessee. The Tribunal upheld the CIT(A)'s decision, stating that the revenue receipts could not be disallowed under Section 40A(3) and there was no evidence of any specific violation of the provisions. 3. Sustenance of Disallowance of ?29,10,010/- Under Section 43B: The assessee challenged the disallowance of ?29,10,010/- under Section 43B, arguing that the liability was not genuine as it was reversed in the subsequent financial year. The CIT(A) upheld the disallowance, stating that the interest liability had not crystallized in the relevant year. The Tribunal agreed with the CIT(A), noting that the provisions of Section 43B were not applicable as the liability had not crystallized during the year. The Tribunal confirmed the disallowance, emphasizing that the interest expense could only be claimed if the liability had crystallized during the relevant financial year. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes by remanding the issue of the ?4,40,02,647/- addition back to the AO for re-examination. The addition of ?20,72,06,324/- under Section 40A(3) was deleted, and the disallowance of ?29,10,010/- under Section 43B was sustained. The cross-objection by the assessee was dismissed.
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