2022 (12) TMI 992 - AT - Income Tax

Expenditure on Land Acquisition for Border Out Posts (BOPs) - Expenditure as a part of project cost during the course of business - expenditure for land acquisition and connection charges for electrification at Border Out Post for the client (Ministry of Home Affairs) during execution of Indo Bangladesh Border Fencing work (IBBE ) - assessee was executing the Border Out Post (i.e. BOP) works for the Ministry of Home Affairs (Gol) - as argued AO has admitted that no title of land was executed in the assessee s favour and expenses were incurred on behalf of the third entity i.e. Ministry of Home Affairs thus added the same stating that it is of capital nature and not allowable as revenue nature - HELD THAT - As evident that the amount incurred for land acquisition and the assessee Company was executing the Border Out Post (BOP) Works under Phase-11 as per MOU signed in between NPCC and MHA (GoI) on Dt. 14.07.2010. Serial No. 17 of MOU clearly state that, Land Acquisition for al l BOPs will be made by NPCC and cost of the land acquisition shall be included in the cost estimates. BSP will provide necessary help to NPCC in land acquisition and serial No.7 of the same MOU clearly mentioned that NPCC shall hand over the BOPs and allied works after their completion to the designated agency nominated by MHA . The expenditure incurred towards land acquisition compensation was part and parcel of the contact agreement and the same was included in the project cost. The expenditure on service connection charges were paid to Tripura State Electricity Board (TSEB), Agartala for border flood lighting works in the state of Tripura as per MOU signed between assessee and MHA (GoI) dt. 30.09.2009 and the estimates of the expenditure were revised in the 22nd/2010 HLEC meeting held on 17.09.2010 vide agenda item No. IBB/9. It is also evident that the assessee has booked the corresponding income against these expenses in its turnover in the profit and loss account during the year under consideration. Hence, the expenditure done on behalf of MHA (GoI) as project cost was not asset creation in the name of the assessee company, and cannot be treated of capital nature. Therefore on the basis of above facts and legal position, we decline to interfere with the order of the ld. CIT(A) in deleting the addition. Appeal of the Revenue is dismissed.

Summary

Issues:
1. Disallowance of expenditure amounting to Rs.5,25,93,191 incurred as part of project cost.
2. Classification of expenditure as capital expenditure for land acquisition and connection charges.
3. Dispute over the nature of the expenditure and its treatment as revenue or capital in the hands of the assessee.
4. Interpretation of the MOU between the assessee and Ministry of Home Affairs regarding land acquisition for Border Out Posts (BOPs).
5. Verification of expenses incurred on behalf of MHA and the creation of assets in favor of BSF.

Analysis:
The appeal was filed by the Revenue against the order of the ld. CIT(A)-6, New Delhi, which dismissed the additions made by the Assessing Officer. The main issue raised by the Revenue was the disallowance of expenditure amounting to Rs.5,25,93,191, which was incurred as part of the project cost. The Assessing Officer considered this expenditure as capital expenditure for land acquisition and connection charges for electrification at Border Out Post for the client, Ministry of Home Affairs, during the execution of Indo Bangladesh Border Fencing work. The Revenue contended that the disallowance was unjustified, erroneous, and unsustainable.

Regarding the disallowance of expenditure, it was argued that the Assessing Officer failed to consider the nature of the assessee's business, the facts of the case, and the details submitted. The expenditure was incurred as part of the project cost, and the corresponding revenue had been booked as turnover in the profit and loss account. The MOU between the assessee and Ministry of Home Affairs clearly outlined the responsibilities for land acquisition for Border Out Posts, stating that the cost estimates would include land acquisition expenses. The expenditure incurred on behalf of MHA was considered project cost and not an asset creation in the name of the assessee company.

After a detailed review of the documents submitted, it was found that the expenditure for land acquisition compensation and service connection charges were part of the project cost and not capital assets of the assessee. The expenditure on behalf of MHA was not considered as asset creation in the name of the assessee company. Therefore, based on the facts and legal position, the Tribunal declined to interfere with the order of the ld. CIT(A) in deleting the addition. Consequently, the appeal of the Revenue was dismissed, and the order was pronounced in the open court on 11/04/2022.