9911796707
TMI Blog2021 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... the necessary verification and where on such verification, it is so found that the assessee has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act, no further addition is sustainable in the eyes of law and the addition made by the Assessing Officer is hereby directed to be deleted. The existing grounds of appeal are treated as withdrawn as per request of the assessee and modified ground of the appeal for the respective assessment years i.e, A.Y 2010-11 to A.Y 2015-16 so taken by the assessee are admitted and allowed for statistical purposes. Treatment of misc. income for the purposes of computation of deduction u/s 80IA - receipts on account of scrap sale in each of the years under consideration and receipts on account of insurance claim for A.Y 2011-12 - Claim of the Revenue is that such receipts are not having the first degree of nexus with toll operation activity and thus not derived from the maintaining and operating the highway and accordingly not eligible for deduction u/s 80IA - HELD THAT:- Where the matter has already been examined by the Coordinate Bench in the earlier year in assessee s own case, and the fact that the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company is different from the past years or not flowing from the requirements of the concessionaire agreement executed with NHAI. Even the report of the independent Consultant was obtained in the first year where it had estimated the total cost of ₹ 56.64 crores which has therefore formed the basis for spreading the total cost equally across five years. We therefore failed to understand that where the provision for periodic wearing course overlay has been accepted all these years as an ascertained liability, then on what basis, the said provision is treated as a contingent liability for A.Y 2014-15 and A.Y 2015-16. Therefore, on this ground as well, where there are no changes in the facts and circumstances of the case, following the rule of consistency as upheld by the Courts from time to time, we are of the considered view that there is no basis to interfere with the consistent position which has been accepted in the earlier years. In the instant case, the assessee company has a present obligation arising out of the concessionaire agreement executed with NHAI to maintain the highway in traffic worthy condition through regular and preventive maintenance of the hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in case of CIT vs Jayshree Tea Industries Ltd (supra) has held that the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act is required to be determined independently as the same is a complete code in itself and considering the said decision, the Coordinate Ahmedabad Benches of the Tribunal in case of Asian Grantio India Ltd [ 2019 (10) TMI 1193 - ITAT AHMEDABAD] has held that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income, and drawing support from the principles laid down under normal provisions further held that the disallowance of the expenses cannot exceed the exempt income and limited the disallowance of the expenses to the extent of exempt income which was NIL in that case. Following the said proposition, in the instant case as well, given that there is no income which is claimed exempt in any of the years under consideration, no disallowance of the expense is warranted under Section 115JB of the Act even in terms of clause (f) to Explanation-1 of Sec. 115JB of the Act in respect of all the impugned assessment years. Deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14, ld. CIT(A)-22, Alwar dated 17.06.2019 for A.Y. 2014-15 and ld. CIT(A)-22, Alwar dated 31.01.2019 for A.Y. 2015-16. Since the common issues are involved, all these appeals were heard together and are disposed off by this consolidated order. 2. The grounds of appeal taken by the Revenue and the assessee in their respective appeals/cross-objections for each of the impugned assessment years are as follows: ITA No. 375/JP/2019 A.Y 2010-11 (Assessee s appeal): 1. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the action of ld. AO in completing the assessment without following the directions of Hon ble ITAT in properly. Appellant prays order so passed by ld. AO is without jurisdiction and deserves to be held bad in law. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has further erred in confirming the action of ld.AO of treating interest receipts of ₹ 2,40,27,526/- as income from other sources by placing reliance on order passed by him for A.Y. 2012-13 arbitrarily. Appellant prays that all the case laws relied upon by ld.CIT(A) while passing order for A.Y. 2012-13 are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action of ld.AO in treating interest receipts as Income from other Sources by completely ignoring the fact that such interest receipts were incidental to and integral part of business receipts of the assessee in as much as the interest was generated on the toll receipts, it is therefore prayed that such business income deserves to be treated as Business income. ITA No. 750/JP/2018 A.Y 2012-13 (Revenue s appeal): 1. Whether in the facts and in the circumstances of the case, the CIT(A) was justified in allowing the claim of depreciation of ₹ 24,06,59,534/- on public roads treating the same as building which is not permissible in law as the ownership right to the public roads does not vest with the assessee for claiming depreciation u/s 32? 2. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of depreciation of ₹ 6,86,787/- @ 60% on EDP equipment treating the same as the computer equipments which was classifiable under the head plant and machinery wherein depreciation is @ 15%? 3. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in deleting the disallowance of ₹ 1,19,06,05,811/- u/s 14A read with rule 8D though the assessee failed to prove that the investment in share applications was not having any nexus with the funds on which interest was paid? 5. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of expenditure of ₹ 1,81,229/- on account of payment of PF and ESI contribution beyond the due dates relying upon the High Court s judgments passed in the case of CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd 265 CTR 5999 DTR 131 (Raj.) and CIT vs. JVVNL 265 CTR 62 which is not justifiable as the similar payments should be deposited on the due dates specified by the Govt. for the same purpose? CO No. 27/JP/2018 A.Y 2013-14 (Assessee s cross objection): 1. On the facts and in the circumstances of the case the Ld. CIT (A) has grossly erred in confirming the action of ld.AO in treating the interest income of ₹ 4,17,41,267/- earned from the business activities of the assessee company as income from other sources without appreciating the nature of income, thus the same deserves to be hold as Business Income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the Ld. CIT(A) has grossly erred in treating the interest receipts of ₹ 8,42,77,207/- as income from other sources , by completely ignoring the fact that the such interest receipts were incidental to and integral part of the business receipts of the assessee in as much as the source of term deposits on which interest was generated is the toll receipts only and these deposits are on account of temporary surplus of business receipts due to time difference between toll receipts and incurring if expenditure/ liabilities. Therefore, the action of Ld. AO deserves to be held bad in law and the interest received by assessee deserves to be held as its business income. ITA No. 1075/JP/2019 A.Y 2014-15 (Revenue s appeal): 1. On the facts and in the circumstances of the case, whether the Ld. CIT(A) was justified in holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962? 2. On the facts and in the circumstances of the case, whether the Ld CIT(A) was justified in directing the AO to consider income from sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT (A) has further erred in confirming the disallowance u/s 14A in respect of investment made in share capital of one of the group companies by ignoring the fact that investment was in the nature of Strategic investment and disallowance u/s 14A in respect therefore the disallowance made by ld.AO was unwarranted and deserved to be deleted. 1.2. That, the ld.CIT(A) has further erred in not considering the alternative plea of assessee that if at all disallowance was to be confirmed, the same ought to have been u/s 36(1)(iii) and not u/s 14A of the Income Tax Act, 1961 as interest expenses were not incurred in relation to any exempt income. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has further erred in confirming the action of ld.AO in treating the interest receipts of ₹ 15,52,14,900/- as income from other sources not eligible for deduction u/s 80IA of the Act, by completely ignoring the fact that assessee has already excluded the said income while claiming deduction u/s 80IA thus, further disallowing the same tantamounts to double addition therefore, deserves to be deleted. 3. On the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the said fact has inadvertently escaped its attention at the time of filing of the appeal. It was submitted that the Assessing Officer has disallowed the interest receipts while working out deduction u/s 80IA of the Act and the said action of the Assessing Officer has resulted into double addition of the same amount and the assessee cannot be penalized for such inadvertent error where it has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act. It was accordingly submitted that the modified grounds of appeal may be admitted and necessary relief may be granted to the assessee by directing the Assessing Officer to delete the said disallowance while working out the deduction u/s 80IA of the Act. 7. Per contra, the ld. CIT/DR submitted that it is a settled position that interest receipts should not qualify for deduction u/s 80IA of the Act and the same is the consistent position which has been adopted by the Assessing Officer for all these years. As regards the submission of the ld. AR that the assessee already disallowed the interest receipts for working out the book profit for calculation of deduction u/s 80IA of the Act and there shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in respect of income derived from operating and maintaining of the highway. The AO has treated the income from sale of scrap and insurance receipts received by the assessee as income from other sources and consequently, has not allowed deduction u/s 80IA of the Act by observing that the same is not derived from the business of the assessee. In support, reliance was placed on Hon ble Supreme Court decision in case of Liberty India v. CIT [2009] 183 Taxman 349 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). It was accordingly submitted that no deduction may be allowed to the assessee u/s 80IA in respect of income from sale of scrap and insurance receipts as the same are not derived from the business of maintaining and operating the highways. 12. Per contra, the ld. A/R submitted that the scrap has been generated in the normal course of business of operation and maintenance of the toll highway and is a normal business transaction which in any case could not be held as non-business receipt. The scrap include the metal crash barriers, pedestrian guard rails etc. which are fixed on the toll road and got damaged in the accidents which had taken place and being no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the first degree of nexus with toll operation activity and thus not derived from the maintaining and operating the highway and accordingly not eligible for deduction u/s 80IA of the Act. The Co- ordinate Bench in assessee s own case for A.Y 2010-11 had an occasion to examine similar matter and while disposing of similar ground of appeal has held as under:- 14.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT (A) while deciding the issue has given the following finding of fact :- 9.3. I have carefully considered the findings of the AO as also the submission of the appellant. It may be noted that the income from sale of scrap amounting to ₹ 766589/- and receipt on account of unclaimed security deposit amounting to ₹ 140300/- was not considered for deduction u/s 80IB of IT Act by the AO by holding that such income was not from the eligible business. In this connection it may be noted that as regards the sale of scrap the scrap was generated from the normal course of business and it is also fact that as and when the items from which such scrap was generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Coordinate Bench has held as under: 18. The last issue relates to scrap sales. We find force in the submissions of the Ld. Learned Authorized Representative in this respect. We find that sale of scrap represents the sale of left over materials which were acquired for developing road. No material has been brought on record by the lower authorities to controvert the above submission of the assessee Thus we agree that the above sale of scrap was intimately connected with the business of developing operating and maintaining infrastructure facility and income from such sale goes on to reduce the expenditure of developing the infrastructure facility and truly speaking the same is not an independent income to the assessee. We therefore, delete the disallowance of deduction u/s.80-IA in respect of the sale of scrap and allow this part of the ground of the assessee. 16. In light of aforesaid discussions where the matter has already been examined by the Coordinate Bench in the earlier year in assessee s own case, and the fact that the Revenue has not challenged the same before the Hon ble High Court, and in absence of any change in the facts and circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition. In appeal, the ld. CIT(A) held that that as per the concession agreement between the assessee and NHAI, expenditure for keeping the roughness of the expressway at 2500mm/Km is mandatory and the appellant company has to relay the surface every 5 years thus it is an ascertained liability and not contingent liability however, allowed the expenses to the tune of ₹ 11.33 Cr for both the assessment years and disallowed ₹ 25.00 crores in AY 2015-16. Now the department is challenging the relief given by Ld. CIT(A) and the assessee against the addition sustained by the ld CIT(A). 21. In this regard, the ld A/R submitted that Contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain future event such as the outcome of a pending law suit. These liabilities are not recorded in company s accounts and shown below line in the balance sheet as footnote whereas in the instant case, provision has been made to cover up expenses that will have to be necessarily incurred in future. There was no uncertainty as to whether such expenses will be incurred or not, it is just that quantum of expense could not be estimated with 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56.64 crores and accordingly yearly an amount of ₹ 11.33 crores are retained for the purposes till the date when such overlay is carried out which commenced from AY 2011-12 and onwards. 23. It was submitted that in order to derive comfort to meet the above expenditure and to present the true and fair view of the affairs of the company regarding profitability and also since it is ascertained liability, the Company has charged the equivalent amount to its Profits and debited it to the P L Account. Such retention of funds is a business necessity rather than expense for earning other income and thus the provision made towards the surface renewal coat being ascertained liability deserves to be allowed as claimed. It is also a matter of fact that the expenditure towards the second periodic overlay for the first time was provided in AY 2011-12 and the same was allowed as claimed in all the assessment years beginning from A.Y.2011-12 till 2013-14, after making necessary verification in the assessment proceedings concluded u/s 143(3) of the Income Tax Act, 1961. Since facts and the circumstances as existed in earlier assessment years remained the same in the years under appeal thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements of the assessee company to its shareholder and other authorities including NHAI. It is also a matter of fact that the amount provided for in the preceding assessment years has also been allowed as expenditure. 26. It was further submitted that such provision for Second periodic outlay was made in F.Y.2010-11 to F.Y.2013-14 on the basis of estimated expenditure @ ₹ 11,33,00,000/- every year, i.e. aggregating ₹ 45,32,00,000/-. However, in A.Y.2015-16, on the basis of actual examination of sites, actual expenditure was estimated at much higher amount, thus total provision for such outlay in 5th year was revised to ₹ 81,65,00,000/- and accordingly, balance estimated expenditure was claimed in AY 2015-16 which comes to ₹ 36.33 cr. But in FY 2015-16, when the surface renewal coat was carried out, the amount of actual expenditure was incurred at ₹ 1,45,50,86,247/-, i.e. provision already made fell short by ₹ 63,85,86,247/-, which amount was charged to Profit Loss a/c for the year ending 31.03.2016 and was allowed in the assessment completed u/s 143(3) of the Act. Here it is relevant to state that ld. AO has not allowed the amount of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 80IA of the Act and in such cases, the CBDT has asked the Revenue officers not to file/press the appeal already filed. 31. Per contra, the ld. CIT/DR submitted that the assessee is maintaining and operating Jaipur Kishangarh highway (90.38 kms) under BOT agreement. It has made a provision for overlaying of the said highway, which according to the assessee, was to be done after every 5th year in view of the Concessionaire Agreement executed with NHAI. The assessee has treated the same as ascertained liability and has claimed the same in its P L account. In the assessment order, the AO has disallowed the same as the provisions was not made on scientific basis and considered the same as contingent liability. The ld. CIT(A) has deleted the disallowance by considering the provision so made by the assessee as ascertained liability. 32. In this regard, it was submitted that in the case of Rotork Controls India (P.) Ltd. Vs CIT [2009] 180 Taxman 422 (SC), the Hon ble Apex Court has considered the various judicial pronouncements and held as under: A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it could be seen that as soon as roughness value reaches 300 mm/km, the same is to brought to 2500 mm/km by placing renewal coat. If for instance, roughness value reaches 3500 mm/km for a stretch of 10 kms in the block of 5 years, then it has to be brought down to 2500 mm/km by placing renewal coat of 25 mm bituminous concrete in that year itself and it cannot be postponed to the 5th year. Further, if in the fifth year, the roughness value is less than 3500 mm/km for that particular stretch of 10 kms which got renewal coat in the earlier year, then as per the above clause (ii), the renewal coat is not required for that stretch of 10 kms in the 5th year. It may be mentioned that in Note 31 to the balance sheet for the year ending on 31.03.2012 i.e. for AY 2012-13 as appearing, it has been stated as under: 31 Provision for Second Periodic wearing course overlay:As per concession Agreement entered into by the company with National Highways Authority of India, Company has to renew bituminous concrete coat of the Road every 5 years. Next such renewal is to be undertaken during financial year 2014-15. As per Accounting Standard 29(AS 29), Provisions, Contingent Assets , cost of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct perspective and thus, the addition so deleted by ld. CIT(A) may kindly be restored. 40. We have heard the rival contentions and perused the material available on record. We find that the matter requires examination from touchstone of whether it is a revenue neutral exercise given that the assessee is eligible for deduction u/s 80IA of the Act and even where the action so taken by the Revenue is upheld, whether it will have any impact on the taxable income in the hands of the assessee. Secondly, the interplay between the principle of consistency and principle of res judicata in the facts and circumstances of the present case. Thirdly, whether the provision so made towards second periodic wearing course overlay of the Toll road is in the nature of ascertained liability or not. 41. It is an admitted and undisputed fact that the assessee is eligible for deduction u/s 80IA(4)(i) of the Act in respect of income derived from operating and maintaining of the highway and the said claim of deduction has been made by the assessee company in its return of income and which has been duly allowed by the Assessing officer for A.Y 2014-15 and A.Y 2015-16. In its profit/loss account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A. 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CBDT has stated in its aforesaid Circular that the appeal and ground where so taken should not be pressed/withdrawn and therefore, taking the same into consideration which is binding on the Revenue authorities, the ground of appeal so taken by the Revenue deserved to be dismissed on this account itself for both the years under consideration. 43. The assessee has provided for the provision for second periodic wearing course overlay for the first time during the financial year 2010- 11 relevant to assessment year 2011-12 and in its financial statements for the year ended on 31.03.2011 has made the following disclosure and the contents thereof reads as under: Provision for Second Periodic wearing course overlay: As per concession Agreement entered into by the company with National Highways Authority of India, Company has to renew bituminous concrete coat of the Road every 5 years. Next such renewal is to be undertaken during financial year 2014-15. As per Accounting Standard 29(AS 29), Provisions, Contingent Assets , cost of overlay of Bituminous Concrete to be made in Financial Year 2014-15, as required by Operation and Maintenance Requirements is estimated at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee company which is flowing out of the requirements of the concessionaire agreement executed with NHAI and determined based on an independent consultant report who has been appointed in consultation with NHAI except for the fact that the quantum of provision was revised in the fifth year. Even on perusal of the assessment orders and the findings of the Assessing officer, we note that there is no finding recorded by the Assessing officer that the nature of provision so made by the assessee company is different from the past years or not flowing from the requirements of the concessionaire agreement executed with NHAI. Even the report of the independent Consultant was obtained in the first year where it had estimated the total cost of ₹ 56.64 crores which has therefore formed the basis for spreading the total cost equally across five years. We therefore failed to understand that where the provision for periodic wearing course overlay has been accepted all these years as an ascertained liability, then on what basis, the said provision is treated as a contingent liability for A.Y 2014-15 and A.Y 2015-16. Interestingly, even for these two assessment years, while the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elay the surface every five years and it is therefore an ascertained liability and the estimation has been done basis an expert report and the relevant findings of the ld CIT(A) read as under: 11.4.2 After consideration of the concession agreement signed between the appellant company and the NHAI, it is my considered view that the expenditure related to keeping the roughness of the expressway at 2500mm/km is a mandatory clause and the appellant company has to relay the surface every 5 years which is an ascertained liability. The estimation of the liability was made by the expert committee at ₹ 56.64 crores and the provision has rightly been created at ₹ 11.33 crores per annum and has rightly been allowed till A.Y 2013-14. Accordingly, the appellant company is liable to get the benefit of ascertained contingent liability at ₹ 11.33 crores as claimed. Accordingly the addition of ₹ 11.33 crore is deleted and the appellant s ground of appeal on the issue is allowed. 47. We also find that as per the concessionaire agreement executed with NHAI, the assessee company is required to maintain the highway in traffic worthy condition through regular maintenan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed according to IRC-81-1997 or its latest versions or amendments to it. ii) In the case of cement concrete pavement, joints shall be thoroughly inspected every year and the loss of sealing compounds made good. 48. On reading of the above clauses, we find that the assessee company is required to follow the operational and performance criteria from IRC/MOST standards and specification for each of the performance indicators covered under pavement condition survey, roughness and BBD reflections and where such criteria is not specified, the assessee company is required to adhere to international standards or sound pavement maintenance practices in consultation with Independent consultant. In respect of riding quality of pavement, it has been specifically provided that the assessee company is required to maintain Surface roughness which shall not exceed 3500 mm/km during the service life of pavement at any time and a renewal coat of 25 mm of bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km. We therefore find that the assessee company has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89.512 2,193,044.00 2 Length of Service Road (LHS) 15.144 106,008.00 3 Length of Service Road (RHS) 16.081 112,567.00 4 Area of Junctions 32,173.14 5 Area of Tapering at SR Start/End Location 7,025.15 6 Total Area 2,450,817.29 Cost of 25mm Thick Bituminous Concrete at Current rates S. No. Description Unit Qty Rate Amount (Rs) 1 Bituminous Concrete Cum 61270.43 7003 429,076,837 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r estimating the cost which is not correct interpretation of clause (ii) as some stretches may require renewal coat in the interim period and not towards the end of fifth year. We find that the estimation has been made on the basis that the whole length of the highway shall be required to be maintained with prescribed roughness standard and it is likely that such renewal cost will be done towards the end of year 2015 and accordingly, the estimate has been made and we don t find any infirmity therein. In case of Rotork Controls India (P) Ltd vs CIT (Supra), the Hon ble Supreme Court was pleased to held as under: 10. What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. 11. Liability is defined as a present obligation arising from pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land damaged by digging the land was required to be restored. Dimensions of the pit dug which were uneconomic were to the extent of 7568 Cub. mtr. and the estimated cost of their re-filling comes to ₹ 1,51,360 and therefore, the liability in respect of the same had been provided for as per the clause 2 of part-V of lease agreement. Thus the cost of refilling of above ascertained liability and is eligible for deduction because the assessee-company observes mercantile system of accounting. 6. It has also been brought to our notice that even in the year 1993-94 though the actual expenditure has been made, but that has been denied on the ground that CIT(A) has allowed this expenditure in the year 1991-92. Thus in both the years, the claim of the assessee has been disallowed. 7. Considering the clause in the agreement i.e. as far as possible the lessee shall restore the surface land so used to its original condition, the moment assessee digs pits, he is bound under the agreement to fill those pits and liability does accrue on the date when the pits are digged. Therefore, in our view, the Tribunal has committed error in disallowing the claim of the assessee in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suo-moto added back the said expenses debited under the head interest and processing charges on loan taken for investment and has thus not claimed the same for tax purposes while computing its income under the regular provisions of the Act and no exempt income has been claimed in respect of such investment by way of share application money. Similarly, while working out eligible profits for the purposes of claim of deduction u/s 80IA(4)(i), the said expenses debited under the head interest and processing charges on loan taken for investment in the profit/loss account were added back. During the course of assessment proceedings, the Assessing Officer, on observing that the assessee has claimed interest expenses to the tune of ₹ 43,37,58,347/- in its profit loss account and which were paid to IDFC Bank against the loan taken for making such investment, issued a show cause dated 02.12.2014 wherein the assessee company was asked to explain why the same should not be added back to the book profit for computation of MAT in view of provisions of section 115JB(2) read with explanation 1(f) of the Income Tax Act, 1961. 54. In response to the show-cause so issued by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion money, a fact which has been accepted by the assessee. It was accordingly held that a sum of ₹ 43,37,48,347/- is directly attributable to the exempt income which was added back to the total income of the assessee u/s 14A of the Act. It was also held that the book profits shall be increased with the said amount of ₹ 43,37,48,347/- as per provisions of explanation 1(f) to section 115JB(2) of the Act. 56. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) stated that the Assessing Officer has not rebutted the contention of the assessee that the shares were not allotted during the period under consideration and also taken note of the contention of the assessee company that so long as share are not allotted, the amount deposited remains as share application money and no exempt income could have been received on such share application money. Further, referring to the Hon ble Delhi High Court decision in case of Cheminvest Ltd. vs. CIT 378 ITR 33 and Jaipur Bench decision in case of Deepak Vegpro (P) Ltd. Alwar vs. ACIT (ITA No. 110/JP/2014 dated 24.04.2017) held that no disallowance u/s 14A can be made in a year in which no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- is directly attributable to the exempt income which was added back invoking provisions of section 14A and the book profits for the purposes of MAT were correspondingly increased with the said amount of ₹ 1,19,06,05,811/- as per provisions of explanation 1(f) to section 115JB(2) of the Act. On appeal, the ld CIT(A) invoked the provisions of section 36(1)(iii) instead of section 14A and addition made to book profits u/s 115JB(2) was deleted. The assessee is not in appeal against the said findings of the ld CIT(A) and the Revenue is only in appeal before us challenging the action of ld. CIT(A) in deleting the disallowance u/s 14A read with Rule 8D. 59. In respect of financial year 2013-14 relevant to A.Y 2014-15, similar fact pattern and findings of the Assessing Officer exist except for the variation in the quantum of disallowance of interest expense on loan amount utilized towards payment of share application money which stood at ₹ 1,15,92,95,718/- and unlike past years, the assessee company has not suo-moto disallowed the same in its return of income. The amount continue to remain invested as share application money and no shares were allotted during the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent to that of the assessee company. Further, referring to the features of preference shares vis- - vis equity shares where the preference shares carry a fixed dividend rate and not voting rights unlike equity shares, held that the assessee s plea that the investment is actually to further its own business interest is far from the truth. Actually the investment is made to earn dividends only. When the objective and intention of a particular investment is very clear then the guarding provision of the Act is section 14A only and hence, the provision of section 14A of the Act has to be applied. Further, referring to the CBDT Circular No. 5/2014, the plea of the assessee company that in absence of any dividend income, no disallowance can be made u/s 14A was also not accepted. It was accordingly held that it is not a case where the investment was made for any strategic reasons but it is a case of pure investment for earning tax free dividend income as evident from the fact that the preference shares were allotted to the assessee company in the following year and not equity shares and the disallowance so made by the Assessing officer u/s 14A was sustained. Further, referring to the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e while computing the books profits u/s 115JB of the Act. And a third and connected issue is whether there could be any adjustment to book profits u/s 115JB considering the facts and circumstances of the present case independent of applicability of and taking recourse to the provisions of section 14A of the Act. 62. In this regard, we refer to the contentions advanced by the both the parties. During the course of hearing, the ld. AR drawn our attention to the provisions of section 14A, which read as under: 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 14A are not attracted as well as applicable. 65. It was submitted by the ld AR that language of section 14A is not at all ambiguous and in fact very clear and by virtue of the same, only expenditure actually incurred in relation to income not includible in total income shall be disallowed. In no way, it could be interpreted that it seeks to disallow expenses incurred in the year in relation to exempt income in future years, as it would be completely against the well- recognized matching concept. It was submitted that the principle that disallowance u/s 14A can be made only when assessee has actually earned exempt income, has been affirmed by catena of judicial pronouncements and reference was drawn to the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT reported in 378 ITR 33, wherein it was held that no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the appellant. Further, reference was drawn to the Jaipur Benches decision in case of Deepak Vegpro (P) Ltd., Alwar Vs. ACIT (ITA No 110/JP/14 dated 24.04.2017) and Mumbai Benches in case of DCIT vs JSW (ITA No 6264 6103/Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w need to be set-aside. 68. With regard to the second issue of inclusion of the disallowance made u/s 14A while computing the Book profit u/s 115JB(2), it was submitted that the same does not form part of the profits for the purpose of MAT, for which reliance was placed on the decision of Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt Ltd 165 ITD 27 (Delhi). It was submitted that the ld CIT(A) relied upon the decision of the Special Bench and held that the computation of book profits under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income Tax Rules, 1962. It was submitted that as the matter is settled by the Special Bench in the case of Vireet Investments Pvt. Ltd., therefore, the action of ld, CIT(A) is fully justified and the same deserves to be upheld. In support, reliance was further placed on the following judicial pronouncements: Essar Teleholdings Pvt. Ltd. (ITA No. 438 of 2012 dt. 7.8.2014) (Mumbai High Court) Bengal Finance and Investments P. Ltd. (ITA No. 337 of 2013) (Mumbai High Court) Bhushan Steels Ltd. (ITA No 593 594/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be regarded as an investment in shares or any asset which is capable of yielding any dividend income. Given that the shares were allotted only during the financial year 2014-15 relevant to A.Y 2015-16, there was no question of any dividend been declared/accrued and/or received by the assessee company right through the financial years relevant to A.Y 2012-13 to A.Y 2014-15 and even during the financial year 2014-15 relevant to A.Y 2015-16, no dividend was actually declared/accrued and/or received by the assessee company. Accordingly, in the return of income filed for the respective assessment years, it is an admitted and undisputed position that no dividend income has been claimed as exempt from tax. It is a settled legal position that no disallowance can be made u/s 14A in a year where no exempt income has been earned or received by the assessee. The ld AR has relied on the decision of the Hon ble Delhi High Court in case of Cheminvest Ltd vs CIT (supra) where similar substantial question of law had arisen for consideration as to Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee? And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law. Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs. 72. We therefore find that there is a convergence of view among the various Hon ble High Courts on the matter and following the aforesaid decisions of the Hon ble High Courts, it is a consistent position taken by the various Benches of the Tribunal as well including Jaipur Benches in case of Deepak Vegpro (P) Ltd vs ACIT (supra) and Mumbai Benches in case of DC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing officer has thereafter recorded a clear finding that there is a direct nexus between the borrowed funds on which the interest is paid and the investment so made by way of share application money, a fact which has been accepted by the assessee. On appeal by the assessee for A.Y 2012-13, the ld. CIT(A) invoked the provisions of section 36(i)(iii) and the relevant findings reads as under: ..I find that the appellant during the appellant proceedings categorically confessed that there is really a direct nexus between the funds borrowed from IDFC of ₹ 950 crores and the utilization of these funds in deposit towards share application with M/s GVK Airport Developers Pvt. Ltd., a group company under the same management. Having purused the facts and material on record, I am of the considered view that the Assessing Officer has failed to appreciate the aspect that the funds borrowed were diverted by the appellant for non business purposes and therefore he should have applied the provision of section 36(i)(iii) of the I.T. Act and the subject interest should have been disallowed being utilization of funds for non business purposes as the business activity of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these funds in deposit towards share application with M/s GVK Airport Developers Pvt. Ltd. and the aforesaid interest expenditure debited in the profit/loss account relates to loan funds so taken from IDFC Bank which has been utilized for making investment in the share application of M/s GVK Airport Developers Pvt. Ltd. It is also a fact that the assessee company is in the business of maintaining and operating of highways and the investment by way of share application money in M/s GVK Airport Developers Pvt. Ltd., a group company which is in business of development, construction and operation of domestic and international airports is not part of the regular business activity of the assessee company. More so, it is clearly a case where the funds have been mobilized on the strength of assessee s balance sheet and in substance, given interest free to a group company for period commencing right from time of payment of share application money in A.Y 2012-13 right upto time of allotment of shares in A.Y 2015-16. There is nothing on record which should reasonably justify such a long time gap of almost four years between the placing of share application money and allotment of shares, more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) for making disallowance of interest on the amount employed in making share application money out of the funds so borrowed and hence the facts are same as in the preceding years. 77. For A.Y 2014-15 and A.Y 2015-16, the ld CIT(A) has again recorded a similar finding that the assessee had raised an amount of ₹ 950 crores as loan and the entire loan amount was invested in the group concern of the assessee and therefore, there is no doubt that the loan was raised with the sole intention of investing in the group company which has a business object different to that of the assessee company and on such borrowings, the assessee has incurred interest expenditure of ₹ 1,15,92,95,718/- for A.Y 2014-15 and ₹ 1,11,92,41,369/- for A.Y 2015-16. Having recorded such findings, we find that the ld CIT(A) was not correct in not following the earlier orders so passed by his ld. predecessor for A.Y 2012-13 and A.Y 2013-14 in terms of invocation of provisions of section 36(1)(iii) of the Act instead of section 14A of the Act. Given that there are no changes in the facts and circumstances of the case, following the principle of consistency which applies equally to the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court in Income Tax Appeal No. 438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law. 81. Similar view has been taken by the Hon ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (ITA No. 47 of 2014 dated 19.11.2014) wherein it was held that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. 82. Now, coming to the third and connected issue as to whether there could be any independent adjustment to book profits by applying clause (f) of explanation under section 115JB of the Act. 83. In this regard, the ld CIT/DR has referred to the findings of the ld CIT(A) in A.Y 2014-15 where he has referred to the decision of the Tribunal in case of ACIT vs Ridhi Portfolio Pvt Ltd (IT(SS) No. 106 to 109/Kol/2016 dated 16.02.2018). It was submitted that though the ld CIT(A) has followed the said decision of the Tribunal however, failed to appreciate that in the said decision, the Tribunal has also referred to the decision of the Hon ble Kolkata High Court in case of CIT vs Jayshree Tea Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out resorting to the computation as contemplated u/s 14A r.w. Rule 8D and therefore, the contention so advanced by the ld CIT D/R is not emerging from the ground of appeal so taken by the Department. It was further submitted that the decision of the Hon ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has also been considered by the Ahmedabad Benches of the Tribunal in case of Deputy Commissioner of Income-tax, Ahmedabad vs. Asian Grantio India Ltd [2020] 113 taxmann.com 445 (Ahmedabad - Trib.) and the relevant findings read as under: 7.7 Regarding the disallowance under MAT, we note that the AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for ₹ 6,15,723/- while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has also added the disallowance made under the normal computation of Income under section 14A r.w.r. 8D of Income Tax Rule for ₹ 6,15,723/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act. 7.8 However, we note that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alcutta High Court in the case of Jayshree Tea Industries Ltd. (Supra). 7.12 Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. However, we find that there are judgments on the issue which mandates that the disallowance of the expenses cannot exceed the exempt income i.e. Vision Finstock Ltd. (supra) or only those investments should only be considered for the purpose of the disallowance which have resulted the dividend income. However, we are also conscious to the fact that the above judgments were rendered in connection with the income determined under normal computation of income but to our mind the same principles can also be applied to the case on hand. It is because, the provisions of section 115JB of the Act require to make the disallowance of the expenditure related to any income to which section 10 applies other than section 10(38) of the Act. Accordingly, we hold that the expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged the action of the ld. CIT(A) in allowing depreciation claim of the assessee on toll road @ 10% treating the same as building for A.Y 2011-12, 2012-13 2013-14 respectively. 90. In this regard, the ld. AR submitted that the assessee has claimed depreciation on toll road @ 10% for the first time in A.Y 2006-07 when the toll road was first put to use. The said claim of the assessee was not allowed by the Assessing Officer while completing the assessment u/s 143(3) and the matter thereafter was taken up in appeal and the Tribunal vide its order dated 26.06.2009 in ITA No. 193/JP/2009 had allowed the said claim of the assessee and the department has not preferred any further appeal before the Hon ble High Court against the said claim allowed by the Tribunal. It was further submitted that similarly disallowance was made by the Assessing officer for A.Y 2007-08, 2008-09, 2009-10 2010-11 and in all these years, the ld. CIT(A) following the order of the Tribunal for A.Y 2006-07 has allowed the claim of the assessee which was subsequently confirmed by the Tribunal. It was submitted that on further appeal by the Revenue, the Hon ble Rajasthan High Court has confirmed the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Coordinate Bench, has allowed the claim of the assessee. We refer to the findings of the Hon ble Rajasthan High Court in its order dated 10.10.2017 where the Hon ble Rajasthan High Court was pleased to held as under:- 14. We have heard counsel for the parties. 14.1 The interpretation which has been put forward by the counsel for the department that the National Highway is not road, in that view of the matter, the same will not be governed by the Schedule of Appendix-I and they will not be entitled for the expenses under the capital account. 14.2 While considering the matter, we have to go by the common parlance of road where public at large has an access. The assessee was granted license for construction against which he has right to use and collect license fee to use of the land. In that view of the matter, he has right to restrict the people without non payment of toll tax. 14.3 In that view of the matter, if we look at the definition which is given under the Income Tax Act, even a development made while occupying the premises and development of a road was the main agreement MOU referred to us. 14.4 In view of written submissions submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that disallowance of similar nature was initially made by the Assessing officer in A.Y 2006-07 when these EDP equipments were put to use for the first time and on appeal, the Tribunal vide its order dated 26.06.2009 in ITA No. 193/JP/2009 had allowed the claim of depreciation on EDP equipment @ 60%. It was further submitted that similar disallowance was made by the Assessing officer for A.Y 2007-08, 2008-09, 2009-10 2010-11 wherein the ld. CIT(A) following the order of the Tribunal for A.Y 2006-07 has allowed the claim of the assessee. which was subsequently confirmed by the Tribunal. It was submitted that on further appeal by the Revenue, the Hon ble Rajasthan High Court has confirmed the order of the Tribunal for all these assessment years by its common order dated 10.10.2017. It was submitted that against the said order of the Hon ble Rajasthan High Court for A.Y 2010-11 in DB Appeal No. 142/2017 dated 10.10.2017, the Revenue had filed an SLP before the Hon ble Supreme Court which stood dismissed vide order dated 07.09.2018 in SLP (Civil) No. 27373/2018 wherein the Hon ble Supreme Court has held that they find no merit in the petition and the SLP so filed was dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in favour of the assessee by the decision of the Hon ble Rajasthan High Court for the earlier years and the SLP against the said decision stood dismissed by the Hon ble Supreme Court, the matter has attained finality and therefore, should not be a subject matter of dispute by the Revenue. The matter is accordingly decided in favour of the assessee and against the Revenue. The grounds of appeal so taken by the Revenue for the respective assessment years are thus dismissed. Disallowance of PF/ESI contributions for A.Y 2013-14 2014-15 99. The Revenue has challenged the action of the ld. CIT(A) in allowing the claim of employee s share of PF and ESI contributions deposited beyond the prescribed period as provided in the relevant statue for A.Y 2013-14 and A.Y 2014-15. 100. In this regard, the ld. AR submitted that the issue is covered in favour of the assessee by the decision of Hon ble Supreme Court while dismissing the Revenue SLP in case of Rajasthan State Beverages Corporation Ltd. reported in 250 taxmann 16 as well as the decision of Hon ble Rajasthan High Court in case of Pr. CIT vs. Rajasthan State Seed Corporation Ltd [2016] 386 ITR 267. 101. Per contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han State Beverages Corporation Ltd. has since been dismissed by the Hon ble Supreme Court holding that the Court do not find any merit in the petition and the special leave petition was accordingly dismissed. We therefore find that the matter is no more res integra and has attended finality by a series of decisions by the Hon ble Rajasthan High Court and the decision of the Hon ble Supreme Court by way of dismissal of SLP filed by the Revenue. Regarding the contention of the ld CIT/DR that the department has filed an SLP in case of M/s Jaipur Vidyut Vitran Nigam Ltd, mere filing an SLP before the Hon ble Supreme Court is no bar against following the binding precedents as laid down by the Hon ble Jurisdictional High Court as we have noted above. In the entirety of facts and circumstances of the case, the matter is decided in favour of the assessee and against the Revenue. The grounds of appeal so taken by the Revenue for the respective assessment years are thus dismissed. 104. The respective appeals filed by the Revenue and the appeals/cross objections filed by the assessee company are accordingly disposed off in light of aforesaid directions. Order pronounced in the open Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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