9911796707
TMI Blog2021 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 distinguishable so far as in all the cited cases, excess funds were parked in FDRs at the behest of assessee, where in the instant case funds were kept in FDRs under business compulsions, thus the order passed by ld.CIT(A) deserves to be set aside interest receipts of Rs. 2,40,27,526/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 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 claim of deduction u/s 801A of Rs. 29,79,993/- on sale of scrap which is not income from business eligible for deduction u/s 801A? 4. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the disallowance of Rs. 43,37,48,247/- u/s 14A read with rule 8D though the assessee failed to prove that the investment in share applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 Rs. 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. 1.1 That, ld. CIT(A) has further erred in confirming 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. 1090/JP/2019 A.Y 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 scrap of sale amounting to Rs. 49,98,366/- for the purpose of allowing deduction u/s 801A of the Act without appreciating that the word "derived from" used in the said decision has narrower connotation and does not include sources of income beyond the first degree as held by the Hon'ble Courts through various judgments including that in the case of (i) Liberty India vs. CIT (2009) 317 ITR 218 (SC) (ii) Pandian Chemicals Ltd vs. CIT (2003) 262 ITR 278 (SC) (iii) Pandian Chemicals Ltd vs. CIT (2004) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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 Rs. 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 case, the ld. CIT(A) has grossly erred in confirming the disallowance to the extent of Rs. 25,00,00,000/- out of disallowance made by ld.AO (by holding the mandatory periodic overlay as contingent liability) of Rs. 36,33,00,000/-. Appellant prays that provision of liability of mandatory periodic overlay was revised on the basis of actual expenses incurred in A.Y.2016-17, thus consequent disallowance confirmed deserves to be deleted." 3. At the outset, the ld A/R submitted that the appeal of the assessee in ITA No. 1090/JP/2019 for A.Y 2014-15 has been filed with a delay o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 should not be any further disallowance, it was submitted that the said fact need verification and the Revenue has no objection where the matter is set aside to the file of the Assessing Officer for necessary verification. 8. We have heard the rival contentions and perused the material available on record. During the course of hearing, the assessee has sought permission to raise the modified ground of appeal in place of existing grounds of appeal stating that the assessee has itself disallowed the interest receipt while working out the deduction u/s 80IA of the Act. Where the assessee has suo moto disallowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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 more worthy of usage as such has become scrap. Had there been no business of operating and maintaining of the toll highway, there would be no question of generation of any such scrap, thus the income from sale of scrap is normal business income and therefore is eligible for deduction u/s 80IA. With regard to the insurance claims, it was submitted that the same were received on the assets used in the toll business which got damaged and insurance claimed was received. It was submitted that the use of such assets is incidental to the toll operations activity and the claim so received is part of the business receipts eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 766589/- and receipt on account of unclaimed security deposit amounting to Rs. 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 generated were purchased, the expenses on such purchases was claimed in the P & L A/c. It may be mentioned that it is not a case of independent purchase and sale of scrap item and it is a case where such scrap items were generated from the same business on which deduction u/s 80IB is claimed. Therefore the receipt of Rs. 766589/- is to be considered for deduction u/s 80IB of IT Act. However , as regards the unclaimed security deposits of Rs. 140300/-, it may be noted that the appellant has not furnished specific details of such security deposit either before the AO or before the appellate authority which may demonstrate that such receipt was fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly 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 following the consistent view taken by other Benches of the Tribunal, we donot see any basis to interfere with the earlier decision taken by the Coordinate Bench in assessee's own case, where one of us was also a party. We accordingly direct the Assessing officer to allow claim of deduction u/s 80IA on such scrap sale receipts for the respective assessment years. 17. Now coming to insurance receipts amounting to Rs. 59,98,435/- pertaining to A.Y 2011-12, it has been contended by the ld AR that such insurance receipts are towards claim made in respect of assets used in the toll operation activity which got damaged and such receipts are incidental to its activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 100% accuracy as the same will depend upon extent of deterioration and rapidly of deterioration in the riding quality of pavement. With what rapidity it deteriorates, to what extent and periodicity it requires resurfacing in order to give smooth riding quality to the toll paying road users, is a function of the volume of traffic, the loads carried by the traffic and the damage caused by climatic conditions (extreme temperatures, heavy rains / floods, accidents resulting in spillover of chemical materials etc.) In order to ensure smooth riding quality, the Concession Agreement prescribes certain standards to be maintained by the Company in terms of 'Surface Roughness'. The prescribed standards require the Company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 thus as principle of consistency, the same should be allowed in both of the assessment years. 24. It was submitted that though each and every assessment year is independent year and principle of res judicata does not apply to assessment proceedings, however some sort of consistency is required while finalizing the assessment to ensure uniformity. The rule of judicial precedent flows from Article 14 of the Constitution of India which guarantees equality to every citizen before law. Equality before law implies rule of law for all wherein there is no scope for arbitrariness or any discrimination. It is a settled law that the rule of judicial precedent are binding not only on the Courts or quasi-judicial authorities but even administrator, tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 cr. But in FY 2015-16, when the surface renewal coat was carried out, the amount of actual expenditure was incurred at Rs. 1,45,50,86,247/-, i.e. provision already made fell short by Rs. 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 provision made in earlier years which stood disallowed and this has resulted into non-allowance of the expenditure incurred on the periodic overlay to the extent of the disallowance made in AY 2014-15 and 2015-16. 27. In view of above, it was submitted that provision made by assessee is to meet out cost of renewal of pavement to be incurred in future, which is ascertained liability in view of clause 4.5.1 of Concession agreement. In fact as per basic accounting concept of Prudence, all the possible losses should be anticipated but not future income. 28. It was submitted that the ld. CIT(A) though admitted that it is an ascertained liability but failed to appreciate the fact that when in AY 2015-16 it came to the knowledge of the appellant company that the cost of 2nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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." 33. It was submitted that in the instant case, it could be seen from the assessment order that the AO has disallowed provision for overlay by observing that the said provisions has not been made on scientific basis. It is to be seen that in the appellate order, while allowing the provision made by the assessee, the ld. CIT(A) has totally ignored the above finding of the AO and the said finding has neither been controverted by the ld. CIT(A) nor by the assessee and it was just submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dic 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 Rs. 56.64 Crore and 1/5th of the same i.e. Rs. 11.33 Crore (Previous Year: Rs. 11.33 Crore) is provided for the year." Thus, it appears that while making provision for overlay, the entire length of the highway has been taken into consideration, which appears to be not correct interpretation of clause (ii). So, when the basis of estimation itself is not correct, how the provision can be reliable or made on scientific basis. 37. It was further submitted that the initial provision of overlay for the entire highway was estimated at Rs. 56.64 Crore in the FY 2010-11, whereas the same was revised to Rs. 81.65 Crore in the 5th year while placing the work order and work was completed during FY 2015-16 incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the assessee company has debited a sum of Rs. 11,33,00,000/- towards provision for second periodic wearing course overlay of the BOT road as per clause 4.5.1 of Schedule L of the Concessionaire Agreement executed with NHAI. The Assessing officer has disallowed the same while determining the income under the regular provisions holding that the basis of estimation of such cost of overlay expenses is not done on a scientific basis and is thus in a nature of contingent liability and the revised income from business was determined at Rs. 76,01,30,659/- (after adding back Rs. 11,33,00,000/- besides other adjustments) and thereafter, deduction u/s 80IA(4)(i) was determined at Rs. 76,01,30,659/-. For A.Y 2015-16, similar disallowance of Rs. 36,33,00,000/- was made and the revised income from business was determined at Rs. 1,89,95,65,026/- (after adding back Rs. 36,33,00,000/- beside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 443 of 2012, December 10, 2012, Gujarat High Court.' * Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court. (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: * Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 56.64 Crore and 1/5th of the same i.e. Rs. 11.33 Crore (Previous Year: Nil) is provided for the year." 44. Similar provision of Rs. 11.33 Crores has been made during each of the subsequent financial years relevant to A.Y 2012-13 and A.Y 2013- 14 and in its return of income for each of these three assessment years, the assessee has claimed the same as an allowable expenditure while determining the profits under the regular provisions of the Act as well as while determining book profits for the purposes of computation of MAT liability u/s 115JB of the Act. The Assessing officer while passing the assessment order u/s 143(3) for each of these assessment years has not made any disallowances and/or adjustment to the book profits towards such provision and has thus accepted the claim of the assessee company. It is a well settled legal proposition, as has been laid down by the Courts from time to time and which has been reiterated by the Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing officer has treated the provision as a contingent liability while computing income under the regular provisions however at the same time, has not made any adjustment to the book profits towards such provision as "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities" which again bring out the dichotomy and inconsistency in the stand of the Assessing officer for the same assessment year. 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 that is, to hold that the provision so made is towards an ascertained liability and which is allowable for tax purposes while computing the income under the normal provisions of the Act. 46. Now, coming to the mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as per the concessionaire agreement executed with NHAI, the assessee company is required to maintain the highway in traffic worthy condition through regular maintenance and preventive maintenance of the highway and it has been provided that MOST Manual for maintenance of roads and IRC-SP-35-1990 guidelines for inspection and maintenance of bridges shall be followed by the assessee company. And as part of the maintenance requirements, periodic maintenance of pavement has been specifically provided and we deem it appropriate to refer to the relevant clauses in the concessionaire agreement which read as under: "4.5 Periodic Maintenance of Pavement The framework of activities relating to pavement maintenance and rehabilitation in respect of flexible and rigid pavement are given in the flow charts in Appendix 3.1 and Appendix 3.2 respectively. The Concessionaire shall set forth in the Operations and Maintenance Manual the detailed procedures to be followed under each of these activities, and also choose the operational and performance criteria from the IRC/MOST standards and specifications for each of the performance indicators covered under pavement condition survey, roughne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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 maintain the pavement riding quality by way of roughness meeting the minimum standards throughout the service life of the pavement and the same is clearly emerging from the operation and maintenance requirements of the concessionaire agreement executed by the assessee company with NHAI and we don't see any infirmity in the findings of the ld CIT(A) where he has returned a finding that it is mandatory clause/requirement of the concessionaire agreement and the assessee company has to relay the surface every five years and it is therefore an ascertained liability. Now, coming to the basis of estimation of such cost, the assessee company has obtained and relied upon a report of an independent consultant, Consulting Engineers Group Ltd who has taking into considerations the standards so set in the concessionaire agreement and length of the highway, has estimated the total cost and the contents of the said report dated 27.04.2011 read as under: "In terms of Clause 4.5.1 (ii) of Schedule-L of the Concession Agreement dated 8th May, 2002, under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied for the pavement riding quality standards, the basis of estimation is clearly based on well laid down standards and the method of evolution of such standards over the period of time and as they stood today is clearly a long drawn process of reasoning and experimentation which is nothing but scientific in nature. Further, where the Assessing officer is not satisfied with such estimation, he is required to specify the reasons as to why he is not so satisfied and may have referred the matter to another expert for seeking his opinion. Merely stating that he is not satisfied with such report will not satisfy the requirements of law as once the assessee has made a claim supported by report of an Independent Consultant, the onus shifts on the Revenue to disprove the same which in the present case has not been satisfied by the Revenue. During the course of hearing, the ld CIT D/R has stated that the entire length of the highway has been considered for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (Rajasthan) wherein the Hon'ble Rajasthan High Court was pleased to held as follows: "5. Heard learned counsel for the parties. The submissions made before the CIT(A) in writing reads as under :- "It is submitted that the assessee-company is engaged in open cast mining of soapstone crude. The lease for the exploration of mines has been granted by the Govt. of Rajasthan. From the terms and conditions of the lease agreement, it is obligatory on the part of the assessee-company to restore the land as far as possible to its original shape. An extract from clause 2 of part-V of the lease agreement is reproduced as below: As far as possible the lessee shall restore the surface land so used to its original condition. During the year under consideration, the company had dug new pits in the mining lease area for the purpose of excavating soapstone crude out of which some of the pits dug had no economic value and the 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 Rs. 1,51,360 and therefore, the liability in respect of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 10,000/- per share. Separately, the assessee company has taken a loan of Rs. 950 crores from IDFC Bank carrying rate of interest of 12.98% on Rs. 650 crores and 12.75% on Rs. 300 crores and which has been utilized for making the payment towards the share application money of Rs. 940.80 crores. As on 31st March, 2012, no shares were allotted to the assessee company and the amount continue to remain invested as "share application money" and accordingly, reflected as share application money under the head "long term loans and advances" in the balance-sheet of the assessee company as on 31.03.2012 and interest expenses of Rs. 43,37,58,347/- on such loan has been debited in the profit/loss account for the year ended 31.03.2012. In the return of income filed for A.Y 2012-13, while computing income under the head "Income from business/profession", the assessee company has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has paid interest of Rs. 43,37,48,347/- during the year under consideration on the loan taken from IDFC Bank which has been utilized for making investment in the share application of the investee company. Subsequently, the shares have been allotted in F.Y 2014-15 relevant to A.Y 2015-16 and it is therefore not the case where share application money has subsequently been refunded. It was accordingly held by the Assessing officer that since shares have eventually got allotted, the investment as share application money was with a view to earn dividend income. It was also held that even though there is no exempt income during the year under consideration, the provisions of section 14A are clearly attracted and in this case, there is a direct connection 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. It was accordingly held that a sum of Rs. 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 Rs. 43,37, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds payment of share application money which stood at Rs. 1,19,06,05,811/- as compared to Rs. 43,37,48,247/- in A.Y 2012-13. The amount continue to remain invested as share application money and no shares were allotted during the financial year relevant to A.Y 2013-14 and consequently, no question of any dividend income accrued and/or received by the assessee. In the return of income filed for A.Y 2013-14, while computing income under the head "Income from business/profession", the assessee company has suo-moto added back the aforesaid interest expenses 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 investment by way of share application money. The Assessing officer held that a sum of Rs. 1,19,06,05,811/- 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 Rs. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lternate plea that interest expenditure is not related to the business of the company and hence, is disallowable u/s 36(1)(iii) of the Act. It was held by the ld. CIT(A) that the assessee cannot be allowed to shift stand on applicability of the provisions of the Act. Whether the disallowance is to be made u/s 14A or section 36(i)(iii) depends upon facts and circumstances of the case and it is therefore relevant to determine the intention and the planning of the assessee company. It was held by the ld. CIT(A) that in this case, the assessee had raised an amount of Rs. 950 crores as loan and the entire loan amount was invested in the group concern of the assessee. 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. Further, referring to the features of preference shares vis-à- 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated u/s 14A read with Rule 8D of the Rules 1962. Against the said order of the ld. CIT(A), the assessee is in appeal challenging the sustenance of disallowance u/s 14A and the Revenue is in cross appeal challenging the action of the ld. CIT(A) in holding that the computation u/s 115JB of the Act has to be made without resorting to the section 14A of the Act. 61. In light of the aforesaid fact pattern and the findings of the AO as well as the ld CIT(A) for the respective assessment years, two broader issues arises for consideration before us. Firstly, the applicability of section 14A vis-à-vis section 36(i)(iii) of the Act in the facts and circumstances of the present case. The second issue is where the provisions of section 14A of the Act are held applicable, whether resort to section 14A can be made 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 bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legislature from the inception of the Income Tax Act. Section 14A deals with expenses incurred by a person to earn exempt income. Such expenses are not deductible while computing total income and are disallowed. Thus, provisions of Section 14A are attracted if and only if: 1. The assessee has certain income which is not includible in his total income under any provisions of the Act. 2. The assessee has incurred expenditure in relation to earning of such income which is exempted under the Act. 64. It was submitted by the ld AR that in the instant case, the assessee has not earned any exempt income in any of the assessment year under appeal on such investments. Further for AY 2012-13 to 2014-15, the amount was lying as share application money and no shares were allotted to it, thus 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such shares. In support, reliance was placed on following decisions: * ACIT vs Acron Developers (P) Ltd. (ITA No. 162/Mum/2015) * ITO vs M/s LGW Limited (ITA No. 267/kol/2013) * Rainy Investments (P) ltd vs ACIT (ITA No. 5491/Mum/2013) 67. It was submitted that the assessee has since made investment in share application only (and no shares allotted), it thus create no right in favour of assessee to receive dividend (if any) declared by investee company in the years under consideration. Thus disallowance made on such ground u/s 14A is not in accordance with law and deserves to be deleted and the findings of the ld CIT(A) in A.Y 2012-13 and A.Y 2013- 14 which may be confirmed and the findings of the ld CIT(A) for A.Y 2014-15 and A.Y 2015-16 where he has taken a divergent view 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not." 70. We have heard the rival contentions and purused the material available on record. During the F.Y 2011-12 relevant to A.Y 2012-13, the assessee company has made an application for allotment of 13.30% Non-cumulative redeemable preference shares of M/s GVK Airport Developers (P) Ltd., a group company and has paid an amount of Rs. 940.80 crores by way of shares application money. The shares were finally allotted during the financial year 2014-15 relevant to A.Y 2015-16 and therefore, till such time the shares were not allotted, the amount so paid continues as share application money pending allotment and it cannot 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 relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Mumbai High Court was pleased to held as under: "On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment proceedings, it is again an admitted position of the assessee that it has paid interest during the respective years under consideration on the loan taken from IDFC Bank which has been utilized for making investment in the share application of the investee company. The 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 categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purposes of the assessee company." and submitted that it was by way of an alternate plea though without in any manner conceding such addition, it was submitted that the addition, if at all could be made, it could be made u/s 36(1)(iii) of the Act. However, the fact of the matter remains that the assessee has not challenged the aforesaid findings of the ld CIT(A) and thus, the same has attained finality as far as assessee is concerned. Similar findings have been recorded by the ld CIT(A) for A.Y 2013-14 which are again not in challenge before us. 75. We therefore find that it is an admitted fact that there is a direct nexus between the funds borrowed from IDFC Bank and the utilization of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said findings of the ld CIT(A) and the same are hereby confirmed for both the years and the contentions so advanced on behalf of the Revenue cannot be accepted. 76. The assessee has not disputed the said findings of the ld CIT(A) and is not in appeal before us for A.Y 2012-13 and A.Y 2013-14. In its appeal for A.Y 2014-15 and A.Y 2015-16, the assessee has rather pleaded to follow the decision of ld CIT(A) for A.Y 2012-13 and A.Y 2013-14 as can seen from its ground of appeal where it contends that the ld. CIT(A) has erred in not following the principle of consistency as in the immediate two preceding assessment years, wherein his predecessor CIT(A) had invoked the provisions of sec 36(1)(iii) 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 Rs. 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 inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contemplated u/s 14A read with Rule 8D. The said view is further fortified by the decision of Hon'ble Bombay High Court in case of CIT vs. M/s Bengal Finance & Investment Pvt. Ltd. (supra) wherein the Hon'ble High Court was pleased to held as under:- "4. So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s Essar Teleholdings Ltd. vs. DCIT in ITA No. 3850/Mum/2010 to held that an amount disallowed under Section 14-A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s Essar Teleholdings (supra) was dismissed by this 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decision of the Hon'ble High Court, the SLP filed by the assessee has since been dismissed by the Hon'ble Supreme Court (SLP (C) No. 9191/2015 dated 26.02.2020). It was accordingly submitted that appropriate directions may be issued to the Assessing officer to compute the amount of expenditure relatable to exempt income must be made independently by applying clause (f) of explanation under section 115JB of the Act. 85. Per contra, the ld AR submitted that the ground of appeal taken by the Revenue is limited to 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 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate 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." 7.11 Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta 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 Fins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing 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. 88. In the result, the respective grounds of appeal taken by the Revenue are dismissed and grounds of appeal taken by the assessee are allowed in light of aforesaid directions. Depreciation on Toll road u/s 32(1) for A.Y 2011-12 to 2013-14 89. The Revenue has 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as building which is eligible for depreciation at the rate of 10%. The Assessing Officer by referring to provisions of section 32(1) and decision of the Hon'ble Supreme Court in case of Indore Municipal Corporation vs CIT reported in 247 ITR 803 has rejected the assessee's claim. During the appellate proceedings, the ld. CIT(A), following the decision of the Co-ordinate Bench in assessee's own case for A.Y 2006- 07 where the decision of the Hon'ble Supreme Court (in decision referred supra) was held distinguishable, and the decision of Hon'ble Rajasthan High Court dated 10.10.2017 affirming the decision 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y 2011-12, 2012-13 and 2013-14. 95. In this regard, the ld. AR submitted that the assessee has claimed depreciation @ 60% in respect of EDP equipments consisting of computers, servers, computer software etc which are directly used in toll booth operations and back office operations connecting to toll collection booths. It was submitted that the deprecation claim was restricted to 15% by the Assessing Officer on the allegation that they cannot be classified as computer and computer software and was part of plant & machinery eligible for depreciation @ 15%. It was submitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal fibers which are used exclusively for the computer configuration and it is mandatory for the operation. It is part of computer system. 15.1 In that view of the matter, the view taken by the tribunal is just and proper." 98. Further, the SLP filed by the department against the decision of the Hon'ble High Court has since been dismissed by the Hon'ble Supreme Court vide its order dated 07.09.2018. Therefore, in view of the admitted and undisputed position that there are no changes in the facts and circumstances of the case and the matter has been decided 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 empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in CIT v. State Bank of Bikaner & Jaipur [2014] 363 ITR 70/43 taxmann.com 411/225 Taxman 6 (Mag.) (Raj.) and CIT v. Jaipur Vidhut Vitaran Nigam Ltd. [2014] 363 ITR 307/49 taxmann.com 540/[2015] 228 Taxman 214 (Mag.) (Raj.) and accordingly both the questions are covered by the aforesaid judgment and against the revenue." 103. It is also noted that the SLP filed by the Revenue in case of Rajasthan 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 bindin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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