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TMI Blog2023 (9) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... o be rendered by the assessee would automatically spill over to the succeeding years of contract period. The project development fee received by the assessee for the same, we hold, has been rightly apportioned over the period of the respective projects. We are in agreement with the ld.counsel for the assessee that since the project development fees apportioned to the subsequent year has also been returned to tax by the assessee in the said years, the department in any case has not been deprived of any tax. The decision of the Hon ble apex court in the case of Excel Industries [ 2013 (10) TMI 324 - SUPREME COURT] referred to by the Ld.Counsel for the assessee before us, squarely applies in such circumstances requiring no addition to be made where the question merely relates to year in which income is to be subjected to tax and the Revenue has not been deprived due taxes on the said income . We see no reason to interfere in the order of the ld.CIT(A) deleting the addition made on account of taxing the entire project development fees received by the assessee during the impugned year itself. We may add here that since the Revenue has pleaded that the assessee has claimed bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee own case for AY 2008-09 ITAT held that the said unspent grant could not be treated as income of the assessee.ITAT noted that in the said decision also the unspent grant, treated as income of the assessee by the AO, was rejected by the ITAT noting that the assessee was a mere nodal agency to implement certain schemes of the Government of Gujarat and the unspent grant remained property of the Government and had to be returned to the Government as and when demanded; that therefore, there was no question of treating the grant as income of the assessee - since the issue stands decided in favour of the assessee in earlier years by the ITAT, we see no reason to interfere in order of the ld.CIT(A), deleting the addition made on account of unspent grant. Addition being interest on deposit from GSFS - HELD THAT:- As evident the interest earned on surplus funds, was not freely available to the assessee so as to utilize it in the manner it desired and make profits out of it. In view of the same, the Gujarat Municipal Finance Board case [ 1996 (5) TMI 71 - GUJARAT HIGH COURT] will clearly apply to the present case and the interest received on the surplus funds by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the projects ,being three years. Noticing that this was a change in accounting method for the said fees as adopted by the assessee in earlier years, when the entire amount was returned to tax in the year of accrual, and not agreeing with this change in method of accounting, he treated the entire project development fees received/ earned by the assessee during the impugned year as income of the assessee. Further, he noted that the assessee had deposited the surplus amount of grants received by it from Government with Gujarat State Financial Services (GSFS) and had earned interest on it which also was not returned to tax but treated as current liability, as part of the grants received from the Government. The AO held the same to be taxable as income from other sources, and accordingly taxed the entire interest received by the assessee from the GSFS as income of the assessee. The AO further noted that the assessee had incurred expenses for projects undertaken against which no income had been offered. Further, taking note of the fact that, even grants received from the government were not routed through the profit loss account, he held that when the income is not routed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,58,620/-, to tax in the impugned year. The details of the same are as under: i) Project Development fees L T, Ahmedabad Viramgam Malya 3,60,40,082 ii) Project Development Fees L T Ahmedabad-Halol Godhra 3,70,34,397 iii) Project Development fees L T Ahmedabad-Rajkot Jamangar 3,54,84,141 Total 10,85,58620/- 8. The assessee had apportioned the project development fees of Rs. 51.97 crores over the entire period of the projects, as mentioned in the concessionaire s agreement i.e. 30 months, and had accordingly offered only Rs. 10.85 crores to tax during the impugned year. The balance was been offered to tax in the subsequent years. 9. The ld.DR contended before us that the AO had rightly taxed the entire amount of project development fees in the impugned year since, the project development fees at the rate 2% of the total project costs were agreed to be paid within 15 days from the appointed date of the agreement entered into with concessionaires and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .97 crores over the entire period as mentioned in the concessionaire agreement i.e. 30 months. The appellant company has offered for taxation the balance amount of the proceeds received in subsequent years viz. AYs 2011-12 and 2012-13. In this respect, accounting policy following by the appellant is as per Sch.l4-Significant Accounting Policies. The appellant has submitted that it has consistently followed the accounting policy. Further the appellant has to incur expenses in the nature of cutting of trees , shifting of electric lines , underground pipelines, telephone line, electric cables and towers etc over this period to ensure smooth construction of roads by the concessionaire. This cannot be achieved by the appellant in the same year. The appellant shall be incurring these expenses slowly and gradually as the work progresses and in a phased manner. Therefore the proceeds received cannot be characterized as income in the same year itself. The appellant has correctly amortized it over the period of the concessionaire. Considering the above facts I am inclined to agree with the appellant's submissions. Accordingly the addition made by the AO is directed to be deleted i.e. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition to be made where the question merely relates to year in which income is to be subjected to tax and the Revenue has not been deprived due taxes on the said income . 14. In view of the above, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made of Rs. 41,12,03,380/- on account of taxing the entire project development fees received by the assessee during the impugned year itself. 15. We may add here that since the Revenue has pleaded that the assessee has claimed benefit of TDS on the entire amount of project development fees received during the year, though the same has not been returned to tax in entirety during the year, we direct the AO to grant benefit of TDS in accordance with law. Ground no.1 and 2 raised by the Revenue are accordingly dismissed. 16. Ground no.3 4 raised by the Revenue relate to the issue of expenses incurred by the assessee for which no income was found to be offered, and which accordingly was disallowed by the AO, amounting to Rs. 2,10,53,596/-. However, the said addition made by the AO was deleted by the ld.CIT(A). The said grounds read as under: 3. The learned CIT(Appeals) has erred in law and on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y incurrence of expenses there has to be commensurate income accruing to the assessee. He contended that the only condition to be fulfilled was that the expenses ought to have been incurred wholly and exclusively for the purpose of business, for qualifying as eligible business expenses as per section 37(1) of the Act. And that as long as the said conditions were met, the claim could not be denied for the reason that no income had accrued to the assessee against the expenses incurred. He heavily supported the order of the ld.CIT(A). 20. Further, with respect to the Rajkot-Jamanagar project, he drew our attention to the finding of the ld.CIT(A) to the effect that the assessee company had offered income with respect to this, which fact was brought to the notice of the AO also during assessment proceedings. Our attention was drawn to the finding of the ld.CIT(A) at page no.16 of the order deleting the addition of Rs. 1.1 crores holding as under: In respect of the Rajkot Jamnagar project the appellant company has offered income as well as claimed expenses. This has also been reproduced by the AO in the body of the assessment order (refer page 2 of he order). Therefore, the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1). Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other Fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) when such payment had been made for the purpose of assessee's business. Therefore, the payment made by the assessee in the instant case was allowable as deduction Respectfully following the ratio laid down by the Hon'ble Apex court in the above case, the above addition in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). 24. Even otherwise on facts, we find that the ld.CIT(A) has noted, that with respect to the Rajkot-Jamnagar project, the assessee had booked income also. This fact has not been controverted by the Revenue before us. Therefore, the very basis with the AO for disallowing the expenses incurred in relation to Rajkot-Jamnagar project does not survive, and the ld.CIT(A), therefore, we hold, has rightly deleted the disallowance of expenses relating to this project. 25. Vis- -vis the railway over-bridge(ROB) projects, the ld.CIT(A), we hold, rightly appreciated the contentions of the assessee that this work was carried out by the assessee for the benefit of the public at large without any assistance from the Government by way of grants. The Revenue has not controverted this contention of the assessee that it carried out these projects without any assistance by way of grants from the Government or without any remuneration for the same. And as has been held by us above, the absence of any income against any expenditure incurred, would not invalidate the claim of expenditure, which otherwise has been undisputedly incurred wholly and exclusively for the purpose of business of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the said unspent grant could not be treated as income of the assessee. The ITAT noted that in the said decision also the unspent grant, treated as income of the assessee by the AO, was rejected by the ITAT noting that the assessee was a mere nodal agency to implement certain schemes of the Government of Gujarat and the unspent grant remained property of the Government and had to be returned to the Government as and when demanded; that therefore, there was no question of treating the grant as income of the assessee. 32. In view of the same, since the issue stands decided in favour of the assessee in earlier years by the ITAT, we see no reason to interfere in order of the ld.CIT(A), deleting the addition made on account of unspent grant to the tune of Rs. 39,51,15,000/-. 33. The additional ground raised by the Revenue is therefore dismissed. 34. In effect appeal of the Revenue is dismissed. 35. We now take up the assessee s appeal in ITA No.191/Ahd/2014. 36. Ground no.1 raised by the assessee is as under: i. The Ld. CIT(A) has erred in law and on facts in confirming addition of Rs. 25485315 being interest on deposit from GSFS. It is respectfully subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the State. The State Government had directed the Board to treat the interest as part of its grants-in- aid. Hence, even if there was a receipt, in view of the principles of diversion, this would not amount to income of the Board and therefore, the same was not taxable. 38. Reliance was also placed on the decision of the Hon ble Gujarat High Court in the case of SAR Infracon P. Ltd., 42 taxmann.com 405 holding that interest earned on Central Government grants which were released, could not be taxed as income of the assessee, if conditions stipulate that interest so earned would form part of Central Government grant. 39. The ld.DR however relied on the order of the ld.CIT(A). 40. We have heard the rival contentions and gone through the orders of authorities below. We have noted that the Hon ble jurisdictional High Court in decisions referred to by the ld.counsel for the assessee before us, in the case of SAR Infracon P.Ltd. (supra) and in the case of Gujarat Municipal Finance Board (supra) has categorically held that the grants given by the State Governments stipulating deposits of the surplus grants in a particular mode and interest earned thereon ,also treated as par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance to the tune of Rs. 1.36 crores which related to the expenses incurred by the assessee on Bhuj-Nakhatrana Project and reasoning with the ld.CIT(A) was that there was no reason as to why the assessee would incur expenses without any commensurate income against the same earned. 47. We have already dealt with this aspect in the Revenue s appeal in ITA No.136/Ahd/2014 above at ground nos.3 4, wherein we have held that, as long as fact that the expenses were incurred wholly and exclusively for the purpose of business of the assessee is not disputed, the claim of the assessee cannot be denied for the reason that no income was earned against the same. 48. We have dealt with this aspect elaborately in ground no.3 4 of the Revenue s appeal and therefore, following the reasoning laid down therein, we hold that the disallowance of expenditure incurred on Bhuj-Nakhatrana amounting to Rs. 1.36 crores was not in accordance with law. We, therefore, direct deletion of the same. 49. Ground No.2 raised by the assessee is allowed. 50. In effect the appeal of the assessee is allowed 51. In the result, the appeal of the Revenue is dismissed, while that of the assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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