L & T Chennai - Tada Tollway Limited , CHENNAI V. ITO Corporate Ward 4(4) , CHENNAI

CO 137/CHNY/2017

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 2235 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 04-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N V BALAJI
• Assessee Lawyers: M SRINIVASA RAO
• Keywords: Capital asset; Capital receipt; Set aside
• Section: 143(3); 80IA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ! ' # , $ #% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.1790/CHNY/2017 & C.O NO.137/CHNY/2017 & '& /ASSESSMENT YEAR: 2014-15 INCOME TAX OFFICER, CORPORATE WARD-4(4), CHENNAI. VS. M/S. L & T CHENNAI TADA TOLLWAY LTD., POST BOX NO.979, TCTC BUILDING, 1 ST FLOOR, MOUNT POONAMALLEE ROAD, MANAPAKKAM, CHENNAI 600 089. [PAN: AABCL 4774G] ( () /APPELLANT) ( *+() /RESPONDENT/CROSS OBJECTOR) () , - / APPELLANT BY : SHRI M. SRINIVASA RAO, CIT *+() , - /RESPONDENT BY : SHRI N.V. BALAJI, ADVOCATE . , /$ /DATE OF HEARING : 06.03.2019 01' , /$ / DATE OF PRONOUNCEMENT : 29.03.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AND THE CRO SS OBJECTION (CO) FILED BY THE ASSESSEE-COMPANY DIRECTED AGAINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -8, CHENNAI ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 2 -: (HEREINAFTER CALLED AS CIT(A)) DATED 23.05.2017 F OR THE ASSESSMENT YEARS (AY) 2014-15. 2. NOW WE SHALL TAKE THE REVENUES APPEAL IN ITA NO.1790/CHNY/2017. 3. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPE AL IN ITA NO.1790/CHNY/2017: 1. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE CIT(A) ERRED IN ALLOWING ASSESSEES CLAIM OF DEDUCTION U/S 801A OF THE INCOMETAX ACT 1961. 2.1 IT IS SUBMITTED THAT FROM THE AY 2014-15 IT IS MANDATORY THAT AUDIT REPORT IN FORM NO. 1OCCB SHOULD BE SUBMITTED ELECTR ONICALLY WHILE FILING THE RETURN OF INCOME. 2.2. THE CIT(A) FAILED TO NOTE THAT THE ASSESSEE CO MPANY HAS FILED FORM NO. 1OCCB ONLY ON 06.11.2015, I.E BEYOND THE D UE DATE PRESCRIBED. 2.3 IT IS SUBMITTED THAT RULE 12(2) OF THE INCOMETA X RULES MANDATES THAT WHERE AN ASSESSEE IS REQUIRED TO FURNISH A REP ORT OF AUDIT SPECIFIED U/S 801A/801B/8OIC THE SAME SHALL BE FURN ISHED ELECTRONICALLY. 2.4 IT IS SUBMITTED THAT CBDT HAS ALSO ISSUED A NOT IFICATION NO. 42/2013 DATED 11.06.2013 AMENDING THE INCOMETAX RUL ES WHICH READS THAT WHERE AN ASSESSEE IS REQUIRED TO FURNIS H A REPORT OF AUDIT U/S 801A/8OIC THE SAME SHALL BE FURNISHED ELECTRONI CALLY. 2.5 IT IS SUBMITTED THAT THE DECISION OF THE APEX C OURT IN THE CASE OF M/S G.M KNITTING INDUSTRIES P LTD REPORTED IN 376 I TR 456 IS NOT APPLICABLE AS ELECTRONIC FILING OF AUDIT REPORT ALO NGWITH THE RETURN OF INCOME HAS BEEN MADE MANDALORY ONLY WITH EFFECT FRO M THE AY 2014-15. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 3 -: 4. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT-ASSESSEE IS A COMPANY INCORPORATED U NDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAG ED IN THE BUSINESS OF DEVELOPMENT OF INFRASTRUCTURE. THE RETURN OF INCOM E FOR THE AY 2014-15 WAS FILED ON 30.09.2014 DISCLOSING NIL INCOME. AGA INST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY ITO, WARD-4 (4), CHENNAI (HEREINAFTER CALLED AS AO) VIDE ORDER DATED 30.12 .2016 PASSED U/S. 143(3) OF THE ACT AT TOTAL INCOME OF RS.38,24,23,61 7/-. THE RESPONDENT- ASSESSEE WAS AWARDED CONTRACT OF DEVELOPING THE EXP ANSION AND CONSTRUCTION OF FOUR LANE TO SIX LANE IN CHENNAI-TA DA STRETCH ON NH-5 IN THE PATTERN OF BUILD-OPERATE-TRANSFER BASIS. THE AP PELLANT WAS GIVEN TOLL COLLECTION RIGHTS FOR A PERIOD OF 15 YEARS ON THE E XISTING FOUR LANE ROAD. DURING THE PERIOD OF CONSTRUCTION THE TOLL COLLECTI ON REVENUE COLLECTED BY THE ASSESSEE HAS BEEN TREATED AS CAPITAL RECEIPT. T HE SUBMISSIONS OF THE RESPONDENT-ASSESSEE WERE EXTRACTED IN THE ASSESSMEN T ORDER VIDE PARA 3.1. THE SUM AND SUBSTANCE OF THE STAND OF THE ASS ESSEE-COMPANY IS THAT THE ASSESSEE-COMPANY WAS PERMITTED TO COLLECT THE TOLL ON THE EXISTING ROAD TOWARDS GRANT OF THE GOVERNMENT FOR F UNDING OF THE PROJECT AND THE AMOUNT COLLECTED IS DEPOSITED IN ESCROW ACC OUNT AND THE AMOUNT SO COLLECTED SHOULD ONLY GO TO REDUCE THE PROJECT C OST AND CANNOT BE TAXABLE INCOME. THE SUBMISSIONS HAVE BEEN DULY CONS IDERED BY THE AO AND REJECTED THE ABOVE CONTENTION CITING THAT THERE WAS NO STIPULATION IN ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 4 -: THE CONSTRUCTION AGREEMENT REGARDING GRANT BY THE G OVERNMENT TOWARDS THE PROJECT COST. FURTHER, THE SUBMISSIONS THAT TH E TOLL FEE WAS COLLECTED ON THE EXISTING ROAD IS TOWARDS THE VIABILITY GAP F UNDING IS ALSO REJECTED BY AO, AS IT IS NOT SUPPORTED BY THE TERMS OF THE A GREEMENT. ALTERNATIVE ADJUSTMENT OF THE ASSESSEE IS THAT IT SHOULD BE GRA NTED DEDUCTION U/S. 80IA OF THE ACT ON THE PROFITS DERIVED FROM THE TOL L FEE ON THE GROUND THAT NO AUDIT REPORT IN THE PRESCRIBED FORM FILED I.E., IN FORM-10CCB ALONG WITH RETURN OF INCOME WAS FILED. 5. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDER HAD DIRECTED THE AO TO ALLOW DE DUCTION U/S. 80IA OF THE ACT AFTER CONSIDERING THE CBDT CIRCULARS GOVERN ING THE ISSUE AND THE HON'BLE SUPREME COURT DECISION IN THE CASE OF CIT V . GM KNITTING INDUSTRIES (P.) LTD. [2015] 376 ITR 476 (SC). BEIN G AGGRIEVED BY THE ABOVE DECISION BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE IN THE PRESENT GROUNDS OF APPEAL. 6. IT IS CONTENDED THAT FURNISHING OF AUDIT REPORT IN PRESCRIBED FORM ALONG WITH THE RETURN OF INCOME IS MANDATORY THEREF ORE, THE LD. CIT(A) OUGHT NOT HAVE HELD THAT FILING OF AUDIT REPORT IS ONLY DIRECTED IN NATURE THE LD. DEPARTMENTAL REPRESENTATIVE ALSO PLACED RELIANC E ON THE CBDT NOTIFICATION NO.42/2013 DATED 11.06.2013. IT IS FU RTHER SUBMITTED THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GM KNITTING ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 5 -: INDUSTRIES (P.) LTD. (SUPRA) IS NOT APPLICABLE. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE ORD ERS OF LOWER AUTHORITIES. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ADMITTED FACTS OF THE CASE ARE THAT THE RESPONDENT-ASSESSEE WAS AWARDED THE CONTRACT OF EXPANDING THE NH FROM F OUR LANE TO SIX LANE AT THE STRETCH OF CHENNAI-TADA, IT ENTERED INTO THE CONCESSION AGREEMENT WITH NHAI. IT IS FURTHER STATED THAT DURING THE CO NCESSION PERIOD, THE ASSESSEE WAS ENTITLED TO COLLECT THE TOLL FEES ON E XISTING FOUR LANE ROAD AND TOLL COLLECTION FEE SO COLLECTED SHOULD BE ADJU STED TOWARDS VIABILITY GAP FUNDING. THEN, THE ISSUE THAT ARISES FOR CONSI DERATION IS WHETHER THE TOLL FEE SO COLLECTED DURING THE CONSTRUCTION PERIO D SHOULD GO TO REDUCE THE PROJECT COST OR IS ELIGIBLE FOR DEDUCTION U/S. 80IA OF THE ACT. FROM THE PERUSAL OF THE PROVISIONS OF S. 80IA(4) OF THE ACT, IT IS CLEAR THAT IN ORDER TO BE ENTITLED TO DEDUCTION SUB S. (4) OF S. 80IA OF T HE ACT, AN ASSESSEE SHOULD CARRY ON DEVELOPING OR OPERATING AND MAINTAI NING ANY INFRASTRUCTURE FACILITIES WHICH FULFILLS ALL THE FO LLOWING CONDITIONS NAMELY: A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR BY CONSORTIUM OF SUCH COMPANIES B) IT IS ENTERED INTO AN AGREEMENT WITH T HE CENTRAL GOVERNMENT OR STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY FOR DEVELOPMENT OR OPERATING AND MAI NTAINING A NEW INFRASTRUCTURE FACILITY, IT FULFILLS PRESCRIBED CON DITIONS AND DERIVING INCOME ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 6 -: FROM SUCH BUSINESS IS ELIGIBLE TO DEDUCTION AND DER IVING INCOME FROM ELIGIBLE BUSINESS IS SINE QUA NON TO BE ELIGIBLE FOR DEDUCTION BUT, IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE-COMPANY HAD NOT DERIVED ANY PROFITS FROM THE ACTIVITIES OF DEVELOPING OR OPERAT ING AND MAINTAINING ANY INFRASTRUCTURE FACILITIES. IT IS ONLY IN THE PROCES S OF DEVELOPING INFRASTRUCTURE FACILITIES. THERE IS NO NEXUS BETWE EN THE TOLL FEE COLLECTED AND THE DEVELOPMENT OF INFRASTRUCTURE FACILITIES AN D THEREFORE, THE ASSESSEE COMPANY IS NOT ENTITLED TO DEDUCTION U/S. 80IA(4) OF THE ACT IN RESPECT OF THE TOLL FEE COLLECTED DURING THE CONCES SION PERIOD. THE LD. CIT(A) HAD MISDIRECTED HIMSELF IN DIRECTING THE AO TO ALLOW THE DEDUCTION U/S. 80IA OF THE ACT. THEREFORE, WE REVERSE THE FI NDINGS OF LD. CIT(A) ON THIS ISSUE. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS AL LOWED. CO NO.137/CHNY/2017: 9. THE ASSESSEE RAISED THE FOLLOWING CROSS OBJECTIO NS: 1. THE ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THAT THE TOLL COLLECTED IS NOT NATURE OF REVENUE RECEIPT. THE ASS ESSING OFFICER OUGHT TO HAVE APPRECIATED THAT THE APPELLANT DOES N OT HAVE ABSOLUTE RIGHT TO RECEIVE AND APPROPRIATE THE TOLL COLLECTED IN ANY MANNER AND HENCE THE SAME SHOULD NOT BE A TAXABLE INCOME. 2. THE ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THAT THE FACT THAT THE TOLL COLLECTED IS IN NATURE OF CAPITAL GRANT PR OVIDED BY NHAI AND SAME SHOULD BE ADJUSTED AGAINST THE COST OF THE ASS ET AS PER THE PROVISIONS OF SECTION 43(1) OF THE ACT. 3. THE ASSESSING OFFICER HAS ERRED IN NOT GRANTING 40% OF THE TOTAL PROJECT COST AS IN NATURE OF VIABILITY GAP FUNDING (I.E GRANT) PROVIDED BY THE NHAI. THE ASSESSING OFFICER OUGHT TO HAVE AP PRECIATED THAT THE VIABILITY GAP FUNDING IS TO THE EXTENT OF 40% O F THE TOTAL PROJECT ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 7 -: COST AS PER LETTER FROM NHAI DATED 5TH MARCH 2015 W HICH WAS FURNISHED BY THE COMPANY DURING THE COURSE OF ASSES SMENT PROCEEDINGS AND ACCORDINGLY PERMITTED THE SAME TO B E DEDUCT FROM THE TOLL COLLECTED IN COMPUTING THE TAXABLE PROFITS . 4. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OF FICER OUGHT TO HAVE TREATED 40% OF THE INTEREST COST INCURRED (TILL 31.03.2014) IN CONNECTION WITH THE TOLL PROJECT AS VIABILITY GAP FUNDING. 5. WITHOUT PREJUDICE TO THE ABOVE, WHERE THE TOLL C OLLECTED ARE DEEMED TO BE IN NATURE OF INCOME, THE ASSESSING OFF ICER OUGHT TO HAVE ALLOWED THE TOTAL COST INCURRED BY THE APPELLA NT AS DEDUCTION IN COMPUTING THE TAXABLE PROFITS. 6. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OF FICER OUGHT O HAVE APPRECIATED THAT THE STRENGTHENING COST AND ADMINIS TRATIVE AND MAINTENANCE COST ARE REVENUE IN NATURE AND SHOULD B E ALLOWED AS DEDUCTION IN COMPUTING THE TAXABLE PROFITS. 7. THE ASSESSING OFFICER ERRED IN DENYING THE ADJUS TMENT OF THE OTHER INCOME AGAINST THE PRE OPERATIVE EXPENSES. THE INCO ME FROM INVESTMENTS WAS INEXTRICABLY LINKED WITH THE PROCES S OF SETTING UP THE PROJECT AND SUCH RECEIPTS SHOULD BE TREATED AS CAPI TAL RECEIPT AND REDUCED FROM THE COST OF CAPITAL ASSET. 8. YOUR RESPONDENT PREFERS THE CROSS OBJECTION ON T HESE GROUNDS AND SUCH OTHER GROUNDS THAT MAY BE ADDUCED BEFORE T HE HONBLE TRIBUNAL BEFORE OR AT THE TIME OF HEARING OF THIS O BJECTION. 10. THE CO IS FILED BY THE ASSESSEE-COMPANY CONTEND ING THAT THE TOLL FEE COLLECTED BY THE ASSESSEE IS ELIGIBLE FOR DEDUC TION U/S. 80IA(4) OF THE ACT, AND THE SAME SHOULD ONLY GO TO REDUCE THE COST OF THE PROJECT. THIS CONTENTION IS NOT DEALT BY THE LD. CIT(A), AS HE HE LD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IA(4) OF THE ACT IN R ESPECT OF THE TOLL FEE COLLECTED. IN THE REVENUE APPEAL, WE HELD THAT THE TOLL FEE COLLECTED DURING THE CONCESSION PERIOD ARE NOT ELIGIBLE DEDUC TION U/S. 80IA(4) OF THE ACT IN THE ABSENCE OF NEXUS BETWEEN THE DEVELOPMENT OF INFRASTRUCTURE FACILITIES AND THE TOLL FEE COLLECTED. THEREFORE, WE DIRECT THE LD. CIT(A) TO ITA NO.1790/CHNY/2017 & CO.137/CHNY/2017 (AY: 2014- 15) :- 8 -: DEAL WITH THE ALTERNATIVE CONTENTIONS OF THE ASSESS EE AND ACCORDINGLY, THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY A LLOWED. HENCE, THE CO FILED BY THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED AND THE CO FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 29 TH DAY OF MARCH, 2019 IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! ' # ) (INTURI RAMA RAO) $ /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 29 TH MARCH, 2019. EDN, SR. P.S , */34 54'/ /COPY TO: 1. () /APPELLANT 2. *+() /RESPONDENT 3. . 6/ ( )/CIT(A) 4. . 6/ /CIT 5. 47 */ /DR 6. & 8 /GF