MSK Highway Limited, Baroda V. The ACIT.,Circle-4, Baroda

ITA 1131/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80351 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 09-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2012
• Court: TRIBUNAL
• Department Lawyers: VIMALENDRA VERMA
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! ! ! ! ' #$% ' #$% ' #$% ' #$% #& #&#& #&0 00 0# ## #0 00 0 '& '& '& '&, , , , () * () * () * () * ( ' ( ' ( ' ( ' BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT MEMBER % % % %./ ././ ./ ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 & - $.- & - $.- & - $.- & - $.-/ // / ASSESSMENT YEAR: 2005-06 MSK HIGHWAYS LIMITED, 708/709, STERLING ALKAPURI, R.C. DUTT ROAD, ALKAPURI, BARODA-390005. PAN: AAECM0966A VS COMMISSIONER OF INCOME TAX-II, BARODA. /0/ (APPELLANT) 12 /0/ (RESPONDENT) REVENUE BY : SH. VIMALENDRA VERMA, DR ASSESSEE(S) BY : SHRI S.N. SOPARKAR, AR &$3 4 )/ // / DATE OF HEARING : 09/09/2014 56. 4 ) / DATE OF PRONOUNCEMENT: 12/09/2014 (7 (7 (7 (7/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THE APPEAL IN ITA NO. 1177/AHD/2010 IS AN APPEAL FI LED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSION ER OF INCOME TAX-II, BARODA DATED 19.03.2010. THE APPEAL IN ITA NO. 1131/AHD/2012 IS THE APPEAL FILED BY THE ASSESSEE A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BA RODA WHICH WAS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE ORDER OF THE ASSESSING OFFICER PASSED U/S. 143(3) R.W.S. 263 OF THE INCOME TAX ACT. ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 MSK HIGHWAYS LTD., BARODA FOR A.Y. 2005-06 - 2 - 2. IN THE APPEAL IN ITA NO. 1177/AHD/2010 FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX PASSED U/S. 263, THE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX ERRED IN PASSING ORD ER U/S. 263 AND HOLDING THAT THE ORDER OF THE ASSESSING OFFICER PAS SED U/S. 143(3) OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE IN SO FAR AS NON-TAXING OF THE INCOME ARISING OUT O F PROPORTIONATE WORK DONE ON PROJECT COMPLETION METHOD FOR BUILD, O PERATE & TRANSFER PROJECT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE COMMIS SIONER OF INCOME TAX OBSERVED THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS 44,42,56,516/- ON BUILD, OPERATE & TRANSFER P ROJECT AGAINST WHICH THE ASSESSEE RECEIVED CASH SUBSIDY OF RS 22,9 3,90,000/-. ACCORDING TO THE COMMISSIONER OF INCOME TAX, AS PER SIGNIFICANT ACCOUNTING POLICIES, THE ASSESSEE WAS REQUIRED TO R EDUCE THE EXPENDITURE INCURRED ON THE SAID PROJECT BY THE AMO UNT OF CASH SUBSIDY RECEIVED AS THE SUBSIDY WAS RECEIVED AS A C OST OF WORK DONE WHICH WAS EVIDENT FROM THE LETTERS ISSUED BY MADHYA PRADESH RAJYA SETU NIRMAN NIGAM LTD. DATED 13.08.2004 AND 11.02.2 005 AND THE BALANCE AMOUNT OF EXPENDITURE WAS REQUIRED TO BE SH OWN AS WORK IN PROGRESS IN THE BALANCE SHEET SO THAT THE ACTUAL CO ST INCURRED BY THE ASSESSEE COULD BE WRITTEN OFF OVER A PERIOD OF CONT RACT. 4. THE COMMISSIONER OF INCOME TAX FURTHER OBSERVED THAT IN TERMS OF CONTRACT, THE COMPANY WAS ENTITLED TO C OLLECT TOLL DURING THE CONCESSIONAL PERIOD OF 5,440 DAYS INCLUDING THE PERIOD OF CONSTRUCTION BUT THE STAGE OF PROJECT COMPLETION HA D NOT BEEN DEFINED/SPECIFIED. AS THE STAGE OF PROJECT COMPLET ION HAD NOT BEEN DEFINED, THE INCOME/PROFIT HAD BEEN INDEFINITELY KE PT OUT OF THE ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 MSK HIGHWAYS LTD., BARODA FOR A.Y. 2005-06 - 3 - TAXATION. HE OBSERVED THAT THE COST OF THE PROJECT WAS RS 58 CRORES AND THUS 76% WORK DONE HAD BEEN COMPLETED AND AS PE R PROJECT COMPLETION METHOD, THE PROPORTIONATE WORK COMPLETED WAS TO THE TUNE OF RS 44.08 CRORES. THE ASSESSEE HAS NOT OFFE RED ANY INCOME FROM THE PROJECT FOR THE PROPORTIONATE WORK DONE ON PROJECT COMPLETION METHOD FOR THE PURPOSE OF TAXATION. THU S, THE INCOME OUT OF THE ABOVE BUILD-OPERATE-TRANSFER PROJECT HAS ESCAPED ASSESSMENT. THE COMMISSIONER OF INCOME TAX OBSERVE D THAT IN REPLY TO THE SHOW CAUSE NOTICE ISSUED, THE ASSESSEE SUBMI TTED THAT ACCORDING TO ACCOUNTING STANDARD AS-15 ISSUED BY TH E INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR ACCOUNTING OF GO VERNMENT GRANTS, CAPITAL GRANTS RECEIVED FOR THE PURPOSE CAN EITHER BE REDUCED FROM THE COST OF ASSET OR CAN BE SHOWN AS SUBSIDY UNDER RESERVE AND SURPLUS. IT WAS SUBMITTED THAT AFTER ISSUANCE OF C OMPLETION CERTIFICATE ONLY, THE COST OF THE ROAD CAN BE AMORT IZED NET OF GRANT RECEIVED. THE ASSESSEE FURTHER SUBMITTED THAT THE TOLL COLLECTION SHALL START FROM COMMERCIAL COMPLETION DATE, THE CERTIFIC ATE FOR WHICH WILL BE ISSUED BY MADHYA PRADESH RAJYA SETU NIRMAN NIGAM LTD. THE ASSESSEE FURTHER SUBMITTED THAT RS 44.08 CRORE WAS THE EXPENDITURE AND NOT INCOME. THE ASSESSEE HAD ENTERED INTO CONT RACT WITH MADHYA PRADESH RAJYA SETU NIRMAN NIGAM LTD. TO CONS TRUCT THE ROAD. THE EXPENDITURE INCURRED ON CONSTRUCTION OF ROAD WAS LIKE CREATION OF ASSET FOR THE ASSESSEE. THE COST OF TH E ROAD WAS TO BE RECOVERED BY THE ASSESSEE OVER A PERIOD BY CHARGING TOLL. THE TOLL COLLECTION CAN START ONLY ON COMPLETION OF THE PROJ ECT/ROAD CONSTRUCTION AND AS THE REVENUE FROM THE SAID CONTR ACT WAS NOT FROM CONSTRUCTION BUT FROM THE TOLL COLLECTION, PER CENT AGE COMPLETION METHOD WOULD NOT APPLY TO THE SAID CONTRACT. 5. THE COMMISSIONER OF INCOME TAX DID NOT AGREE WI TH THE SUBMISSIONS OF THE ASSESSEE. THE COMMISSIONER OF I NCOME TAX ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 MSK HIGHWAYS LTD., BARODA FOR A.Y. 2005-06 - 4 - OBSERVED THAT THE ASSESSING OFFICER HAD NOT MADE PR OPER VERIFICATION. AS PER AS-7 OF ACCOUNTING STANDARD REVISED IN 2002 W.E.F. 01.04.2003 AND PARA 21 OF REVISED AS-7, THE OUTCOME OF THE CONSTRUCTION CONTRACT CAN BE ESTIMATED RELIABLY BY PROJECT COMPLETION METHOD, THE VALUE AND THE CONTRACT COST HAVE TO BE RECOGNIZED AS REVENUE AND EXPENSES RESPECTIVELY WITH RESPECT TO S TAGE OF COMPLETION OF ACTIVITY. HE RELIED UPON THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF TIRATH RAM AHUJA P. LTD. VS. CIT 103 ITR 15 (DEL.) WHERE IT WAS HELD THAT IT IS A JUDICI ALLY RECOGNIZED PROPOSITION THAT IN THE CASE OF CONTRACTS, IN ORDER TO ASCERTAIN THE INCOME, ONE NEED NOT WAIT TILL THE CONTRACTS ARE CO MPLETED AND THAT IT IS OPEN FOR THE REVENUE TO ESTIMATE THE PROFIT. FU RTHER, THE COMMISSIONER OF INCOME TAX OBSERVED THAT THIS DECIS ION WAS CHALLENGED BY THE ASSESSEE IN SPECIAL LEAVE PETITIO N BEFORE THE APEX COURT WHICH WAS DISMISSED. THEREFORE, THE COMMISSI ONER OF INCOME TAX HELD THAT THE ASSESSMENT ORDER OF THE ASSESSING OFFICER IS SET ASIDE U/S. 263 WITH A DIRECTION TO TAX THE ASSESSEE ON PRESUMPTIVE BASIS AT THE RATE OF 8% AT RS 44,42,56,516/- AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE S UBMITTED THAT THE RELIANCE PLACED BY THE COMMISSIONER OF INC OME TAX ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF TIRATH RAM AHUJA P. LTD. (SUPRA) WAS MISPLACED BECAUSE IN THAT CASE, THE ASSESSEE WAS IN THE BUSINESS OF CONSTRUCTION CONTRA CT AND THEREFORE THE INCOME WAS BEING ESTIMATED ON THE BASIS OF PERC ENTAGE COMPLETION METHOD. THE CASE OF THE ASSESSEE WAS QU ITE DIFFERENT TO THAT AS THE ASSESSEE WAS IN THE BUSINESS OF CONSTRU CTION OF ROADS AND THE COST OF WHICH WAS TO BE REALIZED BY THE ASSESSE E BY CHARGING TOLL FROM THE USERS OF THE ROAD AFTER THE COMPLETION OF THE ROAD. SINCE THE ROAD WAS NOT BUILT AND THE COST INCURRED IN THE CONSTRUCTION OF THE ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 MSK HIGHWAYS LTD., BARODA FOR A.Y. 2005-06 - 5 - ROAD WAS THE WORK IN PROGRESS OF THE ASSESSEE, NO I NCOME WAS CHARGEABLE TO TAX TO THE ASSESSEE FOR THE YEAR UNDE R CONSIDERATION. THE COMMISSIONER OF INCOME TAX HAS MISDIRECTED HIMS ELF IN ESTIMATING NOTIONAL INCOME AT THE RATE OF 8% ON THE AMOUNT OF WORK IN PROGRESS COMPLETED DURING THE YEAR AND DIRECTING THE ASSESSING OFFICER TO TAX THE SAME DURING THE YEAR UNDER CONSI DERATION. 7. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME T AX. 8. WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE ENTERED INTO AGREEMENT WITH MADHYA PRADESH RAJYA SETU NIRMA N NIGAM LTD. FOR RECONSTRUCTION, STRENGTHENING, WIDENING & REHAB ILITATION OF A SECTION ON RAISEN-RAHATGARH ROAD PROJECT OF APPROX. LENGTH OF ABOUT 100 KILOMETRES, AND ITS OPERATION AND MAINTENANCE T O BE EXECUTED THROUGH A CONCESSION ON BUILD, OPERATE AND TRANSFER BASIS VIDE ORDER NO. 980/684/YOJANA 2001/19 DATED 1 ST FEBRUARY, 2001. AS PER THE AGREEMENT, THE ASSESSEE COULD CHARGE TOLL FOR 5440 DAYS FROM THE DATE OF AGREEMENT INCLUDING THE PERIOD OF CONSTRUCT ION OF ROAD. HOWEVER, AS PER THE AGREEMENT, THE TOLL CHARGES COU LD BE CHARGED BY THE ASSESSEE ONLY AFTER THE COMPLETION OF THE PROJE CT/ ROAD CONSTRUCTION. THE ABOVE FACTS ARE NOT IN DISPUTE. THUS, WE FIND THAT AS PER AGREEMENT, THE ASSESSEE WOULD EARN INCOME BY CHARGING TOLL ONLY AND THE SAID INCOME CAN START ONLY AFTER COMPL ETION OF PROJECT/ ROAD CONSTRUCTION. THUS, NO REAL INCOME COULD ACCR UE TO THE ASSESSEE UNDER THE AGREEMENT ON A DATE PRIOR TO THE DATE OF COMPLETION OF PROJECT/ ROAD CONSTRUCTION. THE ASSESSEE DOES NOT GET ANY LEGAL RIGHT TO RECEIVE ANY MONEY PRIOR TO THE DATE OF COMPLETIO N OF THE PROJECT/ ROAD CONSTRUCTION. IT IS NOT IN DISPUTE THAT THE C OMPLETION OF THE PROJECT/ ROAD CONSTRUCTION WAS NOT COMPLETED DURING THE PREVIOUS ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 MSK HIGHWAYS LTD., BARODA FOR A.Y. 2005-06 - 6 - YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION AN D THEREFORE THE QUESTION OF THE ASSESSEE HAVING EARNED ANY REAL INC OME DOES NOT ARISE. WE FIND THAT THE COMMISSIONER OF INCOME TAX WAS NOT JUSTIFIED IN COMPARING THE CASE OF THE ASSESSEE WIT H THE CASE OF A CONSTRUCTION CONTRACTOR WITHOUT PROPERLY APPRECIATI NG THE DISTINGUISHING FACTORS OF THE ASSESSEES CASE. IN OUR CONSIDERED VIEW, THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF TIRATH RAM AHUJA PVT. LTD. (SUPRA) RELIED UPON BY THE COMMISSI ONER OF INCOME TAX IS NOT APPLICABLE IN THE INSTANT CASE, AS THE A SSESSEE IS NOT ENGAGED IN CONSTRUCTION CONTRACT AS WERE THE FACTS OF THE CASE. FURTHER, WE FIND THAT NO BASIS FOR 8% ASSUMED INCOM E TAKEN BY THE COMMISSIONER OF INCOME TAX COULD BE BROUGHT ON RECO RD BY HIM IN THE IMPUGNED ORDER. THEREFORE, SUCH ARBITRARY BASI S IS ALSO UNSUSTAINABLE. 9. WE FIND THAT THE COMMISSIONER OF INCOME TAX COU LD NOT BRING ANY MATERIAL ON RECORD TO SHOW ANY REAL INCOM E ACTUALLY ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSI DERATION ON ACCOUNT OF ITS UNDERTAKING CONSTRUCTION OF ROAD UND ER BUILD, OPERATE & TRANSFER AGREEMENT, OF WHICH CONSTRUCTION HAS NOT BEEN COMPLETED DURING THE END OF THE RELEVANT PREVIOUS YEAR. THER EFORE, THE ORDER OF THE COMMISSIONER OF INCOME TAX IS UNSUSTAINABLE, HE NCE SET ASIDE. THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. 10. IN ITA NO. 1131/AHD/2012, THE APPEAL OF THE AS SESSEE IS ARISING OUT OF THE ORDER OF THE COMMISSIONER OF INC OME TAX (APPEALS) IN PURSUANCE TO THE ORDER OF THE ASSESSING OFFICER DATED 23.12.2010 PASSED U/S. 143(3) READ WITH SECTION 263 OF THE ACT . AS WE HAVE ALREADY SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX DATED 19.03.2010 PASSED U/S. 263, THE ORDER OF THE ASSESS ING OFFICER IS ITA NOS. 1177/AHD/2010 & 1131/AHD/2012 MSK HIGHWAYS LTD., BARODA FOR A.Y. 2005-06 - 7 - LIABLE TO BE CANCELLED AS THE VERY BASIS OF THAT OR DER HAS BECOME NON- EXISTENT. THUS, THE APPEAL OF THE ASSESSEE IS ALLO WED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 12 TH OF SEPTEMBER, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 12/09/2014 GHANSHYAM MAURYA, SR. P.S. TRUE COPY (7 4 18 9(8. (7 4 18 9(8. (7 4 18 9(8. (7 4 18 9(8./ COPY OF THE ORDER FORWARDED TO : 1. /0 / THE APPELLANT 2. 12/0 / THE RESPONDENT. 3. %% : / CONCERNED CIT 4. :() / THE CIT(A)-III, AHMEDABAD 5. 8$= 1& , , / DR, ITAT, AHMEDABAD 6. - >3 / GUARD FILE. (7& (7& (7& (7& / BY ORDER, / // / % % % % ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD