PVR Industries Limited, Hyderabad V. DCIT, Hyderabad

ITA 1196/HYD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3268 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 24-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business income; Depreciation; Proportionate interest; Revenue expenditure
• Section: 143(3); 143(1); 80IA; 143(2); 32; 37; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMB ER ITA NO.1171/HYD/07 ASST. YEAR: 2003-04 DCIT, CIR-16(3), -VS- M/S. PVR INDUSTRIES LIMITED, HYDERABAD. HYDERABAD. (PAN: AABCP 2555 P) ITA NOS.1175/HYD/07 ASST. YEAR 20 03-04 M/S. PVR INDUSTRIES LIMITED, -VS- DCIT , CIR-16(3), HYDERABAD. HYDERABAD. (PAN: AABCP 2555 P) ITA NO.1176/HYD/08 : ASST. YEAR: 2004-05 DCIT, CIR-16(3), -VS- M/S. PVR INDUSTRIES LIMITED, HYDERABAD. HYDERABAD. (PAN: AABCP 2555 P) ITA NOS.1196/HYD/08 ASST. YEAR 20 04-05 M/S. PVR INDUSTRIES LIMITED, -VS- DCIT , CIR-16(3), HYDERABAD. HYDERABAD. (PAN: AABCP 2555 P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SRI S. RAMA RAO DEPARTMENT BY : SHRI V. SRINIVAS ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 2 O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: IN THIS BATCH OF APPEALS, TWO APPEALS BY THE DEPARTMEN T AND OTHER TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST SEP ARATE ORDERS OF CIT (A)-V, HYDERABAD AND THEY PERTAIN TO THE ASSESSME NT YEARS 2003-04 AND 2004-05. SINCE COMMON ISSUES ARE INVOLVED I N THESE APPEALS, THESE ARE CLUBBED TOGETHER AND DISPOSED OFF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. SINCE FACTS ARE SIMILAR AND IDENTICAL IN THESE APPEA LS FOR THESE TWO YEARS, FOR THE SAKE OF BREVITY, WE DEAL WITH THE FACTS MENTIONED FOR ASSESSMENT YEAR 2003-04. BRIEFLY STATED F ACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INFR ASTRUCTURE PROJECTS I.E., DEVELOPING, MAINTAINING, OPERATING FA CILITIES LIKE CONSTRUCTION OF BRIDGES AND ROADS ON BUILT OPERATE AND TRANSFER (BOT) BASIS AND HAS FILED ITS RETURN OF INCOME ON 25-11-2003 D ECLARING A LOSS OF RS.1,00,25,563/-. THE RETURN WAS PROCESSED UNDER SECTI ON 143(1) ON 30-3-2004. AS THE CASE WAS SELECTED FOR SCRUTINY, A NOTICE UNDER SECTION 143(2) WAS ISSUED ON 27-11-2004. IN RESPONSE TO T HE STATUTORY NOTICES ISSUED BY THE ASSESSING OFFICER, THE ASSESSEES AUTHORIZE D REPRESENTATIVE ATTENDED FROM TIME TO TIME AND SUBMIT TED THE INFORMATION CALLED FOR. THE ASSESSEE HAS BEEN AWARDED A CONTRACT BY GOVERNMENT OF ANDHRA PRADESH FOR CONSTRUCTION OF MINI B Y-PASS ROAD AT ELURU TOWN AND ALSO BY THE GOVERNMENT OF INDIA FOR CONSTRUCTION AND MAINTENANCE OF BRIDGES OVER RIVERS AT MANNERU, PALLERU , MUSI, GANDLAKAMMA AND MUDIGONDA UNDER BOT SCHEME. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE GOT TOLL TAX REVENUE OF RS.5,01,87,874 ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 3 FROM THE ABOVE PROJECTS. AFTER DEBITING VARIOUS TYPE S OF EXPENDITURE, THE ASSESSEE HAS SHOWN A LOSS OF RS.99,67,719/- FOR THE ASSESSM ENT YEAR 2003-04. THE ASSESSING OFFICER PASSED HIS ASSESSMENT ORDE R DATED 30-1-2006 UNDER SECTION 143(3) OF THE ACT BY ARRIVING AT THE PROFIT FROM THE PROJECT AT RS.2,15,54,972/- AS AGAINST LOSS OF RS.1,00 ,25,563/- BY DISALLOWING THE AMORTIZATION OF BOT PROJECT EXPENDITU RE. FURTHER THE ASSESSING OFFICER TREATED THE INTEREST ON THE DEPOSITS MADE FOR THE PURPOSE OF BUSINESS OF RS.14,37,399/- AS THE INCOME FROM O THER SOURCES AND NOT ALLOWED THE PROPORTIONATE INTEREST AS DEDUCTI ON IN RESPECT OF THE SAID INTEREST INCOME. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). ON AP PEAL, THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ELABORATELY IN HIS ORDER HELD THAT NETTING OF INTEREST INCOME AGAINST INT EREST PAYMENT DEBITED TO PROFIT AND LOSS ACCOUNT IS NOT PERMISSIBLE AND HE HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN TAXING THE INTEREST RECEIPT AMOUNTING TO RS.14,37,399/- TREATING THE SAME AS INCOME FROM OTHER SOURCES. WITH REGARD TO THE AMORTIZATION OF BOT PROJE CT EXPENDITURE; HE HELD THAT THE SAME IS NOT ALLOWABLE AS DEDUCTION INSTEA D DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE COST INCURRE D BY THE ASSESSEE IN CONSTRUCTING THE INFRASTRUCTURE PROJECT. AGAINS T THE FINDINGS OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US ON TWO ISSUES I.E, A] DISALLOWANCE OF AMORTIZATION OF BOT PROJECT EXPENDITUR E AND B] NETTING OF INTEREST EARNED AND PAID WHEREAS THE DEPARTMENT IS IN APPEAL BEFORE US ON THE FINDINGS OF THE CIT [A] IN ALLOWING THE DEP RECIATION ON THE COST INCURRED BY THE ASSESSEE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE DEVELOPED TWO INFRASTRUCTURE PROJECTS I.E. ONGOLE PROJECT AND ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 4 ELURU PROJECT. THE ASSESSEE ENTERED INTO AGREEMENTS WITH GOVERNMENT OF INDIA IN RESPECT OF ONGOLE PROJECT AND WITH GOVT. O F ANDHRA PRADESH IN RESPECT OF ELURU PROJECT. ACCORDING TO THE AGREEMENTS ENT ERED INTO THE ASSESSEE HAD TO INCUR THE EXPENDITURE AND DEVELOP THE PR OJECT I.E., CONSTRUCTION OF THE PROJECTS ON THE NATIONAL HIGHWAY BET WEEN CHENNAI AND VIJAYAWADA AND CONSTRUCTION OF BY-PASS ROAD FOR ELUR U. THE AGREEMENTS PROVIDE THAT THE ASSESSEE WOULD BE ENTITLED T O RECOVER THE COST OF DEVELOPMENT THROUGH THE TOLL FEE COLLECTED. FO R THIS PURPOSE, FEE IS PRESCRIBED BY THE GOVERNMENT BY ISSUE OF NOTICE. THE PERIOD FOR WHICH SUCH FEE CAN BE COLLECTED IS ALSO NOTIFIED BY THE GO VERNMENT. HOWEVER, THE COST OF COLLECTION OF SUCH FEE SHALL BE BORNE BY THE ASSESSEE HEREIN. IN SO FAR AS THE ASSESSEE IS CONCERNED, THE R ECEIPTS REPRESENT THE TOLL FEE COLLECTED BY IT AND THE EXPEND ITURE FOR RECEIPT OF THE AMOUNT IS THE COST OF DEVELOPMENT OF INFRASTRUCTURE FACILITY AND THE COST OF RECOVERY OF THE TOLL FEE. IN SO FAR AS THE COST OF CONSTRUCTION IS CONCERNED THE SAME HAS TO BE RECOVERED OVER A PERIOD OF TIME FOR 17 YEARS IN RESPECT OF ONGOLE PROJECT AND 7 YEARS IN RESPECT OF ELURU PROJECT. THEREFORE, THE ASSESSEE CLAIMED THE EXPENSES PROP ORTIONATELY OVER A PERIOD COMMENCING FROM ASSESSMENT YEAR 1999-2000 O NWARDS IN RESPECT OF BOTH THE PROJECTS. THE PROPORTIONATE AMOUNT IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE BALANCE WAS SHOWN IN THE B ALANCE SHEET AS A PART OF THE BLOCK OF ASSETS. UP TO THE ASSESSMENT YEA R 2002-03, THE DEPARTMENT DID NOT QUESTION THE METHOD OF ACCOUNTI NG ADOPTED BY THE ASSESSEE AND THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2000-01 AND 2002-03 WERE COMPLETED UNDER SECTION 143(3) OF TH E ACT. 4. FOR THE ASSESSMENT YEARS I.E. 1999-2000 AND 2001-0 2, THE ASSESSING OFFICER DID NOT CONVERT THE CASE TO SCRUTINY AND TH E ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 5 DEPARTMENT ACCEPTED THE PROCEDURE ADOPTED BY THE ASSESSEE HEREIN THE CLAIMING THE EXPENSES TOWARDS COST OF CONSTRUCTION. THE ASSESSEE FILED THE RETURN OF INCOME BY MAKING ADJUSTMENTS TO THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT AFTER CLAIMING THE SAID AMORTIZAT ION OF EXPENSES. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 14 3(3) ON 23-1-2003 WHEREIN HE HAS ACCEPTED THE BUSINESS INCOME AT RS.6,16,79,440/-. HE ALLOWED THE CLAIM FOR AMORTIZATI ON OF EXPENSES BUT DID NOT RAISE ANY QUESTION WITH REGARD TO THE ALL OWABILITY OR OTHERWISE OF THE AMORTIZATION OF EXPENSES. THEREFORE THE CLAIM MADE FOR THE ASSESSMENT YEAR 2000-01 WAS ALLOWED BY THE DEPA RTMENT FOR DEDUCTION OF AMORTIZATION CHARGES. FOR THE ASSESSMENT YEA R 2002-03, THE ASSESSEE CLAIMED AMORTIZATION OF BOT PROJECT OF RS.2 ,90,48,426/-. THE COMPUTATION OF INCOME IS BASED ON THE PROFIT ARRIVE D AT THE PROFIT AND LOSS ACCOUNT AND THE ASSESSING OFFICER COMPLETED THE SCRUTI NY ASSESSMENT ON 28-9-2004 UNDER SECTION 143(3) AND ALLOWED SUCH EXPENSES OF AMORTIZATION. FOR THE REST OF THE YEARS T HERE WAS NO ORDER UNDER SECTION 143(3) OF THE ACT AND THEREFORE THE DEPA RTMENT ACCEPTED THE PROCEDURE ADOPTED IN CLAIMING EXPENSES ON CONSTRUCTION OF PROJECTS PROPORTIONATELY. FOR THE ASSESSMENT YEAR UNDER CONSIDERA TION, THE ASSESSING OFFICER IS OF THE VIEW THAT THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT DOES NOT REPRESENT THE REVENUE EXPENDITURE A ND IS CAPITAL IN NATURE. ON APPEAL, THE CIT (A) IS OF THE VIEW TH AT SUCH ASSET IS OF A CAPITAL ASSET AND THE ASSESSEE BECOMES ENTITLED FOR DEPRECIA TION. THE ASSESSEES CONTENTION IS THAT THE AMOUNT IS ALLOWABLE AS AM ORTIZATION AND NOT AS DEPRECIATION AND THE CONTENTION OF THE DEPA RTMENT IS THAT NEITHER THE AMORTIZATION NOR THE DEPRECIATION IS ALLO WABLE AS A DEDUCTION. FURTHER THE ASSESSEE NEVER CLAIMED THE DEDUCTI ON UNDER SECTION 35D OF THE ACT AND THE ASSESSEES SUBMISSION IS THAT TH E ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 6 EXPENDITURE INCURRED IS REVENUE IN NATURE BUT THE SAM E IS ALLOWABLE OVER A PERIOD OF 17/7 YEARS. THIS IS AN ACCEPTABLE ACCOUNTING PROCEDURE AND THE TRIBUNAL IN THE CASE OF S. PREMALATHA VS. DCIT REP ORTED IN 53 ITD 69 HELD THAT SUCH AMORTIZATION IS ALLOWABLE AS A DEDUCTION . IN THE SAID CASE, THE ASSESSEE TOOK THE LAND ON LEASE FOR A PERIOD OF 25 YEARS AND SHE CONSTRUCTED A BUILDING ON THE LEASE HOLD LAND AND WA S COLLECTING THE RENTS. 5. A SIMILAR VIEW IS EXPRESSED BY THE SUPREME COURT I N THE CASE OF CIT VS. MADRAS AUTO SERVICES PVT. LIMITED REPORTE D IN 233 ITR 468. IN THE SAID CASE ALSO, THE APEX COURT HELD THAT T HE AMOUNT IS ASSESSABLE AS INCOME FROM BUSINESS AND THE EXPENDITURE IS TO BE TREATED AS REVENUE IN NATURE. IN BOTH THE CASES THE PROCEDURE OF CLAIMING THE AMORTIZATION EXPENSES OVER A PERIOD OF TIME IS APPROVE D AND THEREFORE IT IS NOT CORRECT FOR THE DEPARTMENT TO MENTION THAT NO A MORTIZATION OF EXPENDITURE CAN BE ALLOWED EXCEPT UNDER THE PROVISIONS OF SECTION 35D OF THE ACT. IT IS SUBMITTED FURTHER THAT TO QUALITY DEDUCTION OF EXPENDITURE, IT IS NOT NECESSARY THAT IT SHOULD BE FITTI NG INTO SECTIONS 30 TO 43 AND IT MAY BE ALLOWED EITHER UNDER SECTION 28 O R UNDER SECTION 37 OF THE ACT. THE PROVISIONS OF SECTION 28 OF THE ACT MEN TIONED THAT THE PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE THE I NCOME ASSESSABLE UNDER SECTION 28 OF THE ACT. FOR THE PURPOSE OF DETERMINING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION, ONE HAS TO REFER TO THE ACCOUNTING PRINCIPLES. IN SO FAR AS EXPENDITURE ON CONSTR UCTION IS CONCERNED, THE SAME IS REVENUE IN NATURE AND THE SAID AM OUNT S REIMBURSED BY WAY OF TOLL FEE COLLECTED OVER A PERIOD OF 17/7 YEARS. THE TOLL FEE IS THE AMOUNT RECEIVED TO COMPENSATE THE EXPEN DITURE INCURRED ON CONSTRUCTION OF PROJECTS AND THE TOLL FEE RECEIVED IS T O BE REDUCED BY ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 7 THE SAID EXPENDITURE. FURTHER, THE SAID RECEIPT IS OVE R A PERIOD OF 17/7 YEARS, THE SAME IS DEDUCTED FOR A PERIOD OF 17/7 YEARS. SUCH A PROCESS IS HELD AS PERMISSIBLE BY THE SUPREME COURT AND THE TRI BUNAL IN THE CASES REFERRED TO ABOVE. THEREFORE, IT IS NOT CORRECT FO R THE DEPARTMENT TO MENTION THAT IT DOES NOT QUALIFY FOR DEDUCTION UND ER SECTIONS 30 TO 43 AS THE EXPENDITURE CAN BE ALLOWED EITHER UNDER SECTION 28 OR UNDER SECTION 37 OF THE ACT. 6 THE HONBLE APEX COURT IN THE CASE OF MADRAS AUTO S ERVICES PVT. LTD., HELD THAT SUCH EXPENDITURE AMORTIZED IS AL LOWABLE AS A DEDUCTION UNDER SECTION 37 OF THE ACT. IT IS FURTHER SU BMITTED THAT EVEN SECTION 28 ALLOWS SOME OF SUCH ITEMS OF EXPENDITURE AND TH EREFORE THE OBSERVATIONS OF THE DEPARTMENT ARE NOT CORRECT. THE ASSESSE E NEVER ADMITTED THAT THE EXPENDITURE IS CAPITAL IN NATURE AN D IT WAS CLAIMING AMORTIZATION EXPENDITURE FROM THE ASSESSMENT YEAR 1999- 2000. FURTHER, THE ASSESSEE SUBMITTED COPIES OF THE AGREEMENTS E NTERED INTO IN THE PAPER BOOK FILED BEFORE THE TRIBUNAL AND SOME OF THE CLAUSES WOULD CLEARLY REVEAL THAT THE EXPENDITURE IS A REVEN UE NATURE AND THE ASSESSEE WOULD NOT HOLD ANY RIGHT IN THE PROJECT EXCEPT R ECOVERY OF TOLL FEE TO REALIZE THE EXPENDITURE INCURRED. I) PAGE NO.15 OF THE PAPER BOOK PARA 2.4 OF THE AGREEM ENT WHEREIN IT IS MENTIONED IN CONSIDERATION OF THE GOVERNMENT HAVING AGREED TO ALLOW THE ENTREPRENEUR TO RECOVER IN THE MANNER HEREINAFTER PROVIDED OF THE PR OJECT COST BY WAY OF THE FEE TO BE FIXED BY THE GOVERNMENT UNDER THE NATIONAL HIGHWAY ACT, 1956 AND AS AMENDED FROM TI ME TO TIME ON THE MOTOR VEHICLES USING ANY ONE OR ALL OF THE ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 8 BRIDGES SITUATED ON THE SECTION OF THE ROAD FROM KM 259 TOP KM 310 OF CHENNAI-VIJAYAWADA SECTION AND TO BE COLLECTE D AND RETAINED BY THE ENTREPRENEUR AS AN AGENT OF THE GOVERNMENT DURING THE CONCESSION PERIOD. IT IS CLEAR THAT THE ASSESSEE COMPANY ACCEPTS AS AN AGENT ON BEHALF OF THE GOVT. THE RECOVERY OF TOLL FEES IS ONLY TO RECOVER THE EXPENDITURE INCURRED. II) PAGE NO.19 OF THE PAPER BOOK WHEREIN IT IS MENTIONED POSSESSION OF LAND REQUIRED FOR THE PROPOSED PROJECT SHAL L BE HANDED OVER TO THE ENTREPRENEUR FOR THE CONSTRUCTIO N OF THE PROJECT. THIS WILL NOT AMOUNT TO TRANSFER OF OWN ERSHIP OR LEASE OF THE LAND TO THE ENTREPRENEUR: IT IS CLEAR THAT THE RIGHTS IN THE LAND WERE NEVER TRANSFERRED TO THE ASSESSEE NRO THE LANDS WERE PROVIDED ON LEASE TO THE ASSESSEE. III) PAGE NO.67 OF THE PAPER BOOK WHEREIN IT IS MENTIONED POSSESSION OF LAND REQUIRED FOR THE PROPOSED PROJECT SHAL L BE HANDED OVER TO THE ENTREPRENEUR FOR THE CONSTRUCTIO N OF THE PROJECT. THIS WILL NOT AMOUNT TO TRANSFER OF OWN ERSHIP OF THE LAND TO THE ENTREPRENEUR. FROM THE ABOVE CLAUSES OF THE AGREEMENT IT IS CLEAR THAT THE GOVERNMENT HELD RIGHTS IN THE LAND AND THE PROPERTY AND THEY WERE NEVER TRANSFERRED TO THE ASSESSEE HEREIN AND A REA DING OF THE AGREEMENT WOULD CLEARLY INDICATE THAT THE RESPONSIBILIT Y OF THE CONSTRUCTION OF THE PROJECTS TO THE SPECIFICATIONS OF THE GO VERNMENT IS ENTRUSTED TO THE ASSESSEE. THE ASSESSEE SHALL BE RESPONSIBLE TO CONSTRUCT SUCH PROJECTS AT ITS OWN COST. THE COST SO INCURRED SHALL BE REIMBURSED BY WAY OF RECOVERY OF TOLL FEE IN ACCORDANCE WITH THE ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 9 DIRECTIONS GIVEN BY THE GOVERNMENT IN VARIOUS NOTIFI CATIONS. THE ASSESSEE WOULD NEVER BECOME THE OWNER OF THE PROPERTY. FURTHER, THE OWNERSHIP OF THE HIGHWAYS IS TO BE DECIDED WITH REFERE NCE TO THE ENACTMENTS MADE BY THE GOVERNMENT. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO SECTION 4 OF THE NATIONAL HIGHWAY AUTHORITY ACT, 1956 AND FURTHER MENTIONED THAT THE FEES FOR SERVICES RENDERED ON NATIONAL HIGHWAYS ALSO IS TO BE CHARGED IN A CCORDANCE WITH SECTION 7 OF THE SAID ACT. THE CLAUSES OF THE AGREEMENT A S EXTRACTED ABOVE CLEARLY MENTION THAT THE ASSESSEE HAS TO ACT AS AN A GENT OF THE GOVERNMENT DURING THE CONSTRUCTION PERIOD. A COMBINED READING OF SECTION 4 OF THE NATIONAL HIGHWAY ACT AND THE AGREEMEN TS ENTERED INTO BY THE ASSESSEE CLEARLY INDICATE THAT THE OWNERSHIP ON THE HIGHWAYS IS IN THE UNION AND THE ASSESSEE ACTED ONLY AS AN AGENT EITH ER IN CONSTRUCTION OR IN RECOVERY OF THE EXPENDITURE BY WAY O F TOLL FEE. THIS FACT IS ACCEPTED BY THE DEPARTMENT HOLDING THAT THE ASSES SEE WAS NEVER THE OWNER OF THE PROPERTY WHILE CONSIDERING THE QUESTI ON OF ALLOWABILITY OF DEPRECIATION. THE ASSESSEE FURTHER SUBMITS THAT THE TRI BUNAL CLEARLY HELD THAT THE ASSESSEE HAS TO BE GIVEN DEDUCTION EITHER O F DEPRECIATION OR OF THE COST OF CONSTRUCTION AS REVENUE EXPENDITURE OR IN THE FORM OF AMORTIZATION EXPENDITURE AND THE TRIBUNAL HELD THAT THE AMOUNT IS ALLOWABLE EITHER OF THE THREE OPTIONS AVAILABLE. IN THE CASE DECIDED BY THE TRIBUNAL, THE ASSESSEE EXERCISED OPTION OF CLAIMING DE PRECIATION IT WAS DIRECTED TO BE ALLOWED. HOWEVER, IN THE CASE OF THE ASSESSEE THE OPTION IS AMORTIZATION OF EXPENDITURE AND THE ASSESSEE R ELIED ON THE SAID DECISION AS IT IS HELD THAT THE AMORTIZATION EXPENDITUR E IS ALSO ONE OF THE OPTIONS AND IS ALLOWABLE AS A DEDUCTION. ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 10 7. THE TRIBUNAL FURTHER MENTIONED THAT IN THE CASE OF NYSE INFRASTRUCTURE PVT. LTD., IN ITA NO.301/HYD/2008 DATED 5-6-2009, IT CLAIMED DEPRECIATION AND NOT AMORTIZATION AND THEREFO RE HELD THAT DEPRECIATION IS ALLOWABLE AS A DEDUCTION. HENCE THE ASSESSE E SUBMITTED THAT IT NEVER CLAIMED OWNERSHIP OVER THE PROPERTY AND THE ASSESSEE IS NOT CLAIMING DEPRECIATION IN RESPECT OF THE COST INCURRED ON CONSTRUCTION OF THE INFRASTRUCTURE PROJECT BUT IS CLAIMING DEDUCTION ON ACCOUNT OF AMORTIZATION OF EXPENSES. FURTHER ASSESSEE SUBMITTED THAT IT IS NOT CLAIMING ANY OWNERSHIP OVER THE SAID PROPERTY AND IT I S ALSO NOT CLAIMING DEPRECIATION AND THE AMORTIZATION OF THE COST INCURRED BY IT IN CONSTRUCTION OF THE PROJECTS AND INFRASTRUCTURE FACILITIES F ROM OUT OF TOLL FEE COLLECTED AS THE SAID TOLL FEE IS COLLECTED AS A REIMBU RSEMENT OF THE EXPENDITURE INCURRED ON CONSTRUCTION OF THE PROJECT. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE OFFERS TOLL REVENUE AS INCOME A ND DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERAT ION, A SUM OF RS.5.16 CRORES WAS OFFERED TO TAX AS TOLL REVENUE AS AGA INST WHICH VARIOUS ITEMS OF EXPENDITURE TO THE EXTENT OF RS.6.16 CRORES WAS CLAIMED. OUT OF THESE EXPENSES, THE CLAIM OF RS.3,30,17, 934/- BEING THE AMORTIZED COST OF ELURU BYPASS ROAD AND ONGOLE SECTO R BRIDGES, WAS DISALLOWED BY THE ASSESSING OFFICER. SIMILARLY, IN THE Y EAR RELEVANT TO THE ASSESSMENT YEAR 2004-05, AN AMOUNT OF RS.4.28 CRORES CLAIME D ALONG WITH OTHER EXPENSES AGAINST TOLL TAX REVENUES OF RS.5.41 CRORES WAS DISALLOWED. THE STAND OF THE ASSESSING OFFICER IS THAT AM ORTIZED COST CANNOT BE CLAIMED BECAUSE IT DOES NOT QUALIFY UNDER SECTIO N 35D OR ANY OF THE OTHER SPECIFIC SECTIONS. THE ALTERNATE CLAIM OF RE VENUE EXPENDITURE CANNOT BE CONSIDERED BECAUSE EXPENDITURE DOE S NOT QUALIFY ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 11 IN TERMS OF SECTIONS 30 TO 43 OF THE ACT. IT WAS ALSO NOT ED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY ITSELF CLASSIFIED TH E ASSET AS A CAPITAL ASSET IN ITS BALANCE SHEET. HOWEVER, DEPRECIATION COULD NOT BE ALLOWED BECAUSE THE PRIMARY REQUIREMENT OF OWNERSHIP I S NOT SATISFIED FOR THE PURPOSES OF SECTION 32 OF THE ACT. IT IS FURTHER CONTENDED THAT THE LEARNED AUTHORIZED REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL D EVELOPMENT CORPN. REPORTED IN 225 ITR 802 TO THE EFFECT THAT AM ORTIZED EXPENSES ARE ALLOWABLE AND THE POINT OF DISTINCTION, HOWEVER, TO BE NOTICED IS THAT THIS CASE WAS RENDERED IN THE CONTEXT OF EXPENDITURE INC URRED BY WAY OF DISCOUNT ON THE DEBENTURES ISSUED. IN THE PRESENT CASE, TH E EXPENDITURE IS ADMITTEDLY IN THE CAPITAL FILED. FURTHER THE REL IANCE WAS PLACED BY LEARNED AUTHORIZED REPRESENTATIVE ON A DECISION OF TH E HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF NYSE INFRASTRUCTURE (P) L TD [SUPRA] WHEREIN THE TRIBUNAL DWELT UPON THE CONCEPT OF BENEFICIAL OWNE RSHIP AS DISTINCT FROM LEGAL OWNERSHIP BEING ADEQUATE FOR THE PURPOSE O F SECTION 32 OF THE ACT. THE TRIBUNAL RELIED ON RATIO OF SUPREME CO URT IN CIT VS. PODAR CEMENT PRIVATE LIMITED 226 ITR 625 AND JODHA MAL KU THIALA VS. CIT 82 ITR 570. IT IS SUBMITTED THAT THE DECISION OF JODHA MAL KUTHIALA WAS RENDERED IN THE CONTEXT OF EVACUEE PROPERTY AND IS CON TEXTUALLY DISTINGUISHABLE. SIMILARLY, THE CASE OF PODAR CEMENT P RIVATE LIMITED SUPRA, WAS FOUND APPLICABLE BECAUSE THE BENCH OF THE TRIB UNAL ON THE FACTS OF NYSE INFRASTRUCTURE PVT. LTD., COULD DRAW A PA RALLEL BETWEEN THE POWER OF ENJOYMENT WITH THE CONCESSIONAIRE AS PER CLAUSE [ C] OF ARTICLE 3.3 AND THE RIGHTS OF AN OWNER. 9. IT IS FURTHER SUBMITTED THAT ON THE FACTS OF THE P RESENT CASE, SUCH CLAUSES ARE CONSPICUOUSLY ABSENT AND IN FACT, ARTICLE 3.17, 3.26 AND ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 12 3.42 OF THE AGREEMENT ARE EXPRESS RECITALS OF NON OWNER SHIP. FAR FROM INDEMNIFYING THE CONCESSIONAIRE FROM UNFORESEEN CONTINGEN CIES AND ENABLING ENJOYMENT OF THE ASSET IN ITS OWN RIGHT, THE AGREEMENT IN THE PRESENT CASE GAVE THE GOVERNMENT THE ABSOLUTE RIGHT TO TAKE OVER THE FACILITY FROM THE ENTREPRENEUR SHOULD IT CHOOSE TO AND EVEN IN TERMS OF THE DOCTRINE OF BENEFICIAL OWNERSHIP, ON THE FACTS OF T HIS CASE THE ASSESSEE DOES NOT HAVE ANY MARKETABLE RIGHTS, OR EVEN ASS URED RIGHTS TO SUPPORT THE VIEW OF ENJOYMENT OF PROPERTY IN ITS OWN RIGHT. ON THE FACTS OF THE PRESENT CASE, IT IS SEEN THAT AGAINST THE TOL L REVENUES OFFERED TO TAX, TOLL COLLECTION EXPENDITURE, OFFICE OVERHEADS, FINANCE CHARGES ATTRIBUTABLE TO CAPITAL RAISED ARE ALLOWED IN FULL. I T IS CLEAR THEREFORE THAT GROSS RECEIPTS HAVE NOT BEEN SUBJECTED TO TAX. ON AVAIL ABLE PROFITS, THE ASSESSEE HAS BEEN ADMITTED TO THE BENEFITS OF DEDUCTION UN DER SECTION 80IA OF THE ACT AND THERE IS THEREFORE, NO MANIFEST IN EQUITY IN THE TAX TREATMENT OF THE ASSESSEES RECEIPTS AND THE MATERIAL COST OF THE PROJECT UNLIKE IN OTHER CASES, DOES NOT GENERATE A SALEABLE COMM ODITY THAT IS BEING TAXED ON A GROSS BASIS. IT IS THEREFORE SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF NYSE INFRASTRUCTURE PVT. LTD., SUPRA WOULD NOT HAVE AUTOMATIC APPLICATION TO THE FACTS OF THE PRE SENT CASE. IT IS SUBMITTED THAT THE ALLOWANCE OF DEPRECIATION AS DIRECTE D BY THE FIRST APPELLATE AUTHORITY MAY RESULT IN ANOMALOUS SITUATION AND THE PROJECT IS AN ONGOING ACTIVITY WITH SPECIFIC AMOUNTS BEING TRANSFERR ED FROM WORK- IN-PROGRESS FROM YEAR TO YEAR. AS COULD BE SEEN FROM PA GE 6 AND 7 OF THE ASSESSEES PAPER BOOK, THE CONSTRUCTION ACTIVITY IS SPR EAD OVER SEVERAL YEARS AND DATE OF ACQUISITION OF ANY DISCRETE IT EM OR ASSET CANNOT BE ASCERTAINED WITH CERTAINTY. THE OTHER QUESTIO N THAT ARISES IS ONE WITH REFERENCE TO WHICH BLOCK OF ASSETS SHOULD DEPRE CIATION BE CLAIMED AND IN THE ABOVE REFERRED DECISION OF NYSE INFR ASTRUCTURE PVT. ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 13 LIMITED THE TRIBUNAL SUGGESTS THAT ROADS CAN BE CONSIDERE D AS BUILDING AND THIS DECISION DID NOT HAVE THE BENEFIT OF CONSIDERIN G THE DECISION OF THE SUPREME COURT IN THE CASE OF INDORE MUNICIPAL CORP ORATION 247 ITR 803 WHEREIN IT WAS HELD THAT ROADS BY THEMSELVES, THAT IS NOT AS ADJUNCTS TO BUILDINGS WITHIN A FACTORY AREA, COULD NOT CONSTITUTE BUILDING. FOR THIS REASON, IT WAS HELD BY THE SUPREME COURT THAT THE ASSESSEE WOULD NOT BE ENTITLED TO DEPRECIATION ON THE COST OF C ONSTRUCTION OF THE ROADS. REVERTING TO THE COMPUTATION OF TAXABLE INCOME BY THE ASSESSING OFFICER WITHOUT GRANTING EITHER AMORTIZATION OR DEPR ECIATION OR TOTAL REVENUE EXPENDITURE, IT IS SUBMITTED FOR CONSIDERATION THAT ADMISSIBILITY OF A CLAIM HAS TO BE GOVERNED BY SECTIONS OF THE ACT AS EXPRESSLY APPLICABLE. 10. THE ASSESSING OFFICER SHOULD NOT BE OBLIGED TO GRAN T AN ALLOWANCE BASED ON LOGICAL CONSTRUCTION IF IT IS NOT EXPR ESSLY PROVIDED FOR UNDER THE ACT. IN THIS REGARD, REFERENCE IS INVITED T O THE DOCTRINE OF CASUS OMISSUS AND RELIANCE IS PLACED ON 234 ITR 261 (MP) AND 183 ITR 420 (MP) TO THE EFFECT THAT MATTERS THAT SHOULD HAVE B EEN PROVIDED FOR IN THE STATUTE, BUT HAVE NOT BEEN CANNOT BE SUPPLIED B Y THE COURTS. FOR THESE REASONS, IT IS SUBMITTED FOR CONSIDERATION THAT THE COMPUTATION OF TAXABLE INCOME MADE BY THE ASSESSING OFFICER DESERVES TO BE RESTORED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS UNDISPUTED FACT THAT THE DEPARTMENT ALLOWED THE SIMILAR AMORTIZATION OF BOT PROJECT EXPENDITURE IN THE EARLIER ASSESSMENT YEAR UNDER SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT. THERE IS NO DISPUTE ABO UT THE QUANTUM OF EXPENDITURE INCURRED BY THE ASSESSEE. IT IS THE CASE O F THE ASSESSEE ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 14 THAT THE EXPENDITURE INCURRED ON BOT PROJECT IS ALLOW ABLE AS AMORTIZATION AND NOT AS DEPRECIATION WHEREAS IT IS THE CASE OF THE DEPARTMENT THAT NEITHER THE AMORTIZATION NOR THE DE PRECIATION IS ALLOWABLE AS DEDUCTION. THE MAIN ARGUMENT OF THE D EPARTMENT IS THAT THE ASSESSEE SHOULD HAVE CLAIMED DEDUCTION UNDER SECTION 80 IA AND NOT AS DEDUCTION TOWARDS REVENUE EXPENDITURE. IN OUR CONSI DERED OPINION, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 80IA ONLY IF THE ASSESSEE CARRIES ON ELIGIBLE BUSINESS AS SPECIFIED IN SECTION 80I A OF THE ACT. HOWEVER, THE ISSUE BEFORE US IS RELATING TO ALLOWA BILITY OF THE EXPENDITURE INCURRED ON BOT PROJECT ON ITS AMORTIZATIO N AND NOT ABOUT THE ELIGIBILITY OF DEDUCTION UNDER SECTION 80IA OF THE ACT. ON SIMILAR AND IDENTICAL ISSUE, THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF NYSE INFRASTRUCTURE (SUPRA) HELD THAT THE ASSESSEE HAS TO BE GI VEN DEDUCTION EITHER OF DEPRECIATION, OR COST OF CONSTRUCTION AS REVENUE EXPENDITURE OR IN THE FORM OF AMORTIZATION OF EXPENDITURE BY FOLLO WING THE JUDGMENT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION (SUP RA). IT IS WELL SETTLED THAT THE CO-ORDINATE BENCHS DECISION IS BINDING AND THE SAME HAS TO BE FOLLOWED IN DECIDING THE SIMILAR ISSUES. IN THE CASE OF NYSE INFRASTRUCTURE (SUPRA) THE TRIBUNAL ALLOWED THE DEDUCT ION AS DEPRECIATION AS IN THAT CASE, THE ASSESSEE ITSELF CLAIMED DEPRECIATION. IN THE CASE UNDER CONSIDERATION, THE ASSESSEE COMPANY CLAIMED AMORTIZA TION OF THE BOT PROJECT EXPENDITURE AS REVENUE EXPENDITURE AND AS PER THE RATIO OF DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF NYSE IN FRASTRUCTURE (SUPRA) THE AMORTIZATION OF EXPENDITURE IS ALSO ONE OF THE OPTIONS AND IS BEING ALLOWABLE AS DEDUCTION. HENCE, BY FOLLOWING THE D ECISION OF CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF NYSE INFR ASTRUCTURE (SUPRA), AMORTIZATION OF BOT PROJECT EXPENDITURE CLAI MED BY THE ASSESSEE IS TO BE ALLOWED. MOREOVER, WE DO NOT SEE ANY ME RIT IN THE ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 15 ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE AMORTIZATION OF EXPENDITURE CAN BE ALLOWED UNDER SECTI ON 35D OF THE ACT AND NOT UNDER ANY OTHER PROVISIONS OF THE ACT. IN T HE CASE UNDER CONSIDERATION, THE ASSESSEE NEVER CLAIMED ANY DEDUCTION UND ER SECTION 35D OF THE ACT. WE ALSO DO NOT SEE ANY MERIT IN THE A RGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE COM PANY ITSELF CLASSIFIED THE ASSETS AS CAPITAL ASSETS IN ITS BALANCE-SHEET. I T IS WELL SETTLED LAW THAT THE ENTRIES IN THE BOOKS OF ACCOUNT AND ITS TREATMENT WOULD NOT DISENTITLE THE ASSESSEE, IN ANY WAY, TO CLAIM THE EXPENDITURE TO ARRIVE ITS ACTUAL INCOME FOR THE PURPOSE OF TAXATION . IT IS CASE OF THE ASSESSEE THAT THE EXPENDITURE INCURRED IS IN REVENUE NATU RE AND THE SAME HAS TO BE ALLOWED OVER A PERIOD 17/7 YEARS AS THE CASE MAY BE. IN THE CASE UNDER CONSIDERATION, THE EXPENDITURE INCURR ED BY THE ASSESSEE ON BOT PROJECT DID BRING SOME KIND OF AN ENDURIN G BENEFIT TO THE ASSESSEE; HOWEVER, THE SAID EXPENDITURE DID NOT BRIN G INTO EXISTENCE ANY CAPITAL ASSET FOR THE ASSESSEE. THE ASSET WHICH WAS CREATE D BELONGS TO THE GOVERNMENT AND THE ASSESSEE DERIVED ONLY AN ENDU RING BUSINESS ADVANTAGE BY SPENDING THE AMOUNT. THE EXPENDITURE I NCURRED BY THE ASSESSEE HAS TO BE LOOKED UPON AS HAVING BEEN MADE FOR TH E PURPOSE OF CONDUCTING THE BUSINESS OF THE ASSESSEE. SINCE THE ASSET CREA TED BY THE ASSESSEE BY SPENDING THE SAID AMOUNTS DID NOT BELONG TO TH E ASSESSEE BUT THE ASSESSEE GOT THE BUSINESS ADVANTAGE BY COLLECTING TH E TOLL CHARGES AS REVENUE. THUS, THE ASSESSEE GOT THE BENEFIT O F REVENUE COLLECTION FOR THE PERIOD OF 17/7 YEARS AND HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS BOT PROJECT SHOULD BE LOO KED UPON AS REVENUE EXPENDITURE. OUR VIEW IS FORTIFIED BY THE D ECISION OF THE APEX COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICES LIMITED (SUPRA) RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE. ONCE WE HELD THAT THE SAID ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 16 EXPENDITURE IS TO BE TREATED AS REVENUE EXPENDITURE, CONSEQUENTLY, THE ASSESSEE IS ELIGIBLE TO AMORTIZE THE EXPENDITURE RELATIN G TO BOT PROJECT FOR THE PERIOD OF 17/7 YEARS. IN VIEW OF THE ABOVE, AFTER CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES OF THE CASE, WE AL LOW THE CLAIM OF THE ASSESSEE WITH REGARD TO THE AMORTIZATION EXPENDITUR E INCURRED ON BOT PROJECTS AS REVENUE EXPENDITURE SINCE WE ALLOWED THE GROUND OF THE ASSESSEE WITH REGARD TO THE ALLOWABILITY OF AMORTIZ ATION OF THE EXPENDITURE, THE GROUND RAISED BY THE REVENUE IN CHAL LENGING THE FINDINGS OF THE CIT (A) IN ALLOWING THE DEPRECIATION ON THE INFRASTRUCTURE FACILITIES, STANDS REJECTED. 12. THE OTHER GROUND RAISED BY THE ASSESSEE REMAINED TO BE ADJUDICATED UPON IS WITH REGARD TO THE TREATMENT OF INTEREST ON DEPOSITS AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME A ND ALSO WITH REGARD TO THE BENEFIT OF NETTING THE INTEREST I NCOME. ON SIMILAR AND IDENTICAL ISSUE, THIS BENCH OF THE TRIBUNAL IN THE ASSE SSEES OWN CASE FOR THE ASSESSMENT YEAR 2000-01 VIDE ORDER DATED 30-11- 2000 IN ITA NO.340/HYD/2006 HELD AGAINST THE ASSESSEE AND IN FAVOR OF THE DEPARTMENT. FOLLOWING THE REASONING GIVEN IN THE OR DER OF THE TRIBUNAL MENTIONED ABOVE, WE REJECT THE GROUND RAISED BY THE A SSESSEE ON THIS ISSUE AND HOLD THAT THE INTEREST RECEIVED BY THE ASSESSEE R EPRESENTS INCOME FROM OTHER SOURCES AND THE BENEFIT OF NETTING OF INTEREST ALSO CANNOT BE EXTENDED TO THE ASSESSEE BY FOLLOWING THE DECISI ON OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 20 00-01 DATED 30-11-2007. ACCORDINGLY, THE GROUND RAISED BY TH E ASSESSEE STANDS REJECTED. ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 17 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE (ITA NOS. 1175/H/2007 & 1196/H/2008) ARE PARTLY ALLOWED WHILE BOTH THE APPEALS OF THE REVENUE (ITA NOS. 1171 /H/07 & 1176/H/08) ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 08-06-2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT. ACCOUNTANT MEMBER. DT/-08-06-2011 COPY FORWARDED TO: 1. M/S. PVR INDUSTRIES LIMITED, 6-3-249/2-A, PVMR CHA MBERS, BANJARA HILLS, HYDERABAD. 2. 3. 4 5. JMR* DCIT, CIR-16(3), HYDERABAD. CIT (A)-VI, HYDERABAD. CIT, AP, HYDERABAD. THE DR, ITAT, HYDERABAD. ITA NOS1171 AND TH REE OTHERS, M/S. PVR INDUSTRIES LTD. , HYD. ========================= 18