DCIT, Dehradun V. Uttarakhand Peyjal Sansadan Vikas Evam Nirman Nigam, Dehradun

ITA 2955/DEL/2011

• Counselvise Citation: 295520114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 03-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY BAHADUR
• Assessee Lawyers: TARUN KUMAR S
• Keywords: Capital receipt; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER ITA NOS.2953 TO 2955/DEL/2011 ASSESSMENT YEARS : 2004-05, 2005-06 & 2007-08 DCIT, CIRCLE-2, 13A-SUBHASH ROAD, DEHRADUN. VS. UTTARAKHAND PEYJAL SANSADHAN VIKAS EVAM NIRMAN NIGAM, 11, MOHINI ROAD, DEHRADUN. PAN : AAALU0118M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SOMIL AGGARWAL & SHRI TARUN KUMAR, ADVOCATES. REVENUE BY : SHRI SANJAY BAHADUR, CIT, DR O R D E R PER A.D. JAIN, JUDICIAL MEMBER: THESE ARE APPEALS FILED BY THE DEPARTMENT FOR ASSESSMENT YEARS 2004-05, 2005-06 AND 2007-08 AGAINST THE ORDERS DATED 04.02.2011 PASSED BY THE CIT (A)-I, DEHRADUN. 2. THE COMMON GROUND TAKEN IS THAT THE LD. CIT (A) H AS ERRED IN DELETING THE ADDITIONS OF ` 92,56,83,000 (A.Y. 2004-05), ` 1,58,94,64,000/- (A.Y.2005-06) AND ` 1,87,27,56,000/- (A.Y. 2007-08), MADE ON ACCOUNT OF GRANT RECEIVED DURING THE YEAR. 3. THE ASSESSEE NIGAM WAS CONSTITUTED UNDER THE UTTARANCH AL [U.P. WATER SUPPLY AND SEWERAGE ACT, 1975 (ADOPTION AND M ODIFICATION)] ITA NOS.2953 TO 2955/DEL/2011 2 ORDER, 2002. IT FUNCTIONS UNDER THE PROVISIONS OF THE U.P. WATER SUPPLY AND SEWERAGE ACT, 1975. IT IS ENGAGED IN DEVELOPING INFRASTRUCTURE FOR WATER SUPPLY, SEWERAGE, SEWERAGE DISPOSAL, ETC., IN THE STATE OF UTTARAKHAND. IT ACTS AS THE IMPLEMENTATION AGENCY OF THE GOVERNMENT FOR VARIOUS WATER INFRASTRUCTURE PROJECTS. 4. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE NIGAM HA D RECEIVED VARIOUS GRANTS FROM THE GOVERNMENT DURING TH E YEAR. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT THESE WERE CAPITAL GRANTS FOR ENABLING IT TO CARRY OUT THE VARIOUS PROJE CTS FOR WATER SUPPLY, SEWERAGE, CIVIC AMENITIES, ETC., FOR THE PUBLIC; THAT THE GRANTS WERE AGAINST THE CAPITAL COST OF THE SPECIFIED PROJECTS; A ND THAT THE FUNDS HAD TO BE UTILIZED FOR THE SPECIFIED PURPOSE ALONE. 5. THE ASSESSING OFFICER, HOWEVER, OBSERVED THAT THE GRA NTS WERE FOR MEETING THE OPERATIONS COST/RECURRING EXPENDITURE OR MAINTENANCE EXPENDITURE; THAT THE GOVERNMENT ORDER SUBMITTED BY THE ASSESSEE REGARDING THE GRANTS DID NOT ESTABLISH THAT THEY WERE GRANTED TO THE ASSESSEE TO MEET THE EXPENSES OF CAPITAL NATURE; THAT THE DOCUMENTS SUBMITTED BY THE ASSESSEE SHOWED THAT THE NATURE OF THE E XPENSES MADE OUT OF THE GRANTS DID NOT PROVE THAT ANY CAPITA L EXPENDITURE HAD BEEN INCURRED OUT OF THESE SPECIFIC GRANTS; AND THAT SO THE GRANTS WERE OF REVENUE NATURE. ACCORDINGLY, THE AMOUNTS REPRESEN TING SUCH GRANTS WERE TREATED BY THE ASSESSING OFFICER AS THE ASSESSEES INCOM E AND ADDED FOR THE THREE YEARS PRESENTLY BEFORE US. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT (A) DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER. 7. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. ITA NOS.2953 TO 2955/DEL/2011 3 8. THE LEARNED DR, CHALLENGING THE IMPUGNED ORDERS, HAS CONTENDED THAT THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITIONS RIGHTLY MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GRA NT RECEIVED BY THE ASSESSEE DURING THE YEARS; THAT THE LD. CIT (A) DELE TED THE ADDITIONS DESPITE HIMSELF AGREEING THAT THE GRANTS WERE REVENUE RECEIPTS; AND THAT THE LD. CIT (A) WENT WRONG IN HOL DING THAT THE GRANTS DID NOT CONSTITUTE INCOME OF THE ASSESSEE. 9. THE LEARNED COUNSEL OF THE ASSESSEE, ON THE OTHER HA ND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDERS. IT HA S BEEN CONTENDED, AS BEFORE THE AUTHORITIES BELOW, THAT WHER EAS PART OF THE RECEIPT OF THE ASSESSEE WAS TREATED BY THE ASSESSING OFFICE R TO BE THE ASSESSEES INCOME, NO DEDUCTION FOR THE CORRESPONDING EXP ENDITURE INCURRED BY THE ASSESSEE WAS ALLOWED; THAT THE LD. CIT (A) HAS CORRECTLY TAKEN INTO CONSIDERATION THE COMPLETE FACTUAL AS WELL AS LEGAL POSITION WHILE DECIDING IN FAVOUR OF THE ASSESSEE; AND THAT, T HEREFORE, THERE BEING NO FORCE THEREIN, THE APPEALS FILED BY THE DEP ARTMENT BE DISMISSED. 10. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MA TERIAL ON RECORD. THE LD. CIT (A), WHILE DELETING THE ADDIT IONS, OBSERVED, INTER ALIA, AS FOLLOWS:- 1.6 ANOTHER ARGUMENT OF THE ASSESSEE WAS THAT THE A.O. WAS WRONG IN TREATING PART OF ITS RECEIPT AS INCOME BUT NOT A LLOWING DEDUCTION FOR THE CORRESPONDING EXPENDITURE INCURRED BY THE ASSESSEE. THE ARGUMENT IS VALID. RECEIPT HAS AN EL EMENT OF INCOME WHICH IS DETERMINED AFTER DEDUCTING THE EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TH E RECEIPT. THE A.O. WAS CLEARLY WRONG IN TREATING SOME OF THE ASS ESSEES RECEIPT AS INCOME IN TOTO WITHOUT CONSIDERING THE CORRES PONDING EXPENDITURE INCURRED BY IT. 1.7 ON CAREFUL CONSIDERATION OF THE ARGUMENTS OF THE ASSES SEE AND APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IT EMERGES THAT THE ASSESSEE IS A CORPORATE ENTITY DOING THE WORK ITA NOS.2953 TO 2955/DEL/2011 4 OF CIVIL CONSTRUCTION FOR GOVERNMENT. HENCE, IT IS A TAXABLE ENTITY AND ITS INCOME HAS TO BE DETERMINED IN A COMMERCI AL MANNER. ALL THE RECEIPT CORRESPONDING TO THE WORK DONE BY IT DURING THE PREVIOUS YEAR HAS TO BE ACCOUNTED FOR AS IN COME WHILE THE EXPENDITURE INCURRED FOR THE SAME HAS TO BE A LLOWED AS EXPENDITURE. IN VIEW OF THIS, IT IS HELD THAT THE ASSESSE ES TREATMENT OF THE RECEIPT AS CAPITAL RECEIPT AND OF THE EXPENDITURE AS CAPITAL EXPENDITURE IS WRONG FROM THE P OINT OF VIEW OF ACCOUNTING AS WELL AS LAW. TO THAT EXTENT, EVE N THE A.O. COMMITTED THE SAME ERROR AS HE ACCEPTED PART OF THE ASSE SSEES RECEIPT AS WELL AS THE CORRESPONDING EXPENDITURE AS CA PITAL IN NATURE. 1.8 ANOTHER ERROR COMMITTED BY THE A.O. WAS THAT, WHILE HE TREATED THE ASSESSEES RECEIPT (A PART OF IT) AS REVENUE IN NATURE, HE DID NOT ALLOW ANY DEDUCTION FOR THE EXPENDITURE INCU RRED WHOLLY AND EXCLUSIVELY FOR PURPOSES OF EARNING THE S AME. THIS IS AGAINST BASIC PRINCIPLES OF ACCOUNTING AS WELL AS PRO VISIONS OF LAW. AS DISCUSSED ABOVE, THE ASSESSEES INCOME HAS TO BE DETERMINED IN A COMMERCIAL MANNER. ALL THE RECEIPT CORRESPONDING TO THE WORK DONE BY IT DURING THE PREVIOU S YEAR HAS TO BE ACCOUNTED FOR AS INCOME; THE EXPENDITURE INC URRED FOR THE SAME HAS TO BE ALLOWED AS EXPENDITURE. IT IS UND ERSTOOD THAT THE ASSESSEE IS WORKING ON A COST PLUS METHOD, I. E. THE ACTUAL COST OF THE WORK DONE BY IT IS PAID TO IT BY THE GOVERNMENT; IN ADDITION, IT IS GIVEN A FIXED PERCENT O F THE WORK AS ITS REMUNERATION. THIS REMUNERATION IS TERMED CEN TAGE. THE CENTAGE IS BEING ACCOUNTED FOR AS INCOME AND OTHER REVENUE EXPENDITURE (WHICH HAS NOT BEEN CONSIDERED WH ILE DETERMINING THE EXPENDITURE IN RELATION TO THE WORK DONE BY IT) IS CLAIMED AGAINST IT. 1.9 IT MAY BE ARGUED THAT THE ASSESSEES INCOME FROM WORK I S THE SAME AS ITS EXPENDITURE AND, HENCE, IT DOES NOT MAKE A MATERIAL DIFFERENCE IF THE ASSESSEE TREATS BOTH THE ITEM S AS BALANCE-SHEET ITEMS AND NOT PROFIT AND LOSS ACCOUNT ITEM S. SUCH AN ARGUMENT, THOUGH TEMPTING AT THE FIRST INSTANCE, HAS DEFICIENCIES. FIRST OF ALL, AS PER THE PRINCIPLES OF ACCOUNTANCY, THE ITEMS OF REVENUE NATURE HAVE TO BE ACCOUNTED FOR A S SUCH IRRESPECTIVE OF WHETHER THERE IS ANY INCOME OR NOT. S ECONDLY, DETERMINATION OF TOTAL INCOME AS PER THE PROVISIONS OF THE INCOME TAX ACT IS NOT A PLAIN ACCOUNTING EXERCISE. TH E COMMERCIALLY DETERMINED INCOME HAS TO BE FILTERED THRO UGH THE PROVISIONS OF LAW AND MANY ITEMS OF EXPENDITURE WHICH ARE DEBITED IN THE ACCOUNTS MAY NOT BE ALLOWABLE AS DEDUC TIONS IF THE RELEVANT QUALIFYING LEGAL CONDITIONS FOR THE SAME ARE NOT MET. THE INCOME TAX ACT IS FULL OF SUCH PROVISIONS. ONE SUCH EXAMPLE IS THE PROVISION OF SECTION 40A (I) ACCORDIN G TO WHICH DEDUCTION FOR EXPENSES MAY NOT BE ALLOWED IF TAX WAS D EDUCTIBLE ON THE PAYMENTS BUT WAS NOT DEDUCTED. UNLESS THE RECEI PTS AND EXPENSES ARE ROUTED THROUGH THE PROFIT AND LOSS ACC OUNT, ITA NOS.2953 TO 2955/DEL/2011 5 SUCH FILTERING IS NOT POSSIBLE. IN OTHER WORDS, IT IS NOT NECESSARY THAT THE ASSESSEES PROFITS AND GAINS FROM BUSINESS (PU RELY ON ACCOUNT OF ITS RECEIPT AND EXPENDITURE ON ACCOUNT OF THE WORK DONE BY IT) WOULD BE NIL, EVEN THOUGH ARITHMETICALLY TH E TWO FIGURES ARE SAME. 1.10 THE ISSUE FOR DETERMINATION IS WHETHER THE A.O. WAS CORRECT IN TREATING AN AMOUNT OF RS.85.68 CRORE AS THE ASSESSEES INCOME. IN VIEW OF THE FOREGOING DISCUSS ION, IT IS HELD THAT THE A.O. WAS CORRECT IN TREATING THE AMOUNT AS THE ASSESSEES REVENUE RECEIPT BUT HE WAS NOT CORRECT IN TRE ATING THE SAME AS ITS INCOME. SINCE THE ASSESSEE HAS CLAIME D THAT CORRESPONDING AMOUNT WAS ACTUALLY INCURRED AS EXPENDI TURE, WHOLLY AND EXCLUSIVELY FOR DOING THE WORK FOR WHICH THE AMOUNT IN QUESTION WAS RECEIVED AND THERE IS NO ADVERSE FIND ING AGAINST THE ASSESSEE IN THAT RESPECT, IT IS HELD THAT THE AMOUNT HAS TO BE ALLOWED AS EXPENDITURE AT THE SAME TIME. IN THE RESULT, THE ADDITION WOULD BE REDUCED TO NIL. 11. IT IS, THEREFORE, SEEN THAT THE LD. CIT (A), WHI LE DELETING THE ADDITIONS, HAS TAKEN INTO CONSIDERATION THE FACT THAT WHEREAS THE ASSESSING OFFICER TREATED SOME OF THE ASSESSEES RECEIPTS AS IN COME, THE SAME WERE IN TOTO TREATED AS ASSESSEES INCOME WITHOUT ALLOWING THE CORRESPONDING EXPENDITURE INCURRED BY THE ASSESSEE. IT REMAINS UNDISPUTED THAT WHEREAS THE RECEIPTS OF THE ASSESSEE ARE TO BE ACCOUNTED FOR AS ITS INCOME, THE CORRESPONDING EXPENDI TURE INCURRED NEEDS TO BE ALLOWED. THE ASSESSING OFFICER, HOWEVER, HA D NOT ALLOWED ANY DEDUCTION FOR THE EXPENDITURE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. IT IS ALSO UND ISPUTED THAT THE ASSESSEES INCOME FROM WORK AND THE CORRESPONDING EXP ENDITURE ARE THE SAME. 12. THE ORDER PASSED BY THE LD. CIT (A) IS A DETAILED SPEAKING ORDER HOLDING THAT THOUGH THE RECEIPTS OF THE ASSESSEE ARE REV ENUE RECEIPTS, THE SAME ARE NOT TO BE TREATED AS THE ASSESSEES INCOME. THE ASSESSEES CLAIM WAS THAT THE CORRESPONDING EXPENDITURE WA S ACTUALLY INCURRED WHOLLY AND EXCLUSIVELY FOR DOING THE WORK F OR WHICH THE AMOUNTS WERE RECEIVED. ON THIS CLAIM, NO ADVERSE FIN DING HAD BEEN ITA NOS.2953 TO 2955/DEL/2011 6 RECORDED BY THE ASSESSING OFFICER. HENCE, THE LD. CIT ( A) CORRECTLY ALLOWED THE EXPENDITURE. 13. THEREFORE, FINDING NO ERROR THEREWITH, ALL THE THREE ORDERS PASSED BY THE LD. CIT (A) ARE CONFIRMED AND THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT FOR ALL THESE THREE YEARS IS REJECTE D. 14. IN THE RESULT, ALL THE THREE APPEALS OF THE DEPA RTMENT ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 05.07.20 12. SD/- SD/- [J.S. REDDY] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 05.07.2012. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES