ACIT, Jaipur V. M/S TCI INFRASTRUCTURE FINANCE LTD., Jaipur

ITA 337/JPR/2012

• Counselvise Citation: 33723114 RSA 2012
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 09-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Opportunity of being heard; Revenue expenditure
• Section: 28

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 337/JP/2012 ASSTT. YEAR- 2007-08 PAN NO. AAACT9014E THE A.C.I.T., M/S TCI INFRASTRUCTURE FINANCE LTD. CIRCLE-2, JAIPUR. VRS. 2 ND FLOOR, MEGHALAYA TOWER CHURCH ROAD, JAIPUR (APPELLANT) (RESPONDENT) I.T.A. NO. 836/JP/2011 ASSTT. YEAR- 2008-09 PAN NO. AAACT9014E THE A.C.I.T., M/S TCI INFRASTRUCTURE FINANCE LTD. CIRCLE-2, JAIPUR. VRS. 2 ND FLOOR, MEGHALAYA TOWER CHURCH ROAD, JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SUBHASH CHANDRA. ASSESSEE BY : SHRI P.C. PARWAL. DATE OF HEARING : 11/06/2014 DATE OF PRONOUNCEMENT : 13/06/2014 PER: T.R. MEENA, A.M. THE PRESENT TWO APPEALS FILED BY THE REVENUE ARISE F ROM THE ORDERS DATED 11/1/2012 FOR A.Y. 2007-08 AND 11/07/2011 FOR A.Y. 2008-09 OF LD. CIT (A)-III, JAIPUR. THE SOLE GROUND OF APPEAL IN BOTH THE ASSESSMENT YEARS IS AGAINST ALLOWING THE AMORTIZATION OF PROJECT DEVELOP MENT EXPENSES IN A.Y. 2007-08 AT RS. 96,10,000/- AND IN A.Y. 2008-09 RS. 21,61,33,945/- ON PALI 2 PROJECT AND BATA CHOWK PROJECT WITHIN THE MEANING OF SECTION 35D OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE AC T). 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF EXECUTION OF INFRASTRUCTURE PROJECTS ON BUILD, OPERATE AND TRANSFER BASIS (BOT). THE ASSESSING OFFICER OBSERVED THAT THE COMPANY INCURS ALL THE EXPENDITURE AND THEN RECOVERS TOLL FOR THE SPECIFIE D PERIOD UNDER THE AGREEMENT FROM THE USERS OF THAT FACILITY. ON EXAMI NATION OF BOOKS OF ACCOUNT AND COMPUTATION OF INCOME, IT WAS FOUND BY THE ASSES SING OFFICER THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 96,10,000/- IN A. Y. 2007-08 AND RS. 25,34,98,016/- AND RS. 1,03,79,000/- IN A.Y. 2008-0 9 ON ACCOUNT OF AMORTIZATION OF PALI PROJECT AND BATA CHOWK PROJECT. THE EXPENDITURE HAD BEEN CLAIMED AS REVENUE EXPENDITURE U/S 28 OF THE A CT, BUT THE SAME HAD BEEN AMORTIZED. THE LEARNED ASSESSING OFFICER FURTHE R OBSERVED THAT THESE EXPENSES WERE NOT COVERED U/S 35D OF THE ACT. HE REP RODUCED SECTION 35D OF THE ACT IN BOTH THE ASSESSMENT YEARS. THE LEARNED AS SESSING OFFICER HELD THAT AMORTIZATION OF EXPENDITURE DID NOT COVER UNDER SUB -SECTION (2) OF SECTION 35D OF THE ACT. THE ASSESSEE COMPANY WAS CLAIMING THI S PRIVILEGE ON THE EXPENDITURE SPENT ON CONSTRUCTION OF ROAD, BRIDGE E TC AND NATURE OF THESE EXPENDITURES ARE NOT SPECIFIED UNDER THE PROVISIONS OF SECTION 35D OF THE ACT. AS PER SECTION, ONLY CERTAIN PRELIMINARY EXPENSES, WHICH ARE INCURRED BEFORE COMMENCING OF ANY PROJECT AND ARE INCIDENTAL TO COM MENCEMENT OF BUSINESS 3 CAN BE AMORTIZED WITHIN THE MEANING OF SECTION 35D O F THE ACT, WHICH IS NOT THE CASE OF THE ASSESSEE. THUS, HE GAVE THE REASONAB LE OPPORTUNITY OF BEING HEARD IN BOTH THE YEARS TO THE ASSESSEE, WHICH WAS AV AILED BY IT. AFTER CONSIDERING THE ASSESSEES REPLY, IT WAS HELD THAT T HE HONBLE SUPREME COURTS DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMEN T CORPORATION LTD. VS. CIT 225 ITR 802, IS NOT SQUARELY APPLICABLE IN CASE OF T HE ASSESSEE WHEREIN THE ISSUE WAS ALLOWABILITY OF DEBENTURE EXPENDITURE. THE ASSESSEE, AS DISCUSSED ABOVE, IS IN THE BUILDING OF ROAD AND COLLECTION OF TOLL TAX. HE FURTHER RELIED IN THE CASE OF INDORE MUNICIPAL CORPORATION VS. CIT 247 ITR 803 (SC), WHEREIN IT WAS HELD THAT ROAD WOULD NOT BE CONSTITUTE BUILDING . THE LEARNED ASSESSING OFFICER MADE THE ADDITION OF RS. 96,10,000/- IN A.Y . 2007-08 AND RS. 26,38,77,016/- IN A.Y. 2008-09. 3. BEING AGGRIEVED BY THE ORDER THE LEARNED ASSESSI NG OFFICER, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A), WHO HAS ALLOWED THE APPEAL BY OBSERVING AS UNDER:- 2.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND ALSO THE SUBMISSIONS MADE BY THE LD. AR IN THIS REGARD. AS D ISCUSSED ABOVE, IT IS ALSO FOUND THAT THE SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE ITAT JAIPUR BENCH, IN THE APPELLANTS OWN CASE, IN THE APPELLATE ORDERS RELATED TO A.Y. 2003-04 TO 2006-07 . FROM THE SUCH ORDERS, IT IS GATHERED THAT THE TRIBUNAL HAS D ECIDED THAT THE ASSESSEE IS ENTITLED TO AMORTIZE THE PRELIMINARY EX PENSE, INCURRED TOWARD PALI PROJECT, U/S 35D OF THE ACT. CONSIDERING THE ABOVE FACTS AND ALSO FOLLOWING THE PRINCIPAL OF JUDICIAL D ISCIPLINE, I ALSO UPHOLD THAT THE A.O. IS NOT JUSTIFIED IN REJECTING THE ASSESSEES 4 ABOVE CLAIM AND IT IS DIRECTED THAT THE EXPENSES OF RS. 96,10,000/-, INCURRED ON PALI PROJECT, ARE ENTITLED TO BE AMORTIZED U/S 35D OF THE IT ACT. CONSEQUENTLY, THIS GROUND OF APPEAL IS UPHELD. SIMILAR FINDINGS WERE GIVEN FOR A.Y. 2008-09 BY THE LEARNED CIT(A). NOW THE REVENUE IS IN APPEALS BEFORE US. 4. THE LEARNED CIT D.R. ARGUED THAT THE ASSESSEE IS I N THE INFRASTRUCTURE PROJECTS. THE ASSESSEE DEVELOPED THESE FACILITIES ON THE BASIS OF BUILD, OPERATE AND TRANSFER THE PROJECT TO THE GOVERNMENT AS PER T HE TERMS AND CONDITIONS OF THE CONTRACT. IT IS FURTHER ARGUED THAT THE TOTAL C OST OF PROJECT IS TO BE ALLOWED PROPORTIONATELY WITH RESPECT TO LENGTH OF CONTRACT B UT NOT AS PER THE METHOD FOLLOWED BY THE ASSESSEE. THE ASSESSEE SHOULD FOLLOW T HIS METHOD CONTINUOUSLY WITHOUT ANY CHANGE. THE ASSESSEE CLAIME D THESE EXPENDITURES IN LIMITED YEARS NOT FOR THE WHOLE YEAR OF CONTRACT AND IT HAS BEEN REVISED EVERY YEAR FOR CLAIMING THE EXPENSES. THERE IS NO SCIENTIF IC METHOD TO CLAIM THE EXPENDITURE. THERE MUST BE CONSISTENCY FOR CLAIMING THE EXPENDITURE, THEREFORE, HE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. AT THE OUTSET, THE LEARNED A.R. VEHEMENTLY SUPPO RTED THE ORDER OF THE LEARNED CIT(A) AND CLAIMED THAT THE ASSESSEE CONSIS TENTLY FOLLOWING THE SAME METHOD ON THE BASIS OF ACCOUNTING ADOPTED FOR AMORT IZATION OF EXPENSES AS THESE EXPENSES HAD BEEN SHOWN AS WORK IN PROGRESS TIL L THE ASSESSEE RECOVERS THROUGH TOLL RECEIPTS. WHEN PROJECTS WERE AWARDED TO THE PARTY BY THE 5 GOVERNMENT, CALCULATION FOR GENERATION REVENUE MAY BE DIFFERENT WHEN THE ASSESSEE REASSESS THE REVENUE GENERATION ON THE BAS IS OF TRAFFIC ON IT, THE ASSESSEE PROPORTIONATELY REVISED ITS AMORTIZATION O F EXPENSES. THESE EXPENSES ARE OF THE NATURE OF REVENUE, BUT CANNOT BE CLAIMED IN A ONE YEAR BECAUSE NATURE OF THE EXPENDITURE. THEY ARE NO CAPITAL EXPEN DITURE BECAUSE THE ASSETS IN FORM OF ROAD, BRIDGE ETC. IS NOT OWNED BY THE AS SESSEE AND USED FOR BUSINESS PURPOSES. AS PER THE CONTRACT, THE ASSESSE E IS ALLOWED TO RECOVER ITS INVESTMENT AS WELL AS PROFIT ON IT ON THE BASIS OF T ERMS AND CONDITIONS OF CONTRACT. THE ASSESSEE IS SHOWING INCOME GENERATED FR OM THE TOLL AS REVENUE AND ACCORDINGLY DEBITING THE EXPENSES ON THE BASIS OF PERIOD OF TOLL AND REVENUE GENERATED CONSISTENTLY AND MATCHING PRINCIP LE OF ACCOUNTANCY, THEREFORE, HE REQUESTED TO CONFIRM THE ORDER OF THE LEARNED CIT(A). HE FURTHER ARGUED THAT HONBLE ITAT IN ASSESSEES OWN CASE IN A .Y. 2006-07 SIMILAR ADDITIONS WERE ALLOWED AND REVENUES APPEAL HAD BEEN DISMISSED. IT IS FURTHER CLARIFIED BY THE LEARNED COUNSEL FOR THE ASSESSEE T HAT THE ASSESSEE HAD THREE PROJECTS ONE AT SIROHI AWARDED BY THE PWD, GOVT. OF RAJASTHAN, WHICH HAS BEEN COMPLETED IN 2001, THE SECOND PROJECT IS PALI BYPASS, WHICH WAS AWARDED BY THE PWD, GOVT. OF RAJASTHAN, FOR WHICH TOL L PERIOD ALLOWED FOR 161 MONTH FROM COMPLETION OF THE PROJECT I.E. 07/7/1998 . THE TOLL PERIOD WAS UP TO 11 TH NOVEMBER, 2011 AND THE THIRD AND LAST PROJECT WAS B ATA CHOWK AWARDED BY PWD, GOVT. OF HARYANA, WHICH WAS STARTED ON 23/12/ 1998 AND TOLL PERIOD 6 WAS FOR 87 MONTHS FROM THE DATE OF COMPLETION OF CON STRUCTION I.E. 24/10/2000. THE TOLL PERIOD WAS UP TO DECEMBER, 2007. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE EXPENSES CLAIM ED BY THE ASSESSEE ARE NOT PRELIMINARY BUT WERE WORKED IN PROGRESS AS PER TH E EXPENDITURE INCURRED ON INFRASTRUCTURE BY IT. THESE EXPENSES ARE OF THE N ATURE OF REVENUE BUT CANNOT BE CLAIMED IN ONE YEAR BECAUSE THE ASSESSEE IS TO BE RECOVERED ITS INVESTMENT AS WELL AS PROFITS FROM TOLL TAX UP TO TO LL PERIOD OF RESPECTIVE PROJECT. THESE EXPENDITURES ARE NOT CAPITAL IN NATUR E AS THE ASSETS OWNED BY THE STATE GOVT. AND USED FOR THE PURPOSE OF PUBLIC. THE ASSESSEE HAD CLAIMED THESE EXPENSES ON THE BASIS OF TERMS AND CONDITIONS OF THE CONTRACT AS WELL AS ESTIMATED TOLL RECEIPTS FOR THE PERIOD OF CONTRACT. WHEN THE ASSESSEE HAS SHOWN REVENUE RECEIPTS ACCORDINGLY THE EXPENDITURE I S TO BE ALLOWED ON MATCHING PRINCIPLE OF ACCOUNTANCY. IN ASSESSEES OW N CASE BY THE COORDINATE BENCH IN ITA NO. 1545 TO 1547/JP/2008 A.YS 2003-04 TO 2005-06 AND ITA NO. 106/JP/2010 A.Y. 2006-07 HAS DECIDED VIDE ORDER DAT ED 22/5/2009 FOR A.YS 2003-04 TO 2005-06 AS UNDER:- THE FIRST APPELLATE ORDER ON THE ISSUE IS REASONED ONE, TO WHICH WE FULLY CONCUR WITH, HENCE, THE SAME IS UPHELD WITH THIS FIND ING THAT THE A.O., WHOSE APPROACH HAS BEEN RELIED UPON BY THE LD. D.R. BEFORE US, WAS NOT JUSTIFIED IN DISALLOWING THE ABOVE CLAIMED AMORT IZATION OF EXPENSES INCURRED ON THE DEVELOPMENT OF THE ABOVE INFRASTRU CTURE PROJECTS. THE GROUNDS ARE ACCORDINGLY REJECTED. 7 AFTER RESPECTFULLY FOLLOWING THE COORDINATE BENCH DE CISION IN ASSESSEES OWN CASE AND FACTS DISCUSSED ABOVE, WE ARE OF THE CONSID ERED VIEW THAT THE ORDER OF THE LEARNED CIT(A) WERE JUSTIFIED IN BOTH THE YE ARS. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/06/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 13 TH JUNE, 2014 * RANJAN COPY FORWARDED TO :- 1. THE ACIT, CIRCLE-2, JAIPUR. 2. M/S TCI INFRASTRUCTURE FINANCE LTD., JAIPUR 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NOS. 337/JP/2012 & 836/JP/2011) BY ORDER, AR ITAT JAIPUR.