DCIT, New Delhi V. M/s Andhara Expressway Ltd., New Delhi

ITA 3805/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5748 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 07-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K PANDEY
• Assessee Lawyers: VINOD MODI; FARROKH TRANI
• Keywords: Business income; Depreciation; Opportunity of being heard; Capital receipt
• Section: 115JB

Judgement Text

I.T.A. NO.3805 /DEL/09 1/6 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.3805 /DEL/2009 ASSESSMENT YEAR : 2005-06 DCIT, M/S ANDHRA EXPRESSWAY LTD., CIRCLE-1(1), AHULWALIA CHAMBER, 2 ND FLOOR, NEW DELHI. V. 16/17, LSC MADANGIR, N.DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO.AADCA-3577-E APPELLANT BY : SHRI A.K. PANDEY, CIT-DR. RESPONDENT BY : SHRI FARROKH TRANI ADVOCATE & SHRI VINOD MODI. ORDER PER A.K. GARODIA, AM: THIS IS REVENUE'S APPEAL DIRECTED AGAINST THE ORDE R OF LD CIT(A)-IV, NEW DELHI DATED 22.6.2009 FOR ASSESSMENT YEAR 2005-06. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER:- THE LD CIT(A) ERRED ON FACTS AND IN LAW IN ALLOWIN G DEDUCTION U/S 80IA OF THE ACT ON THE INCOMES DERIVED BY THE ASSESSEE COMP ANY BY WAY OF (A) BONUS FROM NHAI FOR EARLY COMPLETION OF PROJECTS OF RS.4,65,20,000/- AND (B) COMPENSATION IN LIEU OF BONUS RECEIVED FROM M/S PUNJ LLYODS LTD. OF RS.6,20,00,000/- IGNORING THAT THESE INCOMES FAIL T HE TEST OF INCOME DERIVED FROM THE BUSINESS AND THUS DO NOT QUALIFY A S ELIGIBLE BUSINESS RECEIPT FOR THE COMPUTATION OF DEDUCTION U/S 80IA . I.T.A. NO.3805/DEL/09 2/6 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY HAS ENTERED INTO A CONCESSION AGREEMENT DATED 30 TH OCTOBER, 2001 WITH NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI) FOR THE CONSTRUCTION, OPERATION AND MAINTENANCE OF DHARAMVARAM TUNI TOLL ROAD, ANNUITY PROJECT, A 47 KM. STRETCH O F ROAD IN ANDHRA PRADESH ON NH-5 OWNED BY GOVT. OF INDIA TO BUILD, OPERATE AND TRANSFER (BOT BASIS. IN THE PRESENT YEAR, THE ASSESSEE HAS DECLARED RECEIPTS UN DER TWO HEADS I.E. ANNUITY REVENUE OF RS.1871.02 LAKHS AND OTHER INCOME OF RS. 1085.20 LAKHS. IT IS NOTED BY THE ASSESSING OFFICER THAT ANNUITY REVENUE IS TH E RECEIPT PAID BY NHAI TO THE ASSESSEE COMPANY FOR DEVELOPING AND OPERATING AND M AINTENANCE OF EXPRESS HIGHWAY WITH NHAI. REGARDING OTHER INCOME, IT IS NO TED BY THE ASSESSING OFFICER THAT THIS HAS TWO PARTS. ONE RECEIPT IS OF RS.465. 20 LAKHS BEING BONUS RECEIVED BY THE ASSESSEE FROM NHAI FOR EARLY COMPLETION OF R OAD AND THE BALANCE AMOUNT OF RS.620.00 LAKHS WAS RECEIVED BY THE ASSESSEE AS COMPENSATION IN LIEU OF BONUS RECEIVED BY THE ASSESSEE COMPANY FROM PUNJ LL YODS LTD. (PLL). THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE RECEIPTS UNDER THE HEAD OTHER INCOME MAY NOT BE TAKEN OUT OF PURVIEW OF COM PUTATION OF DEDUCTION U/S 80-IA OF THE ACT. THE OBJECTION OF THE ASSESSING O FFICER WAS THAT THESE ARE NOT INCOMES DERIVED FROM THE BUSINESS. THE ASSESSING OF FICER WAS OF THE VIEW THAT THIS MAY BE THE INCOME ATTRIBUTABLE TO THE ACTIVITY OF ROAD CONSTRUCTION BUT THEY CANNOT BE TERMED AS INCOME HAVING BEEN RECEIVED ON ACCOUNT OF EARNING PROFIT ON ACCOUNT OF SUCH ACTIVITY. THE ASSESSING OFFICER WANTED TO EXCLUDE THESE TWO RECEIPTS FROM BUSINESS PROFIT FOR THE PURPOSE OF CO MPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80-IA OF THE ACT. IN REPLY, IT WA S SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT AS PER CLAUSE 8.3 . OF THE AGREEMENT OF THE ASSESSEE COMPANY WITH NHAI, THE ASSESSEE IS ENTITLE D TO RECEIVE BONUS IF THE PROJECT IS COMPLETED IN ADVANCE AND THE ASSESSEE WI LL HAVE TO PAY PENALTY IF THE PROJECT IS DELAYED. REGARDING COMPENSATION IN LIEU OF BONUS RECEIVED FROM PLL, IT WAS SUBMITTED THAT IN ORDER TO EXECUTE THE PROJECT OF CONSTRUCTION, THE ASSESSEE HAS ENTERED INTO ANOTHER AGREEMENT WITH PLL TERMED AS EPC CONTRACT. AS PER CLAUSE NO.7.5 OF EPC CONTRACT BETWEEN THE ASSESSEE COMPANY AND PLL, BONUS OR LIQUIDATED DAMAGES AT THE RATE OF RS.1.550 MILLI ON PER DAY WAS PAYABLE OR . I.T.A. NO.3805/DEL/09 3/6 RECEIVABLE FOR EARLY COMPLETION/DELAYED COMPLETION OF THE PROJECT AS THE CASE MAY BE. IT WAS POINTED OUT BEFORE THE ASSESSING OFF ICER THAT PLL WAS SUPPOSED TO COMPLETE THE PROJECT ON 20 TH SEPTEMBER, 2004 AS PER THE AGREEMENT BUT PLL COULD COMPLETE THE PROJECT AFTER DELAY OF 40 DAYS A ND HENCE THE ASSESSEE COMPANY WAS ENTITLED TO RECEIVE RS.620 LAKH FROM PL L BY WAY OF COMPENSATION IN LIEU OF BONUS. IT WAS THE CLAIM OF THE ASSESSEE THAT BOTH THESE RECEIPTS ARE INCOME EARNED FROM THIS PROJECT ONLY AND HENCE ELIG IBLE FOR DEDUCTION U/S 80IA. THE ASSESSING OFFICER WAS NOT SATISFIED AND HE REJE CTED THIS CLAIM AND COMPUTED THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80IA AF TER EXCLUDING THESE TWO RECEIPTS FROM BUSINESS PROFIT. SINCE THE PROFIT DE CLARED BY THE ASSESSEE OF RS.902.89 LAKHS WAS LESS THAN THE AMOUNT OF THESE T WO RECEIPTS OF RS.1085.20 LAKHS, IT WAS HELD BY THE ASSESSING OFFICER THAT NO DEDUCTION IS ALLOWABLE TO THE ASSESSEE U/S 80IA. BEING AGGRIEVED, THE ASSESEE CA RRIED THE MATTER IN APPEAL BEFORE LD CIT(A) WHO REVERSED THE ASSESSMENT ORDER ON THIS ISSUE AND IT WAS HELD BY HIM THAT THESE TWO RECEIPTS ARE ALSO ELIGIB LE FOR DEDUCTION U/S 80IA AND NOW THE REVENUE IS IN APPEAL BEFORE US. 4. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT OR DER WHEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). AFTE R GOING THROUGH THE FACTS OF THE PRESENT CASE AND AFTER HEARING BOTH SIDES, IT W AS POINTED OUT BY THE BENCH THAT IN THE PRESENT CASE, BOTH THESE RECEIPTS ARE N OT IN THE NATURE OF REVENUE RECEIPTS BUT THIS SHOULD BE REDUCED FROM THE COST O F PROJECT AND ON THE NET AMOUNT OF COST OF PROJECT ONLY, DEPRECIATION SHOULD BE ALLOWED TO THE ASSESSEE. AS A RESULT, THESE TWO RECEIPTS WILL BE REQUIRED TO BE EXCLUDED FROM BUSINESS PROFIT BUT AT THE SAME TIME, THE DEPRECIATION CLAIM OF THE ASSESSEE WILL GO DOWN BECAUSE OF REDUCTION IN COST OF PROJECT FOR THE REA SON THAT THESE TWO RECEIPTS ARE TO BE REDUCED FROM THE COST OF PROJECT AND HENCE WH ATEVER WILL BE THE RESULTANT INCOME OF THE ASSESSEE, THE SAME WILL BE ELIGIBLE F OR DEDUCTION U/S 80IA BECAUSE THERE IS NO OTHER DISPUTE FOR WHICH DEDUCTION U/S 8 0IACAN BE REFUSED TO THE ASSESSEE IF THERE IS ANY POSITIVE INCOME AFTER MAKI NG THESE ADJUSTMENTS. BOTH THE SIDES SUBMITTED THAT THE MATTER MAY BE DECIDED AS PER LAW ALTHOUGH THEY . I.T.A. NO.3805/DEL/09 4/6 REITERATED THEIR ARGUMENTS I.E. LD DR OF THE REVENU E RELIED UPON THE ASSESSMENT ORDER WHEREAS LD AR OF THE ASSESSEE RELIED UPON THE ORDER OF LD CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN THE PRESENT CA SE, ENTIRE COST OF PROJECT OF RS.24807.61 LAKHS IS CAPITALIZED BY THE ASSESSEE ON ACCOUNT OF THIS ROAD PROJECT AND THEREUPON, THE ASSESSEE HAS CLAIMED DEPRECIATIO N OF RS.688.97 LAKHS IN BOOKS AND AFTER CLAIMING THIS DEPRECIATION OF RS.68 8.97 LAKHS THE ASSESSEE HAS WORKED OUT THE NET PROFIT BEFORE TAX OF RS.1307.34 LAKHS AS PER P&L A/C SUBMITTED BEFORE US. IN THE RETURN OF INCOME, THE A SSESSEE HAS DECLARED BUSINESS INCOME OF RS.902.9 LAKHS AFTER ADDING BACK RS.137.15 LAKHS U/S 40A(I) ON ACCOUNT OF LATE PAYMENT OF TDS AND IT CLAIMED DE DUCTION U/S 80IA TO THE EXTENT OF FULL AND NO TAXABLE INCOME WAS REPORTED B Y THE ASSESSEE ALTHOUGH THE ASSESSEE HAS DECLARED BUSINESS PROFIT OF RS.1307.34 LAKHS AS PER MAT PROVISION U/S 115 JB OF THE ACT. NOW, THE DISPUTE BEFORE US I S WHETHER THE TWO RECEIPTS RECEIVED BY THE ASSESSEE ON ACCOUNT OF BONUS FROM N HAI RS.465.20 LAKHS AND COMPENSATION IN LIEU OF BONUS RECEIVED FROM PLL OF RS.620 LAKHS ARE ELIGIBLE FOR DEDUCTION U/S 80IA. WE ARE OF THE CONSIDERED OPINIO N THAT THESE TWO RECEIPTS HAVE TO BE REDUCED FROM COST OF PROJECT. WE FEEL SO BECAUSE IF WE TRY TO COMPLETE WORK EARLY THEN GENERALLY EXTRA EFFORTS ARE TO BE M ADE RESULTING INTO EXTRA EXPENDITURE ALSO. WE ALSO NOTE THAT WHEN WE ASK WO RKMEN TO WORK OVER TIME, HE NOT ONLY CHARGES FOR EXTRA TIME, HE WORKS BUT SUCH CHARGES FOR EXTRA TIME IS AT A HIGHER RATE AND HENCE WE HAVE NO HESITATION IN COMI NG TO THE CONCLUSION THAT WHEN THE ASSESSEE TRIED TO COMPLETE THE WORK EARLY, IT HAD TO INCUR EXTRA EXPENDITURE WHICH WERE CAPITALIZED AS COST OF PROJE CT. SINCE, THE BONUS IS RECEIVED BY THE ASSESSEE FROM NHAI ONLY FOR EARLY C OMPLETION OF WORK,, WE ARE OF THE CONSIDERED OPINION THAT SUCH BONUS SHOULD BE RE DUCED FROM THE COST OF PROJECT TO OFF SET THE EXTRA COST INCURRED BY THE A SSESSEE WHICH IS INCLUDED IN THE COST OF PROJECT. SIMILARLY, WHEN THE ASSESSEE ASKED PLL TO COMPLETE THE WORK AT EARLY DATE, IT MUST HAVE AGREED FOR PAYING EXTRA CH ARGES TO PLL FOR EARLY COMPLETION OF WORK AND COMPENSATION RECEIVED BY THE ASSESSEE FROM PLL IS . I.T.A. NO.3805/DEL/09 5/6 NOTHING BUT REFUND OF SUCH EXTRA CHARGES WHICH IS I NCLUDED IN THE ORIGINAL CONTRACT. HENCE, THIS SHOULD ALSO BE REDUCED FROM THE COST OF PROJECT OF THE ASSESSEE. THIS VIEW OF US FINDS SUPPORT FROM THE JU DGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF CIT V. BOKARO STEEL LTD. 23 6 ITR 315. IN THIS CASE, IT WAS HELD THAT WHEN THE RECEIPTS ARE INEXICABLY LINKED W ITH THE SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY THEY MUST BE VIEW ED AS CAPITAL RECEIPTS GOING TO REDUCE THE COST OF CONSTRUCTION. WE, THEREFORE, HOLD THAT THE TOTAL AMOUNT OF SUCH TWO RECEIPTS OF RS.1085.20 LAKHS SHOULD BE RED UCED FROM THE COST OF PROJECT OF THE ASSESSEE COMPANY AND THE SAME SHOULD NOT BE CONSIDERED AS INCOME. AS A RESULT OF THIS ADJUSTMENT, THE TOTAL COST OF PROJ ECT WILL BE REDUCED AND AS A CONSEQUENCE, THE DEPRECIATION WILL GO DOWN AS WELL AS GROSS INCOME WILL ALSO GO DOWN BUT THE SAME WILL BE ELIGIBLE FOR DEDUCTION U/ S 80IA IFIT IS POSITIVE BECAUSE EXCEPT FOR THESE TWO RECEIPTS, THERE IS NO OBJECTIO N OF THE ASSESSING OFFICER REGARDING ALLOWING DEDUCTION U/S 80IA IF THERE IS A NY POSITIVE INCOME. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FO R WORKING OUT THE INCOME OF THE ASSESSEE AS PER ABOVE DISCUSSION WHICH SHOULD BE CO NSIDERED ELIGIBLE FOR 80IA DEDUCTION IF THERE IS ANY POSITIVE INCOME LEFT, AFT ER THIS ADJUSTMENT IN GROSS INCOME AND DEPRECIATION. WE WOULD LIKE TO POINT OUT THAT THERE WAS NO DISPUTE BEFORE THE ASSESSING OFFICER AND THERE IS NO DISPUT E BEFORE US ALSO REGARDING THE CORRECTNESS OF BOOK PROFIT OF RS.1307.34 LAKHS AND HENCE THE SAME SHOULD BE ASSESSABLE AT BOOK PROFIT AS WAS DECLARED BY THE AS SESSEE IN THE RETURN OF INCOME U/S 115 JB OF THE ACT. THE JUDGMENT OF HON'B LE APEX COURT RENDERED IN THE CASE OF APPOLLO TYRES LTD. V. CIT REPORTED IN 2 55 ITR 273 SUPPORTS THIS VIEW THAT BOOK PROFIT AS DECLARED IN AUDITED P&L A/C SHA LL BE ADJUSTED BY THE ADJUSTMENTS ALLOWABLE AS PER EXPLANATION TO SECTION 115J ONLY. HENCE, IN THE PRESENT CASE, THERE IS NO NEED FOR ANY ADJUSTMENT O N ACCOUNT OF BOOK PROFIT U/S 115JB AND THERE WAS NO CLAIM ALSO ON THIS ACCOUNT. WITH THESE OBSERVATIONS, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR DOING THE NEEDFUL AS PER ABOVE DISCUSSION WHICH WILL RESULT INTO ON A SSESSMENT OF NIL INCOME UNDER REGULAR PROVISION AND ASSESSMENT OF BOOK PROFIT UN DER MAT PROVISION U/S 115JB . I.T.A. NO.3805/DEL/09 6/6 TO THE EXTENT OF RS.13078.34 LAKHS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME FILED BY THE ASSESSEE AND TOTAL CLOSING WDV OF THE ASSESSEE WILL GO DOWN AS A CONSEQUENCE OF REDUCTION IN COST OF PROJECT AN D ALSO REDUCTION IN DEPRECIATION. THE ASSESSING OFFICER SHOULD PASS NE CESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, 6. IN THE RESULT, THE APPEAL OF REVENUE STANDS ALLO WED FOR STATISTICAL PURPOSES. 7. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH, 2010. SD/- SD/- (R.P. TOLANI) (A.K. GAR ODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 26.3.2010. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).