ACIT 23(1), MUMBAI V. IL & FS IIDC TRUST, MUMBAI

ITA 585/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7949 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 05-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM KUMAR TIWARI
• Assessee Lawyers: D V LAKHANI
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 585/MUM/2016 ASSESSMENT YEAR: 2012 - 13 ACIT - 23(1) ROOM NO. 113, 1 ST FLOOR, MATRU MANDIR, TARDEO, GRANT ROAD, MUMBAI - 400007. VS. M/S IL & FS IIDC TRUST PLOT NO. C - 22, BLOCK - G , BKC, BANDRA(E) MUMBAI - 400051. PAN NO. AAATI6558B APPELLANT RESPONDENT REVENUE BY : MR. RAM KUMAR TIWARI, DR ASSESSEE BY : MR. D.V. LAKHANI , AR DATE OF HEARING : 07/12 /2017 DATE OF PRONOUNCEMENT : 13/12/2017 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2012 - 13 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 32 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 , (THE ACT). 2. THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS THAT THE LD. CI T(A ) ERRED IN DIRECTING TO DELETE THE DISALLOWANCE OF RS.5,43,01,864/ - MADE BY THE ASSESSING OFFICER ( AO ) U/S 37 OF THE ACT SOLELY RELYING ON THE SUBMISSION MADE BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS IGNORING THE FACTS. M/S IL & FS IIDC TRUST ITA NO. 585/MUM/2016 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2012 - 13 DECLARING TOTAL INCOME OF RS.2,07,19,467/ - . THE ASSESSEE IS AN ASSOCIATION OF PERSONS ( AOP ) ENGAGED IN THE BUSINESS OF PROVIDING INFRASTRUCTURE PROJ ECT DEVELOPMENT AND ADVISORY SERVICES. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD CLAIMED RS.5,43,01,864/ - AS PDF (PROJECT DEVELOPMENT FUND) CONTRIBUTION WRITTEN OFF. THE SAID PROJECTS WERE UNDERTAKEN IN VARIOUS S TATES OF INDIA THROUGH SPECIAL PURPOSE VEHICLES (SPVS) . THE PROJECT FINANCE IS CHANNELLED THROUGH THESE SPVS BY THE ASSESSEE ALONG WITH THE RESPECTIVE STATE GOVERNMENTS. FUNDS ARE CONTRIBUTED BY BOTH THE ASSESSEE AND THE STATE GOVERNMENT IN TO THE SPV. THE SPV T HEN INCURS EXPENDITURE S FOR DEVELOPMENT OF THE PROJECT, WHICH ARE CAPITALIZED BY THESE SPVS IN THEIR BOOKS AS PROJECT DEVELOPMENT EXPENSES. THE FUNDS PROVIDED BY THE ASSESSEE TO THE SPV S ARE SHOWN AS LIABILITY IN THE BOOKS OF THE ASSESSEE . WHEN THE PROJECT IS COMPLETED, THE SPV OFFER S THIS PROJECT FOR OPERATION THROUGH AN OPEN BIDDING PROCESS. THE SUCCESSFUL BIDDER THEN BUYS THIS PROJECT FROM THE SPV AT A PREMIUM. THE DIFFERENCE BETWEEN THE PROJECT BID PRICE AND THE DEVELOPMENT EXPENSES INCURRED BY THE SPV ON THE PROJE C T IS INCOME IN THE HANDS OF THE SPV PARTNERS, I.E. THE ASSESSEE AND THE STATE GOVERNMENT . THIS PREMIUM OR DIFFERENCE IS TITLED AS SUCCESS FEE. THIS SUCCESS FEE IS OFFERED TO TAX BY THE ASSESSEE IN HIS BOOKS (AS IT IS A MERE PASS THROUGH IN T HE BOOKS OF THE SPV), AGAINST WHICH THE PROJECT DEVELOPMENT FUND (SHOWN AS LIABILITY) IS WRITTEN OFF AS EXPENSE. THE ASSESSEE SUBMITTED BEFORE THE AO, THAT THIS ARRANGEMENT IS CODED THROUGH AGREEMENTS W ITH THE RESPECTIVE STATE GOVERNMENTS OR THEIR NOMINEES FOR EACH PROJECT SEPARATELY. HE PRODUCED A SAMPLE COPY OF ONE SUCH AGREEMENT M/S IL & FS IIDC TRUST ITA NO. 585/MUM/2016 3 BEFORE THE AO SHOWING THE INTENT OF BOTH PARTNERS, THE ASSESSEE AND THE STATE GOVERNMENT . THE CASE OF THE ASSESSEE BEFORE THE AO WAS THAT THE SUCCESS FEE WAS ACCOUNTED AS INCOME OF THE ASSESSEE AND THE PDF WAS CLAIMED AS EXPENSE AGAINST THE SAME FOR THE YEAR IN WHICH THE SUCCESS FEE FROM A PARTICULAR PROJECT IS RECEIVED. THE ASSESSEE SUBMITTED BEFORE THE AO THAT NOT ALL PROJECTS RESULT IN SUCCESS. THERE ARE SOME PROJECTS WHICH ARE DEVELOPED BY THE SPVS BUT ARE NOT SUCCESSFUL AND THERE BEING NO BUYERS FOR THE SAME, HAVE TO BE ABANDONED. HE SUBMITTED THAT THE PDF WRITTEN OFF DURING THE YEAR OF RS.5,43,01,864/ - PERTAINS TO SUCH ABANDONED PROJECTS. THE AO WAS NOT CONVINCED WITH THE ABOVE SUBMISSION OF THE ASSESSEE AS THE SPV IS A SEPARATE LEGAL ENTITY HAVING A SEPARATE PAN AND TAN NO. THE EXPENSES TOWARDS PROJECT DEVELOPMENT WERE INCURRED BY THE SPV THROUGH ITS BOOKS AND BANK ACCOUNT AND NOT THROUGH THE BOOKS AND BANK ACCOUNTS O F THE ASSESSEE. WHEREVER, A PROJECT IS SUCCESSFUL, THE PREMIUM CHARGED IS REIMBURSEMENT TO THE SPV AND NOT THE ASSESSEE. THE AO NOTED THAT THE ASSESSEE IS NOT IN MONEY LENDING BUSINESS AND IT HAS NOT INCURRED EXPENDITURE ON PROJECTS DIRECTLY, THE WRITE OFF OF SUCH EXPENDITURE CANNOT BE ALLOWED TO HIM. ACCORDINGLY, THE AO DISALLOWED THE PDF WRITTEN OFF AMOUNTING TO RS.5,43,01,864/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS FOLLOW ED THE ORDER OF HIS PREDECESSOR - IN - OFFICE FOR THE AY 2011 - 12 AND ALLOWED THE APPEAL FILED BY THE ASSESSEE ON THE GROUND THAT THE AO HAS OVERLOOKED THE REVENUE STREAM OF THE ASSESSEE. M/S IL & FS IIDC TRUST ITA NO. 585/MUM/2016 4 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO WHEREAS THE LD. C OUNSEL OF THE ASSESSEE RELIES ON THE ORDER OF THE ITAT H BENCH, MUMBAI IN THE CASE OF THE ASSESSEE FOR THE AY 2011 - 12 IN ITA NO. 4576/MUM/2015. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE SAME IS SUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH IN FAVOUR OF THE ASSESSEE IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. THE TRIBUNAL HELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORDS. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE ALONG WITH CONCERNED STATE GOVERNMENTS IS EXECUTING INFRASTRUCTURE PROJECTS THROUGH SPVS CREATE D FOR THAT PURPOSE. IT IS ALSO NOT DISPUTED THAT ASSESSEE AND THE CONCERNED GOVERNMENT AUTHORITY ADVANCES MONEY TO THE SPV TOWARDS PROJECT DE VELOPMENT FUND IN CASE OF SUCCESSFUL BIDDING OF PROJECT, ASSESSEE IS OFFERING INCOME FALLING TO ITS SHARE. HOWEVER, IN RESPECT OF SOME OF THE PROJECTS WHICH RESULT IN FAILURE, THERE IS LOSS AND THE ASSESSEE WRITES OFF THE ADVANCES GIVEN TO THE SPV. THUS, I F THE ASSESSEE IS SHOWING INCOME FROM THE PROJECT IN CASE OF SUCCESSFUL BIDDING AND SUCH INCOME IS ACCEPTED BY THE DEPARTMENT AS A NATURAL COROLLARY IN CASE OF LOSS ARISING FROM FAILURE OF THE PROJECT SHOULD ALSO BE ALLOWABLE TO THE ASSESSEE. THIS VIEW WAS EXPRESSED BY THE ITAT KOLKATA BENCH IN CASE OF ASSAM POWER PROJECTS DEVELOPMENT CO. LTD. VS. ACIT (ITA NO. 401 & 402/GAU/2013) . IN THAT CASE SPV WAS CREATED BY THE ASSESSEE AND THE GOVERNMENT OF ASSAM, WHEREIN, THE TRIBUNAL HELD THAT SINCE THE ENTIRE EXPE NDITURE RELATING TO THE PROJECT WAS INCURRED BY THE PARTNERS OF THE JOINT VENTURE, THE INCOME DERIVED FROM SUCCESSFUL BIDDING ALSO BELONGS TO THE PARTNERS AND IT DOES NOT BELONG TO THE SPV. THUS, IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNAL AND SINCE NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). M/S IL & FS IIDC TRUST ITA NO. 585/MUM/2016 5 ACCORDINGLY, UPHOLDING THE IMPUGNED ORDER OF THE LD. CIT(A) WE DISMISS THE GROUND RAISED. 7. FACTS BEING SIMILAR, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 13/12/2017. SD/ - SD/ - (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 13/12/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI