ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHAN LTD, Jaipur V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, Jaipur

ITA 668/JPR/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8941 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 08-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C GUPTA
• Assessee Lawyers: P P PAREEK
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Rectification of order; Share purchase agreement; Rule of consistency; Earning of tax free income; Question of law; Competent authority; Capital receipt; Onus to prove; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside; CHAPTER IV
• Section: 244A; 14A; 37(1); 195; 207; 208; 192; 64; 43; 48; 73; 13; 153; 22; 37; 56

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 668 TO 670/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 TO 2013-14 M/S ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHAN LTD. 1 ST FLOOR, LIC NEW INVESTMENT BUILDING, BHAWANI SINGH ROAD, JAIPUR. CUKE VS. THE ACIT, CIRCILE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCR 9953 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.P. PAREEK (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI K.C. GUPTA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/03/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 31/07/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE THREE APPEALS FILED BY THE ASSESSEE AGAIN ST THE RESPECTIVE ORDERS OF LD. CIT(A), AJMER, DATED 25.02.2019 FOR T HE ASSESSMENT YEARS 2011-12, 2012-13 AND 2013-14 RESPECTIVELY. THESE A PPEALS INVOLVING COMMON ISSUES WERE HEARD TOGETHER AND ARE BEING DIS POSED OFF BY THIS CONSOLIDATED ORDER. ITA NO. 668/JP/2019 2. WITH THE CONSENT OF PARTIES, ASSESSEES APPEAL FOR A.Y 2011-12 WAS TAKEN AS THE LEAD CASE WHEREIN GROUNDS OF APPEAL RE AD AS UNDER:- IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 2 1. THAT THE ORDER PASSED BY THE LD. ASSESSING OFF ICER AND LD. CIT(APPEALS), AJMER, IS BAD IN LAW AS WELL AS FACTS . 2. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER HAS WRONGLY CONSIDERED RS. 1,05,246/- AS INCOME FROM OT HER SOURCES RATHER THAN REDUCING IT FROM THE CAPITAL COST OF CO NSTRUCTION OF ROADS, AS PER ACCEPTED ACCOUNTING PRACTICES AND DECISION OF V ARIOUS AUTHORITIES INCLUDING DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEELS LTD. 336 ITR PAGE 315, AS THIS AMOUNT PERTAINS TO PRIOR TO COMMERCIAL OPERATION OF THE ROAD FOR WHICH THE A MOUNT WAS BORROWED. 3. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN MAKING DISALLOWANCE OF RS. 1,00,00 0/- UNDER SECTION 14A OF INCOME TAX ACT, 1961. THE APPELLANT PRAYS TH AT CONSIDERING THE FACTS AND THAT NO EXEMPT INCOME HAS BEEN EARNED, TH E DETERMINATION OF THE AMOUNT AT RS. 1,00,000/-U/S 14A READ WITH RULE 8D(2) IS NOT JUSTIFIED AND BE DELETED. 4. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN CONSIDERING RS.1,50,35,287/- AS SH ARE ISSUE EXPENSES INSTEAD OF RS. 1,30,88,710/- AND ACCORDINGLY FURTHE R ERRED IN CONSIDERING RS. 97,95,483/- AS PROFESSIONAL AND LEG AL FEES FOR IPO INSTEAD OF RS. 1,17,42,030/- 5. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN DISALLOWING SHARE ISSUE EXPENSES O F RS. 1,50,35,287/- AND ADDING BACK TO THE INCOME, CONSIDERING THE SAME AS CAPITAL EXPENDITURE AND HAS ALSO ERRED IN NOT CONSIDERING THE PLEA OF THE APPELLANT TO ALLOW THE SAID EXPENDITURE UNDER SECTI ON 35D OF I.T. ACT, 1961 . THE APPELLANT PRAYS THAT IN CASE OF DISALLOWANCE AS REVENUE EXPENDITURE, THEN IN THE GIVEN CASE THE CONDITIONS OF SECTION 35D ARE FULLY SATISFIED AND THE APPELLANT IS ENTITLED TO CL AIM 1/5TH OF THE EXPENSES INCURRED AS REVENUE. 6. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS ERRED IN DISALLOWING PROFESSIONAL AND LEGAL FEES FOR IPO AMOUNTING TO RS. 97,95,483/- AND ADDING BACK TO THE INCOME, CONS IDERING THE SAME AS CAPITAL EXPENDITURE AND HAS ALSO ERRED IN NOT CO NSIDERING THE PLEA OF THE APPELLANT TO ALLOW THE SAID EXPENDITURE UNDER S ECTION 35D OF I.T. ACT, 1961 . IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 3 THE APPELLANT PRAYS THAT IN CASE OF DISALLOWANCE AS REVENUE EXPENDITURE, THEN IN THE GIVEN CASE THE CONDITIONS OF SECTION 35D ARE FULLY SATISFIED AND THE APPELLANT IS ENTITLED TO CL AIM 1/5 TH OF THE EXPENSES INCURRED AS REVENUE. 7. THAT THE LD. ASSESSING OFFICER HAS FURTHER ERRED IN CALCULATING THE INTEREST PAYABLE UNDER SECTION 244A OF THE INCOME T AX ACT, 1961 AS RS. 3,86,051/- INSTEAD OF RS. 4,41,202/- AND LD. CI T(APPEALS), AJMER, HAS ERRED IN DISMISSING THIS GROUND AND NOT GIVING RELIEF. 3. GROUND NO. 1 IS GENERAL IN NATURE DOES NOT REQUI RE ANY SEPARATE ADJUDICATION. 4. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN BRINGING TO TAX AN AMOUNT OF RS. 1,05,246/- AS INCO ME UNDER THE HEAD INCOME FROM OTHER SOURCES RATHER THAN REDUCING IT FROM THE CAPITAL COST OF CONSTRUCTION OF THE ROADS FOR THE PERIOD PRIOR TO C OMMENCEMENT OF COMMERCIAL OPERATIONS OF THE ROADS. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN INTEREST RECEI PT OF RS. 5,06,71,786/- FROM FDRS PLACE WITH ITS BANKS, OUT OF THE SAME, IN TEREST INCOME OF RS. 5,05,66,540/- HAS BEEN OFFERED TO TAX BY THE AS SESSEE UNDER THE HEAD OTHER INCOME, HOWEVER, AN AMOUNT OF RS. 1,05,246/ - HAS BEEN CAPITALIZED BY THE ASSESSEE THEREBY REDUCING THE COST OF FIXED ASSETS. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD INVESTED THE EX CESSIVE LOANS TAKEN BY IT IN THE FDRS WITH BANKS AND THE INTEREST EARNED THEREON SHOULD HAVE BEEN CLASSIFIED UNDER THE HEAD INCOME FROM OTHER SOURCE S. FURTHER RELYING ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 AND FOL LOWING THE POSITION TAKEN IN THE EARLIER ASSESSMENT YEARS, AN AMOUNT OF RS. 1,05 ,246/- WAS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. ON APP EAL, THE SAME HAS BEEN CONFIRMED BY THE LD. CIT(A) AND AGAINST THE SAID FI NDING, THE ASSESSEE IS IN APPEAL BEFORE US. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 4 6. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE ASSESSEE HAD ENTERED INTO A CONCESSIONAIRE AGREEMENT FOR DEV ELOPMENT OF DIFFERENT ROAD STRETCHES POPULARLY KNOWN AS MEGA HIGHWAY CO NNECTING VARIOUS NATIONAL HIGHWAYS. EARLIER SEVEN ROAD STRETCHES WER E COMPLETED AND THE ASSESSEE IS IN THE PROCESS OF COMPLETING THE REMAIN ING SEVEN STRETCHES DURING THE YEAR. IT IS SUBMITTED THAT ONCE THE APPELLANT C OMMENCED COMMERCIAL OPERATIONS OF A PARTIAL ROAD STRETCH, THE INTEREST EXPENSES ON RELATABLE BORROWINGS AND INTEREST INCOME ON LINKED STR WERE T AKEN TO THE PROFIT & LOSS ACCOUNT AND OFFERED UNDER THE HEAD INCOME FROM BUSI NESS AND PROFESSION. IN RESPECT OF REMAINING ROAD STRETCHES WHICH WERE UNDE R CONSTRUCTION AND UPTO THE DATE OF COMMERCIAL OPERATIONS, THE TOTAL EXPEND ITURE INCLUDING THE INTEREST PAID ON BORROWED FUNDS NET OF INTEREST INCOME EARNE D ON STR INEXTRICABLE LINKED TO PROJECT COST IS CAPITALIZED UNDER THE HEA D PROJECT WORK IN PROGRESS (CAPITAL WORK IN PROGRESS CWIP). HOWEVER, LEARNED ASSESSING OFFICER HAS NOT AGREED TO THE TREATMENT GIVEN FOR THE INTEREST EARN ED. 7. IT WAS FURTHER SUBMITTED THAT THE MATTER IS SQUA RELY COVERED BY THE DECISION OF THE COORDINATE BENCHES FOR EARLIER YEAR S I.E. 2007-08 AND 2008-09 AND THE SAID DECISION OF THE COORDINATE BENCHES HAS SINCE BEEN CONFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN DB. APPEAL NO. 144/2017 DATED 18.07.2017 AND DB. APPEAL NO. 147/2017 DATED 25.07. 2017. IT WAS FURTHER SUBMITTED THAT THE SLP AGAINST THE DECISION OF HON BLE RAJASTHAN HIGH COURT HAS SINCE BEEN DISMISSED BY THE HONBLE SUPREME COU RT VIDE ITS ORDER DATED 17.09.2018. IT WAS ACCORDINGLY SUBMITTED THAT THE M ATTER IS SQUARELY COVERED BY THE DECISION OF THE EARLIER YEARS AND FOLLOWING THE RULE OF CONSISTENCY, THE SAME SHOULD BE FOLLOWED IN THE INSTANT YEAR. 8. REGARDING THE FINDINGS OF THE LD CIT(A) THAT THE ASSESSEE HAS NOT SUBMITTED ANY BIFURCATED INTEREST INCOME INTO PRE-O PERATION AND POST OPERATION PERIOD, IT WAS SUBMITTED THAT THE SAID FI NDING IS TOTALLY INCORRECT. IT WAS SUBMITTED THAT THE REQUISITE DETAILS HAVE BEEN DULY SUBMITTED DURING THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 5 COURSE OF COURSE OF ASSESSMENT PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT 7 ROADS STRETCHES WERE EARLIER COMPLETED AND REMAININ G 7 ROADS STRETCHES WERE UNDER PROGRESS DURING THE YEAR IN RESPECT OF WHICH DETAILS ARE AS UNDER:- 2. AS ON 31 ST MARCH, 2011, THE COMPANY WAS UNDER THE STAGE OF IMPLEMENTATION OF 7 ROAD PROJECTS AFTER COMPLETING SEVEN (7) MEGA PROJECT ROADS OUT OF FOURTEEN (14) PROJECTS AS PER DETAILS HEREUNDER. (A) THE DETAILS OF COMPLETED SEVEN ROAD STRETCHES ARE A S UNDER: PROJECT NAME DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS (I) PHALODI TO PACHPADRA (PR-1) 15-JUN-07 (II) PACHPADRA TO RAMJI KI GOL (PR-2) 28-DEC-07 (III) HANUMANGARH TO RATANGARH (HK-1) 28-FEB-08 (IV) RATANGARH TO KISHANGARH (HK-2) 28-FEB-08 (V) LALSOT TO KOTA (LJ-1) 15-12-2008 AND 08-11-200 9 (VI) BARAN TO JHALAWAR (LJ-2) 15-APR-08 (VII) ALWAR TO SIKANDRA (AS) 31-AUG-08 (B) THE DETAILS OF REMAINING SEVEN (7) ROAD STRETCHES U NDER PROGRESS DURING THE YEAR WERE AS UNDER: PROJECT NAME (I) ALWAR TO BHIWADI (AB) (II) HANUMANGARH TO SANGARIA (HS) (III) JHALAWAR TO JHALAWAR ROAD (JJ) (IV) ARJUNSAR TO PALLU (AP) (V) KAPREN TO MANGROL (KM) (VI) JHALAWAR TO UJJAIN (JU) (VII) KHUSHKHEDA TO KASOULACHOWK (KK) IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 6 9. PER CONTRA, THE LD. DR HAS RELIED ON THE FINDING S OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE MATTER IS SQUARELY COVERED B Y THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI C HEMICALS & FERTILIZERS LTD. VS. CIT AND FURTHER IN ABSENCE OF ANY EVIDENCE TO S HOW THAT INTEREST WAS PERTAINING TO THE PERIOD PRIOR TO THE PERIOD DURING WHICH COMMERCIAL PRODUCTION HAS COMMENCED, THE SAME HAS RIGHTLY BEEN BROUGHT TO TAX BY THE AO. HE ACCORDINGLY SUPPORTED THE ORDER OF THE LOWE R AUTHORITIES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAS SHOWN INTEREST RECEIPT OF RS. 5,06,71,786/- FROM FD RS PLACE WITH ITS BANKS, OUT OF THE SAME, INTEREST RECEIPT OF RS. 5,05,66,54 0/- HAS BEEN OFFERED TO TAX BY THE ASSESSEE UNDER THE HEAD OTHER INCOME, HOWE VER, AN AMOUNT OF RS. 1,05,246/- HAS BEEN CAPITALIZED BY THE ASSESSEE THEREBY REDUCING THE COST OF FIXED ASSETS. THEREFORE, IT IS NOT A CASE WHERE THE WHOLE OF THE INTEREST RECEIPT HAS BEEN CAPITALIZED BY WAY OF REDUCING FRO M THE COST OF THE FIXED ASSETS. THE ISSUE IS THUS LIMITED TO INTEREST RECE IPT OF RS 1,05,246/-. THE CLAIM OF THE ASSESSEE IS THAT THIS RELATES TO SEVEN ROAD STRETCHES WHICH WERE UNDER CONSTRUCTION DURING THE YEAR AND THE TOTAL EX PENDITURE INCLUDING THE INTEREST PAID ON BORROWED FUNDS NET OF INTEREST INC OME EARNED ON THESE DEPOSITS IS INEXTRICABLE LINKED TO THESE SEVEN ROAD STRETCHES WHICH ARE CAPITALIZED UNDER THE HEAD PROJECT WORK IN PROGRESS AND THE SAME IS THE CONSISTENT POSITION OF THE ASSESSEE WHICH HAS BEEN FOLLOWED AND ACCEPTED BY THE TRIBUNAL AND THE HONBLE HIGH COURT IN THE EARL IER YEARS. WE FIND THAT THE COORDINATE BENCH IN ASSESSEES OWN CASE HAS EXHAUSTIVELY EXAMINED THIS MATTER IN ITA NO. 628/JP/2014 DATED 11.08.2016 WHER EIN THE RELEVANT FINDINGS READ AS UNDER: 2.10 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSU ED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT BOTH THE PARTIES HAVE RELIED UPON THE DECISIONS OF THE HON'BLE SUPREME COURT AND IN ADDIT ION, THE ASSESSEE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 7 HAS RELIED UPON THE DECISIONS OF HON'BLE DELHI HIGH COURT. THEREFORE, IT WOULD BE APPROPRIATE TO FIRST REFER TO THESE DECISI ONS AND SOME OF THE OTHER RECENT DECISIONS OF HONBLE HIGH COURTS AND C OORDINATE BENCH DECISIONS. 2.11 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FE RTILIZERS LTD. (SUPRA), THE HON'BLE SUPREME COURT HELD AS UNDER: THE FACTS OF THIS CASE WERE NOT IN DISPUTE. IN THE USUAL COURSE, INTEREST RECEIVED BY THE COMPANY FROM BANK DEPOSITS AND LOAN S WOULD BE TAXABLE AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES' UNDER SECTION 56. IT WAS ARGUED ON BEHALF OF THE COMPANY THAT IT HAD NOT YET COMMENCED ITS BUSINESS AND IN ANY EVENT IF THE INCO ME WAS DERIVED FROM FUNDS BORROWED FOR SETTING UP THE FACTORY OF T HE COMPANY, IT SHOULD BE ADJUSTED AGAINST THE INTEREST PAYABLE ON THE BORROWED FUNDS. NEITHER OF THE TWO FACTORS CAN AFFECT TAXABILITY OF THE INCOME EARNED BY THE COMPANY THE TOTAL INCOME OF THE COMPANY IS CHAR GEABLE TO TAX UNDER SECTION 4. THE TOTAL INCOME HAS TO BE COMPUTE D IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SECTION 14 LAYS DOW N THAT FOR THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS T O BE CLASSIFIED UNDER SIX HEADS. IN THE INSTANT CASE, THE COMPANY HAD CHOSEN NOT TO KEEP ITS SURPLUS CAPITAL IDLE, BUT HAD DECIDED TO INVEST IT FRUITFUL LY. THE FRUITS OF SUCH INVESTMENT WILL CLEARLY BE OF THE REVENUE NATURE. IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILISED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERATED WILL BE OF THE REVENUE NA TURE AND NOT ACCRETION OF CAPITAL WHETHER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORROWING WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE. IF BORROWED CAPITAL IS USED FOR THE PURPOSE OF EARNING INCOME, THAT INCOME WILL HAVE TO BE TAXED IN ACCORD ANCE WITH LAW. INCOME IS SOMETHING WHICH FLOWS FROM THE PROPERTY. SOMETHING RECEIVED IN PLACE OF THE PROPERTY WILL BE CAPITAL R ECEIPT. THE AMOUNT OF INTEREST RECEIVED BY THE COMPANY FLOWS FROM ITS INV ESTMENTS AND IS ITS INCOME AND IS CLEARLY TAXABLE EVEN THOUGH THE INTER EST AMOUNT IS EARNED BY UTILISING BORROWED CAPITAL. IT IS TRUE THAT THE COMPANY WILL HAVE TO PAY INTERE ST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A GROUND FOR EXE MPTION OF INTEREST EARNED BY THE COMPANY BY UTILISING THE BORROWED FUN DS AS ITS INCOME. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 8 THE COMPANY WAS AT LIBERTY TO USE THE INTEREST INCO ME AS IT LIKED IT WAS UNDER NO OBLIGATION TO UTILISE THIS INTEREST INCOME TO REDUCE ITS LIABILITY TO PAY INTEREST TO ITS CREDITORS. IT COULD RE-INVES T THE INTEREST INCOME IN LAND OR SHARES, IT COULD PURCHASE SECURITIES, IT CO ULD BUY HOUSE PROPERTY, IT COULD ALSO SETUP ANOTHER LINE OF BUSINESS, IT MI GHT EVEN PAY DIVIDENDS OUT OF THIS INCOME TO ITS SHAREHOLDERS. THERE WAS N O OVERRIDING TITLE OF ANYBODY DIVERTING THE INCOME AT SOURCE TO PAY THE A MOUNT TO THE CREDITORS OF THE COMPANY. IT IS WELL-SETTLED THAT T AX IS ATTRACTED AT THE POINT WHEN THE INCOME IS EARNED TAXABILITY OF INCOM E IS NOT DEPENDENT UPON ITS DESTINATION OR THE MANNER OF ITS UTILISATI ON. IT HAS TO BE SEEN WHETHER AT THE POINT OF ACCRUAL, THE AMOUNT IS OF T HE REVENUE NATURE AND IF SO, THE AMOUNT WILL HAVE TO BE TAXED. IT IS TRUE THAT THE SUPREME COURT HAS VERY OFTEN RE FERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMP ANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETH ER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIO NS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTI ON 56 OR ANY OTHER PROVISION OF THE ACT. WHETHER A PARTICULAR RECEIPT IS OF THE NATURE OF IN COME AND FALLS WITHIN THE CHARGE OF SECTION 4 IS A QUESTION OF LAW WHICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND THE INTERPRETATION OF THE TERM 'INCOME' GIVEN IN A LARG E NUMBER OF DECISIONS OF THE HIGH COURTS, THE PRIVY COUNCIL AND ALSO THIS COURT. IT IS WELL- SETTLED THAT INCOME ATTRACTS TAX AS SOON AS IT ACCR UES. THE APPLICATION OR DESTINATION OF THE INCOME HAS NOTHING TO DO WITH IT S ACCRUAL OR TAXABILITY. IT IS ALSO WELL-SETTLED THAT INTEREST I NCOME IS ALWAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMA GES OR COMPENSATION. 2.12 IN THE CASE OF BOKARO STEEL LTD. (SUPRA), THE HON'BLE SUPREME COURT, AFTER CONSIDERING THE DECISION OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), HELD AS UNDER: THE ACTIVITIES OF THE ASSESSEE IN CONNECTION WITH FIRST THREE RECEIPTS WERE DIRECTLY CONNECTED WITH OR WERE INCIDENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSE E. BROADLY SPEAKING, THESE PERTAINED TO THE ARRANGEMENTS MADE BY THE ASS ESSEE WITH ITS IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 9 CONTRACTORS PERTAINING TO THE WORK OF CONSTRUCTION. TO FACILITATE THE WORK OF THE CONTRACTOR, THE ASSESSEE PERMITTED THE CONTR ACTOR TO USE THE PREMISES OF THE ASSESSEE FOR HOUSING ITS STAFF AND WORKERS ENGAGED IN THE CONSTRUCTION ACTIVITY OF THE ASSESSEE'S PLANT. THIS WAS CLEARLY TO FACILITATE THE WORK OF CONSTRUCTION. HAD THIS FACIL ITY NOT BEEN PROVIDED BY THE ASSESSEE, THE CONTRACTORS WOULD HAVE HAD TO MAK E THEIR OWN ARRANGEMENTS AND THIS WOULD HAVE BEEN REFLECTED IN THE CHARGES OF THE CONTRACTORS FOR THE CONSTRUCTION WORK. INSTEAD, THE ASSESSEE HAD PROVIDED THESE FACILITIES. THE SAME WAS TRUE OF THE HIRE CHARGES FOR PLANT AND MACHINERY WHICH WAS GIVEN BY THE ASSESSEE TO THE CONTRACTOR FOR THE ASSESSEE'S CONSTRUCTION WORK. THE RECEIPTS IN THIS CONNECTION ALSO WENT TO COMPENSATE THE ASSESSEE FOR THE WEAR A ND TEAR ON THE MACHINERY. THE ADVANCES WHICH THE ASSESSEE MADE TO THE CONTRACTOR TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOG ETHER A VERY LARGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINANCIAL HITCHES AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESSEE-C OMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WITH THE CONSTRU CTION OF ITS STEEL PLANT. THE RECEIPTS HAD BEEN ADJUSTED AGAINST THE C HARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAD, THEREFORE, BEEN RIGHTLY HELD AS CAPITAL RECEIP TS AND NOT INCOME OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE. IN CASE MONEY IS BORROWED BY A NEWLY-STARTED COMPAN Y WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORRO WED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF THE FIXED A SSETS CREATED AS A RESULT OF SUCH EXPENDITURE. BY THE SAME REASONING I F THE ASSESSEE RECEIVED ANY AMOUNTS WHICH WERE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPT S WOULD GO TO REDUCE THE COST OF ITS ASSETS. THESE WERE RECEIPTS OF A CA PITAL NATURE AND COULD NOT BE TAXED AS INCOME. THE SAME REASONING WOULD APPLY TO ROYALTY RECEIVED BY THE ASSESSEE- COMPANY FOR STONES, ETC., EXCAVATED FROM THE ASSESS EE-COMPANY'S LAND. THE LAND HAD BEEN ALLOWED TO BE UTILISED BY THE CON TRACTORS FOR THE PURPOSE OF EXCAVATING STONES TO BE USED IN THE CONS TRUCTION WORK OF THE ASSESSEE'S STEEL PLANT. THE COST OF THE PLANT TO TH E EXTENT OF SUCH IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 10 ROYALTY RECEIVED, WAS REDUCED FOR THE ASSESSEE. IT WAS, THEREFORE, RIGHTLY TAKEN AS A CAPITAL RECEIPT. 2.13 THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), AFTER CONSIDERING TH E DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPR A) AND BOKARO STEEL LTD. (SUPRA) AT LENGTH, HELD AS UNDER: 5 . IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED THE R ATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA) AND THAT OF BOKAR O STEEL LTD. (SUPRA). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF TH E SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA ) IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE 'SURPLUS' AND THEN BY VIRTUE OF THAT CIRCUMSTANCE T HEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INT EREST WILL BE TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD.'S CASE (SUPRA) TO OUR MIND IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEX TRICABLY LINKED' TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRE D TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 5.1 THE TEST, THEREFORE, TO OUR MIND IS WHETHER THE AC TIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUN DS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN SECTION 3 OF THE ACT W HICH STATES THAT FOR NEWLY SET-UP BUSINESS THE PREVIOUS YEAR SHALL BE TH E PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS. THEREF ORE, AS PER THE PROVISION OF SECTION 4 OF THE ACT WHICH IS THE CHAR GING SECTION INCOME WHICH ARISES TO AN ASSESSEE FROM THE DATE OF SETTIN G OF THE BUSINESS BUT PRIOR TO COMMENCEMENT IS CHARGEABLE TO TAX DEPENDIN G ON WHETHER IT IS OF A REVENUE NATURE OR CAPITAL RECEIPT. THE INCOME OF A NEWLY SET-UP BUSINESS, POST THE DATE OF ITS SETTING UP CAN BE TA XED IF IT IS OF A REVENUE NATURE UNDER ANY OF THE HEADS PROVIDED UNDE R SECTION 14 IN CHAPTER IV OF THE ACT. FOR AN INCOME TO BE CLASSIFI ED AS INCOME UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSIO N' IT WOULD HAVE TO BE AN ACTIVITY WHICH IS IN SOME MANNER OR FORM CONN ECTED WITH BUSINESS. THE WORD 'BUSINESS' IS OF WIDE IMPORT WHI CH WOULD ALSO INCLUDE ALL SUCH ACTIVITIES WHICH COALESCE INTO SET TING UP OF THE BUSINESS. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 11 SEE MAZAGAON DOCK LTD. V. CIT & EPT [1958] 34 ITR 368 (SC) , AND NARAIN SWDESHI WEAVING MILLS V. CEPT [1954] 26 ITR 765 (SC) . ONCE IT IS HELD THAT THE ASSESSEE'S INCOME IS AN INCOME CON NECTED WITH BUSINESS, WHICH WOULD BE SO IN THE PRESENT CASE, IN VIEW OF THE FINDING OF FACT BY THE CIT(A) THAT THE MONIES WHICH WERE IN DUCTED INTO THE JOINT VENTURE COMPANY BY THE JOINT VENTURE PARTNERS WERE PRIMARILY INFUSED TO PURCHASE LAND AND TO DEVELOP INFRASTRUCTURE - THEN IT CANNOT BE HELD THAT THE INCOME DERIVED BY PARKING THE FUNDS TEMPOR ARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHARACTER OF TH E FUNDS BEING CHANGED, INASMUCH AS, THE INTEREST EARNED FROM THE BANK WOUL D HAVE A HUE DIFFERENT THAN THAT OF BUSINESS AND BE BROUGHT TO T AX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IT IS WELL-SETTLED THA T AN INCOME RECEIVED BY THE ASSESSEE CAN BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ONLY IF IT DOES NOT FALL UNDER ANY OTHER H EAD OF INCOME AS PROVIDED IN SECTION 14 OF THE ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESIDUARY HEAD OF INCOME. SEE S.G. ME RCANTILE CORPN. (P.) LTD. V. CIT [1972] 83 ITR 700 (SC) AND CIT V. GOVINDA CHOUDHURY & SONS [1993] 203 ITR 881 (SC) . 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL W ERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPM ENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON F UNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CL ASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF CA PITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERAT IVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LT D. (SUPRA) IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH TH E ASSESSEE IN THAT CASE WERE 'SURPLUS' AND, THEREFORE, THE SUPREME COU RT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE T REATED AS 'INCOME FROM OTHER SOURCES' . ON THE OTHER HAND IN BOKARO S TEEL LTD.'S CASE (SUPRA) WHERE THE ASSESSEE HAD EARNED INTEREST ON A DVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUN D TO BE 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PLAN T OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PE RMITTED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 12 6. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE PRES ENT ISSUE CAN BE EXAMINED. UNDER SECTION 208 OF THE COMPANIES ACT, 1 956 A COMPANY CAN PAY INTEREST ON SHARE CAPITAL WHICH IS ISSUED FOR A SPECIFIC PURPOSE TO DEFRAY EXPENSES FOR CONSTRUCTION OF ANY WORK AND WH ICH CANNOT BE MADE PROFITABLE FOR A LONG PERIOD SUBJECT TO CERTAIN RES TRICTIONS CONTAINED IN SUB- SECTIONS (2) TO (7) OF SECTION 208. THIS SECTION WA S SPECIFICALLY NOTED BY THE SUPREME COURT IN CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 ITR 167 . 6.1 IN OUR VIEW THE SITUATION IN THE INSTANT CASE I S QUITE SIMILAR EXCEPT HERE INSTEAD OF PAYING INTEREST ON FUNDS BROUGHT IN FOR SPECIFIC PURPOSE INTEREST IS EARNED ON FUNDS BROUGHT IN BY WAY OF SH ARE CAPITAL FOR A SPECIFIC PURPOSE. COULD IT BE SAID THAT IN THE FORM ER SITUATION INTEREST COULD HAVE BEEN CAPITALIZED AND IN THE LATER SITUAT ION IT CANNOT BE CAPITALIZED. TO TEST THE PRINCIPLE WE COULD EXTEND THE EXAMPLE, THAT IS, WOULD OUR ANSWER BE ANY DIFFERENT HAD ASSESSEE PASS ED ON THE INTEREST TO THE RESPECTIVE SHAREHOLDERS. IF NOT, THEN IN OUR VI EW THE ONLY CONCLUSION POSSIBLE IS THAT INTEREST EARNED IN THE PRESENT CIR CUMSTANCES OUGHT TO BE CAPITALIZED. 7. IN VIEW OF THE DISCUSSION ABOVE, IN OUR OPINION TH E TRIBUNAL MISDIRECTED ITSELF IN APPLYING THE DECISION OF THE SUPREME COUR T IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA ) IN THE FACTS OF THE PRESENT CASE. IN OUR OPINION ON ACCOUNT OF THE FINDING OF F ACT RETURNED BY THE CIT(A) THAT THE FUNDS INFUSED IN THE ASSESSEE BY TH E JOINT VENTURE PARTNER WERE INEXTRICABLY LINKED WITH THE SETTING UP OF THE PLANT, THE INTEREST EARNED BY THE ASSESSEE COULD NOT BE TREATED AS INCO ME FROM OTHER SOURCES. IN THE RESULT WE ANSWER THE QUESTION AS FR AMED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THESE APPEALS ARE ALLOWED AND THE IMPUGNED JUDGMENT IS SET ASIDE. 2.14 THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF SASAN POWER LTD (SUPRA ) FOLLOWING THE DECISION IN CASE OF INDIAN OIL PANIP AT POWER CONSORTIUM LTD. (SUPRA), HAS HELD AS UNDER: 14. IT IS CLEAR FROM THE FACTS STATED ABOVE THAT COMMI SSIONER OF INCOME TAX (APPEALS) AND TRIBUNAL HAVE SPECIFICALLY HELD THAT THE INTEREST INCOME WAS ON CAPITAL ACCOUNT. WE HAVE GON E THROUGH THE GROUNDS OF APPEAL AND DO NOT FIND ANY REASON OR JUS TIFICATION TO UPSET THE SAID FINDING. THE FACTUAL FINDINGS RECORDED BY THE CIT(APPEALS) AND TRIBUNAL ARE NOT UNDER CHALLENGE. THE CIT(APPEALS) AND THE TRIBUNAL HAVE HELD THAT IN VIEW OF THE FACTUAL POSITION QUOT ED ABOVE THE DECISION IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 13 OF THE SUPREME COURT IN CIT V. BOKARO STEEL LTD. [1 999] 236 ITR 315 / 102 TAXMAN 94 WAS APPLICABLE AS THE COMMITMENT ADVANCE, WHICH HA D BEEN PAID TO PFC. THIS IS NOT A CASE OF SURPLUS FUN DS, WHICH WERE AVAILABLE AND INVESTMENT WERE MADE IN FIXED DEPOSIT S TO EARN INTEREST. THE INTEREST PAID TO THE POWER PROCUREMENT UTILITIE S ON COMMITMENT ADVANCES WAS CAPITALIZED. INTEREST PAID AND INTERES T RECEIVED WERE INEXTRICABLY LINKED AND HAVE A COMMONALITY ABOUT TH EIR NATURE AND CHARACTER. THE APPELLANT CANNOT TREAT THEM DIFFEREN TLY. COMMITMENT ADVANCES AND INTEREST PAID AND RECEIVED HAD REFEREN CE TO BIDDING PROCESS AND LINKED TO THE PROJECT/PURPOSE FOR WHICH THE RESPONDENT WAS SET UP. IN VIEW OF THE FACTUAL MATRIX, INTEREST REC EIVED ON UNUTILIZED COMMITMENT ADVANCES CANNOT BE TAXED AS REVENUE INCO ME AND INTEREST PAID ON COMMITMENT ADVANCE TREATED AS A CAPITAL EXP ENSE. THIS WILL BE CONTRADICTORY. THE ENTIRE EXPENDITURE FOR INVITING BIDS ETC. AND EVEN DOCUMENTATION WAS PAID TO PFC. THE AMOUNTS RECEIVED FROM THE PROSPECTIVE BIDDERS ON ACCOUNT OF SALE OF TENDER DO CUMENTS WAS ALSO TRANSFERRED TO PFC. AS NOTICED ABOVE, REVENUE HAS N OT CHALLENGED AND HAS ACCEPTED THE ORDER OF THE TRIBUNAL DELETING ADD ITION OF RS. 1,35,81,234/-PAID BY THE RESPONDENT-ASSESSEE TO PFC FOR PREPARATION OF TENDER DOCUMENTS. IN VIEW OF THE FACTUAL MATRIX, TH E TRIBUNAL HAS RIGHTLY FOLLOWED THE RATIO IN INDIAN OIL PANIPAT POWER CONS ORTIUM LTD.'S CASE (SUPRA). 11. THEREAFTER, THE AFORESAID DECISION OF THE COORD INATE BENCH WAS FOLLOWED IN SUBSEQUENT DECISION IN ASSESSEES OWN CASE BY THE COORDINATE BENCH IN ITA NO. 963/JP/12 & 282/JP/15 DATED 19.12.2016 W HEREIN THE RELEVANT FINDINGS READ AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION FOR THE BOTH THE YEARS RELATE TO TREATMENT OF THE INTEREST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS. AS PER THE REVENUE, THE SAME IS TO BE BRO UGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. AS PER THE AS SESSEE, IT IS IN THE NATURE OF CAPITAL RECEIPT AND WILL BE REQUIRED TO B E SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPITALIZED UNDER THE HEA D CAPITAL WORK IN IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 14 PROGRESS AND THE SAME CANNOT BE BROUGHT TO TAX UND ER THE HEAD INCOME FROM OTHER SOURCES. THE SAID ISSUE HAS BEE N EXAMINED AT GREAT LENGTH BY THE COORDINATE BENCH IN ITS DECISIO N REFERRED SUPRA AND THEREIN THE DECISION OF THE HONBLE SUPREME COURT I N CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS (227 ITR 172) AS W ELL AS DECISION IN CASE OF BOKARO STEEL LTD (236 ITR 316) HAS BEEN DULY CON SIDERED. THE RELEVANT FINDINGS OF THE COORDINATE BENCH IN ASSESS EES OWN CASE IN ITA NO. 628/JP/2014 FOR A.Y. 2009-10 DATED 11.08.2016 A RE REPRODUCED AS UNDER: 2.18 FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE TWO SETS OF JUDGEMENTS OF HONBLE SUPREME COURT, PROCEEDINGS ON DIFFERENT LINES OF REASONINGS. THE HONBLE DELHI HIGH COURT IN CASE O F INDIAN OIL PANIPAT CONSORTIUM LTD. (SUPRA) HAS CONSIDERED AND INTERPR ETED THE DECISIONS OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKAL I CHEMICALS & FERTILIZERS (SUPRA) AS WELL AS BOKARO STEEL LD. (SU PRA). AFTER ANALYZING BOTH THE DECISIONS OF HONBLE SUPREME COURT, IT HE LD THAT THE TEST WHICH PREMEATES THROUGH THE JUDGEMENT OF THE SUPREM E COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTDS CA SE (SUPRA) IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE T HEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF IN TEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGEMENT IN BOKARO STEE L LTD.S CASE (SUPRA) TO OUR MIND IS THAT IF INCOME EARNED, WHETH ER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLAN T SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E-OPERATIVE EXPENSES . 2.19 THE FACTS IN THE INSTANT CASE ARE PARI MATERI A WITH THE FACTS OF THE INDIAN OIL PANIPAT (SUPRA) AND THE RATIO DECIDENDI OF HONBLE DELHI HIGH COURT IN THAT CASE WILL SQUARELY APPLY TO THE FACTS OF THE ASSESSEE. IN THE INSTANT CASE, UNDISPUTEDLY, THE FUNDS HAVE BEEN BORROWED FOR THE SPECIFIC PURPOSE OF EXECUTION OF THE MEGA ROAD PROJ ECTS AND AS PER THE LOAN AGREEMENT EXECUTED BETWEEN THE CONSORTIUM OF B ANKERS AND THE ASSESSEE DATED 23.11.2005, ALL THE DISBURSEMENTS SH ALL BE DEPOSITED IN THE TRUST AND RETENTION ACCOUNT WHICH SHALL BE SUBJ ECT TO STRICT CONTROL AND VERIFICATION BY THE SENIOR LENDERS AND ALL DISB URSEMENTS SHALL BE UTILISED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE PROJECT AND NO OTHER PURPOSE. THE FUNDS ARE THUS INEXTRICABLY LINK ED TO THE SETTING UP OF THE MEGA ROAD PROJECTS AND INTEREST EARNED ON SU CH BORROWED FUNDS INFUSED IN THE BUSINESS COULD NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES. WE ALSO NOTE A DISTINGUISHING FEATURE IN THE INSTANT CASE THAT IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 15 THE ASSESSEE IS NOT AT LIBERTY TO USE THE INTEREST SO EARNED AS PER ITS WILL AND DISCRETION UNLIKE THE CASE IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AND THE INTEREST HAS TO BE USED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE SPECIFIED PROJECTS ONLY. THE IMPUNGED INTEREST RECEIPT OF RS. 35,39,479/- ON SUCH BORROWED FUNDS R ELATES TO THE MEGA ROAD PROJECTS/STRETCHES WHICH WERE UNDER CONSTRUCTI ON AND THE COMPLETED ROAD PROJECTS/STRETCHES UPTO THE DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS. THEREFORE, THE INTEREST REC EIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT A ND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPIT ALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE B ROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HENCE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 5. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. NO CONTRARY AUTHORITY H AS BEEN BROUGHT TO OUR NOTICE SUBSEQUENT TO ABOVE DECISION OF THE COOR DINATE BENCH OR THE FACT THAT SAID DECISION OF THE COORDINATE BENCH HAS BEEN STAYED BY THE HONBLE HIGH COURT. IN VIEW OF THE SIMILAR FACTS A ND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA), WE HOLD THAT THE INTER EST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT A ND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPIT ALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE B ROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 12. THE HONBLE RAJASTHAN HIGH COURT HAS THEREAFTER, AFFIRMED THE AFORESAID FINDINGS OF THE TRIBUNAL IN DB INCOME TAX APPEAL NO. 144/2017 DATED 18.07.2017 WHEREIN IT WAS HELD AS UNDER:- 2. COUNSEL FOR THE APPELLANT HAS FRAMED THE FOLLOW ING SUBSTANTIAL QUESTION OF LAW:- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW THE ITAT WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 3,37, 76,623/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INCOME FROM OTHER S OURCES IGNORING THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 16 FACT THAT THE ASSESSEE CAPITALIZED THE INTEREST INC OME RECEIVED FROM THE FDRS THEREBY REDUCING THE COST OF FIXED ASSETS. 3. WHILE CONSIDERING THE MATTER, TRIBUNAL HAS OBSER VED AS UNDER:- 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION FOR THE BOTH THE YEARS RELATE TO TREATMENT OF THE INTEREST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS. AS PER THE REVENUE, THE SAME IS TO BE BRO UGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. AS PER THE AS SESSEE, IT IS IN THE NATURE OF CAPITAL RECEIPT AND WILL BE REQUIRED TO B E SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPITALIZED UNDER THE HEA D CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE BROUGHT TO TAX UND ER THE HEAD INCOME FROM OTHER SOURCES. THE SAID ISSUE HAS BEE N EXAMINED AT GREAT LENGTH BY THE COORDINATE BENCH IN ITS DECISIO N REFERRED SUPRA AND THEREIN THE DECISION OF THE HONBLE SUPREME COURT I N CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS (227 ITR 172) AS W ELL AS DECISION IN CASE OF BOKARO STEEL LTD (236 ITR 316) HAS BEEN DULY CON SIDERED. THE RELEVANT FINDINGS OF THE COORDINATE BENCH IN ASSESS EES OWN CASE IN ITA NO. 628/JP/2014 FOR A.Y. 2009-10 DATED 11.08.2016 A RE REPRODUCED AS UNDER: 2.18 FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE TWO SETS OF JUDGEMENTS OF HONBLE SUPREME COURT, PROCEEDINGS ON DIFFERENT LINES OF REASONINGS. THE HONBLE DELHI HIGH COURT IN CASE O F INDIAN OIL PANIPAT CONSORTIUM LTD. (SUPRA) HAS CONSIDERED AND INTERPR ETED THE DECISIONS OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKAL I CHEMICALS & FERTILIZERS (SUPRA) AS WELL AS BOKARO STEEL LD. (SU PRA). AFTER ANALYZING BOTH THE DECISIONS OF HONBLE SUPREME COURT, IT HE LD THAT THE TEST WHICH PREMEATES THROUGH THE JUDGEMENT OF THE SUPREM E COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTDS CA SE (SUPRA) IS THAT IF FUNDS IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 17 HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE T HEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF IN TEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGEMENT IN BOKARO STEE L LTD.S CASE (SUPRA) TO OUR MIND IS THAT IF INCOME EARNED, WHETH ER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLAN T SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E-OPERATIVE EXPENSES . 2.19 THE FACTS IN THE INSTANT CASE ARE PARI MATERI A WITH THE FACTS OF THE INDIAN OIL PANIPAT (SUPRA) AND THE RATIO DECIDENDI OF HONBLE DELHI HIGH COURT IN THAT CASE WILL SQUARELY APPLY TO THE FACTS OF THE ASSESSEE. IN THE INSTANT CASE, UNDISPUTEDLY, THE FUNDS HAVE BEEN BORROWED FOR THE SPECIFIC PURPOSE OF EXECUTION OF THE MEGA ROAD PROJ ECTS AND AS PER THE LOAN AGREEMENT EXECUTED BETWEEN THE CONSORTIUM OF B ANKERS AND THE ASSESSEE DATED 23.11.2005, ALL THE DISBURSEMENTS SH ALL BE DEPOSITED IN THE TRUST AND RETENTION ACCOUNT WHICH SHALL BE SUBJ ECT TO STRICT CONTROL AND VERIFICATION BY THE SENIOR LENDERS AND ALL DISB URSEMENTS SHALL BE UTILISED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE PROJECT AND NO OTHER PURPOSE. THE FUNDS ARE THUS INEXTRICABLY LINK ED TO THE SETTING UP OF THE MEGA ROAD PROJECTS AND INTEREST EARNED ON SU CH BORROWED FUNDS INFUSED IN THE BUSINESS COULD NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES. WE ALSO NOTE A DISTINGUISHING FEATURE IN THE INSTANT CASE THAT THE ASSESSEE IS NOT AT LIBERTY TO USE THE INTEREST SO EARNED AS PER ITS WILL AND DISCRETION UNLIKE THE CASE IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AND THE INTEREST HAS TO BE USED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE SPECIFIED PROJECTS ONLY. THE IMPUNGED INTEREST RECEIPT OF RS. 35,39,479/- ON SUCH BORROWED FUNDS R ELATES TO THE MEGA ROAD PROJECTS/STRETCHES WHICH WERE UNDER CONSTRUCTI ON AND THE COMPLETED ROAD PROJECTS/STRETCHES UPTO THE DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS. THEREFORE, THE INTEREST REC EIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT A ND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPIT ALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE B ROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HENCE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 5. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. NO CONTRARY AUTHORITY H AS BEEN BROUGHT TO OUR NOTICE SUBSEQUENT TO ABOVE DECISION OF THE COOR DINATE BENCH OR THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 18 FACT THAT SAID DECISION OF THE COORDINATE BENCH HAS BEEN STAYED BY THE HONBLE HIGH COURT. IN VIEW OF THE SIMILAR FACTS A ND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA), WE HOLD THAT THE INTER EST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT A ND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPIT ALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE B ROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. HOWEVER, MR. MATHUR HAS TAKEN US TO THE ORDER OF THE AO WHEREIN THE ASSESSING OFFICER WHILE CONSIDERING THE INCOME AS OBSERVED AS UNDER:- 3. HOWEVER, WITHOUT PREJUDICE, WE WOULD LIKE TO RE ITERATE HERE THAT EVEN IF THIS IS CONSIDERED AS INCOME FROM OTHE R SOURCE, THE NET EFFECT WOULD BE THAT THE GROSS BLOCK OF THE ROA D WILL BE INCREASED BY THE EQUIVALENT AMOUNT AND WHATEVER IS THE INCOME FROM OTHER SOURCES WOULD BE SET OFF AGAINST THE LOS S FROM CURRENT YEARS BUSINESS AND PROFESSION AS COMPANY HAS START ED OPERATION DURING THE YEAR AND THERE WOULD BE NO DEMAND OF TAX . THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED BUT I S NOT ACCEPTABLE. THE ASSESSEE HAS PARKED ITS SPARE FUNDS IN THE FDRS IN THE BANKS AND THE INTEREST THERE FROM CANNOT CON SIDERED AS A BUSINESS RECEIPTS. THE ASSESSEE RECEIVED INTEREST D URING PRECEDING YEARS ALSO WHICH SHOWS THAT THE ASSESSEE WAS HAVING SPARE FUNDS TO INVEST IN THE FDRS WHEREFROM IT EARN ED INTEREST. MERELY COMMENCEMENT OF BUSINESS ALONE CANNOT CHANGE OF TREATMENT OF INCOME. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 19 5. HE FURTHER CONTENDED THAT THE INVESTMENT WAS A S URPLUS AMOUNT. 6. IN OUR CONSIDERED OPINION, THE AMOUNT WHICH WAS LYING WITH THE ASSESSEE WAS REQUIRED TO BE INVESTED IN A PROJECT. THE SAID AMOUNT CANNOT BE KEPT FOR A LONG TIME IDEALLY IN VIEW OF T HE FACT THAT PRINCIPAL AMOUNT WHICH WAS KEPT FOR BUSINESS PURPOSE HAS BEEN KEPT FOR INVESTMENT PURPOSE IDEALLY. 7. WE ARE IN COMPLETE AGREEMENT WITH THE CONCLUSION REACHED BY THE TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW ARISES. 13. IN THE INSTANT CASE, WHERE THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE, FOLLOWING THE PRINCIPLE OF CONSISTENCY AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE, THE MATTER IS DECIDED IN FAVOU R OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED. 14. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF RS. 1,00,000/- U/S 14A OF THE ACT. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN INVESTMENT OF RS. 1,99,99,940/- IN SHARES OF ITS SUBSIDIARY M/S RAJASTHAN LAND HOLDING S LIMITED. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THOUGH THE A SSESSEE DID NOT MAKE ANY FRESH INVESTMENTS DURING THE INSTANT YEAR AND ALSO DID NOT EARN ANY EXEMPT INCOME DURING THE ASSESSMENT YEAR HOWEVER, IN LIGHT OF THE CBDT CLARIFICATORY CIRCULAR NO. 5 DATED 11.02.2014, IT IS SUBJECT TO D ISALLOWANCE U/S 14A OF THE ACT AND HE ACCORDINGLY MADE A DISALLOWANCE OF RS. 1 ,00,000/- U/S 14A OF THE ACT R.W. RULE 8D, WHICH ON APPEAL HAS BEEN CONFIRME D BY THE LD. CIT(A). IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 20 16. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE HAS MADE INVESTMENT IN ITS SUBSIDIARY OUT OF ITS OW N SHARE CAPITAL, THERE IS NO BORROWED FUNDS WHICH HAS BEEN INVESTED WHILE SUBSCR IBING TO THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY. FURTHER, REFERRI NG TO THE PROVISIONS OF SECTION 14A OF THE ACT WHICH TALKS ABOUT DISALLOWAN CE IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME, IT WAS SUB MITTED THAT THE ASSESSEE HAS NOT EARNED ANY TAX FREE INCOME DURING THE YEAR AND THEREFORE, THE QUESTION OF DISALLOWANCE OF ANY EXPENDITURE U/S 14A OF THE ACT. IN SUPPORT RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELH I HIGH COURT IN CASE OF CIT VS. HOLCIM INDIA PVT. LIMITED AND ALSO THE DECISION OF COORDINATE BENCH IN CASE OF M/S RAJASTHAN LAND HOLDING LTD. DATED 25.09 .2019 WHICH HAS FOLLOWED THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. VS. CIT (2015) 387 ITR 33 AND DECISION OF HONBLE SUPREME C OURT IN CASE OF MAXOPP INVESTMENT LTD. VS CIT 402 ITR 640. IT WAS ACCORDIN GLY SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE, FURTHER NO EXEMPT HAS BEEN EARNED DURING THE YEAR, HENCE, THE ADDITION MADE BY THE ASSESSING OFFICER DIRECTED TO BE DELETED. 17. PER CONTRA, THE LD. DR HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. FURTH ER, THERE IS NO FRESH INVESTMENT WHICH HAS BEEN MADE BY THE ASSESSEE COMP ANY DURING THE YEAR AND THE ASSESSEE HAS CONTENDED THAT THE INVESTMENT SO MADE IN THE EARLIER YEAR HAS ALSO BEEN MADE OUT OF ITS OWN FUNDS AND NO T OUT OF THE BORROWED FUNDS. GIVEN THAT NO BORROWED FUNDS HAVE BEEN UTIL IZED FOR MAKING INVESTMENT AND THE FACT THAT NO INCOME HAS BEEN EAR NED DURING THE UNDER CONSIDERATION, THE DISALLOWANCE U/S 14A R.W.R. 8D I S NOT JUSTIFIED AND THE SAME IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 21 IS DIRECTED TO BE DELETED. WE FIND THAT THE SIMILAR OBSERVATIONS HAVE BEEN MADE BY THE COORDINATE BENCH IN CASE OF M/S RAJASTHAN LAND HOLDING LIMITED (SUPRA) WHEREIN IT WAS HELD AS UNDER:- 6 WE HAVE HEARD LD. DR AND CONSIDERED THE MATERI AL PLACED ON RECORD AS WELL AS ORDERS PASSED BY REVENUE AUTHORITIES. WE NOTICED FROM THE RECORD THAT THE ASSESSEE HAS TAKEN A CATEGORICALLY STAND THAT THE AO HAD ERRED IN MECHANICALLY APPLYING SECTION 14A OF T HE I. T. ACT READ WITH THE PROVISIONS OF RULE 8D AND MADE DISALLOWANC E U/S 14A OF THE ACT. IT WAS MENTIONED THAT NO EXEMPT INCOME HAD BEE N EARNED BY THE ASSESSEE. THEREFORE, DETERMINATION OF THE AMOUNT AT RS. 20,67,741/- U/S 14A R.W.R. 8D OF THE INCOME TAX IS NOT JUSTIFIE D. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE ASSESS EE BEFORE LD. CIT(A) WHICH ARE AT PARA 4.2 IN THE ORDER OF LD. CIT(A) WH EREIN THE ASSESSEE HAD SPECIFICALLY MENTIONED THAT THE ASSESSEE HAD NO T EARNED ANY EXEMPT INCOME. IT IS SETTLED PROPOSITION OF LAW THA T IN THE ABSENCE OF ANY EXEMPT INCOME, DISALLOWANCE U/S 14A OF THE ACT IS NOT WARRANTED. IN THIS ASPECT, WE RELY UPON THE DECISION OF HONBL E DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 A ND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTM ENT LTD. VS LD. LD. CIT, 402 ITR 640. CONSIDERING THE SETTLED PROPO SITION OF LAW, WE ARE OF THE VIEW THAT INTEREST OF JUSTICE WOULD BE M ET IF THIS ISSUE IS RESTORED BACK TO THE FILE OF AO WITH A DIRECTION TO VERIFY AS TO WHETHER THE ASSESSEE HAS EARNED EXEMPT INCOME DURING THE YE AR UNDER CONSIDERATION OR NOT AND IN THE CASE, AO COMES TO T HE CONCLUSION THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION THEN IN THAT EVENTUALITY NO DISALLOWA NCE U/S 14A OF THE ACT IS WARRANTED. WITH THESE DIRECTIONS, WE ALLOW T HE GROUND OF APPEAL FOR STATISTICAL PURPOSES. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 22 19. IN THE RESULT, THE MATTER IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE GROUND OF APPEAL IS THU S ALLOWED. 20. IN GROUND NO. 4, THE ASSESSEE HAS CONTENDED THA T THE ASSESSING OFFICER AS WELL AS LD. CIT(A) HAS ERRED IN CONSIDERING AN A MOUNT OF RS. 1,50,35,287/- AS SHARE ISSUE EXPENSES INSTEAD O F RS. 1,30,88,710/- AND SIMILARLY HAS ERRED IN CONSIDERING PROFESSIONAL AND LEGAL FEES FOR IPO AMOUNTING TO RS. 97,95,483/- INSTEAD OF RS. 1,17,42 ,030/-. IT WAS SUBMITTED THAT THE NECESSARY DETAILS WERE SUBMITTED BEFORE TH E LOWER AUTHORITIES HOWEVER, THE SAME HAS NOT BEEN CONSIDERED. THE DETA ILS OF EXPENSES INCURRED IN THIS REGARD ARE AS UNDER:- S. NO. PARTICULARS FY 2008-09 FY 2009-10 TOTAL I IPO RELATED EXPENSES : 1,17,42,060 (I) DUE DILIGENCE 3645970 5783613 (II) PROFESSIONAL FEES 317900 48000 (III) OTHER EXPENSE 19,46,577 (CONSIDERED AS PART OF EXPENSES INCURRED IN RELATION TO SHARE CAPITAL BY THE LD AO) II EXPENSES INCURRED IN CONNECTION WITH SHARE CAPITAL 1,30,88,710 (I) SHARE REGISTRATION FEE MISCELLANEOUS EXP. (INCREASE IN AUTHORIZED SHARE CAPITAL FROM RS. 50 CRORES TO RS. 200 CRORES) 125,88,710 (II) STAMP DUTY ON SHARE CERTIFICATES 5,00,000 GRAND TOTAL 2,48,30,770 21. IT WAS SUBMITTED THAT THE APPELLANT HAD WRITTEN OFF THE ABOVE EXPENDITURE OF RS. 2,48,30,770/- DURING THE AY 2011 -12, WHICH COMPRISED OF IPO RELATED EXPENSES AND EXPENSE RELATED TO SHARE C APITAL, THE DETAILS OF WHICH WERE ALSO PROVIDED DURING THE ASSESSMENT PROC EEDINGS. HOWEVER THE LD. AO CONSIDERED RS.1,50,35,287/- AS SHARE ISSUE E XPENSES AND RS. 97,95,483/- AS PROFESSIONAL AND LEGAL FEES FOR IPO, TOTALING TO IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 23 RS. 2,48,30,770/- AND DISALLOWED BOTH CONSIDERING T HE SAME TO BE CAPITAL IN NATURE. THOUGH THE TOTAL OF BOTH THE EXPENSES ARE S AME BUT INTERNAL BIFURCATION IS NOT CORRECT IN THE ASSESSMENT ORDER. 22. PER CONTRA, THE LD. DR HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES AND SUBMITTED THAT WHERE THERE IS ANY MISMATCH IN T HE FIGURES OF THE RESPECTIVE EXPENSES, THE MATTER MAY BE SET-ASIDE TO THE FILE OF THE AO WHO CAN VERIFY THE SAME. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE AGREE WITH THE LD DR THAT I T IS A MATTER OF RECORD WHICH CAN BE VERY WELL BE VERIFIED BY THE AO IN TER MS OF EXACT QUANTUM OF SHARE ISSUE EXPENSES, AND PROFESSIONAL AND LEGAL FE ES FOR IPO. THE MATTER IS ACCORDINGLY SET-ASIDE TO THE FILE OF AO TO VERIFY A ND CONSIDER THE APPROPRIATE AMOUNT TOWARDS SHARE ISSUE EXPENSES AND PROFESSIONA L AND LEGAL FEES FOR IPO. IN THE RESULT, THE GROUND IS ALLOWED FOR STATISTICA L PURPOSES. 24. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED TH E ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF SHARE ISSU E EXPENSES AND ALSO NOT ALLOWING THE ALTERNATIVE CONTENTION OF ALLOWING THE SAID EXPENDITURE U/S 35D OF THE ACT. 25. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE COMPANY HAS WRITTEN OFF EXPENDITURE INCURRED TOWARDS PROFESSIONAL AND OTHER CHARGES FOR PUBLIC O FFER OF SHARES AND OUT OF WHICH EXPENDITURE OF RS. 1,50,34,747/-RELATED TO IN CREASE IN AUTHORIZED SHARE CAPITAL. AS PER ASSESSING OFFICER, THE LAW IS WELL SETTLED THAT THE EXPENDITURE DIRECTLY RELATED TO ROC/STAMPING FEES PAID FOR INCR EASE IN CAPITAL BASE OF COMPANY IS HELD TO BE CAPITAL EXPENDITURE BY THE HO NBLE SUPREME COURT IN CASE OF BROOKE BOND INDIA LTD. VS. CIT 225 ITR 798 AND IN CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. C IT (1997) TAXMAN 5. IT WAS IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 24 FURTHER HELD BY THE ASSESSING OFFICER THAT THE DECI SION OF HONBLE MADRAS HIGH COURT IN CASE OF CIT VS. KISEN CHAND CHELLARAM (IND IA) (P.) LTD. 5 TAXMAN 58 HAS SINCE BEEN OVERRULED IN THE APEX COURT VERDICT IN THE CASE OF M/S BROOKE BOND INDIA LTD. IT WAS FURTHER OBSERVED BY THE ASSE SSING OFFICER THAT IN SPITE OF THE IPO BEING ABORTED, AS A RESULT OF EXPENDITUR E, IT WAS AUTHORIZED CAPITAL WHICH HAS INCREASED THEREBY PROVIDING AN ENDURING B ENEFIT TO THE ASSESSEE, THEREFORE, THE EXPENDITURE TO THE EXTENT OF RS. 1,5 0,35,287/- RELATED TO INCREASE IN AUTHORIZED SHARE CAPITAL WAS DISALLOWED BEING CAPITAL IN NATURE AND ADDED TO THE TAXABLE INCOME OF THE ASSESSEE COMPANY , WHICH ON APPEAL, HAS BEEN CONFIRMED BY THE LD. CIT(A). AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN APPEAL BEFORE US. 26. DURING THE COURSE OF HEARING, THE LD. AR REITER ATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THA T THE SAID EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF CIT VS. KISEN CHAND CH ELLARAM (SUPRA). ALTERNATIVELY, IT WAS SUBMITTED THAT THE SAID EXPEN DITURE SHOULD BE ALLOWED AS A DEDUCTION U/S 35D OF THE ACT. IN THIS REGARD, OUR REFERENCE WAS DRAWN TO THE PROVISIONS OF SECTION 35D OF THE ACT AND IT WAS SUBMITTED PROVISION OF SECTION 35D(1)(II) WHICH CLEARLY STATES AFTER THE COMMENCEMENT OF HIS BUSINESS, IN CONNECTION WITH THE EXTENSION OF HIS U NDERTAKING OR IN CONNECTION WITH THE SETTING UP A NEW UNIT, THE ASSESSEE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED A DEDUCTION OF AN AMOUNT EQUAL TO ONE TENTH OF SUCH EXPENDITURE FOR E ACH OF THE TEN SUCCESSIVE YEARS AND ONE-FIFTH OF THE SUCH EXPENDITURE FOR EAC H OF THE FIVE SUCCESSIVE PREVIOUS YEARS AND THE EXPENDITURE REFERRED IN SECT ION 35D(2) ARE EXPENDITURE IN CONNECTION WITH PREPARATION OF FEASIBILITY REPOR T; PREPARATION OF PROJECT REPORT; CONDUCTING MARKET SURVEY OR ANY OTHER SURV EY NECESSARY FOR THE BUSINESS OF THE APPELLANT AND ENGINEERING SERVICES RELATING TO THE BUSINESS OF THE APPELLANT. IT WAS SUBMITTED THAT IN THE INSTANT CASE, IT IS CLEAR THAT THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 25 NATURE OF EXPENSES LIKE DEPOSITION OF FEE WITH ROC FOR INCREASE IN SHAREHOLDERS CAPITAL AND OTHER EXPENSES BEING STAMP DUTY ON ISSUE OF SHARE CERTIFICATES FALLS WITHIN THE DEFINITION OF SECTION 35D ELIGIBLE FOR AMORTIZATION OF PRELIMINARY EXPENSES. 27. IT WAS SUBMITTED THAT IN THIS PROVISO, THIS EXP ENDITURE WILL BE AMORTIZED IF INCURRED EITHER BEFORE START OF COMMERCIAL OPERA TION OR FOR EXTENSION OF BUSINESS. AS MENTIONED ABOVE, THE BOARD OF DIRECTOR S OF THE ASSESSEE COMPANY DECIDED TO TAKE UP THE NEW ROAD STRETCHES F OR WHICH CAPITAL WAS REQUIRED AND TO DO SO THE FIRST STATUTORY REQUIREME NTS WAS TO INCREASE THE AUTHORIZED SHARE CAPITAL HENCE, APPELLANTS CASE IS COVERED IN THE SECOND LIMB OF SECTION AS THE EXPENDITURE HAS BEEN INCURRED FOR EXTENSION OF BUSINESS FOR WHICH ALL THE EXPENDITURE WAS INCURRED. 28. IT WAS SUBMITTED THAT IN VIEW OF THE BAD CAPITA L MARKET, THE ASSESSEE COMPANY COULD NOT GO TO PUBLIC BUT HAVE USED THE VA RIOUS REPORTS PREPARED BY THE VARIOUS CONSULTANTS TO CONVINCE THE EXISTING SHAREHOLDERS I.E. GOR/IL&FS TO FURTHER SUBSCRIBE TO THE SHARE CAPITAL AND HAVE GOT SEVEN MORE ROAD STRETCHES FOR CONSTRUCTION, WHICH IS DIRECT EV IDENCE OF EXTENSION OF EXISTING BUSINESS, WHICH IS COVERED AS PER DEFINITI ON OF SECTION 35D. THE AUTHORIZED SHARE CAPITAL OF THE COMPANY WAS INCREAS ED FROM RS. 50 CRORES IN FY 2007-08 TO RS. 200 CRORES IN FY 2008-09 AND PAID UP CAPITAL INCREASED BY RS. 50 CRORES IN FY 2008-09 TO RS 100 CRORES. IN V IEW OF THIS, THE AMOUNT INCURRED WILL ALSO FALL WITHIN THE DEFINITION OF SE CTION 35-D AND IS ELIGIBLE FOR AMORTIZATION IN 5 EQUAL INSTALLMENTS, IF THE SAME I S NOT ALLOWED AS A REVENUE EXPENDITURE. 29. IT WAS FURTHER SUBMITTED THAT THE LEARNED ASSES SING OFFICER HAS HELD THE SAME TO BE CAPITAL IN NATURE AND DISALLOWED THE SAM E WITH SPECIAL EMPHASIS ON THE CASE OF BROOKE BOND INDIA LTD VS CIT, 225 IT R 798 (SC). IN THIS CONNECTION IT IS SUBMITTED THAT SECTION 35D WAS INT RODUCED IN THE STATUTE BOOK IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 26 W.E.F. 01-4-1971 AND THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF BROOKE BOND INDIA LTD VS CIT RELATED TO ASSESSMENT YEAR 1969-70, WHICH WAS PRIOR TO INCORPORATION OF S.35D IN THE INCOME TAX A CT AND THIS INCLUSION ALTERED THE LEGAL POSITION THUS THE BROOKE BOND CAS E CANNOT BE APPLICABLE IN THE GIVEN CONTEXT, AS ALSO HELD BY THE HONBLE SUPR EME COURT IN THE CASE OF M/S. SHASUN CHEMICALS AND DRUGS LTD. VS. COMMISS IONER OF INCOME TAX, CHENNAI [2016] 73 TAXMANN.COM 293 (SC). IN THE SAID CASE IT WAS HELD THAT THE EXPENDITURE INCURRED ON PUBLIC ISSUE FOR THE PU RPOSE OF EXPANSION OF THE COMPANY IS A CAPITAL EXPENDITURE, HOWEVER, THE HIGH COURT, DISALLOWED THE SAME FOLLOWING THE JUDGMENT OF THIS COURT IN THE CA SE OF BROOK BOND INDIA LTD IN SPITE OF THE ARGUMENT RAISED TO THE EFFECT THAT THE AFORESAID JUDGMENT WAS RENDERED WHEN SECTION 35D WAS NOT ON THE STATUTE BO OK AND THIS PROVISION HAD ALTERED THE LEGAL POSITION, THE HIGH COURT STIL L CHOSE TO FOLLOW THE SAID JUDGMENT. THE APEX COURT HELD THAT IT IS HERE WHERE THE HIGH COURT WENT WRONG AS THE INSTANT CASE IS TO BE DECIDED KEEPING IN VIEW THE PROVISIONS OF SECTION 35D OF THE ACT AND DECIDED IN FAVOUR OF THE ASSESSEE HOLDING THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SECTION 35D FOR THE ASSESSMENTS YEARS IN QUESTION. 30. IT WAS FURTHER SUBMITTED THAT WHERE THE A.O. AS WELL AS LD CIT(A) WERE NOT INCLINED TO ALLOW THIS EXPENDITURE IN FULL, THE N THEY SHOULD HAVE INVOKED SECTION 35-D, AND SHOULD HAVE ALLOWED 1/5TH OF THE EXPENDITURE AS PER PROVISIONS OF LAW. IN THIS CONNECTION, IT IS SUBMIT TED THAT THE A.O. IS DUTY BOUND TO GIVE DUE DEDUCTIONS, EXEMPTIONS OR REBATE TO THE ASSESSEE, IF THEIR CLAIM IS BEING DISALLOWED UNDER THE SECTION CLAIMED BUT IF THAT EXPENDITURE IS ALLOWABLE/DEDUCTIBLE AS PER OTHER PROVISIONS OF ACT . IN THIS CONNECTION, WE DRAW THE KIND ATTENTION TO THE JUDGMENT OF SUPREME COURT IN THE CASE OF ANCHOR PRESSINGS (P) LTD. VS. CIT (1986) 161 ITR 15 9 WHEREIN IT HAS BEEN HELD THAT ASSESSING OFFICER IS DUTY BOUND TO GRANT THE EXEMPTION/ DEDUCTION IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 27 EVEN WHERE ASSESSEE FAILED TO CLAIM THE SAME. THE OPERATION PARA OF THE JUDGMENT IS REPRODUCED HEREUNDER :- 'AN OBLIGATION IS IMPOSED ON THE INCOME-TAX OFFICER BY SECTION 84 OF THE INCOME-TAX ACT, 1961, TO GRANT RELIEF THERE UNDER A ND THE RELIEF CANNOT BE REFUSED MERELY BECAUSE THE ASSESSEE HAS OMITTED TO CLAIM THE RELIEF, BUT THE MERE EXISTENCE OF SUCH AN OBLIGATION ON THE INCOME-TAX OFFICER IS NOT SUFFICIENT. PRECISE FACTUAL MATERIAL AND CLE AR DATA MUST BE CONTAINED IN THE RECORD SUFFICIENT TO ENABLE THE IN COME-TAX OFFICER TO CONSIDER WHETHER THE RELIEF SHOULD BE GRANTED UNDER SECTION 84. IN THE ABSENCE OF SUCH MATERIAL, ITA NO.7010/2010 NO FAULT CAN BE FOUND WITH THE INCOME-TAX OFFICER FOR NOT MAKING AN ORDER UNDE R SECTION 84 FAVOURING THE ASSESSEE.' THAT IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITIO N, THE APPELLANT PRAYS TO THE HONBLE BENCH TO EITHER ALLOW THIS EXPENDITURE AS REVENUE EXPENDITURE OR DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THIS CLAIM AS PER PROVISIONS OF SECTION 35D OF THE INCOME TAX ACT, 1961. 31. THE LD DR SUBMITTED THAT IT IS NOW A SETTLED LE GAL PROPOSITION THAT THE EXPENSES INCURRED ON INCREASE IN THE AUTHORIZED SHA RE CAPITAL WHICH RESULTS IN INCREASE IN THE CAPITAL BASE OF THE ASSESSEE COMPAN Y IS AN EXPENDITURE ON CAPITAL ACCOUNT AND THE MATTER HAS LONG BEEN SETTLE D BY THE HONBLE SUPREME COURT IN CASE OF BROOKE BOND INDIA AND SUBSEQUENT D ECISIONS RELIED UPON BY THE AO. HE ACCORDINGLY SUPPORTED THE FINDINGS OF T HE LOWER AUTHORITIES AND SUBMITTED THAT THERE IS NO INFIRMITY IN THE SAID FI NDINGS AND THE SAME MAY BE CONFIRMED. 32. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE HAS BEEN IN CREASE IN THE AUTHORIZED CAPITAL OF THE COMPANY FROM RS 50 CRORES TO RS 200 CRORES AND ALSO INCREASE IN THE PAID UP CAPITAL OF THE COMPANY FROM RS 50 CR ORES TO RS 100 CRORES. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 28 THE ASSESSEE COMPANY HAS INCURRED AN AMOUNT OF RS 1 25,88,710/- IN CONNECTION WITH INCREASE IN THE AUTHORIZED CAPITAL AND AN AMOUNT OF RS 5,00,000 IN CONNECTION WITH INCREASE IN THE PAID UP CAPITAL BY WAY OF STAMP DUTY CHARGES ON SHARE CERTIFICATES AND THUS, TOTAL EXPENSES OF RS 1,30,88,710 HAVE BEEN INCURRED BY THE ASSESSEE C OMPANY. THE CONTENTION OF THE ASSESSEE COMPANY IS THAT THE EXPENDITURE IS IN THE NATURE OF REVENUE EXPENDITURE AND THE SAME SHOULD THEREFORE BE ALLOWE D IN THE YEAR UNDER CONSIDERATION. ALTERNATIVELY, IT HAS BEEN CONTENDE D THAT THE SAME SHOULD BE AMORTIZED @ 20% OVER FIVE YEARS IN TERMS OF SECTION 35D OF THE ACT. 33. FIRSTLY, WE ARE UNABLE TO AGREE TO THE CONTENTI ON OF THE ASSESSEE COMPANY THAT THE AFORESAID EXPENDITURE INCURRED IN CONNECTION WITH INCREASE IN THE CAPITAL BASE OF THE COMPANY BY WAY OF INCREA SE IN THE AUTHORIZED CAPITAL AS WELL AS INCREASE IN PAID CAPITAL BE ALLO WED AS REVENUE EXPENDITURE AS IT IS A SETTLED PROPOSITION THAT SUCH AN EXPENDI TURE WAS CONNECTED WITH INCREASE IN CAPITAL BASE OF THE COMPANY AND THUS, A CAPITAL EXPENDITURE. THE ASSESSEE COMPANY HAS RELIED ON THE DECISION OF HON BLE MADRAS HIGH COURT IN CASE OF CIT VS KISEN CHAND CHELLARAM (SUPRA), HOWEV ER, THERE IS A DIRECT DECISION OF THE JURISDICTIONAL HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT VS MULTI METALS LTD REPORTED IN [1991] 188 ITR 151 WHEREIN THE HON BLE RAJASTHAN HIGH COURT HAS CONSIDERED THE DECISION OF THE HONBLE MADRAS HIGH COURT AND HAS HELD AS UNDER: IT IS, NO DOUBT, TRUE THAT THE DISTINCTION BETWEEN 'REVENUE' AND 'CAPITAL' EXPENDITURE IS A FINE ONE. DEALING WITH A LL THOSE CASES WHICH TOOK THE VIEW THAT EXPENSES INCURRED IN OBTAINING R EGISTRATION OF THE MEMORANDUM OF ASSOCIATION AND ARTICLES FOR ENHANCIN G CAPITAL, THE KERALA HIGH COURT HELD THAT THE FEE PAID UNDER THE COMPANIES ACT, 1956, TO THE REGISTRAR WAS A REVENUE EXPENDITURE. T O THE SAME EFFECT WAS THE VIEW TAKEN BY THE MADRAS HIGH COURT IN CIT V. KISENCHAND CHELLARAM (INDIA) P. LTD. [1981] 130 ITR 385. IN CO MING TO THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 29 CONCLUSION, THE MADRAS HIGH COURT HAD APPLIED THE R ATIO ENUNCIATED BY THE HON'BLE SUPREME COURT IN INDIA CEMENTS LTD. V. CIT [1966] 60 ITR 52 . THE DECISION OF THE MADRAS HIGH COURT WAS FOLL OWED BY THE KARNATAKA HIGH COURT IN HINDUSTAN MACHINE TOOLS LTD . (NO. 3)V. CIT [1989] 175 ITR 220 . IN ITS VIEW AS WELL, THE EXPEN DITURE INCURRED BY WAY OF REMITTING FILING FEE TO THE REGISTRAR OF COM PANIES IN RESPECT OF ENHANCEMENT OF THE AUTHORISED SHARE CAPITAL OF THE COMPANY WAS ALLOWABLE AS A REVENUE EXPENDITURE. AS ALREADY STATED ABOVE, THE RAJASTHAN HIGH COURT H AS TAKEN A DIFFERENT, VIEW IN THE CASE OF ADITYA MILLS [1990] 181 ITR 195. LEARNED COUNSEL FOR THE ASSESSEE URGED FOR MAKING R EFERENCE OF THE AFORESAID QUESTION TO A LARGER BENCH. WE DO NOT, HO WEVER, CONSIDER IT NECESSARY TO DO SO. THE RAJASTHAN HIGH COURT DECISI ON IN THE CASE OF ADITYA MILLS [1990] 181 ITR 195 IS CLEAR AND EXPLIC IT ON THE POINT AND WE ARE BOUND BY THE SAME. WE, CONSEQUENTLY, ANSWER THE FIRST QUESTION IN THE NEGATIVE BY SAYING THAT THE FEE PAID TO THE REG ISTRAR OF COMPANIES FOR RAISING THE AUTHORISED CAPITAL WAS NOT ALLOWABL E AS REVENUE EXPENDITURE. 34. THE DECISION OF THE HONBLE RAJASTHAN HIGH COUR T HAS SUBSEQUENTLY BEEN AFFIRMED BY THE HONBLE SUPREME COURT IN CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD VS CIT REPORTED IN [1997] 93 TAXMAN 5 WHEREIN, IN VIEW OF THE CONFLICTING DECISI ONS OF VARIOUS HIGH COURTS, THE FOLLOWING SUBSTANTIAL QUESTION WAS ADMITTED FOR ADJUDICATION WHICH READS AS UNDER: 'WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE AMOUNT OF RS. 1,50 ,000 PAID TO THE REGISTRAR OF COMPANIES, AS FILING FEE FOR ENHANCEME NT OF CAPITAL, WAS NOT REVENUE EXPENDITURE ?' IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 30 AND THEREAFTER, REFERRED TO THE DECISION OF THE VAR IOUS HIGH COURTS, INCLUDING THE HONBLE RAJASTHAN HIGH COURT IN CASE OF MULTI M ETALS AND EARLIER DECISION IN CASE OF ADITYA MILLS AND HAS HELD AS UNDER: 3. THE ISSUE HAS BEEN ANSWERED IN FAVOUR OF THE AS SESSEE AND AGAINST THE REVENUE BY THE HIGH COURTS OF MADRAS, KARNATAKA , ANDHRA PRADESH AND KERALA IN THE FOLLOWING DECISIONS: CIT V. KISEN CHAND CHELLARAN (INDIA) (P.) LTD. [1981] 130 ITR 385 /5 T AXMAN 58 (MAD.); WARNER HINDUSTAN LTD. V. CIT [1988] 171 ITR 224/ 36 TAXMAN 106 (AP), HINDUSTAN MACHINE TOOLS LTD. ( NO. 3) V. CIT [1989] 175 ITR 220 /[1988] 40 TAXMAN 43 (KAR.) AND FEDERAL BANK LT D. V. CIT [1989] 180 ITR 241 / 45 TAXMAN 262 (KER.). THE HIGH COURTS OF ALLAHABAD, HIMACHAL PRADESH, DELHI, CALCUTTA, BOMBAY, PUNJAB, GUJARAT, ANDHRA PRADESH AND RAJASTHAN HAVE HELD IN FAVOUR OF THE RE VENUE IN THE FOLLOWING CASES: CIT V. MODI SPG. & WVG. MILLS CO. LTD. [1973] 89 ITR 304 (ALL.), MOHAN MEAKIN BREWERIES LTD. V. CIT (NO. 2)[1979] 117 ITR 505/2 TAXMAN 460 (HP), BHARAT CARBON & RIBBON MFG. CO. LTD. V. CIT [1981] 127 ITR 239 /[1980] 3 TAXMAN 568 (DELHI), BROOKE BOND INDIA LTD. V. CIT [1983] 140 ITR 272/[1982] 10 TAXMAN 18 (CAL.), BOMBAY BURMAH TRADING CORPN. LTD. V. CIT [1 984] 145 ITR 793/[1983] 12 TAXMAN 178 (BOM.), GROZ-BECKERT SABOO LTD. V. CIT [1986] 160 ITR 743 / 27 TAXMAN 138 (PUN J. & HAR.), AHMEDABAD MFG. & CALICO ( P.) LTD. V. CIT [1 986] 162 ITR 800 / 28 TAXMAN 306 (GUJ.), CIT V. ADITYA MILLS [1990] 181 ITR 195 / 50 TAXMAN 120 (RAJ.), CIT V. MULTI METALS LTD. [199 1] 188 ITR 151 (RAJ.) AND VAZIR SULTAN TOBACCO CO. LTD. V. CIT [1988] 17 4 ITR 689 / 41 TAXMAN 7 (AP). WE MAY ALSO STATE THAT THE CALCUTTA HIGH COURT HAS AFFIRMED THIS EARLIER VIEW IN THREE SUBSE QUENT DECISIONS REPORTED IN KESORAM INDUSTRIES & COTTON MILLS LTD. V. CIT [1992] 196 ITR 845 (CAL.), WOOD CRAFT PRODUCTS LTD. V. CIT [19 93] 204 ITR 545 IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 31 (CAL.) AND CIT V. TUNGABHADRA INDUSTRIES LTD. [1994 ] 207 ITR 553 (CAL.) AND SO ALSO THE GUJARAT HIGH COURT HAS AFFIR MED ITS EARLIER VIEW IN ALEMBIC GLASS INDUSTRIES LTD. V. CIT [1993] 202 ITR 214 (GUJ.). 4. WE MAY ALSO INDICATE THAT THIS COURT LAID DOWN T HE TEST FOR DETERMINING WHETHER A PARTICULAR EXPENDITURE IS REV ENUE OR CAPITAL EXPENDITURE IN THE CASE OF EMPIRE JUTE CO. LTD. V. CIT [1980] 124 ITR 1/3 TAXMAN 69 (SC). IN THAT DECISION, THIS COURT SU RVEYED THE LAW ON THE SUBJECT IN CONSIDERABLE DETAIL AND OBSERVED AS UNDER : 'THE DECIDED CASES HAVE, FROM TIME TO TIME, EVOLVED VARIOUS TESTS FOR DISTINGUISHING BETWEEN CAPITAL AND REVENUE EXPENDIT URE BUT NO TEST IS PARAMOUNT OR CONCLUSIVE. THERE IS NO ALL EMBRACING FORMULA WHICH CAN PROVIDE A READY SOLUTION TO THE PROBLEM; NO TOUCHST ONE HAS BEEN DEVISED. EVERY CASE HAS TO BE DECIDED ON ITS OWN FA CTS, KEEPING IN MIND THE BROAD PICTURE OF THE WHOLE OPERATION IN RESPECT OF WHICH THE EXPENDITURE HAS BEEN INCURRED. BUT A FEW TESTS FORM ULATED BY THE COURTS MAY BE REFERRED TO AS THEY MIGHT HELP TO ARRIVE AT A CORRECT DECISION OF THE CONTROVERSY BETWEEN THE PARTIES. ONE CELEBRATED TEST IS THAT LAID DOWN BY LORD CAVE, L.C. IN ATHERTON V. BRITISH INSU LATED & HELSBY CABLES LTD. [1925] 10 TC 155, 192 (HL), WHERE THE L EARNED LAW LORD STATED : '.....WHEN AN EXPENDITURE IS MADE, NOT ONLY ONCE AN D FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVA NTAGE FOR THE ENDURING BENEFIT OF A TRADE, I THINK THAT THERE IS VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FOR TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIB UTABLE NOT TO REVENUE BUT TO CAPITAL'.' (P. 10) 5. THIS TEST, AS THE PARENTHETICAL CLAUSE SHOWS, MU ST YIELD WHERE THERE ARE SPECIAL CIRCUMSTANCES LEADING TO A CONTRARY CON CLUSION. BRIEFLY PUT, IT IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 32 IS NOT A STRAIT-JACKET FORMULA AND THE QUESTION WIL L HAVE TO BE DETERMINED IN THE BACKDROP OF FACTS OF EACH CASE. T HE TEST LAID DOWN CAN AT BEST BE A GUIDE FOR DETERMINING WHETHER A PA RTICULAR EXPENDITURE FORMS PART OF REVENUE EXPENDITURE OR CAPITAL EXPEND ITURE. THE MADRAS HIGH COURT IN KISENCHAND CHELLARAM ( INDIA)( P.) LT D.'S CASE (SUPRA) WAS DEALING WITH A CASE IN WHICH THE ASSESSEE HAD PAID FEES FOR RAISING THE CAPITAL OF A COMPANY TO THE REGISTRAR OF COMPANIES AND HAD CLAIMED THE AMOUNT PAID AS A REVENUE EXPENDITURE. IT WAS HE LD THAT WITHOUT CAPITAL A COMPANY CANNOT CARRY ON ITS BUSINESS AND HENCE, THE EXPENSES INCURRED FOR INCREASING THE CAPITAL WERE BOUND UP W ITH THE FUNCTIONING AND FINANCING OF THE BUSINESS. THEREFORE, THE ASSES SEE'S CLAIM FOR DEDUCTION WAS ALLOWED. THE VIEW TAKEN WAS THAT SINC E THE AMOUNT WAS WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS, IT WAS ALLOWABLE AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE KARNATAKA HIGH COURT HAS FOLLOWED THE VIEW TAKEN BY THE MADRAS HIGH COURT AND SO ALSO HAS THE KERALA HIGH COURT TAKEN T HE SAME VIEW. AFTER CONSIDERING THE TEST LAID DOWN BY THIS COURT IN EMP IRE JUTE CO. LTD.'S CASE (SUPRA), THE KERALA HIGH COURT OBSERVED IN THE CASE OF FEDERAL BANK LTD. ( SUPRA): '...WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRE D FOR THE ENHANCEMENT OF AUTHORISED CAPITAL IS ONLY FOR THE P URPOSE OF BETTERING OR IMPROVING AN ESTABLISHED BUSINESS AND CANNOT BE SAID TO BE FOR THE PURPOSE OF A NEW BUSINESS. VIEWED IN A BUSINESS SEN SE, THE ENHANCEMENT OF THE AUTHORISED CAPITAL IS ONLY TO BR OADEN THE CAPITAL BASE WHICH WILL BE CONDUCIVE TO THE BETTER CONDUCT AND EFFICIENCY AND PROFITABILITY OF THE BUSINESS.' (P. 246) 6. IN THIS VIEW THE HIGH COURT HELD THAT THE EXPEND ITURE INCURRED BY THE ASSESSEE WAS AN ITEM OF REVENUE EXPENDITURE. THIS L INE OF REASONING HAS NOT FOUND FAVOUR WITH THE OTHER HIGH COURTS WHI CH HAVE TAKEN A IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 33 CONTRARY VIEW. THE CALCUTTA HIGH COURT IN BROOKE BO ND INDIA LTD.'S CASE (SUPRA) HELD THAT WHERE THE OBJECT OF INCURRING AN EXPENDITURE IS TO AFFECT THE CAPITAL STRUCTURE AS A RESULT OF WHICH C ERTAIN INCIDENTAL ADVANTAGE FLOWS, THE EXPENDITURE WILL BE OF CAPITAL NATURE. IT IS NOT THE ACQUISITION OF A RIGHT OF A PERMANENT CHARACTER ALO NE, THE CREATION OF WHICH IS A CONDITION FOR THE CARRYING ON OF THE BUS INESS, THAT COULD BE RIGHTLY TREATED AS AN EXPENDITURE ON THE CAPITAL AC COUNT. CAPITAL EXPENDITURE CAN BE INCURRED AFTER A COMPANY IS FLOA TED OR IT STARTED BUSINESS, IF IT RESULTED IN BRINGING ABOUT CAPITAL ADVANTAGE. THE ANDHRA PRADESH HIGH COURT HAD IN WARNER HINDUSTAN LTD.'S C ASE (SUPRA), FOLLOWING THE DECISION OF THE MADRAS HIGH COURT IN KISENCHAND CHELLARAM ( INDIA)( P.) LTD.'S CASE (SUPRA) , HELD THAT THE EXPENDITURE INCURRED WAS CONNECTED WITH THE FUNCTIONING AND FIN ANCING OF THE ASSESSEE'S BUSINESS AND, HENCE, THE FEES PAID COULD NOT BE TREATED AS ON CAPITAL ACCOUNT. HOWEVER, THIS LINE OF REASONING WAS DEPARTED FROM IN THE SUBSEQUENT DECISION IN VAZIR SULTAN TOBACCO CO. LTD.'S CASE (SUPRA) , WHEREIN IT WAS OBSERVED THAT WHERE THE OB JECT OF INCURRING AN EXPENDITURE IS TO AFFECT A CAPITAL STRUCTURE AS A R ESULT OF WHICH CERTAIN INCIDENTAL ADVANTAGE FLOWS, THE EXPENDITURE WILL BE OF CAPITAL NATURE. IN OTHER WORDS, IT FOLLOWED THE DECISION OF THE CALCUT TA HIGH COURT REFERRED TO EARLIER. IT DISTINGUISHED THE EARLIER DECISION I N WARNER HINDUSTAN LTD.'S CASE (SUPRA)HOLDING THAT IT WAS UNABLE TO AP PRECIATE THE REASONING OF THE MADRAS HIGH COURT WHICH HELD IT TO BE A REVENUE EXPENDITURE. IT, THEREFORE, REFUSED TO EXTEND THE R ATIO OF THE DECISION IN THE EARLIER CASE OF WARNER HINDUSTAN LTD. ( SUPRA)T O EXPENSES INCURRED DIRECTLY FOR THE PURPOSE. THE GUJARAT HIGH COURT IN AHMEDABAD MFG. & CALICO ( P.) LTD.'S CASE (SUPRA) HELD THAT THE EXPE NDITURE INCURRED BEING FOR AN ENDURING BENEFIT IN THE COMMERCIAL SENSE COU LD FALL IN THE CAPITAL FIELD. IT WAS HELD THAT THE SHARES ISSUED BY THE CO MPANY CONSTITUTED ITS IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 34 CAPITAL AND BEING AN INTEGRAL PART OF THE PERMANENT STRUCTURE OF THE COMPANY FELL WITHIN THE REALM OF CAPITAL EXPENDITUR E. THIS VIEW WAS REITERATED IN THE SUBSEQUENT CASE OF ALEMBIC GLASS INDUSTRIES LTD. ( SUPRA). THE BOMBAY HIGH COURT IN BOMBAY BURM AH TRADING CORPN. LTD..'S CASE (SUPRA) , WHILE DEALING WITH TH E QUESTION WHETHER THE FEES PAID TO THE REGISTRAR OF COMPANIES FOR ENH ANCEMENT OF CAPITAL COULD BE DESCRIBED AS REVENUE EXPENDITURE OR CAPITA L EXPENDITURE, DIFFERED WITH A VIEW TAKEN BY THE MADRAS HIGH COURT AND HELD THAT IT RUNS COUNTER TO THE DECISION OF THIS COURT IN INDIA CEMENTS LTD. V. CIT [1966] 60 ITR 52 AND TATA IRON & STEEL CO. LTD., IN RE [1921] 1 ITC 125 (BOM.), WHEREIN IT WAS EXPRESSL Y POINTED OUT THAT THE EXPENDITURE INCURRED FOR THE ISSUE OF PREFERENC E SHARES COULD NOT BE SAID TO BE SOLELY INCURRED FOR THE PURPOSES OF THE COMPANY'S BUSINESS. BRIEFLY PUT, IT WAS HELD THAT IT WAS AN EXPENDITURE INCURRED DIRECTLY FOR THE PURPOSES OF EXPANSION OF THE CAPITAL ASSET AND WAS, THEREFORE, OF CAPITAL NATURE. 7. WE DO NOT CONSIDER IT NECESSARY TO EXAMINE ALL T HE DECISIONS IN EXTENSO BECAUSE WE ARE OF THE OPINION THAT THE FEE PAID TO THE REGISTRAR FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY WA S DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSIN ESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT-MAKING, IT STILL RETAIN S THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIREC TLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. WE AR E, THEREFORE, OF THE OPINION THAT THE VIEW TAKEN BY THE DIFFERENT HIGH C OURTS IN FAVOUR OF THE REVENUE IN THIS BEHALF IS THE PREFERABLE VIEW AS CO MPARED TO THE VIEW BASED ON THE DECISION OF THE MADRAS HIGH COURT IN K ISENCHAND CHELLARAM (INDIA) (P.) LTD.'S CASE (SUPRA) . WE, TH EREFORE, ANSWER THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 35 QUESTION RAISED FOR OUR DETERMINATION IN THE AFFIRM ATIVE, I.E., IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 35. IN LIGHT OF AFORESAID DISCUSSIONS AND RESPECTFU LLY FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT AND HONBLE SUPREME CO URT REFERRED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE INC URRED TOWARDS INCREASE IN THE AUTHORIZED AND PAID UP CAPITAL WHICH HAS RESULT ED IN INCREASE IN CAPITAL BASE OF THE ASSESSEE COMPANY HAS RIGHTLY BEEN TREAT ED BY THE ASSESSING OFFICER AS A CAPITAL EXPENDITURE AND THE CONTENTION ADVANCED BY THE ASSESSEE COMPANY TO TREAT THE SAME AS REVENUE EXPENDITURE TH EREFORE CANNOT BE ACCEPTED. 36. NOW, COMING TO THE ALTERNATE CONTENTION OF THE ASSESSEE COMPANY THAT THE EXPENDITURE SHOULD BE ALLOWED TO BE AMORITISED OVER THE PERIOD OF TIME IN TERMS OF SECTION 35D OF THE ACT. UNDISPUTEDLY, THE CAPITAL BASE OF THE COMPANY HAS BEEN EXPANDED FOR EXTENSION OF THE ASSE SSEES BUSINESS WHEREIN SEVEN NEW ROAD STRETCHES WILL BE CONSTRUCTED AS PER PARTICULARS BELOW: PROJECT NAME (I) ALWAR TO BHIWADI (AB) (II) HANUMANGARH TO SANGARIA (HS) (III) JHALAWAR TO JHALAWAR ROAD (JJ) (IV) ARJUNSAR TO PALLU (AP) (V) KAPREN TO MANGROL (KM) (VI) JHALAWAR TO UJJAIN (JU) (VII) KHUSHKHEDA TO KASOULACHOWK (KK) 37. WE FIND THAT THE ISSUE OF DEDUCTION OF THE FEE PAID TO THE REGISTRAR OF COMPANIES FOR RAISING AUTHORISED CAPITAL OF THE ASS ESSEE-COMPANY UNDER SUB SECTION (2)(C)(IV) OF SECTION 35D OF THE INCOME-TAX ACT IS AGAIN COVERED BY THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 36 DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT VS MULTI METALS (SUPRA) AND THE FINDINGS OF THE HONBLE HIGH COURT READ AS UNDER: COMING TO THE SECOND QUESTION, ARGUMENTS WERE ADDR ESSED BEFORE US BY THE REVENUE THAT SUB-SECTION (2)(C)( IV) OF SECT ION 35D IS NOT APPLICABLE TO THE PRESENT CASE. THE SAID CLAUSE REA DS AS UNDER: '35D(2)(C) WHERE THE ASSESSEE IS A COMPANY, ALSO EX PENDITURE - .... (IV) IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBSC RIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDERWRITING COMMI SSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVE RTISEMENT OF THE PROSPECTUS;' REBUTTING THE SUBMISSION OF THE REVENUE, THE ASSESS EE ARGUED THAT THE LANGUAGE OF SECTION 35D IS WIDE ENOUGH TO COVER A C ASE OF PAYMENT OF FEE TO THE REGISTRAR FOR RAISING CAPITAL OF THE ASS ESSEE-COMPANY AND THE PROVISION SHOULD BE SO INTERPRETED THAT THE SAME BE NOT AGAINST THE ASSESSEE, PARTICULARLY WHEN ITS OBJECT WAS TO BENEF IT HIM. LEARNED COUNSEL CONTENDED THAT THE SETTLED PRINCIPLE IS THA T A PROVISION OF LAW CAPABLE OF TWO INTERPRETATIONS SHOULD BE INTERPRETE D IN A MANNER SO AS TO GIVE BENEFIT TO THE ASSESSEE. SUB-SECTION (2)(C) ( III) OF SECTION 35D IS AS UNDER: '35D(2)(C)... (III) BY WAY OF FEES FOR REGISTERING THE COMPANY UN DER THE PROVISIONS OF THE COMPANIES ACT, 1956 (1 OF 1956).' THE PROVISION CONTAINED IN SUB-SECTION (2)(C)( III) OF SECTION 35D WAS RESORTED TO BY LEARNED COUNSEL FOR THE ASSESSEE IN THE ALTERNATIVE IN SUPPORT OF HIS SUBMISSION, THAT THE EXPENDITURE INC URRED BY WAY OF ENHANCEMENT OF CAPITAL WOULD BE COVERED BY THE SAME . TO US, IT APPEARS THAT EVEN IF THE PROVISION OF SUB -SECTION (2)(C )(III) OF SECTION 35D IS NOT APPLICABLE, THE LANGUAGE OF SUB- SECTION (2)(C)( IV) OF IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 37 SECTION 35D IS WIDE IN NATURE AND WOULD INCLUDE THE DEDUCTIBILITY OF FEE PAID BY THE ASSESSEE TO THE REGISTRAR FOR ENHANCEME NT OF CAPITAL. THEREFORE, THE SAID PROVISION WAS RIGHTLY APPLIED T O THE PRESENT CASE BY THE INCOME-TAX APPELLATE TRIBUNAL. UNDER THESE PROVISIONS, DEDUCTION OF EXPENDITURE IN CURRED FOR REGISTRATION IS TO BE SPREAD OVER A PERIOD OF TEN Y EARS AND IS NOT ALLOWABLE IN THE YEAR IN WHICH THE EXPENSES ARE INC URRED. TO UPHOLD THE SUBMISSION OF THE REVENUE THAT EXPENDITURE INCURRED FOR OBTAINING REGISTRATION WOULD NOT BE ALLOWABLE EITHER UNDER SU B-SECTION (2)(C)( III) OR SUB-SECTION (2)(C)( IV) OF SECTION 35D WOULD DEF EAT THE OBVIOUS INTENTION OF THE LEGISLATURE AND WOULD PRODUCE A WH OLLY UNREASONABLE RESULT TO ACHIEVE THE OBVIOUS INTENTION AND PRODUCE A REASONABLE RESULT, WE HAVE TO HOLD THAT UNDER SUBSECTION (2)(C )(IV ) OF SECTION 35D, THE EXPENDITURE INCURRED FOR OBTAINING REGISTRATION WOULD BE LIABLE TO BE DEDUCTIBLE. WE, CONSEQUENTLY, HOLD THAT THE FEE PAID TO THE REG ISTRAR OF COMPANIES FOR RAISING AUTHORISED CAPITAL OF THE ASSESSEE-COMP ANY WAS COVERED BY SUB SECTION (2)(C)(IV ) OF SECTION 35D OF THE INCOM E-TAX ACT. 38. THE ASSESSEE HAS ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF M/S SHASUN CHEMICALS (SUPRA) WHEREIN THE FACTS WERE THAT THE ASSESSEE WENT IN FOR PUBLIC ISS UE OF SHARES IN ORDER TO RAISE FUNDS TO MEET THE CAPITAL EXPENDITURE AND OTH ER EXPENDITURE RELATING TO EXPANSION OF ITS EXISTING UNITS OF PRODUCTION BOTH AT PONDICHERRY AND CUDDALORE AND FOR EXPANSION OF ITS RESEARCH AND DEV ELOPMENT ACTIVITY AND HAD INCURRED A SUM OF RS.45,51,890/- TOWARDS THE AF ORESAID SHARE ISSUE EXPENSES AND CLAIMED 1/10TH OF THE AFORESAID SHARE ISSUE EXPENSES EACH YEAR UNDER SECTION 35D OF THE ACT AND THE SAME WAS ALLOW ED BY THE HONBLE SUPREME COURT AND THE RELEVANT FINDINGS READ AS UND ER: IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 38 13. IN THE INCOME TAX RETURN WHICH WAS FILED FOR T HE ASSESSMENT YEAR 1995-96 THE ASSESSEE HAD CLAIMED THAT IT HAD INCURR ED A SUM OF RS.45,51,890/- TOWARDS THE SHARE ISSUE EXPENSES AND HAD CLAIMED 1/10TH OF THE AFORESAID SHARE ISSUE EXPENSES UNDER SECTION 35D OF THE ACT FROM THE ASSESSMENT YEARS 1995-96 TO 2004-05. T HIS CLAIM OF THE ASSESSEE WAS FOUND TO BE JUSTIFIED AND ALLOWABLE UN DER THE AFORESAID PROVISIONS AND ON THAT BASIS 1/10TH SHARE ISSUE EXP ENSES WAS ALLOWED UNDER SECTION 35D OF THE ACT. WHEN IT WAS AGAIN CLA IMED FOR THE ASSESSMENT YEAR 1996-97, THOUGH IT WAS DISALLOWED A ND ON DIRECTIONS OF THE APPELLATE AUTHORITY, THE ASSESSING OFFICER M ADE PHYSICAL VERIFICATION OF THE FACTORY PREMISES. HE WAS SATISF IED THAT THERE WAS EXPANSION OF THE FACILITIES TO THE INDUSTRIAL UNDER TAKING OF THE ASSESSEEE. IT IS ON THIS SATISFACTION THAT FOR THE ASSESSMENT YEAR 1996-97 ALSO THE EXPENSES WERE ALLOWED. ONCE, THIS POSITION IS ACCEP TED AND THE CLOCK HAD STARTED RUNNING IN FAVOUR OF THE ASSESSEE, IT H AD TO COMPLETE THE ENTIRE PERIOD OF 10 YEARS AND BENEFIT GRANTED IN FI RST TWO YEARS COULD NOT HAVE BEEN DENIED IN THE SUBSEQUENT YEARS AS THE BLOCK PERIOD WAS 10 YEARS STARTING FROM THE ASSESSMENT YEAR 1995-96 TO ASSESSMENT YEAR 2004-05. THE HIGH COURT, HOWEVER, DISALLOWED T HE SAME FOLLOWING THE JUDGMENT OF THIS COURT IN THE CASE OF BROOK BON D INDIA LTD (SUPRA). IN THE SAID CASE IT WAS HELD THAT THE EXPENDITURE I NCURRED ON PUBLIC ISSUE FOR THE PURPOSE OF EXPANSION OF THE COMPANY I S A CAPITAL EXPENDITURE. HOWEVER, IN SPITE OF THE ARGUMENT RAIS ED TO THE EFFECT THAT THE AFORESAID JUDGMENT WAS RENDERED WHEN SECTION 35 D WAS NOT ON THE STATUTE BOOK AND THIS PROVISION HAD ALTERED THE LEG AL POSITION, THE HIGH COURT STILL CHOSE TO FOLLOW THE SAID JUDGMENT. IT I S HERE WHERE THE HIGH COURT WENT WRONG AS THE INSTANT CASE IS TO BE DECID ED KEEPING IN VIEW THE PROVISIONS OF SECTION 35D OF THE ACT. IN ANY CA SE, IT WARRANTS REPETITION THAT IN THE INSTANT CASE UNDER THE VERY SAME PROVISIONS IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 39 BENEFIT IS ALLOWED FOR THE FIRST TWO ASSESSMENT YEA RS AND, THEREFORE, IT COULD NOT HAVE BEEN DENIED IN THE SUBSEQUENT BLOCK PERIOD. WE, THUS, ANSWER QUESTION NO. 1 IN FAVOUR OF THE ASSESSEE HOL DING THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SECTION 35D FOR THE ASSESSMENTS YEARS IN QUESTION. 39. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE RAJASTHAN HIGH COURT AND HONBLE SUPREME COURT REFERRED SUPRA , THE ASSESSEE IS HELD ELIGIBLE FOR AMORTIZATION OF THE EXPENSES INCURRED IN TERMS OF FEES PAID TO REGISTRAR OF COMPANIES TOWARDS THE INCREASE IN AUTH ORIZED AND PAID UP CAPITAL AS PER THE PROVISIONS OF SECTION 35D OF THE ACT AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. IN THE RESULT, THE GRO UND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 40. IN GROUND NO. 6 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF PROFESSIONAL AND LEGAL FEES INCURRED TO BRING IPO W HICH WAS SUBSEQUENTLY ABANDONED. BRIEFLY THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY ENGAGED THE SERVICES OF M/S LUTHRA AND LUTHRA LAW F IRM, M/S S. BHANDARI & CO. CHARTERED ACCOUNTANTS, M/S AMARCHAND MANGALDAS LAW FIRM AND M/S EMAN SECURITIES PVT. LTD. AS LEGAL, FINANCIAL AND B OOK RUNNING LEAD MANAGER IN CONNECTION WITH IPO AND HAS INCURRED EXPENSES OF RS . 97,95,083/- WHICH AS PER THE ASSESSEE COMPANY SHOULD BE READ AS RS. 1,17 ,42,060/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMP ANY WAS ASKED TO JUSTIFY THE ALLOWABILITY OF THE SAID EXPENSES. AFTER CONSID ERING THE SUBMISSIONS OF THE ASSESSEE COMPANY THE ASSESSING OFFICER OBSERVED THA T IN APRIL, 2008 THE GOVERNMENT OF RAJASTHAN HAD CONVEYED ITS APPROVAL F OR THE DEVELOPMENT OF THE FOLLOWING ADDITIONAL ROAD PROJECTS NAMELY ALWAR TO BHIWADI, JHALAWAR TO JHALAWAR ROAD AND AMRITSAR TO PALLU. FURTHER, THE G OVERNMENT OF RAJASTHAN ALSO CONVEYED ITS INABILITY TO PROVIDE FUNDS FOR TH E ADDITIONAL PROJECT ROADS AND IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 40 HAD REQUESTED THE ASSESSEE COMPANY TO EXPLORE ALTER NATE MEANS OF FINANCING AND AS PART OF THE SAME, THE ASSESSEE COMPANY HAD G ONE AHEAD WITH THE IPO PROCESS AND HAD TAKEN PRELIMINARY STEPS FOR BRINGIN G OUT THE IPO THROUGH A BOOK-BUILDING PROCESS. REFERRING TO THE DRAFT RED H ERRING PROSPECTUS PREPARED BY M/S AMARCHAND MANGALDAS, THE ASSESSING OFFICER O BSERVED THAT IT IS AN EXTREMELY VITAL DOCUMENT WHICH PROVIDES USEFUL PIEC E OF GUIDANCE/DATA THAT THE COMPANY HAS ACQUIRED. THE ASSESSING OFFICER FUR THER OBSERVED THAT ALTHOUGH THE IPO HAS BEEN ABORTED BY THE COMPANY WH ENEVER THE COMPANY WILL SUBSEQUENTLY BRINGING THE IPO, THIS INFORMATIO N WILL BE EXTREMELY CRUCIAL FOR THE COMPANY. IT WAS ACCORDINGLY HELD THAT THE P ROJECTS REPORT PROVIDES AN ENDURING BENEFIT TO THE COMPANY AND THE ASSESSEE CO MPANY IS NOT CORRECT IN WRITING OFF THIS EXPENDITURE MERELY BECAUSE THE IPO WAS ABORTED. SIMILARLY, THE DUE DILIGENCE EXPENDITURE MADE BY THE ASSESSEE COMPANY IS A CAPITAL EXPENDITURE AS THE SAME PROVIDED AN ENDURING BENEFI T TO THE ASSESSEE IS A CAPITAL EXPENDITURE AS THE SAME PROVIDED AND AN END URING BENEFIT TO THE ASSESSEE. IT WAS FURTHER HELD BY THE ASSESSING OFFI CER THAT THE ASSESSEE ITSELF HAS TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE AND THEREFORE, MERELY BECAUSE THE IPO GOT ABORTED, THE ASSESSEE IS CHANGI NG THE NATURE OF EXPENSE FROM CAPITAL TO REVENUE NATURE. 41. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE FINDINGS OF THE AS SESSING OFFICER AND AGAINST SAID FINDINGS, THE ASSESSEE COMPANY IS IN APPEAL BE FORE US. 42. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE COMPANY HAD APPLIED FOR IPO TO RAISE THE RESOURCES TO MEET THE CAPITAL REQUIREMENTS IN THE FORM OF DEBENTURES/PREFERENTIAL SHARES AND FOR THAT COMPANY HAD APPOINTED CONSULTANTS AND INCURRED EXPE NDITURE. UNFORTUNATELY, THE SCENARIO OF THE FINANCIAL MARKET MORE PARTICULA RLY INFRASTRUCTURE PROJECT FELL DOWN DRASTICALLY AND THE MANAGEMENT HAD TO ABANDON THE PROPOSED IPO AND IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 41 ACCORDINGLY THIS EXPENDITURE WAS CHARGED OFF TO THE PROFIT & LOSS ACCOUNT AND CLAIMED IN THE RETURN OF INCOME. THE LD. AR RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF PRIYA VILLAGE R OADSHOWS LTD. V. CIT [2009] 185 TAXMAN 44 (DELHI) WHEREIN IT WAS HELD THAT IN C ASE OF ABONDMENT OR DROPPING OFF CERTAIN PROJECTS DUE TO NON-VIABILITY OR UNCONTROLLABLE REASONS, THE EXPENDITURE INCURRED ON SUCH PROJECT WOULD BE CONSIDERED AS REVENUE EXPENDITURE. FURTHER, RELIANCE WAS PLACED ON THE D ECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF NIMBUS COMMUNICATION (IN ITA NO. 4244/2010 DATED 28.01.2010) . FURTHER, RELIANCE WAS PLACED ON THE COORDINATE BE NCH DECISION IN CASE OF M/S PARVAR ENTERPRISES, PUNE VS. ACIT (IN ITA NO. 1058 & 673/PUN/2016 DATED 8.09.2017). REGARDING THE OBSERVATION OF THE ASSESSING OFFICER THAT THE DRAFT RED HERRING PROSPECTUS IS AN EXTREMELY VITAL DOCUMENT AND HAS PROVIDED ENDURING BENEFIT TO THE ASSESSEE C OMPANY, IT WAS SUBMITTED THAT THE DRAFT RED HERRING PROSPECTUS IS THE FIRST REQUIREMENT OF THE SEBI AND THE COMPANIES ACT, WHICH IS TO BE FILED WITH THE AU THORITIES, WHICH CONTAINS CERTAIN INFORMATION IN A PRESCRIBED FORMAT AS REQUI RED BY LAW BEFORE ANY COMPANY INTENDS TO GO FOR PUBLIC OFFER. IT ALSO CON TAINS THE PROSPECTIVE USE OF PUBLIC ISSUE MONEY AND IS MORE OF A HISTORICAL DATA OF THE PAST PERFORMANCE OF THE COMPANY AND THE FUTURE PLAN OF THE COMPANY, WHI CH REQUIRES THE SUBSCRIPTION THROUGH THE PUBLIC OFFER. IT WAS SUBMI TTED THAT BY NO STRETCH OF IMAGINATION ANY DOCUMENT WHICH CONTAINS PAST HISTOR Y AND FUTURE USE OF THE PROCEEDS IS OF ENDURING BENEFIT IS BEYOND ANY LOGIC AS SOON AS THE DECISION OF THE COMPETENT AUTHORITY OF THE BOARD RESOLVED TO AB ORT THE PUBLIC OFFER, THIS DRAFT RED HERRING PROSPECTUS BECOMES TOTALLY USELES S AND LEGALLY UNENFORCEABLE AND CANNOT BE CONSIDERED FOR ENDEAVOR ING BENEFIT RATHER IT IS WASTE PAPER. IN VIEW OF ABOVE, THE CONCLUSION OF LD . AO THAT IT HAS AN ENDEAVORING BENEFIT IS NOT FAR FROM THE TRUTH BUT I S JUST IMAGINATION OF THE LD. AO THAT THIS WILL HAVE SOME ENDURING BENEFIT IN TIM ES TO COME WITHOUT RAISING THE FUNDS FROM THE MARKET. THE AO HAS ALSO OBSERVED THAT EARLIER IT HAS TAKEN IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 42 AS REVENUE IN THE CURRENT YEAR, ON THIS IT IS SUBMI TTED THAT WHEN THIS EXPENDITURE WAS INCURRED THE COMPANY INTENDED TO GO TO PUBLIC AND THIS WOULD HAVE BECOME THE PART OF PUBLIC ISSUE EXPENSES COVERED U/S. 35D, HOWEVER, DUE TO BAD MARKET CONDITION, WHICH IS BEYO ND THE CONTROL OF THE MANAGEMENT, HAS BEEN CORRECTLY WRITE-OFF IN THE CUR RENT YEAR, HENCE IN THE SUBSTANCE, THE TRANSACTION PERTAIN TO THE CURRENT Y EAR ONLY. HENCE THIS HAS BEEN CORRECTLY WRITTEN OFF. 43. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION IN RESPECT OF IPO EXPENSES AS A REVENUE EXPENDITURE IN CURRENT YEAR M AY BE DELETED AS THE DECISION FOR NOT TO GO FOR PUBLIC ISSUE WAS TAKEN I N THE CURRENT YEAR AND DUE TO WHICH THIS EXPENDITURE FALLS WITHIN AMBIT OF THE REVENUE EXPENDITURE OF THE CURRENT YEAR. IN ADDITION TO ABOVE, WE WOULD ALSO L IKE TO MENTION THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LIMITED HAS HELD THAT WHEN THE TAX RATE IN TWO YEARS ARE SAME, THE INCOME TAX DEPARTMENT SHOULD NOT MAKE IT AN ISSUE AND SHOULD N OT INCREASE THE LITIGATION. ALTERNATIVELY, WITHOUT PREJUDICE TO OUR ABOVE SUBMI SSION, IT IS SUBMITTED THAT RS. 97,95,483/- AS PROFESSIONAL AND LEGAL FEES FOR IPO ARE WELL COVERED U/S 35D OF THE INCOME TAX ACT. FROM THE DETAILS SUBMIT TED, IT IS CLEAR THAT THE NATURE OF EXPENSES LIKE DUE DILIGENCE, PAYMENT TO M ERCHANT BANKERS, PROFESSIONAL FEES PAID TO OTHER PROFESSIONALS LIKE AUDITORS TO COMPLY WITH THE REQUIREMENT OF COMPANIES ACT, 1956 FALLS WITHIN THE DEFINITION OF SECTION 35D. THE IMPORTANT FACT IS THAT IT SHOULD BE EITHER BEFO RE START OF COMMERCIAL OPERATION OR FOR EXTENSION OF BUSINESS. OUR CASE SQ UARELY COVERED THE SECOND LIMB OF SECTION AS THE EXPENDITURE HAS BEEN INCURRE D FOR EXTENSION OF BUSINESS FOR WHICH ALL THE EXPENDITURE WAS INCURRED. 44. IT WAS SUBMITTED THAT IN VIEW OF THE BAD CAPITA L MARKET COMPANY HAS NOT GONE TO PUBLIC BUT HAVE USED THE VARIOUS REPORT S PREPARED BY THE VARIOUS CONSULTANTS TO CONVINCE THE EXISTING SHAREHOLDERS I .E. GOR/IL&FS TO FURTHER IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 43 SUBSCRIBE THE SHARE AND HAVE GOT EIGHT MORE ROAD ST RETCHES FOR CONSTRUCTION, WHICH IS DIRECT EVIDENCE OF EXTENSION OF EXISTING BUSINESS, WHICH IS COVERED AS PER DEFINITION OF SECTION 35D. THE AUTHORISED SH ARE CAPITAL OF THE COMPANY WAS INCREASED FROM RS. 50 CRORES IN FY 2007-08 TO R S. 200 CRORES IN FY 2008- 09 AND PAID UP CAPITAL INCREASED BY RS. 50 CRORES I N FY 2008-09 TO RS.100 CRORES. IN VIEW OF THIS, THE AMOUNT INCURRED FALLS WITHIN THE DEFINITION OF SECTION 35D AND IS ELIGIBLE FOR AMORTIZATION IN 5 E QUAL INSTALLMENTS. HENCE IF THE PLEA OF THE APPELLANT FOR TREATING THE EXPENDIT URE AS REVENUE IS NOT ALLOWED THEN IT IS REQUESTED TO CONSIDER THE SAME A S PER PROVISIONS OF SECTION 35D OF THE INCOME TAX ACT, 1961 AND ALLOW THE AMORT IZATION OF THE EXPENSE AT THE RATE OF 20% PER ANNUM FOR 5 YEARS. THE ASSES SEE PRAYS THAT IN VIEW OF THE AFORESAID FACTS, IN CASE OF DISALLOWANCE AS REV ENUE EXPENDITURE, THEN IN THE GIVEN CASE THE CONDITIONS OF SECTION 35D ARE FU LLY SATISFIED AND THE APPELLANT IS ENTITLED TO CLAIM 1/5TH OF THE EXPENSE S INCURRED AS REVENUE, EVEN IF THE SAME WAS NOT CLAIMED IN THE RETURN OF INCOME FILED BY THE APPELLANT. THE A.O. IS DUTY BOUND TO GIVE DUE DEDUCTIONS, EXEM PTIONS OR REBATE TO THE ASSESSEE, IF THEIR CLAIM IS BEING DISALLOWED UNDER THE SECTION CLAIMED BUT IF THAT EXPENDITURE IS ALLOWABLE/DEDUCTIBLE AS PER OTH ER PROVISIONS OF ACT AS HELD BY THE HONBLE SUPREME COURT CASE OF ANCHOR PRESSIN GS(P) LTD. VS. CIT (SUPRA) 45. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. 46. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS WHICH ARE EMERGING FROM THE RECORDS ARE THAT PURSUANT TO APPROVAL GRANTED BY TH E GOVERNMENT OF RAJASTHAN TO DEVELOP CERTAIN SPECIFIC ADDITIONAL RO AD STRETCHES/PROJECTS, THE ASSESSEE COMPANY HAD PROPOSED TO RAISE FUNDS THROUG H AN IPO FOR SUCH EXPANSION ACTIVITIES AND IN CONNECTION WITH PREPARA TION FOR THE IPO, HAS ENGAGED THE SERVICES OF M/S LUTHRA AND LUTHRA LAW F IRM (CONSULTANT), M/S S. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 44 BHANDARI & COMPANY, CHARTERED ACCOUNTANTS (CONSULTA NTS FOR PREPARING THE FINANCIAL INFORMATION), M/S AMARCHAND MANGALDAS (CO NSULTANTS TO THE BOOK RUNNING LEAD MANAGER) AND M/S EMAN SECURITIES PVT. LTD.(BOOK RUNNING LEAD MANAGER) AND HAS INCURRED CERTAIN EXPENSES TOWARDS THEIR PROFESSIONAL, LEGAL/DUE DILIGENCE AND RELATES SERVICES AMOUNTING TO RS. 1,17,42,060/- AND ONE OF THE REPORTS/END PRODUCTS OF SUCH AN EXERCISE IS THE RED HERRING PROSPECTUS WHICH GOT PREPARED WHICH IS REQUIRED TO BE SUBMITTED TO SEBI FOR ITS APPROVAL BEFORE THE ANNOUNCEMENT OF THE IPO. IT IS ALSO A FACT THAT THE IPO GOT ABORTED DUE TO UNFAVOURABLE FINANCIAL CONDITION S. THEREFORE, THE PRECISE QUESTION WHICH ARISE FOR CONSIDERATION IS WHETHER T HE PROFESSIONAL AND LEGAL EXPENSES INCURRED IN CONNECTION WITH RAISING OF FUN DS THROUGH AN IPO WHICH GOT ABORTED CAN BE ALLOWED AS A REVENUE EXPENDITURE OR NOT. THE COORDINATE BENCH IN CASE OF NIMBUS COMMUNICATIONS LTD VS ACIT (ITA NO. 2361(MUM) OF 2007 DATED 28.01.2010) HAD EXAMINED THE MATTER IN SIMILAR FACTUAL BACKGROUND OF ABORTED IPO EXPENSES AND HAS HELD AS UNDER: ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUM STANCES OF THE CASE, AS INCURRING OF THE EXPENDITURE IN QUESTION WAS FOR THE PURPOSE OF RISING CAPITAL BY WAY OF PUBLIC ISSUE AND AS THE PUBLIC IS SUE GOT ABORTED, WE ARE OF THE HUMBLE OPINION THAT THE EXPENDITURE IS I N THE REVENUE FIELD. FOR AN EXPENDITURE TO BE CONSIDERED FOR AMORTISATIO N UNDER S. 35D, IT SHOULD BE IN THE CAPITAL FIELD. AN EXPENDITURE WHIC H IS INCURRED IN THE REVENUE FIELD IS ALLOWABLE UNDER S. 37 OF THE ACT. THE AO AT PARA 6 OF THE ASSESSMENT ORDER HAS NOT COME TO A CONCLUSION T HAT THE EXPENDITURE IN QUESTION HAS NOT BEEN INCURRED. AFTE R COLLECTING THE DETAILS FROM THE ASSESSEE, HE CONCLUDED THAT THERE BEING NO CHANGE IN THE SUBSCRIBED SHARE CAPITAL AND AS THE EXPENDITURE WAS NOT INCURRED PRIOR TO INCORPORATION AND AS IT COULD NOT BE SUBST ANTIATED THAT THE ISSUE IS IN CONNECTION WITH THE EXTENSION OF BUSINESS OR SETTING UP OF NEW INDUSTRIAL UNDERTAKING, THE ASSESSEE IS NOT ELIGIBL E FOR CLAIM UNDER S. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 45 35D. THE NATURE OF EXPENSES ARE LISTED OUT AT PARA 6 OF THE ASSESSMENT ORDER. AS THERE IS NO CONTROVERSY ON THE ISSUE WHET HER THE ASSESSEE HAS INCURRED THIS EXPENDITURE OR NOT AND AS THE NATURE OF EXPENDITURE REFLECTS THAT THEY ARE REVENUE IN NATURE AND AS THE ASSESSEE HAS NOT GOT ANY ENDURING BENEFIT, WE UPHOLD THE CONTENTION OF T HE ASSESSEE AND HOLD THAT THE EXPENDITURE IS ALLOWABLE UNDER S. 37. 47. THE HONBLE BOMBAY HIGH COURT (IN ITA NO. 4244/2010 DATED 8.12.2011) , WHILE AFFIRMING THE AFORESAID FINDINGS OF THE COORDINATE BENCH , HAS HELD AS UNDER: 2. THE FINDING OF FACT RECORDED BY THE INCOME TAX APPELLATE TRIBUNAL IS THAT THERE IS (NO) DISPUTE THAT THE ASSESSEE HAS IN FACT INCURRED THE EXPENDITURE AND THAT ON ACCOUNT OF THE ABORTED PUBL IC ISSUE OFFER, NO NEW ASSET HAS COME INTO EXISTENCE AND CONSEQUENTLY THERE IS NO QUESTION OF THE ASSESSEE GETTING ANY ENDURING BENEF IT. WITH THE APPROVAL OF SEBI, THE ASSESSEE WAS TO INCREASE THE SHARE CAPITAL AND THEREBY PROMOTE ITS BUSINESS ACTIVITY. HOWEVER, THE SAME GOT ABORTED DUE TO REASONS BEYOND ITS CONTROL. IN THESE CIRCUMS TANCES, IN VIEW OF THE DECISION OF THIS COURT IN THE CASE OF COMMISSIO NER OF INCOME TAX V/S. M/S. ESSAR OIL LIMITED, INCOME TAX APPEAL (L) NO. 921 OF 2006 DECIDED ON 16 TH OCTOBER 2008, IN OUR OPINION, NO FAULT CAN BE FOUND WITH THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL IN ALLOWING THE ABORTED SHARE ISSUE EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. 48. IN THE INSTANT CASE AS WELL, THERE IS NO DISPUT E THAT THESE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE COMPANY IN CONNE CTION WITH THE IPO WHICH ULTIMATELY GOT ABORTED DUE TO UNFAVOURABLE MA RKET CONDITIONS WHICH IS BEYOND ITS CONTROL. BY INCURRING SUCH EXPENDITURE, NO NEW ASSET HAS COME INTO EXISTENCE OR ANY ENDURING BENEFIT HAS ACCRUED TO THE ASSESSEE COMPANY. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 46 AS FAR AS RED HEARING PROSPECTUS IS CONCERNED, WE F IND THAT IT IS A DOCUMENT WHICH IS PREPARED AND SUBMITTED TO SEBI FOR ITS APP ROVAL SEEKING PERMISSION TO RAISE FUNDS THROUGH AN IPO AND IS THUS A REGULAT ORY REQUIREMENT WHICH WOULD BE REQUIRED TO BE SUBMITTED EVERY TIME THE CO MPANY WISHES TO RAISE THE FUNDS IN FUTURE AND REQUIRES TO CONTAIN LATEST DATA, STATISTICS AND DECLARATIONS ABOUT THE COMPANY, ITS PROMOTERS, PAST FILINGS AND FINANCIALS AND UTILIZATION OF THE PROCEEDS OF THE IPO AND THEREFOR E, IT CANNOT BE SAID THAT ONCE SUCH A DOCUMENT IS PREPARED, IT CAN BE USED SU BSEQUENTLY FOR ANY FUTURE IPO. THEREFORE, THE STAND OF THE ASSESSING OFFICER THAT SUCH A DOCUMENT WILL PROVIDE AN ENDURING BENEFIT TO THE ASSESSEE COMPANY CANNOT BE ACCEPTED. IN LIGHT OF AFORESAID DISCUSSIONS AND RESPECTFULLY FOL LOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF NIMBUS COMMUNI CATION (SUPRA) AND IN ABSENCE OF ANY CONTRARY AUTHORITY, THE EXPENSES INC URRED IN CONNECTION WITH ABORTED IPO ARE ALLOWED AS REVENUE EXPENDITURE. TH E ALTERNATE CONTENTION REGARDING AMORTIZATION U/S 35D HAS THUS BECOMES INF RUCTIOUS AND IS NOT ADJUDICATED UPON. THE MATTER IS THUS DECIDED IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 49. IN GROUND NO. 7, THE ASSESSEE COMPANY HAS CHALL ENGED THE ACTION OF THE LD CIT(A) IN CONFIRMING THE LOWER GRANT OF INTE REST U/S 244A OF THE ACT. 50. IN THIS REGARD, THE LD AR SUBMITTED THAT THE AS SESSEE COMPANY RECEIVED A REFUND OF RS 59,01,080/- COMPRISING OF TDS OF RS. 55,15,029/- AND INTEREST U/S 244A OF RS. 3,86,051/- VIDE CHEQUE DATED 4TH JU LY, 2012. AS PER THE PROVISIONS OF THE SAID SECTION, THE INTEREST FOR TH E PERIOD OF 16 MONTHS W.E.F. 1/4/2011 TO 4/07/2012 WORKS OUT TO RS 4,41,202/- (5 5,15,029 X 0.5% X 16). HOWEVER THE INTEREST ASSESSED U/S 244A WAS ONLY RS. 275750/- AND THE INTEREST REFUNDED WAS RS. 3,86,051/- LEADING TO SHO RT REFUND OF INTEREST U/S 244A AMOUNTING TO RS. 55,151/- WHICH SHOULD BE PAID TO THE APPELLANT. IT WAS IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 47 SUBMITTED THAT THE LD CIT(A) ALSO ERRED IN NOT CONS IDERING THE PLEA OF APPELLANT AND OBSERVED THAT WITHDRAWAL OF INTEREST U/S244A IS AUTOMATIC AND CONSEQUENTIAL TO APPEAL EFFECT. IN THIS REGARD, IT IS SUBMITTED THAT THE DISALLOWANCES BY THE LD. AO RESULTED IN REDUCING OF LOSS AND DID NOT RESULT IN ANY DEMAND HENCE THE OBSERVATION OF THE LD. CIT( A) REGARDING WITHDRAWAL OF INTEREST IS ERRONEOUS. THUS IN VIEW O F THE ABOVE FACTS, THE DIFFERENTIAL INTEREST ON THE REFUND MAY BE DIRECTED TO THE GRANTED TO THE ASSESSEE COMPANY. 51. AFTER HEARING BOTH THE PARTIES AND PURUSED THE MATERIAL ON RECORD, WE DEEM IT APPROPRIATE THAT THE CLAIM SO MADE BY THE A SSESSEE COMPANY IS VERIFIED AS THE SAME IS A MATTER OF RECORD. THE MAT TER IS ACCORDINGLY SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AND EXAMINE THE CLAIM OF THE ASSESSEE REGARDING SHORT GRANT OF INTEREST U/S 244A AND DECIDE AS PER LAW. IN THE RESULT, THE GROUND IS ALLOWED FOR STATISTICAL P URPOSES. ITA NO. 669/JP/2019 52. NOW, WE TAKE UP ASSESSEES APPEAL FOR A.Y 2012- 13 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE ORDER PASSED BY THE LD. ASSESSING OFFIC ER AND LD. CIT (APPEALS), AJMER, IS BAD IN LAW AS WELL AS FACTS. 2. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER HAS WRONGLY CONSIDERED RS. 1,19,49,426/- AS INCOME FROM OTHER SOURCES RATHER THAN REDUCING IT FROM THE CAPITAL COST OF CO NSTRUCTION OF ROADS, AS PER ACCEPTED ACCOUNTING PRACTICES AND DECISION OF V ARIOUS AUTHORITIES INCLUDING DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEELS LTD. 336 ITR PAGE 315, AS THIS AMOUNT PERTAINS TO PRIOR TO COMMERCIAL OPERATION OF THE ROAD FOR WHICH THE A MOUNT WAS BORROWED. 3. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN LAW AS WELL AS IN FACTS BY DISALLO WING THE EXPENSE CLAIMED OF RS. 15,72,414/- (1/5 TH EXPENSE INCURRED RS. 78,62,069/-) BY IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 48 THE COMPANY FOR INCREASE IN AUTHORIZED CAPITAL AS D ECIDED BY THE RAJASTHAN HIGH COURT [COMMISSIONER OF INCOME TAX V. MULTI METALS LTD. REPORTED IN 188 ITR 151]. 4. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN MAKING DISALLOWANCE OF RS. 1,00,00 0/- UNDER SECTION 14A OF INCOME TAX ACT, 1961. THE APPELLANT PRAYS TH AT CONSIDERING THE FACTS AND THAT NO EXEMPT INCOME HAS BEEN EARNED, TH E DETERMINATION OF THE AMOUNT AT RS. 1,00,000/-U/S 14A READ WITH RULE 8D(2) IS NOT JUSTIFIED AND BE DELETED. 53. BOTH THE PARTIES FAIRLY SUBMITTED THAT THE FAC TS AND CIRCUMSTANCES OF THE PRESENT APPEAL ARE IDENTICAL TO FACTS AND CIRCUMSTA NCES IN ITA NO. 668/JP/19 AND THUS, SIMILAR CONTENTIONS AS RAISED IN AFORESAI D MATTER MAY BE CONSIDERED. THEREFORE, CONSIDERING THAT THERE ARE NO CHANGES IN FACTS AND CIRCUMSTANCES AS SO SUBMITTED BY BOTH THE PARTIES, OUR FINDINGS A ND DIRECTIONS CONTAINED IN ITA NO. 668/JP/19 SHALL MUTATIS MUTANDIS TO THE PRESENT APPEAL AND THE SAME IS DISPOSED OFF ACCORDINGLY. ITA NO. 670/JP/2019 54. NOW, WE TAKE UP ASSESSEES APPEAL FOR A.Y 2013- 14 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE ORDER PASSED BY THE LD. ASSESSING OFFI CER AND LD. CIT(APPEALS), AJMER, IS BAD IN LAW AS WELL AS FACTS . 2. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER HAS WRONGLY CONSIDERED RS. 6,50,762/- AS INCOME FROM OT HER SOURCES RATHER THAN REDUCING IT FORM THE CAPITAL COST OF CO NSTRUCTION OF ROADS, AS PER ACCEPTED ACCOUNTING PRACTICES AND DECISION OF V ARIOUS AUTHORITIES INCLUDING DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEELS LTD. 336 ITR PAGE 315, AS THIS AMOUNT PERTAINS TO PRIOR TO COMMERCIAL OPERATION OF THE ROAD FOR WHICH THE A MOUNT WAS BORROWED. 3. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN WRONGLY DISALLOWING THE DEPRECIATI ON OF IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 49 RS. 1,17,59,016/- CLAIMED BY THE ASSESSE, BEING DEP RECIATION ON ACCOUNT OF TOLL BUILDING UNDER THE BLOCK OF BUILDING AS PER INCOME TAX ACT, 1961. 4. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN LAW AS WELL AS IN FACTS BY DISALLO WING THE EXPENSE CLAIMED OF RS. 15,72,414/- (1/5 TH EXPENSE INCURRED RS. 78,62,069/-) BY THE COMPANY FOR INCREASE IN AUTHORIZED CAPITAL AS D ECIDED BY THE RAJASTHAN HIGH COURT [COMMISSIONER OF INCOME TAX V. MULTI METALS LTD. REPORTED IN 188 ITR 151]. 5. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN MAKING DISALLOWANCE OF RS. 1,00,00 0/- UNDER SECTION 14A OF INCOME TAX ACT, 1961. THE APPELLANT PRAYS TH AT CONSIDERING THE FACTS AND THAT NO EXEMPT INCOME HAS BEEN EARNED, TH E DETERMINATION OF THE AMOUNT AT RS. 1,00,000/-U/S 14A READ WITH RULE 8D(2) IS NOT JUSTIFIED AND BE DELETED. 6. THAT THE LD. ASSESSING OFFICER AND LD. CIT(APPEA LS), AJMER, HAS FURTHER ERRED IN DISALLOWING THE SOCIO-ECONOMIC EXP ENSE OF RS. 50,23,041/- UNDER SECTION 37 OF INCOME TAX ACT, 196 1 AND ADDING BACK TO INCOME, THOUGH THESE EXPENSES ARE DIRECTLY CONNE CTED AND INCIDENTAL TO THE BUSINESS OF THE COMPANY, NO PERSONAL BENEFIT HAS BEEN DERIVED THERE FROM AND FURTHER SUCH EXPENDITURE INCURRED WI LL NOT RESULT IN ANY CAPITAL ASSET ON LONG TERM ENDURING BENEFIT TO THE COMPANY. 55. BOTH THE PARTIES FAIRLY SUBMITTED THAT EXCEPT FOR G ROUND NO. 3 AND 6, THE FACTS AND CIRCUMSTANCES OF THE PRESENT APPEAL ARE I DENTICAL TO FACTS AND CIRCUMSTANCES IN ITA NO. 668/JP/19 AND THUS, SIMILA R CONTENTIONS AS RAISED IN AFORESAID MATTER MAY BE CONSIDERED. THEREFORE, CON SIDERING THAT THERE ARE NO CHANGES IN FACTS AND CIRCUMSTANCES AS SO SUBMITTED BY BOTH THE PARTIES, OUR FINDINGS AND DIRECTIONS CONTAINED IN ITA NO. 668/JP /19 SHALL MUTATIS MUTANDIS TO THE PRESENT APPEAL AND THE GROUNDS OF APPEAL (EX CEPT FOR GROUND OF APPEAL NO. 3 & 6) ARE DISPOSED OFF ACCORDINGLY. 56. NOW, COMING TO GROUND NO. 3 WHEREIN THE ASSESSE E HAS CHALLENGED THE DISALLOWANCE OF DEPRECIATION OF RS. 1,17,59,016/- C LAIMED BY THE ASSESSEE. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 50 57. IN THIS REGARD, THE LD AR SUBMITTED THAT IN RES PECT OF DISALLOWANCE OF DEPRECIATION OF RS.1,17,59,016/-, BEING DEPRECIATIO N ON ACCOUNT OF TOLL BUILDINGS UNDER THE BLOCK OF BUILDING AS PER INCOME TAX ACT 1961, IT IS SUBMITTED THAT THE LD. A.O DISALLOWED THE DEPRECIAT ION CLAIMED DURING THE YEAR IN RESPECT OF BUILDINGS (BLOCK-10%) CONSIDERIN G THE SAME TO BE DEPRECIATION IN CASE OF TOLL ROADS, HOWEVER THE AMO UNT OF RS. 150,46,66,419/- COMPRISED OF RS. 149,29,07,403/- BEING DEPRECIATION ON ACCOUNT TOLL ROADS AND RS. 1,17,59,016/- BEING DEPRECIATION ON ACCOUNT OF TOLL BUILDINGS, TOTALING TO RS. 150,46,66,419/-. THE AMORTIZATION ALLOWED OF RS. 1,05,06,87,579/- WAS ONLY IN RESPECT OF TOLL ROADS AND DID NOT INCLUDE T OLL BUILDINGS, COPY OF ANNEXURE A AS REFERRED TO IN THE ASSESSMENT ORDER I S BEING ENCLOSED AS ANNEXURE II. IN THIS RESPECT, A RECTIFICATION APPLI CATION WAS ALSO FILED CONTAINING ALL DETAILS AND SUPPORTING DOCUMENTS AND WORKINGS THEREOF, HOWEVER THE RECTIFICATION ORDER IS YET TO BE PASSED BY THE LD. A.O. THE AFORESAID FACTS OF THE CASE AND ANNEXURES MENTIONED THEREIN WERE ALSO SUBMITTED TO THE LD. CIT ( APPEALS), WHO HAS ACKNOW LEDGED THE SAME IN PARA 6.1 OF HIS ORDER. HOWEVER THE LD. CIT(A) ERRED IN C ONCLUDING THAT THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, THEREFORE TH IS GROUND OF APPEAL IS DISMISSED. IT WAS SUBMITTED THAT NO SUCH SUBMISSIO N OR CONCESSION WAS MADE BY THE LD AR DURING THE APPELLATE PROCEEDINGS BEFOR E THE LD CIT(A). IT WAS FURTHER SUBMITTED THAT WHERE IN THE PAST, DEPRECIAT ION HAS BEEN ALLOWED ON TOLL BUILDINGS BY THE AO, THERE IS NO BASIS TO MAKE SUCH DISALLOWANCE IN THE YEAR UNDER CONSIDERATION. IT WAS ACCORDINGLY SUBMI TTED THAT THE LD. AO AND LD. CIT(A) HAVE ERRED IN NOT APPRECIATING THE FACTS OF THE CASE AND NOT ALLOWING THE DEPRECIATION IN CASE OF TOLL BUILDINGS , THUS THE APPELLANT PRAYS FOR ALLOWANCE OF DEPRECIATION IN CASE OF TOLL BUILDINGS . 58. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDI NGS OF THE LOWER AUTHORITIES. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 51 59. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. THE CASE OF THE ASSESSEE COMPANY IS THA T THE AMOUNT OF RS. 150,46,66,419/-, BEING DISALLOWED BY THE ASSESS ING OFFICER, COMPRISED OF RS. 149,29,07,403/- BEING DEPRECIATION ON ACCOUNT O F TOLL ROADS AND RS. 1,17,59,016/- BEING DEPRECIATION ON ACCOUNT OF TOLL BUILDINGS. FURTHER, THE AMORTIZATION OF RS. 1,05,06,87,579/- WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER IS IN RESPECT OF TOLL ROADS. ACC ORDINGLY, THE DEPRECIATION ON TOLL BUILDINGS AMOUNTING TO RS 1,17,59,016/- HAS BE EN WRONGLY DISALLOWED BY THE ASSESSING OFFICER WHICH MAY BE ALLOWED. IT HAS ALSO BEEN STATED BY THE LD AR THAT THE AMORTIZATION IN RESPECT OF TOLL ROADS O VER THE LIFE OF THE ROAD PROJECTS AND DEPRECIATION IN RESPECT OF TOLL BUILDI NG CALCULATED AT THE RATE OF 10% IS THE CONSISTENT POSITION ADOPTED BY THE REVEN UE IN THE EARLIER YEARS. IN LIGHT OF THE FACT THAT SUCH TOLL BUILDING IS PAR T OF THE BUILDING BLOCK OF THE ASSETS AND IN THE EARLIER YEARS, THE DEPRECIATION ON SUCH BUILDING BLOCK INCLUDING TOLL BUILDING HAS BEEN ALLOWED BY THE REV ENUE, THE ASSESSING OFFICER IS HEREBY DIRECTED TO ALLOW THE DEPRECIATION ON TOL L BUILDING AFTER DUE VERIFICATION. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED. 60. IN GROUND NO. 6, THE ASSESSEE COMPANY HAS CHALL ENGED THE DISALLOWANCE OF SOCIO-ECONOMIC EXPENSE OF RS. 50,23,041/- UNDER SECTION 37 OF INCOME TAX ACT, 1961. 61. IN THIS REGARD, WE REFER TO THE RELEVANT FINDI NGS OF THE AO WHICH READ AS UNDER: 7.1 AMOUNT OF RS 5023041/- HAS BEEN DEBITED IN P&L UNDER THE HEAD 'OTHER EXPENSES' AS EXPENSES ON SOCIO ECONOMI C. VIDE LETTER DATED 11-11-2016 THE ASSESSEE WAS REQUIRED T O GIVE JUSTIFICATION FOR ITS ALLOWABILITY. IN RESPONSE TO THE SAME VIDE LETTER DATED 7-12-2016 WRITTEN SUBMISSION WAS FILED STATIN G AS UNDER:- IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 52 THE COMPANY IS ENGAGED IN CONSTRUCTION OF MEGA HIG HWAY ROADS, WHICH INVOLVES OF DISPLACEMENT OF VARIOUS FAMILIES, DOMICILE OF SHOPS CAR SOME OTHER INCONVENIENCES TO THE VARIOUS VILLAGES OF NEARBY AREAS. AS PER THE PARTNERSHIP & DEVELOPMENT AGREEMENT (PDA) EXECUTED WITH THE GOVERNMENT OF RAJASTHAN, TH E COMPANY WAS AUTHORIZED TO UNDERTAKE, PARTICIPATE AND SUPPOR T ENVIRONMENTAL, COMMUNITY DEVELOPMENT/SOCIAL ACTIVITIES VIZ. DEVELOP SCHOOLS, CREATION OF SOME I NFRASTRUCTURE FACILITIE S, WELFARE OF COMMUTERS OR ANY OTHER ACTIVITIES BY WHICH THE COMMON MAN LIFE IS IMPROVED OR MADE MORE CONVENIENT, ALONG SIDE THE PROJECT ROAD. FURTHER OPERATION & MAINTENANCE EXPENSES HAS BEEN D EFINED IN THE PDA, READS AS UNDER:- 7.1 O&M EXPENSES MEANS ALL COSTS AND EXPENSES, IN CURRED OR COMMITTED TO BE MADE BY OR ON BEHALF OF RIDCOR DULY CERTIFIED BY ITS AUTHORS FOR OPERATIONS AND MAINTENANCE OF THE P ROJECT ASSETS INCLUDING WITHOUT LIMITATION: (A) ALL PAYMENTS, COS TS AND CHARGES INCURRED AND/OR PAYABLE TOWARDS EFFICIENTLY MANAGIN G AND OPERATING THE PROJECT FACILITY AND MAINTENANCE THER ETO INCLUDING BUT NOT LIMITED TO NORMAL/ROUTINE MAINTENANCE, OVER LAYS/RENEWALS, REPLACEMENTS, UP-GRADATIONS, SPECIAL REPAIRS/ EMERG ENCY WORKS ETC. AND SUCH OTHER ACTIVITIES WHETHER ANTICIPATES OR NOT (I) OTHER MISCELLANEOUS EXPENSES ARISING OUT OF CONFORMITY TO STATUTORY REQUIREMENT/ COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT; AND (K) ALL OTHER EXPENDITURES REQUIRED TO BE INCURRED UNDER THIS AGR EEMENT OR LAW OR CLEARANCES NECESSARY FOR THE OPERATIONS AND MAIN TENANCE OF THE PROJECT ACCORDINGLY TO SPECIFICATIONS AND STANDARDS . IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 53 ACCORDINGLY THE COMPANY HAD UNDERTAKEN THE WORK OF HIV-AIDS AWARENESS AND PREVENTION PROGRAM AND CONSIDERED AS OPERATION & MAINTENANCE COST WHICH WAS ALSO CERTIFIED BY THE IN DEPENDENT AUTHOR, COPY OF CERTIFICATE ENCLOSED AS ANNEXURE-III SECTION 37 OF INCOME TAX ACT, 1961, ANY EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EX PENSES OF THE ASSESSEE, LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN C OMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. BASED ON ABOVE SUBMISSIONS IT IS TO BE NOTED THAT A LL THE SOCIO ECONOMIC (R&R) EXPENSES INCURRED ARE DIRECTLY CONNE CTED AND INCIDENTAL TO THE BUSINESS OF THE COMPANY, THERE IS NO PERSONAL BENEFIT OF EITHER OF THE DIRECTOR OR THE STAKEHOLDER OF THE COMPANY AND FURTHER AND EXPENDITURE INCURRED UNDER THIS CATEGORY WILL N OT RESULT IN ANY CAPITAL ASSET OR LONG TERM ENDURING BENEFIT TO THE COMPANY. HENCE, THE SAME IS FULLY COVERED AS PER SECTION 37 OF THE INCO ME-TAX ACT, 1961 AND SHALL BE ALLOWED FULLY. 7.2 REPLY GIVEN BY THE ASSESSEE HAS BEEN EXAMINED BUT FOUND TO BE NOT ACCEPTABLE FOR THE REASON THAT THE PROVISION OF SECTION 37(1) REQUIRES THAT ANY EXPENDITURE WHICH HAS BEEN EXCLUS IVELY INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE, NOT IN TH E NATURE OF PERSONAL EXPENSES AND NOT IN THE NATURE OF CAPITAL EXPENSES IS ONLY ALLOWABLE U/S 37(1) AS BUSINESS EXPENSES. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 54 PRIMA FACIE THE EXPENSES CLAIMED ARE EVIDENTLY OF T HE NATURE OF APPLICATION OF INCOME/DONATIONS. THE ASSESSEE HAS C LAIMED THESE EXPENSES ON THE BASIS OF SOCIAL CAUSE OR GENERAL PU BLIC GOOD. AGAINST SUCH EXPENSES THERE IS NO DEFINITE BUSINESS LIABILITY OF ASSESSEE. THE CORE LOGIC OF ASSESSEE FOR ALLOWABILI TY OF THESE EXPENSES IS THAT THESE EXPENSES WILL IMPROVES LIVIN G OF SOCIETY AND, THE SOCIETY WILL INDIRECT HELPFUL FOR THE BUSINESS MOTIVES OF THE ASSESSEE. IF THIS CONTENTION OF ASSESSEE IS ACCEPTE D THAN ALL DONATIONS/APPLICATION OF INCOME ITEMS WILL QUALIFY FOR DEDUCTION WHICH IS NOT THE INTENTION OF SEC. 37(1) OF THE INC OME TAX ACT, FROM THE PLAIN READING OF SEC. 37(1), THE INTENTION OF L EGISLATURE IS AMPLY CLEAR. RELEVANT PART OF THE SECTION IS REPRODUCED H EREUNDER:- 37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'. 7.3 THE ADVERB WHOLLY IN THE PHRASE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY HAS REFERENCE TO THE OBJECT OR MOTIVE OF THE ACT BEHIND THE EXPENDITURE.UNLESS, SUCH MOTIVE IS SOLELY, FOR PROM OTING THE BUSINESS, THE EXPENDITURE WILL NOT QUALIFY FOR DEDUCTION [CIT VS T.S,HAJEE MOSSA & CO, (MAD) 153 ITR 428, MYSORE KIRLOSKAR LTD. VS CIT (KA R) 166 ITR 836] IN THE INSTANT CASE THE MOTIVE OF THE ASSESSEE IS NOT SOLE LY FOR PROMOTING THE BUSINESS BUT ALSO SOCIAL CAUSE. MOREOVER, DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO PROVE THAT THE S AID EXPENDITURE HAS BEEN 'WHOLLY' AND 'EXCLUSIVELY' FOR BUSINESS PURPOSE. TH E BURDEN TO PROVE THAT THE EXPENSES WERE LAID OUT WHOLLY ARID EXCLUSIVELY FOR BUSINESS PURPOSE HER UPON THE ASSESSEE [GOODLAS NEROLAC PLAINTS LTD. VS CIT (BOM) 137 ITR 58]. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 55 7.4 HERE IT IS ALSO RELEVANT TO MENTION THAT VIDE E XPLANATION 2 TO SUBSECTION (1) OF SECTION 37 IT HAS BEEN CLARIFIED THAT FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTI VITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED TO IN SECT ION 135 OF THE COMPANIES ACT, 2013 (18 OF 2013) 58 SHALL NOT BE DE EMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS ES OF THE BUSINESS OR PROFESSION, AMENDMENT IS CLARIFICATORY IN NATURE . 7.5 THE EXPENDITURE INCURRED IS NOT WITH A VIEW TO BRING PROFITS OR MONETARY ADVANTAGE TO THE ASSESSEE COMPANY. ACCORD INGLY THE SAID SOCIO ECONOMIC EXPENSES OF RS. 5023041/- IS DISALLO WED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE.' 62. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD CIT(A) WHO HAS UPHELD THE DISALLOWANCE SO MADE BY T HE AO AND AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN APPEAL BEFORE US. 63. IN THIS REGARD, THE LD AR SUBMITTED THAT ACCORD ING TO SECTION 37(1) OF THE INCOME TAX ACT, 1961, ANY EXPENDITURE (NOT BEIN G EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE OR INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PRO HIBITED BY LAW), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 64. UNDER SECTION 37(1), EXPENSES WHICH ARE NOT SPE CIFICALLY DISALLOWED AS DEDUCTION, CAN BE CLAIMED AS DEDUCTION PROVIDED CER TAIN CONDITIONS ARE FULFILLED. FOR EXAMPLE EXPENDITURE INCURRED IN ORG ANIZING A FOOT BALL TOURNAMENT HAS BEEN HELD AS ALLOWABLE DEDUCTION UND ER SECTION 37 WHILE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 56 COMPUTING INCOME OF THE ASSESSEE (DELHI CLOTH AND G ENERAL MILLS CO. LTD. VS. CIT (1999) 240 ITR 9 DEL. FURTHER RELIANCE WAS PLAC ED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. BHARAT CAR BON & RIBBON MFG. CO. (P) LTD., 1999 XII SITC 218 WHEREIN IT WAS HELD THA T WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPE ND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSE SSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNTS BE DECISIVE OR CONCLUSIVE IN THE NATURE. FURTHER, RELI ANCE WAS PLACED ON CIT VS MALAYALAM PLANTATIONS LTD (1960) 53 ITR 140 (SC) AN D CIT VS KALYANJI MAVIJI & CO (1980) 122 ITR 49. 65. IT WAS FURTHER SUBMITTED THAT WHEREVER THE MEGA ROAD PROJECTS ARE IMPLEMENTED, THERE ARE A LOT OF DISPLACEMENTS OF TH E RESIDENTS, REMOVAL OF THE BUILDINGS AND VARIOUS OTHER ACTIVITIES WHICH CAUSES INCONVENIENCE AND PROBLEMS TO THE RESIDENTS OF THE AREA AND TO ADDRES S SUCH ISSUES AS A NATIONAL POLICY, THE GOVERNMENT OF INDIA WHILE APPROVING INF RASTRUCTURE POLICY HAVE STIPULATED A CLAUSE THAT ANYBODY WHO IS TAKING SUCH TYPE OF PROJECTS EVEN GOVERNMENT THEN THEY WILL HAVE TO ENSURE UPLIFTMENT AND REHABILITATION OF LOCAL RESIDENTS WHO ARE AFFECTED BY SUCH ACTIVITY A ND ACCORDINGLY AN AGREEMENT EXECUTED BETWEEN THE GOVERNMENT OF RAJAST HAN AND THE ASSESSEE COMPANY WHICH CALLED PARTNERSHIP AND DEVELOPMENT AG REEMENT HAS CATEGORICALLY STIPULATED THAT IT WOULD BE IMPERATIV E AND OBLIGATORY ON THE PART OF COMPANY TO INCUR CERTAIN EXPENDITURE FOR THE INH ABITANTS/RESIDENTS/OTHER AFFECTED PARTIES TO CARRY OUT CERTAIN ACTIVITY WHIC H INTER-ALIA INCLUDES CONSTRUCTION OF SCHOOLS, WELLS, EDUCATION FOR INFOR MATION TO LEAVE DRINKS, LIQUOR, NOT TO DRIVE AFTER DRINKING AND VARIOUS OTH ER ACTIVITIES AND IT WAS MANDATORY TO CARRY OUT SUCH ACTIVITIES AS PER AGREE MENT WITH THE GOVERNMENT AND ALL SUCH EXPENSES AS PER THE DEVELOPMENT AGREEM ENT AGREED BETWEEN GOVT., OF RAJASTHAN CLEARLY STATES AS UNDER : IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 57 OBLIGATIONS OF RIDCOR (APPELLANT): 1. THE OBLIGATIONS OF RIDCOR UNDER THIS AGREEMENT SHAL L COMMENCE ONLY ON THE ISSUANCE BY GOR (WITHIN 30 DAYS OF THIS AGREEMENT), UNDER THE PROVISIONS OF RAJASTHAN ROAD DEVELOPMENT ACT, 2002, A SINGLE USER FEE NOTIFICATION ORDER, APPLICABLE FOR THE ENTIRE PROJECT PERIOD CONFERRING ON RIDCOR THE RIGHT TO DEMAND, CO LLECT, RETAIN AND APPROPRIATE USER FEE FROM THE USERS OF THE PROJECT ROAD; 2. SUBJECT TO 2.2(1) ABOVE, RIDCOR HEREBY AGREES AND A CKNOWLEDGES, WITHOUT QUALIFICATION AS PART OF THIS PARTNERSHIP A ND DEVELOPMENT AGREEMENT, TO UNDERTAKE THE FOLLOWING OBLIGATIONS D URING THE PROJECT PERIOD: (A) COMMENCE, WITHIN 90 DAYS OF THIS AGREEMENT, THE IMPROVEMENT WORKS WHICH MAY HOWEVER NOT INCLUDE THA T FOR LANDSCAPING, WAYSIDE AMENITIES, USER SERVICES OR SU CH OTHER ITEMS AS MAY BE DECIDED BY RIDCOR; (B) ARRANGE AND PROCURE FIRM COMMITMENTS FOR FINANCING FROM LENDERS/ INVESTORS AND ACHIEVE FINANCIAL CLOSE WITH IN 180 DAYS FROM THE DATE OF SIGNING THIS AGREEMENT; (C) UNDERTAKE TO ACHIEVE SUBSTANTIAL COMPLETION NOT LAT ER THAN 24 MONTHS FROM THE IMPROVEMENT WORKS COMMENCEMENT DATE IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 4.3 OF TH IS AGREEMENT; (D) ORGANISE THE SUPERVISION, MONITORING AND CONTROL OF THE IMPROVEMENT WORKS AND OPERATE, MANAGE AND MAINTAIN THE FACILITY IN ACCORDANCE WITH THIS AGREEMENT; IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 58 (E) APPOINT SUITABLE PERSONS BY ENTERING INTO APPROPRIA TE CONTRACTS FOR FULFILLING ITS OBLIGATIONS UNDER THIS AGREEMENT ; PROVIDED ANY SUCH SUBCONTRACTING SHALL NOT RELIEVE RIDCOR FROM A NY OF ITS OBLIGATIONS IN RESPECT OF THE PROVISION OF SUCH OBL IGATIONS UNDER THIS AGREEMENT. IT IS CLARIFIED THAT RIDCOR S HALL REMAIN LIABLE FOR ANY ACTS, OMISSIONS OR DEFAULTS OF ANY S UB- CONTRACTOR; (F) PROTECT THE PROJECT SITE FROM FRESH ENCROACHMENTS D URING THE PROJECT PERIOD; IN CASE, RIDCOR IS UNABLE TO EFFECT IVELY DISCHARGE THIS OBLIGATION FOR REASONS BEYOND ITS CO NTROL, THEN IT SHALL REQUEST GOR TO PROVIDE NECESSARY ASSISTANCE T O MITIGATE THE PROBLEM; (G) ENSURE THAT AT THE END OF THE PROJECT PERIOD, THE F ACILITY IS TRANSFERRED TO GOR IN FAIR CONDITION, FREE OF COST AND FREE FROM ALL ENCUMBRANCES, SUBJECT TO NORMAL WEAR AND TEAR H AVING REGARD TO THEIR USE IN ACCORDANCE WITH PRUDENT UTIL ITY PRACTICES AND THE TERMS AND CONDITIONS OF THIS AGREEMENT; (H) REPORT TO GOR DURING THE PROJECT PERIOD, SUCH INFOR MATION AS GOR MAY REASONABLY REQUIRE TO BE INFORMED OF MATERI AL MATTERS RELATING TO THE FACILITY AND ALSO AS PER RE QUIREMENTS OF STATUTORY AGENCIES, AS WELL AS LEGALLY CONSTITUTED ENTITIES OF GOR, (I) ALLOW REPRESENTATIVES DULY AUTHORISED BY RELEVANT C OMPETENT AUTHORITY REASONABLE ACCESS TO THE PROJECT ROAD; PR OVIDED HOWEVER THAT SUCH REPRESENTATIVES SHALL CONDUCT THE IR OPERATIONS AT THEIR OWN RISK, COST AND EXPENSES; IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 59 (J) PROVIDE ACCESS TO RECORDS AND OTHER RELEVANT INFORM ATION AND I SUPPLY DETAILS AS MAY BE REASONABLY REQUIRED BY THE INDEPENDENT AUDITOR/ENGINEER AND GOR, WHEN REQUESTE D; (K) SUBJECT TO THE PROVISIONS OF ARTICLE 6 AND ARTICLE 8.1 RIDCOR SHALL NOT CEASE ACTIVITIES ON THE FACILITY FOR A CO NTINUOUS PERIOD OF MORE THAN 60 DAYS; (L) SUBJECT TO PROVISIONS OF EXISTING LAW, ENFORCE COLL ECTION OF USER FEE AT THE RATES NOTIFIED FROM TIME TO TIME; (M) UNDERTAKE LAND BANKING IN TERMS OF ARTICLE 2.1(H), WHEREVER FEASIBLE AND UTILISE THE PROCEEDS THEREOF, AS CERTI FIED BY INDEPENDENT AUDITOR, IN ACCORDANCE WITH THIS AGREEM ENT; (N) OPEN MAINTAIN FINANCIAL SECURITY SUPPORT FUND (FSSF ), DURING THE TRIAL OPERATION PERIOD BY CREDITING THE PROJECT REVENUES EARNED DURING THIS PERIOD; THE MONIES CREDITED INTO THE FINANCIAL SERVICING SUPPORT FUND SHALL BE AVAILABLE FOR MEETING THE DEFICIT DURING THE OPERATIONS PERIOD IN TERMS O F ARTICLE 2.9; (O) DUE OBSERVANCE OF THE PROVISIONS OF THE LAWS OF GOR /GOI INCLUDING RULES REGULATIONS MADE THEREUNDER AS APPL ICABLE TO THE PROJECT INCLUDING LAWS RELATING TO ENVIRONMENTA L AND ECOLOGICAL PROTECTION AND ROAD SAFETY DURING THE PR OJECT PERIOD; AND (P) DUE OBSERVANCE OF THE PROVISIONS OF THIS AGREEMENT, THE FINANCING AGREEMENTS AND ALL OTHER PROJECT CONTRACT S ENTERED INTO FOR THE PURPOSE OF IMPLEMENTATION OF THE PROJE CT DURING THE PROJECT PERIOD. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 60 66. IT WAS SUBMITTED THAT IT WAS OBSERVED THAT LOT OF DRIVERS ON THE HIGHWAY WERE FOUND DRIVING THEIR VEHICLES WITH HEAVY DRINKS AND MOST OF THEM WHEN CHECKED WERE FOUND SUFFERING FROM HIV/AIDS AND THEI R FURTHER PHYSICAL ACTIVITY IN THE AFFECTED AREA IS TAKING LOT OF CASU ALTIES AS VARIOUS PEOPLE HAVE ALSO GOT INFECTED BY SUCH DISEASES DUE TO SUCH ACTI VITY AND AS A SAFETY MEASURE, THE ASSESSEE COMPANY IS RUNNING AWARENESS PROGRAMMES CONTACTING THE PEOPLE, DRIVERS, MALE/FEMALE LABOURE RS ETC. ABOUT ITS PREVENTION, THEIR TREATMENT AND PRECAUTIONS ETC. A LL OTHER ACTIVITIES LIKE PUTTING THE CAUTION BOARDS NOT TO DRINK AND DRIVE, AVOID SEX WITH MORE THAN ONE PARTNER AND EDUCATING THEM THROUGH PLAYS ETC. T O STOP THE INCREASING TENDENCY OF PEOPLE GETTING AFFECTED BY THE DANGEROU S DISEASES INCREASE EXPENDITURE WHICH IS TOTALLY FOR THE BUSINESS PURPO SES AND AS HAS BEEN HELD IN THE VARIOUS JUDGMENTS BY THE HONBLE HIGHER AUTHORI TIES WHICH WE HAVE NARRATED ABOVE AND THE MOST IMPORTANT THE CRITERIA GIVEN BY THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS NAVSARI COTTON & SILK MILLS LTD (1982) 135 ITR 546 WHICH HAS LAID DOWN CERTAIN PRINCIPLES TO A LLOW SUCH EXPENDITURE U/S 37 OF THE INCOME TAX ACT WHICH ARE POSITIVE AND NEG ATIVE NARRATED HEREUNDER AND COMPANY IS WELL COVERED IN THIS POSITIVE AND NE GATIVE TEST AND FULLY ELIGIBLE FOR REDUCTION U/S 37(1) OF THE INCOME TAX ACT AND HENCE IT IS SUBMITTED THAT THE DISALLOWANCE MAY BE DELETED AS N EITHER THIS HAS A PERSONAL NATURE NOR IT IS IRRELEVANT AND EXTRANEOUS CONSIDER ATION AND DIRECTLY CONNECTED WITH THE BUSINESS CARRIED OUT BY THE COMPANY AND TO COMPLY WITH THE GOVERNMENT OF INDIAS POLICY FOR IMPLEMENTING SUCH ACTION ON MEGA PROJECTS. IT IS PRAYED THAT THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER MAY BE DELETED. 67. THE HONBLE GUJARAT HIGH COURT IN CIT VS. NAVSA RI COTTON & SILK MILLS LTD. (1982) 135 ITR 546 (GUJ) HAS EVOLVED SOME POSI TIVE AND NEGATIVE TESTS ON FIRST PRINCIPLES TO CLAIM DEDUCTION OF AN EXPEND ITURE AS BUSINESS EXPENDITURE: IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 61 (A) POSITIVE TESTS: IF THE EXPENDITURE IS INCURRED: WHETHER COMPANY FULFILLS TESTS 1 WITH A VIEW TO BRING PROFITS OR MONETARY ADVANTAG E TODAY OR TOMORROW; YES 2 TO RENDER THE APPELLANT IMMUNE FROM IMPENDING OR REASONABLY APPREHENDED LITIGATION; YES 3 IN ORDER TO SAVE LOSSES IN FORESEEABLE FUTURE YES 4 FOR EFFECTING ECONOMY IN WORKING WHICH MAY PAY DIVIDENDS TODAY OR TOMORROW; YES 5 FOR INCREASING EFFICIENCY IN WORKING YES 6 FOR REMOVING INEFFICIENCY IN THE WORKING; YES 7 WHERE THE EXPENDITURE INCURRED IS SUCH AS A WISE, PRUDENT, PRAGMATIC AND ETHICAL MAN OF THE WORLD OF BUSINESS WOULD CONSCIENTIOUSLY INCUR WITH AN EYE ON PROMOTING HIS BUSINESS PROSPECTS SUBJECTS TO THE EXPENDITURE BEING GENUINE AND WITHIN REASONABLE LIM ITS; YES 8 WHERE IT IS INCURRED SOLELY BY WAY OF A CIVIL DUT Y OWED BY THE ASSESSEE TO THE SOCIETY HAVING REGARD TO THE NATURE OF HIS BUSINESS WHICH BRINGS HIM PROFITS BUT RESULTS IN SOME DETRIMENT TO THE PUBLIC AT LARGE EI THER BY WAY OF HEALTH HAZARD OR ECOLOGICAL POLLUTION OR SERIOUS INCONVENIENCE TO THE CITIZENS WITH A VIEW T O MITIGATE THE AFORESAID EVIL CONSEQUENCES AND CONSEQUENCES OF A LIKE NATURE, SUBJECT TO ITS BEING GENUINE AND WITHIN REASONABLE LIMITS. YES B. NEGATIVE TESTS: IF THE EXPENDITURE IS INCURRED: WHETHER COMPANY FULFILLS TESTS 1 FOR A MERE ALTRUISTIC CONSIDERATION; NO. 2 MAINLY IN ORDER TO SATISFY HIS PHILANTHROPIC URGE S; NO. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 62 3 MAINLY IN ORDER TO WIN APPLAUSE OR PUBLIC APPRECIATION; NO. 4 FOR ILLEGAL, IMMORAL OR CORRUPT PURPOSES OR BY AN Y SUCH MEANS OR FOR ANY SUCH REASONS; NO. 5 MAINLY IN ORDER TO OBLIGE A RELATIVE OR AN OFFICI AL; NO. 6 TO EARN THE GOODWILL OF A POLITICAL PARTY OR A POLITICIAN; NO. 7 TO SHOW OFF OR IMPRESS OTHERS WITH HIS AFFLUENCE OR FOR OSTENTATIOUS PURPOSES. NO. 8 APPARENTLY FOR A FACTOR LISTED AS A POSITIVE FACT OR BUT IN REALITY FOR ONE NO. 9 OF THE OBNOXIOUS PURPOSE LISTED AS A NEGATIVE FACTOR; NO. 10 ON A NEBULOUS PLEA OR PRETEXT BUT REALLY FOR O NE OR THE OTHER OF THE PURPOSES LISTED AS NEGATIVE TESTS; NO. 11 IT MUST NOT BE A BOGUS, FICTITIOUS OR SHAM TRANSACTION; NO. 12 IS MUST NOT BE UNREASONABLE AND OUT OF PROPORTION; NO. 13 IT MUST NOT BE AN EXPENDITURE MERELY WITH A VIEW TO AVOID TAX LIABILITY WITHOUT ANY GENUINE PURPOSE OR REASON IN GOOD FAITH; AND THE ADVANTAGE TO BE SECURED BY INCURRING THE EXPENDITURE MUST NOT BE OF THE NATURE OF A REMOTE POSSIBLE ADVANTAGE DEPENDING ON 'IFS AND 'BUTS' AND, IF AT ALL, TO BE SECURED AT AN UNCERTAI N FUTURE DATE WHICH MAY BE CONSIDERED TOO REMOTE. NO. 68. IT WAS SUBMITTED THAT A READING OF THE ABOVE JU DGMENT GIVES CLEAR UNDERSTANDING THAT THOUGH SECTION 37(1) IN GENERAL SPEAKS THAT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WILL BE ALLOWED AS DEDUCTION, HOWEVER THE SCOPE OF THE ABOV EMENTIONED SECTION IS WIDE ENOUGH FOR CLAIMING A PARTICULAR DEDUCTION, IF CERTAIN CONDITIONS LAID DOWN THEREIN ARE SATISFIED. THE JURISDICTION OF THE REVENUE AUTHORITIES IS CONFINED TO DECIDING THE REALITY OF THE EXPENDITURE , NAMELY, WHETHER THE IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 63 AMOUNT CLAIMED FOR DEDUCTION WAS FACTUALLY EXPENDE D OR NOT, AND WHETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE B USINESS. ONCE THAT CONCLUSION IS REACHED IN FAVOUR OF THE APPELLANT, D EDUCTION OF THE ENTIRE AMOUNT SHOULD FOLLOW AS A MATTER OF COURSE (SANJEEV I & CO. VS. CIT (1966) 62 ITR 156 (MAD)). IT IS WELL SETTLED THAT THE DEDUCTI ONS ALLOWED IN DETERMINING THE INCOME ENUMERATED IN THE INCOME-TAX ACT ARE NO T EXHAUSTIVE. A BUSINESS EXPENDITURE IS A VOLUNTARY ACT ON THE PART OF A BUS INESSMAN TO SPEND MONEY FOR CARRYING ON HIS BUSINESS WITH A VIEW TO EARNING PROFITS AS HELD IN CASE OF KAMPLAPAT MOTILAL V. CIT (1976) 104 ITR 783 (ALL). 69. IT WAS SUBMITTED THAT THE TEST TO FIND OUT WHE THER A PARTICULAR EXPENDITURE IS WHOLLY OR PARTLY JUSTIFIED OR EXCLUS IVELY INCURRED FOR THE PURPOSE OF THE BUSINESS IS NOT TO SEE WHETHER IT WAS NECESS ARY, NOR WOULD IT BE PROPER TO SEE WHETHER ANY OTHER PERSON SIMILARLY SITUATED WOULD HAVE THOUGHT IT REASONABLE TO INCUR EXPENDITURE TO THAT EXTENT. THE TRUE TEST IS TO FIND OUT WHETHER THE BUSINESSMAN, WHEN HE EXPENDED THE MONEY , WAS ACTING REASONABLY IN THE INTERESTS OF HIS OWN BUSINESS UNI NFLUENCED BY ANY IRRELEVANT AND EXTRANEOUS CONSIDERATION (CIT VS S. KRISHNA RAO (1970) 76 ITR 664 (AP)) AND THE EXPENDITURE WAS LAID OUT FOR THE PURPOSE OF THE ASSESSEES NORMAL BUSINESS ACTIVITY (DALMIA DAIRY INDUSTRIES LTD. (FO RMERLY KNOWN AS DALMIA CEMENT LTD. VS. CIT (2000) 154 TAXATION 139 (DEL). EXPENSES INCURRED THOUGH NOT DIRECTLY RELATED TO THE EARNING OF INCOM E MAY BE ALLOWABLE DEDUCTION IF THEY ARE RELATED TO THE EFFICIENT CARR IAGE OF THE BUSINESS EVEN INDIRECTLY (INDIAN STEEL & WIRE PRODUCTS LTD. VS. C IT (SUPRA). ALSO THE CALCUTTA HIGH COURT IN CIT VS. SHREE KRISHANGYANODAY SUGAR M ILLS LTD. (1990) 186 ITR 541 (CAL) HAS OBSERVED THE BUSINESS EXPEDIENCY MAY NOT REQUIRE THAT ALL THE EXPENSES BE INCURRED FOR EARNING IMMEDIATE PROFITS. 70. FURTHER IN RESPECT OF APPLICABILITY OF EXPLANAT ION 2 TO S. 37(1) OF THE INCOME TAX ACT, 1961, IT IS SUBMITTED THAT THE RAIP UR BENCH OF INCOME TAX IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 64 TRIBUNAL RECENTLY HELD IN CASE OF JINDAL POWER LTD. [ACIT VS. JINDAL POWER LTD. I.T.A. NO.99/BLPR/2012, ASSESSMENT YEAR: 2008-09, O RDER DATED JUNE 2016] THAT: THE AMENDMENT IN THE SCHEME OF SECTION 37(1), WHIC H HAS BEEN INTRODUCED WITH EFFECT FROM 1 ST APRIL 2015, CANNOT BE CONSTRUED AS TO DISADVANTAGE TO THE APPELLANT IN THE PERIOD PRIOR T O THIS AMENDMENT. THIS DISABLING PROVISION, AS SET OUT IN EXPLANATION 2 TO SECTION 37(1), REFERS ONLY TO SUCH CORPORATE SOCIAL RESPONSIBILITY EXPENSES AS UNDER SECTION 135 OF THE COMPANIES ACT, 2013, AND AS SUCH , IT CANNOT HAVE ANY APPLICATION FOR THE PERIOD NOT COVERED BY THIS STATUTORY PROVISION WHICH ITSELF CAME INTO EXISTENCE IN 2013. EXPLANATI ON 2 TO SECTION 37(1) IS, THEREFORE, INHERENTLY INCAPABLE OF RETROSPECTIV E APPLICATION ANY FURTHER. IN ANY EVENT, AS HELD BY HON PHILLIPS VS. EYRE [A RETROSPECTIVE LEGISLATION IS CONTRARY TO THE GENERAL PRINCIPLE TH AT LEGISLATION BY WHICH THE CONDUCT OF MANKIND IS TO BE REGULATED WHEN INTR ODUCED FOR THE FIRST TIME TO DEAL WITH FUTURE ACTS OUGHT NOT TO CHANGE T HE CHARACTER OF PAST TRANSACTIONS CARRIED ON UPON THE FAITH OF THE THEN EXISTING LAW. 71. IT WAS ACCORDINGLY SUBMITTED THAT LINKING WITH THE CORPORATE SOCIAL RESPONSIBILITY (CSR) AND DISALLOWANCE IS TOTALLY UN CALLED FOR. CSR IS MANDATORY ONLY IN THE CASE WHERE THE COMPANY EARNS PROFIT WHEREAS IN THE INSTANT CASE THE RATIONALE OF INCURRING EXPENDITURE HAS BEEN EXPLAINED ABOVE. IT WAS SUBMITTED THAT THE ASSESSEE BEING INVOLVED I N CONSTRUCTING AND MAINTAINING VARIOUS ROAD STRETCHES, INCURRING THIS TYPE OF EXPENDITURE IS MUST TO AVOID OR MINIMIZE THE ACCIDENTS, SPREAD OF DISEA SES ETC. AND TO ENCOURAGE THE VEHICLES TO COME ON THE APPELLANTS ROADS WHICH WILL HELP THE APPELLANT IN GENERATING GOOD REVENUE. THE TEST OF ALLOWING EXPE NDITURE U/S 37 IS DECIDED BY THE HONBLE GUJARAT HIGH COURT AS DISCUSSED ABOV E AND THE EXPENDITURE SO IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 65 CLAIMED MAY BE ALLOWED AND THE ADDITION SO MADE BY THE LOWER AUTHORITIES BE DELETED. 72. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. 73. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSE D THE MATERIAL AVAILABLE ON RECORD. THE HONBLE GUJARAT HIGH COURT IN CASE O F CIT VS NAVSARI COTTON AND SILK MILLS LTD (SUPRA) HAS HELD THAT WHERE HAVI NG REGARD TO THE NATURE OF THE ACTIVITIES BEING CARRIED OUT BY THE ASSESSEE CO MPANY WHICH RESULTS IN SOME DETRIMENT TO THE PUBLIC AT LARGE BY WAY OF HEA LTH HAZARD, WHERE EXPENDITURE IS INCURRED WITH A VIEW TO MITIGATE ITS EVIL CONSEQUENCES, SUCH AN EXPENDITURE SHOULD BE ALLOWABLE AS AN REVENUE EXPEN DITURE. IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS UNDERTAKEN HIV-AIDS AWARENESS AND PREVENTION PROGRAMME AMONG THE DRIVERS AND OTHER PE OPLE LIVING IN THE VICINITY OF VARIOUS ROAD HIGHWAYS STRETCHES DEVELOP ED AND OPERATED BY IT AND HAS INCURRED AN AMOUNT OF RS 50,23,041/-. FOR THE PURPOSES, THE ASSESSEE COMPANY HAS PUT UP SIGN BOARDS ALONG THE HIGHWAYS A ND HAS ALSO UNDERTAKEN VARIOUS COMMUNITY REACH AND AWARENESS PROGRAMMES AM ONG THE DRIVERS AND LOCAL PEOPLE. WE FIND THAT BESIDES EDUCATING THE DR IVERS ABOUT SUCH DISEASE AND THE CONSEQUENT HEALTH HAZARDS, WHAT THE ASSESSE E COMPANY IS ALSO TRYING TO DO IS PROTECT THE LOCAL INHABITANTS, WHO ARE STA YING IN THE VICINITY OF VARIOUS ROAD HIGHWAYS STRETCHES DEVELOPED AND OPERATED BY I T, FROM THE FLOATING POPULATION OF DRIVERS WHO ARE PRONE TO SUCH DISEASE S AND BUILD A MORE CONDUCIVE AND HEALTHY ENVIRONMENT FOR SMOOTH FUNCTI ONING OF ROAD STRETCHES AND HAS THUS ESTABLISHED A NECESSARY NEXUS WITH ITS BUSINESS ACTIVITIES. SUCH AN ACTIVITY AND CONSEQUENT INCURRENCE OF EXPENDITUR E IS ALSO IN CONSONANCE WITH THE PARTNERSHIP AND DEVELOPMENT AGREEMENT SIGN ED BY THE ASSESSEE COMPANY WITH THE GOVERNMENT OF RAJASTHAN WHERE THE ASSESSEE COMPANY IS OBLIGED TO CARRY OUT SUCH ACTIVITIES. THE EXPENDIT URE SO INCURRED IS DIRECTED TO IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 66 BE ALLOWED IN THE HANDS OF THE ASSESSEE COMPANY AS AN ALLOWABLE EXPENDITURE AND THE MATTER IS ALLOWED IN FAVOUR OF THE ASSESSEE COMPANY. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED. 74. BEFORE PARTING, WE MAY ADD THAT THE CASE WAS HE ARD ON 13.03.2020 AND GIVEN THAT THE MATTER INVOLVES MULTIPLE ISSUES, THE ORDER WAS RESERVED FOR PRONOUNCEMENT AND IS NOW READY FOR PRONOUNCEMENT. G IVEN THE EXTRAORDINARY CIRCUMSTANCES PREVAILING IN THE COUNTRY ON ACCOUNT OF COVID 19 PANDEMIC AND CONSEQUENT, NON-FUNCTIONING OF THE BENCHES AND THE REGISTRY STAFF, THE PERIOD OF LOCKDOWN IS REQUIRED TO BE EXCLUDED IN CO MPUTATION OF THE 90 DAYS PERIOD PRESCRIBED FOR PRONOUNCING THE ORDER. SIMILA R VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH IN THE CASE OF DCIT VS JSW LTD [2020] 116 TAXMANN.COM 565 (MUMBAI). HENCE, THE ORDER IS HEREB Y PRONOUNCED IN THE OPEN COURT WITHIN THE STIPULATED TIME FRAME AS PRES CRIBED. IN THE RESULT, THE RESPECTIVE APPEALS FILED BY THE ASSESSEE ARE DISPOSED OFF IN LIGHT OF AFORESAID DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 31/07/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 31/07/2020. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHAN LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. IT A NO. 668 TO 670/JP/2019 M/S ROAD INFRASTRUCTURE DEV. COM. OF RAJASTHAN LTD. VS. ACIT 67 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 668 TO 670/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR