PR COMMISSIONER OF INCOME TAX JAIPUR-II V. M/S RAJ STATE ROAD DEVELOPMENT andCONS COR

ITA/270/2017

AI Insights

The case involves the Pr. Commissioner of Income Tax, Jaipur-II, as the appellant, contesting against M/s Rajasthan State Road Development & Construction Corporation Limited, the respondent. The core issues pertained to the Tribunal's decision to dismiss the department's appeal concerning the deductions and contributions made by the respondent to the State Renewal Fund, the apportionment of indirect expenses related to the head office for restricting deductions under section 80 IA, and the treatment of employees' contributions to PF and ESI. The High Court referenced previous decisions and found that the Tribunal's conclusions were supported by the facts and law, leading to the dismissal of the appeal.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 744332 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 06-02-2018
• Assessment Year: misc
• Other Referred Cases: Principal Commissioner of Income Tax vs. Rajasthan State Seed Corporation Ltd., Pr. Commissioner of Income Tax vs. M/s. Rajasthan State Road Development & Construction
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: K D MATHUR; R B MATHUR
• Keywords: Administrative Expenses; Deduction; Income tax appeal; PF & ESI Contribution; State Renewal Fund
• Section: 43B; 37(1); 80IA; 36(1)(va); 2(24)(x)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 270 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus M/s Rajasthan State Road Development &, Construction Corporation Limited, Sethu Bhawan , Jhalana Doongri Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R. B. Mathur For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 06/02/2018 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department. 2. Counsel for the appellant has framed the following substantial questions of law:- “i) Whether in the facts and circumstances of the case and law the ITAT was justified in deleting the addition of Rs. 20,00,000/- made on account of contribution made on account of contribution made to State Renewal Fund despite the fact that it was application of income and not expenditure incurred for business expediency. ii) Whether in the facts and circumstances of the case and in law the ITAT was justified in holding that indirect expenses related to head office need not be further apportioned for restricting deduction u/s. 80 IA despite the fact that the administrative expenses and payments (2 of 6) [ITA-270/2017] to employees were not allocated proportionately to the eligible business for deduction u/s 80IA. iii) Whether in the facts and circumstances of the case and in law the ITAT was justified in deleting the addition of Rs. 604590/- made for depositing the employees’ contribution to PF & ESI beyond the prescribed time limit provided in the respective Acts. Iv) Whether in the facts and circumstances of the case and in law the ITAT was justified in holding that employees’ contribution to PF and ESI governed by the provision of Section 43B and not by section 36(1) (va) r.w.s. 2(24) (x) of the IT Act.” 3. Issue No.1 is covered by the decision of this Court in D.B. Income Tax Appeal No.4/2016, Principal Commissioner of Income Tax vs. Rajasthan State Seed Corporation Ltd. decided on 29.04.2016 wherein it has been held as under: 8. Insofar as the expenditure incurred on State Renewal Fund is concerned, said expenditure also goes to show that the renewal 7 fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for business expediency is certainly allowable deduction under Section 37(1) of the Act. In our view any normal expenditure for the welfare and benefit of employees is allowable expenditure under Section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondent-assessee towards contribution of the said amount to the State Renewal Fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion.” (3 of 6) [ITA-270/2017] 4. Issue No.2 is squarely covered by the decision of this Court in D.B. Income Tax Appeal No. 74/2017 (Pr. Commissioner of Income Tax, Versus M/s. Rajasthan State Road Development & Construction decided on 31.08.2017 wherein it has been held as under:- “3. Counsel for the appellant contended that both the authorities has rightly held in favour of the department. However, the Tribunal while considering the matter in para 8.2 observed as under:- “8.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. The AO observed that during the year under consideration, the Company has claimed establishment expenses under the head “Payment to and provision for employees” as per Schedule “I” at Rs.32,68,44,701/- and “Administrative expenses” at Rs. 6,05,47,431/- as per Schedule “J” annexed to the Profit & Loss account. Total of these expenses comes to Rs. 38,73,92,132/-. The AO further observed that none of the expenses were charged towards income disclosed from various toll road projects eligible for claiming deduction u/s 80IA of the Act. He observed that assessee has claimed total 8 toll road/bridge projects eligible for deduction u/s 80IA of the Act within the meaning of section 80IA(4)(i) of the Act for developing, operating and maintaining of infrastructure facility i.e. Road/Bridge. These 8 projects are : (i) Bikaner Bypass, (ii) Hanumangarh-Suratgarh Road, (iii) Hanumangarh-Shriganganagar Road, (iv)Massi Bridge, (v) Chala Neem Ka Thana- Kotputli Road, (vi) Chomu-Ajitgarh-Shahpura 12 ITA No. 558(2)/JP/2015 Rajasthan State Road Dev. & Construction Corpn. Ltd. Road, (vii) Chala Neem ka Thana-Kotputli Road (Improvement), (viii) Mangalwar Nimbahera Road. Out of these, two projects Bikaner Bypass & ChomuAjitgarhShahpura Road have incurred losses. On balance 6 projects assessee has claimed deduction u/s 80IA of the Act to the tune of Rs. 8,20,34,909/-. As the establishment and administrative expenses were utilized for the entire business activities of the company which includes road & bridge projects; as such (4 of 6) [ITA-270/2017] the assessee was asked to show cause and explain as to why the establishment and administrative expenses of Rs. 38,73,92,132/- should not be allocated proportionately to Road/Bridge projects in proportion to their income of Rs. 23,00,24,830/- with total income of Rs. 64,78,66,500/-. The assessee, in response to this query, made a detailed submission. However, the submissions of the assessee were not found acceptable by the AO. The A.O, therefore, by relying on the provisions of section 80IA(5) allocated the direct expenses towards eligible units as well. The AO further observed that it is clear that many expenses of common nature i.e. head office and other day- to-day management and supervision expenses have not been apportioned amongst the unit claiming deduction u/s 80IA of the Act. The assessee has considered only direct operation and maintenance expenses for working out the profits of road and bridge projects for claiming deduction u/s 80IA, as if these projects were automatically set up and running without any strategic planning, management, directions, supervision, marketing support, regular contract awarding, works tendering, control etc. by the head office/branch offices. The administrative, head office and other expenses have a direct nexus with the running of road/bridge projects of the assessee situated at various places and, therefore, the same are 13 ITA No. 558(2)/JP/2015 Rajasthan State Road Dev. & Construction Corpn. Ltd. deductible on proportionate basis in computing the profits and gains from the eligible business for the purpose of sub-section (1) of Sec. 80IA of the Act. Therefore, the AO observed that a sum of Rs. 13,75,43,459/- is required to be apportioned to 80IA units, accordingly this will be deducted for the purpose of working out deduction under section 80IA of the Act. Thus the AO reduced the allowable deduction accordingly. However, the ld. CIT (A) after considering the submissions of the assessee, restricted the disallowance to Rs. 6,98,93,301/- against Rs. 8,20,34,909/-. The ld. CIT (A) by doing so has observed as under :- “ 5.5. The appellant has stated that while apportioning the expenditure, the Assessing Officer has wrongly taken the total turnover as Rs. 64,78,66,570/- whereas the correct turnover is Rs. 4,38,13,34,652/-, reflected in the inner column of Schedule-G of the final accounts relating to operating receipts. If the inner column of Schedule-G pertaining to operating (5 of 6) [ITA-270/2017] receipts is totaled, the gross turnover amounts to Rs. 69,89,85,491/- as against Rs. 4,38,13,34,652/- claimed by the appellant. 5.6. The appellant has stated that the work of BOT projects is handled by only five divisions of the appellant and the remaining 26 divisions do not undertake any work relating to BOT projects. Therefore, payment to and provision for employees of these five divisions and the head office should only be taken. This contention of the appellant is correct and this expenditure relatable to BOT projects is taken as Rs. 16,98,40,588/-. 5.7. The appellant has stated that administrative expenses incurred at the head office of Rs. 6,05,47,731/- do not relate to BOT projects. Looking to the nature of administrative expenses, this contention of the appellant is without any basis and cannot be accepted. The administrative expenses which need to be apportioned to the BOT projects is Rs. 6,05,47,731/- - Rs. 1,80,00,500/-= Rs. 4,25,46,931/- (expenditure of Rs. 1,80,00,500/- has been disallowed by the appellant in the computation of income). Therefore, the total expenditure which needs to be apportioned to the BOT projects is Rs. 21,23,87,519/- (Rs. 16,98,40,588 + Rs. 4,25,46,931/-). 14 ITA No. 558(2)/JP/2015 Rajasthan State Road Dev. & Construction Corpn. Ltd. 5.8. In this way, disallowance under section 80IA(4) will be computed as under :- Rs. 21,23,87,519 x Rs. 23,00,24,830 / Rs. 69,89,85,491 = Rs. 6,98,93,301/-. The disallowance u/s 80IA(4) of Rs. 8,20,34,909/- made by the Assessing Officer is restricted to the above amount of Rs. 6,98,93,301/-. Ground 4.1 is partly allowed. “ The assessee has demonstrated that the authorities below have taken incorrect figure of turnover. Another contention of the assessee is that the amount related to Head Office is already apportioned and, therefore, there was no need for apportionment of the same. We find merit in the contention of the ld. Counsel for the assessee. Therefore, the ground raised in the appeal of the revenue is dismissed. 4. Taking into consideration, he contended that the Tribunal has wrongly allowed the claim of the assessee. 5. Counsel for the respondent Mr. Gunjan Pathak contended that taking into consideration the expenses which are incurred for the amount which has been received pursuant to the contract entered with the Sub Contractor and (6 of 6) [ITA-270/2017] deduction which has been given was remitted back and after considering the matter under Section 80 IA, the amount was allowed. Therefore, the assessment order was exhaustive.” 5. In so far as issue Nos.3 and 4 are concerned, the same are pending before the Supreme Court in C.I.T., Jaipur vs. M/s State Bank of Bikaner and Jaipur, S.L.P. (C) No.016249/2014, therefore, these issues are answered subject to SLP pending before Supreme Court. 6. In view of above, no substantial question of law arises. 7. The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. B.M.G. "