Income Tax Appellate Tribunal - Chandigarh
M/S Himalayan Expressway Ltd, vs Commssioner Of Income Tax , Panchkula on 21 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.900/Chd/2015
(Assessment Year : 2012-13)
The A.C.I.T., Vs. Himalayan Expressway Ltd.,
Panchkula Circle, Kalka Sadan, Kalka Shimla Road,
Panchkula. Pinjore.
PAN: AABCH9338L
And
ITA No.907/Chd/2015
(Assessment Year : 2012-13)
Himalayan Expressway Ltd., Vs. The Income Tax Officer,
Kalka Sadan, Kalka Shimla Road, Ward 4,
Pinjore. Panchkula.
Haryana. Haryana.
PAN: AABCH9338L
(Appellant) (Respondent)
Assessee by : Shri Ashwani Kumar Garg
Department by : Shri Manjit Singh, DR
Date of hearing : 09.08.2016
Date of Pronouncement : 21.11.2016
O R D E R
PER ANNAPURNA GUPTA, A.M. :
Both the appeals, by the assessee and the Revenue, have been filed against the order of learned
Commissioner of Income Tax (Appeals), Panchkula dated 12.10.2015 for assessment year 2012-13.
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2. Brief facts relating to the case are that the assessee had taken up a project of NHAI for broadening of section of National Highway 22. However, during the year under consideration, the assessee had not commenced any commercial activity as the project was under construction. All the construction cost and related expenses had been capitalized. The assessee company filed its return of income declaring nil income. Assessment under section 143(3) of the Income Tax Act, 1961 (in short 'the Act') was completed at an income of Rs.1,08,69,320/- by treating interest income of Rs.44,86,989/- as income from other sources and 8% of receipts of Rs.7,97,79,144/- from contract business amounting to Rs.63,82,331/-, as income from business. Aggrieved by the same, the assessee filed appeal before the learned CIT (Appeals), who upheld the addition made on account of interest income of Rs.44,86,989/- and deleted the estimated income from contract business of Rs,63,82,331/-.
3. Aggrieved by the same both the assessee and the Department have filed these cross appeals before us. We shall first take up the appeal of the assessee in ITA No.907/Chd/2015.
ITA No.907/Chd/2015(Assessee's Appeal) :
4. The assessee has primarily challenged the upholding of the assessment of gross pre-operative interest of Rs.44,86,989/- accruing from temporary 3 investment of borrowed funds in short term deposits as income from other sources. The assessee raised the following grounds of appeal before us :
"1. That the learned CIT (Appeals) has on the facts of the case erred in upholding the assessment (as income from OTHER SOURCES) of gross preoperative interest of Rs 44,86,989 accruing from temporary investment of borrowed funds in short-term fixed deposits.
2. That the learned CIT (Appeals) has erred in not appreciating that the gross interest accruing from the aforesaid investments was less than the cost of invested funds. Hence there was no real net income which could be charged under s. 4 read with s. 56 of the Act.
3. That the learned CIT (Appeals) has erred in upholding that the cost of invested funds was an application of income even though the cost attached to borrowed funds from their inception and such funds had no existence sans the interest liability.
4. That the learned CIT (Appeals) has erred in not appreciating that the interest accruing from the temporary investment of borrowed funds only partially reduced the interest cost of such funds which was to be capitalized in terms of the mandatory accounting standard AS-16.
5. That AS-16 is logical and is in line with the international accounting standard IAS-23. It is not contrary to any specific provisions of the Act. A mandatory accounting standard can not be rejected unless it is shown to be such.
6. That the rule in Tuticorin Alkali [1997] 227 ITR 172 (S.C.) insofar as it applies to income earned from temporary investment of borrowed funds needs to be reviewed as the afore-stated grounds were not argued in the said case nor the mandatory AS-16 was then in existence.
7. That the appellant craves leave to add, amend or forgo any 4 of the Grounds of Appeal before or at the time of hearing of the appeal."
5. The facts relating to the issue are that during the assessment proceedings the Assessing Officer noted that the assessee had received interest on bank deposits/FDRs to the tune of Rs.44,86,989/-. On being confronted with the same, the assessee submitted that being engaged in the construction of road project on build-own-transfer basis and its entire capital including borrowed funds being for the purpose of project, the assessee had temporarily placed part of its funds in fixed deposits. The assessee submitted that it was not involved in any other business other than construction of road and neither had any intention of creating any independent source of income. The assessee submitted that the interest earned by it was inextricably linked with the implementation of the road project and hence, was a capital receipt to be off-set and reduced from the cost of the project. Alternatively, the assessee pleaded that the interest paid during the year in any case exceeded the interest earned and, therefore, no income was liable to be brought to tax in the impugned year. The Assessing Officer after considering the assessee's reply relied upon the judgment of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (1997), 227 ITR 172 (SC) and assessed the interest income at Rs.44,86,989/- as income from other sources. 5
6. Before the learned CIT (Appeals), the assessee reiterated its submissions made before the Assessing Officer and further took up an additional ground stating that there was no real income from FDRs. The cost was attached to the borrowed funds from their origination, that the accruing return was not income but cost reduction factor and that the Accounting Standard mandated cost of borrowed funds to be capitalized after reducing any income earned from their temporary investment. The learned CIT (Appeals) after considering the arguments of the assessee held hat similar issue had arisen in the case of the assessee in assessment year 2011-12 also wherein it was categorically held that the assessee's case was squarely covered by the decision of the Hon'ble Apex Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and, therefore, the income assessed by the Assessing Officer was upheld. The CIT (Appeals) further adjudicated the additional ground raised by the assessee and stated that all the issues raised by the in the additional ground have been dealt with by the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). Further, the learned CIT (Appeals) stated that the I.T.A.T. had dismissed the appeals of the assessee in the preceding years i.e. assessment years 2009-10 and 2011-12. Therefore, on the above basis, the learned CIT (Appeals) upheld the addition made of Rs.44,86,989/- on account of income from other sources.
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7. Before us, the learned counsel for the assessee reiterated the submissions made before the lower authorities, while the learned D.R. relied upon the order of the learned CIT (Appeals).
8. We have heard the rival contentions, perused the orders of the authorities below and the documents placed before us. We find no infirmity in the order of the learned CIT (Appeals) upholding the addition made following the decision of the I.T.A.T. in the case of the assessee in preceding years. Admittedly, this issue has been decided by the I.T.A.T. in the case of the assessee for assessment years 2009-10 and 2011-12 in ITA Nos.690/Chd/2014 and 196/Chd/2015 wherein the ground raised by the assessee was dismissed , holding that the case of the assessee was squarely covered by the decision of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) as well as by the order of the I.T.A.T., Chandigarh Bench in the case of H.P. Corporation Ltd. The relevant findings of the ITAT are as under:
"11. Considering the facts of the case in the light of the above decision, it is clear that the issue is squarely covered against the assessee by the judgment of the Hon 'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra) as well as by the order of the ITAT, Chandigarh Bench in the case of M/s H.P. Corporation Ltd. (supra). We, therefore, do not find any error in the order of the Ld. CYT (Appeals) in holding that the interest income earned by the assessee company is taxable 7 as "income from other sources". The appeal of the assessee has no merit and the same is accordingly, dismissed."
9. In view of the same, we find no reason to differ with the order of the learned CIT (Appeals). The issue having been settled by the I.T.A.T. against the assessee, the grounds of appeal raised by the assessee are therefore, dismissed.
10. The appeal of the assessee is dismissed. ITA No.900/Chd/2015(Revenue's Appeal) :
11. In the appeal filed by Revenue, the ground raised pertains to deletion of addition of Rs.63,82,331/- made on account of income from contract receipts from NHAI. The ground raised by the Revenue reads as follows:
"1. Whether on the facts and circumstances of the case the Ld. CIT(A) was justified in deleting the addition of Rs.63,82,331/- on account of income from contract income on contract receipts from NHAI, ignoring the facts of the case."
12. Brief facts relating to the issue are that during the course of assessment proceedings, the Assessing Officer noted from Form No.26AS that the assessee had received Rs.7,97,79,144/- from NHAI on which TDS of Rs.15,95,583/- was deducted. When confronted, the assessee stated that the amount received pertained to reimbursement of expenses from NHAI incurred on shifting of utilities as per the Concession Agreement entered into 8 with it. The Assessing Officer rejected assessee's contention by referring to the Concession Agreement and stated that the same was to be revised each year to reflect the valuation in the WPI in each year and moreover, the rates for shifting of utilities services were to be approved by the Government or concerned agencies based on prevalent schedule of rate of the concerned State Government. The Assessing Officer held that since no evidence was furnished by the assessee either regarding revision of the contract or regarding necessary approval or clearance from the concerned authorities, the payment received by the assessee was not as per the Concession Agreement. The Assessing Officer further held that it was not acceptable that the assessee had done any work without earning any profit. The Assessing Officer also pointed out the fact that NHAI had deducted tax under section 194C of the Act on the payments made. Therefore, the Assessing Officer treated the entire amount received from NHAI of Rs.7,97,79,144/- as receipts from contract business and after applying a rate of 8% as in the case of contractors made an addition of Rs.63,82,331 to the income of the assessee.
13. Before the learned CIT (Appeals), the assessee argued that the payments had been received as per the Concession Agreement and referring to the terms of the Concession Agreement. The assessee stated that the cost of shifting of various utilities, such as electrical and 9 water lines, etc., which was necessary and an inextricable part of construction of the highway, was to be reimbursed by NHAI. Moreover, under the terms of Concession Agreement, NHAI had the power to seek changes in the scope of work during the construction of the project. The assessee stated that since such additions and deletions were not taken into account at the time of bidding of the project the Concession Agreement provided for reimbursement of the cost of addition as well as recovery for any cost attributable to the deleted work. Thus, the assessee submitted that reimbursement for the cost of shifting of utilities as well as changes in the scope of work was as per the Concession Agreement. Further, referring to the fact that the assessee company was implementing the road construction project granted to it by NHAI on build-own-operate-transfer (BOT) basis, the assessee stated that it was not executing any work on contract basis from NHAI and all cost of the project was to be borne by the assessee and was its capital expenditure. The assessee further stated that the additional work, if any, undertaken by it under the terms of the Concession Agreement as also the reimbursement received for the shifting of utilities was intrinsically and inextricably connected to the project being undertaken by it and was hence capital receipt. The assessee relied upon a number of case laws in support of iits above contention as follows:
i) CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (S.C.), 10 ii) Addl. CIT Vs. Indian Drugs and Pharmaceuticals Ltd 141 ITR 134(Del),
iii) Bongaigaon Refinery and Petrochemicals Ltd. v. CIT 251 ITR 329 (SC), V) CIT v. Karnataka Power Corporation 247 ITR 268 (SC).
14. The learned CIT (Appeals) after considering assessee's submissions held that the work carried out by the assessee as also the payments received by it was as per the Concession Agreement and were intrinsically related to the contract work carried out by it and, therefore were in the nature of capital receipts. The learned CIT (Appeals), therefore, deleted the addition made by the Assessing Officer.
15. Aggrieved by the same the Revenue has filed the present appeal before us. Before us the learned D.R. relied upon the order of the Assessing Officer and stated that the payment received by the assessee was not as per the Concession Agreement, nor as per rates approved by the Government as pointed out by the Assessing Officer. Further the fact that the NHAI had deducted TDS on the payment made, could not be brushed aside for determining the nature of the payment.
16. The learned counsel for the assessee, on the other hand, relied upon the order of the CIT (Appeals) and stated that the learned CIT (Appeals) after perusing the Concession Agreement had correctly found that the payment received by the assessee from NHAI for shifting of utilities and other work was as per the Concession 11 Agreement and at the rates prescribed/approved by the State Government Authorities. The learned counsel for the assessee further stated that the work in connection which the payment had been received was inextricably and intrinsically linked to the contract work being carried out by the assessee of road construction and, therefore, was capital in nature as rightly held by the learned CIT (Appeals).
17. We have heard the contentions of both the parties, perused the orders of the authorities below as also the documents placed before us. We find no infirmity in the order of the learned CIT (Appeals) holding that the impugned payment received by the assessee has been in pursuance to the Concession Agreement entered into with NHAI as per the rates approved by the State Government and on account of work intrinsically and inextricably linked to the road construction project being undertaken by it and hence, being revenue in nature. The learned CIT (Appeals), we find, has correctly appreciated the facts before it referring to the Concession Agreement and its relevant terms dealing with the obligation of NHAI to be reimbursed to the assessee the cost of shifting of various utilities (such as electrical and water lines, etc.) and further to the power granted to NHAI to seek changes in the scope of work during the construction of the project. The learned CIT (Appeals) thereafter on perusal of the documents submitted by the assessee noted that the 12 payment was made to the assessee on account of construction of flyover, construction of culvert, shsifting of water supply and stone water lines, construction of additional spans, reimbursement of expenditure of polls, reimbursement of shifting of electric lines and dismantling, etc. On the basis of these facts, the learned CIT (Appeals) arrived at the conclusion that the work carried out by the assessee was as per the Concession Agreement. None of these facts have been controverted before us. Therefore, it remains that the work carried out by the assessee was as per the Concession Agreement. The learned CIT (Appeals) further observed that on the basis of letter issued by NHAI to the assessee that the estimates of various work were based on estimates communicated to NHAI by PWD, HUDA, Executive Engineer, Sinchai Bhawan, etc. and thus held that the estimation of work was as per approved rates of various State Government Authorities. These facts again have not been controverted before us. Therefore, the conclusion arrived by the learned CIT (Appeals) is right and remains uncontroverted. The fact that the work/activities carried out by the assessee were part of the Concession Agreement which in turn was part of the original contract awarded to the assessee proves that the work done by the assessee was inextricably to the project undertaken by it under the main project and since all expenses incurred by it on the main contract of road construction were capitalized, the impugned amount received by the 13 assessee was also capital in nature. The learned CIT (Appeals) has rightly held that the decision of the Hon'ble Apex Court in the case of CIT Vs. Bokaro Steel Ltd. (1994) 236 ITR 315 (SC) squarely applies to the present case, in which the Hon'ble Court had held that the receipts being intrinsically connected with the construction of the assessee's plant would be capital receipt and not income from any independent source. In view of the above, we uphold the order of the learned CIT (Appeals) and dismiss the ground of appeal raised by the Revenue.
18. The appeal of the Revenue is dismissed.
19. In the result, both the appeals of the assessee and Revenue are dismissed.
Order pronounced in the open court.
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 21 s t November, 2016
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh