Maharashtra State Road Development Corporation Ltd. Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai heard an appeal filed by Maharashtra State Road Development Corporation Ltd. (MSRDC), a wholly owned undertaking of the Government of Maharashtra, against the order of the Commissioner of Income Tax (Appeals)-9, Mumbai, for Assessment Year 2006–07. The appeal challenged several additions made by the Assessing Officer (AO) upon reopening of assessment under Section 147 of the Income Tax Act, 1961. The main issues involved were the taxability of government grants and contributions, treatment of grants accrued but not received, and additions related to toll income from infrastructure projects.
The AO had reopened the assessment on the ground that certain income had escaped assessment based on audit observations. The AO made additions totaling ₹603.28 crores—comprising (i) ₹179.08 crores towards grants received, (ii) ₹385.13 crores towards grants accrued but not received, (iii) ₹25.27 crores towards toll income from the Mumbai–Pune NH4 project, and (iv) ₹13.80 crores towards toll income from the Thane–Ghodbandar Road project. The CIT(A) upheld these additions.
Regarding the government grants of ₹179.08 crores, the assessee contended that these funds were received from the State Government and statutory authorities as promoter’s capital contribution towards road infrastructure projects. The grants were recorded under capital reserves, not as income, in accordance with Accounting Standard AS-12 (Accounting for Government Grants). The AO, however, treated them as revenue receipts, holding that the grants were received after commencement of business for infrastructure development—the assessee’s regular activity—and thus taxable. The AO relied on Supreme Court rulings in Sahney Steel & Press Works Ltd., Rajaram Maize Products, and Bengal Textiles Association, which classify subsidies supporting business operations as revenue receipts.
