AO cannot disallow interest in section 80IA deduction working when same already been disallowed by Assessee

GVK Jaipur Expressway Private Limited Vs. DCIT (ITAT Jaipur)

It was submitted that the assessee on review of the appeal documentation noticed that it has suo-moto disallowed the interest receipts while computing book profits for the purposes of deduction u/s 80IA of the Act and the said fact has inadvertently escaped its attention at the time of filing of the appeal. It was submitted that the Assessing Officer has disallowed the interest receipts while working out deduction u/s 80IA of the Act and the said action of the Assessing Officer has resulted into double addition of the same amount and the assessee cannot be penalized for such inadvertent error where it has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act.

During the course of hearing, the assessee has sought permission to raise the modified ground of appeal in place of existing grounds of appeal stating that the assessee has itself disallowed the interest receipt while working out the deduction u/s 80IA of the Act. Where the assessee has suo moto disallowed the interest receipt while working out the deduction u/s 80IA of the Act, we find that principally, both the parties are in agreement that such interest receipts should not qualify for deduction under section 80IA of the Act and the matter is no more in dispute. The fact that assessee has suo moto disallowed the interest receipt for the purposes of deduction u/s 80IA is a matter of record which can be verified from the return of income filed by the assessee for the respective assessment years. We accordingly allow the modification in the ground of appeal so taken by the assessee company and the matter is set aside to the file of the Assessing Officer to carry out the necessary verification and where on such verification, it is so found that the assessee has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act, no further addition is sustainable in the eyes of law and the addition made by the Assessing Officer is hereby directed to be deleted.

FULL TEXT OF THE ITAT JUDGEMENT

These are appeals filed by the Revenue and the appeal/cross objections filed by the assessee against the separate orders of ld. CIT(A)-3, Jaipur dated 25.02.2019 for A.Y.2010-11, ld. CIT(A)-01, Jodhpur dated 21.03.2018 for A.Y. 2011-12, ld. CIT(A)-3, Jaipur dated 23.03.2018 for A.Y.2012-13 & A.Y. 2013-14, ld. CIT(A)-22, Alwar dated 17.06.2019 for A.Y. 2014-15 and ld. CIT(A)-22, Alwar dated 31.01.2019 for A.Y. 2015-16. Since the common issues are involved, all these appeals were heard together and are disposed off by this consolidated order.

The grounds of appeal taken by the Revenue and the assessee in their respective appeals/cross-objections for each of the impugned assessment years are as follows:

ITA No. 375/JP/2019 A.Y 2010-11 (Assessee’s appeal):

“1. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the action of ld. AO in completing the assessment without following the directions of Hon’ble ITAT in properly. Appellant prays order so passed by ld. AO is without jurisdiction and deserves to be held bad in law.

2. On the facts and in the circumstances of the case, the ld. CIT(A) has further erred in confirming the action of ld. AO of treating interest receipts of Rs. 2,40,27,526/- as ‘income from other sources’ by placing reliance on order passed by him for A.Y. 2012-13 arbitrarily. Appellant prays that all the case laws relied upon by ld.CIT(A) while passing order for A.Y. 2012-13 are distinguishable so far as in all the cited cases, excess funds were parked in FDRs at the behest of assessee, where in the instant case funds were kept in FDRs under business compulsions, thus the order passed by ld.CIT(A) deserves to be set aside interest receipts of Rs.2,40,27,526/- deserves to be treated as Business Income.

3. On the facts and in the circumstances of the case and in law, ld.CIT(A) has grossly erred in confirming the action of ld. AO in treating interest receipts of Rs.2,40,27,526/- as “Income from other Receipts” by completely ignoring the fact that such interest receipts were incidental to and integral part of the business receipts of the assessee in as much as the interest was generated on the toll receipts during the time the same were received and when it was utilized thereafter. Therefore, the action of Ld. AO deserves to be held bad in law and the interest received by assessee deserves to be held as its business income.”

ITA No. 749/JP/2018 A.Y 2011-12 (Revenue’s appeal):

“1. Whether in the facts and in the circumstances of the case, the CIT(A) was justified in allowing the claim of depreciation of Rs. 26,73,99,482/- on public roads treating the same as building which is not permissible in law as the ownership right to the public roads does not vest with the assessee for claiming depreciation u/s 32?

2. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of depreciation of Rs. 6,20,514/- @ 60% on EDP equipment treating the same as the computer equipments which was classifiable under the head plant and machinery wherein depreciation is @ 15%?

3. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of deduction u/s 801A o f Rs. 82,05,581/- on sale of scrap which is not income from business eligible for deduction u/s 801A? ”

CO No. 25/JP/2018 A.Y 2011-12 (Assessee’s cross objection):

“1.       On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in holding the interest income of Rs. 1,11,22,443/- earned from regular business activities of the assessee company as Income from other sources without appreciating the nature of income, thus the same deserves to hold as Business Income.

1.1  That, ld. CIT(A) has further erred in confirming the action of ld.AO in treating interest receipts as “Income from other Sources” by completely ignoring the fact that such interest receipts were incidental to and integral part of business receipts of the assessee in as much as the interest was generated on the toll receipts, it is therefore prayed that such business income deserves to be treated as Business income. ”

ITA No. 750/JP/2018 A.Y 2012-13 (Revenue’s appeal):

“1. Whether in the facts and in the circumstances of the case, the CIT(A) was justified in allowing the claim of depreciation of Rs. 24,06,59,534/- on public roads treating the same as building which is not permissible in law as the ownership right to the public roads does not vest with the assessee for claiming depreciation u/s 32?

2. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of depreciation of Rs. 6,86,787/- @ 60% on EDP equipment treating the same as the computer equipments which was classifiable under the head plant and machinery wherein depreciation is @ 15%?

3. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of deduction u/s 801A o f Rs. 29,79,993/- on sale of scrap which is not income from business eligible for deduction u/s 801A?

4. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the disallowance of Rs. 43,37,48,247/- u/s 14A read with rule 8D though the assessee failed to prove that the investment in share applications was not having any nexus with the funds on which interest was paid? ”

CO No. 26/JP/2018 A.Y 2012-13 (Assessee’s cross objection):

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in holding the interest income of Rs. 4,34,21,230/- earned from the business activities of the assessee company as income from other sources without appreciating the nature of income, thus the same deserves to be hold as Business Income.

1.1 That, ld.CIT(A) has further erred in confirming the action o f ld.AO in treating interest receipts as “Income from other Sources ” by completely ignoring the fact that such interest receipts were incidental to and integral part of business receipts of the assessee in as much as the interest was generated on the toll receipts, it is therefore prayed that such business income deserves to be treated as Business income. ”

ITA No. 751/JP/2018 A.Y 2013-14 (Revenue’s appeal):

“1. Whether in the facts and in the circumstances of the case, the CIT(A) was justified in allowing the claim of depreciation of Rs. 21,65,93,581/- on public roads treating the same as building which is not permissible in law as the ownership right to the public roads does not permissible in law as the ownership right to the public roads does not vest with the assessee for claiming depreciation u/s 32?

2. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of depreciation of Rs. 1,39,809/- @ 60% on EDP equipment treating the same as the computer equipments which was classifiable under the head plant and machinery wherein depreciation is @ 15%?

3. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of deduction u/s 801A o f Rs. 6,78,895/- on sale of scrap which is not income from business eligible for deduction u/s 801A?

4. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the disallowance of Rs. 1,19,06,05,811/- u/s 14A read with rule 8D though the assessee failed to prove that the investment in share applications was not having any nexus with the funds on which interest was paid?

5. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in allowing the claim of expenditure of Rs. 1,81,229/- on account of payment of PF and ESI contribution beyond the due dates relying upon the High Court’s judgments passed in the case of CIT vs. Udaipur Dugdh Utpadak Sahakar i Sangh Ltd 265 CTR 5999 DTR 131 (Raj.) and CIT vs. JVVNL 265 CTR 62 which is not justifiable as the similar payments should be deposited on the due dates specified by the Govt. for the same purpose? ”

CO No. 27/JP/2018 A.Y 2013-14 (Assessee’s cross objection):

“1. On the facts and in the circumstances of the case the Ld. CIT (A) has grossly erred in confirming the action of ld.AO in treating the interest income of Rs. 4,17,41,267/- earned from the business activities of the assessee company as income from other sources without appreciating the nature of income, thus the same deserves to be hold as Business Income.

1.1 That, ld. CIT(A) has further erred in confirming the action of ld.AO in treating interest receipts as “Income from other Sources” by completely ignoring the fact that such interest receipts were incidental to and integral part of business receipts of the assessee in as much as the interest was generated on the toll receipts, it is therefore prayed that such business income deserves to be treated as Business income. ”

ITA No. 1090/JP/2019 A.Y 2014-15 (Assessee’s appeal):

“1. On the facts and in the circumstances of the case the Ld. CIT (A) has grossly erred in upholding the disallowance of Rs. 1,15,92,95,718/- made by invoking provisions of sec 14A out o f the interest expenses claimed, arbitrarily without appreciating the submission made, therefore the disallowance made deserves to be allowed as claimed.

1.1 That the Ld. CIT (A) has further erred in ignoring the fact that the amount paid was towards ‘share application money’, and no shares were allotted in the relevant year, through which an assumption of ‘earning any exempt income’ in the form o f dividend, for future could be made. Appellant prays that utilization of money in making application for shares does not amount to investment on which a possibility of earning any tax-free income could be presumed. Thus disallowance so made u/s 14A by presuming a possible investment arising in future, and further presuming earning of tax-free income on such presumed investment, is beyond the scope of provisions of sec 14A, and hence deserves to be deleted.

1.2 That the Ld.CIT(A) has further erred in ignoring the decisions of various High Courts wherein it has been held that disallowance u/s 14A can be made only to the extent of exempt income earned, which is ‘Nil’ in the instant case and that the CBDT Circular cannot override the express provisions of sec 14A read with rule 8D of IT Rules.

1.3 That the Ld. CIT(A) has further erred in not following the principle of consistency as in the immediate two preceding assessment years, wherein Ld.CIT(A) had invoked the provisions of sec 36(1)(iii) for making disallowance of Interest on the amount employed in making share application money out of the funds so borrowed, even though shares were not allotted during the year under appeal and hence the facts are same as in the preceding years.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in treating the interest receipts of Rs. 8,42,77,207/- as ‘income from other sources’, by completely ignoring the fact that the such interest receipts were incidental to and integral part of the business receipts of the assessee in as much as the source of term deposits on which interest was generated is the toll receipts only and these deposits are on account of temporary surplus of business receipts due to time difference between toll receipts and incurring if expenditure/ liabilities. Therefore, the action of Ld. AO deserves to be held bad in law and the interest received by assessee deserves to be held as its business income.”

ITA No. 1075/JP/2019 A.Y 2014-15 (Revenue’s appeal):

“1. On the facts and in the circumstances of the case, whether the Ld. CIT(A) was justified in holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962?

2. On the facts and in the circumstances of the case, whether the Ld CIT(A) was justified in directing the AO to consider income from scrap of sale amounting to Rs. 49,98,366/- for the purpose of allowing deduction u/s 801A of the Act without appreciating that the word “derived from” used in the said decision has narrower connotation and does not include sources of income beyond the first degree as held by the Hon’ble Courts through various judgments including that in the case of (i) Liberty India vs. CIT (2009) 317 ITR 218 (SC) (ii) Pandian Chemicals Ltd vs. CIT (2003) 262 ITR 278 (SC) (iii) Pandian Chemicals Ltd vs. CIT (2004) 270 ITR 448 (Madras)?

3. On the facts and in the circumstances of the case and in law, whether the Ld. CIT was justified in deleting the addition o f Rs. 1,80,960/- made u/s 36(1)(va) r.w.s 2(24)(x) on payment o f employee’s contribution towards PF to the fund beyond due date when SLP filed by the Revenue before the Hon’ble Supreme Court in case of M/s Jaipur Vidyut Vitran Nigam Ltd is pending?

4. On the facts and in the circumstances of the case, whether the Ld. CIT(A) was justified in deleting the addition of Rs. 11.33 crores made by AO on account of periodic overlay expenses simply on the basis of estimation certificate given by consultants?”

ITA No. 467/JP/2019 A.Y 2015-16 (Revenue’s appeal):

“1. On the facts and in the circumstances of the case, whether the Ld. CIT(A) was justified in holding that the computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962?

2. On the facts and in the circumstances of the case, whether the Ld. CIT(A) was justified in allowing the claim of Rs. 11.33 crores on account of periodic overlay expenses simply on the basis o f estimation certificate given by consultants thereby restricting the addition to Rs. 25 crores as against addition of Rs. 36.33 crores made by the AO? ”

ITA No. 376/JP/2019 A.Y 2015-16 (Assessee’s appeal):

“1. On the facts and in the circumstances of the case the Ld. CIT (A) has grossly erred in upholding the disallowance of Rs. 1,11,92,41,369/-, being interest expenses by invoking provisions of section 14A solely for the reason that assessee had made investment of Rs. 9,40,80,00,000/- in share capital of one of the group companies, though no exempt income was earned by assessee from such investment.

1.1  That the Ld. CIT (A) has further erred in confirming the disallowance u/s 14A in respect of investment made in share capital of one of the group companies by ignoring the fact that investment was in the nature of “Strategic investment” and disallowance u/s 14A in respect therefore the disallowance made by ld.AO was unwarranted and deserved to be deleted.

1.2. That, the ld.CIT(A) has further erred in not considering the alternative plea of assessee that if at all disallowance was to be confirmed, the same ought to have been u/s 36(1)(iii) and not u/s 14A of the Income Tax Act, 1961 as interest expenses were not incurred in relation to any exempt income.

2. On the facts and in the circumstances of the case, the ld. CIT(A) has further erred in confirming the action of ld.AO in treating the interest receipts of Rs. 15,52,14,900/- as ‘income from other sources’ not eligible for deduction u/s 80IA of the Act, by completely ignoring the fact that assessee has already excluded the said income while claiming deduction u/s 80IA thus, further disallowing the same tantamounts to double addition therefore, deserves to be deleted.

3. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in confirming the disallowance to the extent of Rs.25,00,00,000/- out of disallowance made by ld.AO (by holding the mandatory periodic overlay as contingent liability) of Rs. 36,33,00,000/-. Appellant prays that provision of liability o f mandatory periodic overlay was revised on the basis of actua l expenses incurred in A.Y.2016-17, thus consequent disallowance confirmed deserves to be deleted. ”

3. At the outset, the ld A/R submitted that the appeal of the assessee in ITA No. 1090/JP/2019 for A.Y 2014-15 has been filed with a delay of 4 days and prayed that the delay so happened may be condoned and the appeal be admitted for adjudication. After hearing both the parties, the delay so happened is hereby condoned and the appeal of the assessee is hereby admitted for adjudication.

Treatment of interest income for the purposes of computation of deduction u/s 80IA for A.Ys 2010-11 to 2015-16

4. The assessee has taken this common ground of appeal in its appeal/cross objection filed for the assessment years 2010-11 to 2015-16 challenging the action of the ld. CIT(A) in upholding the disallowance of deduction u/s 80IA on the interest receipts by treating the same as income from other sources as against income from business activities.

5. During the course of hearing, the ld. AR sought permission to modify the grounds of appeal for each of the respective assessment years 2010-11 to 2015-16 instead of the grounds of appeal so taken by the assessee in its appeal originally filed. The modified grounds of appeal for A.Y 2010-11 reads as under:-

“1. On the facts and in the circumstances of the case, the Ld. AO has grossly erred in making addition of a sum of Rs. 2,40,27,523/- which amounts to double addition as the assessee had itself disallowed this amount for the computation of book profits for the purpose of section 80IA of I.T. Act, 1961.”

6. It was submitted that similar modified grounds of appeal are sought to be taken for each of the other years under appeal i.e. A.Ys 2011-12 to 2015-16 which are similarly worded except for the change in the quantum of interest income involved. It was submitted that the assessee on review of the appeal documentation noticed that it has suo-moto disallowed the interest receipts while computing book profits for the purposes of deduction u/s 80IA of the Act and the said fact has inadvertently escaped its attention at the time of filing of the appeal. It was submitted that the Assessing Officer has disallowed the interest receipts while working out deduction u/s 80IA of the Act and the said action of the Assessing Officer has resulted into double addition of the same amount and the assessee cannot be penalized for such inadvertent error where it has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act. It was accordingly submitted that the modified grounds of appeal may be admitted and necessary relief may be granted to the assessee by directing the Assessing Officer to delete the said disallowance while working out the deduction u/s 80IA of the Act.

7. Per contra, the ld. CIT/DR submitted that it is a settled position that interest receipts should not qualify for deduction u/s 80IA of the Act and the same is the consistent position which has been adopted by the Assessing Officer for all these years. As regards the submission of the ld. AR that the assessee already disallowed the interest receipts for working out the book profit for calculation of deduction u/s 80IA of the Act and there should not be any further disallowance, it was submitted that the said fact need verification and the Revenue has no objection where the matter is set aside to the file of the Assessing Officer for necessary verification.

8. We have heard the rival contentions and perused the material available on record. During the course of hearing, the assessee has sought permission to raise the modified ground of appeal in place of existing grounds of appeal stating that the assessee has itself disallowed the interest receipt while working out the deduction u/s 80IA of the Act. Where the assessee has suo moto disallowed the interest receipt while working out the deduction u/s 80IA of the Act, we find that principally, both the parties are in agreement that such interest receipts should not qualify for deduction under section 80IA of the Act and the matter is no more in dispute. The fact that assessee has suo moto disallowed the interest receipt for the purposes of deduction u/s 80IA is a matter of record which can be verified from the return of income filed by the assessee for the respective assessment years. We accordingly allow the modification in the ground of appeal so taken by the assessee company and the matter is set aside to the file of the Assessing Officer to carry out the necessary verification and where on such verification, it is so found that the assessee has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act, no further addition is sustainable in the eyes of law and the addition made by the Assessing Officer is hereby directed to be deleted.

9. In the result, the existing grounds of appeal are treated as withdrawn as per request of the assessee and modified ground of the appeal for the respective assessment years i.e, A.Y 2010-11 to A.Y 2015-16 so taken by the assessee are admitted and allowed for statistical purposes.

Treatment of misc. income for the purposes of computation of deduction u/s 80IA for A.Ys 2011-12 to 2014-15

10. The Revenue has taken this common ground of appeal in its appeal filed for the assessment years 2011-12 to 2014-15 challenging the action of the ld. CIT(A) in allowing the claim of deduction u/s 80IA on miscellaneous receipts in form of sale of scrap and insurance receipts.

11. In this regard, the ld. CIT/DR submitted that the assessee has claimed deduction u/s 80IA of the Act in respect of income derived from operating and maintaining of the highway. The AO has treated the income from sale of scrap and insurance receipts received by the assessee as “income from other sources” and consequently, has not allowed deduction u/s 80IA of the Act by observing that the same is not derived from the business of the assessee. In support, reliance was placed on Hon’ble Supreme Court decision in case of Liberty India v. CIT [2009] 183 Taxman 349 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). It was accordingly submitted that no deduction may be allowed to the assessee u/s 80IA in respect of income from sale of scrap and insurance receipts as the same are not derived from the business of maintaining and operating the highways.

12. Per contra, the ld. A/R submitted that the scrap has been generated in the normal course of business of operation and maintenance of the toll highway and is a normal business transaction which in any case could not be held as non-business receipt. The scrap include the metal crash barriers, pedestrian guard rails etc. which are fixed on the toll road and got damaged in the accidents which had taken place and being no more worthy of usage as such has become scrap. Had there been no business of operating and maintaining of the toll highway, there would be no question of generation of any such scrap, thus the income from sale of scrap is normal business income and therefore is eligible for deduction u/s 80IA. With regard to the insurance claims, it was submitted that the same were received on the assets used in the toll business which got damaged and insurance claimed was received. It was submitted that the use of such assets is incidental to the toll operations activity and the claim so received is part of the business receipts eligible for deduction u/s 80IA.

13. It was further submitted that assessee was having income of similar nature in preceding assessment year A.Y 2010-11 where the Tribunal (ITA No. 14/JP/2015) upheld the order of the ld. CIT(A) who had allowed the income from sale of scrap to be included in the profits of eligible business for the purposes of deduction u/s 80IA of the Act. It was submitted that against the said order, though the department had filed appeal before the Hon’ble Rajasthan High Court, however, on this particular issue, no ground of appeal was taken up by the department as apparent from the substantial question of law admitted by the Hon’ble High Court in DB ITA No. 142/2017 for A.Y 2010-11. It was accordingly submitted that since the issue is identical and settled in favour of the assessee as the department has not challenged the decision of the Tribunal in the earlier year, following the principle of consistency, the ld CIT(A) has rightly held that income from sale of scrap and insurance receipts is eligible for deduction u/s 80IA of the Act.

14. We have heard the rival contentions and purused the material available on record. There are receipts on account of scrap sale in each of the years under consideration and receipts on account of insurance claim for A.Y 2011-12. The claim of the assessee is that the scrap has been generated in the regular course of business of operation and maintenance of the toll highway and is in the form of metal crash barriers, pedestrian guard rails, etc which get damaged due to road accidents and other regular wear and tear, and therefore, needs to be replaced and is thus, a part of normal business transaction eligible for deduction u/s 80IA. The claim of the Revenue is that such receipts are not having the first degree of nexus with toll operation activity and thus not derived from the maintaining and operating the highway and accordingly not eligible for deduction u/s 80IA of the Act. The Co­ordinate Bench in assessee’s own case for A.Y 2010-11 had an occasion to examine similar matter and while disposing of similar ground of appeal has held as under:-

“14.3. We have heard rival contentions, perused the materia l available on record and gone through the orders of the authorities below. We find that the ld. CIT (A) while deciding the issue has given the following finding of fact :-

“9.3. I have carefully considered the findings of the AO as also the submission of the appellant. It may be noted that the income from sale of scrap amounting to Rs. 766589/-and receipt on account of unclaimed security deposit amounting to Rs. 140300/- was not considered for deduction u/s 80IB of IT Act by the AO by holding that such income was not from the eligible business. In this connection it may be noted that as regards the sale o f scrap the scrap was generated from the normal course o f business and it is also fact that as and when the items from which such scrap was generated were purchased, the expenses on such purchases was claimed in the P & L A/c. It may be mentioned that it is not a case o f independent purchase and sale of scrap item and it is a case where such scrap items were generated from the same business on which deduction u/s 80IB is claimed. Therefore the receipt of Rs. 766589/- is to be considered for deduction u/s 80IB of IT Act. However , as regards the unclaimed security deposits of Rs. 140300/-, it may be noted that the appellant has not furnished specific details of such security deposit either before the AO or before the appellate authority which may demonstrate that such receipt was from the business activities on which deduction u/s 80IB was allowable. Accordingly, such amount of Rs. 140300/- cannot be considered for claim o f deduction u/s 80IB of IT Act. In view of these facts, the ground of appeal is treated to be partly allowed.”

The ld. D/R could not controvert the above finding of the ld. CIT (A). In view of the above observation of the ld. CIT (A), we find no reason to interfere in the orders of the ld. CIT (A), the same is hereby upheld. The ground raised by the revenue is rejected. ”

15. The Coordinate Bench has thus agreed with the findings of the ld CIT(A) wherein he has held that the sale of scrap was generated in the normal course of business and it was not a case of independent purchase and sale of scrap item and it is a case where such scrap items were generated from the same business on which deduction u/s 80IB is claimed. In the years under consideration, following the decision of the Coordinate Bench, the ld CIT(A) has consistently taken the similar view and has allowed the claim of the assessee. We also find that it is a consistent view taken by other Benches of the Tribunal as can be seen from the decision of the Chennai Benches of the Tribunal in case of M/s. L&T Transportation Infrastructure Limited vs Income Tax Officer (ITA No.1680/Mds./10 dated 22.07.2011). In that case, L&T Transportation Infrastructure Ltd. has entered into a concession agreement with Government of India & Government of Tamil Naidu to undertake the construction of a bypass road near Coimbatore and a bridge on NH-47, across river Nayal develop on “Build, Operate and Transfer” basis and while disposing off ground relating to eligibility of receipts from sale of scraps for deduction u/s 80IA, the Coordinate Bench has held as under:

“18. The last issue relates to scrap sales. We find force in the submissions of the Ld. Learned Authorized Representative in this respect. We find that sale of scrap represents the sale of left over materials which were acquired for developing road. No materia l has been brought on record by the lower authorities to controvert the above submission of the assessee Thus we agree that the above sale of scrap was intimately connected with the business o f developing operating and maintaining infrastructure facility and income from such sale goes on to reduce the expenditure o f developing the infrastructure facility and truly speaking the same is not an independent income to the assessee. We therefore, delete the disallowance of deduction u/s.80-IA in respect of the sale of scrap and allow this part of the ground of the assessee. ”

16. In light of aforesaid discussions where the matter has already been examined by the Coordinate Bench in the earlier year in assessee’s own case, and the fact that the Revenue has not challenged the same before the Hon’ble High Court, and in absence of any change in the facts and circumstances of the case and following the consistent view taken by other Benches of the Tribunal, we donot see any basis to interfere with the earlier decision taken by the Coordinate Bench in assessee’s own case, where one of us was also a party. We accordingly direct the Assessing officer to allow claim of deduction u/s 80IA on such scrap sale receipts for the respective assessment years.

17. Now coming to insurance receipts amounting to Rs 59,98,435/-pertaining to A.Y 2011-12, it has been contended by the ld AR that such insurance receipts are towards claim made in respect of assets used in the toll operation activity which got damaged and such receipts are incidental to its activity of maintaining and operating the highway and thus eligible for deduction u/s 80IA. We find that where such insurance claims are in respect of assets used in the toll operations which have been capitalized and form part of block of assets, the receipts arising in form of insurance claims will go to reduce the block of assets instead of being eligible for deduction under section 80IA of the Act. The matter is accordingly set-aside to the file of the Assessing officer to examine the same afresh after providing reasonable opportunity to the assessee.

18. In the result, the grounds of appeal so taken by the Revenue for the respective assessment years i.e, A.Y 2011-12 to A.Y 2014-15 are disposed off in light of aforesaid directions.

Claim of Periodic overlay expenses for A.Y 2014-15 & 2015-16

19. In its grounds of appeal, the Department has challenged the action of the ld CIT(A) in deletion of addition of Rs. 11.33 crores in A.Y 2014-15 and Rs. 11.33 crores in A.Y 2015-16 on account of overlay expenses claimed in Profit & Loss A/c. And the assessee in its cross appeal for A.Y 2015-16 has challenged the confirmation of disallowance of Rs. 25.00 crores (over and above Rs 11.33 crores) out of periodic overlay provision made and claimed in the Profit & Loss account.

20. Brief facts pertaining to these grounds are that the assessee company has debited a sum of Rs. 11.33 crores in AY 2014-15 and Rs. 36.33 crores in AY 2015-16 in its Profit & Loss account towards provision for the second periodic overlay of the pavement (Toll road). The AO has held that there is no scientific basis for making this provision and held the same as contingent liability and thus made the addition. In appeal, the ld. CIT(A) held that that as per the concession agreement between the assessee and NHAI, expenditure for keeping the roughness of the expressway at 2500mm/Km is mandatory and the appellant company has to relay the surface every 5 years thus it is an ascertained liability and not contingent liability however, allowed the expenses to the tune of Rs. 11.33 Cr for both the assessment years and disallowed Rs. 25.00 crores in AY 2015-16. Now the department is challenging the relief given by Ld. CIT(A) and the assessee against the addition sustained by the ld CIT(A).

21. In this regard, the ld A/R submitted that Contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain future event such as the outcome of a pending law suit. These liabilities are not recorded in company’s accounts and shown below line in the balance sheet as footnote whereas in the instant case, provision has been made to cover up expenses that will have to be necessarily incurred in future. There was no uncertainty as to whether such expenses will be incurred or not, it is just that quantum of expense could not be estimated with 100% accuracy as the same will depend upon extent of deterioration and rapidly of deterioration in the riding quality of pavement. With what rapidity it deteriorates, to what extent and periodicity it requires resurfacing in order to give smooth riding quality to the toll paying road users, is a function of the volume of traffic, the loads carried by the traffic and the damage caused by climatic conditions (extreme temperatures, heavy rains / floods, accidents resulting in spillover of chemical materials etc.) In order to ensure smooth riding quality, the Concession Agreement prescribes certain standards to be maintained by the Company in terms of ‘Surface Roughness’. The prescribed standards require the Company to undertake Surface Renewal Coat to the Pavement as and when the roughness value of the pavement reaches 3500 mm/km to bring it down to 2500 mm/km. It was further submitted that irrespective of the roughness value in any case, Renewal Coat has to be laid at least once every 5 years as per clause 4.5.1 of Schedule-L to the Concession Agreement which is reproduced below.

“4.5.1 Pavement Riding Quality

The riding quality of the pavement shall be ensured by satisfying the minimum requirements given herein under.

i) Surface roughness of the Project Highway on completion of construction shall be 2500 mm/km as measured by the 5th wheel Bump Integrator.

ii) Surface roughness shall not exceed 3500 mm/km during the service life of pavement at any time. A renewal coat of 25 mm of bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km. ”

22. It was submitted that since the timing for renewal of surface and the area is fixed i.e. in every five years and it is mandatory as per the terms of agreement and assessee company has no option but to act according to the agreement, therefore, the expenditure on surface renewal coat is an ascertained liability. Accordingly the Company has to accumulate sufficient funds out of the Toll Fee Income collected from road users which primarily causes the damage requiring resurfacing. For this purpose, the assessee had obtained a report from an independent consultant authorized by NHAI for this purpose, who estimated the total cost towards the second periodic overlay at Rs. 56.64 crores and accordingly yearly an amount of Rs. 11.33 crores are retained for the purposes till the date when such overlay is carried out which commenced from AY 2011-12 and onwards.

23. It was submitted that in order to derive comfort to meet the above expenditure and to present the true and fair view of the affairs of the company regarding profitability and also since it is ascertained liability, the Company has charged the equivalent amount to its Profits and debited it to the P&L Account. Such retention of funds is a business necessity rather than expense for earning other income and thus the provision made towards the surface renewal coat being ascertained liability deserves to be allowed as claimed. It is also a matter of fact that the expenditure towards the second periodic overlay for the first time was provided in AY 2011-12 and the same was allowed as claimed in all the assessment years beginning from A.Y.2011-12 till 2013-14, after making necessary verification in the assessment proceedings concluded u/s 143(3) of the Income Tax Act, 1961. Since facts and the circumstances as existed in earlier assessment years remained the same in the years under appeal thus as principle of consistency, the same should be allowed in both of the assessment years.

24. It was submitted that though each and every assessment year is independent year and principle of res judicata does not apply to assessment proceedings, however some sort of consistency is required while finalizing the assessment to ensure uniformity. The rule of judicial precedent flows from Article 14 of the Constitution of India which guarantees equality to every citizen before law. Equality before law implies rule of law for all wherein there is no scope for arbitrariness or any discrimination. It is a settled law that the rule of judicial precedent are binding not only on the Courts or quasi-judicial authorities but even administrator, tax and revenue authorities as the same assures consistency, equality and non-prejudice. The Hon’ble Supreme Court in S.I. Rooplal and Another vs. Lt. Governor AIR 2000 SC 594 has observed that precedents which enunciate rules of law from the foundation of administration of justice under our system. This is fundamental principle which every presiding officer of the judicial forum ought to know, for consistency in interpretation of law which alone can lead to public confidence in our judicial system. The Hon’ble Supreme Court has laid down time and again that precedent law must be followed by all concerned, deviation from the same, should be only on a procedure known to law. A subordinate court is bound by the enunciation of law made by the Superior Courts and in support, reliance was placed on the following decisions:

• Director of Income Tax (Exemptions) Vs. Escorts Cardiac Diseases Hospital Society (Delhi) 300 ITR 75
• DCIT, Spl. Range Vs. Jindal Photo Films Ltd. (Delhi) 113 ITD 624
• CIT Vs. Gopal Purohit (Bom.) 188 Taxman 140
• Dy. CIT Vs. Goel Erectors & Pipe Manufacturers (P) Ltd. 45 DTR 473
• Arvind Fashions Ltd. vs. Asstt. CIT (Ahd ‘B’) 45 DTR 299

25. It was submitted that provision has been made in respect of an ascertained liability in terms of the Concession Agreement and the yearly provision is based on the independent consultant report who has been appointed in consultation with the NHAI to work out the estimation of the total cost to be incurred on such periodic surface renewal coat. Thus amount of provision is charged to the Profit & Loss Account so as to give the true and fair view of the financial statements of the assessee company to its shareholder and other authorities including NHAI. It is also a matter of fact that the amount provided for in the preceding assessment years has also been allowed as expenditure.

26. It was further submitted that such provision for Second periodic outlay was made in F.Y.2010-11 to F.Y.2013-14 on the basis of estimated expenditure @ Rs.11,33,00,000/-        every year, i.e. aggregating Rs.45,32,00,000/-. However, in A.Y.2015-16, on the basis of actual examination of sites, actual expenditure was estimated at much higher amount, thus total provision for such outlay in 5th year was revised to Rs. 81,65,00,000/- and accordingly, balance estimated expenditure was claimed in AY 2015-16 which comes to Rs. 36.33 cr. But in FY 2015-16, when the surface renewal coat was carried out, the amount of actual expenditure was incurred at Rs.1,45,50,86,247/-, i.e. provision already made fell short by Rs.63,85,86,247/-, which amount was charged to Profit & Loss a/c for the year ending 31.03.2016 and was allowed in the assessment completed u/s 143(3) of the Act. Here it is relevant to state that ld. AO has not allowed the amount of provision made in earlier years which stood disallowed and this has resulted into non-allowance of the expenditure incurred on the periodic overlay to the extent of the disallowance made in AY 2014-15 and 2015-16.

27. In view of above, it was submitted that provision made by assessee is to meet out cost of renewal of pavement to be incurred in future, which is ascertained liability in view of clause 4.5.1 of Concession agreement. In fact as per basic accounting concept of Prudence, all the possible losses should be anticipated but not future income.

28. It was submitted that the ld. CIT(A) though admitted that it is an ascertained liability but failed to appreciate the fact that when in AY 2015-16 it came to the knowledge of the appellant company that the cost of 2nd periodic overlay as estimated about 4 years ago was very low and therefore keeping in view the subsequent estimation made in F.Y. 2014-15, the appellant company in AY 2015-16, provided a sum of Rs. 36.33 crores instead of 11.33 crores. It was submitted that the ld. CIT(A) upheld the disallowance of Rs. 25.00 crores by ignoring the aforesaid facts and the company has not claimed entire amount in AY 2016-17 but has claimed the amount of expenditure was reduced by provisions made and claimed in earlier years and upto AY 2014-15 only a sum of Rs. 45.32 crores were provided in the books, assessee has debited a sum of Rs. 36.33 crores in its Profit & Loss account which was the balance amount of revised estimated cost to be incurred on 2nd periodic overlay. As submitted above, the total cost finally incurred in FY 2015-16 was far higher at Rs. 145,50,86,247/-.

29. It was submitted that the expenditure incurred on periodic overlay was much higher and since the same is incurred in terms of the concession agreement and is mandatory in nature, the same deserves to be held as ascertained liability. Further since the actual expenditure was much higher than the estimation done and the actual expenditure as reduced by the provisions made in earlier years was allowed by the department and no doubt whatsoever was raised, therefore, the revised amount claimed in AY 2015-16 at Rs. 36.33 crores deserves to be allowed.

30. It was finally submitted that in view of CBDT Circular no. 37/2016 dated 02.11.2016, it is a revenue neutral exercise given that the assessee is eligible for deduction u/s 80IA of the Act and in such cases, the CBDT has asked the Revenue officers not to file/press the appeal already filed.

31. Per contra, the ld. CIT/DR submitted that the assessee is maintaining and operating Jaipur Kishangarh highway (90.38 kms) under BOT agreement. It has made a provision for overlaying of the said highway, which according to the assessee, was to be done after every 5th year in view of the Concessionaire Agreement executed with NHAI. The assessee has treated the same as ascertained liability and has claimed the same in its P & L account. In the assessment order, the AO has disallowed the same as the provisions was not made on scientific basis and considered the same as contingent liability. The ld. CIT(A) has deleted the disallowance by considering the provision so made by the assessee as ascertained liability.

32.  In this regard, it was submitted that in the case of Rotork Controls India (P.) Ltd. Vs CIT [2009] 180 Taxman 422 (SC), the Hon’ble Apex Court has considered the various judicial pronouncements and held as under:

“A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when:

(a) an enterprise has a present obligation as a result of a past event;

(b) it is probable that an outflow of resources will be required to settle the obligation; and

(c) a reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision can be recognized. ”

33. It was submitted that in the instant case, it could be seen from the assessment order that the AO has disallowed provision for overlay by observing that the said provisions has not been made on scientific basis. It is to be seen that in the appellate order, while allowing the provision made by the assessee, the ld. CIT(A) has totally ignored the above finding of the AO and the said finding has neither been controverted by the ld. CIT(A) nor by the assessee and it was just submitted that the provision was made on the basis of the report of a consultant and there is nothing on record which could establish that the said provision was made on scientific basis.

34. It was further submitted that as held by the Hon’ble Apex court that a provision is recognized when (a) an enterprise has a present obligation as a result of a past event. The provision for overlay has been made which is required to be done in FY 2014-15. Thus, provision so made is not on the basis of past event, instead it has been made on the basis of future events, which cannot be recognised in view of the law as laid down by the Hon’ble Apex Court in the case of Rotork Controls India (P.) Ltd. Vs CIT (Supra).

35. Without prejudice to the above, it was submitted that it would be appropriate to refer to the relevant clause 4.5.1 of Schedule-L to the Concessionaire Agreement as under:

“4.5.1 Pavement Riding Quality

The riding quality of the pavement shall be ensured by satisfying the minimum requirements given herein under.

i) Surface roughness of the Project Highway on completion of construction shall be 2500 mm/km as measured by the 5th wheel Bump Integrator.

ii) Surface roughness shall not exceed 3500 mm/km during the service life of pavement at any time. A renewal coat of 25 mm of bituminous concrete shal l be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km. ”

36. It was submitted that from a plain reading of clause (ii), it could be seen that as soon as roughness value reaches 300 mm/km, the same is to brought to 2500 mm/km by placing renewal coat. If for instance, roughness value reaches 3500 mm/km for a stretch of 10 kms in the block of 5 years, then it has to be brought down to 2500 mm/km by placing renewal coat of 25 mm bituminous concrete in that year itself and it cannot be postponed to the 5th year. Further, if in the fifth year, the roughness value is less than 3500 mm/km for that particular stretch of 10 kms which got renewal coat in the earlier year, then as per the above clause (ii), the renewal coat is not required for that stretch of 10 kms in the 5th year. It may be mentioned that in Note 31 to the balance sheet for the year ending on 31.03.2012 i.e. for AY 2012-13 as appearing, it has been stated as under:

“31 Provision for Second Periodic wearing course overlay:As per concession Agreement entered into by the company with Nationa l Highways Authority of India, Company has to renew bituminous concrete coat of the Road every 5 years. Next such renewal is to be undertaken during financial year 2014-15. As per Accounting Standard – 29(AS 29), “Provisions, Contingent Assets”, cost o f overlay of Bituminous Concrete to be made in Financial Year 2014-15, as required by Operation and Maintenance Requirements is estimated at Rs. 56.64 Crore and 1/5th of the same i.e. Rs. 11.33 Crore (Previous Year: Rs. 11.33 Crore) is provided for the year.”

Thus, it appears that while making provision for overlay, the entire length of the highway has been taken into consideration, which appears to be not correct interpretation of clause (ii). So, when the basis of estimation itself is not correct, how the provision can be reliable or made on scientific basis.

37. It was further submitted that the initial provision of overlay for the entire highway was estimated at Rs. 56.64 Crore in the FY 2010-11, whereas the same was revised to Rs. 81.65 Crore in the 5th year while placing the work order and work was completed during FY 2015-16 incurring an expenditure of Rs. 145.50 Crore. In view of these facts whether, it could be said that the provision for overlay was reliable or made scientifically as there is no parity between the estimate and the actual expenditure.

38. It was further submitted that in its written submission, it has been emphasized by the ld. AR that in earlier years, no such disallowance was made on this issue and thus, in view of the principle of consistency, the decision of ld. CIT(A) may be upheld. In this regard, it was submitted that the principle of res judicata does not apply to income tax proceedings and each assessment year is separate and independent one. The issue may not have been examined at all in earlier years or the same may not be examined critically. If no disallowance was made by the AO in earlier year, it does not mean that the Revenue should put blinkers in later assessment years and cannot take a correct decision in subsequent years as there is no heroism in perpetuating an inadvertent mistake, if any.

39. It was accordingly submitted that provision for overlay was not made on scientific basis and thus, cannot be treated as ascertained liability and nothing but a contingent liability depending on health of highway in the block of 5 years and renewal coat placed on the length of highway during the period of 5 years and the ld. CIT(A) was not justified in deleting the addition without appreciating the basis of estimation for overlay and without appreciating clause (ii) as referred above, in a correct perspective and thus, the addition so deleted by ld. CIT(A) may kindly be restored.

40. We have heard the rival contentions and perused the material available on record. We find that the matter requires examination from touchstone of whether it is a revenue neutral exercise given that the assessee is eligible for deduction u/s 80IA of the Act and even where the action so taken by the Revenue is upheld, whether it will have any impact on the taxable income in the hands of the assessee. Secondly, the interplay between the principle of consistency and principle of res judicata in the facts and circumstances of the present case. Thirdly, whether the provision so made towards second periodic wearing course overlay of the Toll road is in the nature of ascertained liability or not.

41. It is an admitted and undisputed fact that the assessee is eligible for deduction u/s 80IA(4)(i) of the Act in respect of income derived from operating and maintaining of the highway and the said claim of deduction has been made by the assessee company in its return of income and which has been duly allowed by the Assessing officer for A.Y 2014-15 and A.Y 2015-16. In its profit/loss account, the assessee company has debited a sum of Rs 11,33,00,000/- towards provision for second periodic wearing course overlay of the BOT road as per clause 4.5.1 of Schedule L of the Concessionaire Agreement executed with NHAI. The Assessing officer has disallowed the same while determining the income under the regular provisions holding that the basis of estimation of such cost of overlay expenses is not done on a scientific basis and is thus in a nature of contingent liability and the revised income from business was determined at Rs 76,01,30,659/- (after adding back Rs 11,33,00,000/- besides other adjustments) and thereafter, deduction u/s 80IA(4)(i) was determined at Rs 76,01,30,659/-. For A.Y 2015-16, similar disallowance of Rs 36,33,00,000/- was made and the revised income from business was determined at Rs 1,89,95,65,026/- (after adding back Rs 36,33,00,000/-besides other adjustments) and thereafter, deduction u/s 80IA(4)(i) was determined at Rs 1,89,95,65,026/- . In the instant case, we therefore find that there is no dispute that such provision towards cost of overlay expenses is related to the business activity of operating and maintaining of the highway and any addition made towards such provision would enhance the taxable profit which is eligible for deduction u/s 80IA(4)(i) of the Act and would thus be a revenue neutral exercise. The Central Board of Direct Taxes has also issued a Circular No. 37/2016 way back in November 2016 stating that the Courts have generally held that where the expenditure disallowed is related to the business activity against which Chapter VI-A deduction has been claimed, the deduction need to be allowed on the enhanced profits and the Board has since accepted the said position and has also directed its officers that appeal may not to be filed on this ground and the appeal already filed may be withdrawn/not pressed upon. The contents of the said Circular reads as under:

“Subject : Chapter VI-A deduction on enhanced profits-Reg.

Chapter VI-A of the Income-tax Act, 1961 (“the Act”), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.

2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows:

(i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account o f non-deduction of TDS under law, such disallowance would ultimately increase assessee’s profits from business o f developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases:

• • • Income-tax Officer – Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court. ‘
    • Commissioner of Income-tax-IV, Nagpur vs. Suni l Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.

(ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case:

• • • Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court.

The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.

3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.

4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned. ”

42. In the instant case, as we have stated above, there is no dispute that such provision towards cost of overlay expenses is related to the business activity of operating and maintaining of the highway and any addition made towards such provision would enhance the taxable profit which is eligible for deduction u/s 80IA(4)(i) of the Act. Here, it is also relevant to note that the disallowance has been made by the Assessing officer while computing the profits of the business under the regular provisions of the Act however no adjustment has been made while computing the book profits for the purposes of MAT u/s 115JB of the Act and therefore, as far as computation of book profits and consequent MAT liability is concerned, the same is not under dispute and our findings on revenue neutrality is thus limited to computation of profits under the regular provisions of the Act which are eligible for deduction u/s 80IA(4)(i) of the Act. The CBDT has stated in its aforesaid Circular that the appeal and ground where so taken should not be pressed/withdrawn and therefore, taking the same into consideration which is binding on the Revenue authorities, the ground of appeal so taken by the Revenue deserved to be dismissed on this account itself for both the years under consideration.

43. The assessee has provided for the provision for second periodic wearing course overlay for the first time during the financial year 2010­11 relevant to assessment year 2011-12 and in its financial statements for the year ended on 31.03.2011 has made the following disclosure and the contents thereof reads as under:

“Provision for Second Periodic wearing course overlay: As per concession Agreement entered into by the company with Nationa l Highways Authority of India, Company has to renew bituminous concrete coat of the Road every 5 years. Next such renewal is to be undertaken during financial year 2014-15. As per Accounting Standard – 29(AS 29), “Provisions, Contingent Assets”, cost o f overlay of Bituminous Concrete to be made in Financial Year 2014-15, as required by Operation and Maintenance Requirements is estimated at Rs. 56.64 Crore and 1/5th of the same i.e. Rs. 11.33 Crore (Previous Year: Nil) is provided for the year.”

44. Similar provision of Rs 11.33 Crores has been made during each of the subsequent financial years relevant to A.Y 2012-13 and A.Y 2013­14 and in its return of income for each of these three assessment years, the assessee has claimed the same as an allowable expenditure while determining the profits under the regular provisions of the Act as well as while determining book profits for the purposes of computation of MAT liability u/s 115JB of the Act. The Assessing officer while passing the assessment order u/s 143(3) for each of these assessment years has not made any disallowances and/or adjustment to the book profits towards such provision and has thus accepted the claim of the assessee company. It is a well settled legal proposition, as has been laid down by the Courts from time to time and which has been reiterated by the Hon’ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd. (394 ITR 449) that:

“While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. CIT (193 ITR 321):

“We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. “

45. In light of above, there has to be compelling reasons for a departure from the past settled position wherein the assessee has been held eligible for such claim all these years and such reasons have to be spelt out clearly by the Assessing officer. It has been contended by the ld A/R that during the year under consideration, there is no change in the nature of provision so made by the assessee company which is flowing out of the requirements of the concessionaire agreement executed with NHAI and determined based on an independent consultant report who has been appointed in consultation with NHAI except for the fact that the quantum of provision was revised in the fifth year. Even on perusal of the assessment orders and the findings of the Assessing officer, we note that there is no finding recorded by the Assessing officer that the nature of provision so made by the assessee company is different from the past years or not flowing from the requirements of the concessionaire agreement executed with NHAI. Even the report of the independent Consultant was obtained in the first year where it had estimated the total cost of Rs 56.64 crores which has therefore formed the basis for spreading the total cost equally across five years. We therefore failed to understand that where the provision for periodic wearing course overlay has been accepted all these years as an ascertained liability, then on what basis, the said provision is treated as a contingent liability for A.Y 2014-15 and A.Y 2015-16. Interestingly, even for these two assessment years, while the Assessing officer has treated the provision as a contingent liability while computing income under the regular provisions however at the same time, has not made any adjustment to the book profits towards such provision as “the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities” which again bring out the dichotomy and inconsistency in the stand of the Assessing officer for the same assessment year. Therefore, on this ground as well, where there are no changes in the facts and circumstances of the case, following the rule of consistency as upheld by the Courts from time to time, we are of the considered view that there is no basis to interfere with the consistent position which has been accepted in the earlier years that is, to hold that the provision so made is towards an ascertained liability and which is allowable for tax purposes while computing the income under the normal provisions of the Act.

46. Now, coming to the merits of the case. In its profit/loss account, the assessee company has debited a sum of Rs 11,33,00,000/- towards provision for second periodic wearing course overlay of the BOT road. During the course of assessment proceedings, the assessee company has submitted that as per the Concessionaire Agreement executed with NHAI, to ensure smooth riding quality, certain maintenance standards are required to be maintained in terms of surface roughness and in this regard, a report from an independent consultant has been obtained which has estimated the total cost at Rs 56.64 crores and basis the same, 1/5 of the said amount i.e, Rs 11.33 crores was provided in the profit/loss account for the year under consideration. The Assessing officer, though taken note of the said report, however held that it is an estimation certificate issued by Consulting Engineers Group Ltd and there is no scientific basis of making this certificate as the DSIR like agencies follows. He therefore disallowed the same while determining the income under the regular provisions holding that the basis of estimation of such cost of overlay expenses is not done on a scientific basis and is thus in a nature of contingent liability. On appeal, the ld CIT(A) has returned a finding that expenditure related to keeping the roughness of the highway at 2500 mm/Km is a mandatory clause and the assessee company has to relay the surface every five years and it is therefore an ascertained liability and the estimation has been done basis an expert report and the relevant findings of the ld CIT(A) read as under:

“11.4.2 After consideration of the concession agreement signed between the appellant company and the NHAI, it is my considered view that the expenditure related to keeping the roughness of the expressway at 2500mm/km is a mandatory clause and the appellant company has to relay the surface every 5 years which is an ascertained liability. The estimation of the liability was made by the expert committee at Rs. 56.64 crores and the provision has rightly been created at Rs. 11.33 crores per annum and has rightly been allowed til l A.Y 2013-14. Accordingly, the appellant company is liable to get the benefit of ascertained contingent liability at Rs. 11.33 crores as claimed. Accordingly the addition of Rs. 11.33 crore is deleted and the appellant’s ground of appeal on the issue is allowed. ”

47. We also find that as per the concessionaire agreement executed with NHAI, the assessee company is required to maintain the highway in traffic worthy condition through regular maintenance and preventive maintenance of the highway and it has been provided that MOST Manual for maintenance of roads and IRC-SP-35-1990 guidelines for inspection and maintenance of bridges shall be followed by the assessee company. And as part of the maintenance requirements, periodic maintenance of pavement has been specifically provided and we deem it appropriate to refer to the relevant clauses in the concessionaire agreement which read as under:

“4.5 Periodic Maintenance of Pavement

The framework of activities relating to pavement maintenance and rehabilitation in respect of flexible and rigid pavement are given in the flow charts in Appendix 3.1 and Appendix 3.2 respectively. The Concessionaire shall set forth in the Operations and Maintenance Manual the detailed procedures to be followed under each of these activities, and also choose the operational and performance criteria from the IRC/MOST standards and specifications for each of the performance indicators covered under pavement condition survey, roughness and BBD deflections. Where such criteria is not specified in the standards, the Concessionaire, for the purpose of routine maintenance shall set forth such criteria so as to conform to international standards or sound pavement maintenance practices in consultation with the Independent Consultant for using them as criteria.

4.5.1 Pavement Riding Quality

The riding quality of the pavement shall be ensured by satisfying the minimum requirements given herein under.

i) Surface roughness of the Project Highway on completion o f construction shall be 2500 mm/km as measured by the 5th wheel Bump Integrator.

ii) Surface roughness shall not exceed 3500 mm/km during the service life of pavement at any time. A renewal coat of 25 mm o f bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km.

4.5.2 Structural Condition of the Pavement

i) The structural condition of the flexible pavement of the Project Highway shall be assessed every year by taking Benkelman Beam Deflections and working out characteristic deflections of homogeneous sections of the Project Highway as per IRC-81-1997. Wherever the characteristic deflection exceeds 0.8 mm a bituminous overlay shall be provided appropriately designed according to IRC-81-1997 or its latest versions or amendments to it.

ii) In the case of cement concrete pavement, joints shall be thoroughly inspected every year and the loss of sealing compounds made good. ”

48. On reading of the above clauses, we find that the assessee company is required to follow the operational and performance criteria from IRC/MOST standards and specification for each of the performance indicators covered under pavement condition survey, roughness and BBD reflections and where such criteria is not specified, the assessee company is required to adhere to international standards or sound pavement maintenance practices in consultation with Independent consultant. In respect of riding quality of pavement, it has been specifically provided that the assessee company is required to maintain Surface roughness which shall not exceed 3500 mm/km during the service life of pavement at any time and a renewal coat of 25 mm of  bituminous concrete shall be laid every 5 years after initial construction or where the roughness value reaches 3500 mm/km whichever is earlier to bring it to initial value of 2500 mm/km. We therefore find that the assessee company has to maintain the pavement riding quality by way of roughness meeting the minimum standards throughout the service life of the pavement and the same is clearly emerging from the operation and maintenance requirements of the concessionaire agreement executed by the assessee company with NHAI and we don’t see any infirmity in the findings of the ld CIT(A) where he has returned a finding that it is mandatory clause/requirement of the concessionaire agreement and the assessee company has to relay the surface every five years and it is therefore an ascertained liability. Now, coming to the basis of estimation of such cost, the assessee company has obtained and relied upon a report of an independent consultant, Consulting Engineers Group Ltd who has taking into considerations the standards so set in the concessionaire agreement and length of the highway, has estimated the total cost and the contents of the said report dated 27.04.2011 read as under:

“In terms of Clause 4.5.1 (ii) of Schedule-L of the Concession Agreement dated 8th May, 2002, under the head “Pavement Riding Quality”, the Concessionaire is required to lay a renewa l coat of 25mm of bituminous concrete at the end of every 5 years after initial construction or when the roughness value reaches 3500mm/km whichever is earlier to bring it to the initial value o f 2500mm/km. Concessionaire has carried out first renewal coat in 2009-10. Next periodic renewal shall be due in 2015.

It is estimated that the cost of laying 25mm Bituminous Concrete, as required under Clause 4.5.1 (ii) of Schedule-L of the Concession Agreement in 2015 works out to be Rs. 56.64 cr the broad break-up of which is annexed. ”

Annexure:

Area Calculation Sheet

S. No.	Description	Chainage		Length (Km)	Area (sqm)
		From	To
1	Length of Main Carriageway	273.500	363.885	90.385
	Length of Toll Plaza (Jaipur)	286.662	287.115	0.453
	Length of Toll Plaza (Kishangarh)	360.640	361.060	0.420
	Net Length			89.512	2,193,044.00
2	Length of Service Road (LHS)			15.144	106,008.00
3	Length of Service Road (RHS)			16.081	112,567.00
4	Area of Junctions				32,173.14
5	Area of Tapering at SR Start/End Location				7,025.15
6	Total Area				2,450,817.29

Cost of 25mm Thick Bituminous Concrete at Current rates

S. No.	Description	Unit	Qty	Rate	Amount (Rs)
1	Bituminous Concrete	Cum	61270.43	7003	429,076,837
2	Tack Coat	Sqm	2450817.29	8.0	19,606,538
			Total	Rs.	448,683,375

Estimated Cost of 25mm Thick Bituminous Concrete in 2015

S. No.	Description	Unit	Qty	Rate	Amount
1	Bituminous Concrete	Cum	61270.43	8841	541,691,891
2	Tack Coat	Sqm	2450817.29	10.1	24,753,255
			Total	Rs.	566,445,146

49. We therefore find that the Independent consultant has taking into considerations the standards so set in the concessionaire agreement and the length of the highway has estimated the total cost. The Assessing officer has rejected the said estimation holding that the basis of estimation of such cost of overlay expenses is not done on a scientific basis. We find that once the consultant has taken into consideration the standards of roughness as so specified in the concessionaire agreement which is in turn are based on international and other benchmarks so specified for the pavement riding quality standards, the basis of estimation is clearly based on well laid down standards and the method of evolution of such standards over the period of time and as they stood today is clearly a long drawn process of reasoning and experimentation which is nothing but scientific in nature. Further, where the Assessing officer is not satisfied with such estimation, he is required to specify the reasons as to why he is not so satisfied and may have referred the matter to another expert for seeking his opinion. Merely stating that he is not satisfied with such report will not satisfy the requirements of law as once the assessee has made a claim supported by report of an Independent Consultant, the onus shifts on the Revenue to disprove the same which in the present case has not been satisfied by the Revenue. During the course of hearing, the ld CIT D/R has stated that the entire length of the highway has been considered for estimating the cost which is not correct interpretation of clause (ii) as some stretches may require renewal coat in the interim period and not towards the end of fifth year. We find that the estimation has been made on the basis that the whole length of the highway shall be required to be maintained with prescribed roughness standard and it is likely that such renewal cost will be done towards the end of year 2015 and accordingly, the estimate has been made and we don’t find any infirmity therein. In case of Rotork Controls India (P) Ltd vs CIT (Supra), the Hon’ble Supreme Court was pleased to held as under:

“10. What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized.

11. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

12. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. ”

50. In the instant case, the assessee company has a present obligation arising out of the concessionaire agreement executed with NHAI to maintain the highway in traffic worthy condition through regular and preventive maintenance of the highway and which mandatorily requires it to maintain the pavement riding quality by way of roughness meeting the minimum standards throughout the service life of the pavement, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate has been made based on report of an independent consultant. Our view is further fortified by the decision of the Hon’ble Rajasthan High Court in case of Udaipur Mineral Development Syndicate (P.) Ltd. Vs Deputy Commissioner of Income-tax [2003] 129 Taxman 728 (Rajasthan) wherein the Hon’ble Rajasthan High Court was pleased to held as follows:

“5. Heard learned counsel for the parties. The submissions made before the CIT(A) in writing reads as under :—

“It is submitted that the assessee-company is engaged in open cast mining of soapstone crude. The lease for the exploration o f mines has been granted by the Govt. of Rajasthan.

From the terms and conditions of the lease agreement, it is obligatory on the part of the assessee-company to restore the land as far as possible to its original shape. An extract from clause 2 of part-V of the lease agreement is reproduced as below:

As far as possible the lessee shall restore the surface land so used to its original condition.

During the year under consideration, the company had dug new pits in the mining lease area for the purpose of excavating soapstone crude out of which some of the pits dug had no economic value and the land damaged by digging the land was required to be restored. Dimensions of the pit dug which were uneconomic were to the extent of 7568 Cub. mtr. and the estimated cost of their re-filling comes to Rs. 1,51,360 and therefore, the liability in respect of the same had been provided for as per the clause 2 of part-V of lease agreement. Thus the cost of refilling of above ascertained liability and is eligible for deduction because the assessee-company observes mercantile system of accounting. “

6. It has also been brought to our notice that even in the year 1993-94 though the actual expenditure has been made, but that has been denied on the ground that CIT(A) has allowed this expenditure in the year 1991-92. Thus in both the years, the claim of the assessee has been disallowed.

7. Considering the clause in the agreement i.e. as far as possible the lessee shall restore the surface land so used to its origina l condition, the moment assessee digs pits, he is bound under the agreement to fill those pits and liability does accrue on the date when the pits are digged. Therefore, in our view, the Tribunal has committed error in disallowing the claim of the assessee in the year in hand i.e. 1991-92. We agree with the view taken by CIT(A) that the moment assessee digs the pits, liability does arise and he is entitled for deduction of the expenses which he is supposed to incur for filling those pits, as assessee is following the Mercantile System of Accounting. It can claim the expenses incurred as soon as it digs the pits.

8. In the result, we restore the view taken by CIT(A). The appea l stands allowed. ”

51. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, the matter is decided in favour of the assessee and against the Revenue. In the result, ground of Revenue’s appeal for A.Y 2013-14 and A.Y 2014-15 are dismissed and ground of assessee’s appeal for A.Y 2015-16 is allowed.

Disallowance u/s 14A/36(1)(iii) for A.Y 2012-13 to A.Y 2015-16

52. This ground is relevant for A.Y 2012-13 & 2013-14 wherein the Revenue is in appeal against the findings of the ld. CIT(A) and for A.Y 2014-15 and 2015-16 where there are cross appeals filed by the Revenue and the assessee against the order ld. CIT(A).

53. Briefly stated facts of the case are that during the F.Y 2011-12 relevant to A.Y 2012-13, the assessee company has made an application for allotment of 13.30% Non-cumulative redeemable preference shares of M/s GVK Airport Developers (P) Ltd., a group company and has paid an amount of Rs. 940.80 crores as shares application money for allotment of 940,800 shares having a face value of Rs. 10,000/- per share. Separately, the assessee company has taken a loan of Rs. 950 crores from IDFC Bank carrying rate of interest of 12.98% on Rs 650 crores and 12.75% on Rs. 300 crores and which has been utilized for making the payment towards the share application money of Rs. 940.80 crores. As on 31st March, 2012, no shares were allotted to the assessee company and the amount continue to remain invested as “share application money” and accordingly, reflected as share application money under the head “long term loans and advances” in the balance-sheet of the assessee company as on 31.03.2012 and interest expenses of Rs. 43,37,58,347/- on such loan has been debited in the profit/loss account for the year ended 31.03.2012. In the return of income filed for A.Y 2012-13, while computing income under the head “Income from business/profession”, the assessee company has suo-moto added back the said expenses debited under the head “interest and processing charges on loan taken for investment” and has thus not claimed the same for tax purposes while computing its income under the regular provisions of the Act and no exempt income has been claimed in respect of such investment by way of share application money. Similarly, while working out eligible profits for the purposes of claim of deduction u/s 80IA(4)(i), the said expenses debited under the head “interest and processing charges on loan taken for investment” in the profit/loss account were added back. During the course of assessment proceedings, the Assessing Officer, on observing that the assessee has claimed interest expenses to the tune of Rs. 43,37,58,347/- in its profit & loss account and which were paid to IDFC Bank against the loan taken for making such investment, issued a show cause dated 02.12.2014 wherein the assessee company was asked to explain why the same should not be added back to the book profit for computation of MAT in view of provisions of section 115JB(2) read with explanation 1(f) of the Income Tax Act, 1961.

54. In response to the show-cause so issued by the Assessing officer, the assessee company submitted that the payment of share application money does not guarantee share allotment of shares which is at the sole discretion of the investee company and till such time, shares are allotted, the assessee company is not in a position to receive any dividend income from investment by way of share application money. It was further submitted that explanation (1)(f) of section 115JB(2) is inextricably linked to explanation (1)(ii) of section 115JB(2) and in absence of exempt income credited to profit and loss account, the disallowance of interest expense in relation to investment in share application money cannot be made. It was submitted that there is no possibility of earning exempt income from share application money and in fact, no income has been received and credited to the profit & loss account in the relevant financial year and therefore, the interest expenditure on account of investment in share application money cannot be added back for the purpose of computing book profits u/s 115JB of the Act.

55. The submission so filed by the assessee were considered but not found acceptable to the Assessing Officer. As per Assessing Officer, the intention of the assessee is clear right from time of making the share application money that it was for the purpose of investment and such investment have been made after discussion and agreement with the investee company which was also a group/fellow subsidiary of the assessee company. The assessee has itself submitted that it has paid interest of Rs. 43,37,48,347/- during the year under consideration on the loan taken from IDFC Bank which has been utilized for making investment in the share application of the investee company. Subsequently, the shares have been allotted in F.Y 2014-15 relevant to A.Y 2015-16 and it is therefore not the case where share application money has subsequently been refunded. It was accordingly held by the Assessing officer that since shares have eventually got allotted, the investment as share application money was with a view to earn dividend income. It was also held that even though there is no exempt income during the year under consideration, the provisions of section 14A are clearly attracted and in this case, there is a direct connection between the borrowed funds on which the interest is paid and the investment so made by way of share application money, a fact which has been accepted by the assessee. It was accordingly held that a sum of Rs. 43,37,48,347/- is directly attributable to the exempt income which was added back to the total income of the assessee u/s 14A of the Act. It was also held that the book profits shall be increased with the said amount of Rs. 43,37,48,347/- as per provisions of explanation 1(f) to section 115JB(2) of the Act.

56. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) stated that the Assessing Officer has not rebutted the contention of the assessee that the shares were not allotted during the period under consideration and also taken note of the contention of the assessee company that so long as share are not allotted, the amount deposited remains as share application money and no exempt income could have been received on such share application money. Further, referring to the Hon’ble Delhi High Court decision in case of Cheminvest Ltd. vs. CIT 378 ITR 33 and Jaipur Bench decision in case of Deepak Vegpro (P) Ltd. Alwar vs. ACIT (ITA No. 110/JP/2014 dated 24.04.2017) held that no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the Assessing Officer. At the same time, the ld. CIT(A) invoked the provisions of section 36(i)(iii) of the Act stating that the Assessing officer has failed to appreciate the fact that funds borrowed were diverted for non business purposes and the Assessing officer was directed to disallow the sum of Rs 43,37,48,247/- by invoking the provisions of section 36(1)(iii) of the Act and ground of appeal so taken by the assessee company was dismissed and against such findings, the assessee is not in appeal before us. The Revenue is in appeal before us challenging the action of ld. CIT(A) in deleting the disallowance u/s 14A read with Rule 8D.

57. Further, during the appellate proceedings before the ld CIT(A), the assessee company took an additional ground of appeal challenging the action of the Assessing Officer in making addition of Rs. 43,37,48,247/- to the book profit u/s 115JB explanation (1) clause (f) by invoking the provisions of section 14A of the Act. The ld. CIT(A) admitted the said additional ground of appeal holding that the same was a legal ground and arising from the order of the Assessing officer. The ld CIT(A) held that since the addition made u/s 14A is deleted, the ground has becomes infructuous.

58. In respect of financial year 2012-13 relevant to A.Y 2013-14, similar fact pattern and findings of the Assessing Officer as well as of the ld. CIT(A) exist except for the variation in the quantum of disallowance of interest expense on loan amount utilized towards payment of share application money which stood at Rs. 1,19,06,05,811/- as compared to Rs 43,37,48,247/- in A.Y 2012-13. The amount continue to remain invested as share application money and no shares were allotted during the financial year relevant to A.Y 2013-14 and consequently, no question of any dividend income accrued and/or received by the assessee. In the return of income filed for A.Y 2013-14, while computing income under the head “Income from business/profession”, the assessee company has suo-moto added back the aforesaid interest expenses and has thus not claimed the same for tax purposes while computing its income under the regular provisions of the Act and no exempt income has been claimed in respect of investment by way of share application money. The Assessing officer held that a sum of Rs. 1,19,06,05,811/- is directly attributable to the exempt income which was added back invoking provisions of section 14A and the book profits for the purposes of MAT were correspondingly increased with the said amount of Rs. 1,19,06,05,811/- as per provisions of explanation 1(f) to section 115JB(2) of the Act. On appeal, the ld CIT(A) invoked the provisions of section 36(1)(iii) instead of section 14A and addition made to book profits u/s 115JB(2) was deleted. The assessee is not in appeal against the said findings of the ld CIT(A) and the Revenue is only in appeal before us challenging the action of ld. CIT(A) in deleting the disallowance u/s 14A read with Rule 8D.

59. In respect of financial year 2013-14 relevant to A.Y 2014-15, similar fact pattern and findings of the Assessing Officer exist except for the variation in the quantum of disallowance of interest expense on loan amount utilized towards payment of share application money which stood at Rs. 1,15,92,95,718/- and unlike past years, the assessee company has not suo-moto disallowed the same in its return of income. The amount continue to remain invested as share application money and no shares were allotted during the financial year relevant to A.Y 2014-15 and consequently, no question of any dividend income accrued and/or received by the assessee. In the return of income filed for A.Y 2014-15, while computing income under the head “Income from business/profession”, unlike previous two assessment years, the assessee company didn’t suo-moto added back the aforesaid interest expenses and has thus claimed the same for tax purposes while computing its income under the regular provisions of the Act. No exempt income has been claimed in respect of investment by way of share application money. The Assessing officer held that a sum of Rs. 1,15,92,95,718/- is directly attributable to the exempt income which was added back invoking provisions of section 14A and the book profits for the purposes of MAT were correspondingly increased with the said amount of Rs. 1,15,92,95,718/- as per provisions of explanation 1(f) to section 115JB(2) of the Act. On appeal, the ld. CIT(A) though considered the decision of his predecessor for A.Y 2012-13 but did not agree to the same and disallowance was sustained u/s 14A of the Act. The ld. CIT(A) stated that during the assessment proceedings, the assessee has taken the plea that the amount raised by way of loan has been invested as strategic investment in the group company. However, during the appellate proceedings, the assessee has claimed that it is a strategic investment to have controlling stakes in the group company to further its own business interest is far from the truth. However, during the appellate proceedings, the assessee has taken an alternate plea that interest expenditure is not related to the business of the company and hence, is disallowable u/s 36(1)(iii) of the Act. It was held by the ld. CIT(A) that the assessee cannot be allowed to shift stand on applicability of the provisions of the Act. Whether the disallowance is to be made u/s 14A or section 36(i)(iii) depends upon facts and circumstances of the case and it is therefore relevant to determine the intention and the planning of the assessee company. It was held by the ld. CIT(A) that in this case, the assessee had raised an amount of Rs. 950 crores as loan and the entire loan amount was invested in the group concern of the assessee. Therefore, there is no doubt that the loan was raised with the sole intention of investing in the group company which has a business object different to that of the assessee company. Further, referring to the features of preference shares vis-à-vis equity shares where the preference shares carry a fixed dividend rate and not voting rights unlike equity shares, held that the assessee’s plea that the investment is actually to further its own business interest is far from the truth. Actually the investment is made to earn dividends only. When the objective and intention of a particular investment is very clear then the guarding provision of the Act is section 14A only and hence, the provision of section 14A of the Act has to be applied. Further, referring to the CBDT Circular No. 5/2014, the plea of the assessee company that in absence of any dividend income, no disallowance can be made u/s 14A was also not accepted. It was accordingly held that it is not a case where the investment was made for any strategic reasons but it is a case of pure investment for earning tax free dividend income as evident from the fact that the preference shares were allotted to the assessee company in the following year and not equity shares and the disallowance so made by the Assessing officer u/s 14A was sustained. Further, referring to the Special Bench decision in case of Vireet Investment Pvt. Ltd (ITA No. 502/Del/2012 dated 16/06/2017), it was held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Rules 1962. Against the said order of the ld. CIT(A), the assessee is in appeal challenging the sustenance of disallowance u/s 14A and the Revenue is in cross appeal challenging the action of the ld. CIT(A) in holding that the computation u/s 115JB of the Act has to be made without resorting to the section 14A of the Act.

60. In respect of financial year 2014-15 relevant to A.Y 2015-16, similar fact pattern and findings of the Assessing Officer as well as that of ld CIT(A) exist except for the variation in the quantum of disallowance of interest expense on loan amount utilized which stood at Rs. 1,11,92,41,369/- and the fact that during the financial year, the investee company has finally issued preference shares to the assessee company. However, there is no change in the fact that no dividend income has accrued or received by the assessee company and which has been claimed exempt in the return of income. The AO made the disallowance invoking the provisions of section 14A and also made the corresponding addition to book profits u/s 115JB(2). On appeal, the ld CIT(A) sustained the disallowance u/s 14A and regarding computation of book profits under clause (f) of Explanation 1 to section 115JB(2) held that the same is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Rules 1962. Against the said order of the ld. CIT(A), the assessee is in appeal challenging the sustenance of disallowance u/s 14A and the Revenue is in cross appeal challenging the action of the ld. CIT(A) in holding that the computation u/s 115JB of the Act has to be made without resorting to the section 14A of the Act.

61. In light of the aforesaid fact pattern and the findings of the AO as well as the ld CIT(A) for the respective assessment years, two broader issues arises for consideration before us. Firstly, the applicability of section 14A vis-à-vis section 36(i)(iii) of the Act in the facts and circumstances of the present case. The second issue is where the provisions of section 14A of the Act are held applicable, whether resort to section 14A can be made while computing the books profits u/s 115JB of the Act. And a third and connected issue is whether there could be any adjustment to book profits u/s 115JB considering the facts and circumstances of the present case independent of applicability of and taking recourse to the provisions of section 14A of the Act.

62. In this regard, we refer to the contentions advanced by the both the parties. During the course of hearing, the ld. AR drawn our attention to the provisions of section 14A, which read as under:

“14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the tota l income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts o f the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the tota l income under this Act :

Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. ”

63. It was submitted that the heading of section 14A, i.e. “Expenditure incurred in relation to income not includible in total income” itself presupposes existence of exempt income, and then only a particular expenditure can be treated as incurred “in relation to” such income. It is thus a matter of law and fact both that certain incomes are not to be included while computing the total income as these are exempt under various provisions of the Finance Act. Further, books of accounts are usually prepared and consolidated by the assessee after balancing the entire income earned (whether taxable or non-taxable) and expenditure incurred by it in a particular financial year. However, as per Income Tax Act, expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. Section 14A was, therefore inserted by the Finance Act, 2001 with retrospective effect from 1st April 1962 clarifying that this was the intention of the legislature from the inception of the Income Tax Act. Section 14A deals with expenses incurred by a person to earn exempt income. Such expenses are not deductible while computing total income and are disallowed. Thus, provisions of Section 14A are attracted if and only if:

1. The assessee has certain income which is not includible in his total income under any provisions of the Act.

2. The assessee has incurred expenditure in relation to earning of such income which is exempted under the Act.

64. It was submitted by the ld AR that in the instant case, the assessee has not earned any exempt income in any of the assessment year under appeal on such investments. Further for AY 2012-13 to 2014-15, the amount was lying as share application money and no shares were allotted to it, thus the provisions of section 14A are not attracted as well as applicable.

65. It was submitted by the ld AR that language of section 14A is not at all ambiguous and in fact very clear and by virtue of the same, only expenditure actually incurred in relation to income not includible in total income shall be disallowed. In no way, it could be interpreted that it seeks to disallow expenses incurred in the year in relation to exempt income in future years, as it would be completely against the well-recognized “matching concept.” It was submitted that the principle that disallowance u/s 14A can be made only when assessee has actually earned exempt income, has been affirmed by catena of judicial pronouncements and reference was drawn to the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT reported in 378 ITR 33, wherein it was held that no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the appellant. Further, reference was drawn to the Jaipur Benches decision in case of Deepak Vegpro (P) Ltd., Alwar Vs. ACIT (ITA No 110/JP/14 dated 24.04.2017) and Mumbai Benches in case of DCIT vs JSW (ITA No 6264 & 6103/Mum/18 dated 14.05.2020) where the disallowance made by the AO u/s 14A was deleted by relying on the Hon’ble Delhi High Court decision in case of Cheminvest Ltd. (supra) for the reason that no dividend income was received during the year.

66. It was further submitted that the AO has made disallowance on the premise that investment in share application money is with the intention to earn dividend in view of the fact that shares eventually got allotted against share application money and furthermore since shares applied for were of group company, allotment of shares was certain. In this regard, it was submitted that it is undisputed fact that assessee has made investment in “Share application money” against which no shares have been allotted till the balance sheet date. Further, a shareholder is only entitled to receive dividend and not a share applicant. Further, whether an investee Company is a Group company or otherwise, it has a separate legal identity than Investor Company and share applicant remains “applicant” and does not become shareholder, so as to be entitled to claim dividend. In fact, Companies Act does not contain separate provisions in respect of status of share applicant being related concern. Thus, by no stretch of imagination, share application money can be treated equivalent to investment in shares, which would result into exempt income. It is only after allotment of shares that assessee becomes eligible to receive dividend, thus, no disallowance is called until the shares are actually allotted to the assessee and that too only when there is dividend income from such shares. In support, reliance was placed on following decisions:

• ACIT vs Acron Developers (P) Ltd. (ITA No. 162/Mum/2015)
• ITO vs M/s LGW Limited (ITA No. 267/kol/2013)
• Rainy Investments (P) ltd vs ACIT (ITA No. 5491/Mum/2013)

67. It was submitted that the assessee has since made investment in share application only (and no shares allotted), it thus create no right in favour of assessee to receive dividend (if any) declared by investee company in the years under consideration. Thus disallowance made on such ground u/s 14A is not in accordance with law and deserves to be deleted and the findings of the ld CIT(A) in A.Y 2012-13 and A.Y 2013­14 which may be confirmed and the findings of the ld CIT(A) for A.Y 2014-15 and A.Y 2015-16 where he has taken a divergent view need to be set-aside.

68. With regard to the second issue of inclusion of the disallowance made u/s 14A while computing the Book profit u/s 115JB(2), it was submitted that the same does not form part of the profits for the purpose of MAT, for which reliance was placed on the decision of Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt Ltd 165 ITD 27 (Delhi). It was submitted that the ld CIT(A) relied upon the decision of the Special Bench and held that the computation of book profits under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income Tax Rules, 1962. It was submitted that as the matter is settled by the Special Bench in the case of Vireet Investments Pvt. Ltd., therefore, the action of ld, CIT(A) is fully justified and the same deserves to be upheld. In support, reliance was further placed on the following judicial pronouncements:

• Essar Teleholdings Pvt. Ltd. (ITA No. 438 of 2012 dt. 7.8.2014) (Mumbai High Court)
• Bengal Finance and Investments P. Ltd. (ITA No. 337 of 2013) (Mumbai High Court)
• Bhushan Steels Ltd. (ITA No 593 & 594/ 2015) (Delhi H/C)

69. Per contra, the ld. DR relied on the findings of the Assessing officer and the findings of the ld CIT(A) for A.Y 2014-15. Further, the ld CIT/DR drawn our reference to CBDT Circular No. 5/2014 dated 11.02.2014 and in particular, para 3 of the said Circular which reads as under:-

“3. The matter has been examined in the Board. It is pertinent to mention that section 14A of the Act was introduced by the Finance Act, 2001 with retrospective effect from 01.04.1962. The purpose for introduction of section 14A with retrospective effect since inception of the Act was clarified vide Circular No. 14 of 2001 as under:

“Certain incomes are not includible while computing the total income,    as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non­exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect o f the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income”.

Thus, legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financia l year or not. ”

70. We have heard the rival contentions and purused the material available on record. During the F.Y 2011-12 relevant to A.Y 2012-13, the assessee company has made an application for allotment of 13.30% Non-cumulative redeemable preference shares of M/s GVK Airport Developers (P) Ltd., a group company and has paid an amount of Rs. 940.80 crores by way of shares application money. The shares were finally allotted during the financial year 2014-15 relevant to A.Y 2015-16 and therefore, till such time the shares were not allotted, the amount so paid continues as share application money pending allotment and it cannot be regarded as an investment in shares or any asset which is capable of yielding any dividend income. Given that the shares were allotted only during the financial year 2014-15 relevant to A.Y 2015-16, there was no question of any dividend been declared/accrued and/or received by the assessee company right through the financial years relevant to A.Y 2012-13 to A.Y 2014-15 and even during the financial year 2014-15 relevant to A.Y 2015-16, no dividend was actually declared/accrued and/or received by the assessee company. Accordingly, in the return of income filed for the respective assessment years, it is an admitted and undisputed position that no dividend income has been claimed as exempt from tax. It is a settled legal position that no disallowance can be made u/s 14A in a year where no exempt income has been earned or received by the assessee. The ld AR has relied on the decision of the Hon’ble Delhi High Court in case of Cheminvest Ltd vs CIT (supra) where similar substantial question of law had arisen for consideration as to “Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?” And the Hon’ble Delhi High Court, while disposing off the said ground, was pleased to held as under:

“23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression ‘does not form part of the total income’in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. ”

71. We also note that similar view has been taken by the Hon’ble Delhi High Court in its subsequent decision in case of PCIT vs OIL Industries Development Board [2019] 103 taxmann.com 325 (Delhi) wherein it was pleased to held as under:

“3. The ITAT relied upon the ruling of this Court in Cheminvest Ltd. v. CIT [2015] 378 ITR 33 which ruled in the absence of any exempt income, disallowance under Section 14-A of the Act o f any amount was not permissible. Since the decision in Cheminvest Ltd. (supra) was followed, there is no substantia l question of law that requires consideration. ”

And the SLP filed by the Revenue against the said decision of the Hon’ble Delhi High Court has since been dismissed by the Hon’ble Supreme Court in case of PCIT vs OIL Industries Development Board (2019) 262 Taxman 102(SC). Similar view has been taken by the Hon’ble Mumbai High Court in case of PCIT vs Ballarpur Industries Limited (ITA No. 51 of 2016 dated 13.10.2016) wherein the Hon’ble Mumbai High Court was pleased to held as under:

“On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.

The findings of facts recorded by both the Authorities do not give rise to any substantial question of law.

Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs. ”

72. We therefore find that there is a convergence of view among the various Hon’ble High Courts on the matter and following the aforesaid decisions of the Hon’ble High Courts, it is a consistent position taken by the various Benches of the Tribunal as well including Jaipur Benches in case of Deepak Vegpro (P) Ltd vs ACIT (supra) and Mumbai Benches in case of DCIT vs JSW Limited (supra) that no disallowance can be made u/s 14A in a year where no exempt income has been earned or received by the assessee Therefore, respectfully following the decisions referred supra, in the instant case, where the facts are on a stronger footing in the sense that there was no investment by way of shares which were capable of even yielding any dividend income and the amount remain invested as share application money for A.Y 2012-13 to A.Y 2014-15 and even for A.Y 2015-16 where the shares were finally allotted, there was no dividend income which has accrued and claimed exempt, the provisions of section 14A cannot be invoked. In the result, the findings, of the Assessing officer for all the years under consideration as well as of the ld CIT(A) for A.Y 2014-15 & 2015-16, in so far as invocation of section 14A is concerned, are set-aside.

73. Having said that, the fact of the matter remains that the assessee company has taken a loan of Rs. 950 crores from IDFC Bank carrying rate of interest of 12.98% on Rs 650 crores and 12.75% on Rs. 300 crores and which has been utilized for making the payment towards the share application money of Rs. 940.80 crores. On such borrowings, the assessee has incurred interest expenditure of Rs. 43,37,58,247/- in A.Y 2012-13 and Rs. 1,19,06,05,811/- in A.Y 2013-14. In its return filed for A.Y 2012-13 and A.Y 2013-14, while computing income under the head “Income from business/profession”, the assessee company has suo-moto added back the said expenses debited under the head “interest and processing charges on loan taken for investment” and has thus not claimed the same for tax purposes while computing its income under the regular provisions of the Act and no exempt income has been claimed in respect of such investment by way of share application money. Similarly, while working out eligible profits for the purposes of claim of deduction u/s 80IA(4)(i), the said expenses debited under the head “interest and processing charges on loan taken for investment” in the profit/loss account were added back. During the assessment proceedings, it is again an admitted position of the assessee that it has paid interest during the respective years under consideration on the loan taken from IDFC Bank which has been utilized for making investment in the share application of the investee company. The Assessing officer has thereafter recorded a clear finding that there is a direct nexus between the borrowed funds on which the interest is paid and the investment so made by way of share application money, a fact which has been accepted by the assessee. On appeal by the assessee for A.Y 2012-13, the ld. CIT(A) invoked the provisions of section 36(i)(iii) and the relevant findings reads as under:

“……I find that the appellant during the appellant proceedings categorically confessed that there is really a direct nexus between the funds borrowed from IDFC of Rs. 950 crores and the utilization of these funds in deposit towards share application with M/s GVK Airport Developers Pvt. Ltd., a group company under the same management. Having purused the facts and material on record, I am of the considered view that the Assessing Officer has failed to appreciate the aspect that the funds borrowed were diverted by the appellant for non business purposes and therefore he should have applied the provision o f section 36(i)(iii) of the I.T. Act and the subject interest should have been disallowed being utilization of funds for non business purposes as the business activity of the appellant is to operate the toll road. The Ld. A/R was confronted during the appellate proceedings about the above disallowance but no proper explain was given on this aspect of disallowance by letter dated 21.03.2018.

Under these circumstances once it has been admitted that the funds borrowed from IDFC on which the payment of interest was claimed as deduction out of the income earned from its regular business activity as stated above does not include the investment of shares. In the way the interest to the extent paid on the loan taken from IDFC cannot be allowed as business expenditure. I, therefore, direct the Assessing Officer to disallow a sum of Rs. 43,37,48,247/- debited in the profit and loss A/c by invoking the provision of section 36(i)(iii) of the I.T. Act. This ground is therefore dismissed. ”

74. During the course of hearing, the ld A/R referred to the assessee’s submissions dated 21.03.2018 filed before the ld CIT(A) and the contents thereof reads as under:

“Without prejudice to our submission made with respect to the addition made u/s 14A on account of interest paid on the funds borrowed from IDFC which were applied in the share application money of M/s GVK Airport Developers Pvt. Ltd., it is further submitted as under:

That the amount borrowed was since utilized in the share application money and not for the regular business activity of the assessee company therefore disallowance, if any, made the same should have been done by invoking the provision of section 36(1)(iii) as the interest paid on such advance and claimed in the Profit & Loss Account against the income from toll operation may not be considered as laid out for the business purposes of the assessee company. ”

and submitted that it was by way of an alternate plea though without in any manner conceding such addition, it was submitted that the addition, if at all could be made, it could be made u/s 36(1)(iii) of the Act. However, the fact of the matter remains that the assessee has not challenged the aforesaid findings of the ld CIT(A) and thus, the same has attained finality as far as assessee is concerned. Similar findings have been recorded by the ld CIT(A) for A.Y 2013-14 which are again not in challenge before us.

75. We therefore find that it is an admitted fact that there is a direct nexus between the funds borrowed from IDFC Bank and the utilization of these funds in deposit towards share application with M/s GVK Airport Developers Pvt. Ltd. and the aforesaid interest expenditure debited in the profit/loss account relates to loan funds so taken from IDFC Bank which has been utilized for making investment in the share application of M/s GVK Airport Developers Pvt. Ltd. It is also a fact that the assessee company is in the business of maintaining and operating of highways and the investment by way of share application money in M/s GVK Airport Developers Pvt. Ltd., a group company which is in business of development, construction and operation of domestic and international airports is not part of the regular business activity of the assessee company. More so, it is clearly a case where the funds have been mobilized on the strength of assessee’s balance sheet and in substance, given interest free to a group company for period commencing right from time of payment of share application money in A.Y 2012-13 right upto time of allotment of shares in A.Y 2015-16. There is nothing on record which should reasonably justify such a long time gap of almost four years between the placing of share application money and allotment of shares, more so, where the transactions are within the same group of companies. Though the transaction in form has been structured by way of issue of preference shares, in substance, it is in nature of interest free advancement of funds to the group company. Though there is no dispute that business rationale and expediency for entering into such transaction is best left to the assessee company to decide, at the same time, the Revenue authorities are well within their jurisdiction to examine as to how the test of business expediency has been satisfied in the given case more so where the borrowed funds have been advanced to the group company for a reasonable long period of time without anything tangible benefit in return. In the instant case, only explanation which has been given simplicitier is that the investment so made is for strategic purposes and to our mind, the said explanation without elaborating as to how the same is strategic and in furtherance of business interest of the assessee company is not sufficient enough to satisfy the test of business expediency. Therefore, where the interest bearing borrowed funds have been invested in another group company which is not part of regular business activity of the assessee company or in any way in furtherance of its business activity, the ld CIT(A) has rightly invoked the provisions of section 36(1)(iii) of the Act by holding that interest paid on such advances and claimed in the Profit & Loss Account against the income from toll operation may not be considered as laid out for the business purposes of the assessee company. Similar finding has been recorded by the ld CIT(A) for A.Y 2013-14. We therefore donot find any infirmity in the said findings of the ld CIT(A) and the same are hereby confirmed for both the years and the contentions so advanced on behalf of the Revenue cannot be accepted.

76. The assessee has not disputed the said findings of the ld CIT(A) and is not in appeal before us for A.Y 2012-13 and A.Y 2013-14. In its appeal for A.Y 2014-15 and A.Y 2015-16, the assessee has rather pleaded to follow the decision of ld CIT(A) for A.Y 2012-13 and A.Y 2013-14 as can seen from its ground of appeal where it contends that the ld. CIT(A) has erred in not following the principle of consistency as in the immediate two preceding assessment years, wherein his predecessor CIT(A) had invoked the provisions of sec 36(1)(iii) for making disallowance of interest on the amount employed in making share application money out of the funds so borrowed and hence the facts are same as in the preceding years.

77. For A.Y 2014-15 and A.Y 2015-16, the ld CIT(A) has again recorded a similar finding that the assessee had raised an amount of Rs. 950 crores as loan and the entire loan amount was invested in the group concern of the assessee and therefore, there is no doubt that the loan was raised with the sole intention of investing in the group company which has a business object different to that of the assessee company and on such borrowings, the assessee has incurred interest expenditure of Rs 1,15,92,95,718/- for A.Y 2014-15 and Rs 1,11,92,41,369/- for A.Y 2015-16. Having recorded such findings, we find that the ld CIT(A) was not correct in not following the earlier orders so passed by his ld. predecessor for A.Y 2012-13 and A.Y 2013-14 in terms of invocation of provisions of section 36(1)(iii) of the Act instead of section 14A of the Act. Given that there are no changes in the facts and circumstances of the case, following the principle of consistency which applies equally to the assessee and the Revenue as laid down by the Hon’ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd (Supra), we reverse the said findings of the ld CIT(A) and uphold the applicability of provisions of section 36(1)(iii) of the Act for the purposes of making the disallowance of interest expenses debited in the profit/loss account for these two assessment years, i.e, A.Y 2014-15 and A.Y 2015-16.

78. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and following the decisions referred supra, in the instant case, we set-aside the invocation of provisions of section 14A and uphold the invocation of provisions of section 36(1)(iii) for the purposes of making the disallowance of interest expenses debited in the profit/loss account for each of the respective assessment years i.e, A.Y 2012-13 to A.Y 2015-16 under appeal before us.

79. Now coming to the second issue as to whether resort to disallowances made under section 14A can be made while computing the books profits u/s 115JB of the Act. In the instant case, as we have held that provisions of section 14A cannot be invoked for the impugned assessment years and thus, no disallowance can be made u/s 14A of the Act, the question of resorting to disallowances made under section 14A doesn’t arise at first place while computing the books profits u/s 115JB of the Act.

80. Further, we find that the matter is squarely covered in favour of the assessee company by the decision of the Special Bench of the Tribunal in case of Vireet Investments Pvt Ltd (supra) wherein it was held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D. The said view is further fortified by the decision of Hon’ble Bombay High Court in case of CIT vs. M/s Bengal Finance & Investment Pvt. Ltd. (supra) wherein the Hon’ble High Court was pleased to held as under:-

“4. So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s Essar Teleholdings Ltd. vs. DCIT in ITA No. 3850/Mum/2010 to held that an amount disallowed under Section 14-A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue’s Appeal against the order of the Tribunal in M/s Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No. 438 of 2012 rendered on 7th August, In view of the above, question (b) does not raise any substantial question of law. ”

81. Similar view has been taken by the Hon’ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (ITA No. 47 of 2014 dated 19.11.2014) wherein it was held that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.

82. Now, coming to the third and connected issue as to whether there could be any independent adjustment to book profits by applying clause (f) of explanation under section 115JB of the Act.

83. In this regard, the ld CIT/DR has referred to the findings of the ld CIT(A) in A.Y 2014-15 where he has referred to the decision of the Tribunal in case of ACIT vs Ridhi Portfolio Pvt Ltd (IT(SS) No. 106 to 109/Kol/2016 dated 16.02.2018). It was submitted that though the ld CIT(A) has followed the said decision of the Tribunal however, failed to appreciate that in the said decision, the Tribunal has also referred to the decision of the Hon’ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (ITA No. 47 of 2014 dated 19.11.2014) wherein it was held that computation of amount of expenditure relatable to exempt income must be made independently by applying clause (f) of explanation under section 115JB of the Act and our reference was drawn to findings of the Hon’ble High Court where it was pleased to held as under:

“we find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. “

84. Further, the ld. CIT/DR referred to the Co-ordinate Bench decision in case of ACIT, Kolkata vs Jay Shree Tea & Industries Ltd. (ITA No. 37/Kol/2017 dated 08.06.2018) wherein following the aforesaid decision of the Hon’ble High Court, it was held that though the disallowance made under provisions of section 14A cannot be applied to the provisions of section 115JB of the Act, at the same time, the Assessing Officer is still required to work out the disallowance in terms explanation (1) clause (f) independently after considering the expenses debited in the profit & loss account and the matter was remanded back to the file of AO to work out the disallowances under clause (f) of explanation 1 to section 115JB independently of provisions of section 14A of the Act. It was submitted that against the aforesaid decision of the Hon’ble High Court, the SLP filed by the assessee has since been dismissed by the Hon’ble Supreme Court (SLP (C) No. 9191/2015 dated 26.02.2020). It was accordingly submitted that appropriate directions may be issued to the Assessing officer to compute the amount of expenditure relatable to exempt income must be made independently by applying clause (f) of explanation under section 115JB of the Act.

85. Per contra, the ld AR submitted that the ground of appeal taken by the Revenue is limited to whether the Ld. CIT(A) was justified in holding that the computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D and therefore, the contention so advanced by the ld CIT D/R is not emerging from the ground of appeal so taken by the Department. It was further submitted that the decision of the Hon’ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has also been considered by the Ahmedabad Benches of the Tribunal in case of Deputy Commissioner of Income-tax, Ahmedabad vs. Asian Grantio India Ltd [2020] 113 taxmann.com 445 (Ahmedabad – Trib.) and the relevant findings read as under:

“7.7 Regarding the disallowance under MAT, we note that the AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for Rs. 6,15,723/- while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has also added the disallowance made under the normal computation o f Income under section 14A r.w.r. 8D of Income Tax Rule for Rs. 6,15,723/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act.

7.8 However, we note that in the recent judgment of Specia l Bench of Hon’ble Delhi Tribunal in the case of Asstt. CIT v. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415/165 ITD 27 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below:

“In view of above discussion, the computation under clause (f) o f Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. “

7.9 The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB o f the Act.

7.10 However, it is also pertinent to note that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT v. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 [ITAT No.47 of 2014, dated 19-11-14] wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:-

“We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal.

We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter o f computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. “

7.11 Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon’ble Calcutta High Court in the case o f Jayshree Tea Industries Ltd. (Supra).

7.12 Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. However, we find that there are judgments on the issue which mandates that the disallowance o f the expenses cannot exceed the exempt income i.e. Vision Finstock Ltd. (supra) or only those investments should only be considered for the purpose of the disallowance which have resulted the dividend income. However, we are also conscious to the fact that the above judgments were rendered in connection with the income determined under normal computation of income but to our mind the same principles can also be applied to the case on hand. It is because, the provisions of section 115JB o f the Act require to make the disallowance of the expenditure related to any income to which section 10 applies other than section 10(38) of the Act. Accordingly, we hold that the expenses incurred in connection with the exempted income cannot exceed the amount of such exempted income under the provisions o f section 115JB of the Act. Accordingly, we limit the disallowance o f the expenses to the extent of exempt income which is NIL in the case on hand. Thus no disallowance of the expense is warranted under section 115JB of the Act. Hence the ground of appeal o f the Revenue is dismissed. ”

86. It was accordingly submitted that after considering the decision of the Hon’ble Kolkata High Court and taking into consideration the fact that there was no exempt income, it was held that no disallowance was warranted even independently u/s 115JB of the Act and the said decision squarely applies in the instant case and therefore, there should not be any disallowance u/s 115JB on a standalone basis even independent of section 14A of the Act.

87. We have heard the rival contentions and purused the material available on record. The Hon’ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has held that the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act is required to be determined independently as the same is a complete code in itself and considering the said decision, the Coordinate Ahmedabad Benches of the Tribunal in case of Asian Grantio India Ltd (supra) has held that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income, and drawing support from the principles laid down under normal provisions further held that the disallowance of the expenses cannot exceed the exempt income and limited the disallowance of the expenses to the extent of exempt income which was NIL in that case. Following the said proposition, in the instant case as well, given that there is no income which is claimed exempt in any of the years under consideration, no disallowance of the expense is warranted under Section 115JB of the Act even in terms of clause (f) to Explanation-1 of Sec. 115JB of the Act in respect of all the impugned assessment years.

88. In the result, the respective grounds of appeal taken by the Revenue are dismissed and grounds of appeal taken by the assessee are allowed in light of aforesaid directions.

Depreciation on Toll road u/s 32(1) for A.Y 2011-12 to 2013-14

89. The Revenue has challenged the action of the ld. CIT(A) in allowing depreciation claim of the assessee on toll road @ 10% treating the same as building for A.Y 2011-12, 2012-13 & 2013-14 respectively.

90. In this regard, the ld. AR submitted that the assessee has claimed depreciation on toll road @ 10% for the first time in A.Y 2006-07 when the toll road was first put to use. The said claim of the assessee was not allowed by the Assessing Officer while completing the assessment u/s 143(3) and the matter thereafter was taken up in appeal and the Tribunal vide its order dated 26.06.2009 in ITA No. 193/JP/2009 had allowed the said claim of the assessee and the department has not preferred any further appeal before the Hon’ble High Court against the said claim allowed by the Tribunal. It was further submitted that similarly disallowance was made by the Assessing officer for A.Y 2007-08, 2008-09, 2009-10 & 2010-11 and in all these years, the ld. CIT(A) following the order of the Tribunal for A.Y 2006-07 has allowed the claim of the assessee which was subsequently confirmed by the Tribunal. It was submitted that on further appeal by the Revenue, the Hon’ble Rajasthan High Court has confirmed the order of the Tribunal for all these assessment years by its common order dated 10.10.2017. It was submitted that against the said order of the Hon’ble Rajasthan High Court for A.Y 2010-11 in DB Appeal No. 142/2017 dated 10.10.2017, the Revenue had filed an SLP before the Hon’ble Supreme Court which stood dismissed vide order dated 07.09.2018 in SLP (Civil) No. 27373/2018 wherein the Hon’ble Supreme Court has held that they find no merit in the petition and the SLP so filed was dismissed. It was accordingly submitted that the matter has since been settled in favour of the assessee by the decision of the Hon’ble Supreme Court by dismissing the SLP filed by the Department against the order of the Hon’ble Jurisdictional High Court in A.Y 2010-11 in DB No. 142/JP/2017. It was submitted that the order of ld. CIT(A) for each of the years under consideration where he has followed the decision of the Hon’ble Jurisdictional High Court therefore deserve to be upheld and the appeal of the Revenue be dismissed.

91. Per contra, the ld. CIT/DR fairly submitted that the matter is covered in favour of the assessee by the decision of Hon’ble Rajasthan High Court in assessee’s own case for the previous years and the SLP filed by the Department has been dismissed. On enquiry by the Bench, it was submitted that there is no review petition which has either been filed or pending for adjudication before the Hon’ble Supreme Court. At the same time, he supported the order and the findings of the Assessing Officer.

92. We have heard the rival contentions and perused the material available on record. The assessee company is engaged in construction, operation and maintenance of highways and in its return of income, the assessee company has claimed depreciation on Toll road treating the same as building which is eligible for depreciation at the rate of 10%. The Assessing Officer by referring to provisions of section 32(1) and decision of the Hon’ble Supreme Court in case of Indore Municipal Corporation vs CIT reported in 247 ITR 803 has rejected the assessee’s claim. During the appellate proceedings, the ld. CIT(A), following the decision of the Co-ordinate Bench in assessee’s own case for A.Y 2006­07 where the decision of the Hon’ble Supreme Court (in decision referred supra) was held distinguishable, and the decision of Hon’ble Rajasthan High Court dated 10.10.2017 affirming the decision of the Coordinate Bench, has allowed the claim of the assessee. We refer to the findings of the Hon’ble Rajasthan High Court in its order dated 10.10.2017 where the Hon’ble Rajasthan High Court was pleased to held as under:-

“14. We have heard counsel for the parties.

14.1 The interpretation which has been put forward by the counsel for the department that the National Highway is not road, in that view of the matter, the same will not be governed by the Schedule of Appendix-I and they will not be entitled for the expenses under the capital account.

14.2 While considering the matter, we have to go by the common parlance of road where public at large has an access. The assessee was granted license for construction against which he has right to use and collect license fee to use of the land. In that view of the matter, he has right to restrict the people without non payment of toll tax.

14.3 In that view of the matter, if we look at the definition which is given under the Income Tax Act, even a development made while occupying the premises and development of a road was the main agreement MOU referred to us.

14.4 In view of written submissions submitted by Mr. Ranka, it is not only road, they have to construct toll booth and provide facilities for the staff for the purpose of their accommodation.

14.5 In that view of the matter, the Supreme Court judgment which is sought to be relied upon by the department will not apply and the tribunal has rightly interpreted the change in law and more particularly under the law which has been deducted after year 1983.

14.6 Thus, on the first issue, we are in complete agreement with the view taken by the tribunal. ”

93. We therefore, find that the matter has been decided in favour of the assessee by the Hon’ble Rajasthan High Court where the depreciation claim on the Toll road has been held allowable at the rate of 10% as applicable to buildings. Further, the SLP filed by the Department has since been dismissed by the Hon’ble Supreme Court vide its order dated 07.09.2018. Therefore, in view of the admitted and undisputed position that there are no changes in the facts and circumstances of the case and the matter has been decided in favour of the assessee by the decision of the Hon’ble Rajasthan High Court for the earlier years and the SLP against the said decision stood dismissed by the Hon’ble Supreme Court, the matter has attained finality and therefore, should not be a subject matter of any further dispute by the Revenue. The matter is accordingly decided in favour of the assessee and against the Revenue. The grounds of appeal so taken by the Revenue for the respective assessment years are thus dismissed.

Depreciation on EDP Equipments u/s 32(1) for A.Y 2011-12 to 2013-14

94. The Revenue has challenged the action of the ld. CIT(A) in allowing the claim of the depreciation on EDP equipment @ 60% as claimed by the assessee as against 15% determined by the Assessing Officer for A.Y 2011-12, 2012-13 and 2013-14.

95. In this regard, the ld. AR submitted that the assessee has claimed depreciation @ 60% in respect of EDP equipments consisting of computers, servers, computer software etc which are directly used in toll booth operations and back office operations connecting to toll collection booths. It was submitted that the deprecation claim was restricted to 15% by the Assessing Officer on the allegation that they cannot be classified as computer and computer software and was part of plant & machinery eligible for depreciation @ 15%. It was submitted that disallowance of similar nature was initially made by the Assessing officer in A.Y 2006-07 when these EDP equipments were put to use for the first time and on appeal, the Tribunal vide its order dated 26.06.2009 in ITA No. 193/JP/2009 had allowed the claim of depreciation on EDP equipment @ 60%. It was further submitted that similar disallowance was made by the Assessing officer for A.Y 2007-08, 2008-09, 2009-10 & 2010-11 wherein the ld. CIT(A) following the order of the Tribunal for A.Y 2006-07 has allowed the claim of the assessee. which was subsequently confirmed by the Tribunal. It was submitted that on further appeal by the Revenue, the Hon’ble Rajasthan High Court has confirmed the order of the Tribunal for all these assessment years by its common order dated 10.10.2017. It was submitted that against the said order of the Hon’ble Rajasthan High Court for A.Y 2010-11 in DB Appeal No. 142/2017 dated 10.10.2017, the Revenue had filed an SLP before the Hon’ble Supreme Court which stood dismissed vide order dated 07.09.2018 in SLP (Civil) No. 27373/2018 wherein the Hon’ble Supreme Court has held that they find no merit in the petition and the SLP so filed was dismissed. It was accordingly submitted that the matter has since been settled in favour of the assessee by the decision of the Hon’ble Supreme Court by dismissing the SLP filed by the Department against the order of the Hon’ble Jurisdictional High Court in A.Y 2010-11 in DB No. 142/JP/2017. It was submitted that the order of ld. CIT(A) for each of the years under consideration where he has followed the decision of the Hon’ble Jurisdictional High Court therefore deserve to be upheld and the appeal of the Revenue be dismissed.

96. Per contra, the ld. CIT/DR fairly submitted that the matter is covered in favour of the assessee by the decision of Hon’ble Rajasthan High Court in assessee’s own case for the previous years and the SLP filed by the Department has been dismissed. On specific enquiry by the Bench, it was submitted that there is no review petition which has either been filed or pending for adjudication before the Hon’ble Supreme Court. At the same time, he supported the order and the findings of the Assessing Officer.

97. We have heard the rival contentions and perused the material available on record. We find that the matter is squarely covered by the decision of the Co-ordinate Benches right from A.Y 2006-07 onwards wherein EDP equipment have been held as qualifying for depreciation @ 60% as against 15% applied by the Assessing Officer. Further, the Hon’ble Rajasthan High Court vide its order dated 10.10.2017 while dismissing the appeal filed by the Revenue was pleased to held as under:-

“15. Regarding issue no. 2, the contention which has been raised that equipment which are attached with the power equipment are not entitled under item no. 5 of Schedule-I, view of the fact that note 7 will not cover complete equipment which are attached with the system but in our considered opinion the optical fibers which are used exclusively for the computer configuration and it is mandatory for the operation. It is part o f computer system.

15.1 In that view of the matter, the view taken by the tribuna l is just and proper. ”

98. Further, the SLP filed by the department against the decision of the Hon’ble High Court has since been dismissed by the Hon’ble Supreme Court vide its order dated 07.09.2018. Therefore, in view of the admitted and undisputed position that there are no changes in the facts and circumstances of the case and the matter has been decided in favour of the assessee by the decision of the Hon’ble Rajasthan High Court for the earlier years and the SLP against the said decision stood dismissed by the Hon’ble Supreme Court, the matter has attained finality and therefore, should not be a subject matter of dispute by the Revenue. The matter is accordingly decided in favour of the assessee and against the Revenue. The grounds of appeal so taken by the Revenue for the respective assessment years are thus dismissed.

Disallowance of PF/ESI contributions for A.Y 2013-14 & 2014-15

99. The Revenue has challenged the action of the ld. CIT(A) in allowing the claim of employee’s share of PF and ESI contributions deposited beyond the prescribed period as provided in the relevant statue for A.Y 2013-14 and A.Y 2014-15.

100. In this regard, the ld. AR submitted that the issue is covered in favour of the assessee by the decision of Hon’ble Supreme Court while dismissing the Revenue SLP in case of Rajasthan State Beverages Corporation Ltd. reported in 250 taxmann 16 as well as the decision of Hon’ble Rajasthan High Court in case of Pr. CIT vs. Rajasthan State Seed Corporation Ltd [2016] 386 ITR 267.

101. Per contra, the ld. DR fairly submitted that the matter is covered in favour of the assessee by the decision of Hon’ble Rajasthan High Court. At the same time, he submitted that the department has filed an SLP in case of M/s Jaipur Vidyut Vitran Nigam Ltd which is pending for adjudication before the Hon’ble Supreme Court. He relied on the findings of the Assessing Officer.

102. We have heard the rival contentions and perused the material available on record. The ld. CIT(A) has recorded a finding of fact that the assessee has deposited the employee’s contribution towards PF/ESI before the due date of filing the return of income. The said finding of the ld CIT(A) remain undisputed before us. It is therefore an admitted fact that the entire amount was deposited by the assessee before the due date of filing of the return under section 139(1) of the Act, then in such a scenario, the amount cannot be disallowed under section 36(1)(va) of the Act as the due date referred to in section 36(1)(va) of the Act need to be read in conjunction with section 43B(b) of the Act. In case of Rajasthan State Beverages Corporation Ltd (supra), the Hon’ble Rajasthan High Court was pleased to held as under:

“5. So far as the question relating to privilege fees amounting to Rs.26.00 Crores in the instant year as well as the deduction of claim of Rs.17,80,765/- on account of Provident Fund (PF) and ESI is concerned, this Court has extensively considered the aforesaid two questions in assessee’s own case vide judgment and order dt.26.05.2016 referred to (supra) and has held that the privilege fees being a revenue expenditure, is required to be allowed as a revenue expenditure. This court in the aforesaid case has also allowed the claim of the assessee, in so far as payment of PF & ESI etc. is concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in CIT v. State Bank o f Bikaner & Jaipur [2014] 363 ITR 70/43 taxmann.com 411/225 Taxman 6 (Mag.) (Raj.) and CIT v. Jaipur Vidhut Vitaran Nigam Ltd. [2014] 363 ITR 307/49 taxmann.com 540/[2015] 228 Taxman 214 (Mag.) (Raj.) and accordingly both the questions are covered by the aforesaid judgment and against the revenue. ”

103. It is also noted that the SLP filed by the Revenue in case of Rajasthan State Beverages Corporation Ltd. has since been dismissed by the Hon’ble Supreme Court holding that the Court do not find any merit in the petition and the special leave petition was accordingly dismissed. We therefore find that the matter is no more res integra and has attended finality by a series of decisions by the Hon’ble Rajasthan High Court and the decision of the Hon’ble Supreme Court by way of dismissal of SLP filed by the Revenue. Regarding the contention of the ld CIT/DR that the department has filed an SLP in case of M/s Jaipur Vidyut Vitran Nigam Ltd, mere filing an SLP before the Hon’ble Supreme Court is no bar against following the binding precedents as laid down by the Hon’ble Jurisdictional High Court as we have noted above. In the entirety of facts and circumstances of the case, the matter is decided in favour of the assessee and against the Revenue. The grounds of appeal so taken by the Revenue for the respective assessment years are thus dismissed.

104. The respective appeals filed by the Revenue and the appeals/cross objections filed by the assessee company are accordingly disposed off in light of aforesaid directions.

Order pronounced in the open Court on 22/12/2020.