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:
