TMI Blog2016 (9) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... reversal of income wrongly declared in earlier years, is allowable. Hence this ground of the revenue is dismissed. Disallowance of deduction u/s 80IA - Held that:- The assessee has considered only direct operation and maintenance expenses for working out the profits of road and bridge projects for claiming deduction u/s 80IA, as if these projects were automatically set up and running without any strategic planning, management, directions, supervision, marketing support, regular contract awarding, works tendering, control etc. by the head office/branch offices. The administrative, head office and other expenses have a direct nexus with the running of road/bridge projects of the assessee situated at various places and, therefore, the same are deductible on proportionate basis in computing the profits and gains from the eligible business for the purpose of sub-section (1) of Sec. 80IA of the Act. Therefore, the AO observed that a sum of ₹ 13,75,43,459/- is required to be apportioned to 80IA units, accordingly this will be deducted for the purpose of working out deduction under section 80IA of the Act. Thus the AO reduced the allowable deduction accordingly. However, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of the assessee are allowed for statistical purposes. - ITA No. 558/JP/2015, ITA No. 426/JP/2015 - - - Dated:- 8-9-2016 - Bhagchand (Accountant Member) And Kul Bharat (Judicial Member) For the Revenue : M. S. Meena (CIT) For the Assessee : P. C. Parwal (C.A) ORDER Kul Bharat (Judicial Member) These two cross appeals by the revenue and the assessee are directed against the order of ld. CIT (A)-2, Jaipur dated 19.03.2015 pertaining to Assessment Year 2011-12. Both these appeals arise out of the same order, therefore, they are being disposed off by this consolidated order for the sake of convenience. First, we take the revenue s appeal in ITA No. 558/JP/2015. The revenue has raised the following grounds of appeal :- 1. Whether on the facts and in the circumstances of the case and in law the ld. CIT (A) has erred in holding contribution of ₹ 10,00,000/- to State Renewable Fund as allowable expenditure. 2. Whether on the facts and in the circumstances of the case and in law the ld. CIT (A) has erred in deleting the addition made by the AO by disallowing ₹ 1,94,34,645/- out of prior period expenses. 3. Whether on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order has held as under :- 2.3. We have heard the rival contentions and perused the materials available on record. As regards Ground No. 1 of the Revenue, we find that ITAT Jaipur Bench has decided this issue in assessee s own case for the assessment year 2005-06 in favour of the assessee vide its order dated 16.07.2010 in ITA No. 919/JP/2009 by following observations :- 4. The second issue on which the Revenue is aggrieved is against the deletion of addition of ₹ 10 lakhs on account of payment as contribution to state renewal fund. This issue has been decided in favour of the assessee by the Tribunal in AY 2006-07 vide order dated 26.2.2010 in ITA N. 754/JP/2009. It will be useful to reproduce paragraph 5 from that decision :- 5. We have considered the submissions of the parties. We find that the issue under consideration is squarely covered by the decision of ITAT in case of Rajasthan State Seed Corporation Ltd. vs. ACIT in ITA No. 233/JP/2009 dated 25.5.2009 which is based upon Hon ble Rajasthan High Court judgments in the cases of CIT vs. Shri Rajasthan Syntex Ltd. 221 CTR 410 (Raj.) and CIT vs. Rajasthan Spinning and Weaving Mills Ltd. 274 ITR 465 (Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order sheet entry at pages 64 and 66 of the paper book, it is clear that sale of shuttering material in the year 2005-06 was credited to the account of the Corporation instead of according credit to the respective work as a result of which similar amount was shown outstanding against the PHED. Accordingly, the prior period expenditure is debited by crediting to the account of PHED. The ld. Counsel submitted that it is a case of reversal of income wrongly booked in earlier years on which tax is paid. Ld. Counsel submitted that as far as remaining expenses are concerned, the assessee is a State Government undertaking where there is prescribed rule for making payment of expenditure. Even when bills are submitted they are first checked whether the claim is as per rules/terms or not and thereafter approved by the appropriate authority. Without their approval, no expenditure is paid. For these reasons, the expenditure pertaining to a particular year may get approved in subsequent years and accordingly entered in the books of accounts in that year. There is no doubt regarding the genuineness of the expenditure. As per the regular system of accounting all expenses are accounted after gett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1,77,09,136/- with respect to the head office and an amount of ₹ 55,28,017/- with respect to the Jodhpur unit are reversal of entries of income, wrongly made in the preceding years. With respect to the head office, an amount of ₹ 96,08,000/- pertains to reversal of double income booked in F.Y. 2002-03 with respect to maintenance charges. Further, an amount of ₹ 2,94,25,000/- with respect to the head office pertains to wrong entry of interest income in F.Y. 2002-03 2003-04 with respect to toll projects on capital deployed by the appellant. The above contentions of the appellant with respect to reversal of income wrongly declared in earlier years, is acceptable. Expenditure of ₹ 76,629/- with respect to Gurgaon and expenditure of ₹ 15,000/- with respect to the mechanical unit are in the nature of prior period expenses which covered in favour of the appellant by the orders of CIT (A)-II, Jaipur for A.Y. 2009-10 2010-11. Following the above orders, this prior period expenditure is allowable. With respect to the expenditure of ₹ 16,33,880/- pertaining to the Bikaner unit, this expenditure has been incurred on shifting of plant in an earlier year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the award. All expenses on salary/administration etc. is borne by the contractor. Therefore, the Corporation does not incur any expenditure on salary or on administration of the BOT Project. Whatever expenditure is incurred in the BOT collection work, that is debited in working out the eligible profit of the BOT undertaking. The same is certified by the Chartered Accountant. Thus, once all the direct and indirect expenses incurred have been accounted for in calculating the eligible profit and duly certified by the Chartered Accountant, there cannot be further allocation of proportionate expenses in respect of employees cost and administrative expenses incurred at head office and at various unit offices. No such disallowance was made in the past. Hence the disallowance of deduction u/s 80IA made by the AO is incorrect, unjustified and not as per law. The ld. Counsel submitted that the AO has considered the total turnover of the assessee at ₹ 64,78,66,570 and the ld. CIT (A) at ₹ 69,89,85,491/- whereas the correct turnover of the assessee is ₹ 4,38,13,34,652/-. The ld. Counsel submitted that Centage charges turnover as per the AO is ₹ 26,24,99,957/- and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the ld. CIT (A) rightly excluded this amount in working out the administrative expenditure for the purpose of allocation. The balance expenditure of ₹ 4,25,46,931/- comprises of advertisement, insurance, postage and telegram, repair and maintenance, consultancy etc. which do not pertain to the toll collection as evident from the statement at pages 35-36 of the paper book. The ld. CIT (A), however, without any basis held that looking to the nature of administrative expenses, the contention of the assessee cannot be accepted. He has not given any reasoning why the contention of the assessee is not acceptable when from the nature of the expenditure it is clear that no part of these expenditure are related to the BOT projects and the BOT collection work has been outsourced. He submitted that assessee has already considered ₹ 87,10,074/- towards the toll expenses as tabulated in the facts. Hence, no part of administrative expenses should be considered for allocation and, therefore the ld. CIT (A) has erred in allocating such expenditure towards the BOT projects. He submitted that in view of these facts, the ground raised by the revenue deserves to be rejected. 8.2. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 80IA of the Act. The assessee has considered only direct operation and maintenance expenses for working out the profits of road and bridge projects for claiming deduction u/s 80IA, as if these projects were automatically set up and running without any strategic planning, management, directions, supervision, marketing support, regular contract awarding, works tendering, control etc. by the head office/branch offices. The administrative, head office and other expenses have a direct nexus with the running of road/bridge projects of the assessee situated at various places and, therefore, the same are deductible on proportionate basis in computing the profits and gains from the eligible business for the purpose of sub-section (1) of Sec. 80IA of the Act. Therefore, the AO observed that a sum of ₹ 13,75,43,459/- is required to be apportioned to 80IA units, accordingly this will be deducted for the purpose of working out deduction under section 80IA of the Act. Thus the AO reduced the allowable deduction accordingly. However, the ld. CIT (A) after considering the submissions of the assessee, restricted the disallowance to ₹ 6,98,93,301/- against ₹ 8,20,34,909/-. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in the appeal of the revenue is dismissed. 9. Now we take up the assessee s appeal in ITA No. 426/JP/2015. The assessee has raised the following grounds of appeal :- 1. The ld.CIT (A) has erred on facts and in law in not allowing the claim of prior period expenses of ₹ 55,28,017/- pertaining to Jodhpur Unit which is explained to be reversal of income booked in earlier years by incorrectly holding that the explanation furnished by the assessee does not match the supporting order sheets entries and the nature of expenditure is not ascertainable. 2. The ld.CIT (A) has erred on facts and in law in confirming the findings of the AO that payment to and provision for employees and administrative expenses needs to be allocated on proportionate basis for determining the income from BOT projects for allowing the claim of deduction u/s 80IA. 2.1. The ld. CIT (A) has erred on facts and in law in disallowing the claim of deduction in respect of BOT projects u/s 80IA(4) by ₹ 6,98,93,301/- by a) Considering the expenditure for apportionment to the BOT projects at ₹ 21,23,87,591/- (16984588+42546931); b) By taking the gross turnover at ₹ 69,89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delete the disallowance. This ground of the assessee is allowed for statistical purposes. 12. Ground No. 2 and 2.1 relate to disallowance of deduction under section 80IA of the Act. 13. The ld. Counsel for the assessee reiterated the submissions as made in the written brief. 13.1. On the contrary, the ld. D/R supported the orders of the authorities below. 13.2. We have heard rival contentions and perused the material available on record. The ld. Counsel for the assessee has made the submissions by way written submissions as under :- 1. It is submitted that assessee is having unit wise as well as project wise accounting system. At the year end, accounts of the units are consolidated at head office and balance Sheet and Profit Loss account is prepared. In respect of BOT Projects, company has awarded the work of toll collection to the contractor who pays the toll collection charges as per the terms of the award. All expenses on salary/administration etc. is borne by the contractor. Therefore the Corporation does not incur any expenditure on salary or on administration of the BOT project. Whatever expenditure is incurred in the BOT collection work that is debited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,44,087/- Interest on FDR 7,97,73,966/- 7,97,73,966/- Misc. Receipt 43,49,393/- 43,49,393/- Interest on BOT Projects 2,23,92,110/- 2,23,92,110/- Total 64,78,66,570/- 436,77,72,468/- Thus, the correct turnover is ₹ 436,77,72,468/- and not ₹ 64,78,66,570/- as taken by AO and ₹ 69,89,85,491/- as taken by CIT(A). The Ld. CIT(A) took the turnover at ₹ 69,89,85,491/- by mentioning that only inner column of schedule G pertaining to the operating receipt is to be totaled. How this amount is arrived at is not clear but according to his finding, the turnover would be ₹ 64,78,66,570/- + ₹ 78,57,445/- + ₹ 3,75,56,737/- i.e. ₹ 69,32,80,752/-. This turnover taken by the CIT(A) is incorrect as he did not considered that in respect of centage work, the receipt shown in Schedule G is only a ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. CIT(A) has therefore held that the entire expenditure of ₹ 32.68 crores cannot be apportioned to the projects eligible for deduction u/s 80IA(4) and thus apportioned only 16.98 crores to these eligible projects. However, in doing so, he ignored the fact that when the entire work of collection of toll has been outsourced to the contractor, apportioning such expenditure in the ratio of the turnover is not correct. There is hardly any staff who is required to supervise the BOT collection work as the entire activity is outsourced and whatever expenditure is incurred in such work, the same is already debited as toll collection expenses in working out the eligible profit of these undertakings. Hence, no part of these expenses are allocable for working out the profit of the eligible undertaking u/s 80IA. (iii) The AO considered administrative expenses of ₹ 6,05,47,431/- for allocation to the project eligible for deduction u/s 80IA(4). Out of this amount, a sum of ₹ 1,80,00,500/- represents stamp duty paid on increase on share capital which has been disallowed in the computation of total income (PB 15 and 21). Therefore, CIT(A) rightly excluded this amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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