TMI Blog2020 (5) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... l grant after considering the provisions of explanation 10 to section 43(1) of the Act. In the result, the ground of the appeal is allowed for statistical purposes. Disallowance u/s 40A(3) in respect of expenses being set off by RSRTC - HELD THAT:- Where there is a violation of terms of agreement entered into between RSRTC and the assessee company, the same is a subject matter of contractual dispute which has been highlighted by the auditors in their audit report and it is for the parties to the dispute and the appropriate authorities to take note of the same. How the same has effected the reporting of revenues in the financial statements and offering the same to tax in the return of income has not been stated at all by the AO. Therefore, where there is no finding by the Assessing officer that the revenue so collected has not been offered to tax, there cannot be any basis for making addition in this regard. As it is emerging from the records, RSRTC incurs the expenditure on behalf of the assessee company out of such revenue collection in cash and then, remits the balance amount to the assessee company. On the expenditure so incurred by RSRTC on behalf of the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilized grant and when utilized grant was more than 70% of capital cost. 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of ₹ 20,72,06,324/- made on account of disallowance u/s 40A(3) of the Act in respect of expenses being set off by RSRTC. 2. Regarding Ground No. 1, briefly stated the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee company has shown the grant utilized towards purchase of buses of ₹ 60,73,27,300/- in its balance-sheet for the financial year ended 31st March, 2012. The assessee company was asked to provide the complete details of the grant-inaid received during the year 2011-12 with justification for not offering the same to tax. 3. In response, the assessee company submitted that it receives two kinds of grant namely operational grant and grant for non-operational purposes such as for purchases of buses etc. As far as the operation grant is concerned, it was submitted that the same has been taken as Revenue grant and directly credited to profit and loss account and grants other than the operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the failure of the assessee to provide the adequate details / information I have no option to match the correct application of the capital grant towards the buses purchase upto 31.03.12 except to apply of ratio as submitted by assessee. Therefore, the excess figure of ₹ 4,40,02,647/- is treated as revenue receipts from the utilized grant appearing in the balance sheet and addition is made to the total income of the assessee accordingly. 5. Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A) and submitted that books of accounts of the assessee company are not only audited by the Chartered Accountant but also by Comptroller Auditor General of India and no such defect or qualification has been pointed out by them. It was further submitted that the Assessing Officer has not pointed out which accounting standard and which provision of the Income tax Act has been flouted by the assessee company. The ld. CIT(A) after going through the submissions of the assessee and the financial statements of the assessee company stated that the complete details of the grant received, utilized and unutilized grant is available in the balance sheet dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. In other words, the amount of utilized grant is higher by ₹ 4,40,02,647/- and there is no corresponding increase in the gross block of buses which has been capitalised in the books of accounts. The assessee company is therefore required to explain and furnish the necessary details and the reconciliation between two accounts as we find that the disclosure in the financial statements are not adequate enough to reconcile these two accounts and provide a clear picture. 9. It is no doubt true that the books of accounts of the assessee company have been audited by a Chartered Accountant and also by Comptroller Auditor General of India and there is no qualification or finding regarding misappropriation of the grant. However, we find that the observation of the Assessing officer regarding misapplication/misappropriation of the grant is to be seen and appreciated in the limited context of examining the actual utilization of the capital grant received by the assessee company as to whether the capital grant is utilized for the purpose of meeting the specific end use for which the capital grant has been granted or for meeting other operational expenditure. The same will help det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther rules of section 40A(3) with rule 6DD(d) also says that where the payment is made by way of adjustment against the amount of anyb liability incurred by the payee for any goods supplied or services rendered by the assesssee to such payee is an exception to provision of section 40A(3). Accordingly this was merely as setting off of liability i.e. expenditure made by RSRTC on behalf of JCTSL against revenue collected by RSRTC on behalf of JCTSL which was a asset of JCTSL. Thus transactions made with RSRTC are genuine and expenditure cannot be disallowed. 11. The reply so filed by the assessee company was not found tenable and the relevant findings of the Assessing officer are as under: 1. The assessee is solely dependent on the monthly collection 85 expenditure statements given by RSRTC. The assessee is not in position to accurately assess/genuineness of the income and expenditure of the respective period. 2. The assessee is also not aware about the various statutory compliance applicable on the said expenditure and incomes. 3. The collection agency (RSRTC) is violating the terms of agreement entered on 06.06.2011 for the collection of revenue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, however, there is no such finding by the Assessing officer that the revenue receipts have not been offered to tax. Secondly, where there is a violation of terms of agreement entered into between RSRTC and the assessee company, the same is a subject matter of contractual dispute which has been highlighted by the auditors in their audit report and it is for the parties to the dispute and the appropriate authorities to take note of the same. How the same has effected the reporting of revenues in the financial statements and offering the same to tax in the return of income has not been stated at all by the Assessing officer. Therefore, where there is no finding by the Assessing officer that the revenue so collected has not been offered to tax, there cannot be any basis for making addition in this regard. 14. Considering the matter from another perspective, as it is emerging from the records, RSRTC incurs the expenditure on behalf of the assessee company out of such revenue collection in cash and then, remits the balance amount to the assessee company. On the expenditure so incurred by RSRTC on behalf of the assessee company, the latter has submitted the details of TDS deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... straight away applied the provisions of section 43B of the Act and the ld CIT(A) has instead held that the interest liability had not crystallized in the previous year relevant to A.Y. 2012-13 and he has sustained the disallowance. No doubt the provisions of section 43B are not applicable in the instant case as Rajasthan State Road Transport Corporation is not a specified financial institution as defined in section 43B of the Act. At the same time, what needs to be seen is whether the interest liability has crystallized during the year or not. Only where it is held that the interest liability has crystallized during the year, the interest expense can be claimed and thereafter, the question of applicability of section 43B arises for consideration. The provisions of section 43B are not in the nature of enabling provisions but are in the nature of disabiling provisions in the sense that firstly, it needs to be determined that the expense should pertain to the relevant financial year in respect of which the assessee has incurred the liability and thereafter, unless such liability is discharged by actual payment, such liability cannot be allowed but will not be allowed in the year of a ..... 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