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Judgment
ORDER
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
The above captioned appeal by the assessee is preferred against order of the ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi dated 03.09.2025 under section 250 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) arising from the assessment order passed by the NFAC, Delhi (hereinafter referred to as the "AO") under section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2016-17.
Brief facts of the case are that the assessee is a company incorporated on 29.09.2009, is a concessionaire for the development of a water supply system in Naya Raipur City under a Build Operate Transfer (BOT) agreement with the Naya Raipur Development Authority (NRDA). The company filed ITR for A.Y 2016-17 on 16.10.2016 declaring a loss of Rs.10,68,919/-, which was later revised on 29.03.2018 to a loss of Rs. 3,18,33,545/-. The case was selected for scrutiny under CASS. Notices under sections 143(2) and 142(1) were issued between 08.08.2017 and 03.11.2018 and the assessee submitted online replies. During the assessment proceedings, the AO noted that the assessee had received Rs. 7.70 crore from NRDA during the year as part of financial assistance, while incurring a total project cost of Rs.126.21 crores, against a promised assistance of Rs.115.60 crores. The assessee had reduced the financial assistance from capital work in progress and claimed an amortized loss of Rs.3,07,64,626/- for the year, treating the net amount as intangible assets. The AO, however, held that the receipts should be treated as revenue for the year and added Rs. 7.70 crore to income. The AO also disallowed Rs.3,07,64.626/- claimed as loss, stating that expenses should be adjusted against receipts under the project completion method. Aggrieved assessee was in appeal before the CIT(A)/NFAC against the said order who dismissed the appeal of the assessee.
Now the further aggrieved assessee is in appeal before us with the following grounds:
“1.That on the facts and circumstances of the case and in law, the impugned order dated 03.09.2025 passed by the National Faceless Appeal Center [NFAC/ CIT(A)] under section 250 of the Income Tax Act, 1961 ('the Act') is completely perverse, invalid, illegal, bad in law, and liable to be quashed.
2.That the NFAC/CIT(A) erred in passing the impugned order without properly appreciating the facts of the case and the relevant legal provisions applicable thereto, and in complete ignorance of the provisions of the Act by grossly violating the provisions of natural justice by passing the impugned order without even providing any opportunity of personal hearing.
3.That the NFAC/ CIT(A) grossly erred on facts and in law, in passing the impugned order without appreciating the detailed submissions and contemporaneous documents furnished by the appellant and without any independent application of mind.
4.That on the facts and circumstances of the case and in law, the NFAC/CIT(A) failed to appreciate that the impugned additions/disallowances already stood squarely covered in favour of the appellant by virtue of the orders passed by the Hon'ble Tribunal for preocoding years.
Re: Capital receipt of Rs. 7.70 Crores received from Nava Raipur Development Authority ('NRDA')
5.That on the facts and circumstances of the case and in law, the NFAC/CIT(A) erred in not appreciating that the appellant received Rs. 7.70 Crores as capital assistance from the Naya Raipur Development Authority ('NRDA"), a government authority, for construction of water treatment plant.
6.That NFAC/CIT(A) erred on the facts and circumstances of the case and in law, in not appreciating the relevant terms of the concessionaire agreement dated 05.11.2009 entered into between the appellant and NRDA as per which NRDA was required to provide capital assistance/ grant for construction/development/ setting-up of the water infrastructure project aggregating to Rs. 115.60 crores.
7.That on the facts and circumstances of the case and in law, the NFAC/CIT(A) crred in not appreciating that during the year under consideration, the appellant received Rs. 7.70 crores as financial assistance from NRDA in respect of project work completed up to 31.03.2015
8.Without prejudice, that NFAC/CIT(A) erred on the facts and circumstances of the case and in law, in not appreciating that the capital assistance/ grant received by the appellant from NRDA was credited to the capital work in progress and was ultimately reduced from the total cost of construction of the water treatment plant.
Re: Disallowance of Rs. 3,07,64,626/- being the claim of excess cost incurred in construction of project over and above the financial assistance/grant received, proportionately amortized over the period of concession
9.That on the facts and circumstances of the case and in law, the NFAC/CIT(A) erred in disallowing the amount of Rs. 3,07,64,626 claimed as deferred revenue expenditure by the appellant being the excess cost incurred for construction of project (over and above the capital assistance) amortized proportionately over the total period of concession.
10.That on the facts and circumstances of the case and in law, the NFAC/CIT(A) grossly failed to appreciate that the claim of the appellant of the deferred revenue expenditure being the excess cost incurred for construction of the project is in accordance with CBDT Circular No. 9/2014 dated 23.04.2014 which provides that net expenditure incurred on a project for development of roads/highways/public amenities/etc. should be amortized over the concession period.
Re: Interest and penalty
11.That on the facts and circumstances of the case and in law the NFAC/AO erred on facts and in law in initiating penalty proceedings under section 271(1)(c) of the Act.
12.That on the facts and circumstances of the case and in law the NFAC/AO erred on facts and in law in levying interest under sections 234A, 234B, 234C and 234D of the Act. The appellant craves leave to add, alter or amend any or all of aforesaid grounds of appeal before or at the time of hearing.”
At the outset, the ld counsel of the assessee stated that there are substantially two issues involved; one is with regard to the receipt of Rs.7.70 crore received from Naya Raipur Development Authority for construction of water treatment plant- whether it is capital or revenue expense. It is submitted that the Revenue has not appreciated that the assessee received Rs.7.70 crore as financial assistance from NRDA in respect of project work completed up to 31.03.2015. The learned AR stated that this issue is covered in favour of the assessee by the decision of ITAT vide its order in ITA No:- 2457/Del/2017 (AY 2012-13) dated 10.12.2024.
With respect to the second issue of disallowance of Rs.3,07,64,626/- being the claim of excess cost incurred for construction of project over and above the capital assistance amortized proportionately over the total period of concession, it is submitted that the issue is also covered in favour of the assessee by the CBDT Circular No.9/2014 dated 23.04.2014 which provides that net expenditure incurred on a project for development of roads/highways/public amenities/etc. should be amortized over the concession period. The ld AR also submitted that the ITAT in assessee’s own case for AY 2013-14 had held the issue in favour of the assessee.
Per contra, learned DR relied on the order of the AO and CIT(A).
We have heard the rival submissions and perused the material available on record. The issue of financial assistance received from NRDA was subject matter of appeal before the ITAT for AY 2013-14 and AY 2014-15 wherein the ITAT in ITA 1102 and 1103/Del/ 2018 dated 28.11.2019 held that the same is not a revenue receipt. Again, the ITAT in assessee’s own case for AY 2012-13 vide its order in ITA 2457/Del/2017, has held the assistance as capital receipt as follows:
5.The CIT(A), vide its order dated 24.01.2017, decided the issue in favour of assessee by holding that the financial assistance was in the nature of capital receipt and not income of the assessee company. He also relied on decisions from subsequent years and consistency adopted by the assessee, which had been accepted by the AO. The CIT(A) finally observed in para 5.3.4 as under:
“5.3.4I have carefully considered the arguments raised by the appellant and find that the project has not been completed. While it is clarified that each year is an independent year and doctrine of 'Res Judicata' does not apply to income tax proceedings, the fact that in the subsequent years the issue has been accepted by the AO supports the argument of the appellant. The company has rightly reduced the capital work in progress by the amount of financial assistance. Accordingly, this ground is allowed.”
6.We noted that the Tribunal, in assessee’s own case while adjudicating the issue raised by the Revenue under Section 263 of the Act, in revision proceedings, for the assessment years 2013-14 and 2014-15 in ITA No. 1102-1103/Del/2018, order dated 28.11.2019, after considering in detail facts and following judgment of Hon’ble Supreme Court in the case of Sahni Steel & Press Works Ltd. 228 ITR 253 (SC) held that the nature of financial assistance given by NRDA to the assessee is capital in nature and the amount received by the assessee is a capital receipt not chargeable to tax. The Tribunal observed in paras 12 and 13 as follows:
“12.As mentioned elsewhere the bone of contention is the treatment of financial assistance received by the assessee from NRDA. In our considered opinion, taxation of grant/subsidy by whatever name called is determined by the purpose for which the grant/subsidy is granted. This view is fortified by the decision of the Hon'ble Supreme Court in the case of V.S.S.V. Meenakshi Achi 60 ITR 253 in which the Hon'ble Supreme Court held that the character of the subsidy in the hands of the recipient is to be determined having regard to the purpose for which the subsidy has been given. This principle has been reiterated by the Hon'ble Supreme Court in the case of Sahni Steel & Press Works Ltd. 228 ITR 253. wherein the Hon'ble Supreme Court held that the character of a subsidy in the hands of the recipient whether Revenue or Capital is to be determined having regard to the purpose for which the subsidy is given. It was further held that if the purpose of the subsidy is to help the assessee to set up its business or complete a project the subsidy is to be treated as having been received for Capital purposes, whereas if the subsidy is given to the assessee for assisting him in carrying out the business operations and is given only after and conditionally been commencement of production such subsidy is to be treated as assistance for the purpose of the trade and would constitute revenue receipt. This principle was once again reiterated by the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals 306 ITR 392.
13.Considering the afore-stated ratio laid down by the Hon'ble Supreme Court and considering the nature of financial assistance given by NRDA to the appellant, we are of the considered view that the financial assistance is capital in nature and the amount received by the appellant is capital receipt." (Emphasis supplied)”
7.When this was pointed out to the Ld. DR, he could not contradict the above facts. Taking a consistent view, and respectfully following the decision of the Tribunal in assessee own case, we uphold the order of CIT(A) deleting the addition. Accordingly, this issue in the Revenue’s appeal is dismissed.
Respectfully following the decision of the coordinate Bench of ITAT above and the settled law as laid down by the judicial precedents mandated in V.S.S.V. Meenakshi Achi: 60 ITR 253(SC), Sahney Steel and Press Works vs. CIT: 228 ITR 253 (SC), CIT v. Ponni Sugar and Chemicals Limited: 306 ITR 39215, we hold the assistance/incentive paid for development/setting-up of a project, is capital in nature and accordingly, the addition on account of treating the financial assistance as revenue receipt, is deleted. The ground 5 to 8 are allowed.
With respect to the second issue, we again find that the issue is covered in favour of the assessee by the CBDT Instruction No.9/2014 as well as the decision of ITAT in ITA 1102/Del/2018 dated 28.11.2019 wherein it held as under:
“11.****** At the outset, as discussed hereinabove, the treatment undertaken by the assessee was in accordance with the relevant accounting principles and with the CBDT Circular No. 9 of 2014 dated 23.04.2014 which provides that the expenditure incurred for development of the infrastructure facility is to be claimed as deferred revenue expenditure post completion of the project. Therefore, the adjustment made by the Ld. AO being contrary to the said Circular is bad in law.” In view of the same the second issue is decided in favour of the assessee and the addition is directed to be deleted. The ground 9 to 10 are allowed.
The ground of interest and penalty are consequential and premature respectively.
In the result, appeal in ITA 7920/Del/2025 filed by the assessee is allowed.