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2025 Supreme(Online)(ITAT) 2803
INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
SHRI LALIET KUMAR, SHRI G. MANJUNATHA, JJ
INCOME TAX OFFICER WARD 2(1) HYDERABAD – Appellant
Versus
THRISSUR EXPRESSWAY LIMITED HYDERABAD – Respondent
ITA 872/HYD/2024
Shri B. Bala Krishna, Shri S. Rama Rao
Income estimation under Section 28 requires actual income; capital receipts from construction cannot be treated as income when no revenue is earned.
Headnote:(A) Income Tax Act, 1961 - Section 143(3) and Section 28 - Appeals filed by Revenue against orders of CIT(A) deleting additions made by Assessing Officer for assessment years 2017-2018 and 2018-2019 - Assessee, a Special Purpose Vehicle, declared NIL income and claimed refunds - Assessing Officer estimated income at 8% of gross receipts due to non-submission of books of account - CIT(A) held that total receipts were capital receipts, not income, as no commercial operations had commenced. (Paras 1-12)
(B) Legal principles - Income estimation under Section 28 requires actual income to be present; cost of construction cannot be treated as income when no revenue is earned. (Paras 2.1, 6)
Facts of the case:
The assessee, engaged in highway construction under a concession agreement, filed NIL income for the assessment years and claimed refunds. The Assessing Officer estimated income based on gross receipts, which was contested by the assessee.
Findings of Court:
The CIT(A) correctly concluded that there was no income to estimate as the receipts were capital in nature, relating to ongoing construction work.
Issues: The main issues revolved around the classification of receipts as capital or revenue and the justification for the income estimation by the Assessing Officer.
Ratio Decidendi: The court affirmed that without actual income, estimation of income is unwarranted, and cost of construction should not be misclassified as income.
Result: Appeals of the Revenue dismissed.
ORDER
PER LALIET KUMAR, J.M.
The above appeals are filed by the Revenue against the respective orders both dated 03.06.2024 of the learned CIT(A)-National Faceless Appeal Centre [in short “the NFAC”], Delhi, passed u/sec.143(3) of the Income Tax Act, 1961 [in short “the Act”], relating to assessment years 2017-2018 and 2018-2019. Since common issues are involved in both these appeals, these appeals were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity. First, we take-up appeal ITA.No.872/Hyd./2024 for the A.Y. 2017-2018 as the “lead” appeal and both the parties are agreed to that the decision taken in this appeal be applicable in appeal ITA.No.873/Hyd./ 2024 for the A.Y. 2018-2019.
ITA.No.872/Hyd./2024 – A.Y. 2017-2018 :
Facts of the case, in brief, are that the assessee M/s. Thrissur Expressway Limited, is a Special Purpose Vehicle [“SPV”] in corporated for the purpose of Design, Engineering, Finance, Procurement, Construction, Operation and Maintenance of “6 Laning of Vadakanchery- Thrissur section of NH-47 from 240.00 KM” in the State of Kerala from existing 2 lane on “Design, Fund, Operate and Transfer basis” under concession agreement dated 24.08.2009 with the National Highways Authority of India [in short “NHAI”].
2.1. For the impugned assessment year 2017-2018, it filed it’s return of income on 29.10.2017 declaring NIL income and claimed refund of Rs.3,70,44,341/- and further filed revised return of income on 10.07.2018 declaring Rs.NIL income by claiming refund of Rs.3,67,35,480/-. The case of the assessee was selected for scrutiny under CASS. The Assessing Officer issued statutory notices u/sec.143(2) and 142(1) to the assessee calling the assessee to furnish various details as per CASS etc., The Authorised Representative of the Assessee appeared before the Assessing Officer from time to time and filed the requisite details. The Assessing Officer also issued show cause notice dated 28.11.2019. In response thereto, the assessee furnished his Escrow Bank Account statement and Non- Escrow Bank Statements both of Axis Bank on 03.12.2019. The Assessing Officer after examining the documents placed on record, noted that the assessee has not produced the books of accounts for the impugned assessment year 2017- 2018 nor submitted that the works have been executed as per the expenses debited to the P & L A/c for the assessment year 2017-2018. The learned Assessing Officer, therefore, in absence of books of accounts and supportive evidence in connection with the expenses debited to P & L A/c in the return filed, estimated the income of the assessee @ 8% i.e., at Rs.32,79,23,520/- on the gross receipts declared by the assessee of Rs.409,90,44,000/- and made addition u/sec.28 of the Act.
2.2. On being aggrieved, the assessee carried the matter in appeal before the learned CIT(A) and the learned CIT(A) deleted the addition of Rs.32,79,23,520/- by observing as under :
“AO has misunderstood the cost of construction incurred during the year as receipt which is only a matching entry in Profit and Loss account to balance the expenditure incurred on ongoing road construction work. This amount is only part of cost of work which is to be taken to balance sheet as the accumulating figure to be added to balance of the previous year. When there is no income earned the question of estimating the income does not arise. The entire receipt shown in P& L account is cost of construction of ongoing toll road which will become an asset in books only on completion of work which will be finally handed over to the government agency after toll period expires. However during the year under appeal there is no revenue earned by appellant and estimation of income is wrong. Receipt of appellant will start only when commercial operation of toll collection starts, which happened in March, 2022.
Accordingly AO is directed to delete this addition of Rs.32,79,23,250/-. These grounds are allowed.”
3. Aggrieve
