Exp. incurred for acquisition of land on behalf of Govt. while executing project can’t be treated as capital exp.: ITAT

Case Details: DCIT v. National Projects Construction Corporation Ltd. - [2022] 140 taxmann.com 51 (Delhi-Trib.)

Judiciary and Counsel Details

• • A.D Jain, Vice President & Dr B.R.R Kumar, Accountant Member
  • Ms Shweta Yadav, Sr. DR for the Appellant.
  • Somil Agarwal, Adv. for the Respondent.

Facts of the Case

Assessee-Co. was a public sector undertaking under the Ministry of Water Resources. Its main business was civil construction of dams, bridges, tunnels, powerhouses, flyovers, buildings, canals, and other infrastructure projects.

During the financial year 2013-14, it executed Border Out Post (BOP) works for the Ministry of Home Affairs (MHA) and made payment of Rs. 5.26 crores to various States towards the cost of land acquisition and electrification charges and claimed deduction of same as revenue expenditure.

The Assessing Officer (AO) held that payment made for land acquisition and electrification was of capital nature and not allowable as revenue expenditure. On appeal, the Commissioner (Appeals) treated expenditure as revenue expenditure and allowed same. Aggrieved revenue filed the instant appeal before the Tribunal

ITAT Held

The Delhi Tribunal held that assessee had paid on behalf of MHA (GoI) and corresponding income against these expenses has been booked as turnover in the profit and loss account. Amount paid for land acquisition compensation and other incidental charges had been booked as revenue expenditure under the head ‘Incidental Charges on Works’.

It could be noted that no property was held by the assessee. The expenditure incurred towards land acquisition compensation for BOPs works on behalf of MHA and the asset was created in favour of BSP and held by BSF (BSF (an organization under the control of the Ministry of Home Affairs) not the assessee. There was no capital asset in the name of the assessee.

Thus, it was clear that expenditure incurred by assessee during the financial year 2013-14 towards land acquisition compensation was the part and parcel of the contract agreement and the same was included in the total project cost. Hence these expenditures on behalf of MHA as project costs couldn’t be treated as capital expenditure as no assets were created in name of the assessee.