Taxability of Notional Interest Under IND-AS and GST Turnover Reconciliation: ITAT Delhi Ruling in ACIT Vs PNC Rajasthan Highways Pvt. Ltd

The intersection of accounting standards, indirect tax compliance, and direct tax assessments frequently leads to complex litigation. A prominent example of this is the recent judicial determination by the Income Tax Appellate Tribunal (ITAT), Delhi Bench, in the matter of ACIT Vs PNC Rajasthan Highways Pvt. Ltd. The tribunal was tasked with adjudicating two major areas of corporate taxation: the treatment of notional income recognized strictly for compliance with Indian Accounting Standards (IND-AS) and the handling of turnover discrepancies arising between Goods and Services Tax (GST) returns and audited financial statements.

This comprehensive summary explores the factual background, the arguments advanced by the assessee, and the established legal principles that led the ITAT to dismiss the Revenue's appeal, thereby granting significant relief to infrastructure companies operating under the Hybrid Annuity Model (HAM).

Factual Matrix of the Dispute

The assessee, PNC Rajasthan Highways Pvt. Ltd., operates as a Special Purpose Vehicle (SPV) incorporated specifically for an infrastructure project. The core mandate of the assessee involved the two-laning and laning with paved shoulders of a specific highway stretch in Rajasthan under the National Highways Development Project (NHDP) Phase IV, executed on a Hybrid Annuity Mode.

For the Assessment Year (AY) 2020-21, the assessee filed its return of income on 29/12/2020, declaring a total loss amounting to Rs. 24,33,09,074/-. However, the assessing authorities subjected the case to scrutiny assessment under Section 143(3) of the Income Tax Act 1961. The Assessing Officer (AO) ultimately determined the assessed income at a staggering Rs. 2,20,34,35,833/-.

This massive upward revision was primarily driven by two specific additions:

  1. An addition of Rs. 218,61,14,060/- attributed to an alleged mismatch between the turnover reported in the Profit & Loss (P&L) account and the invoices uploaded under the GST framework.
  2. An addition of Rs. 26,06,30,847/- assessed as interest income under Section 56 of the Income Tax Act 1961.