IRCON SOMA TOLLWAY (P) LTD.,,NEW DELHI vs. ADDL.CIT, SPECIALO RANGE-4, NEW DELHI

PER VIMAL KUMAR, JUDICIAL MEMBER: All the four appeals are filed by the assessee.

1198/Del/2018 are against orders dated 30.11.2017 of the Learned Commissioner of Income Tax (Appeals)-35, New Delhi under Section 250(6) of the Act arising out of orders dated 08.06.2017 by Additional CIT, New Delhi under Section 143(3) r.w.s. 263 of the Act for assessment years 2012-13 and 2013-14 respectively.

Ld. PCIT(A) vide order dated 29.03.2017 set aside assessment order dated 27.11.2015 and directed Ld. AO to disallow the depreciation claimed by assessee on intangible assets and directed to reduce negative grant of Rs.595/- crores from the cost of asset for assessment year 2013-14. & 3390/Del/2017 & & 1198/Del/2018 & 1198/Del/2018, brief facts are that in pursuance to order dated 29.03.2017, Ld. AO issued notice under Section 143(2) of the Act dated 27.04.2017. Shri Ritesh Kumar Bansal, AR of assessee attended proceedings. A letter dated 12.06.2017, assessee submitted computation as per directions dated 29.03.2017. Ld. AO vide orders dated 08.06.2017 held that the amount eligible as deduction is Rs.37,84,32,266/- for assessment year 2012-13 and Rs.37,73,98,298/- for assessment year 2013-14. 7.

“1. Under the facts and circumstances of the case, the order passed by the Ld. Pr. CIT u/s 263 is ex-facie illegal, arbitrary and without jurisdiction. 2. a) The Ld. Pr. CIT has grossly erred on facts as well as in law in passing order u/s 263 without even giving a finding that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. & 3390/Del/2017 & & 1198/Del/2018 b) The Ld. Pr. CIT has grossly erred on facts as well as in law in invoking section 263 especially in view of the fact that due enquiries were conducted by the Ld. AO at the time of original assessment and the AO's view is fully supported by the judgment of Hon'ble ITAT special bench, Hyderabad in the case of ACIT vs.M/s Progressive Constructions Ltd., 2017-TIOL-168-ITAT- Hyd-SB. c) The Ld. Pr. CIT has grossly erred on facts as well as in law in ignoring the legal position that even if two views are possible, section 263 cannot be invoked.

3. a) The Ld. Pr. CIT has grossly erred on facts as well as in law in directing the AO to disallow the depreciation of Rs. 205,20,77,794/- on toll road. b) The Ld. Pr. CIT has grossly erred on facts as well as in law in holding that CBDT Circular no. 09/2014 dated 23/4/2014 has retrospective effect though the circular does not say so. c) The Ld. Pr. CIT has grossly erred on facts as well as in law in rejecting the judgment of Hon'ble ITAT Special Bench, Hyderabad, by holding that it has not considered the circular though it has been clearly discussed in para no. 19 and 20 of the judgment. d) The Ld. Pr. CIT has grossly erred on facts as well as in law in holding that the appellant is not the deemed owner of the toll road.

4. The Ld. Pr. CIT has grossly erred on facts as well as in law in directing the Ld. AO to reduce negative grant of Rs. 595 Cr. from the cost of the asset.

5. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings.” & 3390/Del/2017 & & 1198/Del/2018 Grounds in ITA No.3390/Del/2017:

“1. Under the facts and circumstances of the case, the order passed by the Ld. Pr. CIT u/s 263 is ex-facie illegal, arbitrary and without jurisdiction. 2. a) The Ld. Pr. CIT has grossly erred on facts as well as in law in passing order u/s 263 without even giving a finding that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. b) The Ld. Pr. CIT has grossly erred on facts as well as in law in invoking section 263 especially in view of the fact that due enquiries were conducted by the Ld. AO at the time of original assessment and the AO's view is fully supported by the judgment of Hon'ble ITAT special bench, Hyderabad in the case of ACIT vs.M/s Progressive Constructions Ltd., 2017-TIOL-168-ITAT- Hyd-SB. c) The Ld. Pr. CIT has grossly erred on facts as well as in law in ignoring the legal position that even if two views are possible, section 263 cannot be invoked. 3. a) The Ld. Pr. CIT has grossly erred on facts as well as in law in directing the AO to disallow the depreciation of Rs. 238,94,65,678/- on toll road. b) The Ld. Pr. CIT has grossly erred on facts as well as in law in holding that CBDT Circular no. 09/2014 dated 23/4/2014 has retrospective effect though the circular does not say so. c) The Ld. Pr. CIT has grossly erred on facts as well as in law in rejecting the judgment of Hon'ble ITAT Special Bench, Hyderabad, by holding that it has not considered the circular though it has been clearly discussed in para no. 19 and 20 of the judgment. d) The Ld. Pr. CIT has grossly erred on facts as well as in law in holding that the appellant is not the deemed owner of the toll road.

4. The Ld. Pr. CIT has grossly erred on facts as well as in law in directing the Ld. AO to reduce negative grant of Rs. 595 Cr. from the cost of the asset.

5. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings.”

“1. Under the facts and circumstances of the case, the Ld. CIT(A) has grossly erred on facts as well as in law in confirming the assessment order passed by the Ld. AO which is ex-facie illegal, arbitrary and without jurisdiction being against the principles of natural justice and against the provisions of IT Act, 1961.

2. The Ld. CIT(A) has grossly erred on facts as well as in law in holding that the there is no infirmity in the order passed by Ld. AO inspite of the fact that the Ld. AO had issued notice u/s 143(2) which is ex-facie illegal, arbitrary and without jurisdiction as the assessment order was not set aside u/s 263 and hence the notice u/s 143(2) as well as the consequential assessment u/s 143(3) / 263 needs to be annulled.

3. The Ld. CIT(A) has grossly erred on facts as well as in law in confirming the assessment order u/s 143(3)/263 which is beyond the direction issued u/s 263 and hence being ex- facie illegal, arbitrary and without jurisdiction, needs to be annulled.

4. The Ld. CIT(A) has grossly erred on facts as well as in law in not quashing the penalty inoticeu/s 271(1)(c) for which there was no direction u/s 263.

5. The appellant craves leave to add, alter, modify and withdraw any grounds before or during the course of appellate proceedings.” & 3390/Del/2017 & & 1198/Del/2018 Grounds in ITA No.1198/Del/2018:

“1. Under the facts and circumstances of the case, the assessment order passed by the Ld. AO is illegal being against the principles of natural justice and against the provisions of IT Act, 1961.

2. The Ld. AO has grossly erred on facts as well as in law in issuing notice u/s 143(2) which is ex-facie illegal, arbitrary and without jurisdiction as the assessment order was not set aside u/s 263 and hence the notice u/s 143(2) as well as the consequential assessment u/s 143(3)/263 needs to be annulled.

3. The Ld. AO has grossly erred on facts as well as in law in issuing assessment order u/s 143(3) / 263 which is beyond the direction issued u/s 263 and hence being ex-facie illegal, arbitrary and without jurisdiction, needs to be annulled.

4. The Ld. CIT(A) has grossly erred on facts as well as in law in not quashing the penalty notice u/s 271(1)(c) for which there was no direction u/s 263.

“1. Ld. AO grossly erred on facts as well as in law in disallowing Rs. 205,20,77,794/-on account of depreciation.

2. Ld. AO grossly erred on facts as well as in law in reducing the cost of project by Rs. 595 Cr. being negative grant and thereby disallowing the depreciation accordingly.”

Additional grounds in ITA No.1198/Del/2018:

“1. Ld. AO grossly erred on facts as well as in law in disallowing Rs. 238,94,65,678/- on account of depreciation. 2. Ld. AO grossly erred on facts as well as in law in reducing the cost of project by Rs. 595 Cr. being negative grant and thereby disallowing the depreciation accordingly.”

10.1 The assessee has claimed depreciation @ 25% amounting to Rs.205,20,77,794/-on the opening WDV plus capital expenditure 9 & 3390/Del/2017 & & 1198/Del/2018 incurred during the year on built, operate and transfer road project. In fact, the project became partly operational in A. Y. 2010-11. The assessee has claimed depreciation @ 25% right from A. Y. 2010-11and the department has allowed the same after due deliberations. During this year also, the Ld. AO allowed the depreciation following the principle of consistency as enunciated by the Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT, 193 ITR 321 (SC). There is no change in facts during this year.

Order u/s 263 is illegal 10.2 The Pr.CIT, in the show cause notice, has mentioned that the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. However the Pr. CIT, in the order u/s 263, has no where held that the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. If, preliminary feeling in show cause notice is considered as a finding then the whole process of conducting hearing and principle of natural justice are totally defeated. This would amount to passing order u/s 263 suo moto without conducting & 3390/Del/2017 & & 1198/Del/2018 any hearing. Therefore, the primary condition mentioned in sec 263 itself, has not been met.

10.3 In ground no.2(b), the Ld. Pr. CIT has grossly erred on facts as well as in law in invoking section 263 especially in view of the fact that due enquiries were conducted by the Ld. AO at the time of original assessment and the AO's view is fully supported by the judgment of Hon'ble ITAT special bench, Hyderabad in the case of ACIT vs. M/s Progressive Constructions Ltd., 2017-TIOL-168- ITAT-Hyd-SB and in the case of Pr.CIT vs. Delhi Airport Metro Express Pvt. Ltd. 2017-TOIL-1814-HC-DEL-IT. The Ld. PCIT has invoked section 263 on the ground that the Ld. AO has not considered CBDT circular No. 09/2014 dated 23/04/2014 wherein instructions have been issued that the cost of construction/development of roads/highways under BOT project may be amortised over the period of concessionaire agreement. Accordingly, he disallowed the depreciation as claimed by the appellant. However, he did not allow even the amortization for which application u/s 154 has already been filed before him on 18/01/2018. & 3390/Del/2017 & & 1198/Del/2018 10.4 The Ld. Pr. CIT invoked sec 263 inspite of the fact that the view taken by the Ld. AO is supported by Hon'ble ITAT, special Bench which is a higher authority. By now it is judicially settled that action under Section 263 cannot be taken if the view taken by the AO is supported by a higher court. Reliance is placed on the following case law:

➤ M/s Ernst And Young Pvt Ltd Vs CIT; 2017-TIOL- 1224-ITAT-KOL "16. As far as the question whether section 10A and 10AA of the Act are deduction provisions or exemption provisions, is concerned, the first aspect which needs to be mentioned is that the issue was debatable and there are decisions of courts which have taken a view that the aforesaid provisions were exemption provision and will therefore not enter the computation of total income at all. These decisions have been rendered even after the CBDT Circular dated 16.07.2013 wherein it has been mentioned that provision of section 10A and 10AA of the Act were deduction provision though they are part of Chapter-III of the Act. In the light of the debate that existed when the order of the assessment was framed and when the impugned order u/s 263 of the Act was passed, it cannot be said that the view taken by the AO was an erroneous view. In fact the view taken by the AO was a possible view supported by decisions of courts. It cannot therefore be said that there was either incorrect assumption of fact or incorrect application of law so as to invoke the provision u/s 263 of the Act..."

10.5 Section 263 cannot be invoked if there are two views in the matter, one held by the Ld. AO and the other by the Ld. Pr. CIT. As regards depreciation, one view is that which was taken by Ld. 12 & 3390/Del/2017 & & 1198/Del/2018 AO and duly supported by Hon'ble ITAT, special bench, Hyd and the other is the one taken by the Ld. Pr. CIT. The other issue u/s 263 is that the appellant has included the negative grant of Rs. 595 crore which is to be paid to NHAI (from 15th year) to the cost of the asset which the Ld. Pr. CIT has asked the AO to delete inspite of the fact that the appellant is following mercantile system of accounting. Similarly as regards negative grant, one view is that taken by the Ld. AO in view of clause 23.1 of the concession agreement between NHAI and the appellant and the second view is as taken bythe Ld. Pr. CIT. Reliance is placed on the following case laws:-- CIT (CENTRAL) Vs M/s Max India Ltd; 2007-TIOL-203-SC-IT

"2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Company Limited this Court has taken the view that the phrase "prejudicial to the interest of the revenue" under Sec. 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as aconsequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when the Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income Tax Officer is unsustainable in law." 13 & 3390/Del/2017 & & 1198/Del/2018 CIT-LTU vs Power Finance Corporation Ltd., 2015-TIOL- 2414-HC-DEL "Whether it is open to the CIT to exercise its jurisdiction u/s 263 by declaring an assessment made by AO as erroneous & prejudicial to interest of Revenue, where two views are possible in respect of an issue and the AO has adopted the possible one - NO: HC"

10.6 Ld. Pr. CIT has invoked sec 263 on the ground that the Ld. AO has not considered CBDT circular No. 09/2014 dated 23/04/2014. This circular does not mention the date from which it will be made applicable. Therefore, the only inference which can be drawn is that it will be applicable from the date of issue of the circular, i.e., 23/04/2014 which means A. Y. 2014-15. Further, it is nowhere mentioned in the circular that it will apply from the date when expl. 3 to section 32(1)(ii) was inserted in the Act. Expl. 3 was inserted by the Finance (No. 2) Act, 1998 w.e.f. 01/04/1999. Accordingly, even if it is presumed for a moment but not admitted, that the circular is applicable, it can only be applicable from A.Y. 2014-15. Hence, circular no. 9/2014 is not applicable to the assessee in this year at least. In fact, In para 7 of CBDT circular no. 9/2014, it is clearly mentioned that in earlier years depreciation allowed is not to be withdrawn. & 3390/Del/2017 & & 1198/Del/2018 Further, by now it is judicially settled that CBDT circular does not have retrospective effect.

10.7 The assessee has included the negative grant of Rs. 595 crore which is to be paid to NHAI (from 15th year) to the cost of the asset which the Ld. Pr. CIT has asked the ITO to delete. The assessee is following mercantile system of accounting and therefore, has to account for all the liabilities which have accrued. The liability is duly ascertained and clearly mentioned in the concession agreement vide para 23.1. Therefore, negative grant is the part of cost of project because the cost of project is total expenditure incurred or to be incurred by the assessee. The liability has accrued in the year of completion of project, i.e., A. Y. 2012-13 subject to payment in subsequent years.

10.8 It is very clear from the Concession Agreement that the amount is a fixed one. There is no stipulation in the agreement for any change in this amount, therefore, this is an ascertained liability which in fact accrues as soon as the project is completed and becomes fully operational. Hence, the appellant has rightly included the negative grant in the cost of the project. In support of this contention, reliance is placed on the following case law:

Ratnagiri Gas and Power Pvt. Ltd. Vs. DCIT: 2021- TIOL-359-ITAT-DEL.” 11. Learned Authorised Representative for assessee submitted that the grounds of appeal in are similar to ITA Nos.3389. If and & 3390/Del/2017 are decided in favour of assessee, then, ITA Nos.1197 & 1198/Del/2018 being in pursuance to order of Ld. PCIT will become infructuous.

“18. Learned representative for department submitted that the Learned AO disallowed the impugned claim of depreciation following the CBDT circular no. 9/2014 dated 23/04/2014. Hon’ble Bombay High Court, in the case of North Karnataka Expressway Ltd., while considering the case of an assessee who had claimed to be the owner of the roads constructed by it and has claimed depreciation thereon u/s 32 of the I.T. Act held that the assessee is not the owner of the roads and therefore, is not entitled to the claim of depreciation thereon. It is also pertinent to mention here that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreement, assessee was awarded a work to construct a road by using own funds and the expenditure incurred was allowed to be reimbursed by permitting the assessee a concession to collect toll/fees from the motorists using the road. Therefore, it could not be said that such a right was within the purview of section 32(1)(ii) of the Act. The issue has also been adjudicated in favour of the Revenue in the case of CIT vs. West Gujarat Expressway Ltd (Supra) whereas the learned 2145 and 2146 of 2018.

19. From examination of record in light of aforesaid rival contention it is crystal clear that assessee has challenged disallowance of depreciation claim @ 25% on the Road Construction Project in view of the CBDT Circular No. 9/2014 dated 23.04.2014.

India Ltd. decided on 26.07.2023 and M/s. Gwalior-Bypass Project Ltd. vs. DCIT has dealt with the issue in above terms. 22. In view of above material facts and well settled principle of law the appellant/Assessee is entitled to claim depreciation @25% on road construction as admissible on intangible assets. Therefore, the impugned orders are not legal and deserve to be set aside”.