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Facts
The assessee, Gwalior Bypass Project Ltd., filed a return declaring a loss and claimed depreciation on a road asset. The Assessing Officer (AO) disallowed the depreciation on the grounds that the assessee was not the owner of the asset and referred to CBDT Circular No. 09/2014. The AO initiated penalty proceedings under Section 271(1)(c) of the Act.
Held
The Tribunal noted that a coordinate bench in the assessee's own case for the same assessment year had already deleted the disallowance of depreciation. Following this precedent, the Tribunal held that the basis for the penalty order no longer survived and deleted the penalty.
Key Issues
Whether the penalty levied under Section 271(1)(c) is sustainable when the underlying addition, on which the penalty was based, has been deleted by a coordinate bench.
Sections Cited
271(1)(c), 143(2), 32, 274, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, E: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI BRAJESH KUMAR SINGH
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘Ld. CIT(A)] dated 04.12.2024 pertaining to Assessment Year 2015-16, arising out of Penalty order u/s 271(1)(c) of the Income-tax ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd. Act, 1961(hereinafter referred to as ‘the Act’) passed the Ld. Assessing Officer (Ld. AO’, for short).
In this case, the return declaring a loss of Rs. 30,30,15,025/- was filed on 30.09.2015. The case was selected for scrutiny, and a notice u/s 143(2) of the Act was issued on 08.04.2016. The assessee company is a public company incorporated on 23.06.2006 under the Companies Act, 1956, and it is a special purpose vehicle engaged in the business of development of highway projects. During the year under consideration the assessee company has declared its revenue from operations Rs. 53,84,59,131/-. The net result from operations are loss of Rs. 20,72,21,563/- from its business activities. The assessee company had filed its return of income declaring net loss of Rs. 30,30,15.025/-. The assessee had claimed depreciation of Rs. 49,67,95,080/- under the Act, which consisted of depreciation of Rs. 49,32,87,659/- on buildings and Rs. 35,07,421/- on plant and machinery. The assessee had claimed this depreciation on the asset built by it, namely, the road of Gwalior Bypass. However, the AO, noted that the assessee was not the owner of the asset built by it as the ownership of the asset /built was with National Highways ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd. Authority of India (NHAI), and the assessee was never transferred ownership of this asset. According to the AO one of the conditions of claiming depreciation u/s 32 of the 1. T. Act, 1961 is that the assessee should be owner of the asset on which it seeks to claim depreciation and as the assessee was not the owner of the asset constructed by it, the AO observed that it was not entitled to claim depreciation on this asset. In this regard, the AO further stated that the Central Board of Direct Taxes has also issued clarificatory Circular no. 09/2014 dated 23.04.2014 regarding treatment of expenditure incurred for development of roads/ highways under Build. Operate and Transfer (BOT) Projects under the 1. T. Act. 1961, and per the said Circular, as the ownership of such assets does not lie with the developers who develop such projects, they are not entitled to claim depreciation on such assets. The AO further noted that however, the Circular clarifies that the cost incurred on creation of the facility can be amortised evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility. The AO further noted that thevCircular also makes reference to the judgement of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT (225 ITR 3 ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd. 802) wherein the Court allowed spreading over of the expenditure incurred over a number of years on the ground that there was continuing benefit over a period. In view these facts, the assessee was asked to explain as to why the deduction claimed not be restricted as per the clarification provided by the Board's Circular no. 09/2014, on 15.11.2014. 2.1 The reply of the assessee was considered by the AO where it took a plea that it was the owner of the right to collect toll from the road built by it and accordingly, was entitled to claim depreciation u/s 32(1)(ii) of the Income Tax Act, 1961. 2.2 The AO did not accept the above explanation of the assessee. According to the AO, the claim of the depreciation of Rs. 49,32,87,659/- made by the assessee company was not allowable as per CBDT Circular no. 09/2014 dated 05.11.2014, which as per the AO, the assessee was not entitled for depreciation and instead it was entitled for amortization of such expenses over the period of concessionaire agreement period. Accordingly, the AO disallowed the depreciation of Rs. 49,32,87,659/- claimed and an amount of Rs. 38,46,29,745/- was allowed as amortized cost for F.Y. 2014-15 making a net disallowance of Rs. 10,86,57,905/-. The AO also 4 ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd. initiated penalty proceedings u/s 271(1)(c) the Act by issuing notice u/s 274 r.w.s. 271(1)(c) of the Act. Thereafter, vide order dated 19.03.2020, the AO levied penalty under section 271(1)(c) of the Act, amounting to Rs. 3,52,22,000/-, on the above disallowance.
Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). During the course of appellate proceedings before the Ld. CIT(A), the assessee uploaded in ITBA its submission on 15.11.2024 referring therein to the decision of the Coordinate Bench of Tribunal, Delhi, in dated 26.07.2022 in respect of the quantum appeal against the aforesaid disallowance of claim of depreciation by the assessee and instead allowance of amortization of the expenses by the AO, in assessee’s own case for AY 2015-16, wherein the Tribunal allowed the appeal of the assessee and upheld that the assessee was entitled for depreciation as admissible on intangible assets. 3.1 The Ld. CIT(A), in view of the above order of the Tribunal wherein the Tribunal had allowed the quantum appeal of the assessee as stated above, deleted the penalty levied by the AO. The relevant finding of the Ld. CIT(A) in para no. 6 is reproduced as under: 5 ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd. “6. Observation and Decision: 6.1 I have carefully considered the facts of the case, penalty order, orders of the appellate authorities in quantum appeal and submissions of the appellant. Having discussed the facts of the case above and in view of the Hon'ble ITAT order allowing the appeal of the appellant filed against the quantum addition based on which penalty proceedings u/s 271(1)(c) of the Act was initiated by the AO and thereafter considering the Ld. CIT(A)'s order confirming the addition in the appellant's case against the quantum addition, the AO levied penalty of Rs. 3,52,22,000/-, the appeal of the appellants is adjudicated accordingly. The relevant para related to the decision of Hon'ble ITAT, Delhi is reproduced for reference - "10.1 Therefore, in view of the above-mentioned binding precedent, we are of the considered view that the assessee is entitled for depreciation as admissible on intangible assets. Thus, grounds raised by the assessee are allowed. As the underlying addition has been deleted by the Hon'ble ITAT in the genesis of penalty u/s 271(1)(c) no more survives and there is no basis for sustaining the penalty imposed as a consequence of that addition. Thus, penalty levied by the AO to the tune of Rs. 3,52,22,000/- is hereby deleted and consequently, the only ground of appeal raised by the appellant is hereby allowed.”
Aggrieved with said order, the Revenue has filed the present appeal on the following grounds of appeal:
1. Whether on the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the penalty amount of Rs. 3,52,22,00/- under section 27191)(c) of the Income Tax Act, 1961, while the revenue’s appeal is pending for adjudication before the Hon’ble High Court, New Delhi.
2. The appellant craves leave to add, amend and later the grounds of appeal during appellate proceedings.”
ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd.
5. We have considered the submissions and also perused the order of the Co-ordinate Bench of the Tribunal in the assessee’s own case in order dated 26.07.2022, wherein the Co- ordinate Bench of Tribunal has deleted the disallowance of depreciation amounting to Rs. 49,32,87,659/-, and allowed the said claim of the assessee. 5.1 The relevant extract of the said order is reproduced as under: “ 3. Facts giving rise to the present appeal are that in this case, the assessee company is a special purpose vehicle engaged in the business of development of highway project, filed return of income declaring loss of Rs.30,30,15,025/- on 30.09.2015. The case was selected for scrutiny and the assessment was framed by the Assessing Officer ("AO") u/s 143(3) of the Income Tax Act, 1961 ("the Act") vide order dated 28.12.2017. Thereby, the AO disallowed the depreciation of Rs.49.32,87,659/- and allowed amortized cost of facility amounting to Rs. 38,46,29,754/ Thereby, the AD allowed claim to be carried forward amounting to Rs. 19,43,57,120/- against the loss of Rs.30,30,15,025/ 4. Aggrieved against this, the assessee preferred appeal before Ld. CIT(A), who after considering the submissions, sustained the finding of the AD and dismissed the appeal.
Aggrieved against the order of Ld. CIT(A), the assessee preferred appeal before the Tribunal.
Ld. Counsel for the assessee submitted that the assessee had claimed depreciation on the intangible assets and the issue is squarely covered by the decision of Special Bench of the Tribunal in in the case of ACIT, Circle-16(2), Hyderabad vs M/s. Progressive Constructions Ltd Pertaining to AY 2011-12 vide order dated 14.02.2017. Ld. Counsel for the assessee drew our attention to para 20 of the order of the Tribunal to buttress the contention that CBDT Circular No.09/2014 dated 23.04.2014 as relied by Ld.CIT(A) is for the benefit of the assessee and it is upto the assessee whether ITA no.- 1226/Del/2025 Gwalior Bypass Project Ltd. to avail the benefit under Circular or not, such benefit cannot be thursted upon the assessee if it was not claimed. xxxxxxx xxxxxx xxxxx 10.1 Therefore, in view of the above-mentioned binding precedent, we are of the considered view that the assessee is entitled for depreciation as admissible on intangible assets. Thus, grounds rasied by the assessee are allowed.”
5.2 In view of the fact of the quantum addition being deleted by the Co-ordinate Bench of Tribunal, the basis of penalty order passed by the AO vide order dated 19.03.2020 levying penalty of Rs. 3,52,22,000/- u/s 271(1)(c) of the Act, does not survive. Accordingly, the penalty to the tune of Rs. 3,52,22,000/- is hereby deleted. 5.3 Consequently, the sole ground of appeal filed by the revenue is dismissed.
6. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 9th July, 2025.