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Income Tax Appellate Tribunal, “B” Bench, Mumbai
Before: Shri G.S. Pannu & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-24, Mumbai, dated 08.08.2017, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short ‘IT Act’), dated 29.09.2015 for A.Y. 2012-13. The assessee has assailed the order of the CIT(A) by raising before us the following grounds of appeal:
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) “1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 24, Mumbai [hereinafter referred to as CIT(A)] erred in confirming the action of the Asst. Commissioner of Income-Tax -15(2)(1), Mumbai [hereinafter referred to as Assessing Officer] in levying penalty under section 271(1)(c) of the Income- tax Act, 1961 (“the Act”) of Rs. 1,77,36,714/-. The Appellant submits that the penalty levied under section 271(1)(c) of the Act is bad- in-law I void and the same ought to be deleted. Without prejudice to the above Ground: 2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the Assessing Officer in levying penalty under section 271(1)(c) of the Act without appreciating the facts that the Assessing Officer has not specified the reason for levy of penalty in the notice issued under section 274 r.w.s. 271(1)(c) of the Act dated 19.03.2015 whether it is for concealment of the particulars of income or for furnishing inaccurate particulars of income. The Appellant submits that the issue of penalty notice under section 274 r.w.s. 271(1)(c) of the Act is incorrect/bad in law and thus the order passed under section 271(1)(c) of the Act ought to be quashed.
3. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the Assessing Officer in levying penalty under section 271(1)(c) of the Act in respect of disallowance of net depreciation on toll roads amounting to Rs.5,21,82,154/- i.e. claim of total depreciation under section 32 of the Act of Rs.24,73,35,219/- less amortization of toll road cost of Rs.19,51,53,065/-, without appreciating the facts that the same was claimed as per the provisions of the Act. The appellant submits that the penalty levied under Sec. 271(1)(c) of the Act is bad-in-law/void and the same ought to be deleted.
4. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the Assessing Officer in levying penalty under section 271(1)(c) of the Act considering the action of the Appellant as not being bona-fide and levying penalty under section 271(1)(c) r.w. Explanation (1) of the Act. The Appellant submits that penalty levied under section 271(1)(c) of the Act is incorrect and ought to be deleted.
The Appellant craves leave to add to amend, vary or alter, including by substitution, any of the above grounds of appeal
.”
2. Briefly stated, the assessee company which is engaged in the business of operating toll roads had e-filed its return of income for A.Y. 2012-13, declaring loss of (-) Rs.46,90,29,856/-. The return of income filed by the assessee was processed as such under Sec. 143(1)
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) of IT Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings it was observed by the A.O that the assessee had claimed depreciation on carriageways @ 25% by treating the same as an intangible asset. It was noticed by the A.O that as per the ‘directors report’ the assessee company was operating an existing road on the Namakkal Karur section of National Highway No. 7 in the State of Tamil Nadu and was operating and maintaining the existing 4 lanes and additional 2 lanes as per the concessionaire agreement dated 30.01.2006 with the National Highway Authority of India (for short ‘NHAI’). It was further observed by him that the said concessionaire agreement was for a period of 20 years. The A.O holding a conviction that as the assessee was not the owner of the property either wholly or partly and thus it was not entitled for depreciation under Sec. 32 of the IT Act, therein called upon it to justify the claim of depreciation of Rs. 24,73,35,219/- so raised by it. Apart there from, the AO was of the view that as the cost of the project was proposed to be apportioned over a period of 20 years, therefore, only the proportionate depreciation/amortization pertaining to the year under consideration was to be allowed to the assessee. As the assessee failed to furnish any reply, therefore, the A.O was of the view that the expenditure of Rs. 351,27,55,161/- incurred by the assessee on building the infrastructure facility was to be amortized over the concessionaire period of 20 years i.e. the period for which it had under taken the infrastructure facility on BOT basis. It was further observed by the A.O that as the assessee had exhausted 2 years (out of the total concession period of project of 20 years) for the construction of the road, therefore, the aforesaid expenditure of Rs. 351,27,55,161/- incurred by it on building the said infrastructure
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) facility was to be amortized over a period of 18 years. The A.O while concluding as hereinabove took support of the CBDT Circular No. 9 of 2014, dated 23.04.2014, wherein it was clarified that the cost of construction of development of infrastructure facility on roads/highways under BOT project was to be amortized evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility. On the basis of his aforesaid observations the A.O allowed the amortization amount of Rs.19,51,53,065/- as against the depreciation of Rs.24,73,35,219/- claimed by the assessee under Sec. 32 of the I.T Act and disallowed the balance amount of Rs.5,21,82,154/- in the hands of the assessee. The assessee accepted the aforesaid assessment so framed by the AO and did not carry the matter any further in appeal before the CIT(A). The A.O while framing the assessment also initiated penalty proceedings under Sec. 271(1)(c) for furnishing of inaccurate particulars of income leading to concealment in the hands of the assessee.
The A.O after culminating the assessment proceedings issued a ‘show cause’ notice under Sec. 271(1)(c) on 19.03.2015, therein calling upon the assessee to explain as to why penalty may not be imposed on it under the aforesaid statutory provision. Subsequently, another ‘SCN’, dated 04.08.2015 was also issued to the assessee under Sec.271(1)(c) r.w. Sec. 274 of the I.T Act. In reply, it was submitted by the assessee vide his letter dated 17.08.2015 that no penalty was liable to be imposed in its hands. However, the A.O not finding favour with the contentions advanced by the assessee concluded that as the assessee despite being conversant of the fact that it was not entitled for claiming depreciation on the carriageways had wrongly claimed the same, thus imposed a penalty of Rs.1,77,36,714/- under Sec. 271(1)(c) of the IT Act.
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1)
5. Aggrieved, the assessee assailed the order passed by the A.O imposing penalty under Sec. 271(1)(c) in appeal before the CIT(A). In the course of the appellate proceedings though the assessee tried to impress upon the CIT(A) that as it had raised a bonafide claim of depreciation under Sec. 32 of the I.T. Act, however, the appellate authority was not inclined to accept the explanation of the assessee. The CIT(A) was of the view that the assessee which was an infrastructure company doing business of development of roads/highways on the basis of Built, Operate, Transfer agreement (for short ‘BOT’ basis), despite being aware of the fact that the cost incurred by it on the infrastructure facility did not qualify for depreciation in its hands had wrongly claimed the same. In the backdrop of his aforesaid observations the CIT(A) was of the view that the assessee had intentionally with a view to inflate its expenses raised a wrong claim of depreciation. Apart there from, the fact that the assessee did not assail the disallowance of depreciation any further in appeal did also weigh in the mind of the CIT(A) while concluding that the assessee had raised a wrong claim towards depreciation on the cost of the infrastructure facility under the BOT contract. On the basis of his aforesaid observations the CIT(A) declined to accept the bonafides of the assessee as regards its claim of depreciation on the cost of the infrastructure facility and confirmed the penalty imposed by the A.O under Sec. 271(1)(c) of the I.T. Act.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Learned Authorized Representative (for short ‘A.R’) for the assessee took us through the facts of the case. It was submitted by the Ld. A.R that the assessee which is an infrastructure company (SPV) was engaged in the business of operating toll roads on BOT basis. The assessee company
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) during the year was operating an existing road on the Namakkal Karur section of the National Highway No. 7 in the State of Tamil Nadu and was operating and maintaining the existing 4 lanes and additional 2 lanes as per the concessionaire agreement dated 30.01.2006 with the NHAI. Insofar the claim of depreciation of Rs. 24,73,35,219/- raised by the assessee during the year under consideration was concerned, it was submitted by the Ld. A.R that the said claim was raised by the assessee in its return of income for A.Y. 2012-13 that was e-filed on 26.09.2012. It was submitted by the Ld. A.R that the aforesaid claim of deprecation was raised by the assessee much prior to the CBDT Circular No. 9/2014 [F. No. 225/182/2013/ITA.II], dated 23.04.2014. In sum and substance, it was the contention of the Ld. A.R that the aforesaid CBDT Circular No. 9/2014, dated 23.04.2014 which provided that the cost of construction on development of infrastructure facility of roads/highways under BOT projects was to be amortized and evenly spread over the period of concessionaire agreement after excluding the time taken for creation of such facility was not available at the time of filing of the return of income for the year under consideration i.e. A.Y. 2012-13 by the assessee company. In nutshell, the Ld. A.R in the backdrop of his aforesaid submissions had tried to impress upon us the bonafides of the assessee as regards the claim of depreciation raised by it on carriageways @ 25% by treating the same as an intangible asset. It was further averred by the Ld. A.R that pursuant to the assessment wherein its claim for depreciation was declined by the A.O, the assessee taking cognizance of the fact that as per the CBDT Circular No.9/2014, dated 23.04.2014 it was not entitled for the same, therefore, had in all fairness not carried the matter any further in appeal before the CIT(A). It was further submitted by the Ld. A.R that the Hon’ble High Court of Rajasthan in Pr. CIT Vs. GVK Jaipur Express Way Ltd. (2018) 100
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) taxmann.com 95 (Raj) had after exhaustive deliberation upheld the order of the Tribunal which had allowed the assesses claim of depreciation on public roads by treating the same as a ‘building’. It was submitted by him that the ‘Special Leave Petition’ (for short ‘SLP’) filed by the revenue against the aforesaid order of the Hon’ble High Court of Rajasthan was dismissed by the Hon’ble Supreme Court in Pr. CIT Vs. GVK Jaipur Express Way Ltd. (2018) 259 Taxman 429 (SC). It was averred by the Ld. A.R that merely for the reason that a claim of an assessee is not accepted by the A.O would not on such stand alone basis justify imposition of penalty under Sec. 271(1)(c). Apart there from, it was submitted by the Ld. A.R that as regards the entitlement of an assessee doing business on BOT basis towards claim of depreciation on carriageways there were divergent views of various High Courts. The Ld. A.R further submitted that the view taken by the Hon’ble High Court of Rajasthan in the case of GVK Jaipur Express Way Ltd. (supra) holding that the assesses claim of depreciation on public roads by treating the same as ‘building’ was in order had found favour with the Hon’ble Apex Court which had dismissed the SLP of the revenue against the said order. In the backdrop of his aforesaid contentions, it was the claim of the Ld. A.R that a plausible view taken by the assessee as regards its entitlement towards claim of depreciation on carriageways did not justify imposition of penalty under Sec. 271(1)(c). The Ld. A.R also assailed the validity of the jurisdiction assumed by the A.O for imposing penalty under Sec. 271(1)(c). It was averred by the Ld. A.R that as the A.O had failed to strike off the irrelevant default in the body of the ‘SCN’ dated 19.03.2015 and 04.08.2015, therefore, the assessee was not put to notice as regards the nature of the default for which it was called upon to explain as to why penalty under Sec. 271(1)(c) may not be imposed
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) on it. In order to fortify his aforesaid contention the Ld. A.R took us through the aforementioned ‘SCN’s dated 19.03.2015 and 04.08.2015.
Per contra, the Learned Departmental Representative (for short ‘D.R’) relied on the orders of the lower authorities. It was submitted by the Ld. D.R that the assesses claim of depreciation on carriageways was not disallowed only on the basis of the CBDT Circular. It was averred by the Ld. D.R that as the assessee had intentionally raised a wrong claim of depreciation, therefore, the lower authorities had rightly imposed penalty under Sec. 271(1)(c). It was submitted by the Ld. D.R that as the appeal filed by the assessee was devoid of any merit, hence the same may be dismissed.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material as well as the judicial pronouncements relied upon by them. The assessee which is an infrastructure company (SPV) doing business of operating toll roads on BOT basis was during the year operating an existing road on the Namakkal Karur section of the National Highway No. 7 in the State of Tamilnadu and operating and maintaining the existing 4 lanes and additional 2 lanes as per the concessionaire agreement dated 30.01.2006 by the NHAI. The concession period for the project was 20 years. The assessee had in its return of income raised a claim of depreciation on carriageways @ 25% amounting to Rs. 24,73,35,219/- by treating the same as an intangible asset. However, the A.O was of the view that the cost of any infrastructure facility undertaken on BOT basis, especially a highway project or a toll way project would not qualify as an intangible asset as the same would be a tangible asset not owned by the BOT operator who would be merely exploiting the same as per the terms of the agreement with the relevant authority. In sum and substance, the A.O held a P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) conviction that as the assessee did not fulfil the primary condition of ownership of the assets, therefore, it was not eligible for claim of depreciation under Sec.
Insofar the cost incurred on carriageways was concerned, the A.O was of the view that the huge expenditure of Rs. 351,27,55,161/- incurred by the assessee on building the said infrastructure facility was to be allowed as a deduction by amortizing the same over the period of 20 years i.e. the period for which the assessee had undertaken the infrastructure facility on BOT basis. Further, the A.O supported his aforesaid view by the CBDT Circular No. 9/2014, dated 23.04.2014, wherein it was clarified that the expenditure incurred for development of roads/highways in BOT agreements was to be amortized evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility. In the backdrop of his aforesaid observations the A.O after excluding the period of 2 years (out of 20 years) which as per the concessionaire agreement of the assessee with the NHAI was meant for construction of the road, therein amortized the cost of Rs. 351,27,55,161/- incurred by the assessee over the balance period of 18 years. On the basis of his aforesaid observations the A.O disallowed the assesses claim of depreciation under Sec. 32 of Rs. 24,73,35,219/- and substituted the same by the amortized expenditure of Rs. 19,51,53,065/-. As a result, the A.O disallowed the excess claim of depreciation of Rs. 5,21,82,154/-.
In the backdrop of the aforesaid facts, we shall now deliberate as to whether the A.O was justified in imposing penalty under Sec. 271(1)(c) in respect of the amount of Rs. 5,21,82,154/- i.e. the excess of depreciation over the amortized amount of expenditure allowed to the assessee during the year under consideration. We find substantial force in the contention advanced by the Ld. A.R that the CBDT
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) Circular No. 9/2014 [F. No. 225/182/2013/ITA.II], dated 23.04.2014 which envisaged that the expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement was to be evenly spread over the tenure of concessionaire agreement and allowed as an expenditure made/incurred for the purpose of the business of the assessee was not available at the time of the filing of the return of income by the assessee on 26.09.2012 for the year under consideration viz. A.Y. 2012-13. Further, as on 23.04.2014 i.e. the date on which the CBDT had issued the Circular No. 9/2014, as the time limit envisaged in sub-section (5) of Section 139 to file a revised return of income by the assessee for the year under consideration i.e. A.Y. 2012-13 had already expired, therefore, the assessee for the said reason was also in no position to withdraw its claim of depreciation and bring the same in conformity with the aforesaid circular. In sum and substance, as the aforesaid CBDT Circular No. 9/2014, dated 23.04.2014 was not in existence at the time when the assessee had raised its claim of depreciation on carriageways @ 25% by treating the same as an intangible asset, thus it was incorrect on the part of the lower authorities to have drawn adverse inferences as regards the bonafides of the assesses claim of depreciation on the ground that the same militated against the aforesaid circular issued by the CBDT. Apart there from, we are also in agreement with the contention advanced by the Ld. A.R that as a Circular issued by the CBDT is not binding on an assessee, hence for the reason that a claim raised by an assessee is not found to be in conformity with the same cannot justifiably lead to imposition of penalty in the hands of the assessee. Further, the fact that the CBDT Circular No. 9/2014, dated 23.04.2014 was to be effective on or after A.Y. 2014-15, thus no adverse inferences as regards the aforesaid claim of depreciation raised by the assessee in its return of income for A.Y. 2012-13 could
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) have been drawn by the authorities below in the backdrop of the said circular. As a matter of fact, we find that the assesses claim for depreciation on carriageways even subsequent to the aforesaid CBDT Circular No. 9/2014, dated 23.04.2014 is found to be in conformity with the view taken by the Hon’ble High Court of Rajasthan in the case of Pr. CIT Vs. GVK Jaipur Express Way Ltd. (2018) 100 taxmann.com (Raj). In the aforesaid case the Hon’ble High Court had upheld the order of the Tribunal which had allowed the assesses claim of depreciation on public roads by treating the same as ‘building’. Further, the SLP filed by the revenue against the order of the Hon’ble High Court was dismissed by the Hon’ble Supreme Court in Pr. CIT Vs. GVK Jaipur Express Way Ltd. (2018) 259 Taxman 429 (SC). In nutshell, the claim of the assessee towards depreciation on carriageways is found to be supported by the aforesaid view of the Hon’ble High Court, which as observed hereinabove had not been dislodged by the Hon’ble Apex Court. Apart there from, we find that the claim of the assessee towards depreciation on toll roads is also supported by the following judicial pronouncements :-
(i) CIT Vs. Noida Toll Bridge Co. Ltd. (2013) (40 taxmann.com 251) (All.) (HC). (ii) CIT Vs. Noida Toll Bridge Co. Ltd. (2013) (30 taxmann.com 207) (All.) (HC). (iii) Asstt. CIT Vs. West Gujarat Expressway Ltd. (2015) (57 taxmann.com 384) (Mum-Trib) (iv) DCIT Vs. Gujarat Road & Infrastructure Co. Ltd. (2013) 141 ITD 642 (Ahmedabad). (v) Gujarat Road & Infrastructure Co. Ltd. Vs. CIT (2011) 48 SOT 145 (Ahemdabad) (vi) Ashoka Info (P.) Ltd. vs. ACIT (2009)123 TTJ 77(Pune)
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1)
In the backdrop of our aforesaid deliberations, we are of a strong conviction that the claim of depreciation on carriageways raised by the assessee in its return of income for the year under consideration could safely be held to be backed by a possible view arrived at by him on the basis of the judicial pronouncements available at the relevant point of time.
We are further of the view that now when the assessee had disclosed all the facts pertaining to its claim of depreciation in its financials, tax audit report as well as during the course of the assessment proceedings, thus merely for the reason that such claim raised by the assessee did not find favour with the A.O would not justify imposition of penalty under Sec. 271(1)(c). In fact, the aforesaid observations gets all the more fortified by the fact that the assessee in the course of the assessment proceedings observing that its claim of depreciation on carriageways was not in conformity with the CBDT Circular No. 9/2014, dated 23.04.2014 had suo motto accepted the said disallowance and not carried the matter any further in appeal. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). In the aforesaid judgment the Hon’ble Apex Court had observed that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In the backdrop of the aforesaid settled position of law, we are unable to persuade ourselves to subscribe to the view taken by the lower authorities that as the assessee had intentionally raised a wrong claim of depreciation, therefore, it was liable to be subjected to penalty under Sec. 271(1)(c) of the I.T. Act.
P a g e | N.K. Toll Road Ltd. Vs. Asst. Commissioner of Income Tax- 15(2)(1) 11. We thus on the basis of our aforesaid deliberations on the facts of the case and the settled position of law, are of the considered view that as the bonafides of the assessee for raising the claim towards depreciation on carriageways is clearly established, therefore, no penalty under Sec. 271(1)(c) could have been imposed in its hands. In terms of our aforesaid observations we set aside the order of the CIT(A) and delete the penalty amounting to Rs. 1,77,36,714/- imposed by the A.O under Sec. 271(1)(c) of the I.T. Act. The Grounds of Appeal
No. 1 to 5 are allowed.
12. The appeal of the assessee is allowed.