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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri P.M. Jagtap, AM & Shri A. T. Varkey, JM]
All the three appeals i.e. to 537/Kol/2017 are filed by the assessee against the order of Ld. CIT(A)-7, Kolkata dated 11.01.2017 for AYs. 2008-09 to 2010-11 and the ITA Nos. 2353 & 2354/Kol/2017 are filed by the revenue against the order of Ld. CIT(A)-7, Kolkata dated 21.08.2017 for AYs. 2011-12 to 2012-13. Since grounds are common and facts are identical, except variance in figures, we dispose of all these appeals by this consolidated order for the sake of convenience.
2. Facts in brief are that after the assessment order was passed for AY 2011-12, the AO was pleased to reopen the assessment for AYs. 2008-09 to AY 2010-11 on the same reason
2 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 and ground, which we will discuss later. For AYs 2008-09 to 2010-11, the assessee has raised additional grounds of appeal, assailing the action of AO in reopening of the assessment after lapse of four years in respect to AYs. 2008-09 and 2009-10. However, at the time of hearing before us, the Ld. AR did not press the legal issue of reopening for AYs 2008-09 to 2010-11; therefore, both the sides agree that the issue involved in this appeal is one and the same for all the assessment years. Therefore, the decision in one appeal will guide the ‘lis’ involved in other appeals. Since we note that the issue cropped up for the first time in AY 2011-12, it would be in the fitness of the things to adjudicate the issue in AY 2011-12 which will be the lead case and the result of it will be followed in all other cases before us. appeal of the revenue is taken as the lead case. Main grievance of the revenue is against the action of the Ld. CIT(A) in deleting the disallowance of depreciation of Rs.31,23,87,263/-. Brief facts of the case are that the AO while conducting the scrutiny assessment noted that the assessee is a local authority and has claimed depreciation of Rs.27,28,49,910/- on water supply scheme for which the assessee has claimed depreciation @ 100%; And 100% depreciation for the road. This claim of depreciation @ 100% made by the assessee was not acceptable to the AO, so he allowed only 10% depreciation on water supply scheme as well as for ‘road’ claimed by the assessee and thus, disallowed Rs.31,70,43,691/-. On appeal, the Ld. CIT(A) after going through the remand report furnished by the AO was pleased to grant 100% depreciation on water supply scheme and road claimed by the assessee. Aggrieved, the revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee namely Haldia Development Authority (in short HDA) is a statutory authority under the Govt. of West Bengal. It was constituted under the West Bengal Town & Country (Planning & Development) Act, 1979 and was established in the year 1980. It has brought to our notice that the HDA discharges its function through the Chief Executive Officer (CEO) and it implements the decision of the Board which has been constituted by the Notification of the State Govt. and manages finances as per the financial
3 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 norms of the Govt. It was brought to our notice that the HDA discharges various responsibilities and activities in the field of planning, land acquisition and allotment, engineering and bridge finance, estate, establishment, social welfare, public relations and information. In the year under consideration, the AO noted that the assessee has claimed depreciation of Rs.27,28,49,910/- on water supply scheme which the AO did not agree and only allowed 10% of depreciation. Likewise, the assessee has claimed depreciation of Rs.7,42,47,049/- on road and claimed 100% depreciation which was also not accepted by the AO and allowed only 10%, thus disallowed a total amount of Rs.31,70,43,691/-. On appeal, the Ld. CIT(A) has granted relief by taking note of the remand report of the AO dated 22.03.2017 which is reproduced as under: “For A. Y. 2011-12: In this case order u/s. 143(3) of the I. T. ACT for the assessment year 2011-12 was passed on 12/03/2014. The assessee has filed appeal against the said assessment order before your Hon 'or. In this connection remand report has been called for vide the aforesaid letter dated 22/03/2017. The same is submitted as under. In the assessment order addition of Rs.24,55,64,919/- & Rs.6,68,22,344/- was made by the A.O disallowing 90% depreciation of fixed assets on water supply scheme and on Road stating that the assessee is a local authority and is assessed as such, he has failed to prove how it is covered under the provisions of section 80IA(4)(i). Therefore 100% depreciation on water supply scheme and on roads, as claimed by the assessee is restricted to 10%. During the course of hearing for remand proceedings, the A/R of the assessee, argued that Haldia Development Authority was establish with the object of preparing plans and development of its area and till date it is working for developing in its area by way of making water project, roads, and other infrastructural development work. He has submitted a copies of notification of Govt. of West Bengal vide No.2097 - T&CP/IR-'6/80 dated, 27.03.1980 and No. NO.288 - T&CP/C-2/2L-7/2001 dated, 13.02.2013 in support of his contention. From the above notifications it is seen that Haldia Development Authority was constituted as Statutory Body in the year 1980 as per West Bengal Town and Country (Planning & Development)Act,1979 (West Bengal Act XIII of 1979). And its area for development was extended time to time by notification of Govt. of W.B. Going through the various notification and documentary evidences as submitted by the assessee I am in the opinion that HDA is a statutory body and carrying on the business of Developing, operating and maintaining any infrastructure facility under an agreement of Central/State Government. The assessee fulfill the condition for eligibility u/s 80IA of the I. T. Act, 1961. The assessee is eligible to get the depreciation @ 100% on water supply treatment and Road u/s 80IA(4). Therefore as per my opinion disallowance of depreciation and addition made by the AO appears to be incorrect.”
Aggrieved by the decision of Ld. CIT(A) allowing 100% depreciation for both water supply scheme and road, the revenue has preferred this appeal before us.
Before us, the Ld. CIT, DR assailing the decision of the Ld. CIT(A) contended that there was total non-application of mind by the Ld. CIT(A) as well as the AO while
4 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 preparing the remand report and drew our attention to the impugned order of the Ld. CIT(A) which is cryptic in nature and that the Ld. CIT(A) has simply relied on the remand report and allowed the claim of the assessee, which according to ld CIT DR is erroneous. On the other hand, the Ld. AR justified the claim of the assessee and contended that the remand report of the AO as well as the impugned order of the Ld. CIT(A) is in accordance to law and does not require any interference from our part. We note that the dispute is regarding the validity of claim of depreciation made by assessee on the water supply scheme and road. In order to appreciate the rival contentions involved in the ‘lis’, we would like to reproduce the provisions of law which is required to be looked into for solving this lis.
“The table of rates at which depreciation is admissible is found in New Appendix I which is effective from AY 2006-07 onwards as per Rule 5 of Income Tax Rules, 1962 (hereinafter referred to as the “Rules”), Part A Tangible Assets – I. Building (see notes 1 to 4 below this table)
(1) Building which are used mainly for residential purposes except hotels and boarding houses – (5% depreciation) (2) Building other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below – (10% depreciation). (3) Building acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business or providing infrastructure facilities under clause (i) of sub-section (4) of sec. 80IA – (100% depreciation up to 01.04.2017 and thereafter 40%) II. …….
III. Machinery and Plant includes –
1.
2.
3.
4.
6.
(7) Machinery and plant, acquired and installed on or after the 1st day of September, 2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility under clause (i) of sub-section (4) of section 80IA . (00% up to 01.04.2017 thereafter 40%) Notes: 1. ‘Building’ include roads, bridges, culverts, wells and tube wells.
A building shall be deemed to be a building shed mainly for residential purposes, if the built up floor area thereof used for residential purposes is not less than sixty-six and two-third percent of its total built up floor area and shall include any such building in the factory premises.
In respect of any structure or work by way of renovation or improvement in or in relation to a building referred to in Explanation 1 of clause (ii) of sub- section (1) of section 32, the percentage to be applied will be the percentage specified against sub-item (1) or (2) of item 1 as may be appropriate to the class of building in or in relation to which the renovation or improvement is effected. Where the structure is constructed or the work is done by way of extension of any such building, the percentage to be applied would be such percentage as would be appropriate, as if the structure or work constituted a separate building.
4. Water treatment system includes system for desalination, demineralization and purification of water.” Section 80-IA of Income Tax Act, 1961 Section 80-IA – Deduction in respect of profits and gains from Industrial undertakings or enterprises engaged in infrastructure development, etc. 80IA (1)….. (2) ……. (3) …… (4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :—
6 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. [Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017] Explanation.—For the purposes of this clause, "infrastructure facility" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea; 6. A bare reading of the aforesaid Rules and Act which spells out the Table of rates item-wise of assets governing the depreciation claimed by the assessee in respect of machinery and plant for water supply project which has been put to use on or after 1st
7 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 September, 2002. We note that item 7 (supra) under the heading Machinary and plant under Assets specified under III, governs the allowance/depreciation in respect of machinery and plant acquired and installed on or after the 1st day of September, 2002 in a water supply project which is put to use for the purpose of business of providing infrastructural facility under clause (1) of sub-section (4) of section 80-IA. We note that the assessee is an authority established by the State Act (West Bengal Act) and is engaged in developing infrastructure facility like roads, water supply project and executes the projects undertaken for West Bengal Govt. Thus, the assessee an authority of State Govt. is seen to have installed machinery and plant which forms part of water supply project and which have been put to use for providing infrastructure facilities under clause (1) of sub section (4) of sec. 80IA of the Act. Since the assessee has installed machinery and plant for water supply project and which was put to use for the purpose of business of providing infrastructure facility, the assessee is eligible for 100% deduction which should be allowed and therefore we confirm the order of Ld CIT(A) on this issue.
Coming to the claim of the assessee in respect of the depreciation on account of road is concerned, we note that the assessee has claimed depreciation of Rs.7,42,47,049/- on road, whereas the AO allowed only 10% and disallowed an amount of Rs.6,68,22,344/-. The Ld. CIT(A) after perusal of the remand report wherein AO was of the opinion that assessee is entitled to 100% depreciation has allowed 100% depreciation to the assessee. On a query from the Bench to the Ld. AR as to how the assessee can claim for roads depreciation of 100%, the Ld. AR contended that the definition of building as per the notes given under the table of rates wherein it has been given that buildings include roads, bridges etc and it fall under item (3) under the head “Building” supra which states that depreciation of 100% to be given to an assessee who acquires building for installation of machinery and plant forming part of water treatment system and which has been put to use for providing infrastructure facilities under clause (1) of sub-sec.(4) of sec. 80IA of the Act. However, the Ld. CIT, DR pointed out that the road will not fall under items (3) because it is for buildings/roads acquired for installation of 8 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 machinery and plant forming part of water supply project and which is put to use for the purpose of business of providing infrastructure facilities under clause (1) of sub-section (4) of sec. 80-IA. According to Ld. CIT, DR, item (3) is for building acquired for installation of machinery and plant. Here building cannot be given the meaning ‘road’ and wondered as to how the machine and plant can be installed on road. Therefore, Ld. CIT, DR contended that the assessee’s case falls under item (2) of assets falling under the heading “Building” which says building other than those used mainly for residential purposes covered under item (1) and not covered by sub-items (3). We note that item (1) is for building/roads which are used mainly for residential purposes other than hotels and boarding houses for which depreciation of 5% is allowable. Sub-item (3) is envisaged for buildings acquired for installation of machinery and plant forming part of water supply project or water treatment system for purposes of business of providing infrastructure facilities, whereas item (2) envisages for building/roads other than those used mainly for residential purpose which means the assets neither falling in item (1) nor in item (3). In other words means, if a building/road does not fall in item (1) or (3), then it falls in the residuary provision under item 2 and is only eligible for 10% depreciation. We are not in agreement with the contention of the Ld. AR that the roads which the assessee has developed falls under item (3) because no machinery and plant can be installed on the road. Since the road which the assessee has developed does not fall under item (1) and item (3) then it has to fall under the residual item under (2) which provides for 10% depreciation and, therefore, the AO has rightly granted 10% depreciation for the roads developed by the assessee which action we uphold. Therefore, the Ld. CIT(A) erred in granting 100% depreciation albeit on AO’s remand report. Therefore, we conclude that the AO’s decision of disallowing 90% on water supply system is erroneous and, therefore, we direct the AO to allow the assessee’s claim for 100% depreciation on water supply system and thereafter the Ld. CIT(A)’s order which grants 100% depreciation for machinery and plant for water development project for AYs. 2011-12 and 2012-13 is confirmed whereas the Ld. CIT(A)’s order for AYs 2011- 12 and 2012-13 in respect of allowing 100% depreciation for roads is erroneous and we
9 & 2353-2354/Kol/2017 Haldia Development Authority, AYs 2008-09-2012-13 reverse the order, consequently the AO’s order allowing only 10% depreciation of roads is upheld. Since the reopening of the assessment for AYs 2008-09 to 2010-11 has not been pressed before us by the Ld. AR of the assessee, the grounds raising the same stands dismissed.
Since the dispute is with regard to allowing the claim of depreciation for all these assessment years the assessee succeeds to the extent that its claim for depreciation on machinery and plant installed for water supply project is allowed at 100% and the assessee’s claim for depreciation on road for 100% is not tenable and is allowed only up to 10%. Therefore, Assessee’s appeal for AYs 2008-09 to 2010-11 is partly allowed.
In the result, all the appeals of assessee and revenue are partly allowed.
Order is pronounced in the open court on 19/12/2018 Sd/- Sd/- (P. M. Jagtap) (A. T. Varkey) Accountant Member Judicial Member Dated: 19th December, 2018 Jd.(Sr.P.S.) Copy of the order forwarded to: 1 Appellant – Haldia Development Authority, City Centre, P.O. Debhog, Haldia, Dist. Purba Medinipur, W.B. 721657. 2 Respondent – ACIT, Circle-27, Haldia. 3 CIT(A)-7, Kolkata. (sent through e-mail) CIT , Kolkata 4 DR, Kolkata Benches, Kolkata (sent through e-mail) 5