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Income Tax Appellate Tribunal, DELHI BENCH “B”, NEW DELHI
Before: SHRI L. P. SAHU & SMT. BEENA A. PILLAI
ORDER
PER BEENA A. PILLAI, JM:
1. The present appeal has been filed by the assessee against the order dated 30.03.2016 passed by Principal Commissioner of Income Tax, Delhi-3 (hereinafter referred to as ‘PR. CIT’) under section 263 of the Act, for the year under consideration on the following grounds of appeal:
That on the facts and circumstances of the case and in law, the impugned order dated 30.03.2016 passed by the Principal Commissioner of Income-tax (PCIT), under section 263 of the Income-tax Act, 1961 ('the Act') is without jurisdiction, illegal, bad in law and void-ab-initio.
That the Ld. PCIT erred in invoking revisionary proceedings under section 263 of the Act merely on the basis of CBDT Circular dated 23,4.2014, which was issued much after the completion of assessment proceedings under section 143(3) of the Act. 3. That the Ld. PCIT erred in initiating revisionary proceedings under section 263 of the Act merely on the basis of CBDT Circular dated 23.4.2014, without appreciating that CBDT circular is not binding on the Appellant and only on the basis of subsequent CBDT circular, the completed assessment cannot be reopened under section 263 of the Act. 4. That the Ld. PCIT erred in not appreciating that the CBDT Circular, which was not applicable to the facts of the appellant's case and was also contrary to the law laid down in various decisions, could not be the basis to set-aside the assessment concluded vide order dated 31.12.2013 under section 143(3) of the Act. 5. That the Ld. PCIT erred in invoking revisionary proceedings under section 263 of the Act ignoring the law laid down by the Hon'ble High Court which is binding on lower authorities in respect of eligibility of the assessee to claim depreciation under section 32(1) of the Act on expenditure incurred towards
acquired/developed under the Build-Op erate-Transfer Scheme ("BOT Scheme"). 6. That the Ld. PCIT erred in not appreciating that there is no concept under the Act for deferment of expenditure incurred towards acquisition/development under the BOT Scheme. 2. The Ld. PR. CIT has set aside the assessment order dated 31.12.2013 passed under section 143 (3) of the Act by holding the same to be erroneous and prejudicial to the interest of the revenue.
The brief facts of the case are as under: - Assessee had filed its return of income for the year under consideration declaring a total loss at Rs. 1,27,65,56,278/- on 28.09.2011, which was subsequently revised on 28.03.2013, declaring a total loss of Rs. 1,31,11,92,502/-. The assessment was completed under section 143 (3) of the Act on 31.12.2013 at the revised loss of Rs. 1,31,11,92,502/. Subsequently, on examination of records by Ld. PR. CIT, it was observed that the assessment order passed by Ld. AO is erroneous, in so far as it was prejudicial to the interest of the revenue and Ld. PR CIT issued show cause notice on 16.03.2015 initiating proceedings under section 263 of the Act which is as under:
3. On scrutiny of assessment record it is seen that the assessee company was a concessionaire of the Airport Metro Express project of Delhi Metro rail
Corporation (DMRC) which has been developed under Build Operate and Transfer (BOT Scheme). The assessee had accepted the concession for a period of 30 years and the concession period commenced on the available date and shall end on the termination date. The assessee had claimed depreciation of Rs 112,29,74,447/- during the A.Y 2011-12 on fixed assets of Rs 1560,48,17,189/- @ 50 % of the eligible depreciation rates, as the assets were used for less than 180 days which was allowed in the assessment. As the assets were developed under BOT scheme the assessee was not eligible to claim of depreciation as it was not the owner of the assets. In BOT arrangement for development of airport metro project the possession of land was handed over to the assessee by DMRC( notified authority for the purpose of construction of the project) without any actual transfer of ownership and the assessee had only a right to develop and maintain the assets. The design & construction of basic civil structure for the project was done by DMRC and the same was made available to the concessionaire progressively for design, supply, installation, commissioning and operation of system and related work, The assessee enjoyed the benefits arising from the use of asset through collection of fares for a specified period without having actual ownership over such assets. Therefore, the rights in the land remained vested with the Government/its agency(DMRC). Thus, as the assessee did not hold any rights in the project except recovery of fares to recoup the expenditure incurred, it cannot be treated as owner of the property, either wholly or partially for purpose of allowability of depreciation under Section 32(l)(iii) of the Act. The provisions of the Act do not allow claim of depreciation on the assets due to non-fulfillment of ownership criteria in BOT cases.
4. As the assessee had incurred expenditure on a project for development of Metro railways it was entitled to recover cost incurred towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects had brought an enduring benefit in the form of right to collect the fares during the period of the agreement. The Supreme Court in the case of Madras Industrial Investment Corporation Ltd vs CIT 225 ITR 802, allowed spreading over of liability over a number of years on the ground that there was a continuing benefit to the company over a period, Therefore, analogously, expenditure incurred on an infrastructure project for development of Metro rail under BOT agreement may be treated as having been made/incurred for the purpose of business or profession of the assessee and same may be allowed to be spread during the tenure of the concessionaire agreement If the value of the fixed assets were to be amortized evenly over a period of 30 years the amount to be amortized would be Rs 52,01,60,572/- only for each year. Therefore, by allowing depreciation to the assessee the assessee has been allowed excessive deduction of Rs 60,28,13,875/-. To the extent the order passed by the A.O is found to be erroneous and prejudicial to the interests of revenue.
In view of the facts mentioned in Para 3 and para 4 above, it is evident that the assessment has been completed without due application of mind and requisite inquiry, which renders it erroneous in so far as it is prejudicial to the interest of revenue. As mentioned above, the assessment order for the A.Y 2011-12 Is erroneous and prejudicial to the interest of revenue to the extent of allowing the claim of depreciation of RS 112,29,74,447/- to the assessee as against allowing amortization of value of fixed assets evenly over a period of 30 years. Therefore, the proceedings under section 263 of Income Tax Act are hereby initiated.
The Ld. PR. CIT was of the opinion that assessee was not eligible for depreciation on the value of the fixed assets for a period of 30 years, being the concession period granted to the assessee by DMRC, as laid down by the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd vs. CIT reported in 225 ITR 802. He was of the opinion that the ratio laid down by Hon’ble SC was applicable to the facts of assessee as assessee does not own the project wholly or partly, being an essential condition, for claiming the depreciation on the plant and machinery and therefore do not fall within the category of intangible assets specified in sub clause (ii) of subsection (1) of section 32 of the Act.
5. Aggrieved by the order passed by Ld. PR. CIT, assessee is in appeal before us now.
Ld. Counsel for assessee submits that Ld. PR. CIT has wrongly applied circular issued by CBDT No. 9/2014 which is dated 23.04.2014, being subsequent to the assessment order passed. He submitted that since the circular issued prejudices the interest of the assessee and mandates/instructs the Assessing Officer to make an assessment in a particular manner, the instruction is beyond the scope and ambit of the powers conferred on the board under section 119 of the Act Ld. Counsel for the assessee submitted that the case of assessee was where assessment was completed at the time of issuance of show cause notice under section 263, and unless two preconditions of the assessment order being “prejudicial” as well as “erroneous” to the interest of the revenue are satisfied, Ld. PR. CIT does not have the jurisdiction to initiate proceedings under section 263 of the Act.
On merits Ld. Counsel for assessee argued that assessee had entered into a Concession Agreement with DMRC under the terms of the agreement expressly mentioned therein, and had constructed Airport Metro Express project under BOT scheme (Build Operate and Transfer). He further submitted that 30 years concession was granted to the assessee under the agreement to the assessee. The assessee had claimed depreciation of Rs. 1,12,29,74,447/- for the year under consideration on the fixed assets of Rs. 1,560,48,17,189/- at the rate of 50% as the assets were put to use for less than 180 days, which has been rightly allowed in the assessment. Ld. Counsel for assessee submitted that assessing officer at the time of original assessment had raised a specific query in the questionnaire issued under section 142(1) dated 18.09.2013, wherein he had called for the details of additions made to the sale of fixed assets alongwith copies of bills/evidence of transactions more than Rs. 1 lakh and the exact date of putting these assets to use for business purpose. He submitted that in lieu of questionnaire issued by the Ld. AO, assessee filed detailed reply dated 21.10.2013 wherein complete details including details of addition made to the fixed assets with information’s relating to date of purchase, more than 180 days, less than 180 days were submitted.
Ld. Counsel for assessee submitted that assessee had amortised the cost of the assets over concession period based on the projected revenue in the books of accounts, treating the same as in the nature of intangible assets being business or commercial rights and in the return of income assessee had claimed depreciation with respect to the cost in terms of section 32 (1) (ii) of the Act. It has been submitted that as per the terms of the concession agreement, assessee was granted permission to set up, own and operate the project along with substantial commercial rights, including but not limited to the right to collect fares from the project. He submitted that the plant and machinery installed were purchased by the assessee during the subsistence of the concession period and was legally owned by it. He thus, submitted that since the assets were used for the purposes of assessee’s business, the assessee had rightly claim depreciation thereon under section 32 of the Act.
Ld. Counsel for the assessee submitted that the assessment was completed and the depreciation claimed by the assessee was duly verified by the assessing officer on the basis of the detailed documents submitted before the Ld. AO. Under such circumstances the Ld. Counsel for the assessee submitted that the Assessing Officer had taken a possible view in law and hands proceedings initiated under 263 of the Act was outside the scope of revisionary jurisdiction. Ld. Counsel for assessee relied upon the following decisions to substantiate his preposition: • Malabar industrial Co Ltd reported in 243 ITR 83 (SC) • CIT versus Max India Ltd reported in 295 ITR 282 (SC) • CIT versus Kelvinator of India Ltd reported in 332 ITR 231 (Del) 10. He submitted that the view taken by the assessing officer was substantiated by the legal precedents and thus, the original assessment was in conformity with law it and therefore cannot be held to be erroneous and prejudicial to the interest of the revenue. 11. On the contrary the Ld. DR submitted that the assessee had entered into an agreement with DMRC, under BOT scheme for purposes of construction of the project. She submitted that the scheme does not actually transfer the ownership and assessee has only the right to develop and maintain the asset. She submitted that the assessee enjoys the benefits arising from the use of asset through collection of tool for a specified period without having actual ownership over such asset and for the purposes of allowability of depreciation under section 32 (1) (ii) of the Act, the assessee cannot be treated as owner of the property either wholly or partially. 12. Ld. DR submitted that Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd (supra) has allowed spreading over of the liability over the concession period, which accounting method has been adopted by the assessee in its books of accounts. She further submitted that under such circumstances that expenditure incurred on the infrastructure project under BOT scheme must be spread over during the period of concessionaire agreement. She placed reliance upon the decision of Bombay High Court in the case of North Karnataka express highway Ltd in wherein the Hon’ble Bombay High Court held that depreciation is not allowable on toll road constructed under BOT scheme since the toll road belonged to the government and the company taxpayer was not the owner of the said road. 13. Ld. DR submitted that the Assessing Officer during the assessment proceedings has failed to examine above issues and has passed a cryptic order without proper application of mind. She thus submitted that the assessment order passed by Ld. AO is erroneous in sofar as prejudicial to the interest of the revenue. She placed reliance upon the following decisions to substantiate her preposition: • Malabar Industrial Co Ltd vs. CIT reported in (2000) 243 ITR 83 (SC); • Nabha Investments Pvt. Ltd. Vs. UOI, reported in (2000) 246 ITR 41 (Del) • CIT vs. Nagesh knitwear’s Pvt. Ltd reported in (2012) 345 ITR 135 (Del) • CIT vs. Bhagwan Das reported in (2005) 272 ITR 367 (ALL) • Pratap footwear vs. ACIT reported in (203) SOTA 638 (Jubbalpore) (Trib);
Ld. DR submitted that Assessing Officer is both an investigator and adjudicator, has to decide the issue by conducting proper investigation and enquiry. She submitted that in the present case Ld. AO has failed to investigate the issue of depreciation claimed by the assessee and has completed the assessment on the minimum amount of evidence that was placed before Ld. AO. She further submitted that it is to safeguard the interest of the revenue under such circumstances that the Ld. PR. CIT has initiated the revisionary proceedings under section 263. She argued that the proceedings initiated by the Ld. PR. CIT is very well within the ambit of law as the assessing officer has accepted the revised returned income without going into detail any verifying the claims made by assessee. She submitted that no injustice will be caused by upholding the order of Ld. PR. CIT, as it is open for assessee to make submissions before the assessing officer afresh and in the event the claim of the assessee is found to be correct, will be allowed. She submitted that at this juncture it would be incorrect to hold the order passed by Ld. PR. CIT as unjustified because the assessment order passed by the Ld. AO is without verification of various issues in accordance with law. She placed her reliance upon the following decision to substantiate this preposition: • Rampyari Devi Sarogi vs. CIT reported in (1968) 67 ITR 84 (SC) • Tara Devi Agrawal vs CIT reported in (1973) 88 ITR 323 (SC) • Gee Vee Enterprises vs. ACIT reported in (1975) 99 ITR 375 (Del); • DG Housing Projects Ltd reported in (2012) 343 ITR 329 (Del) • CIT versus Goetz India Ltd reported in 361 ITR 505 (Del)
She thus, submitted that it is necessary that the assessing officer examines the factual matrix in the light of the legal provisions.
We have perused the records placed before us in the light of the submissions advanced by both the sides and the judicial proceedings relied upon by them.
Ground no. 1 that arises for our consideration is about the exercise of the powers by Ld. PR. CIT under section 263 of the act. As noted above, the submissions by Ld. DR has been that, Ld. Assessing Officer did not consider the aspect of whether the depreciation was allowable to the assessee under the given set of circumstances and that if allowable. This argument predicates on the assessment order which apparently does not give any reason while allowing the depreciation claimed by assessee. However, that by itself would not be indicative of the fact that Ld. AO had not applied his mind on the issue. From a plain reading of section 263(1), it is clear that power of revision can be exercised by Ld. PR CIT only if on examination of the records he is of the opinion that any order passed therein is “erroneous insofar as prejudicial to the interests of the revenue”. The consideration of the CIT as to whether the order is erroneous insofar as it is prejudicial to the interest of the revenue, must be based on the materials available on record. There must be some prima facie material on record to show that, tax which was lawfully exiligible has not been imposed or that by the application of relevant statute on an incorrect or incomplete interpretation a lesser tax that was just, has been imposed. In the present facts of the case, Ld. AO had made enquiries regarding the additions that has been made to the fixed assets and the assessee had given details including the bills of purchase of the plant and machinery in that regard. All these are part of the record of the case. Assessment order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law makes an assessment and takes a plausible view, the same cannot be branded as erroneous by Ld. PR CIT, simply because according to him order should have been written more elaborately. In case where there is inadequate enquiry but no lack of enquiry, Ld. PR CIT must give and record a finding that the order/enquiry made as erroneous. This can happen if an enquiry and verification is conducted by Ld. PR CIT himself, and he is able to establish and show the error or mistake made by Ld. AO making the assessment order unsustainable in law and such findings must be clear, unambiguous and not debatable. 18. In the facts of the present case, Ld. PR. CIT has not been able to successfully establish through his enquiry that the order passed by Ld. AO is unsustainable in law. Moreover the view taken by Ld. AO is a plausible view, which is supported by various judicial precedents. The assessment order passed cannot be called to be erroneous though may be prejudicial to the interest of the revenue. As both the ingredients does not stand fulfilled of being erroneous, as well as prejudicial to the interest of the revenue, the order passed by Ld. PR. CIT is hereby quash and set-aside. In the result the appeal filed by the assessee stands allowed Order pronounced in the open court on 12th January, 2017.