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Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRI YOGESH KUMAR U.S. & SHRI AVDHESH KUMAR MISHRA
A.Y. 2015-16 New Mangalore Port Road Deputy Commissioner of Company Limited, Income Tax, Circle-16(1), D-21, Corporate Park, Vs. C. R. Building, I P Estate, Sector-21, Dwarka, New Delhi New Delhi PAN: AABCN9106E (Appellant) (Respondent) Appellant by Ms. Khushboo Singhal, CA Respondent by Ms. Amisha S. Gupt, CIT(DR) Date of Hearing 21/08/2025 Date of Pronouncement 17/11/2025 ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal for Assessment Year (‘AY’) 2015-16 filed by the assessee is directed against the order dated 15.09.2022 of the Commissioner of Income Tax (Appeals), NFAC, New Delhi [‘CIT(A)’].
The sole issue raised before us challenges the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (‘Act’)
3. The assessee has admitted that the impugned order dated 15.09.2022 was received on 26.12.2024. However, it had also filed an affidavit justifying the delay in filing this appeal. Keeping in view decisions of the Hon’ble Supreme Court in cases of Collector, Land Acquisition, Anantnag & Anr. Vs Mst. Katiji and others (1987) 2 SCC 107 and N. Balakrishnan Vs M. Krishnamurthy 1998 (7) SCC 123 and the decision of Hon’ble Delhi High Court in the case of HL Malhotra & Company Pvt. Ltd. (ITA No. 211/2020 & CM Appeals 32045-32047/2020 dated 22nd December, 2020), we condone the delay in the interest of justice.
The relevant facts giving rise to this appeal are that the assessee, engaged in business to develop, establish, construct and maintain a project relating to the construction, operation and maintenance of the New Mangalore Port Road connectivity project under the Build-Operate-Transfer (‘BOT’), filed its Income Tax Return (‘ITR’) of the relevant year on 24.11.2015 declaring loss of Rs.89,82,39,037/-. The case was picked up for scrutiny and consequential assessment was completed at the loss of Rs. (-) 27,50,53,816/- wherein the Ld. Assessing Officer (‘AO’) made following two disallowances: -
(i) Disallowance of depreciation of Rs.60,67,90,274/- claimed on Toll Road,
(ii) Disallowance of interest of Rs.1,63,94,947/- under section 36(1)(iii) of the Act 4.1 Later, the assessee got the dispute of disallowance of interest of Rs.1,63,94,947/- under section 36(1)(iii) of the Act settled under the VSVS Scheme. Thereafter, the Ld. AO, placing reliance on the decision of Hon’ble Delhi High Court in cases of Zoom Communications Pvt. Ltd. 327 ITR 510, Harprasad & Co. (P) Ltd., 328 ITR 53 and Escorts Finance Ltd. 328 ITR 44 levied the penalty of Rs.19,25,64,233/- under section 271(1)(c) of the Act on the above mentioned disallowances of depreciation of Rs.60,67,90,274/- and interest of Rs.1,63,94,947/- observing as under:
“7.1.1 On perusal of details filed during the course of assessment proceedings it is seen that the assessee has claimed huge depreciation of Rs.74,41,47,30.5/- in respect of intangible assets (which is Toll Road). Vide order sheet entry dated 30.11.2018 assessee was asked to furnish explanation in this regard, in response to the query raised assessee has not Filed any submission. The assessee company is developing infrastructure facility of toll roads under the BOT (Built-Operate-Transfer) basis. The ownership of the toll roads lies with National Highway Authority of India (NHAI). Ownership of the asset is an essential condition for claim of depreciation u/s 32 of Income-tax Act, 1961. 7.1.2 It is also pertinent to mention that a company M/s Mumbai JNPT Port Road Co. Ltd, another subsidiary of NHAI and engaged in similar business is claiming depreciation as per the said circular of Board. The depreciation allowable to the assessee company as per said circular was determined at Rs.13,73,57,031/- (as per audited accounts). Accordingly claim of excess depreciation of Rs.60,87,90,274/- (Rs.74,41,47,305/- Rs.13,73,57,031/-) was disallowed and added to the total income of the assessee. 7.1.3 The assessee did not file appeal before the Ld. CIT(A) on this ground. Therefore, it is beyond doubt that the assessee has furnished inaccurate particulars of its income. It is evident from the facts discussed in preceding paras that the assessee has willfully furnished inaccurate particulars which led to the suppression of its true income and if the case had not been selected in scrutiny the assessee would have escaped claiming higher current year losses. Further, the assessee failed to furnish any submissions/documents during the course of penalty proceedings despite repeated opportunity and sufficient time afforded to it. Keeping in view the facts of the case, it is held that the additions made during the course of assessment in computing the income/loss of the assessee shall be deemed to represent the income in respect of which inaccurate particulars have been furnished. 7.2 Disallowance u/s 36(1)(iii) of the Act: - 7.2.1 On perusal of audited accounts failed by the assessee, it is seen that capital Work-in-progress of Rs.23,23,91,224/- is reflected as on 31.03.2015. Therefore, vide note sheet entry dated 19.11.2018 the assessee was asked to furnish explanation in this regard. In response to the query raised the assessee filed submission dated 30.11.2018. The submission of the assessee was duly considered. The assessee stated that no interest has been capitalized in capital work-in progress, However, no reason for the same was submitted by the assessee company. 7.2.2 As on 31.03.2014 total shareholder's fund is Rs.69,33,75,963/-. Against this, borrowed funds of Rs.209,81,87,581/- are reflected as on 31.03.2014. Similarly, as on 31.03.2015 total shareholder's fund is Rs.40,12,44,853/-, Against this borrowed funds of Rs.268,26,86,916/- are reflected as on 31.03.2015. Thus, against average shareholder's funds of Rs.54,73,10,408/-, borrowed funds constituted Rs.239,04,37,249/-. Thus borrowed funds constitute around 81% of total funds with the assessee company. Capital Work-in-progress of Rs.10,49,53,354/- is reflected as on 31.03.2014. Similarly, Capital Work-in-progress of Rs.23,23,94,224/- is reflected as on 31.03.2015. Thus, on average there is capital work-in progress of Rs.15,86,72,289/-. 7.2.3 As per the provisions of section 36(1)(iii) r.w. Explanation 8 to subsection 1 of section 43 of the Act, interest attributable to capital work-in progress needs to be capitalized with the costs of assets and cannot be claimed as an expenditure in the Profit and Loss A/c. As evident from the submission of the assessee, the assessee has not capitalized any interest expenditure in regard to capital work-in-progress. The assessee has debited huge interest expenses to the tune of Rs.23,19,54,817/-, Thus, it cannot be said that own funds have been utilized for acquisition of assets. Further when own funds and borrowed funds both are mixed, all applications need to be proportionately allocated to both kinds of funds. 7.2.4 In view of the above, it was held that interest expenditure of Rs.1,63,94,947/- (81% of 12% of Rs.16,86,72,289/-) is expenditure attributable to capital work-in-progress. Accordingly, an amount
Rs.1,63,94,947/- was disallowed u/s 36(1)(iii) of the Income-tax Act, 1961 and added to the total income of the assessee. 7.2.5 The Ld. CIT(A) also upheld the findings of the AO and held "..no interest cost has been capitalized during the year. Nothing has been brought on record to controvert the finding of the AO. No break-up of the borrowed fund used and interest cost incurred for the purpose of toll road and service road, ROB/RUC work has been brought on record by Ld.AR. Therefore, the AO has rightly invoked the provisions of section 36(1)(iii) r.w. explanation 8 to sub-section 1 of 43 of the Act and proportionate interest expenditure attributable to capital work in progress has been disallowed. It is evident from the facts discussed in preceding paras that the assessee has willfully furnished inaccurate particulars which led to the suppression of its true income and the additions made during the course of assessment in computing the income/loss of the assessee shall be deemed to represent the income in respect of which inaccurate particulars have been furnished." 4.2 Aggrieved, the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal as under: - “4. As per the Direct Tax Vivad Se Viswas Rules the prescribed form for the purpose of Sec. 5(1) of DTVSV Act, 2020 is Form No.
As mentioned above, this form has been issued by the Designated Authority on 11/01/2021. Further, according to the information available in the Income Tax Department's Business Application Systems the Designated Authority has also issued an order on 19.02.2021 in prescribed Form No. 5 stating that the declarant has paid the amount within the meaning of Sec. 5(2). Hence, in view of the provisions of Sec. 4(2) read with sections 5(1) & 5(2) of DTVSV Act, 2020 this appeal is liable to be treated as infructuous. Accordingly, the appeal is treated as dismissed for statistical purposes.”
At the outset, the Ld. Authorized Representative (‘AR’) contended that the assessee had not filed appeal against the disallowance of depreciation of Rs.60,67,90,274/-. Only the disallowance of interest of Rs.1,63,94,947/- was agitated in appeal. However, the issue of disallowance of interest of Rs.1,63,94,947/- was settled in VSVS. In view of the provisions of section 5 of the VSVS Act, the penalty on disallowance of interest of Rs.1,63,94,947/- settled in VSVS should had not been levied on the assessee. Further, it was contended by the Ld. AR that the penalty on disallowance of depreciation of Rs.60,67,90,274/-, in view of the CBDT Circular No.9/2024 dated 23.04.2024, should had not been levied on the assessee as this issue was disputed and debatable due to the legal ambiguity surrounding the claim of depreciation on BOT road project. Reliance was placed on decisions in the cases of Royal Metal Printers (P) Ltd. in (2005) 93 TTJ (Mumbai) 119 and Harish Narinder Salve in I.T.A. No. 100/Del/2015.
The Ld. AR further drawing our attention to the impugned order submitted that the assessee had gone into VSVS only with respect to the disallowance of interest under section 36(1)(iii) of the Act and not on the disallowance of depreciation claimed on Toll Road. On our specific query, the Ld. AR submitted that the Ld. CIT(A), simply placing emphasis on VSVS application, dismissed the entire appeal which was with respect to the penalty of Rs.19,25,64,233/- levied under section 271(1)(c) of the Act on the above mentioned disallowances of depreciation of Rs.60,67,90,274/- and interest of Rs.1,63,94,947/-. Thus, he contended that the Ld. CIT(A) had not adjudicated the issue of penalty levied on the disallowance of depreciation of Rs.60,67,90,274/-.
The Ld. CIT-DR supported the order of authorities below. He prayed for remanding the matter back to the Ld. CIT(A) for adjudication on entire issues of the penalty of Rs.19,25,64,233/- levied under section 271(1)(c) of the Act on the above mentioned disallowances of depreciation of Rs.60,67,90,274/- and interest of Rs.1,63,94,947/-. The Ld. CIT-DR, placing reliance on the decision of the Hon’ble Bombay High Court in the case of North Karnataka Expressway, submitted that the depreciation was rightly disallowed and that was why the assessee did not file quantum appeal against the disallowance of depreciation of Rs.60,67,90,274/-. The VSVS was for quantum appeal settling the dispute of demand raised due to the disallowance of interest of Rs.1,63,94,947/- challenged in appeal before the Tribunal.
We have heard both parties and have perused the material available on the record. We find merit in the submissions/arguments/contentions of the Ld. CIT-DR. It is evident from the impugned order that the Ld. CIT(A) has not adjudicated each ground of appeal raised before him though in view of section 251(1)(a), 251(1)(b) and Explanation of section 251(2) of the Act, the Ld. CIT(A) is required to apply his/her mind to all issues which arise from the impugned order before him/her, whether or not these issues have been raised by the assessee before him/her.
10. On cumulative consideration of the provisions of section 250(6) of the Act read with sections 250(4), 250(5), 251(1)(a), 251(1)(b) of the Act and Explanation of section 251(2) of the Act, the Ld. CIT(A) is not empowered to dismiss the appeal summarily. Facts of this case is quite different. Therefore, in view of the facts in entirety and in the interest of justice, we find it fit that this case requires to be remanded back to the Ld. CIT(A) for deciding the appeal on merit as the appeal covers penalty on the above mentioned disallowances of depreciation of Rs.60,67,90,274/- and interest of Rs.1,63,94,947/-. Thus, without offering any comment on merit of the case, we set aside the impugned order and remit the matter back to the file of the Ld. CIT(A) for deciding the entire issue of penalty on the above mentioned disallowances afresh after providing adequate opportunity of being heard to the appellant assessee. The appellant assessee, no doubt, shall ensure compliance and cooperate in remitted appeal proceedings.
In the result, the assessee’s appeal is allowed for statistical purposes.
Order pronounced in open Court on 17th November, 2025