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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SMT. BEENA PILLAI & MS. PADMAVATHY S
M/s. Roads and Bridges Development Corporation of The Assistant Kerala Ltd., Commissioner of 2nd Floor, Preethi Building, Income Tax, Palarivattom, Corporate Circle – 2(1), Ernakulam – 682 025. Vs. Kochi. Kerala. PAN: AABCR7841Q APPELLANT RESPONDENT Assessee by : Ms. Remya S Menon, CA Revenue by : Smt. J M Jamuna Devi, Sr DR Date of Hearing : 13-01-2023 Date of Pronouncement : 20-01-2023 ORDER PER PADMAVATHY S, ACCOUNTANT MEMBER
Present appeal is against the order revision u/s. 263 of the IT Act (“the Act”) passed by the Principal Commissioner of Income Tax, Kochi-I for A.Y. 2016-17.
The assessee raised the following grounds of appeal: “1. The order of the Ld. Pr. CIT is against law, facts, equity and justice.
2. The learned Pr. CIT erred in reopening the assessment u/s 263 of the Income Tax Act, the assessment completed vide proceedings of Page 2 of Sec. 143(3) of the IT Act, even though there is no error which is prejudicial to the interest of revenue which requires revision u/s.263 of the IT Act.
3. The learned Pr. CIT went wrong in stating that the Learned Assessing Officer (AO) has not considered necessary facts before allowing carry forward of loss of Rs. 1,71,93,697/-. The Learned AO has made all necessary inquiries and has verified the same and correctly allowed the loss under the head 'Unabsorbed Depreciation' as can be seen from Para 5 of the assessment order issued u/s 143(3) of the Income Tax Act, 1961. Thus, the order of the learned AO cannot be said to be erroneous and prejudicial to the interest of Revenue. Hence, there is no requirement for revision u/s 263.
4. The learned Pr. CIT erred in not considering the fact that the original return of income was submitted by the company before the due date u/s 139(1) on 14.10.2016. However, the return was invalidated on account of failure to enclose the tax audit report, due to various reasons beyond the control of the Company. Thereafter, the Company has filed the return along with tax audit report within the permitted due date of filing-the revised return. Hence, there has been no omission on the part of the company to file the return before due date u/s 139(1) and consequently no reason to disallow carry forward of losses claimed by the company. The learned PR. CIT failed to appreciate the fact that the Company is a 100% state government owned Company which is under the administrative contr—TFOT-M-7 PWD (Public Works Department) and the Company is obliged to comply with various audit requirements and statutory procedures before the tax audit report can be finalized and uploaded. Complying with the audit requirements applicable to the company is a time-consuming process, which led to the delay in finalization and submission of the tax audit report. The learned Pr. CIT ought to have taken note of the decision of the Hon'ble ITAT, Kochi Bench in case of Kerala Shipping and Inland Navigation Corp. Limited dated 7th March 2014 in where it was held that the loss carried forward by the assessee on the basis of provisional financials along with original return which was rejected by AO, should be considered based on the audited financial statements.
5. The learned Pr. CIT went wrong in not appreciating the fact that the losses carried forward in its return by the company are not in the nature of business losses but in the nature of unabsorbed depreciation. Only business loss u/s 72(1) is ineligible to be carried forward u/s 139(3). The said section is not applicable in case of unabsorbed depreciation carried forward u/s 32(2) and hence the loss of Rs. 1,71,93,697/- is eligible to be carried forward and set off in the ensuing years as per the Income Tax Act.
The learned Pr. CIT also erred in disregarding the fact that a part of the carried forward loss claimed by the company has been disallowed by the Assessing Officer against which the company is on appeal before the Commissioner of Income Tax (Appeals)(CIT-A). The Page 3 of CIT appeals is also concerning carried forward unabsorbed depreciation claimed by the company. The subject matter of the appeal is the same as the matter raised in the proceedings u/s 263 which is barred as per Clause (c) of Explanation 1 of Section 263 of the Act and also by judicial decisions of various courts. 7. For these and other grounds that may be further adduced at the time of hearing, the order of the learned AO requires to be modified suitably.”
The assessee is a 100% State Government company under the administrative control of public works department engaged in construction of transport infrastructure projects on behalf of Government and Government agencies. It is formed with the object of undertaking constructions and maintenance of infrastructure facilities such as roads, bridges, rail over bridges etc.
For A.Y. 2016-17, the assessee filed the original return of income on 14/10/2016 showing a loss of Rs.15,73,50,880/- and the assessee did not enclose the tax audit report while filing the original return of income. The return was invalidated by Centralised Processing Centre on account of failure to enclose the tax audit report. Subsequently, the assessee filed a revised return on 30/03/2018 along with tax audit report showing a loss of Rs.17,38,77,509/-. The assessee filed another revised return on 31/03/2018 admitting a reduced loss of Rs.17,37,99,147/-.
5. The case was selected for scrutiny and assessment was completed assessing the loss at Rs.1,76,97,290/-. The PCIT issued a show cause notice u/s. 263 for the reason that “The Assessee Company, M/s Roads and Bridges Development Corporation of Kerala Ltd. filed return of income for the AY 2016-17 on 30.03.2018 admitting total loss of (-) Rs.17,38,77,509/- and subsequently filed a revised return of income on 31.03.2018 declaring loss of Rs.17,374,99,147/-. Scrutiny assessment u/s 143(3) was completed on 26.12.2018 fixing total loss at Rs.1,76,97,290/- which was allowed to be carried forward as per computation sheet. The assessee is a company fully owned by Govt. of Kerala formed with the object of undertaking construction and maintenance of facilities
Page 4 of Highways, Bridges, Roads, Byepasses, over bridges and expressways. The assessee company has entered into direct toll concession agreement(DTCA) with Kerala Road Fund Board and PWD Kerala and obtained the right to collect user fee/toll for a period of 15 years on various projects completed by.it. In accordance with DTCA agreement, WDV of such assets were treated as Intangible assets by the assessee. CBDT circular No.9/2014 dated 23.04.2014 has clarified how expenditure incurred for construction of roads/highways in BOT agreements should be treated under IT Act. The circular clarifies that assessees engaged in BOT construction of roads/highways is not entitled for depreciation under IT Act since such assessees don't possess ownership over such assets, which is vested with Government or its agencies. The circular goes on and states that expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been incurred for the purposes of business and same may be allowed to be spread over the remaining period of concessionaire agreement. So amortization of such expenses has to be treated as business expenses and not as depredation under the provision of IT Act as per the said circular. Hence unabsorbed portion of the said expenses in a particular year is business loss for that year and cannot be carried forward as per provisions of section 80 if return is not filed within due date. In the instant case total loss of Rs.1,76,97,290/- was allowed to be carried forward in the assessment which consists of unabsorbed depreciation amounting to Rs.5,03,593/- and unabsorbed portion of amortized expenditure on infrastructure projects amounting to Rs.1,71,93,697/-. Since Rs.1,71,93,697/- being business loss, the same is not eligible for carry forward as the assessee failed to file return of income within the due date. Incorrect allowance of carry forward of business loss has a potential tax effect of Rs.56,84,719/-. Thus, it is clear that the AO mistakenly and erroneously omitted to consider the above facts, while completing the assessment, thereby causing prejudice to the interests of revenue".
The assessee filed response stating that the Coordinate Bench of the Tribunal in the case of Kerala Shipping and Inland Navigation Corp. Ltd. vs. DCIT in held that loss carried forward on the basis of provisional financials filed along with the original return which was rejected by the AO should be considered based on audited financials and matter was remanded back to the AO. The assessee further submitted that the loss carried forward by the company are not in the nature of unabsorbed business loss but in Page 5 of the nature of unabsorbed depreciation and the loss not allowed to be carried forward u/s. 139(3) is only business loss u/s. 72(1) and not the unabsorbed depreciation loss carried forward u/s. 32(2). The PCIT did not accept the submissions of the assessee and proceeded to set aside the order of assessment u/s. 143(3) for denovo examination back to the AO.
6. The relevant observations of the PCIT in this regard is extracted below. “6.1 The assessee is a company fully owned by Govt. of Kerala formed with the object of undertaking construction and maintenance of facilities such as Highways, Bridges, Roads, By-passes, over- bridges and expressways. It entered into direct toll concession agreement (DTCA) with the Kerala Road Fund Board and PWD Kerala and obtained the right to collect user fee/toll for a period of 15 years on various projects completed by it. In accordance with the said DTCA agreement, WDV of such assets were treated as Intangible assets by the assessee. 6.2 Board's circular No.9 of 2014 dated 23.04.2014 has clarified how expenditure incurred for construction of roads/highways in BOT agreements should be treated under the Act. The circular clarifies that assessees engaged in BOT construction of roads/highways is not entitled for depreciation under Income Tax Act since such assessees don't possess ownership over such assets, which is vested with Government or its agencies. The circular goes on and states that expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been incurred for the purposes of business and same may be allowed to be spread over the remaining period of concessionaire agreement. So amortization of such expenses has to be treated as business expenses and not as depreciation under the provision of Income Tax Act as per the said circular. Hence unabsorbed portion of the said expenses in a particular year is business loss for that year and cannot be carried forward as per provisions of section 80 if return is not filed within due date. 6.3 Perusal of the records reveal that in the case of the assessee, the total loss of Rs.1.77 crores was allowed to be carried forward in the assessment which consists of unabsorbed depreciation amounting to Rs.5.03 lakhs and unabsorbed portion of amortized expenditure on infrastructure projects amounting to Rs.1.72 crores. Since this amount of Rs.1.72 crores,issinP-ss, loss, the same is not eligible for carry forward as the assessee failed to le return of income within the due date. But the AO has not enquired into this important aspect of the case. A bare reading of the assessment order will itself show that this issue has not been examined and discussed by the AO in the assessment. Being an assessing authority, the AO ought to have Page 6 of Hon'ble CBDT's circular (cited supra) with specific refer,ence to the facts as available on record in the case of this assessee. He ought to have known that res judicata will not apply to Income Tax proceedings. However, the AO has omitted to consider these pertinent issues while completing the assessment. He has merely accepted the averments of the assessee and went ahead to complete the assessment on incorrect assumption of facts. The- assessee's reply that this issue is agitated before the Hon'ble CIT(A) is misleading and incorrect. It is clear that the AO has passed an erroneous assessment order which is also prejudicial to the interests of revenue and therefore the present proceedings are very much in order. 6.4 As discussed in earlier paragraphs, if the AO incorrectly assumes facts or incorrectly applies the law, it will satisfy the requirement of the assessment order being erroneous. Similarly it can be seen that the AO has passed the order without application of mind or without making any enquiry in the matter. In my view, the AO has passed an erroneous order which cannot be sustained in law. He has incorrectly assumed facts and passed the impugned assessment order without application of mind and without making any enquiry whatsoever, thereby making erroneous assessment order which is prejudicial to the interest of the revenue.”
The Ld.AR reiterated the submissions made before the PCIT and further submitted that the AO has considered the necessary fact before allowing the carry forward loss of Rs.1,71,93,697/-. The Ld.AR further submitted that the company has filed the revised return within the permitted due date and there has not been any omission on the part of the assessee to file the return of income and consequently, there is no reason to disallow the carry forward of losses claimed by the company. The Ld.AR drew our attention to the fact that the assessee being a 100% State Government owned company, which is obligated to comply with various audit requirements and statutory procedures before the tax audit report can be finalised and uploaded. The Ld.AR submitted that there is no lack of enquiry on the part of the AO which can be evident from the fact that the AO had called for various details and made enquiries relating to the filing of returns and the depreciation claimed and has made disallowance with respect to the depreciation of intangible assets. Therefore the order of the AO cannot be held to be erroneous on the ground of lack of enquiry. The Ld.AR
Page 7 of AO against which the company is in appeal before the CIT(A) and therefore the subject matter of appeal is the same as the matter raised in proceedings u/s. 263 which is barred as per clause (c) of Explanation(1) of section 263. The Ld.DR relied on the order of the PCIT.
We have heard the rival submissions and perused the material on record. The subject matter of the revision is that the assessed loss u/s. 143(3) at Rs.1,76,97,290/- is allowed to be carried forward as per the computation sheet. The PCIT has held the order of the AO to be erroneous and prejudicial to the interest of the revenue for the reason that the assessed loss is not eligible for carry forward as the assessee has failed to file the return of income within the due date and the AO has incorrectly allowed the carry forward of business loss. The assessee has filed the original return of income without the audit report which has been invalidated by the CPC. Accordingly, the assessee filed the revised return of income on 30/03/2018 and 31/03/2018 i.e. before the permitted time limit for filing the revised return of income. The impugned issue is whether the business and the unabsorbed depreciation losses on the basis of a revised return whether could be allowed to be carried forward and set off in the subsequent year. According to the submissions of the Ld.AR, the entire assessed loss is part of unabsorbed depreciation loss and therefore should be allowed to be carried forward. However the PCIT had quoted the CBDT Circular No. 9/2014 dated 23/04/2014 wherein the amortized expenditure on infrastructure projects should be treated as business expenses and not depreciation. So it is the contention of the PCIT, that the assessed loss is a business loss and cannot be carried forward as per the provisions of section 80. In our considered view, the impugned issue is a matter in which two view are possible and accordingly cannot be of matter of revision u/s. 263. Further, the Page 8 of allowability of the carried forward loss to be set off against the income can be a subject matter only in the year subsequent to the year in which the loss is incurred. The assessed loss is the subject matter of revision which can be carried forward and set off should be a matter in the subsequent year since there is no loss to the revenue in the year under consideration. In view of this discussion in our considered view, the order of the PCIT setting aside the order of the AO for the reason that the AO has allowed the assessed loss should be carried forward is not tenable. Accordingly, we quash the order passed u/s. 263 and allow the appeal in favour of the assessee.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced in open court on 20th January, 2023.