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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
The captioned appeals in (AY: 2011-12) and ITA No.944/Mum/2018 (AY: 2012-13) are filed by the assessee. (AY 2011-12) is filed by the Revenue. Since the issues involved in the assessee’s two appeals (AY 2011-12 & 2012-13) are identical and the issues raised in the Revenue’s appeals are inter-connected to the assessee’s appeals, all these appeals are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. (AY: 2011-12) (Assessee’s appeal)
This appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-6, Hyderabad [Ld. CIT(A)] in appeal No. 10594/2018-19/B3/CIT(A)-6, dated 22/11/2019 arising out of the order passed U/s. 143(3) r.w.s 147 of the 3 Income Tax Act, 1961 [the Act], dated 19/12/2017 for the AY 2011-12.
Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of Providing Port Services in the Visakhapatnam Port Trust. In short, the assessee company is a special purpose vehicle incorporated by the consortium of M/s. Gammon India Limited and M/s. Portia Management Ltd UK & Associates (Mersey Docks and Harbour Company). The assessee filed its return of income for the AY 2011-12 on 29/09/2011 declaring a total income of Rs. NIL, after set-off of brought forward losses of Rs. 8,02,34,501/-. The return was processed U/s. 143(1) of the Act accepting the returned income and the case was not taken up for scrutiny.
Subsequently, the case was reopened U/s. 147 of the Act with the prior approval of the competent Authority. In response to the statutory notice issued U/s. 148, dated 22/03/2017 and notice U/s. 143(2), dated 29/09/2017 of the Act, the assessee’s Representatives appeared before the Ld. AO and submitted the information called for from time to time. Accordingly, the Ld. AO completed the assessment U/s. 143(3) r.w.s 147 of the Act on 19/12/2017 determining the total income as per the normal provisions of the Act at Rs. NIL, after adjustment of brought forward unabsorbed depreciation allowance of Rs.21,70,42,587/-.
In the assessment the Ld. AO disallowed the assessee’s claim of depreciation on Project Berths amounting to Rs. 13,68,08,086/-.
Further, on the basis of book profit U/s. 115JB of the Act, the taxable income was determined at Rs. 16,03,81,205/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A)-6, Hyderabad. Before the Ld. CIT(A), the assessee agitated against the assessment order passed U/s. 143(3) r.w.s 147 of the Act based on the fact that the notice issued U/s. 148 is misconceived and bad in law. The assessee’s Representative also made submissions before the Ld. CIT(A) regarding the claim of depreciation. After considering the submissions of the assessee, the Ld. CIT(A) rejected the assessee’s plea with respect to reopening of the case U/s. 147 of the Act and partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A)-6, Hyderabad erred in upholding the issuance of Notice dated 23rd March, 2017 U/s. 148 of the Act by the ld. ACIT, Circle-5(1), Visakhapatnam as well as reopening of the assessment of the appellant for the assessment year 2011-12 by rejecting the contentions and objections raised by the appellant and passing of assessment order dated 19th December, 2017 by the AO U/s. 143(3) r.w.s 147 of the Act.
2. On the facts and circumstances of the case, the Ld. CIT(A)- 6, Hyderabad erred in upholding the disallowance of the appellant’s claim for allowance of depreciation on project berth of Rs. 13,68,08,086/- by following the order passed by his predecessor for the preceding AY 2007-08 and 2010- 11, relying upon the decision of the Hon’ble Bombay High Court in North Karnataka Expressway Ltd vs. CIT (2005) 372 ITR 145 (Bom.) and following the CBDT Circular No. 09/2014, dated 23rd April, 2014 in the impugned order.
3. On the facts and circumstances of the case, the Ld. CIT(A) erred in upholding that the appellant was not the legal owner of the project berth for an indefinite period of time, despite the fact that Article 6(1)(b) contained in the License Agreement dated 28th November, 2001 entered into between the appellant and Visakhapatnam Port Trust clearly, expressly and unambiguously provided that the ownership of the project berth shall remain with the appellant during the license period of 30 years.
4. Each of the above grounds or sub-grounds is without prejudice to one another.
5. The appellant craves leave to add, alter, modify or vary one or more grounds.”
Ground No.1 pertains to reopening of assessment u/s. 147 of the Act.
The Ld. AR argued that the reopening of assessment by the Ld. AO is misconceived and bad in law. Per contra, the Ld. DR relied on the order of the Ld. Revenue Authorities.
We have considered the rival submissions, material available on record and gone through the orders of the Authorities below. We find that the Ld. AO issued notice U/s. 148
6 of the Act to disallow the depreciation amounting to Rs.13,68,08,086/- stating that the assessee is not the owner of the Berth constructed by it. Since the issue was debatable due to conflicting decisions regarding the allowability of depreciation for the developer of the infrastructure facility it is found that the AO has reopened the case U/s.
This reopening by the Ld. AO cannot be said to be a change of opinion but based on the conflicting decisions on the same issue available at that point of time. Therefore we are of the considered view that the reopening is in accordance with law for this AY and accordingly this ground raised by the assessee is dismissed.
Ground No.2 is with respect to disallowance of depreciation on the Project Berth amounting to Rs. 13,68,08,086/-.
The Ld. AR argued that as per the License Agreement entered into with Visakhapatnam Port Trust (VPT) by the assessee, the assessee is owner of the asset for a period of 30 years. The Ld AR referred to Article No. 6.1(b) of the License Agreement which states as follows:
“The ownership of all infrastructure assets, buildings, structures, berths, wharves, equipment and other
7 immovable and movable assets constructed, installed, located, created as provided by the Licensee in the Licensor’s Assets pursuant to this agreement shall, until transfer to the Licensor in accordance with this Agreement, be with the Licensee.”
The Ld. AR also argued the Ld. CIT(A) by relying on the decision of the Hon’ble Bombay High Court in the case of North Karnataka Expressway Ltd vs. CIT in of 2012 wherein the High Court has decided the issue of depreciation U/s. 32 of the Act is not available to the tax payer. The Ld. AR stated that the facts of the case ie., North Karnataka Expressway Ltd (supra) are distinguishable as it is construction of roads on the lands belonging to the Government and only the collection of toll fees was permitted to the assessee as per Government notified rates and hence it cannot be compared with the present case. Alternatively the Ld.AR relied on the judgement of Hon’ble Allahabad High Court in CIT Vs Noida Toll Bridge Co Ltd. [2013] 30 taxmann.com 207 (Allahabad).
Per contra, the Ld. DR heavily relied on the decision of the Bombay High Court in the case of North Karnataka Expressway Ltd (supra) and also on the Circular No.9/2014, dated 23/04/2014 issued by the Central Board of Direct Taxes [CBDT] with respect to treatment of expenditure incurred for
8 development and infrastructure in Build Operate and Transfer (BOT) agreement. The Ld. DR supported the orders of the Ld. Revenue Authorities.
We have heard the rival contentions and gone through the material available on record and the orders of the Authorities below. A perusal of the License Agreement entered in to by the assessee with the Visakhapatnam Port Trust, states that the ownership of the assets, buildings, structures, berths, wharves, equipment and other immovable and movable assets constructed, installed, located, created as provided by the Licensee (the assessee), shall, until transfer to the Licensor namely Visakhaptnam Port Trust will be with the assessee for a period of 30 years. Article 13 of the License Agreement states that, on the expiry of license period that ie., after thirty years, the licensee shall transfer the assets to the licensor. Admittedly there is a transfer at a future date. It is also very clear from the agreement that the assessee is entitled for collecting the fees for the use of the Berths. The assessee can never become a legal owner of the Berth. Even though, the construction was made in leased assets, which are transferable after a certain period, the assessee cannot claim ownership of the same for the purpose of section 32 of the 9 Act. In the instant case, the expenditure incurred by the assessee on BOT project brings some kind of enduring benefit to the assessee. However, the expenditure incurred by the assessee does not bring into existence any capital asset for the assessee.
The asset which was created belongs to the Visakhapatnam Port Trust and the assessee derives only an enduring business advantage out of it. Thus, the expenditure incurred by the assessee should be looked upon for the purpose of conducting of business by the assessee. The assessee derives the benefit of collection of revenue for a period of 30 years from the License Agreement and hence the expenditure incurred by the assessee towards BOT Project should be treated as a revenue expenditure to be recovered over the License period of 30 years. This view is fortified by the decision of the Hon’ble Supreme Court in the case of Madras Auto Services Limited reported in (233 ITR 468) (SC).
Consequently, the assessee is eligible to amortize the expenditure relating to the BOT project over the period of the benefit derived by the assessee, i.e., for a period of 30 years. Reliance placed by the Ld.AR on Noida Toll Bridge Co Ltd (Supra) could not be accepted because it was rightly distinguished in North Karnataka Expressway Ltd (supra), with which we are in agreement.
10 Undisputedly the assessee has incurred huge expenditure for the construction of the Project Berths. The VPT instead of reimbursing the cost of construction to the assessee has granted right/benefit of enduring business revenue to the assessee for a period of 30 years. As per the License agreement the assessee is entitled for the Terminal Value at the end of the License period, at the time of transfer to the Licensor. Therefore the assessee needs to recover the cost incurred in the construction of the Berths, which is out of the fees to be collected from users. The benefit of earning revenue from the berth constructed by the assessee, but not legally owned by the assessee, arises from the license granted by the Licensor (VPT). Considering this peculiar situation to recover the cost of construction, where the assessee could not claim depreciation, CBDT Circular No. 09/2014 has clarified the treatment of such expenditure incurred in BOT agreements. Therefore, in our considered view the assessee is entitled for the amortization of the assets developed under BOT project over the lease period of the asset. The CBDT Circular No. 09/2014 being a clarificatory Circular this can be applied retrospectively for the AY 2011-12 also. We also refer para 7 of the said Circular which is reproduced below:
11 “7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier years, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ shall be amortized equally over the remaining period of toll concessionaire agreement.”
From the plain reading of the above para, we are of the considered view that the Circular can be applied retrospectively in respect of deductions claimed in previous assessment years.
We therefore direct the Ld. AO to amortize the cost of buildings, structures, berths, wharves, equipment and other immovable and movable assets constructed, installed, located, created as provided by the Licensee after deducting depreciation claimed by the assessee and allowed by the revenue in earlier years so that the amortization claimed for the year under consideration shall be the difference between the initial cost and the depreciation already claimed by the assessee which needs to be amortized over the remaining license period. It is ordered accordingly. Thus, this ground no.2 raised by the assessee is allowed for statistical purposes.
12 12. The other grounds (Grounds No.3,4 & 5) raised by the assessee are general in nature and therefore they need not be adjudicated.
In the result, this appeal of the assessee is partly allowed for statistical purposes. (AY 2012-13) (Assessee’s Appeal)
This appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-14, Mumbai [Ld. CIT(A)] in appeal No. CIT(A)-14/IT-236/15-16, dated 10/02/2017 arising out of the order passed U/s. 143(3), dated 28/3/2015 for the AY 2012-13.
In this case, the assessee company filed its return of income for the AY 2012-13 on 27/09/2012 declaring book profits U/s. 115JB at Rs. 8,50,49,898/-. The return was processed U/s. 143(1) of the Act accepting the return of income. Subsequently, the case was selected for scrutiny and notice U/s. 143(2) dated 06/08/2013 and notices U/s. 142(1) were issued and served on the assessee. In response, the Assessee’s Representatives appeared before the Ld. AO and furnished the details from time to time. After considering the submissions of the assessee, the Ld. AO completed the assessment U/s. 143(3) of the Act on 28/03/2015 determining the total income at Rs. Nil. In the assessment the Ld. AO made certain disallowances which includes the claim of the assessee for depreciation on project berth amounting to Rs. 12,31,27,277/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A).
On appeal, after considering the submissions of the assessee, the Ld. CIT(A) partly allowed the appeal. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us by raising the following grounds of appeal:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the disallowance of the appellant’s claim for depreciation on project berth of Rs. 12,31,27,277/- by following the order passed by his predecessor for the AY 2010-11, in the scrutiny assessment order dated 28th March, 2015 passed U/s. 143(3) FO THE Act for the AY 2012-13.
2. On the facts and circumstances of the case, the Ld. CIT(A) erred in upholding that the appellant was not the legal owner of the project berth for an indefinite period of time, despite the fact that Article 6(1)(b) contained in the License Agreement dated 28th November, 2001 entered into between the appellant and Visakhapatnam Port Trust clearly, expressly and unambiguously provided that the ownership of the project berth shall remain with the appellant during the period of 30 years.
3. Without prejudice to Grounds No. 1 & 2 above, on the facts and circumstances of the case, the Ld. CIT(A)
14 erred in not direct the Ld. AO to allow amortization of the expenditure incurred on development of the project berth.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the disallowance of deduction of provisions for doubtful debts of Rs. 23,82,970/-.
5. Each of the above grounds is without prejudice to one another. 6. The appellant craves leave to add, alter modify or vary one or more grounds.”
Ground No.1 relates to disallowance of depreciation on the Project Berth amounting to Rs. 12,31,27,277/-. This ground is similar to that of the Ground No.2 raised by the assessee in its appeal (AY 2011-12). Since, the facts and circumstances of the case as well as the issue involved are similar, our decision given therein while adjudicating the Ground No.2 in the assessee’s appeal for the AY 2011-12 (ITA No. 83/Viz/2020) mutatis mutandis applies to the Ground No.1 of this appeal also. Accordingly, Ground No.1 raised by the assessee is allowed for statistical purposes.
Grounds No. 2, 3, 5 & 6 are general in nature and therefore they need not be adjudicated.
15 18. Ground No.4, with reference to disallowance of deduction of provision for doubtful debts of Rs. 23,82,970/-, is not pressed by the Ld. AR. Hence, this ground is dismissed as not pressed.
In the result, appeal of the assessee is partly allowed for statistical purposes.
(AY 2011-12) (Revenue’s Appeal)
This appeal filed by the Revenue is against the order of the Ld. CIT(A)-6, Hyderabad in appeal No. 10594/2018- 19/B3/CIT(A)-6, dated 22/11/2019 arising out of the order passed U/s. 143(3) r.w.s 147 of the Act for the AY 2011-12. This is a cross appeal filed by the Revenue for the AY 2011-12.
Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of Providing Port Services in the Visakhapatnam Port Trust. In short, the assessee company is a special purpose vehicle incorporated by the consortium of M/s. Gammon India Limited and M/s. Portia Management Ltd UK & Associates (Mersey Docks and Harbour Company). The assessee filed its return of income for the AY 2011-12 on 29/09/2011 declaring a total income of Rs. NIL, after
16 set-off of brought forward losses of Rs. 8,02,34,501/-. The return was processed U/s. 143(1) of the Act accepting the returned income and the case was not taken up for scrutiny.
Subsequently, the case was reopened U/s. 147 of the Act with the prior approval of the competent Authority. In response to the statutory notice issued U/s. 148, dated 22/03/2017 and notice U/s. 143(2), dated 29/09/2017 of the Act, the assessee’s Representatives appeared before the Ld. AO and submitted the information called for from time to time. Accordingly, the Ld. AO completed the assessment U/s. 143(3) r.w.s 147 of the Act on 19/12/2017 determining the total income as per the normal provisions of the Act at Rs. NIL, after adjustment of brought forward unabsorbed depreciation allowance of Rs.21,70,42,587/-.
In the assessment the Ld. AO disallowed the assessee’s claim of depreciation on Project Berths amounting to Rs. 13,68,08,086/-.
Further, on the basis of book profit U/s. 115JB of the Act, the taxable income was determined at Rs. 16,03,81,205/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A)-6, Hyderabad.
Before the Ld. CIT(A), the assessee agitated against the assessment order passed U/s. 143(3) r.w.s 147 of the Act based
17 on the fact that the notice issued U/s. 148 is misconceived and bad in law. The assessee’s Representative also made submissions before the Ld. CIT(A) regarding the claim of depreciation. After considering the submissions of the assessee, the Ld. CIT(A) rejected the assessee’s plea with respect to reopening of the case U/s. 147 of the Act. On the issue of disallowance of depreciation on projects berths, the Ld. CIT(A) relying on the Board Circular issued by the Board held that the assessee is not entitled to claim depreciation on project berths.
However, the Ld. CIT (A) held that the assessee is entitled to claim the cost of construction of the project berths as business expenditure U/s. 37 of the Act by way of amortization over the period of 30 years, being the tenure of the License Agreement dated 28/11/2001 (supra), after excluding the time taken for completion of the Project Berths or creationof facility, as the case may be. Accordingly, the Ld. CIT (A) directed the Ld. AO to compute the effective period of amortization on the expenditure incurred towards cost of construction of the Project Berths and apportion / amortize the expenditure evenly over such period.
Thus, the Ld. CIT(A) allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:
The Revenue has raised the following grounds of appeal:
“1. The decision of the Ld. CIT(A) is not acceptable both on facts and in law.
2. The Ld. CIT(A) has erred in holding that the assessee is entitled to claim the cost of the construction of the project berth as business expenditure U/s. 37 of the Act by way of amortization over the period of 30 years, relying on the CBDT Circular No. 9/2016 dated 23/04/2014.
3. The Ld. CIT(A) has erred in relying on the CBDT Circular No. 9/2014 dated 23/04/2014, applying it with retrospective effect to the present case which relates to assessment year 2011-12.
4. The Ld. CIT(A) has erred in ignoring the settled principles of law that Circulars issued by CBDT cannot be applied retrospectively, as held by the Hon’ble Supreme Court in the case of CIT vs. Gemini distilleries & Others (Civil Appeal No. 16815/2017 SLP(C) No. 1428/29014] dated 12/10/2017 and the ITAT (Delhi) in the case of DCIT vs. Paradip Port Road Co. in ITA No. 2689/Del/2016.
5. The appellant craves leave to add or delete or substitute or amend any ground of appeal before and / or at the time of hearing of the appeal.”
24. Grounds no. 1 & 5 are general in nature and they need not be adjudicated.
25. Grounds No.2, 3 & 4 raised by the Revenue relates to the applicability of the CBDT Circular no. 09/2014 retrospectively.
On this issue, the Ld. DR argued that the Circulars issued by CBDT cannot be applied retrospectively, as held by the Hon’ble Supreme Court in the case of CIT vs. Gemini distilleries & Others (Civil Appeal No. 16815/2017 SLP(C) No. 1428/29014] dated
19 12/10/2017 and the ITAT (Delhi) in the case of DCIT vs. Paradip Port Road Co. in ITA No. 2689/Del/2016. Therefore, the Ld. DR submitted that the Ld. CIT (A) has erred in ignoring the settled principles of law by holding that the assessee is entitled to claim the cost of the construction of the project berth as business expenditure U/s. 37 of the Act by way of amortization over the period of 30 years, relying on the CBDT Circular No. 9/2016 dated 23/04/2014.
On the other hand, Ld. AR heavily relied on decision of the Ld.CIT(A) as well as the decision of the Tribunal in the assessee’s own case in (AY 2007-08) and others, dated 23/08/2022.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities and also the order of this Tribunal in the assessee’s own case in (AY 2007-08) and others, dated 23/08/2022. While adjudicating the issue with respect to disallowance of depreciation on the project berth raised by the assessee in its earlier appeal in ITA No. 2478/Mum/2015 for the AY 2007-08 (supra), this Tribunal has held as under:
20 “19………The CBDT Circular No. 09/2014 being a clarificatory Circular this can be applied retrospectively for the AY 2007-08 also. We also refer para 7 of the said Circular which is reproduced below:
“7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier years, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ shall be amortized equally over the remaining period of toll concessionaire agreement.”
From the plain reading of the above para, we are of the considered view that the Circular can be applied retrospectively in respect of deductions claimed in previous assessment years…….”
On perusal of the above, while adjudicating the issue raised 27. by the assessee in its appeal for the AY 2007-08, we made it clear that since the CBDT Circular No. 09/2014 being a clarificatory Circular this can be applied retrospectively. Therefore, respectfully following the decision of this Bench of the Tribunal in the assessee’s own case (supra) as well as following the principles of consistency, the Grounds No. 2, 3 and 4 raised by the Revenue are hereby dismissed.
In the result, appeal of the Revenue is dismissed.
Pronounced in the open Court on the 14th July, 2023.