2017 (6) TMI 1167 - AT - Income Tax

Assessment u/s 153A - claim of assessee was depreciation on the right to collect toll being infrastructure and not on the toll road - Estimation of toll receipts in the hands of assessee - Held that - We hold that the evidence found during the course of search toll receipts which were not recorded in the books of account for certain period could be utilized for extrapolation of income for the relevant financial year/s. However the said material cannot be made the basis for working out the income in the hands of assessee for other years for which no incriminating documents or entries in any cash book or note books were found during the course of search. We hold so. We find merit in the plea of assessee in this regard where the assessments have already been completed for a particular year then the same could not be disturbed in the absence of any incriminating material found during the course of search. Accordingly the orders passed under section 143(3) r.w.s. 153A of the Act relating to assessment years 2006-07 and 2007-08 are annulled and the same are set aside. In respect of other years i.e. assessment years 2008-09 to 2010-11 we have already decided the issue in the paras hereinabove. For the sake of clarification we point out that as regards the claim of depreciation on the right to collect toll being intangible asset we have decided the issue in favour of the assessee and the same is to be allowed in the hands of assessee as deduction under section 32(1)(ii) of the Act in all the years for which the assessee is in appeal before us. In respect of second addition made on account of estimation of toll receipts where no evidence was found for particular year/s we hold that no addition on this account is to be made in the hands of assessee in assessment years 2008-09 and 2009-10. However in assessment year 2010-11 evidence was found and the said receipts were to be extrapolated for determining the toll receipts in the hands of assessee and in this regard we uphold the order of Assessing Officer in estimating the same @ 5% of accounted toll receipts. Similarly in the year of search i.e. assessment year 2010-11 evidence has been found for part of the month and the addition is to be restricted to the said evidence found. The evidence cannot be used for extrapolating the receipts for balance period which is after the date of search; since no evidence has been brought on record to establish that the same practice has been followed by the assessee in the period pursuant to the date of search. Accordingly the Assessing Officer is directed to compute the income in the respective years in the hands of assessee.

Summary

Issues Involved:
1. Legality of assessment under section 153A r.w.s. 143(3) without incriminating material.
2. Depreciation on 'Licence/Right to Collect Toll' as an intangible asset.
3. Addition on grounds of suppression of toll collection.

Detailed Analysis:

1. Legality of Assessment under Section 153A r.w.s. 143(3) without Incriminating Material:
The assessee contended that the assessments made under section 153A r.w.s. 143(3) were illegal as no incriminating material was found for the assessment year 2006-07. The tribunal agreed with the assessee, citing the Hon’ble Bombay High Court's decision in CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., which held that in the absence of incriminating material, completed assessments cannot be disturbed. Consequently, the tribunal annulled the assessments for the years 2006-07 and 2007-08.

2. Depreciation on 'Licence/Right to Collect Toll' as an Intangible Asset:
The tribunal analyzed the claim of depreciation on the 'Licence/Right to Collect Toll' under section 32(1)(ii) of the Income-tax Act. The assessee argued that the right to collect toll was an intangible asset and should be eligible for depreciation. The tribunal referred to previous decisions, including the Mumbai Bench of Tribunal in ACIT Vs. West Gujarat Expressway Ltd., which supported the claim that such rights are intangible assets eligible for depreciation. The tribunal rejected the CIT(A)’s reliance on CBDT Circular No.9/2014, which suggested amortization instead of depreciation. The tribunal held that the right to collect toll is a capital expenditure and the assessee is entitled to claim depreciation on it as an intangible asset under section 32(1)(ii).

3. Addition on Grounds of Suppression of Toll Collection:
The tribunal examined the addition made on account of alleged suppression of toll collection. During the search, a diary was found indicating unaccounted toll receipts for a specific period. The Assessing Officer extrapolated this to estimate suppression at 5% of total toll collections for all years under section 153A. The tribunal noted that the evidence was limited to a specific period and could not be used to estimate income for other years without incriminating material. The tribunal cited the Pune Bench decision in ITO Vs. Vikrant Happy Homes Pvt. Ltd., which held that evidence for one year cannot be used to estimate income for other years. The tribunal upheld the addition for the year 2010-11 where evidence was found but rejected the extrapolation for other years.

Conclusion:
The tribunal allowed the appeals for the years 2006-07 and 2007-08, annulling the assessments due to the absence of incriminating material. For the years 2008-09 to 2011-12, the tribunal allowed the claim of depreciation on the right to collect toll as an intangible asset but restricted the addition for suppression of toll receipts to the year where evidence was found. The appeals for these years were partly allowed.