2014 (2) TMI 1113 - AT - Income Tax

Claim of depreciation - Road constructed by the assessee Held that - The decision in Commissioner of Income Tax Versus M/s Noida Toll Bridge Co Ltd 2012 (10) TMI 841 - ALLAHABAD HIGH COURT followed - The assessee is entitled to the depreciation claimed on Building - BOT Bridge - the depreciation represents the diminution in value of a capital asset when applied to the parties of making profit or gain - The land is held on lease and the road as capital asset has been built on it with exclusive ownership of the road, and the bridge in the assessee-company for the concession period, and which also includes the right to collect tolls and to regulate use of the bridge - Section 32 would apply for the purpose of providing depreciation to be worked out in accordance with the law thus, the order of the CIT(A) upheld Decided against Revenue. Disallowance of interest on mobilization advances Held that - CIT(A) was of the view that in mercantile system of accounting which is a system of accounting specified u/s. 145 of the I.T. Act, the liabilities and income that accrue have to be taken into account for arriving at the profits - The accrued incomes even if not received has to be taken into account - Liabilities that have fallen due has at the end of the accounting year have to be provided for - The CIT(A) pointed out that the provisions such as 43B or 40(2) and such like statutory disallowances are applicable - Disallowance made by the AO cannot be sustained and CIT(A) was correct in allowing the amount. Quantification of interest Held that - The method of quantification of interest payable on mobilization advances was not examined by the CIT(A) thus, the matter for the limited purpose of quantification is remitted back to the AO Decided partly in favor Assessee. Disallowance under section 14A of the Act Held that - The order of the CIT(A) is reasonable and according to the facts on record - the AO did not examine the issue under section 14A at all - May be he wanted to invoke the provisions of section 36(1)(iii) i.e., diversion of funds borrowed for the purpose of business for non-business activities - The CIT(A) confirmation of disallowance of interest on diversion of ₹ 13.32 crores was also on similar lines, even though stated to have been done under section 14A - disallowance of the interest pertaining to ₹ 13.32 crores stated to have been invested out of borrowed funds, as accepted in earlier years, should have been considered under section 36(1)(iii), which is the relevant section applicable to the above amount - even though the disallowance was wrongly considered under section 14A the assessee has accepted diversion of borrowed funds to the extent of the above amount in earlier years thus, the interest on that amount has to be disallowed, if not under section 14A but under section 36(1)(iii) Decided against both assessee and revenue. Allowance of TDS credit Held that - There was no merit in the revenue ground - Obviously on the system of accounting being followed by the assessee, in earlier years TDS credit was given on the mobilization advances - The department cannot deny the credit when the assessee is following the system consistently from earlier years - What is required to be done is only reconciliation of the mobilization advances and TDS claims, so that there is no double claim in any of the years Decided against Revenue.

Summary

Issues Involved:
1. Claim of depreciation allowed on the road constructed by the assessee.
2. Allowance of interest on mobilization advances.
3. Disallowance under section 14A modified by the CIT(A).
4. Allowance of TDS credit.

Detailed Analysis:

1. Claim of Depreciation Allowed on the Road Constructed by the Assessee:
The Revenue contested the depreciation claim on the road/bridges constructed by the assessee, arguing that the assessee is not the owner of the building and the road does not form part of the assets within the meaning of building. The A.O. disallowed the depreciation of Rs.10,59,25,968/- claimed under "Road Bridge" described as building. The assessee contended that if the road is not treated as building, it should be treated as plant with a 25% depreciation rate or the entire expenditure should be allowed as revenue expenditure. The CIT(A) decided in favor of the assessee, referencing the ITAT's decisions in similar cases like Nyse Infrastructure Pvt. Ltd. and Navayuga Engineering Company Limited, and the Delhi High Court's decision in Noida Toll Bridge. The ITAT upheld the CIT(A)'s decision, confirming that the road qualifies for depreciation as a building.

2. Allowance of Interest on Mobilization Advances:
The A.O. disallowed the provision for interest on mobilization advances amounting to Rs.5,66,78,872/-, arguing that provisions are not allowable as deductions under the I.T. Act. The CIT(A) allowed the provision, stating that under the mercantile system of accounting, liabilities that accrue must be accounted for. The ITAT agreed with the CIT(A), noting that the A.O. failed to examine whether the interest liability had crystallized in the year. The issue was restored to the A.O. for verification of the quantified interest amount, but the ITAT dismissed the Revenue's argument that the amount was not debited to the P & L account.

3. Disallowance Under Section 14A Modified by the CIT(A):
The A.O. disallowed interest of Rs.3,37,60,799/- under section 14A, despite the assessee not having any exempt income, based on investments in joint venture companies. The CIT(A) partially upheld the assessee's contentions, adjusting the disallowance to interest on Rs.13.32 crores, which was accepted as diverted for investments in earlier years. The ITAT found the CIT(A)'s order reasonable and noted that the disallowance should have been considered under section 36(1)(iii) rather than section 14A. The ITAT upheld the disallowance of interest on the diverted amount, dismissing both the Revenue's and assessee's grounds.

4. Allowance of TDS Credit:
The A.O. disallowed TDS credit of Rs.1,22,50,395/- deducted from mobilization advances, allowing only Rs.2,65,771/- based on Form 26AS. The CIT(A) directed the A.O. to grant TDS credit, referencing the ITAT's earlier decision in the assessee's case. The ITAT upheld the CIT(A)'s decision, emphasizing the need for reconciliation of mobilization advances and TDS claims to prevent double claims. The ITAT affirmed the CIT(A)'s order, rejecting the Revenue's contentions.

In conclusion, the ITAT dismissed both the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s decisions on all issues. The order was pronounced in the open Court on 19th February, 2014.