2018 (11) TMI 1794 - AT - Income Tax

Eligibility of deduction u/s 80IA - strengthening of existing road - disallowance relating to existing four lanes 28 km to 67kms - HELD THAT - Assessee is operating and maintaining the already existing road for which the assessee is entitled to annuity along with the annuity for developing, maintaining and operating the other part of the road. With regard to the argument of the assessee that the service lane was developed by the assessee pursuant to the agreement we have considered opinion definition of service road and main lane as mentioned in Schedule D to agreement, are different and laying down of the service lane cannot be entitled the assessee to claim the benefit of laying down of the new infrastructure. we do not find that the benefit of maintenance and creation of service road can be given to the assessee. The nature of activity which was undertaken by the assessee as we had understood from scope of work (supra) was only of maintaining and operating of the existing four lanes 28 km to 67kms. If we allow this kind of activity to fall with the ambit of Section 80IA, it will not be in consonance with the aims and objects for which this section has been introduced. There is a distinction between the widening of the existing road by constructing additional lanes as part of the highways project vis-a-vis, improving, maintaining, refurbishing the existing road. Circular No.4 of 2010 of the CBDT only provides the scope of section 80IA to include within its ambit the widening of the existing road, but the road which exists or the infrastructure which is existing cannot form part of the development of the infrastructure because the infrastructure which is already developed is incapable of being developed again. Hence the assessee is not entitled to any relief pertain to disallowance relating to existing four lanes 28 km to 67kms. CIT (A) has granted adhoc benefit of 25% to the assessee - We re not able to comprehend the basis of arriving at the figure of 50% or 25% . There is no rational for the lower authorities to estimate the revenue in respect to the infrastructure already in place, specially under the circumstances when the records are available with the NHAI, which had granted the entity and contract of the assessee. In the result the working done by both the lower authorities were without any basis and was done on adhoc basis in our view both the authorities should have called the record from the NHAI and thereafter decided the matter. We deem it appropriate to remand the matter to the CIT (A) with the following direction. With the direction to call records from National Highways Authority of India pertaining to fixing of annuity and find out a) What was the basis of fixing annuity with respect to strengthening of existing 4 lane and b) What was the basis for fixing the annuity for the second category namely laying down 4 lanes after widening the existing 2 lanes to 4 lanes as per the agreement. Based on the above exercise and reply if any received from the assessee , the Commissioner is to decide the deduction which the assessee is entitled in respect of widening of Road for the project 67 kms to 121 kms . However in respect of the annuity actually relatable to the first category namely maintenance and operation of existing four lane of 28 to 67 kms the assessee would not be entitled for any deduction Needless to say that the above said exercise shall be done by the CIT (A) after giving the notice and after examining the objection of the assessee. In the result ground no 3-4 of assessee are allowed for statistical purposes.

Issues Involved:
1. Addition on account of disallowance of claim made u/s 80-IA.
2. Eligibility of the BOT project for deduction under section 80-IA.
3. Distinction between developing, operating, and maintaining infrastructure for deduction eligibility.
4. Consistency in allowing deductions in previous and subsequent assessment years.
5. Estimation of the amount of deduction attributable to strengthening of the highway.

Issue-wise Detailed Analysis:

1. Addition on account of disallowance of claim made u/s 80-IA:
The assessee claimed a deduction under section 80-IA for the development, operation, and maintenance of a highway project. The AO allowed only 50% of the claim, disallowing the rest on the grounds that the strengthening of the existing road did not qualify as a new infrastructure facility. The CIT(A) further reduced the disallowance to 25%, partially accepting the assessee's claim.

2. Eligibility of the BOT project for deduction under section 80-IA:
The project involved strengthening existing lanes and widening them from two to four lanes on NH-45. The assessee argued that this integrated project qualified for the deduction under section 80-IA. The assessee had been consistently allowed this deduction in previous years. The AO and CIT(A) partially disallowed the claim based on CBDT Circular No. 4/2010, which distinguishes between new infrastructure facilities and mere relaying of existing roads.

3. Distinction between developing, operating, and maintaining infrastructure for deduction eligibility:
The AO and CIT(A) distinguished between the activities of developing new infrastructure and maintaining existing infrastructure. The strengthening of existing lanes was considered maintenance rather than development of new infrastructure, thus not qualifying for the deduction. The assessee contended that the overall project, including widening and strengthening, should be considered as developing new infrastructure.

4. Consistency in allowing deductions in previous and subsequent assessment years:
The assessee highlighted that the deduction under section 80-IA had been consistently allowed in previous and subsequent assessment years. The principle of consistency was emphasized, arguing that the same treatment should be applied for the assessment years in question.

5. Estimation of the amount of deduction attributable to strengthening of the highway:
The AO and CIT(A) made ad-hoc estimations of the revenue attributable to the strengthening of the existing lanes, disallowing a portion of the deduction accordingly. The Tribunal found these estimations to lack a rational basis and directed the CIT(A) to obtain records from NHAI to accurately determine the revenue attributable to different segments of the project.

Tribunal's Decision:
The Tribunal held that the strengthening of the existing road did not qualify as developing new infrastructure under section 80-IA. Therefore, the assessee was not entitled to the deduction for this portion of the project. However, for the widening of the road from two to four lanes, the Tribunal agreed that this constituted developing new infrastructure, thus qualifying for the deduction. The Tribunal remanded the matter to the CIT(A) to obtain records from NHAI and accurately determine the revenue attributable to the qualifying and non-qualifying portions of the project.

Conclusion:
The Tribunal upheld the partial disallowance of the deduction related to the strengthening of existing lanes but allowed the deduction for the widening of the road. The matter was remanded to the CIT(A) for accurate determination of the revenue attributable to different segments of the project based on records from NHAI. The principle of consistency was acknowledged but not applied due to the specific legal interpretation of section 80-IA.

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