2019 (4) TMI 2118 - AT - Income Tax

Validity of Order passed u/s 263 - assessee was given right to develop and maintain Toll Road and also right to collect the Toll for specific period - depreciation on intangible asset - PCIT directed AO to pass fresh assessment order in respect of depreciation claim of assessee with special emphasis on cost of project as claimed by the assessee in the light of CBDT Circular No.9/2014 dated 23.04.2014 and the order passed in North-Karnataka Expressway 2014 (11) TMI 351 - BOMBAY HIGH COURT - HELD THAT - Hon ble Delhi High Court in PCIT vs. Delhi Airport Metro Express Pvt. Ltd. ( 2017 (9) TMI 529 - DELHI HIGH COURT ) held if the PCIT is of the view that Assessing Officer did not undertake any enquiry it became incumbent on the PCIT to conduct such enquiry. All that PCIT has done in the impugned order is to refer to the Circular of CBDT and conclude in case of assessee-company the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore the order of the AO is erroneous insofar as prejudicial to the interest of revenue . The Hon ble High Court took the view that this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under section 263. If the assessee has wrongly claimed depreciation on asset like land and building it was incumbent upon the PCIT to undertake an enquiry as regards which of the assets were purchased and installed by assessee out of his own fund during the A.Y. in question and which were those that were handed over to DMRC. That basic exercise of determining to what extent the deprecation was claimed in excess has not been undertaken by ld. PCIT and the Hon ble High Court upheld the decision of Tribunal in setting-aside the order passed under section 263 of the Act. We are of the view that during the assessment the Assessing Officer has taken a possible view in allowing depreciation on intangible asset. Therefore in our view the order passed by Assessing Officer is not erroneous. Thus the twin condition as provided under section 263 of the Act was not fulfilled. Even otherwise we are of the view that the issues on which the assessment order was set-aside has already been decided in West Gujarat Expressway Ltd. 2015 (5) TMI 305 - ITAT MUMBAI Rohan Rajdeep Infrastructure 2018 (2) TMI 2073 - ITAT PUNE and Progressive Construction Ltd. 2017 (3) TMI 1167 - ITAT HYDERABAD . The Special Bench of Hyderabad Tribunal and coordinate benches of Pune and Mumbai after considering the decision of North Karnataka Expressway Ltd 2014 (11) TMI 351 - BOMBAY HIGH COURT and CBDT Circular No. 9/2014 allowed depreciation on intangible asset. Therefore we are of the considered view that the ld. PCIT was not justified in revising the assessment order - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Compliance with CBDT Circular No. 9/2014.
3. Treatment of depreciation on 'Concessionaire Rights' as intangible assets.
4. Calculation of eligible project cost.
5. Issuance of notice under section 263 close to the time limit for completion of revision proceedings.

Detailed Analysis:

1. Validity of Order Passed Under Section 263 of the Income Tax Act, 1961:
The primary issue revolves around the Principal Commissioner of Income Tax (PCIT) setting aside the assessment order dated 10.03.2016, treating it as erroneous and prejudicial to the interest of revenue. The PCIT argued that the Assessing Officer (AO) failed to investigate properly and did not comply with the CBDT Circular No. 9/2014. The assessee contended that the assessment order was in compliance with applicable provisions and judicial decisions. The Tribunal found that the AO had indeed conducted a detailed investigation during the assessment proceedings, and the view taken by the AO was a possible view supported by judicial precedents. Therefore, the order passed by the AO was not erroneous, and the twin conditions under section 263 were not fulfilled.

2. Compliance with CBDT Circular No. 9/2014:
The PCIT held that the AO failed to follow CBDT Circular No. 9/2014, which mandates the amortization of expenditure incurred on construction of toll roads over the period of concession. The assessee argued that the circular was issued after the filing of the return for AY 2013-14 and should not apply retrospectively. The Tribunal noted that the circular was not applicable for the assessment year in question and that the assessee had correctly claimed depreciation on 'Concessionaire Rights' as intangible assets, which was in compliance with section 32 of the Act.

3. Treatment of Depreciation on 'Concessionaire Rights' as Intangible Assets:
The PCIT contended that the AO erred in allowing depreciation on 'Concessionaire Rights' under section 32 as intangible assets. The assessee argued that the right to collect toll fees was an enduring benefit and qualified as an intangible asset eligible for depreciation. The Tribunal supported this view, citing various judicial decisions, including those of the Bombay High Court and other Tribunals, which upheld the treatment of such rights as intangible assets eligible for depreciation under section 32(1)(ii).

4. Calculation of Eligible Project Cost:
The PCIT argued that the AO failed to calculate the exact eligible project cost, resulting in an excess computation of loss. The assessee contended that the project cost was correctly reported, and any bonus received for early completion was appropriately accounted for. The Tribunal found that the AO had verified the details during the assessment proceedings, and the PCIT's contention lacked merit. The Tribunal upheld the assessee's calculation of the project cost.

5. Issuance of Notice Under Section 263 Close to the Time Limit for Completion of Revision Proceedings:
The assessee argued that the notice under section 263 was issued close to the time limit for completion of revision proceedings, which was prejudicial. The Tribunal did not find this argument substantial enough to affect the validity of the proceedings but focused on the substantive issues raised.

Conclusion:
The Tribunal concluded that the assessment order passed by the AO was not erroneous and prejudicial to the interest of revenue. The AO had taken a possible view supported by judicial precedents, and the PCIT was not justified in invoking section 263. The Tribunal allowed the appeals of the assessee, setting aside the order of the PCIT.