2018 (2) TMI 1514 - AT - Income Tax

Depreciation on expenditure incurred on construction of Mumbra bypass road on BOT basis - Held that - The assessee is entitled to claim depreciation on the cost incurred on construction of the BOT facility, since, by incurring such investment the assessee has acquired a valuable commercial or business right in the nature described under section 32(1)(ii) r/w Explanation 32(1), Explanation 3(b) of the Act. Also in the preceding assessment years the Assessing Officer after examining assessee s claim has not only accepted the expenditure incurred on BOT facility as capital in nature but has allowed depreciation by treating it as an intangible asset. In the impugned assessment year, the assessee has claimed depreciation on the opening WDV only. As far as the nature and character of the expenditure, whether capital or revenue, has attained finality in the preceding assessment years wherein, the Assessing Officer has allowed assessee s claim of deprecation. Therefore, it is not open to the Department to re examine the nature of expenditure again in the impugned assessment year. The Assessing Officer having allowed assessee s claim of depreciation on the BOT facility by treating it as an intangible asset in the preceding assessment years, it cannot be denied in the impugned assessment year. Therefore, allowing assessee s claim we direct the Assessing Officer to allow depreciation as claimed by the assessee. Allowing foreign exchange loss - Held that - In order to hedge the financial exposure of high debt and high interest outcome the assessee entered into currency swap derivative option agreement with ICICI Bank on 11th April 2007 to hedge the high interest outcome relating to Mumbra project debt of ₹ 75 crore by swapping debt of ₹ 35 crore into Japanese Yen for a period of five years. As per the swap arrangement, the assessee receives 9.50% interest per annum and pays interest @ 7.50% per annum on the Yen amount. Thus, from the aforesaid facts, it is clear that the hedging transaction with ICICI Bank was for the purpose of reducing the high interest outcome on the debt incurred for the Mumbra project. The aforesaid facts indicate not only that the hedging transaction is for the business requirement of the assessee but it was in the regular course of business. Moreover, as brought to our notice by the learned Authorised Representative, the assessee consistently following this method of accounting has shown foreign exchange gain / loss in the preceding assessment years which have been accepted by the Department. Therefore, no reason to interfere with the finding of the learned Commissioner (Appeals) on this issue. These grounds are dismissed. Disallowance under section 14A - Held that - No disallowance of interest expenditure under section 8D(2)(ii) can be made in view of the decision of the Hon ble Bombay High Court in CIT v/s HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT). As far as disallowance of administrative expenditure under rule 8D(2)(iii) is concerned, we do not find any infirmity in the order of the learned Commissioner (Appeals) in directing the Assessing Officer to exclude the strategic investment and investment which have not resulted in any exempt income during the year for computing disallowance under the said provisions, as such the findings of the learned Commissioner (Appeals) are in conformity with well settled principles of law. Applicability of section 14A to the computation of book profit under section 115JB - Held that - the applicability of section 14A for making adjustment to book profit under section 115JB of the Act also requires consideration in view of the Special Bench decision of the Tribunal, Delhi Bench, in ACIT v/s Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI . In view of the aforesaid, we restore these issues to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee

Issues Involved:
1. Condonation of delay in filing cross-objection.
2. Deduction claimed on expenditure incurred on construction of Mumbra Bypass Road on BOT basis.
3. Allowance of foreign exchange loss.
4. Disallowance under section 14A.
5. Applicability of section 14A to the computation of book profit under section 115JB.
6. Depreciation on BOT rights as intangible assets.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Cross-Objection:
The assessee filed an application seeking condonation of an 85-day delay in filing the cross-objection, attributing the delay to a mistake by the counsel. The Tribunal, after considering the submissions and relying on the decision in Vijay Vishin Meghani v/s DCIT, [2017] 86 taxmann.com 98 (Bom.), condoned the delay, recognizing it as a bona fide mistake.

2. Deduction Claimed on Expenditure Incurred on Construction of Mumbra Bypass Road on BOT Basis:
The assessee, engaged in civil construction, claimed depreciation on BOT rights for the Mumbra Bypass Road, treating it as an intangible asset under section 32(1)(ii). The Assessing Officer disallowed the claim, treating the expenditure as deferred revenue expenditure. The Commissioner (Appeals) allowed the revised claim of deferred revenue expenditure but denied depreciation. The Tribunal, relying on the Special Bench decision in Progressive Construction Ltd., held that the right to collect toll is a valuable commercial right and thus an intangible asset eligible for depreciation under section 32(1)(ii). The Tribunal reversed the Commissioner (Appeals)' decision and allowed the depreciation claim.

3. Allowance of Foreign Exchange Loss:
The assessee entered into a currency swap derivative option agreement to hedge against high interest outcomes on a debt incurred for the Mumbra project. The Assessing Officer treated the loss as speculative, but the Commissioner (Appeals) found the transaction to be for genuine business purposes. The Tribunal upheld the Commissioner (Appeals)' decision, noting that the hedging transaction was for the business requirement and consistent with the assessee's method of accounting in previous years.

4. Disallowance under Section 14A:
The Assessing Officer disallowed expenses under section 14A r/w rule 8D related to investments yielding exempt income. The Commissioner (Appeals) deleted the disallowance of interest expenditure, finding that the assessee had sufficient interest-free surplus funds. The Tribunal upheld this decision, referencing the Bombay High Court decision in CIT v/s HDFC Bank Ltd., 366 ITR 505 (Bom.), and directed exclusion of strategic investments and those not yielding exempt income for administrative expenditure disallowance.

5. Applicability of Section 14A to the Computation of Book Profit under Section 115JB:
The Commissioner (Appeals) rejected the assessee's claim that section 14A should not apply to book profit computation under section 115JB. The Tribunal restored this issue to the Assessing Officer for fresh adjudication, considering the Special Bench decision in ACIT v/s Vireet Investment, 162 ITD 25.

6. Depreciation on BOT Rights as Intangible Assets:
The assessee claimed depreciation on BOT rights for Mumbra Bypass Road as an intangible asset. The Tribunal, following its decision in the cross-objection, allowed the depreciation claim, recognizing the BOT rights as a valuable commercial right under section 32(1)(ii).

Separate Judgments Delivered:
The judgments were delivered collectively, without separate opinions from individual judges. The Tribunal's conclusions were based on consistent legal principles and precedents applicable to the issues at hand.

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