2018 (9) TMI 1559 - HC - Income Tax

Penalty u/s 271(1)(c) - claim of depreciation on the NH-6 constructed by them on built, operate and transfer basis @ 10% - bonafide claim - Held that - There is a difference between assessment proceedings and penalty proceedings and applies explanation (1) to Section 271 (1) (c). It refers to divergence of legal opinion on the question whether an assessee, who has constructed an infrastructure project such as roads or highways on build, operate and transfer basis could claim depreciation or was entitled to treat the entire cost as amortized expenditure, an expression not used in the Act. These were highly debateable and contentious issues. Noticeably, the Assessing officer had allowed the claim for depreciation on roads @ 10% under Section 32 of the Act in the original assessment proceedings. In the present case, assessee had already filed return for the year in question claiming deprecation, which had been allowed by the Assessing Officer. The respondent-assessee did not consider it appropriate to modify the claim that had been allowed and accepted in the regular assessment in the return filed pursuant to notice under Section 153A of the Act. The conduct of the respondent-assessee or examination of facts has been found and held to be bonafide. Facts of the case cannot and would not justify levy of penalty under Section 271(1)(c). Findings of the CIT (Appeals) and the Tribunal deleting penalty are reasonable and justified and primarily predicated on facts - Decided against revenue

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Entitlement of the assessee to claim depreciation on roads under Section 32 of the Act.
3. Applicability and interpretation of CBDT Circular No. 09/2014 dated 23.04.2014.

Detailed Analysis:

1. Legitimacy of the Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue addressed in the judgment is whether the Tribunal was correct in upholding the CIT (Appeals) order that deleted the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Act. The penalty was initially levied for "concealment of income/furnishing inaccurate particulars of income." The CIT (Appeals) noted that the appellant had disclosed all facts regarding the depreciation claim during the initial assessment and had acted in a bona fide manner. The CIT (Appeals) emphasized that penalty proceedings are distinct from assessment proceedings, and merely disallowing a claim does not automatically warrant a penalty for concealment. The Tribunal upheld this view, affirming that the facts of the case did not justify the imposition of the penalty.

2. Entitlement of the Assessee to Claim Depreciation on Roads Under Section 32 of the Act:
The respondent/assessee had claimed depreciation on roads at 10% under Section 32 of the Act, which was initially accepted by the AO in the regular assessment for the year 2009-2010. However, during subsequent assessment proceedings under Section 153A, the AO disallowed the depreciation claim based on a CBDT circular that clarified that toll roads are intangible assets and thus not eligible for depreciation. The CIT (Appeals) noted that this disallowance was not based on any material found during the search and seizure operation but was instead a result of the circular's clarification. The CIT (Appeals) found that the original claim was made under a bona fide belief and was a common industry practice, which was later revised following the circular's guidance.

3. Applicability and Interpretation of CBDT Circular No. 09/2014 Dated 23.04.2014:
The CBDT Circular No. 09/2014 clarified that expenditure on the development and construction of infrastructural facilities like roads/highways on a BOT basis should be treated as intangible assets and thus not eligible for depreciation. Instead, such expenditure should be amortized over the concession period. The CIT (Appeals) observed that this circular was issued after the respondent/assessee had filed their return under Section 153A, which initially included the depreciation claim. The assessee, upon learning about the circular, revised their claim and provided the revised working to the AO, who accepted it. The CIT (Appeals) and the Tribunal both noted that the circular acknowledged the industry practice of claiming depreciation and that the assessee's actions were in line with this practice until the clarification was issued.

Conclusion:
The judgment concludes that the CIT (Appeals) and the Tribunal correctly distinguished between assessment and penalty proceedings, noting that a disallowed claim does not automatically lead to a penalty for concealment. The assessee's claim for depreciation was made under a bona fide belief and was a common industry practice, which was later revised following the CBDT's clarification. The findings of the CIT (Appeals) and the Tribunal were deemed reasonable and justified, leading to the dismissal of the appeal and pending applications without any order as to costs.