2021 (9) TMI 393 - AT - Income Tax

Revision u/s 263 - claim of depreciation u/s 32(1)(ii) @ 25% with reference to the expenditure that was incurred by it for development of roads as per BOT agreement - HELD THAT - No infirmity in the view taken by the CIT(A) that now when the order passed by the Pr. CIT-4, Mumbai u/s 263 of the Act, dated 22.03.2017 had been quashed by the Tribunal 2019 (4) TMI 2011 - ITAT MUMBAI therefore, as a consequence thereto the assessment order passed by the A.O u/s 143(3) r.w.s 263, dated 31.03.2017 cannot survive on a standalone basis and had to meet the same fate. Our aforesaid view that when the very order passed u/s 263 of the Act by the CIT/Pr. CIT is set-aside, then, the assessment framed pursuant to the said order cannot survive on a standalone basis is supported by the order of the ITAT, Delhi in the case of DCIT Vs. M/s Eastern India Power Tech Ltd. 2012 (4) TMI 790 - ITAT DELHI , and in the case of DCIT Vs. M/s The Grand Bhagwati Banquets and Hotels Ltd. 2018 (5) TMI 2083 - ITAT AHMEDABAD - Accordingly, in the backdrop of our aforesaid deliberations, we concur with the view taken by the CIT(A) that now when the order passed by the Pr. CIT-4, Mumbai u/s 263 itself had been quashed by the Tribunal, therefore, as observed by him, and rightly so, the assessment order passed by the A.O in consequence thereto u/s 143(3) r.w.s 263, could not be sustained and was liable to be vacated. - Decided against revenue.

Summary

Issues Involved:
1. Legality of the CIT(A)'s decision to delete the disallowance made by the Assessing Officer (A.O) regarding depreciation claims.
2. Validity of the Pr.CIT's order under section 263 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the CIT(A)'s Decision:
The primary issue in this case revolves around whether the CIT(A) erred in deleting the disallowance made by the A.O. The A.O had disallowed the depreciation claim of ?182.79 crores made by the assessee under section 32(1)(ii) of the Income Tax Act, 1961. The A.O's decision was based on CBDT Circular No. 9 of 2014, which clarified that in BOT arrangements for road development, the assessee, not being the owner of the property, is not eligible for depreciation under section 32(1)(ii) but should amortize the cost as allowable business expenditure.

The CIT(A), however, deleted this disallowance, noting that the Pr.CIT's order under section 263, which had set aside the original assessment, was quashed by the Tribunal. The CIT(A) referenced the Special Bench decision in the case of ACIT vs. Progressive Construction Ltd., which held that expenditure incurred for road construction under a BOT contract creates an intangible asset eligible for depreciation under section 32(1)(ii).

2. Validity of the Pr.CIT's Order under Section 263:
The Pr.CIT had invoked section 263, arguing that the A.O had wrongly allowed the depreciation claim and directed a de novo assessment. The Tribunal, however, quashed the Pr.CIT's order, asserting that the issue was highly debatable and not suitable for revision under section 263. The Tribunal supported its decision by citing the Supreme Court's judgment in Mysore Minerals Ltd. v. CIT, which broadened the interpretation of "ownership" under section 32(1). It emphasized that an assessee need not be a legal owner but must have the right to use and enjoy the property to claim depreciation.

The Tribunal also referenced the case of ACIT v. West Gujarat Expressway Ltd., where it was held that the right to collect toll under a BOT arrangement constitutes an intangible asset eligible for depreciation. The Tribunal concluded that the right granted under a Concession Agreement (CA) to operate a project and collect toll charges is akin to a license, thus qualifying as an intangible asset under section 32(1)(ii).

Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision, noting that since the Pr.CIT's order under section 263 was quashed, the subsequent assessment order by the A.O could not survive independently. The Tribunal cited similar rulings from ITAT Delhi and ITAT Ahmedabad to support this view, emphasizing that an assessment order based on a quashed section 263 order is unsustainable.

Final Judgment:
The appeal filed by the revenue was dismissed, affirming the CIT(A)'s decision to delete the disallowance of the depreciation claim. The Tribunal's order was pronounced in the open court on 01.09.2021.