2021 (9) TMI 461 - AT - Income Tax

Revision u/s 263 - deduction claim u/s 80IA and excess claim of depreciation on construction of road (As per BOT agreement) - Case of assessee as selected for limited scrutiny - HELD THAT - Case of the assessee was selected for limited scrutiny for examining claim of depreciation at higher rate/higher additional depreciation, mismatch in sales turnover reported in audit report ITR and mismatch in amount paid to related person u/s 40A(2)(b) reported in audit report ITR - claim of the deduction u/s 80IA was clearly not the subject matter of limited scrutiny and where the AO has failed to examine and verify the said claim of the assessee, the order so passed by the AO cannot be held as erroneous as the same was not within the scope of limited scrutiny at first place and the AO is duty bound to restrict himself to the reasons recorded for which the case was selected for limited scrutiny. We, therefore, agree with the contentions advanced by the ld AR that on this matter, revisional jurisdiction u/s 263 cannot be exercised by the ld PCIT as the same would tantamount to broadening the scope of jurisdiction that was originally vested with the A.O while framing the assessment u/s 143(3) of the Act in case of limited scrutiny case.. Claim of depreciation/amortization relating to two roads/highway stretches constructed by the assessee company under BOT agreement - As per claim of amortization as guided by CBDT circular no. 9/2014 dated 23.04.2014 where there is no dispute that two roads/highway stretches have been constructed/developed by the assessee under the BOT agreements, the assessee shall be eligible to claim amortization of the whole of the cost incurred in creation of infrastructural facility of road/highway evenly over the period of concessionaire agreement after excluding the time take for creation of such facility rather than the rate of depreciation as prescribed under section 32(1)(ii) of the Act. During the course of assessment proceedings, as noted that on enquiry by the Assessing officer, the assessee has submitted that this is the second year of claim of amortization wherein it has claimed amortization of ₹ 4,01,84,929 for a period of 365 days as against amortization of ₹ 3,22,32,261 for a period of 293 days claimed in the previous assessment year 2014-15 and detail statement as part of the audit report was also submitted in respect of both the road/highway stretches disclosing respective cost of construction/development, the period of concessionaire agreement and the amount of amortization determined for the year under consideration. The same was duly examined by the Assessing officer and no adverse finding has been recorded by him. Thus where the assessee is eligible for claim of amortization as per CBDT circular no. 9/2014 dated 23.04.2014 and the same has accordingly been claimed and allowed by the Assessing officer after due verification and examination, the order so passed by the Assessing officer cannot be held as erroneous in so far as prejudicial to the interest of the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction claim under Section 80IA.
2. Excess claim of depreciation on construction of road (as per BOT agreement).

Issue-wise Detailed Analysis:

1. Deduction Claim Under Section 80IA:
The assessee argued that their case was selected for limited scrutiny to examine specific issues, including depreciation claims and mismatches in sales turnover and amounts paid to related persons. They contended that the Principal Commissioner of Income Tax (PCIT) exceeded their jurisdiction by issuing a notice under Section 263 of the Income Tax Act to address the deduction claim under Section 80IA, which was not part of the limited scrutiny scope. The assessee cited CBDT circulars and tribunal decisions to support their claim that the PCIT's actions were illegal and beyond their jurisdiction.

The Revenue countered that the assessee did not maintain separate books of accounts or submit separate Form 10CCB as required under Section 80IA(6) and Rule 18BBB. The AO failed to verify the deduction claim, leading the PCIT to direct a re-examination of the claim under the stipulated rules.

The Tribunal held that the scope of limited scrutiny is confined to the issues for which the case was selected. The PCIT cannot expand this scope under Section 263. If the AO identified potential income under-assessment, they should have sought approval to convert the case to complete scrutiny. The Tribunal found that the AO's failure to examine the Section 80IA claim did not render the assessment order erroneous since it was beyond the limited scrutiny scope. Therefore, the Tribunal quashed the PCIT's order on this matter.

2. Excess Claim of Depreciation on Construction of Road (As per BOT Agreement):
The PCIT raised concerns that the AO did not verify the higher rate of depreciation claimed by the assessee for road construction under BOT agreements, as required by the CBDT Circular No. 09/2014. The circular specifies that costs incurred for road/highway development under BOT projects should be amortized evenly over the concession agreement period, not depreciated under Section 32(1)(ii).

The assessee argued that they claimed amortization in line with the CBDT circular, which was duly examined and accepted by the AO. They provided detailed statements and audit reports during the assessment, which the AO reviewed without adverse findings.

The Tribunal referred to the CBDT Circular No. 09/2014, which clarifies that costs for BOT road projects should be amortized, not depreciated. The Tribunal found that the AO had examined the amortization claims and allowed them after due verification. Thus, the AO's order was neither erroneous nor prejudicial to the Revenue's interest.

Conclusion:
The Tribunal concluded that the AO conducted necessary inquiries and took a reasonable view based on the material available. The PCIT's order under Section 263 was set aside, and the AO's assessment order was sustained. The appeal of the assessee was allowed.