2021 (9) TMI 466 - AT - Income Tax

Excess depreciation - cost of development of infrastructure facility of roads/highways - depreciation as allowable on the toll road/bridges under Build-Operate-Transfer (BOT) arrangement - whether deduction shall be allowed on the basis of amortization over the concessionaire period? - HELD THAT - Board s Circular which is dated 23.04.2014 following the Circular, the appellant company has amortized WDV on 01.04.2014 over the remaining life of the asset. A close reading of the Circular also shows that deduction claimed out of initial cost of development of infrastructure, facility of road /highway under BOT projects in earlier year may be deducted from the initial cost of infrastructure facility of roads/bridge and the cost so reduced shall be amortized equally over remaining period of toll concessionaire agreement (refer para 7 of the CBDT circular no. 09/2014 dated 23.04.2014). This effectively means that the reduced cost is to be amortized equally over the remaining period. There is nothing in the circular to suggest and the same shall be applicable on retrospective basis. Action of the Ld. AO in applying the circular retrospectively is not in order. Accordingly, the disallowance made by the Ld. AO on account of difference between the depreciation claimed and the depreciation allowed on the basis of amortization for the remaining part of the concessionaire agreement is directed to be deleted - assessee has rightly claimed the depreciation. The appeal of the Revenue is dismissed.

Summary

Issues:
1. Disallowance of depreciation on the basis of ownership of assets.
2. Applicability of Circular No. 09/2014 for Assessment Year 2012-13.
3. Initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act, 1961.

Analysis:
1. The first issue revolves around the disallowance of depreciation by the Assessing Officer (AO) on the grounds that the assessee did not own the assets in question. The AO contended that ownership is a primary condition for depreciation allowance under section 32 of the Income Tax Act. The appellant, a Public Sector Undertaking (PSU) subsidiary company, had a concession agreement with the National Highways Authorities of India for toll road operations. The AO disallowed depreciation of ?3,35,75,114 claimed by the assessee. The CIT(A) allowed the appeal, stating that the appellant was eligible for depreciation on the toll road as per the concession agreement terms.

2. The second issue involves the applicability of Circular No. 09/2014 for the Assessment Year 2012-13. The Revenue argued that the Circular, effective from 23/4/2014, should not apply retrospectively. The appellant contended that the Circular, specifying amortization over the remaining period of the concessionaire agreement, must be applied prospectively. The CIT(A) held that the AO's retrospective application of the Circular was incorrect. The appellant's claim for depreciation was upheld, citing the Circular's prospective nature and its relevance to the remaining period of the concessionaire agreement.

3. The third issue pertains to the initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act. The AO had initiated penalty proceedings against the assessee, which was contested in the appeal. The CIT(A) did not find merit in the penalty initiation and ruled in favor of the appellant. The judgment did not provide detailed reasoning for the penalty proceedings, but it can be inferred that the CIT(A) found no grounds for penalizing the assessee under the specified section.

In conclusion, the judgment by the ITAT Delhi upheld the appellant's claim for depreciation on the toll road assets, dismissed the Revenue's appeal, and did not find justification for the penalty proceedings initiated by the AO. The detailed analysis of each issue reflects the legal interpretations and application of relevant provisions and circulars in determining the tax liability of the appellant for the assessment year in question.