2022 (1) TMI 530 - AT - Income Tax

Reopening of assessment u/s 147 - Notice beyond four years - allowability of depreciation on the Bridge @ 25% as applicable to Plant and Machinery - AO restricted the claim of depreciation on the bridge to 10% and the remaining 15% claim has been disallowed and brought to tax - HELD THAT - Assessee is only a contractor and is not owner of the bridge and therefore, the assessee is not entitled to claim depreciation. AO came to the above conclusion on the ground that these facts were not disclosed at the time of original assessment and the above information was gathered from the note filed by the assessee's holding company i.e., East Coast Construction and Industries Ltd. and therefore, there is an escapement of income to the extent of depreciation allowed by the Assessing Officer at 10% on the basis of claim made by the assessee as if the assessee is the owner of the bridge for claiming the depreciation. AO has reopened the assessment under section 147 of the Act by issuing notice under section 148 of the Act on the ground that there is failure on the part of the assessee to disclose fully and truly all the material facts to complete the assessment. As gone through the reasons recorded by the Assessing Officer and also considered the entire facts of the case find that there is a failure on the part of the assessee to disclose all the information before the Assessing Officer and therefore, the Assessing Officer has reopened the assessment by issuing notice under section 148 of the Act dated 18.03.2010, which is beyond four years, in our opinion, the reopening of assessment is valid and it is in accordance with law. Thus, the ground of appeal raised by the assessee is dismissed. Depreciation on the Bridge - The assessee could not controvert the fact that the assessee is only a contractor and not owner of the bridge and thereby, the assessee is not entitled to claim depreciation. Secondly, the claim of depreciation on the expenditure incurred on development and construction of infrastructural facilities including bridges on BOT basis with right to collect toll has been clarified by the CBDT that the assessee do not hold any right in a BOT project except recovery of toll free to recoup the expenditure incurred and therefore, the assessee cannot be treated as the owners of the property and cannot be allowed depreciation under section 32(1)(ii) of the Act. By considering the above notification of the CBDT, considering all the facts and provisions of the Act, we find that the ld. CIT(A) has rightly directed the Assessing Officer to allow amortization of the expenditure incurred during the tenure of the agreement and thus, no interference is called for in the order passed by the ld. CIT(A). Thus, the ground raised by the assessee stands dismissed.

Summary

Issues Involved:
1. Reopening of assessment.
2. Allowability of depreciation on the right to collect toll.
3. Claim of deduction under section 80IA of the Act.
4. Disallowance of other expenses due to cessation of business.

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The assessee challenged the reopening of assessments for various years, arguing that it was based on a change of opinion and lacked tangible material. The original assessments had been completed under section 143(1) and 143(3) of the Income Tax Act, 1961. The Assessing Officer (AO) reopened the assessments under section 147, citing the assessee's failure to fully and truly disclose material facts, particularly regarding the ownership and status of the bridge. The Tribunal upheld the reopening, stating that the AO had valid reasons, including new information from the assessee's holding company, which indicated that the assessee was not the owner of the bridge. Thus, the reopening of assessments was deemed valid and in accordance with the law.

2. Allowability of Depreciation on the Right to Collect Toll:
The assessee claimed depreciation on the bridge by treating it as Plant and Machinery. The AO restricted the depreciation to 10%, treating the bridge as a building. The CIT(A) and the Tribunal held that the assessee, being only a contractor and not the owner of the bridge, was not entitled to claim depreciation. The Tribunal referred to CBDT Circular No. 09/2014, which clarified that in BOT projects, the assessee does not hold ownership rights but only the right to recover toll. Therefore, the expenditure incurred should be amortized over the tenure of the agreement, not depreciated under section 32(1)(ii) of the Act. The Tribunal upheld the CIT(A)'s direction to allow amortization of the expenditure.

3. Claim of Deduction under Section 80IA:
For the assessment year 2005-06, the assessee raised a ground relating to the deduction under section 80IA of the Act but did not press this issue during the hearing. Consequently, the Tribunal dismissed this ground as not pressed.

4. Disallowance of Other Expenses Due to Cessation of Business:
For the assessment year 2008-09, the AO disallowed other expenses claimed by the assessee, arguing that the assessee had not carried out any business after the Tamil Nadu Government canceled the BOT agreement in 2005. The CIT(A) upheld this disallowance. The Tribunal agreed, noting the absence of evidence showing that the assessee conducted any business during the year in question. The Tribunal found no merit in the assessee's argument of a temporary lull in business and upheld the disallowance of expenses.

Conclusion:
The Tribunal dismissed all appeals filed by the assessee, affirming the validity of the reopened assessments, the disallowance of depreciation claims, the non-entitlement to the section 80IA deduction, and the disallowance of other expenses due to the cessation of business activities. The order was pronounced on January 5, 2022, in Chennai.