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2023 (6) TMI 75 - AT - Income TaxTP Adjustment - specified domestic transaction of project management and supervision - Capitalized expenditure - effect of omission of the clause (i) of Section 92BA - adjustment being disallowance of depreciation - HELD THAT - We carefully find that that provision of section 40A (2) applies only with respect to the expenditure incurred by the assessee, which are otherwise allowable to the assessee. Here it is not the expenditure but depreciation allowance claimed by the assessee , therefore, it is not hit by provisions of Section 40A (2) of the act. As also enquired whether AO has any power to substitute Actual cost of an assets by the arm s-length price of purchase or acquisition of a capital asset u/s 32 Vis a Vis of Section 43(1) of the act in similar situation. On careful perusal of provisions of section 32 as well as the actual cost u/s 43 (1) for the purpose of claiming of the depreciation, we could not find any provision by which the actual cost incurred by the assessee, if acquired from or created from the associated enterprises can be substituted by the Arm s length price of purchase of such assets. We hold that AO is incorrect in determining the arm s-length price of specified domestic transaction after omission of clause (i) of Section 92BA - Hence, the action of the learned transfer-pricing officer in determining the arm s-length price of project management and supervision fees at Rs Nil and consequent disallowance of depreciation there on is not correct. Ground of the appeal of the assessee is allowed. Disallowance of depreciation on toll road - HELD THAT - As decided in own case 2018 (5) TMI 2064 - ITAT MUMBAI held that the claim of the assessee for depreciation on license to collect toll being an intangible asset is falling within the scope of Section 32 (1) (ii) of the act. Assessee was allowed depreciation on road constructed by it under built operates and transfer basis BOT was considered as an intangible asset . The coordinate bench also allowed the depreciation to the assessee at the rate of 25% thereon. Therefore, AO is directed to delete the disallowance of depreciation on toll roads - Ground of the appeal of the assessee is allowed. Correct head of income - interest on fixed deposits placed under the debt service obligation created by the lenders - income from business OR income from other sources - HELD THAT - As relying on assessee own case 2018 (5) TMI 2064 - ITAT MUMBAI following the decision of Lok Holdings 2008 (1) TMI 365 - BOMBAY HIGH COURT upheld the order of the learned CIT A holding it to be interest income chargeable under the head business income. Therefore direct AO to consider interest income on fixed deposit as business income. - Ground of the appeal of the assessee is allowed. Short grant of tax credit - HELD THAT - We direct the assessee to submit the proof before the learned assessing officer about such credit available to the assessee and whether corresponding income has been recorded in the books of account of the assessee for the respective year or not, thereafter, the learned AO may examine the same and decide the issue in accordance with the law. Accordingly, ground is allowed.
Issues Involved:
1. Disallowance of Depreciation on Project Management and Supervision Fees. 2. Disallowance of Depreciation on Toll Roads. 3. Taxability of Income Earned on Fixed Deposits. 4. Addition of Interest Income from Punjab National Bank. 5. Short Grant of Tax Deduction at Source (TDS) Credit. Detailed Analysis: 1. Disallowance of Depreciation on Project Management and Supervision Fees: The assessee, Thiruvanthapuram Road Development Co Ltd, entered into specified domestic transactions (SDT) involving project management fees and project supervision fees, which were capitalized as part of Capital Work in Progress (CWIP). The assessee claimed depreciation on these fees. The Transfer Pricing Officer (TPO) disallowed the depreciation, determining the Arm's Length Price (ALP) of these fees as nil due to the lack of benchmarking. The Dispute Resolution Panel (DRP) upheld this adjustment. However, the appellate tribunal referenced the Karnataka High Court's decision in Principal Commissioner Of Income Tax Versus Export Overseas Ltd, which held that the omission of clause (i) of Section 92BA by the Finance Act, 2017, meant it never existed. As a result, the tribunal concluded that the TPO's determination of the ALP and the consequent disallowance of depreciation were incorrect. The tribunal allowed the assessee's appeal on this ground. 2. Disallowance of Depreciation on Toll Roads: The assessee claimed depreciation on toll roads, treating them as 'plant and machinery.' The Assessing Officer (AO) disallowed this claim, citing reasons such as the ownership of the road remaining with the government and referencing the Bombay High Court's decision in West Gujarat Expressway Ltd. The DRP upheld this disallowance but allowed amortization instead. The tribunal noted that in previous years, similar claims were allowed by the coordinate bench, treating the toll roads as 'intangible assets' eligible for depreciation under Section 32(1)(ii) of the Act. Consequently, the tribunal directed the AO to delete the disallowance of depreciation on toll roads, allowing the assessee's appeal on this ground. 3. Taxability of Income Earned on Fixed Deposits: The assessee treated the interest income from fixed deposits under the debt service obligation as business income, while the AO and DRP taxed it under 'income from other sources.' The tribunal referenced previous decisions in the assessee's favor, where similar interest income was treated as business income. Following the precedent, the tribunal directed the AO to consider the interest income as business income, allowing the assessee's appeal on this ground. 4. Addition of Interest Income from Punjab National Bank: The AO added an interest income of Rs. 43,946 from Punjab National Bank, which the assessee had not accounted for in its books. The DRP confirmed this addition. The assessee chose not to press this ground, and the tribunal dismissed it accordingly. 5. Short Grant of Tax Deduction at Source (TDS) Credit: The assessee claimed a short grant of TDS credit amounting to Rs. 68,566. The tribunal directed the assessee to provide proof of the TDS credit and corresponding income recorded in the books. The AO was instructed to examine the evidence and decide the issue in accordance with the law. The tribunal allowed the assessee's appeal on this ground. Conclusion: The tribunal partly allowed the appeal, granting relief on the disallowance of depreciation on project management and supervision fees, disallowance of depreciation on toll roads, and the taxability of interest income from fixed deposits. The addition of interest income from Punjab National Bank was dismissed as it was not pressed, and the issue of short grant of TDS credit was remanded to the AO for verification and decision.
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