2023 (8) TMI 1510 - AT - Income Tax

Validity of Reopening of assessment - reasons to believe - HELD THAT - AO has grossly erred in not pointing out the failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment framed vide order u/s 143(3) of the Act. This, in itself, is sufficient to quash the reopening of the assessment. Amortization of interest on zero coupon bond was decided in favour of the assessee by the first appellate authority in A.Y 2004-05, who, in turn, followed the order of this Tribunal in 2014 (11) TMI 471 - ITAT DELHI . This quarrel was considered by the Tribunal. In our considered view, if the item of disallowance for which the reopening was initiated is deleted, then the very basis of initiation of reassessment proceedings does not survive. Therefore, the entire reassessment proceedings deserve to be quashed by the ld. CIT (A) himself. AO has erred in assuming jurisdiction u/s 148 of the Act. Notice issued u/s 148 of the Act is hereby set aside and the resultant assessment order is quashed. CIT (A) has enhanced the assessment in respect of Arrear of designated return - As decided in case of Sardari Lal and Company 2001 (9) TMI 1130 - DELHI HIGH COURT whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the assessing officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfillled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, the decision in Union Tyres' case 1999 (9) TMI 81 - DELHI HIGH COURT of this court expresses the correct view and does not need reconsideration - we have no hesitation to hold that the enhancement made by the ld. CIT (A) is bad in law and deserves to be set aside. Addition on account of designated return - meaning of earned , accrued and right to receive - Hon'ble Supreme Court in ED Sassoon Co Ltd 1954 (5) TMI 2 - SUPREME COURT we have no hesitation to hold that no right was accrued to the assessee to receive alleged designated return and, therefore, the entire addition is on notional basis in contrast with the concept of real income. It is pertinent to mention here that the Hon'ble High Court of Allahabad 2016 (10) TMI 1400 - ALLAHABAD HIGH COURT held that Article 13 and Articled 14 of the Agreement are not valid and to be severed from the agreement. The Hon'ble Court had struck down the levy of fee for the reason that the assessee had already recovered the entire cost of the project on actual basis from collection of tolls, advertisement and rental income and, therefore, the assessee cannot collect the toll. It can be safely concluded that the assessee did not earn 20% designated return on the cost of the project. Thus, addition on account of designated return does not have any legs to stand and deserves to be deleted Lease of land treated as revenue subsidy - After arriving at the market value of the land, the ld. CIT (A) attributed a part of the same towards capital subsidy received to the extent the lands were utilized for the purpose of construction of the toll bridge. Balance amount, according to the ld. CIT(A), represented a compensation for possible or projected short fall in the revenue and treated the same as revenue subsidy and made enhancement of Rs. 1730.08 crores. We have extracted the relevant articles of lease of land by Noida elsewhere. The very basis of the enhancement by the ld. CIT (A) that the lands were transferred to the assessee by Noida is fallacious and completely in disregard to the relevant articles mentioned elsewhere. The lands were given on lease and, therefore, there is no question of ownership being transferred to the assessee and, therefore, there is no question of any addition on this account. The same is directed to be deleted. Disallowance of depreciation claimed on toll bridge - CIT (A) treated the part market value of alleged transfer of land as capital receipt, he went on to reduce the written down value with the amount of capital subsidy and recomputed the depreciation and made the addition. Since in the para above we have discarded the findings of the ld. CIT(A), for our detailed reasons therein, there is no capital subsidy to be reduced and there is no basis for recomputing the depreciation. The same is deleted. Disallowance of unpaid interest - assessee issued deep discount bonds to the public on which interest was payable on maturity - assessee had recognized the interest year on year as the liability accrues every year but however, is payable on maturity - HELD THAT - Provisions of section 43B(e) of the Act apply only to loans/borrowings from any financial institutions. It does not apply to the deep discount bonds issued to the public. In our considered opinion, the amount over and above the face value which is payable on maturity is nothing but the interest amount which accrues to the assessee every year and recognized by the assessee in its books of account. Therefore, the interest payable on deep discount bonds is to be allowed on accrual basis and not on payment basis. The Assessing Officer is directed to delete the same. Reopening of assessment - disclosure within the meaning of Section 147 - whether in the mentioned Notes forming part of the Account amounts to disclosure - HELD THAT - As relying on Sain Processing Wing Mills 2008 (12) TMI 20 - DELHI HIGH COURT we have no hesitation in holding that assumption of jurisdiction by issuance of notice u/s 148 of the Act is bad in law thereby making the reassessment proceedings invalid and assessment order bad in law. Nature of expenditure - Agency fees incurred by the assessee allowed as revenue expenditure.

Summary

Issues Involved:
1. Reopening of the assessment.
2. Enhancement by the CIT(A).
3. Merits of the Addition.
4. Disallowance of unpaid interest.
5. Amortization of expenses incurred in respect of restructuring of loans.
6. Addition on account of arrear of designated return.
7. Lease of land treated as revenue subsidy.
8. Disallowance of depreciation claimed on toll bridge.
9. Disallowance of agency fees.

Detailed Analysis:

1. Reopening of the assessment:
The Tribunal observed that the reassessment proceedings were initiated solely to disallow amortization interest on zero coupon bonds. It was noted that the original assessment was framed under section 143(3) of the Act, and the notice issued under section 148 was beyond four years. The Tribunal held that the provisions of the first proviso to section 147 applied, which required a failure on the part of the assessee to disclose all material facts necessary for assessment. Since the Assessing Officer did not record such failure, the reassessment was deemed null and void. The Tribunal referred to the Delhi High Court's decision in Haryana Acrylic Manufacturing Company, which supported this view. Consequently, the reopening of the assessment was quashed.

2. Enhancement by the CIT(A):
The CIT(A) enhanced the assessment for several incomes, including arrear of designated return, lease of land treated as revenue subsidy, and disallowance of depreciation claimed on the toll bridge. The Tribunal noted that the CIT(A) could only enhance the assessment if the Assessing Officer had assessed something. Since the Assessing Officer did not consider the three issues on which the CIT(A) made enhancements, the Tribunal held that the enhancement was bad in law. This view was supported by decisions from the Delhi High Court and the Supreme Court, which stated that the first appellate authority could not assess a new source of income not considered by the Assessing Officer.

3. Merits of the Addition:
The Tribunal addressed the merits of the addition related to the arrear of designated return. It was found that the Concession Agreement did not guarantee a return of 20% to the assessee. The return was projected and set as a benchmark for recovery over and above the actual project cost. The Tribunal held that no right accrued to the assessee to receive the alleged designated return, and the entire addition was on a notional basis, contrary to the concept of real income. This view was supported by the Supreme Court's decision in ED Sassoon & Co Ltd.

4. Disallowance of unpaid interest:
The Tribunal found that the interest payable on deep discount bonds should be allowed on an accrual basis and not on a payment basis. It was noted that section 43B(e) of the Act applied only to loans/borrowings from financial institutions and did not apply to deep discount bonds issued to the public. The Assessing Officer was directed to delete the disallowance.

5. Amortization of expenses incurred in respect of restructuring of loans:
The Tribunal referred to its earlier decision in ITA No. 925/DEL/2011, which allowed the amortization of zero coupon bonds as revenue expenditure. The Tribunal found no new facts that made the current year different from the earlier assessment year. The appeal of the Revenue on this issue was dismissed.

6. Addition on account of arrear of designated return:
The Tribunal held that no right accrued to the assessee to receive the alleged designated return, and the entire addition was on a notional basis. The Tribunal directed the deletion of the addition amounting to Rs. 179.87 crores.

7. Lease of land treated as revenue subsidy:
The Tribunal noted that the lands were given on lease and not transferred to the assessee. Therefore, there was no question of ownership being transferred, and the addition on this account was deleted.

8. Disallowance of depreciation claimed on toll bridge:
The Tribunal found that the CIT(A) had reduced the written down value with the amount of capital subsidy and recomputed the depreciation. Since the Tribunal discarded the findings of the CIT(A) regarding capital subsidy, the recomputation of depreciation was also deleted.

9. Disallowance of agency fees:
The Tribunal referred to its earlier decision in ITA No. 5246/DEL/2012, which allowed the agency fees as revenue expenditure. The Tribunal directed the Assessing Officer to delete the disallowance of agency fees.

Conclusion:
The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The stay applications became infructuous. The Tribunal's order pronounced on 08.08.2023.