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2019 (4) TMI 1100 - AT - Income TaxDisallowance of depreciation on bridges - Assessee is neither owner of bridges nor constructed under BOT - construction was made from fund of government - HELD THAT - Assessee does derive income from allowing right to use the bridges on which he had claimed depreciation during the previous year. The Assessee is not owner of the bridges and only constructs bridges out of funds provided by the State Government. Therefore, the conditions for allowing depreciation both on the ownership aspect as well as use for business is not satisfied so as to allow depreciation on bridges claimed by the Assessee. The position is different where bridges are built under Build Operate Transfer (BOT), where the cost of construction is reimbursed by allowing the person constructing bridges to recover his cost and profits by collecting toll. This aspect is made very clear in the CBDT Circular No.9/2014 dated 23.4.2014. Admittedly the Assessee has not constructed bridges on which depreciation has been claimed by it under BOT. - Decided against assessee. Expenditure incurred on construction of roads - allowable revenue expenditure u/s 37 - HELD THAT - Argument in the present case cannot be allowed as neither the books of accounts of the Assessee are maintained as such by showing the grant received from the Government as income and the sum expended for the projects as expenditure. The further claim of writing off the expenses on building bridges on a pro rata basis as revenue expenditure is also rejected for the same reason. Interest income as income from other sources - investment of surplus HUDCO loan for building bridges temporary parked in investments to yield income - Assessee availed loans from HUDCO for the purpose of construction of bridges - amount of loan disbursed by HUDCO till utilization for the purpose of construction of bridges were temporarily invested in fixed deposits - interest paid on loans availed from HUDCO was capitalized as cost of the asset and the interest income earned on temporary parking of funds was reduced from the cost of assets - HELD THAT - Revenue has accepted the order of the CIT(A) and is not agitating the same. It is the assessee s submission that the ITAT decide this issue based on the given set of facts for the AYs 2002-03, 2003-04 2004-05. In respect of AY 2005-06, however, the CIT(A) has dismissed the plea that the interest ought not to be taxed under the head Income from Other Sources by following the order of his predecessor for the AYs 2002-03 to 2004-05. The CIT(A) has followed the order of his predecessor in this regard. CIT(A) however is silent on the plea that interest paid on loans from HUDCO needs to be allowed as revenue expenditure. Since he states that he agrees with the reasoning of his predecessor while dismissing the ground the order of the predecessor on treating the entire interest paid on loans from HUDCO as Revenue expenses is to be allowed. Tribunal in-the event it does affirm the treatment of interest earned as Income from Other Sources, should allow the alternate plea that the interest paid on loans from HUDCO should be allowed as revenue expenditure as done so by the CIT(Appeals) in the order for the AYs 2002-03 to 2004-05 and which has been accepted by the Revenue. Disallowance of prior period expenses relates to interest paid to Krishna Bhagya Jala Nigam Limited- a public sector undertaking towards interest - HELD THAT - Since the Assessee was following mercantile system of accounting and since no reasons were given for allowing prior period expenses as deduction in the present AY, the revenue authorities disallowed the claim for deduction of prior period expenses - Assessee submitted that the expenses claimed as deduction that was disallowed as prior period expenses crystalized during the relevant previous year as expenditure of the Assessee. No details whatsoever were furnished in this regard. In the circumstances, we confirm the order of the CIT(A) in this regard.
Issues:
1. Delay in filing the appeal. 2. Disallowance of depreciation on bridges. 3. Treatment of interest income earned on investment. 4. Disallowance of prior period expenses. Delay in filing the appeal: The appeal filed by the Assessee against the order of CIT(Appeals) was delayed by about 2 days. The reason cited for the delay was the change in counsel handling the tax matters and the subsequent delay in presenting the case to the new counsel. The Appellate Tribunal condoned the delay, considering it reasonable and allowed the appeal to proceed. Disallowance of depreciation on bridges: The Assessee, a statutory corporation, claimed depreciation on bridges it constructed. However, the Revenue authorities disallowed the claim stating that the Assessee did not own the bridges and was not entitled to collect toll or service charges for their use. The Assessee contended that ownership is not a prerequisite for claiming depreciation, citing relevant court decisions. The Appellate Tribunal upheld the Revenue's decision, emphasizing that the Assessee did not meet the conditions for depreciation as per the Income Tax Act, as it neither owned the bridges nor used them for business purposes. Treatment of interest income earned on investment: The Assessee earned interest on surplus HUDCO loan investments temporarily parked in fixed deposits. The interest earned was treated as income from other sources by the Revenue authorities. The Assessee argued that the interest earned should be set off against interest paid on loans from HUDCO or treated as revenue expenditure. The Appellate Tribunal partially accepted the Assessee's plea, allowing the interest paid on loans from HUDCO to be treated as revenue expenditure, in line with previous decisions for other assessment years. Disallowance of prior period expenses: The Revenue authorities disallowed the deduction of prior period expenses claimed by the Assessee, including interest paid to a public sector undertaking. The Assessee followed the mercantile system of accounting, but failed to provide sufficient details to support the deduction of prior period expenses. The Appellate Tribunal confirmed the disallowance of the claim, citing lack of evidence and details provided by the Assessee. In conclusion, the Appellate Tribunal partially allowed the Assessee's appeal, addressing issues related to depreciation on bridges and treatment of interest income and prior period expenses. The Tribunal upheld the Revenue's decision on certain aspects while granting relief to the Assessee on others, based on the specific circumstances and legal provisions applicable in each case.
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