2019 (8) TMI 164 - HC - Income Tax

Penalty u/s 271(1)(c) - assessee claimed depreciation u/s 32 on road constructed on Build- Operate-Transfer (BOT) basis - AO denied on the basis that the road was not owned by the Assessee - Circular No.9 of 2014 dated 23.04.2014 allow amortization of cost - revenue contended that assessee accepted the assessment order disallowing the depreciation, it is clear that it was attempted to avoid tax and that the claim of depreciation was wrongly made HELD THAT - Revenue relied upon a judgment of Delhi High Court passed in CIT Vs. Morgan Finvest Pvt. Ltd. 2012 (12) TMI 457 - DELHI HIGH COURT wherein it was held that this is not a case where all the correct particulars relating to the claim were furnished and a claim for relief or allowance was made on that basis, which was not accepted by the assessing officer who did not question the particulars relating to the claim, but merely took a different view on the very same particulars. This is a case where questionable details and particulars relating to the claim were furnished by the assessee and such details were so fundamental to the genuineness and bona fide of the claim that the mere furnishing of those particulars made the claim vulnerable. In the present case, we find that the facts are starkly different. The Revenue had itself accepted that there was a doubt and that is why the clarification of 2014 was issued. Had it been so cut and dried there was no occasion for the Board to have issued the clarification and infact, this is precisely what weighed with the Commissioner, Income Tax, Panchkula and Income Tax Appellate Tribunal, Chandigarh. In the circumstances of the case we are not able to find any fault with the judgment and orders of the Courts below. No other question of law arises.

Summary

Issues:
Appeal against penalty proceedings under Section 260A of the Income Tax Act, 1961 - Claim of depreciation on construction expenditure for road project - Interpretation of Circular No.9/2014 regarding treatment of expenditure in BOT agreements - Comparison with a similar case of depreciation claim.

Analysis:
1. The appellant filed an appeal against the penalty proceedings initiated by the Commissioner of Income Tax and the Income Tax Appellate Tribunal for disallowing the claim of depreciation. The appellant had undertaken a highway construction project on a BOT basis and claimed depreciation under Section 32 of the Act. The Assessing Officer disallowed the claim as the road was not owned by the appellant. The appellant did not challenge this finding in appeal, leading to penalty proceedings being initiated.

2. The Circular No.9/2014 issued by the Central Board of Direct Taxes clarified the treatment of expenditure in BOT agreements for road projects. The circular highlighted that in such projects, the developer does not hold ownership rights over the infrastructure facility and, therefore, cannot claim depreciation under Section 32(1)(ii) of the Act. Instead, the expenditure could be amortized and claimed as allowable business expenditure. The circular acknowledged the common practice of claiming depreciation by assesses and subsequent disallowance by Assessing Officers, indicating a genuine doubt in such cases.

3. The appellant argued that accepting the assessment order disallowing depreciation showed an attempt to avoid tax, citing a judgment from the Delhi High Court. The Delhi High Court case involved a depreciation claim for a property not used for business purposes, leading to penalty imposition. However, in the present case, the Revenue accepted the doubt regarding depreciation claims in BOT projects, as evidenced by the issuance of Circular No.9/2014. The lower courts upheld the appellant's claim based on this genuine doubt and the clarification provided by the circular.

4. The High Court dismissed the appeal, noting that the facts of the present case differed significantly from the Delhi High Court case. The issuance of the circular by the Board to address the depreciation claims in BOT projects indicated a genuine ambiguity, justifying the appellant's claim. The judgment and orders of the lower courts were upheld, and no further legal questions were identified for consideration.

5. The appeal was consequently dismissed, and any pending applications were disposed of in light of the main case decision. The High Court found no fault with the decisions of the lower courts, emphasizing the relevance of the Circular No.9/2014 in interpreting the depreciation claims in BOT projects.