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2020 (3) TMI 632 - AT - Income TaxAssessment u/s 153A - claim of deduction under section 80IA(4) - Paper company or not - assessee as a SPV was a mandatory requirement of NHAI - four laning of the existing road - to be considered as a new infrastructure facility or not - HELD THAT - When the status of the assessee has been accepted as a developer, even by the Assessing Officer in the impugned assessment order, Commissioner (Appeals) cannot change the status purely on the basis of conjecture and surmises without any contrary material available on record. In fact, Commissioner (Appeals) has not referred to even a single piece of material which can even remotely suggest that the assessee is a mere paper company and does not qualify the conditions of section 80IA(4) - There is no doubt that the BOT Toll Road built by the assessee is a infrastructure facility as defined under section 80IA(4). Therefore, an entity which developed such a facility is eligible to claim deduction, provided, he fulfills the conditions of section 80IA(4)(i) - In the fact of the present case, if neither the assessee nor GIL are held as ineligible then no one else could get the benefit of section 80IA and the very object for which the provision has been brought would fail. Unless the entity coming forward to make the investment in developing infrastructure facility is granted the statutory deduction no one will come forward to make huge investment for development of infrastructure facility which ultimately leads to development of country‟s economic condition. Including the decision of the Tribunal in assessee‟s own case as referred to elsewhere in the order, we hold that the assessee is eligible to claim deduction under section 80IA - AO is directed to verify the correctness of assessee‟s computation of deduction under section 80IA and allow the same. Further, to ensure that deduction for the same infrastructure facility is not allowed to both the assessee and Gil, the Assessing Officer is directed to verify the relevant facts and thereafter compute deduction under section 80IA. Disallowance of depreciation claimed on the right to collect annuity by treating it as intangible asset - HELD THAT - Undisputedly, the assessee was awarded the work of constructing a part of the National Highway no.5, under BOT basis. Entire investment/finance for developing the infrastructure facility was borne by the assessee. By making such investment what the assessee received in return was a right to collect annuity over the period of concession. Thus, the investment made by the assessee for acquiring such right certainly is an intangible asset coming within the purview of section 32(1)(ii) of the Act. Therefore, the assessee would be eligible to claim depreciation. The decision of the learned Commissioner (Appeals) on the issue is hereby reversed. Disallowance of deduction claimed u/s 14A - HELD THAT - Undisputedly, in the original return of income filed for the assessment year under dispute, the assessee had voluntarily made disallowance of ₹ 2,36,81,525. It is also a fact on record that before the search and seizure operation took place in case of the assessee assessment for the impugned assessment year was completed under section 143(3) accepting the disallowance made under section 14A - In the return of income filed in pursuance to the notice issued under section 154A of the Act, the assessee withdrew the disallowance made under section 14A - since the issue relating to assessee‟s claim of deduction under section 14A of the Act, already stood concluded by virtue of the original assessment order, no further deliberation on the issue can be made in the impugned assessment order. Therefore, we fully agree with the decision of Commissioner (Appeals) on the issue even with regard to deletion of disallowance made while computing book profit under section 115JB of the Act. This ground is dismissed. Disallowance u/s 40A(2) - HELD THAT - Before invoking the provisions of section 40A(2)(b) the Assessing Officer has to establish through cogent material that the price paid by the assessee is not at arm's length. In the facts of the present case, as rightly observed by the learned Commissioner (Appeals), the Assessing Officer has substituted the price of contract with an estimated cost. Therefore, we do not find any reason to interfere with the decision of the Commissioner (Appeals). Even, otherwise also, the tax effect on the amount disputed by the Revenue in the present appeal is below the monetary limit of ₹ 50 lakh applicable to appeals before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, he submitted, none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./142/2007 ITJ (Pt) dated 20th August 2018, would apply to Revenue‟s appeal. For that reason also, Revenue‟s appeal is not maintainable. Validity of assessment framed u/s 153A as well as disallowance of deduction claimed under section 80IA - HELD THAT - Admittedly, on the date of search, the assessment proceedings for all these assessment years were in progress, hence, abated. Assessing Officer is not required to confine himself only to incriminating materials for making any addition. As per the ratio laid down by the Hon'ble Jurisdictional High Court in Continental Warehouse Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT in case of abated assessment proceeding, the Assessing Officer retains the power to examine all the issues irrespective of their linkage to any incriminating material found during the search. Therefore, we are unable to accept the grounds raised by the assessee challenging the validity of the assessment orders passed under section 153A of the Act. However, on merits, we allow assessee‟s claim of deduction under section 80IA of the Act by following our decision while deciding similar issue. Claim depreciation on the right to collect annuity by treating it as intangible asset. Disallowance of expenditure u/s 14A r/w rule 8D - HELD THAT - It is fairly well settled that the disallowance under section 14A r/w rule 8D cannot exceed the exempt income earned during the year. Further, if no exempt income has been earned in a particular assessment year, no disallowance under section 14A of the Act can be made. The Assessing Officer is directed to verify the relevant facts and if it is found that during the relevant assessment year, the assessee has not earned any exempt income, no disallowance under section 14A of the Act can be made. Otherwise, the disallowance under section 14A r/w rules 8D should be restricted to the exempt income earned during the year. Insofar as the disallowance of expenditure in relation to the exempt income earned for computing the book profit under section 115JB though, the Assessing Officer can make such disallowance under Explanation 1(f) to section 115JB(2) of the Act, however, such disallowance has to be restricted to the actual expenditure incurred for earning the exempt income. With these observations, the grounds raised by the assessee are allowed.
Issues Involved:
1. Validity of assessment framed under section 143(3) r/w section 153A of the Income Tax Act. 2. Disallowance of deduction claimed under section 80IA(4) of the Income Tax Act. 3. Disallowance of depreciation claimed on the right to collect annuity by treating it as an intangible asset. 4. Disallowance of deduction claimed under section 14A of the Income Tax Act. 5. Disallowance of depreciation by invoking provisions of section 40A(2) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of Assessment under Section 143(3) r/w Section 153A: The assessee challenged the validity of the assessment framed under section 143(3) r/w section 153A, arguing that in the absence of any incriminating material found during the search, no addition or disallowance could be made. The Tribunal found that the Assessing Officer had not referred to any incriminating material relating to the development of the BOT Project or the assessee’s claim of deduction under section 80IA. The Tribunal concluded that without any incriminating material, the assessment under section 153A was invalid, citing the jurisdictional High Court’s ruling in Continental Warehouse Corporation (Nhava Sheva) Ltd. 2. Disallowance of Deduction under Section 80IA(4): The assessee claimed a deduction under section 80IA for developing, operating, and maintaining a BOT project. The Assessing Officer disallowed the deduction, arguing that the project was not a new infrastructure facility. The Tribunal noted that the project was financed by the assessee and executed through an EPC contract with Gammon India Ltd. The Tribunal held that the assessee fulfilled the conditions under section 80IA(4) and was thus eligible for the deduction. It was also noted that the Central Government had approved the assessee under section 10(23G) for developing infrastructure, reinforcing the assessee’s eligibility for the deduction. 3. Disallowance of Depreciation on Right to Collect Annuity: The assessee claimed depreciation on the right to collect annuity, treating it as an intangible asset. The Assessing Officer disallowed the claim, but the Tribunal reversed this decision, stating that the right to collect annuity is a valuable commercial right and qualifies as an intangible asset under section 32(1)(ii). The Tribunal relied on the Special Bench decision of the Hyderabad Tribunal in ACIT v/s Progressive Construction Ltd., and other relevant case laws to support this conclusion. 4. Disallowance of Deduction under Section 14A: The assessee initially disallowed an amount under section 14A but later withdrew this disallowance in the return filed under section 153A. The Assessing Officer reinstated the disallowance, but the Tribunal held that since the issue was already concluded in the original assessment, it could not be revisited in the section 153A proceedings. The Tribunal also noted that the disallowance under section 14A should not exceed the exempt income earned during the year. 5. Disallowance of Depreciation under Section 40A(2): The Assessing Officer disallowed part of the depreciation expenditure, invoking section 40A(2), arguing that the assessee paid a higher contract cost to Gammon India Ltd. The Tribunal upheld the Commissioner (Appeals)’s decision to delete the disallowance, stating that the Assessing Officer cannot substitute the actual cost with an estimated cost without rejecting the books of account. The Tribunal emphasized that the Assessing Officer must establish through cogent material that the price paid was not at arm's length. Conclusion: The Tribunal's consolidated order allowed the assessee’s appeals in part, primarily on the grounds of invalid assessment under section 153A due to the absence of incriminating material, and upheld the eligibility for deductions under section 80IA and depreciation on the right to collect annuity. The Tribunal dismissed the Revenue’s appeals and the assessee’s cross objections.
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