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2022 (8) TMI 1165 - AT - Income TaxReopening of assessment u/s 147 - Change of opinion - depreciation - cost of construction / development - deduction of interest and bad debts - HELD THAT - We find from the reasons provided to the assessee with regard to reopening of the assessment U/s. 147 that the AO has merely changed his opinion and without any additional material available before him, the AO has sought to reopen the assessment U/s. 147 - No doubt this issue has been decided against the assessee by the Ld. CIT(A) and assessee has not challenged that order but it can take up this issue before the Tribunal with the aid of Rule 27 because Rule 27 provided that assessee can agitate any ground, which has been decided against it, but if those arguments are being accepted by the Tribunal then the order of the Ld. CIT(A) can be upheld even on other issues, because the issue regarding reopening is going to hit the root and the moment it is held that reopening is bad in law then all other consequent proceedings would become redundant. A bare perusal of the annexure to the Notice u/s 142(1) dated 10/10/2007 and 15/11/2007 which was issued in the original assessment proceedings u/s 143 makes it clear that the point on which re-assessment proceedings were initiated, was well considered in the original proceedings. We are of the considered view that the Ld. AO has erred in reopening the assessment u/s. 147 of the Act merely by changing his opinion which is unsustainable in law and therefore deserves to be quashed. Therefore, the grounds raised by the Revenue against the order passed U/s. 143(3) r.w.s 147 do not have any legs to stand and hereby dismissed. Disallowance of depreciation on the Project Berth - AR argued that as per the License Agreement entered into with Visakhapatnam Port Trust (VPT) by the assessee, the assessee is owner of the asset for a period of 30 years - HELD THAT - As per the License agreement the assessee is entitled for the Terminal Value at the end of the License period, at the time of transfer to the Licensor. Therefore the assessee needs to recover the cost incurred in the construction of the Berths, which is out of the fees to be collected from users. The benefit of earning revenue from the berth constructed by the assessee, but not legally owned by the assessee, arises from the license granted by the Licensor (VPT). Considering this peculiar situation to recover the cost of construction, where the assessee could not claim depreciation, CBDT Circular No. 09/2014 has clarified the treatment of such expenditure incurred in BOT agreements. Therefore, in our considered view the assessee is entitled for the amortization of the assets developed under BOT project over the lease period of the asset. The CBDT Circular No. 09/2014 being a clarificatory Circular this can be applied retrospectively for the AY 2007-08 also. Circular can be applied retrospectively in respect of deductions claimed in previous assessment years. We therefore direct the Ld. AO to amortize the cost of buildings, structures, berths, wharves, equipment and other immovable and movable assets constructed, installed, located, created as provided by the Licensee after deducting depreciation claimed by the assessee and allowed by the revenue in earlier years so that the amortization claimed for the year under consideration shall be the difference between the initial cost and the depreciation already claimed by the assessee which needs to be amortized over the remaining license period. It is ordered accordingly. Thus, this ground no.2 raised by the assessee is allowed for statistical purposes. Disallowance of Interest - AR argued that the interest did not pertain to acquisition of any assets nor there any expansion of business. Therefore, he pleaded that the interest was incurred in the normal course of business - HELD THAT - We find that the assessee has submitted an effective disallowance of Rs. 69 lakhs and the Ld. CIT(A) had therefore allowed the balance of Rs. 1,22,00,000/-. We find from the submissions made by the assessee before CIT(A), that the assessee has voluntarily admitted an effective disallowance of Rs 69,00,000/-, where the LD.CIT(A) has rightly considered the same. Therefore, in view of such voluntary admission of Rs 69,00,000/- before the Ld.CIT(A), we are of the view that the assessee cannot now freshly contest before us. We therefore find that no interference in the order of LD.CIT(A), is required on this issue. Accordingly, this ground raised by the assessee is dismissed. Disallowance of provision for doubtful debts - HELD THAT - We find that the provision for doubtful debts is not a bad debt and which needs allowance under the Act. Section 36(1)(vii) of the Act which clearly states that the amount of any bad debts or part thereof which is written off as irrecoverable in the accounts for the previous year shall be allowed as a deduction. In the instant case, the assessee has merely made a provision for doubtful debts and has not written off as bad debts in the books of account. The Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT case relied on by the Ld.AR cannot be applied in the instant case as it relates to provisions made by Banks. Therefore, we are of the view that a provision being contingent in nature shall not be an allowable deduction u/s 36(1) of the Act. Therefore, this ground raised by the assessee is dismissed.
Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act. 2. Allowance of depreciation on project berth. 3. Amortization of expenditure on development of project berth. 4. Disallowance of interest expenditure under Section 36(1)(iii). 5. Disallowance of provision for doubtful debts. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147 of the Income Tax Act - ITA No. 2402/Mum/2014 (AY: 2005-06): - The Revenue appealed against the order that allowed depreciation but upheld the reopening of the assessment. - The Tribunal found that the Assessing Officer (AO) reopened the assessment based on a mere change of opinion without any new material. This was deemed unsustainable in law. - The Tribunal quashed the reopening of the assessment, rendering all subsequent proceedings redundant. - ITA No. 2478/Mum/2015 (AY: 2007-08): - The assessee contested the reopening of the assessment. - The Tribunal upheld the reopening, distinguishing it from a mere change of opinion due to conflicting judicial decisions at the time, thus validating the AO's action. 2. Allowance of Depreciation on Project Berth - ITA No. 2402/Mum/2014 (AY: 2005-06): - The Revenue contested the allowance of depreciation on the project berth. - The Tribunal held that the assessee, not being the legal owner of the berth, could not claim depreciation under Section 32. The asset created belonged to the Visakhapatnam Port Trust (VPT), and the assessee only derived an enduring business advantage. - ITA No. 2478/Mum/2015 (AY: 2007-08): - The Tribunal reiterated that the assessee could not claim depreciation as it was not the legal owner of the berth. Instead, the expenditure should be treated as revenue expenditure amortized over the license period of 30 years. - ITA No. 2400/Mum/2014 (AY: 2008-09) & ITA No. 2401/Mum/2014 (AY: 2009-10): - The Tribunal followed the same reasoning as in the previous cases, disallowing depreciation and directing the amortization of expenditure over the license period. - ITA No. 2479/Mum/2015 (AY: 2010-11): - The Tribunal applied the same principles as in the earlier years, disallowing depreciation and allowing amortization of expenditure. 3. Amortization of Expenditure on Development of Project Berth - ITA No. 2478/Mum/2015 (AY: 2007-08): - The Tribunal directed the AO to amortize the cost of construction over the remaining license period, following CBDT Circular No. 09/2014. - ITA No. 2400/Mum/2014 (AY: 2008-09) & ITA No. 2401/Mum/2014 (AY: 2009-10): - The Tribunal ordered the amortization of costs, deducting previously claimed depreciation, over the remaining license period. - ITA No. 2479/Mum/2015 (AY: 2010-11): - The Tribunal upheld the amortization approach for the expenditure incurred on the project berth. 4. Disallowance of Interest Expenditure under Section 36(1)(iii) - ITA No. 2479/Mum/2015 (AY: 2010-11): - The assessee argued that the interest did not pertain to asset acquisition or business expansion. - The Tribunal found that the assessee had voluntarily admitted an effective disallowance of Rs. 69 lakhs before the CIT(A) and upheld the CIT(A)'s order, dismissing the ground. 5. Disallowance of Provision for Doubtful Debts - ITA No. 2479/Mum/2015 (AY: 2010-11): - The Tribunal held that a provision for doubtful debts, not written off as bad debts, is not allowable under Section 36(1)(vii). The provision being contingent could not be deducted, thus dismissing the ground. Conclusion: The Tribunal's consolidated order addressed multiple interconnected appeals, focusing primarily on the legality of reopening assessments, the eligibility for depreciation on project berths, and the appropriate treatment of related expenditures. The Tribunal consistently disallowed depreciation claims, favoring amortization of costs over the license period, and upheld the validity of reopening assessments where justified by conflicting judicial precedents. The Tribunal also upheld the disallowance of interest expenditure and provisions for doubtful debts where applicable.
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