Ita/19/2019 Of Pr. Commissioner Of Income Tax Panchkula v. M/S Himalayan Expressway Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA|AT CHANDIGARH ITA No.19 of 2019 (O&M)Date of decision : 23.07.2019 Pr. Commissioner of Income Tax, Panchkula ...... Appellant VeTSuU M/s Himalayan Expressway Ltd., Kalka Sadan,Shimla Road, Pinjore. ...... Respondent CORAM: HON'BLE MR.JUSTICE AJAY TEWARTHON'BLE MR.JUSTICEHARNARESH SINGH GILL --- Present ;Mr. Yogesh Putney, Advocate andMr. Ajiteshwar Singh, Advocatefor the appellant. --- AJAY TEWARI, J. (Oral) 1]This appeal has been filed under Section 260A of the IncomeTax Act, 1961 (for short ‘the Act’) against the concurrent orders of theCommissioner of Income Tax, Panchkula, Haryana and the Income TaxAppellate Tribunal Chandigarh setting aside the penalty proceedings. | 2 The brief facts of the case are that the Assessee was awardedthe contract for broadening of Zirakpur-Parwanoo Section of NationalHighway-22 including Pinjore-Kalka Parwanoo Bypass on _ Build-Operate-Transfer (BOT) basis. He filed a return claiming that he hadspent a sum of Rs.723.00 crores oddon the construction and claimingdepreciation of Rs.72.00 crores odd under Section 32 of the Act. The Assessing Officer held that since the road was not ‘owned by the ITA No.19 of 2019 (O&M) 2 Assessee' he could not claim depreciation. The Assessee accepted thisfinding and did not challenge the same in the appeal. Thereafter penaltyproceedings were initiated against the Assessee, which have been setaside aS mentioned above. It is the contention of the Revenue that theintention of the Assessee is reflected from the fact that it made this wrongclaim and, but for the fact that the case was picked up for scrutiny itwould have succeeded in its various design. | 3,In this connection, both the Commissioner, Income Tax andthe Tribunal have noticed Circular No.9 of 2014 dated 23.04.2014 whichis quoted herein below :- “Government ofIndiaMinistry ofFinanceDepartment ofRevenueCentral Board ofDirect TaxesNorth Block, New DelhiCircular No.9/20/4Dated : April 23, 2014 Subject :Clarification regarding treatment ofexpenditureincurred for development of roads/highways in BOTagreements under Income-tax Act, 1961 — regarding. It has come to the notice of the Board thatdisputes have arisen as to whether the expenditure incurredon development and construction of infrastructural facilitieslike roads/highways on Build-Operate-Transfer (BOT)basis with right to collect toll is entitled for depreciationunder section 32(1) (i) of the Act or the same can beamortized by treating it as an allowable _ businesexpenditure under the relevant provisions of the Income-taxAct, 1961 (‘Act’). &#In such projects, the developer (hereinafterreferred to as ‘assessee’), in terms of concessionaireagreement with Government or its agencies 1s required toconstruct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying ofroads, bridges, highways, approach roads, culverts, publicamenities etc. at its own cost and its utilization thereoffor aspecified period. In lieu of consideration of the expenditureincurred on construction, operation and maintenance of theinfrastructure facility covered by the period of theagreement, the assessee is accorded a right to collect tollfrom users of such facility. The expenditure incurred bysuch assessee on development and construction of suchinfrastructural facility are capitalized in the accounts. It 1sseen that in returns-of-income, assessees are generallyclaiming depreciation on such capitalized expendituretreating it as an ‘intangible asset’ in terms of section 32(1)(ii) of the Act while in assessments, such claims are beingdisallowed by the Assessing Officer on the grounds that suchinfrastructural facility is not owned, wholly or partly, by thetaxpayer which is an essential condition for claimingdepreciation andfurther right to collect toll does not fall inany of the categories of ‘intangible assets’ specified in sub-clause (11) ofsub-section (1) ofsection 32 ofthe Act. ,#In BOT arrangements for development of roads/highways, as a matter ofgeneral practice, possession of landis handed over to the assessee by the Government/notifiedauthority for the purposes of Construction of the projectwithout any actual transfer of ownership and such assesseehas only a right to develop and maintain such asset. It alsoenjoys the benefits arising from use of asset throughcollection of Toll for a specified period without havingactual ownership over such asset. Therefore, the rights inthe land remain vested with the Government or its agencies.Thus, as assessee does not hold any rights in the projectexcept recovery of toll fee to recoup the expenditureincurred, it cannot therefore be treated as an owner of theproperty, either wholly or_ partly, for purposes of allowability of depreciation under section 32(1) (i) of theAct. Thus, present provisions of the Act do no allow claim ofdepreciation on Toll ways due to non-fulfillment ofownership criteria in such cases. )#There 1s no doubt that where the assessee incursexpenditure on a projectfor development of roads/highways,he is entitled to recover cost incurred by him towardsdevelopment ofsuch facility (comprising of construction costand other pre-operative expenses) during the constructionperiod. Further, expenditure incurred by the assessee onsuch BOT projects brings to it an enduring benefit in theform of right to collect the toll during the period of theagreement. Hon'ble Supreme Court in the case of MadrasIndustrial Investment Corp Ltd. 225 ITR 802 (SC) allowedspreading over of liability over a number of years on theground that there was continuing benefit to the companyover a period. Therefore, analogously, expenditure incurredon an_ infrastructure project for development oroads/highways under BOT agreement may be treated ashaving been made/incurred for the purposes of business orprofession of the assessee and same may be allowed to bespread during the tenure ofconcessionaire agreement. <#In view of above, Central Board of Direct Taxes, inexercise of the powers conferred under section 119 ofthe Acthereby clarifies that the cost of construction on developmentof infrastructure facility of roads/highways under BOTprojects may be amortized and claimed as allowablebusiness expenditure under the Act. 3#The amortization allowable may be computed at therate which ensures that the whole of the cost incurred increation of infrastructural facility of road/highway 1samortized evenly over the period of concessionaireagreement after excluding the time take for creation of suchfacility. >#In the case where an assessee has claimed anydeduction out of initial cost of development of infrastructurefacility of roads/highways under BOT projects in earlieryear, the total deduction so claimed for the AssessmentYears prior to the Assessment Year under considerationmaybe deductedfrom the initial cost of infrastructure facilityof roads/highways and the cost ‘so reduced’ shall beamortized equally over the remaining period of tollconcessionaire agreement. =#It is hereby clarified that this Circular is applicableonly to those infrastructure projects for development ofroad/highways on BOT basis where ownership is not vestedwith the assessee under the concessionaire agreement. $#This may be brought to the notice ofall concerned.< 4Both the authorities held that the Board had itself recognized >#In the case where an assessee has claimed anydeduction out of initial cost of development of infrastructurefacility of roads/highways under BOT projects in earlieryear, the total deduction so claimed for the AssessmentYears prior to the Assessment Year under considerationmaybe deductedfrom the initial cost of infrastructure facilityof roads/highways and the cost ‘so reduced’ shall beamortized equally over the remaining period of tollconcessionaire agreement. =#It is hereby clarified that this Circular is applicableonly to those infrastructure projects for development ofroad/highways on BOT basis where ownership is not vestedwith the assessee under the concessionaire agreement. $#This may be brought to the notice ofall concerned.< 4Both the authorities held that the Board had itself recognized that in many cases Assessees were claiming this depreciation while theAssessing Officers were disallowing it. The Board further noticed that in|such projects the land was temporarily transferred to the Assessees whoconstructed the highway at their own cost and, were in lieu thereof, giventhe right to charge toll from the users for a fixed period. The Boardclarified that in such cases the Assessee would be entitled toamortization under the relevant provisions of the Act. Interestingly, in|para 7 of the circular the Board noticed that there may have been cases inthe past where Assessees had obtained the depreciation and held that inthose cases the depreciation claimed would be reduced and theamortization would be given only on the reduced amount. Both theCommissioner and the Tribunal held that this circular indicated that therewas a genuine doubt not only in the case of the present Assessee but inthe case of many Assessees in general who undertook these kinds of projects. Ultimately, as mentioned above the claim of the Assessee wasupheld. 5 The sole contention of the learned counsel for the appellantis that once the Assessee accepted the assessment order disallowing thedepreciation, it is clear that it was attempted to avoid tax and that theclaim of depreciation was wrongly made. As per learned counsel for theappellant, had it not been for the scrutiny, the Assessee would have gottenthis benefit. He has relied upon a judgment of Delhi High Court passedin ITA No.1855 of 2010 titled asCommissioner of Income Tax Vs. Morgan Finvest Pvt. Ltd., decided on 06.12.2012. In that case theAssessee was a company engaged mainly in the business of investmentand to undertake and transact financial services. It filed its return ofincome declaring nil income for the assessment year 2005-2006and theSame was processed under Section 143 (1). However later, on scrutiny itwas found that the Assessee had claimed depreciation of Rs.39,52,300/-in respect of a property at No.3, Eastern Avenue, Maharani Bagh, NewDelhi. The property was purchased on 29.04.2004 for Rs.3.5 crores andthe Assessee had raised a loan in order to acquire the property. On18.09.2004 1.e. after about 5 months the property was sold to a Companyviz. Hindustan Udyog Limited for a consideration of Rs.4.5 crores butonly an agreement of sale was executed, possession was not given norwas any Sale deed executed. The Assessing Officer found that theproperty was residential in nature and had not been put to use for thepurpose of the assessing business. From these facts the Assessing Officerconcluded that the Assessee had kept the property for four months or so and had entered into an agreement to dispose of the same which indicated ITA No.19 of 2019 (O&M) ( and had entered into an agreement to dispose of the same which indicated ITA No.19 of 2019 (O&M) ( a motive to earn short term gain and not any intention to use the propertyfor the purpose of the business. He also noticed that the building cost ofwhich depreciation was claimed including the cost of land on which nodepreciation was allowed and it was in those circumstances that he didnot allowed the depreciation initiated the penalty proceedings. TheCommissioner Income Tax appeals upheld the penalty but the IncomeTax Appellate Tribunal allowed the appeal of the Assessee and that ishow the Revenue was before the High Court. The main ground taken bythe Tribunal was that since no sale deed was executed pursuant to thesubsequent agreement to sell the property remained in the ownership ofthe Assessee. A Division Bench of the Delhi High Court accepted thatthe property remained in the ownership of the Assessee for the entire yearbut went on to hold that was not used for any business and was thereforeexigible for penalty. It was during the course of this that the Court heldas follows :- “12. This is not a case where all the correct particularsrelating to the claim werefurnished and a claim for relief orallowance was made on_ that basis, which was not acceptedby the assessing officer who did not question the particularsrelating to the claim, but merely took a different view on thevery same particulars. This is a case where questionabledetails and particulars relating to the claim were furnishedby the assessee and such details were so fundamental to thegenuineness and bona fide of the claim that the merefurnishing ofthose particulars made the claim vulnerable. ” 6 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 whythe 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. vaIn the circumstances of the case we are not able to find anyfault with the judgment and orders of the Courts below. No otherquestion of law arises. 8.Appeal stands dismissed, Q Since the main case has been decided, the pending C.M.Application, if any, also stands disposed of, (AJAY TEWARITJUDGE July 23, 2019pooja sharma-l (HARNARESH SINGH GILL)JUDGE Whether speaking/reasonedWhether Reportable | Yes/NoYes/No