Pr. Commissioner Of Incometax - 3, New Delhi v. Delhi Airport Metro Express Pvt. Ltd.through:none

$~8 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA No. 705/2017 PR. COMMISSIONER OF INCOMETAX - 3, NEW DELHI ..... Appellant Through:Mr. Asheesh Jain, Sr. StandingCounsel with Mr. Vikrant A.Maheshwari, Advocates. versus DELHI AIRPORT METRO EXPRESS PVT. LTD.Through:None. ..... Respondent CORAM:JUSTICE S. MURALIDHARJUSTICE PRATHIBA M. SINGH % O R D E R05.09.2017 1. The Revenue is in appeal against an order dated 12[th]January 2017 passedby Income Tax Appellate Tribunal (‘ITAT’) in ITA No. 2813/Del/2016 forthe Assessment Year (‘AY’) 2011-12. 2. The short question urged by the Revenue is whether the ITAT wasjustified in setting aside the order of the Principal Commissioner of IncomeTax (‘PCIT’) passed under Section 263 of the Income Tax Act, 1961 (‘Act’)setting aside the original assessment order dated 31[st]December 2013 passedby the Assessing Officer (‘AO’) under Section 143 (3) of the Act. 3. The background facts are that the Assessee is a Concessionaire of theAirport Metro Express Project of the Delhi Metro Rail Corporation Ltd.(‘DMRC’) under a Build-Operate-Transfer (‘BOT’) Scheme. The Assessee ITA No.705/2017 had accepted the concession for a period of 30 years. During the AY inquestion, the Assessee claimed depreciation of Rs. 112,29,74,447/- on fixedassets of Rs. 1560,48,17,189/- at 50% of the eligible depreciation ratessince, during the AY in question, the assets were used for less than 180 days. 4. The case of the Revenue is that the assets were developed under the BOTscheme and the Assessee was not eligible to claim depreciation as it was notthe owner of the assets. The Revenue contended that the land for the projectwas handed over by the DMRC to the Assessee as Concessionaire withoutactual transfer of ownership. The design and construction of the basicstructure was also done by the DMRC. 5. The case of the Assessee, on the other hand, is that during the AY inquestion it had purchased and installed plant and machinery and such plantand machinery was legally owned by it. It is further contended that sincesuch assets were used for the purposes of Assessee’s business, it was entitledto claim depreciation under Section 32 of the Act. 6. It appears that during the original assessment proceedings, the AO issueda questionnaire to the Assessee specific to the above issue. It is only afterconsidering the assessee’s replies thereto that the AO framed the assessmentunder Section 143 (3) of the Act allowing depreciation as claimed by theAssessee. 7. The PCIT, in exercise of powers under Section 263 of the Act, issued ashow cause notice (SCN) dated 16[th]March 2015 to the Assessee pointingout that if the value of these fixed assets were to be amortized evenly over a ITA No.705/2017 periodof 30years,theamount to beamortizedwouldonly beRs. 52,01,60,572/- for each year. Therefore, the depreciation allowed to theAssessee was in excess by Rs. 60,28,13,875 and, to that extent, the orderpassed by the AO was prejudicial to the interest of the Revenue. In reply tothe SCN, the Assessee took the stand that, during the AY in question, it “hadpurchased the assets from independent vendors, out of its own funds forsetting up the project.” 7. The PCIT, in exercise of powers under Section 263 of the Act, issued ashow cause notice (SCN) dated 16[th]March 2015 to the Assessee pointingout that if the value of these fixed assets were to be amortized evenly over a ITA No.705/2017 periodof 30years,theamount to beamortizedwouldonly beRs. 52,01,60,572/- for each year. Therefore, the depreciation allowed to theAssessee was in excess by Rs. 60,28,13,875 and, to that extent, the orderpassed by the AO was prejudicial to the interest of the Revenue. In reply tothe SCN, the Assessee took the stand that, during the AY in question, it “hadpurchased the assets from independent vendors, out of its own funds forsetting up the project.” 8. Thereafter the impugned order dated 30[th]March 2016 was passed by thePCIT. It is seen that one of the factors that weighed with the PCIT inexercising jurisdiction under Section 263 of the Act was Circular No. 9 of2014 dated 23[rd]April 2014 issued by the Central Board of Direct Taxeswhich stated that “under the BOT arrangement an assessee would only beallowed amortization in respect of expenditure incurred in creation of theinfrastructure facility over the period of BOT arrangement and nodepreciation would be allowed on such infrastructure under provisions of theAct”. The case of the Assessee was that such a Circular could not dictate tothe AO how he should frame his assessment and, to the extent the Circularwas prejudicial to the Assessee, its application would be beyond the scopeand ambit of the powers conferred on the Board under Section 119 of theAct. 9. It is seen, in the order dated 30[th]March 2016, the PCIT has proceeded bysetting out the contents of the SCN and the contents of the reply given by theAssessee. It appears that no inquiry, as such, was undertaken by the PCIT tocome to the conclusion that the original assessment order was erroneous andprejudicial to the interests of the Revenue. ITA No.705/2017 Page 3 of 5 10. For the purposes of exercising jurisdiction under Section 263 of the Act,the conclusion that the order of the AO is erroneous and prejudicial to theinterests of the Revenue has to be preceded by some minimal inquiry. Infact, if the PCIT is of the view that the AO did not undertake any inquiry, itbecomes incumbent on the PCIT to conduct such inquiry. All that PCIT hasdone in the impugned order is to refer to the Circular of the CBDT andconclude that “in the case of the Assessee company, the AO was duty boundto calculate and allow depreciation on the BOT in conformity of the CBDTCircular 9/2014 but the AO failed to do so. Therefore, the order of the AO iserroneous insofar as prejudicial to the interest of revenue”. 11. In the considered view of the Court, this can hardly constitute thereasons required to be given by the PCIT to justify the exercise ofjurisdiction under Section 263 of the Act. In the context of the present caseif, as urged by the Revenue, the Assessee has wrongly claimed depreciationon assets like land and building, it was incumbent upon the PCIT toundertake an inquiry as regards which of the assets were purchased andinstalled by the Assessee out of its own funds during the AY in questionand, which were those assets that were handed over to it by the DMRC. Thatbasic exercise of determining to what extent the depreciation was claimed inexcess has not been undertaken by the PCIT. 12. Mr. Asheesh Jain then volunteered that the PCIT had exercised thesecond option available to him under Section 263 (1) of the Act by sendingthe entire matter back to the AO for a fresh assessment. That option, in theconsidered view of the Court, can be exercised only after the PCIT ITA No.705/2017 undertakes an inquiry himself in the manner indicated hereinbefore. That ismissing in the present case. 13. Therefore, the Court is of the view that the ITAT was not in error insetting aside the impugned order of the PCIT under Section 263 of the Act.No substantial question of law arises. 14. The appeal is dismissed. S. MURALIDHAR, J. SEPTEMBER 05, 2017srb PRATHIBA M. SINGH, J. ITA No.705/2017