TMI Blog2019 (4) TMI 2118X X X X Extracts X X X X X X X X Extracts X X X X ..... DT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue . The Hon ble High Court took the view that this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under section 263. If the assessee has wrongly claimed depreciation on asset like land and building, it was incumbent upon the PCIT to undertake an enquiry as regards which of the assets were purchased and installed by assessee out of his own fund during the A.Y. in question and, which were those that were handed over to DMRC. That basic exercise of determining to what extent, the deprecation was claimed in excess has not been undertaken by ld. PCIT and the Hon ble High Court upheld the decision of Tribunal in setting-aside the order passed under section 263 of the Act. We are of the view that during the assessment, the Assessing Officer has taken a possible view in allowing depreciation on intangible asset. Therefore, in our view, the order passed by Assessing Officer is not erroneous. Thus, the twin condition as provided under section 263 of the Act was not fulfilled. Even otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Concessionaire Rights' received under 'Concessionaire Agreement' entered with Madhya Pradesh Government (MPROC) to construct the road on Build Operate Transfer (BOT) basis. 1.2. Ld. Pr. CIT has erred in holding the order passed by ld. AO as erroneous and prejudicial to revenue by failing to appreciate that depreciation charged by Appellant on 'Concessionaire Rights' was fully in compliance with the applicable provisions of section 32 of the Act applicable till the due date for filing return of income by Appellant for AY 2013-14. 1.3. Ld. Pr. CIT has erred has erred in holding the order passed by ld, AO as erroneous and prejudicial to revenue while mentioning that Id. AO had primafacie failed to carry out proper investigation and failed to comply with CBOT Circular No.9 /2014 dated 23.04.2014 and also not considering decision of Hon'ble Bombay High Court in the case of North Karnataka Expressway Ltd. vs CIT-10 - 51 taxmann.com 214 -2014. 1.4. Ld. Pr.CIT has erred in holding that the order passed by ld. AO as erroneous and prejudicial to the revenue while forcing the applicability of Circular No. 09/2014 dated 23.04.2014, which was not in existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax purpose claimed depreciation @ 25% as intangible asset. The Assessing Officer completed the assessment under section 143(3) and failed to carry out proper investigation of the matter and the order passed by Assessing Officer is erroneous and prejudicial to the interest of revenue. The ld. PCIT further mentioned that that Assessing Officer failed to follow the CBDT Circular No. 19/2014. As per said Circular No.9/2014, the expenditure incurred on construction of Toll Road is to be amortized equally during the life of concession. Failure to amortize the expenditure on the project over the period of concession has resulted excess computation of loss for the year by Rs. 18.04 Crore leading to potential short levy of tax of Rs. 5.41 Crore. The ld. PCIT further observed that as per the CBDT Circular, the cost of project is to be amortized over the period of life span of the project. The assessee has himself reported in the annual report, filed during the course of assessment proceeding that the cost of project to the assessee is Rs. 86.73 Crore. The said project was handed over as a sub-contract to its sister concern of the assessee. The assessee had received early completion bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seize to have effect thereby it will slowly depreciate to Nil value. The assessee further contended that as per provisions of section 32(1)(ii) of the Act , the assessee is entitled to claim deprecation on such right, which have been described as intangible asset under the Act and are eligible for claim of depreciation. 5. In support of its contention, the assessee relied upon the decision of Tribunal in ACIT vs. West Gujarat Expressway Ltd. [2015] 57 taxmann.com 384, ACIT vs. Ashoka Infraways (P.) Ltd. [2013] 33 taxmann.com 499 (ITAT Pune), Ashoka Info (P.)Ltd. V. ACIT [2010] SOT 50 (ITAT Pune) and Dimension Construction Pvt. Ltd. vs. DCIT [2011] ITA No. 222, 223, 233 857/PN/2009 (ITAT Pune). 6. The assessee also contended that it is not a case that the claim of assessee is factually incorrect or not in accordance with law. When the two views are possible on the matter, the view which is sustainable in law, supported by judicial decision, verified by Assessing Officer cannot be considered as erroneous and prejudicial to the revenue. The assessee has been granted the right to collect Toll and recover its cost awarded on BOT basis, the said right gives assessee a benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of revenue. For invoking provision under section 263, the twin condition mentioned in section 263 must be satisfied, that the order of Assessing Officer sought to be revised is erroneous and the order is prejudicial to the interest of revenue. The ld. AR submits that the Hon ble Supreme Court in Malabar Industrial Company Ltd. vs. CIT [243 ITR 83 (SC)] that the Commissioner has to be satisfied of the twin condition of section 263. If one of them is absent i.e. if the order is erroneous but not prejudicial to the interest of revenue or if not erroneous but prejudicial to the revenue, recourse cannot be had to section 263 of the Act. 9. The ld. AR further submits that the assessee is entitled for depreciation @ 25% on the Toll rights, being Intangible rights. The assessee had entered into concession agreement with the Government of Madhya Pradesh, wherein the assessee has been granted right to collect Toll. The right to collect Toll is a form of Intangible asset and is therefore, eligible for depreciation. The assessee considered the Toll rights and claimed deprecation on it. The ld. AR submits that on similar facts, the Mumbai Tribunal in ACIT vs. West Gujarat Expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore was debited to the Profit Loss Account under the head Other Expenses . Accordingly, there was no impact on the Profit Loss Account of the assessee, being business receipt relating to carrying on business. The details of operational income and early project completion bonus paid to VEL were submitted before the Assessing Officer along with reply dated 22.12.2015, therefore, the contention for reducing the early completion bonus from project cost under revision proceeding is not justified. The ld. AR prayed for quashing the order passed by ld. PCIT. 11. On the other hand the ld. DR For the revenue supported the order of ld. PCIT. The ld. DR for the revenue further submits that the order passed by Assessing Officer is not only erroneous but prejudicial to the interest of Revenue. The Assessing Officer has not examined the issue during the assessment proceedings. No detail was called nor was the claim of depreciation examined by Assessing Officer. If the assessee has merit, it can be examined by the Assessing Officer. In the rejoinder submission, the ld. AR submits that it could be set-aside for limited purpose. 12. We have considered the submissions of the ld. AR for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order: 17. We have considered the rival contentions. So far as the reliance of the Ld. A.R. on the article/clause 38.4 of the concession agreement between the assessee and the NHAI is concerned, we find that the identical clause was also there and relied upon in the case of North Karnataka Expressway Ltd. (supra) which has also been reproduced in para 8 of the order of the Hon'ble Bombay High Court (supra). The relevant part of the order for the sake of convenience is reproduced as under: 8. The appellant claimed that it was the owner of the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs.59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue under consideration was that whether the toll roads are not owned by the assessee and that he cannot claim any depreciation thereupon. Hence, the Hon'ble Bombay High Court has not discussed the issue relating to the claim of depreciation on the license for right to collect the toll as intangible asset. Further, the Hon'ble Bombay High Court in para 39 of the decision (supra) has observed that as per the provisions of National Highway Act, 1956 and National Highway Authorities of India Act, 1988, the ownership of the toll road vests in Union , however, the term owner as appearing in the Income Tax Act, 1961 has been defined widely and broadly for the purpose of the provisions of the Income Tax Act so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership, therefore his income should not be brought to tax; Similarly, if he can claim any deductions from his income which is comprising of profit and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term 'owner' is defined in this manner in Income Tax Act, 1961. The above observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery and depreciation be granted accordingly or the same be treated as intangible asset on the ground that the assessee has been granted license for right to collect the toll tax for a fixed period. Now the question before us is whether the assessee at this stage the can raise the alternative contention for claim of allowance of depreciation on the license authorizing him to collect the toll being an intangible asset or treating the project as plant machinery? 22. We may observe that the Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers Shareholders (P.) Ltd. [2012] 349 ITR 336/208 Taxman 498/23 taxmann.com 23, while relying upon the various decisions of the Hon'ble Supreme Court and other Hon'ble High Courts, has held that even if a claim is not made before the AO it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble Bombay High Court while relying upon the decision of the Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688/[1990] 53 Taxman 85 has observed that the power of the Appellate Commissioner is cotermi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years. The assessee was under bonafide belief that he has correctly claimed the deduction of depreciation on the toll road in view of the consistent findings of the Tribunal on this issue. However, due to the change of legal position in view of the law laid down by the Hon'ble Bombay High Court (supra), the assessee cannot be treated as the owner of the toll road. But it is not disputed that the assessee has made investments on the project and he is entitled to claim deductions in this respect. The claim of deduction has been very much put by the assessee in the return of income but wrongly treating itself as owner of the road which claim as observed above was under bonafide belief and in view of the settled legal position as was there at the time of putting the claim. Even the AO has also observed in the assessment order that it is a fact that the assessee company has incurred huge expenditure on the said project which cannot be treated as revenue expenditure allowable in one year as the same has resulted into providing enduring benefit to the assessee company, hence, the said amount would be eligible for amortization for the period of the concession agreement as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an enduring benefit during the period of agreement. This fact has also been discussed by the CBDT in circular No.09/2014 dated 23.04.14. The para 4 of which, for the sake of convenience, is reproduced as under: There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT in 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and the same may be allowed to be sprea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en described as intangible assets under the Act and are eligible for claim of depreciation. 28. In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules. Our above view is further supported by the decision of the co-ordinate Pune bench of the Tribunal in the case of Ashoka Infrastructure Ltd. v. ITO [IT Appeal Nos. 989 1105/(PN) of 2010], wherein, the Tribunal while further relying upon another decision of the Co-ordinate Bench of the Tribunal in the case of Asstt. CIT v. Ashoka Infraways (P.) Ltd. [2013] 58 SOT 147/33 taxmann.com 499 (Pune - Trib.) has held in clear terms that the claim of the assessee for depreciation on licence to collect toll being an 'intangible asset' falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of findings of the Tribunal for the sake of convenience is reproduced as under: 6. At the time of hearing, it was a common point between the parties that an identical issue has been considered by the Pune Bench of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas By-pass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on development, constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon'ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal No. 1.1 raised by the assessee.' 29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act. 30. So far as the other alternative contention of the assessee that the project be treated as plant machinery and the depreciation be accordingly allowed to it, we do not find that the said license of right to collect toll in any way falls in the definition of plant machinery. As held by the Hon'ble Bombay High Court, even the assessee is not the owner of the toll road. The assessee has been given only the right to develop, maintain and operate the toll road and further to collect the toll for the specified period. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 11. The reading of the above provision makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous, prejudice has been caused to the interests of the Revenue. 12. Hon'ble Apex Court in the case of Malabar Industrial Co., Ltd., Vs CIT reported in (2000) 243 ITR 83 (SC) has held that CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue--recourse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled. 14. In the present case, the Ld PCIT invoked provisions of Sec.263 and held that the assessment order passed by the AO u/s 143(3) to be erroneous and prejudicial to the interest of the Revenue for two reasons firstly that since the assessee is a partnership firm, cannot be considered to be a consortium so as to be eligible for claiming deduction u/s 80IA(4) of the Act. According to Ld. PCIT, AO has ignored the aforesaid fact and had allowed the deduction and secondly for the reason that assessee had claimed depreciation @ 25% on the project cost on WDV basis and the claim of depreciation was allowed by the AO whereas as per CBDT Circular No.9/2014, the entire cost of construction and development had to be amortised evenly over the period of concession. 15. On the issue of depreciation @ 25% claimed by assessee and allowed by AO, it is an undisputed fact that assessee had entered into different concession agreements with Public Works Department of Maharashtra for construction of certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the Assessing Officer did not apply his mind to the issue. 16. On the issue of assessee not being eligible for deduction u/s 80IA(4) as it being a partnership firm is concerned, it is an undisputed fact that the assessee is a partnership firm consisting of 3 companies namely Rohan Builders (India) Pvt. Ltd, Rajdeep Buildcon Pvt., Ltd and Rajdeep Road Developers Pvt., Ltd with a profit sharing ratio of 50:40:10 respectively. It is also a fact that in the case of assessee apart from the aforesaid 3 partners, there are no other noncorporate entities, who are partners. It is also a fact that the partnership firm came into existence on 11.04.2001 and the same partners continued in the year under consideration without any change in the constitution. It is a fact that according to provisions of Sec.80IA(4)(i)(a), the section applies to an enterprise which is a company registered in India or a consortium of companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act. It is also a fact that the word consortium used in the provision has not been defined in the Income Tax Act. As per the Merriam Webster dicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are allowed. 16. The Hon ble Delhi High Court in PCIT vs. Delhi Airport Metro Express Pvt. Ltd. (supra) held if the PCIT is of the view that Assessing Officer did not undertake any enquiry, it became incumbent on the PCIT to conduct such enquiry. All that PCIT has done in the impugned order is to refer to the Circular of CBDT and conclude in case of assesseecompany, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue . The Hon ble High Court took the view that this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under section 263 of the Act. If the assessee has wrongly claimed depreciation on asset like land and building, it was incumbent upon the PCIT to undertake an enquiry as regards which of the assets were purchased and installed by assessee out of his own fund during the A.Y. in question and, which were those that were handed over to DMRC. That basic exercise of determining to what extent, the deprecation was claimed in excess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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