M/s Nandi Economic Corrdior Enterprises Ltd , Bangalore V. The Assistant Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITA 1063/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9220 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-07-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard
• Section: 119; 32

Judgement Text

ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENTAND SHRI B.R. BASKARAN, ACCOUTANT MEMBER ITA NOS.1063, 1064 & 1079/BANG/2018 ASSESSMENTYEAR:2011-12, 2012-13& 2014-15 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD. #1, MIDFORD HOUSE, MIDFORD GARDENS, OFF. M.G. ROAD BENGALURU-560 001 PAN NO :AABCN2061N VS. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-5(1)(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI SHIVA PRASAD REDDY, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 30.07.2020 DATE OF PRONOUNCEMENT : 12.08.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: ALL THE 3 APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST THE ORDERS PASSED BY LD. CIT(A)-5, BENGALUR U AND THEY RELATE TO THE ASSESSMENT YEARS 2011-12, 2012-1 3 & 2014-15. 2. AT THE TIME OF HEARING, THE LD. A.R. PRESSED TH E GROUNDS RELATING TO REJECTION OF CLAIM OF DEPRECIAT ION ON THE LAND USED FOR BUILDING ROADS. ACCORDINGLY, THE REMAINING GROUNDS ARE DISMISSED AS NOT PRESSED. ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU PAGE 2 OF 7 3. THE FACTS RELATING TO THE CLAIM OF DEPRECIATION ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BU SINESS OF DEVELOPMENT, MAINTENANCE AND OPERATION OF INFRASTRU CTURE CORRIDOR BETWEEN BENGALURU CITY AND MYSORE CITY. T HE ASSESSEE HAS CONSTRUCTED INFRASTRUCTURE ROAD ON THE LAND NOTIFIED AND ALLOTTED BY GOVERNMENT OF KARNATAKA TH ROUGH THE KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD. T HE INFRASTRUCTURE ROAD IS TRANSFERABLE TO THE GOVT. OF KARNATAKA AT THE END OF THE CONCESSION PERIOD, WHIC H CONSISTED OF 10 YEARS FOR CONSTRUCTION OF THE ROADS AND 30 YEARS FOR OPERATION AND MAINTENANCE OF THE SAME. A T THE TIME OF FILING RETURN OF INCOME, THE ASSESSEE CLAIM ED DEPRECIATION ON THE LAND BELOW THE TOLL ROAD IN ALL THESE YEARS. THE A.O. DISALLOWED THE DEPRECIATION CLAIME D ON THE LAND ON THE REASONING THAT NO DEPRECIATION IS ALLOWABLE ON THE LAND. THE LD. CIT(A) ALSO CONFIRM ED THE SAME. 4. AT THE TIME OF HEARING, THE LD. A.R. INVITED OUR ATTENTION TO THE CIRCULAR NO.9/2014 DATED 23.4.2014 ISSUED BY CBDT, MORE PARTICULARLY PARAGRAPH 5 & 6 O F THE CIRCULAR. HE SUBMITTED THAT THE CBDT HAS, IN EXERC ISE OF POWERS CONFERRED U/S 119 OF THE ACT HAS CLARIFIED T HAT THE COST OF CONSTRUCTION ON DEVELOPMENT OF INFRASTRUCTU RE FACILITY OF ROADS/HIGHWAYS UNDER BOP PURCHASE MAY B E ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU PAGE 3 OF 7 AMORTIZED AND CLAIMED AS ALLOWABLE EXPENDITURE. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE ASSESS EE MAY BE GIVEN AN OPPORTUNITY TO CLAIM DEDUCTION BY WAY O F AMORTIZATION AS MENTIONED IN THE CIRCULAR OF CBDT. ACCORDINGLY HE PRAYED THAT THE MATTERS MAY BE RESTO RED TO THE FILE OF THE A.O. WITH A DIRECTION TO ALLOW AMOR TIZATION BENEFITS AS PER THE CBDT CIRCULAR REFERRED ABOVE. 5. THE LD D.R ALSO SUBMITTED THAT THE DEDUCTION SH OULD BE ALLOWED TO THE ASSESSEE AS PER THE CIRCULAR ISSU ED BY CBDT. 6. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS CLAIMED DEPRECIATION O N THE LAND BENEATH THE TOLL ROAD AND THE SAME HAS BEEN DISALLOWED BY THE A.O. ON THE REASONING THAT THE LA ND CANNOT DEPRECIATE. NOW THE ASSESSEE IS MAKING A FR ESH CLAIM, BY PLACING RELIANCE ON THE FOLLOWING CIRCULA R. CBDT CIRCULAR NO. 9/2014, DATED: APRIL 23, 2014 SUBJECT:- CLARIFICATION REGARDING TREATMENT OF EXPE NDITURE INCURRED FOR DEVELOPMENT OF ROADS/HIGHWAYS IN BOT AGREEMENTS UNDER INCOME-TAX ACT, 1961 REGARDING. IT HAS COME TO THE NOTICE OF THE BOARD THAT DISPUTE S HAVE ARISEN AS TO WHETHER THE EXPENDITURE INCURRED ON DEVELOPME NT AND CONSTRUCTION OF INFRASTRUCTURAL FACILITIES LIKE ROA DS/HIGHWAYS ON BUILD-OPERATE-TRANSFER (BOT) BASIS WITH RIGHT TO COLLECT TOLL IS ENTITLED FOR DEPRECIATION UNDER SECTION 32(1)(II) O F THE ACT OR THE SAME CAN BE AMORTIZED BY TREATING IT AS AN ALLOWABL E BUSINESS ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU PAGE 4 OF 7 EXPENDITURE UNDER THE RELEVANT PROVISIONS OF THE IN COME-TAX ACT, 1961 (ACT). 2. IN SUCH PROJECTS, THE DEVELOPER (HEREINAFTER REF ERRED TO AS ASSESSEE), IN TERMS OF CONCESSIONAIRE AGREEMENT W ITH GOVERNMENT OR ITS AGENCIES IS REQUIRED TO CONSTRUCT , DEVELOP AND MAINTAIN THE INFRASTRUCTURAL FACILITY OF ROADS/HIGH WAYS WHICH, INTER-ALIA, INCLUDES LAYING OF ROADS, BRIDGES, HIGH WAYS, APPROACH ROADS, CULVERTS, PUBLIC AMENITIES ETC. AT ITS OWN C OST AND ITS UTILIZATION THEREOF FOR A SPECIFIED PERIOD. IN LIEU OF CONSIDERATION OF THE EXPENDITURE INCURRED ON CONSTRUCTION, OPERAT ION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY COVERED BY THE PERIOD OF THE AGREEMENT, THE ASSESSEE IS ACCORDED A RIGHT TO COLLECT TOLL FROM USERS OF SUCH FACILITY. THE EXPENDITURE INCURR ED BY SUCH ASSESSEE ON DEVELOPMENT AND CONSTRUCTION OF SUCH INFRASTRUCTURAL FACILITY ARE CAPITALIZED IN THE ACC OUNTS. IT IS SEEN THAT IN RETURNS-OF- INCOME, ASSESSEES ARE GENERALLY CLAIMING DEPRECIATION ON SUCH CAPITALIZED EXPENDITURE TREATI NG IT AS AN INTANGIBLE ASSET IN TERMS OF SECTION 32(1)(II) OF THE ACT WHILE IN ASSESSMENTS, SUCH CLAIMS ARE BEING DISALLOWED BY TH E ASSESSING OFFICER ON THE GROUNDS THAT SUCH INFRASTR UCTURAL FACILITY IS NOT OWNED, WHOLLY OR PARTLY, BY THE TAXPAYER WHI CH IS AN ESSENTIAL CONDITION FOR CLAIMING DEPRECIATION AND F URTHER RIGHT TO COLLECT TOLL DOES NOT FALL IN ANY OF THE CATEGORIES OF INTANGIBLE ASSETS SPECIFIED IN SUB-CLAUSE(II) OF SUB-SECTION (1) OF SECTION 32 OF THE ACT. 3. IN BOT ARRANGEMENTS FOR DEVELOPMENT OF ROADS/HIG HWAYS, AS A MATTER OF GENERAL PRACTICE, POSSESSION OF LAND IS HANDED OVER TO THE ASSESSEE BY THE GOVERNMENT/NOTIFIED AUTHORIT Y FOR THE PURPOSES OF CONSTRUCTION OF THE PROJECT WITHOUT ANY ACTUAL TRANSFER OF OWNERSHIP AND SUCH ASSESSEE HAS ONLY A RIGHT TO DEVELOP AND MAINTAIN SUCH ASSET. IT ALSO ENJOYS THE BENEFITS ARISING FROM USE OF ASSET THROUGH COLLECTION OF TOL L FOR A SPECIFIED PERIOD WITHOUT HAVING ACTUAL OWNERSHIP OVER SUCH AS SET. THEREFORE, THE RIGHTS IN THE LAND REMAIN VESTED WIT H THE GOVERNMENT OR ITS AGENCIES. THUS, AS ASSESSEE DOES NOT HOLD ANY RIGHTS IN THE PROJECT EXCEPT RECOVERY OF TOLL F EE TO RECOUP THE EXPENDITURE INCURRED, IT CANNOT THEREFORE BE TREATE D AS AN OWNER OF THE PROPERTY, EITHER WHOLLY OR PARTLY, FOR PURPO SES OF ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU PAGE 5 OF 7 ALLOWABILITY OF DEPRECIATION UNDER SECTION 32(1)(II ) OF THE ACT. THUS, PRESENT PROVISIONS OF THE ACT DO NOT ALLOW CL AIM OF DEPRECIATION ON TOLL WAYS DUE TO NON FULFILLMENT OF OWNERSHIP CRITERIA IN SUCH CASES. 4. 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 BRING S TO IT AN ENDURING BENEFIT IN THE FORM OF RIGHT TO COLLECT TH E TOLL DURING THE PERIOD OF THE AGREEMENT. HONBLE SUPREME COURT IN T HE CASE OF MADRAS INDUSTRIAL INVESTMENT CORP LTD 225 ITR 802 (SC) ALLOWED SPREADING OVER OF LIABILITY OVER A NUMBER OF YEARS ON THE GROUND THAT THERE WAS CONTINUING BENEF IT TO THE COMPANY OVER A PERIOD. THEREFORE, ANALOGOUSLY, EXPE NDITURE INCURRED ON AN INFRASTRUCTURE PROJECT FOR DEVELOPME NT OF ROADS/HIGHWAYS UNDER BOT AGREEMENT MAY BE TREATED A S HAVING BEEN MADE/INCURRED FOR THE PURPOSES OF BUSIN ESS OR PROFESSION OF THE ASSESSEE AND SAME MAY BE ALLOWED TO BE SPREAD DURING THE TENURE OF CONCESSIONAIRE AGREEMEN T. 5. IN VIEW OF ABOVE, CENTRAL BOARD OF DIRECT TAXES, IN EXERCISE OF THE POWERS CONFERRED UNDER SECTION 119 OF THE ACT H EREBY CLARIFIES THAT THE COST OF CONSTRUCTION ON DEVELOPM ENT OF INFRASTRUCTURE FACILITY OF ROADS/HIGHWAYS UNDER BOT PROJECTS MAY BE AMORTIZED AND CLAIMED AS ALLOWABLE BUSINESS EXPE NDITURE UNDER THE ACT. 6. THE AMORTIZATION ALLOWABLE MAY BE COMPUTED AT TH E RATE WHICH ENSURES THAT THE WHOLE OF THE COST INCURRED I N CREATION OF INFRASTRUCTURAL FACILITY OF ROAD/HIGHWAY IS AMORTIZ ED EVENLY OVER THE PERIOD OF CONCESSIONAIRE AGREEMENT AFTER EXCLUD ING THE TIME TAKE FOR CREATION OF SUCH FACILITY. 7. IN THE CASE WHERE AN ASSESSEE HAS CLAIMED ANY DE DUCTION OUT OF INITIAL COST OF DEVELOPMENT OF INFRASTRUCTUR E FACILITY OF ROADS/HIGHWAYS UNDER BOT PROJECTS IN EARLIER YEAR, THE TOTAL DEDUCTION SO CLAIMED FOR THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR UNDER CONSIDERATION MAYBE DEDUCTED FROM THE INITIAL COST OF INFRASTRUCTURE FACILITY OF ROADS /H IGHWAYS AND THE ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU PAGE 6 OF 7 COST SO REDUCED SHALL BE AMORTIZED EQUALLY OVER T HE REMAINING PERIOD OF TOLL CONCESSIONAIRE AGREEMENT. 8. IT IS HEREBY CLARIFIED THAT THIS CIRCULAR IS APP LICABLE ONLY TO THOSE INFRASTRUCTURE PROJECTS FOR DEVELOPMENT OF RO AD/HIGHWAYS ON BOT BASIS WHERE OWNERSHIP IS NOT VESTED WITH THE ASSESSEE UNDER THE CONCESSIONAIRE AGREEMENT. 9. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERN ED. 10. HINDI VERSION TO FOLLOW. 7. WE NOTICE THAT THE CBDT, BY EXERCISING ITS POWER S U/S 119 OF THE ACT, HAS PRESCRIBED A METHODOLOGY FO R ALLOWING THE CLAIM OF THE ASSESSEE. WE NOTICE THAT THE CIRCULAR WAS AVAILABLE WHEN THE AO HAS PASSED THE ASSESSMENT ORDERS FOR AY 2012-13 AND 2014-15. IT I S A WELL KNOWN FACT THAT THE CIRCULAR ISSUED BY CBDT IS BINDING ON THE ASSESSING OFFICER. NOW THE ASSESSEE IS ALSO PLEADING FOR APPLICATION OF THE CIRCULAR IN THESE T HREE YEARS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE CL AIM OF THE ASSESSEE DESERVES TO BE ADMITTED AND THE SAME W OULD REQUIRE EXAMINATION AT THE END OF THE A.O. ACCORDI NGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR E XAMINING THE SAME AFRESH BY APPLYING THE CBDT CIRCULAR REFER RED ABOVE. THE ASSESSEE SHOULD BE PROVIDED WITH ADEQUA TE OPPORTUNITY OF BEING HEARD. ITA NOS.1063, 1064 & 1079/BANG/2018 M/S. NANDI ECONOMIC CORRIDOR ENTERPRISES LTD., BENG ALURU PAGE 7 OF 7 8. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSE SSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12.08.2020. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 12 TH AUG, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.