M/s. Moradabad Toll Road Company Ltd., New Delhi V. ACIT, New Delhi

ITA 1426/DEL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7851 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 24-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJ TONDON
• Assessee Lawyers: S C GUPTA
• Keywords: Depreciation; Additional evidence; Initiation of penalty proceedings; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

ITA NO. 1426/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1426/DEL/2011 A.Y. : 2007-08 M/S MORADABAD TOLL ROAD COMPANY LIMITED, G-5&6, SECTOR-10, DWARKA, NEW DELHI 110 075 (PAN: AABCM9154B) VS. ACIT, CIRCLE 5(1), NEW DELHI CR BUILDING, 4 TH FLOOR, IP MARG, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. S.C. GUPTA, CA DEPARTMENT BY : SH. RAJ TONDON, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VIII, NEW D ELHI DATED 28.1.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- 1 THAT THE LEARNED ASSESSING OFFICER HAS ERRED O N FACTS AND IN LAW IN PASSING THE IMPUGNED ORDER AND THE CIT(A) IN CONFIRMING THE SAME, WHICH IS WITHOUT JURISDICTION, CONTRARY TO LAW, EQUITY AND JUSTICE, F ACTS AND MATERIAL ON RECORD, IS ARBITRARY, BASED ON ITA NO. 1426/DEL/2011 2 CONJECTURES AND SURMISES, PASSED WITHOUT APPLICATION OF MIND AND WITHOUT FOLLOWING THE PROCEDURE LAID DOW N BY THE APEX COURT. 2 THAT WITHOUT PREJUDICE TO THIS GENERALITY, THE L EARNED AO HAS ERRED ON FACTS AND IN MAKING AND CIT(A) IN CONFIRMING THE FOLLOWING DISALLOWANCES AND/OR ADDITIONS TO THE INCOME U/S 143(3): A) ` 7,16,79,768/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED ON ROADS SINCE TOLL ROAD IS PLANT AND APPLICABLE RATE OF DEPRECIATION IS 15% AND NOT 10%. B) ALLOWABLE DEPRECIATION CALCULATED AT ` 3,70,92,664/ - IS ALSO WRONG AND SHOULD HAVE BEEN ALLOWED ON W.D.V. BASIS, CALCULATED ON THE BASIS OF DEPRECIATION ACTUALLY ALLOWED IN THE EARLIER YEARS. C) ` 86,224/- ON ACCOUNT OF AUDIT FEES. 3 THAT THE LEARNED AO HAS ERRED ON FACTS AND IN LA W IN ORDERING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C). ITA NO. 1426/DEL/2011 3 4 THAT ANY OTHER OR FURTHER GROUNDS OF APPEAL MAY A LSO BE ALLOWED TO BE TAKEN AT THE TIME OF HEARING OF THE APPEAL. 5 THAT APPELLANT CRAVES LEAVE AND SANCTION OF THE HON'BLE ITAT TO FILE ADDITIONAL EVIDENCE, IF SO REQ UIRED FOR PROPER PROSECUTION OF THE CASE, BASED ON FACTS AND CIRCUMSTANCES, WHICH HAS NOT BEEN OR COULD NOT BE ADDUCED OR FILED BEFORE LOWER AUTHORITIES EITHER BECAUSE PROPER AND SUFFICIENT OPPORTUNITY WAS NOT PROVIDED OR BECAUSE IT WAS NOT SOLICITED OR ITS NEE D WAS NOT APPRECIATED. 3. APROPOS ISSUE OF DEPRECIATION:- ASSESSEE COMPANY IS 100% SUBSIDIARY OF NHAI AND FOR MED WITH THE SOLE OBJECTIVE OF CONSTRUCTING THE HIGHWAY AND B YPASS AT MORADABAD AND THE ASSESSEE COMPANY EXECUTED THE PROJE CT ON BUILD- OPERATE-TRANSFER (BOT) BASIS. ASSESSING OFFICER NOTED THAT SINCE EARLIER YEARS, THE ASSESSEE COMPANY HAD BEEN CLAIMING THE DEPRECIATION ON ROADS @ 25%, WHEREAS IN ALL THE ASS ESSMENT AS WELL AS IN THE APPEAL ORDERS, THE SAME WAS HELD TO BE @ 10% . ASSESSING OFFICER FURTHER FOUND THAT ASSESSEE HAD CALCULATE D THE AMOUNT ITA NO. 1426/DEL/2011 4 DEPRECIATION ON THE ORIGINAL COST IN CASE OF ALL T HE ASSETS, INSTEAD OF WRITTEN DOWN VALUE (WDV). ASSESSING OFFICER FURTHE R FOUND THAT ASSESSEE HAD CLAIMED DEPRECIATION AMOUNTING TO ` 10, 87,71,732/- CALCULATED ON THE ORIGINAL COST OF THE FIXED ASSETS , WHEREAS, AS PER PROVISIONS OF SECTION 32, THE AMOUNT OF DEPRECIATION ALLOWABLE IS ` 3,70,92,664/-, CALCULATED ON THE AMOUNT OF WDV. 4. UPON ASSESSEES APPEAL, LD. COMMISSIONER OF INCOM E TAX (APPEALS) HELD THAT THE CASE LAWS RELIED UPON B Y THE ASSESSEE DO NOT LEND ANY SUPPORT TO THE CAUSE OF THE ASSESSEE. HE HELD THAT IN VIEW OF THE PAST HISTORY OF THE CASE, HE WAS OF THE FIR M OPINION THAT THE DEPRECIATION WITH REFERENCE TO THE ROADS HAS TO BE ALLOWED ONLY @ 10% AND THE ACTION OF THE ASSESSING OFFICER WAS ACCOR DINGLY SUSTAINED. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAWS:- 247 ITR 803 INDORE MUNICIPAL CORPN. VS. C.I.T. 156 ITR 283 C.I.T. VS. COROMANDAL FERTILIZERS LT D. 196 ITR 149 C.I.T. VS. GWALIOR RAYON SILK MFG. CO . LTD. ITA NO. 1426/DEL/2011 5 6.1 HE FURTHER RELIED UPON THE CASE OF MAHARASTARA STATE ROAD CORPORATION LTD. VS. ACIT, MUMBAI TRIBUNAL DECISI ON DATED 21.5.2008. LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT T HE ROADS WERE ACTUALLY PLANT OF THE ASSESSEE AND SHOULD BE ALLOWE D DEPRECIATION APPLICABLE TO THE PLANT. 6.2 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE PLACED REL IANCE UPON THE FOLLOWING CASE LAWS:- - TAMILNADU ROAD DEVELOPMENT CO. LTD. VS. ACIT (2009 ) 120 ITD 20 (CHENNAI). - C.I.T. VS. GWALIOR RAYON SILK MFG. CO. LTD. (1992) 196 ITR 149 (SC). - C.I.T. VS. MAHINDRA SINTERED PRODUCTS (1993) 201 I TR 605 (BOM). - C.I.T. VS. GUJRAT STATE FERTILIZERS CO. LTD. (199 3) 203 ITR 526 (GUJ.) 6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. THE QUESTION BEFORE US IS WHETHER ROAD A RE TO BE GRANTED DEPRECIATION AT THE RATE OF PLANT OR BUILDING. WHI LE THE ASSESSEE IS SEEKING DEPRECIATION AS APPLICABLE TO PLANTS, REVEN UE AUTHORITIES HAVE ALLOWED DEPREICATION AS APPLICABLE TO BUIDING. WE DISCUSS BELOW THE CASE LAWS CITED. 6.4 IN THE CASE OF INDORE MUNICIPAL CORPORATION VS. C.I.T. 247 ITR 803 ITA NO. 1426/DEL/2011 6 (SC), IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS CONSTRUCTION OF THE METAL ROADS ON TRENCHING GROUNDS WAS NOT A REVENUE EXPENDITURE. IT WAS FURTHER HELD THAT THE ROADS COULD NOT BE TREATED BUILDING, AS THERE WAS NO OTHER CONSTRUCTIO N EXCEPT THE ROADS. IT CANNOT, THEREFORE, BE SAID THAT THE ROADS BY THE MSELVES WOULD CONSTITUTE BUILDINGS AND ASSESSEE WAS NOT ENTITLED TO DEPRECIATION ON THE COST OF THE CONSTRUCTION OF THE ROADS. 6.5 IN THE CASE OF C.I.T. VS. COROMANDEL FERTILIZE RS LIMITED 156 ITR 283, THE HONBLE HIGH COURT HAS HELD THAT THE ROADS ARE ACTUAL ADJUNCTS TO THE ASSESSEE AND ARE WITHIN THE FACTORY PREMISES. THE TRANSPORT OF VERY ESSENTIAL RAW MATERIAL FOR THE MA NUFACTURE OF THE FERTILISERS WHICH IS THE MAIN BUSINESS OF THE ASSES SEE COMPANY, COULD NOT BE CARRIED ON AT ALL WITHOUT THESE ROADS. THEY ARE NOT ROADS USED BY OTHERS BUT CONSTITUTE PART OF THE FERTILISER FAC TORY. THEY ARE AS MUCH NECESSARY FOR THE PURPOSE OF THE ASSESSEE'S BUSINES S AS THE FACTORY BUILDING AND MACHINERY ITSELF. THE ROADS CONSTITUTE D PLANT AND ASSESSEE WAS ENTITLED TO DEPRECIATION AND DEVELO PMENT REBATE ON THE COST OF THE ROADS. 6.6 IN THE CASE OF COMMISSIONER OF INCOME TAX V. GWAL IOR RAYON SILK MANUFACTURING CO. LIMITED, THE HONBLE APEX COURT HAS HELD THAT ROADS LAID WITHIN THE FACTORY PREMISES AS LINKS OR PROVID ING APPROACH TO THE BUILDINGS ARE NECESSARY ADJUNCTS TO THE FACTORY BUI LDINGS TO CARRY ON THE BUSINESS ACTIVITY OF THE ASSESSEE AND WOULD BE BUILDING WITHIN THE MEANING OF SECTION 32 OF THE ACT, 1961. THE DEPRECI ATION IS ADMISSIBLE ON THE CAPITAL EXPENDITURE INCURRED THEREON AS BUI LDING. 6.7 IN THE CASE OF MAHARASTHRA STATE ROAD DEVELOPMENT CORPN. LTD. VS. ACIT, THE TRIBUNAL HAD HELD THAT IF THE FUNCT IONAL TEST FOR A PLANT ITA NO. 1426/DEL/2011 7 ENUNCIATED BY THE APEX COURT AND JURISDICTIONAL C OURT IN THEIR DECISIONS REFERRED TO SUPRA IS APPLIED TO THE FACTS OF THE PRESENT CASE, WE HAVE NO HESITATION IN HOLDING THAT ROADS, FLYOVE RS, BRIDGES ETC., CONSTRUCTED AND OWNED BY THE ASSESSEE AND UTILIZED IN ITS BUSINESS OF PROVIDING INFRASTRUCTURE IS THE TOOL OF ITS TRADE AND AN ESSENTIAL ADJUNCT TO ITS BUSINESS AND NOT MERELY A SETTING IN WHICH THE BUSINESS IS CARRIED ON AND THEREFORE WOULD CONSTITUTE PLANT AN D WILL BE ENTITLED TO DEPRECIATION AT 25%. 6.8 IN THE CASE OF C.I.T. VS. MAHINDRA SINTERED PROD UCTS 201 ITR 605 (BOM), THE HONBLE MUMBAI HIGH COURT HAS HELD THAT TH E ROADS CONSTRUCTION WITHIN THE FACTORY PREMISES ARE TO BE C ONSIDERED AS BUILDING FOR THE PURPOSE OF DEPRECIATION ON THE RO AD THROUGH THE FACTORY PREMISES SHOULD BE ALLOWED AS A BUILDING. 6.9 IN THE CASE OF C.I.T. VS. GUJRAT STATE FERTILIZ ERS CO. LTD. (1993) 203 ITR 526 (GUJ). THE HONBLE HIGH COURT HAD HELD THAT THE ROADS LAID WITHIN THE FACTORY PREMISES AS LINKS OR PROVIDING AP PROACH TO THE BUILDINGS ARE NECESSARY ADJUNCTS TO THE FACTORY BUI LDINGS TO CARRY ON THE BUSINESS ACTIVITY OF THE ASSESSEE AND WOULD BE BUILDING WITHIN THE MEANING OF SECTION 32 OF THE ACT, 1961. IT WAS HELD THAT ROAD WITHIN THE FACTORY PREMISES WERE ENTITLED TO DEPRECIATION. 6.10 IN THE CASE OF TAMIL NADU DEVELOPMENT CO. LTD. V S. ACIT 120 ITD 20, THE CHENNAI TRIBUNAL HAD HELD THAT THE ASSESSE E HAD CONSTRUCTED ONLY A ROAD. AFTER THE ASSESSMENT YEAR 1988-89, ALL THE APPENDICES, PRESCRIBING THE TABLE OF RATES OF DEPRECIATION HAD THE NOTE THAT BUILDING WOULD INCLUDE ROAD. THEREFORE, THE ASSES SEE WOULD BECOME ENTITLED TO DEPRECIATION ON THE ROAD IN THE CATEGOR Y OF BUILDING. ITA NO. 1426/DEL/2011 8 6.11 FROM THE ABOVE CASE LAWS WE FIND THAT THE MAJORY VIEW INCLUDING THAT OF HONBLE APEX COURT IN C.I.T. VS. GWALIOR R AYOND SILK MANUFACTURING CO. LTD., IS THAT ROADS ARE TO BE TREA TED AS BUILDING AND ACCORDINGLY THE DEPRECIATION IS TO BE ALLOWED. WE FURTHER NOTE THAT AFTER THE ASSESSMENT YEAR 1988-89, ALL THE APPEND ICES PRESCRIBING THE TABLE OR RATES OF DEPRECIATION HAD THE NOTE THAT BU ILDING WOULD INCLUDE ROAD. 6.12 IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENTS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C. I.T.(A). ACCORDINGLY, WE UPHOLD THE SAME. 7. APROPOS ISSUE OF AUDIT FEE APROPOS ISSUE OF AUDIT FEE APROPOS ISSUE OF AUDIT FEE APROPOS ISSUE OF AUDIT FEE ON THIS ISSUE THE AO NOTED THAT A SUM OF ` 86224/- WAS DEBITED FOR AUDIT FEE ON WHICH TDS WAS NOT DEDUCTED. HENCE THE CLAIM WAS DISALLOWED U/S. 40(A). 8. BEFORE THE LD. CIT(A) ASSESSEE SUBMITTED THAT THE PAYMENT OF AUDIT FEE OF ` 86224/- WAS NEITHER ACCOUNTED FOR NO R ACTUALLY MADE DURING THE YEAR UNDER CONSIDERATION AND ONLY A PROV ISION FOR THE PURPOSE OF INTERNAL AND TAX AUDIT TO BE CONDUCTED I N THE NEXT F.Y. WAS MADE. 8.1 CONSIDERING THE ABOVE LD. CIT(A) OBSERVED THAT THE CLAIM OF ASSESSEE COMPANY WAS NOT ADMISSIBLE DURING THE YEAR U NDER CONSIDERATION BECAUSE NEITHER ANY SERVICES WITH REF ERENCE TO AUDIT WERE RENDERED TO THE ASSESSEE COMPANY, NOR ANY LIAB ILITY FOR PAYMENT OF FEE OF ` 86224/- HAD BEEN INCURRED DURING THE F.Y . RELEVANT TO THE A.Y. UNDER CONSIDERATION. LD. CIT(A) FURTHER OBSE RVED THAT IT IS AN ADMITTED FACT THAT THE PROVISION OF ` 86224/- WAS W ITH REFERENCE TO ITA NO. 1426/DEL/2011 9 AUDIT TO BE CONDUCTED ONLY IN THE NEXT F.Y. AND NECE SSARY DEDUCTION OF TDS WAS MADE AT THE TIME OF PAYMENT OF FEE TO THE AUDI TORS ONLY IN NEXT F.Y. LD. CIT(A) CONCLUDED THAT NEITHER THE EXPENDITURE PERTAINED TO THE A.Y. UNDER CONSIDERATION NOR ANY LIABILITY F OR THE SAME WAS INCURRED DURING THE F.Y. RELEVANT TO THE A.Y. UNDER CONSIDERATION. HENCE, HE CONFIRMED THE DISALLOWANCES MADE BY THE AO . 9. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND THA T LD. CIT(A) HAS GIVEN A FINDING THAT NEITHER THE EXPENDITURE PERTAI NED TO A.Y. UNDER CONSIDERATION NOR ANY LIABILITY FOR THE SAME WAS IN CURRED DURING THE F.Y. RELEVANT TO A.Y. UNDER CONSIDERATION. UNDER TH E CIRCUMSTANCES, WE FIND THAT THE LD. CIT(A) HAS TAKEN A CORRECT DEC ISION BASED ON THE FACTS OF THE CASE. ACCORDINGLY, WE UPHOLD THE ORDE R OF THE LD. CIT(A). 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/6/2012. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 15/6/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES