Case Note & Summary
The appeal before the High Court arose out of an order passed by the Income Tax Appellate Tribunal (ITAT) dismissing the assessee's appeal and upholding the exercise of revisionary jurisdiction by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961. The assessee, a company engaged in infrastructure development, had entered into a Concession Agreement with the National Highways Authority of India (NHAI) on 20th November 2001 to construct, maintain and operate a toll road on Build, Operate and Transfer (BOT) basis for a concession period of 17 years and 6 months. The road was constructed on government land and was to be handed over free of cost at the end of the concession period. In the assessment year 2005-06, which was the first year of operation, the assessee claimed depreciation of Rs.59.92 crores at 10% on the capitalized cost of the toll road. The Assessing Officer scrutinised the return, sought clarifications and after examination passed an assessment order on 28th December 2007 allowing the depreciation claim. Subsequently, the Commissioner of Income Tax issued a show cause notice on 26th February 2009 under section 263 proposing to revise the assessment on the ground that the Assessing Officer had erred in allowing depreciation on the toll road constructed on BOT basis, resulting in under-assessment of income. The assessee replied that the Assessing Officer had applied his mind and taken a possible view, so section 263 jurisdiction could not be invoked. The Commissioner passed an order on 17th March 2010 setting aside the assessment and directing the Assessing Officer to re-examine the allowability of depreciation on toll road. Aggrieved, the assessee appealed to the ITAT, which by its order dated 30th August 2011 dismissed the appeal, holding that the Assessing Officer had passed the order without any examination of the issue and in a mechanical manner, making it erroneous and prejudicial to the interest of revenue. The assessee then filed an appeal before the Bombay High Court under section 260A of the Act, raising the substantial question of law set out above. Before the High Court, the appellant argued that the Assessing Officer had applied his mind, his order was not erroneous or prejudicial, and that the Commissioner's order was vitiated due to variance between the show cause notice and the final order. The appellant also contended that on merits, the view taken by the Assessing Officer was a possible and plausible view. The revenue countered that the Assessing Officer had not examined the issue of ownership of the asset, which is a prerequisite for claiming depreciation under section 32, and therefore the order was erroneous. Revenue further argued that the assessee, as a concessionaire, did not own the road, having built it on sovereign land, and at best was a licensee, disentitling it to depreciation. The High Court heard the matter on 18th September 2014 and reserved judgment. The full text of the judgment as provided is incomplete, ending mid-sentence during a reproduction of section 32 of the Act, and thus the final reasoning and decision of the court are not contained in the available excerpt.
Issue of Consideration
Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road?
Case Details
2014 LawText (BOM) (10) 73
Income Tax Appeal No. 499 of 2012
S.C. Dharmadhikari, A.K. Menon
Mr. F.V. Irani i/b Mr. S.G. Dalal for Appellant, Mr. Arvind Pinto for Respondent
North Karnataka Expressway Ltd.
The Commissioner of Income Tax-10, Mumbai
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Nature of Litigation
Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal confirming the Commissioner of Income Tax's order under Section 263 setting aside the assessment and directing re-examination of depreciation on toll road.
Remedy Sought
Assessee sought quashing of the Tribunal's order and the Commissioner's order, and restoration of the Assessing Officer's assessment allowing depreciation on toll road.
Filing Reason
The Commissioner under Section 263 set aside the assessment order on the ground that the Assessing Officer had erroneously allowed depreciation on toll road constructed under BOT concession without examining ownership, causing prejudice to revenue. The Tribunal upheld this, hence the assessee appealed.
Previous Decisions
The Assessing Officer passed assessment order on 28-12-2007 allowing depreciation. The Commissioner issued show cause notice under Section 263 on 26-02-2009 and passed order on 17-03-2010 setting aside the assessment. The Income Tax Appellate Tribunal dismissed the assessee's appeal on 30-08-2011, confirming the Commissioner's order.
Issues
Whether the Tribunal was justified in confirming the Commissioner's order under Section 263 directing re-examination of allowability of depreciation on toll road.
Whether the Assessing Officer's order allowing depreciation was erroneous and prejudicial to the interest of revenue.
Whether the assessee, as a concessionaire under a BOT agreement, can be considered owner of the toll road for purposes of claiming depreciation under Section 32.
Submissions/Arguments
Appellant argued that the Assessing Officer had applied his mind, his order was a possible view, hence the Commissioner could not exercise revision under Section 263; the order was not erroneous and prejudicial; there was variance between show cause notice and final order.
Appellant contended that the concession agreement deemed the property to be owned by the concessionaire for tax depreciation purposes, and the claim was justified.
Revenue argued that the Assessing Officer did not examine the issue of ownership, rendering the order erroneous; the assessee does not own the land or the road, being built on sovereign land, and thus depreciation under Section 32 is not allowable.
Revenue submitted that since no opinion was formed by the Assessing Officer, it was not a case of two possible views, and the Commissioner rightly directed re-examination.
Judgment Excerpts
The Commissioner had exercised his powers under section 263 ... and held that the assessment made by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. (Para 2)
The Assessee executed a Concession Agreement on 20th November, 2001 with the National Highway Authority of India (NHAI) to construct a road styled as toll road ... on Build, Operate and Transfer (BOT) basis. (Para 7)
The Appellant claimed Depreciation of Rs.59.92 crores at the rate of 10% on the capitalized cost of the toll road. (Para 8)
the Tribunal has held that the Assessing Officer has passed an order without any examination of the issue and in a mechanical manner. His order was, therefore, erroneous and prejudicial to the interest of the Revenue. (Para 11)
Procedural History
Assessment year 2005-06: scrutiny assessment by Assessing Officer, order passed on 28-12-2007 allowing depreciation. Commissioner of Income Tax issued show cause notice under section 263 on 26-02-2009. Commissioner passed order on 17-03-2010 setting aside assessment and directing re-examination. Assessee appealed to Income Tax Appellate Tribunal. ITAT dismissed appeal on 30-08-2011, confirming Commissioner's order. Assessee filed Income Tax Appeal No. 499 of 2012 before Bombay High Court. Heard on 18-09-2014, reserved, and judgment pronounced on 14-10-2014.
Acts & Sections
- Income Tax Act, 1961: Section 32, Section 263
- Motor Vehicles Act, 1988: Section 2
