The Commissioner of Income Tax - Central -3 v. Oriental Pathways (Nagpur) Pvt. Ltd.

2. The respondent/assessed,, durmg.tft^ relevant period, was mainly engaged in the business pfjdeyelopment, design, financing, '-!•' 'r' 'f| f-; procurement,engineering,constmctihii/^ and maintenance of the project highway of on build, operate and transfer basis. They werd'^entitledjio.-dbllect toll from the users to recoup the cost of reconstruction,-maintenance and operations. The respondent/assessee had claimed depreciation,..on roads @ 10% under Section 32 ofthe Act. This'blarnifofjthe^ for depreciation was accepted by the Assessing Officer in the regular assessment under Section 143(3)ofthe Actforthe assessment year 2009-2010.

3. Subsequently, there was a search and seizure operation under Section 132 of the Act on 10.12.2012 in case of Bakshi Group, wherein the premises of the respondent/assessee were also covered. Consequent to the said search,notice under Section 153A was issued. In response to the said notice,the respondent/assessee had filed their ITA 929/2018+connected Page[3] of16 u return ofincome,in which again depreciation @ 10% under Section 32 ofthe Act was claimed.

4. In the present appeal, we are not concerned with the assessment proceedings and whether or not the respondent-assessee was entitled to claim depreciation on the NH-6 constructed by them on built,operate and transfer basis. In the present case,we are concerned with whether or not the Tribunal was right in upholding the order passed by the CIT(Appeals)deleting penalty under Section 271(l)(c) ofthe Actimposed by the Assessirig-"Officer. ■

5. The relevant portion ofithe order by the CIT'(Appeals) reads as under;- f.y '''Y -I,,! "7.The appellant return on 29.09.2009, 959/-. The same was assesse^^^ae^i^gti^h^/43(3) ofthe Act on 23.12.2011 at a loss 200/-, by making disallowance ofRs.34,12,759/- on accountofpreliminary expenditure. During the said assessmentproceedings, no interference was^frtddeifBy the^i'A&^on other issues including depreciation, though the appellant has claimed depreciation on road @ 10% ofthe capitalized cost. A Search was carried out in Bakshi group of cases on 10.12.2012 and the case ofappellant was also covered in search. Accordingly, notice under section 153A was issued and appellant submitted return of income in response to the said notice on 03.02.2014, declaring loss of Rs.34,24,25,559/- which included depreciation amounting to Rs.30,63,57, 685/-, on roads. ITA 929/2018+connected Page4of16 7.[1] The appellant is stated to have been mainly engaged in the business of development, design, financing, procurement, engineering and construction, operation and maintenance of the project highway on NH-6, Maharashtra on build, operate and transfer basis and collecting, toll. During assessment proceedings the appellant was asked to substantiate the claim of depreciation on road @10%. The appellant submitted that it has claimed depreciation in view ofthe provisions ofsection 32 ofthe Act,as per its bonafide beliefthat depreciation is allowable to it as per law. However, it was submitted by the appellant before AO that in view of the circular no. 09/2014'dated,23.04.2014, it has been clarified by the CBDT^thciffhe tollfpqds are intangible assets and therefore"po d^p/fcmtipn can be allowed however, the assessde cgn/clm offofcapitalized expenditure equally:over tljb..t6ff< concession period. Based on mentioned.cffcularfappellant withdrew the claim of depreciation pi vpridusliassessment years and ■ • ''H.:' i-'lt'.'' claimed the writingC:qffi0f.,ei^nqitiire as per the said circular. The revfi^ti provided by the appellant. Accordiii^iyr^lkBi^ntk^fiesubmission ofthe appellant, the claim ofdeprecidtioh has been disallowed. It is observedfrom the assessmentorder that this addition is notbasedon dn^majemalor eyidgriqefoundandseized duringsearch as nothingff ds bieri brought out on record in this regard. The claim ofthe appellant with respect to the expenditure incurred has been allowed in view ofthe clarification by the CBDT in the above mentioned circular. Thus, net addition worked out at Rs.15,88,50,307/ -. The penalty for concealment of income/furnishing inaccurateparticulars ofincome under section 271(I)(c) was initiated. The appellant did not dispute the issue of addition made in the assessment order and nofurther appeal wasfiled. ITA 929/2018+connected Page 5 of16 7.[2] During penalty proceedings, the AO did not considered the submission by the appellantfavourably.It was mentioned that the depreciation is allowable only on the assets which are owned wholly by any assessee and CBDT has only given its further clarification and not made any amendment in the existing law. It was also stated that appellant has only revised its claim on depreciation on the query ofthe AO, after a span of11 months which indicates that appellant has made wrong claim willfully. After discussing in detail and relying upon various judgments the AO held that it is concealment of income and levied minimum penalty @100% of tax sought to be,evaded, which comes to Rs.4,90,84,745/-.; 7.3Beforeexamming-^j^thfifjl-f^^^edienttoreproduce the circular no.09/2014issuediby4heCBDTon23.04.2014 which is asfollows:- v. i, ft;;- •. ' '.T' '.i i}vv " Sub: Clarificdtidnfregarding treatment of expenditure for development of roads/highw@>s_:j.0u:,lB^;^^qgreement under Income Tax^i;f(^:0irpgi^mg^ It has come to the notice of the Board that disputes r.have arisen as to, whether the expenditureVinf.pr'^ed /development and construction of infrastructural facilities like roads/ highways on build operate-transfer (BOT) basis with right to collect toll is entitled for depreciation under section 32(I)(ii)of the Actor the same can be amortized by treating it as an allowable business expenditure under the relevant provisions of the Income Tax Act,

1961. ITA 929/2018+connected Page[6] of16

2. In such projects, (hereinafter referred as assessee) in terms ofconcessionaire agreement with government or its agencies is required to construct, develop and maintain the infrastructuralfacility ofroads/highways which inter alia includes laying of road, bridges, highways, approach roads culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of,the expenditure incurred on construction, operation and maintenance ofthe infrastructurefacility covered by the period of the agreement, tPie assdssee is accorded a right to collect tofifrdm'fisery^^^ facility. The expenditure incurred^' assessee on development- and of such infrastructufdl.fiiciliiy(}ja(efCapitalized in the accounts. It is sjeen.that in returns-of-income, ■■ '.KI ri? assessees are ^'g^ejal^jy^irning depreciation on such capfigliz0.,;ejcp^t^fiure creating it as an 'intangiple._. of section 32(fi(ii)of't^^^^fifii}e(fi^ssessments, such claims are beings disallowed by the Assessing Officer on the grounds thatsuch infrastructural facility ifnolpyvned, whollyfm partly, by the taxpayer whiBkAS'dn '^sehtia^ condition for claiming depreciation and further right to collect toll does notfall in any ofthe categories of'intangible assets'specified in sub-clause(ii) ofsub-section(1)ofsection 32ofthe Act.

3. In BOT arrangements for development of roads/ highways, as a matter of general practice, possession ofland is handed over to the assessee by the Government/notified ITA 929/2018+connected Page 7of16 authorityfor thepurposes ofconstruction ofthe project without any actual transfer of ownership andsuch assessee has only a rightto develop and maintain such asset. It also enjoys the benefits arisingfrom use ofasset through collection ofTollfor a specifiedperiod without having actual ownership over such asset. Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in theproject except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an owne.r of the property, either wholly orpai^ljffoiffnnrfids allowability of depreciation Under!sedtif)nfij2(l)(ii)ofthe Act. Thus,presentpvoyififfifj^iHe Actdo notallow claim ofdeprecidHdn.pfiif0l ways due to non fulfillmentofdwftehhip)erifieria in such cases. -j I' 'i - ii.L.. i I.'.

4. There is Jw/dp^Ujflfc^ the assessee incurs exp0hditfi0f$fy$t}fi project for development;ofrpdfik/lii§^a^ he is entitled to recover-'cost^Tljwid0^by him towards development of such facility (comprising of construction cost and other, pre-operative expenses)'(^fiimh^0hP'ff(^fBiiction period. Further, expenditure incurred by the assessee on such EOTprojects brings to it an enduring benefit in theform ofright to collect the toll during the period of the agreement. Hon'ble Supreme Courtin the case ofMadrasIndustrial Investment Corporation Ltd. vs. CITin 225ITR 802 allowed spreading over ofliability over a number ofyears on the ground that there was continuing benefit to the company over a ITA 929/2018+connected Page[8] of16 period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/ highways under BOT agreement may be treated as having been made/incurredfor the purposes ofbusiness or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement.

5. In view ofabove. Central Board ofDirect Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost ofconstruction on development of infrastructurefacility.,ofroads/highways under BOTprojects mpyfis-dinorfiz^ claimed as allowable business exppfidftUre under the Act,

6. The ainoftizatidn' ialjowable may be computed at tl^q rate^^^ ensures that the whole of ther cofi ipduifed in creation of irfiastructmfiy^ili^:t^(^yoad/highway is amortized period of concessioncdfe^f^t0^^§^^^ excluding the time takenfor credtionfi fsuchfacility.

7. In thercase where an assessee has claimed any deduction qufpfinifffiif^^^ of infrastructure facility of roads/highways under BOT project in earlier year, the total deduction so claimedfor the assessmentyear to the assessment year under consideration may be deductedfrom the infrastructurefacility of roads/highways and the cost so reduced shall be amortized equally over the remainingperiod oftollconcessionaire agreement. ITA 929/2018+connected Page9of16 V

8. It is hereby clarified that this circular is applicable only to those infrastructure projects for development of road/ highways on BOT basis where ownership is not vested with the assessee the concessionaire agreement.

9. This may be brought to the notice of all concerned." 7.[4] It is observedfrom the above circular that the board was aware ofthe dispute regarding claim ofdepreciation with respect to the built operate transfer (BOT) agreementand this is squarely covered in the case ofthe appellant, which has also(been accepted by the AO.In the said circular, it is clearly.bfqught,out.that in return of income,assessee's aregeherally(claim depreciation on such capitalized expendilufefffeM it as an intangible assets in terms ofsection 3f(l)(M)iffthe Act. Therefore, the original claim /(^(fief^pellant to claim such depreciation was not/Tftdhdalorik case but seems to be the general practicerq^^qt/fjmu^py and the claim of depreciation by it y^ds-iYfadk^ di^jdef/fjie bonafide belief that it is an aUowdbM^3di00i^.M/Further, it is also clarified by the circulardhat^'^he/e the assessee incurs expenditure on a project, he is entitled to recover cost incurred by allowed such expenditure incurred,'^ spreading^over this liability in differentyears. 7.[5] It is also observed that in thefirst round ofscrutiny assessment, no such addition was made, but allowed depreciation as claimed by the appellant. It is only with respectto the assessmentproceedings under section 153A ofthe Act that this issue has been raised by the AO and based on the circular by the CBDT, revision ofthe claim ofthe depreciation made before AO by the appellant. All ITA 929/2018+connected Page 10 of16 thefacts regarding claim ofdepreciation was before the AO duringfirst round ofscrutiny assessment as well as later on. 7.[6] Here it is to be mentioned that penalty proceedings are differentfrom the assessmentproceedings andsimply because an addition has been made and not challenged by the assessee shall not make a casefor imposition of automatic penaltyfor concealment. Any claim which is found incorrect by the AO and disallowed will notattract thepenaltyfor concealment in a routine manner. Merely, because the appellant had claimed the depreciation, which was not accepted infull,and disallowed, that itself would not attract the penal.under section 271(l)(c). In the present case, all tfiefdcis were disclosed to the AO and infact in thefirsttrpupdfi,cfscrutiny assessment, the.-•'-V' 'V^..''-'Vv 't'-" '' said depreciation wdsP hoffidisdllowed and accepted. Therefore, in view offthe rqtip daid down by Hon'ble Supreme Court in fidsdr^ p:'f CIT vs. Reliance j.i, !' *.'".t. 'i Petroproducts P. Ltd.AlfifiTRfPfSfiSC)and the decision ofHon'blejiirisdicfi6hal70gHi^0d'f:OfDelhi in the case ofCITus.Brahmd^fiffi^pri^i^ (2012)348ITR 339, thepenalty isLiot'l^immfifihe same is applicable in the case ofappellant. 7.[7] It is also to'be mentioned that^mjkn the return was filed in response to'^ hofiee under section 153A on 3.02.2014, the matter was debatable due to the difference in legal interpretation between the assessee and the revenue authorities and the claim was made under bonafide belief that depreciation is allowable on such capitalized value of road. This has also been acknowledged as thepractice ofindustry. The circular of CBDT, clarifying the issue has been issued on 23.04.2014, which is after the submission ofreturn by the appellant. Since, the matter was clarified, the appellant ITA 929/2018+connected Page II of16 opted to claim expenditure incurred on project for development, construction and other operative expenditure during construction period as per the said circular by spreading over to the different accounting years and accordingly, revised the claim ofdepreciation by not claiming on road. It is the appellant who brought this circular to the knowledge of AO, though during assessmentproceedings it was asked by the AO tojustify the same. Hence, during assessment proceedings, following the clarification of the CBDT, the appellant provided revised working and depreciation on road was withdrawn whereas the expenditure has been claimed. The same was accepted by the AO. The contention ofthe AO while levying penalty,\ that there was a delay in submission ofrevised working by the appellantis also not tenable because one cannot pxpect the appellant to act immediately suo-moto. This 'will - also not form the substantial reason to,imposed;,penalty for concealment because the appellant(;.iffe^f}^ brought this to the knowledge of AO and without disfmting, accepted the revised working. Since, it was a' ccepfyd by the appellant rather offered by iM0bre, no appeal was '' I l l r preferred. Therefore;4HiM aTdr0^cannot be the basisfor imposition ofpenalty. 7.8In the penaltyff fffer, the AO Hc^ffflied upon various case laws. The case ofClf vs. Usha International Ltd. 212 Taxman 519, 2013 relied upon by the AO relates to the revision of return consequent upon survey proceedings, which was disclosed after being detected during the course ofsurvey is not applicable as thefacts are distinguishable. The case ofappellant is not related to survey proceedings nor a disclosure of additional income but claim ofdepreciation, revised in view ofthe Board's circular. With respect to the ratio laid down in ITA 929/2018+connected Page 12 of16 the case ofKP Madhusudan V[5]. CIT 251 ITR 99, it is seen that the same is not applicable in the present case because the appellant itself offered the withdrawal of depreciation, which was even notdetected by the then AO in thefirst round ofscrutiny proceedings. All thefacts regarding claim of depreciation on road was clearly mentioned in the details submitted by the appellant and also mentioned in the audited accounts. Therefore, the appellant has not concealed anyfact norfurnished any wrongparticulars ofincome and,duly discharged its duty. Therefore, this is distinguishable. The AO has also relied upon the ratio in the case of CIT vs. Zoom Communication P. Ltd. ip ITA^i.Np.O of the said case is not-applicable to the case ofappellant because in the said case it wasfoiind that the dssessee was not acting bonafide andih'ere was apositive income and therefore leadfdl;;tax:evasibn:: In the case of the appellant, it was subf^j(kdfQ}scrutiny earlier and all the facts were on record with • respect to the claim of depreciation under.the bonafide belief. The matter was disputed as itselfifcknowledged in the circular by the CBDT and accordingly after.clarffication, the appellant has withdrawn its claim4n-the -ass proceedings. The case ofCIT vs. Brahmaputra Consortium Ltd., relied upon by the appeUantJsmbsequentjddhe decision ofCIT " l" h -11 ^ ' w-- -0- VS. Zoom Communication P.Ltd:-(supra)as mentioned by the AO. 7.[9] It is also seen thatthe AO has notclearly broughtout that whether it is a case of furnishing inaccurate particulars ofincome or concealment ofincome as it is stated inpara5that: "Consequentially, as the default of the assessee under section 271(l)(c) is established, penalty of Rs.4,90,84,745/- @100% ofthe tax sought to be ITA 929/2018+connected Page 13 of16 evaded for furnishing inaccurate particulars of income and thereby concealment of income as discussed above, is imposed under section 271(l)(c)oftheITAct, 1961."

7.10. In view of the above facts and discussions in foregoing paragraphs regarding position of law, considering the submission by the appellant and looking to the circumstance in which the appellant revised its claim, based on the clarification by the CBDT, the concealment ofincomefor imposition ofpenalty under section 271 (l)(c) ofthe Act is not established. Therefore, relying upon the ratio laid down in the case ofCIT V[5]. Brahmaputra Consortiuin..Ltdf and CIT vs. Reliance PetroproductfiP.'Bid/fSdpm) and on thefacts and circumstances ofthf'case,.itdsfeld thatpenaltyfor concealment ofincomdMndeff' ectipn 271(l)(c)ofthe Act is not attracted in the - case and the same is deleted accordingly.", r- i'! '^ •';J jr-' tf"- \x

6. The aforesaid clearly and correctly elucidates on the differej^ce-^ proceedings and penalty proceedings and applieSx|^planation(1)to Section 271(1)(c) of the Act. It refers to divergence of legal opinion on the question whether an assessee, wh6i%as, infrastructure project such as roads or highways on build, operate and transfer basis could claim depreciation or was entitled to treat the entire cost as amortized expenditure, an expression not used in the Act. These were highly debateable and contentious issues. Noticeably, the Assessing officer had allowed the claim for depreciation on roads@10% under Section 32ofthe Actin the original assessment proceedings. ITA 929/2018+connected Page 14 of16