By TIOL News Service

NEW DELHI, SEPT 25, 2018: THE issue before the Bench is - Whether however CBDT circular bars claim of depreciation in respect of any infrastructure facility like highways, but unless and until the issue got covered by a decided judgment of the jurisdictional High Court or the Supreme Court, such circular is to be treated as mere opinion. And the verdict is YES.

Facts of the case

THE assessee-company was engaged in the business of development and maintenance of the project highway of NH-6 in Maharashtra and was entitled to collect toll from the users to recoup the cost of reconstruction, maintenance and operations. In the return , the assessee claimed depreciation on roads at the rate of 10% u/s 32 and the same was accepted by the AO in the regular assessment. Subsequently, there was a search and seizure operation in case of one Bakshi Group, where the premises of the assessee were also covered. Consequent to the said search, notice u/s 153A was issued and in response to such notice, the assessee filed its return, in which again depreciation at the rate of 10% was claimed.

On being asked to substantiate the claim of depreciation on road, the assessee submitted that it had claimed depreciation in view of the provisions of section 32 as per its bona fide belief that the same was allowable to it as per law. However, the claim of depreciation was disallowed and addition was made. The AO also imposed a penalty for concealment of income and furnishing inaccurate particulars of income. On appeal, the CIT(A) deleted the penalty imposed by the AO. On further appeal by the Revenue, the Tribunal also upheld decision of the CIT(A).

The High Court held that,

++ circular No.9 of 2012 dated 23rd April, 2014 refers to disputes that had arisen on the question of depreciation or amortization/revenue expenditure. The Board felt that the infrastructure facility was not owned partly or wholly by the tax payer and hence would not satisfy the essential condition of "ownership" required for claiming depreciation. At the same time, it was observed that the assessee had incurred expenditure, which had to be recovered and accounted for to compute taxable income. The Board felt that amortization should be allowed at the rate which ensures that the entire expenditure incurred for creation of infrastructure facility would be amortized evenly over the period of concessionaire agreement after excluding the time taken for creation of facility;

++ this circular supports the case of the Revenue but we would notice and record that circular merely is an opinion and the assessee can contest and submit to the contrary. The issue in question was not covered by a decided judgment of the jurisdictional High Court or the Supreme Court. Pertinently, paragraph 7 of the circular states that assessee could have claimed deduction in an earlier year. This deduction would necessarily imply depreciation. In such cases, the assessee could deduct the amount of "depreciation" to compute the reduced cost of infrastructure facility for road/highway and amortized the reduced amount equally over the remaining period of the concessionaire agreement. In the present case, the assessee had already filed return for the year in question claiming deprecation, which had been allowed by the Assessing Officer. In such position the assessee did not consider it appropriate to modify the claim that had been allowed and accepted in the regular assessment in the return filed pursuant to notice under Section 153A of the Act. The conduct of the assessee or examination of facts has been found and held to be bonafide. Facts of the case cannot and would not justify levy of penalty under Section 271(1)(c).

(See 2018-TIOL-1994-HC-DEL-IT)