2015 (5) TMI 73 - AT - Income Tax

Tribunal allows deduction under section 80IA(4) for toll road project

The Tribunal ruled in favor of the assessee, holding that the claim for deduction under section 80IA(4) fell under clause (a) of the Explanation, as the ... Deduction under section 80IA(4)(i) - Interpretation of 'develops and begins to operate' - Classification as 'road including toll road' v. 'highway project' - Commissioner's revisionary jurisdiction under section 263 - Limitation on scope of show cause notice under section 263 - Applicability of section 80IA(6) and Rule 18BBEClassification as 'road including toll road' v. 'highway project' - Deduction under section 80IA(4)(i) - Assessee's activities fall within clause (a) (a road including toll road) of the Explanation to section 80IA(4)(i) and the Assessing Officer's allowance of deduction under section 80IA(4)(i) on income from sale/sub lease of land was a plausible and sustainable view. - HELD THAT: - On construction of the concession agreement, definitions in the agreement and the factual matrix (grant of exclusive rights to collect tolls, limited access Expressway, rights to develop and sub lease land as part of consideration), the Tribunal concluded the project is a toll road/Expressway and not a separate 'highway project' falling exclusively under clause (b). The Tribunal held that income from sub lease/sale of land granted as part of the concession constitutes income derived from the business of developing the road (an integral part of the infrastructure facility) and therefore falls within the scope of deduction under section 80IA(4)(i) read with Explanation (a). The AO had made detailed enquiries, recorded an 18 page note and considered replies and documents before allowing the claim; that view was held to be reasonable and legally sustainable. The Tribunal therefore rejected the revenue's contention that the claim necessarily fell within clause (b) or that clause (6) applied to deny the deduction on facts of AY 2009 10. [Paras 57, 58, 61]Assessee entitled to be regarded as developing a 'road including toll road' and AO's allowance under section 80IA(4)(i) on income from sale/sub lease of land was a plausible view; decision recorded for assessee.Interpretation of 'develops and begins to operate' - Deduction under section 80IA(4)(i) - The phraseology of section 80IA must be construed purposively so that enterprises which only develop infrastructure facilities are not deprived of the statutory benefit; an enterprise developing an infrastructure facility can qualify for deduction and the AO's view that deduction was available from the date the enterprise commenced its development activity was sustainable in the facts of this case. - HELD THAT: - The Tribunal examined the statutory scheme - sub sections (1), (2) and (4) - and the proviso to clause (c) of sub section (4). Reading the provision as a whole, and having regard to the object of section 80IA to promote infrastructure development, the Tribunal concluded that Parliament intended to cover enterprises which (i) develop, (ii) operate and maintain, or (iii) do both. If the literal conjunctive reading of 'develops and begins to operate' were applied to exclude developers it would frustrate the legislative purpose. The Tribunal relied on precedents and established interpretive principles that beneficial tax provisions should be given a purposive and liberal interpretation consistent with their object. Given that the assessee commenced development activities from incorporation and had contractual rights constituting consideration (land development rights and tolls), the AO's approach to allow deduction for AY 2009 10 was reasonable. [Paras 72, 76, 79]Clause (c) of section 80IA(4)(i) must be read in the context of the provision's object; deduction may be available to developers and the AO's view that the assessee qualified from its development commencement was sustainable.Commissioner's revisionary jurisdiction under section 263 - Limitation on scope of show cause notice under section 263 - Revision under section 263 was invalid: the Commissioner did not record a conclusive finding that the AO's order was legally unsustainable, remitted the matter for de novo assessment without a final finding, and also sought to revise on issues (interest on FDs and depreciation) not raised in the section 263 notice. - HELD THAT: - The Tribunal reviewed the statutory scheme of section 263 and the settled jurisprudence requiring the Commissioner to be satisfied that an assessment order is both erroneous and prejudicial to revenue, and, where two reasonable views exist, the AO's view cannot be branded erroneous merely because the Commissioner prefers a different view. The CIT's order set aside the assessment for de novo framing without arriving at a definitive conclusion that the AO's view was unsustainable; this amounted to remit without the mandated finding and is contrary to authorities (including Globus Infocom and Malabar). Further, the CIT revised the assessment on the allowability of interest on fixed deposits and depreciation, but those issues were not specified in the show cause notice under section 263; revising on matters outside the notice was therefore impermissible. The Tribunal found the AO's enquiries and reasoning (including the 18 page note) showed application of mind and that the AO's conclusion was a plausible one not vulnerable to revision under section 263. [Paras 96, 101, 122, 128]Impugned order under section 263 set aside as void: Commissioner failed to record requisite conclusive finding of error and prejudiciality and revised on issues not included in the notice; proceedings and consequential actions under the order are quashed.Final Conclusion: The Tribunal allows the appeal for AY 2009 10: (i) the assessee's project is properly characterised as a 'road including toll road' and income from sale/sub lease of land granted under the concession is income from the eligible business falling under section 80IA(4)(i) (Explanation (a)), and the AO's allowance of deduction was a reasonable and sustainable view; (ii) the Commissioner's revision under section 263 was invalid because he did not record a decisive finding that the AO's order was unsustainable, remitted the matter for de novo assessment without the required conclusion, and impermissibly revised on issues not included in the show cause notice - the section 263 notice, impugned order and consequential proceedings are quashed and the appeal is allowed. Issues Involved:1. Whether the assessee's claim for deduction under section 80IA(4) falls under clause (a) or (b) of the Explanation to section 80IA(4)(i) of the Income Tax Act.2. Whether the AO correctly treated the subject year as falling in the eligible period under section 80IA(2) of the Act.3. Whether the AO took a plausible and sustainable view by allowing the assessee's claimed deduction under clause (a) of the Explanation to section 80IA(4)(i) of the Act.4. Whether the assessment order was unsustainable and not in accordance with law and passed without application of mind.5. Whether the CIT was in error by invoking provisions of section 263 of the Act without a decisive conclusion.6. Whether the CIT exercised powers under section 263 of the Act validly on the issues of interest on FDs and depreciation which were not mentioned in the notice under section 263.Detailed Analysis:Issue 1: Applicability of Clause (a) or (b) of Explanation to Section 80IA(4)(i)The assessee claimed deduction under section 80IA(4) for developing an Expressway, which it argued falls under clause (a) as 'road including toll road'. The CIT contended it falls under clause (b) as a 'highway project including housing or other activities'. The Tribunal concluded that the assessee's activities indeed fall under clause (a) since the project was specifically for a toll road with controlled access and exit points, and the right to collect toll fees was granted. The development of land adjacent to the Expressway was an integral part of the project and not merely housing or other activities.Issue 2: Eligible Period Under Section 80IA(2)The CIT argued that the deduction is only available once the infrastructure facility begins to operate, which was in 2012. The assessee contended that the business operations started in 2007, and the income derived from the business of developing the infrastructure facility should be eligible for deduction from that point. The Tribunal agreed with the assessee, stating that the development of infrastructure is a continuous process and the deduction should be available from the commencement of business operations.Issue 3: Plausibility and Sustainability of AO's ViewThe AO's view that the assessee's claim falls under clause (a) was considered reasonable and sustainable. The Tribunal held that the AO took a plausible view supported by the facts and the law, and the CIT's differing opinion did not make the AO's order erroneous or prejudicial to the interest of the revenue.Issue 4: Application of Mind by AOThe Tribunal noted that the AO made detailed inquiries and adjudicated the issue with a detailed note sheet entry. The AO's decision was based on a thorough examination of the facts and the law, and thus, it could not be said that the AO failed to apply his mind.Issue 5: Validity of CIT's Invocation of Section 263The CIT's order was found to be lacking a decisive conclusion. The CIT did not conclusively determine whether the assessee's claim fell under clause (a) or (b) and left the matter open-ended. The Tribunal held that the CIT must reach a final decision and not merely set aside the assessment for fresh examination.Issue 6: Revision on Issues Not Mentioned in NoticeThe CIT revised the assessment on the issues of interest on FDs and depreciation, which were not mentioned in the notice under section 263. The Tribunal held that it is not permissible for the CIT to revise the assessment on grounds not mentioned in the notice, citing judicial precedents. Thus, the revision on these issues was invalid.Conclusion:The Tribunal quashed the CIT's order under section 263, holding that the AO's view was reasonable and sustainable, and the CIT did not validly assume jurisdiction to revise the assessment. The assessee's appeal was allowed.