Court upholds penalty in Income Tax appeal on BOT road project depreciation claim

The High Court dismissed the appeal against penalty proceedings under Section 260A of the Income Tax Act, upholding the lower courts' decisions. The appellant's claim of depreciation on construction expenditure for a road project on a BOT basis was disallowed by the Assessing Officer, leading to penalty proceedings. The court relied on Circular No.9/2014, which clarified that in BOT projects, developers cannot claim depreciation but can amortize and claim expenditure as allowable business expenditure. The court found the appellant's reliance on the circular justified due to genuine ambiguity, distinguishing the case from a previous Delhi High Court judgment.

---

---

Issues:
Appeal against penalty proceedings under Section 260A of the Income Tax Act, 1961 - Claim of depreciation on construction expenditure for road project - Interpretation of Circular No.9/2014 regarding treatment of expenditure in BOT agreements - Comparison with a similar case of depreciation claim.

Analysis:
1. The appellant filed an appeal against the penalty proceedings initiated by the Commissioner of Income Tax and the Income Tax Appellate Tribunal for disallowing the claim of depreciation. The appellant had undertaken a highway construction project on a BOT basis and claimed depreciation under Section 32 of the Act. The Assessing Officer disallowed the claim as the road was not owned by the appellant. The appellant did not challenge this finding in appeal, leading to penalty proceedings being initiated.

2. The Circular No.9/2014 issued by the Central Board of Direct Taxes clarified the treatment of expenditure in BOT agreements for road projects. The circular highlighted that in such projects, the developer does not hold ownership rights over the infrastructure facility and, therefore, cannot claim depreciation under Section 32(1)(ii) of the Act. Instead, the expenditure could be amortized and claimed as allowable business expenditure. The circular acknowledged the common practice of claiming depreciation by assesses and subsequent disallowance by Assessing Officers, indicating a genuine doubt in such cases.

3. The appellant argued that accepting the assessment order disallowing depreciation showed an attempt to avoid tax, citing a judgment from the Delhi High Court. The Delhi High Court case involved a depreciation claim for a property not used for business purposes, leading to penalty imposition. However, in the present case, the Revenue accepted the doubt regarding depreciation claims in BOT projects, as evidenced by the issuance of Circular No.9/2014. The lower courts upheld the appellant's claim based on this genuine doubt and the clarification provided by the circular.

4. The High Court dismissed the appeal, noting that the facts of the present case differed significantly from the Delhi High Court case. The issuance of the circular by the Board to address the depreciation claims in BOT projects indicated a genuine ambiguity, justifying the appellant's claim. The judgment and orders of the lower courts were upheld, and no further legal questions were identified for consideration.

5. The appeal was consequently dismissed, and any pending applications were disposed of in light of the main case decision. The High Court found no fault with the decisions of the lower courts, emphasizing the relevance of the Circular No.9/2014 in interpreting the depreciation claims in BOT projects.

---