Tribunal upholds CIT(A)'s decision on depreciation claim, dismissing revenue's appeal.

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of the depreciation claim, dismissing the revenue's appeal. The Tribunal emphasized that the Pr.CIT's order under section 263 was quashed, rendering the subsequent assessment order by the A.O unsustainable. Citing relevant case law, the Tribunal concluded that the assessee's right under the Concession Agreement constituted an intangible asset eligible for depreciation under section 32(1)(ii) of the Income Tax Act, 1961.

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Issues Involved:
1. Legality of the CIT(A)'s decision to delete the disallowance made by the Assessing Officer (A.O) regarding depreciation claims.
2. Validity of the Pr.CIT's order under section 263 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the CIT(A)'s Decision:
The primary issue in this case revolves around whether the CIT(A) erred in deleting the disallowance made by the A.O. The A.O had disallowed the depreciation claim of Rs. 182.79 crores made by the assessee under section 32(1)(ii) of the Income Tax Act, 1961. The A.O's decision was based on CBDT Circular No. 9 of 2014, which clarified that in BOT arrangements for road development, the assessee, not being the owner of the property, is not eligible for depreciation under section 32(1)(ii) but should amortize the cost as allowable business expenditure.

The CIT(A), however, deleted this disallowance, noting that the Pr.CIT's order under section 263, which had set aside the original assessment, was quashed by the Tribunal. The CIT(A) referenced the Special Bench decision in the case of ACIT vs. Progressive Construction Ltd., which held that expenditure incurred for road construction under a BOT contract creates an intangible asset eligible for depreciation under section 32(1)(ii).

2. Validity of the Pr.CIT's Order under Section 263:
The Pr.CIT had invoked section 263, arguing that the A.O had wrongly allowed the depreciation claim and directed a de novo assessment. The Tribunal, however, quashed the Pr.CIT's order, asserting that the issue was highly debatable and not suitable for revision under section 263. The Tribunal supported its decision by citing the Supreme Court's judgment in Mysore Minerals Ltd. v. CIT, which broadened the interpretation of "ownership" under section 32(1). It emphasized that an assessee need not be a legal owner but must have the right to use and enjoy the property to claim depreciation.

The Tribunal also referenced the case of ACIT v. West Gujarat Expressway Ltd., where it was held that the right to collect toll under a BOT arrangement constitutes an intangible asset eligible for depreciation. The Tribunal concluded that the right granted under a Concession Agreement (CA) to operate a project and collect toll charges is akin to a license, thus qualifying as an intangible asset under section 32(1)(ii).

Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision, noting that since the Pr.CIT's order under section 263 was quashed, the subsequent assessment order by the A.O could not survive independently. The Tribunal cited similar rulings from ITAT Delhi and ITAT Ahmedabad to support this view, emphasizing that an assessment order based on a quashed section 263 order is unsustainable.

Final Judgment:
The appeal filed by the revenue was dismissed, affirming the CIT(A)'s decision to delete the disallowance of the depreciation claim. The Tribunal's order was pronounced in the open court on 01.09.2021.

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