Tribunal quashes PCIT's jurisdictional excess, upholds AO's assessment order on deduction & depreciation claims

The Tribunal held that the Principal Commissioner of Income Tax (PCIT) exceeded jurisdiction by addressing a deduction claim under Section 80IA, not part of the limited scrutiny scope. The PCIT's order under Section 263 was quashed as the AO's failure to examine the claim did not render the assessment order erroneous. Regarding the excess claim of depreciation on road construction under BOT agreements, the Tribunal found the AO had correctly allowed amortization in line with CBDT Circular No. 09/2014. The AO's order was upheld, and the appeal of the assessee was allowed.

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Issues Involved:
1. Deduction claim under Section 80IA.
2. Excess claim of depreciation on construction of road (as per BOT agreement).

Issue-wise Detailed Analysis:

1. Deduction Claim Under Section 80IA:
The assessee argued that their case was selected for limited scrutiny to examine specific issues, including depreciation claims and mismatches in sales turnover and amounts paid to related persons. They contended that the Principal Commissioner of Income Tax (PCIT) exceeded their jurisdiction by issuing a notice under Section 263 of the Income Tax Act to address the deduction claim under Section 80IA, which was not part of the limited scrutiny scope. The assessee cited CBDT circulars and tribunal decisions to support their claim that the PCIT's actions were illegal and beyond their jurisdiction.

The Revenue countered that the assessee did not maintain separate books of accounts or submit separate Form 10CCB as required under Section 80IA(6) and Rule 18BBB. The AO failed to verify the deduction claim, leading the PCIT to direct a re-examination of the claim under the stipulated rules.

The Tribunal held that the scope of limited scrutiny is confined to the issues for which the case was selected. The PCIT cannot expand this scope under Section 263. If the AO identified potential income under-assessment, they should have sought approval to convert the case to complete scrutiny. The Tribunal found that the AO's failure to examine the Section 80IA claim did not render the assessment order erroneous since it was beyond the limited scrutiny scope. Therefore, the Tribunal quashed the PCIT's order on this matter.

2. Excess Claim of Depreciation on Construction of Road (As per BOT Agreement):
The PCIT raised concerns that the AO did not verify the higher rate of depreciation claimed by the assessee for road construction under BOT agreements, as required by the CBDT Circular No. 09/2014. The circular specifies that costs incurred for road/highway development under BOT projects should be amortized evenly over the concession agreement period, not depreciated under Section 32(1)(ii).

The assessee argued that they claimed amortization in line with the CBDT circular, which was duly examined and accepted by the AO. They provided detailed statements and audit reports during the assessment, which the AO reviewed without adverse findings.

The Tribunal referred to the CBDT Circular No. 09/2014, which clarifies that costs for BOT road projects should be amortized, not depreciated. The Tribunal found that the AO had examined the amortization claims and allowed them after due verification. Thus, the AO's order was neither erroneous nor prejudicial to the Revenue's interest.

Conclusion:
The Tribunal concluded that the AO conducted necessary inquiries and took a reasonable view based on the material available. The PCIT's order under Section 263 was set aside, and the AO's assessment order was sustained. The appeal of the assessee was allowed.

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