Reassessment under Section 148 quashed for lack of material facts non-disclosure evidence by taxpayer

The ITAT Delhi quashed the reassessment proceedings under Section 148 as the AO failed to establish non-disclosure of material facts by the assessee. The Tribunal held that CIT(A) lacked jurisdiction to enhance assessment by adding designated return income and treating land lease as revenue subsidy, as these were new sources not considered by the AO. The enhancement of Rs. 1730.08 crores was deleted since lands were leased, not transferred. Depreciation disallowance was reversed as there was no capital subsidy to reduce written down value. Interest on deep discount bonds was allowed on accrual basis as Section 43B(e) applies only to financial institution borrowings, not public bonds.

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Issues Involved:
1. Reopening of the assessment.
2. Enhancement by the CIT(A).
3. Merits of the Addition.
4. Disallowance of unpaid interest.
5. Amortization of expenses incurred in respect of restructuring of loans.
6. Addition on account of arrear of designated return.
7. Lease of land treated as revenue subsidy.
8. Disallowance of depreciation claimed on toll bridge.
9. Disallowance of agency fees.

Detailed Analysis:

1. Reopening of the assessment:
The Tribunal observed that the reassessment proceedings were initiated solely to disallow amortization interest on zero coupon bonds. It was noted that the original assessment was framed under section 143(3) of the Act, and the notice issued under section 148 was beyond four years. The Tribunal held that the provisions of the first proviso to section 147 applied, which required a failure on the part of the assessee to disclose all material facts necessary for assessment. Since the Assessing Officer did not record such failure, the reassessment was deemed null and void. The Tribunal referred to the Delhi High Court's decision in Haryana Acrylic Manufacturing Company, which supported this view. Consequently, the reopening of the assessment was quashed.

2. Enhancement by the CIT(A):
The CIT(A) enhanced the assessment for several incomes, including arrear of designated return, lease of land treated as revenue subsidy, and disallowance of depreciation claimed on the toll bridge. The Tribunal noted that the CIT(A) could only enhance the assessment if the Assessing Officer had assessed something. Since the Assessing Officer did not consider the three issues on which the CIT(A) made enhancements, the Tribunal held that the enhancement was bad in law. This view was supported by decisions from the Delhi High Court and the Supreme Court, which stated that the first appellate authority could not assess a new source of income not considered by the Assessing Officer.

3. Merits of the Addition:
The Tribunal addressed the merits of the addition related to the arrear of designated return. It was found that the Concession Agreement did not guarantee a return of 20% to the assessee. The return was projected and set as a benchmark for recovery over and above the actual project cost. The Tribunal held that no right accrued to the assessee to receive the alleged designated return, and the entire addition was on a notional basis, contrary to the concept of real income. This view was supported by the Supreme Court's decision in ED Sassoon & Co Ltd.

4. Disallowance of unpaid interest:
The Tribunal found that the interest payable on deep discount bonds should be allowed on an accrual basis and not on a payment basis. It was noted that section 43B(e) of the Act applied only to loans/borrowings from financial institutions and did not apply to deep discount bonds issued to the public. The Assessing Officer was directed to delete the disallowance.

5. Amortization of expenses incurred in respect of restructuring of loans:
The Tribunal referred to its earlier decision in ITA No. 925/DEL/2011, which allowed the amortization of zero coupon bonds as revenue expenditure. The Tribunal found no new facts that made the current year different from the earlier assessment year. The appeal of the Revenue on this issue was dismissed.

6. Addition on account of arrear of designated return:
The Tribunal held that no right accrued to the assessee to receive the alleged designated return, and the entire addition was on a notional basis. The Tribunal directed the deletion of the addition amounting to Rs. 179.87 crores.

7. Lease of land treated as revenue subsidy:
The Tribunal noted that the lands were given on lease and not transferred to the assessee. Therefore, there was no question of ownership being transferred, and the addition on this account was deleted.

8. Disallowance of depreciation claimed on toll bridge:
The Tribunal found that the CIT(A) had reduced the written down value with the amount of capital subsidy and recomputed the depreciation. Since the Tribunal discarded the findings of the CIT(A) regarding capital subsidy, the recomputation of depreciation was also deleted.

9. Disallowance of agency fees:
The Tribunal referred to its earlier decision in ITA No. 5246/DEL/2012, which allowed the agency fees as revenue expenditure. The Tribunal directed the Assessing Officer to delete the disallowance of agency fees.

Conclusion:
The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The stay applications became infructuous. The Tribunal's order pronounced on 08.08.2023.

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