TaxTMI 
TaxTMI 
2026 (6) TMI 351
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....ting proceedings under section 263 on an issue where two views are possible. 3. The learned Commissioner of Income Tax failed to understand that in the facts of the present case the Assessing Officer had in assessment proceedings has taken a particular view and the Commissioner cannot initiate revision proceedings based on a second view. 4. The learned Commissioner of Income Tax has ignored the fact that the Assessing Officer had already made enquiry on the issue of depreciation on intangible asset being 'right to collect toll". 5. The learned Commissioner has erred in initiating revision proceedings merely based on an audit objection. 6. The learned Commissioner erred in passing order under section 263 without considering the legal and factual submissions made by the Appellant. 7. The learned Commissioner of Income Tax has failed to consider that Circular No 9 of 2014 issued by the CBDT is discretionary in nature and the Assessee can choose the manner in which it would amortize the cost of the project. 8. The learned Commissioner of Income Tax has failed to consider that circulars issued by CBDT are binding on the Income Ta....
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....en initiated after calling for the records and examination of the issue, initially raised by the audit objection". Ld. PCIT observes that assessee had claimed excess depreciation of Service Concessions Agreement (SCA) which has been treated by the assessee as an intangible right having rate of depreciation at 25%. According to him, CBDT has issued a Circular No. 09/2014 dated 23.04.2014 which clarified that SCA costs were to be amortized over the period of concession agreement. Based on these observations, he noted that the depreciation allowable is only Rs. 54.10 crore as against claimed by the assessee at Rs. 270.53 crore, resulting in excess claim, leading to an underassessment to the tune of Rs. 216.42 crores. By recording these observations on the issue relating to claim of depreciation, show cause notice u/s. 263, dated 28.02.2025 was issued invoking the impugned revisionary proceedings. Assessee replied to the said show cause notice explaining on each aspect of the issue raised, duly supported by corroborative documentary evidences vide its submission dated 05.03.2025. 5.1. After considering the submissions made by the assessee, ld. PCIT concluded that the Assessing Offic....
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....1.02.2020. In the said year, it had capitalized expenditure incurred inter-alia for construction for actual cost in respect of the intangible rights acquired under the Concession Agreement. Consequent thereto, for the purposes of computing its business income under the Act, it claimed depreciation thereon, as an intangible asset from AY 2020-21. In the course of assessment proceedings for the said year, the said claim of depreciation was allowed after due enquiry and verification. Ld. PCIT passed a revisionary order, dated 31.03.2025 on the same lines as the present year, directing the ld. AO to deny its claim for depreciation and instead allow the expenditure by way of spreading it over the balance period of the Concession Agreement. Upon appeal by the assessee against the said revisionary order before the Tribunal, in ITA no. 3537/M/2025 by its order dated 25.09.2025, the Tribunal quashed the said order as the same had been passed without issuing a show-cause notice and without dealing on the merits of the case. 7.3. Assessee claimed depreciation on the said intangible asset for AY 2021-22 which also has been allowed in the absence of its return of income being selected for sc....
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....and, collect and appropriate fee from vehicles and users liable for payment of such fee for using the project highway or any part thereof or refuse entry of any vehicle if the fee due is not paid. ii. Article 10 dealing with right of way elaborates on the right granted to the assessee as a licensee including access to the site for the purposes of the concession agreement. It also inter alia mandates that during the tenure of this agreement; the Authority shall keep the site free from encumbrances and encroachments. iii. Article 43 dealing with rights and title over the site reiterates the license rights of the assessee as a Concessionaire. B) Right in the nature of business or commercial rights of a similar nature: i. Article 17 dealing with operation and maintenance obligation of the Concessionaire, in sub-clause (b) of clause 17.1.1 obligates the assessee to collect and appropriate the fee. Further, clause 17.15 permits the assessee to place commercial advertising, display or hoarding at the toll plazas, rest areas, bus shelters and telephone booths. ii. Article 27 dealing with user fee grants the assessee the sole and exclusive right ....
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....er; iii. without appreciating that the present is a case where the ld. AO had taken one of the possible views while passing the assessment order. b. On the merits of the case, whether the appellant is justified in claiming depreciation on the cost of the rights acquired under the Concession Agreement as: i. the issue relating to whether the asset under consideration could be regarded as a depreciable asset cannot be raised in a later year where depreciation is only claimed based on the opening WDV of the block of assets; ii. the rights acquired by the assessee under the Concession Agreement constitutes a 'license' or 'any other business or commercial right of similar nature' for the purposes of section 32(1)(ii) of the Act. 10. We have heard both the parties at length and perused the material placed on record including paper book and various judicial precedents relied upon. We have also given our thoughtful consideration to observations and findings arrived at by the ld. PCIT on the issue while passing the impugned revisionary order as well as records of assessment made by the ld. AO u/s. 143(3), copies of which are placed in t....
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....case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) and has propounded the following broad principles to judge the action of CIT taken under section 263 - (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law. (vi) If while making the....
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....evenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue" has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 12. In the light of the above exposition on law enunciated under section 263 and the relevant facts relating to the issue raised by the ld. PCIT, we examined the deliberation made by both, the ld. Counsel of the assessee and by the ld. CIT DR for the purpose of our adjudication. It is well settled law for invoking the provisions of section 263 that both the conditions of order being erroneous in so far as prejudicial to....
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....ence of the CBDT Circular by the ld. AO while passing the assessment order. In this regard, it is also important to note about the binding nature of CBDT circular on the Income-tax authorities for which gainful guidance is taken from the decision of Hon'ble Supreme Court in the case of CIT v. Hero Cycles [1997] 228 ITR 463 (SC) wherein it was held that circulars bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. 14.1. In the case of UCO Bank [1999] 237 ITR 889 (SC), Hon'ble Supreme Court while dealing with the legal status of such circulars, observed as under: "Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act, which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its....
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....n in this case was made within the aforesaid period. Admittedly, the return was filed on 29th October, 2004 and the case was selected for scrutiny on 6th July, 2005. It may be pointed out that Mrs. Gutgutia was, in fact, reiterating the views taken by the learned Tribunal which we also quoted above. By any process of reasoning, it was not open for the learned Tribunal to come to a finding that the department acted within the four corners of Circulars No.9 and 10 issued by CBDT. The circulars were evidently violated. The circulars are binding upon the department under section 119 of the I.T. Act. 8. Mrs. Gutgutia, learned Advocate submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees from evading tax. Even assuming, that to be so, it cannot be said that the department, which is State, can be permitted to selectively apply the standards set by themselves for their own conduct. If this type of deviation is permitted, the consequences will be that floodgate of corruption will be opened which it is not desirable to encourage. When the department has set down a standard for itself, the department is bound by that standard and cannot ....
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....penditure. It has capitalized the expenditure so incurred claimed and characterized it as an intangible asset within the meaning of section 32(1)(ii) and claimed depreciation at the applicable rate as provided under the schedule of rate of depreciation in respect of intangible assets i.e. at the rate of 25%. Thus, in the year under consideration, there is no scope to examine whether the expenditure could have been amortized over the concession period as enunciated in the CBDT circular. In this regard, it is worth taking note of the certain judicial precedents supporting the contention of the assessee that the issue in the year under consideration is limited to the depreciation on WDV of relevant block of assets: i. In the case of DIT vs. HSBC Asset Management (I) (P) Ltd 47 taxmann.com 286 (Bom), Hon'ble jurisdictional High Court of Bombay held in para 9 and 10 that once the asset has entered in 'block of assets' and thereafter, depreciation has been allowed and in the succeeding year, the WDV of such asset is to be accepted as sacrosanct and depreciation has to be allowed on the same. ii. The above judgement was followed by the coordinate bench of ITAT Pune in th....
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....owing deductions shall be allowed- 12. Explanation 3 to section 32(1) defines intangible asset as under:- Explanation 3. For the purposes of this sub-section, the expression "assets" shall mean- (a) tangible assets, being buildings, machinery, plant or furniture: (b) intangible assets, being know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature 15.1. A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified rate. It is the claim of the assessee that the right acquired under SCA to operate the project facility and collect toll charges is in the nature of license. 15.2. The term 'license' has not been defined under the Act. For this a useful reference is made to the K J Aiyer's Judicial Dictionary, 15^th edition, 2011 Volume-II, according to which the term 'license' means and is synonymous with 'permit', 'permission' or 'authority'.....
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....movable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license. 14. It has been the contention of the learned Senior Standing Counsel that as the term "license" has not been defined under the Income Tax Act, 1961, the definition of "license" under the Indian Easements Act, 1882, has to be looked into. Accepting the aforesaid contention of the learned Senior Standing Counsel, let us examine the definition of "license" extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed/implemented is owned by the Government of India and it has ful....
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....m 21 (Del) (iii) Narmada Infrastructure Construction Enterprises Ltd. and L & T Infrastructure Development Projects Ltd. v. ACIT in TCA nos. 868 to 870 of 2009 and others order dated 29.12.2022 by Hon'ble High Court of Madras. (iv) Hazaribagh Ranchi Expressway Ltd. v. ACIT (2024) 167 taxmann.com 571 (Mum) 15.6. We have given our thoughtful consideration to the submissions made by the ld. CIT DR by perusing the judicial pronouncements relied upon as listed above. In the judgments at serial no. 1, 2 and 4, the issue dealt is in respect of claim of depreciation on the 'toll road' identified as 'tangible asset', treating it plant and machinery or building where the bone of contention was its ownership with the assessee for the allowability of depreciation. Hence, are clearly distinguishable from the present set of facts and the issue under adjudication before us. In respect of judgment at serial no. 3 by the Hon'ble High Court Madras in the case of Narmada Infrastructure Construction Enterprise (Supra), the coordinate bench of ITAT, Mumbai in the case of Jorabat Shilong Expressways v. DCIT in ITA no. 6012/Mum/2025 and others, including A.Y. 2022-23, order dated 23.....
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.... Circular No. 9/2014 has allowed amortization of the expenditure over the concession period. Therefore, in any case of the matter, the assessee will get the deduction either by way of deprecation or through amortization. Thus, there can only be a timing difference. Therefore, in our considered view, the issue is otherwise revenue neutral." 15.7. At this juncture, we is worth making reference to certain judicial pronouncements which have upheld the claim of depreciation as made by the assessee in the present case: i. ACIT v. Progressive Construction Ltd., being order dated 14.02.2017, passed by the Special Bench of Tribunal at Hyderabad in ITA No.1845/Hyd/2014 and Ors. The issue as arisen for consideration of the Tribunal is referred to in para 1 at page 31 and the Revenue's submissions opposing the assessee's claim for depreciation has been referred to in para 9 at page 41. An analysis of the relevant clauses from the concession agreement is in para 10 at pages 42 to 44 and their conclusion with respect to existence of an intangible asset in the nature of a license is in paras 13 and 14 at pages 48 to 50. Alternatively, assuming that the right could not be treat....
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....(ii) by considering intangible asset for the rights acquired under the concession agreement and that proposed of CBDT in its Circular no. 09/2014 by way of amortization of expenditure over the concession period, there is only a timing difference, when the entirety of the claim is taken into account. To put is differently, claim in this respect is a revenue neutral claim except for difference in the timing. 17. With the issue of claim of depreciation having been examined by us in the above paragraphs, we find that in the present case before us which is on the revisionary order passed under section 263, we have already deliberated in detail on the law enunciated under section 263 whereby it is important that both the conditions are met i.e. an order being erroneous insofar as prejudicial to the interest of Revenue. If one of the requirements is not met while invoking the revisionary proceedings, the order passed thereafter, stands vitiated. In the present case before us, when ld. PCIT based his entire action on CBDT Circular no. 09/2014 by holding that it is mandatory for Assessing Officer to follow the CBDT Circular which even if is accepted as such, though the same is not bindin....
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.... to the directions of learned PCIT, prima facie, demonstrates that the genesis of the revisionary proceeding for disallowance of a part of R&D expense was based on audit objection. Thus, the decision to invoke the provisions of Section 263 of the Act, qua the issue of disallowance of R&D expense is not an independent decision of learned PCIT but is greatly influenced by the audit objection. That being the case, the exercise of power u/s. 263 of the Act, in our considered opinion is vitiated, hence, unsustainable. Accordingly, we quash and set aside the impugned order passed u/s. 263 of the Act and restore the order of assessment dated 21.09.2022." 19. Also, it is not a case of lack of enquiry at the end of ld. AO on dealing with the issue raised by the ld. PCIT which is evident from the issue for which case of the assessee was taken up for scrutiny assessment under section 143(3) where in one of the three issues includes 'investment in intangible assets and claim of depreciation'. Ld. AO had issued notice under section 142(1) raising specific queries on this issue, as placed in the paper book at page nos. 76 to 78 against which assessee furnished detailed reply supported by corr....
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.... would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings " 20. We find it worth summarizing the issues on which findings have been arrived relating to the issue raised by the ld. PCIT for invoking the revisionary proceedings as well as on passing of the impugned revisionary order. The issues so addressed through this order are listed under: a. Case of complete scrutiny whereby the issue considered by the ld. PCIT has already been examined in detail by the ld. AO. It is not a case of lack of enquiry. b. Revisionary proceedings initiated are based on audit ob....