Principal Commissioner of Income-tax v. Delhi Airport Metro Express (P.) Ltd.

JUDGMENT

1. The Revenue is in appeal against an order dated January 12, 2017 passed by Income-tax Appellate Tribunal ("ITAT") Delhi Airport Metro Express (P.) Ltd. v. Pr. CIT [2017] 88 taxmann.com 767 (Delhi - Trib.).

2. The short question urged by the Revenue is whether the Income-tax Appellate Tribunal was justified in setting aside the order of the Principal Commissioner of Income-tax ("PCIT") passed under section 263 of the Income-tax Act, 1961 ("Act") setting aside the original assessment order dated December 31, 2013 passed by the Assessing Officer ("AO") under section 143(3) of the Act.

3. The background facts are that the assessee is a concessionaire of the Airport Metro Express Project of the Delhi Metro Rail Corporation Ltd. ("DMRC") under a Build-Operate-Transfer ("BOT") Scheme. The assessee had accepted the concession for a period of 30 years. During the assessment year in question, the assessee claimed depreciation of Rs. 112,29,74,447 on fixed assets of Rs. 1560,48,17,189 at 50 per cent. of the eligible depreciation rates since, during the assessment year in question, the assets were used for less than 180 days.

4. The case of the Revenue is that the assets were developed under the BOT scheme and the assessee was not eligible to claim depreciation as it was not the owner of the assets. The Revenue contended that the land for the project was handedover by the DMRC to the assessee as concessionaire without actual transfer of ownership. The design and construction of the basic structure was also done by the DMRC.

5. The case of the assessee, on the other hand, is that during the assessment year in question it had purchased and installed plant and machinery and such plant and machinery was legally owned by it. It is further contended that since such assets were used for the purposes of assessee's business, it was entitled to claim depreciation under section 32 of the Act.

6. It appears that during the original assessment proceedings, the Assessing Officer issued a questionnaire to the assessee specific to the above issue. It is only after considering the assessee's replies thereto that the Assessing Officer framed the assessment under section 143(3) of the Act allowing depreciation as claimed by the assessee.

7. The Principal Commissioner of Income-tax, in exercise of powers under section 263 of the Act, issued a show-cause notice (SCN) dated March 16, 2015 to the assessee pointing out that if the value of these fixed assets were to be amortised evenly over a period of 30 years, the amount to be amortized would only be Rs. 52,01,60,572 for each year. Therefore, the depreciation allowed to the assessee was in excess by Rs. 60,28,13,875 and, to that extent, the order passed by the Assessing Officer was prejudicial to the interests of the Revenue. In reply to the show-cause notice, the assessee took the stand that, during the assessment year in question, it "had purchased the assets from independent vendors, out of its own funds for setting up the project".

8. Thereafter the impugned order dated March 30, 2016 was passed by the Principal Commissioner of Income-tax. It is seen that one of the factors that weighed with the Principal Commissioner of Income-tax in exercising jurisdiction under section 263 of the Act was Circular No. 9 of 2014, dated April 23, 2014 ([2014] 364 ITR (St.) 1) issued by the Central Board of Direct Taxes which stated that "under the BOT arrangement an assessee would only be allowed amortisation in respect of expenditure incurred in creation of the infrastructure facility over the period of BOT arrangement and no depreciation would be allowed on such infrastructure under the provisions of the Act". The case of the assessee was that such a circular could not dictate to the Assessing Officer how he should frame his assessment and to that extent the circular was prejudicial to the assessee, its application would be beyond the scope and ambit of the powers conferred on the Board under section 119 of the Act.

9. It is seen, in the order dated March 30, 2016, the Principal Commissioner of Income-tax has proceeded by setting out the contents of the show-cause notice and the contents of the reply given by the assessee. It appears that no inquiry, as such, was undertaken by the Principal Commissioner of Income-tax to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue.

10. For the purposes of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the Principal Commissioner of Income-tax is of the view that the Assessing Officer did not undertake any inquiry, it becomes incumbent on the Principal Commissioner of Income-tax to conduct such inquiry. All that the Principal Commissioner of Income-tax has done in the impugned order is to refer to the circular of the Central Board of Direct Taxes and conclude that "in the case of the assessee-company, the Assessing Officer was duty-bound to calculate and allow depreciation on the BOT in conformity of the Central Board of Direct Taxes Circular No. 9 of 2014 but the Assessing Officer failed to do so. Therefore, the order of the Assessing Officer is erroneous insofar as prejudicial to the interests of the Revenue".

11. In the considered view of the court, this can hardly constitute the reasons required to be given by the Principal Commissioner of Income-tax to justify the exercise of jurisdiction under section 263 of the Act. In the context of the present case if, as urged by the Revenue, the assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the Principal Commissioner of Income-tax to undertake an inquiry as regards which of the assets were purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handedover to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the Principal Commissioner of Income-tax.

12. Mr. Asheesh Jain then volunteered that the Principal Commissioner of Income-tax had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the Assessing Officer for a fresh assessment. That option, in the considered view of the court, can be exercised only after the Principal Commissioner of Income-tax undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case.

13. Therefore, the court is of the view that the Income-tax Appellate Tribunal was not in error in setting aside the impugned order of the Principal Commissioner of Income-tax under section 263 of the Act. No substantial question of law arises.

The appeal is dismissed.