Observing that the reassessment proceedings are 'nothing short of a travesty of justice and can be termed as harassment to the taxpayer', the income tax appellate tribunal (ITAT)'s New Delhi E bench quashed nearly a Rs16,000 crore tax demand raised on Noida Toll Bridge Company Ltd, a group company of Infrastructure Leasing & Financial Services Ltd (IL&FS).
In this case, the commissioner of income-tax (I-T) for appeals (CIT (A)) had observed that he does not have the power to adjudicate the validity of reassessment proceedings while referring to a judgement by the Supreme Court in the case of GK Drive Shaft 259 ITR 19, which ruled that reassessment proceedings can be challenged only by way of a writ petition.
"Such observations or findings of the CIT(A) are nothing short of travesty of justice and can be termed as 'harassment' to the taxpayer. Considering the facts of the case from all possible angles, we are of the considered view that the assessing officer (AO) has erred in assuming jurisdiction under Section 148 of the Income Tax (I-T) Act. Notice issued under Section 148 of the Act is hereby set aside, and the resultant assessment order is quashed," the ITAT bench of NK Billaiya (accountant member) and Astha Chandra (judicial member) says.
The tax department initiated a reassessment proceeding on 28 March 2013 against Noida Toll Bridge Co for assessment years (AYs) 2006 to 2012. It demanded Rs15,965.2 crore, including tax of Rs7,983 crore and a penalty of the same amount. The original assessment order was passed on 31 December 2008.
"...we are of the considered view that the AO has grossly erred in not pointing out the failure on the part of Noida Toll Bridge Co to disclose truly and fully all material facts necessary for assessment framed vide order dated 31 December 2008 under Section 143(3) of the Act. This, in itself, is sufficient to quash the reopening of the assessment," the bench says.
Further, ITAT noted that the reassessment proceedings were initiated only to disallow amortisation interest on zero coupon bonds. "We further find that the issue of amortisation of interest on zero coupon bond was decided in favour of the assessee by the first appellate authority in AY04-05."
"In our considered view, if the item of disallowance for which the reopening was initiated is deleted, then the very basis of initiation of reassessment proceedings does not survive. Therefore, the entire reassessment proceedings deserve to be quashed by the CIT(A) himself," it added.
Noida Toll Bridge Co had also challenged enhancement of the assessment by the CIT(A) on three counts, including arrear of designated return of Rs180 crore, lease of land worth Rs1,730 crore treated as revenue subsidy and disallowance of depreciation of about Rs16 crore.
The ITAT bench also reiterated that if the AO has not assessed any income, the CIT(A) cannot make enhancements by exploring new sources of income. "A perusal of the assessment order shows that the AO has never considered the three issues mentioned on which the CIT(A) has made enhancements, nor were they part of the return of income. Therefore, in our considered opinion, enhancement is bad in law."
After perusing the agreement and various judgements from the Courts, the bench noted that Noida Toll Bridge Co did not earn a 20% designated return on the cost of the project. Thus, the addition on account of the designated return amounting to Rs179.87 crore does not have any leg to stand on and deserves to be deleted, it says.
According to the CIT(A), lands were transferred to Noida Toll Bridge Co by the New Okhla Industrial Development Authority (NOIDA) without any consideration, and the company is the owner of the land. The lands were transferred to exploit for the purpose of development commercially and Noida Toll Bridge Co being the owner of the land had not disclosed it in the books of account, the CIT(A) says.
After arriving at the market value of the land, the CIT(A) attributed a part towards capital subsidy received to the extent the lands were utilised for the construction of the toll bridge. The balance amount, according to the CIT(A), represented compensation for possible or projected shortfall in the revenue and was treated the same as revenue subsidy and made an enhancement of Rs1,730.08 crore.
However, ITAT says the basis of the enhancement by the CIT(A) that the lands were transferred to Noida Toll Bridge Co by NOIDA is fallacious and disregards the relevant articles mentioned elsewhere. "The lands were given on lease and, therefore, there is no question of ownership being transferred to the assessee and, therefore, there is no question of any addition on this account."
Though the depreciation claim was allowed to Noida Toll Bridge Co, the CIT(A) treated the part market value of the alleged land transfer as capital receipt. He went on to reduce the written-down value with the amount of capital subsidy, recomputed the depreciation, and added Rs15.97 crore.
ITAT, however, ruled that there is no capital subsidy to be reduced and no basis for recomputing the depreciation.
