Facts of the Case

The assessee, Oriental Pathways (Nagpur) Pvt. Ltd., was engaged in infrastructure development under the Build-Operate-Transfer (BOT) model, specifically constructing and maintaining highways and collecting toll.

  • The assessee claimed depreciation @10% on roads under Section 32, which was initially allowed in scrutiny assessment under Section 143(3).
  • Subsequently, a search under Section 132 led to reassessment proceedings under Section 153A.
  • During reassessment, based on CBDT Circular No. 09/2014, the assessee withdrew depreciation claim and instead claimed amortization of expenditure.
  • The Assessing Officer disallowed depreciation and levied penalty under Section 271(1)(c) for furnishing inaccurate particulars.
  • CIT(A) and ITAT deleted the penalty, leading to appeal before the Delhi High Court.

 Issues Involved

  1. Whether claiming depreciation on BOT road projects amounts to furnishing inaccurate particulars of income.
  2. Whether penalty under Section 271(1)(c) is justified when the claim is made under a bonafide belief.
  3. Whether withdrawal of claim based on CBDT circular indicates concealment or voluntary compliance.

Petitioner’s Arguments (Revenue)

  • Depreciation is allowable only if the asset is owned by the assessee, which is not the case in BOT projects.
  • The assessee revised its claim only after detection, indicating intentional concealment.
  • CBDT circular clarified existing law; it did not introduce new provisions.
  • Therefore, penalty for furnishing inaccurate particulars was justified.

 Respondent’s Arguments (Assessee)

  • Claim of depreciation was made under a bonafide belief and industry practice.
  • All facts were fully disclosed in return and audited accounts.
  • The issue was highly debatable, acknowledged even by CBDT.
  • The claim was revised voluntarily in light of CBDT Circular.
  • No concealment or misrepresentation was involved.

 Court Findings / Judgment

The Delhi High Court dismissed the Revenue’s appeal and upheld deletion of penalty, holding that:

  • The issue of depreciation vs amortization in BOT projects was debatable and contentious.
  • The assessee had made the claim under a bonafide belief, supported by earlier acceptance in scrutiny assessment.
  • Penalty proceedings are distinct from assessment proceedings; disallowance does not automatically attract penalty.
  • The assessee had disclosed all material facts and did not conceal income.
  • CBDT circular clarified ambiguity, and subsequent revision of claim was legitimate and not mala fide.

 Therefore, penalty under Section 271(1)(c) was not sustainable.

 Important Clarifications by Court

  • Mere disallowance of a claim does not amount to concealment.
  • Bonafide claims on debatable issues are protected from penalty.
  • CBDT circulars clarifying ambiguity support the assessee’s bona fide conduct.
  • Penalty requires clear evidence of concealment or false particulars, not just incorrect claims.

 Sections Involved

  • Section 271(1)(c) – Penalty for concealment
  • Section 32 – Depreciation
  • Section 153A – Assessment in case of search
  • Section 132 – Search & seizure
  • Section 260A – Appeal to High Court

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8332-DB/SKN28082018ITA9322018_164235.pdf

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