New Mangalore Port Road Company Limited Vs DCIT (ITAT Delhi)
CIT(A) Erred in Dismissing Penalty Appeal as “Infructuous” After VSVS; Entire 271(1)(c) Penalty on Depreciation & Interest Disallowance Remanded for Fresh Adjudication -ITAT Delhi Sets Aside NFAC Order
Assessee, a BOT road developer, appealed against a ₹19.25 crore penalty levied u/s 271(1)(c) on two disallowances made in scrutiny assessment: (i) Depreciation on Toll Road – ₹60.67 crore & (ii)Interest u/s 36(1)(iii) – ₹1.63 crore.
During assessment, AO held that depreciation was wrongly claimed because ownership of the toll road rests with NHAI & only limited amortisation per CBDT circular could be allowed. AO also held that a portion of interest should be capitalised to CWIP as per Explanation 8 to section 43(1). Penalty was then imposed on both disallowances alleging furnishing of inaccurate particulars.
Before CIT(A), the assessee settled only the interest disallowance under VSVS, but did not settle the depreciation dispute. However, the NFAC (CIT(A)) dismissed the entire penalty appeal as infructuous, solely because Form-3 & Form-5 were issued under VSVS for the interest component.
ITAT held this approach legally unsustainable, observing that:
- CIT(A) must adjudicate all issues arising from the penalty order u/s 251,
- VSVS settlement of only one disallowance does not extinguish penalty on the other (i.e., depreciation issue),
- CIT(A) cannot summarily dismiss the appeal without a speaking order on merits,
- The penalty on both components—depreciation & interest—remained to be adjudicated.
Accordingly, ITAT set aside the NFAC order & remanded the entire penalty matter to CIT(A) for fresh decision on both disallowances, after granting proper opportunity of hearing. No findings were given on merits.
