In a huge relief for Noida Toll Bridge Company Ltd, a group company of beleaguered Infrastructure Leasing & Financial Services Ltd (IL&FS), the Income Tax Appellate Tribunal (ITAT) has quashed nearly ₹16,000-crore tax demand (including penalty) raised on the company.

The demand was for taxes of ₹7,983 crore and an equal amount of penalty. It related to the 2006-07 to 2011-12 assessment years.

Noida Toll Bridge Company Ltd is the special purpose vehicle that built and runs the Delhi-Noida Direct (DND) Flyway.

The ITAT bench of NK Billaiya (accountant member) and Astha Chandra (judicial member) dismissed the enhancement of income, merits of addition and the reopening of the assessment by the tax department.

The Income Tax Department had initiated a reassessment proceeding on March 28, 2013 against Noida Toll Bridge Co for assessment years (AYs) 2006-07 to 2011-2012. It demanded ₹15,965 crore, including tax of ₹7,983 crore and a penalty of the same amount. The original assessment order was passed on December 31, 2008.

Reassessment proceedings

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 ₹180 crore, lease of land worth ₹1,730 crore treated as revenue subsidy and disallowance of depreciation of about ₹16 crore.

The ITAT bench noted 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.”

ITAT bench also noted that Noida Toll Bridge Co did not earn a designated return of 20 per cent on the cost of the project. Thus, the addition on account of the designated return amounting to ₹180 crore does not have any legs to stand and deserves to be deleted, the ITAT bench said.