2017 (2) TMI 1547 - AT - Income Tax

ITAT Mumbai denies depreciation on toll road construction but allows alternative revenue expenditure claim consideration

ITAT Mumbai held that depreciation on toll road construction was not allowable, following HC's binding precedent that rejected such claims. However, the ... Depreciation on toll road - HELD THAT:- It is noted that since in the appeal filed against the original assessment order, Hon'ble High Court has held vide its judgement [2016 (4) TMI 1184 - BOMBAY HIGH COURT] that claim of depreciation is not allowable to the assessee, the same decision would be applicable upon the issue raised by the Revenue before us. Once Hon'ble High Court has taken a view that depreciation is not allowable, the issue before us stands covered against the assessee. Cross objection - appellant prays that the entire cost incurred for construction of 'Project Road' may be allowed as deduction treating the same as revenue expenditure while computing the total income - As noted that the claims raised before us are alternative to the main claim made by the assessee. Since the main claim of the assessee has been rejected, in all fairness, justice demands that assessee should be given an opportunity to make his alternative claim in accordance with law. Thus, taking into account the totality of facts and circumstances of the case, as have been brought before us, we find it appropriate to send these issues back to the file of the AO. The assessee shall be at liberty to raise all the legal and factual issue before the AO. The AO shall examine all the issues raised in the Cross Objection and decide them after taking into account all the submissions and evidences, as may be placed on record by the assessee. With these directions, the grounds raised in the Cross Objection are restored to the file of the AO for their appropriate adjudication and these may be treated as allowed, for statistical purposes. Issues Involved:1. Allowance of depreciation on toll road claimed by the assessee.2. Treatment of toll road as a national highway belonging to the Government of India.3. Classification of toll road as 'Plant and machinery' by the CIT(A) instead of Government Land.Analysis:1. The appeal by the Revenue challenged the CIT(A)'s decision to allow depreciation on the toll road claimed by the assessee. The Revenue contended that the AO had rightly allowed amortization for five months since the toll road started operating from a specific date. The High Court had previously ruled against the assessee on this issue in a separate case. The Tribunal noted the High Court's judgment and decided against the assessee based on the precedent, denying the claim of depreciation.2. The issue of treating the toll road, a national highway owned by the Government of India, as a capital asset owned by the assessee was also raised. The CIT(A) had considered the toll road as a capital asset to allow depreciation. However, the Tribunal referred to the High Court's ruling in a related case, emphasizing that the toll road should not be classified as plant and machinery owned by the assessee. The Tribunal upheld the High Court's decision, concluding that the depreciation claim on the toll road was not permissible.3. Another aspect was the classification of the toll road as 'Plant and machinery' by the CIT(A) instead of Government Land. The Tribunal reviewed the orders of the lower authorities and the High Court's judgments. It was observed that the High Court had previously determined that the assessee was not entitled to depreciation on the toll road. Therefore, the Tribunal aligned with the High Court's decision and dismissed the assessee's claim for depreciation. The Tribunal emphasized following the High Court's order and denied the depreciation claim.4. The Cross Objections filed by the assessee included alternative claims related to the deduction for construction costs, depreciation on infrastructure facility rights, and amortization of expenses. The Tribunal acknowledged that these alternative claims had not been thoroughly examined previously. Considering the rejection of the main claim by the assessee, the Tribunal decided to send these issues back to the AO for proper examination. The Tribunal emphasized the importance of allowing the assessee to present alternative claims and directed the AO to consider all legal and factual issues raised in the Cross Objections.In conclusion, the Tribunal allowed the appeal by the Revenue, following the High Court's precedent on the depreciation claim. The Cross Objections by the assessee were treated as allowed for statistical purposes, with the issues sent back to the AO for further examination and adjudication.