Tribunal upholds CIT(A)'s decisions on toll road annuity depreciation and maintenance charges

The Tribunal upheld the CIT(A)'s decisions, allowing depreciation on the right to collect annuity on toll roads and the provision for periodic maintenance charges. The Revenue's appeals were dismissed.

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Issues Involved:
1. Deletion of disallowance made on account of depreciation on the right to collect annuity on toll roads.
2. Deletion of disallowance made on account of provision for periodic maintenance charges under normal provisions of the Income Tax Act and in the computation of book profits under section 115JB.

Detailed Analysis:

1. Depreciation on Right to Collect Annuity on Toll Roads:
The first issue addressed was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance made on account of depreciation on the right to collect annuity on toll roads. The assessee was engaged in the construction and maintenance of a highway on a Build, Operate, and Transfer (BOT) basis under an annuity scheme. The cost incurred on the project was classified as an intangible asset eligible for depreciation under section 32(1)(ii) of the Income Tax Act, 1961. The Assessing Officer (AO) denied this depreciation, arguing the assessee did not hold ownership rights in the project. However, the CIT(A) allowed the depreciation, citing that the annuity right was an intangible commercial right with enduring benefit, and thus eligible for depreciation under section 32(1)(ii). The CIT(A) relied on the Special Bench decision of the Hyderabad Tribunal in the case of Progressive Constructions Ltd., which recognized the right to collect toll charges as an intangible asset. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

2. Provision for Periodic Maintenance Charges:
The second issue involved the deletion of disallowance made on account of provision for periodic maintenance charges, both under normal provisions of the Act and in the computation of book profits under section 115JB. The assessee was contractually obligated to incur maintenance expenses periodically as per the concession agreement. The provision for these expenses was made based on a technical report and amortized over five years, claimed as a deduction under section 37(1). The AO disallowed the provision, treating it as an estimated future cost and an unascertained liability. The CIT(A) deleted the disallowance, noting that the provision was based on a scientific method and constituted an ascertained liability. The Tribunal found that the provision was made on a scientific basis, aligned with the matching principle of income and expenditure, and upheld the CIT(A)'s decision. The Tribunal also referenced the Supreme Court decision in Rotork Controls India Pvt. Ltd., which allowed for provisions based on reasonable scientific methods, and the Pune Tribunal decision in ACIT vs. Ashoka Buildcon Ltd., which recognized foreseeable losses as allowable deductions. Consequently, the Tribunal dismissed the Revenue's grounds on this issue as well.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on both issues, confirming that the depreciation on the right to collect annuity on toll roads and the provision for periodic maintenance charges were correctly allowed. The appeals of the Revenue were dismissed in their entirety.

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