2022 (9) TMI 810 - AT - Income Tax

Tribunal allows depreciation claim on toll collection rights, overturning CIT(A) decision

The Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to allow the claim of depreciation on toll collection rights. The ... Depreciation on toll collections rights - intangible asset u/s 32(1)(ii) - Whether assessee is entitled for depreciation on toll collection rights as it is an intangible asset as per the section 32(1)(ii)? - HELD THAT:- The assessee company is engaged in the business of design, engineering procure, construction, maintenance, management and operation of toll collection and has entered into agreement with Madhya Pradesh Road Developemnt Corporation (MPRDC) for the purpose of maintaining the roads on the basis of build, operate and transfer(BOT) basis and the A.Y 2012-13 is the first year were the asset was put to use and the assessee has claimed the depreciation u/s 32(1)(ii) treating as the intangible asset and the A.O has made the disallowance of depreciation, and on appeal, the CIT(A) has allowed the claim of the assessee. On further appeal filed by the revenue ITAT has dismissed the revenue appeal considering the decisions in the case of North Karnataka Express Highway Ltd [2014 (11) TMI 351 - BOMBAY HIGH COURT] and West Gujarat Expressway Ltd, [2016 (4) TMI 1184 - BOMBAY HIGH COURT]. AR has demonstrated the voluminous information in the paper book supporting the claim - Whereas, in the present case the depreciation@25% was claimed treating the toll rights as intangible Assets. We find the present facts in respect of claim of depreciation on toll rights are similar to earlier assessment year. Accordingly we follow the judicial precedence and set aside the order of the CIT(A) and direct the assessing officer to allow the claim of depreciation and allow the grounds of appeal in favour of the assessee. Issues Involved:1. Determination of the correct amount of loss.2. Disallowance of depreciation on intangible assets (Concessionaire/Toll Collection Rights).Issue-wise Detailed Analysis:1. Determination of the Correct Amount of Loss:The primary issue raised by the assessee was the determination of the loss at Rs. 16,30,45,948 by the CIT(A) as opposed to the declared loss of Rs. 35,14,65,037. The assessee filed the return of income disclosing a total loss of Rs. 35,14,65,037, which was processed under section 143(1) of the Income Tax Act. However, after scrutiny, the Assessing Officer (A.O) assessed the total loss at Rs. 16,28,33,990, disallowing the claimed depreciation on intangible assets.2. Disallowance of Depreciation on Intangible Assets:The second issue involved the disallowance of depreciation on intangible assets, specifically the Concessionaire/Toll Collection Rights. The CIT(A) disallowed the depreciation claimed by the assessee on these rights, resulting in a net disallowance of Rs. 18,84,19,089. The CIT(A) allowed amortization of construction costs over the toll collection rights period of 12 years instead. The assessee argued that the toll collection rights fall within the definition of intangible assets per section 32(1)(ii) of the Income Tax Act, 1961, and are entitled to depreciation at 25%.The CIT(A) did not accept the assessee's contention and relied on the decision of the Hon’ble Bombay High Court in the case of M/s West Gujarat Expressway Ltd. The assessee filed an appeal before the ITAT, arguing that the CIT(A) erred in sustaining the disallowance and that the toll collection rights should be treated as intangible assets eligible for depreciation. The assessee supported their claim with judicial decisions and a voluminous paper book.Tribunal’s Analysis and Decision:The ITAT reviewed the rival submissions and the material on record. The crux of the dispute was whether the toll collection rights qualify as intangible assets under section 32(1)(ii) of the Act. The Tribunal noted that the assessee is engaged in the business of toll road construction and maintenance on a BOT basis and had entered into an agreement with the Madhya Pradesh Road Development Corporation (MPRDC).The Tribunal observed that in the earlier assessment year, the claim for depreciation on toll rights was allowed by the CIT(A) and upheld by the ITAT, following the decisions of the Bombay High Court in North Karnataka Express Highway Ltd vs. CIT and CIT Vs. West Gujarat Expressway Ltd. The Tribunal further noted that the Hon’ble High Court had concluded that an infrastructure development company constructing a toll road on BOT basis on government land is not entitled to claim depreciation on the road itself but can claim depreciation on intangible rights like the right to collect toll.The Tribunal referred to the Special Bench decision in ACIT, Hyderabad Vs. Progressive Construction Ltd., which concluded that the right to collect toll is an intangible asset eligible for depreciation. The Tribunal also cited the ITAT Mumbai and Chennai benches, which had similar views.Based on these precedents, the Tribunal found that the issue of depreciation on toll collection rights is covered by the earlier decisions favoring the assessee. Therefore, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the claim of depreciation on toll collection rights.Conclusion:The appeal filed by the assessee was allowed, and the Tribunal directed the Assessing Officer to allow the claim of depreciation on the toll collection rights, following judicial precedents. The Tribunal dismissed the revenue's appeal and the assessee's cross-objections as academic in nature. The order was pronounced in the open court on 29.03.2022.