Tribunal Allows Depreciation on Roads as Buildings but Upholds Capital Expenditure Classification for Road Costs.

The Tribunal partly allowed the appeals, directing the Assessing Officer to grant depreciation on roads under the category of buildings, aligning with the updated depreciation schedule. However, it upheld the denial of the assessee's claim to classify road construction expenditure as revenue expenditure, affirming it as capital expenditure due to the roads being on government land. Additionally, the Tribunal confirmed that the provision for doubtful debts does not qualify as an ascertained liability, thereby not deductible from book profits, consistent with the jurisdictional HC's precedent.

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Issues Involved:
1. Claim of depreciation on roads as plant and machinery.
2. Classification of expenditure on road construction as revenue expenditure.
3. Provision for doubtful debts as an ascertained liability.

Detailed Analysis:

1. Claim of Depreciation on Roads as Plant and Machinery
The primary issue was whether the roads constructed by the assessee could be classified as plant and machinery for depreciation purposes. The assessee argued that the roads should be considered as plant, citing various judicial precedents. The Assessing Officer denied this claim, referencing the Supreme Court's decision in Indore Municipal Corpn. v. CIT, which held that roads are not buildings. The CIT (Appeals) upheld this view, stating that the roads were neither owned by the assessee nor used for its business purposes but were constructed on government land for public use, and thus, did not qualify for depreciation under section 32 of the Act.

The Tribunal examined the concession agreement and the project details, noting that the project primarily involved widening, strengthening, and resurfacing existing roads. The Tribunal concluded that the roads did not qualify as plant and machinery, as the installation of automated toll plazas for toll collection did not alter the nature of the asset. However, the Tribunal recognized that roads could be classified under the category of buildings for depreciation purposes, referencing the updated depreciation schedule which included roads under buildings. Consequently, the Tribunal directed the Assessing Officer to allow depreciation on roads at the rate applicable to buildings.

2. Classification of Expenditure on Road Construction as Revenue Expenditure
The assessee alternatively contended that the expenditure on road construction should be treated as revenue expenditure since the roads were built on government land. The CIT (Appeals) rejected this claim, distinguishing the facts from those in the Supreme Court's decision in Madras Auto Service (P.) Ltd., where the expenditure was allowed as revenue because the land was leased for 99 years at a nominal rent.

The Tribunal noted that the relevant legal provision, Explanation (1) to section 32, which was inserted with effect from 1-4-1988, clarified that capital expenditure on leased properties should be treated as capital expenditure, entitling the assessee to depreciation. Given that the roads were constructed on government land, the Tribunal upheld the classification of the expenditure as capital and not revenue.

3. Provision for Doubtful Debts as an Ascertained Liability
The assessee claimed that the provision for doubtful debts should be considered an ascertained liability and thus deductible. The CIT (Appeals) rejected this claim, relying on the jurisdictional High Court's decision in Dy. CIT v. Beardsell Ltd., which held that a debt recovery that is doubtful does not constitute an ascertained liability under section 115J of the Act and thus cannot be excluded from book profits.

The Tribunal upheld the CIT (Appeals)'s decision, affirming that the provision for doubtful debts does not qualify as an ascertained liability and thus cannot be excluded from book profits.

Conclusion
The Tribunal partly allowed the appeals, directing the Assessing Officer to allow depreciation on roads under the category of buildings, but upheld the denial of the claim for classifying the road construction expenditure as revenue expenditure and the provision for doubtful debts as an ascertained liability.

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