Toll collection rights qualify as intangible assets, while contingent road-maintenance liabilities and penalty claims were disallowed.

A right to collect toll was treated as a business right qualifying as an intangible asset, so depreciation at 25% and related additional depreciation were allowed. Subsidy received from NHAI was required to be reduced from project cost under Explanation 10 to section 43(1), so depreciation based on the unreduced cost was disallowed. Provision for resurfacing expenses was held to be an uncertain, contingent liability rather than an ascertained deductible expense, and depreciation on the capitalised negative grant and related carriageway amount payable to NHAI was also denied because the future liability had not crystallised. Additions arising from the quantum assessment were accepted for enhanced section 80IA deduction, and penalty under section 271(1)(c) was held unsustainable because mere rejection of a claim does not establish concealment.

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Issues: (i) whether the right to collect toll was eligible for depreciation at 25% as an intangible asset; (ii) whether subsidy received from NHAI had to be reduced from the project cost under Explanation 10 to section 43(1); (iii) whether provision for resurfacing expenses was allowable as a deduction; (iv) whether depreciation on capitalization of the negative grant and related carriageway amount payable to NHAI was allowable; (v) whether additions and disallowances arising from the quantum assessment were eligible for increased deduction under section 80IA; and (vi) whether penalty under section 271(1)(c) was leviable.

Issue (i): whether the right to collect toll was eligible for depreciation at 25% as an intangible asset;

Analysis: The right to collect toll was treated as a business right falling within the category of intangible assets. The earlier view restricting depreciation to the rate applicable to roads was not accepted. The rate of depreciation at 25% was applied, and the consequential claim for additional depreciation also followed.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): whether subsidy received from NHAI had to be reduced from the project cost under Explanation 10 to section 43(1);

Analysis: The subsidy was received to meet the capital cost of the project. Since Explanation 10 to section 43(1) requires reduction of the portion of cost met directly or indirectly by subsidy or grant from the actual cost of the asset, the subsidy had to be deducted from the project cost. The excess depreciation claimed on that basis was therefore not sustainable.

Conclusion: The issue was decided against the assessee.

Issue (iii): whether provision for resurfacing expenses was allowable as a deduction;

Analysis: The liability for resurfacing was not found to be scientifically or rationally quantified. The estimate was worked out from a period preceding commercial operation, whereas the maintenance obligation arose only after the road became operational and depended on future contingencies and actual use. The provision was treated as an uncertain and contingent liability, not as an ascertained deductible expense.

Conclusion: The issue was decided against the assessee.

Issue (iv): whether depreciation on capitalization of the negative grant and related carriageway amount payable to NHAI was allowable;

Analysis: The negative grant represented a future liability under the concession arrangement and was not an immediately crystallized or ascertained cost. The accounting standard did not mandate capitalization of the entire future outgo, and future operational costs were not to be recognized as current cost. The depreciation claimed on the capitalized amount was therefore disallowed.

Conclusion: The issue was decided against the assessee.

Issue (v): whether additions and disallowances arising from the quantum assessment were eligible for increased deduction under section 80IA;

Analysis: The additions and disallowances made under the head business income were held to flow from the same eligible infrastructure undertaking. On that basis, the corresponding enhancement of deduction under section 80IA was accepted, following the applicable CBDT circular.

Conclusion: The issue was decided in favour of the assessee.

Issue (vi): whether penalty under section 271(1)(c) was leviable;

Analysis: The penalty was based only on disallowance of claims made in the return. Mere rejection of a claim did not establish concealment or furnishing of inaccurate particulars. The penalty was therefore unsustainable.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The assessment was sustained only on the issues of subsidy adjustment, resurfacing provision, and negative grant capitalization, while the assessee succeeded on depreciation for toll rights, section 80IA relief, and penalty deletion, resulting in a mixed outcome.

Ratio Decidendi: A right to collect toll is an intangible asset eligible for depreciation at the prescribed rate, whereas provisions or capitalized future liabilities that are contingent, not scientifically quantified, or not yet crystallized cannot be allowed as current deductions or as a basis for depreciation.

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