TaxTMI 
TaxTMI 
2019 (7) TMI 1816
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....on perusal of the same and particularly the schedule of fixed assets, the AO observed that the assessee company claimed depreciation of Rs. 18,16,15,643/- on BOT projects @ 5% (at half the rate as being put to use for less than 180 days) on WDV of Rs. 368,27,61,649/-. The AO observed that there are several disputes on the allowability of depreciation on the expenditure incurred for development and construction of roads/highways on BOT basis and that to put an end to all the disputes, the CBDT has issued circular No.9/2014, dated 23.04.2014 clarifying on the issues regarding the allowability of the depreciation on projects developed under BOT. He observed that as per the CBDT circular, the expenditure has to be amortized evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility from the date of commencement etc. 3. Further, from the information submitted by the assessee, the AO noted that the project has commenced its operation in the financial year 2012-13 only and the agreement period of the project is upto 14.05.2026. Therefore, the total period of the project from the commencement day (CDD) 20.1.2013 is 4863 days and during ....
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.... partakes the nature of intangible asset and is eligible to claim depreciation U/s 32( I )(ii) @ 25% on expenditure incurred for construction of road as held by Hon'ble jurisdictional Tribunal in ITA No.1845/Hyd/2014 dated 14.02.2017 Progressive Constructions Ltd vs ACIT and by Pune Bench of Hon'ble ITAT in ITA No. 1452/Pune/2014 dated 30.06.2017 in M/s Ashoka Infrastructure Ltd v ACIT. 3. Ld. CIT(A) erred in law in upholding the disallowance of the provision for periodic maintenance of Rs. 1,11,47,4861- by stating that appellant has not actually paid these expenses and it is only a provision and ignoring that reserve was created under mandate agreement in between the principal i.e., NHAI and concessionaire and also there is no power 1 right except to mandate the NHAI terms and therefore, it is a crystallized liability and is allowable u/s 37 of the Act as held in r20091 3 14 ITR 62 (SC) Rotork Controls India P Ltd vs CIT and r20161 381 ITR 469 (Delhi) Aggarwal and Modi Enterprises (Cinema Project) Co Pvt Ltd V CIT. 4. For these and other reasons that may be urged at the time of hearing, the appellant prays the Honorable Tribunal to kindly delete the addition made by AO....
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....hapatnam in the case of Dy. CIT vs. Godavari Toll Project (P) Ltd. Let us, therefore, find the applicability of these decisions to the facts of the case before us. 9. We find that the Hon'ble Bombay High Court, in the case of North Karnataka Expressway Ltd, was considering the case of an assessee who had claimed to be the owner of the roads constructed by it and has claimed depreciation thereon u/s 32 of the I.T. Act. The Hon'ble Bombay High Court has held that the assessee is not the owner of the roads and therefore, is not entitled to the claim of depreciation thereon. However, as to whether the assessee is eligible for depreciation on the 'intangible asset' has been left open by the Hon'ble High Court. For the sake of ready reference, the relevant portion is reproduced hereunder: "24. Then, the Commissioner discussed the claim on merits. He found that the ownership of the road cannot be claimed by the Assessee. The claim of depreciation is not based on treating it as an intangible asset with a right to use the asset without being actual owner thereof. In that regard, the Commissioner referred to the orders passed by the Bombay Bench of the Income Tax Appellate Tri....
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....s. 59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National Highway Authority of India and the clause therein that 'for the purpose of claiming tax depreciation, the property representing the capital investment made by the concessionaire shall be deemed to be acquired and owned by the concessionaire'." (emphasis supplied by us) 18. The Hon‟ble Bombay High Court, however, after discussing the provisions of National Highway Act, 1956 and National Highway Authorities of India Act, 1988 and various case laws including that are strongly relied upon by the Ld. A.R. e.g. "Mysore Minerals Ltd. vs. CIT" reported in (1999) 239 ITR 775 SC, "CIT vs Podar Cement Pvt. Ltd. & others" reported in (1997) 226 ITR 625 SC and "CIT vs. Noida Toll Bridge Company Ltd." (Allahabad HC) (supra),....
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....in to ownership, therefore his income should not be brought to tax; Similarly, if he can claim any deductions from his income which is comprising of profit and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term "onwer‟ is defined in this manner in Income Tax Act, 1961. The above observations of the Hon‟ble Bombay High Court reveal that for the purpose of claiming deduction under Income Tax Act, the term "owner‟ as defined under the Income Tax Act can be looked into. However, that cannot control, leave alone or overreach the National Highway Act, 1956 or the National Highway Authorities of India Act, 1988. The Hon‟ble Bombay High Court further, in para 47 of the said order, has observed that the assessee can definitely claim depreciation on the investments. He has definitely invested in the projects of construction development and maintenance of the National Highways and such of the assets in the form of building, plant & machinery etc. The claim for depreciation can be validly raised and granted. That the Hon‟ble High Court in the said case was only concerned with the claim on the land o....
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....us assessment years. The assessee was under bonafide belief that he has correctly claimed the deduction of depreciation on the toll road in view of the consistent findings of the Tribunal on this issue. However, due to the change of legal position in view of the law laid down by the Hon‟ble Bombay High Court (supra), the assessee cannot be treated as the owner of the toll road. But it is not disputed that the assessee has made investments on the project and he is entitled to claim deductions in this respect. The claim of deduction has been very much put by the assessee in the return of income but wrongly treating itself as owner of the road which claim as observed above was under bonafide belief and in view of the settled legal position as was there at the time of putting the claim. Even the AO has also observed in the assessment order that it is a fact that the assessee company has incurred huge expenditure on the said project which cannot be treated as revenue expenditure allowable in one year as the same has resulted into providing enduring benefit to the assessee company, hence, the said amount would be eligible for amortizationfor the period of the concession agreement a....
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.... recoup the expenditure. The said right brings to the assessee an enduring benefit during the period of agreement. This fact has also been discussed by the CBDT in circular No.09/2014 dated 23.04.14. The para 4 of which, for the sake of convenience, is reproduced as under: "There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon‟ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT in 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or p....
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....lowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), the assessee is entitled to claim of depreciation on such type of rights. Such rights have been described as intangible assets under the Act and are eligible for claim of depreciation. 28. In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules. Our above view is further supported by the decision of the co-ordinate Pune bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in ITA No.989/PN/2010 & ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Co-ordinate Bench of the Tribunal in the case of "Ashoka Infraways Pvt. Ltd. Vs. ACIT‟ in ITA No.185 & 186/PN/2012 dated 29.04.2013, has held in clear terms that the claim of the assessee for depreciation on "licence to collect toll" being an "intangible asset‟ falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of find....
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....;Right to collect Toll' was an 'intangible asset' eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act. 10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas By- pass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorist....
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....alling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so. 14. In so far as the reliance placed by the CIT(A) on the judgement of the Hon'ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon'ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal No. 1.1 raised by the assessee." 29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act." 22. The Tribunal in ACIT Vs. West Gujarat Expressway Ltd. (supra) further referring to the ratio laid down by the Hon‟ble Bombay High Court held that since the assessee is not the owner of toll road, but has been given the right to develop, maintain and operate the toll road and to further collect the toll for the specified period, then th....
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....ructure facility during the specified period. The said right to collect toll was on account of assessee incurring the cost towards development, construction and maintenance of infrastructure facility, which was treated by the assessee as its intangible asset and on which, it claimed the depreciation under section 32(1)(ii) of the Act. Following the precedent referred to above, the assessee is entitled to claim the said deduction on intangible asset, in view of section 32(1)(ii) of the Act. The reason for which the said depreciation which was earlier allowed by the Tribunal in the case of assessee itself for assessment year 2007-08 and was allowed by the Assessing Officer in the order passed under section 143(3) of the Act relating to assessment year 2006-07, was denied by the Assessing Officer as the appeals were pending against the order of Tribunal is not correct approach. Further, the CIT(A) has relied on the CBDT circular dated 23.04.2014, wherein the CBDT has laid down that instead of depreciation on the cost incurred by the assessee, the said cost should be amortized over a specified period and allowed in the hands of assessee. However, the expenditure incurred by the assesse....
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....tated that the said contents represent the toll collection from various places and were reported to Shri Sunil B. Raisoni by him. He was confronted with the cash receipt of Rs. 8.64 lakhs shown as toll collection from Shirur Toll Naka on 19.04.2010 as against cash receipt of Rs. 10.35 lakhs found from Ms. Dipti Lokam. On physical verification with regard to difference of Rs. 1.71 lakhs, Shri Jayesh Dungarwal replied that the Director Shri Sunil B. Raisoni used to give instructions as to how much amount was to be accounted for in the books of account, the balance amount of cash remained with the cashier. He re-confirmed about the instructions of the Director to report less cash vis-à-vis actual cash received from Toll Nakas. The assessee during the course of assessment proceedings furnished the statement showing the difference in toll collection as per seized note and books and as per regular books of account for the period 25.12.2009 to 19.04.2010. As per the assessee‟s own statement, total amount reflected in the seized Annexure was Rs. 10.98 crores as against Rs. 10.48 crores recorded in the regular books of account. The Assessing Officer noted that the ratio of unre....
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....n by the Pune Bench of Tribunal. The claim of Revenue in the said decision was that where the register evidencing the sales were found for certain period, the Revenue was entitled to extrapolate the sales recorded therein for the entire assessment year. The Hon‟ble High Court vide para 9 held as under:- "9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during search is concerned, this Court in All Cargo Global Logistics Ltd. (supra) had negatived the revenue‟s submission before it that the assessment under section 153A of the Act is not to be restricted only to the incriminating material found during the course of search but would extend to other material also. Therefore in the facts of present case this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd. (supra) in favour of the respondent-assessee inasmuch as it restricts the assessment to be made only to the incriminating material found during the course of search. The reliance upon the decision of the Supreme Court in H.M. Esufali H.M. Abdulali (supra) is inappropriate. This is so as it was passed under the sales tax law and it proceede....
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....id facts and arguments of the assessee before it, held that the said decision was not applicable to the facts of the said case observing as under:- "4.6 We find in the case of CIT v. Chetan Das Lachman Das [211 Taxman 61 (Delhi) (H.C.)] wherein there was a search on the assessee and certain evidences were found which indicated that the assessee was suppressing its income. On the basis of the evidences found, the Assessing Officer estimated sales for the 6 years. The said addition was deleted by the Tribunal on the ground that no evidence was found in the course of search. Hon'ble Delhi High Court held that the decision of Tribunal that no seized material was found was not correct since evidences were clearly found indicating suppression of income. Accordingly, Hon'ble Delhi High Court held that the CIT(A) had noted in his order that one of the partners of the assessee firm had admitted the practice of suppressing income. Further, in the said case, the issue that evidence of one year cannot be utilised for another year was not raised. Accordingly, considering the above facts, the estimation of income made by the Assessing Officer was accepted. Considering the above facts, ....
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....nt up to High Court and the Hon‟ble High Court held that as the evidence was found for certain years and considering the acceptance of the partner that similar practice was followed in the earlier years, the estimation of income made by the Assessing Officer was correct. In the case before us, the facts are not identical as there was no acceptance by the assessee or its directors that such practice was followed in the earlier years as well. Accordingly, the ratio of Rajnik & Co. is not applicable to the facts of the present case. We further find in the case of Khopade Kisanrao Manikrao v. Asst. CIT [74 ITD 25 (Pune)(TM)], wherein the learned Departmental Representative has relied upon the said decision of ITAT, Third Member of Pune Bench. In the said case, the evidence was found that the assessee had taken on-money on sale of plots. The evidence was found for all the years falling within the block period. Thus the issue arose that on the basis of evidence found for sale of certain plots, can the Assessing Officer estimate the income in respect of other plots for which no evidence was found. The Third Member held that the evidence was found that the assessee was taking the on-....
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....he pre Nov, 1993 period. The issue before Hon'ble Bombay High Court was whether such deletion of addition made by the Assessing Officer was justified. Hon'ble High Court held that the Tribunal was justified in deleting the addition made because the income does not remain constant over the years. Moreover, evidence of one year cannot be used for other year as held by the ITAT, Pune "A‟ Bench in the case of DCIT, Central Circle 1 (2), Pune Vs. Venkateshwara Hatcheries Pvt. Ltd. in ITA Nos.746 & 747/PN/2012 & another. Accordingly, the facts of the said case are not identical and not applicable to the facts of the present case". 12. Thus, the Tribunal at Pune has not only considered the decision of the Hon'ble Mumbai High Court in the case of Northern Karnataka Expressway Ltd, but has also considered the decision of the Coordinate Bench at Mumbai in the case of West Gujarat Expressway Ltd to allow the alternate claim of the assessee to hold that the asset as an intangible asset and to allow depreciation thereon. However, we find that the decision of the Tribunal in the case of West Gujarat Expressway Ltd has been reversed by the Hon'ble Bombay High Court by holdi....
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....dered as the expenditure relatable to the relevant A.Y before us i.e. A.Ys 201314. The learned Counsel for the assessee had relied upon the following decisions to argue that where the provision is made on a reasonable and scientific basis for meeting its future liabilities, then such provision is allowable as a deduction: a) Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (S.C) b) Rotork Controls India (P) Ltd vs. CIT (2009) 314 ITR 62 (S.C) c) CIT vs. Hewelett Packard India (P) Ltd 314 ITR 55 (Delhi) d) Aggarwal ad Modi Enterprises (Cinema Project) Co. (P) Ltd vs. CIT (2016) 381 ITR 469 (Del.) e) DCIT vs. Vs. First Solutions Ltd (2018) 168 DTR (Mumbai) (Trib.) 161 14. The learned DR, on the other hand placed reliance upon the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd, reported in (2019) 187 Taxmann.com 346 (S.C). 15. Having regard to the rival contentions and the material on record, we find that, as per clause 3.1.1 of the concessionaire agreement between the assessee and the NHAI, the assessee is required to construct, operate and maintain the project for a period of 15 years commencing from the appointed date. Therefore, it is ....
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....ture date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. Vs. Commissioner of IncomeTax, West Bengal (1959) 37 ITR 1 wherein this court has held that the liability on the assessee having been imported, the li....
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....s leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are in the business from assessment years 1983- 84 onwards. Valve Actuators are sophisticated goods. Over the years appellant has been manufacturing Valve Actuators in large numbers. The statistical data indicates that every year some of these manufactured Actuators are found to be defective. The statistical data over the years also indicates that being sophisticated item no customer is prepared to buy Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator(s). In other words, warranty stood attached to the sale price of the product. These aspects are important. As stated above, obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the present case, therefore, warranty provision needs to be recognized because the appellant is an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable....