TaxTMI 
TaxTMI 
2019 (7) TMI 1816
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....ssee filed the information called for and 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 ....
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....oad under BOT contract for a period of 15 years and the same 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 appel....
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....f the Tribunal at Pune in the case of Ashoka Infrastructure Ltd vs. ACIT and the decision of ITAT Visakhapatnam 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....
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....As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs. 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....
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....urpose of the provisions of the Income Tax Act so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin 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 & machine....
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.... assessee has very much claimed the deduction of depreciation. However, he has claimed the same treating itself to be the owner of the toll road. Such a claim of the assessee has been allowed in the previous 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 ....
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....right to develop and maintain the toll road and also the right to collect toll for a specified period without having actual ownership over the said toll road. The assessee has an express right/license for recovery of toll fee to 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 ....
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.... possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit. It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly 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. A....
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....supra), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra). 9. On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned '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 spec....
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....sessee was eligible for depreciation on the "Right to collect Toll', being an "intangible asset' falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents." 13. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on 'License to collect Toll', being an 'intangible asset' falling 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 ....
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....eriod out of its own funds and after the end of specified period, the assessee was to transfer the said infrastructure facility to the Government of Maharashtra free of charge. In consideration of developing, constructing and maintaining the facility for specified period and thereafter, transferring it to the State Government, the assessee was granted the right to collect toll from motorists whoever uses the said infrastructure 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 den....
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....ngarwal had confirmed that he was working with the assessee and he further stated that he was supervising work of collection of toll from Toll Nakas situated at various places and also confirmed that Ms. Dipti Lokam was receiving cash from various Toll Nakas. In the SMS No.43 and 44 received on the mobile of Shri Sunil B. Raisoni, which was dated 19.04.2010, the amount of toll collected was mentioned and Shri Jayesh Dungarwal stated 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 cour....
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....search in respect of receipts in the earlier years, no addition can be made in the hands of assessee. In this regard, he had placed reliance on series of decisions of Pune Bench of Tribunal. He further placed reliance on the ratio laid down by the Hon‟ble Bombay High Court in the case of CIT Vs. M/s. Thakkar Popatlal Velji Sales Ltd. in Income Tax Appeal No.2266 of 2013, judgment dated 29.03.2016, which has confirmed the ratio laid down 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 th....
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....ive for the assessee further pointed out that Pune Bench of Tribunal in ITO Vs. Vikrant Happy Homes Pvt. Ltd. (supra) had referred to the ratio laid down by the Hon‟ble High Court of Delhi in CIT Vs. Chetan Das Lachman Das (supra) and pointed out that in the said case, the issue that evidence of one year cannot be utilized for another year, was not raised and consequently, the estimation of income was made for search period. The Tribunal considering the said 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 fou....
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....In the course of search, incriminating material was seized for indicating suppression of sales for a period of 24 days in A.Y. 1996 - 97 and for a period of 15 days in A.Y. 1997 - 98. However, the partner of the assessee in the course of search admitted that such practice was adopted for all the years including the years for which no evidence was found. On the basis of the above facts, Assessing Officer estimated undisclosed income for the block period. The matter went 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....
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....h was conducted on the assessee on 11.12.1996. In the course of search, evidences were found that the assessee had generated unaccounted income for the period Nov, 1993 onwards. On the basis of the said evidence, the assessee offered to tax income for pre Nov, 1993 period and post Nov, 1993 period. The Assessing Officer estimated higher income for the pre Nov, 1993 period. ITAT deleted the addition made by the Assessing Officer and sustained the income declared by the assessee for the 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 deci....
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....y, the assessee's grounds of appeal on this issue are allowed. 13. The next ground raised by the assessee is against the disallowance of the provision made by the assessee towards "repairs and maintenance" of the Expressway built and operated by it after the initial period of 5 years. It is the case of the Revenue that the assessee has not incurred such expenditure and the provision is for the "repairs and maintenance" which may arise in future years and therefore, it cannot be considered 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) (Tr....
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....e employees putting in every additional year of service. The gratuity was payable on the termination of an employees service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under: (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future 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 ....
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.... number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under Section 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items 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 pr....