TaxTMI 
TaxTMI 
2021 (5) TMI 659
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....uded in the definition of Building without accepting appellant's contention that the appellant company has Rights in the developed Toll Road and the appellant is eligible for depreciation @ 25% under the head Intangible Assets. 2. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming deduction of Grant of Rs. 43.92 Crores received from NHAI out of the total cost of project of Rs. 441,27,05,614/- on the ground that the grant given by NHAI is to meet part of the cost of the project and is not a contribution towards the Equity Support. 3. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming disallowance of provision made for major maintenance expenses amounting to Rs. 3,00,00,000/- on the ground that the said provision is contingent in nature and the assessee has not made any expenditure on that count during the year under consideration and such a maintenance envisaged in the Common Rupee Loan Agreement at best is merely an estimate, indefinite, likely to take place at some future date and the same has not taken place at all. 3. Facts in brief are....
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.... High Court in North Karnataka Expressway Ltd. vs CIT in Appeal No.499 of 2012 and also the Mumbai Bench of this Tribunal referred in the case of ACIT vs M/s. West Gujarat Expressway Ltd. in ITA Nos. 5904 & 6244/M/2012 vide order dated 15.04.2015 have ruled in favour of the assessee. He also relied on the decision of the Co-ordinate Bench of this Tribunal in the case of DCIT vs M/s. Progressive Construction Ltd. in ITA No.214/Hyd/2014 dated 07.11.2014 and also on the decision of the Indore Bench of this Tribunal in the case of M/s. Kalyan Toll Infrastructure Ltd. vs ACIT in ITA Nos. 201 & 247/Ind/2008 vide order dated 14.12.2010. 8. Ld. Counsel for the assessee also relied on the decision of Hyderabad Bench of this Tribunal in the case of M/s. Mokama Munger Highway Ltd. vs ACIT in ITA Nos. 1729, 2145 & 2146/Hyd/2018 order dated 03.07.2019. Ld. Counsel for the assessee submitted that the Assessing Officer and Ld.CIT(A) have relied upon the decision of CIT vs Noida Toll Bridge Co. Ltd. 213 Taxman 333. He submitted that in the light of judgement of Hon'ble Bombay High Court in the case of North Karnataka Expressway Ltd. vs CIT in Appeal No.499 of 2012 (supra) which the assessee had....
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.... Pvt. Ltd. vs. ACIT vide ITA Nos. 185 & 186/PN/2012 dated 29.04.2013. As per the Tribunal following the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant :- "7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:- i) Ashoka Buildcon Ltd. in ITA.No.1302/PN/09 dated 20.03.2012. ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 & 247/Ind/2008 dated 14.12.2010. iii) Dimension Construction Pvt. Ltd. in 1TA.No.222, 223, 233 & 857/PN/2009 dated 18.03.2011. iv) Ashoka Info (P) Ltd. (supra) v) Reliance Ports and Terminals Ltd. (supra). 8. The Ld. CIT(DR) appearing for the Revenue, has submitted that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the....
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....lopment, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of 'intangible asset' falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, therefore, we find no reasons to depart from the accepted position based on the aforesaid decisions. 11. So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to colle....
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.... and further to collect the toll for the specified period. This right as discussed above is an intangible asset falling under section 32(1)(ii) of the Act." 11. The Special Bench of this Tribunal in ITA No.1845/Hyd/2014 in the case of ACIT vs Progressive Construction Ltd. order dated 14.02.2017 under the identical facts has held as under:- 17. "In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), the Hon'ble Supreme Court while examining the assessee's claim of depreciation on BSE Membership Card, after interpreting the provisions of section 32(1)(ii), held that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road / bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road / bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r....
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....in the first 5 years is Rs. 60.34 Crores (2.94 + 8.98 + 15.01 + 21.05 + 12.36). Calculation of the Provision for Major Maintenance of Rs. 3.00 Crores is as below: S. No. Particulars Amount (Rs. in Crores) L Maintenance Expenditure to be incurred in the first 5 years 60.34 2 Project Operations were started from 09.08.2011 3 Proportion of Maintenance expenditure for each year shall be 12.07 4 Being not having full year operations of the project, provision has been created only for one quarter i.e. Rs. 12.07 Crores/4 3-00 With regard to the allowability of the provision for major maintenance, we have to submit that the above said amount is not a provision, rather it is a mandatory liability imposed on the appellant by way of Concession Agreement as detailed above. This is a liability with regard to expenses which the assessee has to incur against the present receipts/ income. Case Laws supporting the contention of the appellant: l. Hon'ble Supreme Court the case of M/s. Rotork Controls India Pvt. Ltd. Vs. CIT (314 ITR 0062 - SC) has given the following findings with regard to a provision: ....
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....ing on the first option which, as stated above, is erroneous as it rules out the accrual concept (emphasis supplied). The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on matching concept. Under the matching concept, if revenue is recognized the cost incurred to earn that revenue including warranty costs has to be fully provided for. When Valve Actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is most appropriate because it fulfills accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision....
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....harat Earth Movers Vs. CIT [245 ITR 428 (SC)], Hon'ble Supreme Court had referred to principles were laid down in the case of Metal Box Co. of India Ltd. Vs. their Workmen [73 ITR 53 (SC)]. Hon'ble Court had extracted and reproduced some relevant principles 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 3/5 principles of commercial practice and accountancy. It is not as if such deduction is paid; permissible only in case of amounts actually expended or (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 fulfillment 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 particul....
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....ver, the basis of quantification of the fund and that the provision is made on a scientific basis has not been established by the assessee nor has it been looked into by the AO. Therefore, we deem it fit and proper to remit this issue to the file of the AO with a direction to examine the scientific method followed by the assessee in making the provisions. If it is found to be reasonable and on a scientific criteria, then the AO shall not disallow the same." It has been held likewise in the following decisions: 1. CIT Vs. Hewlett Packard India (P) Ltd. [314 ITR 55 (Del)] 2. Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt. Ltd. Vs. Commissioner of Income tax [281 ITR 469 (Delhi)] 3. DCIT Vs. First Source Solution Ltd. [168 DTR (Mumbai)(Trib) 161] Prayer: In view of above submissions, it is submitted that all the conditions for recognizing a liability for the purposes of provisioning- which relates to present obligation arising out of obligating events, involvement of outflow of resources and which involves reliable estimation of obligation stands satisfied and making a provision from the current year's income fulfills accru....
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....lmost 15% of the cost of project in relaying of the road, which will be in the nature of Capital expenditure and should be added in the depreciated value of the cost of the project. Hence any repair i regular nature which is required for day to day running of business (i.e. Collection of Toll) only needs to be allowable. Hence, the provision for major maintenance allowed will not give true and fair profitability of the assessee. Hence, the provision for major maintenance being contingent nature is disallowed on the ground that assessee has not made any expenses on that count during the year und consideration." In view of the same and discussion by me (supra) I uphold the order of the AO. Ground no. 3 is dismissed." 18. During the course of hearing, Ld. Counsel for the assessee took us through the chart wherein it was mentioned that the maintenance expenditure to be incurred in five years was Rs. 60.34 crore, project operations were started on 09.08.2011 and estimation of maintenance expenditure was estimated to Rs. 12.07 crores and being not having full year operations of the project, provision was created for only one quarter i.e. Rs. 12.07 crore/4 i.e. Rs. 3 crore. Reliance is....