TaxTMI 
TaxTMI 
2021 (6) TMI 367
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....laim of Rs. 43,17,06,474/- and Rs. 1,41,73,68,447/-; assessment year-wise, respectively. Its case as per the corresponding grounds' averments is that the assessee; who is not owner of the fixed asset in the nature of the road project concerned, ought to have amortized the corresponding expenditure of license fee etc. as per the CBDT's circular No.9/2014, dt.23-04-2014. We notice in this factual backdrop that the CIT(A)'s detailed discussion treating the assessee's depreciation claim to be in the nature of a right to collect toll forming an intangible asset u/s.32(1)(ii) of the Act reads as under: "5. Ground no.3, 4 & 9 to 11 are with regard to disallowance of depreciation of Rs. 203,68,32,837/- by treating the same as capital expenditure to be amortised. In this regard, the Assessing Officer submitted as under: On perusal of Depreciation of fixed assets/ it is observed that the assessee-company is claiming depreciation of Rs. 245,61,03,549/- @25% on the opening WDV of Rs. 982,44,14,194/-. However, there were several disputes on the expenditure incurred on development and construction facilities like roads/highways on BOT basis. To put an end to these disp....
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.... The assessee wns also under an obligation to maintain the said infrastructure facility (i.e. Road and Bridges) at its own cost for a specified period i.e. 20 years. At the end of the specified period, assessee was under an obligation to transfer the infrastructure facility to the Government. In consideration and in terms of the agreement with the NHAI, assessee was bestowed with a right to collect toll from the motorists using the road facility during the specified period. * The assessee capitalized the construction and development cost of the infrastructure facility under the head' Carriageway' and claimed the same to be an intangible asset within the meaning of Section 32(1)(ii) of the Act and thus claimed depreciation @ 25% amounting to Rs. 2,45,61,03,549/- in the computation of income. * In this regard we would like to submit that the AO has followed the CBDT Circular No.09/2014 dated 23.04.2014 and accordingly calculated the allowable depreciation of Rs. 41,92,70,712/- and disallowed the excess claim of depreciation of Rs. 203,68,32,837/- being the difference amount of depreciation. In this regard firstly we would like to submit that the AO has erre....
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....gible for the deduction claimed. Accordingly the claim of depreciation of assessee in the year under consideration being the earlier years of Circular passed is correct and same should be allowed. * It is pertinent to mention here that in the case of DCIT V s Mis Progressive Construction Ltd, Hyderabad, ITA No 214/Hyd/2014 which has been passed as on 07.11.2014 after the date of CBDT Circular has allowed the claim of depreciation of Assessee Company @ 25% on intangible assets after discussing the Board Circular passed in this regard. Relevant para of the same is as under.- "5. After considering the rival contentions, we do not see any merit in Revenue grounds. Learned D.R. vehemently supported that depreciation cannot be allowed and relied on the Board circular No.9 of 2014 dated 23.04.2014. As seen from the above circular issued recently, the Board is aware that there were disputes as to whether the expenditure incurred on development and construction of infrastructural facilities like roads/high ways on BOT basis with right to collect toll, is entitled for deduction under section 32(1)(ii) or the same can be amortized by treating it as an allowable business expe....
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.... In connection with the claim of depreciation applicable to the building we would like to submit that the as per provisions of section 32(1)(ii) the asset is intangible asset and assessee company is eligible for depreciation at the rate of 25% in year under consideration. It is submitted that the assessee had acquired the right of exploitation by constructing the road with its own monies. The assessee acquired the right to exploit the asset i.e., road for a period of 20 years. The right to exploit is in the nature of a licence granted by the owner of the asset which is admittedly the NHAI or it is in the nature of a business right or a commercial right acquired by incurring the expenditure. Therefore the asset definitely is an intangible asset. The intangible asset is the right of licence granted by the owner i.e. NHAI to collect Toll for the period of 20 years which is in consideration of the construction of the road with the funds of the assessee, the owner of the licence or the business or commercial right for the period that it lasts is none other than the assessee. In fact that the limited rights for a period entitle such owner of limited rights to depreciation i....
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....e the Ld. CIT(A) allowed depreciation as claimed by assessee 'which is also supported by various case law, we do not see any reason to interfere with the order of Ld. CIT(A) as the entire cost incurred on the project is to be allowed as deduction to assessee either as amortized revenue expenditure or as depreciation. Since assessee choose to claim depreciation, we do not see any reason to disallow the same. Accordingly, there is no merit in Revenue grounds. * Nyse Infrastructure ,.P. Ltd., vs. DCIT ITA.No.301/Hyd/2009:- on similar facts allowed depreciation holding that entire asset is intangible asset. * DCIT vs. Mis Swarna Tollway Pvt Ltd, ITA No 1184 to 1189/Hyd/2013 dated 16.01.2014 :- wherein it was held that assessee company is entitled to claim the depreciation u/s.32(1)(ii) of the IT Act. * Ashoka Info Pvt. Ltd. in ITA No. 44/PN/07 dated 31.12.2008 of the Pune Bench :- The facts of this case is very similar to the facts of the our present case as in this case the question was whether the licence granted by the Maharashtra Government for collection of toll on Ahmednagar - Karmala Road which was constructed and maintained by the assesse....
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....:- In view of the above submission, it is requested before your good selves that the assessee company is correct in claiming the depreciation at the rate of 25% amounting of Rs. 245,61,03,549/- and disallowance made by the AO towards the excess depreciation of Rs. 203,68,32,8371- (Rs. 245,61,03,549 - Rs. 41,92,70,712) is required to be deleted. 5.2 I have carefully considered the assessment order, facts of the case, submissions of the appellant and case laws relied upon by the appellant. In this regard reliance is placed on the Hon'ble ITAT, Hyderabad, decision in the case of DCIT, Circle 16(3), Hyd. Vs. M/s. Progressive Construction Ltd., Hyderabad in ITA No.214/Hyd/2014 for the A.Y. 2009-10, wherein it was held as under.: "Since the Ld. CIT(A) allowed depreciation as claimed by assessee which is also supported by various case law, we do not see any reason to interfere with the order of Ld. CIT(A) as the entire cost incurred on the project is to be allowed as deduction to assessee either as amortized revenue expenditure or as depreciation. Since assessee choose to claim depreciation, we do not see any reason to disallow the same. Accordingly, there is no meri....
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....company vide letter dated 13.01.2015 submitted that the assessee-company, as per concessionaire agreement with NHAI has to do periodic maintenance of carriageway once in every five year. The assessee-company has to recover the expenditure from toll revenue only but there will be no additional income in 5th year. The expenditure is towards repairs of damages occurred to road due to traffic during period of 5 years but not because of traffic of gh year. Hence, the assessee-company apportioned the expenditure for 5 years and made provision for periodic maintenance of Rs. 7,45,50,000/-. The assessee's submissions are carefully considered. The assessee's contention is not acceptable. Therefore, the amount of Rs. 7,45,50,000/- was disallowed and added to the returned income. 6.1 During the course of appellate proceedings, the appellant contended as under: In tills regard we would like to submit that the assessee company has made the provision of periodic maintenance in the five years as per the Clause no. 3.3.7 of Volume II in Schedule L of the 'Concession Agreement' with NHAI, the Company is required to overlay the entire project expenditure at....
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....the project report from the SBI Capital Market towards the projected financial of the company. As per the above project report the assessee company supposes to incur the Periodic maintenance expenditure in the financial year ends on March 2015, being the fifth year of project. Therefore in the projected cash flow statement of this project report in Appendix 7 showing the maintenance expenditure at Rs. 49.70 crores on March 2015. We would like to submit that the as the assessee company has obtained the project report from SBI capital market and as per that Projected Cash Flow Statement an estimate of Provision for periodic maintenance of Rs. 49.70 crores on March 2015. Therefore on the above report basis the assessee has made the provision of periodic maintenance at. Rs. 7.45 crares in the year under consideration. In this regard we would like to submit that the assessee company has calculated the Provision of Periodic Maintenance at Rs. 7.45 crores in the year under consideration, derails of the same is given as under :- Calculation Provision of Periodic maintenance for the AY.2012-13 Date of commencement of maintenance expenditure after the date of completion of pro....
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....he addition made is to be deleted. Major Maintenance work given to Contractor, M/s Madhucon Infra Limited :- In the case of Assessee Company, the major maintenance work completed through outside contractor i.e. M/ s Madhucon Infra limited. We would like to submit that as the Extension was completed on 30.06.2011, the assessee entered into Maintenance contract with M/s.Madhucon Infra limited on 01.07.2011. The company has entered into the agreement on 20th June 2014, with the M/s. Madhucon Projects Limited for execution of Periodic maintenance work. These agreements are entered for a period of 1 year and thus, there are 5 maintenance agreements with M/s.Madhucon Infra limited for maintenance period of 5 years. Request :- It is submitted 'that the assessee company has made provision for the periodic maintenance correctly on the basis of the projected financial and accordingly created the provision of Rs. 7.45 crores in the year under consideration. The Provision for this periodic maintenance was made duly on the basis of mercantile accounting system and same should be allowed in the year under consideration. Therefore, from the above it is very....
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....onverted into FITL (Funded Interest Term Loans). The CIT(A)'s detailed discussion deleting the impugned disallowance reads as under: "Ground nos. 10 & 11 are with regard to disallowance of interest payment converted into FITL of Rs. 21,35,00,000/-. In this regard, the Assessing Officer stated as under: It is observed from Note-2.4 (Long Term Borrowings) that there are following fresh Funded Interest Term Loans from the banks: FITL - IDBI Rs. 4,38,00,000/- FITL-SBH Rs. 91,00,000/- FITL-VB Rs. 1,78,00,000/- FITL-CB Rs. 5,35,00,000/- FITL-CBI Rs. 3,58,00,000/- FITL-IIFCL Rs. 5,35,00,000/- TOTAL Rs. 21,35,00,000/- As per the provisions of Section 43B, the interest payments are allowable only on the basis of actual payment. It is specifically given in the explanation that the conversion of outstanding interest into Funded Interest Term Loan shall not be construed to the payment and the same shall be disallowed as per the provisions of Section 43B. Therefore, assessee is requested to explain as to why the above interest payments, which are not paid but merely converted into FITL shall not be disallowed. In response, ass....