TaxTMI 
TaxTMI 
2025 (7) TMI 112
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....e learned CIT (A) erred in allowing an amount of Rs. 14,42,00,000/- being 1/5th of provision made for maintenance, ignoring the fact that it is not an ascertained liability. 3. Any other ground that may be urged at the time of hearing". 2. Ground No.1 is regarding the addition made by the Assessing Officer on account of grant received from National Highway Authority of India (NHAI) of Rs. 38,40,00,000/- by reducing the cost on Written Down Value (WDV ) to the extent of the said grant deleted by the learned CIT (A). The assessee company is a Special Purpose Vehicle for construction of highways awarded by NHAI on Built-Operate & Transfer (BOT). The assessee filed its return of income for the year under consideration on 30/09/2013 declaring loss of Rs. 55.46 crores. During the scrutiny assessment, the Assessing Officer noted that an amount of Rs. 38.40 crores is shown as NHAI grant as part of reserve and surplus. The Assessing Officer further observed that as per the concessional agreement, the grant received from NHAI shall be applied for meeting the capital cost of the Project and shall be treated as part of the shareholders fund. Since the purpose of grant was to meet t....
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....NHAI can be utilized to meet the capital shortfall and the same shall be treated as shareholders fund in the books of account. He has relied upon the order of the Assessing Officer. 4. On the other hand, the learned AR of the assessee has submitted that as per the agreement between the assessee and NHAI, a grant of Rs. 96 crores was paid to the company out of which an amount of Rs. 57.06 crores is related to operation & maintenance expenses and balance amount of Rs. 38.40 crores relates to the shareholders fund of the assessee which has nothing to do with the depreciation/amortization arising from the fixed asset. It is clear from the terms & conditions of the agreement that the grant of Rs. 38.40 crores are in the nature of promotors contribution as provided under article/clause 23.3 of the concessional agreement. He has also referred to the clause/article 23.4 of the said agreement and submitted that the equity support shall be in the nature of quasi equity and both paid in cash by the shareholders for meeting the total project cost as set forth in the financial package. Hence the cash support by way of an outright grant of Rs. 38.40 crores provided by NHAI is that of capital ....
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....he verification of the break-up of WDV of BoT Project, it is noted that the assesse has not deducted the NHAI grant received from WDV of the project cost. 3.3 In view of the facts discussed as above, the cost of BoT Project is reduced to the extent of NHAI grant received and actual Cost is arrived as under: Cost of BoT Project Capitalized by the Assessee Rs. 326,70,55,057/- Less: NHAI Grant Received Rs. 38,40,00,000/- Effective Cost of Capital Asset Rs. 2,88,30,55,057/- The depreciation on the BoT project is to be computed based on the effective Cost of Capital Asset, as determined above. 6. Thus, the Assessing Officer has treated the grant given by NHAI to be utilized to meet the capital cost of the project and accordingly reduced the same from the WDV of the project for the purpose of allowing the depreciation. It is clear from clause 23.1 to 23.3 that this grant was given by the NHAI as a cash support by way of outright grant as a shareholders fund. Naturally the assessee cannot use the said grant given by the NHAI other than meeting the cost of the project but that does not lead to the conclusion that the grant was given by NHAI as a porti....
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.... illegality in the order of the learned CIT (A), qua this issue. 8. Ground No.2 is regarding the disallowance of provisions for periodic maintenance which was allowed by the learned CIT (A). 9. The assessee has claimed an amount of Rs. 21,57,00,000/- for periodic maintenance and debited to the P&L Account. The Assessing Officer observed that this is not an allowable expenditure as per the provisions of the Act. The Assessing Officer issued a show cause notice to the assessee. In reply, the assessee submitted that as per the concessionaire agreement with NHAI, the assessee has to do periodic maintenance of carriageway once in every 5 year. The company has to recover the expenditure from toll revenue only but there will be no additional income in the 5th year. It is claimed that the expenditure towards the repair or damaged occurred to the road due to the traffic during the period of 5 years and not because of the traffic of the 5th year in which the assessee has to carry out the repair work. Thus, the assessee contended that it has apportioned the expenditure for the 5 years and made a provision for periodic maintenance of Rs.21,57,00,000/-. The Assessing Officer did not accep....
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....e above provision as a need for incurring such expenditure which arises over a period of time. Further, claiming such periodic expenditure in the year in which it is actually paid is against the method of mercantile system of accounting as it would give incorrect picture of the financial results of a particular financial year. The expenditure in question was not a contingent liability but it has to be considered while determining the total income of the assessee company for the period under consideration. As such, the provision made towards of periodic maintenance is an ascertained liability, though estimated on the basis of available information. In support of his contentions, he has relied upon the following decisions: i) ACIT vs. Ashoka Buildcom Ltd (61 Taxmann.com 330) ii) CIT vs. Om Metals & Minerals (P) Ltd (60 Taxmann.com 448) iii) Rotork Controls India (P) Ltd vs. CIT(180 Taxman 422) iv) Bharat Earth Movers vs. CIT (112 Taxman 61). 13. We have considered the rival contentions as well as the relevant material available on record. There is no dispute that the assessee is under a contractual obligation to carry out the periodic maintenanc....
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....Liability". Relevant clause of agreement has been reproduced hereunder for your kind reference :- As per Concession Agreement Clause 3.3.7(i) " (a) This activity shall be carried out as required and at least once 5th year (from COD) and in the last year of concession period. Road making as specified and other road side features shall be restored to meet the relevant standards to the satisfaction of the independent consultant" (b) The periodic maintenance activities shall also include profile corrective course of overlaid with the periodic renewal of the wearing course of the road payment. The same shall be undertaken on all roads and payments in the Project facilities including on the truck lay-bays bus-bags and way side amenities -service area. The concessionaire may adopt cost effective treatment like Asphalt concrete, recycling, stone mastic, micro seal etc. Relevant page no 7 of Schedule L of Volume II of agreement has been enclosed in the paper book. As can be seen from the above clause of Concession Agreement with NHAI, M/s MAJEL have to overlay the road once in every 5 years from COD. The amount of such expense is very high and such expens....
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.... the projections as per Financial Model (Project Information Memorandum) dated February'2011 for Rs. 2.85 crores. A Copy of the PIM Report Dated Feb 2011 has been enclosed in paper book for your kind reference. * FY 2011-12 :- The estimated cost as per the Financial Model by end of FY 2014 was Rs. 20.79 crores. Since there was a short provision in the FY 2010-11, the company has increased the provision in the FY 2011-12 and made a provision of Rs. 5.98 crores. A Copy of the PIM Report Dated Feb 2011 has been enclosed in paper book for your kind reference. * FY 2012-13 :- While closing the books for the FY 2012-13 the company has realised that the estimated cost of Rs. 20.79 crores would be very less and recalculated the estimated cost with the rates prevailing at that particular time. As per the revised estimates, the cost for periodic maintenance in the year 2014 is estimated to be Rs. 39.65 crores. A Copy of the Statement showing cost estimation of Rs. 39.65 crores has been enclosed in paper book for your kind reference. Accordingly, the cumulative provision by end of FY 2012-13 should be Rs. 30.40 crores. Since the opening provision was Rs. 8.83 crores, the....
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....endent consultant vide their letter dated 09.08.2016 has recommended a penalty of Rs. 57.40 crores (Rs. 52.94 Crores + Rs. 4.46 Crores) to be imposed. A copy of Independent consultant vide their letter dated 09.08.2016 enclosed in paper book for kind reference. Accordingly, NHAI has also levied penalty for delay in periodic maintenance work. However the company has disputed this. A Copy of the penalty letters from NHAI and reply by the assessee has been enclosed in paper book for your reference. 5.2.6 Apart from that it is submitted that the difference amount of between the total expenditure incurred at Rs. 91,02,10,975/- and provision made for the five years of Rs. 72,08,61,213/-, has been work out at Rs. 18,93,49,762/- and same has been treated as expenditure in F.Y. 2016-17. The assessee company has debited only the difference amount of actual and provision in the FY 2016-17 that means it is very clear that the assessee company is eligible for the provision made in the five years as assessee has not claimed the total actual expenditure in the year in which it has been incurred. 5.2 7 Further, it is submitted that Assessee Company has not made any excess provisi....
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....urities & Financial Services Ltd dated Feb 5 2015. 5.4 Major Maintenance work given to Contractor, M/s Madhucon Project Limited :- In the case of Assessee Company the major maintenance work completed through outside contractor i.e. M/s Madhucon Project limited . We would like to submit that the company has entered into the agreement on 20th June 2014, with the M/s. Madhucon Projects Limited for execution of Periodic maintenance work for an amount of Rs. 72.09 crores. Accordingly the Supplementary Major Maintenance Agreement dated 14.02.2015 executed with the M/s Madhucon Project Limited for maintenance and repair work of the 4-Lane divided highway from Km. 62.295 to Km. 119.600 (57.305 Kms) being the Bharatpur - Mahua Section of National Highway 11 in the state of Rajasthan. Accordingly this agreement was entered by the assessee company with the Contractor Company for total BOQ of Rs. 72 crores. Later, the additional work shall be carried out by the contractor company and accordingly the assessee company has entered into the Second Amended and Supplementary Major Maintenance Agreement dated 29.09.2016 for the total BOQ of Rs. 91.07 crores. Copies of the above three Agreeme....
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....ssing Officer has already allowed fully as per the claim of the appellant, the Assessing Officer is directed to verify and if any excess is there, the same to be taxed in those assessment years accordingly. Since this assessment year i.e., 2013-14 is being third assessment year, out of total addition of Rs. 21.57 cores, an amount of Rs. 14.42 crores is deleted and the balance amount of Rs. 7,15,00,000/- is confirmed. The Assessing Officer is directed accordingly. 14. We further note that in the case TN(DK) Express Ways Ltd vs. ACIT in ITA No.557/Hyd/2017 which is a group concern of the assessee, the Tribunal vide order dated 16/10/2018 has considered an identical issue as under: "7. Considered the rival submissions and perused the material on record. The provision created by the assessee was disallowed by the AO on the ground that no expenditure was incurred during the year under consideration, therefore, such provision cannot be allowed. In the case of Ashok Buildcon Ltd. (supra), the Pune Bench of ITAT held that "it is not in dispute that the assessee is executing fixed price contract which means that the contractor has agreed to a fixed contract price or rate in some....
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....f the petition for condonation of delay as well as the affidavit filed by the assessee. The impugned order was passed by the learned CIT(A) on 27/11/2017 and the assessee filed the present appeal on 28th July, 2021. The assessee has explained the cause of delay in the petition for condonation of delay as well as the affidavit which read as under: 20. Thus, the assessee has stated that the impugned order was served on the assessee on 5/12/2017, however, it was served on the staff member who received the above order and misplaced the same and has not brought to the notice of the person concerned. These reasons explained by the assessee for an inordinate delay of 1271 days are not only vague to the extend of not giving any particulars of the person to whom the notice was served rather the same are patently contrary to the record. It is pertinent to note that in the appeal filed by the Revenue in ITA Nos.285 & 286/Hyd/2018 for the A.Y 2013-14 & 2014-15 respectively, the assessee has been regularly appearing right from 27/04/2018. Therefore, the assessee was very much aware about the impugned order well before 27/04/2018 when the assessee made the first appearance before the Tribunal....
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....s been filed with the ITAT in respect of the Assessment Year 2013-14, and I state that: The order u/s. 250 of the Act in respect of the Assessment Year 2013-14 has been passed on 27.11.2017 and same was served on 05.12.2017.And the time for filing of the appeal before the Tribunal was to expire on 03.02.2018. However, the order was served on staff member who received the above order and misplaced the same and has not brought it to the notice of the person concerned. Incidentally the Director was also out of station during that time. Therefore no appeal could be filed at that time against the above order u/s 250 of the act. On finding of the above order on 10.07.2021, the appeal could be filed on 28/07/2021 with the delay of 1271 days as the appeal was due for filing on 03/02/2018 and instead of that the same has been filed on 28/07/2021 In view of the above reasons, the delay may please be condoned and the appeal may please be considered due to circumstances which were beyond the control of the Assessee. What is stated above is true to the best of my knowledge and belief. PRESSI MAHUA BHARATPUR Thanking You Place: Hyderabad, Date: 28/07/2021 APPELLANT IMITED ....