TaxTMI 
TaxTMI 
2026 (8) TMI 450
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....sset and accepted the loss returned after due application of mind. Thus, invoking provisions of Section 263 amounts to change of opinion which is not permissible under the act. 2 The order of Ld. AO is not erroneous or prejudicial to the interests of the revenue as the appellant company is having exclusive right, license and authority to construct, operate and maintain the project till 15.02.2041 during which period revenue is generated in the form of toll collections and the same partakes nature of the intangible asset and eligible for depreciation @ 25% as held by Jurisdictional Bench of Hon'ble ITAT in M/s Mokama Munger Highway Ltd in ITA No.'s 1729,2145 & 2146/Hyd/2018 dated 03/07/2019 and [2018] 161 DTR 289 M/s Progressive Constructions Ltd Vs ACIT and by Pune Bench of Hon'ble ITAT [2018] 163 DTR 321 M/s Ashoka Infrastructure Ltd Vs Asst. CIT." 3. At the outset, there is a delay of 30 days in filing the present appeal before the Tribunal. The assessee has filed an affidavit explaining the reasons for the delay, wherein it was submitted that the appeal for the relevant assessment year was required to be filed within 60 days from the date of receipt of th....
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....on 263 of the Income Tax Act, 1961 has been issued and called upon the assessee to file its objections, if any, for proposed revision of assessment order. The Ld. PCIT, Hyderabad-1, observed that, the assessee company was incorporated under Companies Act, 1956, as a Special Purpose Vehicle (SPV) and is engaged in the business of development, operation and maintenance of four-lane road in Chhattisgarh State on design, build, finance, operate and transfer (DBFOT) for a concession period of 28 years, starting from appointed date i.e., from 15.02.2013. The assessee company has entered into a Concessionaire Agreement with National Highways Authority of India (NHAI) for development and operation of road in Chhattisgarh State and started commercial operations on 08.05.2016. The Ld. PCIT further noted that, the allowable amortization of capitalization cost of toll road for the year under consideration is at Rs. 5,619.88 lakhs. However, the assessee claimed depreciation of Rs. 23,724.15 lakhs as per Income-tax Rules, 1962, which is incorrect, as the same is not applicable in assessee's case. The excess claim of amortization was worked out to Rs. 18,104.27 lakhs, which needs to be disallowed....
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.... Section 32(1)(ii) of the Income Tax Act, 1961 and therefore, the assessee is eligible for depreciation on the said right to receive toll revenue being intangible asset falling within the purview of Section 32(1)(ii) of the Income Tax Act and accordingly, the entire cost incurred towards construction of infrastructure facility giving right to receive toll revenue till the date of COD was capitalized and shown as 'intangible asset' and consequently, the assessee company claimed depreciation on such intangible asset as provided under Section 32(1)(ii) of the Income Tax Act, 1961. 8. The Ld. PCIT, after considering relevant submissions of the assessee and also taking note of the agreement between the assessee company and NHAI for development and operation of toll road in the State of Chhattisgarh on DBFOT basis, observed that, the A.O. has failed to verify the issue of capitalization of cost incurred for developing the toll road and depreciation claimed thereon as per the provisions of Section 32(1)(ii) of the Income Tax Act, 1961 in light of Circular No. 9 of 2014 dated 23.04.2014, issued by the CBDT, which renders the assessment order passed by the A.O. as erroneous insofar as it....
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....lared by NHAI. The project is under execution. However, provisional Commercial Operations Date (COD) was achieved by the concessionaire on 06.05.2016. 7.1 Therefore first year of COD was Fin Year 2016-17, and revenue reported from operations to the tune of Rs. 22,296.95 lakhs vide Schedule-23 - Revenue from operations forming part of profit and loss account for the year ended on 31.03.2017. Similarly for the year ended on 31.03.2018 revenue reported from operations to the tune of Rs. 11,805.59 lakhs was reported. 7.2 As seen from Notes to financial statements for the year ended on 31.03.2018 vide Note 2.08 (page no 9) - Intangible Assets - Toll Collection rights obtained in consideration for rendering construction services, represent the right to collect toll revenue from the users of the public service (road) during the concession period in respect of Build-Operate-Transfer (BOT) project under taken by the Company. Toll collection rights are capitalized as 'Intangible Assets' upon completion of the project at the cumulative construction costs plus the present value of obligation towards negative grants and additional concession fee payable to NHAI/State A....
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.... Form 3CD-Col. No.18. 7.5 As per the Notes to financial statements for the year ended on 31.03.2018 vide Note 5 (Page No. 18) Intangible Assets under Service Concession Agreement (SCA), the Gross Block capitalized to the end of 31.03.2017 was Rs. 1,47,868.27 lakhs and during the year 2017-18 Rs 9,488.39 lakhs were capitalized, and to the end of 31.03.2018 the total of intangible asset capitalized was at Rs. 157,356,66 lakhs. 7.6 Further as per Note 6 (Page No.18) - Intangible asset under development that the closing balance to the end of 31.03.2017 was Rs 14,616.02 lakhs after capitalization to the tune of Rs. 1,13.855.57 lakhs. For the year ended 31.03.2018, the closing balance was at Rs. 7,077.13 lakhs after capitalization to the tune of Rs. 9,488.39 lakhs. 7.7 In view of the above and as per CBDT Circular, referred supra, the allowable amortization on 'Intangible Asset capitalized to the end of 31.03.2018 shall be allocated over the period of 28 years of concessionaire period rather at depreciation rates prescribed as per Income-tax Rules. Thus, allowable amortization on Intangible Asset worked out to Rs. 5,619.88 lakhs (Closing Balance of intangib....
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....dingly." 9. Aggrieved by the order of Ld. PCIT, the assessee is now in appeal before the Tribunal. 10. The learned counsel for the assessee, Shri Percy Perdiwala, Senior Advocate, submitted that, the Ld. PCIT erred in setting aside the assessment order passed by the A.O. under Section 143(3) r.w.s. 143(3A) and 143(3B) dated 15.04.2021, by exercising powers conferred under Section 263 of the Act, even though the assessment order passed by the A.O. is neither erroneous nor prejudicial to the interest of the Revenue. The learned counsel for the assessee, further referring to the assessment order passed by the A.O. and consequent notices issued under Section 142(1) of the Act, on various dates, submitted that, the case has been selected for scrutiny to verify various issues, including investment in intangible assets, and during assessment proceedings, the A.O. has issued a specific notice under Section 142(1) of the Act on 12.01.2021, where a specific question has been asked with reference to addition/introduction of intangible assets, and consequent details for which, the assessee has furnished detailed replies, and explained that, the assessee is a Special Purpose Vehicle forme....
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.... issue (i) whether expenditure incurred for construction of toll road is a deferred expenditure which can be amortized or not, or (ii) whether it is a capital expenditure in the nature of intangible asset falling within the purview of Section 32(1)(ii) of the Income-tax Act, 1961, and on the basis of Special Bench decision, the assessee has treated expenditure incurred for construction of toll road built under DBFOT contract as an intangible asset, as defined under Explanation 3(b) of Section 32(1)(ii) of the Income-tax Act, 1961, and the A.O. has taken one possible view and therefore, it cannot be said that the A.O. has not verified the issue in light of the Circular No.9/2014 dated 23.04.20214 issued by the CBDT. In this regard, the learned counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Limited (2007) 295 ITR 282 (SC) and submitted that, when there are two views possible on the issue, if the A.O. had taken one possible view, then if the view taken by the A.O. is unsustainable in law, there is no scope for the Ld. PCIT to revise the assessment order passed by the A.O. on the ground that the order passed by the A.O. i....
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....sis gives rise to an intangible asset in the form of right to collect toll revenue and the same falls within the purview of intangible asset, as per Section 32(1)(ii) of the Income Tax Act, 1961. The assessee, on the basis of one possible view, has treated the cost incurred for development of toll road as capital expenditure and the same has been treated as intangible asset in the books of accounts and depreciation has been claimed under Section 32(1)(ii) of the Act. The A.O., after considering relevant documents, has rightly considered the submissions of the assessee and passed the assessment order. Therefore, he submitted that, the assessment order passed by the A.O. is neither erroneous nor prejudicial to the interest of the Revenue. Thus, the Ld. PCIT has erred in setting aside the assessment order in terms of Section 263 of the Income Tax Act, 1961. 14. The Ld. CIT-DR for the Revenue, Dr. Narendra Kumar Naik, on the other hand, supporting the order of Ld. CIT(A), submitted that, the assessment order passed by the A.O. without considering the CBDT Circular No. 9/2014 dated 23.04.2014 is certainly erroneous and prejudicial to the interest of the Revenue, because as per t....
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....ng to various judicial precedents, including the decision of the Hon'ble Bombay High Court in the case of North Karnataka Expressway Limited Vs. CIT reported in 372 ITR 145, has clearly held that, the right to collect toll revenue as per the concession agreement does not give rise to any intangible asset or any other business or commercial rights of similar nature as defined under Section 32(1)(ii) of the Act, and thus the assessee cannot claim depreciation. The Ld. CIT-DR, further referring to the decision of ITAT Hyderabad Bench in the case of Patna Bakhtiyarpur Tollway Limited vs. ACIT in ITA No. 182/Hyd/2024 dated 31.12.2024, submitted that, in order to claim depreciation on any asset, firstly, the assessee should be the owner of the asset and secondly, the asset should be used for the business of the assessee. And in the present case, the assessee is not the owner of the asset because the assessee has constructed the toll road on the land given by NHAI and therefore, as per Section 52 of the Indian Easements Act, 1882, if the construction is in the nature of permanent and is erected with the permission of the licensor, then the assessee would not become the owner of the struct....
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....venue for the purpose of Section 263 of the Act. A similar view has been taken by the Hon'ble Supreme Court in the case of CIT vs. Amitabh Bachchan (2016) 384 ITR 200, wherein it has been clearly held that, the failure of the A.O. to conduct inquiries which are necessary in the facts of the case justifies the revision order under Section 263 of the Act. 17. In the present case, the Ld. PCIT invoked jurisdiction under Section 263 of the Act, and set aside the assessment order passed by the A.O. under Section 143(3) r.w.s. 143(3A) and 143(3B) dated 15.04.2021 on the ground that, the assessment order passed by the A.O. is erroneous insofar as it is prejudicial to the interest of the Revenue on the issue of excessive allowance of loss to an extent of Rs. 18,104.27 lakhs, which has resulted into allowing excessive depreciation on cost incurred by the assessee for development of toll road as intangible asset. Admittedly, the assessee is a Special Purpose Vehicle formed for the purpose of development and maintenance of toll road in the State of Chhattisgarh and Orissa border in terms of concession agreement entered into with NHAI and as per the agreement, the assessee shall develop a t....
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....in light of CBDT Circular No. 9 of 2014, wherein it has been clarified that, the expenditure incurred for development of roads / highways under BOT agreement needs to be amortized and claimed as business expenditure under the Act over the period of concession agreement. Although the CBDT has issued the Circular for the benefit of the A.O. as to how to deal with cases where cost is incurred for development of toll road as per the agreement between the assessee and NHAI, the A.O., without considering the mandatory Circular issued by the CBDT and its applicability to the facts of the assessee's case, has simply accepted the explanation furnished by the assessee without any application of mind to the relevant provisions of the Act and CBDT Circular No. 9 of 2014. Therefore, in our considered view, it cannot be said that the A.O. has carried out the required inquiries which he ought to have carried out on the issue of allowance of depreciation / amortization of cost incurred for development of toll road. In light of CBDT Circular No. 9 of 2014 dated 23.04.2014. Further, in our considered view, the CBDT Circulars are mandatory in nature and binding on the A.O. Therefore, once the the A.O....
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.... A.O. passed the assessment order on the issue of cost incurred for development of BOT roads, whether it is an intangible asset giving rise to collection of toll revenue in the nature of a license or franchise or any other commercial or business right of similar nature, in our considered view, although there are divergent views on these issues from various Benches of the Tribunal, including the decision of the ITAT Mumbai Bench in the cases referred to by the learned counsel for the assessee, including the decision of the ITAT Special Bench in the case of ACIT vs. Progressive Constructions Ltd. (2018) taxmann.com 104, wherein it has been held that, the expenditure incurred by the assessee for construction of road under BOT contract had given rise to an intangible asset as defined under Explanation 3(b) read with Section 32(1)(ii) of the Income Tax Act, 1961 and the assessee would be eligible to claim deduction, but the fact remains that although the Tribunal has taken a view in favour of the assessee and held that, the cost incurred for development of toll road is in the nature of franchise, license or any other business or commercial rights of similar nature falling within the pur....