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2019 (7) TMI 1816 - AT - Income TaxAllowability of depreciation on the expenditure incurred for development and construction of roads/highways on BOT basis - owner of the roads - as per AO project from the commencement day (CDD) 20.1.2013 is 4863 days and during the relevant financial year, the assets were put to use only for 71 days - proportionate expenditure to be amortized for the relevant financial year - HELD THAT:- Decision of the Coordinate Bench of the Tribunal in the case of Ashoka Infrastructure Ltd, [2014 (1) TMI 443 - ITAT PUNE] the Bench had brought out the distinction between the claim made in both the case, i.e. the claim of depreciation u/s 32 in the case of North Karnataka Expressway [2014 (11) TMI 351 - BOMBAY HIGH COURT] as against the claim of depreciation u/s 32(1)(ii) as on intangible asset in the case of West Gujarat Expressway Ltd.[2015 (5) TMI 305 - ITAT MUMBAI]. The Special Bench of the Tribunal in the case of Progressive Constructions Ltd, [2017 (3) TMI 1167 - ITAT HYDERABAD] has held ‘the license to operate and collect the toll fee’ as a commercial right falling within the definition of “intangible asset”, whereas the Hon'ble Bombay High Court was considering whether the assessee be granted depreciation on tollway which are not owned by it. Since the distinction between both the cases before the Bombay High Court has been clearly brought out by the Coordinate Bench of the Tribunal at Pune in the case of Ashoka Infrastructure Ltd, we are of the opinion that the decision of the Coordinate Bench is applicable to the facts of the case before us. There is no decision by the Hon'ble Bombay High Court that the right ‘to collect toll fee over the roads built and operated by the assessee’ is not an “intangible asset”, particularly when it is held that the expenditure incurred by the assessee is not revenue in nature. Accordingly, the assessee’s grounds of appeal on this issue are allowed. 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 - HELD THAT:- As the assessee is required to construct, operate and maintain the project for a period of 15 years commencing from the appointed date. Therefore, it is clear that there is a liability on the assessee to maintain the roads for the period of the agreement. In the years in which the assessee is constructing the roads, there would not arise any expenditure towards repairs and maintenance but thereafter major at times. To meet such liability which is certain, but the quantum of the funds that would be required is uncertain, the assessee would have to be prepared and for this purpose it can create a provision from the current income to meet the likely future liability In the case before us, the concessionaire agreement itself specifies the O&M obligations of the concessionaire under Article 17 of the Agreement and requires the assessee to prepare and maintain, a maintenance manual and to carry out the work of repairs and maintenance in accordance with the said manual. At page 59 of the paper book, the assessee has placed the copy of the letter dated 11.04.2018 of the Consultant to the Project Director of NHAI for the maintenance work to be carried out by the assessee as per the “Operation and Maintenance Manual”. As per Article 37 of the agreement, if the concessionaire, i.e. the assessee herein, if it defaults or acts in breach of the maintenance requirements or the safety requirements the agreement is liable to be terminated. Thus, it is clear that the obligation of repairs and maintenance has accrued on the assessee, but only the quantification and execution is to be on a future date. However, 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. Therefore, assessee’s ground of appeal on this issue is treated as allowed for statistical purposes.
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