TMI Blog2019 (7) TMI 1816X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15-16 against the order of the CIT (A)-4, Hyderabad, dated 14.06.2018 17.9.2018 respectively. 2. Brief facts of the case are that the assessee company, a Special Purpose Vehicle, formed for construction of Highway awarded by NHAI on Build, Operate and Transfer basis (in short BOT), filed its return of income for the A.Y 2013-14 on 30.09.2018 declaring a loss of ₹ 13,83,79,935/-. Initially, the return was processed u/s 143(1) of the Act and subsequently, on selection for scrutiny under CASS, notices were issued u/s 143(2) and 142(1) and duly served on the assessee company. In response to the said notices, the assessee filed the information called for and on perusal of the same and particularly the schedule of fixed assets, the AO observed that the assessee company claimed depreciation of ₹ 18,16,15,643/- on BOT projects @ 5% (at half the rate as being put to use for less than 180 days) on WDV of ₹ 368,27,61,649/-. The AO observed that there are several disputes on the allowability of depreciation on the expenditure incurred for development and construction of roads/highways on BOT basis and that to put an end to all the disputes, the CBDT has issued circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee preferred an appeal before the CIT (A), who confirmed the order of the AO and the assessee is in second appeal before us, by raising the following grounds of appeal: 1. The order of Ld. CIT(A) confirming the AO's Order is erroneous in law, contrary to facts, probabilities of the case and against the principles of equity and natural justice. 2. The Ld. CIT(A) erred in law not considering the additional ground of appeal filed on 12/06/20 18 though the same was admitted and was mentioned in the order and failed to appreciate the fact that company is having exclusive right, license and authority to Operate and Maintain the road under BOT contract for a period of 15 years and the same partakes the nature of intangible asset and is eligible to claim depreciation U/s 32( I )(ii) @ 25% on expenditure incurred for construction of road as held by Hon'ble jurisdictional Tribunal in ITA No.1845/Hyd/2014 dated 14.02.2017 Progressive Constructions Ltd vs ACIT and by Pune Bench of Hon'ble ITAT in ITA No. 1452/Pune/2014 dated 30.06.2017 in M/s Ashoka Infrastructure Ltd v ACIT. 3. Ld. CIT(A) erred in law in upholding the disallowance of the provision for periodic maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... built by him and being maintained by him and the right to collect toll fees over the same in accordance with the concessionaire agreement is an intangible asset and whether depreciation thereon is allowable u/s 32 of the I.T. Act ?. The learned DR has relied upon the decision of the Hon'ble Bombay High Court in the case of North Karnataka Expressway Ltd and CIT vs. West Gujarat Expressway Ltd (Supra) whereas the learned Counsel for the assessee has relied upon the decision of the Special Bench of the Tribunal in the case of Progressive Constructions Ltd (Supra) and also the decisions of the Coordinate Bench of the Tribunal at Pune in the case of Ashoka Infrastructure Ltd vs. ACIT and the decision of ITAT Visakhapatnam in the case of Dy. CIT vs. Godavari Toll Project (P) Ltd. Let us, therefore, find the applicability of these decisions to the facts of the case before us. 9. We find that the Hon'ble Bombay High Court, in the case of North Karnataka Expressway Ltd, was considering the case of an assessee who had claimed to be the owner of the roads constructed by it and has claimed depreciation thereon u/s 32 of the I.T. Act. The Hon'ble Bombay High Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the NHAI is concerned, we find that the identical clause was also there and relied upon in the case of North Karnataka Expressway Ltd. vs. CIT which has also been reproduced in para 8 of the order of the Hon‟ble Bombay High Court (supra). The relevant part of the order for the sake of convenience is reproduced as under: 8] The appellant claimed that it was the owner of the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of ₹ 59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot claim any depreciation thereupon. Hence, the Hon‟ble Bombay High Court has not discussed the issue relating to the claim of depreciation on the license for right to collect the toll as intangible asset. Further, the Hon‟ble Bombay High Court in para 39 of the decision (supra) has observed that as per the provisions of National Highway Act, 1956 and National Highway Authorities of India Act, 1988, the ownership of the toll road vests in Union , however, the term owner as appearing in the Income Tax Act, 1961 has been defined widely and broadly for the purpose of the provisions of the Income Tax Act so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership, therefore his income should not be brought to tax; Similarly, if he can claim any deductions from his income which is comprising of profit and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term onwer‟ is defined in this manner in Income Tax Act, 1961. The above observations of the Hon‟ble Bombay High Court reveal that for the purpose of claiming deduction under I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible asset on the ground that the assessee has been granted license for right to collect the toll tax for a fixed period. Now the question before us is whether the assessee at this stage the can raise the alternative contention for claim of allowance of depreciation on the license authorizing him to collect the toll being an intangible asset or treating the project as plant machinery? . 22 . . The present case is not a case where the assessee had not claimed any deduction on account of depreciation. The assessee has very much claimed the deduction of depreciation. However, he has claimed the same treating itself to be the owner of the toll road. Such a claim of the assessee has been allowed in the previous assessment years. The assessee was under bonafide belief that he has correctly claimed the deduction of depreciation on the toll road in view of the consistent findings of the Tribunal on this issue. However, due to the change of legal position in view of the law laid down by the Hon‟ble Bombay High Court (supra), the assessee cannot be treated as the owner of the toll road. But it is not disputed that the assessee has made investments on the project and he i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the case of West Gujarat Expressway Ltd in the following paragraphs: 20. The Mumbai Bench of Tribunal then, referred to the circular issued by CBDT vide No.9/2014, dated 23.04.2014 and observed as under:- 24. Having held that the assessee is entitled to the deduction on the investments made by him, we now have to discuss as to under what head the said deductions can be claimed by the assessee. It is undisputed that in view of the agreement with the NHAI, the assessee has been given the right to develop and maintain the toll road and also the right to collect toll for a specified period without having actual ownership over the said toll road. The assessee has an express right/license for recovery of toll fee to recoup the expenditure. The said right brings to the assessee an enduring benefit during the period of agreement. This fact has also been discussed by the CBDT in circular No.09/2014 dated 23.04.14. The para 4 of which, for the sake of convenience, is reproduced as under: There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed - ] ....... (emphasis supplied by us) 27. It is not disputed that the assessee has been given license/commercial right over the project to receive the toll. The assessee may not be the owner of the toll road, but he, certainly, is owner in possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit. It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), the assessee is entitled to claim of depreciation on such type of rights. Such rights have been described as intangible assets under the Act and are eligible for claim of depreciation. 28. In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowed to be reimbursed by permitting the assessee a concession to collect toll/fees from the motorists using the road. Therefore, it could not be said that such a right was within the purview of section 32(1)(ii) of the Act. However, the Ld. CIT(DR) has not contested the factual matrix that identical issue has been considered by our coordinate Benches in the case of Ashoka Buildcon Ltd. (supra), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra). 9. On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned 'Right to collect Toll' was an 'intangible asset' eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act. 10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas By- pass Road ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngible assets' which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us. 12. In the result, we affirm the order of the CIT(A) in holding that the assessee was eligible for depreciation on the Right to collect Toll', being an intangible asset' falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents. 13. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on 'License to collect Toll', being an 'intangible asset' falling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so. 14. In so far as the reliance placed by the CIT(A) on the judgement of the Hon'ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon'ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction of infrastructure facility was a right in the nature of intangible asset falling within purview of section 32(1)(ii) of the Act, the assessee was entitled to depreciation on such intangible asset. The assessee undoubtedly, had expended on development, construction and maintenance of infrastructure facility for a specified period out of its own funds and after the end of specified period, the assessee was to transfer the said infrastructure facility to the Government of Maharashtra free of charge. In consideration of developing, constructing and maintaining the facility for specified period and thereafter, transferring it to the State Government, the assessee was granted the right to collect toll from motorists whoever uses the said infrastructure facility during the specified period. The said right to collect toll was on account of assessee incurring the cost towards development, construction and maintenance of infrastructure facility, which was treated by the assessee as its intangible asset and on which, it claimed the depreciation under section 32(1)(ii) of the Act. Following the precedent referred to above, the assessee is entitled to claim the said deduction on int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch lead to generation of unaccounted cash. Further, on the date of search also, search team furnished SMSes relating to Toll Nakas from the mobile of Shri Jayesh Dungarwal to the mobile of the Director of the company Shri Sunil B. Raisoni. In the statement recorded on 20.04.2010 at the assessee‟s Pune office, Shri Jayesh Dungarwal had confirmed that he was working with the assessee and he further stated that he was supervising work of collection of toll from Toll Nakas situated at various places and also confirmed that Ms. Dipti Lokam was receiving cash from various Toll Nakas. In the SMS No.43 and 44 received on the mobile of Shri Sunil B. Raisoni, which was dated 19.04.2010, the amount of toll collected was mentioned and Shri Jayesh Dungarwal stated that the said contents represent the toll collection from various places and were reported to Shri Sunil B. Raisoni by him. He was confronted with the cash receipt of ₹ 8.64 lakhs shown as toll collection from Shirur Toll Naka on 19.04.2010 as against cash receipt of ₹ 10.35 lakhs found from Ms. Dipti Lokam. On physical verification with regard to difference of ₹ 1.71 lakhs, Shri Jayesh Dungarwal replied that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business activity, then the same is to be assessed under the head Income from business‟. Further, directions were given by the CIT(A) to give set off of current/unabsorbed losses/unabsorbed depreciation. 26. The first contention of the assessee before us is that in the absence of any evidence found during the course of search in respect of receipts in the earlier years, no addition can be made in the hands of assessee. In this regard, he had placed reliance on series of decisions of Pune Bench of Tribunal. He further placed reliance on the ratio laid down by the Hon‟ble Bombay High Court in the case of CIT Vs. M/s. Thakkar Popatlal Velji Sales Ltd. in Income Tax Appeal No.2266 of 2013, judgment dated 29.03.2016, which has confirmed the ratio laid down by the Pune Bench of Tribunal. The claim of Revenue in the said decision was that where the register evidencing the sales were found for certain period, the Revenue was entitled to extrapolate the sales recorded therein for the entire assessment year. The Hon‟ble High Court vide para 9 held as under:- 9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and suppressing part of it was from May, 2009. The learned Authorized Representative for the assessee further contended that no extrapolation for earlier years could be made and even for the year of search, except for financial year 2009-10 and for the next year upto 19.04.2010. The learned Authorized Representative for the assessee further pointed out that Pune Bench of Tribunal in ITO Vs. Vikrant Happy Homes Pvt. Ltd. (supra) had referred to the ratio laid down by the Hon‟ble High Court of Delhi in CIT Vs. Chetan Das Lachman Das (supra) and pointed out that in the said case, the issue that evidence of one year cannot be utilized for another year, was not raised and consequently, the estimation of income was made for search period. The Tribunal considering the said facts and arguments of the assessee before it, held that the said decision was not applicable to the facts of the said case observing as under:- 4.6 We find in the case of CIT v. Chetan Das Lachman Das [211 Taxman 61 (Delhi) (H.C.)] wherein there was a search on the assessee and certain evidences were found which indicated that the assessee was suppressing its income. On the basis of the evidences found, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the learned Departmental Representative‟s reliance on the ratio in the case of Rajnik Co. vs. Asst. CIT [(2001) 251 ITR 561(AP)], we find that the assessee firm was engaged in the business of dealing in cycle spare parts. There was a search conducted on the assessee on 13 th November, 1996. In the course of search, incriminating material was seized for indicating suppression of sales for a period of 24 days in A.Y. 1996 - 97 and for a period of 15 days in A.Y. 1997 - 98. However, the partner of the assessee in the course of search admitted that such practice was adopted for all the years including the years for which no evidence was found. On the basis of the above facts, Assessing Officer estimated undisclosed income for the block period. The matter went up to High Court and the Hon‟ble High Court held that as the evidence was found for certain years and considering the acceptance of the partner that similar practice was followed in the earlier years, the estimation of income made by the Assessing Officer was correct. In the case before us, the facts are not identical as there was no acceptance by the assessee or its directors that such practice was follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 (Bom)], the learned Departmental Representative placed reliance on the decision of Hon'ble Bombay High Court in the case of Dr. M.K.E. Memon. However, the facts of the said case are not identical and not applicable to the present case. In the said case, the assessee was a general physician. Search was conducted on the assessee on 11.12.1996. In the course of search, evidences were found that the assessee had generated unaccounted income for the period Nov, 1993 onwards. On the basis of the said evidence, the assessee offered to tax income for pre Nov, 1993 period and post Nov, 1993 period. The Assessing Officer estimated higher income for the pre Nov, 1993 period. ITAT deleted the addition made by the Assessing Officer and sustained the income declared by the assessee for the pre Nov, 1993 period. The issue before Hon'ble Bombay High Court was whether such deletion of addition made by the Assessing Officer was justified. Hon'ble High Court held that the Tribunal was justified in deleting the addition made because the income does not remain constant over the years. Moreover, evidence of one year cannot be used for other year as held by the ITAT, Pune A‟ Bench i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 13. The next ground raised by the assessee is against the 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. It is the case of the Revenue that the assessee has not incurred such expenditure and the provision is for the repairs and maintenance which may arise in future years and therefore, it cannot be considered as the expenditure relatable to the relevant A.Y before us i.e. A.Ys 201314. The learned Counsel for the assessee had relied upon the following decisions to argue that where the provision is made on a reasonable and scientific basis for meeting its future liabilities, then such provision is allowable as a deduction: a) Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (S.C) b) Rotork Controls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employees service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced 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 principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under Section 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are in the business from assessment years 1983- 84 onwards. Valve Actuators are sophisticated goods. Over the years appellant has been manufacturing Valve Actuators in large numb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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