TMI Blog2021 (5) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent : Sh. Satpal Gulati, CIT DR ORDER PER KUL BHARAT, JM : Both appeals filed by the assessee for the assessment years 2012- 13 2013-14 are directed against the order of learned CIT(A)-35, New Delhi both dated 02.02.2017. 2. Both appeals were taken up together and being disposed of by way of a consolidated order. First we take up ITA No.1592/Del/2017 relating to Assessment Year 2012-13 wherein the assessee has raised following grounds of appeal:- 1. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming the reduction of depreciation on Toll Road developed by the appellant company from 25% to 10% and confirming addition of ₹ 70,58,54,074/- (including addition made as Ground of Appeal No.-2) on the ground that the roads are included in the definition of Building without accepting appellant s contention that the appellant company has Rights in the developed Toll Road and the appellant is eligible for depreciation @ 25% under the head Intangible Assets. 2. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming deduction of Grant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court rendered in the case of CIT vs Noida Toll Bridge Co. Ltd. 213 Taxman 333. He contended that the authority below erred in holding that the assessee owned the road, which exfacie is incorrect. He submitted that the assessee is given right to collect the toll fee, such right cannot be equated with ownership. He drew our attention to clause 3.2 of Chapter II of contract to buttress the contention that the assessee is entitled to enjoy levy and appropriate the fee from vehicles and persons liable to payment of fee for using the highway or any part thereof. Hence, the assessee got right only to collect fee from the vehicles entering the road. He submitted that the Assessing Officer has failed to take note of the judgement of the Hon ble Bombay High Court and the decision of Special Bench of this Tribunal. The Hon ble Bombay High Court in North Karnataka Expressway Ltd. vs CIT in Appeal No.499 of 2012 and also the Mumbai Bench of this Tribunal referred in the case of ACIT vs M/s. West Gujarat Expressway Ltd. in ITA Nos. 5904 6244/M/2012 vide order dated 15.04.2015 have ruled in favour of the assessee. He also relied on the decision of the Co-ordinate Bench of this Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in ITA No.989/PN/2010 ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Coordinate Bench of the Tribunal in the case of 'Ashoka Infraways Pvt. Ltd. Vs. ACIT' in ITA No.185 186/PN/2012 dated 29.04.2013, has held in clear terms that the claim of the assessee for depreciation on licence to collect toll being an 'intangible asset' falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of findings of the Tribunal for the sake of convenience is reproduced as under: 6. At the time of hearing, it was a common point between the parties that an identical issue has been considered by the Pune Bench of the Tribunal in the case of Ashoka Infraways Pvt. Ltd. vs. ACIT vide ITA Nos. 185 186/PN/2012 dated 29.04.2013. As per the Tribunal following the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of 'intangible asset' falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, therefore, we find no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act. 30. So far as the other alternative contention of the assessee that the project be treated as plant machinery and the depreciation be accordingly allowed to it, we do not find that the said license of right to collect toll in any way falls in the definition of plant machinery. As held by the Hon'ble Bombay High Court, even the assessee is not the owner of the toll road. The assessee has been given only the right to develop, maintain and operate the toll road and further to collect the toll for the specified period. This right as discussed above is an intangible asset falling under section 32(1)(ii) of the Act. 11. The Special Bench of this Tribunal in ITA No.1845/Hyd/2014 in the case of ACIT vs Progressive Construction Ltd. order dated 14.02.2017 under the identical facts has held as under:- 17. In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (NHAI), Company has to execute the Major Maintenance Work of the total stretch once after every 5 years as provided in Clause No. 3.3.7 of Schedule L (Operation Maintenance) of the Concession Agreement. Only relevant pages have been attached considering the same very voluminous. That estimated cost of Major Maintenance is as detailed in the Common Rupee Loan Agreement entered into with the Financers (Banks Financial Institutions) of the Project. Year-wise amount of Major Maintenance Expenditure is detailed in Schedule 5 - MMR of the Common Rupee Loan Agreement. Only relevant Schedule 5 has been attached considering the whole Agreement very voluminous. As per the said Schedule 5, Major Maintenance Expenditure to be incurred in the first 5 years is ₹ 60.34 Crores (2.94 + 8.98 + 15.01 + 21.05 + 12.36). Calculation of the Provision for Major Maintenance of ₹ 3.00 Crores is as below: S. No. Particulars Amount (Rs. in Crores) L Maintenance Expenditure to be incurred in the first 5 years 60.34 2 Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a provision are satisfied in this case. Hon ble Apex Court in the above said further gave an example of different options related to the Product Warranties. To give an example of Product Warranties, a company dealing in computers gives warranty for a period of 36 months from the date of supply. The said company considers following options: (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2% of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed (emphasis supplied). In the present case, the Department is insisting on the first option which, as stated above, is erroneous as it rules out the accrual concept (emphasis supplied). The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recogniz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collect toll from the vehicles. As per the terms of the agreement with the employer (NHAI) Company has to execute the Major Maintenance work of the total stretch once in every 5 years. The assessee company has a present obligation against the toll fee collected by it. There is an outflow of resources. (b) it is probable that an outflow of resources will be required to settle the obligation To settle the above said obligation of Major Maintenance, there is certainly an outflow of the resources. (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. Estimate of the expenditure has been duly documented in the Schedule - 5 MMR of the Rupee Term Loan Agreement in which the consortium of banks have provided that the company will build up a Major Maintenance Reserve. 2. In the case of Bharat Earth Movers Vs. CIT [245 ITR 428 (SC)], Hon ble Supreme Court had referred to principles were laid down in the case of Metal Box Co. of India Ltd. Vs. their Workmen [73 ITR 53 (SC)]. Hon ble Court had extracted and reproduced some relevant principles as under: (I) For an assessee maintaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire 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 . Further, 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision as ill founded. The appellant has tried to justify its argument by stating that it has obligation of maintenance for which it has made an estimate of expenses from current years income. I observe that such a maintenance envisaged in the common Rupee Loan Agreement at best is merely an estimate, indefinite, likely to take place at some future date. In the present year, the same has not taken place at all. In view of the above fact, I find that the arguments put forth by the AR, ha no force. I observe that the AO has formulated a very comprehensive analysis 01 the subject at para 5 of the assessment order as follows: Any minor repair for maintenance of road during the year is always an allowable expenditure, but, after 5 years assessee would, if required, spend almost 15% of the cost of project in relaying of the road, which will be in the nature of Capital expenditure and should be added in the depreciated value of the cost of the project. Hence any repair i regular nature which is required for day to day running of business (i.e. Collection of Toll) only needs to be allowable. Hence, the provision for major maintenance allowed will not give true and fair p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(Appeals) has erred while confirming deduction of Grant of ₹ 43.92 Crores received from NHAI out of the total cost of project of ₹ 441,27,05,614/- for the A.Y. 2012-13 and thereby reducing the depreciation claimed to the said extent on the ground that the grant given by NHAI is to meet part of the cost of the project and is not a contribution towards the Equity Support. 3. That, on the facts and circumstances of the case and in law, the Learned CIT(Appeals) has erred while confirming disallowance of provision made for major maintenance expenses amounting to ₹ 6,00,00,000/- on the ground that the said provision is contingent in nature and the assessee has not made any expenditure on that count during the year under consideration and such a maintenance envisaged in the Common Rupee Loan Agreement at best is merely an estimate, indefinite, likely to take place at some future date and the same has not taken place at all. 21. The grounds raised in Assessment Year 2013-14 is identical to the grounds raised in Assessment Year 2012-13 except change in figures. 22. Both representatives adopted the same arguments as in ITA No.1592/Del/2017. 23. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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