TMI Blog2021 (6) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance towards provision for periodical maintenance declined in the course of assessment - HELD THAT:- Revenue has nowhere disputed the assessee s liability to maintain the road project even in the assessment findings as well. And also that Section 43B does not cover any of these clauses in principle as it has been observed in the CIT(A) s order. We thus quote the hon ble apex court s landmark decision Chainrup Sampatram Vs. CIT [ 1953 (10) TMI 2 - SUPREME COURT] that an expenditure could be booked at the first sign of probability whereas the converse is not true qua income which has to be recognised as per the conservative system of accounting only. We thus affirm CIT(A) s lower appellate findings under challenge allowing the assessee s periodical maintenance claim going by its agreement clauses than mere estimation based thereupon. Disallowance of interest payment converted into FITL (Funded Interest Term Loans) - AO had invoked Section 43B of the Act towards the impugned provision of interest payment than actual payment of interest sum - HELD THAT:- We notice that there is no rebuttal from the Revenue s side qua the clinching fact that the impugned funded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment and construction facilities like roads/highways on BOT basis. To put an end to these disputes, CBDT has issued a circular vide no. 09/2014 dated 23.04.2011 which has clarified all the issues regarding allowability of depreciation on projects developed under BOT. Therefore, in order to amortize the expenditure incurred, the cost of construction on development of infrastructure facility, copy of concessionaire agreement, time taken for creation of such facility and date of commencement etc. were called for. The assessee-company submitted the information called for. After perusal of the information submitted, the amount to be amortized and amount of amortization allowable as business expenditure under the Act for the FY 2011-12 relevant to AY 2012-13 was calculated at ₹ 41,92,70,712/-. In view of this, excess claim of depreciation of ₹ 203,68,32,837/-(₹ 245,61,03,549 -₹ 41,92,70, 712) 5.1 During the course of appellate proceedings, the appellant contended as under: The assessee company was awarded the work of construction on National Highway 45 B by NHAI for widening the existing 2 lane portion between Km 138.800 to Km 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68,32,837/- being the difference amount of depreciation. In this regard firstly we would like to submit that the AO has erred in not giving the calculation of allowable expenditure as per the Circular an amount ₹ 41,91,70,712/-. It is also submitted that assessee has claimed depreciation rightly in year under consideration for an amount of ₹ 2,45,61,03,549/- and AO is incorrect to apply the CBDT Circular and restrict the claim of expenditure up to ₹ 41,92,70,712/-. In this regard we would like to submit the following submission which may please be considered in favor of the assessee company. CBDT Circular No 09/2014 dated 23.04.2014 is not applicable in year under consideration :- In this regard we would like to submit that the AO has calculated the business expenditure depreciation in year under consideration by following the CBDT Circular No. 09/2014 dated 23.04.2014 at ₹ 41,92,70,712/- and disallowed the claim of deprecation of ₹ 203,68,32,837/- (₹ 2,45,61,03,549-₹ 41,92,70,712) in year under consideration. In this regard specifically we would like to submit that the AO erred in following the CBDT Circular passed as on 23.04.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollect toll, is entitled for deduction under section 32(1)(ii) or the same can be amortized by treating it as an allowable business expenditure under relevant provisions of the I.T.Act. The Circular went on to clarify that the amount can be amortized over the period of toll construction concessionaire agreement. As can be seen from the circular, the Board in fact has accepted that the cost incurred towards development of road/highways is revenue expenditure and relying on the judgment of Hon'ble Supreme Court in the case of Madras Industrial investment Corporation Ltd., vs. CIT 225 ITR 802, allowed spreading over the liabilities over number of years. Since the amount is allowable as an expenditure that too as revenue expenditure, the Board circular is in fact advantageous to the assessee who are in development of infrastructure facilities but not owning the property which was constructed. In this case, assessee has initially treated the entire cost as building and claimed 10% depreciation in A Y.2009-10. This claim is in fact justified also. The Coordinate Bench in the case of PBR Industries Ltd., ITANo.1171/H/07, 1175/H/07, 1176/H/08 and ITANo.1196/H/08 dated 08.06.2011 allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... none other than the assessee. In fact that the limited rights for a period entitle such owner of limited rights to depreciation is very well stated by the Hon'ble Supreme Court in the case of Mysore Minerals Limited Vs CIT (239 ITR 775). It is submitted that the right to collect toll fee granted to the assessee in consideration of constructing road for the NHAI is in the nature of licence or business right or commercial asset and therefore, an intangible asset coming ul s 32(1)(ii) of the IT Act. The assessee is, therefore, entitled to depreciation on the cost incurred to acquire the right to collect Toll for 20 years. Further, it is submitted that costs capitalised by the assessee have been incurred for development and construction of the infrastructure facility, i.e., Road and Bridge. The assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment for collection of toll on Ahmednagar - Karmala Road which was constructed and maintained by the assessee there on Build, Operate and Transfer (BOT) basis in terms of the agreement with the Maharashtra Government for a fixed period of 16 years and 9 months is an intangible asset so as to allow depreciation as described under Clause 32 (1)(ii) of the IT Act. The Hon'ble Pune Bench in that case held that assessee there was entitled to depreciation u/s. 32(1)(ii) of the IT Act. Reliance Ports Temzl1lals Limited (ITA Nos. 1743, 1744 1745/ Mum/2007, dt. 26.11.2007) :- held that the right to collect Toll is an intangible asset and eligible for depreciation u/s 32(1)(ii) of the IT Act. Further, we would like to submit that the issue of depreciation claim is squarely covered with the following judgements :_ ACT v. M;s. Navayuga Engineering Co. Ltd., Visakhapatnam (ITA Nos. 1050/Hyd/2009 to 1053/Hyd/2009, dated 08,10,2010 Hyd.Trib.) M/s. Navayuga Engg. Co. Ltd., Hyderabad v. ACIT (ITA No. 989/Hyd/2011 dated 16.01.2013 Hyd. Trib.] ACIT v. M/s. Navayuga Engg. Co. Ltd. (ITA No. 1283/Hyd/2011 dated 08.06.2012) (Hyd. Trib.) DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim depreciation, we do not see any reason to disallow the same. Accordingly, there is no merit in Revenue grounds . Respectfully following the decision of the Hon'ble ITAT, Hyderabad, the Assessing Officer is directed to delete the addition towards depreciation . 3. We have given our thoughtful consideration to the rival contentions supporting and opposing the impugned depreciation disallowance. It has come on record that this tribunal s Special Bench s decision in M/s.Progressive Construction Ltd. (supra) has already settled the issue that such a license agreement amounts to an intangible asset in the nature of right to collect toll amounts to an intangible asset u/s.32(1)(ii) of the Act. The Revenue s stand that the assessee ought to have amortised the license fee paid to NHAI as per the CBDT s circular (supra) also fails to make any difference since the same could not be taken as an attempt at the Board s part to deny depreciation relief in any manner; whatsoever. Hon'ble apex court s decision Taparia Tools Ltd. Vs. JCIT (2015) [372 ITR 605] (SC) holds that the mere option of amortisation would not debar an expenditure claim which is otherwise admissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 'Concession Agreement' with NHAI, the Company is required to overlay the entire project expenditure at a stretch once in every 5th year from the date of Commercial Operation. Hence the provision made for periodic maintenance cannot be treated as Not an ascertained 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. As can be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of Periodic maintenance for the AY.2012-13 Date of commencement of maintenance expenditure after the date of completion of project on 30.06.2011. 02.07.2011 Date of completion of maintenance as per the period of 5 years cycle 01.07.2016 Total number of days for a maintenance period of 5 years (From 02.07.2011 to 01.07.2016) 1827 Days Days of maintenance in the FY 2011-12 (From 02.07.2011 to 31.03.2012) 274 Days Estimated Periodic Maintenance Cost as per the SBI Capital Market Report as on March 2015 ₹ 49.70 crores Proportionate portion of Provision of Periodic Maintenance for the FY 2011-12 (i.e. ₹ 49.70 crores * 274 days/1827 days) ₹ 7.45 crores As can be seen from the above calculation that assessee company has provision of ₹ 7.45 crores in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is submitted 'that the assessee company has made provision for the periodic maintenance correctly on the basis of the projected financial and accordingly created the provision of ₹ 7.45 crores in the year under consideration. The Provision for this periodic maintenance was made duly on the basis of mercantile accounting system and same should be allowed in the year under consideration. Therefore, from the above it is very clear that the assessee company has incurred the major maintenance of expenditure in every fifth year as per the agreement with NHAI and accordingly made the provision in this regard which is as per the accounting and same should be allowed in the year under consideration. Hence, it is requested before you that kindly delete the addition of ₹ 7,45,50,000/ - in respect of the periodic maintenance. 6.2 I have carefully considered the assessment order, facts of the case and submissions of the appellant. Since the appellant has provided these periodic expenses based on contract agreement between the appellant and the contractor, hence, the provision of section 438 of the Act is not applicable in this case. Therefore, all the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 5,35,00,000/- FITL-CBI ₹ 3,58,00,000/- FITL-IIFCL ₹ 5,35,00,000/- TOTAL ₹ 21,35,00,000/- As per the provisions of Section 43B, the interest payments are allowable only on the basis of actual payment. It is specifically given in the explanation that the conversion of outstanding interest into Funded Interest Term Loan shall not be construed to the payment and the same shall be disallowed as per the provisions of Section 43B. Therefore, assessee is requested to explain as to why the above interest payments, which are not paid but merely converted into FITL shall not be disallowed. In response, assessee has filed a letter dated 29.2.2016. As the assessee itself has agreed with the observation and also considering the facts issues of the case, the interest converted in FITL amounting to ₹ 21,35,00,000/- was disallowed and added to the returned income. 6.1 Regarding the above addition, during the course of appellate proceedings, the appellant contended as under: The AO disallowed an am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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