×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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These are assessee’s appeals for the A.Ys 2013-14, 2014-15 & 2015-16 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 Rs.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 Rs.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 Rs.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 No.9/2014, dated 23.04.2014 clarifying on the issues regarding the allowability of the depreciation on projects developed under BOT. He observed that as per the CBDT circular, the expenditure has to be amortized evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility from the date of commencement etc.
3. Further, from the information submitted by the assessee, the AO noted that the project has commenced its operation in the financial year 2012-13 only and the agreement period of the project is upto 14.05.2026. Therefore, the total period of the 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. He therefore, worked out the proportionate expenditure to be amortized for the relevant financial year at Rs.5,37,68,472 and the balance of the amount claimed as depreciation i.e. (Rs.18,16,15,643 – Rs.5,37,68,472) Rs.12,78,47,171/- was disallowed and brought to tax.
4. Further, on verification of the P&L A/c, the AO noted that the assessee has debited an amount of Rs.1,11,47,486/- towards provision for major maintenance. On further verification, he noted that this expenditure was not actually incurred during the year but only a provision is being made for future maintenance of BOT projects. The assessee was therefore, required to substantiate its claim as per the provisions of the I.T. Act. In response to the same, the assessee produced the details of major maintenance reserve and the AO noted that the assessee has not actually incurred the said expenditure, but a mere provision is created. The assessee had submitted that as per the agreement with NHAI, a BOT project shall be maintained for a period of 5 years and subsequently, if any major repairs occurs, it has to be borne by the assessee company and so a provisions is being created for the expenditure to be incurred towards repair and maintenance of the project after the period of 5 years. The AO observed that as per the provisions of the I.T. Act, only the expenditure incurred during the year, relevant to impugned A.Y is allowable and that expenditure relatable to the other years and not to the financial year relevant to the impugned A.Y, is not allowable. Therefore, he disallowed the provision and brought it to tax. Aggrieved, the assessee 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 maintenance of Rs. 1,11,47,4861- by stating that appellant has not actually
paid these expenses and it is only a provision and ignoring that reserve was created under mandate agreement in between the principal i.e NHAI and concessionaire and also there is no power 1 right except to mandate the NHAI terms and therefore, it is a crystallized liability and is allowable u/s 37 of the Act
as held in r20091 3 14 ITR 62 (SC) Rotork Controls India P Ltd vs CIT and 20161 381 ITR 469 (Delhi) Aggarwal and Modi Enterprises (Cinema Project) Co Pvt Ltd V CIT.
4. For these and other reasons that may be urged at the time of hearing the appellant prays the Honorable Tribunal to kindly delete the addition made by AO and sustained by CIT(A)”.
5. The learned Counsel for the assessee, Shri D.V. Anjaneyulu, reiterated the submissions made by the assessee before the authotities below and submitted that the issue of depreciation on the roads is covered by the decision of the Special Bench of the Tribunal in the case of Progressive Constructions Ltd, reported in (2018) 161 DTR 289, wherein it was held that the expenditure incurred by the assessee for construction of roads under BOT contract with the Govt. of India, has given rise to an intangible asset as defined under Explanation 3(b) r/w section