2021 (1) TMI 228 - AT - Income Tax

Depreciation on the expenditure incurred for construction of Amritsar Bus Terminal project on build, operate and transfer (BOT) basis - According to the AO, the assessee claimed depreciation on project costs at ₹ 2,50,16,203/- in the books of account but claimed depreciation @ 25% at ₹ 4,66,91,811/- in the computation - AO allowed amortization of whole expenses over the life of such asset and restricted the deprecation - HELD THAT - We note that the assessee incurred expenditure in constructing Amritsar Bus Terminal on BOT basis and to recoup the said investment, the assessee was allowed to collect adda fees from the users of the said bus terminal. In our view, the said right is business or commercial right in terms of section 32(1)(ii) of the Act, is an intangible asset, therefore, the assessee is entitled to claim depreciation. We find that the facts and circumstances of the case made out in the case of Progressive Construction Ltd. 2017 (3) TMI 1167 - ITAT HYDERABAD are identical and the issue decided therein is similar to the issue on hand before us. Therefore, the assessee is eligible to get depreciation u/s. 32(1)(ii) of the Act. We hold that the assessee is entitled to claim deprecation as per specified rate at 25% and the order of CIT(A) is justified. It is observed that the AO, while denying the claim of depreciation, allowed deduction towards amortization of expenses relatable to money spent for construction of infrastructure facilities, i.e. bus terminal. Once the claim of the assessee towards depreciation allowance is accepted, the deduction allowed by the AO towards allocated cost of project, naturally needs to be withdrawn. The AO is directed to recalculate the depreciation in terms indicated above and add back the allocated cost of project as allowed by him as deduction in the assessment order - Decided against revenue.

Summary

Issues Involved:
1. Whether the CIT(A) is justified in allowing depreciation on the expenditure incurred by the assessee for the construction of the Amritsar Bus Terminal project on a build, operate, and transfer (BOT) basis.

Issue-wise Detailed Analysis:

1. Depreciation on Expenditure for BOT Project:

The primary issue in these appeals is whether the CIT(A) was correct in allowing depreciation on the expenditure incurred by the assessee for constructing the Amritsar Bus Terminal on a BOT basis. The assessee, a company engaged in infrastructure projects, formed a special purpose vehicle (SPV) for executing the project and entered into a concession agreement with the Government of Punjab. The agreement allowed the assessee to collect adda fees from buses and vehicles using the terminal to recoup the construction costs.

The Assessing Officer (AO) allowed amortization of the expenses over the asset's life and restricted the depreciation to ?2,50,16,203/-, whereas the assessee claimed depreciation at 25%, amounting to ?4,66,91,811/-. The CIT(A) disagreed with the AO, relying on the Tribunal's decision in Ashoka Infrastructure Pvt. Ltd., which treated the right to collect toll as a depreciable intangible asset under section 32(1)(ii) of the Act.

The Departmental Representative (DR) argued that the Bombay High Court admitted a substantial question of law in a similar case (Ashoka Infraways Pvt. Ltd.), suggesting that the right to collect toll should not be considered a depreciable intangible asset. However, the Assessee's Representative (AR) countered by citing the Tribunal's consistent view that such rights create intangible assets eligible for depreciation.

The Tribunal noted its previous decisions, including Ashoka Infrastructure Ltd. and Progressive Constructions Ltd., where it was held that the right to collect toll creates an intangible asset under section 32(1)(ii). This view was supported by various other Tribunal decisions, including those of the Special Bench of Hyderabad and the Mumbai Bench, which consistently treated such rights as depreciable intangible assets.

The Tribunal concluded that the assessee's right to collect adda fees from the bus terminal users is a business or commercial right, qualifying as an intangible asset under section 32(1)(ii). Therefore, the assessee is entitled to claim depreciation at the specified rate of 25%. The Tribunal directed the AO to recalculate the depreciation accordingly and add back the allocated project cost allowed as a deduction in the assessment order.

Conclusion:

The appeals by the Revenue were dismissed, affirming the CIT(A)'s decision to allow depreciation on the expenditure incurred for the Amritsar Bus Terminal project on a BOT basis. The Tribunal upheld that such rights constitute intangible assets eligible for depreciation under section 32(1)(ii) of the Act. The findings in ITA No. 53/PUN/2018 were applied mutatis mutandis to ITA Nos. 54 & 55/PUN/2018, resulting in the dismissal of all appeals.