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2021 (5) TMI 824 - AT - Income TaxDepreciation on maintenance of Road - AO allowed depreciation @ 10% instead 25% as claimed by the assessee - availability of depreciation to the assessee whether it is to be allowed keeping the right to collect toll fee as intangible assets or it to be treated as building or plant machinery - HELD THAT - As relying on North Karnataka Expressway Ltd. 2014 (11) TMI 351 - BOMBAY HIGH COURT and ACIT vs. Progressive Construction Ltd. 2017 (3) TMI 1167 - ITAT HYDERABAD we hold that the assessee is eligible for depreciation @ 25% as claimed by the assessee. Thus, Ground of appeal No. 1 raised by the assessee is allowed. Disallowance made by the Assessing Officer with regard to provision made for maintenance of the roads - HELD THAT - As assessee took us through the chart wherein it was mentioned that the maintenance expenditure to be incurred in five years was ₹ 60.34 crore, project operations were started on 09.08.2011 and estimation of maintenance expenditure was estimated to ₹ 12.07 crores and being not having full year operations of the project, provision was created for only one quarter i.e. ₹ 12.07 crore/4 i.e. ₹ 3 crore. Reliance is placed upon the judgment of Hon'ble Supreme Court in M/s. Rotork Controls India (P.) Ltd. vs. CIT 2009 (5) TMI 16 - SUPREME COURT Further, reliance was placed upon the judgment of Hon'ble Supreme Court in the case of Bharat Earth Movers vs. CIT 2000 (8) TMI 4 - SUPREME COURT and M/s. Mokama Munger Highway Ltd. vs. ACIT 2019 (7) TMI 1816 - ITAT HYDERABAD Thus we are of the considered view that the claim of provision as made by the assessee is in accordance with settled principal of law. Therefore, the authorities below were not justified in making the disallowance. - Decided in favour of assessee.
Issues Involved:
1. Depreciation rate on Toll Road. 2. Deduction of Grant from NHAI. 3. Disallowance of provision for major maintenance expenses. Detailed Analysis: 1. Depreciation Rate on Toll Road: The primary issue is whether the depreciation on the Toll Road should be calculated at 10% or 25%. The assessee claimed depreciation at 25% under the head "Intangible Assets," arguing that it had rights in the developed Toll Road and not ownership of the road itself. The Assessing Officer, supported by the CIT(A), reduced the depreciation rate to 10%, treating the road as a "Building." The Tribunal referred to various judicial pronouncements, including the Bombay High Court's decision in North Karnataka Expressway Ltd. vs. CIT and the Special Bench of the Tribunal in ACIT vs. Progressive Construction Ltd., which supported the assessee's claim that the right to collect toll is an intangible asset. The Tribunal concluded that the assessee is entitled to depreciation at 25% for the right to collect toll fees, thus allowing Ground No. 1 in favor of the assessee. 2. Deduction of Grant from NHAI: The second issue pertains to the deduction of the grant received from NHAI from the total project cost, which affected the depreciation calculation. The assessee did not press this ground during the hearing. Consequently, Ground No. 2 was dismissed as not pressed. 3. Disallowance of Provision for Major Maintenance Expenses: The third issue involves the disallowance of a provision for major maintenance expenses amounting to ?3,00,00,000 for the assessment year 2012-13 and ?6,00,00,000 for the assessment year 2013-14. The Assessing Officer and CIT(A) disallowed the provision, considering it contingent and not incurred during the year. The Tribunal, however, referred to the Supreme Court's decision in M/s. Rotork Controls India Pvt. Ltd. vs. CIT and Bharat Earth Movers vs. CIT, which supported the recognition of provisions based on present obligations arising from past events. The Tribunal found that the provision for major maintenance was based on a reliable estimate and was a mandatory liability as per the concession agreement with NHAI. Therefore, the Tribunal allowed the provision for major maintenance expenses, reversing the disallowance made by the authorities below. Separate Judgments: The Tribunal delivered a consolidated order for both appeals (assessment years 2012-13 and 2013-14). The findings and conclusions for the assessment year 2012-13 were applied mutatis mutandis to the assessment year 2013-14, with no significant changes in facts or circumstances. Conclusion: Both appeals of the assessee were partly allowed. The Tribunal ruled in favor of the assessee regarding the depreciation rate on the Toll Road and the provision for major maintenance expenses, while the ground regarding the deduction of the grant from NHAI was dismissed as not pressed.
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