2021 (6) TMI 367 - AT - Income Tax

Intangible asset u/s.32(1)(ii) - asset in the nature of the road project concerned - HELD THAT - This tribunal s Special Bench s decision in M/s.Progressive Construction Ltd. 2014 (11) TMI 401 - ITAT HYDERABAD 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 (3) TMI 853 - SUPREME COURT holds that the mere option of amortisation would not debar an expenditure claim which is otherwise admissible as per law. We thus affirm the CIT(A) s findings qua the first issue of depreciation disallowance. The Revenue s corresponding grounds are rejected. 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 interest term loan is not a loan transaction but assessee s contract agreement with the creditor party and therefore, the CIT(A) has held that the same is not exigible to actual payment contemplated u/s.43B of the Act. We thus decline the Revenue s instant last substantive ground as well.

Summary

Issues Involved:
1. Denial of depreciation claim.
2. Disallowance of provision for periodical maintenance.
3. Disallowance of interest payment converted into Funded Interest Term Loans (FITL).

Issue-wise Detailed Analysis:

1. Denial of Depreciation Claim:
The Revenue's primary contention was the denial of the assessee's depreciation claims for the assessment years 2012-13 and 2013-14, amounting to ?43,17,06,474/- and ?1,41,73,68,447/- respectively. The Assessing Officer (AO) argued that the assessee, not being the owner of the road project, should have amortized the corresponding expenditure as per CBDT Circular No. 9/2014. The CIT(A) treated the assessee's depreciation claim as an intangible asset under Section 32(1)(ii) of the Income Tax Act, 1961, which was upheld by the ITAT. The tribunal referenced the Special Bench decision in M/s. Progressive Construction Ltd., which recognized the right to collect toll as an intangible asset. The tribunal concluded that the CBDT's circular did not negate the depreciation relief and affirmed the CIT(A)'s findings, rejecting the Revenue's grounds.

2. Disallowance of Provision for Periodical Maintenance:
The second issue involved the disallowance of ?2,53,39,545/- and ?3,54,98,306/- towards provision for periodical maintenance. The AO disallowed these amounts, arguing that the expenses were not incurred solely due to traffic in the fifth year but accumulated over five years. The CIT(A) reversed this disallowance, accepting the assessee's argument that the provision was based on the concession agreement with NHAI, which required periodic maintenance every five years. The tribunal upheld the CIT(A)'s decision, citing the Supreme Court's decision in Chainrup Sampatram Vs. CIT, which supports booking expenditure at the first sign of probability. The tribunal affirmed that the provision was based on a contractual obligation and not an estimation, thus allowing the assessee's claim.

3. Disallowance of Interest Payment Converted into FITL:
The third issue pertained to the disallowance of ?21,35,00,000/- as interest payment converted into FITL. The AO invoked Section 43B, arguing that interest payments are allowable only on actual payment, not on conversion to FITL. The CIT(A) deleted the disallowance, reasoning that the conversion to FITL constituted constructive payment, as the financial institutions had agreed to convert the interest into a term loan. The tribunal upheld the CIT(A)'s decision, noting that the conversion to FITL was based on a contractual agreement and did not attract the actual payment requirement under Section 43B.

Conclusion:
The tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decisions on all three issues. The judgments emphasized the recognition of the right to collect toll as an intangible asset, the validity of provisions for periodic maintenance based on contractual obligations, and the constructive payment of interest through conversion to FITL. The tribunal's decisions were grounded in established legal precedents and interpretations of the Income Tax Act.