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2023 (7) TMI 971 - AT - Income TaxDisallowance of depreciation on intangible assets - Highway Project on BOT basis - HELD THAT - The Tribunal in GWALIOR BYPASS PROJECT LTD. 2022 (7) TMI 1440 - ITAT DELHI held that the assessee is entitled for depreciation as admissible on intangible assets as relying on M/s. Progressive Constructions Ltd. 2017 (3) TMI 1167 - ITAT HYDERABAD held that the expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of depreciation on the Highway Project on BOT basis. 2. Entitlement of the appellant to claim depreciation under section 32(1). 3. Validity of the orders passed by CIT(A) and AO. Detailed Analysis: 1. Disallowance of Depreciation on the Highway Project on BOT Basis: The primary issue in this case is whether the assessee is entitled to claim depreciation on the Highway Project constructed on a Build-Operate-Transfer (BOT) basis. The assessee claimed depreciation of Rs. 54,80,97,399/- on buildings for the AY 2014-15. The AO disallowed this claim, stating that the assessee is not the owner of the asset, and ownership is a sine-qua-non for claiming depreciation. Instead, the AO allowed amortization of the cost over the period during which the assessee is entitled to receive annuity, referring to the Supreme Court judgment in Madras Industrial Investment Corporation Ltd. vs. CIT and CBDT circular No. 09/2014. 2. Entitlement of the Appellant to Claim Depreciation under Section 32(1): The Tribunal observed that in the immediately succeeding AY 2015-16, a similar disallowance was made by the AO, which was confirmed by the CIT(A). However, the Tribunal, in its order dated 26.07.2022, held that the assessee is entitled to depreciation as admissible on intangible assets. The Tribunal followed the decision of the Special Bench in ACIT, Circle -16(2), Hyderabad vs. M/s. Progressive Constructions Ltd., which concluded that the right acquired by the assessee to operate the project facility and collect toll charges is an intangible asset. The Tribunal noted that the expenditure incurred by the assessee for constructing the project resulted in creating an intangible asset of enduring nature, eligible for depreciation under section 32(1)(ii) of the Act. 3. Validity of the Orders Passed by CIT(A) and AO: The Tribunal found that the orders passed by the CIT(A) and AO were contrary to the facts and bad in law. The Tribunal emphasized that the right to operate the project facility and collect toll charges is a valuable business/commercial right, thus qualifying as an intangible asset eligible for depreciation. The Tribunal dismissed the Department's contention that the expenditure should be amortized as per CBDT circular No. 09/2014, stating that the benefit of the circular can be granted only if the assessee makes a claim in terms of it. Since the assessee did not claim it as deferred revenue expenditure, there was no scope to examine the amortization over the concession period. Conclusion: The Tribunal concluded that the facts and circumstances of the case for AY 2014-15 are similar to those in AY 2015-16. Following the Tribunal's order for AY 2015-16, the Tribunal decided in favor of the assessee, allowing the appeal and granting the claim for depreciation on the intangible asset created by the expenditure incurred on the BOT project. The appeal of the assessee was allowed, and the orders of the CIT(A) and AO were quashed. Order Pronounced: The order was pronounced in the open court on 2nd December 2022.
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