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2022 (7) TMI 1440 - AT - Income TaxDisallowance of depreciation on intangible assets - Highway Project on BOT basis - HELD THAT - We find the identical issue in 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. Thus assessee is entitled for depreciation as admissible on intangible assets. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of depreciation on highway projects. 2. Allowance of amortization cost instead of depreciation. 3. Incorrect computation of amortization expenditure. 4. Consideration of documents and explanations provided by the assessee. Issue-wise Detailed Analysis: 1. Disallowance of depreciation on highway projects: The primary issue in the appeal is the disallowance of depreciation claimed by the assessee on highway projects. The assessee, a special purpose vehicle engaged in the development of highway projects, claimed depreciation of Rs. 49,32,87,659/- on the highway project, treating it as a fixed asset. The Assessing Officer (AO) disallowed this claim, instead allowing amortized cost of Rs. 38,46,29,754/-, based on CBDT Circular No. 09/2014. The CIT(A) upheld the AO's decision, citing the Bombay High Court's decision in North Karnataka Expressway Ltd. v. CIT, which held that the assessee could not claim depreciation on toll roads constructed on BOT basis. 2. Allowance of amortization cost instead of depreciation: The AO and CIT(A) allowed amortization of expenses over the concession period instead of depreciation. The assessee argued that the right to operate the highway and collect toll charges is an intangible asset, eligible for depreciation under section 32(1)(ii) of the Income Tax Act. The Tribunal referred to the Special Bench decision in ACIT vs. Progressive Constructions Ltd., which held that such rights are intangible assets eligible for depreciation. The Tribunal noted that the CBDT Circular is for the benefit of the assessee and cannot be imposed if not claimed. 3. Incorrect computation of amortization expenditure: The assessee contended that the AO incorrectly computed the amortization expenditure, allowing Rs. 38,46,29,754/- instead of the claimed Rs. 39,63,46,436/-. The CIT(A) upheld the AO's computation, stating that the assessee failed to justify the claimed amount. The Tribunal did not specifically address this computation issue, as it focused on the broader question of whether the assessee was entitled to claim depreciation on the intangible asset. 4. Consideration of documents and explanations provided by the assessee: The assessee argued that the documents and explanations provided were not properly considered by the lower authorities. The Tribunal reviewed the material on record and the decisions of the authorities below, ultimately agreeing with the assessee's contention that the right to operate the highway and collect toll charges is an intangible asset eligible for depreciation. Conclusion: The Tribunal allowed the appeal, holding that the assessee is entitled to claim depreciation on the intangible asset created by the expenditure incurred on the highway project. The Tribunal relied on the Special Bench decision in ACIT vs. Progressive Constructions Ltd., which recognized the right to operate and collect toll charges as an intangible asset eligible for depreciation under section 32(1)(ii) of the Income Tax Act. The Tribunal dismissed the argument that the CBDT Circular mandates amortization, emphasizing that the benefit of the circular cannot be imposed on the assessee if not claimed. The appeal was allowed, and the disallowance of depreciation was overturned.
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