2020 (10) TMI 603 - AT - Income Tax

Depreciation on license fee paid for 20 years - intangible asset - treating the license fee paid to Indian Railways as deferred revenue expenditure eligible for amortization over a period of 20 years but not being eligible for depreciation - HELD THAT - Following the judgment of the Hon ble Delhi High Court, in the case of Container Corporation of India Ltd. 2017 (1) TMI 1586 - ITAT DELHI this Tribunal noted that in this case, the assessee had earned a benefit of enduring nature of plying on Indian Railways Tracks for a period of 20 years which was a valuable commercial right available to the assessee for a considerable period of time and, therefore, the same was eligible for depreciation u/s 32(1) (ii) of the Act. During the course of proceedings before us in the present appeal, the Department could not bring to our notice any judgment contrary to the above said adjudication and in favour of the Revenue on the issue. Therefore, respectfully following the judgment of Areva T D vs. DCIT 2012 (4) TMI 79 - DELHI HIGH COURT and also the order of the Tribunal in the case of Container Corporation of India (supra), we allow Ground of the assessee s and direct that benefit of depreciation on the registration fee of ₹ 50 Crores paid to Indian Railways be allowed the benefit of depreciation. Disallowance on account of claim against Contractors/Third Parties - CIT-A allowed relief to assessee - HELD THAT - CIT (A) has noted that the assessee s submission is tenable in as much as it has not accounted for the claim against Contractors/Third Parties pending its realization due to inherent uncertainty in the ultimate realization of the said amount.CIT (A) has also noted that the assessee has been consistently following Accounting Standard-9 dealing with Revenue Recognition issued by the Institute of Chartered Accountant of India. In the proceedings before us, the Ld. SR. DR could not bring to our notice any perversity in the said order of the CIT (A). We also note that a similar issue had been decided in favour of the assessee by the CIT (A) in Assessment Years 2003-04 and 2004-05 which have been accepted by the Department. Therefore, in such a situation, following the principle of consistency, we find no reason to deviate from the findings of the Ld. CIT(A)

Summary

Issues Involved:
1. Deletion of disallowance of ?3,00,49,000 on account of claim against contractors/third parties.
2. Reopening of assessment under Section 147 and issuance of notice under Section 148.
3. Enhancement of assessment by ?2,50,00,000 by CIT (A).
4. Eligibility of depreciation on license fee paid to Indian Railways.

Detailed Analysis:

1. Deletion of Disallowance of ?3,00,49,000 on Account of Claim Against Contractors/Third Parties:
The Department challenged the deletion of the disallowance of ?3,00,49,000 made by the CIT (A) on account of claims against contractors/third parties. The CIT (A) had relied on an earlier order for Assessment Year 2003-04, where the issue was decided in favor of the assessee. The assessee argued that the claims were not accounted for due to uncertainty in their realization, following the mercantile system of accounting and Accounting Standard-9 on Revenue Recognition. The Tribunal upheld the CIT (A)'s decision, noting that the Department had not contested similar issues in previous years, thus maintaining consistency. Consequently, the Department's appeal on this ground was dismissed.

2. Reopening of Assessment Under Section 147 and Issuance of Notice Under Section 148:
The assessee initially contested the reopening of the assessment under Section 147 and the issuance of notice under Section 148 but later chose not to press this ground. As a result, this ground was dismissed as not pressed.

3. Enhancement of Assessment by ?2,50,00,000 by CIT (A):
The CIT (A) had enhanced the assessment by ?2,50,00,000, noting that the Assessing Officer had allowed a double deduction by twice allowing the deferred revenue expenditure of ?2.5 Crores. The assessee challenged this enhancement, arguing that it was entitled to depreciation on the license fee paid to Indian Railways. The Tribunal, however, linked this issue to the broader question of depreciation eligibility on the license fee.

4. Eligibility of Depreciation on License Fee Paid to Indian Railways:
The assessee argued that the license fee paid to Indian Railways for operating container trains should be treated as an intangible asset eligible for depreciation. The CIT (A) and the Assessing Officer had treated the fee as deferred revenue expenditure, allowing amortization over 20 years instead of depreciation. The Tribunal referred to a similar case, Container Corporation of India Ltd. vs. DCIT, where the license fee was deemed an intangible asset eligible for depreciation. It also cited the Delhi High Court's judgment in Areva T&D India Ltd. vs. DCIT, which supported treating such fees as intangible assets eligible for depreciation. The Tribunal concluded that the license fee paid to Indian Railways was an intangible asset and directed that the depreciation be allowed, thereby allowing the assessee's cross-objection on this ground.

Conclusion:
The Department's appeal was dismissed, and the assessee's cross-objection was partly allowed. The Tribunal upheld the CIT (A)'s decision to delete the disallowance of ?3,00,49,000 and allowed the depreciation on the license fee paid to Indian Railways, treating it as an intangible asset. The reopening of the assessment was dismissed as not pressed. The enhancement of assessment by ?2,50,00,000 was linked to the depreciation issue and resolved in favor of the assessee.