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TMI Blog2018 (2) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to claim of depreciation on Built, Operate, Transfer (BOT) rights for Mumbra Bypass Road, however, due to mistake of the Counsel, the assessee could not challenge the decision of the learned Commissioner (Appeals) on the issue either by way of an appeal or cross objection within the stipulated dates. He submitted, the mistake being a bonafide one, the assessee should not be debarred from raising the issue before the Tribunal by way of Cross Objection. He submitted that the assessee should not suffer due to mistake of the Counsel. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in Vijay Vishin Meghani v/s DCIT, [2017] 86 taxmann.com 98 (Bom.). He, therefore, submitted that the delay in filing the cross objection may be condoned. 3. Learned Departmental Representative strongly opposing the condonation of delay submitted that the assessee has time and again varied its stand with regard to its claim on BOT rights as it has claimed depreciation initially and subsequently has claimed amortization of the expenditure incurred for BOT rights as deferred revenue expenditure over the concession period. He submitted that the assessee being no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluka Thane, on BOT basis. As per the terms of the agreement, assessee has to bear the entire cost of construction of project with a right conferred on it to collect revenue (Toll) from the users of the facilities during the construction period as per the rates specified in Government notification. The agreement further provided that after the end of concession period which was initially for a period of 25 years and subsequently reduced to 15 years, the assessee has to transfer the facility to the Government at zero cost. During the construction period, the assessee capitalized the entire cost for the construction of the facility by transferring to capital work-in-progress. After construction of the facility and during the concession period, the entire cost of construction was amortized and charge to Profit & Loss account as per AS-26 in a manner so as to reduce the value of the project in the books of account of the assessee to zero at the end of concession period. It was submitted by the assessee that the expenditure incurred for constructing Mumbra bypass road on BOT basis was on the understanding that by incurring such expenditure, the assessee will acquire the commercial right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Being aggrieved of the aforesaid decision of the first appellate authority both the Revenue and the assessee are before us. While the Revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessee's revised claim of deferred revenue expenditure of Rs. 21,18,70,983, the assessee is aggrieved with the decision of the learned Commissioner (Appeals) in not allowing assessee's claim of depreciation on BOT rights. 8. Learned Departmental Representative submitted that as per the agreement entered with the Government of Maharashtra, the concession period for the BOT facility was for a period of 15 years. Therefore, the expenditure incurred by the assessee in construction of the BOT road was to be amortized and treated as deferred revenue expenditure and allowed over the entire concession period. He submitted, before the first appellate authority, the assessee submitted a revised claim by reducing the concession period of 15 years and considering such revised claim learned Commissioner (Appeals) has allowed the claim of the assessee without giving any opportunity to the Assessing Officer to examine assessee's claim. Learned Departmental Representative subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BOT road as in that case, the assessee has claimed depreciation at the normal rate by treating the road as its own asset. He submitted, on the contrary, the issue is squarely covered by the Special Bench decision of the Tribunal, Hyderabad Bench, in ACIT v/s Progressive Construction Ltd., ITA no.1845/Hyd./2014 dated 14th February 2017. He also relied upon the decision of the Tribunal, Mumbai Bench, in ACIT v/s West Gujarat Express Way Ltd., ITA no.5904/Mum./2012 dated 15th April 2015. Thus, he submitted that assessee's claim of depreciation has to be allowed. 10. We have patiently and carefully considered the rival submissions, perused the material on record and have also applied our mind to the decisions relied upon. Undisputed facts are, the assessee entered into an agreement with Maharashtra Government for construction of Mumbra Bypass road on BOT basis. As per the terms of the agreement, the assessee was required to incur the entire cost of construction without it being reimbursed by the Government. However, the Government under the agreement conferred the rights on the assessee to collect revenue (toll) from persons utilizing the BOT facility at the rate prescribed through no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Tribunal in assessment year 2009-10 and 2010-11 in further appeal before the High Court of Andhra Pradesh and Telangana and the matters are still pending. Be that as it may, the aforesaid facts clearly indicate that the impugned assessment year is not the first year of claim of depreciation on the BOT road / bridge. Rather, in the impugned assessment year, depreciation has been claimed on the opening WDV which has also been accepted by the learned Departmental Representative in the written submissions filed by him. Therefore, the nature of expenditure, whether capital or revenue, is not a subject matter of dispute arising in the present appeal. Bearing this in mind, we have to examine the validity of assessee's claim of depreciation qua the asset created. The learned Departmental Representative has opposed assessee's claim of depreciation on the following propositions:- i) Whether the expenditure claim of the assessee brings into being an asset which is owned and used by the assessee in its business; ii) What is the nature of the asset that has come into being on account of the expenditure incurred by the assessee and what is the nature of such expenditure; ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than, for the purpose of the project / project facilities as permitted under the C.A. Clause 2.7 of the C.A. makes it clear that the project site belongs to and has vested in Government of India and the Government of India has full power to hold, dispose off and deal with the same consistent with the provisions of the C.A. However, it also makes it clear that the concessionaire, subject to complying with the terms / conditions of the agreement remains in peaceful possession and enjoyment of the project site during the concession period. It further provides, in the event the concessionaire is obstructed by any person claiming any right, title or interest over the project site or any part thereof or in the event of any enforceable action including any attachment, distraint, appointment of receiver or liquidator being initiated by any person claiming interest over the project sites. Government of India not only will defend such claims or proceedings but also keep the concessionaire indemnified against any direct or consequential loss or damage which it may suffer on account of any such right, title, interest or charge. As per clause 2.8 of the C.A., though, the concessionaire sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs. 214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs. 214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs. 214 crore has brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where both Government of India and the concessionaire will claim depreciation on the asset cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs. 214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience. Depreciation. 32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature67, being intangible assets acquired on or after the 1st day of April, 1998, owned67, wholly or partly, by the assessee67 and used for the purposes of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the concession period, on expiry of which the project / project facility will revert back to the Government of India. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has not created any right, title or interest over the property. The right granted by the Government of India to the assessee under the C.A. has a license permitting the assessee to do certain acts and deeds which otherwise would have been unlawful or not possible to do in the absence of the C.A. Thus, in our view, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items, but, is of similar nature would come within the expression "any other business or commercial rights of similar nature". The Hon'ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle ‗goodwill' would fall under the expression "any other business or commercial rights of similar nature". Thus, as could be seen, even though, ‗goodwill' is not one of the specifically identifiable assets preceding the expressing "any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that ‗goodwill' will come within the expression "any other business or commercial rights of similar nature". Therefore, the contention of the learned Senior Standing Counsel that to come within the expression "any other business or commercial rights of similar nature" the intangible asset should be akin to any one of the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by it in implementing the project. Therefore, the right to operate the toll road / bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus, we answer the question framed by the Special Bench as under:- 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." 11. The ratio laid down in the aforesaid decision of the Special Bench squarely applies to the facts of the present case. Therefore, in our considered opinion, the assessee is entitled to claim depreciation on the cost incurred on construction of the BOT facility, since, by incurring such investment the assessee has acquired a valuable commercial or business right in the nature described under section 32(1)(ii) r/w Explanation 32(1), Explanation-3(b) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Department has challenged the decision of the learned Commissioner (Appeals) in allowing foreign exchange loss of Rs. 2,79,66,192. 14. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that an amount of Rs. 2,79,66,192 was debited by the assessee to the Profit & Loss account on account of loss on foreign exchange difference called upon the assessee to furnish necessary details and explain why such loss should not be treated as speculative. In response to the query raised by the Assessing Officer, the assessee furnished necessary details and submitted that it has entered into an ISDI Master Agreement on 11th April 2007 with ICICI Bank Ltd. for entering into derivative transaction from time to time. Subsequently, the assessee entered into option transaction with ICICI Bank Ltd. involving swapping debt of Rs. 35 crore into Japanese Yen for a period of five years. By entering into such arrangement, the assessee received 9.50% per annum interest on the debt of Rs. 35 crore, whereas, it pays interest @ 7.5% per annum on Japanese Yen. On the basis of the said transaction, the assessee paid annual settlement amount to ICICI Bank Ltd. which was debited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee involved any purchase and sale of commodities as nothing has been contracted to be delivered. He submitted that the assessee has interest liability connected to the loan taken for the BOT facility, therefore, the assessee can hedge interest liability by choosing any currency. He submitted, it is simply a hedging of interest of one currency against another currency, therefore, the provisions of section 43(5) of the Act would not apply. Finally, the learned Authorised Representative submitted that the assessee has followed the aforesaid method of accounting consistently and in assessment year 2008-09 it has offered gain from such transaction whereas, in assessment year 2009-10, the assessee has claimed loss on account of foreign exchange difference arising out of similar transaction which has been allowed by the Assessing Officer. He, therefore, submitted that the order of the learned Commissioner (Appeals) on this issue deserves to be upheld. 17. We have heard rival contentions and perused material on record. It is evident from the facts on record that the Assessing Officer has treated the loss on foreign exchange difference as speculative primarily for the reason that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the assessee has debited interest expenditure of Rs. 2,68,95,525 to its Profit & Loss account. Since, the investments made by the assessee yielded exempt income, the Assessing Officer called upon the assessee explain why disallowance under section 14A r/w rule 8D should not be made. In response, the assessee submitted that since the investments made were out of its own earning and that too were made in partnership firm and with associates and joint venture only for business purpose, no disallowance should be made. The Assessing Officer, however, did not find merit in the submissions of the assessee and proceeded to disallow an amount of Rs. 5,99,45,801. Being aggrieved of disallowance so made, assessee preferred appeal before the first appellate authority. 20. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record held that as far as interest expenditure is concerned, no disallowance under rule 8D(2)(ii) can be made since as per the audited financial statements of the assessee it has own interest free surplus fund aggregating to Rs. 211.64 crore as against investment of Rs. 124.55 crore. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 Assessee's Appeal - A.Y. 2011-12 23. In grounds no.1 and 2 of the main ground, the assessee has challenged the decision of the learned Commissioner (Appeals) with regard to confirmation of disallowance made under section 14A r/w rule 8D. 24. In ground no.2, the assessee has challenged the applicability of section 14A to the computation of book profit under section 115JB of the Act. 25. Brief facts are, during the assessment proceeding, the Assessing Officer noticing that in the relevant previous year, the assessee has earned substantial exempt income called upon the assessee to explain why disallowance under section 14A should not be made. Though, the assessee objected to the proposed disallowance, the Assessing Officer rejecting the objection of the assessee proceeded to disallow an amount of Rs. 6,87,64,384 under section 14A r/w rule 8D which comprised of interest expenditure under rule 8D(2)(ii) of Rs. 6,16,14,082 and administrative expenditure under rule 8D(2)(iii) of Rs. 71,50,302. The assessee challenged the disallowance before the first appellate authority. 26. The learned Commissioner (Appeals) after considering the submissions of the assessee and examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating that BOT rights for Mumbra By-pass Road is an asset within the ambit of section 32. 1.2 Accordingly, on the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that depreciation on the BOT Rights for Mumbra By-pass Road of Rs. 19,39,30,422 claimed by eth appellant is allowable u/s 32. 28. Since the additional grounds raised by the assessee are on legal issues and can be decided on the basis of facts already available on record, we admit the additional ground for adjudication on merit. As far as the merits of the additional grounds are concerned, while deciding identical issue in C.O. no.83/Mum./2017, in the earlier part of the order, we have allowed assessee's claim of depreciation. Following our decision therein, we allow the grounds raised by the assessee. 29. In the result, assessee's appeal is partly allowed. ITA no.4416/Mum./2015 Revenue's Appeal - A.Y. 2011-12 30. In grounds no.(i) to (iii), the Revenue has challenged allowance of assessee's claim with regard to the deduction claimed of expenditure incurred on BOT Mumbra Bypass road. This issue is identical to the issue raised in grounds no.(i) (ii) and (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X
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