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TMI Blog2021 (5) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... g appellant's contention that the appellant company has Rights in the developed Toll Road and the appellant is eligible for depreciation @ 25% under the head Intangible Assets. 2. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming deduction of Grant of Rs. 43.92 Crores received from NHAI out of the total cost of project of Rs. 441,27,05,614/- on the ground that the grant given by NHAI is to meet part of the cost of the project and is not a contribution towards the Equity Support. 3. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming disallowance of provision made for major maintenance expenses amounting to Rs. 3,00,00,000/- on the ground that the said provision is contingent in nature and the assessee has not made any expenditure on that count during the year under consideration and such a maintenance envisaged in the Common Rupee Loan Agreement at best is merely an estimate, indefinite, likely to take place at some future date and the same has not taken place at all. 3. Facts in brief are that the case of the assessee company was taken up for scrutiny as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and also the Mumbai Bench of this Tribunal referred in the case of ACIT vs M/s. West Gujarat Expressway Ltd. in ITA Nos. 5904 & 6244/M/2012 vide order dated 15.04.2015 have ruled in favour of the assessee. He also relied on the decision of the Co-ordinate Bench of this Tribunal in the case of DCIT vs M/s. Progressive Construction Ltd. in ITA No.214/Hyd/2014 dated 07.11.2014 and also on the decision of the Indore Bench of this Tribunal in the case of M/s. Kalyan Toll Infrastructure Ltd. vs ACIT in ITA Nos. 201 & 247/Ind/2008 vide order dated 14.12.2010. 8. Ld. Counsel for the assessee also relied on the decision of Hyderabad Bench of this Tribunal in the case of M/s. Mokama Munger Highway Ltd. vs ACIT in ITA Nos. 1729, 2145 & 2146/Hyd/2018 order dated 03.07.2019. Ld. Counsel for the assessee submitted that the Assessing Officer and Ld.CIT(A) have relied upon the decision of CIT vs Noida Toll Bridge Co. Ltd. 213 Taxman 333. He submitted that in the light of judgement of Hon'ble Bombay High Court in the case of North Karnataka Expressway Ltd. vs CIT in Appeal No.499 of 2012 (supra) which the assessee had relied, the assessee is entitled for depreciation @ 25%. He therefore, contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant :- "7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:- i) Ashoka Buildcon Ltd. in ITA.No.1302/PN/09 dated 20.03.2012. ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 & 247/Ind/2008 dated 14.12.2010. iii) Dimension Construction Pvt. Ltd. in 1TA.No.222, 223, 233 & 857/PN/2009 dated 18.03.2011. iv) Ashoka Info (P) Ltd. (supra) v) Reliance Ports and Terminals Ltd. (supra). 8. The Ld. CIT(DR) appearing for the Revenue, has submitted that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 'intangible asset' falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, therefore, we find no reasons to depart from the accepted position based on the aforesaid decisions. 11. So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 in the case of ACIT vs Progressive Construction Ltd. order dated 14.02.2017 under the identical facts has held as under:- 17. "In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), the Hon'ble Supreme Court while examining the assessee's claim of depreciation on BSE Membership Card, after interpreting the provisions of section 32(1)(ii), held that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road / bridge and collect toll charges in lieu of investment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the first 5 years 60.34 2 Project Operations were started from 09.08.2011 3 Proportion of Maintenance expenditure for each year shall be 12.07 4 Being not having full year operations of the project, provision has been created only for one quarter i.e. Rs. 12.07 Crores/4 3-00 With regard to the allowability of the provision for major maintenance, we have to submit that the above said amount is not a provision, rather it is a mandatory liability imposed on the appellant by way of Concession Agreement as detailed above. This is a liability with regard to expenses which the assessee has to incur against the present receipts/ income. Case Laws supporting the contention of the appellant: l. Hon'ble Supreme Court the case of M/s. Rotork Controls India Pvt. Ltd. Vs. CIT (314 ITR 0062 - SC) has given the following findings with regard to a provision: "FINDINGS: What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e including warranty costs has to be fully provided for. When Valve Actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is most appropriate because it fulfills accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard being had to the accepted 3/5 principles of commercial practice and accountancy. It is not as if such deduction is paid; permissible only in case of amounts actually expended or (ii) Just as receipts, though not actual receipts but accrued due are brought in for income tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. ............. Applying the above-said settled principles to the facts of the case at hand we are satisfied that provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 314 ITR 55 (Del)] 2. Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt. Ltd. Vs. Commissioner of Income tax [281 ITR 469 (Delhi)] 3. DCIT Vs. First Source Solution Ltd. [168 DTR (Mumbai)(Trib) 161] Prayer: In view of above submissions, it is submitted that all the conditions for recognizing a liability for the purposes of provisioning- which relates to present obligation arising out of obligating events, involvement of outflow of resources and which involves reliable estimation of obligation stands satisfied and making a provision from the current year's income fulfills accrual concept as well as the matching concept. Further, the project may be terminated, if the appellant defaults or is in material breach of any of the Project Agreements including maintenance. Hence, the disallowance of Rs. 3.00 Crores made on account of Provision for Major Maintenance may kindly be allowed to the assessee as it is." 16. Per contra, Ld. CIT DR opposed the submissions and supported the orders of the authorities below. 17. We have heard the rival contentions and perused the material available on record. Ld.CIT(A) has decided the issue against the assessee upholding the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) I uphold the order of the AO. Ground no. 3 is dismissed." 18. During the course of hearing, Ld. Counsel for the assessee took us through the chart wherein it was mentioned that the maintenance expenditure to be incurred in five years was Rs. 60.34 crore, project operations were started on 09.08.2011 and estimation of maintenance expenditure was estimated to Rs. 12.07 crores and being not having full year operations of the project, provision was created for only one quarter i.e. Rs. 12.07 crore/4 i.e. Rs. 3 crore. Reliance is placed upon the judgement of Hon'ble Supreme Court in M/s. Rotork Controls India (P.) Ltd. vs CIT reported in 314 ITR 0062 [2009] [SC]. Further, reliance was placed upon the judgement of Hon'ble Supreme Court in the case of Bharat Earth Movers vs CIT reported in 245 ITR 428 [2000] [SC] and also the decision Hyderabad Bench of Tribunal in the case of M/s. Mokama Munger Highway Ltd. vs ACIT (supra). 19. In the light of the above case laws as relied upon by the Ld. Counsel for the assessee, we are of the considered view that the claim of provision as made by the assessee is in accordance with settled principal of law. Therefore, the authorities below we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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