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TMI Blog2021 (5) TMI 824X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was created for only one quarter i.e. ₹ 12.07 crore/4 i.e. ₹ 3 crore. Reliance is placed upon the judgment of Hon'ble Supreme Court in M/s. Rotork Controls India (P.) Ltd. vs. CIT [ 2009 (5) TMI 16 - SUPREME COURT] Further, reliance was placed upon the judgment of Hon'ble Supreme Court in the case of Bharat Earth Movers vs. CIT [ 2000 (8) TMI 4 - SUPREME COURT] and M/s. Mokama Munger Highway Ltd. vs. ACIT [ 2019 (7) TMI 1816 - ITAT HYDERABAD] Thus 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 were not justified in making the disallowance. - Decided in favour of assessee. - ITA Nos. 1592 and 1593/Del/2017 - - - Dated:- 18-5-2021 - G.S. Pannu, Vice President And Kul Bharat, Member (J) For the Appellant : Amarjeet Singh, CA For the Respondents : Satpal Gulati, CIT, DR ORDER Per Kul Bharat, JM Both appeals filed by the assessee for the assessment years 2012-13 2013-14 are directed against the order of learned CIT(A)-35, New Delhi both dated 02.02.2017. 2. Both appeals were taken up together and being disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the depreciation @10% as against 25% claimed by the assessee. 7. Ld. Counsel for the assessee submitted that the issue is no more res integra. Under the identical facts, the issue is already decided in favour of the assessee vide various judicial pronouncements. Ld. Counsel for the assessee submitted that the assessee had developed Toll Road on Kurali-Kiratpur section in Punjab on BOOT basis. The contract was awarded by National Highway Authority of India ( NHAI ). The entire cost of construction was ₹ 4,41,27,05,614/- including grant from NHAI amounting to ₹ 43.92 crores. The assessee had claimed depreciation on the same @ 25% under the head intangible assets. He further submitted before the Assessing Officer it was claimed that the assessee is entitled for depreciation @ 25%. However, the Assessing Officer restricted it to 10% following the judgment of Hon'ble Allahabad High Court rendered in the case of CIT vs. Noida Toll Bridge Co. Ltd. 213 Taxman 333. He contended that the authority below erred in holding that the assessee owned the road, which ex-facie is incorrect. He submitted that the assessee is given right to collect the toll fee, such right cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. The issue under dispute is with regard to availability of depreciation to the assessee whether it is to be allowed keeping the right to collect toll fee as intangible assets or it to be treated as building or plant machinery as held in the decision relied by the Ld. CIT(A) rendered in the case of CIT vs. Noida Toll Bridge Co. Ltd. (supra). We find that there were conflicting decisions rendered by the Hon'ble High Court and Co-ordinate Benches of the Tribunal. However, the Tribunal in the case of ACIT vs. M/s. West Gujarat Expressway Ltd. (supra) after considering the conflicting views held as under:- 28. In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules. Our above view is further supported by the decision of the co-ordinate Pune bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in ITA No. 989/PN/2010 ITA No. 1105/PN/2010, wherein, the Tribunal while further relying upon another decision of the Coordinate Bench of the Tribunal in the case of 'Ashoka I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra). 9. On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned 'Right to collect Toll' was an 'intangible asset' eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act. 10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas By-pass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or depreciation on the 'Right to collect Toll', being an 'intangible asset' falling within the purview of section 32(1)(ii) of the Act following the aforesaid precedents. 7. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on 'License to collect Toll', being an 'intangible asset' falling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so. 8. In so far as the reliance placed by the CIT(A) on the judgment of the Hon'ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgment has since been altered by the Hon'ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal No. 1.1 raised by the assessee. 29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is eligible for depreciation @ 25% as claimed by the assessee. Thus, Ground of appeal No. 1 raised by the assessee is allowed. 13. At the outset, Ld. Counsel for the assessee submitted that he does not wish to raise Ground No. 2 of the appeal. Thus, Ground No. 2 raised by the assessee is not pressed hence, the same is dismissed as not pressed. 14. Ground of appeal No. 3 raised by the assessee is against the disallowance made by the Assessing Officer with regard to provision made for maintenance of the roads. 15. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity, the submissions of the assessee are reproduced hereunder:- ..That the appellant company has developed a Toll Plaza at Kurali Kiratpur Section on BOT Basis (Built, Operate and Transfer Basis). The company has to collect Toll from vehicles and as per the terms of the agreement with the employer (NHAI), Company has to execute the Major Maintenance Work of the total stretch once after every 5 years as provided in Clause No. 3.3.7 of Schedule L (Operation Maintenance) of the Concession Agreement. Only relevant pages have been attached considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the obligation. If these conditions are not met, no provision can be recognized. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation (emphasis supplied). Lastly, a reliable estimate can be made of the amount of the obligation. In short, all three conditions for recognition of a provision are satisfied in this case. Hon'ble Apex Court in the above said further gave an example of different options related to the Product Warranties. To give an example of Product Warranties, a company dealing in computers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. An analysis of the facts of the case of assessee, on the basis of finding given by the Apex Court in the above said case can be made as follows: (a) Present obligation as a result of past event The assessee company entered into an agreement with NHAI to develop a Toll Road and collect toll from the vehicles. As per the terms of the agreement with the employer (NHAI) Company has to execute the Major Maintenance work of the total stretch once in every 5 years. The assessee company has a present obligation against the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. The appeal is allowed. The judgment under appeal is set aside. The question referred by the Tribunal to the High Court is answered in the affirmative, i.e. in favour of the assessee and against the Revenue. 3. Recently, Hyderabad ITAT in the case of Mokama Munger Highway Limited (A group company of the appellant company) in ITA Nos. 1729, 2145 2146/Hyd/2018 for the Assessment Years 2013-14 to 2015-16 decided the above said issue in favour of the assessee. Hon'ble court has held as follows: 17. In the case before us, the concessionaire agreement itself specifies the O M obligations of the concessionaire under Article 17 of the Agreement and requires the assessee to prepare and maintain, a maintenance manual and to carry out the work of repairs and maintenance in accordance with the said manual. At page 59 of the paper book, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer. The relevant contents of Ld. CIT(A) is reproduced as under:- .Thus, one of the prime conditions for any deduction on account of business expenditure is that that same should have been incurred during the previous year.' In the present case, the Toll road became operational in August, 2011. No expenditure was actually incurred for any repair or maintenance in the given previous year. (The appellant has not filed any proof if any of the same.) The liability created by the agreement has not crystallized and the quantified in the previous year. A provision for a contingent liability is not allowable as a deduction (Indian Molasses Co. Pvt. Ltd. vs. CIT (1959) 37 ITR 66 (SC). I find that the appellant has quoted the decision of Hon'ble SC in the case of M/s. Rotork Controls in support of its contention. However, the facts of the case i not similar to that of the appellant hence I find the reliance of the above decision as ill founded. The appellant has tried to justify its argument by stating that it has obligation of maintenance for which it has made an estimate of expenses from current years income. I observe that such a maintenance env ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of law. Therefore, the authorities below were not justified in making the disallowance. Thus, Ground of appeal No. 3 raised by the assessee is allowed. 20. Now, coming to ITA No. 1593/Del/2017 filed by the assessee relating to Assessment Year 2013-14. The assessee has raised following grounds of appeal:- 1. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming the reduction of depreciation on Toll Road developed by the appellant company from 25% to 10% and confirming addition of ₹ 46,98,20,742/- (including addition made as Ground of Appeal No.-2) on the ground that the roads are included in the definition of Building without accepting 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 ₹ 43.92 Crores received from NHAI out of the total cost of project of ₹ 4,41,27,05,614/- for the A.Y. 2012-13 and thereby reducing the depreciation c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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