Income Tax Appellate Tribunal – Hyderabad
Mokama Munger Highway Limited , … vs Dy. Commissioner Of Income Tax , … on 3 July, 2019 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad. IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Before Smt. P. Madhavi Devi, Judicial Member AND Shri S.Rifaur Rahman, Accountant Member ITA Nos.1729, 2145 & 2146/Hyd/2018 (Assessment Years: 2013-14 to 2015-16) M/s. Mokama Munger Vs Asstt. Commissioner of Highway Ltd Hyderabad Income Tax, Circle 16(2) PAN: AAGCM5878F Hyderabad
(Appellant) (Respondent) For Assessee : Shri D.V. Anjaneyulu For Revenue : Shri Y.V.S.T. Sai, (CIT) DR Date of Hearing: 16.04.2019 Date of Pronouncement: 03.07.2019 ORDER

Per Smt. P. Madhavi Devi, J.M.
These are assessee’s appeals for the A.Ys 2013-14,
2014-15 & 2015-16 against the order of the CIT (A)-4, Hyderabad,
dated 14.06.2018 & 17.9.2018 respectively.
2. Brief facts of the case are that the assessee company,
a Special Purpose Vehicle, formed for construction of Highway
awarded by NHAI on Build, Operate and Transfer basis (in short
BOT), filed its return of income for the A.Y 2013-14 on 30.09.2018
declaring a loss of Rs.13,83,79,935/-. Initially, the return was
processed u/s 143(1) of the Act and subsequently, on selection for
scrutiny under CASS, notices were issued u/s 143(2) and Page 1 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
142(1) and duly served on the assessee company. In response to
the said notices, the assessee filed the information called for and
on perusal of the same and particularly the schedule of fixed
assets, the AO observed that the assessee company claimed
depreciation of Rs.18,16,15,643/- on BOT projects @ 5% (at half
the rate as being put to use for less than 180 days) on WDV of
Rs.368,27,61,649/-. The AO observed that there are several
disputes on the allowability of depreciation on the expenditure
incurred for development and construction of roads/highways on
BOT basis and that to put an end to all the disputes, the CBDT
has issued circular No.9/2014, dated 23.04.2014 clarifying on the
issues regarding the allowability of the depreciation on projects
developed under BOT. He observed that as per the CBDT circular,
the expenditure has to be amortized evenly over the period of
concessionaire agreement after excluding the time taken for
creation of such facility from the date of commencement etc. 3. Further, from the information submitted by the
assessee, the AO noted that the project has commenced its
operation in the financial year 2012-13 only and the agreement
period of the project is upto 14.05.2026. Therefore, the total
period of the project from the commencement day (CDD)
20.1.2013 is 4863 days and during the relevant financial year, the
assets were put to use only for 71 days. He therefore, worked out
the proportionate expenditure to be amortized for the relevant
financial year at Rs.5,37,68,472 and the balance of the amount
claimed as depreciation i.e. (Rs.18,16,15,643 – Rs.5,37,68,472)
Rs.12,78,47,171/- was disallowed and brought to tax.
Page 2 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
4. Further, on verification of the P&L A/c, the AO noted
that the assessee has debited an amount of Rs.1,11,47,486/-
towards provision for major maintenance. On further verification,
he noted that this expenditure was not actually incurred during
the year but only a provision is being made for future
maintenance of BOT projects. The assessee was therefore,
required to substantiate its claim as per the provisions of the I.T.
Act. In response to the same, the assessee produced the details of
major maintenance reserve and the AO noted that the assessee
has not actually incurred the said expenditure, but a mere
provision is created. The assessee had submitted that as per the
agreement with NHAI, a BOT project shall be maintained for a
period of 5 years and subsequently, if any major repairs occurs, it
has to be borne by the assessee company and so a provisions is
being created for the expenditure to be incurred towards repair
and maintenance of the project after the period of 5 years. The AO
observed that as per the provisions of the I.T. Act, only the
expenditure incurred during the year, relevant to impugned A.Y is
allowable and that expenditure relatable to the other years and
not to the financial year relevant to the impugned A.Y, is not
allowable. Therefore, he disallowed the provision and brought it to
tax. Aggrieved, the assessee preferred an appeal before the CIT
(A), who confirmed the order of the AO and the assessee is in
second appeal before us, by raising the following grounds of
appeal:
“1. The order of Ld. CIT(A) confirming the AO’s Order is erroneous in law, contrary to facts, probabilities of the case and against the principles of equity and natural justice.

2. The Ld. CIT(A) erred in law not considering the additional ground of appeal filed on 12/06/20 18 Page 3 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
though the same was admitted and was mentioned in the order and failed to appreciate the fact that company is having exclusive right, license and authority to Operate and Maintain the road under BOT contract for a period of 15 years and the same partakes the nature of intangible asset and is eligible to claim depreciation U/s 32( I )(ii) @ 25% on expenditure incurred for construction of road as held by Hon’ble jurisdictional Tribunal in ITA No.1845/Hyd/2014 dated 14.02.2017 Progressive Constructions Ltd vs ACIT and by Pune Bench of Hon’ble ITAT in ITA No. 1452/Pune/2014 dated 30.06.2017 in M/s Ashoka Infrastructure Ltd v ACIT.

3. Ld. CIT(A) erred in law in upholding the disallowance of the provision for periodic maintenance of Rs.
1,11,47,4861- by stating that appellant has not actually paid these expenses and it is only a provision and ignoring that reserve was created under mandate agreement in between the principal i.e., NHAI and concessionaire and also there is no power 1 right except to mandate the NHAI terms and therefore, it is a crystallized liability and is allowable u/s 37 of the Act as held in r20091 3 14 ITR 62 (SC) Rotork Controls India P Ltd vs CIT and r20161 381 ITR 469 (Delhi) Aggarwal and Modi Enterprises (Cinema Project) Co Pvt Ltd V CIT.

4. For these and other reasons that may be urged at the time of hearing, the appellant prays the Honorable Tribunal to kindly delete the addition made by AO and sustained by CIT(A)”.
5. The learned Counsel for the assessee, Shri D.V.
Anjaneyulu, reiterated the submissions made by the assessee
before the authotities below and submitted that the issue of
depreciation on the roads is covered by the decision of the Special
Bench of the Tribunal in the case of Progressive Constructions
Ltd, reported in (2018) 161 DTR 289, wherein it was held that the
expenditure incurred by the assessee for construction of roads
under BOT contract with the Govt. of India, has given rise to an
intangible asset as defined under Explanation 3(b) r/w section Page 4 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
32(1)(ii) of the Act and hence the assessee is eligible to claim
depreciation on such asset at the specified rate.
6. The learned Counsel further placed reliance upon the
following other decisions in support of its claim:
i) Ashoka Infrastructure Ltd vs. ACIT reported in (2018) 163 DTR 321 (Pune Trib.);
ii) Dy. CIT vs. Godavari Toll Bridge (P) Ltd reported in (2018) 163 DTR (Visakha Trib.) 17.
iii) Pr.CIT vs. Tulip Hospitality Service Ltd reported in (2019) 411 ITR 595 (Bom.). 7. The learned DR, on the other hand, supported the
orders of the authorities below and placed reliance upon the
decision of the Hon’ble Bombay High Court in the case of (i) West
Gujarat Expressway Ltd, reported in (2017) 82 Taxmann.com 224
(Bom.) and (ii) North Karnataka Expressway Ltd reported in 51
Taxmann.com 214.
8. Having regard to the rival contentions and the material
on record including the written submissions of both the parties
and caselaw relied upon by them, we find that the only issue in all
of these three appeals is “whether the assessee has got a right
over the toll road built by him and being maintained by him and
the right to collect toll fees over the same in accordance with the
concessionaire agreement is an intangible asset and whether
depreciation thereon is allowable u/s 32 of the I.T. Act”?. The
learned DR has relied upon the decision of the Hon’ble Bombay
High Court in the case of North Karnataka Expressway Ltd and
CIT vs. West Gujarat Expressway Ltd (Supra) whereas the learned Page 5 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
Counsel for the assessee has relied upon the decision of the
Special Bench of the Tribunal in the case of Progressive
Constructions Ltd (Supra) and also the decisions of the
Coordinate Bench of the Tribunal at Pune in the case of Ashoka
Infrastructure Ltd vs. ACIT and the decision of ITAT
Visakhapatnam in the case of Dy. CIT vs. Godavari Toll Project (P)
Ltd. Let us, therefore, find the applicability of these decisions to
the facts of the case before us.
9. We find that the Hon’ble Bombay High Court, in the
case of North Karnataka Expressway Ltd, was considering the
case of an assessee who had claimed to be the owner of the roads
constructed by it and has claimed depreciation thereon u/s 32 of
the I.T. Act. The Hon’ble Bombay High Court has held that the
assessee is not the owner of the roads and therefore, is not
entitled to the claim of depreciation thereon. However, as to
whether the assessee is eligible for depreciation on the ‘intangible
asset’ has been left open by the Hon’ble High Court. For the sake
of ready reference, the relevant portion is reproduced hereunder:
“24. Then, the Commissioner discussed the claim on merits. He found that the ownership of the road cannot be claimed by the Assessee. The claim of depreciation is not based on treating it as an intangible asset with a right to use the asset without being actual owner thereof. In that regard, the Commissioner referred to the orders passed by the Bombay Bench of the Income Tax Appellate Tribunal in the case of Reliance Port and Terminals Ltd. and that of the Delhi Bench of the Tribunal dated 19th December, 2008 in the case of Noida Toll Bridge Company and held that firstly, the Assessing Officer did not apply his mind at all and secondly, the toll roads are not owned by the Assessee and he cannot claim any depreciation thereon”.
Page 6 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
10. This decision of the Hon’ble Bombay High Court was
followed by the subsequent Bench of the Hon’ble High Court in
the case of West Gujarat Expressway Ltd to hold that the assessee
therein was not the owner of the roads and therefore, cannot
claim depreciation u/s 32 of the Act. However, we find that these
two cases were considered by the Coordinate Bench of the
Tribunal at Pune in the case of Ashoka Infrastructure Ltd vs.
ACIT reported in (2017) 189 TTJ Pune 749 and in the following
paragraphs it was held as under:

“19. We find that besides the order of Tribunal in assessee‟s own case in assessment year 2007-08, this issue further arose before the Mumbai Bench of Tribunal in ACIT Vs. West Gujarat Expressway Ltd. (supra), which in turn, had referred to the ratio laid down by the Hon‟ble Bombay High Court in Karnataka Expressway Ltd. Vs. CIT (supra) and it was decided the issue relating to the allowability of depreciation on toll road, had left open, the issue of allowing depreciation on intangible asset being license granted to the assessee to collect toll over the road for particular period and it was held as under:-

“17. We have considered the rival contentions. So far as the reliance of the Ld. A.R. on the article/clause 38.4 of the concession agreement between the assessee and the NHAI is concerned, we find that the identical clause was also there and relied upon in the case of “North Karnataka Expressway Ltd. vs. CIT” which has also been reproduced in para 8 of the order of the Hon‟ble Bombay High Court (supra). The relevant part of the order for the sake of convenience is reproduced as under:

“8] The appellant claimed that it was the owner of the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs.59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National Highway Authority of India and the clause therein that ‘for the purpose of claiming tax depreciation, the property representing the capital investment made by the concessionaire shall be deemed to be acquired and owned by the concessionaire’.”
(emphasis supplied by us) Page 7 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
18. The Hon‟ble Bombay High Court, however, after discussing the provisions
of National Highway Act, 1956 and National Highway Authorities of India Act,
1988 and various case laws including that are strongly relied upon by the Ld.

A.R. e.g. “Mysore Minerals Ltd. vs. CIT” reported in (1999) 239 ITR 775 SC, “CIT vs Podar Cement Pvt. Ltd. & others” reported in (1997) 226 ITR 625 SC
and “CIT vs. Noida Toll Bridge Company Ltd.” (Allahabad HC) (supra), has
held that the national highways vest in the Union of India and if the government
for the purpose of development and maintenance of the whole or any part of the
national highways enters into an agreement with private parties or that merely
because the national highway is built, maintained, managed and operated by
private entities, in no way affects the vesting of the national highway in the
Union and that does not dilute or take away the ownership of the highway or its
vesting in the Union. After discussing the various decisions of the Hon‟ble
Supreme Court and of the Hon‟ble High Courts, the contention of the assessee
in that case that it was the owner of the toll road has been rejected by the
Hon‟ble Supreme Court. Hence, the clause 38.4 relied upon by the assessee in
the present case will not be of any help to the assessee in this regard.

19. However, so far as the alternative claim of the assessee that if the assessee
is not found as owner of the toll road, his claim of depreciation be considered in
relation to investments made as falling under the other categories of assets, is
concerned, we would like to revert to the decision of the Hon‟ble Bombay High
Court in “North Karnataka Expressway Ltd. vs. CIT” (supra). in this respect.
We find the Hon‟ble Bombay High Court, in para 24 of the said decision, has
categorically observed that the claim of depreciation in the said case was not
based on treating it as an intangible asset with a right to use the asset without
being actual owner thereof. The issue under consideration was that whether the
toll roads are not owned by the assessee and that he cannot claim any
depreciation thereupon. Hence, the Hon‟ble Bombay High Court has not
discussed the issue relating to the claim of depreciation on the license for right
to collect the toll as intangible asset. Further, the Hon‟ble Bombay High Court
in para 39 of the decision (supra) has observed that as per the provisions of
National Highway Act, 1956 and National Highway Authorities of India Act,
1988, the ownership of the toll road vests in Union , however, the term owner as
appearing in the Income Tax Act, 1961 has been defined widely and broadly for
the purpose of the provisions of the Income Tax Act so as not to allow anybody
to escape the provisions thereof by urging that he has a limited right or which is
not akin to ownership, therefore his income should not be brought to tax;
Similarly, if he can claim any deductions from his income which is comprising
of profit and gain from his business, then, that deduction can be availed by him.
It is for that limited purpose that the term „onwer‟ is defined in this manner
in Income Tax Act, 1961.

The above observations of the Hon‟ble Bombay High Court reveal that for the
purpose of claiming deduction under Income Tax Act, the term „owner‟ as
defined under the Income Tax Act can be looked into. However, that cannot
control, leave alone or overreach the National Highway Act, 1956 or the
National Highway Authorities of India Act, 1988. The Hon‟ble Bombay High
Court further, in para 47 of the said order, has observed that the assessee can
definitely claim depreciation on the investments. He has definitely invested in
the projects of construction development and maintenance of the National Page 8 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
Highways and such of the assets in the form of building, plant & machinery etc.
The claim for depreciation can be validly raised and granted. That the Hon‟ble
High Court in the said case was only concerned with the claim on the land or a
road itself. Further, in concluding para 52 of the order, the Hon‟ble Bombay
High Court has categorically clarified that the assessee‟s claim for
depreciation in respect of the building, plant & machinery and falling within
the purview of sub section (1) of section 32 of the Income Tax Act, 1961, if
considered and granted, shall not be affected by the decision of the Hon‟ble
Bombay High Court.

20. A careful reading of the entire decision of the Hon‟ble Bombay High Court
and in the light of the various observations made in judgment as discussed
above, it is very clear that the Hon‟ble Bombay High Court was concerned
about the issue as to whether the assessee can claim itself as the owner of the
toll road and the Hon‟ble Bombay High Court has held that in view of the
express provisions of the National Highway Act, 1956 and National Highway
Authorities of India Act, 1988 the Union is the absolute owner of the National
Highways as well as the toll roads built upon the land/National Highways in
agreement and through the private parties and such private parties cannot
claim themselves to be the owner of the toll road. However, the Hon‟ble
Bombay High Court has left upon the issue relating to the claim of
depreciation, if otherwise eligible under the other provisions of the Income Tax
Act.

21. The Ld. A.R., before us, has put the alternative claim that in view of the
observations of the Hon‟ble Bombay High Court either the investments made
by the assessee be treated under the asset building, plant & machinery and
depreciation be granted accordingly or the same be treated as intangible asset
on the ground that the assessee has been granted license for right to collect the
toll tax for a fixed period. Now the question before us is whether the assessee
at this stage the can raise the alternative contention for claim of allowance of
depreciation on the license authorizing him to collect the toll being an
intangible asset or treating the project as plant & machinery?”.

22………………………..

The present case is not a case where the assessee had not claimed any
deduction on account of depreciation. The assessee has very much claimed the
deduction of depreciation. However, he has claimed the same treating itself to
be the owner of the toll road. Such a claim of the assessee has been allowed in
the previous assessment years. The assessee was under bonafide belief that he
has correctly claimed the deduction of depreciation on the toll road in view of
the consistent findings of the Tribunal on this issue. However, due to the change
of legal position in view of the law laid down by the Hon‟ble Bombay High
Court (supra), the assessee cannot be treated as the owner of the toll road. But
it is not disputed that the assessee has made investments on the project and he
is entitled to claim deductions in this respect. The claim of deduction has been
very much put by the assessee in the return of income but wrongly treating itself
as owner of the road which claim as observed above was under bonafide belief
and in view of the settled legal position as was there at the time of putting the
claim. Even the AO has also observed in the assessment order that it is a fact
that the assessee company has incurred huge expenditure on the said project Page 9 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
which cannot be treated as revenue expenditure allowable in one year as the same has resulted into providing enduring benefit to the assessee company, hence, the said amount would be eligible for amortizationfor the period of the concession agreement as it was allowed in the A.Y. 2007- 08 and 2008-09. It is also a fact that the said amortization of the expenses has not been accepted by the Tribunal and the assessee in the earlier assessment years has been granted deduction as depreciation treating the road as a capital asset.

23. In view of the above facts, it is not disputed or contested by the Revenue that the assessee is not entitled to any deduction. The only issue in dispute is as to under what head/provision the deduction is to be allowed to the assessee. The Hon‟ble Jurisdiction High Court of Bombay in the case of “Balmukund Acharya vs. DCIT” reported in (2009) 221 CTR 440 (Bom.) has held that the Hon‟ble Apex Court and the various High Courts have ruled that the authorities under the Act are under obligation to act in accordance with law. Tax can be collected only as provided under the Act. If the assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes dues are collected. While holding so, the Hon‟ble Bombay High Court has relied upon the various decisions e.g. Koshti vs. CIT (2005) 193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj), C.P.A. Yoosuf vs. ITO(1970) 77 ITR 237 (Ker.), CIT vs. Bharat General Reinsurance Co. Ltd. (1971) 81 ITR 303 (Del), CIT vs. Archana R. Dhanwatey (1981) 24 CTR (Bom) 142 : (1982) 136 ITR 355 (Bom)”.

11. The Coordinate Bench at Pune also referred to the
decision of the Mumbai Bench and also considered the CBDT
circular No.9/2014 dated 23.4.2014 which has been considered
by the Coordinate Bench of the Tribunal in the case of West
Gujarat Expressway Ltd in the following paragraphs:
” 20. The Mumbai Bench of Tribunal then, referred to the circular issued by CBDT vide No.9/2014, dated 23.04.2014 and observed as under:-

24. Having held that the assessee is entitled to the deduction on the investments made by him, we now have to discuss as to under what head the said deductions can be claimed by the assessee. It is undisputed that in view of the agreement with the NHAI, the assessee has been given the right to develop and maintain the toll road and also the right to collect toll for a specified period without having actual ownership over the said toll road. The assessee has an express right/license for recovery of toll fee to recoup the expenditure. The said right brings to the assessee an enduring benefit during the period of agreement. This fact has also been discussed by the CBDT in circular No.09/2014 dated 23.04.14. The para 4 of which, for the sake of convenience, is reproduced as under:

“There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative Page 10 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
expenses) during the construction period. Further, expenditure incurred by the
assessee on such BOT projects brings to it an enduring benefit in the form of right to
collect the toll during the period of the agreement. Hon‟ble Supreme Court in the case
of Madras Industrial Investment Corporation Ltd. vs. CIT in 225 ITR 802 allowed
spreading over of liability over a number of years on the ground that there was
continuing benefit to the company over a period. Therefore, analogously, expenditure
incurred on an infrastructure project for development of roads/highways under BOT
agreement may be treated as having been made/incurred for the purposes of business
or profession of the assessee and the same may be allowed to be spread during the
tenure of concessionaire agreement.”
25. Having discussed the above stated factual position, the CBDT has directed to treat
the above expenditure as revenue expenditure and to amortize the same over the
period of the agreement as allowable business expenditure. The assessee, however,
has claimed that the same is a capital expenditure and it is entitled to deductions over
the investments made as depreciation. A perusal of the above reproduced para 4 of the
circular reveals that it is not disputed even by the Revenue Authorities that in lieu of
the investments made in the project, the assessee has been given right/license to
collect the toll. It has also been specifically mentioned that it brings an enduring
benefit in the form of right to the assessee. Having admitted the above position by the
Revenue, now the question to be considered is whether any depreciation is allowable
on such a right?”

21. The Tribunal allowed the claim of assessee under section 32(1)(ii) of the
Act i.e. depreciation on intangible assets holding as under:-

“26. As per section 32(1)(ii) depreciation is allowable on intangible assets
like licenses, franchises or any other business or similar commercial rights of
similar nature. The relevant part of the section for the sake of convenience is
reproduced as under:
“Depreciation.
32. (1) [In respect of depreciation of –
(i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-
how, patents, copyrights, trade marks, licences, franchises or any other
business or commercial rights of similar nature, being intangible assets
acquired on or after the 1st day of April, 1998, owned, wholly or partly, by
the assessee and used for the purposes of the business or profession, the
following deductions shall be allowed – ] …….”
(emphasis supplied by us)
27. It is not disputed that the assessee has been given license/commercial right over the
project to receive the toll. The assessee may not be the owner of the toll road, but he,
certainly, is owner in possession of the right to collect the toll. The said right has been
given to the assessee for a specified period with enduring benefit. It is also not disputed
that on the expiry of the time period of the agreement, the said right of the assessee will
cease to have effect which means it slowly will depreciate to the nil value. As per the
provisions of the Income Tax Act, especially under section 32(1)(ii), the assessee is
entitled to claim of depreciation on such type of rights. Such rights have been described
as intangible assets under the Act and are eligible for claim of depreciation.
Page 11 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
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 Co-ordinate Bench of the Tribunal in the case of „Ashoka Infraways Pvt. Ltd. Vs.
ACIT‟ in ITA No.185 & 186/PN/2012 dated 29.04.2013, has held in clear terms that
the claim of the assessee for depreciation on “licence to collect toll” being an
„intangible asset‟ falling within the scope of section 32(1)(ii) of the Act is liable to be
upheld. The relevant part of findings of the Tribunal for the sake of convenience is
reproduced as under:

“6. At the time of hearing, it was a common point between the parties that an
identical issue has been considered by the Pune Bench of the Tribunal in the
case of Ashoka Infraways Pvt. Ltd. vs. ACIT vide ITA Nos. 185 &
186/PN/2012 dated 29.04.2013. As per the Tribunal following 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 agreement,
assessee was awarded a work to construct a road by using own funds and the
expenditure incurred was allowed to be reimbursed by permitting the
assessee a concession to collect toll/fees from the motorists using the road.
Therefore, it could not be said that such a right was within the purview
of section 32(1)(ii) of the Act. However, the Ld. CIT(DR) has not contested
the factual matrix that identical issue has been considered by our coordinate
Benches in the case of Ashoka Buildcon Ltd. (supra), Kalyan Toll
Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and
Ashoka Info (P) Ltd. (supra).
Page 12 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
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, assessee was to transfer the said infrastructure facility to the
Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the
facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of
charge, assessee was granted a Right to collect Toll’ from the motorists using the said infrastructure facility
during the specified period. The said Right to collect the Toll’ is emerging as a result of the costs incurred by
the assessee on development, construction and maintenance of the infrastructure facility. Such a right has
been adjudicated by the Tribunal in the aforesaid precedents to be in the nature 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. Secondly, section 32(1)(i1) permits allowance of depreciation on assets specified therein being ‘intangible assets’ which are wholly or partly owned by the assessee and used for the purposes of its business.
The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective
we find no justification for the plea raised by the Revenue before us.

12. In the result, we affirm the order of the CIT(A) in holding that the assessee was eligible for depreciation on
the „Right to collect Toll’, being an „intangible asset’ falling within the purview of section 32(1)(i1) of the Act
following the aforesaid precedents.”

13. 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.
14. In so far as the reliance placed by the CIT(A) on the judgement 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 judgement 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 32(1) (ii) of the Act.”
Page 13 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
22. The Tribunal in ACIT Vs. West Gujarat Expressway Ltd. (supra) further referring to
the ratio laid down by the Hon‟ble Bombay High Court held that since the assessee is not
the owner of toll road, but has been given the right to develop, maintain and operate the
toll road and to further collect the toll for the specified period, then this right is an
intangible asset falling under section 32(1)(ii) of the Act and the alternate contention of
assessee that the project be treated as plant & machinery and depreciation be allowed,
was rejected vide para 30 of the order. Further, vide para 31, the Tribunal considered the
contention of Revenue that investment made by the assessee be treated as revenue
expenditure and be amortized for the period of agreement, was rejected holding that the
investment made under the circumstances could not be said to be revenue in nature but
was capital in nature, on which the assessee was entitled to claim the depreciation. Para
31 of the order reads as under:-

“31. So far as the contention of the Revenue that the investment made by the assessee be
treated as a revenue expenditure and be amortized for the period of the agreement, is
concerned, we do not find any force in the same on the ground that not only the AO but
also the CBDT in the circular (supra) as discussed above has admitted that the license of
right to collect toll free has been given to the assessee in lieu of the investments made and
that such a right brings to the assessee an enduring benefit. The investments made under
such circumstances cannot be said to be of revenue in nature but, as discussed above, are
of capital in nature. The assessee, thus, is entitled to claim depreciation on such type of
capital asset.”

23. In the totality of the above said facts and circumstances before us, where the claim of
assessee was depreciation on the right to collect toll being infrastructure and not on the
toll road, where the cost incurred for development and construction of infrastructure
facility was a right in the nature of intangible asset falling within purview of section
32(1)(ii) of the Act, the assessee was entitled to depreciation on such intangible asset. The
assessee undoubtedly, had expended on development, construction and maintenance of
infrastructure facility for a specified period out of its own funds and after the end of
specified period, the assessee was to transfer the said infrastructure facility to the
Government of Maharashtra free of charge. In consideration of developing, constructing
and maintaining the facility for specified period and thereafter, transferring it to the State
Government, the assessee was granted the right to collect toll from motorists whoever uses
the said infrastructure facility during the specified period. The said right to collect toll was
on account of assessee incurring the cost towards development, construction and
maintenance of infrastructure facility, which was treated by the assessee as its intangible
asset and on which, it claimed the depreciation under section 32(1)(ii) of the Act.
Following the precedent referred to above, the assessee is entitled to claim the said
deduction on intangible asset, in view of section 32(1)(ii) of the Act. The reason for which
the said depreciation which was earlier allowed by the Tribunal in the case of assessee
itself for assessment year 2007-08 and was allowed by the Assessing Officer in the order
passed under section 143(3) of the Act relating to assessment year 2006-07, was denied by
the Assessing Officer as the appeals were pending against the order of Tribunal is not
correct approach. Further, the CIT(A) has relied on the CBDT circular dated 23.04.2014,
wherein the CBDT has laid down that instead of depreciation on the cost incurred by the
assessee, the said cost should be amortized over a specified period and allowed in the
hands of assessee. However, the expenditure incurred by the assessee is not revenue in
nature and the same cannot be amortized over the period for which the assessee can
collect the toll; the right to collect toll is capital expenditure incurred by the assessee and
consequently, the assessee is entitled to claim depreciation on such intangible assets as
provided under section 32(1)(ii) of the Act. Accordingly, we hold s. The assessee is thus, Page 14 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
entitled to its claim. Thus, the second part of the order of Assessing Officer in amortizing
the expenditure over the period of facility and allowing the same stands reversed. The
Assessing Officer is directed to allow the claim of assessee of depreciation on such
intangible asset under section 32(1)(ii) of the Act.

24. Now, coming to the second issue raised in the present appeal i.e. estimation of toll
receipts in the hands of assessee. During the course of search proceedings carried out in
the Ashoka Group of cases, a diary was found from the possession of assessee, wherein
admittedly, unaccounted receipts were noted for the period 25.12.2009 to 19.04.2010. In
this regard, statement of one employee Ms. Dipti Lokam was recorded, who was
maintaining the said diary in the office premises. She admitted that the said diary was
being written by her and was rough cash book for period 25.12.2009 to 19.04.2010. She
also confirmed that the cash entries were not fully recorded in regular books of account of
group. She further reiterated that the cash reflected in the said rough cash book was not
part of official cash book. As regards toll collection, she stated that some portion of cash
collected from Toll Nakas was not deposited in the bank which lead to generation of
unaccounted cash. Further, on the date of search also, search team furnished SMSes
relating to Toll Nakas from the mobile of Shri Jayesh Dungarwal to the mobile of the
Director of the company Shri Sunil B. Raisoni. In the statement recorded on 20.04.2010 at
the assessee‟s Pune office, Shri Jayesh Dungarwal had confirmed that he was working
with the assessee and he further stated that he was supervising work of collection of toll
from Toll Nakas situated at various places and also confirmed that Ms. Dipti Lokam was
receiving cash from various Toll Nakas. In the SMS No.43 and 44 received on the mobile
of Shri Sunil B. Raisoni, which was dated 19.04.2010, the amount of toll collected was
mentioned and Shri Jayesh Dungarwal stated that the said contents represent the toll
collection from various places and were reported to Shri Sunil B. Raisoni by him. He was
confronted with the cash receipt of Rs.8.64 lakhs shown as toll collection from Shirur Toll
Naka on 19.04.2010 as against cash receipt of Rs.10.35 lakhs found from Ms. Dipti Lokam.
On physical verification with regard to difference of Rs.1.71 lakhs, Shri Jayesh Dungarwal
replied that the Director Shri Sunil B. Raisoni used to give instructions as to how much
amount was to be accounted for in the books of account, the balance amount of cash
remained with the cashier. He re-confirmed about the instructions of the Director to report
less cash vis-à-vis actual cash received from Toll Nakas. The assessee during the course of
assessment proceedings furnished the statement showing the difference in toll collection as
per seized note and books and as per regular books of account for the period 25.12.2009 to
19.04.2010. As per the assessee‟s own statement, total amount reflected in the seized
Annexure was Rs.10.98 crores as against Rs.10.48 crores recorded in the regular books of
account. The Assessing Officer noted that the ratio of unrecorded to recorded toll
collection was about 4.79%. The assessee before the authorities below claimed that out of
unrecorded toll collection, certain amount was utilized for unrecorded expenses and
according to the assessee, about 3.39% of the total unrecorded collection of 4.79% was
spent on the toll collection activities, thereby, excess unrecorded toll collection was 1.40%.
The claim of assessee was rejected in the absence of any documentary evidence to establish
the incurring of unrecorded cash for any expenditure. The CIT(A) further took note of
expenditure variations in the seized documents which were incurred on illegal payments
and he held that the same were in any case not allowable under the Income Tax Act.

25. Another related contention of assessee before the authorities below was that the seized
documents related to limited period pertaining to assessment years 2010-11 and 2011-12
and hence, no addition was required to be made on this account for earlier years. The said
contention of assessee was rejected since the assessee was collecting the toll from
06.07.2005 onwards and it was held that the assessee was adopting this practice of under-
Page 15 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
reporting of toll collection since the beginning. The Assessing Officer and the CIT(A) had
estimated the income @ 5% of total collection as unrecorded for assessment years 2006-07
to 2011-12. The Assessing Officer has included the said additional income as income from
other sources. However, the CIT(A) allowed the claim of assessee that since the amounts
were admittedly collected, was on account of toll collection and where the assessee has no
other business activity, then the same is to be assessed under the head “Income
from business‟. Further, directions were given by the CIT(A) to give set off of
current/unabsorbed losses/unabsorbed depreciation.

26. The first contention of the assessee before us is that in the absence of any evidence
found during the course of search in respect of receipts in the earlier years, no addition
can be made in the hands of assessee. In this regard, he had placed reliance on series of
decisions of Pune Bench of Tribunal. He further placed reliance on the ratio laid down by
the Hon‟ble Bombay High Court in the case of CIT Vs. M/s. Thakkar Popatlal Velji Sales
Ltd. in Income Tax Appeal No.2266 of 2013, judgment dated 29.03.2016, which has
confirmed the ratio laid down by the Pune Bench of Tribunal. The claim of Revenue in the
said decision was that where the register evidencing the sales were found for certain
period, the Revenue was entitled to extrapolate the sales recorded therein for the entire
assessment year. The Hon‟ble High Court vide para 9 held as under:-

“9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence
found during search is concerned, this Court in All Cargo Global Logistics Ltd. (supra)
had negatived the revenue‟s submission before it that the assessment under section
153A of the Act is not to be restricted only to the incriminating material found during the
course of search but would extend to other material also. Therefore in the facts of present
case this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd.
(supra) in favour of the respondent-assessee inasmuch as it restricts the assessment to be
made only to the incriminating material found during the course of search. The reliance
upon the decision of the Supreme Court in H.M. Esufali H.M. Abdulali (supra) is
inappropriate. This is so as it was passed under the sales tax law and it proceeded the
basis of best judgment assessment i.e. disregarding the assessee‟s books of account. It is
not so in this case.”

27. On the other hand, the learned Departmental Representative for the Revenue has
placed reliance on the ratio laid down by the Hon‟ble High Court of Delhi in CIT Vs.
Chetan Das Lachman Das (supra), wherein it has been held that seized material was found
to show that the assessee had been indulging in off records transactions. In the facts of the
case before the Hon‟ble High Court certain documents were found and the partners of
assessee firm had admitted to the practice of suppressing the profits. The seized papers
also reflected different rates when compared with the sale bills issued and these findings
were not denied by the assessee. The Hon‟ble High Court observed that where on
comparison of sale bills with the seized papers, corroborated the suppression of income
and it was held that the inference could be drawn that similar transactions were
throughout the period of six years covered by section 153A of the Act.

28. In the facts of the present case also, admittedly, the Director of the assessee company
has admitted to the unaccounted toll receipts recorded in the diary seized from the
premises of assessee. The case of assessee before us is that the addition, if any, is to be
limited to the period for which the diary is found. The learned Authorized Representative
for the assessee was confronted with the extrapolation application for financial year 2009-
10, wherein it was admitted before the CIT(A) that such practice of recording cash receipts
and suppressing part of it was from May, 2009. The learned Authorized Representative for Page 16 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
the assessee further contended that no extrapolation for earlier years could be made and
even for the year of search, except for financial year 2009-10 and for the next year upto
19.04.2010. The learned Authorized Representative for the assessee further pointed out
that Pune Bench of Tribunal in ITO Vs. Vikrant Happy Homes Pvt. Ltd. (supra) had
referred to the ratio laid down by the Hon‟ble High Court of Delhi in CIT Vs. Chetan Das
Lachman Das (supra) and pointed out that in the said case, the issue that evidence of one
year cannot be utilized for another year, was not raised and consequently, the estimation of
income was made for search period. The Tribunal considering the said facts and
arguments of the assessee before it, held that the said decision was not applicable to the
facts of the said case observing as under:-

“4.6 We find in the case of CIT v. Chetan Das Lachman Das [211 Taxman 61 (Delhi)
(H.C.)] wherein there was a search on the assessee and certain evidences were found
which indicated that the assessee was suppressing its income. On the basis of the evidences
found, the Assessing Officer estimated sales for the 6 years. The said addition was deleted
by the Tribunal on the ground that no evidence was found in the course of search. Hon’ble
Delhi High Court held that the decision of Tribunal that no seized material was found was
not correct since evidences were clearly found indicating suppression of income.
Accordingly, Hon’ble Delhi High Court held that the CIT(A) had noted in his order that
one of the partners of the assessee firm had admitted the practice of suppressing income.
Further, in the said case, the issue that evidence of one year cannot be utilised for another
year was not raised. Accordingly, considering the above facts, the estimation of income
made by the Assessing Officer was accepted. Considering the above facts, the said decision
is not applicable to the facts of the present case. In the said case also, the assessee had
accepted carrying out such practice and accordingly, Hon’ble High Court confirmed the
action of the Assessing Officer. It is important to be noted that ITAT had deleted the
addition on the ground that no seized material was found which was totally contrary to the
evidence on record. Accordingly, the above ratio is not applicable to the facts of the
present case. Regarding the learned Departmental Representative‟s reliance on the ratio
in the case of CIT v. Hotel Meriya [(2011) 332 ITR 537 (Ker)], we find that the assessee
was running a restaurant. There was a search conducted on the assessee firm and in the
course of search, statement of one of the partners was recorded. In the statement recorded,
the partner of the assessee firm accepted that certain sales were suppressed and such
suppression of sales was carried out from inception. Considering the said statement,
Hon’ble High Court held that as the assessee had agreed of suppression of turnover, the
estimation of income made by the Assessing Officer was justified. In the said case, there
was a clear admission of the partner of the assessee that the sales were suppressed and
considering the said admission, the extrapolation of sales for all the years was accepted by
the Hon‟ble High Court. In the case before us, there is no acceptance that the on-money is
collected by the assessee firm for all the years and accordingly, the decision in the case of
Hotel Meriya is not applicable to the facts of the present case. Regarding the learned
Departmental Representative‟s reliance on the ratio in the case of Rajnik & Co. vs. Asst.
CIT [(2001) 251 ITR 561(AP)], we find that the assessee firm was engaged in the business
of dealing in cycle spare parts. There was a search conducted on the assessee on 13 th
November, 1996. In the course of search, incriminating material was seized for indicating
suppression of sales for a period of 24 days in A.Y. 1996 – 97 and for a period of 15 days in
A.Y. 1997 –
98. However, the partner of the assessee in the course of search admitted that such
practice was adopted for all the years including the years for which no evidence was
found. On the basis of the above facts, Assessing Officer estimated undisclosed income for
the block period. The matter went up to High Court and the Hon‟ble High Court held that
as the evidence was found for certain years and considering the acceptance of the partner Page 17 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
that similar practice was followed in the earlier years, the estimation of income made by
the Assessing Officer was correct. In the case before us, the facts are not identical as there
was no acceptance by the assessee or its directors that such practice was followed in the
earlier years as well. Accordingly, the ratio of Rajnik & Co. is not applicable to the facts of
the present case. We further find in the case of Khopade Kisanrao Manikrao v. Asst. CIT
[74 ITD 25 (Pune)(TM)], wherein the learned Departmental Representative has relied
upon the said decision of ITAT, Third Member of Pune Bench. In the said case, the
evidence was found that the assessee had taken on-money on sale of plots. The evidence
was found for all the years falling within the block period. Thus the issue arose that on the
basis of evidence found for sale of certain plots, can the Assessing Officer estimate the
income in respect of other plots for which no evidence was found. The Third Member held
that the evidence was found that the assessee was taking the on-money for sale of plots for
the various years of the block period and hence, the Assessing Officer could estimate the
on money in respect of sale of other plots even though the evidence was not found. Hence
against the distinguishing factor, the evidence was found for all the years and not some of
the years and therefore, the Assessing Officer was not justified in estimating the
unaccounted income for the other years in this case. In the case of Khopade Kisanrao
Manikrao (supra), the issue that whether evidence of one year could be used for making an
addition in the other year was not raised simply because certain evidence was found for
each of the years. Hence, the ratio of Khopade Kisanrao Manikrao (supra) is not
applicable to the facts of the present case.

4.7 We further find in the case of Dr. Gurvinder Singh Randhawa v. CIT [(2013) 352 ITR
616 (P&H)] relied by the Revenue, the assessee was a medical practitioner. In the course
of search, evidence was found that the assessee had suppressed his professional receipts.
The Assessing Officer applied the rate of Rs.10,147/- for each surgery as against
Rs.6,000/- offered by the assessee. The dispute in that case was regarding the rate to be
adopted for each surgery and the issue that whether evidence of one year can be used for
estimating income of another year was not involved before Hon’ble High Court.
Accordingly, the ratio of Dr. Gurvinder Singh Randhawa is not applicable to the facts of
the present case and the reliance placed by the learned DR is misplaced. We find in the
case of CIT v. Dr. M.K.E. Memon [(2001) 248 ITR 310 (Bom)], the learned Departmental
Representative placed reliance on the decision of Hon’ble Bombay High Court in the case
of Dr. M.K.E. Memon. However, the facts of the said case are not identical and not
applicable to the present case. In the said case, the assessee was a general physician.
Search was conducted on the assessee on 11.12.1996. In the course of search, evidences
were found that the assessee had generated unaccounted income for the period Nov, 1993
onwards. On the basis of the said evidence, the assessee offered to tax income for pre Nov,
1993 period and post Nov, 1993 period. The Assessing Officer estimated higher income for
the pre Nov, 1993 period. ITAT deleted the addition made by the Assessing Officer and
sustained the income declared by the assessee for the pre Nov, 1993 period. The issue
before Hon’ble Bombay High Court was whether such deletion of addition made by the
Assessing Officer was justified. Hon’ble High Court held that the Tribunal was justified in
deleting the addition made because the income does not remain constant over the years.
Moreover, evidence of one year cannot be used for other year as held by the ITAT, Pune
„A‟ Bench in the case of DCIT, Central Circle 1 (2), Pune Vs. Venkateshwara Hatcheries
Pvt. Ltd. in ITA Nos.746 & 747/PN/2012 & another. Accordingly, the facts of the said case
are not identical and not applicable to the facts of the present case”.
Page 18 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
12. Thus, the Tribunal at Pune has not only considered
the decision of the Hon’ble Mumbai High Court in the case of
Northern Karnataka Expressway Ltd, but has also considered the
decision of the Coordinate Bench at Mumbai in the case of West
Gujarat Expressway Ltd to allow the alternate claim of the
assessee to hold that the asset as an intangible asset and to allow
depreciation thereon. However, we find that the decision of the
Tribunal in the case of West Gujarat Expressway Ltd has been
reversed by the Hon’ble Bombay High Court by holding that the
decision in the case of North Karnataka Expressway Ltd was
clearly applicable to the case before it. However, we find that the
decision of the Coordinate Bench of the Tribunal in the case of
Ashoka Infrastructure Ltd, the Bench had brought out the
distinction between the claim made in both the case, i.e. the claim
of depreciation u/s 32 in the case of North Karnataka Expressway
as against the claim of depreciation u/s 32(1)(ii) as on intangible
asset in the case of West Gujarat Expressway Ltd. From the copy
of the decision of the Hon’ble Bombay High Court in the case of
West Gujarat Expressway Ltd, we find this distinction was not
brought to the notice of the Hon’ble High Court and therefore, the
Hon’ble High Court was pleased to apply the ratio laid down by it
in the case of North Karnataka Expressway Ltd. Therefore, the
decision of the Hon’ble Bombay High Court cannot be applied to
the case of the assessee straightway. The Special Bench of the
Tribunal in the case of Progressive Constructions Ltd, has held ‘the license to operate and collect the toll fee’ as a commercial
right falling within the definition of “intangible asset”, whereas the
Hon’ble Bombay High Court was considering whether the
assessee be granted depreciation on tollway which are not owned Page 19 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
by it. Since the distinction between both the cases before the
Bombay High Court has been clearly brought out by the
Coordinate Bench of the Tribunal at Pune in the case of Ashoka
Infrastructure Ltd, we are of the opinion that the decision of the
Coordinate Bench is applicable to the facts of the case before us.
There is no decision by the Hon’ble Bombay High Court that the
right ‘to collect toll fee over the roads built and operated by the
assessee’ is not an “intangible asset”, particularly when it is held
that the expenditure incurred by the assessee is not revenue in
nature. Accordingly, the assessee’s grounds of appeal on this
issue are allowed.
13. The next ground raised by the assessee is against the
disallowance of the provision made by the assessee towards “repairs and maintenance” of the Expressway built and operated
by it after the initial period of 5 years. It is the case of the
Revenue that the assessee has not incurred such expenditure and
the provision is for the “repairs and maintenance” which may
arise in future years and therefore, it cannot be considered as the
expenditure relatable to the relevant A.Y before us i.e. A.Ys 2013-
14. The learned Counsel for the assessee had relied upon the
following decisions to argue that where the provision is made on a
reasonable and scientific basis for meeting its future liabilities,
then such provision is allowable as a deduction:
a) Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (S.C)
b) Rotork Controls India (P) Ltd vs. CIT (2009) 314 ITR 62 (S.C)
c) CIT vs. Hewelett Packard India (P) Ltd 314 ITR 55 (Delhi)
d) Aggarwal ad Modi Enterprises (Cinema Project) Co. (P) Ltd vs. CIT (2016) 381 ITR 469 (Del.) Page 20 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
e) DCIT vs. Vs. First Solutions Ltd (2018) 168 DTR (Mumbai) (Trib.) 161 14. The learned DR, on the other hand placed reliance
upon the decision of the Hon’ble Supreme Court in the case of
Southern Technologies Ltd, reported in (2019) 187 Taxmann.com
346 (S.C).
15. Having regard to the rival contentions and the material
on record, we find that, as per clause 3.1.1 of the concessionaire
agreement between the assessee and the NHAI, the assessee is
required to construct, operate and maintain the project for a
period of 15 years commencing from the appointed date.
Therefore, it is clear that there is a liability on the assessee to
maintain the roads for the period of the agreement. In the years
in which the assessee is constructing the roads, there would not
arise any expenditure towards repairs and maintenance but
thereafter major at times. To meet such liability which is certain,
but the quantum of the funds that would be required is
uncertain, the assessee would have to be prepared and for this
purpose it can create a provision from the current income to meet
the likely future liability. This necessity has been recognized by
the Hon’ble Supreme Court in the case of Bharat Earth Movers
(cited Supra) as under:

“4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the Page 21 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
future date on which the liability shall have to be discharged is not
certain.

5. In Metal Box Company of India Ltd. Vs. Their Workmen (1969) 73 ITR
53 the appellant company estimated its liability under two gratuity
schemes framed by the company and the amount of liability was deducted
from the gross receipts in the P&L account. The company had worked
out on an actuarial valuation its estimated liability and made provision
for such liability not all at once but spread over a number of years. The
practice followed by the company was that every year the company
worked out the additional liability incurred by it on the employees
putting in every additional year of service. The gratuity was payable on
the termination of an employees service either due to retirement, death or
termination of service – the exact time of occurrence of the latter two
events being not determinable with exactitude before hand. A few
principles were laid down by this court, the relevant of which for our
purpose are extracted and reproduced as under:

(i) For an assessee maintaining his accounts on mercantile system, a
liability already accrued, though to be discharged at a future date, would
be a proper deduction while working out the profits and gains of his
business, regard being had to the accepted principles of commercial
practice and accountancy. It is not as if such deduction is permissible
only in case of amounts actually expended or paid;

(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 fulfilment 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.

So is the view taken in Calcutta Co. Ltd. Vs. Commissioner of Income-
Tax, West Bengal (1959) 37 ITR 1 wherein this court has held that the
liability on the assessee having been imported, the liability would be an
accrued liability and would not convert into a conditional one merely
because the liability was to be discharged at a future date. There may be
some difficulty in the estimation thereof but that would not convert the
accrued liability into a conditional one; it was always open to the tax
authorities concerned to arrive at a proper estimate of the liability
having regard to all the circumstances of the case”.
Page 22 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
16. Further, in the case of Rotork Controls India (P) Ltd vs.
CIT (Supra), the Hon’ble Supreme Court held as under:
“11. 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 that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized.

12. 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.

13. 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. Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under Section 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are in the business from assessment years 1983- 84 onwards. Valve Actuators are sophisticated goods. Over the years appellant has been manufacturing Valve Actuators in large numbers. The statistical data indicates that every year some of these manufactured Actuators are found to be defective. The statistical data over the years also indicates that being sophisticated item no customer is prepared to buy Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator(s). In other words, warranty stood attached to the sale price of the product. These aspects are important. As stated above, obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the present case, therefore, warranty provision needs to be recognized because the appellant is an Page 23 of 25 ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
enterprise having a present obligation as a result of past events resulting in an outflow of resources. 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”.
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 has placed the copy of the
letter dated 11.04.2018 of the Consultant to the Project Director
of NHAI for the maintenance work to be carried out by the
assessee as per the “Operation and Maintenance Manual”.
Further, as per Article 37 of the agreement, if the concessionaire,
i.e. the assessee herein, if it defaults or acts in breach of the
maintenance requirements or the safety requirements the
agreement is liable to be terminated. Thus, it is clear that the
obligation of repairs and maintenance has accrued on the
assessee, but only the quantification and execution is to be on a
future date. However, the basis of quantification of the fund and
that the provision is made on a scientific basis has not been
established by the assessee nor has it been looked into by the AO.
Therefore, we deem it fit and proper to remit this issue to the file
of the AO with a direction to examine the scientific method
followed by the assessee in making the provisions. If it is found to
be reasonable and on a scientific criteria, then the AO shall not
disallow the same. Therefore, assessee’s ground of appeal on this
issue is treated as allowed for statistical purposes.
Page 24 of 25
ITA Nos 1729 2145 and 2146 of 2018 Mokama Munger Highway Ltd Hyderabad.
18. Further, we find that these very same issues have
arisen in the A.Ys 2014-15 and 2015-16 and therefore, the
decision in the A.Y 2013-14 shall apply to the appeals of these
two years as well.
19. In the result, all the three appeals of the assessee are
partly allowed for statistical purposes.
Order pronounced in the Open Court on 3rd July, 2019.
Sd/- Sd/- (S.Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member Hyderabad, dated 3rd July, 2019.
Vinodan/sps Copy to: 1 C/o M/s. Anjaneyulu & Co. C.A.s, 30 Bhagyalakshmi Nagar, Gandhinagar, Hyderabad 500080
2 Asstt. CIT, Circle 16(2) Hyderabad
3 CIT (A)-4 Hyderabad
4 Pr. CIT – 4 Hyderabad
5 The DR, ITAT Hyderabad
6 Guard File By Order Page 25 of 25

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