BSC C&C Kurali Toll Road Ltd., New Delhi V. DCIT, New Delhi

ITA 1592/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5361 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 17-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Keywords: Depreciation; Business expenditure; Maximum Marginal Rate; Capital expenditure; Set aside
• Section: 201; 192; 13; 22; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NOS.1592 & 1593/DEL/2017 ASSESSMENT YEARS : 2012-13 & 2013-14 BSC C&C KURALI TOLL ROAD LTD., 74, HEMKUNT COLONY, NEW DELHI-110048. PAN-AADCB1505H VS DCIT, CIRCLE-5(1), NEW DELHI. APPELLANT RESPONDENT APPELLANT BY SH. AMARJEET SINGH, CA. RESPONDENT BY SH. SATPAL GULATI, CIT DR DATE OF HEARING 30.03.2021 DATE OF PRONOUNCEMENT 18 .0 5 .2021 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 OF BY WAY OF A CONSOLIDATED ORDER. FIRST WE TAKE UP ITA NO.1592/DEL/2017 RELATING TO ASSESSMENT YEAR 2012-13 WHEREIN THE ASSESS EE 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 TH E REDUCTION OF DEPRECIATION ON TOLL ROAD DEVELOPED BY THE APPELLANT COMPANY FROM 25% TO 10% AND CONFIRMING ADDITION OF RS.70,58,54 ,074/- ITA NOS.1592 & 1593/DEL/2017 2 (INCLUDING ADDITION MADE AS GROUND OF APPEAL NO.-2) ON THE GROUND THAT THE ROADS ARE INCLUDED IN THE DEFINITION OF BUI LDING WITHOUT ACCEPTING APPELLANTS CONTENTION THAT THE APPELLANT C OMPANY 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 D EDUCTION OF GRANT OF RS.43.92 CRORES RECEIVED FROM NHAI OUT OF T HE TOTAL COST OF PROJECT OF RS.441,27,05,614/- ON THE GROUND THAT THE GR ANT 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 DI SALLOWANCE OF PROVISION MADE FOR MAJOR MAINTENANCE EXPENSES AM OUNTING TO RS.3,00,00,000/- ON THE GROUND THAT THE SAID PROVISION IS CONTINGENT IN NATURE AND THE ASSESSEE HAS NOT MADE ANY EXPENDIT URE ON THAT COUNT DURING THE YEAR UNDER CONSIDERATION AND SUCH A MAINTENANCE ENVISAGED IN THE COMMON RUPEE LOAN AGREEMENT AT BES T IS MERELY AN ESTIMATE, INDEFINITE, LIKELY TO TAKE PLACE AT SOME F UTURE DATE AND THE SAME HAS NOT TAKEN PLACE AT ALL. 3. FACTS IN BRIEF ARE THAT THE CASE OF THE ASSESSEE COMP ANY WAS TAKEN UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS FRAMED VIDE ORDER DATED 27.02.2015. THEREBY, THE CLAIM OF THE ASSESSEE REGARDING DEPRECIATION @ 25% AND PROVISION FOR MAINTENANCE OF ROAD WAS DISALLOWED. HOWEVER, THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 10% INSTEAD 25% AS CLAIMED BY THE ASSESSEE. ITA NOS.1592 & 1593/DEL/2017 3 4. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A) WHO SUSTAINED BOTH THE DISALLOWANCES. 5. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 6. GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST ADOPTING 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 PRONOUNCEMENT S. 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 RS.4,41,27,05,614/- INCLUDING GRANT FROM NHAI AMOUNTING TO RS.43.92 CRORES. THE ASSESSEE HAD CLAIMED D EPRECIATION ON THE SAME @ 25% UNDER THE HEAD INTANGIBLE ASSETS. H E FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER IT WAS CLAIMED THAT THE ASSE SSEE IS ENTITLED FOR DEPRECIATION @ 25%. HOWEVER, THE ASSESSING OFFICE R RESTRICTED IT TO 10% FOLLOWING THE JUDGEMENT OF HONBLE ALLA HABAD 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 EXFACIE IS INCORRECT. HE SUBMITTED THAT THE ASSESSEE IS GIVEN RIGHT TO COLLECT TH E TOLL FEE, SUCH RIGHT CANNOT BE EQUATED WITH OWNERSHIP. HE DREW OUR AT TENTION TO CLAUSE 3.2 OF CHAPTER II OF CONTRACT TO BUTTRESS THE CONTENTIO N THAT THE ASSESSEE IS ENTITLED TO ENJOY LEVY AND APPROPRIATE THE FEE FROM VEHICLES AND PER SONS ITA NOS.1592 & 1593/DEL/2017 4 LIABLE TO PAYMENT OF FEE FOR USING THE HIGHWAY OR ANY PART THEREOF. HENCE, THE ASSESSEE GOT RIGHT ONLY TO COLLECT FEE FROM TH E VEHICLES ENTERING THE ROAD. HE SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO TAKE NOTE OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT AND THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL. THE HONBLE BOMB AY HIGH COURT IN NORTH KARNATAKA EXPRESSWAY LTD. VS CIT IN APPEAL NO.49 9 OF 2012 AND ALSO THE MUMBAI BENCH OF THIS TRIBUNAL REFERRED IN TH E 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-ORDINAT E 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/HY D/2018 ORDER DATED 03.07.2019. LD. COUNSEL FOR THE ASSESSEE SUBMITTE D 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 HONBLE BOMBAY HIGH COURT IN THE CAS E OF NORTH KARNATAKA EXPRESSWAY LTD. VS CIT IN APPEAL NO.499 OF 2 012 (SUPRA) WHICH THE ASSESSEE HAD RELIED, THE ASSESSEE IS ENTITLED FOR DEPRECIATION @ ITA NOS.1592 & 1593/DEL/2017 5 25%. HE THEREFORE, CONTENDED THAT THE JUDGEMENT OF THE HONBLE ALLAHABAD HIGH COURT IS NOT TO BE FOLLOWED. AS IT IS SETTLED LAW IN, IF THERE ARE TWO POSSIBLE VIEWS WHICH IS SUPPORTING THE ASSESSEE SHOULD BE ADOPTED. IN SUPPORT OF THIS CONTENTION, RE RELIED UPON TH E JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS M/S VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC). 9. ON THE CONTRARY, LD. CIT DR OPPOSED THESE SUBMISSION S AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER DISPUTE IS WITH REGARD TO AVAILAB ILITY OF DEPRECIATION TO THE ASSESSEE WHETHER IT IS TO BE ALLOWE D KEEPING THE RIGHT TO COLLECT TOLL FEE AS INTANGIBLE ASSETS OR IT TO BE T REATED 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 TR IBUNAL 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 T AX BEING AN INTANGIBLE COMMERCIAL RIGHT UNDER SECTION 32(1)(II) AT THE RATE AS HAS BEEN PRESCRIBED UNDER THE RELEVANT RULES. OUR ABOVE V IEW IS FURTHER SUPPORTED BY THE DECISION OF THE CO-ORDINATE PUNE BE NCH OF THE TRIBUNAL IN THE CASE OF M/S. ASHOKA INFRASTRUCTURE LT D. VS. ITO IN ITA NO.989/PN/2010 & ITA NO.1105/PN/2010,WHEREIN, THE ITA NOS.1592 & 1593/DEL/2017 6 TRIBUNAL WHILE FURTHER RELYING UPON ANOTHER DECISION O F THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 'ASHOK A 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' F ALLING WITHIN THE SCOPE OF SECTION 32(1)(II) OF THE ACT IS LIABLE TO BE UPHELD. TH E RELEVANT PART OF FINDINGS OF THE TRIBUNAL FOR THE SAKE OF CON VENIENCE IS REPRODUCED AS UNDER: '6. AT THE TIME OF HEARING, IT WAS A COMMON POINT BETWE EN THE PARTIES THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASHOKA INF RAWAYS PVT. LTD. VS. ACIT VIDE ITA NOS. 185 & 186/PN/2012 DATE D 29.04.2013. AS PER THE TRIBUNAL FOLLOWING THE PRECEDENTS BY WAY OF VARIOUS DECISIONS OF DIFFERENT BENCHES OF TH E TRIBUNAL MENTIONED THEREIN, THE CLAIM OF THE ASSESSEE FOR TREA TING THE 'LICENSE TO COLLECT TOLL' AS AN INTANGIBLE ASSET ELIGIBLE FOR THE CLAIM OF DEPRECIATION @ 25% AS PER SECTION 32(1)(II) O F 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. ITA NOS.1592 & 1593/DEL/2017 7 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 DEPR ECIATION IN SECTION 32(1)(II) OF THE ACT, ARE ONLY THOSE WHICH ARE OWNED BY THE ASSESSEE AND HAVE BEEN ACQUIRED AFTER SPENDI NG MONEY. IN THE CASE OF THE ASSESSEE, BY WAY OF AN AGRE EMENT, 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 S ECTION 32(1)(II) OF THE ACT. HOWEVER, THE LD. CIT(DR) HAS NOT C ONTESTED THE FACTUAL MATRIX THAT IDENTICAL ISSUE HAS BEEN CONS IDERED BY OUR COORDINATE BENCHES IN THE CASE OF ASHOKA BUILDCO N LTD. (SUPRA), KALYAN TOLL INFRASTRUCTURE LTD. (SUPRA), DIMENSI ON 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 TH E AFORESAID PRECEDENTS BEFORE CONCLUDING THAT THE IMPUG NED 'RIGHT TO COLLECT TOLL' WAS AN 'INTANGIBLE ASSET' ELIGIB LE FOR CLAIM OF DEPRECIATION @ 25% AS PER SEC. 32(1)01) OF THE ACT. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. FACTUALLY SPEAKING, THERE IS NO DISPUTE TO THE FACT T HAT THE COSTS CAPITALISED BY THE ASSESSEE UNDER THE HEAD 'LI CENSE 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 T O BUILD, OPERATE AND TRANSFER THE SAID INFRASTRUCTURE FACILIT Y IN TERMS OF AN AGREEMENT WITH THE GOVERNMENT OF MADHYA PRADESH. THE ITA NOS.1592 & 1593/DEL/2017 8 EXPENDITURE ON DEVELOPMENT, CONSTRUCTION AND MAINTEN ANCE OF THE INFRASTRUCTURE FACILITY FOR A SPECIFIED PERIOD W AS TO BE INCURRED BY THE ASSESSEE OUT OF ITS OWN FUNDS. MOREO VER, AFTER THE END OF THE SPECIFIED PERIOD, ASSESSEE WAS TO TRA NSFER THE SAID INFRASTRUCTURE FACILITY TO THE GOVERNMENT OF MA DHYA PRADESH FREE OF CHARGE. IN CONSIDERATION OF DEVELOPIN G, CONSTRUCTING, MAINTAINING THE FACILITY FOR A SPECIFIED PERIOD AND THEREAFTER TRANSFERRING IT TO THE GOVERNMENT OF MAD HYA PRADESH FREE OF CHARGE, ASSESSEE WAS GRANTED A RIGHT TO COLLECT TOLL' FROM THE MOTORISTS USING THE SAID INFRAST RUCTURE FACILITY DURING THE SPECIFIED PERIOD. THE SAID RIGHT TO COLLECT THE TOLL' IS EMERGING AS A RESULT OF THE COSTS INCURR ED BY THE ASSESSEE ON DEVELOPMENT, CONSTRUCTION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY. SUCH A RIGHT HAS BEEN AD JUDICATED BY THE TRIBUNAL IN THE AFORESAID PRECEDENTS TO BE IN THE NATURE OF 'INTANGIBLE ASSET' FALLING WITHIN THE PURVIEW OF SE CTION 32(1)(I/) OF THE ACT AND HAS BEEN FOUND ELIGIBLE FOR CLAIM OF DEPRECIATION. NO DECISION TO THE CONTRARY HAS BEEN CIT ED BY THE LD. DR BEFORE US AND, THEREFORE, WE FIND NO REASONS TO DEPART FROM THE ACCEPTED POSITION BASED ON THE AFORESAID DECI SIONS. 11. SO HOWEVER, THE PLEA OF THE LD. DR BEFORE US IS TO THE EFFECT THAT THE IMPUGNED RIGHT IS NOT OF THE NATURE REFER RED 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 CONSTRUC TING THE ROAD FACILITY WHEREAS SECTION 32(1)(I1) OF THE ACT RE QUIRED THAT THE ASSETS MENTIONED THEREIN SHOULD BE ACQUIRED BY T HE ASSESSEE AFTER SPENDING MONEY. THE SAID ARGUMENT IN OUR VIEW IS FACTUALLY AND LEGALLY MISPLACED. FACTUALLY SPEAK ING, IT IS WRONG TO SAY THAT IMPUGNED RIGHT ACQUIRED BY THE A SSESSEE WAS WITHOUT INCURRENCE OF ANY COST. IN FACT, IT IS QUITE EVIDENT THAT ASSESSEE GOT THE RIGHT TO COLLECT TOLL FOR THE SPE CIFIED ITA NOS.1592 & 1593/DEL/2017 9 PERIOD ONLY AFTER INCURRING EXPENDITURE THROUGH ITS O WN RESOURCES ON DEVELOPMENT, CONSTRUCTION AND MAINTENANC E 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 W E FIND NO JUSTIFICATION FOR THE PLEA RAISED BY THE REVENUE BEFORE U S. 12. IN THE RESULT, WE AFFIRM THE ORDER OF THE CIT(A) I N HOLDING THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION ON TH E 'RIGHT TO COLLECT TOLL', BEING AN 'INTANGIBLE ASSET' FALLING WITHIN TH E PURVIEW OF SECTION 32(1)(I1) OF THE ACT FOLLOWING THE AFORESAID PRECEDENTS.' 7. IN TERMS OF THE AFORESAID PRECEDENT, THE CLAIM OF T HE ASSESSEE IN THE PRESENT CASE FOR DEPRECIATION ON 'LI CENSE 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 T HE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE 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 PRECEDIN G PARAS AND ALSO AGREEING WITH THE ABOVE REPRODUCED FINDINGS OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEPR ECIATION ON THE ROAD TO COLLECT TOLL BEING AN INTANGIBLE ASSET FALLING WIT HIN THE PURVIEW OF SECTION 32(1) (II) OF THE ACT. ITA NOS.1592 & 1593/DEL/2017 10 30. SO FAR AS THE OTHER ALTERNATIVE CONTENTION OF TH E ASSESSEE THAT THE PROJECT BE TREATED AS PLANT & MACHINERY AND THE DEPRECIATION BE ACCORDINGLY ALLOWED TO IT, WE DO NOT FIND THAT THE SAI D LICENSE OF RIGHT TO COLLECT TOLL IN ANY WAY FALLS IN THE DEFINITION OF PLA NT & MACHINERY. AS HELD BY THE HON'BLE BOMBAY HIGH COURT, EVEN THE ASS ESSEE IS NOT THE OWNER OF THE TOLL ROAD. THE ASSESSEE HAS BEEN GIV EN ONLY THE RIGHT TO DEVELOP, MAINTAIN AND OPERATE THE TOLL ROAD AND FURTHER TO COLLECT THE TOLL FOR THE SPECIFIED PERIOD. THIS RIGHT AS DISCUSSED ABOVE IS AN INTANGIBLE ASSET FALLING UNDER SECTION 32(1)(II) OF T HE ACT. 11. THE SPECIAL BENCH OF THIS TRIBUNAL IN ITA NO.1845/HYD/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 EXAM INING THE ASSESSEES CLAIM OF DEPRECIATION ON BSE MEMBERSHIP CA RD, AFTER INTERPRETING THE PROVISIONS OF SECTION 32(1)(II), HELD THAT AS THE MEMBERSHIP CARD ALLOWS A MEMBER TO PARTICIPATE IN A T RADING SESSION ON THE FLOOR OF THE EXCHANGE, SUCH MEMBERSHIP IS A BUSINESS OR COMMERCIAL RIGHT, HENCE, SIMILAR TO LICENSE OR FRANCH ISE, THEREFORE, AN INTANGIBLE ASSET. IN THE PRESENT CASE, UNDISPUTED LY BY VIRTUE OF C.A. THE ASSESSEE HAS ACQUIRED THE RIGHT TO OPERATE T HE TOLL ROAD / BRIDGE AND COLLECT TOLL CHARGES IN LIEU OF INVESTMENT M ADE BY IT IN IMPLEMENTING THE PROJECT. THEREFORE, THE RIGHT TO OPERA TE THE TOLL ROAD / BRIDGE AND COLLECT TOLL CHARGES IS A BUSINESS OR COMME RCIAL 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 UND ER: THE EXPENDITURE INCURRED BY THE ASSESSEE FOR CONSTR UCTION OF ROAD UNDER BOT CONTRACT BY THE GOVERNMENT OF INDIA H AS ITA NOS.1592 & 1593/DEL/2017 11 GIVEN RISE TO AN INTANGIBLE ASSET AS DEFINED UNDER E XPLANATION 3(B) R/W SECTION 32(1)(II) OF THE ACT. HENCE, ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON SUCH ASSET AT THE SPECIFIED RAT E. 12. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW EXPRESSED BY THE HONBLE BOMBAY HIGH COURT AND THE SPECIAL BENCH OF THIS TRIBUNAL, WE HOLD T HAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @ 25% AS CLAIMED BY THE ASSESSEE. THUS, GROUND OF APPEAL NO.1 RAISED BY THE AS SESSEE 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 DISMI SSED AS NOT PRESSED. 14. GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINS T THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO P ROVISION MADE FOR MAINTENANCE OF THE ROADS. 15. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIO NS AS MADE IN THE WRITTEN SUBMISSIONS. FOR THE SAKE OF CLARITY, THE SUBM ISSIONS OF THE ASSESSEE ARE REPRODUCED HEREUNDER:- ..THAT THE APPELLANT COMPANY HAS DEVELOPED A TOLL PLA ZA AT KURALI KIRATPUR SECTION ON BOT BASIS (BUILT, OPERATE A ND TRANSFER BASIS). THE COMPANY HAS TO COLLECT TOLL FROM VEHICLES AND AS PER THE TERMS OF THE AGREEMENT WITH THE EMPLOYER (NHAI), COMPA NY HAS TO EXECUTE THE MAJOR MAINTENANCE WORK OF THE TOTAL STRE TCH ONCE AFTER EVERY 5 YEARS AS PROVIDED IN CLAUSE NO. 3.3.7 OF SCHED ULE L (OPERATION & MAINTENANCE) OF THE CONCESSION AGREEMEN T. ONLY ITA NOS.1592 & 1593/DEL/2017 12 RELEVANT PAGES HAVE BEEN ATTACHED CONSIDERING THE SA ME VERY VOLUMINOUS. THAT ESTIMATED COST OF MAJOR MAINTENANCE IS AS DETAI LED IN THE COMMON RUPEE LOAN AGREEMENT ENTERED INTO WITH THE FI NANCERS (BANKS & FINANCIAL INSTITUTIONS) OF THE PROJECT. YEAR-WI SE AMOUNT OF MAJOR MAINTENANCE EXPENDITURE IS DETAILED IN SCHEDULE 5 - MMR OF THE COMMON RUPEE LOAN AGREEMENT. ONLY RELEVANT SCHEDU LE 5 HAS BEEN ATTACHED CONSIDERING THE WHOLE AGREEMENT VERY VOLUM INOUS. AS PER THE SAID SCHEDULE 5, MAJOR MAINTENANCE EXPENDITURE TO BE INCURRED IN THE FIRST 5 YEARS IS RS.60.34 CRORES (2.94 + 8.98 + 15.01 + 21.05 + 12.36). CALCULATION OF THE PROVISION FOR MAJOR MAINTENANCE O F RS.3.00 CRORES IS AS BELOW: S. NO. PARTICULARS AMOUNT (RS. IN CRORES) L MAINTENANCE EXPENDITURE TO BE INCURRED 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 PROJEC T, 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 M AJOR MAINTENANCE, WE HAVE TO SUBMIT THAT THE ABOVE SAID AM OUNT IS NOT A PROVISION, RATHER IT IS A MANDATORY LIABILITY IMPOSED ON THE APPELLANT BY WAY OF CONCESSION AGREEMENT AS DETAILED ABOVE. THI S 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. HONBLE SUPREME COURT THE CASE OF M/S. ROTORK CONTRO LS INDIA PVT. LTD. VS. CIT (314 ITR 0062 - SC) HAS GIVEN THE FOLLOWI NG FINDINGS WITH REGARD TO A PROVISION: ITA NOS.1592 & 1593/DEL/2017 13 FINDINGS: WHAT IS A PROVISION? THIS IS THE QUESTION WHICH NEE DS TO BE ANSWERED. A PROVISION IS A LIABILITY WHICH CAN BE MEASU RED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS RECOGNIZED WHEN: (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RE SULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL B E REQUIRED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF T HE OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PROVI SION 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 E CONOMIC BENEFITS. A PAST EVENT THAT LEADS TO A PRESENT OBLIGATION IS C ALLED AS AN OBLIGATING EVENT. THE OBLIGATING EVENT IS AN EVENT T HAT CREATES AN OBLIGATION WHICH RESULTS IN AN OUTFLOW OF RESOURC ES. IT IS ONLY THOSE OBLIGATIONS ARISING FROM PAST EVENTS EXIST ING INDEPENDENTLY OF THE FUTURE CONDUCT OF THE BUSINESS OF THE ENTERPRISE THAT IS RECOGNIZED AS PROVISION. FOR A LIA BILITY TO QUALIFY FOR RECOGNITION THERE MUST BE NOT ONLY PRES ENT OBLIGATION BUT ALSO THE PROBABILITY OF AN OUTFLOW OF R ESOURCES 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 RECOGNIT ION OF A PROVISION ARE SATISFIED IN THIS CASE. ITA NOS.1592 & 1593/DEL/2017 14 HONBLE 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 GIVES WARRANTY FOR A PERIOD OF 36 MONTHS FROM THE DATE OF SUPPLY. THE SAID COMPANY CONSIDERS FOLLOWING OPTIONS: (A) ACCOUNT FOR WARRANTY EXPENSE IN THE YEAR IN WH ICH IT IS INCURRED; (B) IT MAKES A PROVISION FOR WARRANTY ONLY WHEN THE CUSTOMER MAKES A CLAIM; AND (C) IT PROVIDES FOR WARRANTY AT 2% OF TURNOVER OF T HE COMPANY BASED ON PAST EXPERIENCE (HISTORICAL TREND). THE FIRST OPTION IS UNSUSTAINABLE SINCE IT WOULD TAN TAMOUNT TO ACCOUNTING FOR WARRANTY EXPENSES ON CASH BASIS, WHIC H IS PROHIBITED BOTH UNDER THE COMPANIES ACT AS WELL AS BY THE ACCOUNTING STANDARDS WHICH REQUIRE ACCRUAL CONCEPT T O BE FOLLOWED (EMPHASIS SUPPLIED). IN THE PRESENT CASE, THE DEPARTMENT IS INSISTING ON THE FIRST OPTION WHICH, AS STATED ABOVE, IS ERRONEOUS AS IT RULES OUT THE ACCRUAL CONCEPT (EMPHASIS SUPPLIED). THE SECOND OPTION IS ALSO INAPPROPRIATE SINCE IT DOES NOT REFLECT THE EXPECTED WARRANTY COSTS IN RESPECT OF RE VENUE ALREADY RECOGNIZED (ACCRUED). IN OTHER WORDS, IT IS NO T BASED ON MATCHING CONCEPT. UNDER THE MATCHING CONCEPT, IF R EVENUE IS RECOGNIZED THE COST INCURRED TO EARN THAT REVENU E INCLUDING WARRANTY COSTS HAS TO BE FULLY PROVIDED FOR. WHEN VA LVE ACTUATORS ARE SOLD AND THE WARRANTY COSTS ARE AN INT EGRAL PART OF THAT SALE PRICE THEN THE APPELLANT HAS TO PROVIDE FOR SUCH WARRANTY COSTS IN ITS ACCOUNT FOR THE RELEVANT YEAR, O THERWISE ITA NOS.1592 & 1593/DEL/2017 15 THE MATCHING CONCEPT FAILS. IN SUCH A CASE THE SECOND OPTION IS ALSO INAPPROPRIATE. UNDER THE CIRCUMSTANCES, THE THIRD OPTION IS MOST AP PROPRIATE BECAUSE IT FULFILLS ACCRUAL CONCEPT AS WELL AS THE MATCH ING CONCEPT. FOR DETERMINING AN APPROPRIATE HISTORICAL TREN D, IT IS IMPORTANT THAT THE COMPANY HAS A PROPER ACCOUNTING S YSTEM FOR CAPTURING RELATIONSHIP BETWEEN THE NATURE OF TH E SALES, THE WARRANTY PROVISIONS MADE AND THE ACTUAL EXPENSES INC URRED AGAINST IT SUBSEQUENTLY. THUS, THE DECISION ON THE WARR ANTY PROVISION SHOULD BE BASED ON PAST EXPERIENCE OF THE C OMPANY. A DETAILED ASSESSMENT OF THE WARRANTY PROVISIONING P OLICY IS REQUIRED PARTICULARLY IF THE EXPERIENCE SUGGESTS TH AT WARRANTY PROVISIONS ARE GENERALLY REVERSED IF THEY REMAINED U NUTILIZED 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 AG AINST IT. ON THIS BASIS A SENSIBLE ESTIMATE SHOULD BE MADE. THE WARRANTY PROVISION FOR THE PRODUCTS SHOULD BE BASED ON THE ESTIMATE AT YEAR END OF FUTURE WARRANTY EXPENSES. SUC H ESTIMATES NEED REASSESSMENT EVERY YEAR. AS ONE REACHE S CLOSE TO THE END OF THE WARRANTY PERIOD, THE PROBABIL ITY THAT THE WARRANTY EXPENSES WILL BE INCURRED IS CONSIDERA BLY REDUCED AND THAT SHOULD BE REFLECTED IN THE ESTIMATION AMOUNT. WHETHER THIS SHOULD BE DONE THROUGH A PRO RAT A REVERSAL OR OTHERWISE WOULD REQUIRE ASSESSMENT OF HIS TORICAL TREND. IF WARRANTY PROVISIONS ARE BASED ON EXPERIEN CE AND HISTORICAL TREND(S) AND IF THE WORKING IS ROBUST THEN THE QUESTION OF REVERSAL IN THE SUBSEQUENT TWO YEARS, IN T HE 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 SAI D CASE CAN BE MADE AS FOLLOWS: ITA NOS.1592 & 1593/DEL/2017 16 (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. A S PER THE TERMS OF THE AGREEMENT WITH THE EMPLOYER (NHAI) COMPAN Y HAS TO EXECUTE THE MAJOR MAINTENANCE WORK OF THE TO TAL STRETCH ONCE IN EVERY 5 YEARS. THE ASSESSEE COMPANY HAS A PR ESENT OBLIGATION AGAINST THE TOLL FEE COLLECTED BY IT. THERE IS AN OUTFLOW OF RESOURCES. (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WI LL BE REQUIRED TO SETTLE THE OBLIGATION TO SETTLE THE ABOVE SAID OBLIGATION OF MAJOR MAINTENANCE, T HERE IS CERTAINLY AN OUTFLOW OF THE RESOURCES. (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED. ESTIMATE OF THE EXPENDITURE HAS BEEN DULY DOCUMENTED IN THE SCHEDULE - 5 MMR OF THE RUPEE TERM LOAN AGREEMENT I N WHICH THE CONSORTIUM OF BANKS HAVE PROVIDED THAT THE COMPANY WILL BUILD UP A MAJOR MAINTENANCE RESERVE. 2. IN THE CASE OF BHARAT EARTH MOVERS VS. CIT [245 IT R 428 (SC)], HONBLE SUPREME COURT HAD REFERRED TO PRINCIPLES WERE LAID DOWN IN THE CASE OF METAL BOX CO. OF INDIA LTD. VS. THEI R WORKMEN [73 ITR 53 (SC)]. HONBLE COURT HAD EXTRACTED A ND REPRODUCED SOME RELEVANT PRINCIPLES AS UNDER: (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON ME RCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARG ED AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORKIN G OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED 3/5 PRINCIPLES OF COMMERCIAL PRACTICE AND ITA NOS.1592 & 1593/DEL/2017 17 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 W HILE 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 L IABILITY, WOULD NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIABILITY; (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A PA RTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTU ALLY MADE TO HIS EMPLOYEES BUT ALSO THE PRESENT VALUE OF AN Y 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 FAC TS OF THE CASE AT HAND WE ARE SATISFIED THAT PROVISION MADE B Y THE APPELLANT COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTITLEMENT EARNED BY EMPLOYEES OF THE COMPANY, INCLUSIV E OF THE OFFICERS AND THE STAFF, SUBJECT TO THE CEILING O N ACCUMULATION AS APPLICABLE ON THE RELEVANT DATE, IS EN TITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNT ING 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 H IGH COURT ITA NOS.1592 & 1593/DEL/2017 18 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 MUN GER HIGHWAY LIMITED (A GROUP COMPANY OF THE APPELLANT COMPANY) I N ITA NOS. 1729, 2145 & 2146/HYD/20I8 FOR THE ASSESSMENT YE ARS 2013- 14 TO 2015-16 DECIDED THE ABOVE SAID ISSUE IN FAVOUR O F THE ASSESSEE. HONBLE COURT HAS HELD AS FOLLOWS: 17. IN THE. CASE BEFORE US, THE CONCESSIONAIRE AGREEM ENT ITSELF SPECIFIES THE O&M OBLIGATIONS OF THE CONCESSI ONAIRE UNDER ARTICLE 17 OF THE AGREEMENT AND REQUIRES THE A SSESSEE TO PREPARE AND MAINTAIN, A MAINTENANCE MANUAL AND TO CARRY OUT THE WORK OF REPAIRS AND MAINTENANCE IN ACCORDAN CE WITH THE SAID MANUAL. AT PAGE 59 OF THE PAPER BOOK, THE ASS ESSEE 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 HE REIN, IF IT DEFAULTS OR ACTS IN BREACH OF THE MAINTENANCE REQUI REMENTS OR THE SAFETY REQUIREMENTS THE AGREEMENT IS LIABLE TO BE TERMINATED. THUS, IT IS CLEAR THAT THE OBLIGATION OF RE PAIRS AND MAINTENANCE HAS ACCRUED ON THE ASSESSEE, BUT ONLY TH E QUANTIFICATION AND EXECUTION IS TO BE ON A FUTURE D ATE. HOWEVER, THE BASIS OF QUANTIFICATION OF THE FUND AND THAT THE PROVISION IS MADE ON A SCIENTIFIC BASIS HAS NOT BEE N ESTABLISHED BY THE ASSESSEE NOR HAS IT BEEN LOOKED IN TO 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 S CIENTIFIC METHOD FOLLOWED BY THE ASSESSEE IN MAKING THE PROVISIONS. IF IT IS FOUND TO BE REASONABLE AND ON A SCIENTIFIC CRITE RIA, THEN THE AO SHALL NOT DISALLOW THE SAME. ITA NOS.1592 & 1593/DEL/2017 19 IT HAS BEEN HELD LIKEWISE IN THE FOLLOWING DECISIONS: 1. CIT VS. HEWLETT PACKARD INDIA (P) LTD. [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 T HE CONDITIONS FOR RECOGNIZING A LIABILITY FOR THE PURPOS ES OF PROVISIONING- WHICH RELATES TO PRESENT OBLIGATION ARI SING 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 YE ARS INCOME FULFILLS ACCRUAL CONCEPT AS WELL AS THE MATCHING CONCEPT. FURTHER, THE PROJECT MAY BE TERMINATED, IF TH E APPELLANT DEFAULTS OR IS IN MATERIAL BREACH OF ANY OF THE PROJECT AGREEMENTS INCLUDING MAINTENANCE. HENCE, THE DISALLOWANC E OF RS.3.00 CRORES MADE ON ACCOUNT OF PROVISION FOR MA JOR 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 ASSESSING OFFICER. THE RELEVANT CONTENTS OF LD.CIT(A) IS REPRODUCED AS UNDER:- ITA NOS.1592 & 1593/DEL/2017 20 .THUS, ONE OF THE PRIME CONDITIONS FOR ANY DEDUCTIO N 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 APPELL ANT HAS NOT FILED ANY PROOF IF ANY OF THE SAME.) THE LIABILITY CR EATED BY THE AGREEMENT HAS NOT CRYSTALLIZED AND THE QUANTIFIED IN THE PREVIOUS YEAR. A PROVISION FOR A CONTINGENT LIABILITY IS NOT ALLO WABLE 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 O 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 FOUN DED. THE APPELLANT HAS TRIED TO JUSTIFY ITS ARGUMENT BY STA TING THAT IT HAS OBLIGATION OF MAINTENANCE FOR WHICH IT HAS MAD E AN ESTIMATE OF EXPENSES FROM CURRENT YEARS INCOME. I OBSERVE THAT SUCH A MAINTENANCE ENVISAGED IN THE COMMON RUPEE LOAN AGREEMENT AT BEST IS MERELY AN ESTIMATE, I NDEFINITE, LIKELY TO TAKE PLACE AT SOME FUTURE DATE. IN THE PRE SENT YEAR, THE SAME HAS NOT TAKEN PLACE AT ALL. IN VIEW OF THE ABOVE FACT, I FIND THAT THE ARGUMENTS PUT FORTH BY THE AR, HA NO FORCE. I OBSERVE THAT THE AO HAS FOR MULATED A VERY COMPREHENSIVE ANALYSIS 01 THE SUBJECT AT PARA 5 OF THE ASSESSMENT ORDER AS FOLLOWS: 'ANY MINOR REPAIR FOR MAINTENANCE OF ROAD DURING THE YEAR IS ALWAYS AN ALLOWABLE EXPENDITURE, BUT, AFTER 5 YEARS ASSESSEE WOULD, IF REQUIRED, SPEND ALMOST 15% OF THE C OST OF PROJECT IN RELAYING OF THE ROAD, WHICH WILL BE IN THE NATURE OF CAPITAL EXPENDITURE AND SHOULD BE ADDED IN THE DEPRECIATED V ALUE OF THE ITA NOS.1592 & 1593/DEL/2017 21 COST OF THE PROJECT. HENCE ANY REPAIR I REGULAR NAT URE WHICH IS REQUIRED FOR DAY TO DAY RUNNING OF BUSINESS (I.E. COLLE CTION OF TOLL) ONLY NEEDS TO BE ALLOWABLE. HENCE, THE PROVISION FOR MAJ OR MAINTENANCE ALLOWED WILL NOT GIVE TRUE AND FAIR PROFIT ABILITY OF THE ASSESSEE. HENCE, THE PROVISION FOR MAJOR MAINTENANCE BEING CONTINGENT NATURE IS DISALLOWED ON THE GROUND THAT AS SESSEE HAS NOT MADE ANY EXPENSES ON THAT COUNT DURING THE YEAR UND CONSIDERATION.' IN VIEW OF THE SAME AND DISCUSSION B Y ME (SUPRA) I UPHOLD THE ORDER OF THE AO. GROUND NO. 3 IS DISMISSED. 18. DURING THE COURSE OF HEARING, LD. COUNSEL FOR THE ASSE SSEE TOOK US THROUGH THE CHART WHEREIN IT WAS MENTIONED THAT THE MA INTENANCE EXPENDITURE TO BE INCURRED IN FIVE YEARS WAS RS.60.34 CR ORE, PROJECT OPERATIONS WERE STARTED ON 09.08.2011 AND ESTIMATION OF M AINTENANCE 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 HONBLE 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 HONBLE SUPREME COURT IN T HE 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 T HAT THE CLAIM OF PROVISION AS MADE BY THE ASSESSEE IS IN ACCORDANCE WITH SETTLED PRINCIPAL OF LAW. THEREFORE, THE AUTHORITIES BELOW WERE NOT JUSTIFIED I N MAKING THE ITA NOS.1592 & 1593/DEL/2017 22 DISALLOWANCE. THUS, GROUND OF APPEAL NO.3 RAISED BY THE AS SESSEE 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 TH E REDUCTION OF DEPRECIATION ON TOLL ROAD DEVELOPED BY THE APPELLANT COMPANY FROM 25% TO 10% AND CONFIRMING ADDITION OF RS.46,98,20,7 42/- (INCLUDING ADDITION MADE AS GROUND OF APPEAL NO.-2) ON THE GROUND THAT THE ROADS ARE INCLUDED IN THE DEFINITION OF BUI LDING WITHOUT ACCEPTING APPELLANTS CONTENTION THAT THE APPELLANT C OMPANY 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 CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED WHILE CONFIRMING DE DUCTION OF GRANT OF RS.43.92 CRORES RECEIVED FROM NHAI OUT OF TH E TOTAL COST OF PROJECT OF RS.441,27,05,614/- FOR THE A.Y. 2012-13 AND THER EBY REDUCING THE DEPRECIATION CLAIMED TO THE SAID EXTENT 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 CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED WHILE CONFIRMING D ISALLOWANCE OF PROVISION MADE FOR MAJOR MAINTENANCE EXPENSES AM OUNTING TO RS.6,00,00,000/- ON THE GROUND THAT THE SAID PROVISION I S CONTINGENT IN NATURE AND THE ASSESSEE HAS NOT MADE ANY EXPENDIT URE ON THAT COUNT DURING THE YEAR UNDER CONSIDERATION AND SUCH A MAINTENANCE ENVISAGED IN THE COMMON RUPEE LOAN AGREEMENT AT BES T IS MERELY ITA NOS.1592 & 1593/DEL/2017 23 AN ESTIMATE, INDEFINITE, LIKELY TO TAKE PLACE AT SOME F UTURE DATE AND THE SAME HAS NOT TAKEN PLACE AT ALL. 21. THE GROUNDS RAISED IN ASSESSMENT YEAR 2013-14 IS ID ENTICAL TO THE GROUNDS RAISED IN ASSESSMENT YEAR 2012-13 EXCEPT CHANGE IN FIGURE S. 22. BOTH REPRESENTATIVES ADOPTED THE SAME ARGUMENTS A S IN ITA NO.1592/DEL/2017. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT TH ERE IS NO CHANGE INTO FACTS AND CIRCUMSTANCES HAVE BEEN POINTED B Y THE REVENUE. WE, THEREFORE TAKING THE CONSISTENT VIEW, THE GROUNDS R AISED IN THIS APPEAL ARE ALSO PARTLY ALLOWED. OUR FINDING IN ITA NO.1592/ DEL/2017 FOR ASSESSMENT YEAR 2012-13 WOULD APPLY MUTATIS MUTANDI TO THE IDENTICAL GROUNDS RAISED IN THIS YEAR AS WELL. 24. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE PARTLY ALLOW ED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIRTUAL HE ARING IN THE PRESENCE OF BOTH THE PARTIES ON 18 TH MAY, 2021. SD/- SD/- (G.S. PANNU) (KUL BHARAT) VICE PRESIDENT JUDICIAL MEMBER * AMIT KUMAR * ITA NOS.1592 & 1593/DEL/2017 24 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI