Dy. Commissioner of Income Tax , Circle-16(2), Hyderabad V. M/s Madhurai Tuticorin Expressways Limited, Hyderabad

ITA 2120/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3561 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 05-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R DIPAK
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 43B; 201; 274; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NOS. 2119, 2120 & 2121/HYD/2018 ASSESSMENT YEARS: 2012-13, 2013-14 & 2014-15 DY.COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD VS M/S.MADHURAI TUTICORIN EXPRESSWAYS LTD., HYDERABAD [PAN: AAECM7403L] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI R.DIPAK, DR FOR ASSESSEE : SHRI P.MURALI MOHANA RAO, AR DATE OF HEARING : 22-04-2021 DATE OF PRONOUNCEMENT : 09-06-2021 O R D E R PER S.S.GODARA, J.M. : THESE REVENUES APPEALS FOR AYS.2012-13, 2013-14 & 2014-15 ARISE FROM THE CIT(A)-4, HYDERABADS ORDERS; ALL DATED 16-08-2018 PASSED IN APPEAL NOS.0175 / 15-16 / ACIT , CIR.16(2) / CIT(A)-4 / HYD / 17-18, 0008 / 16-17 / ACIT, CIR.16(2) / CIT(A)-4 / HYD / 18-19 & 0393 / 16-17 / DCIT, CIR.16(2) / CIT(A)-4 / HYD / 18-19; RESPECTIVELY IN VOLVING PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961 [I N SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILES PERUSED. ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 2 -: 2. WE NOTICE DURING THE COURSE OF HEARING THAT THE REVENUES IDENTICAL FIRST AND FOREMOST SUBSTANTIVE GROUN D IN FORMER TWO APPEALS ITA NOS.2119 & 2120/HYD/2018 SEE KS TO REVIVE THE ASSESSING OFFICERS ACTION DENYING DEPREC IATION CLAIM OF RS.43,17,06,474/- AND RS.1,41,73,68,447/-; ASSES SMENT YEAR-WISE, RESPECTIVELY. ITS CASE AS PER THE CORRESPO NDING GROUNDS AVERMENTS IS THAT THE ASSESSEE; WHO IS NOT OWN ER OF THE FIXED ASSET IN THE NATURE OF THE ROAD PROJECT CONCER NED, OUGHT TO HAVE AMORTIZED THE CORRESPONDING EXPENDITURE OF LICENSE FEE ETC. AS PER THE CBDTS CIRCULAR NO.9/2014 , DT.23- 04-2014. WE NOTICE IN THIS FACTUAL BACKDROP THAT THE CI T(A)S DETAILED DISCUSSION TREATING THE ASSESSEES DEPRECIATI ON CLAIM TO BE IN THE NATURE OF A RIGHT TO COLLECT TOLL FORMING A N INTANGIBLE ASSET U/S.32(1)(II) OF THE ACT READS AS UNDE R: 5. GROUND NO.3, 4 & 9 TO 11 ARE WITH REGARD TO DIS ALLOWANCE OF DEPRECIATION OF RS.203,68,32,837/- BY TREATING THE SAME AS CAPITAL EXPENDITURE TO BE AMORTISED. IN THIS REGARD, THE AS SESSING OFFICER SUBMITTED AS UNDER: ON PERUSAL OF DEPRECIATION OF FIXED ASSETS/ IT IS O BSERVED THAT THE ASSESSEE-COMPANY IS CLAIMING DEPRECIATION OF RS.245 ,61,03,549/- @25% ON THE OPENING WDV OF RS.982,44,14,194/-. HOWEVER, THERE WERE SEVERAL DISPUTES ON THE EXPENDI TURE INCURRED ON DEVELOPMENT AND CONSTRUCTION FACILITIES LIKE ROADS/ HIGHWAYS ON BOT BASIS. TO PUT AN END TO THESE DISPUTES, CBDT HAS IS SUED A CIRCULAR VIDE NO. 09/2014 DATED 23.04.2011 WHICH HAS CLARIFI ED ALL THE ISSUES REGARDING ALLOWABILITY OF DEPRECIATION ON PROJECTS DEVELOPED UNDER BOT. THEREFORE, IN ORDER TO AMORTIZE THE EXPENDITURE INC URRED, THE COST OF CONSTRUCTION ON DEVELOPMENT OF INFRASTRUCTURE FACIL ITY, COPY OF CONCESSIONAIRE AGREEMENT, TIME TAKEN FOR CREATION O F SUCH FACILITY AND DATE OF COMMENCEMENT ETC. WERE CALLED FOR. THE ASS ESSEE-COMPANY SUBMITTED THE INFORMATION CALLED FOR. AFTER PERUSAL OF THE INFORMATION SUBMITTED, THE AMO UNT TO BE AMORTIZED AND AMOUNT OF AMORTIZATION ALLOWABLE AS B USINESS EXPENDITURE UNDER THE ACT FOR THE FY 2011-12 RELEVA NT TO AY 2012-13 ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 3 -: WAS CALCULATED AT RS.41,92,70,712/-. IN VIEW OF THI S, EXCESS CLAIM OF DEPRECIATION OF RS.203,68,32,837/-(RS.245,61,03,549 - RS.41,92,70, 712) 5.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT CONTENDED AS UNDER: THE ASSESSEE COMPANY WAS AWARDED THE WORK OF CONS TRUCTION ON NATIONAL HIGHWAY 45 B BY NHAI FOR WIDENING THE EXIS TING 2 LANE PORTION BETWEEN KM 138.800 TO KM 266.957, MADHURAI TO TUTICORIN SECTION IN THE STATE TAMIL NADU TO 4 LANE THROUGH A CONCESSION ON BOT BASIS ON 24.07.2006. THE ASSESSEE COMPANY HAS S TARTED THE WORK OF LAYING ROAD AS WELL AS BRIDGES IN THE FY 20 06-07 (20.012007) AND COMPLETED THE WORK DURING THE FY 2011-12 (30.06 .2011). AS THE PROJECT IS COMPLETED DURING THE FY 2011-12, ACCORDI NGLY THE ASSESSEE COMPANY INCURRED TOTAL PROJECT COST AT RS. 9,82,44, 14,194/- WHICH IS SHOWN AS GROSS BLOCK OF THE CARRIAGEWAY AND CLAIMED DEPRECIATION AT THE RATE OF 25% IN THE COMPUTATION OF INCOME. DURIN G THE YEAR UNDER CONSIDERATION (AY 2012-13), THE ASSESSEE HAS CLAIME D DEPRECIATION OF RS. 2,45,61,03,549/- @ 25% ON THE VALUE OF ASSET AV AILABLE FOR DEPRECIATION OF RS. 9,82,44,14,194/- AS THE ASSET B LOCK CARRIAGE WAYS WAS FORMED DURING THE YEAR UNDER CONSIDERATION . AS PER THE TERMS OF AGREEMENT (CONCESSION AGREEME NT) MADE BY THE ASSESSEE COMPANY WITH THE NATIONAL HIGHWAYS AUTHORI TY OF INDIA (NHAI), THE ASSESSEE COMPANY WAS TO COMPLETE THE WO RK AT ITS OWN COST INCLUDING OPERATION AND MAINTENANCE AND COLLEC TION OF TOLL FEE FOR A PERIOD OF 20 YEARS. IT IS ALSO SUBMITTED THAT AS PER TERMS OF THE AGREEMENT ENTERED INTO WITH THE NHAI, ASSESSEE WAS REQUIRED TO DEVELOP THE SAID INFRASTRUCTURE' FACILITY BY ARRANG ING FUNDS ON ITS OWN. THE ASSESSEE WNS ALSO UNDER AN OBLIGATION TO MAINTA IN THE SAID INFRASTRUCTURE FACILITY (I.E. ROAD AND BRIDGES) AT ITS OWN COST FOR A SPECIFIED PERIOD I.E. 20 YEARS. AT THE END OF THE S PECIFIED PERIOD, ASSESSEE WAS UNDER AN OBLIGATION TO TRANSFER THE IN FRASTRUCTURE FACILITY TO THE GOVERNMENT. IN CONSIDERATION AND IN TERMS OF THE AGREEMENT WITH THE NHAI, ASSESSEE WAS BESTOWED WITH A RIGHT TO COLLECT TOLL FROM THE MOTORISTS USING THE ROAD FACI LITY DURING THE SPECIFIED PERIOD. THE ASSESSEE CAPITALIZED THE CONSTRUCTION AND DEV ELOPMENT COST OF THE INFRASTRUCTURE FACILITY UNDER THE HEAD' CARRIAG EWAY' AND CLAIMED THE SAME TO BE AN INTANGIBLE ASSET WITHIN THE MEANI NG OF SECTION 32(1)(II) OF THE ACT AND THUS CLAIMED DEPRECIATION @ 25% AMOUNTING TO RS. 2,45,61,03,549/- IN THE COMPUTATION OF INCOME. IN THIS REGARD WE WOULD LIKE TO SUBMIT THAT THE A O HAS FOLLOWED THE CBDT CIRCULAR NO.09/2014 DATED 23.04.2014 AND ACCOR DINGLY CALCULATED THE ALLOWABLE DEPRECIATION OF RS.41,92,7 0,712/- AND DISALLOWED THE EXCESS CLAIM OF DEPRECIATION OF RS.2 03,68,32,837/- ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 4 -: BEING THE DIFFERENCE AMOUNT OF DEPRECIATION. IN TH IS REGARD FIRSTLY WE WOULD LIKE TO SUBMIT THAT THE AO HAS ERRED IN NOT G IVING THE CALCULATION OF ALLOWABLE EXPENDITURE AS PER THE CIR CULAR AN AMOUNT RS.41,91,70,712/-. IT IS ALSO SUBMITTED THAT ASSESS EE HAS CLAIMED DEPRECIATION RIGHTLY IN YEAR UNDER CONSIDERATION FO R AN AMOUNT OF RS. 2,45,61,03,549/- AND AO IS INCORRECT TO APPLY THE C BDT CIRCULAR AND RESTRICT THE CLAIM OF EXPENDITURE UP TO RS. 41,92,7 0,712/-. IN THIS REGARD WE WOULD LIKE TO SUBMIT THE FOLLOWING SUBMIS SION WHICH MAY PLEASE BE CONSIDERED IN FAVOR OF THE ASSESSEE COMPA NY. CBDT CIRCULAR NO 09/2014 DATED 23.04.2014 IS NOT APPLICABLE IN YEAR UNDER CONSIDERATION :- IN THIS REGARD WE WOULD LIKE TO SUBMIT THAT THE AO HAS CALCULATED THE BUSINESS EXPENDITURE DEPRECIATION IN YEAR UNDER CONSIDERATION BY FOLLOWING THE CBDT CIRC ULAR NO. 09/2014 DATED 23.04.2014 AT RS. 41,92,70,712/- AND DISALLOWED THE CLAIM OF DEPRECATION OF RS. 203,68,32,837/- (RS .2,45,61,03,549- RS.41,92,70,712) IN YEAR UNDER CONSIDERATION. IN TH IS REGARD SPECIFICALLY WE WOULD LIKE TO SUBMIT THAT THE AO ER RED IN FOLLOWING THE CBDT CIRCULAR PASSED AS ON 23.04.2014 WITHOUT APPRE CIATING THE FACT THAT THIS CIRCULAR DOES NOT HAVE RETROSPECTIVE EFFE CT AND AS THE SAME IS NOT APPLICABLE TO THE FINANCIAL YEARS PRIOR TO T HE DATE OF THE CIRCULAR. WE WOULD LIKE TO SUBMIT THAT AS PER PARA 7 OF THE ABOVE CIRCULAR CLEARLY SAYS THAT IF ASSESSEE CLAIMED DEDUCTION IN EARLIER YEARS PRIOR TO THE ASSESSMENT YEAR UNDER CONSIDERATION THEN THA T MAY BE DEDUCTED FROM COST OF PROJECT. THE RELEVANT EXTRACT OF THE CBDT CIRCULAR IS REPRODUCED HEREUNDER :_ 7. IN THE CASE WHERE AN ASSESSEE HAS CLAIMED ANY DE DUCTION OUT OF INITIAL COST OF DEVELOPMENT OF INFRASTRUCTUR E FACILITY OF ROADS/HIGHWAYS UNDER BOT PROJECTS IN EARLIER YEAR, THE TOTAL DEDUCTION SO CLAIMED FOR THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR UNDER CONSIDERATION MAY BE DEDUCTED FROM THE INITIAL COST OF INFRASTRUCTURE FACILITY OF ROAD S/HIGHWAYS AND THE COST 'SO REDUCED' SHALL BE AMORTIZED EQUALLY OV ER THE REMAINING PERIOD OF TOLL CONCESSIONAIRE AGREEMENT. AS CAN BE SEEN FROM THE ABOVE EXTRACT OF CIRCULAR THAT THIS WAS APPLICABLE FROM THE YEAR IN WHICH THE SAME HAS BEEN PASSED. THEREFORE, APPLICATION OF THIS CIRCULAR IN YEAR UND ER CONSIDERATION IS INCORRECT. IT IS VERY CLEAR FROM THE ABOVE PARA OF CBDT CIRC ULAR THAT IN ALL PREVIOUS YEARS BEFORE THE CIRCULAR PASSED THE ASSES SEE COMPANY IS ELIGIBLE FOR THE DEDUCTION CLAIMED. ACCORDINGLY THE CLAIM OF DEPRECIATION OF ASSESSEE IN THE YEAR UNDER CONSIDER ATION BEING THE EARLIER YEARS OF CIRCULAR PASSED IS CORRECT AND SAM E SHOULD BE ALLOWED. ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 5 -: IT IS PERTINENT TO MENTION HERE THAT IN THE CASE OF DCIT V S MIS PROGRESSIVE CONSTRUCTION LTD, HYDERABAD, ITA NO 214 /HYD/2014 WHICH HAS BEEN PASSED AS ON 07.11.2014 AFTER THE DA TE OF CBDT CIRCULAR HAS ALLOWED THE CLAIM OF DEPRECIATION OF A SSESSEE COMPANY @ 25% ON INTANGIBLE ASSETS AFTER DISCUSSING THE BOA RD CIRCULAR PASSED IN THIS REGARD. RELEVANT PARA OF THE SAME IS AS UNDER.- 5. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY MERIT IN REVENUE GROUNDS. LEARNED D.R. VEHEMENTLY SUPPORT ED THAT DEPRECIATION CANNOT BE ALLOWED AND RELIED ON THE BO ARD CIRCULAR NO.9 OF 2014 DATED 23.04.2014. AS SEEN FROM THE ABO VE CIRCULAR ISSUED RECENTLY, THE BOARD IS AWARE THAT THERE WERE DISPUTES AS TO WHETHER THE EXPENDITURE INCURRED ON DEVELOPMENT AND CONSTRUCTION OF INFRASTRUCTURAL FACILITIES LIKE ROADS/HIGH WAYS ON BOT BASIS WITH RIGHT TO COLLECT TOLL, IS ENTITLED FOR DEDUCTION UN DER SECTION 32(1)(II) OR THE SAME CAN BE AMORTIZED BY TREATING IT AS AN ALLO WABLE BUSINESS EXPENDITURE UNDER RELEVANT PROVISIONS OF THE I.T.AC T. THE CIRCULAR WENT ON TO CLARIFY THAT THE AMOUNT CAN BE AMORTIZED OVER THE PERIOD OF TOLL CONSTRUCTION CONCESSIONAIRE AGREEMENT. AS C AN BE SEEN FROM THE CIRCULAR, THE BOARD IN FACT HAS ACCEPTED THAT T HE COST INCURRED TOWARDS DEVELOPMENT OF ROAD/HIGHWAYS IS REVENUE EXP ENDITURE AND RELYING ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD., VS. CIT 225 ITR 802, ALLOWED SPREADING OVER THE LIABILITIES OVER NUMBER OF YEARS. SINCE THE AMOUNT IS ALLOWABLE AS AN EXPENDITURE THAT TOO AS REVENUE EXPENDITURE, THE BOARD CIRCULAR IS IN FACT ADVANTAG EOUS TO THE ASSESSEE WHO ARE IN DEVELOPMENT OF INFRASTRUCTURE F ACILITIES BUT NOT OWNING THE PROPERTY WHICH WAS CONSTRUCTED. IN THIS CASE, ASSESSEE HAS INITIALLY TREATED THE ENTIRE COST AS BUILDING A ND CLAIMED 10% DEPRECIATION IN A Y.2009-10. THIS CLAIM IS IN FACT JUSTIFIED ALSO. THE COORDINATE BENCH IN THE CASE OF PBR INDUSTRIES LTD. , ITANO.1171/H/07, 1175/H/07, 1176/H/08 AND ITANO.119 6/H/08 DATED 08.06.2011 ALLOWED SUCH EXPENDITURE INCURRED ON BOT PROJECT AS REVENUE EXPENDITURE AMORTIZED OVER A PERIOD OF CONC ESSION. HOWEVER, THEY ARE ALSO EQUALLY GOOD NUMBER OF CASES AS RELIED BY LD. CIT(A), THAT THE SAME CANNOT BE CONSIDERED AS A N INTANGIBLE ASSET. THE COORDINATE BENCHES IN THE CASE OF NYSE I NFRASTRUCTURE P. LTD., VS. DCIT ITA NO.301/H/2009 DATED 05.06.2009 A ND OTHER CASES ON SIMILAR FACTS ALLOWED DEPRECIATION HOLDING THAT ENTIRE ASSET IS INTANGIBLE ASSET. SINCE THE LD. CIT(A) ALLOWED DEPR ECIATION AS CLAIMED BY ASSESSEE WHICH IS ALSO SUPPORTED BY VARI OUS CASE LAW, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF LD. CIT(A) AS THE ENTIRE COST INCURRED ON THE PROJECT IS TO BE AL LOWED AS DEDUCTION TO ASSESSEE EITHER AS AMORTIZED REVENUE EXPENDITURE OR AS DEPRECIATION. SINCE ASSESSEE CHOOSE TO CLAIM DEPRE CIATION, WE DO ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 6 -: NOT SEE ANY REASON TO DISALLOW THE SAME. ACCORDING LY, THERE IS NO MERIT IN REVENUE GROUNDS. THEREFORE, THE CLAIM OF DEPRECIATION BEING 25% WH ICH IS WORK OUT AT RS. 245,61,03,549/- IN YEAR UNDER CONSIDERATION IS CORRECT AND HENCE WE REQUEST YOU TO KINDLY DELETE THE ADDITION MADE B Y THE AO IN THIS REGARD AS CBDT CIRCULAR IS NOT APPLICABLE IN YEAR U NDER CONSIDERATION. RIGHT TO COLLECT TOLL IN CONCESSION AGREEMENT IS AN INTANGIBLE ASSET UNDER SECTION 32(1)(II) OF THE ACT :- IN CONNECTION WITH THE CLAIM OF DEPRECIATION APPLIC ABLE TO THE BUILDING WE WOULD LIKE TO SUBMIT THAT THE AS PER PROVISIONS OF SECTION 32(1)(II) THE ASSET IS INTANGIBLE ASSET AND ASSESSEE COMPANY IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25% IN YEAR UNDER CONSI DERATION. IT IS SUBMITTED THAT THE ASSESSEE HAD ACQUIRED THE RIGHT OF EXPLOITATION BY CONSTRUCTING THE ROAD WITH ITS OWN MONIES. THE ASSE SSEE ACQUIRED THE RIGHT TO EXPLOIT THE ASSET I.E., ROAD FOR A PERIOD OF 20 YEARS. THE RIGHT TO EXPLOIT IS IN THE NATURE OF A LICENCE GRANTED BY THE OWNER OF THE ASSET WHICH IS ADMITTEDLY THE NHAI OR IT IS IN THE NATURE OF A BUSINESS RIGHT OR A COMMERCIAL RIGHT ACQUIRED BY INCURRING T HE EXPENDITURE. THEREFORE THE ASSET DEFINITELY IS AN INTANGIBLE ASS ET. THE INTANGIBLE ASSET IS THE RIGHT OF LICENCE GRANTED BY THE OWNER I.E. NHAI TO COLLECT TOLL FOR THE PERIOD OF 20 YEARS WHICH IS IN CONSIDE RATION OF THE CONSTRUCTION OF THE ROAD WITH THE FUNDS OF THE ASSE SSEE, THE OWNER OF THE LICENCE OR THE BUSINESS OR COMMERCIAL RIGHT FOR THE PERIOD THAT IT LASTS IS NONE OTHER THAN THE ASSESSEE. IN FACT THAT THE LIMITED RIGHTS FOR A PERIOD ENTITLE SUCH OWNER OF LIMITED RIGHTS T O DEPRECIATION IS VERY WELL STATED BY THE HON'BLE SUPREME COURT IN THE CAS E OF MYSORE MINERALS LIMITED VS CIT (239 ITR 775). IT IS SUBMITTED THAT THE RIGHT TO COLLECT TOLL FEE GRANTED TO THE ASSESSEE IN CONSIDERATION OF CONSTRUCTING ROAD FOR THE NHAI IS IN THE NATURE OF LICENCE OR BUSINESS RIGHT OR COMMERCIAL ASSET AND T HEREFORE, AN INTANGIBLE ASSET COMING UL S 32(1)(II) OF THE IT AC T. THE ASSESSEE IS, THEREFORE, ENTITLED TO DEPRECIATION ON THE COST INC URRED TO ACQUIRE THE RIGHT TO COLLECT TOLL FOR 20 YEARS. FURTHER, IT IS SUBMITTED THAT COSTS CAPITALISED BY THE ASSESSEE HAVE BEEN INCURRED FOR DEVELOPMENT AND CONSTRUCTION OF T HE INFRASTRUCTURE FACILITY, I.E., ROAD AND BRIDGE. THE ASSESSEE WAS T O BUILD, OPERATE AND TRANSFER THE SAID INFRASTRUCTURE FACILITY IN TE RMS OF AN AGREEMENT WITH THE GOVERNMENT. 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 F UNDS. MOREOVER, AFTER THE END OF THE SPECIFIED PERIOD, ASSESSEE WAS TO TRANSFER THE SAID INFRASTRUCTURE FACILITY TO THE GOVERNMENT FREE OF CHARGE. IN CONSIDERATION OF DEVELOPING, CONSTRUCTING, MAINTAIN ING THE FACILITY FOR A SPECIFIED PERIOD AND THEREAFTER TRANSFERRING IT T O THE GOVERNMENT ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 7 -: FREE OF CHARGE, ASSESSEE WAS GRANTED A 'RIGHT TO CO LLECT TOLL' FROM THE MOTORISTS USING THE SAID INFRASTRUCTURE FACILITY DU RING THE SPECIFIED PERIOD. THE SAID 'RIGHT TO COLLECT THE TOLL' IS EME RGING AS A RESULT OF THE COSTS INCURRED BY THE ASSESSEE ON DEVELOPMENT, CONSTRUCTION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY. SUCH A RIGHT HAS BEEN TO BE IN THE NATURE OF 'INTANGIBLE ASSET' FALLING WITHIN THE PURVIEW OF SECTION 32(1)(II) OF THE ACT AND HAS BEEN ELIGIBLE FOR CLAI M OF DEPRECIATION. IT IS PERTINENT TO MENTION HERE THAT THOUGH THE NHA I REMAINS LEGAL OWNER OF THE SITE WITH FULL POWERS TO HOLD, DISPOSE OF AND DEAL WITH THE SITE CONSISTENT WITH THE PROVISIONS OF THE AGRE EMENT, THE ASSESSEE HAD BEEN GRANTED NOT MERELY POSSESSION BUT ALSO RIG HT TO ENJOYMENT OF THE SITE AND NHAI WAS OBLIGED TO DEFEND THIS RIG HT AND THE ASSESSEE HAS THE POWER TO EXCLUDE OTHERS. BEING SO, THE ASSESSEE IS ENTITLED FOR DEPRECIATION. IN THIS REGARD, WE HAVE PLACED RELIANCE ON THE FOLL OWING CASE LAWS - DCIT VS MIS PROGRESSIVE CONSTRUCTION LTD, HYDERAB AD, ITA NO 214/HYD/2014:- HELD THAT ' SINCE THE LD. CIT(A) ALL OWED DEPRECIATION AS CLAIMED BY ASSESSEE 'WHICH IS ALSO SUPPORTED BY VARIOUS CASE LAW, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF LD. CIT(A) AS THE ENTIRE COST INCURRED ON THE PROJECT IS TO BE AL LOWED AS DEDUCTION TO ASSESSEE EITHER AS AMORTIZED REVENUE EXPENDITURE OR AS DEPRECIATION. SINCE ASSESSEE CHOOSE TO CLAIM DEPRECIATION, WE DO NOT SEE ANY REASON TO DISALLOW THE SAME. ACCORDINGLY, THERE IS NO MERIT IN REVENUE GROUNDS. NYSE INFRASTRUCTURE ,.P. LTD., VS. DCIT ITA.NO.30 1/HYD/2009:- ON SIMILAR FACTS ALLOWED DEPRECIATION HOLDING THAT ENT IRE ASSET IS INTANGIBLE ASSET. DCIT VS. MIS SWARNA TOLLWAY PVT LTD, ITA NO 1184 TO 1189/HYD/2013 DATED 16.01.2014 :- WHEREIN IT WAS HE LD THAT ASSESSEE COMPANY IS ENTITLED TO CLAIM THE DEPRECIAT ION U/S.32(1)(II) OF THE IT ACT. ASHOKA INFO PVT. LTD. IN ITA NO. 44/PN/07 DATED 3 1.12.2008 OF THE PUNE BENCH :- THE FACTS OF THIS CASE IS VERY SIMILA R TO THE FACTS OF THE OUR PRESENT CASE AS IN THIS CASE THE QUESTION WAS W HETHER THE LICENCE GRANTED BY THE MAHARASHTRA GOVERNMENT FOR COLLECTIO N OF TOLL ON AHMEDNAGAR - KARMALA ROAD WHICH WAS CONSTRUCTED AND MAINTAINED BY THE ASSESSEE THERE ON BUILD, OPERATE AND TRANSFE R (BOT) BASIS IN TERMS OF THE AGREEMENT WITH THE MAHARASHTRA GOVERNM ENT FOR A FIXED PERIOD OF 16 YEARS AND 9 MONTHS IS AN INTANGIBLE AS SET SO AS TO ALLOW DEPRECIATION AS DESCRIBED UNDER CLAUSE 32 (1)(II) O F THE IT ACT. THE HON'BLE PUNE BENCH IN THAT CASE HELD THAT ASSESSEE THERE WAS ENTITLED TO DEPRECIATION U/S. 32(1)(II) OF THE IT A CT. ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 8 -: RELIANCE PORTS & TEMZL1LALS LIMITED (ITA NOS. 174 3, 1744 & 1745/ MUM/2007, DT. 26.11.2007) :- HELD THAT THE RIGHT TO COLLECT TOLL IS AN INTANGIBLE ASSET AND ELIGIBLE FOR DEPRECIATION U/S 32(1)(II) OF THE IT ACT. FURTHER, WE WOULD LIKE TO SUBMIT THAT THE ISSUE OF DEPRECIATION CLAIM IS SQUARELY COVERED WITH THE FOLLOWING JUDGEMENTS : _ ACT V. M;S. NAVAYUGA ENGINEERING CO. LTD., VISAKH APATNAM (ITA NOS. 1050/HYD/2009 TO 1053/HYD/2009, DATED 08,10,20 10 HYD. TRIB.) M/S. NAVAYUGA ENGG. CO. LTD., HYDERABAD V. ACIT ( ITA NO. 989/HYD/2011 DATED 16.01.2013 HYD. TRIB.] ACIT V. M/S. NAVAYUGA ENGG. CO. LTD. (ITA NO. 128 3/HYD/2011 DATED 08.06.2012) (HYD. TRIB.) DCIT V. M;S. NAVYUA ENGG. CO. LTD. (ITA NO. 55/HY D/2013, DATED 05.04.2013 (HYD. TRIB.) ASHOKA BUILDCON LTD., IN ITA NO. 1302/PN/09, DATE D 20.3.2012 KALYAN TOLL INFRASTRUCTURE LTD., IN ITA NOS. 201 & 247/ IND/2008, DATED 14.12.2010 DIMENSION CONSTRUCTION (P.) LTD., IN IT A NOS. 22 2, 233 & 857/ PN/2009, DATED 18.3.2011. GUJARAT ROAD & INFRASTRUCTURE CO. LTD. V. CIT (7 ITR(T) 730) (AHD) MAHARASHTRA STATE ROAD DEVELOPMENT CORPN. LTD. V. ACIT [2010] 126 ITD 279 (MUM.) ACIT V. ASHOKA INFRAWAYS (P.) LTD. [2013] 33 TAXM ANN.COM 499 (PUNE _ TRIB.) M/S. MORADAHAD TOLL ROAD COMPANY LIMITED V. ACIT M/S. MORADAHAD TOLL ROAD COMPANY LIMITED V. ACIT ASHOKA INFRASTRUCTURE LTD., PUNE V. ITO (ITA NO 9 89/PN/2010 DATED 18 JULY, 2013 (PUNE TRIB.). ACIT VS. VIVA HIGHWAYS PVT. LTD., NASHIK (ITA NO. 187/PN/2012 - DATED 29 APRIL, 2013 (PUNE TRIB.) AS CAN BE SEEN FROM THE ABOVE JUDGMENTS, THAT ISSUE IS SQUARELY COVERED AND ASSESSEE COMPANY IS ELIGIBLE FOR THE CL AIM OF DEPRECIATION AT THE RATE OF 25% ON INTANGIBLE ASSET S. THE AO OUGHT TO HAVE APPRECIATED THE FACT THAT THE CBDT CIRCULAR NO . 09/2014 IS NOT APPLICABLE IN YEAR UNDER CONSIDERATION. THEREFORE, THE ADDITION MADE BY THE AO IS NOT CORRECT AND NOT JUSTIFIED. REQUEST :- IN VIEW OF THE ABOVE SUBMISSION, IT IS R EQUESTED BEFORE YOUR GOOD SELVES THAT THE ASSESSEE COMPANY IS CORRECT IN CLAIMING THE ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 9 -: DEPRECIATION AT THE RATE OF 25% AMOUNTING OF RS.245 ,61,03,549/- AND DISALLOWANCE MADE BY THE AO TOWARDS THE EXCESS DEPR ECIATION OF RS. 203,68,32,8371- (RS. 245,61,03,549 RS.41,92,70,71 2) IS REQUIRED TO BE DELETED. 5.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, FACTS OF THE CASE, SUBMISSIONS OF THE APPELLANT AND CASE LAWS RE LIED UPON BY THE APPELLANT. IN THIS REGARD RELIANCE IS PLACED ON THE HON'BLE ITAT, HYDERABAD, DECISION IN THE CASE OF DCIT, CIRCLE 16( 3), HYD. VS. M/S. PROGRESSIVE CONSTRUCTION LTD., HYDERABAD IN ITA NO. 214/HYD/2014 FOR THE A.Y. 2009-10, WHEREIN IT WAS HELD AS UNDER. : SINCE THE LD. CIT(A) ALLOWED DEPRECIATION AS CLAIM ED BY ASSESSEE WHICH IS ALSO SUPPORTED BY VARIOUS CASE LAW, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AS THE ENTIRE COST INCURRED ON THE PROJECT IS TO BE ALLOWED AS DEDUCTI ON TO ASSESSEE EITHER AS AMORTIZED REVENUE EXPENDITURE OR AS DEPRE CIATION. SINCE ASSESSEE CHOOSE TO CLAIM DEPRECIATION, WE DO NOT SE E ANY REASON TO DISALLOW THE SAME. ACCORDINGLY, THERE IS NO MERIT I N REVENUE GROUNDS. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ITAT, HYDERABAD, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADD ITION TOWARDS DEPRECIATION. 3. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIV AL CONTENTIONS SUPPORTING AND OPPOSING THE IMPUGNED DEPRECIATION DISALLOWANCE. IT HAS COME ON RECORD THAT TH IS TRIBUNALS SPECIAL BENCHS DECISION IN M/S.PROGRESSI VE CONSTRUCTION LTD. (SUPRA) HAS ALREADY SETTLED THE ISSUE THAT SUCH A LICENSE AGREEMENT AMOUNTS TO AN INTANGIBLE ASSE T IN THE NATURE OF RIGHT TO COLLECT TOLL AMOUNTS TO AN INTANGIB LE ASSET U/S.32(1)(II) OF THE ACT. THE REVENUES STAND TH AT THE ASSESSEE OUGHT TO HAVE AMORTISED THE LICENSE FEE PAID TO NHAI AS PER THE CBDTS CIRCULAR (SUPRA) ALSO FAILS TO MAKE ANY DIFFERENCE SINCE THE SAME COULD NOT BE TAKEN AS A N ATTEMPT AT THE BOARDS PART TO DENY DEPRECIATION RELIEF IN ANY MANNER; WHATSOEVER. HON'BLE APEX COURTS DECISION TA PARIA TOOLS LTD. VS. JCIT (2015) [372 ITR 605] (SC) HOLDS THAT THE ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 10 -: MERE OPTION OF AMORTISATION WOULD NOT DEBAR AN EXPENDIT URE CLAIM WHICH IS OTHERWISE ADMISSIBLE AS PER LAW. WE TH US AFFIRM THE CIT(A)S FINDINGS QUA THE FIRST ISSUE OF DEPRECIATION DISALLOWANCE. THE REVENUES CORRESPONDING GROUNDS A RE REJECTED. 4. NEXT COMES THE SECOND IDENTICAL ISSUE OF DISALLOWA NCE OF RS.2,53,39,545/- AND RS.3,54,98,306/- TOWARDS PROVIS ION FOR PERIODICAL MAINTENANCE DECLINED IN THE COURSE OF ASS ESSMENT BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAME IS TOWARDS REPAIR OF DAMAGES HAVING OCCURRED TO THE ROAD PROJECT(S) DUE TO TRAFFIC WITHIN THE SPECIFIED PERIOD OF FIVE YEARS BUT NOT BECAUSE OF TRAFFIC OF 5 TH YEAR ONLY. HE FURTHER HELD THAT THE ASSESSEE-COMPANY HAD TO CARRY OUT A PERIODICAL MAINTENANCE OF ROAD PROJECT AS PER ITS AGREEMENT WITH N HAI ONLY. ALL THIS RESULTED IN THE IMPUGNED DISALLOWANCE. THE CIT(A) HAS REVERSED THE ASSESSMENT FINDINGS AS FOLLOW S: 6. GROUND NOS. 5, 6 & 12 TO 13 ARE WITH REGARD TO DISALLOWANCE OF RS.7,45,50,000/- TOWARDS PROVISION FOR PERIODIC MAI NTENANCE. IN THIS REGARD, THE ASSESSING OFFICER SUBMITTED AS UNDER: ON VERIFICATION OF P&L ACCOUNT IT IS NOTED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.5,98,00,000/- TOWARDS PROVISION FOR PERIODIC MAINTENANCE, WHICH IS NOT A ALLOWABLE EXPENDITURE A S PER PROVISIONS OF IT ACT. WHEN THIS OBSERVATION WAS PUT FORTH BEFORE THE ASSESSEE'S AR, THE ASSESSEE-COMPANY VIDE LETTER DAT ED 13.01.2015 SUBMITTED THAT THE ASSESSEE-COMPANY, AS PER CONCESS IONAIRE AGREEMENT WITH NHAI HAS TO DO PERIODIC MAINTENANCE OF CARRIAGEWAY ONCE IN EVERY FIVE YEAR. THE ASSESSEE-C OMPANY HAS TO RECOVER THE EXPENDITURE FROM TOLL REVENUE ONLY BUT THERE WILL BE NO ADDITIONAL INCOME IN 5 TH YEAR. THE EXPENDITURE IS TOWARDS REPAIRS OF DAMAGES OCCURRED TO ROAD DUE TO TRAFFIC DURING PERI OD OF 5 YEARS BUT NOT BECAUSE OF TRAFFIC OF GH YEAR. HENCE, THE ASSES SEE-COMPANY APPORTIONED THE EXPENDITURE FOR 5 YEARS AND MADE PR OVISION FOR PERIODIC MAINTENANCE OF RS.7,45,50,000/-. ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 11 -: THE ASSESSEE'S SUBMISSIONS ARE CAREFULLY CONSIDERED . THE ASSESSEE'S CONTENTION IS NOT ACCEPTABLE. THEREFORE, THE AMOUNT OF RS.7,45,50,000/- WAS DISALLOWED AND ADDED TO THE RE TURNED INCOME. 6.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT CONTENDED AS UNDER: IN TILLS REGARD WE WOULD LIKE TO SUBMIT THAT THE AS SESSEE COMPANY HAS MADE THE PROVISION OF PERIODIC MAINTENANCE IN T HE FIVE YEARS AS PER THE CLAUSE NO. 3.3.7 OF VOLUME II IN SCHEDULE L OF THE 'CONCESSION AGREEMENT' WITH NHAI, THE COMPANY IS REQUIRED TO OV ERLAY THE ENTIRE PROJECT EXPENDITURE AT A STRETCH ONCE IN EVERY 5TH YEAR FROM THE DATE OF COMMERCIAL OPERATION. HENCE THE PROVISION MADE F OR PERIODIC MAINTENANCE CANNOT BE TREATED AS 'NOT AN ASCERTAINE D LIABILITY'. RELEVANT CLAUSE OF AGREEMENT HAS BEEN REPRODUCED HE REUNDER FOR YOUR KIND REFERENCE:- AS PER CONCESSION AGREEMENT CLAUSE 3.3.7(I) (A) THIS ACTIVITY SHALL BE CARRIED OUT AS REQUIRED AND AT LEAST ONCE 5TH YEAR (FROM COD) AND IN THE LAST YEAR OF CONCESS ION PERIOD. ROAD MAKING AS SPECIFIED AND OTHER ROAD SIDE FEATURES SH ALL BE RESTORED TO MEET THE RELEVANT STANDARDS TO THE SATISFACTION OF THE INDEPENDENT CONSULTANT' (B) THE PERIODIC MAINTENANCE ACTIVITIES SHALL ALSO INCLUDE PROFILE CORRECTIVE COURSE OF OVERLAID WITH THE PERIODIC REN EWAL OF THE WEARING COURSE OF THE ROAD PAYMENT. THE SAME SHALL BE UNDERTAKEN ON ALL ROADS AND PAYMENTS IN THE PROJECT FACILITIES INCLUDING ON THE TRUCK LAY-BAYS BUS-BAGS AND WAY SIDE AMENITIES -SER VICE AREA. THE CONCESSIONAIRE MAY ADOPT COST EFFECTIVE TREATMENT L IKE ASPHALT CONCRETE, RECYCLING, STONE MASTIC, MICRO SEAL ETC. AS CAN BE SEEN FROM THE ABOVE CLAUSE OF CONCESSION AGREEMENT WITH NHAI, ASSESSEE HAS TO OVERLAY THE ROAD ONCE IN EVER Y 5 YEARS FROM COMMERCIAL OPERATION DATE (COD). THE AMOUNT OF SUCH EXPENSE IS VERY HIGH AND SUCH EXPENSE WAS RELATED TO 5 YEARS. SO, BY USING THE MATCHING CONCEPT OF ACCOUNTING THIS PROVISION IS DE BITED IN P&L ACCOUNT, ON THE BASES OF ABOVE MENTIONED CLAUSE PRO VISION WAS MADE EVERY YEAR ACCORDINGLY. THEREFORE, WHENEVER COMPANY HAS INCURRED ACTUAL EXP ENSE RELATED TO PERIODIC MAINTENANCE IT WAS ADJUSTED SUCH AMOUNT FR OM PROVISION FOR PERIODIC MAINTENANCE AND BALANCE HAS BEEN DEBITED I N TO THE P & L ACCOUNT IN YEAR OF INCURRED. ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 12 -: PROVISION OF MAJOR MAINTENANCE MADE CORRECTLY AT RS . 7,45,50,000/-: THE COMPANY HAS ACHIEVED COD (COMMERCIAL OPERATION DATE) IN THE MONTH OF JUNE 2011 AS PER THE COMPLETION CERTIFICAT E DATED 25.07.2012. ACCORDINGLY, THE FIRST CYCLE OF MAJOR M AINTENANCE / PERIODIC MAINTENANCE IS DUE TO BE COMPLETED BY MAY 2016. SINCE THE ENTIRE EXPENDITURE WILL BE SPENT IN THE 5TH YEAR, T HE COMPANY HAS MADE YEARLY PROVISION AND DEBITED P & L ACCOUNT USI NG THE MATCHING CONCEPT OF ACCOUNTING. PROVISION HAS BEEN MADE ON THE BASIS OF THE SBI CAP ITAL MARKET PROJECT REPORT: IN THIS REGARD WE WOULD LIKE TO SUB MIT THAT THE ASSESSEE COMPANY HAS OBTAINED THE PROJECT REPORT FR OM THE SBI CAPITAL MARKET TOWARDS THE PROJECTED FINANCIAL OF T HE COMPANY. AS PER THE ABOVE PROJECT REPORT THE ASSESSEE COMPANY S UPPOSES TO INCUR THE PERIODIC MAINTENANCE EXPENDITURE IN THE FINANCI AL YEAR ENDS ON MARCH 2015, BEING THE FIFTH YEAR OF PROJECT. THEREF ORE IN THE PROJECTED CASH FLOW STATEMENT OF THIS PROJECT REPORT IN APPEN DIX 7 SHOWING THE MAINTENANCE EXPENDITURE AT RS. 49.70 CRORES ON MARC H 2015. WE WOULD LIKE TO SUBMIT THAT THE AS THE ASSESSEE CO MPANY HAS OBTAINED THE PROJECT REPORT FROM SBI CAPITAL MARKET AND AS PER THAT PROJECTED CASH FLOW STATEMENT AN ESTIMATE OF PROVIS ION FOR PERIODIC MAINTENANCE OF RS.49.70 CRORES ON MARCH 2015. THERE FORE ON THE ABOVE REPORT BASIS THE ASSESSEE HAS MADE THE PROVIS ION OF PERIODIC MAINTENANCE AT. RS. 7.45 CRARES IN THE YEAR UNDER C ONSIDERATION. IN THIS REGARD WE WOULD LIKE TO SUBMIT THAT THE ASSESS EE COMPANY HAS CALCULATED THE PROVISION OF PERIODIC MAINTENANCE AT RS. 7.45 CRORES IN THE YEAR UNDER CONSIDERATION, DERAILS OF THE SAME I S GIVEN AS UNDER :- CALCULATION PROVISION OF PERIODIC MAINTENANCE FOR T HE AY.2012-13 DATE OF COMMENCEMENT OF MAINTENANCE EXPENDITURE AFTER THE DATE OF COMPLETION OF PROJECT ON 30.06.2011. 02.07.2011 DATE OF COMPLETION OF MAINTENANCE AS PER THE PERIOD OF 5 YEARS CYCLE 01.07.2016 TOTAL NUMBER OF DAYS FOR A MAINTENANCE PERIOD OF 5 YEARS (FROM 02.07.2011 TO 01.07.2016) 1827 DAYS DAYS OF MAINTENANCE IN THE FY 2011-12 (FROM 02.07.2011 TO 31.03.2012) 274 DAYS ESTIMATED PERIODIC MAINTENANCE COST AS PER THE SBI CAPITAL MARKET REPORT AS ON MARCH 2015 RS.49.70 CRORES PROPORTIONATE PORTION OF PROVISION OF PERIODIC MAINTENANCE FOR THE FY 2011-12 (I.E. RS.49.70 CRORES * 274 DAYS/1827 DAYS) RS.7.45 CRORES AS CAN BE SEEN FROM THE ABOVE CALCULATION THAT ASSE SSEE COMPANY HAS PROVISION OF RS. 7.45 CRORES IN THE YEAR UNDER CONSIDERATION AS PER THE PROJECT COST OF THE MAINTENANCE WORK SUPPOS E TO BE INCURRED ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 13 -: IN THE FIFTH YEAR. AS CAN BE SEEN FROM THE ABOVE TH AT ASSESSEE COMPANY HAS MADE PROVISION IN THE ABOVE FIVE YEARS ON THE BASIS OF THE PROJECTED FINANCIAL AND ESTIMATED COST AND SAME SHOULD BE ALLOWED AS PROVISION. FURTHER, IT IS SUBMITTED THAT AT TIME OF INSURANCE OF ACTUAL EXPENDITURE, THE ASSESSEE WOULD ONLY DEBIT THE EXCE SS OF AMOUNT EXPENDITURE INCURRED OVER AND ABOVE THE PROVISION. AS A RESULT THE ASSESSEE COMPANY WOULD NOT EXCESS CLAIM OF PROVISIO N IN RESPECT OF THE MAJOR MAINTENANCE WORK AND HAS RIGHTLY CLAIMED THE PROVISION IN FINANCIAL STATEMENT. UNDER THE MATCHING PRINCIPLE CONCEPT, THOUGH THE AS SESSEE MAY BE INCURRING EXPENDITURE AT A LATER DATE, HAS CREATED THE PROVISION AS THE NEED FOR INCURRING SUCH EXPENDITURE SINCE SUCH EXPE NDITURE ARISE OVER A PERIOD OF TIME AND CLAIMING SUCH PERIODIC EXPENDI TURE IN THE YEAR IN WHICH IT IS ACTUALLY INCURRED WOULD GIVE INCORRECT PICTURE OF THE FINANCIAL RESULTS IN THE YEAR UNDER THE CLAIM. THE FORESEEABLE EXPENDITURE WAS LIABLE TO BE CONSID ERED WHILE DETERMINING THE INCOME OF THE ASSESSEE FOR THE PERI OD UNDER CONSIDERATION. THE EXPENDITURE WAS ASCERTAINED EXPE NDITURE ON THE MAINTENANCE PORTION OF THE CONTRACT THOUGH IT WAS A N ESTIMATION MADE IN THE LIGHT OF THE AVAILABLE INFORMATION. THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND I T IS ENTITLED TO DEDUCT EXPENDITURE WHICH IS INCIDENTAL TO THE BUSIN ESS AND SUCH EXPENDITURE WAS DEDUCTIBLE ON ACCRUAL BASIS THOUGH IT MAY NOT HAVE BEEN ACTUALLY INCURRED DURING THE RELEVANT ASSESSME NT YEAR. HENCE, THE ADDITION MADE IS TO BE DELETED. MAJOR MAINTENANCE WORK GIVEN TO CONTRACTOR, M/S MAD HUCON INFRA LIMITED :- IN THE CASE OF ASSESSEE COMPANY, THE MAJ OR MAINTENANCE WORK COMPLETED THROUGH OUTSIDE CONTRACTOR I.E. M/ S MADHUCON INFRA LIMITED. WE WOULD LIKE TO SUBMIT THAT AS THE EXTENS ION WAS COMPLETED ON 30.06.2011, THE ASSESSEE ENTERED INTO MAINTENANC E CONTRACT WITH M/S.MADHUCON INFRA LIMITED ON 01.07.2011. THE COMPA NY HAS ENTERED INTO THE AGREEMENT ON 20TH JUNE 2014, WITH THE M/S. MADHUCON PROJECTS LIMITED FOR EXECUTION OF PERIODIC MAINTENANCE WORK. THESE AGREEMENTS ARE ENTERED FOR A PERIOD OF 1 YEAR AND THUS, THERE ARE 5 MAINTENANCE AGREEMENTS WITH M/S.MADHUCO N INFRA LIMITED FOR MAINTENANCE PERIOD OF 5 YEARS. REQUEST :- IT IS SUBMITTED 'THAT THE ASSESSEE COMPA NY HAS MADE PROVISION FOR THE PERIODIC MAINTENANCE CORRECTLY ON THE BASIS OF THE PROJECTED FINANCIAL AND ACCORDINGLY CREATED THE PRO VISION OF RS. 7.45 CRORES IN THE YEAR UNDER CONSIDERATION. THE PROVISI ON FOR THIS PERIODIC MAINTENANCE WAS MADE DULY ON THE BASIS OF MERCANTIL E ACCOUNTING SYSTEM AND SAME SHOULD BE ALLOWED IN THE YEAR UNDER CONSIDERATION. THEREFORE, FROM THE ABOVE IT IS VERY CLEAR THAT THE ASSESSEE COMPANY ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 14 -: HAS INCURRED THE MAJOR MAINTENANCE OF EXPENDITURE I N EVERY FIFTH YEAR AS PER THE AGREEMENT WITH NHAI AND ACCORDINGLY MADE THE PROVISION IN THIS REGARD WHICH IS AS PER THE ACCOUNTING AND S AME SHOULD BE ALLOWED IN THE YEAR UNDER CONSIDERATION. HENCE, IT IS REQUESTED BEFORE YOU THAT KINDLY DELETE THE ADDITION OF RS. 7,45,50, 000/ - IN RESPECT OF THE PERIODIC MAINTENANCE. 6.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT. SINCE THE AP PELLANT HAS PROVIDED THESE PERIODIC EXPENSES BASED ON CONTRACT AGREEMENT BETWEEN THE APPELLANT AND THE CONTRACTOR, HENCE, TH E PROVISION OF SECTION 438 OF THE ACT IS NOT APPLICABLE IN THIS CA SE. THEREFORE, ALL THE SUBMISSIONS OF THE APPELLANT ARE ACCEPTED AND THERE BY THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIV AL CONTENTIONS. LEARNED DEPARTMENTAL REPRESENTATIVES VEHEM ENT ARGUMENT IS THAT THE ASSESSING OFFICER HAD RIGHTLY DISAL LOWED THE IMPUGNED PERIODIC MAINTENANCE CLAIM. THE ASSESSE ES CASE ON THE OTHER HAND IS THAT THIS PROVISION FOR PERIODICAL MAINTENANCE IS VERY WELL BASED ON ITS CORRESPONDING AGREEMENT CLAUSE WITH THE NHAI. THE REVENUE HAS NOWH ERE DISPUTED THE ASSESSEES LIABILITY TO MAINTAIN THE ROAD P ROJECT EVEN IN THE ASSESSMENT FINDINGS AS WELL. AND ALSO THA T SECTION 43B DOES NOT COVER ANY OF THESE CLAUSES IN PRINCIPLE AS IT HAS BEEN OBSERVED IN THE CIT(A)S ORDER. WE THUS QUOTE T HE HONBLE APEX COURTS LANDMARK DECISION CHAINRUP SAMPATRAM VS. CIT (1953) [24 ITR 481] (SC) THAT AN EXPENDITURE COULD BE BOOKED AT THE FIRST SIGN OF PROBABILITY WHEREAS THE CONVERSE I S NOT TRUE QUA INCOME WHICH HAS TO BE RECOGNISED AS PER THE CONSERVA TIVE SYSTEM OF ACCOUNTING ONLY. WE THUS AFFIRM CIT(A)S LO WER APPELLATE FINDINGS UNDER CHALLENGE ALLOWING THE ASSES SEES PERIODICAL MAINTENANCE CLAIM GOING BY ITS AGREEMENT C LAUSES THAN MERE ESTIMATION BASED THEREUPON. THE REVENUES FIR ST APPEAL ITA NO.2119/HYD/2018 RAISING THESE TWO SUBSTAN TIVE ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 15 -: GROUNDS ONLY FAILS. ITS LAST APPEAL ITA NO.2121/HYD/ 2018 RAISING IDENTICAL SOLE SUBSTANTIVE ISSUE OF DISALLOWA NCE OF PROVISION FOR PERIODICAL MAINTENANCE OF RS.3,54,98,3 06/- ALSO MEETS THE SAME OUTCOME. 6. WE ARE NOW LEFT ALL THE REVENUES THIRD SUBSTANTIVE GRIEVANCES SEEKING TO REVIVE DISALLOWANCE OF INTEREST PAYMENT OF RS.21,35,00,000/- CONVERTED INTO FITL (FUNDED INTE REST TERM LOANS). THE CIT(A)S DETAILED DISCUSSION DELETIN G THE IMPUGNED DISALLOWANCE READS AS UNDER: GROUND NOS. 10 & 11 ARE WITH REGARD TO DISALLOWANC E OF INTEREST PAYMENT CONVERTED INTO FITL OF RS.21,35,00,000/-. I N THIS REGARD, THE ASSESSING OFFICER STATED AS UNDER: IT IS OBSERVED FROM NOTE-2.4 (LONG TERM BORROWINGS) THAT THERE ARE FOLLOWING FRESH FUNDED INTEREST TERM LOANS FROM THE BANKS: FITL IDBI RS.4,38,00,000/- FITL-SBH RS.91,00,000/- FITL-VB RS.1,78,00,000/- FITL-CB RS.5,35,00,000/- FITL-CBI RS.3,58,00,000/- FITL-IIFCL RS.5,35,00,000/- TOTAL RS.21,35,00,000/- AS PER THE PROVISIONS OF SECTION 43B, THE INTEREST PAYMENTS ARE ALLOWABLE ONLY ON THE BASIS OF ACTUAL PAYMENT. IT I S SPECIFICALLY GIVEN IN THE EXPLANATION THAT THE CONVERSION OF OUTSTANDI NG INTEREST INTO FUNDED INTEREST TERM LOAN SHALL NOT BE CONSTRUED TO THE PAYMENT AND THE SAME SHALL BE DISALLOWED AS PER THE PROVISI ONS OF SECTION 43B. THEREFORE, ASSESSEE IS REQUESTED TO EXPLAIN AS TO WHY THE ABOVE INTEREST PAYMENTS, WHICH ARE NOT PAID BUT MERELY CO NVERTED INTO FITL SHALL NOT BE DISALLOWED. IN RESPONSE, ASSESSEE HAS FILED A LETTER DATED 29.2.2016. AS THE ASSESSEE ITSELF HAS AGREED WITH T HE OBSERVATION AND ALSO CONSIDERING THE FACTS & ISSUES OF THE CASE , THE INTEREST CONVERTED IN FITL AMOUNTING TO RS.21,35,00,000/- WA S DISALLOWED AND ADDED TO THE RETURNED INCOME. 6.1 REGARDING THE ABOVE ADDITION, DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT CONTENDED AS UNDER: ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 16 -: THE AO DISALLOWED AN AMOUNT OF RS.21,35,00,000/- TO WARDS THE INTEREST PAYMENTS INTO FITL U/S.43B OBSERVING THAT THE INTEREST PAYMENTS ARE ALLOWABLE ONLY ON THE ACTUAL PAYMENT A ND NOT THE OUTSTANDING INTEREST CONVERTED INTO FUNDED INTEREST TERM LOAN. IN THIS CONNECTION, WE WOULD LIKE TO SUBMIT THAT DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS ENTERED INT O MATER RESTRUCTURING AGREEMENT VIDE AGREEMENT DATED 25.03. 2013 WITH 5 FINANCIAL INSTITUTIONS FOR THE AMOUNT OF INTEREST P AYABLE FOR THE PERIOD FROM DECEMBER 2012 TO MARCH 2013 INTO FUNDED INTERE ST TERM LOAN. AS THE AMOUNTS HAVE BEEN CONVERTED INTO FITL BEFORE THE END OF FINANCIAL YEAR, THERE IS NO LIABILITY OF INTEREST P AYABLE AT THIS JUNCTURE, WE WOULD LIKE TO SUBMIT THAT THE FINANCIAL INSTITUT IONS TO WHOM INTEREST WAS TO BE PAID, HAVE AGREED TO CONVERT SAI D INTEREST AMOUNT INTO TERM LOAN AND THE INTEREST AMOUNT SO PAYABLE S HOULD BE TAKEN AS CONSTRUCTIVELY PAID AND HAS TO BE ALLOWED AS DEDUCT ION. FURTHER, IT IS SUBMITTED THAT THE INTEREST AMOUNT WAS FUNDED BY TH E FINANCIAL INSTITUTIONS ITSELF FOR THE INTEREST PAYABLE AMOUNT BY THE ASSESSEE. IT CANNOT, THEREFORE, BE SAID THAT THE ASSESSEE HAS NOT PAID THE INTEREST DURING THE YEAR UNDER REFERENCE, SINCE THE AMOUNT OF INTEREST DEBITED TO THE P AND L A/C., IS DEEMED TO HAVE BEEN PAID OFF BY TRANSFERRING THE SAME TO THE FUNDED INTEREST TERM L OAN, AND NO LIABILITY REMAINS THEREFORE, THE EXPENDITURE IS FUL LY ALLOWABLE UNDER THE PROVISIONS OF THE IT ACT. THE PROVISIONS OF SEC TION -43B OF THE ACT, ARE NOT APPLICABLE TO THE FACTS OF THE CASE AND THA T THEREFORE, NO DISALLOWANCE UNDER THE ABOVE SECTION IS CALLED FOR. IT IS DEEMED TO BE THE ACTUAL PAYMENT AND SAME SHOU LD BE ALLOWABLE UNDER PROVISIONS OF SECTION 43B OF THE ACT. FURTHER , THE WORD 'ACTUAL' IS USED IN THE SECTION ONLY TO EMPHASISE THAT THE P AYMENT SHOULD BE REAL AND A PAYMENT IN FACT AND NOT SOMETHING THAT I S PRETENCE OR A FICTION. IN VIEW OF THE FACTS SUBMITTED ABOVE, IT IS REQUEST ED THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO DELETE THE ENTIRE ADDITIONS MADE AND TO DIRECT THE ASSESSING OFFICER TO PASS NE CESSARY MODIFICATION ORDER FOR THE ASST. YEAR 2013-14. 6.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT. SINCE THE AP PELLANT HAS PROVIDED THESE PERIODIC EXPENSES BASED ON CONTRACT AGREEMENT BETWEEN THE APPELLANT AND THE CONTRACTOR, HENCE, TH E PROVISION OF SECTION 43B OF THE ACT IS NOT APPLICABLE IN THIS CA SE. THEREFORE, ALL THE SUBMISSIONS OF THE APPELLANT ARE ACCEPTED AND THERE BY THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 17 -: 6.1. IT IS SUFFICIENTLY CLEAR THAT THE ASSESSING OFFICER HAD INVOKED SECTION 43B OF THE ACT TOWARDS THE IMPUGNED PROVISION OF INTEREST PAYMENT THAN ACTUAL PAYMENT OF INTE REST SUM. WE NOTICE THAT THERE IS NO REBUTTAL FROM THE REVENUE S SIDE QUA THE CLINCHING FACT THAT THE IMPUGNED FUNDED INTEREST TERM LOAN IS NOT A LOAN TRANSACTION BUT ASSESSEES CON TRACT AGREEMENT WITH THE CREDITOR PARTY AND THEREFORE, THE CIT (A) HAS HELD THAT THE SAME IS NOT EXIGIBLE TO ACTUAL PAYMENT CONTEMPLATED U/S.43B OF THE ACT. WE THUS DECLINE THE REVENUES INSTANT LAST SUBSTANTIVE GROUND AS WELL. THI S REMAINING APPEAL ITA NO.2120/HYD/2018 IS ALSO REJEC TED THEREFORE. 7. THESE REVENUES APPEALS ARE DISMISSED IN ABOVE TE RMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTI VE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 09-06-2021 TNMM ITA NOS. 2119, 2120 & 2121 /HYD/2018 :- 18 -: COPY TO : 1.DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD. 2.M/S.MADHURAI TUTICORIN EXPRESSWAYS LTD., PLOT NO.1129/A, MADHUCON HOUSE, RD.NO.36, JUBILEE HILLS, HYDERABAD. 3.CIT(APPEALS)-4, HYDERABAD. 4.PR.CIT-4, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.