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Facts
The assessee, a company operating under a Tolling Operate and Transfer (TOT) model with NHAI, claimed depreciation of 25% on the 'right to collect toll' as an intangible asset. While the Assessing Officer initially accepted this claim, the Ld. PCIT revised the assessment order under Section 263, deeming the depreciation claim erroneous and prejudicial to the revenue due to lack of ownership of the asset by the assessee.
Held
The Tribunal upheld the PCIT's order, concluding that the assessee did not meet the ownership criteria essential for claiming depreciation under Section 32 of the Income Tax Act for the 'right to collect toll'. Although the assessee may be eligible for amortisation, the claim for depreciation was correctly disallowed.
Key Issues
Whether the PCIT's revision of the assessment order under Section 263 was justified, and whether the 'right to collect toll' under a BOT concession agreement qualifies as an "intangible asset" eligible for depreciation under Section 32 of the Income Tax Act.
Sections Cited
263, 143(3), 144B, 32, 32(1)(ii), 115JB, 52
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of Ld. Pr. CIT(A) – 6, Mumbai dated 17.03.2025 for assessment year (AY) 2020-21. The assessee has raised following grounds of appeal:
“1) On the facts and in the circumstances of the case and in law, the learned PCIT has erred in initiating proceeding under section 263 of the Act on the basis of audit objection without independent application of mind.
2) On the facts and in the circumstances of the case and in law, the learned PCIT has erred in initiating proceedings under section 263 of the Act and passing the impugned order against the appellant.
3. On the facts and in the circumstances of the case and in law, the learned PCIT has erred in holding that the order dated 29 September 2022 passed under section 143(3) of the Act read with section 144B of the Act (Order) by the Assessment Unit, Income Tax Department (learned AO) was erroneous in so far s it is prejudicial to the interest of revenue.
4. On the facts and in the circumstances of the case and in law, the learned PCIT has erred in setting aside the assessment order passed by the learned
AO and directing him to pass a fresh assessment order on the issues raised by the PCIT in the notice issued under section 263 of the Act.
5. On the facts and in the circumstances of the case and in law, the learned PCIT has erred in holding that the appellant’s claim of depreciation on intangible assets i.e. ‘right to collect toll’ under section 32 of the Act is erroneous and has resulted in underassessment of income.”
Brief facts of the case are that assessee is a company, filed its return of income on 14.02.2021 showing nill income for assessment year 2020-21 after setting of current year profit from brought forward business loss. The assessee-company entered into a Concession Agreement (CA) with the National Highways Authority of India (NHAI) for on Tolling Operate and Transfer (TOT) model for 30 yearsof National Highway No. 16 in the State of Andhra Pradesh from Diwancheruvu to Siddhartham. In the computation of income, the assessee claimed set off of current year profit against the brought forward losses under the normal provisions of book profit of Rs. 9.84 crores. The case was selected for scrutiny on the issue of (i) investment in intangible assets (ii) claim of any other amount allowable as deduction in Schedule BP (iii) high creditors/liabilities & (iv) business losses. The assessing officer referred all the issue in assessment order and accepted the returned income vide assessment order passed under section 143(3)rws 144B dated 29.09.2022. The assessment order was revised by ld. PCIT by invoking his jurisdiction under section 263. The ld. PCIT in para 2 of his order recorded that objections were raised by revenue audit and that assessment record was examined. The ld. PCIT issued show cause notice under section 263 dated 20.02.2025 as recorded in para 4 of his order. In the show cause notice he noted that assessee has entered into concession agreement with National Highway Authority of India (NHAI) on 26.04.2018. Under the said concession agreement, the assessee company has obtained a concession to tolling, operation, maintenance and transfer for a stretch of National Highway No. 16 from certain length in Andhra Pradesh for 30 years on TOT model. The assessee company treated the said license allowed in the concession agreement and set up the infrastructural facilities as an ‘intangible right’ with effect from 01.04.2019 and claimed depreciation @ 25% as mentioned in ‘note’ to its audit report under depreciation schedule. The assessee company has claimed aggregate depreciation of Rs. 93 crores (Approx) on this asset.
From computation of income, it is seen that assessee had amortised the cost in its books of account. However, in the computation of income for the purpose of paying income tax, assessee treated the road asset as intangible asset and claimed depreciation @ 25%. The asset is not owned by assessee and the assessee is entitled to claim only amortisation and not depreciation.
This has resulted in excess claim of deduction of Rs. Rs. 77.19 crores. On the basis of such observation, the ld. PCIT was of the view that assessment order dated 29.02.2022 is erroneous and in so far as prejudicial to the interest of revenue and is required to be set aside.
In response to show cause notice, the assessee filed its reply dated 07.03.2025. The assessee objected the revision proceeding on legality as well as on facts. The assessee submitted that in the computation of income, the assessee has declared loss of Rs. 65.90 crores under normal provisions of the Act and book profit @ Rs. 9.84 crores under section 115JB. Their case was selected for scrutiny. During assessment, the assessing officer examined the issue. The assessee responded from time to time. The assessees vide its submission dated 21.06.2022 submitted document in support of claim of depreciation on ‘intangible asset’. The assessee furnished concession agreement, detailed note on additions made in the block of ‘intangible asset’ and details of addition. Copy of reply filed before assessing officer was also furnished to ld PCIT. The assessing officer passed the assessment order in accepting the claim of depreciation on intangible asset in assessment order.
The assessee submitted that issue was examined, verified and was accepted hence no variation was made. The assessee submitted that provisions of section 263 can only be invoked where twin conditions that assessment order is erroneous and in so far as prejudicial to the interest of revenue are satisfied. The assessee also relied on various case laws to strengthen their submission. The assessing officer has not only examined the issue but considered the entire record. The assessee has no control on drafting of the assessment order. Generally, when the claim of assessee is accepted by assessing officer, he do not mention in the assessment order and only those points on which taxpayers explanation are not accepted and rejected and additions or disallowances are made, is referred in the assessment order. The ld. PCIT cannot invoke 263 to correct each and every type of mistake as occurred in the assessment order. In other alternative submission, the assessee submitted that mere adequate enquiry by assessing officer is not sufficient for revision. To support such contention, the assessee relied on the decision of Delhi High Court in CIT Vs Vikas Polymers (2010) 194 Taxman 57 (Delhi) (HC). On the merit, the assessee submitted that company was incorporated / set up on 28.03.2018. The assessee entered into concession agreement on 26.04.2018 with NHAI for tolling and transfer for a stretch of National Highway in Andhra Pradesh. By virtue of concession agreement, the assessee acquired right to collect toll on the aforesaid road project. As a part of concession agreement, the assessee was required to make one time upfront payment of concession fees of Rs. 454.83 crores. In the agreement, the assessee is entitled for concessionaire to right of way, access and license to the site, manage, operate and maintain the project highway and regulate the use thereof by third party in accordance with terms and conditions, demand, collect and appropriate fees from vehicles and users are liable for payment. The assessee mentioned all such conditions in his reply. The assessee submitted that they made investment of Rs. 43.26 crores in the relevant assessment year. The assessee also incurred interest expenses of Rs. 40.94 crores during the year. The assessee submitted that during the relevant financial year, the assessee made addition to the block of intangible asset and claimed depreciation on the entire block @ 25% amounting to Rs. 39.00 crores. Such expenses were incurred pursuant to concession agreement being integral part of protecting the right to collect tool. Such expenses were capitalised and added to block of intangible asset and depreciation @ 25% is claimed under section 32. The assessee further explained that right which is in the nature of tool of the trade, smoothness of carrying of business, has economic value or revenue prospect and contribute to the net worth of the company which can be considered as intangible asset.
The assessee also relied on CBDT Circular No. 20 of 2019 wherein it was mentioned that right need not be restricted to intellectual property right. The assessee further explained that right under built, operate and transfer (BOT) projects have been considered to be an ‘intangible asset’ in the decision of Special Bench of Hyderabad Tribunal in ACIT Vs Progressive Constructions reported in (2018) 63 ITR 516 (Hyd). The assessee also relied on various decisions of different assessee’s who are engaged in BOT of Highways and submitted that depreciation claimed by assessee is allowable as per provision of Income Tax Act and prayed for not to pursue the proposal of revision under section 263. The assessee submitted that order is not erroneous. By specifically referring the CBDT Circular No. 9 of 2014 wherein expenditure incurred by assessee of BOT project bringing and enduring benefit in the form of right to collect tool, control period of agreement and on same principles the BOT model which allowed economic benefit rather than immediate expenses. The assessee also relied on decisions of various High Courts and Tribunal wherein similar rights granted under various concessionary agreements were allowed intangible asset.
The ld. PCIT after considering the submission of assessee held that expenditure does not resultant acquisition of “intangible asset” eligible for depreciation. The decisions cited by assessee are not acceptable as they failed to align with the established legal principle and specific fact of the case. The decision relied by assessee overlooks the fundamental issue of ownership which is crucial for claiming depreciation under section 32 of Income tax Act. The ld. CIT(A) referred the decision of Bombay High Court in North Karnataka Expressway Ltd. (TS-679-HC-2014(BOM) wherein depreciation on such asset was not allowed by holding that such toll road does not belong to concessionaire. The ld. PCIT further held that assessing officer failed to conduct a proper enquiry into the nature of expenditure and incorrectly allowed depreciation claimed, without examining its admissibility and the correct provision of law which constitute an error as per Explanation 2(a)(b) to section 263 which renders the assessment order erroneous and so far as prejudicial to the interest of revenue. The assessment order was set aside on the issue of allowance of depreciation on “intangible asset” and directed the assessing officer to make enquiry and reassess the income of assessee after allowing opportunity to the assessee. Aggrieved by the order of ld. PCIT, passed under section 263 of the Act, the assessee has filed present appeal before Tribunal.
We have heard the submission of Sh. Vijay Mehta, the learned authorised representative (ld. AR) of the assessee and Shri Umashankar Prasad, the learned Commissioner of Income Tax – Departmental Representative (ld. CIT- DR) for the revenue. The ld. AR of the assessee submits that assessee- company was set up and incorporated on 28.03.2018. The assessee entered into concession agreement with the National Highway Authority of India (NHAI) on 26.04.2018 for tolling, operating and maintenance of part of National Highway in a State of Andhra Pradesh for a period of 30 years starting from 29.08.2018. By virtue of concession agreement, the assessee acquired right to collect toll on the road project. The assessee was required to pay one time upfront payment of concession fee of Rs. 454.83 Crores to NHAI. Under the license agreement, the assessee has given various rights, such business rights are business or commercial rights as envisaged under the provisions of section 32(1)(ii) of the Act. The assessee capitalised the concession fees paid to NHAI in the block of “intangible asset”. In A.Y. 2019- 20 and claimed depreciation on such intangible asset and allowed to the assessee. During the relevant financial year under consideration, the assessee incurred various expenses as required in concession agreement, which includes EPC work, installation of advanced traffic management system and interest on borrowed fund all aggregating Rs. 43.26 crores, so the assessee made addition to the block of intangible asset and claimed depreciation on entire block @ 25%. The expenses incurred pursuant to concession agreement are integral part of protecting the right to collect the toll. Hence, the aforesaid expenses were capitalised and added to the block of ‘intangible asset’ and depreciation has been claimed under section 32(1)(ii). In earlier assessment year, the similar depreciation on intangible asset was allowed to the assessee. During the assessment proceedings,the assessing officer issued various show cause notices on the allowability of such depreciation. Various show cause notices were responded by assessee.
The assessing officer after considering such reply accepted the claim of assessee on the issue of depreciation on intangible asset. The assessing officer in para-3 of assessment order has mentioned/accepted such fact and held no variation made on such issue. Thus, the assessing officer during the assessment after examining the claim took reasonable and legally sustainable view, which cannot be said to be erroneous. When the assessing officer examined the issue during assessment and took reasonable and legally sustainable view, such issue cannot be revised by ld. PCIT, if he is of different view. The ld. AR of the assessee by referring para 2 of order by ld. PCIT under section 263, would submit that revision proceedings were initiated on the basis of objection raised by revenue audit. The revision of reopening on the basis of audit objection is not permissible. The ld. AR reiterated that assessing officer on examining the issue has taken a reasonable, plausible and legally sustainable and even otherwise if two views are possible on such issue, the revision proceedings are not permissible. To support of his views, the ld. AR relied upon the following decisions: CIT vs Hindustan Coco Cola Beverages P. Ltd. (331 ITR 192) Delhi Airport Metro Express P. Ltd. Vs PCIT (88 taxmann.com 767) ACIT vs Delhi Metro Express Ltd. (ITA No. 5660/Del/2019 (Delhi-Trib) Kerala Transport Development Finance vs PCIT (ITA No. 443/Coch/2023) IRCON Soma Tollway P. Ltd. vs PCIT (ITA No. 3389/Del/2017 and ors.
Once the depreciation is allowed in earlier assessment years, it cannot be disallowed in subsequent years. To support his submission, the ld. AR relied upon the following decision: DCIT Vs Atlanta Limited (ITA No. 3415/Mum/and Ors.) (Mumbai-Trib) HSBC Asset Management Vs DCIT (ITA No. 2028/M/2009 (Mumbai-Trib) DIT (Intl. Taxation) Vs HSBC Asset Management (I) P. Ltd. (47 taxmann.com 286) DCIT vs Gujarat Narmada Valley Fertilizers Co. Ltd. (42 taxmann.com 438) Virendra R Gandhi vs ACIT (Tax Appeal No. 20 of 2004 with Tax Appeal No. 124 of 2005) Rajeshwarkumar Shantilal Patel vs ITO (2021) 127 taxmann.com 342 7. The ld. AR of the assessee by referring the contents of impugned order wherein the ld. PCIT relied upon the decision of Mumbai Tribunal in Hazaribagh Ranchi Expressway Ltd. Vs ACIT (2024) 167 taxmann.com 571 (Mumbai-Trib) wherein it was held that where assessee was constructing a road on BOT basis on Government land and it was not owner of road and could not claim depreciation on it toll bridge and tool roads are not intangible assets in terms of Explanation 3(a) to section 32(1)(ii). The ld. AR of the assessee submits that subsequent decision passed after assessment order, the assessment order do not become erroneous as has been held by Hon’ble Apex Court in CIT Vs Max India Ltd and Gujarat High Court in Meghalaya Plywood Ltd. vs CIT 160 taxmann.com 89.
The ld. AR of the assessee while referring the meaning of license as per K J Aiyer’s Judicial Dictionary, the license means where one grants to another or to a definite number of other persons, a right to do or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a licence. The similar definition is prescribed under section 52 of Easement Act, 1882. The Special Bench of Hyderabad Tribunal in ACIT vs Progressive Construction Ltd. (2018) 92 taxmann.com 104 (Hyderabad) (SB) also held that where expenditure incurred by assessee for construction of road under BOT contract by Government of India had given rise to an intangible asset as defined under Explanation 3(b) r.w.s. 32(1)(ii), the assessee would be eligible to claim depreciation on such asset at a specified rate. It was also held that where the assessee never claimed expenditure incurred for construction of BOT as deferred revenue expenditure, which could not have been amortised in terms of CBDT Circular No. 9 of 2014. The ld. AR of the assessee further submits that Circular No. 9 of 2014 allowed depreciation on intangible asset and while considering such circular, the Mumbai Tribunal in Valecha Badwani Sendhwa Tollways Ltd. vs PCIT in also allowed similar relief to that assessee while allowing similar relief in the revision proceedings. The AR of assessee while summing up his submission would submit that even otherwise the twin conditions as prescribed under section 263 of Income Tax Act are not met out in the present case as the order passed by assessing officer is not erroneous. Further, there is no prejudiced to the interest of revenue as there was huge losses of Rs. 69.90 crores during the relevant financial year. Thus, the order passed by ld. PCIT under section 263 is liable to be quashed on legal issue as well as on facts.
On the other hand, learned Commissioner of Income Tax – Departmental Representative (ld. CIT – DR) for the revenue submits that Explanation 2 of section 263 as amended from 08.04.2015 is clearly applicable on the facts of the present case. The assessing officer has not passed the order in accordance with the decision rendered by jurisdiction High Court or Supreme Court and allows relief without following the CBDT instruction. If any order of High Court or Supreme Court is available on the issue, the assessing officer was under obligation to follow such decision, the assessing officer has not followed the CBDT Circular No. 6 of 2014 and the decision of Bombay High Court in North Karnataka Expressway Ltd. (supra) and Madras High Court in case of L&T Infrastructure Development Projects Ltd. as mentioned in para 6.2 of order passed by ld. PCIT. So far as the contention of ld. AR that in first year that is in earlier assessment similar depreciation on intangible asset was allowed, the ld. CIT-DR for the revenue submits that there is no scrutiny order and the return processed under section 143(1). The decisions relied by ld. AR of the assessee are prior to the insertion of Explanation 2 to section
The Hon’ble jurisdictional High Court in CIT vs Gabriel India Ltd. 203 ITR 108 (Bom) clearly held that there must be a prima facie material to show that tax which was lawfully accessible has not been imposed or by application of relevant statute or incorrect or incomplete interpretation lesser tax then what was just has been imposed is nothing but an erroneous decision by the authority. The amortisation is only of Rs. 18 crores plus amount but the assessee has claimed depreciation on intangible asset of Rs. 93 crores so it is certainly prejudicial to the interest of revenue being cascading effect. The ld. CIT-DR for the revenue submits that twin conditions that assessment order is erroneous and in so far as prejudicial to the interest of revenue, both are available in present case and the order passed by ld PCIT may be upheld.
In short rejoinder, the ld. AR of the assessee would submit that ld. CIT-DR cannot improve the case of ld. PCIT. The ld. PCIT has not invoked the clause (c) and (d) of Explanation 2 to section 263.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by ld AR of the assessee as well as by ld PCIT in his order. We find that there is no much dispute on the facts of the present case. The assessee in its computation of income has claimed depreciation on intangible asset. The claim of assessee is based on concession agreement with NHAI, wherein they are allowed to build, operate, maintain and to collect toll and to transfer it to NHAI after 30 years. They treated rights of licence allowed in theconcession agreement and set up the infrastructural facilities as an ‘intangible right’ with effect from 01.04.2019 and claimed depreciation @ 25% as mentioned in ‘note’ to its audit report under depreciation schedule. The assessee company has claimed aggregate depreciation of Rs. 93 crores (Approx) on this asset. In the computation of income, they had amortised the cost in its books of account. However, in the computation of income for the purpose of paying income tax, assessee treated various rights in the agreement as intangible asset and claimed depreciation @ 25%. The mute question for our consideration is whether the order passed by AO is erroneous and at the same time it is prejudicial to the interest of revenue. To decide such question, we have to see if the assessee has acquired any intangible right or asset while obtainingconcession agreement, for tolling, operation, maintenance and transfer of certain stretch of National Highway. In case the assessee succeeded that they have acquired ‘intangible right’ by virtue of concession agreement, certainly entitle for depreciation on such intangible rights and thus the AO while accepting the claim of assessee took plausible and legally sustainable view.
We are conscious of the facts that Special bench of Hyderabad ACIT Vs Progressive Construction Ltd (supra) held that when the expenditure incurred by the assessee for construction of road under BOT contract by Government of India had given rise to an intangible asset as defined in the Explanation 3(b) read with section 32(1)(ii), assessee would be eligible to claim depreciation on such asset at specified rate. However, subsequent to decision of Special Bench of Hyderabad Tribunal, the honourable Madras High Court in L & T Infrastructure Development Project Ltd (supra) held that rights acquired under concessionary agreement are neither ‘tangible asset’ nor ‘intangible assets’ for the purpose of section 32, hence question of providing depreciation does not arise.
We find that coordinate bench of Mumbai Tribunal in Hazaribagh Ranchi Expressway Ltd versus ACIT (supra) in its later decision by following the decision of Madras High Court, in para 20 of its decisions held Hon'ble Madras High Court, while deciding the issue against the taxpayer had applied the principle of noscitur a sociis instead of applying the principle of ejusdem generis, as applied by the Special Bench of the Tribunal in Progressive Constructions Ltd. (supra), while deciding the issue in favour of the taxpayer.
Both the principle of noscitur a sociis and the principle of ejusdem generis are the tools forthe construction of general words as per the Principles of Interpretation of Statute. It was observed by coordinate bench that Hon'ble Madras High Court, in the aforesaid decision, from Maxwell's Interpretation of Statutes (12th Edition), the meaning of the principle of noscitur a sociis is thatwhen two or more words which are susceptible of analogous meaning are coupled together, they are understood to be used in their cognate sense.
It means associated words take their meaning from another under the principle of noscitur a sociis. It is also well-settled that the principle of noscitur a sociis is wider than the principle of ejusdem generisand it means that when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified.The plea of the assessee that while interpreting the term "any other business or commercial rights of similar nature" in Explanation 3(b) to section 32(1)(ii) of the Act, the principle of ejusdem generisbe applied instead ofthe principle of noscitur a sociis was not accepted.
We find thatcoordinate bench of Mumbai Tribunal in Hazaribagh Ranchi Expressway Ltd versus ACIT (supra ) also noted that Hon'ble Jurisdictional High Court in CIT v. Smt. Godavaridevi Saraf, reported in [1978] 113 ITR 589 (Bombay),held that an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. It was further held that until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land.
Before us, the ld AR of the assessee vehemently argued that during assessment the AO examined the issue and accepted the claim of assessee.
It is the further plea of ld AR of the assessee that at the time of passing assessment order, order of Special Bench of Hyderabad Tribunal was available and the view taken by AO is legally sustainable view. On careful consideration of facts and the other material including the agreement of assessee with NHAI, we are of the view that once the assessee does not fulfil the conditions of ownership as prescribed under section 32 of the Act, which is an essential condition for claiming depreciation on asset, the other alleged ancillary benefits of intangible asset are also not available to the assessee. In the concession agreement the assessee is allowed collect toll to recoup the expenditure incurred. No doubt when the assessee incurred on the project for development of highway, they are entitled to recover such cost including preoperative expenses during the period allowed in agreement with NHAI.
Thus, we are of the considered view that expenditure incurred by the assessee on infrastructure project like of BOT agreement can be treated as having been incurred for the purpose of business and same be allowed to be spared during the tenure of concession agreement.
Now again adverting to the facts of present case and to consider the submissions of ld AR of the assessee that the impugned issue was examined by AO and he took reasonable view. No doubt the AO examined the issue but the same is not plausible and legally sustainable view. The view taken by AO is erroneous. The other condition of section 263 that order must be prejudicial to the interest of revenue, such condition has to be seen in conjunction with the erroneous order, if due to erroneous order the revenue is losing or is likely to lose tax lawfully payable by assessee it is certainly against the interest of revenue. Thus, the twin conditions of section 263 are satisfied in the present case.
At the cost of repetition, we find that claim of depreciation by treating bundle of rights in BOT/ concessionary agreement as anintangible asset failed thus, we find no reason to interfere with theorder of the ld PCIT, which is impugned in the present appeal and the same is upheld. However, in our view the assessee is eligible for the benefit of amortisation for the period of the concession agreement in consonance with CBDT Circular No. 9 of2014.
The ratio of various case laws relied by the ld AR of the assessee is not helpful to the assessee, with utmost regards to the finding in all such decisions, we are of the view that all those decisions are based on specific issue, wherein either ownership of asset or other right arising thereon are not in dispute. So far as other plea of ld AR of the assessee that similar benefit was allowed in earlier assessment year, we find that there was no scrutiny of return of income in earlier assessment year, thus, there is no consideration of the issue by revenue authority. There is no direct decision on the issue against the decisions of Madras High Court in L & T Infrastructure Ltd (supra), which has been followed by coordinate bench in Hazaribagh Ranchi Expressway Ltd Vs ACIT (supra). In the result, the grounds of appeal raised by the assessee is dismissed.