DY CIT CC 7(2) , MUMBAI vs. M/S MUMBAI NASIK EXPRESSWAY LTD. , MUMBAI

In respect of ground No.2 relating to assesses’s claim of Periodic Maintenance Charges (PMC), the ld. Departmental Representative submitted that assessee had made provision for PMC only on estimation without applying any scientific method to compute/calculate the provisions. The ld.Departmental Representative further pointed that the periodic maintenance of the roads/highways constructed under BOT Scheme had to be carried out by the assessee every 5th year. The assessee started its commercial operations partly from 29/05/2020 and partly from 29/08/2011. Therefore, the first periodic maintenance was to be done in F.Y.2016-17. The assessee has debited Rs.17,38,91,138/- during the relevant previous year towards provisions for PMC. Whereas, there was no ascertained liability during the period relevant to impugned assessment year The Assessing Officer disallowed assessee’s claim. The assessee for the first time furnished technical report before the CIT(A). The ld. Departmental Representative pointed that a perusal of technical report would show that the same was sought during assessment proceedings i.e. much after making a claim in the books, hence, the report is merely a self-serving document. The CIT(A) erred in accepting the claim of assessee on the premise that the provision is based on scientific method. (A.Y.2013-14) (A.Y.2014-15) ITA NO.851/MUM/2020(A.Y.2015-16

In respect of ground No.3, the ld. Departmental Representative submitted that this ground is consequential to ground No.2. While computing profits under MAT Provisions, the CIT(A) has directed to delete disallowance on provision for PMC . The ld. Departmental Representative prayed for reversing the findings of CIT(A) and upholding the disallowance/additions made in the assessment order.

On the other hand, Shri Rakesh Joshi appearing on behalf of the assessee vehemently supported the findings of CIT(A). The ld. Authorized Representative for the assessee submitted that assessee has claimed depreciation on “right to collect toll” on the road build by the assessee on BOT basis. The assessee was allowed to collect toll in pursuance to the Concession Agreement dated 14/10/2005 entered into with National Highway Authority of India (NHAI). The said agreement is at pages 7 to 140 of the paper book. The ld. Authorized Representative for the assessee submitted that right to collect toll/user fee is an intangible asset on which the assessee is entitled to claim depreciation u/s. 32(1)(ii) of the Act. The Tribunal in various decisions including decision in the case of assessee’s sister concern, Andhra Expressway Pvt. Ltd. in for Assessment Year 2005-06 decided vide order dated 16/10/2020 allowed assessee’s claim of depreciation on right to collect annuity by treating it as intangible asset. The Hyderabad Bench of the Tribunal in the case of assessee’s another sister concern, M/s. Rajahmundry Expressway Pvt. Ltd. while deciding the appeals for Assessment Year 2008-09 to 2011-12 vide order dated 04/03/2020 held that the assessee is eligible to claim depreciation for acquiring right which are in the form of intangible asset. The ld. Authorized Representative for the assessee submitted (A.Y.2013-14) (A.Y.2014-15) ITA NO.851/MUM/2020(A.Y.2015-16 that the Tribunal while deciding aforesaid appeals had considered CBDT Circular No.9 of 2014 (supra). The ld. Authorized Representative for the assessee submitted that the decision referred by the ld. Departmental Representative in the case of North Karnataka Expressway Ltd. and West Gujarat Expressway Ltd. are distinguishable as in the aforesaid cases the assessee had claimed depreciation on toll road constructed and operated by it.

We have heard the submissions made by rival sides and examined the orders of authorities below. We have also considered the decisions on which rival sides have placed reliance in support of their respective contentions.

The first issue in appeal by the Revenue is assessee’s claim of depreciation on intangible asset / right to collect toll/user fee. We find that this issue has been considered by Co-ordinate Bench in the case of M/s. Rajahmundry Expressway Pvt. Ltd. vs. DCIT (supra) a group concern of the assessee. The Tribunal while deciding the said appeal had also examined CBDT Circular No.9 of 2014 (supra) and considered the decision of Special Bench in the case of ACIT vs. Progressive Construction Ltd. in decided on 14/02/2017. The Tribunal after examining the issue held that the assessee would be eligible to claim depreciation u/s. 32(1)(ii) on intangible asset in the form of right to collect annuity. For the sake of completeness, relevant extract of the findings of Tribunal are reproduced herein below:

The ld. Departmental Representative has placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of North Karnataka Expressway Ltd. vs. CIT (supra). We find that in the said case assessee has claimed depreciation on toll road constructed by it on BOT basis. The Hon’ble High Court held that merely for the reason that assessee has constructed road would not mean that the assessee is the owner thereof. The road has been laid out for the purpose of Union and it ultimately vests in the public, hence, the assessee cannot claim depreciation on toll road constructed and operated. Similar were the facts in the case of CIT vs. West Gujarat Expressway Pvt. Ltd.

In ground No.2 and 3 of appeal, the Revenue has assailed the findings of CIT(A) in allowing provision for PMC. The assessee has placed on record the manner of computation of provision for PMC at page 203 of the paper book. The primary objection of the Revenue is that the assessee has not computed provision on scientific basis and the calculation of provision is merely on estimation. The assessee in support of his claim has furnished (A.Y.2013-14) (A.Y.2014-15) ITA NO.851/MUM/2020(A.Y.2015-16 technical report, the same is at pages 251 to 259 of the Paper Book. The CIT(A) after examining the same held that the provision for PMC has been made by the assessee in accordance with the decision of Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd.(supra). The assessee has furnished a chart giving the details of utilization of Provision for PMC (at page 260 of paper book). The relevant extract of the same is reproduced herein below:

Considering the facts and documents on record we find no infirmity in the findings of the CIT(A) in allowing assessee’s claim of provision for PMC. We concur with the same. Consequently, ground No.2 raised in the appeal by Revenue is dismissed.

The issue raised in ground No.3 of the appeal by Revenue is consequential to the issue raised in ground No.2 of appeal. Since, we have dismissed Ground No.2 of the appeal, the ground No.3 is also liable to be dismissed.

In the result appeal by Revenue is dismissed. & 851/MUM/2020- A.Y. 2014-15 & 2015-16:

Identical grounds have been raised by the Revenue in appeal for Assessment Year 2014-15 and 2015-16. Both sides are unanimous in stating that the facts in both these Assessment Years are identical to the facts in Assessment Year 2013-14. Therefore, the submissions made for the grounds raised in Assessment Year 2013-14 would equally apply to the present Assessment Years.

To sum up, appeals by Revenue for Assessment Years 2013-14, 2014-15 and 2015-16 are dismissed.