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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Gaurav Kabra Shri Rajesh Damor
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 1590/MUM/2021 (A.Y: 2017-18) Jt.CIT(OSD)-Central Circle -7(2) v. M/s. Mumbai Nasik Expressway Pvt. Ltd., Room No. 655, Aayakar Bhavan Unit 803, 8th Floor, A-Wing, One BKC M.K. Road, Mumbai - 400020 Bandra Kurla Complex, Bandra (E) Mumbai -400051 PAN: AAECM3349K (Appellant) (Respondent) Assessee by : Shri Gaurav Kabra Department by : Shri Rajesh Damor
Date of Hearing : 02.06.2022 Date of Pronouncement : 14.07.2022
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the Revenue against order of the Learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 16.06.2021 for the A.Y.2017-18.
Brief facts of the case are, assessee company is an SPV incorporated for improvement, O and M, rehabilitation and strengthening of existing
2 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., two-lane road and widening to four-lane of NH 3 on BOT basis under Concession Agreement with NHAI. The assessee had filed its return of income on 29.11.2017 declaring a loss of ₹. 29,05,24,718/- and the return was processed u/s. 143(1) of the Income Tax Act, 1961 (in short “Act”). The case was selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response AR of the assessee attended and submitted various details and documents electronically on the ITD portal.
During the assessment proceedings, Assessing Officer asked the assessee to show cause why the depreciation of ₹.43,66,36,283/- should not be disallowed and added back to its total income. Assessee submitted that during the previous years, the assessee company had incurred expenditure on construction and development of infrastructure facility which inter-alia gave certain responsibilities, obligations and right to collect toll under Article III-Grant of Concession of Concession Agreement and has classified this as intangible assets thereby claimed depreciation at 25 percent of ₹.43,66,36, 283/- u/s 32(1)(ii) of the Act. Not convinced with the submission of the assessee, Assessing Officer rejected the submission of the assessee and disallowed the depreciation claimed u/s.32(1)(ii) on the grounds that the assessee was not the owner of the
3 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., Road assets which it constructed under the BOT agreement and that the case of the appellant was duly covered by the CBDT circular No. 09/2014 dated 23.04.2014.
Subsequently, on the issue of amortization expense, the Assessing Officer has considered the amount of ₹.40,21,30,508/- by considering the initial year as A.Y. 2013-14 instead of considering initial year as A.Y. 2012- 13 while calculating the amount of amortization expense. Further, the Assessing Officer also added an amount of ₹.18,61,69,928/ being provision for periodic maintenance treating it as unascertained liability to the normal income as well as book profits of the company in view of explanation 1(c) of section 115JB of the Act. Finally, the Assessing Officer passed the assessment order u/s 143(3) on 30.12.2019 assessing the total loss under normal provisions at ₹.6,98,49,015/- after levying penalty u/s.270A of the Act. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) allowed the appeal of the assessee. Against this order Revenue is appeal before us.
Revenue has raised following grounds in its appeal: - “1. "On the facts and the circumstances of the case and in law, the Ld.CIT(A) erred in allowing the depreciation claimed on the right to collect annuity without appreciating the fact that CBDT, vide Circular No. 9 of 2014 has clarified that in respect of the BOT
4 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., arrangements for development of roads/highways etc. the assessee undertaking the project of improvement, operation & maintenance etc., is not the owner of the property either wholly or partly, and does not hold any rights in the roads/highway development project, and therefore, cannot be treated as owner of the property for purposes of allowability of depreciation u/s. 32(1)(ii) of the Act 2. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the depreciation claimed on the right to receive annuity which is only in the nature of right to receive payment for the work done as also stated in paras 8.1, 8.2, 14.1 etc. of the Concession Agreement dated 30 Oct 2001 between NHAI and assessee and is thus merely a type of trade receivable and not a depreciable asset for purposes of allowability of depreciation u/s. 32(1)(m) of the Act. 3. On the facts and circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the disallowance of provisions for periodic maintenance charges without considering the fact that the liability for the periodic maintenance anises only in FY 2016-17 and not in the current year and therefore cannot be allowed to the assessee as per the provisions of section 37(1) of the Income Tax Act. 4. On the facts and circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the disallowance of provisions for periodic maintenance charges from book profit without considering the fact that decision of the Mumbai Tribunal in the case of Anchor electrical (P) Ltd us DCIT (2017) is not applicable to the case of the assessee. 5. On the facts and circumstances of the case and in the law, the Ld. CITA) erred in deleting the disallowance made u/s 14A in 115JB income without appreciating the fact that ITAT, F-Bench, Mumbai, in the case of Derr Vs. Viraj Profiles Ltd. (2016) 156 ITD 72 (Mumbai-Trib) vide its order dated 21.10.2015 has held that in terms of clause (f) to Explanation 1 to section 1151B(2) disallowance made by Assessing Officer under section 14A read with rule 8D of 1962 Rules, has to be added back for purpose of arriving at figure of book profit.”
With regard to Ground No. 1 and 2 which are interconnected to one another, Ld. AR submitted that the said issue is covered by the decision of the ITAT orders in assessee's sister concerns i.e., Andhra Expressway
5 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., Limited in ITA.No. 6508-6514/Mum/2017 dated 16.10.2020, M/s. Kosi Bridge Infrastructure Co. Ltd. in ITA.No. 582, 576 & 581/Mum/2020 dated 08.10.2021, M/s. Gorakhpur Infrastructure Co. Ltd. in ITA.No. 574, 846 & 847/Mum/2020 dated 30.11.2021 and M/s. Rajahmundry Expressway Pvt. Ltd., in ITA.No. 6487/Mum/2017 and other appeals, dated 04.03.2020. Copy of the orders are placed on record.
Ld. DR relied on the orders of the Assessing Officer.
Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s sisters concern case recently in the case of M/s. Gorakhpur Infrastructure Co. Ltd. in ITA.No. 574, 846 & 847/Mum/2020 (supra) and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - “2.1. We have heard rival submissions and perused the materials available on record. We find that the assessee is engaged in the business of executing the project for design, construction, finance and maintenance of Gorakhpur By-pass on NH-28(Project Highway) in the state of Uttar Pradesh on Build, Operate and Transfer (BOT) basis under the annuity scheme. The assessee entered into concession agreement with National Highway Authority of India (NHAI) and as per concession agreement, NHAI had granted exclusive right, license and authority during the subsistence of the concession agreement to implement the project and the concession in respect of the Project Highway for a period of 20 years. The assessee had incurred total cost amounting to Rs.721,28,78,487/- on construction and development of the Project Highway, pursuant
6 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., to which the assessee was able to receive annuity from NHAI under the concession agreement. The assessee classified such cost incurred and right to receive annuity on the toll road as an intangible asset eligible for depreciation u/s.32(1)(ii) of the Act. This depreciation was denied by the ld. AO. The ld. AO held that assessee is not entitled for depreciation at all on the cost incurred on the project. The ld. CIT(A) however, granted depreciation by observing as under: 6.2 I have carefully considered the facts of the case, the assessment order and the written submission of the assessee. The assessee company is engaged in the construction and maintenance of bridges on a contractual arrangement for the NHAI. The AO had made the disallowance of the depreciation claimed by the assessee on the ground that the assessee does not hold any rights in the project and assessee company cannot be treated as the "Owner" of the property and can not be allowed depreciation u/s 32(1)(ii) of the Act. During the course of the appellate proceedings, the assessee submitted that it had entered into an agreement with the NHAI to construct the bridge on Build Operate and Transfer the annuity scheme. The appellant submitted that as per the concessionaire agreement it was to receive annuity for a fixed period of time in order to recoup the end of the project. Thus, the annuity being an intangible commercial right, falls within the purview of section 32(1 )(ii) of the Act. Further, the said right has been given to the appellant for a specified period with enduring benefit. It is also not expiry of the time period of the agreement, the said right of the assessee will come to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), tie assessee is entitled to claim of depreciation on such type of rights. 6.3 Further, the aforementioned issue is now squarely covered by the decision of the Special Bench of Hyderabad Tribunal in the case of ACIT v. Progressive Constructions Ltd [2018] 92 taxmann.com 104 (Hyderabad - Trib.) wherein the Tribunal held that the only manner in which the assessee could recoup the cost incurred by it in implementing the project/project facility was to operate the road during the concession period, and collect the toll charges from user of the project facility. By investing huge cost, the assessee had obtained a valuable business/commercial right to operate the project facility and collect toll charges. Therefore, right required by the assessee for operating the project facility and collecting toll charges was an intangible asset created by the
7 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., assessee by incurring the expenses. The Special Bench of the Hyderabad Tribunal accepted the fact that huge costs were incurred by the assessee in constructing, implementing and maintaining such projects. Considering that these costs do not get reimbursed, and the fact that the assessee was allowed to recover such costs by way of collecting toll charges is nothing but a valuable right for an assessee. 6.4 Further, similar view has been taken by the Hon’ble Mumbai Tribunal in the case of DCIT (9(1)(2), Mumbai vs. Atlanta Ltd., Mumbai (ITA No.3415/M/2015). Since, the facts of the appellant’s case are similar to the aforesaid case laws, I am of the considered opinion that the disallowance made u/s.32(1)(ii) of the Act amounting to Rs.1,80,32,19,622/- is liable to be deleted. In view of the aforesaid facts, this ground of appeal is Allowed. 2.2. The facts stated hereinabove remain undisputed and hence, the same are not reiterated herein for the sake of brevity. We find that the ld. CIT(A) had placed reliance on the Special Bench decision of Hyderabad Tribunal in the case of Progressive Construction reported in 92 Taxmann.com 104 and had granted relief to the assessee. We also find that the similar issue had come up before this Tribunal in the case of DCIT.Cent.Cir-7(2), Mumbai vs. Rajahmundry Expressway Ltd., in ITA No.6518/Mum/2017 for A.Y.2008-09 dated 04/03/2020 wherein it was held as under:- “We have considered rival submissions in the light of the decisions relied upon and perused the material on record. The issue raised before us is now fairly well settled in view of the Special Bench decision of the Tribunal, Hyderabad Bench, referred to above. Undisputedly, the assessee was awarded the work of constructing a part of the National Highway no.5, under BOT basis. Therefore, entire investment/finance for developing the infrastructure facility was borne by the assessee. By making such investment what the assessee received in return was a right to collect annuity over the period of concession. Thus, the investment made by the assessee for acquiring such right certainly is an intangible asset coming within the purview of section 32(1)(ii) of the Act. Therefore, the assessee would be eligible to claim depreciation. The decision of the learned Commissioner (Appeals) on the issue is hereby reversed.” 2.3 Respectfully following the aforesaid judicial precedents, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the ground No.1 raised by the Revenue for all the years is dismissed.”
8 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., 9. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision, we dismiss the ground raised by the revenue.
With regard to Ground Nos. 3, 4 and 5 which are interconnected to one another, Ld. AR submitted that the Provision for Periodic maintenance has been treated as ascertained liability and accordingly claimed as expense on the basis of an estimate of the cost to be incurred by following scientific method. The same supported with the copy of technical report from independent consultant. He submitted that considering the decision of Apex court in the case of Rotork Controls India Pvt Ltd [314 ITR 62] the same should be allowable as expense.
Ld. AR further submitted that similar issue is covered by the decision of the ITAT orders in assessee's sister concerns i.e, M/s. Kosi Bridge Infrastructure Co. Ltd. in ITA.No. 582, 576 & 581/Mum/2020 dated 08.10.2021 and M/s. Gorakhpur Infrastructure Co. Ltd. in ITA.No. 574, 846 & 847/Mum/2020 dated 30.11.2021. Copy of the orders are placed on record.
Ld. DR relied on the orders of the Assessing Officer.
9 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., 13. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s sisters concern case recently in the case of M/s. Gorakhpur Infrastructure Co. Ltd. in ITA.No. 574, 846 & 847/Mum/2020 (supra) and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - “3.4. It is not in dispute that pursuant to the concession agreement, the assessee is entitled to receive annuity income every year. It is not in dispute that as per the concession agreement, assessee is obliged to carry out the periodic maintenance cost on road pavement every five years and to address the strengthening course of the roads as and when required. For this purpose, it has to incur periodic maintenance cost once in five years and assessee has chosen to apportion the expenses over a period of five years. We find that assessee has made provision for periodic maintenance cost based on technical valuation report which is enclosed in pages 168-175 of the paper book filed before us. The said document was duly placed on record before the lower authorities. We also find from page No.176 of the paper book that assessee has also provided the calculation on utilisation of periodic maintenance cost, from A.Y.2012-13 to A.Y.2018-19 in tabular form as under:- ….. 3.5. From the said table, it is evident that during A.Y.2017-18 (which is the end of first phase of five years for periodic maintenance) assessee had actually incurred Rs.35,25,48,764/- as the expenditure and in A.Y.2017-18, a sum of Rs.3,46,06,650/- was even sought to be reversed by the assessee as provision no longer required. Since the provision for periodic maintenance cost on year to year basis has been made based on technical valuation report on a scientific basis by the assessee and in view of the fact that annuity income has been derived by the assessee year on year basis, in view of the matching concept of income and expenditure, we hold that assessee had merely discharged its contractual obligation by making provision for periodic maintenance cost and since accounts are maintained by the assessee on a mercantile basis, the said provision needs to be made by the assessee in its books and accordingly, the same become an allowable expenditure u/s.37(1) under the normal provisions of the
10 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., Act. We also find that the said provision has been made on a scientific basis by the assessee. This categorical finding recorded by the ld. CIT(A) has not been controverted by the ld. DR before us. We find that only argument advanced by the ld. DR before us was that the liability to incur periodic maintenance cost would arise to the assessee only in A.Y.2017-18 and the entire expenditure would get liable to be incurred only in A.Y.2017-18. We find that the same would not be in accordance with the matching principle of income and expenditure and would not be in line with the mercantile system of accounting followed by the assessee. It is a fact that periodic maintenance cost is an integral part of the concession agreement and assessee is under a contractual obligation to incur the same and provision has been made by it on a scientific basis. Accordingly, the expenditure attributable to each year has been claimed as deduction both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. Hence, it would not fall under the category of provision made for contingent liability or unascertained liability. We find that the ld. CIT(A) had rightly appreciated these contentions of the assessee and had rightly placed reliance on the decision of the Hon’ble Supreme Court in the case of Rotork Controls India Pvt. Ltd., reported in 314 ITR 62 and on the Co-ordinate Bench decision of Pune Tribunal in the case of ACIT vs. Ashoka Buildcon Ltd., reported in 61 Taxmann.com 330. We hold that the ld. CIT(A) had passed a detailed order in this regard. Hence the order of ld. CIT(A) granting relief to the assessee does not warrant any interference. Accordingly, the ground Nos. 2 & 3 of the Revenue for all the years are dismissed.”
Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision, we dismiss the grounds raised by the revenue.
Coming to Ground No. 5, at the time of hearing Ld. AR submitted that the no addition u/s. 14A of the Act was made by the Assessing Officer in his Assessment Order, and prayed that the ground should be treated as infructuous. Ld.DR agreed with the above submissions. Accordingly,
11 ITA NO. 1590/MUM/2021 (A.Y: 2017-18) M/s. Mumbai Nasik Expressway Pvt. Ltd., this ground is treated as infructuous, accordingly, this ground is dismissed.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 14th July, 2022.
Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 14.07.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER ` (Asstt. Registrar) ITAT, Mum